global-meltdown-and-retail-banking-in-india

“A WORKSHOP ON
PERSPECTIVES OF ECONOMIC MELTDOWN:
CRISES & CHALLENGES”
AT THE FIN-FEST 2009
OF MANIPAL INSTITUTE OF MANAGEMENT
ON 4TH SEPT, 2009
“GLOBAL MELTDOWN AND ITS IMPACT
ON RETAIL BANKING IN INDIA”
-BY PROF. CHOWDARI PRASAD,
PROFESSOR, TAPMI, MANIPAL

The US Financial Crises in a Century
1) PANIC OF 1907 –BANKERS’ PANIC
2) Wall Street Crash 1929-The Great Crash
3) Depression in 1930-The Great Depression
4) 1973 Oil Crisis
5) Savings and Loan Companies Crisis in late 1980s
6) Long Term Capital Bailout
7) DOT COM BUBBLE in 2001
8) California Electricity Crisis
9) Credit Crisis – Sub-prime Mortgage Crisis 2008
MIM FinFest 2009 Global Meltdown n Retail Banking 2

Depression in 1930
The Great Depression
• The Great Depression was a worldwide economic
downturn starting in most places in 1929 and ending at
different times in the 1930s or early 1940s for different
countries.
• It was the largest and most important economic
depression in the 20th century, and is used in the 21st
century as an example of how far the world's economy
can fall.
• The Great Depression originated in the United States;
historians most often use as a starting date the stock
market crash on October 29, 1929, known as Black
Tuesday


Timeline of key events over the period
7th Sep Two US mortgage finance agencies (Fannie Mae and Freddie Mac) are
2008 taken into conservatorship.

18th Sep UK Bank HBOS announces its merger with rival Lloyds TSB; Central
2008 bank measures address the squeeze in US Dollar funding with $160
billion in new or Expanded swap lines;

The UK authorities prohibit short selling of financial shares.

29th Sep UK mortgage lender Bradford & Bingley is nationalised banking and
2008 insurance company Fortis receives a $16 (€11.2) billion capital injection;
German commercial property lender Hypo Real Estate secures a
Government-facilitated credit line.
30th Sep Financial group Dexia receives a $9 (€6.4) billion capital injection; the
2008 Irish government announces a guarantee safeguarding all deposits,
Covered bonds and senior and subordinated debt of six Irish banks;
Other governments follow up with similar initiatives or expand existing
guarantee schemes over the following weeks.


3rd Oct The US Congress approves the revised TARP Plan.
2008
8th Oct Major Central Banks undertake a coordinated round of policy rate
2008 cuts; including capital injections for UK-incorporated banks and
guarantees for new short-to medium-term senior unsecured bank
debt.
The UK authorities announce a comprehensive support package,

13th Oct Major Central Banks jointly announce measures to improve liquidity
2008 in short-term US dollar fund markets,
Supported by uncapped US dollar swap lines between the Federal
Reserve and the other central banks;
Euro area governments pledge system-wide bank recapitalizations
and guarantees for new bank debt.

14th Oct The US government announces that up to $250bn of previously
2008 approved TARP funds are to be used to recapitalize banks,
9 large US banks agree to public recapitalization.

Reasons behind the Global Financial crisis:
How did this crisis start?

3. Banks lending enormous housing loans to borrowers with
inadequate security and poor credit history.

– These banks repackaged the housing loans as tradable
sanction and sold them to investment banks such as Merrill
Lynch (1914), Bear Sterns (1923) and Morgan Stanley (1935)
and AIG

6. When housing loan went bust, the property market collapsed
– adding to the losses of these investment banks

8. Credit markets have suffered

10. Exotic financial investments like Credit Default Swaps (CDS)
also have contributed for the crisis.

12. The spill over efforts had been felt by a number of financial
institutions, stock markets melt down and investors started
suffering.

The rise and fall of investment Banks
• Lehman Brothers (1850)
• Goldman Sachs (1869)
– Merrill Lynch (1914)
– Bear Sterns (1923) and
– Morgan Stanley (1935)
– AIG
All of them became the victims of the current financial turmoil in the
US and have changed their identity during the last six months.
• Bear Sterns and Merrill Lynch were taken over by commercial
banks.
• Lehman was wound up and the other two have now become
commercial banks.
• I-BANK MODEL: The great stock market crash of 1929 in the US
brought about drastic changes in the financial sector.
• The Glass Steagall Act, 1933 which separated commercial banking
from I-banking.


• Till late 1990s banks were prohibited from engaging in share-
broking or investing in shares.

• This gave a fillip to I-banks to fill in the void and expand their
activities. In fact, Morgan Stanley was started after this Act.

• The Act was repealed by Gramm-Leach Billey Act of 1999 in the
US and now commercial banks there can be universal, viz, can
engage in investment banking also.

• These funds in turn provided by commercial banks, mutual
funds and even members of public.

• However, Federal Reserve Bank in the US had no control over
the I-banks.


Five Year Plans in India
• I Plan (1951 - 1956) • VI Plan (1980 – 1985)
• II Plan (1956 - 1961) • VII Plan (1985 – 1990)
• III Plan (1961 – 1966) • Break 1990 - 1992
• Plan Holiday 1966-69 • VIII Plan (1992 – 1997)
• IV Plan (1969 – 1974) • IX Plan (1997 – 2002)
• V Plan (1974 – 1979) • X Plan (2002 – 2007)
• Break 1979 - 1980 • XI Plan (2007-2012)
Global Meltdown n Retail
11 MIM FinFest 2009
Banking

India : 1947-69
Planned Development
 Planned National Development includes Bombay Plan, etc.
 Import Substitution Industrialisation (ISI) + Agrarian Transition
 Egalitarian agrarian reforms = Higher productivity,
surpluses, market
 Planned industrial development = Large Public sector +
diversified industrial structure + self-reliance
 Quasi Marxist strategy undermined by agrarian power
 Crisis of planning in Late 1960s = Green Revolution


Growth of GDP and major Sectors
(% per year)

Global Meltdown n Retail
13 MIM FinFest 2009
Banking

India : 1969-84
Under-cover Liberalization
 Prima facie increase in statism: nationalization of
Banks, industrial control increased, anti-
smuggling, FERA, MRTP, etc.
 Underlying trend point elsewhere:
 labour repression
 Green and White Revolutions,
 State intervention pro-capitalist by default
 Inflation + middle-class political unrest +
emergency + 1977 Janata Government
 Self-constraining inequitous growth process set
pattern

India : 1984-92
Domestic Liberalization
 From late 1970s onwards hesitant but then
accelerating decontrol: various reports (Desai, 1969,
Jha, 1981) critical of state intervention
 1984 Rajiv Gandhi’s domestic liberalization with limited
international opening
 Accompanied by usual rhetoric about free market and
export-led growth; though exports remain stagnant
 Growth rate picks up circa 1980 not after 1991
 Consumer durables-led boom (mainly vehicles)
 Energy/import intensity real cause of Balance of
Payments crisis


India : 1991-01
Global Opening?
 Structural Adjustment (but like 1981 IMF loan, paid back early)
 Privatization of parts of very large public sector
 Growth and industrial growth accelerate
 Export led-rhetoric, exports rise only in traditional categories: Textiles,
Gems and Jewellery, Leather, etc.
 Balance of Payments gap closed by remittances
 Import penetration increases
 Mainly driven by pent-up demand for goods with high import content
 Narrow domestic market easily saturated: industrial recession by 2001.
 Capital Controls remain:
 RBI’s conservatism prevails over Ministry of Finance enthusiasm
 India escapes 1998 Asian meltdown
 Continuing caution about portfolio investments and reserve accumulation


2002-07
Credit Fuelled Industrial Boom
 Govt capacity for stimulus lower ; Fuelled by easy consumption credit
 Increase in retail banking
 Inflow of foreign loans + portfolio inv. + foreign financial institutions
 Seemingly lifts historically heavy Foreign Exchange constraint
 India’s reserves in August 2008 $310 bn, third in world
 But accompanied by trade deficit (unlike China and Japan)
 But Trade Deficit > software + remittances  current account deficit
 Covered only by capital movements
 M&As abroad rise, investment income rising but also outflows
 Deficit on business services
 But India begins exporting higher value added products: Chemicals,
engineering goods and pharma.
 Growth concentrated in some sectors
 Slowdown evident since 2006


2008: Financial Crisis
Transmission Mechanisms
 Portfolio Investments and Withdrawals by IFIs
 Fall in Sensex
 Depreciation of rupee
 Exposure of Indian banks to toxic assets:
 RBI estimate 450m (90m public + 360 pvt)
 + depositors and investors in foreign banks operating in India (recently
increased operations)
 Exposure of non-bank FIs and corporates to domestic stock and currency
markets.
 Expected to be large, RBI permits banks to provide loans to mutual funds
against Certificates of Deposit (CDs) or buy-back their own CDs before
maturity
 Cut-backs on credit to individuals by banks. Marked deterioration in growth of
all consumer loans. Given reliance of growth on this sort of credit, impact on
growth could be high.


Sensex: Halved by Crisis


Rupee Value

1/12/2008
50.1

SLOW DOWN OR BREAK DOWN?

Indian history is witnessing steep downslide in all segments of the economy. The vast
investment in basic, core sector, infrastructure, housing sector in early 21st century gave
momentum to the Indian economy. 8.5% growth since 2003. The jubilant Economy
suddenly seems to have burst.
•Bubble created in the Economy during 2007 & 2008
•Bubble has burst
•Industry facing turmoil
•Sensex disaster
•Prices of 17 essential commodities doubled in 4 years
•Closures, slow down in industries
•Chaos in job market
resulting in
LOSS OF ONE CRORE JOBS & SUFFERING OF COMMON MAN

DISASTER SYMPTOMS

• Financial services segment witnessed steep downfall
• Real estate – lost estate
• Large retailers/malls closing down speedily
• Half of small scale industries of industrial townships facing closure
• Several Large Industries have declared Closure /Partial
Closure e.g.:
• Tata Motors • Thyseeankurup Industries
• Ford Motors • Tata Yazaki
• Kirloskar Brothers • Bosch
• Bharat Forge • Bajaj Auto

DOWN…INCOME TAX COLLECTIONS

• Direct Tax receipt down by 13.4% in Dec 2008.
• Direct Tax collection down to Rs.52,749 Cr in Dec 2008 against Rs.60,976 Cr of
December 2007
• Central Board of Direct Taxes Chairman stated “Direct Tax collection shall be short by Rs
1 Lac Crores in 2008/09

• The tax collection will be less than Rs.3 lac crore against the target of Rs.3 lac 95
thousand crores

SLOWDOWN BLUES: TAXES COLLECTION DOWN

Tax Times

Actuals % of Actuals % of Actuals
BE FY 08
till Dec. to BE FY 09 to BE FY 08

Excise duty 10671 9017 75485 77108 -15.5

Customs duty 8175 7399 74455 82741 -9.5

Service tax 4414 4254 31420 39416 -3.6
Total 23260 20670 181360 199265 -11.1

FISCAL DEFICIT UP

Actuals % of Actuals % of Actuals
BE FY 08
till Dec. to BE FY 09 to BE FY 08

Total receipts 6,17,597 3,78,954 61.40 74.90

Fiscal Deficit 1,33,287 2,18,262 163.80 51.40

Revenue deficit 55,184 1,73,830 315.50 54.90

• Revenue deficit was estimated at Rs.55,184 crores in the Budget of
• 28.2.08. This has gone up by Rs.1,73,830 crores as on 31.12.08

FOREX RESERVE DIPS

• Forex reserve down by $4.5 billion to $247.6 billion

• Forex reserve had gone up to $315 billion

• The reserve was increasing since the year 2000

• Forex reserve is coming down consistently for more than 3 months

GOVT. EXPECTS JAN. EXPORTS TO FALL 22%

• December figures showed exports declining by 1.1% to $12.69 billion against 21%
growth in December 2007. Exports had shrunk 12.1% in October 2008 and 10% in
November 2008

• Exports have dipped for the first time in 7 years

• Trends of overseas shipments taking a plunge in January due to slump in demand
for Indian goods in the global market

• India may achieve $170 billion exports in the current fiscal against the target of
$200 billion

% growth in December 2007 ($) % growth in December 2008 ($)
Exports 20.85 - 1.1
Imports 24.26 8.8

FUNDS FLOW TO INDIA SHRINKS Rs.94,000 CRORE

2007-08 ($bn) 2008-09 ($bn)

Credit by commercial banks (A) 50 63.7

Flow from other major sources (B) 68.4 41.6

Public issues by non-financial entities 8.6 2.9

Gross private placements by non-finance entities 8.6 2.9

ECB 15.7 12.6

Short-term credit from abroad 10.4 8.3

FDI 4.8 3.8

Total (A+B) 124.5 105.2
• External commercial borrowing (ECB) and short-term credit from abroad
contributed 8.2% in 2008-09 of the financing against 20% in 2007-08
• While credit to the agriculture & service sectors have remained largely unchanged,
personal loans have declined due to falling housing loans

SUBHIKSHA – LARGE RETAILER
CLOSING DOWN PART OPERATION

• Subhiksha has chain of 1600 stores

• Turnover in 2008 – Rs.2305 crores

• Total staff employed – 15,000

• 6500 stores closed down

• Due to lack of funds, may closed down half of its chain of stores

• Unable to pay rental and salaries of employees

CAPITAL MARKET

• 25% Stocks / Shares on NSE & BSE found illquid in Dec. 2008
• 9th January BSE Sensex touched 21000. Finance Minister immediately came on TV &
stated “Its my economic policies. India will not look back. We are now in double digit
Growth”.
• Bull run in an Open Economy - Capital Market may be accepted but conversion of it
into Bubble is dangerous. Bubble is to Burst, we are observing the same now. 2009
could be the worst year India has seen in decades.

SMALL INVESTORS RUBBED

• Bubble was created in Capital Market in 2007-08
• Sensex was manipulated upto 21000 from 15000
• Promoters (bogus intention) sold their stakes at higher
rates
• Promoters pledged their stakes at higher value with
banks and financial institutions and borrowed heavily
• Satyam Promoters’ stake has come down to 4% as on
7.1.2009

3 CRORE SMALL INVESTORS LOOTED

• Congress Govt. – Mr. Chidambaram pushed creation of Bubble in Share Bazar –
Capital Market
• Sensex was 21,000 – Jan 2008
• Sensex now 9,000 – Jan 2009
• Small Investors of Share Bazar, Mutual Fund, ULIP lost their savings
• 1 Crore Small Investor-Demat Accounts holders & 2 Crores Small Investors of
Mutual Funds, Unit Link Insurance Policy lost heavily.
• Rs.10,000 Invested in year 2007 has become Rs.4,900 now

DIWALI OR DIWALA

BSE mkt cap
Diwali Day Sensex close % change Change
(Rs. Cr)

Oct 28,2008 8,510 -55 2,651,933 -3,594,012

Nov. 9, 2007 19,059 50 6,245,945 2,984,939

Oct. 21, 2006 12,709 61 3,261,006 1,208,448

Nov. 1, 2005 7,892 33 2,052,561 899,642

Nov. 12, 2004 5,954 25 1,452,919 501,102

Oct. 28, 2003 4,757 61 951,817 412,557

• Since Diwali (Muhurt) 2002 Sensex gone up till Diwali of 2007. At the end of Samvat
year on Diwali 2008 Sensex lost 55%, loss of Rs.35,94,012 Crore of Market Capital

SMALL INVESTOR – MUTUAL FUND DISASTER

Largest Mutual Fund Companies Loss in 2008
• Franklin Templeton Mutual Fund - - 37.85%
• ICICI Prudential Mutual Fund - - 26.13%
• UTI Mutual Fund - - 19.30%
• Baroda Pioneer Mutual Fund - - 63.51%
• Sahara Mutual Fund - - 28.07%
• Taurus Mutual Fund - - 47.21%

TOP 10 PERFORMANCE

SCHEME RETURNS*(IN%)
UTI MNC -32.34
Birla Sun Life Asset Allocation -32.51
Birla Sun Life Dividend Yield -33.27
UTIDivident Yield -34.08
IDFC Imperial Equity -35.21
FT India Life State FoF -36.77
UTI Contra -37.11
DSPBR Top 100 Equity Inst. -37.21
Sahara Growth -37.48
DSPBR Top 100 Equity Reg -37.67

Source : Value research;*1 year

MUTUAL FUNDS GET POORER BY RS. 1,50,000 CRORE

• In 2008 Mutual funds became poorer by about Rs 1,50,000 crore, or about one-third
of their total size.

• The mutual fund industry in India, with nearly 36 members, was regarded as a safe
avenue of mutual gains for investors till 2007 — when their total wealth grew by more
than Rs 2,30,000 crore to Rs 5,50,000 crore.

• However, in 2008, lost Rs 1,50,000 crore, bringing its asset size to nearly Rs 4,00,000
crore.

90% IPOS TRADE BELOW ISSUE PRICE

• 38 of 42 initial public offers (IPOs) that were listed since January 2008 trading below
their issue price.
• Mumbai-based engineering and construction company Niraj Cement Structural's is the
worst performer. The stock at Rs 17.80 on the BSE, down 90.6 per cent from the issue
price of Rs 190.
• For the remaining 37 firms, 2008 has been no different. Stock of companies —
Chemcal Biotech, First Winner Industries, Tulsi Extrusions, — are down over 80 per
cent from their issue prices.

ULIP (LIC) – VALUE DEPRECIATED TO 50% IN ONE YEAR

Investment Value on
Plan Premium 1 year ago 26.10.2008
(in Rs.) (in Rs.)
Market Plus Annual 10,000 5818

Money Plus Annual 10,000 4743

Profit Plus Annual 10,000 4920

Defaults threaten fixed maturity plans
Joydeep Ghosh & Sidhartha K / Mumbai October 8, 2008, 0:22 IST – BUSINESS STANDARD

The mutual fund industry is under
A senior executive in the industry
pressure and not just from falling WHAT ARE FMPs?
FMPs are funds in which investors park claimed that around 10 to 15 per
markets. Fixed maturity plans
their funds for one to six months, cent money of the total AAUM has
(FMPs), which have garnered Rs sometimes for more than a year. These been invested in real estate and
102,133 crore of average assets plans invest in corporate bonds, bank
NBFC papers. Over the last two
under management (AAUM), are deposits and commercial papers. The
longer tenure is offered to take years, the real estate sector was
facing the prospect of rising
advantage of double indexation benefits. offering 1-2 per cent higher yield
defaults on their investments in This implies that if someone invests in an than the market, luring many fund
real estate and non-banking FMP for 13 months, say, between March
managers to invest almost 60 to 70
financial companies (NBFCs). This 2008 and April 2009, his capital gains will
get indexation benefit for 2007-2008 and per cent of their corpus in them.
implies that if there are
2009-2010. So his tax liability would go In fact, for the past eight to ten
redemption pressures from their down substantially. That is why retail months, most fund managers have
corporate and retail clients, these investors prefer to invest in the longer-
stayed away from these papers.
FMPs would have to raise cash term FMPs. The shorter-term ones cater
to the needs of corporate clients. Market Some like UTI Mutual Fund stopped
from other resources to meet the
experts say retail investors contribute 20 investing in them since December
demand. to 30 per cent of the AAUM. 2007 and Kotak Mutual Fund even
FMPs contribute almost 19 per
“There may be isolated instances but
declared in the offer documents of
cent to the Rs 5.29 lakh crore
According to senior banking sources, a the overall system is sound,” said the some of their FMPs that they would
average assets of the industry. large fund recently had to borrow on head of a fund house. not have any exposure to real
Though mutual funds have turned the call money market at over 20 per Though the industry has not seen any estate and NBFCs.
cautious about investing in these cent to meet redemption pressures. pressure from corporate clients as of Another important development in
sectors since early 2008, the fear Last month, a medium-sized fund faced now, the head of a financial the recent months has been that all
is that the money that has already redemption pressure on its FMP from conglomerate said there have been
high net worth individuals, when it was
fund houses have started declaring
been invested could be in for some withdrawals by companies in
declared that the company was being their FMP portfolios to investors.
some trouble in terms of payment the last few weeks to meet their
taken over. Earlier, only a few leading funds
delays. immediate liquidity needs. Over the
“When investors are willing to even last fortnight, the liquidity in the
would do so.
Sources said some of the leading
shell out 2 per cent as exit load to market has been tight as companies The threat of exit of large investors
real estate companies have redeem, it becomes very difficult for had to pay advance tax and there accentuates the problem for FMPs
defaulted on their repayments us,” said a fund manager. Many others were large borrowings by cash- as there will be pressure or
and are seeking rollovers. And have resorted to rolling over schemes strapped oil and fertiliser companies. withdrawal. Also, little money will
though there hasn’t been any to avoid paying their clients. As a result, banks borrowed heavily trickle in from fresh investors to
huge redemption pressure, Mutual funds, on their part, said from RBI and call rates touched 17 per
investor wealth is not at risk at the
counter the outflows
mutual funds are gearing up for it, cent.
especially from companies that moment.
have invested in the FMPs.

TATA STEEL – STEEP DOWN

• Revenue & profit of Tata Steel goes up and up till Diwali of 2008

• Steep down slide since Diwali 2008 may be observed

Quarter ending Total Revenue Profit
(Rs.Cr.) (Rs.Cr.)
30.6.08 6,177 1,488
30.9.08 7,089 1,787
31.12.08 4,735 466

• Turnover and profit of Tata Steel for the Quarter ended 30th June 2008 was Rs.6,177 crores
and Rs.1,488 crores respectively.

• The same went up by 75% for the Quarter ended 30th Sept. 2008

• Steep downfall observed in 3 months ended 31st Dec. 2008. Profit down by 80%, turnover
down by 40%

TATA MOTORS DOWN DOWN

Quarter ending Total Revenue Profit
(Rs.Cr.) (Rs.Cr.)
30.12.07 7,251.8 499.0
30.6.08 6,928.4 326.1
30.9.08 7,078.8 346.9
31.12.08 4,758.6 - 263.2 (loss)

• Revenue of Tata Motors has come down to Rs.4758 crores in the Quarter ended
31.12.08 from the previous Quarter of Rs.7078 crores

• In just 3 months, the Profit of Rs.346 crores has turned into loss of Rs.263 crores

QUARTERLY RESULTS

Dec ’07 Mar ’08 Jun ’08 Sep ’08 Dec ’08
Sales 7,251.83 8,749.52 6,928.44 7,078.85 4,758.62
Turnover
Other 91.81 234.34 315.61 429.28 99.51
Income
Gross Profit 924.38 890.16 838.14 994.18 -49.08
Profit 665.10 698.05 345.09 358.01 -419.15
Before Tax
Net Profit 499.05 536.27 326.11 346.99 -263.26

QUARTERLY RESULT OF 31.12.2008
DOWN! DOWN! DOWN!

Company Down by
Videocon Industries 76%
M&M 93%
DLF 67%
Parsvnath 95%
Unitech 74%

• Experts feel these results also do not reflect the correct status of the company

• Window dressing is adopted to show less loss/downfall

• Sales to subsidiaries form bigger part of the above

NOIDA

• Automobile, BPO, Automobile ancillaries worst affected
• Large companies production down by 25% to 60%
• 40% of Small Scale units affected
• 1 lac casual contract, construction workers affected
• BPO sector facing
• Noida & Gurgaon heavily affected
• Construction work is at halt since Feb. 2008

HYDERABAD

• IT, KPO, BPO, Automobile, construction industry worst affected
• The above industries growing upward continuously since the year 2000/01
• 1 lac labour affected
• Large industries, particularly Automobile functioning at 50% level
• Small scale units production down by 40 to 50%
• Default started in loans repayment

STORIES OF SOME OF THOSE AFFECTED BY
THE RECESSION IN THE JOB MARKET
• ASHOK JAISWAL, 30 Company: GlobalLogic Position: Software engineer Salary: Rs 18
lakh p.a. The week couldn’t have started on a worse note for Ashok Jaiswal, an
employee of the Noida-based Itcompany who was summoned by his employer only to
be told that he was among the 17 employees who were being “laid off”.
• AYUSH JAIN, 30 Company: Kotak Mahindra Position: Trainee (wealth management)
Salary: Rs 15,000 and above Family: Seven members. This business administration
graduate from University of Indiana, US, thought he was one of the luckiest guys to
have returned to India and clinched an offer from a leading bank. Not any longer. He
was told resign on October 31, with three others.“It was a rude shattering of a dream,”
says Ayush. “Buoyed by the increasing presence of high networth individuals in India,I
was looking forward to a career in this lucrative line. ”Within 3 month of working,the
ominous signs made their telltale presence felt.
Courtesy: India Today

STORIES OF SOME OF THOSE AFFECTED BY
THE RECESSION IN THE JOB MARKET.
• Sunil Jain, Proprietor/Exporter IC Textiles- 1100 workers sacked
• It was a 100 per cent export oriented unit with a turnover of Rs 120 crore. Last
November unit shut down. 1100 workers retrenched.
• Ashok Leyland has decided to moderate the production plan for the next two months.
Ashok Leyland's manufacturing plants, worked 3 days a week, till December 08.
• S.P. Oswal, chairman, Vardhman Group, Ludhiana-based Rs 3000-crore textile giant
says ‘ The textile industry is definitely hit by detrimental effect of slowdown. More so,
because exports form 40 per cent of India's 55 billion dollar textile industry.
• Never before in my 42 years in textile industry did I ever have to shut down our
capacity because of a lack of orders.
Courtesy: India Today

Some top Indian information Polaris is another firm that may
technology (IT) firms such as Tata be in a spot if Citi sells some of its
Consultancy Services (TCS), business units. “Citi does source
Satyam Computer and Polaris some work to Polaris as well. But
could feel the heat if Citigroup the biggest impact would be if
decides to sell part of its business Citi sells its stake in Polaris, which
or look for partners to tide over is over 40 per cent,” said an
its losses. analyst. Citigroup holds 22.88 per
Analysts feel TCS’ revenue might cent in Chennai-based Polaris and
have an impact as Citi has signed an additional 20.45 per cent
Our agreement with Citigroup in case Citi has a change of through its wholly-owned
an assured revenue agreement of adequately addresses our interests owners, we assume even the $2.5
$2.5 billion (Rs 12,500 crore) for a subsidiary, Orbitech.
in case of a sale or merger of the billion contract will also come The rumours on Citigroup led to
period of over nine years. This bank.” However, analysts are not under review. It’s too early to
was the part of the $505 million changes in share prices of the
convinced. Citi is a $300 million predict anything. But there are Indian IT companies in different
acquisition of Citigroup Global account for TCS. With the chances of price negotiations,”
Services (CGSL) — the business ways. While the TCS stock price
acquisition of CGSL, Citi not only said another deal tracker. went up by 7.8 per cent to close
process outsourcing (BPO) arm of catapults itself as the largest client Analysts said they are hoping that
Citigroup — by TCS a few months at Rs 506 on Friday, Satyam was
for the IT giant but also means an TCS has made no upfront up 3.08 per cent. However,
back. account size of half abillion. payment. “However, we think
When contacted, a TCS Polaris was down by 0.52 per
Experts point out that Citi would TCS would have structured the cent on buzz that Citi might sell
spokesperson said, “TCS easily account for around 5-6 per deal accordingly and would have
announced its intention to its stake in the company.
cent of the IT giant’s revenue. built such a scenario into the TCS, Satyam and Polaris are likely
acquire Citigroup Global Services “Whenever the ownership of a contract,” they said.
in October and the transaction is to be impacted by the change of
company changes, all the contracts TCS is not the only IT firm. fortunes of Citigroup
proceeding as per the terms of and deals come under the review Satyam, India’s fourth largest IT
the agreement in a planned of the new owner. So, firm might also be impacted as
manner. Citi is part of its top 10 clients.

“1 CRORE JOB LOSS IN 2009”

• Horrible downslide in Textile Jwellery exports
• Industries Association & Govt. Official wories 1 Cr Job loss
• Exports orders dying up
• Exporter says no order beyond January 2009
• Labur intensive industry affected
• Export down by 54% in Oct – Dec 2008

ECONOMIC CRISIS – AFFECTED FROM BIG TO SMALL MAN

Chaos started from the Capital Market, then Real Estate, Automobile, luxury segments, has
gone up to the Smallest person. More than 1 crore lost jobs.

Industry Job loss (in lacs)
Construction workers 10
Small scale industries/workshops 25
Labour-oriented export 25
Service sector, financial services, large retailers, hospitality, 20
tourism, transport
Contract/casual workers of big industries 10
Job loss/partial loss/income loss to tempo, autoriskshaw, tea 25
vendors, hamals, etc.
Total job loss/income loss in all 1.15 crore

Reasons for growth of
Retail Banking in India
1. Introduction of Technology
2. Increased competition among Banks
3. Opening of New Gen’ of Private Banks
4. Inviting of more Foreign Banks after WTO
5. Focus on Productivity and Profitability
6. Deregulation of Interest Rates
7. Absence of Directed Lending


Reasons for Retail Banking …
8.Drive to bring down Non Performing Assets
9.Tilt towards consumer and life style spending
10.Innovation of new products and services
11.Implementation of Pru-Norms, ALM, RM
12.Closure / Re-locating of Loss-making brs
13.VRS of surplus staff – and Sales orientation
14.Corporates sourcing funds from non-Banking


Reasons for Retail Banking …
15. Revival of Mutual Fund Market
16. Revitalising of Stock Market
17. Increase in Life Expectancy - health care
18. Increasing contribution to GDP from Services
Sector
19. Change in Govt policy of FDI in Banking
20. Thrust on Infrastructure Dev’ment by GOI
21. Opening up of Insurance Sector


Personal Loans : Growth in 5 years (A/cs in
Mns and Amt is Rs ‘000s Crs : CMIE Data)

A/cs Amt o/s A/cs Amt o/s
Details Mar 1997 Mar 1997 Mar Mar 2002
2002
Total 55.6 284.4 56.4 656.0
Loans
P Ls 11.4 28.0 17.6 82.5
Cons Ln 0.8 0.9 1.2 3.2
Hsg Lns 1.0 7.9 1.8 32.8
Others 9.6 19.2 14.6 46.5

Retail Portfolio Status as on
31st March 2004 (RBI Data)
S Retail Loan Amt o/s in % Gross % Net
No Particulars Rs Crs NPAs NPAs
1 Housing Loans 89,449 1.9 1.4
2 Consumer Loans 6,256 6.6 4.0
3 Credit Card dues 6,167 6.3 2.4
4 Other Per Loans 87,170 2.6 1.6
5 Total Retail Loans 1,89,041 2.5 1.6
6 Total Loans 8,59,092 7.4 2.8


Retail lending takes the lead !
(Ref: IIBF News dt Nov 30, 2004)
Adv’s (Rs Cr) Variation 2003-04 Variation ‘02-03
Retail Loans 41,811 26,188
of which Housing 15,394 12,308
Cons Durables 1,055 -111
NBFCs 2,675 4,399
Shares, Bonds.. 19 242
Real Estate .. -317 502
Other Personal 7,260 2,687
Against FDs 3,638 1,458
Tourism 841 266


Retail Portfolio of Banks
(Amt in Rs Crs) – T&P OF BKG IN INDIA 2005
S Item March March %Vari-
No 2004 2005 ation
01 Housing Loans 89,449 1,34,653 50.5
02 Consumer Loans 6,256 3,810 -39.1
03 Credit Card Dues 6,167 8,405 36.3
04 Other Per. Loans 87,170 1,20,120 37.8
05 Total Retail Lns 1,89,041 2,66,988 41.2
06 Total Loans 8,64,271 11,05,725 27.9
07 % of (5) out of (6) 21.9 24.1

Personal Loans : Rs in Crs
Particulars Oct 2006 Dec 2006 May 2007
Retail 3,98,055 4,27,909 4,55,439
Loans
Housing 2,09,468 2,17,829 2,30,751
Agst FDs 33,744 35,764 39,092
Cr Cards 11,870 11,913 14,221
Education 12,692 13,399 15,438
Con Dur’ble 9,291 8,558 8,831
Others 1,20,990 1,40446 1,47,106

Share of Select Instruments in Financial Savings
(Source: RBI)
Instruments 2005-06 2006-07
Currency 8.7 8.6
Bank Deposits 46.2 55.7
Equities / Debentures 1.3 1.4
Mutual Funds 3.6 4.8
Small Savings 12.2 4.9
Life Insurance 13.4 14.6
PF & Pension Funds 10.5 9.2


And now,

• Credit Cards • Payment of Utility Bills
• Mutual Funds • Auto-Sweep
• Sale of Gold • Rail Ticket Reservations
• Home Equity Loans • ECS, EFT, ATMs
• Reverse Mortgage Loans • Core Banking Facility
• Insurance Products • Demat Accounts
• Micro Finance • Internet Banking
• Finance to SMEs • Mobile/SMS Banking
• Wealth Management

Retail Portfolio of Banks
(Amt in Rs Crs) – T&P OF BKG IN INDIA 2008
S Item March 2007 March 2008 %Var’n
No

01 Housing Loans 2,24,481 2,52,932 12.7
02 Consumer Loans 7,296 4,802 -34.2
03 Credit Card Dues 18,317 27,437 49.8
04 Auto Loans 82,562 87,998 6.6
05 Other Per. Loans 1,55,204 1,97,879 27.5
06 Total Retail Loans 4,87,860 5,71,048 17.1
07 Total Loans 18,93,775 23,32,490 23.2
08 FinFest 2009 (6) out of (7) Meltdown n Retail Banking
MIM % of Global 25.8 24.5 84

No revival in Credit demand
(BS 8/8/2009)
Bank credit grew at unprecedented rates
during the 5 years upto 2008
So also India’s GDP
Overall credit grew at 27 per cent
Retail advances grew at 32 per cent
Credit growth declines in 2009 : 18%
Expected to grow at 12-14% in 2010
(CRISIL)

Retail Business Downtrend in Q1 of
2009 : BL dt August 09, 2009 (Rs Cr)
Some Public Sector Banks Profit from Total Profits :
Retail : 1,039 Rs. 10,540
1. State Bank of India - 1,034 4,116
2. Punjab National Bank 701 1,740
3. Bank of Baroda 198 1,520
4. Canara Bank 372 1,001
5. Bank of India 215 870
6. Union Bank 270 597
7. IDBI Bank 42 196
8. Corporation Bank 275 500

Some Private Sector Banks
Private Sector Banks Retail Profit / Loss Total Profit / Loss
- Rs in Crores - Rs in Crores
ICICI BANK -437 1,205

HDFC BANK 144 860

AXIS BANK -49 861

KOTAK BANK -19 127

TOTAL -361 3,053


Retail Segment share in profits
slips to 10% for top 8 Banks
• SBI, the leader posted highest – loss in Retail
• Profits from retail down from 69% last year
• Profits recorded from treasury and corporate
• Both SBI and ICICI recorded losses in retail
• Retail depositors paid high interest rates
• Defaults in retail portfolio loans increasing
• Lending avenues in corporate & retail slipping
• Substantial drop in fee income in distribution

BS 8/8/2009 contd………CRISIL
• Sharp decline expected in retail advances
• Growth in retail credit slowed sharply to
around 4 per cent in 2008-09 from a peak of
42 per cent in 2004-05
• Expected to revive, marginally, to 8 per cent in
2009-10 and to 13 per cent in 2010-11
• Housing Loans, Auto Loans – weak demand
• Sharp raise in delinquencies and recovery…

Thanks for your attention
Questions Please?

Prof Chowdari Prasad
TAPMI, Manipal
Off: 0820-2701045
Mobile: 09242124642
Email: chowdarip@tapmi.edu.in

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