Final Presentation Banking Sector Final


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Contents Dimensions of sector

Geographical reach

Growth and market share

Deployment of funds

Financial Indicators

Investments Required

Regulation and legislation Brand value of Indian banks

Bank Valuations

Non bank valuations

Outsourcing pie

Mergers and acquisitions Insurance

Regulation

SWOT


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Dimensions of the sector

174 commercial banks in India (of which 91

RRBs)Operating with 77773 branches (March 08)

Nearly 62% of branches are in rural/semi-urban areas

Banks are supporting growth in the economy by

financing productive sectors

The banking and financial sector currently employs 8.49lakh individuals and this figure is expected to grow to

1.28 lakhs approx. in next five years


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Number of bank branches(including offices) in India

Rural 30977

Semi urban 17656

Urban 15245

Metropolitan 13895

Number of branches increased in last 8 years i.e from

FY2000 to FY2008 are 9836

By March08 there is 1 branch on every 15000 individuals

Geographical reach


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Current Snapshot Loans and Advances from scheduled commercial banks

Rs.27,57,210 crores as on 05/06/2009 Deposits Rs.39,71,651 crores as on 5/06/2009

Cash-Deposit ratio 6.04

Investment deposit ratio 32.10 Credit deposit ratio 69.42

Deposit growth Rs.1,37,541 crores sinceMarch09

Credit growth Rs.(18,339) crores sinceMarch09Profit after tax Rs.40,971 crore in 2007-08 with a growth of

39.17% as against 24.40 % in 2006-07


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Growth in Banking sector(percent)


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Shar i Gr Bank Cr it- Bank Gr p-wi

(Mar08)

Public Sectorbanks68%

Private Sector

banks26%

Foreign Banks6%

P rc ntag


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Share in Aggregate De osits - ank rou -

ise


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Selected Banking Aggregates


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Industry-wise deployment of Gross Bank

Credit(Mar08)


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Movements in RAR and NPAs ofSCBs


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Selected Financial indicators(Percent)


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Ca ital adequacy ratio requirements

For Scheduled Commercial Banks CAR= 9%For New Private Sector Banks CAR =

10%

For Banks undertaking Insurance Business CAR =

10%

For Ne Banks: Initial minimum paid-up capital for a new bank is

Rs.200 crore. The initial capital will be raised to Rs.300 crore within

three years of commencement of business

Average Capital to risk weighted asset ratio for the Indian banking

system as at the end of march08 was 12.6%

Capital Investments required


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In the next five years Banking sector would require additional capital

of Rs 5,68,744 crore is based on the assumption that banks wouldmaintain capital-to-risk-weighted assets ratio (CRAR) at 12 per

cent(Reserve Bank of Indias Report on Currency and Finance)

Public sector banks would require Rs 3,69,115 crore (64.9 per centof total requirements),

Old private sector banks Rs 23,319 crore (4.1 per cent),

New private sector banks Rs 1,13,180 crore (19.9 per cent)

And foreign banks Rs 63,131 crore (11.1 per cent).

Capital Investments

required(contd..)


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Banking Services De osit Products

Loan Products

Remittance facilities

Other facilities: Bank Guarantees, letter of credit etc.

Bill Discounting and Merchant Banking


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SBI ICICI HDFC Axis

Corporation

bank BoB BoI Canara

Sales 63,788.43 31,092.55 16,332.27 10,835.48 6,067.35 15,091.58 16,347.36 17,119.06

EBDIT 15,499.20 5,738.55 3,928.87 3,081.73 1,436.52 3,730.20 4,429.42 3,963.77

PAT 9,124.18 3,740.62 2,240.75 1,823.56 802.19 2,227.25 3,007.35 2,072.42

CAR 12.97 15.53 15.1 13.69 13.66 12.88 13.01 14.1

NIM 2.47% 2.14% 4.69% 2.86% 2.20% 0.03 2.74% 2.78%

EPS 143.71 33.62 52.68 50.79 55.93 61.14 57.26 50.55

BV/ share 912.73 445.17 344.44 284.53 341.36 352.37 224.39 208.33

P/E RATIO 12.5 23.3 29.3 16.7 5.5 7.3 6.1 5.2

CMP 1748 754.00 1496 818 331 435 345 266

Brief financials of major Banks


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Ratios SBI ICICI HDFC AXISCORPORATIO

N BANK

BANK OF

BARODA

BANK OF

INDIA

CANARA

BANK

Credit-

De osit(%)75 95.9 66.6 68.9 67.77 72.78 75.47 69.4

Investment /

De osit (%) 36.4 46.4 44.4 39 32.66 27.96 27.79 32.06

Other Income

/ Total Income

(%)

16.6 20.8 17.5 21.6 15.44 15.58 15.73 13.98

O erating

Ex enses /

Total Income

(%)

20.5 19.3 28.9 20.8 13.97 20.14 15.95 17.49

RONW (%) 17.1 7.83 16.9 19.1 19.57 18.65 29.18 19.08

Important ratios


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Market share of banks in India

SBI &Assosciates

26%ICICIBank7.5%

CanaraBank5%

PNB

6%

Bank ofIndia

5%Bank ofBaroda5%

HDFC Bank3.5%Axis Bank2%

Others

40%


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Brand Value of Indian Banks in Global

Market

Rank Bank Brand Value

(US$ in mn)

Market Cap

(US$ in mn)

Brand

Value/Market Cap

70 State Bank of India 1448 9834 15%

110 ICICI Bank 939 7893 12%

153 HDFC Bank 611 7785 8%

192Punjab National

Bank384 2853 13%

228 Bank of India 273 2567 11%251 Canara Bank 243 1363 18%

260 Bank of Baroda 229 1867 12%

269 Axis Bank 205 2935 7%

280Kotak Mahindra

Bank188 2388 8%

351 Union Bank of India 137 1466 9%

Source: BrandFinance Global Banking 500 Report, 2009

The methodology em loyed by Brand Finance in this lobal Banking 5 listinguses a discounted cash flo (DCF) technique to discount estimated futureroyalties, at an a ro riate discount rate, to arrive at a net resent value (NPV) of

the trademark and associated intellectual ro erty: the brand value.


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PSU Banks Rank among Indian Companies

State Bank of India13

Bank of India 92

Central Bank of India 134

Bank of India 135

Punjab National Bank 136

Private Banks Rank

ICICI Bank 98

HDFC Bank 124

Axis Bank 190

Kotak Bank 226

Source: Brand equity survey, 2009

Indian Banking Scenario


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Foreign Banks Rank

CitiBank 219

Standard Chartered Bank 255

HSBC 264

American Express Bank 279

ABNAmro Bank 286

Although these foreign banks rank very high in worldtop 500 Brand Value, in India it is still very lowlyranked.

Brand Equity of Foreign Banks


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Regional Comparison of Banks


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Only 1 Indian Bank (SBI) in worlds top 100 banking

brands while there are 3 Chinese banks in top 25 itself(Including rank 5).

Combined Brand value of Indian Banks have declinedwhile that of other BRIC countries including Russia

increased over last year 2008-2009. Even in India, just SBI (13) is within top 50 companies

w.r.t. Brand equity.

Hence need to enhance the Brand Value of Indian banksboth within India and outside to get more premiums ontheir services.

Brand Equity - Observation


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Valuation of Banks Key comparative Factors

Growth RoE

Steady Earnings

Other Factors New Product Introduction

Consolidation

Changes in Balance Sheet due to new regulation Changes in Legal environment

Ownership limits

Regulatory Impositions


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Higher Growth and hence Higher

Valuation


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Annualized Premium ro th- Insurance

Positive Impact due to Insurance Amendment Bill tabled in Parliamentwhich allows Insurance companies to list and hence unlock their value .

Key beneficiary would include ICICI Bank, HDFC Bank, Kotak, SBI

Valuation of 5-6% of AUM is attributed to the Asset Managementholdings of banks

Non-Bank Business Valuation


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Parameters in CMP


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Front Office

Sales Personnel

Corporate finance

Middle Office

Risk, research and IT services

Back OfficeAdministrative and support services

Breakup of a Financial Services

Company


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Outsourcing Scope Support functions

Accounts management

Facilities Management

Research managementAccounts Payable

Accounts Receivable

Treasury

General Ledger


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With 27 public, 31 private and 29 foreign

banks , a consolidation exercise is bound tohappen in Indian Banking sector

Shares as a risk mitigation and sharing

exercise By 2010, Indian banking system needs a

capital infusion of around $10 million.

But consolidation enthusiasm doesnt existsright now in Indian market

Mergers and Acquisition in Indian Banking

Sector


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SBI recently merged State Bank of Indore within

itself Last year, it completed an acquisition ofan Indonesian bank

Bank of India expands its presence in Africa.

Opens up branches in Kenya and is looking for anacquisition.

Reports of SBI looking to buy a mid sized bank

abroad, with a deal size between $1.5-2 billion Major presence abroad in 27 countries

Reports of IDBI scouting for a bank has alsoemerged

Mergers and Acquisition


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INDIAN BANKSA

BROAD

Bank of India is looking at buying out a local

rival in Kenya State Bank of India acquired 76 % shares of

IndoMonex (2006) , Mauritius bank

ICICI Bank (NYSE:IBN) has acquired theentire paid-up capital of Investitsionno-Kreditny Bank (IKB), a Russian bank

IDBI Bank has acquired a portfolio of over2,500 merchant establishments from BNPParibas, the French bank


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INSURANCE From Bancassurance to insurance

Bank-distribution model shaking Union Bank is a partner in Star Union Dai-ichi

Life Insurance

Bank of Baroda has tied up with Andhra Bankand Legal & General for an insurance venture


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Indian banking sectorset to open up by

2009

March 2005 -2009 foreign banks that were so

far restricted to branch operations could alsoset up wholly owned subsidiaries

Foreign bank subsidiaries with a minimum

capital requirement ofRs 3 bn would beallowed to carry out branch expansion

Foreign banks cannot grow unrestrained; can

buy only weak local banks the regulatoridentifies (with an investment of up to 74 percent)


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Developmental and Regulatory

framework


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Financial Stability Committee on Financial Sector Assessment

(CFSA)

To constitute a task force with regard to G-20

working groups

To set up a Financial Stability unit in Reserve

Bank


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Interest Rate Policy Benchmark Price Lending Rate (BPLR) Sytem

Review

Payment of Interest on Savings Bank A/c on a

daily product basis


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Special Refinance Facility: Extension

Special Term Repo Facility: Extension

Export Credit Refinance: Extension

Money Market Mutual Funds

Interest Rate Futures

Financial Markets:Money Market

Fi i l M k t


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Financial Markets: Foreign ExchangeMarket

Extension of Relaxation of all in cost ceilings

Liberalization of the policy on buyback of

FCCBs

Loans against Non-Resident Deposits

Currency Futures


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Credit Delivery Mechanism Credit flow to the MSE Sector

Rural Cooperative Banks Licensing of Cooperatives

Revival of Rural Co-operative Credit Structure

Regional Rural Banks Capital to Risk-weighted Assets Ratio

Assistance to RRBs for adoption of ICT solutions

Amalgamation

Recapitalization

Technology up gradation

Delivery of Credit to agriculture and other segments Kisan Credit Card Scheme and Rural Infrastructure Development

Fund

Interest Subvention relief to farmers and Micro Finance


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Prudential Measures

Further Relaxation in the Branch Authorization

Policy

Mitigating Pro-cyclicality: Use of Floating

Precisions

Credit Rating Agencies

Liquidity Risk

Relaxing Eligibility Criteria for Banking

Correspondents


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Institutional Developments

Final guidelines for Prepaid Payment

Institution in India Consolidation of Information Technology

System

Adequacy of the feedback arrangements formanaged IT Systems

Recent Developments Electronic Payment Systems

National Electronic Clearing Service

Rationalization of charges for payment systems

The Payment and Settlement Systems

Act, 2007


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SWOT - Strength

Strong growth - The banking index has grown at a compoundedannual rate of over 51 per cent since April 2001 as compared to a

27 per cent growth in the market index for the same period. Strong policy and regulations to help strengthen the sector.

Bank lending has been a significant driver of GDP growth andemployment.

Extensive reach - The vast networking & growing number of branches & ATMs. Indian banking system has reached even to theremote corners of the country.

The government's regular policy for Indian bank since 1969 has

paid rich dividends with the nationalization of 14 major privatebanks of India.

Quality assets and capital adequacy - Indian banks are consideredto have clean, strong and transparent balance sheets relative to

other banks in comparable economies in its region.


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SWOT - Weakness

Banks need to fundamentally strengthen institutional skill levelsespecially in sales and marketing, service operations, riskmanagement and the overall organizational performance ethic &strengthen human capital.

The cost of intermediation remains high and bank penetration islimited to only a few customer segments and geographies.

Structural weaknesses such as a fragmented industry structure,restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weakcorporate governance and ineffective regulations beyondScheduled Commercial Banks (SCBs)

Refusal to dilute stake in PSU banks - The government has refusedto dilute its stake in PSU banks below 51% thus choking the

headroom available to these banks for raining equity capital. Impediments in sectoral reforms - Opposition from Left and

resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growthprospects in the medium term.


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SWOT - Opportunities

Opportunities in credit cards, consumer finance and wealthmanagement on the retail side, and in fee-based income andinvestment banking on the wholesale banking side. These requirenew skills in sales & marketing, credit and operations.

Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose theweaker banks.

With increased interest in India, competition from foreign banks willonly intensify.

Given the demographic shifts resulting from changes in age profileand household income, consumers will increasingly demandenhanced institutional capabilities and service levels from banks.

New private banks could reach the next level of their growth in theIndian banking sector by continuing to innovate and developdifferentiated business models to profitably serve segments like therural/low income and affluent/HNI segments


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SWOT - Opportunities

With the growth in the Indian economy expected to be strongfor quite some time-especially in its services sector-the

demand for banking services, especially retail banking,mortgages and investment services are expected to bestrong.

Reserve Bank of India (RBI) has approved a proposal fromthe government to amend the Banking Regulation Act to

permit banks to trade in commodities and commodityderivatives.

Liberalisation of ECB norms: The government also liberalisedthe ECB norms to permit financial sector entities engaged ininfrastructure funding to raise ECBs. This enabled banks and

financial institutions, which were earlier not permitted to raisesuch funds, explore this route for raising cheaper funds in theoverseas markets.

Hybrid capital: In an attempt to relieve banks of their capitalcrunch, the RBI has allowed them to raise perpetual bondsand other hybrid capital securities to shore up their capital


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SWOT - Threats

Threat of stability of the system: failure of

some weak banks has often threatened thestability of the system.

Rise in inflation figures which would lead to

increase in interest rates. Increase in the number of foreign players

would pose a threat to the PSB as well as the

private players.


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Im roving rofitability:

Increasing competition, narrowing of spreads. The

challenge for banks is how to manage with thinningmargins while at the same time working to improveproductivity which remains low in relation to globalstandards.

With falling spreads, rising provision for NPAs and fallinginterest rates, greater attention will need to be paid toreducing transaction costs.

Reinforcing technology:

Strategic and integral part of banking Implement systems that enable them to provide products

and services in large volumes at a competitive cost withbetter risk management practices.

Risk management:

Credit Risk, Market Risk, Operational Risk, Country Risk

Challenges Ahead

C


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Shar ening Skills

Need for specialized Banking

Functions(Retail, Treasury, Risk, ForeignExchange, development banking and IT)

Greater customer Orientation

Strive and attract demanding customers, enhancing

quality, innovative products, and market variety of products

Cor orate Governance

Importance of institutional and individual shareholderswill increase. Need a common code representing all thefractions

International Standards

Internationally followed best practices, universal codes ofconduct is necessary. Full transparency in disclosures

Challenges Ahead


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THANK YOU

Documents

Final Presentation Banking Sector Final