First, what are you seeing with respect to customer behavior over the last 2 months given equity market volatility? How is that shaping ULIP demand? Looking into FY27, how are you thinking about product mix and strategy to maintain 14% growth? Second, what is the share of protection now within SBI Bank versus 2 years back? What proportion of policies overall in SBI channel are being sourced through Yono?
On customer behavior, the geopolitical events are taking place and that is having some impact on the equity market performance. But at the same time, there are robust inflows into mutual funds. Our growth in February and March has been decent enough and we have been able to meet our guidance for the year despite these events. Going forward also, we expect to continue to have good sales growth in the coming quarter and coming year as well. We like to keep our focus on our yearly goals and midterm goals. SBI's share is 4% for pure protection; credit life is over and above that. Broadly that number has been flat, but the mix has changed favorably from TROP towards higher proportion of pure protection. The premium numbers are not seen as a proportion. Absolute numbers have grown, but share has remained broadly constant. Sum assured and number of policies have seen significantly higher growth in SBI because pure protection has significantly higher sum assured. On higher sum assured ULIPs (20x, 30x), as of now, we do not have higher sum assured ULIPs. We will look at the opportunity and decide in due course.
First, banca channel sales in Q4 degrown Y-o-Y - is this due to March being slower or any other reason? Second, following the media interview by the Department of Financial Services Secretary about open architecture for banks, can you share anything about this? What is our strategy if such a decision is finally taken?
On Q4, the entire insurance sector had a sluggish kind of Q4, possibly related to geopolitical events. Instead of looking month-to-month and quarter-to-quarter, we like to focus on the annual numbers and we are happy that we have been able to meet more or less our annual guidance of 13%. Banca channel also has been able to meet our internal budget set for the year. Regarding open architecture: SBI Life is now a 25-year-old company. We have seen various regulatory changes coming at different point of times and the company has been able to navigate all these regulatory changes with ease while growing at a consistent rate. We are not aware about this particular topic as of now. But we are very sure that any regulatory changes, we will be able to meet with a robust response. On strategy for other channels: agency channel has been strengthening for the last 2 years. The contribution of agency channel in our distribution mix has improved. We are also focusing upon our emerging business channel. We will continue to invest in our direct channel on our website and direct channel sales.
You guided for 14% growth but banca growth has been stuck in range of 9 to 11% for last 3 years. For 14% to be delivered, there should be heavy lifting from other channels like agency. Is banca trend of 10-11% continuing and growth will be driven by other channels? Second, on margin, at the start of year you guided 26-28 but without GST you delivered 29 instead of 27.5, which means you under-guided. This 27-28 guidance has upside from product mix or cost levers?
As already guided for last 2 years, we have been strengthening our agency channel by opening more branches, having more agents, improving agent productivity. The clear focus is on further strengthening the agency channel and tapping all opportunities available in this channel. We want to further strengthen it. This 14% will be an optimum mix of the agency growth and the banca growth. On banca specifically, the opportunities are there and we are tapping all available opportunities. Our endeavor remains to further strengthen the penetration of customer base of bank. We are not saying we have facilitated the customer base of bank. On protection in banca, our focus is also on the protection side. The protection segment is growing where the ticket size is very small, and we are getting substantial number of policies. We set our annual targets and medium-term targets. On margins, the reason to deliver this margin despite GST impact is that as a company, we are working to improve the product mix. With the higher base, we have tried to grow with 14%, and at the same time achieve better product mix. Making a combination that product mix would give a better margin and maintain the 14% growth is not a very easier task, and the range gives us flexibility to play around. We are aiming to launch deferred annuity product this quarter, targeting June launch. On protection mix breakdown for individual protection into pure term and RWRP, the specific numbers will be provided offline.
Agency channel has consistently grown for last 2-3 years. Can you give color about agents recruited - are these from industry or new to insurance? What is the business contribution of newly opened branches over last 2-3 years? Second, NOP count on individual side has not grown for 3 years, turned negative again in Q4. When can we expect NOP-led growth instead of ticket size growth? Also on GST - is the impact permanent and should we model similar 1.5% impact on margins, or higher since FY26 was only second half primarily?
We are new to the insurance industry, and there is no open architecture on the agency side. We have a very robust system of hiring and training agents, and the agent increase is also being equally met with agent productivity. Good growth number is coming both from increased number of agents as well as increased productivity. We do not disclose contribution numbers from new branches. These branches are well on track and we are satisfied with the contribution. Any newly opened branch takes some time to breakeven, but they are on track. GST impact has already been accounted for in the 27.5% margin. Only the second half business was impacted this year. Maybe the next another half year we'll see some impact but this is more or less similar level for 6 months overall, and we have adjusted. We are working to improve product mix profile to offset that. So there will be no adverse impact going forward on account of GST. On NOP, once we come with the deferred annuity product, that also will help increase NOP because the deferred regular annuity will have much lower ticket size than single premium, so more earning people will buy these. We also have protection products helping increase number of policies.
On VNB mix - if you take FY23 last 2 years and assume similar product mix/channel mix/cost structure, what would be VNB contribution across channels, or at least qualitative divergence between APE mix and VNB mix? Second, Credit Protect business for FY26 growth seems softer. What are the attachment rates at SBI and efforts to grow this relatively high-margin business? Third, on operating release and IFRS - does the robust risk management in back book give any benefit relative to competitors in IFRS regime?
On channel-wise margin, we don't disclose that. We don't drive the product mix with a particular channel specifically - we offer products to all channels and pay similar commission to different channels. We look into the longer term and company-level margin accretion. Most of the operating positive variance over the years reflects two things: the quality of business the company is writing and underwriting, and a longer-term view on sustainability. When we see credible experience emerging, we mandate to review our assumption and modify. We will continue to do that. Our view is to report numbers and keep a longer-term sustainable view. For IFRS, if a company has longer-term sustainable assumptions, that will have a better place and reflect better in IFRS regime as well. We normally avoid comparing our performance versus others. On banca Credit Life, 14% growth is reasonable and is faster than the bank's loan growth. We have increased our attachment in home loans by substantial amount.
In Q4, there was a big impact on group credit - is it largely coming from GTI reduction? How is Credit Life ending quarter-on-quarter and Y-o-Y this quarter? Second, we mentioned 60-40 ULIP to non-ULIP mix target. Will the mix remain stable in ULIP-non-ULIP with movement only between non-par and par? Third, on non-par savings - are you taking any increase in IRR given others have been recouping GST impact? Our decline seems moderate compared to peers.
This quarter, the GTI business has reduced as compared to the Credit Life. That is the reason Q4 growth in the group credit business has actually gone up. On quarterly Credit Life vs group split, we will give you separately. On product mix, we are at 66-34 today on individual APE basis (66% ULIP, 34% non-ULIP on IRP basis it's the same). Depending upon the market and customer choices, we are offering products across geographies and will continue to drive better productivity and a balanced product mix going forward. On non-par IRR, we continue to look at the interest rate movement and re-price the product. Currently there is a lot of volatility in the yield curve and this yield is not sustainable. We have launched a new non-par product that reflects the current yield, so we have passed some benefit to the customer. We will continue monitoring and adopt a dynamic approach as per interest rate sensitive product. Whenever we see this is a sustainable thing, we'll re-price and pass on benefit to the customer.
On IFRS - can you give some initial thoughts on how the KPIs will be for SBI Life under IFRS? Second, our strategy has been to focus on additional products - par has grown significantly higher than non-par. Given we recently launched a new non-par product in January, how do you expect non-par as a category to move from here?
As far as IFRS is concerned, we are prepared. We have submitted the pro forma to the regulator for the last two financial years. As mentioned in the opening remarks, we are going to have a forbearance for this fiscal. Next year onwards we will be prepared to launch into the IFRS regime. We don't see anything to bring in on a KPI into the company's performance during this financial year. We will see first how it will evolve over the next 2 to 3 years' time and then bring in because bringing new KPIs to business has implications. On par versus non-par, par contribution is around 7% in this perspective. We do believe that the new launch in non-par will see a lot of traction and will bring the movement in non-par. Also if interest rate is going to be established at current level, we will re-price and get better returns. That will help improve the growth of the non-par business.
First question on persistency - the drop at 61st month seems to come from COVID-era ULIP policies. Are the operating assumption changes that appear negative in VNB walk leading to a reset in persistency assumptions or are there other factors? Second, looking at the last 10 years split 5 and 5, the first 5 had very strong growth with margin expansion. In this backdrop, what would be your experience over the next 5 years in terms of retail APE growth or where VNB/margins will come?
On persistency, you're right that there is a persistency drop on account of the business done in the COVID period. As far as assumption is concerned, we always keep this exceptional item separately and look into the long-term view. Year-end, we keep refining our assumption looking to reflect the current experience. There are some changes in the mortality, some on the persistency. We've also seen some improvement coming on account of the long-term protection improvement on the persistency. The 50-basis point change is not a significant point. It's a combination of all minor refinement across all the assumptions, including demographic as well as expenses and other parameters. On growth prospects, the company 3-year CAGR is at 12.9%. Last financial year, we have grown by 13.2%. Going forward also, we intend to maintain the growth rate at around 14%, which has been our CAGR for the last 3 to 5 years. We will continue to maintain this kind of growth rate in coming year also. The par product portfolio growth of this year has come on a lower base of the last year. Last year, we had just a couple of products. This year, we launched new products in the par category and we got very good customer response. We have been a company which had dominant sales of ULIP in the past. Our focus has been to improve the product mix in favor of non-ULIP products also. We are happy that our strategy and our product launches are helping achieve this objective.
Has there been any communication from RBI about open architecture or offering more products at the bancassurance channel? Second, on cost ratios - from FY24 opex was 4.9, has gone up to 6.1, total was 8.9 gone up to 10.6. Do you see cost ratios capped at 10.6 or will they keep moving higher? Third, with 14% APE growth guidance, what are your thoughts on VNB margins going ahead?
RBI guidelines are draft guidelines in public domain for last couple of months and they are supposed to come in force from 1st of July. It does not talk of open architecture. We do not have any additional information other than what is in the public domain. On cost ratio, the impact on cost this year is substantially coming from the GST impact. Other factors are opening more branches, higher IT spend for customer ease, and spends on training agency force and CIFs. Going forward, these things have already panned out. Other than strengthening IT, there is no other major expense planned in the near future. GST is already in the cost of 10.8%. We do not see costs going higher on account of this particular thing. On margins, the 27.5 margin already accounted for all the impact of GST. We are working to enhance the product mix and profile mix, and we are very sure that enhancement in the profile mix will be able to absorb this impact of GST. We expect that our margin will continue to be in a similar range of about 26% to 28% that we are seeing. Our endeavor is to report the margin above 27%. Both growth and profitability, we keep a very sharp eye and we adjust accordingly. VoNB margin at the higher end of the range of 26% to 28% that we had set at the start of the financial year. So we stuck to our range and we will continue to maintain that kind of margin in coming years also.
In the EV walk, there is a very strong positive operating variance. Can you quantify how much is expenses, persistency and mortality? And if we have such a strong positive variance, why are we strengthening assumptions in the VNB? Also, solvency is at about 190%. In terms of capital, what are your thoughts? Any additional need and how will you bridge that gap if required?
As a company, we set our assumption with a longer term view and ensure it is sustainable in longer term. That always gives us a very positive variance. Most of the positive variance is coming on account of mortality profit and persistency and lesser on the expenses. The assumption refinement in VNB was 0.2% which is not significant. The products we are currently selling in new business and what has been reflected in our existing book are slightly different. So the assumptions in VNB may not be correlated exactly with operating variance in EV. As far as solvency is concerned, the company is generating good cash accruals and strengthening its capital base through internal accruals. We have not raised any fresh capital. Going forward, we are assessing the impact of Ind AS and RBC that is being discussed at regulatory level for introduction in near future. On economic variance split: our economic variance is more or less the sensitivity that we spend in EV. Around 2.15% is coming from the equity and balance is from the bond, of the total 3.66%.
If I look at VNB margin, there is 150 bps impact of GST for half year. Does it mean full year impact would be around 300 bps and starting margin on like-to-like basis is 26%? So we need to show VNB margin expansion from 26% in FY27? Second, as we move towards non-banca channels over next 2-3 years, will that have negative impact on margins since banca is believed to be slightly higher margin channel?
This is not the case on GST math. The business written post September is much higher than H1. When we declared results in September, we had already incorporated the GST impact in terms of commissions and renewal commission for business written prior to 22nd September. All business written after 22nd September reflects GST impact on commission for first year commission and renewal. For business written prior to 22nd September, GST impact on commission and renewal has been. Most of the part of the impact of GST in terms of renewal commission, commission of new business and expenses is included. We quantified this number - expecting the annual impact of maybe around 1.8, 1.9 kind of things if GST would have been implemented from the beginning itself. On non-banca channel expansion impact on margins, no, we don't think there will be any negative impact. In fact, any channel addition will bring value to the table by way of fixed expenses getting amortized and quality happening. That is going to aid the value to the company and there would not be any negative impact on the margins.
Two data keeping questions. First, on online channel growth that was very strong until 9 months at around 45% Y-o-Y. What is the discrete Q4 number or full year number? Second, what is attachment rate on Credit Life portion specifically on home loans?
As far as our online business which is purely on our own website, it is almost in a similar range of 48% to 50% growth which we have done for the full financial year and we will continue to focus more on this channel. As far as the attachment ratio of Credit Life, it is going in the similar range of what we have been doing for the previous years around 50% of reported year.
On cost ratio - opex ratio moved up from 5.3% to 6.1% in FY26. Is this only the second half GST impact? For FY27 the entire year will have GST impact, so is the 6.1% only reflective of 6 months GST or does it include full year impact? Second question, other channels' contribution share improved this year. For next year also, do you expect other channel contribution shares to improve? What would be the target share reduction from SBI contribution going forward?
This is obviously the second half of this year, half year of this fiscal impact of this GST. Next year it will be full year. The other one-off item is the Labor Code which has also impacted the increase in operating expenses this year. But we are confident it will not go under our radar and the way we are managing expenses will continue to be in that range. On quantifying the deviation from 5.3% to 6.1%: if the Labor Code or the GST would have not been there, the opex ratio would have been around 5.5 against 5.3. So safe to say that next year, it may go up slightly given only 6 months of GST, but it won't go materially up from here. There are other measures which we take to rationalize cost. We want to spend money on investments particularly on branches and IT infrastructure, but it will not have much impact on opex. We are not targeting any reduction from SBI. What we are targeting is tapping additional opportunity on the agency and emerging business channel. The higher growth coming from these two segments will improve their contribution. In last 2 years, we have seen approximately 3% to 4% shift from banca to agency and emerging businesses, and we expect the similar trend in coming years.