The study, in 2003, involves the estimation of the total size of the credit market. This involves the analysis of secondary data from many different sources for an appreciation of the different types of credit, given by different firms and for different purposes.
Sponsored by Max New York Life
The study involves the estimation of the total size of the credit market. This involves the analysis of secondary data from many different sources for an appreciation of the different types of credit, given by different firms and for different purposes. It also involves a survey of about 500 potential borrowers to understand their motivation for purchasing credit-life insurance. Finally an analysis of the finance company professionals by way of a qualitative survey to gauge their interest in marketing this product currently unavailable in India is to be carried out.
This study
• Focuses on Credit to individuals
– Personal loans for consumption purposes
– Proprietorships, partnerships etc., for commercial purposes
• Provided by organized sector both for personal and commercial purposes
• It includes any formal loans whose repayment is affected by the health/life conditions of the key borrowing individual
• Kinds of loans included in the study
– Personal loans for durables, housing, others such as education
– Professionals, self-employed, owners of small and tiny industries, agriculturists, etc.
Key Objectives of the study
– To identify insights into market characteristics that enables Max New York Life (MNYL) to satisfy credit-life insurance requirements
– Size of the accessible credit insurance industry
– Characteristics of various segments of the credit industry
– What industry professionals believe
– What are the consumers ‘openness’ levels towards credit-life insurance
The Market Size
– The credit-market size considered includes:
– Providers of personal credit
– Providers of credit for commercial purposes
– The ‘accessible’ market includes lenders that are not currently allied to major insurance firm
1. MARKET POTENTIAL FOR CREDIT
INSURANCE
NOVEMBER 14, 2003
i NDICUS ANALYTICS
B - 17 GREATER KAILASH ENCLAVE 2
New Delhi 110048, India
HTTP://WWW.INDICUS.NET, INDIC@INDICUS.NET, (91-11) 29222838/63
1
2. Chapter 1
Introduction and Summary
Background
• Credit to households one of the fastest growing segments of the financial sector.
• Households comprise:
– Individuals
– Proprietorships
– Partnerships
– HUFs
– Cooperatives and religious organizations
Household Credit
• Household credit market has been growing rapidly through the eighties and nineties and
is expected to continue. This is due to:
– Demographics: high proportion of population among younger age groups in the
country
– Fast expanding consumption opportunities in the post-1991 reform period
• Banks have always been the key credit provider to households in the formal sector and
will continue to be so as is the case internationally
• Household credit has been growing at about …. percent through the nineties and this
expected to continue through the next decade
• Growth has been, and is expected to be, similar for bank loans as well as other types of
loans
Changes in Financial Liabilities of Household Sector
40,000
35,000
30,000
Rs. 10 Mill
25,000
20,000
15,000
10,000
5,000
0
1970-71 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01
Total Loans Bank Loans
2
3. This study
• Focuses on Credit to individuals
– Personal loans for consumption purposes
– Proprietorships, partnerships etc., for commercial purposes
• Provided by organized sector both for personal and commercial purposes
• It includes any formal loans whose repayment is affected by the health/life conditions of
the key borrowing individual
• Kinds of loans included in the study
– Personal loans for durables, housing, others such as education
– Professionals, self-employed, owners of small and tiny industries, agriculturists, etc.
Key Objectives of the study
– To identify insights into market characteristics that enables Max New York Life (MNYL)
to satisfy credit-life insurance requirements
– Size of the accessible credit insurance industry
– Characteristics of various segments of the credit industry
– What industry professionals believe
– What are the consumers ‘openness’ levels towards credit-life insurance
The Market Size
– The credit-market size considered includes:
– Providers of personal credit
– Providers of credit for commercial purposes
– The ‘accessible’ market includes lenders that are not currently allied to major insurance
firm
Providers of Personal Credit
– Commercial banks: include different kinds of Banks, large and small, public and private,
Indian and foreign
– Public Sector: includes State Bank of India and its associate banks as well as other
nationalized banks
– Private sector (Indian): This includes the newly set-up HDFC Bank and ICICI bank as
well as many older private sector banks. The larger private sector banks are associated
with insurance firms, and therefore cannot be considered to be ‘accessible’. However
many private banks are still not affiliated with any insurance firm.
– Private sector (Foreign): Some foreign banks are quite large and associated with a
high degree of dynamism in providing personal loans such as Citibank. However
many others are predominantly oriented towards financing commercial and trade
requirements
– Regional Rural Banks: are typically small banks that have a high degree of rural reach.
They are also un-affiliated with insurance firms.
3
4. Credit Card loans: are provided by all types of banks, however the credit card lending
is not-reported separately but as a part of overall ‘personal loans’. This study therefore
has not been able to include them as a separate entity.
– Non Banking Finance Companies (NBFCs)
– Non-Housing NBFCs: These financial institutions grew rapidly through the nineties,
however due to competition from the banking sector their growth has slowed down.
It is expected that they will not be important players in the future. However, many
automobile companies have their own NBFCs and these may continue to have some
importance in the future. Most NBFCs are unaffiliated with insurance firms, though a
few are.
– Housing finance companies: A few HFCs have been quite strong and are growing
rapidly such as HDFC. However, few smaller ones are likely to survive the
competition from Banks. The smaller HFCs are also unaffiliated though the larger
ones such as HDFC are.
– Corporate loans to employees: Large public sector firms as well as a few [private sector
non-financial firms are large providers of loans to their employees. Most such companies
are unaffiliated with insurance firms.
Providers of Credit for Commercial Purposes
– Commercial banks
– Public Sector
– Private sector (Indian)
– Private sector (Foreign)
– Regional Rural Banks
Kisan Credit Cards: Kisan credit cards are designed to enable easy credit to farmers
from Scheduled Commercial Banks. However these loans are categorized as direct
agriculture loans and have not been separately dealt with.
– Credit Societies/ Cooperatives: Cooperative, credit societies, self help groups, have been
important players; however they are typically poorly managed and subject to stringent
regulatory oversight. Though they are predominantly un-affiliated with insurance firms,
partnering with these institutions will be a long-term process, as they are not known for
their flexibility.
– State finance and other development corporations: Many state organizations provide
credit for ‘development’ or ‘socially desirable’ purposes. These include to disadvantaged
sections, small-scale industries, etc. These organizations are also not known for their
flexibility or dynamism. If current trends continue, they will soon become insignificant
players. However many are reported to be changing and may be open to partnering.
However, it is reported that single-person-dependent loans are not a high share of their
total outstanding.
Purposes of Credit
– Housing: Housing loans are a rapidly expanding segment and are likely to remain so for
the foreseeable future.
– Automobiles, Education, Health and other personal: These are not reported individually
and it is not possible to disentangle the various components of the ‘other personal loans’.
4
5. There is significant flexibility related to duration of loans. Typically however for health
and other consumption purposes loans tend to be for about 2 years, for automobiles for
two to five years, and for education from five to 20 years. All are secured loans.
– Commercial: Almost all commercial loans are secured loans and could be highly short
term to 5 to 20 years. Generally commercial loans to individuals have a good repayment
history.
Commercial Bank Loans for Housing, Durables, & Other: Characteristics
– Public Sector: Well spread across country
– Private sector (Indian): Dynamic, expanding rapidly
– Private sector (Foreign): Concentrating on metros and ‘premium’ customers
– Regional Rural Banks: large rural spread but many are poorly run
Average Account Size of All Personal Loans
Amt/Acc (Rs) Consumer Housing Rest of Personal All Personal
2001 Durables
Public Sector
Foreign Banks
RRBs
Private Indian
Total
Housing Finance Institutions: Characteristics
– Both SCBs and HFCs
– SCBs also considered previously
– Many not affiliated with insurance companies
– But could potentially offer own credit-life products
– Possibility of alliance is open
– Cost of providing credit-life products/service of critical importance
Non Banking Finance Corporations (non-housing): Characteristics
– Have suffered loss in market share from Banks in the past
– RRBs the most aggressive players in this segment
– Banks report durable and auto loans under ‘Durables’ and ‘Rest of Personal’ categories
– Not possible to disentangle market size cleanly
Calculating Market Size
– Use 2001 as base year as data are provisional or estimates for later years
– First estimate total possible market for credit-life
– But some of this is inaccessible
– Then estimate all ‘accessible’ market size
Problem in estimating market size
– Non availability of categorization of purpose from many sources
– Non uniformity in categorization of purpose from many sources
– Only broad numbers available for some (eg. RRBs)
5
6. – Inter FI lending: Possibility of double counting
– Focus more on identification of accessible markets
– Estimations at a single point in time as well as relevant break-ups of sub-components
have been conducted taking into consideration the above factors
Total Market Size: Personal Loans
All
Personal
Loans Auto &
(Rs. Other
Rs Mill., 2001 '000,000) Housing Durables Personal
Bank
SBI Associates
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Total Market Size: Commercial Loans
Priority
Priority Sr. -
Priority Sr. Priority Priority Priority Sr.- Sr.-Food Export
Direct Sr. Small- Sr. Road Priority Priority Professional Processing Credit
Rs Mill., Agriculture scale & Water Sr.-Retail Sr.-Small & Self not incl. (Foreign
2001 Loans industries Transport Trade Business Empl. SSI Banks)
Bank Total
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
Total
HFCs
NBFCs
Corporates
Total
Other sources of credit
• Include
o State financial corporations
6
7. o Cooperatives at different levels
• However market size cannot be estimated for this segment
• Large amount of lending within these categories of institutions and also from
commercial banks to these institutions combined with poor reporting
– Receive loans from SCBs and others under ‘Agriculture’ or ‘Priority’ head
– Highly regulated
– Most have personnel with low financial skill-base
– Highly structured operations
– Many are re-appraising role in changing economy
– Almost all loans backed by tangible assets in the case of SFCs and also for many
cooperative loans
Other Commercial Bank Credit: Characteristics of Priority Sector
– Priority sector lending constitutes about 40 percent of all SCB lending
– Large part for agriculture, SSIs, and for export
– But significant amounts to:
– Professionals
– Artisans
– Shop owners, restaurants
– Call this the non-conventional market
Key Issues in the Accessing of the Non-conventional Market
– Regulations, state and central government policies and procedures
– Openness of government and public functionaries to allying with non-public sector
entities
– Marketing capability at state and sub-state level
– Lobbying abilities
Accessibility: Banks
– Negligible-Low Accessibility
– Foreign Private Sector Banks
– Larger Indian Private Sector Banks
– SBI and Affiliates
– Low-Medium Accessibility
– Smaller non-SBI public sector (some do not have any current plans for insurance
related product-lines)
– Poorly performing RRBs
– Medium-High Accessibility
– Better performing RRBs
– Smaller Indian Private Sector Banks
7
8. Accessibility: Housing Finance Companies
– Consistent long term fall
– Shares expected to be lower in coming years due to aggressive private SCBs
– Largest fall in market share of smaller players
– Possibility of accessing larger players low
– HDFC, GICHF, LICHF, Canfin, etc.
– Indicates falling long term potential for credit-life through HFCs
Accessibility: Non Banking Finance Companies (non-housing)
– Medium-High:
– NBFCs associated with auto companies
– Smaller NBFCs such as Nidhis, etc.
– But falling size
– Outstanding in 2003 in the region of Rs 80,000 mill (hire purchase and lease)
Accessibility: Corporate Employee Loans
– Medium to High
– Have not normally partnered with FIs
– Do not have required financial skill-base
Accessibility: Cooperatives
– Low to Medium
– Need exists
– Not ‘attached’ to competing FIs
– But highly regulated
– Not clear what permissions or procedures will be required
Accessibility: SFCs
– Medium to High
– Significant part of credit not for consumption related loans
– Consider expanding scope to include credit-life to proprietorships as well
– Could cover:
– Professionals
– Proprietorships
– Artisans
– Disadvantaged sections
8
9. Accessible Market: Personal Loans
Auto &
Other All Personal
Rs Mill. 2001 Housing Durables Personal Loans
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Accessible Market: Relevant Commercial Loans from Priority Sector Advances
Priority
Priority Sr. -
Priority Sr. Priority Priority Priority Sr.- Sr.-Food Export Total
Direct Sr. Small- Sr. Road Priority Priority Professional Processing Credit (Relevant
Agriculture scale & Water Sr.-Retail Sr.-Small & Self not incl. (Foreign Priority
Rs Mill. 2001 Loans industries Transport Trade Business Empl. SSI Banks) Sector)
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
9
10. Total Accessible Market: Banks, corporate, NBFCs etc.
All Personal
Loans (Rs. Total (Relevant
Rs Mill. 2001 '000,000) Priority Sector) Total
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Total Accessible Market Size
– Total accessible market size of about Rs 1,555 Billion as of 2001
– Market has been growing at about 20% in early 2000s but is expected to grow by about
15% annually this decade
– Conservative estimates as this does not include those by SFCs, cooperatives etc.
– Avoid possibilities of double counting
Characteristics of borrowers: SEC
• Socio-Economic Classification (SEC A, B, C, D & E): SEC A indicates better incomes as
well as potential income than that for SEC B and so on. SEC categorization is based on
a combination of education and occupation characteristics. Overall we find that
– Inclination to borrow is somewhat evenly divided between different SEC segments
– However typical size of loans varies
– The openness to credit-life insurance is not dependent upon SEC status of a person.
– However those in lower SECs had great difficulty in understanding the concept of
SEC
– Financial institution representatives informally reported larger defaults and ‘fraudulent’
activity among lower SECs
Overall, it appears that SEC categorization should not form the basis of any credit-life
marketing strategy
Characteristics of borrowings: Geographic
– The southern region accounts for a large part of the total credit
– Western and northern regions next in importance
– Eastern region least importance
10
11. – If economic growth is an indication, the importance of the western half of India is only
going to increase.
– The western half includes the area starting from Punjab, Haryana, Delhi, Rajasthan,
Gujarat, Maharashtra, Karnataka, Kerala and also Tamil Nadu and Andhra Pradesh.
The following two maps show the share of each state in India’s total (i) relevant priority
sector credit and (ii) personal loans, by commercial banks. Darker shades in each represent a
higher share. Note that despite lower populations the southern states top among all states in
the share of total loans in both categories.
11
12. Inclinations of the consumers
– Surety and not investment/tax saving are of critical factor in insurance decisions of most
– this also reflects need for credit-insurance
– Consumers are not necessary loyal to brands/past relationships – they are most
concerned with price, range of options, and then with quality of services.
– Formal sources of information are of least importance – friends, family, colleagues tend
to be the most preferred sources of information
Views towards credit-life insurance
– Consumers are on the whole positive about the idea of credit-life insurance
– Different types of consumers – across age, socio-economic profile, asset ownership, as
well as family structure, all show relatively high levels of appreciation for the concept
12
13. – However premiums will be of critical importance
– The results suggest that one time premiums and large amounts not preferred – some
preference for including credit-life insurance within the regular repayment structure
Cost of credit life
– Seven in ten consumers are open to purchasing credit life at a very low premium of Rs 20
for a Rs 1000 repayment (2 percent of the repayment).
– However this falls to three in ten if premium at 2% is continued but repayment amount is
increased to Rs 10,000.
– When the premium amount is kept the same at Rs 5000 but the extra percentage paid for
credit life is changed from 0.5 to 6% (Rs 25 to Rs 300) we find only a small fall in the
preference for credit-life
– This implies that the rupee amounts will play a critical role in consumer acceptability
– That is, larger premiums could be charged as long as they are broken into small amounts
Consumer characteristics and credit-life
– SEC profile: Higher SECs are more likely to prefer credit life insurance
– Asset Profile: The economically better off are somewhat more likely to purchase credit-
life insurance
– Family type: Family type does not appear to play an important role in consumer
preferences
– Household size: Those in larger households are somewhat less likely top prefer credit-life
insurance.
Characteristics of Credit
– Average amounts: Vary considerably across types of consumer, institution, segment, etc.
– Time-profile: Time profile varies, but does not necessarily play a role directly in the
attractiveness of credit-life services. The key determinant is the amount of the premium
paid. Moreover, money illusion appears to play a role. That is, consumers do not prefer
larger amounts (one time payments).
– NPAs: Most FI representatives were unaware of what percentage of their NPAs in their
institution were due to death of the borrower.
– Expected growth: We expect a 15 percent annual growth in the different xomponents fo
credit. This is also in line with what industry professionals feel. However some even
expect growth to be in the range of 20 to 25 percent annually in the coming decade.
In informal discussions with both consumers as well as financial institution representatives
we could not identify any of the above as a significant enough factor for basing a marketing
strategy on. This was as
Lenders views
– Senior and middle managers were all positive to the idea of credit-life insurance
– All believed that their institutions could potentially partner with other institutions
13
14. – However no one could categorically commit to the same – they considered this to be a
decision that only the senior managers collectively could take
– For government entities partnering with an MNC might be an issue
– Believed that the key potential advantages were:
– Reduction of their risk profile
– Reduction in risk for consumer
– Did not think that their profits would be a key criteria for partnering
– However, a share of the credit-life premiums might smoothen decisions
– Lenders preferred the following types of loans the most for credit insurance services:
– Long-term loans especially greater than three years
– Short-term loans of large amounts
– (However consumers do not necessarily have such preferences)
– Some respondents were also in favor of compulsory coverage
– Emphasized importance of simple documentation for such a service
– Some preference for adding credit-life policies to new products not existing products as it
may lead to confusion
Summary
• This is a large enough accessible market for a non-affiliated insurance firm
• Accessing the bulk of the market would involve interacting with both the private and
public sector
• However scales can best be achieved if public sector financial institutions are accessed.
• The southern part of India is the largest market
• Consumers suffer from ‘illusion’ and are more likely to be agreeable to pay high
premiums if it is broken into smaller parts
• Though the better off consumers will be more willing to purchase credit-life, significant
shares of the less well off will be interested
• Financial institutions will generally be open to the idea of partnering with other
institutions
• But some concerns may be there in some public sector entities about partnering with
MNCs
• Moreover death does not appear to be an important contributor to NPAs in the
perception of financial institution respondents. This may make it difficult to ally with
them without some other incentive to partnering institution.
• Consumers would be more open to it as they are highly family oriented
• The key marketing challenge is therefore less related to design of credit-life products and
more towards the creation of alliances with different types of lenders.
14
15. Chapter 2
Views of Financial Institutions’ Personnel
1. Background
The idea behind involving Personnel from Financial Institutions was to get insights on:
• Familiarity with credit life insurance
• Personal views on credit life insurance
• Their institution’s views on allying with insurance firms for such products
• Appropriateness of institution’s openness level – whether the market is ‘ready’
• Perceived advantages and hindrances in offering such products
Such an exercise is aimed at providing insights into the possibility of offering credit-life
insurance through different types of financial institutions.
The persons interviewed included Senior Managers/Managers from various types of
Financial Institutions - Nationalised Banks, Cooperative Banks, Regional Rural Banks etc.
The interviews were conducted in 2 states- Delhi and Madhya Pradesh. Representatives of
the following classes of financial institutions were interviewed
• Public Sector Bank (PSB)
• Regional Rural Bank
• Cooperative Bank
• Housing Finance Bank
• NBFC
• Direct Sales Agent
A set of questions was identified; respondents were then queried by way of a structured
questionnaire (refer appendix 1). A prior appointment was fixed with representatives of
financial institutions and an interviewer personally visited the offices to get responses to the
questionnaire. In most cases a single question had to be verbally asked in different ways to
gain an insightful enough answer (most respondents had a proclivity for single sentence
responses).
15
16. 2. Synopsis
The brief summary of the responses is presented here.
Most respondents were aware of the concept of credit-life insurance. However many were
not aware of the details and also how it worked. They tended to be quite positively inclined
to including credit-life as an add-on to their credit. For this purpose they were open to
allying/partnering with other organizations. They also felt that their very senior
management (which ultimately would take the partnering decision) would be open to
alliances.
2.1 The loan procedure
This question was aimed at understanding the criteria deployed by banks to assess the
borrowers. All banks/ lending agencies have their own system of evaluation. The common
criteria that emerge are:
• Educational Qualifications
• For Salaried class- Current salary, profile, status
• For Business-Business reputation, Assets, Turnover
• Credit repayment record
• Family background
• Minimum income level
• Property- Whether house is rented or owned
• Location of residence
Most respondents sited at least 4 out of these as indispensable factors in assessing
borrowers. Of these credit repayment record, family background (as also reflected in
location of residence), salaries and occupation were the most critical. When pressed, it was
difficult for respondents to clearly rank various factors in order of importance.
2.2 Risk factors
All financial institutions take a risk when they lend, as there are always chances of non-
repayment of loans. The questions were aimed at identifying risk factors encountered by a
financial institution while lending and the precautions taken to mitigate these factors. None
of the respondents were aware of the percentage distribution of NPAs due to various
possible causes/risk factors. They were queried about the following risk factors:
• Health problems
• This is an important factor but most have backups in forms of collaterals/ guarantees to
recover the loan
16
17. • Generally there are no medical check ups of potential borrowers
• Death
• As death cannot be predicted it poses an obvious threat, especially in cases where one
key man runs the business
• To lessen the risk some institutions specify age groups for lending. That is, many do not
provide loans to those above 60 years of age.
• Most ask for collaterals/ security to recover loans
• Loss of Income/ employment
• Most individuals repay loans from current income
• To lessen this risk all institutions conduct thorough checkups of individual’s and their
family’s backgrounds (as listed in ‘Loan procedure’ above)
• Some institutions prefer government employees and some are averse to government
employees
• Loans are generally extended to professionals who are highly qualified or who have
guarantors to take care of the loan
• Most have not had any experiences of fraud cases, however fraud remains a perceived
risk
• Many are also averse to provide loans to police, lawyers and politicians as sometimes it is
difficult to recover from them
2.3 NPA due to death
This question helped find whether the organization has NPA (Non Performing Assets) due
to death. As credit life insurance means insuring the person’s debts after his death it is
important to understand this factor. Key findings:
• Financial Institutions (FIs) have NPA but believe that death is not an important cause.
• Most have collaterals/ security to recover NPAs
• Some do not extend loans to persons beyond a specified upper age limit
2.4 Product segment:
This question aims to identify the kinds of credit (product segments) that the
respondents felt should be covered under credit life insurance. :
• Products involving large loan amounts such as
• Housing loans
• Car loans
• Educational loans
17
18. 2.5 Tenure
This question identifies time spans for loan repayment that the
respondents felt should be covered under credit life insurance.
• Most favor long-term loans
• Any loan for more than 3 years should be covered, since after 3 years predictions about
ability to repay are difficult
• Short-term loans of a large amount are also favored
2.6 Acceptability of credit life insurance in India
The idea was to utilize their better-informed perception in assessing the prospects of credit
life insurance in India. According to the respondents:
• Credit life insurance will be accepted
• Reason- it would lead to family security and ease of mind
• However, awareness has to be spread
• Amount or % of premium should be minimal
• Some FIs even want it to be made a part of policy so that all persons have to take it
2.7 Channels for distribution
This question was aimed at understanding the distribution channels set up by FIs for credit
disbursement. The responses reveal:
• The bigger FIs and some smaller ones have their own channels in form of branches –
for example Canara Bank, Corporation Bank etc.
• Few small FIs - Cooperative banks, Regional Rural Banks etc. have some tie ups for
distribution
• But own channels remain the most prevalent across different types of institutions
2.8 Willingness to pay premium
This question was asked to gain insights into whether persons would pay premium for
availing credit life insurance. Most answers are:
• Yes they would pay
• Awareness/education has to be spread
• Premium amount should be minimal
18
19. 2.9 Critical persons
The idea behind this question was to find who are the decision makers in the institution who
could be approached for taking a decision regarding introduction of credit life insurance.
The responses are:
• In most cases it is the senior management that takes decisions
• Most respondents feel that senior management would accept it
• However, all raised queries about cost to the consumer and also the structuring of the
alliance
2.10 Key benefits
This question aimed at understanding what would be the key benefits for the institution if it
accepts credit life insurance. Following are identified as key benefits:
• Ease of ‘selling’ credit- all say that it will ease the process of selling credit as it would
reduce the consumers perceived risk
• Lower risk of credit repayment - all agree that it will reduce the risk involved for both
the borrower as well as the lender
• Other potential benefits such as the financial institution’s share of the premium were not
considered to be important
2.11 Key success factors
This question aimed at identifying the key factors that would help in ensuring acceptance
and success of credit life insurance in India. The key success factors are:
• Cost- should be minimal
• Ease of access- should be very easily accessible, minimum documentation, hassle free
• Product design- should involve options to choose from
• Integrability with your range of credit products- this is considered very important by
most as it will benefit both clients as well as lenders
• Interest in attaching with existing products – most believe that credit life insurance
should not be tried with existing products, as it would lead to confusion. Should be tried
with new products
19
20. Chapter 3
Consumer Insights
1. Introduction and Background
1.1 Indian Consumer Profile
Annual Market Size Annual Household Expenditure (Rs. in '000)
Expenditure in Rs. Crore Numbers in '00,000 ≤35 35-70 70-140 140-200 >200 Total
1.2
Total market size 2,185,983 Households 596 834 474 83 43 2,030
Food products 1,162,404 Per Capita Monthly Expenditure (Rs.)
FMCG
1.3 89,888 Numbers in '00,000 ≤400 400-550 550-750 750-1500 >1500 Total
1.4
Durables 87,105 Population 614 1,567 2,397 4,427 1,874 10,880
Misc. goods & services 846,585 High school plus 14 55 142 590 745 1,546
1.5
Annualized Growth in 1990s (%) Persons & Rooms in a House: Number of Households (00,000)
Employment growth 2.5 Persons 1 Room 2 Rooms 3 Rooms 4 Rooms ≥5 Rooms Total
Population growth 2.0 1 to 2 135 57 19 7 5 238
Literacy growth 4.7 3 to 5 420 308 132 59 40 990
Savings growth 17.4 6 & above 227 245 141 86 89 805
Credit growth 16.2 Total 782 610 292 152 134 2,033
% of Households having
Telephones 9
Television 32
Bicycles 44
Two wheelers 12 Seasonality - Share of expenditure in each quarter (%)
Four wheelers 3
LPG 18
Electricity 56 25 27 26 26 25
Banking 36
Apr-Jun
Households in '000 that 25 25 25
25 25 Jan-Mar
Are nuclear 129,939
Are joint 9,796 Oct-Dec
25 24 23 25 25 Jul-Sep
Are extended & others 63,309
Have 2 adults 90,786
Have 3 adults 38,077 25 25 26 24 25
Have 4 or more adults 54,018
Have 1 child 39,168
High Value Value FMCG
Value FMCG FMCGDurablesDurables Clothing & Market size sizesize
High High Durables ClothingClothing & Market
& Market
Have 2 children 46,507 Food Food productsproducts
Food products Footwear Footwear
Footwear
Have >2 children 71,281 See notes for constituents in each consumption category
Regionality: Urban Markets
Socio-Economic Classification Households % of Urban % Households having
(Urban Households in '000) Key Urban Areas in '000 Total 4 Wheeler 2 Wheeler Bicycle TV Set
A 5,290 Mumbai (Suburban) 19,072 3 8 9 10 74
B 10,438 Thane 15,015 3 4 12 18 73
C 14,449 Bangalore 13,810 2 10 35 29 79
D 15,214 North 24 Parganas 10,769 2 4 7 49 60
E 13,151 Ahmadabad 10,398 2 7 37 54 72
Single income 32,779 Pune 9,849 2 9 39 48 78
Two or more income 20,993 Kolkata 9,309 2 7 9 23 72
Own house (%) 67 Others 497,439 85 5 26 49 63
Source: Market
Separate kitchen (%)
Skyline of76India 2004 – District Profile
585,661 100 6 25 46 64
Urban total
Source: Market Skyline of India 2004 – District Profile
20
21. Table 1: Distribution of credit
DISTRIBUTION OF CREDIT- MAJOR CITIES (New Delhi, Mumbai, Calcutta, Chennai, Pune,
Hyderabad, Bangalore)
SEC A SEC B SEC C SEC D SEC E Total
Housing
Durables
Personal
Residual
Total
Housing
Durables
Personal
Residual
Total
Source: Estimates from NSSOs Large expenditure survey – 55th round
• Most credit is for ‘personal’ uses. This includes:
• Education
• Consumption including marriages, festivals, ceremonies and health
requirements
• Credit cards etc.
• Housing is the other key segment
• The term ‘residual’ includes the unexplained part of total loans
• There are few differences between different SEC groupings
Sample Size
• Total Respondents: 1660
• SEC classification
Table 2: Socio-economic classification
SEC Freq. Percent
A1
A2
B1
B2
C
Others
Total
• Most respondents belong to SEC A1, A2 and B1
21
22. Figure 1: Age Distribution of Respondents
120
100
80
60 Freq.
40
20
0
19 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 71
• The sample captures a large share of young and middle aged persons
Table 3: Number of adults per family
Adults Freq. Percent
Missing
1
2
3
4
5
6
7
8
>8
Total
• Most respondents belong to families with 2 to 4 adult members
22
23. Table 4: Type of family
Family type Freq. Percent
Joint
Extended
Nuclear
Other
Total
• Joint families are those that contain more than one married sibling sharing a single
kitchen
• Extended households include those where parents share a kitchen with a married
child
• Largest sample is of members of nuclear families
• Extended families are the next large set
Table 5: Ownership of house
House type Freq. Percent
Self
Rented
Total
• Most respondents own the house they live in
Table 6: Ownership of vehicles
Automobile Freq. Percent
4 Wheeler
2 Wheeler
Bicycle
None
Total
• The sample captures the well off
• Almost half of the respondents own a 4 wheeler
• Two-wheelers are owned by a large share of the respondents
23
24. Table 7: Motivation
Work motivation Percent
Work for my family’s
happiness/comfort
Work for self-
satisfaction/comforts
Total
• Family’s comfort and happiness is the predominant motivation for the bulk of the
respondents
2. Borrowing and Insurance Behavior
Table 8: Type of insurance
Type of Life Accident Health Fire Calamities
insurance insurance insurance insurance insurance insurance
No
Yes
Missing
Total
• Most families / individuals have life insurance
• Half do not have health insurance
• Most prefer to have accident insurance
• Fire and calamities insurance is held by few
Table 9: Motives for insurance
Motive for Investment Tax savings Surety Family
investment Pressure
Very important
Important
Less Important
Not Important
Missing
Total
• More than three fourths consider surety to be the most insurance factor for
insurance
• Investment and tax savings are also considered to be important but this preference is
not as strong
24
25. • Family pressure was considered by most to be unimportant
Table 10: Criteria for insurance
Criteria for choosing Low interest Customer Range of Past Ease of
the creditor rate friendliness credit relationship access of
of creditor terms/optio creditors
ns office
Very important
Moderately Important
Important
Less Important
Not Important
Missing
Total
• Low interest rates are the most important determinants of loan-scheme for almost
four fifths of the respondents
• Customer friendliness and range of credit are next in importance
Table 11: Sources of information
Source of Very Moderately Less Not Total
information on loans important Important Important Important Important Missing
Friends or family
Office colleagues and
associates
Prospective creditor
Other specialists
Internet search
Magazines and books
Advertisement
Other (Specify)
• Relations, friends, office colleagues and associates are considered to be very
important sources of information by most respondents
• Formal sources of information are not as important
• However information from the creditor is next in importance
• Media is not considered a very important source of information by most
25
26. 3. Views on Credit Insurance
3.1 Policy Preference 1
Table 12: Preference for credit-life
Sec 1020 with 3060 with 5100 with 7650 with 10200 with
credit-life is credit-life is credit-life is credit-life is credit-life is
preferred to preferred to preferred to preferred to preferred to
1000 w/out 3000 w/out 5000 w/out 7500 w/out 10000 w/out
credit life credit life credit life credit life credit life
Total
• At minimal premiums credit-life insurance is preferred by more than 70 percent
• Each of the options above imply a marginal credit life premium of 2% over the total
premium
• Note the large fall in percentage preferring credit life as the basic amount increases
• This suggests that large money amounts are not preferred
• A large number of respondents were found to be in favor of credit life in this set of
queries
• More importantly, amount matters much more than percentage; that is, consumers
may be willing to pay more as long as amount of extra premium paid is not large
Table 13: Preference for credit-life
Sec 1020 with 3060 with 5100 with 7650 with 10200 with
credit-life is credit-life is credit-life is credit-life is credit-life is
preferred to preferred to preferred to preferred to preferred to
1000 w/out 3000 w/out 5000 w/out 7500 w/out 10000 w/out
credit life credit life credit life credit life credit life
A1
A2
B1
B2
Others
Total
• Higher SECs are more likely to prefer credit-life
• However even the lower SECs have some preference for the same
26
27. Table 14: Number of adults per family
Adults 1020 with 3060 with 5100 with 7650 with 10200 with
credit-life is credit-life is credit-life is credit-life is credit-life is
preferred to preferred to preferred to preferred to preferred to
1000 w/out 3000 w/out 5000 w/out 7500 w/out 10000
credit life credit life credit life credit life w/out
credit life
Missing
1
2
3
4
5
6
7
8
Total
• Larger families lead to lesser need for insurance
• This is because larger families tend to self-insure implicitly
Table 15: Type of family
Family type 1020 with 3060 with 5100 with 7650 with 10200 with
credit-life is credit-life is credit-life is credit-life is credit-life is
preferred to preferred to preferred to preferred to preferred to
1000 w/out 3000 w/out 5000 w/out 7500 w/out 10000 w/out
credit life credit life credit life credit life credit life
Joint
Extended
Nuclear
Other
Total
• Family type is less important than family size
• Other factors such as automobile ownership or home ownership (proxies for
economic class) have no significant impact on credit-life insurance
• Neither does age have a significant impact on proclivity towards credit-life except for
those above 60 years of age
27
28. Chapter 4
Market Size
Synopsis & Insights
Background
Different components of the formal credit market are studied in this section.
These include:
• Housing finance
• Consumer durables finance
• Automobile finance
• Employee loans
• Personal loans
• Priority Sector lending by Banks
• Loans by State Finance Corporations and Cooperatives
Of these the last are not included in the calculation of overall market sizes due to significant
lending between different financial institutions. There inclusion could lead to double
counting.
Market Size
Market sizes have been calculated from information contained in various parts of this
chapter. This has been done at a company/institution-level basis in the accompanying MS
Excel spreadsheet.
The Market Size includes
– The credit-market size considered includes:
– Providers of personal credit
– Providers of credit for commercial purposes
– The ‘accessible’ market includes lenders that are not currently allied to major
insurance firm
28
29. Providers of Personal Credit
– Commercial banks: include different kinds of Banks, large and small, public and
private, Indian and foreign
– Public Sector: includes State Bank of India and its associate banks as well as
other nationalized banks
– Private sector (Indian): This includes the newly set-up HDFC Bank and ICICI
bank as well as many older private sector banks. The larger private sector banks
are associated with insurance firms, and therefore cannot be considered to be
‘accessible’. However many private banks are still not affiliated with any
insurance firm.
– Private sector (Foreign): Some foreign banks are quite large and associated with
a high degree of dynamism in providing personal loans such as Citibank.
However many others are predominantly oriented towards financing commercial
and trade requirements
– Regional Rural Banks: are typically small banks that have a high degree of rural
reach. They are also un-affiliated with insurance firms.
– Credit Card loans: are provided by all types of banks, however the credit card
lending is not-reported separately but as a part of overall ‘personal loans’. This
study therefore has not been able to include them as a separate entity.
– Non Banking Finance Companies (NBFCs)
– Non-Housing NBFCs: These financial institutions grew rapidly through the
nineties, however due to competition from the banking sector their growth has
slowed down. It is expected that they will not be important players in the future.
However, many automobile companies have their own NBFCs and these may
continue to have some importance in the future. Most NBFCs are unaffiliated
with insurance firms, though a few are.
– Housing finance companies: A few HFCs have been quite strong and are
growing rapidly such as HDFC. However few smaller ones are likely to survive
the competition from Banks. The smaller HFCs are also unaffiliated though the
larger ones such as HDFC are.
– Corporate loans to employees: Large public sector firms as well as a few private
sector non-financial firms are large providers of loans to their employees. Most
such companies are unaffiliated with insurance firms.
Providers of Credit for Commercial Purposes
– Commercial banks
– Public Sector
– Private sector (Indian)
– Private sector (Foreign)
– Regional Rural Banks
– Kisan Credit Cards: Kisan credit cards are designed to enable easy credit to
farmers from Scheduled Commercial Banks. However these loans are
categorized as direct agriculture loans and have not been separately dealt with.
29
30. – Credit Societies/ Cooperatives: Cooperative, credit societies, self help groups,
have been important players; however they are typically poorly managed and
subject to stringent regulatory oversight. Though they are predominantly un-
affiliated with insurance firms, partnering with these institutions will be a long-
term process, as they are not known for their flexibility.
– State finance and other development corporations: Many state organizations
provide credit for ‘development’ or ‘socially desirable’ purposes. These include
to disadvantaged sections, small-scale industries, etc. These organizations are
also not known for their flexibility or dynamism. If current trends continue, they
will soon become insignificant players. However many are reported to be
changing and may be open to partnering. However, it is reported that single-
person-dependent loans are not a high share of their total outstanding.
Purposes of Credit
– Durables: Consumer durables
– Housing: Housing loans are a rapidly expanding segment and are likely to remain
so for the foreseeable future.
– Automobiles, Education, Health and other personal: These are not reported
individually and it is not possible to disentangle the various components of the
‘other personal loans’. There is significant flexibility related to duration of loans.
Typically however for health and other consumption purposes loans tend to be
for about 2 years, for automobiles for two to five years, and for education from
five to 20 years. All are secured loans.
– Commercial: Almost all commercial loans are secured loans and could be highly
short term to 5 to 20 years. Generally commercial loans to individuals have a
good repayment history.
Commercial Bank Loans for Housing, Durables, & Other: Characteristics
– Public Sector: Well spread across country
– Private sector (Indian): Dynamic, expanding rapidly
– Private sector (Foreign): Concentrating on metros and ‘premium’ customers
– Regional Rural Banks: large rural spread but many are poorly run
What SCBs lend for
– Durables: Includes consumer durables, PCs, etc
– Housing: Housing purchase, repair and construction
– Other Personal
– Credit Cards
– Automobiles
– Education, Health Etc.
– Not all SCBs follow exactly same categorization
30
31. Average Account Size of All Personal Loans
Amt/Acc (Rs) Consumer Housing Rest of Personal All Personal
2001 Durables
Public Sector
Foreign Banks
RRBs
Private Indian
Total
Housing Finance Institutions: Characteristics
– Both SCBs and HFCs
– SCBs also considered previously
– Many not affiliated with insurance companies
– But could potentially offer own credit-life products
– Possibility of alliance is open
– Cost of providing credit-life products/service of critical importance
– Non Banking Finance Corporations (non-housing): Characteristics
– Have suffered loss in market share from Banks in the past
– RRBs the most aggressive players in this segment
– Banks report durable and auto loans under ‘Durables’ and ‘Rest of Personal’
categories
– Not possible to disentangle market size cleanly
Calculating Market Size
– Use 2001 as base year as data are provisional or estimates for later years
– First estimate total possible market for credit-life
– But some of this is inaccessible
– Then estimate all ‘accessible’ market size
Problem in estimating market size
– Non availability of categorization of purpose from many sources
– Non uniformity in categorization of purpose from many sources
– Only broad numbers available for some (eg. RRBs)
– Inter FI lending: Possibility of double counting
– Focus more on identification of accessible markets
– Estimations at a single point in time as well as relevant break-ups of sub-
components have been conducted taking into consideration the above factors
31
32. Total Market Size: Personal Loans
All
Personal
Loans Auto &
(Rs. Other
Rs Mill., 2001 '000,000) Housing Durables Personal
Bank
SBI Associates
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Total Market Size: Commercial Loans
Priority
Priority Sr. -
Priority Sr. Priority Priority Priority Sr.- Sr.-Food Export
Direct Sr. Small- Sr. Road Priority Priority Professional Processing Credit
Rs Mill., Agriculture scale & Water Sr.-Retail Sr.-Small & Self not incl. (Foreign
2001 Loans industries Transport Trade Business Empl. SSI Banks)
Bank Total
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
Total
HFCs
NBFCs
Corporates
Total
Other sources of credit: State financial corporations
– Cooperatives at different levels
– However market size cannot be estimated for this segment
– Large amount of inter-lending with these categories of institutions and also from
commercial banks to these institutions
– Difficult to make an estimate
32
33. Credit Societies/Cooperatives: Characteristics
– Receive loans from SCBs and others under ‘Agriculture’ or ‘Priority’ head
– Highly regulated
– Most have personnel with low financial skill-base
– Many not viable in the medium-long term
– Include
– The Primary Agricultural Co-operative Societies
– District Central Co-operative Banks
– State Co-operative Banks
– Comparative Share of Co-operative Banks vis-a-vis SCBs
State -Level Finance Corporations: Characteristics
– State financial corporations
– Institutions oriented towards disadvantaged sections
– Development institutions such as tourism development
– Highly structured operations
– Many are re-appraising role in changing economy
State -Level Finance Corporations: Provide credit to
– Companies
– Proprietorships and Partnerships
– Professionals
– Artisans
– Deprived sections
– Credit predominantly for ‘productive purposes’
– Also includes that for
– Automobiles
– Housing
– Other assets: Shops, restaurants, cattle etc.
– Almost all loans backed by tangible assets
Other Commercial Bank Credit: Characteristics of Priority Sector
– Priority sector lending constitutes about 40 percent of all SCB lending
– Large part for agriculture, SSIs, and for export
– But significant amounts to:
– Professionals
– Artisans
– Shop owners, restaurants
33
34. Key Issues in the Accessing of the Non-conventional Market
– Regulations, state and central government policies and procedures
– Openness of government and public functionaries to allying with non-public
sector entities
– Marketing capability at state and sub-state level
– Lobbying abilities
Accessibility: Banks
– Negligible-Low Accessibility
– Foreign Private Sector Banks
– Larger Indian Private Sector Banks
– SBI and Affiliates
– Low-Medium Accessibility
– Smaller non-SBI public sector (some do not have any current plans for insurance
related product-lines)
– Poorly performing RRBs
– Medium-High Accessibility
– Better performing RRBs
– Smaller Indian Private Sector Banks
Accessibility: Housing Finance Companies
– Consistent long term fall
– Shares expected to be lower in coming years due to aggressive private SCBs
– Largest fall in market share of smaller players
– Possibility of accessing larger players low
– HDFC, GICHF, LICHF, Canfin, etc.
– Indicates falling long term potential for credit-life through HFCs
Accessibility: Non Banking Finance Companies (non-housing)
– Medium-High
– NBFCs associated with auto companies
– Smaller NBFCs such as Nidhis, etc.
– But falling size
– Outstanding in 2003 in the region of Rs 80,000 mill (hire purchase and lease)
Accessibility: Corporate Employee Loans
– Medium to High
– Have not normally partnered with FIs
– Do not have required financial skill-base
34
35. Accessibility: Cooperatives
– Low to Medium
– Need exists
– Not ‘attached’ to competing FIs
– But highly regulated
– Not clear what permissions or procedures will be required
Accessibility: SFCs
– Medium to High
– Significant part of credit not for consumption related loans
– Consider expanding scope to include credit-life to proprietorships as well
– Could cover:
– Professionals
– Proprietorships
– Artisans
– Disadvantaged sections
Accessible Market: Personal Loans
Auto &
Other All Personal
Rs Mill. 2001 Housing Durables Personal Loans
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
35
36. Accessible Market: Relevant Commercial Loans from Priority Sector Advances
Priority
Priority Sr. -
Priority Sr. Priority Priority Priority Sr.- Sr.-Food Export Total
Direct Sr. Small- Sr. Road Priority Priority Professional Processing Credit (Relevant
Agriculture scale & Water Sr.-Retail Sr.-Small & Self not incl. (Foreign Priority
Rs Mill. 2001 Loans industries Transport Trade Business Empl. SSI Banks) Sector)
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Total Accessible Market: Banks, corporate, NBFCs etc.
All Personal
Loans (Rs. Total (Relevant
Rs Mill. 2001 '000,000) Priority Sector) Total
Banks
SBI Ass
Nationalized
Indian Pvt
Foreign
RRBs
Non Bank
HFCs
NBFCs
Corporates
Total
Total Accessible Market Size
– Total accessible market size of about Rs 1,555 Billion as of 2001
– Market has been growing at about 20% in early 2000s but is expected to grow by
about 15% annually this decade
– Conservative estimates as this does not include those by SFCs, cooperatives etc.
– Avoid possibilities of double counting
36
37. I. Housing Finance
1. Data Description
The Housing Finance (HF) industry in India has two major segments consisting of
Scheduled Commercial Banks (SCBs) and specialized Housing Finance Companies (HFCs).
While there is a significant amount of data available for the SCBs, the data on HFCs is
limited.
Two sources of data have been used for this analysis: (1) Reserve Bank of India and (2)
Annual accounts of the major HFCs.
(1) The RBI data coverage is in three parts for the years ending March 31st in 2000, 2001 and
2002.
(i) An occupational classification of bank credit gives a state-wise break-up of credit
going to different sectors, by different types of scheduled commercial banks. The
data is further broken up for each state, but for the purposes of this analysis we
use a regional classification (See Appendix II).
(ii) The Scheduled Commercial Bank’s advances under Priority Sector (2000 and
2001) gives a statewise (regional) break-up of credit given by the banks either
directly or indirectly. Indirect credit is typically through HFCs where the banks
lend to HFCs against an earmarked portfolio of accounts.
(iii) State and Population Group wise Classification of Outstanding Credit of Small
Borrowal Accounts of Scheduled Commercial Banks According to Occupation
The RBI data has a hierarchical structure; (ii) is a subset of (i) and (iii) is a sub-set of (ii).
While for all market related analysis, we rely on data from (i), we also provide an analysis of
data from (ii) and (iii) to give an idea of the characteristics of the different market segments.
(2) Annual financial statements of 15 HFCs for 5 years 1998 – 2002.
(3) CRIS INFAC Retail Finance Annual Review: January 2003.
2 Formal Credit In The Housing Finance Sector
2.1 Market Size Of The Housing Finance Sector
The HF industry has been growing at a healthy CAGR, estimated to be in the 25-30% range.
While market size can be defined in many ways – annual sanction, annual disbursement of
housing loans, outstanding credit for housing purposes, we define the market as the stock of
outstanding loans to the housing sector. The size is estimated as follows:
(Housing Loans O/S for HFCs – Bank Borrowings by HFCs) + SCB O/S Housing Loans
37
38. Table 1: Select Financials Of 15 Housing Finance Companies In India, 1998-2002
(Amount in Rs. bill.)
Select Financials for
HFCs (from B/S)* 1998 1999 2000 2001 2002
Networth
Borrowings
Banks
Financial Institutions
Foreign
Bonds/Debentures
Fixed Deposits
Housing Loans
YOY Growth (%)
Source: Financial Statements of HFCs (Prowess, CMIE)
* A list of the HFCs whose financials are reported here is given in Appendix 1
Table 2: Estimate Of Housing Finance Market Size, 2000-2002
(Amount in Rs. bill.)
Market Size Estimate 2000 2001 2002
HFC Housing Loans O/S A
Bank borrowing by HFCs B
Net Housing Loans by HFCs (A) - (B) = C
Housing Loans O/S for SCBs D
Market Size (C) + (D)
YOY Growth in Market Size (%)
A market size of approximately Rs. 525 billion translates to about 3% of the country’s GDP,
which is small in comparison to other countries (see Fig 1). It is useful to bear in mind that
the housing finance market is comparatively young in India. According to CRISIL, the
housing finance market enjoys a market share of 52% in the key retail finance market. In
existence for over two decade, the buoyancy of the market is a recent phenomenon, in the
last 3-4 years. The tax incentives for owner occupied homes under section 88 of the IT Act,
combined with the reduction in the interest rates gave a fillip to the market in recent years.
The size of the new mortgages sanctioned and the amounts disbursed have grown much
faster than the housing loans outstanding, suggesting that a large proportion of the housing
loans were refinanced due to the significant fall in the interest rates. For instance, during the
financial year 2001 housing loans disbursement for HDFC was Rs. 58.03 billion while its
loan outstanding rose by Rs. 31.5 billion. Also, for the financial year 2002, the corresponding
figures were Rs. 76.17 billion and Rs. 39.83 billion respectively.
38
39. Figure 1-Housing Finance as a % of GDP 2002-
2003
70%
58%
60%
50%
% of GDP
40%
30%
20% 15% 15%
10% 3% 3%
0%
India Malaysia Thailand Korea USA
Country
Since we have limited data on HFCs, the housing loans data from the banking sector
comprising of Scheduled Commercial Banks (SCBs) is analyzed in significant detail to
provide insights into market segmentation of housing finance.
It should however be noted that the banks have an economic incentive to lend money either
directly or indirectly to this sector since such loans (less than Rs. 0.5 m in rural areas and Rs.
1.0 mill. in urban/metropolitan areas) qualify for Priority Sector lending. Given that 40% of
the credits extended by the banks have to be to the priority sector, housing loans are
preferred. We see below that about 75% of the banks lending to this sector qualifies for
priority sector. What this implies is that most of the non-bank lending to the sector is larger
than the priority sector threshold.
3 Housing Finance Credit Of Housing Finance Companies (HFC)
3.1 Credit Account Related Analysis
3.1.2 Total Housing Credit Disbursed Of HFC’s And Overall Growth Of The
Segment
In 2001-02, the incremental disbursement of HFC’s is estimated to have increased by 17.3%
over 2000-01 to Rs. 148.05 billion. In the same period, the total outstanding loans of HFC’s
are estimated to have increased by 19.8% to Rs. 385.73 billion. However, the outstanding
assets of other HFC’s is estimated to have increased by only 9.5% due to lower incremental
disbursements in 2001-2002 coupled with existing borrowers opting for refinance from
other aggressive players like banks as a result of the declining interest rates. The share of
outstanding housing loans of HFC’s to total housing loans is estimated to have declined
significantly from 82.9% in 2000-01 to 72% in 2001-2002 indicating a loss of outstanding
portfolio by HFC’s to banks.
39
40. 3.1.2 Number And Average Size Of Accounts
Financing from HFC’s are generally in the form of term loans. During the 1998-99 to 2001-
02 period, the average size of the retail loan is estimated to have increased from Rs. 152,000
to Rs. 225,000, a CAGR of 18.9%. In 2001-02 the average loan size of HDFC was Rs.
357,500, an increase of 10.9% over the previous year 2000-01. The number of housing loans
disbursed by HDFC increased by 18.3% to 213,000. The average loan size of LIC Housing
Finance and Dewan Housing Finance was Rs. 313,500 and Rs. 224,400. Housing finance
companies while sanctioning loans give higher credit to households having more than one
earning member and sanctions loan amounts upto a maximum of 36 months of average
household income. HFC’s finance loans upto a limit of 85% and in select construction
projects upto 100% of the value of the house.
3.1.3 Average Tenure
Most HFC’s offer housing loans for a period of 15-20 years. During the 1996-2002 periods,
the tenure of loans available increased from 7-10 years to 20-30 years. However the average
tenure of loan at origination ranges from 10-14 years, while the average duration of
outstanding loans is 7-8 years. Interest rates for shorter tenure loans (below 5 years) are
lower than longer tenure loans (15 years and above) by 75-175 basis points.
3.1.4 Average EMI
During the 1995-1996 period, the EMI on housing loans is estimated to have declined by
almost 50%. The EMI on a 20-year loan at 8.5% interest is Rs. 870 per and on a 7 year, loan
at 18% interest is approximately Rs. 1590).
3.2 Analysis Of The Competitive Scenario Of The HFC Segment
3.2.1 Major Players In The HFC Segment
There are approximately 350 HFC’s in India of which only 31 are approved and registered
with the NHB for refinancing. The major players are:
• Housing Development Finance Corporation
• Life Insurance Company Housing Finance
• General Insurance Company Housing Finance
• Dewan Housing Finance Corporation Ltd.
• Canfin Homes Ltd.
3.2.2 Current Performance Of The HFC Players
In 2001-02, the disbursements of HFC’s like HDFC, LIC Housing Finance and Canfin
Homes increased by 31.3%, 25.5% and 28% respectively over 2000-01.
40
41. 3.2.3 Credit Ratings Of The HFC’s
Credit ratings of the major HFC’s are listed below. See Appendix IV for a detailed list of
credit ratings for all HFC’s.
• Housing Development Finance Corporation-AAA (CRISIL)
• Life Insurance Company Housing Finance-AAA (CRISIL)
• General Insurance Company Housing Finance-AA (CARE)
• Dewan Housing Finance Corporation Ltd.-AA (CARE, Fitch)
• Canfin Homes Ltd.-A+ (CRISIL)
3.2.4 Non Performing Assets (NPA) of HFC
The average gross NPA of the industry is estimated at 2-2.5% of the outstanding portfolio.
However, it varies between 1-5%. In 2001-02, gross NPA of HDFC was .91% of the
portfolio. The industry credit loss is determined at 20-40 basis points
3.2.5 Market Share Of The HFC’s
Table 3: Incremental Disbursements Of The HFC’s In The Housing Finance Sector
(Rs. bill.)
Particulars 1998-99 1999-00 2000-01 2001-02
HDFC
LICHF
GICHF
Dewan HF
Canfin Homes
Other HFCs
All HFCs
Source: CRIS INFAC Retail Finance Annual Review: January 2003
Table 4: Outstanding Loans Of HFC’s In The Housing Finance Sector
(Rs. bill.)
Particulars 1998-99 1999-00 2000-01 2001-02
HDFC
LICHF
GICHF
Dewan HF
Canfin Homes
Other HFCs
All HFCs
Source: CRIS INFAC Retail Finance Annual Review: January 2003
In 2001-02, the aggregate market share of all HFC’s in aggregate retail disbursements
declined by 9.1% to 59.2%. Most of the HFC’s have lost their market share to the banks.
However, the largest loosing segment has been the small and medium sized HFC’s with a
loss of 7.2% in market share. The market share of small and medium HFC’s declined from
41
42. 25% in 2000-01 to 17.8% in 2001-02. Market share of HDFC declined from 31.4% in 2000-
01 to 30.5% in 2001-02.
4. Commercial Banks In Housing Finance
4.1 Market Size And Growth Of Housing Finance From Banks, 2000-2002
Table 5: Total Outstanding Of Housing Loan By Scheduled Commercial Banks
Particulars 2000 2001 2002
Total Outstanding (Rs. bill.)
Total Accounts
Amount Per Account (Rs. mill.)
Growth in O/s (Rs. bill.)
Growth Rate in Total O/s (%)
Source: Reserve Bank of India data on State and Bank Group-wise Classification of Outstanding Credit of
Scheduled Commercial Banks According to Occupation
4.2 Outstanding Housing Credit By Type Of Scheduled Commercial Banks
Table 6: Outstanding Housing Credit And Market Share By Type Of SCBs - 2000-
2002
(Rs. mill. /
(%)
Outstanding Loans/Market Share 2000 2001 2002
SBI & Associates
Nationalized banks
Other SCB
Foreign Banks
RRB
All SCB
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of
Scheduled Commercial Banks According
• Table 6 shows that the nationalized banks along with State Bank of India and
Associates (SBI) dominate 80% of the market for housing finance in India. Between
2000 and 2001, SBI has gained market share at the expense of the Nationalized
banks
42
43. Figure 2-Bank Groupwise Housing Loan Outstanding Per
Amount O/s per Account Account
0.8
0.7
0.6
(Rs mn)
2000
0.5
0.4 2001
0.3
0.2 2002
0.1
0
Foreign
RRB
Other SCB
Nationalised
SBI & Ass
Banks
banks
Bank Group
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of
Scheduled Commercial Banks According to Occupation
• The quantum of housing loan disbursed per account, is the highest for foreign banks
as compared to other bank groups as shown in Figure 2 above although their market
share has remained in the 6-8% bracket in the period 2000-2002.
Table 7: Region Wise Market Share Each Bank Type In Outstanding Housing Credit
For 2002 (in %)
Region/Bank SBI & Nationalized Foreign RRB Other All
Associates Banks Banks SCB Banks
Northern region
North-eastern region
Eastern region
Central region
Western region
Southern region
All India
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of Scheduled Commercial
Banks According to Occupation
Table 8: Bank Wise Market Share In Each Region For Outstanding Housing Credit,
2002 (in %)
Region/ Bank SBI & Nationalized Foreign RRB Other All
Associates Banks Banks SCB Banks
Northern region
North-eastern
region
Eastern region
Central region
Western region
Southern region
All India
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of Scheduled Commercial
Banks According to Occupation
43
44. Table 9: Bank-Wise Market Share In Each Population Group For Outstanding
Housing Credit-2002
(in %)
SBI & Nationalized Foreign RRB Other All SCB
Population Groups Associates Banks Banks SCB
Rural
Semi-Urban
Urban
Metropolitan
All India
Source: Reserve Bank of India data on Population and Bank Group wise classification of outstanding credit of Scheduled Commercial Banks
According to Occupation
• Amongst all SCB, SBI & Associates and Nationalized Banks together have over 70%
of Housing Loan market share across each of the population group sectors for the
year 2002, as can be seen from Table 9.
Table 10: Population Group-Wise Market Share Of Each Bank Type In Outstanding
Housing Loan Credit For 2002 (in %)
SBI & Nationalized Foreign RRB Other All SCB
Population Groups Associates Banks Banks SCB
Rural
Semi-Urban
Urban
Metropolitan
All India
Source: Reserve Bank of India data on Population and Bank Group wise classification of outstanding credit of Scheduled Commercial Banks
According to Occupation
Table 11: Commercial Banks In Housing Finance – The Population Group
Perspective (Amount in Rs. mill.)
2000 2001 2002
Population group Amount O/s Amt per Acc. Amount O/s Amt per Acc. Amount O/s Amt per Acc.
Rural
Semi Urban
Urban
Metropolitan
All India
Source: Reserve Bank of India data on Population and Bank Group wise classification of outstanding credit of Scheduled
Commercial Banks According to Occupation
44
45. • Referring to Table 11, we observe that the Urban and Metropolitan group of the
population together occupied 70% of the Housing Loan Market for the year 2002.
We also see that each of the population group has more than doubled its loan per
housing account in 2002 on comparison with data from 2000. What could possibly
have helped such a steep rise?
5. Formal Credit in Housing Finance Sector By Location
5.1 Region-Wise Housing Loans Outstanding Between 2000-2002
• Referring to Table 12, we observe that the western and southern region enjoyed a
market share of 59%-61% during 2002.
Table 12: Region-Wise Housing Loans Outstanding And Amount Outstanding Per
Housing Loan By All SCB
(Rs. mill.)
Particulars 2000 2001 2002
Regions Of India No. Of Amount Amt. No. Of Amount Amt No. of Amount Amt
Accounts O/s per Accounts O/s per Accounts O/s per
Acc. Acc. Acc.
Northern region
North eastern region
Eastern region
Central region
Western Region
Southern region
All India
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of
Scheduled Commercial Banks According to Occupation
• Amount disbursed per loan has increased significantly between 2000 and 2002 in
almost all the regions as can be seen from Table 12. The western region has grown
the maximum in 2002 to an amount of Rs0.23m per account as shown in Table 12.
This is probably due to the high property prices in Bombay.
• The loans per account is the highest in the western and southern regions which
matches the previous observation of the two regions dominating almost 60% of
market share in the period 2000-2002. Although the market share of the southern
region is higher, the loans per account are lower than that of the western region. This
highlights the existence of high property prices in Bombay, which is likely to
dominate the regions’ demand for housing loans.
45
46. 5.3 ‘Big Players’ State Wise Analysis
Table 13: Cumulative Market Share Of Housing Credit Of 10 Top States In %
Cumulative Share, O/s States’
States Market
Share
Maharashtra
Tamil Nadu
Karnataka
Andhra Pradesh
Kerala
Uttar Pradesh
West Bengal
Delhi
Rajasthan
Gujarat
All India
Source: Reserve Bank of India data on State and Bank Group-wise Classification of outstanding Credit of
Scheduled Commercial Banks According to Occupation
6. Priority Sector Lending Of Housing Credit
Table 14: All India Housing Loan Advances Under Priority Sector 2000 And 2001
(Amount in Rs. mill.)
2000
Direct Finance Indirect Finance Total
No. of Amount Amount
No. of Accounts Amount O/s Accounts O/s No. of Accounts O/s
2001
Direct Finance Indirect Finance Total
Amount Amount Amount
No. of Accounts O/s No. of Accounts O/s No. of Accounts O/s
Source: Reserve Bank of India “ Scheduled Commercial Bank’s Advances under Priority Sector”
• The housing loan advances under priority sector, which stood at Rs. 123.59 bill. in
the year 2000, rose by 68.71% for the following year. The growth can be accredited
firstly to the direct housing finance segment which rose from Rs. 55.26 bill. in 2000
by a high 89.25% in 2001 and secondly to the indirect housing finance segment,
which saw it’s outstanding reach Rs.103.93 bill. in year 2001- a growth of 52.10%
over it’s previous year account.
• The percentage contribution to the overall outstanding by the direct housing finance
under priority sector jumped from 44.71% in 2000 to 50.15% in 2001.
*Refer to Appendix III for definition of Priority Sector Lending
46
47. Table 15: Region Wise Amount Per Account For SCB’s Advances To Priority Sector
(Amount in Rs. mill.)
2000 2001
Regions of India No. of Amount Amount No. of Amount Amount
Accounts Outstanding per account Accounts Outstanding per account
Northern Region
North-Eastern Region
Eastern Region
Central Region
Western Region
Southern Region
All India
Source: Reserve Bank of India “ Scheduled Commercial Bank’s Advances under Priority Sector”
• As we can see from Table 15, the Western region has a very high value for
outstanding amount per housing loan under priority sector in comparison with the
other regions for both the concerned years. The reason for this could be the
presence of Mumbai and other industrial cities in this region.
• The only substantial change that can be seen for both segments of housing loans
under priority sector for the concerned years has been from the southern region. An
apparent loosening of hold of the market in this region is complemented by the
western region’s increase in hold in these segments.
7. Non -Priority Sector Outstanding In The Housing Finance Sector
7.1 Definition & Features Of Small Borrowal Accounts In Housing
Credit Sector
With reference to the ‘Basic Statistical Return of Scheduled Commercial Banks in India’-
Volume 31, a home publication of Reserve Bank of India, all borrowal accounts with the
credit limit of Rs. 2 lakh or less of all scheduled commercial banks including Regional Rural
Banks, are classified as ‘small borrowal accounts’ or non-priority sector borrowals, from March
1999 survey onwards.
Non- Priority Sector O/S= All Bank Total O/S- Priority Sector O/S
Table 16
Particulars 2000 2001
Total Outstanding (Rs. bill.)
Total Accounts
Amount per Account (Rs. mill.)
Source: Reserve Bank of India “ Scheduled Commercial Bank’s Advances under Priority Sector” and data on State and Bank
GroupWise Classification of O/S Credit of SCB’s.
47
48. II. Personal Loans
1. Data Description
The personal loan (PL) segment of bank lending consists of loans given to individuals for
unspecified purposes. This segment includes both “unsecured “ credit as well as credit
“secured” against a variety of collateral- property, shares, other financial securities, etc. It is
difficult to ascertain the purposes of these loans, but it is a growing segment of the
consumer finance market. The only source of data used for this analysis is from the database
of the Reserve Bank of India.
The RBI data coverage is in three parts for the years ending March 31st in 2000, 2001 and
2002.
(i) An occupational classification of bank credit gives a state-wise break-up of credit
going to different sectors, by different types of scheduled commercial banks. The
data is further broken up for each state, but for the purposes of this analysis we
use a regional classification.
(ii) Population group wise and Bank group wise classification of outstanding credit
of Scheduled Commercial Banks According to Occupation.
2. Commercial Banks In Personal Loan Segment
2.1 Market Size And Growth Of PL Credit From Banks, 2000-2002
Table 17: Total Outstanding In PL By Scheduled Commercial Banks
Particulars 2000 2001 2002
Total Outstanding (Rs. bill.)
Total Accounts
Amount per Account (Rs. mill.)
Growth in O/s (Rs. bill.)
Growth Rate in Total O/s (%)
Source: Reserve Bank of India data on State and Bank Group Wise Classification of Outstanding Credit of Scheduled
Commercial Banks According to Occupation
• The PL sector has grown marginally by 1.465 between 2001-02 with corresponding
growth in outstanding worth Rs. 20 billion approximately.
48
49. 2.2 Outstanding PL Credit By Types Of Scheduled Commercial Banks, 2000-2002
Table 18: Outstanding Credit In PL Segment By Types Of SCB’s (2000-2002)
(Rs.
mill.)
Outstanding Loans 2000 2001 2002
SBI &Associates
Nationalized Banks
Foreign Banks
RRB
Other SCB
All SCB
Source: Reserve Bank of India data on State and Bank Group Wise Classification of Outstanding Credit of Scheduled
Commercial Banks According to Occupation
• Table 18 shows that for the period 2000-2002, there has been no significant shift in
the market share of the different types of banks. About 65-70% of the personal loan
market was dominated by SBI & Associates and nationalized banks.
Table 19: Region Wise Market Share Of Each Bank Type In Outstanding Credit For
Personal Loan 2002
(in %)
SBI & Nationalized Foreign Other All
Region/Bank Associates Banks Banks RRB SCB Banks
Northern Region
North-Eastern Region
Eastern Region
Central Region
Western Region
Southern Region
All India
Source: Reserve Bank of India data on State and Bank Group Wise Classification of Outstanding Credit of
Scheduled Commercial Banks According to Occupation
• The southern region accounts for the largest share of the personal loan market-
accounting for close to 40% of all India borrowing.
49