The Hindu Business Line : ‘Penetration of financial services very low’

Chennai, June 22 Mr Ajay Srinivasan, Chief Executive, Financial Services and Director, Corporate Strategy and Business Development, Aditya Birla group of companies, has a formidable track record as a fund manager. Known for setting stiff targets for his team and his persistency in getting things done, Mr Ajay joined the group in 2007, seeking “more breadth in financial services business.” He had earlier handled Prudential’s Asia funds business out of Hong Kong and grown assets under management to almost $60 billion at the time of his departure.

Mr Ajay’s role now involves providing strategic direction, vision and operational leadership for the Birla group’s financial services business. He spoke to Business Line on a range of issues concerning life insurance and mutual funds.

Are you happy with the level of penetration of insurance industry in India?

The penetration level is very low in India and it’s close to 4 per cent of the GDP whereas it is higher in China. But if you look at the unit-linked products and compare the penetration level then it will distort the comparison. Remember that unit-linked products now constitute the bulk of insurance sales. China has a very different product mix. In India, the penetration of financial services as a whole is relatively low and that includes life insurance.

Is penetration low because the insurance industry is not pushing aggressively? Term assurance products seem to form a minor part of the new premium collected?

In this context I want to tell you that India is not different from the rest of the Asia. Across Asia broadly 50-60 per cent of the saving is routed through bank deposits and it’s followed by life insurance, pension and mutual fund. It is with the development of economy and increase in GDP, that the ownership of these products increases. It never happens in straight line. It will happen in a “S” curve. If the per capita income increases, to say $10,000 the growth will be exponential and it will taper off thereafter.

The issue is also about the way we communicate. In financial services, communication level lacks the simplicity. You need to educate the customers in their language. If they have money they should be told about how to make the money work for them.

Does that mean that intermediaries are not trained according to the market requirement?

I think the issue is really one of scale. The scale we are talking about and the way we are adding the agency forces, more training is required in insurance as well as in mutual fund sectors. Now, in mutual fund there are 65,000 agents distributing the products and in insurance the number is much higher.

What is the growth rate you expect for the insurance industry?

The industry is growing at good rate. Last year, at the start, private insurers were hoping to grow at 40-60 per cent but the actual was still higher at 70 per cent. Hence predicting the growth rate will be difficult. But I think the industry can grow comfortably at 30 per cent.

If the industry leader grows at 6 per cent, is it signalling any slowdown in ULIP sales?

I don’t think so; but if the industry leader is growing slow due to high base effect or any slowdown it will affect the average of the industry. I think there is enough potential for the growth.

Why don’t you have a presence in general insurance?

We have decided to be a distributor in general insurance business rather than be a manufacturer. We have a broker model in this space and we market products of all general insurance companies. But in life insurance we act as corporate agent, marketing only Birla products.

Instead of corporate agency, will not the broker model help you achieve more business?

The broker model will no doubt bring more business; but we also see growth from all the three channels. We have competitive insurance products; so at this point we prefer to market only our own life products. We have not made any decision on broker model.

Now a few fund houses have started their own distribution set-ups. What will be the impact on the growth of the mutual fund industry?

Distribution will clearly help the growth and penetration of the industry. In most of the countries the manufacturer (fund house) generally has less number of branches. But look at India - several of them are talking about 100 plus branches - so it’s different from other markets. Look at the number of the fund managers available in India - it is between 30 and 35. Whereas China has 50 and Japan and Hong Kong has 70-plus managers managing funds. Given our household savings, only 4-5 per cent is diverted to mutual fund. If the penetration level increases and more savings come to mutual fund, every player can enjoy the benefit.

Out of the Rs 6 lakh crore asset under management, equity accounts for 40 per cent. What is the geographical spread of the assets?

In fixed income segment it’s predominantly dominated by institutional and large industrial houses. The equity assets are spread across the metros. Tier 2 and tier 3 cities also contribute substantially and even in smaller towns awareness levels are high. For example in our recent launch- Birla International Equity Fund, we have received application from more than 100 postal codes it explains the broader investor base for mutual fund.

What are your plans for Birla Financial Services?

We want to be leaders in financial services not only with assets we manage but in terms of quality and the number of products we offer. In mutual funds, we want to increase our target base among retail, institutional investors. We want to spread our presence as a manufacturer and distributor. Last year, to fill the gap in our product list we have launched 10 new products in life insurance and we are planning to bring a health product and pension this year to our basket. To strengthen our presence from 137 branches we have added 202 branches to end the year. This year, we are in the process of adding another 261 branches.

In life insurance business we grew by 130 per cent last year, far ahead of industry average and similarly in mutual fund our assets under management grew by 80 per cent when industry average was 60 per cent. Birla Mutual fund has won several awards last year in fixed income category and equity category. Our asset management company started the year with 30 branches and ended with 80 branches.

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‘Penetration of financial services very low’