Business Models - Banks - NBFC - Insurance

Chapter 5: Business Model
Bank, NBFC & Insurance

Business Model: Bank
What are some top companies in banking sector?
Rs 5,81,845 Crore Rs 2,54,841 Crore Rs 2,52,764 Crore Rs 1,35,668 Crore
Rs 48,109 Crore Rs 17,641 Crore Rs 1,71,888 Crore Rs 20,816 Crore
Market cap as of 18th Sep 2020

What is the source of revenue & profit?
Provide loan at higher rates
Deposit the money

What are the entry barriers in this sector? How is the competition?
● High entry barriers: Not everyone can open a bank.

● You need banking license from RBI.
● You need a lot of capital to apply for the banking license.
● Strict compliance from RBI.
● Only the few big corporate houses can consider banking option.
● High competition among existing banks.
Is this sector regulated? Is this sector dependent on macro environment?
● This sector is regulated by RBI.

● Banking sector is highly dependent upon the macro environment.
● If the government make the right policies and create more jobs, banks will get
more customer to take loans for businesses and deposit money. This will
improve revenue and profitability of banks.
● Banking is the backbone of the economy. If the economy fails, banks fail.
Vice versa, if the bank fails then economy fails.
How important is the role of technology in this sector?
● Banking sector is no more the traditional

system. The financial sector is now known
as Fintech sector which is a combination of
finance and technology.
● New technologies like payment gateways,
online banking is changing the landscape of
banking sector.
● Banks need to be tech savvy to grow in the
new world of digitalisation.
How is the customer loyalty in this sector?
● High customer loyalty.

● Once the customer is associated with
the bank, he/she would continue for
years if the customer is satisfied with
services.
● Customer do not switch banks easily.
● This can help in cross selling and up
selling.
What is the future of the industry? What are some key trends?
Digitalisation Mobile Banking Unified Payment

Interface
Business Model: NBFC
A non-banking financial
institution or non-bank financial
company is a financial institution
that does not have a full banking
license or is not supervised by a
national or international banking
regulatory agency.
What are some top companies in NBFC sector?
Rs 2,09,387 Crore Rs 44,319 Crore Rs 19,724 Crore Rs 16,363 Crore

● NBFCs borrow from banks (working capital, term loan), depositors,

market (debentures, commercial paper) to finance the business of
lending.
● Can’t open saving/current account with NBFC.
● Work similar to banks where they lend money for various purposes
like vehicle financing, home financing, business financing, etc.
● They lend money at higher interest rates to businesses.
What are the entry barriers in this sector?
● High entry barriers: Not everyone can open a NBFC.

● You need NBFC license from RBI.
● You need a lot of capital to apply for the license.
● Compliance from RBI.
● This sector is regulated by RBI.

● NBFC sector is highly dependent upon the macro environment.
● If the government make the right policies and create more jobs,
NBFCs will get more customer to take loans for businesses. This will
improve revenue and profitability of NBFC.
Business Model: Insurance
● Life Insurance
● General Insurance
What are some top companies in insurance sector?

Provide claims
Pay annual premium
Revenue= Annual premium - Annual Claims
The premium is invested to get returns.

● High entry barriers: Not everyone can open an insurance firm.

● You need insurance license from IRDAI.
● You need a lot of capital to apply for the insurance license.
● Strict compliance from IRDAI.
● Only the few big corporate houses can consider insurance option.
● High competition among existing insurance companies.
● This sector is regulated by IRDAI.

● Insurance sector is less dependent upon the macro environment.
● A person would have to take a life insurance, medical insurance,
vehicle insurance irrespective of the economic situation.
● Increasing education and awareness about insurance would increase
the growth of the industry.
● For example, the recent COVID pandemic would increase more
awareness towards health insurance.
● Earlier, technology didn’t had a key role

in insurance.
● However, technology would be a key
differentiator in the future.
● You can build sophisticated machine
learning models to predict the right
premium amount and handle a lot of
backend work with automation.
● High customer loyalty.

● Once the customer is associated with
the insurance firm, he/she would
continue for years if the customer is
satisfied with services.
● Customer do not switch insurance
easily.
● This can help in cross selling and up
selling.
● The future looks promising for the life insurance industry.

● The overall insurance industry is expected to reach US$ 280 billion by
2020. Life insurance industry in the country is expected to increase by
14%-15% annually for the next three to five years.
● 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.
2) How Business Earns?
: FMCG and Pharma
Business Model: FMCG
What are some top companies in FMCG sector?
Rs 4,93,101 Crore Rs 1,55,104 Crore Rs 91,416 Crore Rs 2,20,378 Crore
Rs 89,684 Crore Rs 72,980 Crore Rs 46,806 Crore Rs 49,819 Crore

Farm
Manufacturing
Packaging
Transportation Distribution Retail Shop Home

● High entry barriers: It is not easy to start an FMCG company. You

need a lot of capital. Moreover, there is tough competition.
● The market leaders are able to provide products at lower rate due to
economy of scale. It would be difficult to compete at the price point.
● Brand recognition and brand awareness is the biggest challenge.
People generally prefer brands they are aware of.
● Niche sectors have lower entry barriers.
● This sector is not highly regulated like banking or insurance.

● Although there are some regulations like FASSAI certification, etc.
● FMCG sector is not impacted much by marco environment. For
example, even during COVID, people consumed the groceries and
basics stuff.
● FMCG is also known as recession proof sector.
● Automation is a key in improving

the productivity.
● Analytics can help in generating
better insight about the consumer
and providing better customer
experience.
● Social media is playing a big role
in digital marketing and branding.
● Customer loyalty is low.

● Generally, customers are price
sensitive. If the competitor is able to
provide the similar product at lower
rate, the customer can switch.
● Branding and customer service plays a
crucial role in building a customer
loyalty.
● Rural consumption has increased, led by a combination of increasing income and higher
aspiration levels. There is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in
FY18.
● The share of unorganised market in the FMCG sector falling and the organised sector growth
is expected to rise with increased level of brand consciousness, augmented by the growth in
modern retail.
● Another major factor propelling the demand for food services in India is the growing youth
population, primarily in urban regions. India has a large base of young consumers who form
majority of the workforce, and due to time constraints, barely get time for cooking.
● Online portals are expected to play a key role for companies trying to enter the hinterlands.
Internet has contributed in a big way, facilitating a cheaper and more convenient mode to
increase a company’s reach. It is estimated that 40 per cent of all FMCG consumption in India
will be made online by 2020. The online FMCG market is forecast to reach US$ 45 billion in
2020 from US$ 20 billion in 2017.
Business Model: Pharma
What are some top companies in Pharma sector?

● Development and sale of drugs or medicines to different

customers in the mass market.
Sale of
● Generic drugs, different bulk drugs like antibiotics, steroids,
Generic vitamins, along with herbal and biological products, drug
Drugs formulations, etc. play a significant role in revenue
generation of pharma companies
● A patent gives a guarantee to investors that their product will

remain as the only product of its exact type in the market for
long years i.e. 20 years.
Patent ● The patent system facilitates companies to gain profit from
patents by the mean of restricting any other competitor to
market and sell a similar kind of prescription drug or medicine.
● High entry barriers.

● Requires in depth knowledge of pharma
industry with a lot of experience and
expertise.
● Heavy investment sector.
● Central Drugs Standard Control Organization (CDSCO), Ministry of Health &

Family Welfare, Government of India provides general information about drug
regulatory requirements in India
● The primary responsibility for the regulation and oversight of
pharmaceuticals and the pharmaceutical industry lies with United States
Food and Drug Administration (FDA)
● This sector is highly dependent upon regulators. A drug ban in India or US can
result in heavy loss to the company. Likewise, a drug approval can result in
high profits.
● Medicine spending in India is projected to grow 9-12 per cent over the next five
years, leading India to become one of the top 10 countries in terms of medicine
spending.
● Going forward, better growth in domestic sales would also depend on the ability of
companies to align their product portfolio towards chronic therapies for diseases
such as such as cardiovascular, anti-diabetes, antidepressants and anti-cancers,
which are on the rise.
● The Indian Government has taken many steps to reduce costs and bring down
healthcare expenses. Speedy introduction of generic drugs into the market has
remained in focus and is expected to benefit the Indian pharmaceutical
companies. In addition, the thrust on rural health programmes, lifesaving drugs and
preventive vaccines also augurs well for the pharmaceutical companies.
3)How Business Earns?
: Infrastructure and Power,Oil & Gas
Business Model: Infrastructure
What are some top companies in Infra sector?
Rs 1,23,814 Crore Rs 13,912 Crore Rs 70,674 Crore Rs 1,11,955 Crore
Rs 68,205 Crore Rs 41,648 Crore
Market cap as of 21st Sep 2020

● Construction of power plants, bridges,

dams, highways, ports, airports,
railways, and urban infrastructure
development including building,
flyovers, homes, etc.
● Cement companies earn revenue by
manufacturing of cement.
● Government projects are the key source
of revenue for Infra companies.
● High entry barriers: It is not easy to

start an Infra company. Infrastructure
is the most investment heavy
business.
● Competition is tough. It is difficult to
win the project bids.
● You need years of experience and
knowledge.
● This sector is not regulated like

banking or insurance. However,
government does provide the
guidelines from time to time.
● Infra sector is highly impacted by
marco environment.
● Infra sector is crucial for the growth of
the economy.
● Government is focusing on building

smart cities with better traffic
management, smart meters, cctv
cameras, better drainage system,
reduced pollution, waste management,
etc.
● IoT will play an important role.
● Technology will play a key role in
sustainable development.
Business Model: Power, oil & gas
What are some top companies in utility sector?
Rs 89,595 Crore Rs 1,04,100 Crore
Market cap as of 21st Sep 2020

● Exploration, development and production of crude oil, natural gas and value
added products and acquisition of oil and Gas acreages outside India for
exploration, development and production.
● Refining and marketing of products like petrol, diesel and gas.
● Generation and sale of power using both renewable and non renewable
resources.
● Heavy Investment Sectors!

● Tough competition!
● Requires high level of expertise.
● Not much dependent upon macro

environment. People would consume
oil, gas and power irrespective of
economic condition.
● WIth the rising rural demand, this
sector will see high growth in the
future.
● Power is among the most critical component of infrastructure, crucial for the
economic growth and welfare of nations. The existence and development of
adequate infrastructure is essential for sustained growth of the Indian economy
● Electricity demand in the country has increased rapidly and is expected to rise
further in the years to come. In order to meet the increasing demand for electricity
in the country, massive addition to the installed generating capacity is required.
● Oil and gas sector is among the eight core industries in India and plays a major role
in influencing decision making for all the other important sections of the economy.
● India’s economic growth is closely related to its energy demand, therefore, the need
for oil and gas is projected to grow more, thereby making the sector quite conducive
for investment.
: Telecom & IT
Business Model: Telecom
What are some top companies in Telecom sector?
Rs 14,70,819 Crore Rs 2,36,662 Crore
Market cap as of 23rd Sep 2020

Wireless services Home services Digital services
Voice Broadband Music
Data Landline Content
Payment
● High entry barriers: Heavy

investment sector!
● Intense tariff war to retain
customers!
● Highly regulated by TRAI (Telecom Regulatory Authority of India)

● Major revenue stream is in the form of revenue from wireless services
like data and voice. This is represented in terms of ARPU (Average
Revenue Per User). Eventually, the ARPU increment would depend
upon the consumption from the users which is dependent upon the
overall economic performance and digital movement.
● Internet subscribers in the country increased at a

Exponential growth in CAGR of 45.74 per cent during FY16-FY19
01 internet subscribers and
data consumption.
● As of 2019, India holds the world’s highest data
usage per smartphone, averaging 9.8 GB per
month. It is expected to double to 18 GB by 2024
● The future is of connected devices. Be it your

IoT and 5G will be the game smartphone, TV, cctv cameras, computer, home
02 changers. appliances, etc.
● With 5G, you will not need any kind of wire to
connect your devices.
● Between April 23 and July 16, 2020, Jio Platforms

Huge investments from Ltd. received investment worth Rs 1.52 trillion
(US$ 21.57 billion) from various global investors
03 foreign investors.
involving Facebook, Silver Lake, Vista, General
Atlantic,, Abu Dhabi Investment Authority (ADIA),
Qualcomm Ventures, Google, etc.
Business Model: IT
: Automobile & Retail
Business Model: Automobile
What are some top companies in Automobile sector?

● Manufacturing and sale of passenger car, commercial vehicle and 2

wheelers.
Production Facilities Dealer Network Service Centers

● High entry barriers: Heavy

investment sector!
● Intense competition among
the existing players.
● Auto sector is regulated by Indian Ministry of Road Transport and

Highways.
● High dependence on macro factors including government rules,
purchasing power of consumers and banks lending power.
● Example: Bharat Stage 6 and Loan lending
Business Model: Retail
What are some top companies in Retail sector?
Rs 1,36,208 Crore Rs 22,502 Crore Rs 98,487 Crore
Market cap as of 23rd Sep 2020

: AMC and Discount Brokerage
Business Model: AMC
What are some top companies in AMC sector?
AUM: Rs 3.73 lakh AUM: Rs 3.69 lakh AUM: Rs 3.5 lakh

Crore Crore Crore
● Other AMC are Aditya Birla Sun Life, Nippon India, Kotak Mahindra, UTI,
Axis, etc.
● HDFC AMC is the only listed company with market cap of Rs 44,933 Crore
as of 25th Sep 2020. UTI AMC is soon launching its IPO.
AUM as of March 2020

Pool Money Invest
Return-Fee Return
Investors AMC Security Market
Revenue/Fee= Expense Ratio (~1%) Eg: AUM = Rs 50,000 Crore

Net Asset Value = Rs 75,000
Profit = Revenue-expenses Expense Ratio = Rs 750 Crore
● High entry barriers

● Tough competition among
the existing players.
● Mutual fund sector is regulated by SEBI (Security & Exchange Board

of India)
● High dependence on macro factors including investors disposable
income, economic growth, government policies, etc.
● The Indian mutual industry around $300 billion plus. You look at the U.S.
mutual fund industry, it is around $16 trillion. 30 years ago, it was only $200
billion*.
● Increase in disposable income, increase in awareness and better return
potential makes mutual fund Industry very attractive in the long term.
● Future is towards Index funds and ETF.
*Source: https://www.bloombergquint.com/markets/heres-why-nirmal-jain-is-bullish-on-amcs
Business Model: Zero Brokerage Companies
What are some top companies in discount brokerage sector?
● None of them is listed on the stock exchanges.

Stock Mutual Fund
Flat transaction charges on Private investors/ VC Firms

intraday trading
● Low cost due to technology.

● Ultimate goal is to become one stop solution of all financial requirements.
● Cross selling and up selling: Wealth management, stocks, mutual funds,
insurance, payment solutions, in house index funds
● Technology plays a huge role in

discount brokerage companies.
● The entire model of low cost and
zero brokerage is possible due to
technology.
What are some key trends? What is the future of the industry?

Business Models - Banks - NBFC - Insurance

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Chapter 5: Business Model

Bank, NBFC & Insurance

Rs 5,81,845 Crore Rs 2,54,841 Crore Rs 2,52,764 Crore Rs 1,35,668 Crore

Rs 48,109 Crore Rs 17,641 Crore Rs 1,71,888 Crore Rs 20,816 Crore

Market cap as of 18th Sep 2020

Provide loan at higher rates

Deposit the money

● High entry barriers: Not everyone can open a bank.

● This sector is regulated by RBI.

● Banking sector is no more the traditional

● High customer loyalty.

Digitalisation Mobile Banking Uniﬁed Payment

Rs 2,09,387 Crore Rs 44,319 Crore Rs 19,724 Crore Rs 16,363 Crore

● NBFCs borrow from banks (working capital, term loan), depositors,

● High entry barriers: Not everyone can open a NBFC.

● This sector is regulated by RBI.

Rs 1,18,151 Crore Rs 84,813 Crore Rs 60,558 Crore Rs 58,899 Crore

Pay annual premium

Revenue= Annual premium - Annual Claims

The premium is invested to get returns.

● High entry barriers: Not everyone can open an insurance ﬁrm.

● This sector is regulated by IRDAI.

● Earlier, technology didn’t had a key role

● High customer loyalty.

● The future looks promising for the life insurance industry.

Rs 4,93,101 Crore Rs 1,55,104 Crore Rs 91,416 Crore Rs 2,20,378 Crore

Rs 89,684 Crore Rs 72,980 Crore Rs 46,806 Crore Rs 49,819 Crore

Market cap as of 18th Sep 2020

Transportation Distribution Retail Shop Home

● High entry barriers: It is not easy to start an FMCG company. You

● This sector is not highly regulated like banking or insurance.

● Automation is a key in improving

● Customer loyalty is low.

Rs 1,25,569 Crore Rs 88,669 Crore Rs 65,010 Crore Rs 88,783 Crore

Rs 48,521 Crore Rs 49,208 Crore Rs 54,480 Crore Rs 48,672 Crore

Market cap as of 18th Sep 2020

● Development and sale of drugs or medicines to different

● A patent gives a guarantee to investors that their product will

● High entry barriers.

● Central Drugs Standard Control Organization (CDSCO), Ministry of Health &

Rs 1,23,814 Crore Rs 13,912 Crore Rs 70,674 Crore Rs 1,11,955 Crore

Rs 68,205 Crore Rs 41,648 Crore

Market cap as of 21st Sep 2020

● Construction of power plants, bridges,

● High entry barriers: It is not easy to

● This sector is not regulated like

● Government is focusing on building

Rs 93,471 Crore Rs 10,480 Crore Rs 41,538 Crore Rs 89,931 Crore

Rs 89,595 Crore Rs 1,04,100 Crore

Market cap as of 21st Sep 2020

● Heavy Investment Sectors!

● Not much dependent upon macro

Rs 14,70,819 Crore Rs 2,36,662 Crore

Market cap as of 23rd Sep 2020

Wireless services Home services Digital services

Voice Broadband Music

Data Landline Content

● High entry barriers: Heavy