If ever there was a blue ocean for marketersa euphemism for big, untapped, uncontested marketsit is here, in hawking all manner of financial products to Indias un-banked and un-insured aam aadmi. And we have not even started counting the huge cash economy, just a fraction of which if turned into electronic commerce would mean a market worth a few lakh crore!
Says Ravi Trivedy, Executive Director, Business Advisory Services, KPMG, Given their (the banks) current size, reach and cost structures, their ability to expand is limited. Quasi-banking services through micro-finance institutions are too nascent.
Agrees Ashish Aggarwal, CEO, Invest India Micro Pension Services, Retail finance needs to do a Nano to reach out to the mass market in India. The inference with Tata Motors Rs 1-lakh car here seems more to do with product and delivery innovation than mere low price. For instance, even as micro finance has emerged as a viable business over the last decade to meet credit needs of both urban and rural poor, moneylenders still figure as a prominent source of credit. The challenge for organised playerswhether credit cards or bank loansis to match up the informal sectors efficiency in disbursement and geographical spread without the high cost associated with institutions.
As the economy, and specially the financial sector, rebounds with a bang after the economic slowdown of the last year or so, the animal spirits seem to be back in retail financial services sector, as evident from the spate of expansion, takeovers and announcements of big investments and new projects of late.
And such is the scale of this opportunity that everyone wants to do everything, to a point where boundaries are getting blurred. A few non-banking finance companies (NBFCs) like Reliance Capital and Indiabulls are, reportedly, being considered favourably by the Finance Ministry to become banks. Corporate-focused financial services companies are getting into retail brokerage and wealth management. Edelweiss Capital recently bought Ahmedabad-based Lalbhai Groups broking company, Anagram Capital, for Rs 164 crore to expand its retail broking business in tier-II towns. Brokerages, like Motilal Oswal, are launching asset management companies.
Not to be left behind, banks, from the country largest lender State Bank of India to Punjab National and Union Bank, after the recent nod from sector regulator Reserve Bank of India (RBI), are working aggressively to build their over two-lakh-strong army of business correspondents, essentially retainers who will collect deposits and help bank consumers withdraw cash and help remit money within the country. And NBFCs like Muthoot Finance are giving a new marketing twist to the traditional pawnshops by launching a nationwide service for loans against gold jewellery. Many others of its ilk are diversifying their portfolios and venturing into newer product, such as loan against shares and property. These include Bajaj Finance and Indiabulls. For example, the loan against the property market itself is estimated to be around Rs 12,000 crore in 2009-10.
Even regulations and regulators seem in a mood to oblige the retail consumer. Capital market regulator Securities and Exchange Board of India (SEBI) abolished entry load on mutual funds in August last year. More recently, the RBI nudged banks to liquidate their MF portfolios in order to spur lending, thereby titling the scales in the Rs 8-lakh-crore MF market decisively in favour of the individual investor. The launch of the MF trading platform on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), though currently experiencing lacklustre trading, will ultimately help expand the retail MF market.
RBIs July 2009 notification allowing for cash withdrawals at around five lakh point-of-sale (POS) terminals at merchant establishments using a debit card, and making ATM usage free for all bank customers starting April last year, too, taps into the systems desire to facilitate easier access to money for the retail consumer.
Says Manoj Mohta, Head, Retail Finance Market, CRISIL Research, Growth in the retail finance market has largely been led by bigger towns and cities. The share of top 20 cities in car loans is as high as 70-75%. Increased focus on financial inclusion through increased coverage and retail finance products tailor made to serve rural market would drive the growth of the segment on a long-term basis.
The untapped semi-urban and rural markets may well be the game changer for retail finance in India. The pick-up in rural economy aided by higher support price for crops, job guarantee schemes and loan waivers is also inviting players to tap the growing prosperity in villages to sell financial products. The rural market still remains a virgin market. Currently, we are working around a strategy based on tier-II and III cities, says Vishjeet Parashar, Senior VP and Head, Marketing, Bajaj Capital. The company, which has operations in over 250 cities, and generates over three-fourths of its business from metros alone, claims it is now working on a sub-broker based model, essentially reaching out to consumers in smaller cities and hard selling a gamut of financial productsinsurance, MF, loans and more.
Religare Securities, part of the Religare Enterprises, too, is banking on growth from outside big metros, and is expanding its branches in smaller cities and spending big on consumer education. Says Ashu Madan, President, Equity Broking, Religare Securities; Financial products are required everywherefrom Kanyakumari to Kashmir and that is what one needs to build on. We have to understand that the demand is present, but people do know how to go about investing their savings. In order to reach out, we are working on specialised advertising campaigns in regional languages for south. Going by our experience, they connect better with the product then.
Expansion is big theme with insurers too. Take Max New York Life Insurance for instance. Its hub-and-spoke model, initially piloted in Punjab, has now been rolled to Haryana, Maharashtra and Gujarat. How it works is simple. Every hub (office) is connected with ten (smaller) spoke offices, which, in turn, service 20 villages each. The company has also tied up with public sector oil company Indian Oil Corporations Kisan Seva Kendras, which offer multiple products to farmers along with Maxs life insurance. And its micro-insurance product, Max Vijay, with an entry point as low as Rs 100, is still fine tuning its retail strategy to build huge volumes with the bottom-of-the-pyramid market.
Says KC Jacob, Vice-President, The Muthoot Group, We started exploring the pan-Indian market only five years back. Today, we are present in 22 states. In Punjab, Haryana, Gujarat we are present in every district. Our next expansion drive will be in UP, Bihar and MP. We are targeting 15,000 branches by March 2010.
Experts opine retail banks are poised on a stronger wicket than NBFCs under current regulatory framework. Says Arijit Chanda, an expert in retail financial services with Mumbai-based consultancy Training CentralSolutions, With RBI bringing in banking correspondents to expand reach for financial inclusion will certainly give an edge to banks. Some NBFCs may become business facilitators for banks augmenting their fee-based income, while at the same time not taking assets on books. For an NBFC, the concept of being an intermediary itself will get challenged if local people and post offices as business correspondents get an overwhelming response. If NBFC become facilitators or get permission for a local area bank, then the equation will change.
The Tech Factor
Technology will play a key role in marketing and delivery of retail finance products and reduce operational cost that may well change the dynamics. Mobile banking, ATMs and point-of-sale will now have a crucial role in distribution of retail finance products and services.
Says Harsha Kapoor, Head Financial Services, Tata Strategic Management Group, With a mobile subscriber base of more than 400 million and mobile penetration at 35%, there is immense potential for leveraging mobile technology in financial services area. In terms of regulations governing mobile banking, India is far behind countries like Kenya, Brazil and Philippines. In India, current guidelines only allow licensed banks with a physical bank presence in India to offer mobile banking. To further the cause of financial inclusion, mobile banking needs new level regulation that should encourage branchless banking.
SBI plans to get big time into POS terminals, over six lakh across the country, to tap the huge cash economy, especially in smaller cities and towns. With ICICI Bank selling its 1.5-lakh-odd point-of-sale terminal business for Rs 368 crore to US-based payments solutions provider First Data Corp (FDC) in December last year, POS may well become the next business model to cash in. De-materalisation of insurance policies, something that the sector regulator Insurance Regulatory Authority of India is currently mulling, will bring a sea change in not just how consumer access their policies, but will have help the industry bring down distribution costs. Given the changing market matrix, how the players cash in on the opportunity remains to be seen.