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 “GLOBAL AND ON 4THMELTDOWN SEPT, 2009 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 MIM FinFest 2009

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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 MIM FinFest 2009

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Timeline of key events over the period

7th Sep 2008

Two US mortgage finance agencies (Fannie Mae and Freddie Mac) are taken into conservatorship.

18th Sep UK Bank HBOS announces its merger with rival Lloyds TSB; Central bank measures address the squeeze in US Dollar funding with $160 2008 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 insurance company Fortis receives a $16 (€11.2) billion capital injection; 2008 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 Irish government announces a guarantee safeguarding all deposits, 2008 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. MIM FinFest 2009

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3rd Oct 2008

The US Congress approves the revised TARP Plan.

8th Oct 2008

Major Central Banks undertake a coordinated round of policy rate 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 2008

Major Central Banks jointly announce measures to improve liquidity 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 2008

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

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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.

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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.

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•

Till late 1990s banks were prohibited from engaging in sharebroking 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.

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Five Year Plans in India • • • •

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

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 + selfreliance Quasi Marxist strategy undermined by agrarian power Crisis of planning in Late 1960s = Green MIM FinFest 2009 Global Meltdown n Retail Banking 12 Revolution

Growth of GDP and major Sectors (% per year)

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MIM FinFest 2009

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

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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 MIM FinFest 2009 Global intensity Meltdown n Retail Banking 15 real cause of

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 MIM FinFest 2009

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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. MIM FinFest 2009 Global Meltdown n Retail Banking  Growth concentrated in some sectors

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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 buyback 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. MIM FinFest 2009

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Sensex: Halved by Crisis

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Rupee Value

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20

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 • • • • closure • Closure • • • •

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 Several Large Industries have declared Closure /Partial e.g.: Tata Motors • Thyseeankurup Industries Ford Motors • Kirloskar Brothers Bharat Forge •

Tata Yazaki • Bosch 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

Excise duty

10671

Actual s till Dec. 9017

Customs duty

8175

7399

74455

82741

-9.5

Service tax

4414

4254

31420

39416

-3.6

Total

23260

20670

181360

199265

-11.1

BE FY 08

% of Actuals to BE FY 09 75485

77108

% of Actuals to BE FY 08 -15.5

FISCAL DEFICIT UP

BE FY 08

Actuals till Dec.

% of Actuals % of Actuals 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

Export s Import s

% growth in December 2007 ($) 20.85

% growth in December 2008 ($) - 1.1

24.26

8.8

FUNDS FLOW TO INDIA SHRINKS Rs.94,000 CRORE 2007-08 Credit by commercial banks (A) Flow from other major sources (B)

($bn) 50

2008-09 ($bn) 63.7

68.4

41.6

Public issues by non-financial entities

8.6

2.9

Gross private placements by non-finance

8.6

2.9

ECB entities

15.7

12.6

Short-term credit from abroad

10.4

8.3

4.8

3.8

FDI

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

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 Diwali Day Oct 28,2008 Nov. 9, 2007 Oct. 21, 2006 Nov. 1, 2005 Nov. 12, 2004 Oct. 28, 2003 •

Sensex close

% change

BSE mkt cap (Rs. Cr)

Change

8,510

-55

2,651,933

-3,594,012

19,059

50

6,245,945

2,984,939

12,709

61

3,261,006

1,208,448

7,892

33

2,052,561

899,642

5,954

25

1,452,919

501,102

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 UTI MNC

RETURNS*(IN%) -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 Plan

Premium

Investment

Value on

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 WHAT ARE FMPs?

FMPs are funds in which The mutual fund industry is investors park their funds for one A senior executive in the Joydeep Ghosh &just Sidhartha K / Mumbai October 8, 2008, 0:22 IST – BUSINESS STANDARD under pressure and not to six months, sometimes for industry claimed that around from falling markets. Fixed more than a year. These plans 10 to 15 per cent money of invest in corporate bonds, bank maturity plans (FMPs), deposits and commercial papers. the total AAUM has been which have garnered Rs The longer tenure is offered to invested in real estate and 102,133 crore of average take advantage of double NBFC papers. Over the last assets under management indexation benefits. two years, the real estate This implies that if someone (AAUM), are facing the invests in an FMP for 13 months, sector was offering 1-2 per prospect of rising defaults say, between March 2008 and cent higher yield than the on their investments in real April 2009, his capital gains will market, luring many fund estate and non-banking get indexation benefit for 2007managers to invest almost 2008 and 2009-2010. So his tax financial companies liability would go down 60 to 70 per cent of their (NBFCs). This implies that if substantially. That is why retail corpus in them. there are redemption investors prefer to invest in the In fact, for the past eight to pressures from their longer- term FMPs. The shorterten months, most fund term ones cater to the needs of corporate and retail clients, managers have stayed away corporate clients. Market experts these FMPs would have to say retail investors contribute 20 from these papers. Some “There may be isolated raise cash from other to 30 per cent of the AAUM. According to senior banking instances but the overall like UTI Mutual Fund stopped resources to meet the sources, a large fund recently system is sound,” said the investing in them since demand. had to borrow on the call December 2007 and Kotak head of a fund house. FMPs contribute almost 19 money market at over 20 per Though the industry has not Mutual Fund even declared per cent to the Rs 5.29 lakh cent to meet redemption seen any pressure from in the offer documents of crore average assets of the pressures. Last month, a corporate clients as of now, some of their FMPs that they medium-sized fund faced industry. Though mutual the head of a financial would not have any redemption pressure on its FMP funds have turned cautious conglomerate said there have exposure to real estate and from high net worth individuals, about investing in these been some withdrawals by NBFCs. when it was declared that the companies in the last few sectors since early 2008, company was being taken over. important weeks to meet their Another the fear is that the money “When investors are willing to development in the recent immediate liquidity needs. that has already been even shell out 2 per cent as exit Over the last fortnight, the months has been that all invested could be in for load to redeem, it becomes liquidity in the market has fund houses have started some trouble in terms of very difficult for us,” said a fund been tight as companies had declaring their FMP payment delays. manager. Many others have to pay advance tax and there portfolios to investors. resorted to rolling over Sources said some of the were large borrowings by Earlier, only a few leading schemes to avoid paying their leading real estate cash-strapped oil and fertiliser funds would do so. clients. companies have defaulted companies. As a result, banks The threat of exit of large Mutual funds, on their part, said

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 Turnover

7,251.83

8,749.52

6,928.44

7,078.85

4,758.62

Other Income

91.81

234.34

315.61

429.28

99.51

Gross Profit Profit

924.38

890.16

838.14

994.18

-49.08

665.10

698.05

345.09

358.01

-419.15

499.05

536.27

326.11

346.99

-263.26

Before NetTax Profit

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 3000crore 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 technology (IT) firms such as Tata Consultancy Services (TCS), Satyam Computer and Polaris could feel the heat if Citigroup decides to sell part of its business or look for partners to tide over its losses. Analysts feel TCS’ revenue might have an impact as Citi has signed an assured revenue agreement of $2.5 billion (Rs 12,500 crore) for a period of over nine years. This was the part of the $505 million acquisition of Citigroup Global Services (CGSL) — the business process outsourcing (BPO) arm of Citigroup — by TCS a few months back. When contacted, a TCS spokesperson said, “TCS announced its intention to acquire Citigroup Global Services in October and the transaction is proceeding as per the terms of the agreement in a planned manner.

Our agreement with Citigroup adequately addresses our interests in case of a sale or merger of the bank.” However, analysts are not convinced. Citi is a $300 million account for TCS. With the acquisition of CGSL, Citi not only catapults itself as the largest client for the IT giant but also means an account size of half abillion. Experts point out that Citi would easily account for around 56 per cent of the IT giant’s revenue. “Whenever the ownership of a company changes, all the contracts and deals come under the review of the new owner. So,

in case Citi has a change of owners, we assume even the $2.5 billion contract will also come under review. It’s too early to predict anything. But there are chances of price negotiations,” said another deal tracker. Analysts said they are hoping that TCS has made no upfront payment. “However, we think TCS would have structured the deal accordingly and would have built such a scenario into the contract,” they said. TCS is not the only IT firm. Satyam, India’s fourth largest IT firm might also be impacted as Citi is part of its top 10 clients.

Polaris is another firm that may be in a spot if Citi sells some of its business units. “Citi does source some work to Polaris as well. But the biggest impact would be if Citi sells its stake in Polaris, which is over 40 per cent,” said an analyst. Citigroup holds 22.88 per cent in Chennaibased Polaris and an additional 20.45 per cent through its wholly-owned subsidiary, Orbitech. The rumours on Citigroup led to changes in share prices of the Indian IT companies in different ways. While the TCS stock price went up by 7.8 per cent to close at Rs 506 on Friday, Satyam was up 3.08 per cent. However, Polaris was down by 0.52 per cent on buzz that Citi might sell its stake in the company. TCS, Satyam and Polaris are likely to be impacted by the change of fortunes of Citigroup

“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 Construction workers

Job loss (in lacs) 10

Small scale industries/workshops

25

Labour-oriented export

25

Service sector, financial services, large retailers, hospitality, tourism, transport

20

Contract/casual workers of big industries

10

Job loss/partial loss/income loss to tempo, autoriskshaw, tea vendors, hamals, etc.

25

Total job loss/income loss in all

1.15 crore

of Retail Banking in 1. Introduction India 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 MIM FinFest 2009

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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 MIM FinFest 2009

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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 MIM FinFest 2009

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

CMIE Data) A/cs Amt o/s A/cs Mar 1997 Mar 1997 Mar 2002

Amt o/s Mar 2002

Total Loans

55.6

284.4

56.4

656.0

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

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S No

Retail Portfolio Status as on 31st March 2004 (RBI Data) Retail Loan Particulars

Amt o/s in % Gross Rs Crs NPAs

% Net 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

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Retail lending takes the lead ! (Ref: IIBF News dt Nov 30, 2004) Adv’s (Rs Cr) Retail Loans

Variation 2003-04 Variation ‘02-03 41,811

26,188

15,394

12,308

Cons Durables

1,055

-111

NBFCs

2,675

4,399

19

242

Real Estate ..

-317

502

Other Personal

7,260

2,687

Against FDs

3,638

1,458

841

266

of which Housing

Shares, Bonds..

Tourism MIM FinFest 2009

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Retail Portfolio of Banks S No

(Amt in Rs Crs) – T&P OF BKG IN INDIA 2005 Item

March 2004

01 Housing Loans

March 2005

%Variation

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) MIM FinFest 2009

21.9

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24.1

77

Personal Loans Particulars Retail Loans Housing

:

Crs Oct 2006 Dec 2006

Rs in May 2007

3,98,055

4,27,909

4,55,439

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

9,291

8,558

8,831

1,20,990

1,40446

1,47,106

Con Dur’ble Others MIM FinFest 2009

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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

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And now, • • • • •

• Payment of Utility Bills • Auto-Sweep • Rail Ticket Reservations • ECS, EFT, ATMs • Core Banking Facility • Demat Accounts • Internet Banking • Mobile/SMS Banking Global Meltdown n Retail Banking 83 • Wealth Management

Credit Cards Mutual Funds Sale of Gold Home Equity Loans Reverse Mortgage Loans • Insurance Products • Micro Finance • Finance to SMEs MIM FinFest 2009

Retail Portfolio of Banks S No

(Amt in Rs Crs) – T&P OF BKG IN INDIA 2008 Item

01 Housing Loans

March 2007

March 2008

%Var’n

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 05 Other Per. Loans 06 Total Retail Loans

82,562 1,55,204 4,87,860

87,998 1,97,879 5,71,048

6.6 27.5 17.1

18,93,775 23,32,490

23.2

07 Total Loans

08MIM FinFest % of (6) out of Global (7) Meltdown n Retail 25.8 2009 Banking

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) MIM FinFest 2009

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Retail Business Downtrend in Q1 of 2009 : BL dt August 09, 2009 (Rs Cr)

Some Public Sector Banks 1. State Bank of India

Profit from Retail - 1,034: 1,039 701

Total Profits : Rs. 4,116 10,540 1,740

3. Bank of Baroda

198

1,520

4. Canara Bank

372

1,001

5. Bank of India

215

870

6. Union Bank 7. IDBI Bank

270 42

597 196

275

500

2. Punjab National Bank

8. Corporation Bank MIM FinFest 2009

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Some Private Sector Banks Private Sector Banks ICICI BANK

Retail Profit / Loss - Rs in Crores -437

Total Profit / Loss - Rs 1,205 in Crores

HDFC BANK

144

860

AXIS BANK

-49

861

KOTAK BANK

-19

127

-361

3,053

TOTAL MIM FinFest 2009

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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

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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

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Thanks for your attention Questions Please? Prof Chowdari Prasad TAPMI, Manipal Off: 0820-2701045 Mobile: 09242124642 Email: [email protected]

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