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Banking monthly
What’s inside?
Key takeaways- management meeting and interviews
Round up on news flows- regulatory and company-specific
Banking sector round-up- Credit growth, interest rates and liquidity
Update on insurance and mutual funds– Flow, market share
Valuation– Price performance, comparative matrix, P/B band charts
Take a look!, ‘Banking Calendar’, links to our recent reports
Takeaways-management meeting and interviews
In our recent interactions, management of most banks were confident of ~20%
growth in loans. However, we also sense signs of caution due to moderation in
credit demand for infrastructure, working capital and retail loans. This concern
reflects in the fact that none of the banks have yet raised their lending rate after
RBI hiked policy rates by 25bps. Deposit rates have also been stable and this may
help to contain margin pressures. Most private banks are now planning to expand
into rural areas to diversify their network as well as to meet RBI’s new emphasis
on banks directly meeting their targets on priority sector loans. The recent hike in
some fuel prices will reduce working capital demand of oil marketing companies.
However, the cut in duties will expand government’s fiscal deficit and increase
borrowing programme in 2HFY12 which may put upward pressure on yields.
Sector round-up– Trend reversal in FY12
Over past month, market has remained range bound and Bankex (up 2%) has
outperformed Sensex (up 1%). However, larger and high CASA banks have
considerably outperformed the smaller ones (SBI, ICICI, HDFC Bank and Axis up
+5%). We believe that in FY12, credit growth will moderate to 18% and will be
outpaced by deposit growth of 21% (click here for detailed note). As credit
demand moderates in a generally higher interest rate environment, we expect
high CASA banks will be able to gain market share. Our top picks, ICICI Bank and
HDFC Bank, benefit from lower cost of deposits as well as stable asset quality.
Update on insurance and mutual funds- Apr-11/ May-11
During Apr-11, NBP of sector declined by 3% YoY, due to 31% YoY decline in NBP
of private sector whereas LIC reported 20% growth. In May-11, AUMs of mutual
funds fell by 7% MoM to Rs7.3tn (down 2% YoY). Banks have largely maintained
their investments in mutual funds at Rs930bn and they may lower these over the
next few months to meet RBI’s cap on such investments
Industry Interactions
State Bank of India (SBIN IN– Rs2,288 – U-PF)
1. Bank is targeting loan growth of ~18% over FY12 and expects NIM to
expand by 20bps YoY to 3.5%.
2. During 4QFY11, NIMs compressed by +50bps due to a combination of
rise in deposit costs, reversal of income on NPAs, provision of interest
cost on provident fund and a higher base of 3Q that included interest
on income tax refund.
3. Recent hike in lending rates should help to improve margins as loans
reprice faster.
4. Asset quality pressures should moderate going forward and the bank
has increased focus on recoveries.
5. It recently appointed a Dy. MD to oversee the stressed asset portfolio.
6. For FY12, SBI targets to keep the amount of gross NPA flat YoY (i.e
slippages will be offset by recoveries, upgrades & write-offs).
7. SBI will follow provisioning norms as required by RBI, but provisioning
is likely to be high in 1HFY12 as SBI makes provision for counter
cyclical buffers (Rs11bn), hike in NPL provision rates (Rs5bn) and
provision on restructured loans (Rs5bn).
8. Some sectors that are facing stress are textiles, commercial real
estate (3% of portfolio), engineering and steel.
9. Exposure to key sectors: infrastructure (Rs1tn), airlines (Rs45bn) and
telecom (Rs326bn), of which exposure to corporate groups facing
investigation is Rs15bn.
10. Management expects that capital raising is likely to be in 2HFY12.
11. While tier I CAR is low at 7.8%, SBI can leverage on Tier II capital to
deliver 18-20% growth in FY12.
12. SBI will provide more proactively for pension liabilities for next wage
settlement.
13. It plans to provide for pension liabilities through P&L over next five
years instead of deducting it from reserves.
ICICI Bank (ICICIBC IN – Rs1,065 – BUY)
1. During FY12, management expects 20% growth in loans, in line with
sector.
2. Loan growth will be driven by corporate sector in India and forex loans
to Indian corporates.
3. Retail loan growth will be driven by mortgages, but will lag overall
growth.
4. Loan growth targets are linked closely to growth in CASA deposits and
bank plans to maintain CASA ratio near 40%.
5. For CASA growth, ICICI will leverage on scale-up of recently opened
branches, fresh additions and specific targets to branches on
mobilisation of deposits.
6. Management believes that during FY12 they are likely to be stable YoY
at 2.6% (3% domestic and 85bps overseas); NIMs may be under
pressure in 1QFY12.
7. NIMs may expand in FY13 led by rise in average CASA ratio and
repricing of forex assets.
8. Improvement in pricing environment in domestic market is a positive.
9. On asset quality, management sees limited stress in bank’s corporate
as well as retail loans.
10. Exposure to some risky sectors like aviation, real estate, power and
telecom are well secured and are unlikely to see high stress in the
coming years.
11. However, the exposure to MFIs (Rs10bn, 0.5% of loans) is likely to
face pressure and exposure in Andhra Pradesh (Rs2bn, 0.1% of loans)
may become NPA or be restructured.
12. Management expects ROA to improve to 1.5-1.6%, led by stable
margins and lower loan loss provisions.
13. Rise in leverage and high ROA will support expansion in ROE.
14. RBI is emphasising to banks that priority loans should be made
directly.
15. Interest rate on savings account is likely to get de-regulated.
HDFC Bank (HDFCB IN – Rs2,381 – BUY)
1. Loan growth outlook for HDFC Bank remain positive as demand for retail
loans and working capital demand is healthy.
2. Working capital loans demand is driven by rising volumes and lesser
disintermediation.
3. Manufacturing capex demand for brown-field projects is strong; delay is
mostly in the greenfield projects.
4. CASA deposit growth likely to remain healthy and will be driven by semiurban and rural areas which are the main focus areas for the bank.
5. The overseas loans are also growing fast (up 135% YoY), but the bank is
focussed on working capital financing to Indian corporate groups with
whom the bank has a relationship in India.
6. HDFC Bank has a first mover advantage v/s other private sector banks in
rural areas.
7. The bank is focussing on the rural markets partly to meet the priority
sector lending norms. While bank has some shortfall in meeting the subtargets, the expansion in branch network should help to bridge the gap
over the net 2-3 years.
8. In the infrastructure sector, bank has been testing the market for 3 years
and now plans to increase lending in this sector. Bank’s larger balance
sheet and improved ALM profile also allows to have higher flexibility to do
infrastructure loans.
9. During FY11, the investment in non-SLR bonds have grown at a fast pace,
but the duration of these bonds is short and hence bank faces limited risk
of MTM losses on this portfolio.
10. Current level of delinquencies is low and normalised loan loss provision
would be around 1.2-1.4% (including provision on standard assets that
HDFC Bank will have to start providing from 2HFY12).
Max New York Life Insurance (subsidiary of Max India)
1. During FY11, Max New York Life Insurance (MNYL) reported 8% YoY growth
in new business premium (NBP), better than 17% decline in NBP of private
insurers.
2. Management indicated that MNYL’s bancassurance tie-up with Axis Bank has
been scaling-up quite well and has been a key driver of growth in NBP.
3. Company remains focused on improving the conservation ratio and the sales
force is being accordingly incentivised. MNYL’s higher focus on traditional
policies also helps to keep this ratio high
4. This reflects in MNYL’s conversation ratio of 81% which is higher than most
peers.
5. During FY12, MNYL reported NBAP margin of 19.5%. While new regulatory
norms impacted profitability in the second half, MNYL benefited from high
margins in 1HFY11.
6. There is a shift in focus from growth to cost control and productivity
improvement.
7. In this direction, management has (1) cut agents by 40% to ~44K, (2)
nearly halved the commission rates on Ulips and (3) is also cutting /
optimising on distribution related costs.
8. As a result, management sees ~30% reduction in operating costs over FY12,
even as premiums grow. Initiatives are also being taken to sustain/ improve
the conservation ratio.
9. Cost-overruns are expected to get eliminated by FY14, but MNYL would not
need fresh capital infusion.
10. The expansion plans in the healthcare business remain on track.
REC (RECL – Rs188 – U-PF)
1. For FY12, loans are likely to grow by ~25% led by similar growth in disbursals.
2. REC has an outstanding sanction book of Rs1.5tn and this should support loan
growth in FY12-13.
3. Spreads are likely to be stable in FY12 due to (1) 100bps hike in lending rates
in April/ May (50bps in each month) and (2) balanced repricing of loans and
borrowings (14-15% of current loans and liabilities will reprice in FY12).
4. Average duration of assets is 8 years and of liabilities at 6.5 years.
5. Management believes that most power plants will be able to meet interest and
loan repayment obligations when it operates at ~70% capacity and at ~85%
it should be able generate healthy ROE.
6. Asset quality remains stable and REC has built safeguards while lending to
private power projects. This includes
i. Max capacity allocated to merchant power is 30-40% (no project financed
with 100% merchant power)
ii. Most projects financed by REC either have pass through for coal price hikes
iii. Current capacity utilisation levels are adequate for lenders to ensure timely
repayment of debt (this ballpark capacity utilisation rate is 70%)
7. While there is stress among State Electricity Boards, but many states are
moving in the right direction- raising tariff (Rajasthan) and lowering T&D
losses.
8. States like Tamil Nadu are making high losses, but continue to make timely
repayments.
9. The risk of default by any SEB is remote. However in the past (2004-07),
there have been select cases where SEBs have delayed by 3-6 months in
making the repayment. But that has been the max delay and REC has
received funds after that.
10. REC also plans to propose a contingent provisioning policy of 3% of annual
profit- this will be discussed in the board meeting in the next 3-6 months.
Indiabulls Financial Services (IBULL IN – Rs158 – No Rec)
1. Mortgage loans form 70% of Indiabulls Financial Services’ portfolio and
the company has market share of 5%.
2. It also offers commercial vehicle loans (6% of loans), corporate loans
(21%) and business loans (2%).
3. Commercial vehicle loans in particular also enjoy strong growth prospects
on the back of more investment in infrastructure.
4. During FY11, company reported 147% growth in net profit driven by 55%
YoY growth in income and operating efficiencies.
5. Loans grew by 80% YoY driven by doubling of property loans and growth
in corporate loans.
6. On the funding side, the company expanded its relationship to 32 banks
and has increased the share of longer-term borrowings to match the
duration of the assets.
7. CAR is strong at 20% and net NPA is a low 0.38% in Mar-11.
8. The management highlighted that nearly 70% of the funding comes from
long term bank loans.
9. The dependence on short term money has declined considerably.
10. Company is targeting ~30% growth in assets and intends to maintain
ROA +300bps and improve ROE to ~20%.
11. While NIMs may be the under pressure of rise in cost of wholesale
borrowings, the improvement in ROE will be function of improvement in
leverage as well as some operating efficiencies
Insurance sector– NBP degrowing
During Apr-11, annualised NBP of sector declined by 3% YoY (compared
to 16% decline in Mar-11), primarily due to 31% YoY decline in NBP of
private sector whereas LIC reported growth by 20% YoY. The market
share of LIC in new business premiums was at 69% in Apr-11. All the
private insurers reported YoY fall in NBP. With NBP declining due to
changes in regulatory framework, it will now be important for insurance
companies to improve conservation ratio and lower the operating costs.
Sector NBP declines; LIC report high growth
‰ In Apr-11, NBP for the sector declined by 3% YoY, driven by 31% decline in NBP of
private sector
‰ On the other hand, LIC grew ahead of the sector and reported 20% YoY growth in
NBP that pushed-up its market share to 69%.
‰ Higher share of traditional insurance policies has been the key driver of LIC’s
market share gains while the private insurers witnessed drop in sale of Ulips.
All private insurers report decline
‰ During Apr-11, all the private insurers reported decline in NBP.
‰ MNYL and Tata AIG reported the lowest decline in premiums in the range of 3-9%.
‰ SBI Life reported the highest decline in NBP at 56%, the volatility in sales is due to
higher share of group business.
‰ HDFC Life reported a 44% decline- the company has been reporting among the
fasted growth in FY11.
‰ ICICI’s premiums declined by 21% YoY after a strong March when premiums grew
by 33% YoY.
‰ Other leading players that reported declined were Reliance Life (44%), Bajaj (42%)
and Birla (22%).
Conservation ratio and cost control will be critical
‰ With NBP being low due to changes in regulations, it will now be important for
insurance companies to improve conservation ratio and lower the operating costs.
‰ Among large players, SBI, Birla, Reliance and ICICI had conservation ratio lower
than the sector average of 68%; LIC, MNYL and Tata fare better.
‰ On the cost front, we believe that LIC, ICICI and SBI are better placed with very
low cost ratio of 1-5% of AUM. However, MNYL, Reliance and most of the smaller
players and new entrants have a high operating cost base.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banking monthly
What’s inside?
Key takeaways- management meeting and interviews
Round up on news flows- regulatory and company-specific
Banking sector round-up- Credit growth, interest rates and liquidity
Update on insurance and mutual funds– Flow, market share
Valuation– Price performance, comparative matrix, P/B band charts
Take a look!, ‘Banking Calendar’, links to our recent reports
Takeaways-management meeting and interviews
In our recent interactions, management of most banks were confident of ~20%
growth in loans. However, we also sense signs of caution due to moderation in
credit demand for infrastructure, working capital and retail loans. This concern
reflects in the fact that none of the banks have yet raised their lending rate after
RBI hiked policy rates by 25bps. Deposit rates have also been stable and this may
help to contain margin pressures. Most private banks are now planning to expand
into rural areas to diversify their network as well as to meet RBI’s new emphasis
on banks directly meeting their targets on priority sector loans. The recent hike in
some fuel prices will reduce working capital demand of oil marketing companies.
However, the cut in duties will expand government’s fiscal deficit and increase
borrowing programme in 2HFY12 which may put upward pressure on yields.
Sector round-up– Trend reversal in FY12
Over past month, market has remained range bound and Bankex (up 2%) has
outperformed Sensex (up 1%). However, larger and high CASA banks have
considerably outperformed the smaller ones (SBI, ICICI, HDFC Bank and Axis up
+5%). We believe that in FY12, credit growth will moderate to 18% and will be
outpaced by deposit growth of 21% (click here for detailed note). As credit
demand moderates in a generally higher interest rate environment, we expect
high CASA banks will be able to gain market share. Our top picks, ICICI Bank and
HDFC Bank, benefit from lower cost of deposits as well as stable asset quality.
Update on insurance and mutual funds- Apr-11/ May-11
During Apr-11, NBP of sector declined by 3% YoY, due to 31% YoY decline in NBP
of private sector whereas LIC reported 20% growth. In May-11, AUMs of mutual
funds fell by 7% MoM to Rs7.3tn (down 2% YoY). Banks have largely maintained
their investments in mutual funds at Rs930bn and they may lower these over the
next few months to meet RBI’s cap on such investments
Industry Interactions
State Bank of India (SBIN IN– Rs2,288 – U-PF)
1. Bank is targeting loan growth of ~18% over FY12 and expects NIM to
expand by 20bps YoY to 3.5%.
2. During 4QFY11, NIMs compressed by +50bps due to a combination of
rise in deposit costs, reversal of income on NPAs, provision of interest
cost on provident fund and a higher base of 3Q that included interest
on income tax refund.
3. Recent hike in lending rates should help to improve margins as loans
reprice faster.
4. Asset quality pressures should moderate going forward and the bank
has increased focus on recoveries.
5. It recently appointed a Dy. MD to oversee the stressed asset portfolio.
6. For FY12, SBI targets to keep the amount of gross NPA flat YoY (i.e
slippages will be offset by recoveries, upgrades & write-offs).
7. SBI will follow provisioning norms as required by RBI, but provisioning
is likely to be high in 1HFY12 as SBI makes provision for counter
cyclical buffers (Rs11bn), hike in NPL provision rates (Rs5bn) and
provision on restructured loans (Rs5bn).
8. Some sectors that are facing stress are textiles, commercial real
estate (3% of portfolio), engineering and steel.
9. Exposure to key sectors: infrastructure (Rs1tn), airlines (Rs45bn) and
telecom (Rs326bn), of which exposure to corporate groups facing
investigation is Rs15bn.
10. Management expects that capital raising is likely to be in 2HFY12.
11. While tier I CAR is low at 7.8%, SBI can leverage on Tier II capital to
deliver 18-20% growth in FY12.
12. SBI will provide more proactively for pension liabilities for next wage
settlement.
13. It plans to provide for pension liabilities through P&L over next five
years instead of deducting it from reserves.
ICICI Bank (ICICIBC IN – Rs1,065 – BUY)
1. During FY12, management expects 20% growth in loans, in line with
sector.
2. Loan growth will be driven by corporate sector in India and forex loans
to Indian corporates.
3. Retail loan growth will be driven by mortgages, but will lag overall
growth.
4. Loan growth targets are linked closely to growth in CASA deposits and
bank plans to maintain CASA ratio near 40%.
5. For CASA growth, ICICI will leverage on scale-up of recently opened
branches, fresh additions and specific targets to branches on
mobilisation of deposits.
6. Management believes that during FY12 they are likely to be stable YoY
at 2.6% (3% domestic and 85bps overseas); NIMs may be under
pressure in 1QFY12.
7. NIMs may expand in FY13 led by rise in average CASA ratio and
repricing of forex assets.
8. Improvement in pricing environment in domestic market is a positive.
9. On asset quality, management sees limited stress in bank’s corporate
as well as retail loans.
10. Exposure to some risky sectors like aviation, real estate, power and
telecom are well secured and are unlikely to see high stress in the
coming years.
11. However, the exposure to MFIs (Rs10bn, 0.5% of loans) is likely to
face pressure and exposure in Andhra Pradesh (Rs2bn, 0.1% of loans)
may become NPA or be restructured.
12. Management expects ROA to improve to 1.5-1.6%, led by stable
margins and lower loan loss provisions.
13. Rise in leverage and high ROA will support expansion in ROE.
14. RBI is emphasising to banks that priority loans should be made
directly.
15. Interest rate on savings account is likely to get de-regulated.
HDFC Bank (HDFCB IN – Rs2,381 – BUY)
1. Loan growth outlook for HDFC Bank remain positive as demand for retail
loans and working capital demand is healthy.
2. Working capital loans demand is driven by rising volumes and lesser
disintermediation.
3. Manufacturing capex demand for brown-field projects is strong; delay is
mostly in the greenfield projects.
4. CASA deposit growth likely to remain healthy and will be driven by semiurban and rural areas which are the main focus areas for the bank.
5. The overseas loans are also growing fast (up 135% YoY), but the bank is
focussed on working capital financing to Indian corporate groups with
whom the bank has a relationship in India.
6. HDFC Bank has a first mover advantage v/s other private sector banks in
rural areas.
7. The bank is focussing on the rural markets partly to meet the priority
sector lending norms. While bank has some shortfall in meeting the subtargets, the expansion in branch network should help to bridge the gap
over the net 2-3 years.
8. In the infrastructure sector, bank has been testing the market for 3 years
and now plans to increase lending in this sector. Bank’s larger balance
sheet and improved ALM profile also allows to have higher flexibility to do
infrastructure loans.
9. During FY11, the investment in non-SLR bonds have grown at a fast pace,
but the duration of these bonds is short and hence bank faces limited risk
of MTM losses on this portfolio.
10. Current level of delinquencies is low and normalised loan loss provision
would be around 1.2-1.4% (including provision on standard assets that
HDFC Bank will have to start providing from 2HFY12).
Max New York Life Insurance (subsidiary of Max India)
1. During FY11, Max New York Life Insurance (MNYL) reported 8% YoY growth
in new business premium (NBP), better than 17% decline in NBP of private
insurers.
2. Management indicated that MNYL’s bancassurance tie-up with Axis Bank has
been scaling-up quite well and has been a key driver of growth in NBP.
3. Company remains focused on improving the conservation ratio and the sales
force is being accordingly incentivised. MNYL’s higher focus on traditional
policies also helps to keep this ratio high
4. This reflects in MNYL’s conversation ratio of 81% which is higher than most
peers.
5. During FY12, MNYL reported NBAP margin of 19.5%. While new regulatory
norms impacted profitability in the second half, MNYL benefited from high
margins in 1HFY11.
6. There is a shift in focus from growth to cost control and productivity
improvement.
7. In this direction, management has (1) cut agents by 40% to ~44K, (2)
nearly halved the commission rates on Ulips and (3) is also cutting /
optimising on distribution related costs.
8. As a result, management sees ~30% reduction in operating costs over FY12,
even as premiums grow. Initiatives are also being taken to sustain/ improve
the conservation ratio.
9. Cost-overruns are expected to get eliminated by FY14, but MNYL would not
need fresh capital infusion.
10. The expansion plans in the healthcare business remain on track.
REC (RECL – Rs188 – U-PF)
1. For FY12, loans are likely to grow by ~25% led by similar growth in disbursals.
2. REC has an outstanding sanction book of Rs1.5tn and this should support loan
growth in FY12-13.
3. Spreads are likely to be stable in FY12 due to (1) 100bps hike in lending rates
in April/ May (50bps in each month) and (2) balanced repricing of loans and
borrowings (14-15% of current loans and liabilities will reprice in FY12).
4. Average duration of assets is 8 years and of liabilities at 6.5 years.
5. Management believes that most power plants will be able to meet interest and
loan repayment obligations when it operates at ~70% capacity and at ~85%
it should be able generate healthy ROE.
6. Asset quality remains stable and REC has built safeguards while lending to
private power projects. This includes
i. Max capacity allocated to merchant power is 30-40% (no project financed
with 100% merchant power)
ii. Most projects financed by REC either have pass through for coal price hikes
iii. Current capacity utilisation levels are adequate for lenders to ensure timely
repayment of debt (this ballpark capacity utilisation rate is 70%)
7. While there is stress among State Electricity Boards, but many states are
moving in the right direction- raising tariff (Rajasthan) and lowering T&D
losses.
8. States like Tamil Nadu are making high losses, but continue to make timely
repayments.
9. The risk of default by any SEB is remote. However in the past (2004-07),
there have been select cases where SEBs have delayed by 3-6 months in
making the repayment. But that has been the max delay and REC has
received funds after that.
10. REC also plans to propose a contingent provisioning policy of 3% of annual
profit- this will be discussed in the board meeting in the next 3-6 months.
Indiabulls Financial Services (IBULL IN – Rs158 – No Rec)
1. Mortgage loans form 70% of Indiabulls Financial Services’ portfolio and
the company has market share of 5%.
2. It also offers commercial vehicle loans (6% of loans), corporate loans
(21%) and business loans (2%).
3. Commercial vehicle loans in particular also enjoy strong growth prospects
on the back of more investment in infrastructure.
4. During FY11, company reported 147% growth in net profit driven by 55%
YoY growth in income and operating efficiencies.
5. Loans grew by 80% YoY driven by doubling of property loans and growth
in corporate loans.
6. On the funding side, the company expanded its relationship to 32 banks
and has increased the share of longer-term borrowings to match the
duration of the assets.
7. CAR is strong at 20% and net NPA is a low 0.38% in Mar-11.
8. The management highlighted that nearly 70% of the funding comes from
long term bank loans.
9. The dependence on short term money has declined considerably.
10. Company is targeting ~30% growth in assets and intends to maintain
ROA +300bps and improve ROE to ~20%.
11. While NIMs may be the under pressure of rise in cost of wholesale
borrowings, the improvement in ROE will be function of improvement in
leverage as well as some operating efficiencies
Insurance sector– NBP degrowing
During Apr-11, annualised NBP of sector declined by 3% YoY (compared
to 16% decline in Mar-11), primarily due to 31% YoY decline in NBP of
private sector whereas LIC reported growth by 20% YoY. The market
share of LIC in new business premiums was at 69% in Apr-11. All the
private insurers reported YoY fall in NBP. With NBP declining due to
changes in regulatory framework, it will now be important for insurance
companies to improve conservation ratio and lower the operating costs.
Sector NBP declines; LIC report high growth
‰ In Apr-11, NBP for the sector declined by 3% YoY, driven by 31% decline in NBP of
private sector
‰ On the other hand, LIC grew ahead of the sector and reported 20% YoY growth in
NBP that pushed-up its market share to 69%.
‰ Higher share of traditional insurance policies has been the key driver of LIC’s
market share gains while the private insurers witnessed drop in sale of Ulips.
All private insurers report decline
‰ During Apr-11, all the private insurers reported decline in NBP.
‰ MNYL and Tata AIG reported the lowest decline in premiums in the range of 3-9%.
‰ SBI Life reported the highest decline in NBP at 56%, the volatility in sales is due to
higher share of group business.
‰ HDFC Life reported a 44% decline- the company has been reporting among the
fasted growth in FY11.
‰ ICICI’s premiums declined by 21% YoY after a strong March when premiums grew
by 33% YoY.
‰ Other leading players that reported declined were Reliance Life (44%), Bajaj (42%)
and Birla (22%).
Conservation ratio and cost control will be critical
‰ With NBP being low due to changes in regulations, it will now be important for
insurance companies to improve conservation ratio and lower the operating costs.
‰ Among large players, SBI, Birla, Reliance and ICICI had conservation ratio lower
than the sector average of 68%; LIC, MNYL and Tata fare better.
‰ On the cost front, we believe that LIC, ICICI and SBI are better placed with very
low cost ratio of 1-5% of AUM. However, MNYL, Reliance and most of the smaller
players and new entrants have a high operating cost base.
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