The global and local macroeconomic environment saw significant events in FY17. Eventssuch as BREXIT and President Trump's election created an impact on global economicactivity. In India the demonetisation of Rs 1000 and Rs 500 denomination currency noteswas a key initiative by the Government. Though this caused inconvenience and distress tomany people the general public accepted it stoically and even seemed to support theannouncement. While it was claimed that demonetisation had slowed down growth it needs tobe acknowledged that growth had begun to decelerate in the first two quarters of FY17. TheCentral Statistical Organisation ("CSO") has put the advance estimate forreal Gross Value Added growth in FY17 at 6.7%. This is lower than 7.8% achieved in FY16.The trajectory of headline CPI inflation remained southbound for most part of FY17. InApril 2016 headline CPI was at 5.5% and it moderated to 3.7% in February 2017. Led by asurge in the low cost current and savings accounts with the banking sector on account ofdemonetization monetary policy transmission was stronger in the second half of FY17.Banks dropped their term deposit rates thereby creating space for a reduction in themarginal cost of funds based lending rates ("MCLR"). The 1-year medianMCLR declined by 70bps post November 2016 (with no reduction in Repo rate) against adecline of just about 15bps during April-October 2016 (with 50bps reduction in Repo rate).Asset quality continued to deteriorate for the banking sector in 2016-17. The GNPA (grossnon-performing advances) ratio of Scheduled Commercial Banks increased to 9.1% inSeptember 2016 from 7.8% in March 2016 pushing the overall stressed advances ratio to12.3% in September 2016 from 11.5% in March 2016. The large borrowers registeredsignificant deterioration in their asset quality. Government of India and RBI have takencertain steps to reduce and resolve the stress levels in the banking system. The CurrentAccount Deficit ("CAD") remained comfortable with the first threequarters of FY17 showing a deficit of 0.7% CAD/GDP. On a comparative basis in a similarperiod in FY16 the CAD was at 1.4% of GDP. Hence we believe domestic macro-economicconditions continue to be stable with inflation coming down CAD being largely undercontrol and the government meeting its fiscal deficit target. Given that private capitalexpenditure shows little scope of improvement in the near term we hope to see highergovernment investment expenditure to drive further growth in economic activity.
In the last few years India has taken several steps to ensure long term economicgrowth. Long term economic progress is possible only with a strong policy framework and wehave seen numerous positive steps underway to build the same. Recent policy amendmentsincluding the implementation of GST implementation of the bankruptcy code and the bankingsector reforms are being seen as big drivers of the economy while the demonetizationdrive was a bold political move. Also India being a young country with over 600 millionpeople under the age of 35 years provides us with a great demographic advantage. Thishuge population powered with digital connectivity and technological innovation is provingto be a formidable force in driving the nation forward.
In the backdrop of a thriving domestic economy we have taken our mandate to form astronger and more relevant Bank of Now' for the masses. In the last eighteen monthsof operations IDFC Bank has acquired an active customer base of approx. 14 lacs. It'sspreading its wings both digitally and through Points of Presence' catering to 20states 150 districts and 33000 villages in rural India including the North-East. Thestrong and steady progress of this new age Bank is a testament of the perseverance andcommitment of our dedicated work force. Ours is the only Bank that allows smart-phonecustomers with Aadhaar cards to open a Savings or Fixed Deposit Account through acompletely digital process (without paperwork) within 4 minutes.
The Mutual Fund industry has shown a clear surge in AUM especially in the last twelvemonths. A healthy trend is the substantial increase in retail investors through SystematicInvestment Plans (SIPs). Overall mutual fund AUM climbed to Rs 19.3 trn and equity to Rs5 trn in April 2017 both new highs. This rally has been further boosted by FII flows.Riding the wave of positivity IDFC AMC has seen good traction in the last year; we holdthe 10th rank in the industry in terms of AUM. The company has launched several newproducts increased distribution width and partner engagement pushed for technologicalinnovations to better service customers and has been hiring key talent. The efforts of thefund house have been recognized through various awards and recognitions.
IDFC Alternatives the alternative asset management business of IDFC has been veryactive both in terms of new investments as also exiting some of its prior investmentsresulting in good returns for investors. The company has raised funds both in the PrivateEquity and Real Estate verticals. The Infrastructure vertical has been focused on buildingthe roads and renewable energy platforms. It has also forayed into the Start-up'investing space with anchor commitment to the IDFC Parampara' Fund.
Our institutional broking business -IDFC Securities has delivered strong performanceduring the year. It has increased its global outreach increasing market share acrossdomestic and foreign institutional clients. It was involved in several marquee capitalmarket transactions and has received various accolades from leading institutional investorsurveys for its equity research and distribution capabilities.
IDFC Infrastructure Finance Ltd. which provides loans to operational infrastructureprojects that have completed one year post construction has been steadily building itsbusiness. The Company has established a strong risk management practice and conductsregular reviews of all project assets.
Overall all our businesses are doing well and remain on track to achieving thelong-term business goals and aspirations. The Bank will further expand to service bothcorporate and retail customers in urban communities as well as the rural household withequal focus. Given its digital and technology focus the bank will keep innovating todrive the financial inclusion and digital agenda of the government. IDFC AMC is poised forfaster growth expanding both products distribution and new businesses for customers. OurInstitutional Securities business will focus on further growing market share and ourinfrastructure lending business will focus on disciplined growth in refinancing operatinginfrastructure assets.
To conclude on behalf of the IDFC Group I wish to put on record our sincereappreciation for the long association and valuable services rendered by the outgoingManaging Director & CEO Mr. Vikram Limaye during his tenure upto July 15 2017 withthe Company. I am confident that Mr. Sunil Kakar the new Managing Director & CEO willtake IDFC to greater heights.
We continue to be committed towards creating value for all our stakeholders andadhering to the highest standards of corporate governance. I wish to thank you all foryour trust and continued support.
Independent Non-Executive Chairperson