env final term paper

8/3/2019 ENV Final Term Paper

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EXECUTIVE SUMMARY

MARKET SHARE

The organized players market share is increasing and it will be about 80% in 2015.

MARKET SIZE AND GROWTH

With a GDP growth rate wealth is also growing in India.

MARKET COMPETITION

The Indian markets competitive intensity is increasing as a number of new local and global players areplanning to enter the market .

MARKET SEGMENTATION I

The domestic segment accounts for 3.24 % of the total industry volume.

MARKET SEGMENTATION II

India accounts for 13.5% share of the Asia-Pacific industry's value.


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Chapter 1

Market overview

MARKET DEFINITION-

Wealth Management:

The concept of wealth management refers to management of both the sources and the facets of various

forms of both tangible and non-tangible wealth. India has become a highly potential market for wealth

management because wealth managers, both domestic and international, are able to establish the

beginnings of a market with few obstacles, relative to the other emerging markets. Where there are

regulatory restrictions, these are less problematic than those in China or the Middle East. financial

services provided to wealthy clients, mainly individuals and their families , typically with $100,000+

investable assets.Wealth management is broader and typically deals with managing both the assets &liabilities side of clients balance sheets.

Private banking:

An important, more exclusive, subset of wealth management, typically with $1 million.Private bankingtraditionally consisted of banking services (deposit taking and payments), discretionary asset

management, brokerage, limited tax advisory services and some basic concierge-type services, offered by

a single designated relationship manager. On the whole, private banking relationships were mainly

passive.

Wealth Management products-

Brokerage.

Core banking-type products

Lending products, such as margin lending, credit cards, mortgages and private jet finance.

Insurance and protection products, such as property and health insurance, life assuranceand pensions.


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Asset management in its broadest sense: discretionary and advisory, financial and non-

financial assets (such as real estate, commodities, wine and art), conventional, structured

and alternative investments.

Advice in all shapes and forms: asset allocation, wealth structuring, tax and trusts, various

types of planning (financial, inheritance, pensions, philanthropic), family-dispute

arbitration even psychotherapy to children suffering from affluenza.

A wide range of concierge-type services, including yacht broking, art storage, real estate

location, and hotel, restaurant and theatre booking.

RESEARCH HIGHLIGHTS

Wealth management revenues are expected to contribute 32-37% of the total revenue of full-service

financial institutions by 2012.

Indians will have one trillion dollars worth investable wealth by 2012, with the countrys robust economic

growth driving a four-fold surge from just about 250 billion dollars in 2007.

Market value forecast will be indicating that in 2015, the market is forecast to have a value of $1.2trillion, an increase of 29.6% since 2010.

The wealth management market will have a target size of 42 million households by 2012, as against just

about 13 million in 2007.

MARKET ANALYSIS-



According to a report by international consultancy firm Celent, India is set to become a huge hunting

ground for wealth managers with the number of their potential clients and size of manageable wealth both

expected to grow four-times through 2012.

The wealth management market will have a target size of 42 million households by 2012, as against just


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about 13 million in 2007, noted the report titled Overview of the Wealth Management Market in India.

The wealth management sector is poised to witness tremendous growth. Indias economic growth is

making larger sections of the population prospective customers of wealth management providers, Celent

said.

The growth would be seen across all income-levels, but the lower-income segment would record the

maximum growth in terms of volume, while high-networth households would contribute the most in

terms of wealth size, it noted.

Celent has defined a household with a minimum income of $5,000 (Rs2 lakh) as the lowest end of the

target market for wealth managers, while one with at least $30 million (Rs120 crore) of investable income

has been put in the category of ultra-high net worth.

The market would see different products being launched for catering to different client segments, Celents

banking practice and author of the report Ravi Nawal said.

There is an increasing momentum towards structure in this previously chaotic domain. We should expect

some very India specific innovations in the near future, Nawal added.

Unorganized players, whose share is 1.5 times that of the organized market, currently dominate the

market. However, a structural change is taking place and organized players are drawing clients away from

the unorganized players.

Wealth management revenues are expected to contribute 32-37% of the total revenue of full-service

financial institutions by 2012, Celent said.

According to the report, mass-market (Rs2-10 lakh of disposable income) would be a key driver,

accounting for 40% of the overall growth in the number of households.

A majority of wealth managers, except niche players, would target the mass market because of its youth-

dominance and this market would see more service providers entering the fray with a own them young

policy.

The ultra-high net worth households with wealth in excess of $30 million would have a total population

of 10,500 households by 2012, while the super high net worth households ($10-30 million) are expectedto grow to 42,000.


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The population of high net worth households ($1-10 million) would grow to 3,20,000, while there would

be 3,50,000 households in the super-affluent category (Rs50-400 lakh).

Besides, 10 lakh new households would join mass-affluent category (Rs10-50 lakh), taking their

population to 18 lakh by 2012. However, a vast majority of 39 million households, out of the total 42

million-target market populations in 2012, would belong to the mass market (Rs2-10 lakh).

Private banks, independent financial advisors and full service brokerages would serve the high net worth

segment, while ultra high net worth private banks and family offices would serve households.


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Chapter 2

MARKET SHARE

Increasing market share of organized players:

The share of unorganized players (typically independent advisors or small brokers/agents offering

financial advice) has shrunk considerably over the last few years, primarily due to the increased presence

of organized providers, as well as income and profitability pressures that have resulted in consolidation.

This has caused an increase in liquid assets available for organized wealth management players, which

has contributed to their growth in assets under management.


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Chapter 3

MARKET SIZE AND GROWTH

With a GDP growth rate hovering around the 9% mark and a strong future outlook, Indias growth storyis making it an increasingly attractive market for wealth management firms. This trend is expected tocontinue, with India estimated to become the third largest global economy by 2030.

The total size of the HNWI population in India is just 53,000, a meager figure compared with a maturemarket such as the U.S. However, with the total HNWIpopulation presently growing at over 20% CAGR, and the value of liquid assets

expected to grow at 19.8% CAGR. India is one of the fastest growing wealth management markets.


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The high growth rate and the prediction that India will be the third largest economy in the world by theyear 2030 makes India an attractive market for potential entrants in the wealth management space toestablish their presence early and grow their revenues with the market.

Chapter 4MARKET COMPETITION

The Indian markets competitive intensity is increasing as a number of new local and global players areplanning to enter the market, while existing players are expanding their operations aggressively. Anumber of wirehouses are launching wealth management services, aiming to gain greater wallet share bycross-selling. In theshort term, the industry will remain fragmented, with a large number of broker-dealers, sub-brokers,financial advisors, insurance agents and tax consultants offering wealth management services . Given theindustrys embryonic stage, consolidation or M&A activity is limited.


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CHAPTER 5

MARKET SEGMENTATION 1

THREE CORE DRIVERS OF PRIVATE BANKING

While the financial crisis has jolted the private banking industry, three fundamental characteristics remain

intact:

Private banking is an industry fundamentally geared for growth.

Revenue pools are cyclical in nature and highly dependent on the underlying equity market

performance. Private banks have once again proven highly resilientable to generate profits even in difficult times.

Fundamentally Geared for Growth

While world wealth generally expands at the rate of GDP growth, the number of high-net-worth

individuals (HNWIs), defined as people with more than US$1 million in investable assets, has beengrowing more quickly, at anywhere from 1.5 to three times the rate of GDP, depending on the market (see

FIGURE 1)

The increase in HNWIs is mainly the result of two factors. The first is wealth generation through

Growth of HNWI population Vs. GDP


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entrepreneurship, innovation, and factor optimization, meaning the more efficient use of economic input

to create economic output. These dynamics are creating substantial wealth, particularly in emerging

markets where entrepreneurs are becoming first-time HNWIs on a

massive scale and with breathtaking speed. The second factor driving up the number of HNWIs is wealth

concentration, which is determined by the traditional wealth distribution structure and by income and

(absence of) inheritance taxes in each market.

The financial crisis of 2008 took its toll on HNWIs as massive devaluations hit all major asset categories

and geographiesnone were exempt. But as economies around the world rebound, the population of


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HNWIs will return to its long-term growth trajectory, generating a steady flow of new HNWIs for the

private banking segment.

Cyclical in Nature

There is no question that the revenue of private banks is highly correlated with the performance of equity

markets (see Exhibit 3). This cyclicality is no surprise; revenue in private banking depends heavily on

transaction volumes and asset-based fees (and sometimes even on performance-based fees). As a change

appears unlikely for the industrys revenue-generating modelthat is, we foresee no shift toward strictly

advice-based remuneration.

Moving in Sync: Private Banking Revenues and the Equity Market:


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this correlation likely will hold. For the near term, that means the industrys revenues will depend on

the extent to which the markets can continue the rally they started in March 2009.

CHAPTER 6

MARKET SEGMENTATION 2

Profitable Even in Difficult Times

Since the beginning of this financial crisis, the wealth management industry has lost 25 to 30 percent ofits revenue because of a lower asset base, cautious market behavior, and a shift

toward low-margin financial products.

The vast majority of private banks analyzed worldwide were able to deliver positive pretax profits during

this period.

Private banks persistent profitability is a reflection of the speed at which they can adjust their operating

models to align them with current business conditions. For instance, all the banks in our survey quickly

took steps to reduce their cost bases, mainly by reducing personnel expenses (limiting variable pay, laying

off low performers) or slashing structural expenses (downsizing IT project portfolios, withdrawing from

unprofitable markets). Regional or local banks that focus on one home market have proven particularly

adept at making these changes, while large international wealth management players and large pure plays

(those that focus exclusively on private banking) have moved more slowly (see Exhibit 4).


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PRIVATE BANKING CHANGE LEVERS

While the underlying dynamics are fundamentally promising for private banks, the industry must navigate

through a number of significant changes going forward:

The depth of the financial crisis and the various speeds at which different regions are recovering will

accelerate the tectonic shift in global wealth distribution to the East, with China, India, and the Middle

East emerging as new wealth centers.

Shielding clients from taxes by holding assets offshore are fading as a benefit, now that many G20 states

are enforcing stricter regulations. This has potentially disruptive consequences for markets and for players

that previously capitalized on this value proposition.

In the wake of the financial crisis, clients have been shying away from complex, nontransparent

products. Bankers expect the appetite for structured/riskier products to return, but they also expect client

behavior to remain more thoughtful, making the role of the trusted advisor even more important.

With revenue pools depressed, high-margin offshore pools vanishing, and regulatory pressure and the

cost of compliance on the rise, further cost reduction measures will be needed to ensure sustained

profitability.

New business models will emerge as private banks look for models that will be viable in the changed

world.


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Asia/Pacific:

Led by China and India, the Asia/Pacific region will be where most new HNWIs will be created, driven

by the strength of the underlying economies and a strong entrepreneurial spirit. By 2011, the number of

HNWIs in Asia/Pacific is expected to surpass those in Europe and North America, with China moving

ahead of the U.K. in absolute number of HNWIs.

In absolute terms, Japan will remain the largest wealth management market in Asia during this period.

But given the countrys aging population, the main themes in Japan will be wealth

preservation and intergenerational wealth transfer.

By the end of 2011, nearly 3.6 million (33 percent) of the global HNWIs are expected to live in the

Asia/Pacific region, up from 2.6 million in 2008.

More Pragmatism in Client Behavior


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Amid the financial crisis, client behavior has changed. The changes have come in phases and have created

significant challenges for private banks. The first phase came after the market collapsed and clients lost

money in late 2008 and early 2009. In the wake of this implosion, clients shifted their assets toward

simple, transparent, liquidity-oriented products with

lower margins. Structured products in particular fell from favor, and clients largely retreated from risky

and complex asset classes. A main cause of this behavior was the reduced trust that clients had in banks,

products, and relationship managersa problem worsened by the fact that relationship managers, in turn,

did not trust their own product providers anymore. The result is that clients have become more hesitant to

delegate and have shifted assets from managed portfolios to nondiscretionary and self-directed mandates

(see Exhibit 7)

Moreover, HNWIs have traditionally been reluctant to pay for financial advice, making it unlikely they

will accept new models, such as hourly advisory fees. In addition, most investors are also unlikely to

accept performance fees, the device that triggers an additional payment to money managers who exceed

agreed on benchmarks (see Exhibit 8).


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Pressure on Costs Will Endure

Most private banks have responded to diminishing revenue pools by removing costs from their operations

in a variety of ways (see Exhibit 9).


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THE NEW IMPERATIVES FOR SUCCESS

While long-term prospects for the private banking industry are distinctly positive, private banks need to

adapt their business models to the new realities:

Emerging markets, led by China, India, and the Middle East, will be the main places where new wealth

is generated in coming years. With fundamental private banking needs in these regions underserved

today, wealth managers should be looking for ways to penetrate these markets.

Spotlight on India:


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A New Generation of Millionaires Indias economy is a huge success story, having grown 6 to 9 percent a

year over the last decade. This has led to the creation of vast amounts of individual wealth. Fifty-five

percent of the countrys millionaires were created between 2002 and 2007, and the number of

millionaires, which declined in 2008, is expected to begin rising sharply again as the worldwide economy

recovers from recession (see Exhibit 13). Wealth is currently concentrated: 80 percent of HNWIs are

located in only 10 cities: Mumbai, New Delhi, Bangalore, Chennai, Pune, Kolkata, Hyderabad,

Ahmedabad, Kanpur, and Surat. A large proportion of HNWIs have made their own moneyonly 13

percent inherited their wealth. The fact that many are entrepreneurs or business owners means they have a

combination of personal wealth management needs and corporate needs. There are big differences in the

level of service required by Indian HNWIs.

UHNWIs require sophisticated products and services and high-touch personalized investment advice.

Most clients in remaining high-net-worth wealth bands have limited wealth management experience and

thus relatively low-touch needs. Non-resident Indians, a large and important client base, require targeted

products and advice on investing in India. Indian markets typically account for 15 to 25 percent of the

portfolios of non-resident Indians. Among HNWIs in India, 32 percent of their portfolios on average are

invested in equities. Real estate is another key asset class, comprising 25 percent of HNWIs total

portfolios in 2008. Increasing investor sophistication and the search for yield have also shifted more

money to alternative investments such as structured products, hedge funds, derivatives, and private equity

funds. Together, those account for roughly 8 percent of the average Indian HNWIs portfolio.

The regulatory environment for wealth management has become more liberalized. Still, some constraints

remain. For instance, foreign banks are restricted from expanding their branches in India or acquiring

Indian banks without prior approval from the Reserve Bank of India (RBI), the countrys banking

regulatory authority.

Traditional players in wealth management/ private banking in India include large domestic banks,

domestic equity brokerages, foreign banks and financial institutions, and established offshore financial

institutions. Large Indian banks have traditionally focused on providing a broad range of financial

products directed mostly at the mass affluent segment. Indian brokerages such as Motilal Oswal and

Indiabulls are increasingly expanding beyond equities to develop wealth management platforms that

provide financial advisory and asset management products.


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Foreign banks such as Barclays, Citibank, and Credit Suisse, which are relatively recent competitors in

India, have taken the lead in developing specialized products targeting wealthy individuals.

To succeed in India, wealth management firms will need to do three things:

Address the needs of a population that is highly divergent in terms of its language, culture, and wealth

preservation objectives.

Establish full-fledged advisory models (vs. todays largely transactional models) as the emphasis on

individual financial responsibility increases.

Establish an onshore/offshore presence with local representation to enable both onshore and offshore

investments.


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Chapter 7

LEADING COMPANIES

ICICI BANK

The venture brings together one of India's largest merchant portfolios, representing approximately 30% of

the current Indian acquiring market, and a leading acquirer and payment services provider with global

expertise

ICICI Bank is India's second largest bank with over 2,000 branches across the country. company,

provides payment processing services for 5.3 million merchant locations globally and serves customers in

36 countries around the world. ICICI Bank Ltd is India's largest private sector bank and the second largest

bank in the country with consolidated total assets of about US$ 102 billion. ICICI Banks loans to grow

10-12%, well below the estimated system growth rate of 20% as the new retail strategy will take time todeliver.

HSBC

Named third best global private bank by Euromoney Magazine (January 2008), HSBC Private Bank's

international reach extends to 93 locations in Europe, the Asia-Pacific region, the Americas, the Middle

East and Africa*. Our global network enables us to provide the highest quality of specialist advice to our

clients, no matter how complex your financial affairs.With presences in mature markets where there are already large concentrations of wealth, and in markets

such as mainland China, India and Brazil where wealth has shown compound annual growth rates of

around 20 per cent or more over the last 10 years, there is an opportunity for HSBC to capture US$4

billion in additional revenues from retail wealth management in the medium-term.

DEUTSCHE BANK

Deutsche Bank Private Wealth Management serves high net worth individuals, families and select

institutions worldwide, while also providing leading solutions for family offices and financial

intermediaries. Operating in more than 100 locations and advising clients in relation to more than USD

432 billion in assets under management as of it is at the forefront of the global wealth management

industry. Deutsche Bank is a leading global investment bank with a strong private clients franchise. A

leader in Germany and Europe, the bank is continuously growing in North America, Asia and key

emerging markets. With more than 100,000 employees in 74 countries, Deutsche Bank competes to be the

leading global provider of financial solutions for demanding clients creating exceptional value for its

shareholders and people.Deutsche Bank Revenue Growth is 37.98%

HDFC BANK


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HDFC Bank began operations in 1995 with a simple mission: to be a"World-class Indian Bank". We

realised that only a single-minded focus on product quality and service excellence would help us get

there. Today, Our Bank has been rated the Best in Strength and Soundness and the 2nd Best in the Private

Sector in the Financial Express Best Bank Survey 2010-11.

KOTAK BANK-

The company was incorporated on 21st November 1985 under the name Kotak Capital Management

Finance Ltd. The Company deals in Bill discounting,leasing and hire purchase, corporate finance,

management of fixed deposit mobilisation, financing against securities, money market operations,

consumer finance, investment banking and clients' money management.

KOTAK Mahindra Bank, which is the second largest player in wealth management, is planning to

increase this segment from a base of over 2,000 clients to over 3,000. Kotak Wealths asset under

management currently stood at $3.4 billion. Kotak Mahindra Bank expects its wealth management arm to

grow at 25% in 2012.

Chapter 8

MARKET FORECAST



HNWIs consist of 8% of the total wealthy households but constitute around 45% of the total wealth.

Among the total HNWIs in India, only 20% of the HNWI take advice from the financial advisors.

Advisory asset management and Tax planning is the most demanding among HNWIs followed by

Financial Planning

Investment in Fixed income products accounts for maximum percentage of HNWI investment in various

investment products.

Business income contributes the maximum (39%) wealth for HNWIs in India and requires solutions

which can help to protect wealth and risk mitigation

The majority (69%) of the HNWI population lies in the age group of 30-55 and they prefer wealth

accumulation, and risk mitigation and require sophisticated products which can offer high returns in a

short period of time.

Indias HNWIs wealth will grow by a CAGR of 12% and it will reach close to $949 billion by 2015.


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Wealth manager now started focusing on Tier II and Tier III cities.

Top players in India wealth management Industry includes ICICI, HDFC, and Kotak .

CHAPTER 9

APPENDIX

This report is based on Booz & Company and other different research company(like Celent, Mckinsey)

quantitative market analysis complimented by in-depth interviews with more than 140 private banking

executives, senior financial advisors, and leaders of the regulating authorities worldwide, including

Austria, Brazil, China, Germany, Hong Kong, India, Italy, Japan, Liechtenstein, the Netherlands, Saudi

Arabia, Switzerland, the UAE, the U.K., and the U.S.

The participating private wealth managers spanned all business models and regions. Thirty-six percent

were the private banking units of global wealth management companies, 28 percent pure-play private

banks, and 36 percent from the local or regional banking sectors (including cooperative banks). Booz &

Company research and other research companies analysis and the practical experience of about 30 Booz

& Company wealth management experts complemented the information collected through interviews.

HNWI market forecasts are based on a quantitative model built on economic, demographic, and fiscal

factors.

References :-

http://www.livemint.com/2008/01/06121309/India-to-become-trilliondolla.html

http://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-and-

Strategies.pdf

www.celente.com
http://www.livemint.com/2008/01/06121309/India-to-become-trilliondolla.htmlhttp://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-and-Strategies.pdfhttp://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-and-Strategies.pdfhttp://www.celente.com/http://www.livemint.com/2008/01/06121309/India-to-become-trilliondolla.htmlhttp://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-and-Strategies.pdfhttp://www.cognizant.com/InsightsWhitepapers/Wealth-Management-in-India-Challenges-and-Strategies.pdfhttp://www.celente.com/

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