1 P Jayendra Nayak INNOVATE TO WIN The Indian Experience

2 Estimates of Market Share based on linear projection The share of private sector banks has increased from 12% in 2000 to 21% in 2013 and, if linearly projected, will grow to 32% in 2025

3 Net interest Margin Private sector banks are performing better in terms of their NIMs. In 2013 the average NIM of private sector banks was 50 basis points higher than of the SBI group and 120 basis points ‎ higher than of other PSU banks. Avg. net interest margin (in % per annum Dec 2013)

4 Fee Income to total income in % The ratio of Fee income to total income has been highest for Private sector banks

5 Net Profit per employee Highest manpower productivity in private sector banks Net profit per employee about four times that of other bank categories Net profit per employee (INR mn)

6 Return on Assets The gap in RoA between the new private sector banks and other bank categories has steadily widened in recent years

7 Price to book ratio Public sector banks vs Private sector banks The investors have rewarded the Private sector banks with about three times the valuations Price-to-book ratio Public Sector Banks vs. Private Sector Banks

8 Why did this happen? Four key drivers of success of new private sector banks Technology for Operational Efficiency Relationship Management Channels Automated Transactions Channels Sales & Distribution Channels Key drivers of success of new private sector banks Innovation needs to be identified within these key drivers

9 Outsourcing from the branch Centralized customer data & transactions processes Banking activities Demand Draft / Pay Order issues Account opening Inward clearing queries Cash reconciliation Payment of branch bills Outward clearing data entry and verification Internal transfers processing Printing bulk Demand Drafts and Pay Orders System related activities, e.g. commissions and charges Tax Deduction at Source (TDS) certificates Select Inter Branch Reconciliation (IBR) transactions Processing select customer requests, e.g. ATM cards, PIN mailers Degree of centralization % of centralized activities Typical public sector bank Typical new private sector bank 0%100%50% 0%100% Percentages of work processes 80% 60% 100% 60% 20% 10%

10 Private sector banks centralize customer transaction data Rapid growth in ATM and POS network Private sector banks have just 15% of the branch network, but 29% of ATMs They also account for 66% of the POS terminals.

11 Relationship managers for the Mass Affluent and Sales Force for Mass Customers > 1,000,000 Annual household Income (INR p.a.) 500,000 – 1,000, ,000 – 500,000 90,000 – 200,000 < 90,000 “Mass Affluent” “Affluent” “Mass” New Private Sector Banks have made strong inroads into the mass affluent segment

12 Insurance Premium Share of insurance premium of public sector banks has been steadily decreasing.

13 Mutual Fund earnings Private sector banks’ share is about 65% of the total mutual fund earnings

14 Cash management Private sector banks have seen an explosive growth in the provision of cash management services

15 Credit Cards More than half of the total credit card spends are generated by the private sector banks

16 A Benign Regulator? The difference between medicine and poison is dosage Dog lovers and their pets soon begin to resemble one another So do zoo wardens and their wilder animals

17 THANK YOU