Showing posts with label ICICI. Show all posts
Showing posts with label ICICI. Show all posts

Saturday, March 02, 2013

MF INDUSTRY: CHALLENGES & FUTURE OUTLOOK

Leave aside regulatory changes, the Indian mutual fund industry today faces a number of issues which are characterized by lack of investor awareness, low penetration levels, high dependence on corporate sector and spiraling cost of operations. Structural changes in business models are what AMCs now require if they want to sustain profitability by Mona Mehta

Further, the dependence on the corporate sector is still pretty pronounced at 51% when compared with economies like US & China where investments channelised through corporates, comprise only around 15% & 30% of the AUM, respectively. This under volatile market conditions, sound a note of caution for the industry, as high dependence on the corporate sector may result in the fund houses being prone to unexpected redemption pressures. Considering the untapped potential, competition too is all set to gain momentum in the Indian MF industry, which is making dominant desire to progress, a reality, through wealth creation.

In fact, the moot point here is amidst the new transparencies that will be introduced in the system meant to boost investors confidence and ensure fair competition in the industry, it is equally important for AMCs to understand how critical is it for them to collectively work towards facilitating more innovation, financial inclusion, cost management, increased investment in technology to support distribution network, with the support from channel partners and regulators alike.

Ramdeo Aggarwal, Co-Founder and Director – Finance, Motilal Oswal Financial Services too feels that in India, creation of the fund is not coming from the strength, in sync with the trend existing in other parts of the world. For instance, in US, founders of fund create fund based on certain insights and convictions for the benefit of customers post which the funds are traded to get the asset, say, may be worth Rs.1 trillion. Hence, Indian asset management companies (AMCs) now need to work on developing new USPs in handling people’s saving.

“The financial inclusion category today has the most competitive and cost efficient structure in place, which we believe is extremely favourable for the final investor. MFs have been extremely transparent with high disclosure standards which help investors in their process of due diligence. With increase in category awareness and enhanced brand connect, AMCs have been able to reach out to the customer more effectively,” Nipun Kaushal, Head – Marketing, ICICI Prudential AMC tells B&E. However, Kaushal refuses to divulge details of the product innovations that he is planning to come up with due to competitive strategies.

Even the regulator now seems to be paying heed to ensure that MF industry sustains its profitability. In fact, Securities and Exchange Board of India (SEBI) has recently issued directions for the mutual fund industry stating that no business houses without five-year financial services experience will be permitted to own stake in an AMC, with an aim to enable only the serious investors to get into the business. “As MF business has a long gestation period, therefore the regulator is now looking for shareholders who can stay for long and are experienced in the industry,” spokesperson of Edelweiss AMC tells B&E.

Read more......

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.


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Thursday, September 06, 2012

The pangs of indecision?

Ranked amongst the world’s top 1000 banks in 2009 by The Banker, London, Karur Vysya Bank is perhaps the least written about banks in India. But with an obscenely mammoth Rs.300 billion plus business being churned out an NPA ratio which is amongst the lowest across India, the bank can just not be ignored. B&E investigates what’s up with the bank?
 
Well, that’s actually the full story. Less written, lesser known, and mostly growing by organically propelled momentum, the bank has never been a case study to be analysed in a similar platform as the State Banks/HDFCs/ICICIs et al. Yet, not only has the bank conjured up obscenely huge margins (last three years’ aggregate profits were close to Rs.780 crores), the bank has also slowly but surely crossed the oceanic stamp of being just another South Indian bank to becoming a national player. With Rs.330 billion of total business, whatever you do, you simply cannot ignore this bank which, unbelievably, is a 96 year old institution! B&E jumped headlong into the issue to find out what gives in this erstwhile heavily tradition driven institution, whose unique jumpstarts are getting evidently more regular than competitors can handle. First the flat financial situation. Karur Vysya Bank (or KVB, if we may) has churned up total deposits at Rs. 193 billion and total advances at Rs. 137 billion for FY 09-10. Apparently, KVB is the first private sector Tamilnadu bank that has gone beyond the Rs.300 billion gross business mark. Creditably, it has a net interest margin at 3.23%, and of course, the current 350 branches. We’re told by the top management that not only are they trying to increase this to 800 branches by 2015, but also achieve a business figure of Rs.1,250 billion by the same period. In other words, an all India presence that challenges the current national banking leaders. The question is pretty simple: can they really make the jump or is this a simple case of an over-targeted strategic intent?
 
the marketing paradigm

They say to understand a man’s character, look at his shoes. We say to understand a bank’s character, look at its bad loan ratio. Applaudably, the battle has been won by KVB before it even starts. If ICICI Bank had a bad loan ratio of 5.14% for 2009, KVB has the same at an electrifying 1.67%. And don’t even think about reaching the holster for shooting the NPA ratio bullet. At 0.23% NPA ratio for 2009, it’s quite clear that Karur Vysya is miles ahead of being a simple push over for competitors. “In FY’11, we will touch Rs.420 billion and Rs. 500 billion by FY’12. The bank is targeting a 28% surge in both credit and deposits”, says Group Chairman of the bank, P. T. Kuppuswamy, to B&E, adding that the CASA (current and savings account) component is likely to go up by 2% to 26%. Apart from this, during Q1 2010-11, Karur Vysya Bank has recorded a 16.57% rise in interest on advances of Rs.3.71 billion, up from Rs.3.18 billion that was registered during the corresponding quarter last fiscal. Before you think the eulogies are piling up more than normal, stop for a moment and imagine the scenario that KVB achieved much of what it did during the economic slowdown.

So where does the most unkindest cut of KVB actually exist? The answer is quite simple: just below the scratchable surface. It’s a straightforward fact that while South India depends on age-old paradigms for business development (when was the last time you read a Hindustan Times in Chennai?), the rules that drive business in most of the remaining high net worth parts of India are pretty massively different; and KVB has not been exposed to much of this scarring world till now. Yes, they’ve made quite a massive and efficient machinery running down south – but to expect similar growth in a vagary driven and real-estate stricken Mumbai, for example, can never be reasonable. And the factor where KVB can and would take a massive hit is their marketing paradigm. In the current financial year, Karur Vysya Bank has applied to the Reserve Bank of India (RBI) for 70-100 new branch licences in 2011-12. With this move, the bank hopes to have 375 operational branches by the end of 2010. But till now, unless you’ve been a crazed stalker-fan of KVB, neither would a prospective customer be able to recall any of KVB’s advertisements, and the products don’t even make the alphabetical list of the feedback form – in other words, KVB suffers from dismal brand recall in almost all non-south geographies. But it’s not as if the bank doesn’t realise this – in fact, they’ve gone many steps into this issue. During the Jan-March 2010 quarter, KVB had commissioned one of the Big six consulting firms, Boston Consulting Group to prepare a growth road-map for its future. Currently, post the consulting recommendations (which primarily focused on advising the bank to improve its low-cost deposits and expand exposure to the small scale sector), the bank is apparently implementing interim changes to marketing strategies and organisational structure too. The difference in the bank’s marketing communication is quite evident, one should mention. While the age-old vision statement of the bank still starts with the dodgy “delight the customer continually” paraphrasing, one look at the bank’s print ads shows the suave and classy communication change (see first page snapshots). These ads are a far cry improvement from the cheesy recruitment ads the bank used to give – and still gives – which earlier were their only source of letting the public in South India know that they existed! 


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
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