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  • 8/9/2019 Banking Summary Presentation

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    Banking

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    Important banking terminologies? CRR, Bank Rate, Repo,

    Reverse Repo, BPLR, SLR,Capital Adequacy Ratio, ield,

    Spread, !PAs "#o$ it is calculated%, !et Pro&t 'argins

    "(o$ it is calculated%

    (o$ did India manage t#e global &nancial do$nturn o)

    *++-+.?

    /rends in Advances, 0eposits, Investments, !PAs and

    C0Rs, 1perational 23penditure and !et Pro&tability

    'argin

    Basel 4 !orms 5 Background and Impact

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    6lobal 7inancial 'elt-do$n "*++-+.%and India

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    Infation increased rom 7.7% in march 2008 to 12.8% in August 2008, highest in the preious !"# $ears. rude oi& increased c&ose to '1#0 per (arre&.

    )irst&$, India *as not great&$ a+ected (ecause our )ore

    eposure *ere &o*.-et parties did not a&&o* nancia& sector reorms in the

    ear&ier /A goernment.

    e did not a&& into su("prime crisis

    But sti&& *e *ere a+ected to some etent due to increase in

    crude oi& prices *hich increased the infation.

    In summary, $#en t#e &nancial do$n #it, &rstpriority $as to contain in8ation9

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    o reduce the infationar$ pressures, the 33 *as increased to4% during the same time a&most 8 to 10 times in 5ust !"#

    months.

    3epo rate *as a&so increased ($ 7# (ps to 8.# percent.

    Impact o) t#ese measures

    hese measures reduced the infation *hich (egan to drop rom6eptem(er 2008.

    But this a&so sucked out the &iuidit$ and the credit aai&a(i&it$,inestments and gro*th *ere seere&$ a+ected

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    7ISCAL S/I':L:S

    3BI (egan to reduce (oth 33 and 3epo (eginning romcto(er 2008.

    9I a&so announced sca& stimu&us in :ecem(er ;,2008 *hich inc&udeade home &oans (e&o* 3s. 2 mn as priorit$

    sector.

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    1vervie$ o) t#e Banking Sector

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    (o$ t#e players are classi&ed in t#e banking industry?

    )or a&& ana&$sis, (anking p&a$ers are c&assied into ? categ

    u(&ic sector (anks

    riate sector (anks

    )oreign (anks

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    1;2RALL 6R1

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    'AR=2/ S(AR2S

    'arket s#are o) PSBs #as increased )rom >4 in *++>-+to >> in *+@*-@4, $#iles t#e s#ares o) private and )oreignbanks #ave reduced9

    *++>-+ *+@*-@4

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    Analysis o) Advances

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    CDE IFD36 )3 AFA-E6IF9 A:GAFD6

    riorit$ sector &ending norms

    -ong"term and short"term trends in adances

    apita& ependiture o pro5ects assisted ($ nancia& institutions

    3eason or the trends in adances

    6hare o &ong"term and *orking capita& &oans

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    PRI1RI/ S2C/1R L2!0I!6 !1R'She priorit$ sectors comprises o agricu&ture, sma&&"sca&e

    industries @66I, education and housing.PSBs, private sector banks, )oreign banks$it# more t#an *+ branc#es 5

    )or this group, !0% o the adances shou&d (eor priorit$ sector &ending.

    his categor$ o (anks shou&d a&so adhere tosectora& targets *ithin the oera&& priorit$sector &ending. @&ike certain % or agricu&ture,certain % or sma&& sca&e industries etc

    7oreign banks $it# less t#an *+ branc#es 5)or this group, ?2% o the adances shou&d (eor priorit$ sector.his categor$ o (anks are not su(5ected toan$ sectora& targets *ithin the oera&& priorit$

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    L1!6-/2R' A!0 S(1R/-/2R'

    /R2!0 I! A0;A!C2S

    Advances gro$t# #as slo$ed do$n signi&cantly )rom*++-+> )or bot# public and private sector banks

    IIP

    !e$ loan sanctions #ave also decreased signi&cantly over

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    Capital e3penditure o) proects assisted by &nancial institut

    !e$ loan sanctions #ave also decreased signi&cantly overt#e past * years $it# companies postponing capitale3pansion plans

    (i # i l i # # i

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    R2AS1!S 71R SL1he adances gre* ($ more than ?1% in 200;"07he gro*th s&o*ed in the &ast e* $ears and especia&&$ in the

    &ast 1"2 $ears, the gro*th"rate o adances has s&o*ed do*n to

    1; to 18%.

    redit gro*th has strong &inkages *ith the oera&& econom$

    he s&o*"do*n is due to the monetar$ tightening ($ 3BI and

    s&o*"do*n in the credit o+"take across man$ sectors &ike

    Agricu&ture and a&&ied industries, inrastructure @ement, Iron and

    6tee&, e&ecom, eti&es, =ousing, Automo(i&es and ommercia&

    Gehic&es.

    (ig# interest rates, sluggis# economy $ere t#e main)actors )or slo$-do$n in advances9

    S#are o) long-term loans #as come do$n )rom o) t#e

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    1;2RALL BR2A=-:P 17 A0;A!C2S

    S#are o) long-term loans #as come do$n )rom o) t#etotal advances in *++>-+ to D n *+@*-@49

    6hare o &ong"term

    &oan has reduced due

    to s&o*"do*n in the

    econom$.

    6hare o short"term

    &oans is increasing due

    to increase de(tor

    da$s &eading to &ong

    *orking capita& c$c&e.

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    /2R' L1A!S A!0 S(1R/-/2R' L1A!S

    )ie $ears (ack, the share o term &oans *as around #8%

    and the remaining !2% *as *orking capita&.

    But current&$ it is #!% and !;% respectie&$ @#?% or

    term &oans, !7% or *orking capita&his is another indicator or the s&o*"do*n as the

    corporates are cur(ing their inestments.

    A&so corporates are &ooking at other aenues or

    inestments rather than &ong"term &oans

    S#are o) long-term loans )or private sector banks is D

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    BR2A=-:P 17 A0;A!C2S5 P:BLIC ;S PRI;A/2 BA!=S

    S#are o) long term loans )or private sector banks is D$#ile t#at o) private sector banks is *9

    P:BLIC S2C/1R BA!=S PRI;A/2 S2C/1R BA!=S

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    Analysis o) 0eposits

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    CDE IFD36 )3 AFA-E6IF9 :D6I6

    -ong"term and short"term gro*th in deposits

    era&& 6hare o di+erent t$pe o deposits

    Bank group *ise share o deposits

    osts o deposits

    0eposit gro$t# #as slo$ed do$n )rom t#e #ig# o) * in

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    /R2!0S I! 02P1SI/ 6R1 to about @ in t#e last )e$ years9

    02P1SI/S /R2!0S

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    02P1SI/S /R2!0S

    :uring the # $ear gro*th @200;"07 to 2010"11, adances

    gre* at a hea&th$ rate o a(out 20%.

    But it has dropped considera(&$ @to a(out 1#% (et*een

    2011"12 and 201?"1!.

    he main reason is due to &o* rea& interest rates and high

    infation, the customers are &ooking or other inestments

    @9o&d, 3ea&"estate, stock"markets, mutua& unds

    S#are o) current deposits #ave come do$n

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    1;2RALL S(AR2 17 0I772R2!/ /P2S 17 02P1SI/S

    ear

    /erm-0eposi

    ts Savings 0eposits

    Current0eposit

    s/ota

    l

    200;"

    07 ;!% 2?% 1?%

    100

    %

    2012"1? ;7% 2?% 10%

    100%

    S#are o) current deposits #ave come do$n

    S#are o) current deposits declined as corporates are

    increasingly pre)erring to invest in money market instruments

    suc# as liquid mutual )unds t#at oEer attractive returns over

    s#ort maturities, instead o) parking money in current accounts

    o) banks $#ic# earn no interest9

    Cost o) deposits #ave increased )or t#e banks due to

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    C1S/ 17 02P1SI/S

    Cost o) deposits #ave increased )or t#e banks due toreduction in CASA and deregulation o) interest )orSavings deposits

    Private and 7oreign banks #ave #ig#er CASA

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    PLA2R

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    PLA2R arketing e+orts o priate (anks

    some priate (anks reised their saings (ank deposit

    rates up*ard ater the deregu&ation o saings (ank

    interest rates ($ 3BI in cto(er 2011.

    )oreign (anks genera&&$ preer to cater to corporate

    c&ients *ith sound cash management, *ho maintain

    current deposits.

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    Analysis o) Investments

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    Investments

    Inestments ($ (anks a&& into t*o (road categories 1.#2 1.88 1.#1 2.7? ?.42

    !P' is #ig#est )or private and )oreign banks primarilybecause o) core )ee-based income

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    (o$ diEerent banks )are on !P'?riate sector and )oreign (anks hae much higher core ee"(asedincome *hich enhances their prota(i&it$.

    7oreign banks also #ave very #ig# spreads9 /#is is becauset#ey #ave #ig# s#are o) lo$ cost deposits "CASA%9 /#eygenerally cater to corporates $#o keep #ig#er current deposits9/#eir cost o) deposits $as about *++ bps lo$er t#an t#at o)nationaliGed banks9

    Core 7ee based income include5 7ees "Commissions or

    brokerage income% )or letter o) credit, providing guaranteesetc, 7ees )rom credit cards, 7ees )rom )ore3 transactionsand Pro&t on sale o) investments

    In continuation o past trends, oreign (anks had the highestproportion o other income in tota& income.A g&o(a& presence has ena(&ed oreign (anks to dominate themarket or ore and trade nance transactions. 6$ndicationprocessing ees earned on oreign currenc$ &oans a&so he&psoreign (anks (oost their core ee income.n the other hand, or nationa&ised (anks, the share o other

    R1A #as been reducing )or Public Sector Banks primarilydue to rising !PAs and restructured assets9

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    R2/:R! 1! ASS2/S

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    Basel 4 !orms

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    BAC=6R1:!0Base& ? norms has (een dee&oped to aoid 2008 &ike nancia&

    (reakdo*n in the uture. It is a saeguards (ackup p&an or the

    (anking sector.It proides internationa&&$ accepted detai&ed guide&ines a(out

    ho* much mone$ shou&d a (ank keep aside, to dea& *ith

    nancia& crisis.

    he o(5ectie is een i there is &ot o deau&ters, Bank shou&d

    hae mone$ to gie (ack to depositors.he ma5or pro(&ems that &ed to 2008 crisis *ere

    =igh de(t

    -o* ua&it$ o capita& (ase

    InsuKcient &iuidit$

    Base& III proposes man$ ne* capita&, &eerage, and &iuidit$

    standards

    Implementation o) Basel 4 norms $ill be )rom

    *+@4 to *[email protected] "t#oug# in India, RBI #as given a

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    A3 N @ier 1 capita& ier 2 capita&@3isk *eighted assets/ier @ capital "Core capital%5>ore &iuid @or eamp&e, paid up

    capita&, ree reseres, statutor$ reseres, currenc$ notes, stocks

    etco/ier * capital "subordinate capital%5&ess &iuid @(ui&ding or

    &and o*ned ($ the (ank, FAs, -ong"term unsecured &oans etc

    Risk $eig#ted assets 5

    he$ are used to ca&cu&ate a (ankOs minimum capita&

    reuirements.

    )or (anks, risk"*eighted assets are assets *ith specia&

    risks.

    )or eamp&e, a &oan secured ($ a &etter o credit *ou&d (e

    *eighted as riskier than a mortgage &oan that is secured

    *ith co&&atera&

    A goernment (onds *ith higher rating @oer AA" are

    *eighted as Jero percent, *hereas corporate &oans *ith the

    =ey Basel 4 norms are #ig#er capital, #ig#er /ier @ capital andadditional equity in t#e )orm CCB

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    =2 BAS2L 4 !1R'S

    ase norms $ pr mar y mpact s as t ey $ ave tobring in more capital and #ence t#eir R12 $ill come do$n byabout 4++ to D++ bps9

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    I'PAC/ 17 BAS2L 4 !1R'S

    Banks *i&& hae to raise signicant additiona& capita& @3s. 2.7 tn oier 1 capita& to meet the ne* norms.

    6Bs *i&& hae to raise 40% o it as priate (anks are haing

    comorta(&e &ee&s o tier"1 capita&.

    he stipu&ated norms can (e met on&$ *ith the support o the

    9oernment o India @9oI through capita& inusion.

    Capital e3pansion to aEect Ro2 o) PSBs

    As a ma5or portion o the additiona& ier"I capita& *i&& (e raised ($

    pu(&ic sector (anks in the orm o euit$, their aerage return on

    euit$ @3oD is epected to a&& ($ ?00"!00 (ps

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    !e$ Banking Licenses

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    BAC=6R1:!03BI announced that it *i&& issue ne* (anking &icenses and

    inited app&ications.

    era&& it receied 2; app&ications or ne* (anking &icense.

    he ne* &icenses *i&& (e issued ater a (ig gap.

    Fine &icences *ere issued in 144?"4!

    In the ear&$ 2000s, 2 (anks *ere gien &icences @Cotak

    >ahindra Bank and Ees Bank

    he app&icants inc&ude Bir&a, 3e&iance, 6hriram, India ost

    etc.

    3BI has so ar gien &icences to 2 entities" I:) and Bandhan

    )inancia& 6erices.

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    ahindra Bank < perating independent&$

    Ees Bank< perating independent&$

    9&o(a& rust Bank< Acuired ($ rienta& Bank o ommerce

    enturion Bank< Acuired ($ =:)

    Bank o un5a( < Acuired ($ =:) imes Bank< Acuired ($ =:)

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    =ey !orms )or ne$ banks

    >inimum apita& < 3s. #00 crores

    2#% (ranches in rura& areas and un"(anked centers

    !0% adances to priorit$ sector

    >aintain 336-3 norms rom da$ 1

    6pecic corporate goernance norms

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    =ey !orms )or ne$ bankshe a(oe norms are stringent especia&&$ 2#% (ranches inrura& areas and un(anked centers asan$ FB)s do not hae (ranches in rura& areas. he$serice them through agents or ustomer re&ationship

    associates