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Growing Financial Services in India: Aditya Birla Financial Services Group


India- Gross savings / GDP = 34%, higher than many developed economies >70% of savings- household savings

Savings in physical assets such as real estate and gold as opposed to financial assets
In the west, gold is the main currency Equity : lottery v/s tapping the underlying cash flows Fixed income exceptional performer as compared to equity, and hence grew more rapidly Bank deposits (safe) v/s money market and fixed income mutual funds (inflation and tax advantages)

Life Insurance Sector

Prior to 1999-Only public sector LIC Combination of life insurance and fixed income investments

LIC sold products through 1.3 million individual agents, 65% of which were part time employees
Implicit trust placed by people in LIC because of backing by government Liberalization initially led to increase in life insurance penetration (premiums underwritten to GDP) and density (premiums underwritten in per capita), but these have declined since 2010 India has lowest density amongst BRICS nations and highest penetration

Mutual Funds
Founded in 1963 with UTI Liberalised in 1987 and 1993

2002, UTI was on the verge of collapse and was saved by the govt. Divided into stressed and healthy assets.
In 2011, despite multiple schemes, Assets Under Mgmt. (AUM), mere 4.7% of GDP, opposed to world avg of 34%

Birla Sun Life Insurance

JV between ABG and sun life financial of Canada Unit Linked Insurance Plans (ULIPs)- life insurance policy + savings plan Portion of premium to life insurance and the remainder invested in equity according to customer choice Product distribution through 3 channels: Direct sales force, corporate agents (banks) and brokers who sold more than one insurance companys products Individual agents dominant distributor-64% of business premiums. Because of intangible nature of products, agents needed to cultivate trust and relationship Prior to 2010, commission for agents ranged between 20% and 65% for first year premiums and 5%-7.5% subsequently BSLI 2nd largest player in 2003 to 7th in 2007-due to competition from state owned LIC and aggressive private sector players. Pvt Sector players distributed through existing branch offices. Non-bank companies built a network of branch offices and agents from scratch

Birla Sun Life Asset Management Company

JV between ABG and sun life group of Canada One of Indias largest pvt asset managers in the late 1990s

4 channels-banks, national broker, independent financial advisor and internet. Institutions sales by national distributors (51%) and banks (21%) retail sales by national broker (35%) bank (35%) and IFAs
93% owned by retail investors

Hit hard by 2001 dot com crash because technology weighted stocks and hence customers lost confidence
Fixed income funds, owned by institutional investors, consistent strong performer

Revamping processes
Use common processes throughout the group outsourcing Improve efficiencies by making internal processes more efficient Have strong HR shared services to ensure scalability New processes introduced Standardization of Performance management systems Empowering managers to increase productivity and retention in teams Strengthening front line recruitment processes Strengthening leadership pipelines 3 leaders- profit and loss, functional and specialists Encouraged to rotate leaders across verticals Ensure that the leaders are continuously produced from the bottom ranks Continuous assessment through midmanagement to recognize prospective leaders Operation and risk practices standardized

80-100% staff turnover at branches and among agents
Could not find any reasons for this explicitly mentioned in the case but evidently it is an issue. Solutions: Implementation of high achievers privileges on a larger scale, add perks such as education loans or insurance

Decrease in sales of ULIPs

Cause- Change n regulations reduced commission agents earnings Solutions: Provide non-monetary perks specifically for selling ULIPs.

Regulations reducing profitability for distributors and tilting balance in favour of bank sponsored AMCs.
Low penetration due to lack of wide network of branches