The Indian Economy and The Financial Sector Opportunity July 12, 2005

SG Agenda Current Scenario Drivers of Growth Challenges Summary

SG India : Overview Country Population1,055m GDP (03-04)$ 579 Bn Life insurance market *Insurance Premiums as % of GDP **April 2003 – March 2004 Country 3 year CAGR of GDP 6.5% Inflation5% Savings rate (03-04)25% Insurance penetration*2.3% MF Penetration 0.5% Characteristics

SG Size and Distribution of Savings Sources: RBI Share of Financial Savings Mutual FundLife Insurance Government Small Savings Currency & Deposit PF & Govt Pension 5 Year 11.6% HH Savings (Rs Mn) Financial Savings Gross Physical Savings 5 Year 20.2%

SG Opportunities in life insurance

SG Opportunities in non-life insurance

SG Retail credit opportunity… Net retail NPA levels are low at about 1.6% for the Indian banking sector as a whole and even lower for many of the leading players

SG Opportunities in asset management

SG Opportunities in Credit Card

SG Agenda Current Scenario Drivers of Growth Challenges Summary

SG Twin Growth Drivers Demographic Transition Economic Surge

SG Lowering Dependency Ratio …

SG …leading to growth in Household Financial Savings Reducing dependency could trigger a self-reinforcing savings growth dynamic in the next decade Expected demographic trends suggest, in light of experience elsewhere, in the next decade India’s national savings could rise to 30% or more Bulk of the savings contributed by Households Decline in share of financial savings a negative – however expected to increase with development of financial system and higher awareness

SG Source:Based on NCAER & Govt Of India estimates CAGR (%) No. of HH (M) <70k 70k-140k >140k -2.31% 10.1% Income Rising Income levels Increases Target Market 7.06% Income range based on prices

SG ,000 10, , (1)PPP adjusted GDP per capita higher by a factor of ~5-6; lower income categories not shown Source: Swiss Re; NCAER Insurance premium as % GDP GDP per capita in USD (log scale) INDIA... Insurance Is Poised For Growth

SG Twin Growth Drivers Demographic Transition Economic Surge

SG Services sector driving momentum Established leadership in information technology Successful forays across knowledge-based sectors Renewed industrial growth Operational efficiency and quality focus Supported by financial restructuring Progress in infrastructure development Significant achievements in telecom and roads Focus on power sector and urban rejuvenation Drivers of resurgence…

SG Services sector driving momentum Leveraging rich pool of human capital Quality educational institutions Large English speaking population Globally-positioned IT sector Software exports of US$ 12.2 bn in FY2004 and US$ 7.1 bn in H International services hub Commenced with IT-enabled services : voice & data Expanded to all knowledge sectors: pharmaceuticals, biotechnology, engineering design Growth in financial services, travel & hospitality

SG Impact of the resurgence Sectoral share of GDP(%) Sector 22.1 Agriculture 21.7 Industry 56.2 Services Growth FY2004(%) GDP 8.5 Source: NAS One of the fastest growing economies in the world with 7.0% growth rate in H1-2005

SG Renewed industrial growth After a prolonged period of restructuring and repositioning growing competitiveness Increasing deployment of technology Deleveraging and organic capital generation Constantly improving quality standards Emergence of Indian multinationals Setting up production capacities overseas Setting up international distribution Consolidating supply chain India’s emergence as a global manufacturing hub –Second-most favoured destination for FDI in manufacturing

SG Progress in infrastructure development Construction of Golden Quadrilateral and North-South, East-West corridors 13,000 km long - world’s largest single highway project Boosting demand for steel, cement, commercial vehicles Construction of Golden Quadrilateral and North-South, East-West corridors 13,000 km long - world’s largest single highway project Boosting demand for steel, cement, commercial vehicles Cellular subscriber base of 49 million, growing at over 150% Positive impact on efficiency of firms & services exports Cellular subscriber base of 49 million, growing at over 150% Positive impact on efficiency of firms & services exports Roads Telecom …missteps in power and urban infrastructure being addressed

SG India has just started on the journey

SG Agenda Current Scenario Drivers of Growth Challenges Summary

SG Challenges of Intermediation in India Size of the country and dispersed affluent population Lack of Data – specially the area of Health Attracting the Talent Pool Evolving Regulatory Environment

SG Size & Dispersion of Population Area : sq. Kms. More than 70% of population in rural areas More than a third of Mass affluent & rich households in rural areas 5161 towns & cities comprise urban India

SG Challenges from lack of Data No single customer identification number like social security number Single Mortality table used No cuts available by geography or customer segment Very scarce data for annuitants Health records not available Health incidence data or morbidity tables not developed No consolidated medical individual history available No standard definition of conditions & surgeries

SG Attracting the Talent Pool Increasing attrition levels Poaching within & across industries Attrition at frontline sales level around 20% Payhikes Salary increases grossly out pace inflation Projected increases to continue at a minimum 10-12% Premium for “critical skills” with a sudden advent of new industries e.g. Insurance & ITES

SG Evolving Regulatory Environment Multiple Regulators Boundaries in RFS becoming fuzzier Pension reforms on the anvil Tax rules in flux Creates distortions in incentives to invest in various financial instruments Regulations still evolving as regulators gain maturity

SG Agenda Current Scenario Drivers of Growth Challenges Summary

SG Summary Strong growth prospects for the Indian Economy Demographic transition should lead to a positive savings growth spiral – fuelling growth of financial savings Changing structure of savings could lead to increase in allocation to Insurance & Pensions Need to manage unique intermediation challenges of operating in India

SG Thank you