Prof. Ryuji Yasuda Ph.D. Hitotsubashi University Graduate School of International Corporate Strategy

Transcription

1 Opportunities and Challenges for Mutually Beneficial Collaboration between Indian and Japanese Financial Institutions Indian Council for Research on International Economic Relations Mumbai, India February 23, 2011 Prof. Ryuji Yasuda Ph.D. Hitotsubashi University Graduate School of International Corporate Strategy

2 Today, there is one matured big country and two emerging powerful countries in Asia. X X Consumer spending (Japan = 100) GDP (Japan = 100) Asia in 2009 (GDP and consumer expenditure) China Japan India Indonesia Source: Euromonitor International, 総 理 府 世 界 の 潮 流

3 They will become the three of the world s top four largest GDP countries in 20 years. X X Consumer spending (100 = Japan in 2009) Asia in 2030 (GDP and consumer expenditure) GDP (100 = Japan in 2009) Japan China India ASEAN Source: Euromonitor International, 総 理 府 世 界 の 潮 流

4 Economic relationship between Japan and China/ASEAN is very closely linked. Economic Relationship between Asia and Japan (Estimated No. of Japanese companies in selected countries*) (xxx/xxx) No. of Japanese companies/ No. of local entity owned by Japanese companies Import from Japan (2008) ($ billion) China & HK ASEAN 4 India India (206/352) China & HK (2,500/6,014) ASEAN 4 (1,300/3,414) NIEs 3 (800/2,604) Export to Japan (2008) ($ billion) China & HK ASEAN 4 India Accumulated Direct Investment ($ billion) China & HK ASEAN 4 India * In the area of NIEs and ASEAN, picked up the countries with largest number of Japanese companies Source: Toyo Keizai 海 外 進 出 企 業 総 覧

5 Except for life insurance business, top three Japanese financial institutions in each category have offices in India. But their activity is still small or just started expanding. Presence of Japanese Financial Institutions in India Bank Mitsubishi UFJ FG 1) Mizuho FG 2) Sumitomo-Mitsui FG Resona Holdings Mitsubishi Sumitomo Trust Holding Fukuoka Financial Group Asset $2,400 bn 1,816 1, Asset size in Indian market 1) Rank 12 th among foreign banks 2) Rank 17 th among foreign banks Property & Casualty Insurance Tokyo Fire & Marines Holding Mitsui Sumitomo Insurance NKSJ Holdings Fuji Fire Kyosei Fire Life Insurance Nippon Life Insurance Meiji Yasuda Life Sumitomo Life Daiichi Life Revenue $39.5 bn Asset Securities Firm Nomura Securities Daiwa Securities Nikko Cordial Mizuho Securities Okasan Securities Others Revenue $16.0 bn 5.4 NA Asset ORIX $102.3 bn

6 But, India is No. 2 priority for future business investment in overseas. And, actually trade and FDI from Japan grew rapidly in recent years. Japanese Company s Appetite to Invest in Overseas Businesses over the Medium Term (%) China India Vietnam Thailand Indonesia 15,000 10,000 5,000 0 Japan-India Trade Value (\100 million) Import Export Japan s Direct Investment to India (\100 million) 6,000 4,000 ASEAN: 6,300 China: 6, (09) 2, Source: JBIC FY 2008 survey Outlook for Japanese Foreign Direct Investment

7 But, Japanese companies with strong interest in India do not have actual entry plan. Existence of Concrete Business Plans for Promoting Countries (No. of companies which said that country is promising in future investment) With concrete plan Without plan China India Thailand Vietnam Indonesia Source: Outlook for Japanese Foreign Direct Investment, JBIC

8 There must be big opportunities for collaboration between India and Japanese financial institutions which may significantly contribute to socio-economic growth of India. Opportunities and Challenges for Collaboration between India and Japanese Financial Institutions Common value Rapidly growing economy with big financial needs Long-term history of financial system Variety (old & new, public & private, nationwide & local) > Global players Expertise in new financial skills Experience (good & bad) Affluent domestic money Long-term stable growth short-term profit with high volatility Balance between banking sector and capital market Balance between high touch and high tech in customer relationship Strong consciousness on mission for public goodness

9 There are four ideas for possible collaboration between India and Japanese financial institutions. Opportunities and Challenges for Collaboration between India and Japanese Financial Institutions 1 Infrastructure Finance Conventional infrastructure finance Global PPP, IPP Joint development of Asian infrastructure business

10 Weak infrastructure (transportation, electricity, water) is the bottleneck. Japanese Company s Views on India Countries in which Japanese Companies Are Hesitant to Do Production because of Their Poor Infrastructure Reasons for promoting Future growth potential of local market Inexpensive source of labour Qualified human resources 84.4% 38.7% 25.3% India 48% Vietnam 35% Pending issues Underdeveloped infrastructure Unclear execution of legal system 52.1% 26.5% Indonesia Thailand 11% 3% Lack of information on the country 24.5%

11 In the infrastructure finance, JBIC (Japan Bank for International Cooperation) had several actual cases in India. Greenfield Finance Case of Delhi-Mumbai Industrial Corridor Development Cooperation Ltd. JBIC Government of India guarantee Loan: $150 million Joint Venture Startup Finance Case of the MHI-L&T JV JBIC Loan: $154 million IIFCL DMICDC Mitsubishi Heavy Industry L&T-MHI Boilers PV L&T-MHI Turbine & Generation PV Larsen & Toubro Limited Project Development Fund Feasibility study SPV India Infrastructure Finance Company Ltd. Project Developer Gujarat India Power Plant Manufacturing boiler & turbine for power plant Source: JBIC

12 More dynamic infrastructure finance can be introduced through India-Japan financial collaboration. IPP (Independent Power Producer) Case of Indonesia Syndicated loan Regional banks B&P Pariba Global PPP (Public-Private Private Partnership) Concept India Gov t WB ADB Japan Gov t JBIC Sumitomo Corporation Guarantee 100% Mitsubishi Sumitomo PT Central Java Power 1,320 MW 1,320 MW (Engineering, procurement, construction, operation) Sell electricity Plant leasing Indonesia Natural Power Utility Company Mitsui $4 bn Japanese investors Voting right Japan/ India utility corp. Shosha Mid East SWF Infrastructure fund trust Tax exempt revenue bond Source: Proposals for Infrastructure Finance in Asia by Eiichi Sekine, Nomura Capital Market Research E Q U I T Y India infrastructure building Electricity Water Telecommunication Port Guarantee D E B T Citizens Community Company of India JBIC Japanese banks Other int l banks India banks Japan Investment Bank Japanese banks Indian banks Syndicated project loan Project bond Japanese institutional investors

13 Collaboration of infrastructure development should include various industrial partners beyond financial sector in order to be globally competitive. Collaboration Opportunity between India-Japan in Overall Infrastructure Business Consulting Operation Project organizing Designing Financing Procurement Equipment Construction Operation Maintenance Collection Service I N D I A J A P A N Shosha Government Institute Enhancing economic infrastructure respecting national interests Private engineering Plant engineering company Int l finan- cial consortium including Middle East money Shosha Engineering company Subsidiary in India India Public Utility Co. Japanese Electric Utility Co. Japan Public Water Co. Taken over nation s infrastructure World s leading edge operational efficiency European Mega Integrated Barron Water Companies Once established excellent track record in India, both countries should jointly pursue $800 billion market in Asia

14 1 Opportunities and Challenges for Collaboration between India and Japanese Financial Institutions Infrastructure Finance Complemental Services to Support Japanese Companies in India 2 Corporate banking vs. retail banking Future is international finance in strategic geography

15 Japanese banks, which traditionally follow the business expansion of Japanese corporations, still had limited presence in India. But, in the last few years Japanese banks also tried to expand business aggressively. Emerging but Still Limited Activities (Japanese Banks in India) Indian distributors Japanese company Japanese subsidiaries Indian suppliers Weak infrastructure Japanese suppliers Recent Emerging Events SMBC injected $300 million to get 4.5% share of Kotak Mahindra Bank SMBC also injected $1 billion to Barkeley Bank Mizuho Corporate Bank and MUFG jointly financed $800 million to Tata for assisting acquisition Mizuho Corporate Bank offered $70 million loan to India EXIM Bank MUFG plans to acquire the project finance division of RBS Local company loan as of the end of 2008 was $15 billion

16 Once Japanese companies start entering into India aggressively, huge financial needs may be met only by collaboration between India s financial institutions and Japanese banks. Synergic Collaboration to Serve Financial Needs of Japanese Companies in India Indian Banks Retail & local banking service Working capital finance Rupee based lending Employee financial service Finance to local distributers and suppliers Indian distributors Japanese company Indian suppliers Indian subsidiaries (Employees) Japanese subsidiaries Reliable economic infrastructure Japanese suppliers Japanese Banks Corporate & int l banking Project finance Dollar based corporate lending Trade finance Forex management M&A Lease finance International syndicated loan to mega Indian enterprises Japanese P&C Insurance Firms

17 In future, India will become the strategic place to connect Asia Middle East Africa CIS. International financial service to Japanese global companies is the Must. India as the Connecting Point CIS Middle East Historical & personal relationship India Export target Japan Africa Capturing growing domestic market ASEAN

18 Opportunities and Challenges for Collaboration between India and Japanese Financial Institutions Stable Infrastructure Finance Complemental Services to Support Japanese Companies in India Securities Investment of Japanese Money and long-term investment (not hedge fund) Institutional investors and investment trust money in Japan to be invested to overseas securities Securities firms have expertise in selling emerging countries securities

19 Japanese investors looks for oversea opportunities due to the limited attractive investment opportunity in Japan. Limited attractive investment opportunities in Japan Banks Loan to deposit ratio dropped from 69% ( 08) to 61% ( 10) Increasing deposit Foreign securities Securities (25-30) 250 Increasing portfolio allocation to foreign securities Outstanding of Foreign Securities Investment (\ trillion) (\100 million) A portion of it goes to securities investment in emerging countries Outstanding of Foreign Securities Investment to Emerging Countries 13.0 Trust banks Life insurance Diversification Shift from stock to bond Excessive dependency on JCB (51%) (45) Foreign bond P&C insurance Investment trust Matching with foreign insurance policy Poor performance of Japan stock market Lowest yield of JGB???? (25) Postal Savings Bank Gov t Pension Investment Fund International diversification International diversification (10) 193 (21) Foreign stock (F) Source: Balance of Payment, MOF

20 As a result, foreign securities investment by Japanese financial institutions grew steadily. A part of the investment is targeted to the Indian market Yield of 16-year Government Bond India USA Japan Securities Investment to India in 6 Months in 2010 (\100 million) Stock Bond Inflow Outflow Inflow Outflow India 2,942 2,809 1,029 1,185 Singapore 2,714 3,010 1,405 1, Stock Price Movement India BSE Sensitive Index India S&P CNX Nifty US S&P 500 Japan Nikkei 225 Korea Indonesia Malaysia 2, ,933 1, , ,886 1, Brazil 9,313 9,000 9,563 18, Source: Kokusai Asset Management

21 Biggest challenge is to enter into the retail banking market. Opportunities and Challenges for Collaboration between India and Japanese Financial Institutions Infrastructure Finance Complemental Services to Support Japanese Companies in India Securities Investment of Japanese Money Transferring Excellent Retail Banking Know How Each Other Unique and core retail banking business: marketing, channel, risk management Role of central bank for cooperative banks Eventually, entering retail banking in India with full scale

22 The middle class people, which is the core target of personal banking, is increasing rapidly in India. Classification by annual household income (Rupee) Rich ( 1M) Middle class (200K~1M) Aspirants (90K~200K) Rapidly Rising Middle Class Population in India (Million households) (0.2%) 3.8 (21.9%) (1.7%) (12.8%) (33.9%) (33.9%) (32.2%) (26.8%) Middle Class Living Standard in % of deposit 49% of automobile 53% of air conditioner 46% of credit card Deprived ( 90K) (71.9%) (51.6%) (35.1%) Source: The Growing Indian Middle Class Rajesh Shukka, インド 成 長 ビジネス 地 図 浦 田 秀 次 郎 福 著, 脱 ガラパゴス 戦 略 北 川 梅 津 ( 東 洋 経 済 ), The Bind of God McKinsey Global Institute

23 Among regional banks which engage mostly in retail banking business, Suruga Bank has exceptionally high performance. Regional Bank: Asset Size and Operating Earning Operating earning (\100 million) 1,400 1,200 横 浜 1, FFG 600 西 日 本 シティ 静 岡 千 葉 400 Suruga Bank 群 馬 京 都 北 越 阿 波 鹿 児 島 十 六 北 国 第 四 山 口 肥 後 佐 賀 琉 球 東 邦 大 垣 共 立 大 分 清 水 福 井 百 五 南 部 三 重 関 西 アーバン 七 十 七 常 陽 Asset (\ trillion)

24 Branch operation was reformed completely by introducing Toyota-Kanban system. Old Branch New Branch Lobby High counter Lobby Sofa Deposit Forex Low counter Loan Standing service One-line operation Deputy Regional Manager Loan offices Wing table Loan offices Three-line operation Two-line operation Regional operation enter

25 Credit risk management and customer relationship management are two core competencies. CRM 2 of Suruga Branch Customer DB MCIF Mkt. data Computer CRM 2 Credit risk mgmt Customer relationship mgmt Automatic credit Scoring model History of service PMIME Customer acct data Bank directly issued credit card Call center Individual credit info. Branch Inbound What s the state of XX? How about XX? Outbound Message to individual customer Pre-approved line of credit Customer

26 Affiliated providers Enabler Internet Banking Service by Suruga Bank 広 い 顧 客 接 点 Customers 特 定 分 野 に 高 い 深 いシェア ブランド 力 Affiliated companies Access to specific customers Taylormade product High IT capacity CRM 2 Suruga Bank Dream Direct Credit Branch Branch Account mix (%) Deposit & loan amount (\100 M) Ordinary profit (\100 M) Growth of Internet Banking Affiliated providers Dream Direct Net Branch Deposit Loan No. of Internet banking accounts 36,000 Suruga s Branch , ,686 1, , ,649 2,

27 Central Bank of Corporate Financial Institutions played a critical role for modernising local cooperatives and ensure stable earning to those deposit takers. Role of Central Bank of Cooperative Banks Revenue: Net profit: $4,350 M $333 M Risk mgmt Shinkin Central Bank (AA rating) Asset: $315 bn Deposit from member unions: $226 bn Central Bank bond issue: $56 bn Admin Staff Norin Chukin (Aa3 rating) Risk mgmt Asset: $805bn Equity: $40 bn Net profit: $347 bn BIS ration: 19.3% Local Union Support Division Central- ised IT Center Portfolio Investment Product Development Global Securities Investment Loan JA Support Globally diversified portfolio: Overseas expenditure: 58% 50% of lending goes to local government Regional branch Local credit union Branches Regional branch Regional cooperative Local cooperative Regional cooperative Deposit from regional cooperative: $456 bn Bond IS size: $6.5 bn Others: $215 bn Securities investment: $594 bn Lending: $150 bn Local company Small business Commercial investing No. of credit unions: Employees: Branches: Deposit: Local lending: unions 115,000 staff 7,610 branches $1,380 billion $750 billion Deposit: Local lending: Securities: Deposit to regional cooperative: $1,040 billion $325 billion $59 billion $662 billion