ET 500 2011: Chanda Kochhar, Shikha Sharma share insight on financial services industry for the decade ahead

Over the last decade or more, India’s growth has been powered by the services sector. And within this segment, financial services have grown the fastest after hotels, trade and communications. In FY11, this segment expanded by close to 10 %. As the economy grows, it is this segment which holds the potential to make a marked difference in terms of boosting efficiency and incomes besides creating jobs. India’s financial services industry today has firms which have the potential to compete with the best in the world. This will come with further opening up.

In the decade ahead, given the latent promise of this sector, there will increasingly be demands for better and innovative financial products, changes in the way funds are transmitted and opportunities in new areas. ET sought the views of a few top notch professionals in the industry, who are well placed to lead this charge, to gain an insight into the growth drivers for the financial services industry in the decade ahead.

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Chanda Kochhar, MD and CEO, ICICI Bank

On how the Indian financial sector will evolve over the next decade

The Indian financial sector will continue to expand in scale and scope, driven by the growing needs of the economy. The banking sector is expected to grow to five times its current size in the next ten years. Banks and other financial service providers will have to refine their products and services to cater to different product segments — from global corporates to SMEs and from wealthy urban Indians to low-income households in rural areas.

Technology will enable new modes of delivery of financial services and new ways for customers and banks to engage with each other.

Growth drivers for the industry and the next big opportunity

The growth drivers for the financial sector will reflect the long-term fundamental drivers of the Indian economy —favourable demographics, rising incomes, a growing consuming class, infrastructure investment potential and growing size and scale of Indian corporates. The growing economic activity in rural India and the emergence of smaller cities will be key drivers that the financial sector will have to leverage.

We expect a significant increase in infrastructure financing requirements going forward. The continuing expansion of Indian companies provides significant opportunities for corporate banking business.

Shikha Sharma, MD and CEO, Axis Bank

On how the Indian financial sector will evolve over the next decade

Retail and small corporates’ credit penetration is significantly lower than in similar markets and we expect this to increase in the near future. This will help the industry in maintaining its current growth over the next decade with private banks growing at a premium to the industry.

We expect the financial knowledge of the Indian banking customer to increase in the next decade. This will lead to a demand for more sophisticated products. We expect industry to evolve a new business model to promote financial inclusion and the under banked in both retail and corporate segment by 2020.

Growth drivers for the industry and the next big opportunity

Banking itself is relatively under-penetrated. For instance, bank loans are 71 % of GDP compared to 100% in Brazil and South Korea and over 200 % in the US, UK and Japan. This indicates that in an emerging economy like India, there are opportunities across various sectors for banks.

The penetration of retail lending is even lower. Retail lending and small and medium enterprises could be significant growth drivers for the banking industry.

In the retail space, apart from consumer lending, there is a significant opportunity for banks to participate in the growing affluence of retail customers by offering wealth management.

DK Mehrotra, Acting chairman and MD, LIC

On how the Indian financial sector will evolve over the next decade

There is huge potential, but you have to start selling insurance as insurance. That is why we are saying, we are going back to basics. If there is a demand I should be present there. Though we were the first to come up with a Unit Linked Insurance Plan — Bima Plus, we never pushed it. Our thrust now is that we want to create space for traditional products.

Growth drivers for the industry and the next big opportunity

The future market belongs to pension and annuity. The pension business has huge potential. For the pension products, you have to catch them young.