Banking is changing dramatically in India: an increasing proportion of the 1.2 billion population is slowly acquiring access to banking services, technology is altering the way banking is being done, especially in regard to mobile banking, and, for the first time in a decade, the country's authorities are in the process of issuing new banking licences.
Mobile banking is gaining traction in the country, with the number of mobile banking transactions doubling to 5.6 million in January 2013 from 2.8 million in January 2012, and the value of transactions tripling in that time. ICICI Bank, the second largest bank in the country by Tier 1 capital, is quoted as seeing 100% growth in the number of people using mobile in the year to the end of April 2013, with transactions up 300% during the period.
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Mobile phone operator Vodafone India has partnered with ICICI to launch M-Pesa, a mobile-based money transfer and payment service, which was first established in Kenya in 2007. The partnership, announced in April 2013, claims it will give mobile banking access to some 700 million Indian people who are currently 'unbanked' or who have no access to conventional banking services such as bank branches and ATMs.
Between 2001 and 2011, India recorded an enormous boom in mobile phone subscriptions – growing from just 3.5 million to more than 893 million. In 2011, there were 142 million new mobile subscriptions in the country – twice as many as in the whole of Africa, and more than in Europe, the Middle East and the former Soviet republics combined, according to a June 2012 report by the International Telecommunication Union.
M-Pesa and the Aadhaar identification project, among other developments, are helping to transform banking sector prospects in India and banks are enthusiastic about the possible outcomes. Speaking to the chief executives of India’s largest banks, The Banker outlines the developments, the performances and the prospects at these leading institutions.
State Bank of India
India's largest bank by Tier 1 capital by a big margin, State Bank of India (SBI) has 15,000 branches – two-thirds of them in non-urban areas – and is a massive institution recording 60 million transactions a day across its network. The bank's managing director, A Krishna Kumar, acknowledges that the impact of the Aadhaar identification scheme will take time to become truly effective but, under the government's financial inclusion plan, the bank has already opened 20.5 million new no-frill accounts in rural areas. Mr Kumar expects to open a total of 1000 to 1200 new branches in the year to the end of March 2014 (25% of which will be in rural areas) as well as a similar number of new ATMs.
Meanwhile, despite a 40% increase in loan-loss provisions, SBI still posted a 16.8% increase in group net profit after minority interests in the year to the end of March 2013, reaching Rs179.2bn ($3.03bn), a formidable result with deposit and credit growth showing higher-than-average performance of 15% and 21%, respectively.
SBI, 62% owned by the Indian government, has an international presence in 170 locations worldwide with 82 offices in 135 countries. In 2013, it plans to expand its presence in Australia and Botswana with new branches in both countries. SBI’s non-resident Indian deposits total $3.5bn.
ICICI Bank
Established in 1993, ICICI is India’s second largest bank and its largest private sector bank by Tier 1 capital. It has 3130 branches – with plans to open a further 1000 branches in non-urban areas – and almost 10,500 ATMs. Its managing director, Chanda Kochhar, is a firm believer in financial inclusion and a focus on low-cost ATMs and the cost-effective role of business correspondents in making inroads into banking in rural areas.
ICICI has been able to establish its extensive branch network in less than 20 years, while remaining consistently profitable, but Ms Kochhar remains wary of the volatile nature of the Indian banking environment.
In the 2013 fiscal year to the end of March 2013, ICICI posted a healthy 29% year-on-year increase in standalone profit after tax, up to Rs83.3bn from Rs64.7bn for the year to the end of March 2012. The bank managed a consolidated return on equity of 14.7% in fiscal year 2013, compared with 13% in fiscal year 2012.
ICICI also kept its non-performing asset ratio low at 0.64% while keeping its capital adequacy ratio at 18.74% and Tier 1 capital assets ratio at 10.54%. The bank has operations in 18 countries outside of India, though Ms Kochhar stresses the importance of the bank’s India-linked strategy.
HDFC Bank
India’s third largest lender by Tier 1 capital, HDFC Bank is fighting hard to make up ground on its close rival ICICI Bank and in the latest fiscal year to the end of March 2013 the bank grew its domestic loan book by 22.7%. ICICI recorded 14.4% growth, putting HDFC ahead by this indicator. In terms of branches, HDFC has 3062, just 68 fewer than ICICI.
According to managing director Aditya Puri, HDFC is keen to expand its loan book but has managed to maintain its loan quality with net non-performing loans as a percentage of total assets at 0.2% at the end of March 2013.
The bank, which has posted profit growth of more than 30% every year for the past decade, has had a good start to 2013, posting a 30% rise in quarterly profits in the first quarter of the year. The bank's net interest margin, a key gauge of profitability, is among the highest in the Indian banking sector at 4.5% compared with 4.4% a year ago.
Given India’s underserviced banking market, Mr Puri is confident that the government’s financial inclusion plan will bring positive results. HDFC is not planning any significant overseas expansion but rather is focusing on the local market with only a minor range of products being made available to customers abroad.
Bank of Baroda
Started in 1908, Bank of Baroda (BoB) has built up a significant network of 4280 branches across India and a sizeable 93 overseas branches across 25 countries. Chairman S S Mundra notes how the opening of a new office in Dubai in April has further boosted the bank's already large overseas operations, which includes operations in the US, the UK, the United Arab Emirates, Singapore, Hong Kong and Brazil.
The bank’s total income registered growth of 17.3% for the fiscal year 2013, with net profit for the same period lower at Rs44.8bn versus Rs50bn in the fiscal year 2012, on the back of higher provisions against non-performing assets (NPA). Asset quality ratios were the lowest in the large-sized public sector banking segment with gross NPA at 2.4% and net NPA at 1.28%.
BoB is the second largest bank after SBI in terms of business size, according to Mr Mundra. The bank will face a big challenge in recruiting the 7000 new people that it predicts it will need in the next three to four years given the number of employees approaching retirement age in that time. Looking to the future, Mr Mundra is optimistic about the Aadhaar identification project, but sees a big challenge in fulfilling the bank's recruitment needs.
Axis Bank
With 11,245 ATMs Axis Bank has the largest such network in India's private sector and, in 2012, it brought its total number of branches close to 2000 with the addition of 325 new outlets, mostly in non-urban areas. The bank, which will celebrate its 20th birthday in 2014, has a 4% market share. In fiscal year 2013, it saw its net profits rise by 22% to Rs51.79bn, and its net interest margin remained steady at 3.53%.
The bank is well positioned for growth with a capital adequacy ratio of 17% and Tier 1 capital at 12.23%. The bank has a modest overseas network of seven offices, though it opened a branch in Sri Lanka in 2012 and has plans to open a branch in London in June 2013.
Julius Samson, senior vice-president at Axis, says that the bank has good asset quality with a net non-performing assets ratio of 0.32%, and has performed well in fiscal year 2013, producing a 1.7% return on assets and a 20.51% return on equity. The bank, he notes, also raised $1bn in February 2013 with strong demand both locally and overseas. Axis is performing well in the retail segment at present, and its focus is on retail and the mass affluent market.
Canara Bank
New chairman and managing director R K Dubey is keen to make his mark on the 107-year-old Bangalore-based Canara Bank, which is largely a corporate bank (making up 49% of its business), with a 67.7% government shareholding. In 2012, the bank opened 128 new branches and added 668 new ATMs. Mr Dubey has significant expansion plans, which include adding 1300 branches over the next two years to the bank's existing 3725 branches as well as adding 3600 ATMs to bring the bank's total to 10,000 in the next two years.
Mr Dubey hopes to expand the bank's retail side from representing 9% to representing 15% of the business in two years. He also wants to build financial literacy, which he describes as a demand-side mechanism, with financial inclusion being the supply-side mechanism. The bank has eight main foreign branches, including two in London, accounting for 5% of total business.
In fiscal year 2013, Canara posted net profits of $529m and achieved 0.77% return on assets and 14.73% return on equity. The bank's net NPA ratio was down to 2.18% from 2.35% the previous year. It has a total capital adequacy ratio of 12.4% and a Tier 1 ratio of 9.77%.
Central Bank of India
Net profits at the Central Bank of India (CBI) – which, it should be added, is not the country's central bank in the more conventional sense – rose dramatically by 90.43% in the year to the end of March 2013, to reach Rs10.02bn, almost double the previous year's figure. Chairman M V Tanksale says that he is looking to expand the bank's existing 4300-branch network by 400 in 2013. CBI added 847 ATMs primarily in first-tier and second-tier towns in the past year, bringing its total number to 2529.
In fiscal year 2013, aggregate core deposits at CBI increased by 27.84% and advances rose 16.92% with net NPA down 2.9%, showing asset quality improvement. Retail loans showed substantial growth of 27.7%. Overseas, Mr Tanksale says the bank's focus was on Africa's non-resident Indian opportunities, especially in CBI’s joint venture bank in Zambia.
Looking to the future, Mr Tanksale is concerned about political uncertainties in India, with a general election scheduled for 2014, but he is confident that the country's big infrastructure projects will go ahead, that there will be more lending, and this coming fiscal year will be a better year with a brighter economic environment. He believes the country's growth will push on from its previous lows.
Kotak Mahindra Bank
Kotak Mahindra Bank has grown out of a 27-year-old finance company and become a fully fledged bank and the largest firm in wealth management in India, with $15bn in assets under management.
Vice-chairman Uday Kotak sees enormous opportunities in the government’s Aadhaar scheme to open up accounts across the country in the next few years. “Non-urban India, with its 900 million people, represents one of the largest opportunities in the world," he says.
The bank’s net profits after tax grew 25.4% in the year to the end of March 2013 to reach Rs13.6bn, almost five times the figure at the end of March 2009. The bank retained its return on assets at a high 1.81% with a Tier 2 capital adequacy ratio of 16.05%.
Mr Kotak considers India’s growing affluence and the digital transformation taking place – especially through the Aadhaar project and its pilots – and the new banks as “help for all banks to grow faster".
Yes Bank
Over the past eight years, Yes Bank has established itself as the fourth largest private sector bank in India with more than 430 branches, a presence in 26 of the 28 states of the country, more than 950 ATMs and upwards of 7000 employees. Founder and managing director of the bank Rana Kapoor, who has already introduced innovative products such as the remittance service Yes Money, is looking to launch a retail broking subsidiary this financial year and sees India's financial inclusion plan as a “major game-changer”.
Yes Bank produced record results in the year to the end of March 2013, with post-tax profits up 33.1% to Rs13bn, and return on assets and return on equity up to 1.5% and 24.8%, respectively. Mr Kapoor takes particular pleasure in reducing the bank's net NPA to just 0.01% from 0.05% the previous year. In other developments, Yes added 18 branches during the final quarter of fiscal 2013 as well as 228 ATMs. In another important improvement, capital funds grew by 31.8% in fiscal 2013 to reach Rs122.95bn, bringing Tier 1 capital to 9.5% and the total capital ratio to a solid 18.3%.
ING Vysya Bank
Like other bigger banks, ING Vysya Bank has actively pursued financial inclusion, providing banking services in 690 villages across the country and opening 262,000 no-frill accounts. As of the end of March this year, 6500 customer accounts had been linked with their new Aadhaar numbers.
The Bangalore-based bank posted a 34% increase in net profits for the year to the end of March 2013, to reach Rs6.13bn with return on assets improving to 1.29% from 1.09% the previous year.
“It was another year where we have delivered on all our core parameters," says managing director Shailendra Bhandari. "Our average customer assets grew by 21.2% during the year. For the [first quarter of 2013], net interest margin improved to 3.73% and return on assets improved to 1.34%. Our asset quality continues to be best in class with gross NPA at 1.76%, net NPA at 0.03%, and a provision coverage ratio at 98.4%.”
Net profit for the quarter ended in March 2013 increased by 33.7% to Rs1.7bn compared to the same quarter the previous year, making it the 14th sequential quarter of net profit growth. ING Vysya Bank's cost-to-income ratio also improved to 56.2% from 59.1%.
