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Financial services sector has been under pressure thanks to the overall slowdown. Where do you see growth coming from in the next few years?
Financial services is a sector that is inextricably linked to both the growth of the real economy and sentiment in the economy. With overall growth slowing and sentiment being muted over the last few years, the sector has inevitably slowed. Over the last three years, the private sector life insurance players have seen new business premia drop by about 10% per annum. The same sector grew at 22% per annum in the decade of the 2000s. Mutual fund industry's AUM has grown by 8.87% per annum in the last three years vs 8.05% per annum in the previous three years, though lot of the growth has come from liquid funds and FMPs. Lending has generally remained robust, growing at over 20% CAGR over the last few years. Equity market volumes decreased and the number of IPOs have also gone down drastically.
Given the low penetration of financial services in general in the country and a likely pick up in financial savings as inflation falls and the economy returns to a higher growth plane, we believe that all segments of the financial sector should see reasonable growth. As such, we see growth in all segments of financial services as growth recovers.
Over the last two years, financial services businesses are focusing on lending activity. How has Aditya Birla Financial Services fared in that segment and how do you see this business faring in the coming years?
Yes, it is true that fee based businesses have generally faced more headwinds in the last few years, partly due to the changes in the environment and partly due to regulatory changes altering the distribution models in this space. Fund-based businesses on the other hand have continued to grow. Our NBFC, Aditya Birla Finance has recorded very good growth in the last two years and the lending book stands at Rs 11,550 crores as on March 31, 2014 vs about Rs 3,425 Crores in March 2012.
With RBI holding back licenses to corporates, what is the likely impact on your future plans?
As for the bank license, we await further information from RBI on the next steps for applicants like us.
Is a consolidation imminent in the financial services business too?
On one hand, if we look at the current penetration levels vis-a-vis the number of players in the markets, one could say that there should be enough scope for more players. We after all have 44 mutual funds whereas there are 80-90 in countries like China. Take life insurance companies where we have 24 in India vs 35-40 in Indonesia. On the other hand, there have been players operating in both these sectors as well as in other sectors such as say stock broking who have not been able to build scale and who could look to exit, leading to consolidation.
Can you share with us how each of your key businesses have fared over the last few years? Where do you stand in terms of size and scale in each category and how have you moved up in recent times?
Since FY 09, after which I believe the slowdown really started in India, our aggregate revenues grew from Rs.4763 crores to Rs. 6,640 crores in FY14, a CAGR of 6.9% p.a. We were losing money in FY09 as our life insurance business was growing fast at that time; in FY 14 we delivered a profit before tax of Rs 745 crores. Our average AUM which was around Rs 58,000 crores at the end of FY09 has grown to Rs 1,22,362 crores as of March 2014, a growth of 16.2% p.a. Our lending book which was about Rs 900 crores at the end of FY 09 is Rs 11,550 crores as at 31s March 2014, a growth of 66.6% p.a. So I would say that given the economic environment over the last few years, our businesses have been reasonably resilient and have scaled up wherever the opportunity has existed to do so.
What is your AUM in the asset management business and insurance business? Where do you stand in the pecking order in the industry?
Today, we are ranked among the top five fund managers in the country (excluding banks), managing assets in excess of Rs 122,362 crores as of March 2014.
Birla Sun Life Insurance, our life insurance business has a total AUM of Rs 24,775 crores as on 31st March, 2014. Basis overall premium, the company currently ranks at number seven among private life insurance players. Birla Sun Life Asset Management company, our asset management business has an AAUM of Rs 96,429 crores as on March 31,2014 with a market rank of no.4.
Marketing of financial products has increasingly become difficult due to regulatory reasons, how are you dealing with distribution in the circumstances?
An effective distribution framework requires organizations to make products available to customers when, where and how they desire. A multi channel approach in a country like ours is always preferred by scale players as different customers have different requirements.
Changes in regulation have reduced the earnings of several distributors who were selling single products. Mutual fund distributors have seen the elimination of front-end loads for instance or have seen the entry of the direct plan, both of which have impacted their earnings. In Life insurance, the rationalisation of product structures and commissions has meant that many agents have left the industry. Our approach has been to continue to build multi channel distribution.
When do you see India's growth picking up and what is your outlook for FY15?
We have been growing below potential for a few years now. The near term potential growth rate in India has also fallen from 7-7.5% to 6-6.5%. We need growth to ensure our young workforce gets employment and our population can raise its standard of living. While the domestic economy is not yet showing any discernible signs of bottoming out, especially with the last print of industrial production growth still in the negative territory, we believe the worst may be behind us. We expect headline GDP growth to pick up to 5.2 to 5.5% in FY15.
