INDIAN BANKS DURING RECESSION AnshitaGupta Katya Cordeiro Gia D’cunha JimcyDaniel Roll no – 10 Roll no - 20 Roll no – 30 Roll no - 40

SCHEDULE BANKS • Included in the second schedule of the RBI act of 1934. • Have to fill 2 condition s: – Paid up capital and collected funds of banks should not be less than Rs. 5 la cs. – Any activity of the bank will not adversely affect the interest of depositor s. E.g. SBI, ICICI, ING Vyasa, • Divided into two: – Commercial banks – Co-operative banks

COMMERCIAL BANKS • Provides: – Checking accounts – Savings accounts – Safe deposit boxes – Currency exchang e – Term loans – E.g. Canara bank, ICICI, HSBC etc

small scale industries • Sources of funds: – C entral and State government. • Finance agriculture based activities. • Perform all the main function of banking. – Ownership fund s – Deposits or debenture issues • Intra sectoral competition is absent. – RBI – Other co-operative institutions. no profit basis. .Co-operative Banks • Function on no loss.

Urban Bank Ltd. Ahmedabad Mercantile Co-op Bank Ltd. • Charminar Co-op.Continued… • Co-operatives banks are divided into two: – Urban Co-operatives – State Co-operative s • E.g. .

• Upcoming Foreign banks – Switzerland’s UBS – US based GE capital – Credit Suisse Group – Industrial and commercial bank of China .Foreign banks • Allowed to set up their subsidiaries.

Regional Rural banks • Established in rural areas. . • SBI has 30 rural banks • Till date 14.475 rural banks in India out of which 91% are located in rural area.

83% of net profit in the last quarter.810 crore in the Decem ber 2008 quarter compared to 7212 crore last year.Private and public sector banks • 43.66 crore. ICICI and HDFC reported 40 per cent plus growth in the net p rofits. an increase of 52 per cent. • SBI had reported a n et profit of Rs 3. • State Bank of India. • PSU banks recorded a combined net profit of Rs 10.713. December 2008.519 crore. Pu njab National Bank. . • Private-sector banks posted a net profit of Rs 3.185 crore compared with Rs 2.

• Increased the credit limit. • Banks are a cheaper source of credit. • All other sources of income have dried up.Reasons for the growth • Prudent measures taken by RBI. .


• While banks traditionally have higher leverage than other businesses. and that interest rates won’t fall). countries where banks either avoided. or were barred from investing in difficult-to-value derivatives. and consequently did not leverage excessively. have been left relat ively unscathed.Has India been hit by he crisis??? • Excessive leverage (too much debt compared to equity) is the common culprit in a ll financial market crashes – be it in 1929 (leverage by investment trusts) or 198 7 and 1994 (leverage through collateralised debt and mortgage obligations and ju nk bonds) or 1998 (excessive leverage by LTCM and other hedge funds) or 2001 (le veraged bets on dotcoms) or 2008 (worldwide leveraged bets that US housing price s would not go down. In .

• ICICI Bank s overseas operations has reported market to market losses of $264.060 crore) on account of its exposure to credit derivatives and i nvestments as on January 31. 2008 • This could wipe off up to 9% of this year’s profit for ICICI • ICICI and its subsidiaries abroad have an aggregate exposure of $2.2 billion in credit derivatives. • Other banks like the Axis bank. SBI and Bank of Baroda also have such exposures   .34 million (Rs 1.

• • But its not a crisis for Indian banks as none of the banks have direct exposure to subprime loans • It is just a one time profit issue which they can easily finance this through th eir equity • • Only $1 billion out of India s total banking assets of more than $500 billion sl ipped into toxic assets or related investments.• ICICI Bank has the maximum exposure followed by Bank of India’s $750 million and B ank of Baroda’s $311 million and Axis Bank’s $150 million. Indian banks had at most a few   . When the crisis came and financi al institutions around the world found themselves writing off almost $1 trillion in assets from their books.

`09 was Rs. 86. And it has revised the reverse repo rate at least thrice.091 crore–as per RBI data– was sharply lower than that of Rs. 2008 and February 13. pushed up the cost of funds for business and hampered growth • • Since mid-September. 8.978 c rore in the corresponding period of the previous year. • Massive liquidity tightening by the Reserve Bank of India (RBI) in early and mid part of 2008. the RBI has reduced the repo rate about five times–from 9 to 5%.Problems faced by Indian Banks….5% • • Domestic banking is still generally secure especially because nationalized banki ng remains the core of the system . from 6 to 3. • Credit expansion during the period between December 19. .

In June 2008.803 million (Rs. • The bank’s capital adequacy ratio has come down to 12. • • There has been a steady decrease in the foreign exchange reserves held by RBI af ter June 2008.68 percent last quarter from percent in the corresponding period the previous year.98.1 billion the previous year.62 billion for the period under review from Rs.136 crore was lower than Rs 6.80.35 1 crore during the corresponding period of the last fiscal. we had $320 bn which has now decreased to $250bn in .5.3 crore) from Rs. the net NPA went up to Rs. • • While the gross non-performing assets (NPA) went down to Rs.778 crore).• The total flow of resources to the commercial sector from banks and non-banks du ring fiscal 2008-09–up to February 13–at Rs 4.778 million (Rs.

there has not been a commensurate reduction in lending rates by banks as fears of rising bad loans have made them cautious in increasing advances/lending • • Also commercial banks continue to refuse to fire up demand in the system • • Due to the banks not lending. automobile and SME’s. The banks who have . the sectors worst affected are realty. • • Given a situation where the FIIs are still in exit mode and trade at an all time low.• Despite a steep cut in policy rates by Reserve Bank of India (RBI) since October 2008. only bank lending has to take the lead to rev up the economy. • • Majority of the banks have pulled out completely from FII’s except for DeutcheBank and Citigroup.

(BBB-/A-3) -.Axis Bank (BBB-/A-3) -.Indian Bank (BBB-/A-3) -.Indian Overseas Bank (BBB-/A-3) -.S&P Ratings….IDBI Bank Ltd.!!!!! • Standard & Poor s Ratings Services said that it had revised the outlook on the c ounterparty credit ratings for the following Indian banks to negative from stabl e due to cut in Indian sovereign credit outlook -.State Bank of India (BBB-/A-3) -.ICICI Bank Ltd.Bank of Baroda (BBB-/A-3) -.HDFC Bank Ltd.Canara Bank (BBB-/A-3) -. (BBB-/A-3) -. (BBB/A-3) -.Bank of India (BBB-/A-3) -.Union Bank of India (BBB-/A-3)   ..Syndicate Bank (BBB-/A-3) .

including the bank s ability to service forei gn currency obligations • This belief stems from the following factors: (1) Banks in India are y invest a significant rtion of their revenue nks are majority owned subject to policy and regulation by the government (2)The portion of funds in government securities (3)A high propo streams emanate from India (4)A large number of Indian ba by the     .• The rating agency maintained its “BBB-” long-term and “A-3” short-term credit ratings fo r India. Both these ratings are at the lowest rung of the so-called investment g rade. • • This is due to the direct and indirect influence that the sovereign in distress would have on a bank s operations.

from 5.. India’s fiscal position has deteriorated to a level that is unsustainable in th e medium term. • • The revision (in S&P’s outlook) will have no major impact on corporate borrowing • It may raise overseas borrowings costs by 50 basis points and lead to a further depreciation of the rupee (One basis point is one-hundredth of a .4% (of gross domestic pro duct) in the fiscal year ending March 31. 2009.• “. to increase to 11. including off budget measur es such as oil and fertilizer bonds.7% in the previous fiscal year.. We expect general government deficit.” an S&P release said.


5% CRR:5% SLR: 24% • Prompts other banks to cut interest rates.RBI The main tool in the hands of the RBI is the monetary policy and the 3 quantitat ive measures are: 1) Raising or reducing Bank Rates 2) Open Market Operations 3) Variable Reserve Ratio Repo rate: 5% Reverse Repo: 3. • RBI is to formulate separate policy f or auto loan .

€Eg: Canara Bank • .General steps followed by banks • Softening Home loan interest rates: liquidity in realty sector. • €to attract customers banks are waiving off the processing fees. • Cut in auto loan interest rates • Initially most banks only provided benefits to new loan takers n ow banks are trying to restructure old loans as well.

State • SBI which cheme r Bank Of India has emerged as the most hostile player by announcing a special scheme under new home loan borrowers are being offered an 8% rate.( Happy Home Offer) • S is open till April 2009 • Froze interest rate on auto loans at 10% for a yea .

25 % 6th -20th year.fixed rate-8.25% 2nd -5th year. the bank will charge 50 basis points more .9. For loans <Rs30 lakhs 1st year.200bps below the then prevailing BPLR For loans of Rs 30 -99 l akhs.Canara Bank Allows transfer of loans decided to fix loan rates for 20 years by applying diff erent rates to varying slabs.fixed rate.

• The bank has fixed a floor rate of 10% for the period from sixth to the twentiet h year.€ • The scheme is available till December 2009 • • The bank has also lowered auto loan rates from 12% to 11% .

HDFC • HDFC has reduced home loan rates by as much as 150 basis points following a redu ction in its cost of€funds.75% > 30 lakhs .75% 10.30 lakhs Interest Rates€ 9.75% 9. Loan amount < 20 lakhs 20.

5% 10% Loan amount not cut interest rates for existing home loan customers.75% 11.ICICI On 5th March 2009cut€interest rates€for new home loan€buyers by 25-50€ bps. Interest Rate < 20 lakhs 20-30 lakhs > 30 lakhs 9.€ .

The bank said it reduced directors bonuses for 2008 by between 1 0% and 25% and imposed salary freezes on senior managers across regions. Acquire d Cazenove in Asia and is looking to buy assets of other loss making peers in As ia including India.   .5 bi llion in 2008.Standard Chatered A strong focus on Asia is a major factor behind the operating profits of $4.


Banking Effect on the Realty Sector .

• The Reserve Bank of India (RBI ) recently allowed banks to restructure loans taken for commercial real estate w ithout turning them into non-performing assets (NPAs). is looking at restructur ing a Rs 800-crore loan from public sector banks. .• Banks seek up to 150% collateral against Loans • Unitech.

Chairman. We will approach the RBI to d emand a restructuring of existing debt by way of Financial Institutions (FIs) gr anting a minimum moratorium period of a year. Parsvnath Developers said.• Pradeep Jain. .

• Public sector banks have made their loans cheaper and private banks and Househol d Financing Corporations are expected to follow suit. • .

Foreign VCs • The Reserve Bank of India recently started approving applications from foreign v enture capital investors (FVCI) that were kept on hold for a considerable period of time. • 10 investible sectors. .

• • • • • • . Biotechnology. rrrrrrr • Dairy and • Poultr y industry. Research in new chemical entities in the pharmaceuticals sector. Nanotechnology. Information technology.Investible sectors Infrastructure.

• Globally. . there is a fight for capital and given the present scenario in financi al markets. it is imperative that VC investors be encouraged as they bring longterm capital to portfolio companies.

FII paid premium pr ices for these shares.FIIs • Public Sector Bank shares are losing charm • Before recession. • Many funds have about 17% of bank shares in their portfol ios • .

Tata Motors. • The country s largest auto maker. joined hands with public sector lender Punjab National Bank (PNB) to provide financing facilities to consumers for its passenger cars.Auto Sector • • Joint ventures between auto manufacturers and banks.   .

• Punjab National Bank a nnounced a cut in car loans by 50 basis points .Sunday March 1. 02:13 AM • SBI has slashed interest rates on auto loan to 10% • Union Bank of India on Saturd ay slashed interest rates on new car loans by up to 1.5%.

Union Bank and others.• PSBs have been nudged by the government to speed up credit • Increase in auto dema nd • SBI. Syndicate Bank. the top auto financer. Central Bank of India. was the first to slash rates • Followed by Andhra b ank. .

It has also roped in Corporation Bank and the Central Bank .Readying for a smooth ride • Many auto firms have already joined hands with PSBs in a bid to prop up demand • T hey want PSBs to provide cost-effective funding solutions to customers • Hyundai M otor has tied-up with PNB. Canara Bank and Syndicate Bankand • Tata Motors has app roached SBI to restructure loans.

• These reform measures have had major impact on the overall efficiency and stabil ity of the banking system in India. banks are constantl y pushing the frontiers of risk management. • In the current scenario. .

• Consolidation. competition and risk management are no doubt critical to the futu re of banking but I governance and financial inclusion would also emerge as the key issues for a country like India. . at this stage of socio-economic development . w .business-standard.References • • • • • • • • • www.