Opportunities in the Banking & Financial Services sector

(Reposted – originally posted 13/Nov/2011)

India is one of the fastest growing major economies in the world, expected to grow at greater than 7% going forward. Credit growth is generally 2-3 times the GDP growth, which suggests 15-20% plus growth for the banking sector

Since the nationalization of the banks in 1969, up until the liberalization in 1991, banks grew at approx. 4% annually, roughly tracing the GDP growth[1]. In the last decade however, average annual GDP growth has been 7.2% and banks have grown by 18% compounded [2]. In the last decade, banking sector growth has followed the 2-3 times hypothesis

Factors that will lead to 15-20% compounded growth for the banking & financial services sector in the next 10-20 years:

o Over the next decade, India’s working population is expected to rise by 26% as per UN estimates [3]

o Only 5% of habitations in India (30K of 6L) has commercial bank branches [4]. Currently number of commercial bank branches is ~ 85K. Last decade alone 14k new branches were added. 73K habitations with over 2K population has been identified for setting up new branches (not necessarily brick & mortar) [6]

o Insurances business has huge potential for growth. Only 10% people have life insurance covers. Premium under-written over last decade increased from 35K crores in 2001 to 2.25L crores in 2009 [5]

o Mortgage market is expected to surpass $900 billon by 2010 according to BCG [7]

o Wealth management business has potential to grow by 10 times over the next decade (citation)

 

References
1. Wikipedia: Banking in India
2. Indian Banking: A promising future: By M V Nair, Chairman & Managing Director UBI
3. Morgan Stanley Report: India & China: New Tigers of Asia, Part III
4. http://indiacurrentaffairs.org/banking-sector-needs-to-support-the-growth-momentum-to-achieve-9-growth-rate-pranab-mukherjee/
5. http://indiacurrentaffairs.org/insurance-industry-in-the-post-liberalistion-era-finance-minister-shri-pranab-mukherjee/
6. http://indiacurrentaffairs.org/economic-recovery-economic-growth-pranab-mukherjee/
7. Retail Banking: Facing the Future, by Boston Consulting Group
8. World Bank historical GDP growth rates

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