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PRIVATE SECTOR BANKING IN INDIA

PRIVATE SECTOR BANKING IN INDIA. Thoughts & Actions. 13 th May 2013. SCHEMATIC. New License Regime In Banking. Criteria & Guidelines For Issuing Licenses. RBI’s New Licensing Policy. Interested Applicants. IIFL – An Overall Perspective. Aligning Stakeholders.

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PRIVATE SECTOR BANKING IN INDIA

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  1. PRIVATE SECTOR BANKING IN INDIA Thoughts & Actions 13th May 2013

  2. SCHEMATIC New License Regime In Banking Criteria & Guidelines For Issuing Licenses RBI’s New Licensing Policy Interested Applicants IIFL – An Overall Perspective Aligning Stakeholders Public Affairs Management Approach Campaign Implementation and Action

  3. New License Regime In Banking • The RBI has licensed the following 12 private banks in the past two decades -: • Axis Bank  • Bank of Punjab • Centurion Bank Ltd. • Development Credit Bank  •  HDFC Bank •  ICICI Bank • IndusIndBank • Times Bank (Merged with HDFC Bank Ltd.) •  Global Trust Bank,India (Merged with Oriental Bank of Commerce) • IDBI Bank Ltd. • Following Banks closed shop after being merged with others: • Times Bank • Centurion Bank • Bank of Punjab • Global Trust Bank

  4. Based on the January 1993 guidelines, 10 banks were issued. The guidelines were revised in January 2001 and two more licences issued. • No transparent record available on the RBI website or a reading from the two sets of guidelines, explain the following: • Why applications of a few were rejected and others approved ? • What differentiates the successful licence holders and the • others • New guidelines heralds the entry of a third set of private banks into the Rs. 73 trillion banking sector • Three years after the government first announced the plan • Nine yearsafter it issued the last round of licences

  5. Criteria & Guidelines For Issuing Licenses • In Non Operative Financial Holding Company (NOFHC) : • Individual promoters can hold up to 10% • If control is through a company, then the Holding Company must have 51% public Non resident shareholding capped at 5% subject to 49% overall • NOFHC’s stake in banks would fall to: • 40% in 3 years • 20% in 10 years • 15% in 12 years CRAR of 13% for 3 years. Bank to be listed in 3 years NOFHC to transfer 25% of profits to reserve fund, not to leverage > 1.25x

  6. No credit/investment exposure to promoter group 25% of branches in unbanked rural area. PSL will apply immediately • Other conditions for promoter group • Business culture should not be misaligned • Activities should not be speculative • No vulnerability to asset prices volatility Applicants should be financially sound with a 10-year track record The initial minimum paid-up equity capital is Rs 500 crore At least 50% of the directors of NOFHC should be independent directors

  7. PROCESS FOR VALIDATION OF LICENCES

  8. RBI’S NEW LICENSING POLICY RBI’s NEW LICENSING POLICY

  9. EXAMPLES OF A FEW PARAMETERS MENTIONED IN THE GUIDELINES EXAMPLE ONE “Licenses shall be issued on a very selective basis to those who conform to the above requirements, who have an impeccable track record and who are likely to conform to the best international and domestic standards of customer service and efficiency.” • INTERPRETATION • There is no qualification of how: • “impeccable track • record” will be • determined • “best international • and domestic • standards of • customer service and • efficiency” is defined

  10. EXAMPLE TWO The applications will be subjected to a “Fit and Proper criteria” which requires promoters to have a “past record of sound credentials and integrity.” They should be “financially sound and have a successful track record of running their businesses for at least 10 years.” Additionally, “promoters’ business model and business culture should not be misaligned with the banking model ….” • INTERPRETATION • What is “financially sound” in one business may be totally unsound in another. • “Successful track record” could be defined as • Revenue growth • Customer satisfaction, • Innovation • creation of shareholder value • By any additional or all of the above parameters. • How is culture defined and who decides whether it is aligned with banking?

  11. EXAMPLE THREE “The RBI has reserved the right to screen the applications and then further “apply additional criteria to determine the suitability of applications, in addition to fit and proper criteria.” • INTERPRETATION • This can lead to discretionary decision making. • It implies that after applications are received, some applications may be rejected based on a specific criteria, unknown to all those who apply by July 1, 2013. • The specific criteria lead to a second round where a new set of criteria, which have not been designed or defined, could be applied. • Thus, not only are the rules of the game unknown, but can be changed without prior notice.

  12. EXAMPLE FOUR “To advance the cause of inclusivity it requires a new bank to have “at least 25 per cent of its branches in unbanked rural centers” INTERPRETATION But the guidelines fail to mention by when such a huge cost exercise, which can completely alter the viability of the bank, needs to be achieved.

  13. EXAMPLE FIVE “The guideline require applicants to submit “business plans” to achieve financial inclusion that should be “realistic and viable.” The RBI warns that a deviation at a later stage may invite penal measures including a change in management, etc.” • INTERPRETATION • Unless the rural banking rollout is finely defined, the “viability” will vary in each case and it is virtually impossible to choose one application over the other, since the criteria have been kept vague in the first place. • Similarly, companies can achieve “financial inclusion” in multiple ways — mobile banking or physical spaces or linking with existing rural Non-bank financial companies (NBFC) by acquiring assets for distribution. • And is a physical bank more important than technological access to banking for consumers?

  14. INTERESTED APPLICANTS • L&T Finance Holdings Ltd • India Infoline Ltd • Religare Enterprises Ltd • Aditya Birla Financial Services Group • Mahindra and Mahindra Financial Services Ltd • LIC Housing Finance Ltd • Shriram Transport Finance Co. Ltd • Bandhan Financial Services Pvt. Ltd • Tata Capital Ltd • Bajaj FinservLtd • Muthoot Finance Ltd • Infrastructure Development Finance Company Ltd (IDFC) • India Infrastructure Finance Co. Ltd. • Reliance Capital Ltd • Janalakshmi Financial Services Pvt. Ltd • SKS Microfinance Ltd • Srei Infrastructure Finance Ltd.

  15. IIFL – AN OVERALL PERSPECTIVE Amongst all potential applicants for the new banking license, IIFL is: Leader in India’s wealth management business Largest mobiliser of insurance products Largest equity broking business Largest mobiliser of mutual funds Top-ranked research coverage of more than 2,500 companies Amongst leading NBFCs with retail, diversified assets of high quality

  16. Balance sheet size close to Rs 12,000 Cr Net worth close to Rs 2,000 Cr Wealth assets under advice over Rs 40,000 Cr Mutual assets under IIFL advice over Rs 14,000 Cr IIFL is one of the most awarded financial services firms with an impeccable track record, and solid reputation for research IIFL GROUP’S STRONG FINANCIAL RECORDS (FY 13E)

  17. Net-worth of Rs 2,000 Cr, there will be no leverage other than the bank Network of 4000 business locations across 1000 towns and cities

  18. Successfully managed operational, credit and market risks came out unscathed from all major financial crises in • May 2004 • Feb 2006 • Jan 2008 Has about 2 million retail customers across its business lines, many of whom are potential customers of the new bank Effectively used technology to manage risks and costs; innovated several cutting edge products like trader terminal, loan origination system Experienced in dealing with customers across all income categories and SMEs Compliant with all the main regulatory bodies like: • RBI, • SEBI • IRDA • FMC • NHB – nationally and in 8 international locations

  19. IIFL : KEY STRATEGY MATRIX FOR NEW BUSINESS GOVERNANCE STRUCTURE DIMENSIONS OF KEY BUSINESS OBJECTIVES KEY CATEGORIES BOARD OF DIRECTORS FINANCIAL INDUSTRY STRATEGY NEW BUSINESS COMMITTEE CLIENTS AND MARKETS IMPACT ON KEY BUSINESS OBJECTIVES REGULATORY ENVIRONMENT COUNTER - PARTY OPERATIONAL EXCELLENCE PROJECTS COUNCIL RESOURCES OPERATIONS TALENT AND LEADERSHIP OFFICE OF NEW BUSINESS DEVELOPMNENT KEY MANAGEMENT PROCESSES UNIT HEADS BUSINESS IDENTIFICATION AND ASSESMENT MODEL AGGREGATION INTEGRATION WITH STRATEGY AND BUSINESS PLAN MONITORING AND REVIEW FOR STRATEGY CHANGE CORPORATE LEVEL NEW BUSINESS MODEL AGGREGATION BUSINESS UNIT LEVEL REPORTING AND BUSINESS MODELLING CLIENT ACCOUNT LEVEL PROJECT LEVEL

  20. IIFL : KEY OBJECTIVES FOR NEW BUSINESS MULTI HORIZON STRATEGY PLANNING PROCESS LEADERSHIP GLOBAL TALENT SHORT TERM FINANCIAL LONG TERM MARKETS CLIENTS OPERATIONAL EXCELLENCE

  21. LEADERSHIP VALUES : STRENGTHS AND WEAKNESSES STRENGTHS OF LEADERSHIP WEAKNESSES OF LEADERSHIP

  22. IIFL : STRONG VISION AND VALUES

  23. ALIGNING STAKEHOLDERS Prime Minister’s Office Principal Advisor Joint Secretary Ministry Of Finance Minister Of Finance Secretary – Revenue Secretary - Expenditure Secretary – Economic Affairs MEETINGS OF IIFL WITH DECISION MAKERS • PR | MEDIA • PRINT • ELECTRONIC Dept Of Financial Services SECRETARY Additional Secretary Joint Secretary • PUBLIC OPINION • GLOBAL SMEs • INDIAN SMEs LEGAL ASSISTANCE AND EXPERT ADVICE • POLICY / LEGISLATION MANAGEMENT • REPRESENTATIONS • POLICY REVIEW MEETINGS • FOLLOW UP MEETINGS • APPROVALS • INDUSTRY OPINION • IBA / ASSOCIATIONS • INDUSTRY BODIES RBI Governor DY Governors Central Board • Economy • International SMEs • Indian SMEs • Corporate • Industries Media Indian Platforms International Platforms Brand Value Social Media

  24. MEMBERS OF THE CENTRAL BOARD OF RBI

  25. PUBLIC AFFAIRS MANAGEMENT APPROACH A point of view Deliberate steps, yet flexible Proactive, preventative Integrated by media and message Not step by step, but a giant leap of faith

  26. THE CLASSICAL COMMUNICATION PROGRAM

  27. IIFL : FACTORS RELEVANT TO KEY DECISION MAKERS People-oriented Project-driven Government-led Economy-oriented How to define the balance for decision-makers in their mind Reforms = Government = People = Project Greater Good

  28. People People IIFL : RELEVANT DEVELOPMENT CRITERIAS A. The Predictable Method Talking at Welfare Development Culture Authority Giving to B. Strategy (The Novel Method) Welfare Development Culture Authority Painting the picture of the future Allowing people to see development and being able to walk up to it! Taking on the responsibility from people and leading change!

  29. CAMPAIGN IMPLEMENTATION – IIFL’S THEME Commission a baseline research on consumer banking to begin homework on positioning opportunities Commission online survey on current customers who would want to bank with IIFL given opportunity Internet Advocacy Publications Release point of view newsletter on banking industry as a newsmailer Direct Mail Event gatherings & WOM PR Building the brand IIFL for Banking Brand Architecture Shoot and publish You–tube interview Commission a journalist to research, write and publish a feature Press/Radio/TV/Outdoor advertising Conversion of interest around entering the banking category to demonstrating long-term interest. Defining & living the culture. Making a head-start.

  30. TARGETED MARKETING PLAN FOR SUCCESS MARKETING STRATEGY Relationship Management Media Presence • Financial/Banking/Trade Magazines – Articles • Government Journal Features • Corporate News • Television Appearences • Advertising and Brand Building • Direct meetings • Corporate Presentations • E- Mailers • Events / Networking Receptions • Advocacy stories

  31. ‘PURCHASING’ TUNNEL FOR KEY DECISION MAKERS Awareness Familiarity Consideration Short-listing Purchase Return Promote to friends Explication • Review Standards • Short-listing IIFL vis-a-vispropositions of other contenders • Familiarity with IIFL credentials • Knowledgeable about intent and potential fitment of IIFL in banking activities • Perception of value IIFL • Strengths • Weaknesses • Once shortlisted, • decision can be finalized. • Sustains belief and is now comfortable with backing IIFL • Becomes a more visible advocate • Awareness of IIFL activity Potential tools • Invitation to a special get-together/ showcasing meeting • Newspaper publicity • emails • Press/ mag column to explain / brand concept • Direct briefings to coterie through presentations, word-of-mouth, parties/ personal meetings • TV program features • State-of-the-art website • Other value added relationship building ideas • Stay in contact with prospect base • Incentive building • Brand Awareness

  32. PR profiling lead managers and the institution Core people NEW BANK POTENTIAL BANKING CLIENT UNIVERSE Product centric communication Internal culturing Relationship management system in place Building ‘Brand Ambassadors for referral IIFL communication • MAKING A DEFINITE PLACE FOR A CORPORATE ENTITY IN THE NEW ORBIT PRODUCTS KEY TARGET

  33. Advertising & Marketing Strategy Program Management • IIFL : ELEMENTS OF A NEW BANK PR Communication IIFL Brand Development

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