“A WORKSHOP ON

PERSPECTIVES OF ECONOMIC
MELTDOWN:
CRISES & CHALLENGES”
AT THE FIN-FEST 2009
OF MANIPAL INSTITUTE OF
MANAGEMENT
ON 4THMELTDOWN
“GLOBAL SEPT, 2009
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
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
MIM FinFest 2009 Global Meltdown n Retail Banking 3
 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.

MIM FinFest 2009 Global Meltdown n Retail Banking 4

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.
MIM FinFest 2009 Global Meltdown n Retail Banking 5
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.
MIM FinFest 2009 Global Meltdown n Retail Banking 6
 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.

MIM FinFest 2009 Global Meltdown n Retail Banking 7

• 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.

MIM FinFest 2009 Global Meltdown n Retail Banking 8

MIM FinFest 2009 Global Meltdown n Retail Banking 9
MIM FinFest 2009 Global Meltdown n Retail Banking 10
Five Year Plans in India
• I Plan (1951 - 1956)• VI Plan (1980 –
• II Plan (1956 - 1961) 1985)
• III Plan (1961 – 1966) • VII Plan (1985 –
• 1990)
Plan Holiday 1966-
69 • Break 1990 - 1992
• IV Plan (1969 – 1974) • VIII Plan (1992 –
• V Plan (1974 – 1979) 1997)
• • IX Plan (1997 –
Global Break
Meltdown n 1979 - 1980
Retail Banking
11
2002) MIM FinFest 2009
 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
MIM FinFest 2009 Global Meltdown n Retail Banking 12
 Growth of GDP and major
Sectors
(% per year)

Global Meltdown n
13 MIM FinFest 2009
Retail 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
MIM FinFest 2009 Global Meltdown n Retail Banking 14
 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 real cause of
Meltdown n Retail Banking 15
 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 Global Meltdown n Retail Banking 16
 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
MIM
concentrated
FinFest 2009
in some sectors
Global Meltdown n Retail Banking 17
 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.

MIM FinFest 2009 Global Meltdown n Retail Banking 18

 Sensex: Halved by Crisis

MIM FinFest 2009 Global Meltdown n Retail Banking 19

 Rupee Value

1/12/200
8
50.1
MIM FinFest 2009 Global Meltdown n Retail Banking 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

• 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
Actual % of % of
BE FY s Actuals Actuals
08 till to BE FY to BE FY
Dec. 09 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 % growth in December

2007 ($) 2008 ($)
Export 20.85 - 1.1
s
Import 24.26 8.8
s
FUNDS FLOW TO INDIA SHRINKS Rs.94,000 CRORE

2007-08 2008-09

Credit by commercial banks (A) ($bn)

50 ($bn)
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 8.6 2.9

ECB entities 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
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

Sensex % BSE mkt cap

Diwali Day Change
close change (Rs. Cr)

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

Nov. 9,
19,059 50 6,245,945 2,984,939
2007
Oct. 21,
12,709 61 3,261,006 1,208,448
2006
Nov. 1,
7,892 33 2,052,561 899,642
2005
Nov. 12,
5,954 25 1,452,919 501,102
2004
Oct. 28,
4,757 61 951,817 412,557
2003

• 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
under pressure
maturity plans
The mutual fund industry is
Joydeep Ghosh
and not&just
Sidhartha K / Mumbai October 8,
from falling markets. Fixed
maturity plans (FMPs),
which have garnered Rs
102,133 crore of average
assets under management
(AAUM), are facing the
prospect of rising defaults
on their investments in real
estate and non-banking
financial companies
(NBFCs). This implies that if
there are redemption
pressures from their
corporate and retail clients,
these FMPs would have to
raise cash from other
resources to meet the
demand.
FMPs contribute almost 19
per cent to the Rs 5.29 lakh
crore average assets of the
industry. Though mutual
funds have turned cautious
about investing in these
sectors since early 2008,
the fear is that the money
that has already been
invested could be in for
some trouble in terms of
payment delays.
Sources said some of the
leading real estate schemes to avoid paying their
companies have defaulted
According to senior banking
sources, a large fund recently
had to borrow on the call
money market at over 20 per
cent to meet redemption
pressures. Last month,
medium-sized fund faced the head of a financial would
redemption pressure on its FMP
from high net worth individuals,
when it was declared that the
company was being taken over.
“When investors are willing to
even shell out 2 per cent as exit
load to redeem, it becomes
very difficult for us,” said a fund
manager. Many others have
resorted to rolling over
clients.
Mutual funds, on their part, said
WHAT ARE FMPs?
FMPs are funds
2008, 0:22 IST
in which
investors park their funds for one A senior executive in the
– BUSINESS STANDARD
to six months, sometimes for industry claimed that around
more than a year. These plans
10 to 15 per cent money of
invest in corporate bonds, bank
deposits and commercial papers. the total AAUM has been
The longer tenure is offered to invested in real estate and
take advantage of double NBFC papers. Over the last
indexation benefits.
two years, the real estate
This implies that if someone
invests in an FMP for 13 months, sector was offering 1-2 per
say, between March 2008 and cent higher yield than the
April 2009, his capital gains will market, luring many fund
get indexation benefit for 2007-
managers to invest almost
2008 and 2009-2010. So his tax
liability would go down 60 to 70 per cent of their
substantially. That is why retail corpus in them.
investors prefer to invest in the In fact, for the past eight to
longer- term FMPs. The shorter-
ten months, most fund
term ones cater to the needs of
corporate clients. Market experts managers have stayed away
say retail investors contribute 20 from these papers. Some
“There may be isolated
to 30 per cent of the AAUM.
instances but the overall like UTI Mutual Fund stopped
system is sound,” said the investing in them since
head of a fund house. December 2007 and Kotak
Though the industry has not Mutual Fund even declared
seen any pressure from in the offer documents of
a corporate clients as of now, some of their FMPs that they
not have any
conglomerate said there have
exposure to real estate and
been some withdrawals by
companies in the last few
NBFCs.
weeks to meet their Another important
immediate liquidity needs. development in the recent
Over the last fortnight, the months has been that all
liquidity in the market has fund houses have started
been tight as companies had declaring their FMP
to pay advance tax and there portfolios
to investors.
were large borrowings by Earlier, only a few leading
cash-strapped oil and fertiliser
funds would do so.
companies. As a result, banks
The threat of exit of large
 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 924.38 890.16 838.14 994.18 -49.08
Profit
Profit 665.10 698.05 345.09 358.01 -419.15
Before
NetTax
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 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 5-
6 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 Chennai-
based 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 Job loss (in
lacs)
Construction workers 10
Small scale industries/workshops 25
Labour-oriented export 25
Service sector, financial services, large retailers, 20
hospitality, tourism, transport
Contract/casual workers of big industries 10
Job loss/partial loss/income loss to tempo, 25
autoriskshaw, tea vendors, hamals, etc.
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 Global Meltdown n Retail Banking 71
 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 Global Meltdown n Retail Banking 72
 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 Global Meltdown n Retail Banking 73
 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
MIM FinFest 2009 Global Meltdown n Retail Banking 74
 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

MIM FinFest 2009 Global Meltdown n Retail Banking 75

 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

MIM FinFest 2009 Global Meltdown n Retail Banking 76

 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
MIM FinFest 2009 Global Meltdown n Retail Banking 77
 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
MIM FinFest 2009 Global Meltdown n Retail Banking 78
 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

MIM FinFest 2009 Global Meltdown n Retail Banking 79

MIM FinFest 2009 Global Meltdown n Retail Banking 80
MIM FinFest 2009 Global Meltdown n Retail Banking 81
MIM FinFest 2009 Global Meltdown n Retail Banking 82
 And now,

• Credit Cards • Payment of Utility

• Mutual Funds Bills
• • Auto-Sweep
Sale of Gold
• • Rail Ticket
Home Equity Loans
Reservations
• Reverse Mortgage
• ECS, EFT, ATMs
Loans
• Insurance Products • Core Banking Facility
• Micro Finance • Demat Accounts
• Finance to SMEs • Internet Banking
• Mobile/SMS Banking
MIM FinFest 2009
• Wealth Management
Global Meltdown n Retail Banking 83
 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
08MIM FinFest
% of (6) out of Global
2009 (7) Meltdown n Retail
25.8 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 Global Meltdown n Retail Banking 85
 Retail Business Downtrend in
Q1 of 2009 : BL dt August 09,
2009 (Rs Cr)
Some Public Sector Profit Total
Banks from Profits :
1. State Bank of India Retail
- 1,034: Rs.
4,116
1,039 10,540
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
MIM FinFest 2009 Global Meltdown n Retail Banking 86
 Some Private Sector Banks
Private Sector Retail Profit / Total Profit /
Banks Loss Loss
ICICI BANK - Rs in Crores
-437 - Rs 1,205
in Crores

HDFC BANK 144 860

AXIS BANK -49 861

KOTAK BANK -19 127

TOTAL -361 3,053

MIM FinFest 2009 Global Meltdown n Retail Banking 87

 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
MIM FinFest 2009 Global Meltdown n Retail Banking 88
rates
 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
MIM FinFest 2009 Global Meltdown n Retail Banking 89
 Thanks for your
attention
Questions Please?

Prof Chowdari Prasad

TAPMI, Manipal
Off: 0820-2701045
Mobile: 09242124642
Email:
chowdarip@tapmi.edu.in
MIM FinFest 2009 Global Meltdown n Retail Banking 90