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Archive for the ‘Finance’ Category

The first Walmart store opened in North India in 2009. The arrival of the retail behemoth signaled how India has started to play increasingly with foreign entities and slowly but surely, opening up its guarded doors of yesteryears to the world.

1.2 billion people make for a very lucrative and appealing market. However, historically, this market had been closed to non-Indian MNCs. It was only starting in the early 90s that India finally started to open up its doors to let foreign goods come into the hands of the local Indian. This groundbreaking initiative was heralded by one man – Manmohan Singh.

Singh now sits as the leader of Emerging India – and is the core architect of another immense initiative. That to increase Foreign Direct Investment (FDI) in India. The locks on the various sectors are opening up one-by-one to let in foreign companies to establish shops within Indian grounds. One of the latest sectors to open up is the retail brand sector – which is the cause for entities like Walmart to place their foot in India.

FDI within retail has its supporters and its opposers. The pro side cites issues such as supply chain improvement as a strong basis to let big box retailers enter India. Currently, the Indian system is a mixture of local small-owner stores and peppered with some supermarkets. The way current system is laid out makes for a very confusing, messy system with many tangled wires. However, this system provides basis for some of the anti-arguments. The opposers are worried that with the arrival of entities such as Walmart, small-shop owners will be driven away due to pure price-based competition because of the the ability of Walmart to secure financially lucrative partnerships with its suppliers. To an Indian consumer, sensitive about price, this makes for a huge case to shift from his known local grocer to a much cheaper and reliable (in terms of quality of goods) Walmart.

The way the story FDI in India will unfold is still somewhat unknown. One can look at trends from other countries that have undergone similar transformations. However, since India is itself an interesting market – certain challenges will mark the course for how the country embraces FDI. For example, all has not been smooth sailing for Walmart India as it tries to understand the bribery system within the country. It has, at the time of the publication of this article, suspended its employees in India as it investigates accusations of bribery within its Indian (and some other countries’) operations.

However, all in all, this does not discount the fact that India is ranked among the top 3 countries to invest in according to different surveys. Over the course of the last decade itself, India attracted a cumulative amount of FDI equity inflows of US$ 186.79 billion. It will be intriguing to see the evolution of FDI as the country evolves its core business methods through partnerships with foreign MNCs.

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Shikha Sharma, MD CEO Axis Bank

Shikha Sharma, MD CEO Axis Bank

Shikha Sharma is the Managing Director & CEO of Axis Bank since 2009. Axis Bank is amongst the three major private sector banks which commenced business in 1994 as a consequence of the liberalization and reform of the financial sector. Previously, she was the Managing Director & founder CEO of ICICI Prudential Life Insurance Company. She has done her B.A. (Hons.) in Economics, and completed her Masters of Business Administration from the Indian Institute of Management, Ahmedabad in 1980. She has a Post Graduate Diploma in Software Technology, from the National Centre for Software Technology, Mumbai.

India@Kellogg spoke to Ms.Sharma about her views on the Indian banking sector and the strategic priorities for Axis bank.

Q. Ms. Sharma, thank you so much for agreeing to speak to us. Since you took over as CEO, what have been your key priorities?

In the three years I have been here, I have found Axis Bank to be a strong and vibrant organisation with some great strengths, particularly in retail liabilities and corporate banking. The Bank also has a culture which fosters and encourages dignity and respect for all individuals and is very welcoming of outsiders. The key priorities for me have been to build and diversify the Bank’s product portfolio, enhance the capabilities in risk management and HR and overall build an institutional, scalable platform commensurate with the scale that the Bank has gained in the recent years.

Q. Looking ahead, which business lines do you see aggressive growth in the banking sector in?

We are really excited about the India story, notwithstanding all the headwinds and challenges we are reading about these days. We remain positive on the structural growth story of India in the medium-to-long term, and hence all aspects of banking will continue to see growth. Given the evolution of banking, clearly mortgages, auto finance and consumer loans, which are underpenetrated will see rapid growth. We also believe that mobile banking will enable India to leapfrog the typical evolution of payments infrastructure from cash to cheques to cards. This arena is conducive to some innovative, path-breaking banking models going forward. On the other hand, corporate India will continue to seek opportunities for growth both in India and overseas, be it in infrastructure or other sectors.

Q. Increasing urbanization and rising spending power continue to drive intense competition in the retail banking space. How do you see Axis Bank successfully competing and differentiating itself in this arena?

The Bank has a sweet spot in the mass/mass affluent segment and is known for high levels of customer engagement and loyalty in its branches. We believe that this is a sustainable differentiator for us going forward. Of course, we will have to ensure that we have competitive products, innovative delivery models, responsive turnaround times, etc.

Q. How do you view the role of technology and innovation in banking? Are there any specific investments that Axis Bank is making in this direction?

Technology has typically been in the background as far as banking is concerned, but that is fast-changing. Today’s consumer is embracing technology very quickly, with significant repercussions on customer segmentation, product design and delivery and indeed the analytical backbone on which banks can design their offerings. We believe that a lot of innovation will happen around these areas. We are investing in building our analytical capabilities and of course in continuing to scale up our technology architecture so as to make it more robust and flexible at the same time.

Q. Could you share a bit about the opportunity and challenges you see in Rural Banking?

The rural opportunity needs a nuanced understanding – today agriculture accounts for less than half of the rural GDP. The rural ecosystem is therefore a lot about services and small industries in addition to the agricultural ecosystem. The current opportunity is centred around consumption and micro-credit, which has not been the domain of traditional banking models. We are in the process of designing and running some pilots to test the waters in this space and will be guided by the results of these pilots before we take the next steps.

Q. In the past couple of years, there have been a number of new banks and NBFC’s. Could you share your thoughts on the room for more banks in India and their challenges?

At the end of the day, banking is a business of trust and unless new entrants already enjoy the confidence of customers in their existing businesses, they will need to build the trust over several years. This is likely to be their greatest challenge. Having said that, some of the players who may be present in other lines of business (e.g. NBFCs), could certainly bring their own business models to the banking space, and to that extent, they will challenge existing players, and the customer will benefit from this.

Q. Finally, what is your vision for where you want to take Axis Bank in the years to come?

A couple of years ago, the entire senior management team developed a vision for the Bank which essentially says that over the next 3-5 years, we would like to deliver consistent, profitable growth at a premium to the industry, with a diversified business model. We would like to ensure maximum share of wallet of our customers, but want this to be driven by customer insight and consistently superior customer service.

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The MD and CEO of Axis Bank, Shikha Sharma delivered an insightful talk about the changing structure of the Indian economy and outlined some of the issues facing the financial sector in India today. Following are excerpts of her speech at the Kellogg India Business Conference 2011.

State of the Indian economy

“Since the implementation of economic reforms in 1992, India has undergone a significant structural shift in its economy. Post global recession in 2010 the following trends have emerged.  There is a long term savings rate, of close to 30%, and over time, this fuels the growth story in India. One also observed a decoupling from global economic markets. The financial and banking industries remained fundamentally strong, and liquidity shocks were curtailed by strong domestic demand and prompt policy response.  Trades continue to rise, and internal remittances continue to grow at a healthy pace.”

Building connections externally and internally

“In building bridges externally, Indian firms have expanded their presence overseas for sales, technology and resources.  Labor mobility also forms a significant portion of this bridging efforts. There is a lot of innovation on delivery to large markets globally and several smaller markets internally. One example is in mobile telephony where a lot of innovation caters to the needs of the bottom of the pyramid. Indian companies have accepted that they are a part of a global economy and they compete globally.  She spoke of many firms like Tata and Hindustan Unilever Limited (HUL) that have devised innovative new products. Large firms have shifted their India strategy and no longer move to India only to save costs.  They are here to devise innovative products for the large market that is India.

Internally, labor mobility also helps spread change across the Urban rural divide. The size of the rural markets in India have significantly changed due to implementation of NREGA and other national schemes designed to distribute growth evenly across the divide. This is leading to an integration of the urban and rural market in India, by accelerating market convergence in other areas like delivery of medical and education services.  GE healthcare was one such example.  IT e-choupal is an example of changes in logistics and supply chain.”

Credit crisis and the perception of the Indian economy

 

“Around 2003, the global business world began to view India as a high growth economy. The structure of the economy has changed significantly over the last decade where services have become the dominant driver of the economy. When the crisis hit the world in 2008, the jury was out on ifit would rein in growth in India and China or whether these countries were decoupled from the global economy.   India did feel the impact, but very soon began to recover (faster than other economies) because a large part of the economy is driven by domestic factors. While financial flows impacted Indian markets immediately, the government took a lot of steps, including reduction in excise duties, government guarantees for export, NRETS gave money to the public and re kick-started consumption.   Many in the industry were surprised at the low level of impact of the crisis, and as a result India has taken on a larger role in global forums places like FSB, WEC, G20 etc”

Drivers of this transformation

 

“Increasing global connections were both a manifestation and a result of growth. Trade volumes in service and merchandise exports increased. The development of infrastructure and ports was privatized and this helped catalyze growth.  India also became a global outsourcing and R&D hub – with firms like Ranbaxy, GE, Kalyani, Renault, and DRL setting up research centers in India.  Indian companies expanded their presence overseas, gaining access to new technologies. (eg Tata acquisition of Jaguar)   Government Initiatives around import of fuel, co investing in coal mines, natural gas, iron ore etc  helped provide the base resources for Industrial expansion”.

Next Steps in the Financial Sector

 

“The focus now needs to move to financial inclusion.  Every firms needs to do its bit in terms of getting financial solutions out that provide greater inclusion and better levels of service. Firms need to innovate and come up with a new model. A combination of some models like HUL ‘Shakti’ model in tandem with mobile technologies and stripped down versions of these products could help generate growth in this sector.  India does not have well developed debt and pensions market, and there is a huge opportunity in this space for new products”

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LIC and life insurance in India

Mr. Dinesh Mehrotra took charge as Managing Director of Life Insurance Corporation in 2005 and has been with the organization for 33 years. His vision to make LIC a world class organization in people, products & process has seen him being entrusted with several pivotal positions spanning three Zones. Two of the biggest divisions  Dehradun & Ahmedabad excelled under his excellent leadership skills, able guidance and strong presence, and the trail blazing Eastern Zone bettered its own glorious performance during his tenure as Zonal Manager in-charge. He also has international exposure in the field of Insurance through his posting in the foreign office of LIC at Suva, Fiji. Prior to taking charge as Managing Director, Mr. Mehrotra was posted as Executive Director (International Operations) at Mumbai to lead the Corporation’s overseas thrust. Despite the demanding nature of his job Mr. Mehrotra makes sure that he spends quality time with family/friends and pursues his interest in Music.

Life Insurance is the fastest growing sector in India since 2000, after the Government allowed the entry of private players. How has the emergence of other corporate entities, Indian as well as transnational brands impacted the way LIC India goes about doing its business every day?

Leaving aside last year’s melt down, the Indian Life Insurance industry has been on the Bull Run over the past 7 years. The industry has experienced phenomenal growth, complimented by the country’s improving economic fundamentals. Mega forces of liberalization, technological revolutions and wealth creation so far have driven the changes. Opening up of the sector, in fact, worked wonders for us; it has unlocked our value in the areas of product innovation, distribution capabilities and claim process management. We have been able to offer innovative products, better returns to policyholders and have created unimaginable records in new business creation and claim settlements.

As head of the marketing Units, where have you seen the largest focus for LIC advertising spend?

LIC, the biggest brand in financial services, aims to reach every customer segment – right from young children to the pensionable adult via television, print, internet, radio, outdoor, digital signage and below-the-line activities. Our brand messages are aimed at building trust and emotional equity with customers. We recognize that both these aspects are extremely important when customers are making the decision to invest in a life insurance product. Since consumer needs and aspirations are changing fast, need for innovation remains constant and relevant as ever. Accordingly, our advertisement medium has undergone significant shifts. Technically, we ensure our presence through every conceivable medium depending upon the profile of the target audience; yet we are focusing more on the electronic media and internet. Social media’s massive viewership and instant reach to the internet savvy cash rich indi viduals belonging to all age groups, including women, makes it a very attractive avenue to market and advertise our products.

LIC is constantly offering innovative products targeted at different customer segments e.g. Unit Linked Investment Plans (ULIP). What are some of the future product offerings that LIC is considering?

Over the years LIC has designed its insurance, pension and superannuation products by anticipating the present and more importantly the future savings and insurance requirements of the insurable population of the country. We clearly differentiate ourselves in the Indian insurance market as a leader in marketing and selling innovative insurance and pension products. These unique products have not only been the building blocks for the company but also have redefined the way insurance, savings and pension needs are understood. Even after achieving historic highs in product sales recently, it appears that we are just at the beginning of an exciting ride. There is a huge untapped potential in health insurance and pensions, where life insurance players so far have no significant presence. India’s elderly population is already growing quickly. By 2016, the elderly pensionable population is expected to reach 113 million. In the health insurance sector, only 14% of the population is covered by health insurance of any form. Adjusting policy size for purchasing power parity shows that health insurance in India is about one-fifth the size of that in countries such as the United States, Germany and South Africa. Being a dominant player in the life insurance market, we believe that we can make a strong impact in the pension & health insurance sectors by offering tailored products.

What are your views on some of the emerging trends within the life insurance industry in India?

The role of insurance is undergoing a phenomenal change today as is evident from the product portfolio and advertisements. The emphasis lies on insuring oneself and one’s close family members for self-reliance more so because nuclear families are the emerging trend in the country today. To meet the varying needs of various individuals, the insurance players have a vast array of products in their portfolio. Besides this, almost all companies offer the flexibility to customers to choose the most suitable product for themselves by combining features of a number of products together. Thus the products can be customized to suit individual needs.  To reach out to consumers, various players in the industry today have widened their distribution channels and approach prospective customers through tied agents, brokers, banc assurance, non-bank finance companies and direct channels such as the telephone or internet.

LIC has been one of the pioneering organizations in India to leverage the use of information technology in servicing its clients. What were some of the challenges in managing the change within the organization?

Being one of the very first and largest users of IT, in terms of hardware and in-house developed software, LIC has embraced new emerging technologies to meet the changing needs of its clients. Our biggest challenge was the management of mammoth 400 million databases – the largest data warehouse in the BFSI (Banking, Financial Services and Insurance) segment in India to have a single and real-time source for its MIS. We have also initiated smart campaigns and used it as a spring board for major CRM (Customer Relationship Management) initiatives. We have initiated smart practices in data mining, profitability analysis and actuarial valuation. To be in sync with the changing IT environment, we embarked upon an ambitious project of moving towards a paperless office by digitizing 220 million policy dockets. In future, we plan to modernize our core insurance solution and centralize our databases across 2,048 locations. We are working on batch processing at central locations in order to have superior volume handling, quality control and operational efficiency in claim process management. Finally, we have opened Customer Zones at select centers to offer single window umbrella services for all policy needs.

Any plans to increase LIC’s presence internationally?

LIC already operates in more than ten countries, either through branch offices or JV companies. We are now in the process of establishing a wholly owned subsidiary (WOS) at Singapore. Once our operations at Singapore are successfully launched, we propose to make it a hub for expansion of operations to other ASEAN countries.  After Singapore we may plan a market research exercise to examine the feasibility of setting up a business office in Sydney, Australia. Internationally, we are also considering opportunities to grow horizontally by acquiring life insurance portfolios from companies that are selling their life insurance businesses. Expansion to the US is also on the cards. However, the decision to move into this market would depend on prevailing economic conditions and regulatory approvals.

Any advice for Kellogg students who might be looking to pursue careers in the insurance industry?

The Indian insurance industry has witnessed exceptional growth in the past couple of years. It has a mix of public and private players both in the field of life and non-life businesses. This sector not only provides a protective shield to the lives and assets of the nation but also generates thousands of jobs and career opportunities. A career in life insurance is rewarding. You help people realize and fulfill their financial goals, making their lives more satisfying than ever. What’s in store for you? A rewarding career, attractive remuneration, unbelievable career growth and the freedom to be your own boss if you work as an intermediary. It’s a win-win situation for our customers and you. I welcome everybody who is interested to come join our industry and to experience unimaginable growth, career enhancement, job satisfaction and rewardship.

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