The Indian financial institutions (FI) sector has had a bit of a mixed bag in the last few years but the last few months have been reasonably rough. With the stage being set for a plethora of regulations to mitigate the crises affecting the sector, ongoing open dialogue around governance and consolidation, 2019 seems to be fairly upbeat if increment projections are anything to go by.
The overall FI increment in 2018 averaged at 9% with 2019 projections on a marginal upside at 9.2%. Key talent will continue to be the focal point for awarding increments in the wake of consolidation and spiraling operating costs. This is exemplified in the overall 2019 salary projection being 15.7% versus 15.4% for key talent in 2018. The bell curve (which some years back had supposedly seen a demise) has witnessed marked talent differentiation across the two extreme spectrums of the rating scale.
Higher differentiation in banks
2018 for banks was one of the toughest in the past few years, witnessing the exit of key talent from C-suite positions, mounting asset-quality pressures, controversies and low capital adequacy levels of public sector banks. However, incremental improvements in pockets for the retail sector and ‘digital banking’ environment, still paints a favorable picture.
Banking has projected an overall salary increase of 8% in-line with the muted increases over the past 2 years. Movement of talent from across industries into the banking sector has seen an increase especially in digital, technology and cyber-risk verticals with banks continuing to pay a differential of 1.8x – 1.9x to critical and key talent. Investment Banking, impacted by global consolidation efforts and a weakening rupee, witnessed an almost flat salary increase of 8.1% for 2018 and 8.2% being projected for 2019.
AMCs and NBFCs stay afloat
For asset management companies (AMCs), it was a fairly choppy ride for markets in the latter half of 2018. Further, SEBI guidelines issued on the capping of the total expense ratio across different categories of mutual funds put pressure on the profit margins as well as distributor margins. This will impact the budget pool for rewarding talent and a stricter performance management mechanism to reward talent with the average salary increase predicted to be 9.2% in 2019 vis-à-vis 9.4% in 2018.
IL&FS defaulting on CP repayment obligations had raised huge concerns on liquidity shortage and ALM mismatches for the entire NBFC sector. However, the macro environment for the NBFCs hasn’t been as significantly impacted with a few strong companies able to raise funds at relatively low rates and housing sector financing continuing on the back of the government’s mantra of ‘housing for all’. While salary increases in 2019 are expected to be 9.1%, marginally lower than previous year’s 9.3%, there are indications that like AMC, this number may end up coming down as results emerge.
In microfinance, new entrants in the sector and increase in funding for existing firms has brightened the outlook which is reflected in an actual salary increase of 10.2% in FY 18 with a projected increase of 10.1% in FY19.
India growth story drives insurance
India’s robust economy is expected to sustain the growth for both the life and non-life insurance sectors. This is further coupled with the digital revolution & focus on data analytics, as well as bringing in automation in processes, enabling blockchain & cognitive technology for better customer profiling.Life insurance witnessed a similar salary increase growth as last year with actual average salary increase for 2018 at 8.4% and a projected salary increase of 8.6% for 2019. For general insurance, with new players entering, relatively lower base salaries and sustained business growth, increments continue to be the highest in banking, financial services and insurance (BFSI) with actual increase at 9.8% in 2018 and a healthy forecast of 10.1% for 2019.
In a nutshell then: is the sector poised for a happier, rosier 2019? The numbers seem to suggest so. And then there is an election year to contend with which may be part of the reason for the upward trend before the tone is set for the next few years. In either case, it is clear that some sectors have more reason to reward their talent than the others, and this seems to have outweighed the drag effects of the last few months.
Views are personal. Ritika Shah is consultant, Aon India and Roopank Chaudhary is partner, Aon India
