The Bengal Chamber of Commerce and Industry, India’s oldest institution of its kind tracing its origins to 1833, organized the “Financial Market Conclave” on 3rd-4th November 2017 at the Park Plaza, Kolkata.

Day I Sessions:

● Panel Discussion on “Powering the India Growth Story: Role of Banks and NBFCs”
● Fireside Chat Session with the Deputy Managing Director, State Bank of India on INDIAN BANKS: LIFE AFTER RS 2.1 TRILLION RECAPITALIZATION
● Experts’ Roundtable – “Indian Capital Market: A Sweet Spot in Emerging Economy”
● Special Valedictory Session with the Chairman, National Insurance Co. Ltd.

Day II Sessions:

● Special Plenary Session with Managing Director, Bajaj Finserv Limited
● Panel Discussion on - “Facing the Challenges of Today & Beyond in the Life Insurance and Future Business Drivers of the Non-Life Insurance in India”

To revive the credit and investment growth outlook, the Government announced a bank recapitalization plan of Rs 2.1 lakh crore (which is 1.3 per cent of GDP) to be infused over the next two years into public sector banks. The Indian banking system has been grappling with the issue of non-performing assets and increasing credit costs over the past few years. The package will help public sector banks to accelerate provisioning for stressed assets, speed up the NPA resolution process and support the cleanup of balance sheets. The Reserve Bank of India (RBI) has suggested bringing in place an external benchmark rate to link lending rates for faster transmission of rate cuts to the borrowers by the banks. This is in line with recommendation made by a study group set up by the RBI to review the working of the Marginal Cost of Funds Based Lending Rate (MCLR) system. In April 2016, RBI came up with a new benchmark – MCLR for faster transmission of rate cuts. However, varying reset periods under the same and tweaking by banks led to considerable time lag in full transmission of the rate cut, thereby defeating its whole purpose. The main challenge in using either T-bill rates or CD rates as the benchmark is that the current level of market depth in the T-Bill and CD markets can make such benchmarks potentially susceptible to manipulation. The Reserve Bank's policy repo rate has the primary advantage that it is robust, reliable, transparent and easy to understand. With the repo rate as the benchmark, the transmission of the repo rate changes to lending rates of banks will be quick, direct and strong. It is important to understand these issues in order to understand post GST and demonetization, how the entire Banking and NBFC sectors will behave in future. The deliberations of the august speakers were focused mainly on these issues during the first half of Day I.

In the second half of Day I, the focus was on the Capital Market. Indian equities have surged 18% in dollar terms so far in 2017, the most amongst the world’s 10 biggest markets. With market value at $1.91 trillion, the highest since January 2008, the return reflects 10% expansion in price-earnings (P/E) multiple as well as rupee appreciation. But, the sustainability of these factors appears sketchy; hence the debate whether Indian equities are ‘priced to perfection’ — whether valuations fully reflect positive triggers. The Indian market trades at 16.9 times FY18 projected earnings, a 20% premium to long-term average and one positive standard deviation away from mean. The farther it is away from mean, the higher the probability of it returning to the mean, statistically known as mean revert. Except for technology and healthcare stocks, most Nifty constituents are valued much higher than their long-term average. The most critical factor for premium valuation, earnings growth, has not been encouraging. Barring commodity stocks, most Nifty’s constituents have seen earnings downgrades. India’s valuation premium against other emerging markets is also widening, touching 40.8% in April against 12-year average of 30%. On sector-adjusted basis, MSCI India trades at 19 times 12-month earnings, a 58% premium to the emerging market aggregate. It means a sharp rise has made market expensive in absolute and relative terms. On the currency front, the rupee is one of the strongest since the start of the year due to high positive real interest rates. This has pushed the real effective exchange rate to 117.7, which reflects overvaluation. Historically, the rupee has not been an outlier for an extended duration. Sensex at 30,000, foreign investor and domestic mutual fund flows at record highs, sweeping ‘reforms’ announced by the Securities and Exchange Board of India (SEBI) – India’s capital markets are the toast of the nation currently. India’s capital markets receive global plaudits and attract foreign investors on the one hand while Indian households are distrustful of them and stay away. Indian corporates’ ability to raise capital has remained flat in this period (2005-2015) despite a surge in FII flows. In simple terms, it says that one can reasonably expect foreign flows to continue to increase in the years to come while the same cannot be said for mutual fund flows or for companies’ abilities to mobilize resources through the primary market. The value of derivatives trading has risen 30 times in this period while the amount of resources raised by corporates from the capital markets has remained flat in this period. The seeming success of Indian capital markets is the success of speculative trading in derivatives. It is important to understand this trend and to predict when we would be able to claim that India’s capital markets are sophisticated, state-of-the-art and well developed.

The Forum offered a Special Session with Shri K Sanath Kumar, CMD, National Insurance as the Valedictory Speaker of Day I.

Day II started with Special Plenary Session with Shri Sanjiv Bajaj, Managing Director, Bajaj Finserv Ltd. and continued with a Panel discussion on Indian Insurance Industry. India’s insurable population is anticipated to touch 750 million in 2020, with life expectancy reaching 74 years. Furthermore, life insurance is projected to comprise 35 per cent of total savings by the end of this decade, as against 26 per cent in 2009-10. The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance. There are several steps taken by IRDA such as issuing redesigned initial public offering (IPO) guidelines for insurance companies in India, allowing insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that are issued by banks to augment their tier 1 capital in order to expand the pool of eligible investors for the banks. These are some steps that would be favourable for the growth of the industry. By reducing the instance of mis-selling, the life insurance industry has brought down the number of complaints by 40% to 1.22 lakh in 2016-17 from 2 lakh in 2015-16. The industry also brought down pending complaints to 247 this year from 935 last year, data from the insurance regulator showed. However, the future economy is going to be way different from what it seems right now. The entire demography may change. With the increase in automation there is also a chance of growing unemployment. The growth would be highly dependent on right analytics and so on.

Business figures for nonlife insurance companies released by the Insurance Regulatory and Development Authority of India (IRDAI) for the year 2016-17 show that total premium income jumped to Rs 1.27 lakh crore from Rs 96,376 crore in FY16. Usually, the growth in the non-life segment reflects the growth in the real economy, new investments and sale of automobiles. This year, the industry has managed to record its highest growth since liberalization, despite absence of any new projects, due to the opening up of crop insurance. Crop insurance has helped the non-life industry record 32% growth the last fiscal and cross the Rs 1lakh-crore mark for the first time. From nowhere, crop insurance has emerged the third largest line of business after motor insurance and health insurance following the launch of the Pradhan Mantri Fasal Bima Yojana (PMFBY) last year. The data from IRDAI also showed that 18 private sector general insurers saw their gross direct premium at Rs. 53,662.95 crore up by 35.16% in last financial year. While four public sector insurers grew slower than private insurers at 24.46% getting gross direct premium of Rs. 59,357.92 crore in 2016-17. However four public sector insurers continued their dominant position with market share of 46.66% as compared to 42.18% of private insurers as on March 2017. Players in the industry say that in the current financial year they might cross Rs. 1.5 lakh crore in premiums and growth would continue to come from segments like motor, health and crop insurance. The Union Cabinet has approved the public listing of five Government-owned general insurance companies and reducing the Government’s stake to 75 per cent from 100 per cent, which is expected to bring higher levels of transparency and accountability, and enable the companies to raise resources from the capital market to meet their fund requirements. There is also a huge untapped potential in the Eastern region and exploring the same would offer strategic advantage to any General Insurance player. Rural and Micro insurance would be instrumental in determining the steady growth of the industry. Technology, particularly digital innovation would play a major role in connecting with the consumer and would be instrumental in the sustainable growth of the industry.

Health insurance is an important domain where penetration has not been enough particularly in tier II, tier III cities and rural India. In 2003-04 the total premium for health insurance in India was Rs. 1370 cr which has risen in FY 2016 to Rs. 21000 cr. This is a CAGR of nearly 30%, making health insurance the fastest growing segment in the Indian Insurance sector. When one takes into account the increase in population the absolute number of distressed households has actually risen from 70 million to 88 million. The percentage share of out of pocket (OOP) expense in overall healthcare has come down only marginally from 68% to 62% and in absolute terms the OOP expense has risen sharply over last ten years. Data shows that households are increasingly relying on their incomes to fund health care expense. IRDA (Health Insurance) Regulations 2013 lay greater emphasis on features of the product, standard declaration in the proposal form, greater transparency and disclosures in sales literature and disclosures on the web portals to disseminate suitable information for decision making, etc. However, there are many issues like fraudulent charges, higher hospital rates, high claim ratios and long turnaround time among others creating a bottleneck for the growth of the industry.