Banking in a transforming economy

IDRBT Foundation Day November 6, 2012

Agenda
Technology & disruptive change in banking

A transforming India
The future of Indian banking

Agenda
Technology & disruptive change in banking

A transforming India
The future of Indian banking

Disruption in banking
Banking sector early adopters of technology

Improve operational efficiency

Minimise costs

Enable high-speed processing

Allow data capture and data mining

Improve customer experience with enhanced internal efficiency

Developments post the year 2000

Advent of retail banking Growing presence of foreign banks Emergence of a universal banking model Banks and non banks competing to serve similar customer needs Technology driven innovation in products and access to services Focus shifting to inclusive banking

Technology impact on banking post 2000

Infrastructur e

RTGS (2004)1 NEFT (2005)2 Interbank Mobile Payments System (2010) ATM installed base of over 100,000 (over 27% compounded growth from 2006 to 2012) POS terminals over 700,000

1. Real time gross settlement system 2. National electronic funds transfer

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The disruptive power of technology

ICICI Bank Branches ATMs Internet POS Call centre Mobile Share of transactions in 2001 Share of transactions in 2012

94%
3%

12% 41% 35% 7% 2%

2% 1%

2%

Technology is in a continuing state of flux

From mainframe to minicomputer to desktop PC

And now, mainframe in a pocket

Higher capacity and processing capability Software to run the devices Ability to connect through broadband and wireless Mobility, new platforms and the ecosystems in handheld devices

New platforms such as for payments are now challenging the traditional bank channels

The next wave: being connected

2.25 bn (32%) of world population is online today, and 1.10 bn users are on 3G Mobile internet is ramping up dramatically

57 mn 3G users in China, y-o-y growth of 115% 39 mn 3G users in India, y-o-y growth of 840%

Mobile internet now makes up 50% of internet traffic in India

Source: KPCB

Out of 1.80 bn mobile users in China and India

One billion will go online in two years

Connectivity in India ..
Third largest internet user base

Second largest mobile subscriber base

100 mn internet users, 800 mn mobile subscribers Broadband connectivity a catalyst Consumers are becoming part of the cloud seamlessly without consciously realising it Device costs will continue to drop More and more capabilities would be available at lower costs .. would have a significant impact on banking

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Agenda
Technology & disruptive change in banking

A transforming India
The future of Indian banking

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Indias current positioning

China (USD) GDP (bn) Per capita GDP Population (bn) 2003 1,641 1,270 1.29 2005 2,257 1,726 1.31 2010 5,930 3,738 1.34 2012 (E) 7,992 5,899 1.35

India (USD)
GDP (bn)

2003
590

2005
808

2010
1,598

2012 (E)
1,779

Per capita GDP

Population (bn)

549
1.07

729
1.11

1,342
1.19

1,455
1.22

India in 2010 was at the juncture where China was in 2003

(E) - estimate Note: GDP is on nominal basis Source:IMF

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Rapid urbanisation
GDP USD bn
Belgium M umbai Denmark Thailand Delhi Portugal Kolkata Czech Bangalore Ukraine Chennai Hyderabad
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Indias large metros in 2030: by GDP

174 171 157 146 117 115 68 64 45 44 35

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Indias metros in 2030 will be as large as some countries were in 2005

Assuming an annual GDP growth of 8.0% between 2009-2018 and 7.0% between 2018-2030 Source: Mckinsey

Resurgent rural India

Over 700 mn people across 600,000 villages Rural growth supported by:

Changing characteristic of rural economy with reduced dependency on agriculture Rising wealth creation with estimate of 40 mn middle & high income households by 2010
(% ) 100 80 60 40 20 0 1999-00 2004-05 2008-09 51. 4 38. 3 31. 8 28. 6 20. 0 24. 1 25. 8
Ind ustry Ag riculture

S h ar e in r u r al N DP Ag r icu ltu r e In d u str y S er vices 42. 4

Services

37. 5

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Looking ahead: impact of per capita Per capita GDP growth

GDP at US$ 2,500-4,000 Per capita GDP at US$ 1,500 -2,500

Per capita GDP at US$ 500 -1,500

Per capita GDP < US$ 500

Accelerating consumption cycle 2018-2021

Limited aspirations Low affordability Early 2000

Increased affordability Aspirations of a better lifestyle 2002-2011

Demand for better living environment 2012-2017

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Agenda
Technology & disruptive change in banking

A transforming India
The future of Indian banking

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Technology for the masses

59% of Indias households avail of banking services Only 10% have life insurance
< 1% have general insurance Only 2% have a credit card Only 13% have an ATM + Debit card

The challenge is in banking 700 million people in 600,000 villages in close to 600 districts

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Channel innovation
Driving scale and profitability
Smart cards

Opening and operating savings accounts Easy KYC Used by branchless banking channels

POS machines Low cost branch Low cost ATMs

Resource efficient branches

To bridge distance and ease transactions For all banking operations Steadily gaining traction

Mobile phones

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Smart cards have simplified data capture

Biometric Transaction Card

Biometric smart card for secure validation Overcome distance by setting up service points close to customers Most effective for the poor and uneducated

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Branch in a box

POS based solution offering banking transactions like balance enquiry, cash withdrawal, deposit Cheque payment (with capability to display signatures for verification) RTGS1/ NEFT2 Can support transactions like pass book printing, opening of fixed deposits and bill payment Low bandwidth GPRS connectivity
1. Real time gross settlement system 2. National electronic funds transfer
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Unique identity number

Preliminary KYC and wider acceptance

Instant identity verification Basis for Know Your Customer Build credit history Improve service delivery to the poor Customer management to avoid issues of overleveraging

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Financial services for all

Subsidy transfer

Direct payment of benefits such as NREGA, Social Security Pension schemes Cashless payments through mobile wallets Account history from electronic transactions for data driven lending

Payment ecosystem

Credit

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Customer engagement
Customer acquisition and on-boarding

Branches ATMs Online channels

Products that address needs of diverse customer segments Strong distribution backing products Development of new channels by leveraging technology Consistency in experience across channels

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Customer engagement
Servicing customers through the life cycle Analytics

Consistency of customer experience across channels of distribution Analytics to understand and address customer needs across diverse segments Development of banking history for underbanked and unbanked customers for cost effective credit

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In summary

Technology has transformed banking globally and in India Technology adoption by Indian consumers is proceeding at dramatic pace India itself has transformed and will transform even more in the years ahead Technological innovation in India will lead the way for innovation in banking Banks will use technology to attract and serve customers across the pyramid

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Thank you

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