Comprehensive Pack

Banking

1
•Classification of Banks :3
•Advances :6
•Deposits : 16
•Investments : 24
•NPAs : 30
•Profitability : 47
•Basel 3 Norms : 49
•Payment Banks : 55
•Small banks : 67
•Global Financial Melt-down (2008-09) and India : 76

2
 Classification of Banks

3
How the players are classified in the banking industry?
For all analysis, banking players are classified into 3 categories
•Public sector banks (SBI& Associates and Nationalized
Banks)
•Private sector banks
•Foreign banks

4
 Though PSU banks are still dominant, its market share has
been coming down.

MARKET SHARES IN TOTAL BUSINESS

2017-18
2011-12

Source: Crisil Research, RBI

5
 Analysis of Advances

6
PRIORITY SECTOR LENDING NORMS
 The priority sectors comprises of agriculture, small-scale industries
(SSI), education and housing.

•40% of the advances should be for priority sector lending.

•Banks should also adhere to sectoral targets within the overall
priority sector lending. (like certain % for agriculture, certain % for
small scale industries etc)

7
 Credit growth collapsed between 2015 to 2017 but picking up
in the last couple of years.

CREDIT GROWTH
CREDIT GROWTH FOR
OVERALL CREDIT GROWTH PUBLIC AND PRIVATE
SECTORBANKS

Note: Systemic credit growth will include bank credit, NBFC credit,
corporate bonds
Source: SEBI, RBI, NBFCs, Banks, CRISIL Research
 Decline in credit growth is primarily due to decline in Industry
lending.

OCCUPATION WISE CREDIT GROWTH

Source: SEBI, RBI, NBFCs, Banks, CRISIL Research

 Share of credit to the industry has come down from 46% in
2012-13 to 33% in 2019.

CHANGE IN ADVANCES PROFILE

OCCUPATION-WISE CREDIT IN
2012-13

Source: SEBI, RBI, NBFCs, Banks, CRISIL Research

 REASON FOR SLOW-DOWN IN CREDIT GROWTH

OTHER REASONS

• Corporates using alternate funding options - IPOs/FPOs/Rights issues and using past

reserves.

• Sluggish investment cycle

• Risk Aversion of both lenders and corporates

• Weak asset quality of the public sector banks

• Twin Balance sheet problem

• Weak Capitalization: Lending capacity of the Public Sector banks is restricted

due to Basel 3’s Capitalization norms

 Since 2014, the relation between GDP growth and inflation has
reversed for the better.

GDP GROWTHVS INFLATION OVER THE YEARS

Year Inflation GDP Growth
2005 5.57% 8.4%
• For real economic 2006 6.53% 9.2%
2007 5.51% 9%
buyoncy, GDP growth 2008 9.7% 7.4%
2009 14.97% 7.4%
should be higher than
2010 9.47% 10.4%
2011 6.49% 7.2%
inflation by 1.5%.
2012 11.17% 6.5%
• Higher the better and 2013 9.13% 4.5%
2014 5.6% 7.2%
lesser is undesirable. 2015 6.3% 8%
2016 4.9% 7.1%
2017 4.7% 7.1%
2018 4.6% 7.2%
2019 4.7% 6.8%
12
 While the share of Bank credit in the overall credit is coming down,
NBFC’s credit growth has almost been twice that of banks.

SHARE OF BANK CREDIT DECLINING AND NBFC CREDIT GROWING

NBFC Credit Growth in %
Bank Credit Growth in %
Share of Bank Credit
18 16.5 17
16 15 15 15
14
12
12
10 9.2
8 7.8
8
6 4.4
4
2
0
2015 2016 2017 2018 2019
Source: SEBI, RBI, NBFCs, Banks,
CRISIL Research Source: Livemint
 Better performance of NBFCs can be mainly attributed to it’s retail
focus.

BETTER PERFORMANCE OF NBFCs

• NBFC’s credit portfolio is predominantly retail loans while Bank ‘s credit portfolio used
to be dominated by industry loans.
• Industry-heavy portfolio of banks have dragged down their growth
• Retail focus has also helped the asset quality of NBFCs
• Gross non-performing assets (GNPA) ratio for the NBFC sector was 6% in December
2018 compared to Bank’s GNPA of 12%
• Capital adequacy levels (CAR) of the NBFC segment was 21% in December 2018
compared to Bank’s CAR of 13%
• Many NBFCs are expanding beyond their retail lending to offer even working capital
loans for corporate entities.
BANKS SHIFTING FOCUS TO RETAIL

• Retail accounts for a fifth of overall systemic credit.

• Consumer Credit Information has improved: Credit information
collection and sharing has benefitted the entire industry as they now have
access to a much wider database with more details on customers.
• With slow growth in the corporate-loan portfolio, banks have shifted
focus to retail, in which growth and risk-reward opportunities are more
favorable.
• Share or Retail loans in the overall credit is expected to increase from 18%
in 2012-13 to 28%in 2019-20
 Analysis of Deposits

16
 Deposit growth has moderately increased in the last 2 years
due to Demonetization and lower inflation.

DEPOSIT GROWTH

Consumer Price Index

Source: Reserve Bank of India (RBI), CRISIL Research

17
 Deposit growth has moderately increased in the last 2 years
due to lower inflation.

DEPOSIT GROWTH

Consumer Price Index

Source: Reserve Bank of India (RBI), CRISIL Research

18
 The twin benefits of lower inflation and improving macroeconomic
growth have propped up savings.

POSITIVE REAL INTEREST RATES

Real Rate of Return
• In the past, chronically high inflation
has pushed down real interest rates
to negative territory
• During 2011-2014, real interest rates
were mostly negative, reducing the
incentive for Indian consumers to
save and leading them to channel the
(smaller) stock of savings to gold and
real estate.
• But in the recent years, there has been
a reversal in this and the real interest
rates now in the positive territory.

19
TYPES OF DEPOSITS

• Term Deposits (Fixed and Recurring Deposits)

• Savings Deposits
CASA deposits
• Current Deposits

20
 Proportion of CASA deposits increased in 2016-17 due to
demonetization.

OVERALL SHARE OF DIFFERENT TYPES OF DEPOSITS

Source: Crisil Research and RBI

21
 Private banks have higher share of CASA deposits compared to
PSU banks.

CASA DEPOSITS: PUBLIC SECTOR BANKS VS PRIVATE SECTOR BANKS

PSU Banks Private Banks

Source: Crisil Research and RBI

22
 Share of CASA deposits have come down

Why Private Sector and Foreign Bank’s CASA is increasing?

• Better Service level, convenience and faster technology adoption.

• Customer’s trust in private sector and Foreign banks is increasing

• Private Sector and Foreign Banks are able to tap in salaried segment market

• Foreign banks have high proportion of corporate customers who maintain

current deposits

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 Investments

24
Investments by banks fall into two broad categories:

• Statutory liquidity ratio (SLR) investments: Investment in Gold,

Government securities and other government-approved securities

• Non-SLR investments: Commercial papers, shares, bonds and debentures

issued by companies, units of UTI and other mutual funds

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PURPOSE OF SLR

• Controlling the expansion of bank credit. By changing the level of SLR,

the Reserve Bank of India can increase or decrease bank credit expansion.

• Ensuring the solvency of commercial banks.

• By reducing the level of SLR, the RBI can increase liquidity with the

commercial banks, resulting in increased investment. This is done to fuel

growth and demand.

• Compelling the commercial banks to invest in government securities like

government bonds.
26
 SLR has reduced from 25% in 2009 to 19.5 percent currently.

SLR TRENDS

27
Why reduction in SLR in the recent years?

• To release the unused capital from the banking system and let it
flow into productive sectors when there is a higher demand for
capital.
• The gradual reduction in SLR as announced by RBI give banks
greater freedom to pump more capital in the economy.
• Going ahead, the declining trend in SLR to continue as regulated by
RBI.

28
INVESTMENTS IN SLR INVESTMENTS

Source: CRISIL Research and RBI

29
 Analysis of NPAs

30
How NPAs are classified?
•RBI classify loans into 4 categories:
Standard assets
Substandard assets
Doubtful assets
Loss assets
•The central bank has prescribed appropriate provisioning requirements
for each of these categories.
• Of the above, sub-standard assets, doubtful assets and loss assets
together comprise non-performing assets (NPAs). An NPA is a loan or an
advance where the interest and/or installment of principal remains
overdue for a period of more than 90 days.
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 NPA sharply increased in FY 16 and continue to rise till FY 18
before softening marginally in FY 19

NPA Trends

Source:
32
Source Company Reports, RBI and Crisil Research
 PSU Bank’s NPAS since 2016 has been almost 3 times that of Private
Bank’s NPAS.

NPA TRENDS: PRIVATE VS PUBLIC SECTOR

Source: Source Company Reports, RBI and Crisil Research

33
 Net NPAs completely erodes networth of PCA PSU Banks

NETNPAS TO NETWORTH

Source: Company Reports, RBI and Crisil Research

34
 Highest NPAs are due to the defaults from the industry.

SECTOR WISE GNPAs

Source: RBI, CRISIL Research

35
 Bad loans of MFIs are much lower compared to the bank NPAs.

ASSET QUALITY OF MFI (MICRO FINANCE INSTITUTIONS)

PAR 30 and PAR 90 improving as the

effects of demonetization subside

Source: RBI, CRISIL Research

36
RBI’S ASSET QUALITY OF REVIEW OF 2015

• RBI had a strong notion that some of the banks are underreporting their NPAs.
• Asset classification practices are not up to the mark and several banks have
resorted to ever-greening of accounts.
• Here, banks were postponing bad-loan classification while depicting accounts
as performing.
• RBI made special inspections during August-November 2015 and prepared the
AQR
• After the AQR, banks were given two quarters to complete the asset
classification.

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 RESULTS OF ASSET QUALITY REVIEW

• The AQR by the RBI revealed higher level of asset quality deterioration or NPAs with
the inspected banks.
• As per the review, almost all public-sector banks were having higher NPAs. In the case
of private sector banks, the impact was limited to few banks like Yes Bank, ICICI Bank
and Axis Bank.
• For example:
• For 2016,Yes Bank had disclosed gross non-performing assets (NPAs) of Rs748.9
crore, but the RBI’s assessment of the bank’s correct level of gross NPAs was
Rs4,925.6 crore.
• At ICICI Bank, the difference in gross NPAs was to the tune of Rs5,105 crore,
leading to an additional provisioning of Rs1,071 crore in 2016.
• At Axis bank, as per RBI’s assessment the correct level of NPAs was 4.5% against
the reported 1.78%.
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 EXAMPLES OF METHODS DEPLOYED BY THE BANKS
FOR UNDERREPORTING NPAS

• Ever-greening
• Banks disburse working capital loans to the stressed companies which
help them service their term loans;
• Banks also disburse fresh loans already sanctioned—again to help the
borrowers pay back the loan instalments.
• There were also instances of banks giving new loans to other group
companies of stressed borrowers for the same purpose.
• There have been cases where banks have given the borrowers more time,
depending on the date of commencement of commercial operations. Many
such loans have been restructured twice and continued to be tagged as
standard assets in banks’ books.

39
 Government’s recapitalization announcement has come as a big
. booster for the PSU banks

BANK RECAPITALIZATION TO IMPROVE PSU BANKS

• In October 2017, Government of India announced a massive capital infusion of
Rs. 2.11 lac crores in PSU banks.
• Similar exercise was done in early 1990s.
• This had come has a big booster of the banks.
• PSU bank’s stocks surged immediately after the announcement. On the next
day after the recapitalization announcement,
• PSU bank stocks surged upto 32% and overall valuation increased by
around Rs. 100000 crores.
• Single day gains of different banks are:
• SBI -19%
• PNB -32%
• Bank of Baroda - 24%
• Bank of India – 19%
• Andhra Bank – 15%
• Allahabad Bank – 13%
• Syndicate Bank – 12%
 .

IMPACT OF BANK RECAPITALIZATION

• Confidence booster of PSU banks: It reinforces the belief that the government

will continue to support the PSU banks in a big way.

• Cleaning up the balance sheet to some extent

• Better provisioning for NPAs

• Revival of credit growth and hence the investment cycle.

• Better placed to meet the Basel-3 norms

 .

INSOLVENCYAND BANKRUPTCY CODE (IBC )

• IBC is seen as a long-term solution to tackle NPAs

• IBC bill was passed in May 2016
• According to IBC, banks can initiate the insolvency procedure against the
defaulter.
• Once approved by NCLT, the Insolvency Resolution Professionals (IRPs) are
appointed.
• The board of directors of the company stands suspended, and the promoters
do not have a say in the management of the company.
• Banks through committee of Creditors can initiate the sale of the company,
find a buyer and recover the NPAs.
 .

BUSHAN STEEL NPA RESOLUTION THROUGH IBC)

• The first major case resolved under IBC was the sale of Bushan Steel to Tata
Steel in May 2018.
• Banks recovered Rs. 35,200 crores of outstanding loans.
• This represent 76% of the outstanding bad debt.
• Also creditors got 12% equity stake in the company.
 .

BUSHAN STEEL NPA RESOLUTION THROUGH IBC)

• The first major case resolved under IBC was the sale of Bushan Steel to Tata
Steel in May 2018.
• Banks recovered Rs. 35,200 crores of outstanding loans.
• This represent 76% of the outstanding bad debt.
• Also creditors got 12% equity stake in the company.
 . As of April 2019, Resolution plans under IBC have yielded 200% of
liquidation value.

RESOLUTIONS UNDER IBC

• As many as 12,000 cases have been filed since the implementation of the
Insolvency and Bankruptcy Code (IBC) and setting up of the National
Company Law Tribunal (NCLT)
• As per IBBI Chairman M S Sahoo, on an average, Resolutions under IBC had a
realization of 45% of the claims, took 300 days for resolution, entailed a cost of
5% while earlier mechanisms had a realization of 25% of the claims, took 5
years, entailed a cost of 9%.
• Overall, the IBC has been able to resolve cases involving debt of Rs 3 lakh crore
in the between April 2017-2019.

Source:
1. https://economictimes.indiatimes.com/news/economy/policy/resolution-plans-under-ibc-have-
yielded-200-pc-of-liquidation-value-ibbi-chairperson-m-s-
sahoo/articleshow/69056816.cms?from=mdr
2. https://www.thehindubusinessline.com/money-and-banking/over-12000-cases-filed-after-
implementation-ofibc-setting-up-of-nclt/article26636316.ece
3. https://www.businesstoday.in/current/economy-politics/ibc-forces-companies-to-settle-rs-1-
lakh-crore-debt-out-of-court/story/294673.html
 . As of April 2019, Resolution plans under IBC have yielded 200% of
liquidation value.

COMPANIES UNDER FEAR OF DEFAULT

• Fear of losing control of the company forcing many corporate defaulters to pay
off their debt even before the insolvency proceeding can be started.
• Loan defaults worth Rs 1.2 lakh crore have been resolved by the Insolvency
and Bankruptcy Code (IBC) in the past two years without even the need for the
code to kick in.
• Corporate affairs secretary Injeti Srinivas said, "Out of 9,000 cases (that came
to NCLT for initiation of insolvency proceedings), 4,400 cases have been
disposed off, and rest of them are pending. Bulk of the cases (80-85 per cent),
have been disposed off even prior to admission. More than 3,500 cases have
been resolved pre-admission resulting in claims amounting to Rs 1.2 lakh crore
getting settled,"
Source:
1. https://www.businesstoday.in/current/economy-politics/ibc-forces-companies-to-settle-rs-1-
lakh-crore-debt-out-of-court/story/294673.html
 PROFITABILITY

47
How the net profitability margin for the bank is calculates?

= Spreads– Operating expenses +Core fee income

TURN-AROUND OF THE BANKS

• Private banks were making consistent profits but PSU banks posted huge
losses for the last 2 to 3 years.
• Due to IBC and improvement in Asset Quality, PSU banks have started to
turnaround in 2019.
• Analysts expect most of the PSU banks to return to profitability during the
current financial year 2019-20 (FY20), backed by improvement in the balance
sheet.

48
 Basel 3 Norms

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BACKGROUND

•Basel 3 norms has been developed to avoid 2008 like financial breakdown in the
future. It is a safeguards / backup plan for the banking sector.
•It provides internationally accepted detailed guidelines about how
much money should a bank keep aside, to deal with financial crisis.
•The objective is even if there is lot of defaulters, Bank should have
money to give back to depositors.
•The major problems that led to 2008 crisis were
High debt
Low quality of capital base
Insufficient liquidity
•Basel III proposes many new capital, leverage, and liquidity standards
Implementation of different norms of Basel 3 norms will be
from 2020 to 2022.
50
CAR = (Tier 1 capital + Tier 2 capital)/(Risk weighted assets)

Tier 1 capital (Core capital): More liquid (for example, paid up capital, free
reserves, statutory reserves, currency notes, stocks etc)
oTier 2 capital (subordinate capital): less liquid (building or land owned by
the bank, NPAs, Long-term unsecured loans etc)
Risk weighted assets :
They are used to calculate a bank’s minimum capital requirements.
For banks, risk-weighted assets are assets with special risks.
For example, a loan secured by a letter of credit would be weighted
as riskier than a mortgage loan that is secured with collateral
A government bonds with higher rating (over AA-) are weighted as
zero percent, whereas corporate loans with the same ratings are
weighted at 20%.
51
Capital Adequacy Ratio (CAR) = (Tier 1 capital + Tier 2 capital)/(Risk weighted assets)

52
 Key Basel 3 norms are higher capital, higher Tier 1 capital and
additional equity in the form CCB

KEY BASEL 3 NORMS

53
 Government has been infusing capital in the PSU banks to meet the
Basel-3 norms.

IMPACT OF BASEL 3 NORMS

•Private Sector banks have already achieved the Basel 3 norms.

•The challenge has been there for the PSU banks to raise adequate Tier-1 capital.
•Government infused almost Rs. 1.2 lac crores between 2010-2017 in PSU
banks.
•PSU banks to require ~Rs 1.8 trillion of equity capital over the next 2 years.

54
 Payment Banks

55
PAYMENT BANKS: INTRODUCTION
•Payment banks are aimed at bringing unbanked population into banking.
•Acceptance of demand deposits, i.e. current and savings bank deposits.
However, payment banks will initially be restricted to holding a maximum
balance of Rs. 100,000 per customer.
•Payments and remittances will be through various channels, including branches,
business correspondents (BCs) and mobile banking.
•Payment banks will not be allowed to disburse credit.
•They can also distribute simple financial products like mutual funds and
insurance.
• The minimum capital of a payment bank is Rs. 1 billion.

56
PAYMENT BANK: WHAT IT CAN AND CANNOT DO?

57
ACTIVE PAYMENT BANKS

• Aditya Birla Payments Bank

• Airtel Payments Bank

• India Post Payments Bank

• Fino Payments Bank

• Jio Payments Bank

• Paytm Payments Bank

• NSDL Payments Bank

58
PAYMENT BANKS: CRITICAL SUCCESS FACTORS

•Rural presence

•Ability to capture significant remittance business

•Deposit gathering potential

• Leverage other commercial transactions like paying different utility bills,

recharge etc.

59
Why predominantly Mobile companies are interested in payment banks?

• Large proportion of customers for Payment banks will be from rural India.
•Indian telecom companies has already a large subscriber base and
infrastructure in the rural areas. (For example, Bharti has 1.5 million retail
outlets, more than 40% of them are in the rural areas)
• Also, the ability to generate transaction-based income (remittance fees,
online purchase fees) will be critical for payments banks.
•Therefore, mobile network operators (MNOs) are best placed to offer
payment banking services considering they already have the infrastructure
for it.

60
 If all retail mobile recharge points of mobile operators offer
remittance service, the potential is much higher than all other
avenues put-together.

TELECOM PENETRATION

61
 46% of telecom subscribers are from rural areas in 2015 which is
expected to increase to 54% in 2019.

TELECOM RURAL SUBSCRIBER SHARE

62
 Domestic remittances from the migrant population to grow at 11-
13% CAGR from Rs. 935 bn in 2014-15 to Rs. 1500 bn in 2018-19

DOMESTIC REMITTANCE MARKET GROWTH

•Remittances are household

incomes received from

family and friends..

63
 Current remittance process has the problem of higher cost and time
delays.

CURRENT ISSUE IN REMITTANCES

Higher Commission (5% for money order) :

• Poor households incur significant costs when sending and receiving

money: the median cost of a domestic remittance of Rs 5,000 was Rs 250.

Time taken for overall transfer:

• It takes more than a day to transfer the money

64
 46% of telecom subscribers are from rural areas in 2015 which is
expected to increase to 54% in 2019.

ADVANTAGES FOR TELECOM COMPANIES AS PAYMENT BANKS

• Telecom companies have huge rural presence

• First objective of telecom companies through payment bank is to capture

the remittance market through M-wallet

•The cost and time taken for transfer through M-wallet is much lower

compared to other means of transfer.

65
AIRTEL PAYMENT BANK

• Bharti Airtel owns 80.10% in Airtel Payments Bank, while Kotak Mahindra
Bank holds the remaining 19.90%.
• Launched pilot in November 2016, starting with 10,000 outlets in Rajasthan
and subsequently rolled it out nationally.
• Airtel has been incentivising its customers to sign up for the payments bank
by giving a minute of talk time for each rupee deposited (albeit with a
limited validity)
• Accumulated deposits worth Rs. 307 crores till September 2018.
• Pays an interest of 7.25% on savings deposits.
• Charge 0.5% commission on bank transfers, 0.65% on withdrawals and around
0.65% on domestic remittances.
66
 Small Banks

67
SMALL BANKS : SCOPE

•Licence to provide banking services within a state or regions..

• Undertake basic banking activities of acceptance of deposits and lending to

small farmers, small businesses, micro and small industries and the unorganised

sector.

•At least 50 per cent of the bank's loan portfolio should constitute loans and

advances of up to Rs. 2.5 million in order to extend loans primarily to micro

enterprises.

•Minimum net worth requirement is Rs. 1 billion to set up a small bank.

68
SMALL BANKS ELIGIBILITY

•Individuals with 10 years experience in banking and finance

•Companies and societies

•Non-banking financial companies

•Micro-finance institutions

•Local area banks

69
SMALL BANKING LICENCE
• Some of the operational Small Finance Banks in India are as follows:
• Ujjivan Small Finance Bank.
• Janalakshmi Small Finance Bank.
• Equitas Small Finance Bank.
• A U Small Finance Bank.
• Capital Small Finance Bank.
• ESAF Small Finance Bank.
• Utkarsh Small Finance Bank.
• Suryoday Small Finance Bank.
• Fincare Small Finance Bank.

70
Why not many applicants for Small Banks?
• Majority of the micro-finance institutions (MFIs) and large NBFCs are not be
interested because :
•High net-worth requirement of Rs. 1 bn.
•Restrictions imposed on geography of operations.
• Most institutions already outside eligibility criteria
•An analysis of 50 MFIs shows that about 15 MFIs, having net worth of
over Rs 750 million (assuming the MFIs will be able to raise the balance
Rs 250 million), are already operating in more than four states.
•Further, even smaller MFIs with net worth of more than Rs 150 million
are operating in more than two states.

71
LACK OF INTEREST FROM COOPERATIVE BANKS

• Most co-operative banks that have a net worth of over Rs 1 billion are

operational in more than one state.

•Co-operative banks have relaxed regulations, and hence, some will not like to

be subjected to the stringent Reserve Bank of India supervision that scheduled

commercial banks are.

•There is limited interest in transforming into an entity which will be allowed

work on a limited mandate and disburse small-ticket loans.

72
BENEFITS IN GETTING SMALL BANKING LICENCE FOR A COOPERATIVE
BANK
• Some of the co-operative banks, though, are looking to acquire a small banking
licence as being a schedule commercial bank increases investor confidence and
capital raising abilities.
•Also, co-operative banks cannot provide many services, e.g. merchant banking.
• Further, small banks will be relieved from the control of state governments.
•Another advantage of becoming a small bank is that it will get access to
National Bank for Agriculture and Rural Development and Small Industries
Development Bank of India refinance schemes.
•The brand image will improve, too, and this will help mobilise deposits at
lower rates.
73
New banking applicants differ in their objectives

•Big corporates (Birlas, Ambanis, L&T) are in it because it’s an

important business to ignore.
•Many NBFCs like LIC Housing, IDFC etc want to access cheaper
public deposits and expand it’s product offering.
•India Post has 1.55 lakh post offices and 5 lakh employees. If all the
branches become a mini-bank, it would have branches than the rest
of the banking system put together.

74
NEW PLAYERS’ STRATEGIES
Focus away from Metros and cities
In urban areas, there are 348 million banking accounts for 377
million population (saturated)
In rural and semi-urban areas, there are only 344 million
accounts for 833 million people

Use technology as a key differentiator

Cost of one physical transaction is Rs. 40-Rs. 60, through ATM it
is Rs. 15-20 and through a mobile, it is Rs. 1 to Rs. 1.50

Identify and fill the gaps in the market with innovative products

Become successful like ICICI Bank and HDFC bank

75
 Global Financial Melt-down (2008-09)
and India

76
•Firstly, India was not greatly affected because our Forex exposure
were low.

•We did not fall into sub-prime crisis

•But still we were affected to some extent due to increase in crude oil

prices which increased the inflation.

Inflation increased from 7.7% in march 2008 to 12.8% in August
2008, highest in the previous 4-5 years. Crude oil increased close to
$150 per barrel.

•In summary, when the financial down hit, first priority was to
contain inflation.
To reduce the inflationary pressures, the CRR was increased to 9%
during the same time almost 8 to 10 times in just 4-5 months.

Impact of these measures

These measures reduced the inflation which began to drop from September
2008.
But this also sucked out the liquidity and the credit availability,
investments and growth were severely affected
FISCAL STIMULUS

RBI began to reduce both CRR and Repo beginning from October
2008.

GOI also announced fiscal stimulus in December 6, 2008

which include:
•Low interest loans
•Higher spending on infrastructure
•Cut in the excise duty
•Made home loans below Rs. 2 mn as priority sector.