single bank branch. This skewed distribution and under-banking exacerbates the problem of credit availability and financial inclusion in the country.!"! The Reserve Bank of India regulation to issue new bank licences addresses this problem of service penetration with preferences to Non-Banking Financial Corporations (NBFC). The major regulatory directives imposed by RBI can be classified as serving three different purposes of imposing safety, enhancing financial inclusion and offering sufficient support services. RBI insists a sound track record in an organization applying for bank licence with no involvement in past activities related to speculation. Further the organization cannot establish any other financial entity in the next three years after obtaining the licence and the banking operation should be conducted using a wholly owned subsidiary independent of other financial services offered."! In order to achieve inclusion, RBI mandates opening of 25% of the applicant's branches in rural regions and sets targets and sub targets for priority sector lending. The bank applicants are also mandated to employ a rural customer grievance cell which is likely to increase the costs of operation, In order to operate effectively with above mentioned constraints the financial institutions might have to improve their risk management capabilities by employing better analytics and optimize distribution costs with effective use of technology and careful outsourcing policies, Financial inclusion presents only one portion of the challenge. The other challenge stems from the fact that people who are aware and included in the services are conservative and prefer to save rather than invest. The ratio of savings to GDP has constantly been on the rise post liberalization and was around 34% during the year 2012 (Figure-3). In the absence of individual social security, the savings are seen as a safety net by majority of individuals resulting in a misperception of other financial investment instruments being too risky. This suggests a possible need for financial planning advisors who could help both corporate and individual investors with objective evaluation of investment choices India Gross savings (As % of GOP) FIGURE-3: INDIA’S GROSS SAVINGS AS A PERCENTAGE OF GDP"! It is in this context of economic conditions the values of parent company are analyzed and each of the financial divisions of ABFSG are evaluated, ADITYA BIRLA FINANCIAL SERVICES GROUP | 72.0 INDUSTRY & DIVISION OVERVIEW 2.1 LIFE INSURANCE Prior to 1999, LIC was the only major player in life insurance segment primarily dealt with traditional life insurance. The sector was liberalized in 1999, and consequently, many private players entered the Indian market and the premium collection grew 8 times over 2001-10 period at CAGR of 31%, and is currently at $ 59.9 billion out of the present total insurance market premium of $ 72 Billion, This period was followed by 2 years of sluggish growth at a low CAGR of 2%, One of the reasons for this is the slow GDP growth of the Indian economy which came down from an average of 8.7 % (2003-07) to 6.7% (200813). India’s financial savings as a percentage of household savings also fell from 52% in 2008 to 36% in 2012 thereby establishing @ positive correlation between percentage of household savings, insurance CAGR and India’s GDP growth. Another reason for the insurance sector losing its earlier sheen can be the Insurance Regulatory and Development Authority (IRDA’s) new policies July’10 which resulted in industry wide lowering of commission structures. The new policy resulted in reduction of per capita premium underwriting (density) for the first time since 2000. The penetration rates also decreased because the total life insurance premiums collected declined by 1.6% in 2011-12. This decrease was partly a result of change in the insurance product portfolio from Unit-Linked Insurance Plans (ULIPs) to traditional (non unit linked) plans. This change took place because of 2 reasons: that were introduced in 1. Capping of first year commission on ULIPs which affected the interme 2. Poor equity market performance- The equity component of ULIPs had a 6 year CAGR of 6.7% (SENSEX) when compared to a CAGR of 19.5% & 8.3% for gold and fixed deposits respectively which led the end customer to prefer a combination of risk cover and fixed income investments. Also, other similar insurance plans like Highest Daily NAV and Term Assurance Plans (Pure Risk Plans) are available in the market. 2.1. BIRLA SUN LIFE INSURANCE (BSL1), BSL is the flagship company of ABFSG with a Top Line share of 87% in 2012 and captured 2.05% of the $60 billion life insurance premium market by 2012. The growth of BSLI was fuelled by a paradigm shift in its policies and the HR revamp, which resulted in lower ‘operating costs and turnaround time.!" (KPI for employees and outsourcing HR for entire group to achieve economies of scale. These resulted in lower operating expenses to total premium ratios and healthier persistency rates, helping BSLI when the new IRDA policy was implemente Changes include standardized performance metric BSLI increased its total life insurance premium rapidly in the early years, expanding S times between 2007 and 2012 to over 650 branches." But it couldn’t keep pace with insuran companies backed by banks that had a wide captive distribution network of over 1000 6 branches. The individual agents accounted for more than 60% of new business premiums, 8 | ADITYA BIRLA FINANCIAL SERVICES GROUP