US India Business Summit, 2006 September 21, 2014 1

Doing Business in India

The Big Picture
A Bankers Perspective
US India Business Summit
November 29, 2006
Dr. Anil K Khandelwal
Chairman & Managing Director
Bank of Baroda
US India Business Summit, 2006 September 21, 2014 2
Indian Economy A Snapshot
One of the fastest growing in the world
Consumption growth fuelling economic growth consumption
expenditure forming 78% of GDP
Services sector contributing over 60% to GDP
Emerging as a hub of manufacturing excellence. new growth
engines of Indian economy include IT, ITes, pharmaceuticals, bio-
technology, nano technology, agri. businesses
Where forces of competition are at work
Innovation driving enterprises
Economic reforms well on course entering second phase
US India Business Summit, 2006 September 21, 2014 3
Inclusive growth occupying central place
High untapped potential in rural / agri - economy
Indian companies on acquiring spree and going global
Indian companies pursuing global best practices and producing
world-class managers
Indian Economy A Snapshot
US India Business Summit, 2006 September 21, 2014 4
Improved Ranking on Business Front
World Bank IFC Report on Doing Business in India
for 2007 has given a higher rank to India compared
to last year because :

- India has cut the time to start a business from 71 to 25 days
- Reduced the Corporate Income Tax rate from 36.59% to 33.66%
- Supreme Courts decision has made enforcing collateral simpler
easing access to credit
- Reforms to Stock Exchange Regulations have toughened investor
protection
US India Business Summit, 2006 September 21, 2014 5
The Indian Financial Sector
Robust financial system
Well established institutions
Strong supervisory system
Progressive integration of financial markets - banking, insurance,
mutual funds, securities, commodities
High competition marked by innovation
High technology absorption
Rediscovery of the Indian customer
21
st
century customer driving innovations in banking
Banking plus financial services becoming the new offerings
US India Business Summit, 2006 September 21, 2014 6
The Indian Financial Sector
Alternate e-delivery channels becoming popular with Indian
customers
Financial sector bracing to meet life cycle and life style needs of
the great Indian middle class
Cradle to Grave becoming the new spectrum of life cycle needs
Banking graduating beyond traditional boundaries of vanilla
banking
Indian customer demanding TOTAL FINANCIAL SOLUTIONS
Banking sector bracing itself to offer customized and structured
products
US India Business Summit, 2006 September 21, 2014 7
The Indian Financial Sector
Banking sector entering newer areas like wealth management, private
banking, doorstep banking, electronic banking, credit cards, investment
advisory services, etc.
Indian banks in a war game to acquire and retain customers
Indian middle class being reached out and wooed by banks
Indian middle class and financial sector beginning to dream together and
weave a new bond of relationship
Financial products like mutual funds, life policies, non-life policies competing
with traditional banking products
Banking sector fully geared for helping Indian middle class realize its dream
Banking sector in good health with low non-performing assets and
prudential accounting standards in place
Indian banking entering the phase of consolidation (2
nd
Phase of Reform) on
way to acquire global size
US India Business Summit, 2006 September 21, 2014 8
Robust & Resilient Banking Sector
A free & open banking sector where most businesses are now covered at the
market-determined rates
Full banking license system
Highly Stable Sector despite a series of Exogenous Shocks like the Asian
Crisis, Sanctions due to Nuclear Explosions, Record High Oil Prices and
Large Corrections in Stock Markets
Significant improvement in the Asset Quality: Net NPAs (%) have decreased
from 8.1% at end-March 1997 to 2.0% at end-March 2006 despite tightening of
prudential norms
Capital Adequacy Ratio (%) of the banking sector has increased from 10.4% at
end-March 1997 to 12.8% at end-March 2006
Operating Expenses of SCBs have declined from 2.1% of Total Assets in 1992
to 1.8% in 2005 indicative of improved efficiency
Intermediation costs of SCBs have declined from 2.9% in 1995-96 to 2.1% in
2005-06
US India Business Summit, 2006 September 21, 2014 9
Strong Regulatory & Supervisory system
RBI has strengthened prudential norms with respect to income recognition,
disclosures and capital adequacy
India complies with BIS 26 norms of best practices of supervisory criteria,
country risk & convertibility
Indian banks are well on road towards BASEL II compliance
Credit Deposit Ratio is increasing PSB : 66.2%, Pvt. Banks : 76.3%
Bank credit is growing by about 30%
Indian banks compare favourably with its Asian peers in asset quality
Indian banking sector grew by 6 times in the last decade from Rs. 5,984 bn
in 1995 to Rs. 36,105 bn.
KYC norms and Anti Money Laundering regulations in force
Indian banks are serving the Two Faces of India the Underprivileged, the
Progressive & the Opulent with equal aplomb
Indian Banks in good health
US India Business Summit, 2006 September 21, 2014 10
Indian Banks in good health
About 70000 strong branch network More
than 60% presence in Rural areas

Consistent growth in profitability Spread is
getting healthier from 3.1% in 2004-05 to
3.2% in 2005-06
NPL Ratios compare favourably with global
trends

Consistently out-performing stock indices
Total Return to Shareholders continues to be
attractive
PSU Banks : 61.2%
India Banking : 51.3%
Old Private : 40.0%
New Private : 33.9%
TRS Apr 01 Apr 05
PSBs : 72%
Pr.Bks : 19%
Fgn. Bks.: 7%
Others include UCBs,
RRBs, LABs & NBFCs
Spread : 3.2%
CAR : 12.0%
ROA : 1.0%+
Gross NPA : 3.34%
Net NPA : 2.00%
US India Business Summit, 2006 September 21, 2014 11
Banks Major Financiers of Growth
India has one of the strongest financial sector with low systemic
risk
Upturn in economic activity is mirrored in the sustained growth in
Demand for Bank Credit
Bank credit has increased sharply from 30% of GDP at end-March
2000 to 48% at end-March 2006
Non-food credit by SCBs increased by an average of 26.1% between
2002-2006 versus its long-term average of 17.8% from 1970 to 2006
Deployment of credit is quite broad-based with increasing flows
going to infrastructure , SMEs, agriculture and retail sector
(especially residential mortgages) during the past three years
US India Business Summit, 2006 September 21, 2014 12
Indian Banks in the Best of the League of Asian Peers
According to Moodys Investor Services Analysis :
Indian lenders have highest Return on Equity (ROE) in Asia
(20.38%), followed by Indonesia (20.19%), New Zealand
(18.83%), Japan (-6.42%)
Average gross bad loans as share of total loans India
(8.18%), Philippines (15.05%), Thailand (13.08%), China
(11.80%) and Malaysia (9.73%)
Cost to Income Ratio in India at 44.56% is in line with the
best regulated Asian countries like Singapore (44.15%),
Taiwan (42.61%) and Hong Kong (40.05%)
US India Business Summit, 2006 September 21, 2014 13
Banking Regulations



Credit & Recovery

Payment Systems



Communications &
Infrastructure
Deregulated Interest rate
Greater freedom to banks
Significant steps towards Full capital
Account Convertibility
SARFAESI Act 2002
Debt Recovery Tribunal (DRT)
Real Time Gross Settlements(RTGS)
Electronic Clearing System (ECS)
Electronic Fund Transfer (EFT)
Cheque Truncation - in the pipeline
Internet Banking, E-Banking, On-line
Tax Payment / Utility Payments,
ATM, Mobile Banking
Requirements Fulfillments
Financial Sector Reforms Going Ahead
US India Business Summit, 2006 September 21, 2014 14
Capital Norms






Credit Information

Financial Track record

Other Regulatory Initiatives

- Min. Capital @ 9% as against 8% by BIS
- Indian Banks are ahead in Basel II readiness
implementation road-map targets March
2009
- Min. Capital requirement for entry set @ Rs.
3 bn. for all banks in private sector
- Credit Information Bureau of India Ltd
- List of defaulters on RBI website
- No financial crisis escaped contagion
effect of South East Asian meltdown
- Strong Regulatory Practice & Prudence in
place for Managing Affluence
- Regulatory provisions to bring NBFCs &
UCBs under uniform prudential norms
Area Status
Significant Steps for Improvement
US India Business Summit, 2006 September 21, 2014 15
1. Overall banking sector is growing by 18%
2. Retail Sector (CAGR 5 years)
- Housing Loan : 50.%
- Consumer Durables : 16%
- Credit Card : 45%
- Two Wheeler Loan : 31%
- Car Loans : 26%
- Other Personal Loans : 38%
Indian Banks are on a high growth track
More than 25% of the Bank Loan Assets are in Retail sector
ensuring high returns - likely to cross Rs. 5700 bn by 2010
US India Business Summit, 2006 September 21, 2014 16
Online Banking in India . . .
Growth of e-Commerce Transactions
130
255
570
1180
2300
0
500
1000
1500
2000
2500
R
s
.

C
R
2002-03 2003-04 2004-05 2005-06 2006-07 Estimated 4.6* million Indian Internet
users are Banking Online today
Indians paying bills online is expected to
increase from the current 0.3 million in
2005-06 to 1.8 million by 2007-2008.
E-commerce transactions will cross the Rs
2000 crore mark (2006-2007) which
translates into an increase of over 300%
from financial year 2004-05.
Indian Banks are on a high growth track
US India Business Summit, 2006 September 21, 2014 17
Is there any Untapped Potential in Indian
Financial Market ?
What is the Big Picture ?
Doing Business in India
US India Business Summit, 2006 September 21, 2014 18
8
13
26
36
58
0
10
20
30
40
50
60
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
4
9
13
17
37
0
5
10
15
20
25
30
35
40
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
4
8
16
17
41
0
5
10
15
20
25
30
35
40
45
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
Consumer Loans /
GDP(%)
Mortgages / GDP(%)
Credit Cards / GDP (%)
Other Retail Loans / GDP
(%)
0.4
2.8
9.8
82.4
121.9
0
20
40
60
80
100
120
140
India Thailand Malaysia Taiwan Korea
India
Thailand
Malaysia
Taiwan
Korea
Consumption boom in India
In each of the area, huge untapped potential left
The Big Picture
US India Business Summit, 2006 September 21, 2014 19
Mutual Funds Global Perspective
Mutual Funds as a % of GDP
Global Investment Fund Asset Pool
87
72
30
23
21
6
5
0
10
20
30
40
50
60
70
80
90
100
A
u
s
t
r
a
l
i
a
U
S
A
B
r
a
z
i
l
U
K
K
o
r
e
a
I
n
d
i
a
J
a
p
a
n
1 11
44
77
177
274
344
399
635
468
493
512
1371
1396
0
200
400
600
800
1000
1200
1400
1600
P
h
i
l
i
p
p
i
n
e
s
N
e
w
Z
e
a
l
a
n
d
I
n
d
i
a
T
a
i
w
a
n
K
o
r
e
a
S
i
n
g
a
p
o
r
e
H
o
n
g

K
o
n
g
J
a
p
a
n
A
u
s
t
r
a
l
i
a
I
r
e
l
a
n
d
U
K
I
t
a
l
y
F
r
a
n
c
e
L
u
x
e
m
b
o
u
r
g
U
S
$
b
n
Low Penetration Indian industry still in early stages
Source : CLSA Asia Pacific
Markets
The Big Picture
US India Business Summit, 2006 September 21, 2014 20
Life premium/ GDP (%)
Source : Swiss Re Report 2005
Insurance Penetration Global Landscape
Non Life premium/ GDP (%)
Insurance density (US$ premiums per
capita)
Low Penetration A large potential still untapped
8.9
8.32
7.27
7.08
4.14
3.6 3.51
2.53
1.78
0.82
0
1
2
3
4
5
6
7
8
9
10
U
K
J
a
p
a
n
S
o
u
t
h
K
o
r
e
a
F
r
a
n
c
e
U
S
M
a
l
a
s
i
y
a
A
u
s
t
r
a
l
i
a
I
n
d
i
a
C
h
i
n
a
I
n
d
o
n
e
s
i
a
5.01
3.55
3.13 3.09
2.98
2.22
1.82
0.92
0.7
0.61
0
1
2
3
4
5
6
U
S
U
K
F
r
a
n
c
e
A
u
s
t
r
a
l
i
a
S
o
u
t
h
K
o
r
e
a
J
a
p
a
n
M
a
l
a
s
i
y
a
C
h
i
n
a
I
n
d
o
n
e
s
i
a
I
n
d
i
a
Country Life Non Life
UK 3287 1311
Japan 2954 790
France 2474 1093
US 1753 2122
Australia 1366 1203
South Korea 1211 495
Malasiya 188 95
India 18 4.5
China 13 16
Indonesia 10 10
The Big Picture
US India Business Summit, 2006 September 21, 2014 21
Growth of Card Spending in India . . .
0
5000
10000
15000
20000
25000
30000
2000 2001 2002 2003 2004 2005 2006
No of ATMs
Growth of ATMs in India
Increasing trend of Plastic Spend
High Technology Banking Products
Need for value added services on card
products
Larger Number of Access Points for
Customers
Convenience to customer is the key
Shared network is the future
Growth of Credit and Debit Cards in India
2.8
4.9
7.3
0
1
2
3
4
5
6
7
8
NUMBER OF
CARDS IN Cr
2004 2005 2006
The Big Picture
US India Business Summit, 2006 September 21, 2014 22
India - one of 10 fastest-growing population of HNWIs globally
There are at least 23 Indian citizens amongst the richest people on the
planet
Non Resident Indians can invest in all Indian Asset Classes
No. of HNWIs in India 100,000 (19.3% growth in 2005)
Salary increases in India 13.9% is the highest in the world
Increasing Investment avenues Art, Realty Funds, Commodities
Penetration level of wealth management services in India - 10% in
comparison to European markets (60-90%)
The number of companies listed on the Bombay Stock Exchange, at more
than 6,000, is second only to NYSE.
Each year 2,500 tonnes of gold is mined (fifth of the world's gold output.)
and 3,500 tonnes is consumed, of which 1,000 tonnes is consumed in
India alone.
Wealth Management & Private Banking New Growth Opportunities
US India Business Summit, 2006 September 21, 2014 23
India is fast emerging as the Back Office of
the World & the Global Knowledge Hub
The Big Picture
100 Global Companies outsource from India
Top Global Banks are present in India
Largest talent pool
World class educational / professional institutions
Increasing Trade activities
Cost of operations low
US India Business Summit, 2006 September 21, 2014 24
Savings Rate @ 29% is low Offers high potential from an
increasingly affluent community
Less than 40% of Indian household has a bank account
Bulging Middle Class likely to exceed 300 mn
Only 2% of the Indian population have insurance cover
Less than 1% of the population is actively participating in
the Stock market
Number of high net worth households (> Rs. 500,000) is
likely to grow from 200,000 to 400,000 by 2010
Consumer Finance stands at about 2% to 3% of GDP as
compared to 25% in European market
Real Estate Market is projected to touch USD 50 bn by 2008
SME Sector is catching up fast creating huge prospect of
growth
The Story Continues
US India Business Summit, 2006 September 21, 2014 25
Capital Requirements to compete with Foreign banks in the
post 2009 phase
Financial Inclusion to remove imbalances in economic
growth
Banking Sector Consolidation for improving competitiveness
need for a clear road-map for Managed Consolidation
HR Challenges Changing working conditions, re-skilling,
compensation etc.
Coping with the massive technology adoption programme
change management from employees as well as customers
perspectives
Challenges Ahead.
US India Business Summit, 2006 September 21, 2014 26
High intermediation costs
Low Productivity
Better Corporate Governance higher level of accountability
Improvement in productivity and efficiency in line with
advanced markets
Transformation from Plain Vanilla banking to multi-specialist
banking
Challenges Ahead.
US India Business Summit, 2006 September 21, 2014 27
Thank You