The Indian Finance Sector,

Portfolio Management,

MF and Investment Advisors

Overview, Present and Future

Gaurang Shah

Overview, Present and Future

28th Dec 13

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� Financial Sector

� Current Issues

� Opportunities in Financial Services

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� Financial Sector

� Current Issues

� Opportunities in Financial Services

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Constituents

� Commercial Banks� Schedule commercial banks – 151, of which� Public Sector Banks – 25� Private Sector Banks – 20

� Insurance� Life (1+23)� Non Life (4+21) *

� Mutual funds� Mutual funds� UTI, LIC & Bank sponsored (9)� Private Sector (18)� Foreign (8)� Private sector Joint Ventures (10)

� Pension – PSU (3) , Private Sector (6)

� NBFC –� Deposit - 254 #� Non Deposit – 11,918 @

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Bank source - RBI June 13

Mutual Fund source - AMFI

* General insurance companies exclude Export Credit Guarantee Corporation of India Ltd. &

Agriculture Insurance Co. of India Ltd.

# As on 31st May 2013. Source – RBI website. Excludes 2 RNBC’s.

@ As on 30th November 2012. Source – RBI website.

Mutual Funds, 7,45,968

Provident Fund, 5,05,000

Small Savings, 6,02,072

Stock of Financial Savings

6% of GDP

5% of GDP

7% of GDP

Rs. Crs

Bank Deposits, 74,77,930LIC, 14,89,640

Private Life Insurance, 3,49,474

79% of GDP

14% of GDP

Bank deposits - as on 29st Nov 13; Source - RBI

Life Insurance – total AUM as on Sep 2013, LIC AUM as on Mar 2013, Private AUM derived as the balancing figure; Source – Life council

Mutual Fund – as on 30st Sep 2013; Source - AMFI

Small Savings – as on Feb 2013;

Provident Fund – as on 30 Nov 13 Source – ET

GDP – 94,61,013 crs at factor cost 2012-13; Source - RBI

3% of GDP

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Distribution of AUM

Banks MixSBI and associates 22%Nationalized banks 52%RRB's 3%Private banks 18%Foreign banks 4%

Mutual Funds Rs. Crs MixDebt 554,124 74%

Insurance Rs. Crs. MixEquity 454,556 25%Fixed Income 1,353,440 74%

Particualrs Rs. Crs.

Bank Deposits 7,477,930

Life Insurance Funds 1,839,114

Mutual Funds 745,968

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Equity 162,449 22%Balanced 15,218 2%Others 14,176 2%

Small Savings Rs. Crs. MixDeposits (Post office, NSS, Senior citizen)

366,884 61%

Certificates (NSC.KVP,IVP) 196,367 33%PPF 38,821 6%

Others 31,118 2%

* Including 2 RNBC’s Rs 3,501 Crs

Banks – as on 29th Nov 2013, source RBI; Mix as on Mar 13

MF - as on 30th Sep 2013, source AMFI

PF – as on 30th Nov 2013, source Economic Times

Life Insurance – Life Council as on Sep 13

Mutual Funds 745,968

Small Savings 602,072

Provident Fund 505,000

NBFC* 10,586

159,600

179,500

617,000Bank Deposits

Life Insurance

Currency

56%

16%

10%

Rs Crs.

Composition of Financial Savings – FY13

source – RBI annual report 2012-13

Over 66% of incremental savings are still going into Bank deposits & Currency (FY12 – 64%)

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-9,000

34,400

112,100PF, Pension

Shares, Debentures & MF

G-Sec & Small Savings

15%

3%

13%

9%

9%

8%

Japan

Germany

Netherl…

India % of GDP as on 2012

Mutual Funds - % of GDP

72%

53%

43%

33%

US

France

Switzerl…

UK

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Source: The City UK estimates based on UBS, OECD, SwissRe, Investment Company Institute dataGDP Source: India - RBI website; Other countries – Work Bank 2012

40%

39%

25%

20%

Germany

Netherlands

France

India

% of GDP as on 2012

Insurance AUM - % of GDP

111%

65%

57%

44%

40%

UK

Japan

Switzerland

US

Germany

9

Source: The City UK estimates based on UBS, OECD, SwissRe, Investment Company Institute dataGDP Source: India - RBI website; Other countries – Work Bank 2012

25%

8%

6%

4%

Japan

France

Germany

India % of GDP as on 2012

Pension Funds - % of GDP

150%

123%

112%

108%

25%

Netherlands

UK

Switzerland

US

Japan

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Source: The City UK estimates based on UBS, OECD, SwissRe, Investment Company Institute dataGDP Source: India - RBI website; Other countries – Work Bank 2012

� Financial Sector

� Current Issues

� Opportunities in Financial Services

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Current Challenges

How do we convert a “Nation of Savers” into a “Nation of Investors” ?

� Falling Financial Savings� 7.5% of GDP takes us back to 80’s

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Fall in household savings

12% 13%12% 12% 11% 14%

13%13%

14%14%

18%

23%24% 24% 23%

22%24%

25%

24%22%

15%

20%

25%

30%

15%

20%

25%

30% Physical Savings as a % of GDPFinancial Savings as a % of GDPHousehold Savings as a % of GDP

13Source :- Economic Survey 2011-12 Source for GDP growth rate :- RBI

2% 3%5%

7%10% 11% 10%

12% 11% 12%10%

12%10%

8%5%5%

7%

7%

8%14%

7%8%

12%

0%

5%

10%

15%

0%

5%

10%

15%

1950s 1960s 1970s 1980s 1990s 01-04 04-05 05-06 06-07 07-08 08-09 09-10 10 -11 11-12

Current Challenges

How do we convert a “Nation of Savers” into a “Nation of Investors” ?

� Falling Financial Savings� 7.5% of GDP takes us back to 80’s

� Increase in gold imports and high real estate prices

� Is low real interest rate hurting?

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CAD & Gold

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Higher gold demand explains more than half of CAD deterioration, average yearly gold imports before 2008 was around only $15bn compared to $50bn in current period.

High CAD lead to depreciation of the Rupee, putting upward pressure on inflation and interest rates

Current Challenges

How do we convert a “Nation of Savers” into a “Nation of Investors” ?

� Falling Financial Savings� 7.5% of GDP takes us back to 80’s

� Increase in gold imports and high real estate prices

� Is low real interest rate hurting?

� Low Tax-GDP ratio at 9.9% in 2011-12 (direct taxes 5.5%; indirect taxes 4.4%) –down from a peak of 11.9% in 2007-08

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down from a peak of 11.9% in 2007-08

�Bringing retail investors back to the Market

Retail participation in Stock Markets

� Retail participation at 10-year low

� Daily cash market average volume of retail investors is down to Rs 4,615 crore in 2013, lowest since 2003 and 66% down from peak of Rs 13,709 crore in 2009.

� Of a population of over one billion, around 18 million invest in equity markets*markets*

� In November 2013, there were 21.6 million retail accounts that accounted for less than 2 per cent of the population#

@ - Source - ET Oct 21, 2013• - Source - Business Today – April 2011 edition# - FM Chidambaram speaking at the 20th anniversary celebrations of the National Stock Exchange in Mumbai – 14th December 2013

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Retail Participation in Mutual Fund

Rs. Crs

Retail participation (Including HNI ) is at 48%* HNI defined as individuals investing Rs 5 lakhs and above

MF - as on 30th Sep 2013, source AMFI

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Current Challenges

How do we convert a “Nation of Savers” into a “Nation of Investors” ?

� Falling Financial Savings� 7.5% of GDP takes us back to 80’s

� Increase in gold imports and high real estate prices

� Is low real interest rate hurting?

� Low Tax-GDP ratio at 9.9% in 2011-12 (direct taxes 5.5%; indirect taxes 4.4%) –down from a peak of 11.9% in 2007-08

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down from a peak of 11.9% in 2007-08

�Bringing retail investors back to the Market

� Financial inclusion

� Importance of the financial intermediaries� Fair remuneration

�Well directed tax benefits

� How do we make the markets safer? – Corporate governance / fraud control

Distribution regulation

� There is already convergence at the Distribution level� Can regulators converge?

Life

Insurance

(Private)

Asset

Management

(Retail)

Banks 39% 31%

IFA /Agent 44% 37%

Source :- IRDA Annual Report FY12 and Mckinsey – for AMC FY12

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IFA /Agent 44% 37%

CA / Brokers 13% 23%

Direct 4% 9%

� Intermediary Regulation� Make the distributors responsible

� The draft banc assurance regulations

� SEBI (Investment Advisors) Regulations, 2013

� “One license” across all products for individual

Taxation

�Long term savings have to be incentivized

�S.80C benefit

� Differentiate only on the basis of time horizon of investment

� Benefits need to be amended� Benefits need to be amended

�Parity in tax treatment

� A pension product offered from any platform should be subject to the same taxation

�Direct Tax Code – an opportunity

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� Financial Sector

� Current Issues

Points to be resolved

� Opportunities in Financial services

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� Career Opportunities – Research, Actuarial, Credit analysis, Analytics, and Outsourcing opportunities – significant demand in fields like Actuarial for finance professionals

� Fund Management in AMC / Insurance industries – offers exposure to operations of markets and opportunity to manage large corpus in dynamic market settings

� Financial advisory services – Portfolio management, Asset allocation & Financial planning

Distribution of financial products

Opportunities for Chartered Accountants

� Distribution of financial products like Insurance/MF – existing client base / looking for professional financial advice or investment guidance; ability to evaluate investment options on various parameters, to help clients in financial planning

� Financial education in itself is a vast area – huge demand for education on financial concepts to be conducted by professionals

� Audit & Certification - Increasing regulatory requirements lead to significant amount of audit & certification work e.g. in Life Insurance sector – beyond statutory and internal audits; there are assignments like certification of NAV, audit of rural/social obligations, Group credit term processes / claims settlement process etc.

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Thank You

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