Nurturing Uncertainties
The second edition of Outlook Money Conclave witnessed a range of discussions regarding the industries—the challenges, their developments, constructive criticism and possible solutions to it. The event kicked off with amazing and educational keynote speeches by Shilpa Kumar and Ashima Goyal amidst many other eminent personalities from the financial world. The event also hosted intriguing panel discussions regarding the future of affordable housing, mutual funds, insurance, data security in the Fintech era and also a debate about Robotics or Human Advice taking home the Alpha. The event was graced by the presence of the Chief Guest Union Minister Nitin Gadkari, Minister of Road Transport and Highways of India.
Changing Market Dynamics of India
Functioning of financial services is dictated by mobile phones and the internet
Outlook Money Conclave 2019 was kick-started by speaker Shilpa Kumar, MD and CEO, ICICI Securities, addressing the crowd about India and its changing market dynamics. Citing Ramachandra Guha’s book, Kumar stated that back in 1947 with only two options left, India had to choose between either anarchy or autocracy. She stated, “One of the most important dynamics of financial markets today is called consumer democracy. From where we sit and see the entire array of funds is flowing into the markets.”
According to Kumar, easy availability of mobile phones along with good internet has made it easier to reach out to customers, thereby dramatically changing the functioning of financial services. “I think if you look at financial market today, the fact that smart phones have become the most owned asset across India and the fact that data has become so cheap that in next three years almost two-thirds of the Indian population would have smart phones.”
She also said that what differentiates the financial services and financial instruments from regular products sold on the internet is the customer’s choice.
Kumar also emphasised that the most important thing is the distribution of the financial products, for which you do not need a brick and mortar channel. Therefore, how and what is sold will become extremely important as this is closely linked to what customers need and want while choosing the right type of financial product.
Another important aspect of changing dynamics that Kumar discussed was that over the last five years, money has moved from physical savings to financial planning. Out of the biggest market dynamics that is seen, first is the domestic ownership of assets. Second, the domestic ownership of companies and followed by the increase in market capitalisation either directly or through mutual funds, making it encouraging. Therefore, this indicates that the Indian savers and participants have really taken part in the country’s growth, and the wealth is being created on account of the vibrant consumer economy.
She also highlighted that more money was available not just for the large cap stocks but even for the mid cap meaning that the retail savers could also look at investing by taking little bit of extra risk as well as hoping for a greater return by investing in a mid cap.
She concluded, “India is seeing very interesting times as we all look forward in the sense to the country and not just towards functioning democracy but a highly functioning economy which should help savers across the country create wealth.”
The Indian Market And Volatility
People are over-suspicious due to lack of information leading to over-reaction
Markets are subject to extreme volatility. They can either overestimate or underestimate risks, especially in the emerging markets. People are over-suspicious, due to lack of sufficient information, leading to overreaction and ignorance of the fundamentals. Delivering a speech at the Outlook Money Conclave 2019, Ashima Goyal, noted Economist and author, and Member, Prime Minister’s Economic Advisory Council, said that last year there was an oil price shock, and because of political reasons prices soared suddenly. Despite predicting possible horrific scenarios like oil touching $100 per barrel, it fell down to $67 in November. Similarly, the Indian Rupee was tipped to reach 100, it is below 70 today. The disaster scenarios predicted did not happen. We do have a current account deficit. From being less than one per cent in Financial Year 2017, it was estimated to reach almost three per cent by December 2018, but as oil prices and import growth fell, current account deficit is reversing.
“Earlier if you looked the BSE or the NSE index you would see a large correlation with foreign portfolio outflows. It would crash whenever foreign investors were going out. This time Indian financial institutions like mutual funds buying on dips. So the co-relation was gone. The BSE continued to rise despite portfolio outflows last year. So this again suggests, there is some greater kind of maturity and deepening of Indian markets,” concluded Goyal.
PPP Must For Affordable Housing
The Housing for All plan will become a reality only if there is a Public-Private partnership, as the Government does not have capacity to create the Affordable Housing and bridge the gap between demand and supply. This was informed by Gautam Chatterjee, Chairman, Maharashtra Real Estate (Regularity and development Authority) while delivering his keynote address at the Outlook Money Conclave 2019.
He pointed out, by 2030 the deficit in the Affordable Housing Sector for people belonging to Economically Weaker Section and Low Income Group is expected to reach 30 million. He advocated, public-private partnership since the government does not have capacity to bridge this huge gap.
The government has given adequate incentives for the sector in the last three to four years and with the establishment of the regulator in the form of Real Estate Regulatory Authority (RERA) across the country, it has tried to redress the issue of both, the demand and supply side, he said. “I think with this we are moving in the right direction. The regulatory regime is pushing the sector to deal with the sector not only professionally but also trying to bridge ever increasing gap between supply and demand,” he concluded.
Affordable Housing Sector Set To Revive
Confidence is gradually returning to the market
The Real estate sector is gradually recovering from the aftershocks of IL&FS imbroglio and we are going to see consolidation happening in the lending space with banks and housing finance companies (HFC) Non Banking Finance Companies on one hand and builders and developers on the other. Earlier, location was the key word in the sector but now it has been replaced by counter-party. Liquidity is not the issue as capital is available across the segments and lots of foreign money including sovereign funds and pensions funds of the world are ready to invest in the Indian real estate sector. This was revealed by Nikhil Bhatia, MD and Co-Head, Capital Markets and Head Western Region, CBRE.
He was participating in the Outlook Money Conclave’s panel discussion on “Will the dream of affordable house be fulfilled and will the GST reduction boost the off-take of under construction houses?”
The discussion was moderated by Arvind Nandan, ED(Research), Knight Frank, who posed the question as to whether the free flow of affordable housing or real estate sector is a reality or just a theory.
Bhatia said, “In the affordable housing sector the scale is going to be important as margins are thinner. It is just a matter of time that confidence is building out and you will see some of the big announcements in terms of consolidation as well as investment coming into the sector in few months from now. This will see revival of the sector.” He added, “Post IL&FS (September 2018), we have seen slow down of capital flowing to the real estate sector as a whole but I think with the measures taken by the Government the confidence is returning to market.”
Deo Shankar Tripathi, MD and CEO, Aadhar Housing Finance said, "During demonetisation huge money received by the banking system moved to Mutual Funds largely in liquid funds. Mutual Funds then placed huge funds in short term with NBFC/HFCs, which in greed of cost reduction ignored sound Asset Liability principles, resorted disproportionate short term borrowing. This along with IL&FS default were the root cause of on-going liquidity crisis in NBFC/HFCs."
He explained that the excess supply was actually a liability for the players with whom this was parked. The problem was about to happen, but because of that killing the entire NBFC sector is not the solution. However, with the timely intervention by the regulator and policy makers things are gradually improving. “The whole idea is that once you take care of supply side, all the problems will be resolved be it supply of houses or price of houses,” Tripathi further added.
Ravindra Sudhalkar, ED and CEO, Reliance Home Finance said, “The affordable housing movement has gathered momentum only in the last three to four years. The present government has acted as an enabler by incentivising the sector, be it setting up of RERA, reduction in the GST, as well as the amendments in tax treatment and awareness about the availability of loans for such houses. The recent amendments in the GST rules for the under construction houses will see more and more people willing to buy such houses.”
Will Mutual Funds and SIPs Fare Better?
In the last 40 years, negative returns was witnessed only twice in 1996 and 1998
Will Mutual Funds and SIPs show better returns post-elections? Moderator Lakshmi Iyer, Chief Investment Officer (Debt) and Head – Products, Kotak Mutual Fund stated that out of the 10 elections in the last 40 years, negligible negative returns has been witnessed only twice in the year 1996 and 1998 (only half per cent). “So instead of just focusing on election year we will focus on broad trends on the SIPs in terms of the industry and where we are headed,” Iyer said.
Joining the discussion, Swarup Mohanty, CEO, Mirae Asset explained mostly about equity but month-on-month basis, an addition of the SIP numbers which is actually a complete deviation of behaviour of the same investors is witnessed. He said, “Let me remind you that when we had 20-25 months of market volatility in the years 2009-10-11-12, 60 per cent of the industry SIPs had topped. And in just 10 years there is this huge change in conviction on the asset-class which is good to see because it augurs well for wealth creation for the investors in the future.”
Panelist, Navneet Munot, Chief Investment Officer, SBI Funds Management shared his approach in addressing investors about the last three months’ market volatility considering the sink in terms of long-term investment acceptance.
He explained that despite its increase, volatility is still lower than the historical standards. The stability in 2016 and 2017 was actually very unusual for an equity market because it delivered positive returns every single month and it seemed like there was something unusual. “The right kind of efforts both by the industry as well as advisors have led to a more long-term oriented mind-set amongst the investors and a lot more maturity among the investors,” said Munot.
Amandeep Chopra, Group President And Head of Fixed Income, UTI AMC, “Coming to the fixed income side, unfortunately markets have not been conducive for a SIP sort of structure, because most of the investors typically will invest looking at an expected rate of return. And since there are some pay-out elements, they generally tend to believe that it is the sole purpose of looking at the fixed income funds.”
The session ended on a unanimous note from the panelists that one should have faith and stay invested for a long-term time horizon.
Data Security And Privacy In FinTech
To avoid mishaps one must develop the consciousness about the use of the data acquired
With FinTech becoming a hot topic, a point of major concern has arisen... How secure is our data in this age? In a fireside chat, Bhaskar Babu Ramachandran, MD and CEO, Suryoday Small Finance Bank and Ajay Kaushal, Co-Founder and Director, BillDesk spoke about these major concerns of millennials.
Babu pointed out, “We are now getting into a journey where the data can be used more meaningfully in terms of enhancing the customer experience. And more importantly, the cost of acquiring customers is indeed very high. That,makes a difference between a very profitable distribution and not so profitable one. So it is time we start using it meaningfully, instead of only collecting more and more data.”
Regarding the point of larger institutions maintaining data privacy with prevailing intermediaries, Babu suggested that there is a layer which needs continuous working upon like being conscious about the use and misuse of the acquired data. Also, to avoid such mishaps it is better to start dealing with customers directly or through digital means. Kaushal added, “I think from a financial services perspective also if you can design products which do not need intermediaries and the platform does it in the background for you, this whole need for sharing so much information might just reduce.”
The panel ended with a sound advice from the experts, that one must share the least amount of data and let the banks utilise the already submitted data instead of asking for it repeatedly.
Transforming The Banking Sectors
Although the use of Artificial Intelligence (AI), Data Analytics, and Machine Learning was considered a taboo, it is now seen deeply embedded into the DNA of an organisation. At the Outlook Money Conclave 2019, Sunil Mehta, Non-Executive Chairman, PNB Bank, said, “We have seen some terrific successes, most of them are proof of concept, but you will see that the Indian banking system, particularly the public sector, are now going to transform themselves from the product pricing point of view, understanding consumer behaviour and making sure that there is a feedback loop that sort of comes into the bank in terms of what are the customer expectations from here on, and how is the bank standing up.”
The regulatory interface with the banks is also transforming, becoming far more demanding in terms of the information and the speed at which the information needs to be shared. “Over the next six to 12 months, you will see a lot more happening at that. And also in terms of how the regulatory architecture and the technology that is used.” He concluded, “That is from thew regulator in terms of their needs and how effectively it can be deliver to the regulator to avoid any major issues, as we move forward.”
Insurance Penetration Is Still Low In India
“We are struggling with a lack of awareness of insurance as a risk mitigation tool”-RM Vishakha
Despite being a densely populated country, Life and Non-Life insurance penetration has remained low in India due to lack of awareness. The panel moderator RM Vishakha, MD and CEO, IndiaFirst Life Insurance, stated, “People bought life insurance as a tax saving tools. Health and life require a lot of awareness of the fact that insurance is a risk management tool.”
Recalling his experience, Warendra Sinha, MD and CEO, IFCCO Tokio General Insurance said, “Still insurance plans are not being bought but are being sold. Despite regulations, 50 per cent of the vehicles plying on the roads are not insured. And, out of the 135 crore population, only 30 per cent is covered under health insurance plans.” With the point that India has shown growth in the insurance segment, Rakesh Jain, ED and CEO, Reliance General Insurance stated that the industry’s approach has been very product centric. So, it has offered easier products and commodities, motor insurance being one of them.
“Motor and health are the fastest growing segments in non-life. India, as a country with large population, should see possible lines of retail to be of reasonable size and dimension. The equitable growth which was expected, has not happened, thereby tilting the scales. And obviously with the money coming in, people will go for lifestyle and that is where motor insurance grew very fast and of late we are seeing health insurance also growing for the same reason,” added Jain.
Comparing the pre and post privatisation era in terms of corporate and retail, Prashant Tripathy, MD and CEO Max Life Insurance recalled that from early 2000s when almost 100 per cent of the products that was being sold were endowments to money-back plans. Post-privatisation, the landscape of life insurance sector has changed. The proportion actually dropped in different phases, for instance in 2004-05. When the unit link insurance plan (ULIPs) came, it replaced a large part of endowments and money-back plans. And for some time, five six years, ULIPs suddenly became the most selling products,” Tripathy further added.
“As a whole we are clearly struggling with a lack of awareness of insurance as a risk mitigation tool. The risk management today in the corporate is a very revered word and we should bring that same reverence of risk management into our individual lives too,” moderator Vishakha concluded the session with this statement.
Will Bank Re-capitalisation Help People and Boost Credit ?
Good credit growth will be seen by meeting the corporate and small borrowers’ requirements
Re-capitalisation of banks has to help people by boosting credit. We have not found an alternative system other than the banking system to meet the credit requirement of this economy. Although it was claimed that the bond markets will evolve and that NBFCs will fill this space, the events in the last few months has put the ball back in the court of the banks and for a few more years they will be the institutions which will support the growth of the economy.
In the last 2 years 9 months the banking industry made a provision of almost `6 lakh crore, out of which roughly `2 lakh crore came from the government re-capitalisation. The banks also generated `4 lakh crore of operating profit which also went for the provisioning. Rajkiran Rai G., MD and CEO, Union Bank, said, “The Goverment has infused capital in Public Sector Banks (PSB) intermittently in the last three years, but about 70 per cent of the infused capital was absorbed into losses incurred by them. So, it is important to know that the banks’ losses are anticipatory in nature and not actual losses.”
If one looks at the credit growth in the banking system, it did not stop due to the lack of credit, growth was happening in potential sectors. But because of certain issues faced, banks were getting their act together and there was a bit of anxiety amongst the bankers about risk management practices and other evolved issues. So basically, there was some kind of risk avoidance, avoiding lending to certain sectors.
Looking at the economy we see green shoots everywhere- especially in the retail and MSME space. With the coming of GST we have better data today, the data from the PSB 59 portal indicates that about 30,000 new customers got loans due to GST data and returns they are filing. This is a huge change. MSME has grown to be the new retail with the fresh availability of data points.
A lot of new measures like the Insolvency and Bankruptcy Code, a change in the credit culture, shift in regulatory attitude, building up new institutions to bridge information asymmetry, the system having better information on customers, the setting up of a public credit registry, increased accountability of different stakeholders in the credit ecosystem and the government trying to improve the internal workings on the public sector banks and ranking of PSU banks through a point system have helped. “So we will see good credit growth we look forward for a new India where credit requirement not only of the large corporate borrower but also the small borrower is met,” he concluded his address.
“With Tech, It Is Easier To Get Insured”
The industry is still working towards availing insurance more affordable and simple
Due to the phobia of humongous paperwork, people tend to stay away from availing insurance policies, thereby jeopardising their finances. With the advent of technology and more and more platforms getting integrated, people can now have insurance policies without these hassles, emphasised Anand Pejawar, President- Operations, IT and International Business, SBI Life Insurance.
During his address at the Outlook Money Conclave 2019, Pejawar applauded all the companies for carrying out an excellent job in the integration and innovation within this field.
Pejawar underlined that irrespective of one’s bank balance and assets, insurance is important and how one of the focus areas of the industry is to make insurance more affordable and simple.
“One of the things that people grumble about most is the huge amount of paperwork that one needs to do before purchasing an insurance policy.”
As far as the integration of technology is concerned, most of the companies have gone digital. Nowadays, you will not find people with briefcase visiting homes to get a policy done. It can be done online through mobiles or tabs. “Thankfully, nowadays we have reputed government agencies, which will give all the required data about the customer. Almost everything happens online,” Pejawar said.
He also mentioned that earlier there were various problems of policy papers not reaching on time, or being delivered torn or soaked in water. “But now, we have insurance repositories which take care of these hassles. With all these we have almost reached a seamless, paperless process of having an insurance policy.”
He mentioned that similar to the affordable housing scheme, it is also important to make insurance policy simple and affordable for all people in the country. “An Insurance policy for every Indian.”
He also exemplified SBI’s You Need Only One (YONO), which is an online app that takes care of a whole lot of activities ranging from banking, insurance (both life and general), mutual funds and shopping. On this platform the purchase of life insurance has been made so simple and affordable, (in case you are an account holder with SBI) that the same can be bought with just 3 clicks. The Sum Assured ranges from `3 lakh to `20 lakh. This is the only platform that also gives you instant Certificate of Insurance (COI), which is unique in the country.
Face-off To Bring Home The Alpha
The country provides for one advisor for a population of almost 80,000
In the recent times, a matter of debate has been whether one should rely on humans or robots to make financial decisions for them. Or does a mix of both work better?
Moderator Ajay Bagga, Executive Chairman, OPC Asset Solutions set the tone of the panel by saying that in India there are a lot of very good financial advisors, we have about 87,000 advisors who are registered with AMFI but that gives us about one advisor for 80,000 population as against the US, with a 300 million population where there is one advisor per 1,000 of population. So we have very few advisors and very low penetration of financial products. So, Can robo advisors fill the gap?
According to Radhika Gupta, CEO, Edelweiss AMC, India’s current financial literacy market is where the US was in the 1980s. The challenge today is getting many consumers into the financial ambit. A survey said that one in every two millennials actually prefer physical advisory. There are three advantages that physical financial advice carries today. One is emotional control, second is working with an investor throughout his life cycle, and third is customisation. “So, physical advice plays a very powerful role because of these three factors,” she stated.
“There is absolutely no doubt that any advisor has to use machines to give better advice to his customers. For us, we feel that having machine at the background of any advice is absolutely important,” said Abhishake Mathur, Senior Vice President Investment Advisory and customer service, ICICI Securities.
Robo advisors may become very successful in the US much before they see success in our country, because our environment and challenges are very different from that in the US. There is no doubt that technology is going to revolutionise financial advice in a way it has done with everything. But there is a need for regulation, felt Vidhu Shekhar, Country Head, CFA Institute.
“Regulation will also shape robo advice quite a bit and regulators will have to understand the challenges that the new technology is providing and respond,” he said.
How much the robo advice will work also depends on the evolution of an investor. “I think we will reach a stage where an evolved investor will want an automated system. However, there is scope for and need for face to face advice,” said Lovaii Navlakhi, CEO, International Money Matters.
Nearly 40 per cent of the customers are saying that they would want their advisor to offer them with a good service, good advice on an automated platform along with the human touch. The way of engaging with the customers will definitely change, however, the human touch will remain relevant.
olmdesk@outlookindia.com