INTRODUCTION

The global financial crisis originated in United States of America. During booming years when interest rates were low and there was great demand for houses, banks advanced housing loans to people with low credit worthiness on the assumption that housing prices would continue to rise. Later, the financial institutions repackaged these debts into financial instruments called Collateralized Debt Obligations and sold them to investors world-wide. In this way the risk was passed on multifold through derivatives trade. Surplus inventory of houses and the subsequent rise in interest rates led to the decline of housing prices in the year 2006-07 which resulted in unaffordable mortgage payments and many people defaulted or undertook foreclosure. The house prices crashed and the mortgage crisis affected many banks, mortgage companies and investment firms world-wide that had invested heavily in sub-prime mortgages. Different views on the reasons of the crisis include boom in the housing market, speculation, high-risk mortgage loans and lending practices, securitization practices, inaccurate credit ratings and poor regulation of the financial institutions. The financial crisis has not only affected United States of America, but also European Union, U.K and Asia. The Indian Economy too has felt the impact of the crisis to some extent. Though it is difficult to quantify the impact of the crisis on India, it is felt that certain sectors of the economy would be affected by the spillover effects of the financial crisis.

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METHODOLOGY
The present study focuses on • • The origin and causes of global financial crisis The impact of the crisis on the Indian economy.

RESULTS AND DISCUSSION
Reasons for Financial Crisis
The first hint of the trouble came from the collapse of two Bear Stearns hedge funds early 2007. Subsequently a number of other banks and financial institutions also began to show signs of distress. Matters really came to the fore with the bankruptcy of Lehman Brothers, a big investment bank, in September 2008. The reasons for the crisis are varied and complex. Some of them include boom in the housing market, speculation, high-risk mortgage loans and lending practices, securitization practices, inaccurate credit ratings and poor regulation.

Boom in the Housing Market
Subprime borrowing was a major contributor to an increase in house ownership rates and the demand for housing. This demand helped fuel housing price increase and consumer spending. Some house owners used the increased property value experienced in housing bubble to re-finance their homes with lower interest rates and take second mortgages against the added value to use the funds for consumer spending. Increase in house purchases during the boom period eventually led to surplus inventory of houses, causing house prices to decline, beginning in the summer of 2006. Easy credit, combined with the assumption that housing prices would continue to appreciate, had encouraged many subprime borrowers to obtain adjustable-rate mortgages which they could not afford after the initial incentive period. Once housing prices started depreciating moderately in many parts of the U.S, re-financing became more 2

difficult. Some house owners were unable to re-finance their loans reset to higher interest rates and payment amounts. Excess supply of houses placed significant downward pressure on prices. As prices declined, more house owners were at risk of default and foreclosure.

Speculation
Speculation in real estate was a contributing factor. During 2006, 22 per cent of houses purchased (1.65 million units) were for investment purposes with an additional 14 per cent (1.07 million units) purchased as vacation homes. In other words, nearly 40 per cent of house purchases were not primary residences. Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market.

High- Risk Mortgage Loans and Lending Practices
A variety of factors caused lenders to offer higher-risk loans to higher-risk borrowers. The risk premium required by lenders to offer a subprime loan declined. In addition to considering high-risk borrowers, lenders have offered increasingly high-risk loan options and incentives. These high-risk loans included “No Income, No Job and No Assets loans.” It is criticized that mortgage underwriting practices including automated loan approvals were not subjected to appropriate review and documentation.

Securitization Practices:
Securitization of housing loans for people with poor credit- not the loans themselves-is also a reason behind the current global credit crisis. Securitization is a structured finance process in which assets, receivables or financial instruments are acquired, pooled together as collateral for the third party investments (Investment Banks). Due to securitization, investor appetite for mortgagebacked securities (MBS), and the tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high risk of default could be originated, packaged and the risk readily transferred to others.

Inaccurate Credit Ratings:
Credit rating process was faulty. High ratings given by credit rating agencies encouraged the flow of investor funds into mortgage-backed securities helping finance the housing boom. Risk rating agencies were unable to give proper ratings to complex instruments (Gregorio 2008). Several products and financial 3

institutions, including hedge funds, and rating agencies are largely if not completely unregulated.

Poor Regulation:
The problem has occurred during an extremely accelerated process of financial innovation in market segments that were poorly or ambiguously regulated – mainly in the U.S. The fall of the financial institutions is a reflection of the lax internal controls and the ineffectiveness of regulatory oversight in the context of a large volume of non-transparent assets. It is indeed amazing that there were simply no checks and balances in the financial system to prevent such a crisis and “not one of the so called pundits” in the field has sounded a word of caution. There are doubts whether the operations of derivatives markets have been as transparent as they should have been or if they have been manipulated.

SEVERITY OF THE FINANCIAL CRISIS
The current global financial crisis is rooted in the subprime crisis which surfaced over a year ago in the United States of America. During the boom years, mortgage brokers attracted by the big commissions, encouraged buyers with poor credit to accept housing mortgages with little or no down payment and without credit checks. A combination of low interest rates and large inflow of foreign funds during the booming years helped the banks to create easy credit conditions for many years. Banks lent money on the assumption that housing prices would continue to rise. Also the real estate bubble encouraged the demand for houses as financial assets. Banks and financial institutions later repackaged these debts with other high-risk debts and sold them to world- wide investors creating financial instruments called CDOs or Collateralized Debt Obligations (Sadhu 2008). In this way risk was passed on multifold through derivatives trade. Surplus inventory of houses and increase in interest rates led to a decline in housing prices in 2006-2007 resulting in an increased defaults and foreclosure activity that collapsed the housing market ( Sengupta 2008 ). Consequently, a large number of properties were up for sale affecting mortgage companies, investment firms and government sponsored enterprises which had invested heavily in sub prime mortgages. Since the collateral debt instruments had been globally distributed, many banks and other financial institutions around the world were affected. Major Banks and other financial institutions around the world have reported losses of approximately US $ 435 billion as on 17th July, 2008 (Onaran 2008). Thus with the failure of a few leading institutions in United States, the entire financial system in the world has been affected. Banking and

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financial crises have been a regular feature of modern economic history. According to one estimate, there have been 86 banking crises since the Great Depression that have spread beyond national borders. According to a World Bank study in 2001,2 the world has witnessed as many as 112 systemic banking crises from the late 1970s to early 2001. Most crises, including the current one, share some common features. Some general examples include a search for increasingly higher yields in financial markets, a lax regulatory regime, a mismatch in appetite for risk and the capacity for bearing it, and the consequent build up of asset bubbles, usually in the real estate sector, which for various reasons is overlooked by the regulators. The recent financial sector crisis shares most, if not all, of these features. However, what makes the current crisis exceptional is that it emerged at the very epicentre of global capitalism, the US, and its contagion spread very quickly to the entire global economy, unlike previous crises that were usually confined to a region or a small number of countries. Economies like India and the People’s Republic of China (PRC), where the financial sectors were not as integrated with the global financial system, were spared the first round adverse effects of the current crisis and their banks were left mostly unaffected. However, these giant economies and their Asian neighbors could not escape the second round effects that severely impacted their trade flows due to the collapse of output and trade in advanced economies. The severity of the current crisis can be gauged by the steep decline in the equity markets of advanced economies. The bursting of the sub-prime housing bubble caused Wall Street to lose a staggering US$8 trillion in market capitalization in a very short time (Brunnermier 2009). The financial crisis soon morphed in to a full-fledged global economic downturn as credits markets froze, aggregate demand in all advanced economies fell, and commodity prices crashed, forcing exporters to shelve expenditure and lay off workers in large numbers. Consequently, industrial production collapsed worldwide. In the last quarter of the calendar year 2008, advanced economies and large economies like India and the PRC witnessed a contraction in their industrial production. In some of the major export-oriented countries like Japan, Germany, and Brazil, industrial output contracted more than 10% during the third and fourth quarters of fiscal year (FY) 2008. The decline in industrial output made labor retrenchment and surging unemployment almost inevitable. According to the International Labour Organisation’s (2009) Global Employment Trends Report more than 50 million people are expected to lose their jobs due to the crisis. The severity and suddenness of the crisis can also be judged from the IMF’s forecast for the global economy. During the last 10 months (July 2008 to April 2009), the IMF revised its forecasts four times, all in the negative direction. In July 2008, it projected a growth rate of 3.9% for the world economy for 2009. However, this figure was reduced to 2.2% in November 2008 and further to 0.5% in January 2009. Finally in April 2009, for the first time in 60 years, the IMF predicted a global recession with negative growth of 1.3% for world GDP in 2009. Comparisons with the Japanese experience since the bursting of its own real estate bubble in the late 1980s and the consequent stagnation over the 1990s have been drawn to suggest a possible long period of weak economic activity in 5

which would make it the biggest contraction in global trade since World War II. developing countries are anticipated to lead the global turnaround.3 the growth rate of global trade fell from 6% in 2007 to 2% in 2008 (Figure 1). world trade is expected decline by as much as 9% in FY2009–2010. In a recent study. Japan. Actual and Forecast Essentially. This is indeed worrisome because it will further exacerbate the decline in global trade. may induce many countries to turn to protectionism to ensure sufficient demand for their domestic industry and prevent a further rise in unemployment. 17 of the 23 members of the informal G-20 grouping that met at the Washington Summit in November 2008 have invoked protectionism in one form or another despite agreeing to not take any new protectionist measures. But by July 2009 this had changed and the possible recovery in 2010 was forecast to be much stronger. Initially the IMF projected a positive growth rate of 1. and the PRC. Annual Growth of Global Trade Volumes 1981–2009. as reflected in the IMF forecasts. Furthermore. according to the World Trade Organization (WTO).8% for 2010 indicating a somewhat weak V-shape recovery. in sharp contrast to the 6 . Because the recession in developed countries is expected to continue.advanced economies. which already has seen a historical collapse since the crisis began in October 2008. The fear is that the rather grim economic outlook. Gamberoni and Newfarmer (2009) found that since the onset of the current global crisis. the current crisis is truly global in nature and could be referred to as the worst crisis since the Great Depression. Fortunately. Given the sharp export contraction in the world’s major exporting economies like Germany.

even more important. India implemented a series of trade. which is roughly 20% of total world GDP. However the impact will be multi-fold.S financial sector has affected not only America but also European Union. Governments across the globe have announced various fiscal stimulus packages and huge amounts of liquidity have been injected into the system by central banks. Indian corporations have also entered the global market 7 . However. At the same time.K and Asia.experience during the Great Depression.6 Consequently. the Indian economy cannot be insulated from the present financial crisis in the developed economies. and investment reforms. India has emerged as an attractive investment destination. U. Foreign direct investment (FDI) inflows have also gone up significantly in recent years.1 trillion.4 In absolute terms.1 billion in FY2001– 2002. the most significant change can be witnessed in the capital account. Global Integration of Indian Economy In response to its balance of payments (BOP) crisis in the early 1990s. Some countries like South Africa and the PRC have announced mega-stimulus packages that account for around 24. if we add up the stimulus packages of nine selected countries. current account flows (receipts and payments of merchandise and invisibles) as a proportion of GDP increased from 20% in FY1990–1991 to 53% in FY2007–2008 (Figure 2). Since then the Indian economy has become increasingly integrated with the world economy. governments in both advanced and emerging economies have coordinated their policy responses. It is premature to try to quantify the consequences of the crisis on the Indian economy.5 the combined total comes to around US$10 trillion.0% and 8% of their respective GDPs. The development in the U.3 billion in FY2007–2008 from US$6. This is reflected as an increase in foreign portfolio investment inflows from US$2 billion in FY2001–2002 to US$29 billion in FY2007–2008. ending a long period of relative isolation from global markets and financial and technology flows. As shown in Table 3. the US has announced a bailout-cum-stimulus package of worth US$8. The Indian economy too has felt the impact of the crisis though not to the same extent. having risen to US$34. Due to the rationalization of procedures and conditions for foreign investment. industry. These reforms effectively liberalized the economy. Given these initiatives. the severity of the crisis was recognized early on and. it is expected that the global economy will soon turn the corner and the recession will not be as prolonged as it was in 1929. IMPACT OF CRISIS ON THE INDIAN ECONOMY Due to globalization.

The banking sector as a whole has maintained a healthy balance sheet. at least directly. the banking sector witnessed a jump of 43% in its profitability (Figure 3). to 64% of the GDP in FY2007– 2008. was partly exposed but it managed to thwart a crisis because of its strong balance sheet and timely action by the government. by the global crisis.7 the Indian banking sector has remained more or less unaffected. 8 . external commercial borrowings (ECBs) that drive corporate investments. registering a fivefold increase. A ban on complex structures like synthetic securitization coupled with a close monitoring of appropriate lending norms by RBI also ensured a better quality of banking assets. These channels are financial markets. In fact. Against an absolute decline in the profitability of nonfinancial corporate enterprises. which was a nightmare for many big financial institutions around the world. resulting in some capital account outflow from India. The global crisis had a differentiated impact on these various subsectors of the financial sector. and exchange rates. Only one of the larger private sector banks. The imposition by the RBI of a higher provisioning requirement on commercial bank lending to the real estate sector helped to curb the growth of a real estate price bubble. trade flows. This is one of the few global examples of a countercyclical capital provisioning requirement by any central bank. during the third quarter of FY2008. equity markets (which are directly affected by foreign institutional investment [FII] flows). The non-performing assets as a ratio to gross advances have remained well within prudential norms (Figure 4). FDI. Given prudent regulations and a proactive regulator. As a result. Interestingly. these ratios are significantly higher than those in the US. for which trade in goods and services constituted only 41% of GDP in 2007 and capital flows another 25% in the same year.for mergers and acquisitions. and remittances. ICICI Bank. The financial sector includes the banking sector. Indian banks were not overly exposed to sub-prime lending. two-way flows of portfolio and direct foreign capital have gone up from a mere 12% of GDP in FY1990–1991. banks in India announced encouraging results. Transmission of the Crisis to the Indian Economy With India’s increased linkage with the world economy. In general. the global crisis has affected India through three distinct channels. which virtually guaranteed its deposits. India could not be expected to remain immune to the global crisis or be decoupled from the global economy. While it is true that the Indian banking sector remained largely unaffected because of its very limited operations outside India or exposure to sub-prime lending by foreign investment banks.

The revenue contribution from U. Between January 1 and October 16. A rough estimate suggests that at least a minimum of 30. About 30 per cent of the industry revenues are estimated to be from financial services (Atreya 2008). the Indian economy has been increasingly integrated with the global economy.48. there is uncertainty across the Indian Software industry. Exchange rate volatility in India has increased in the year 2008-09 compared to previous years. banks have huge running relations with Indian Software Companies.000 Indian jobs could be impacted immediately in the wake of happenings in the U. After the macro-economic reforms in 1991.Further. Citigroup.S.86 (Chandrasekhar and Gosh 2008). Bank of America. 2008. This depreciation may be good for India’s exports that are adversely affected by the slowdown in global markets but it is not so good for those who have accumulated foreign exchange payment commitments. The financial institutions in India are exposed to the world financial market.S clients is approximately 58 per cent. with an average capital risk weighted assets ratio (CRAR) of 13%.39.S.20 per dollar to Rs. The U. Indian banks are well capitalized and better placed to weather the economic downturn. 9 . Massive selling by Foreign Institutional Investors and conversion of their holdings from rupees to dollars for repatriation has resulted in the rupee depreciating sharply against the dollar. Quarterly Profit Margin and Profit Growth of the Indian Banking Sector. from Rs. Washington Mutual. The software companies may face hard days ahead. With the global financial system getting trapped in the quicksand. financial system. Morgan Stanley and Lehman Brothers. the Reserve Bank of India (RBI) reference rate for the rupee fell by nearly 25 per cent. The top five Indian players account for 46 per cent of the IT industry revenues. Approximately 61 per cent of the Indian IT Sector revenues are from U.S financial corporations like Goldman Sachs.

Rising unemployment and reduced spending by 10 . The financial turmoil affected the stock markets even in India. both from buyers and bankers. hospitality and healthcare has slowed down. which are under implementation and in the pipeline.1 billion during the first nine-and-a-half months of the calendar year 2008. The orders for factories which are dependent on exports. The slowdown in the world economy has affected the garment industry. are bound to buy more time before injecting funds into infrastructure and other ventures. 2008 (Kundu 2008). Foreign institutional investors pulled out close to $ 11 billion from India. It will have an impact on merchandise exports and service exports. The most immediate effect of the crisis has been an outflow of foreign institutional investment from the equity market. The decline in export growth may sharply affect some segments of the Indian Economy that are exportoriented. India’s stock market index—Sensex— touched above 21.S is going to dampen the investment flow. The crisis will hit the Indian real estate sector hard (Sinha 2008). The crisis resulted in net outflow of $ 10.2008 and has plunged below 10.S have come down following deferred buying by big apparel brands. It is expected that the capital inflows into the country will dry up. Many on-going real estate projects are suffering due to lack of capital. As compared to this. The tumbling economy in the U. dragging the capital market down with it (Lakshman 2008).3 billion occurred over the first six-and-a-half months of the financial year 2008-09 (April 1 to October 16). There is a serious concern about the likely impact on the economy because of the heavy foreign exchange outflows in the wake of sustained selling by Foreign Institutional Investors in the stock markets and withdrawal of funds by others. debt markets and market for mutual funds. The steel producers have decided to resort to production cuts following a decline in demand for the commodity. of which $8. they pulled out $11. The crisis will sharply contract the demand for exports adversely affecting the country’s growth prospects. The realty sector is witnessing a sudden slump in demand because of the global economic slowdown. The combination of a rapid sell off by financial institutions and the prospect of economic slowdown have pulled down the stocks and commodities market.000 during October 2008 ( Kundu 2008).1billion from the equity and debt markets in India till 22nd Oct. In 2007-08. Stock prices have fallen by 60 per cent. The recession has forced the real estate players to curtail their expansion plans. This also has an effect on the Primary Market. Investments in mega projects. The buoyancy in the economy is absent in all the sectors.Foreign institutional investment (FII) is largely open to India’s equity. Some realtors have already defaulted on delivery dates and commitments.000 mark in the month of January. Fresh investment flows into India is in doubt. the net Foreign Institutional Investment inflows into India amounted to $20. mainly to the U.The movement of Sensex shows a positive and significant relation with Foreign Institutional Investment flows into the market. There is even the prospect of emergence of deficit in the balance of payments in the near future. One of the casualties of the crisis is the real estate.3 billion. Investment in tourism.

Indian banks have very few branches abroad. financial services. The ongoing crisis will have an adverse impact on some of the Indian banks. real estate. The inter-bank call money rate spiked to 20% in October 2008 and remained high for the next month (Figure 5). It is estimated that there would be downsizing in many other fields as companies cut costs.A. The global financial crisis could increase unemployment.” The Global Wage Report 2008-09 of International Labour Organization warns that tensions are likely to intensify over the issue of wages. coupled with the loss of confidence that followed the Lehman Brothers episode. The liquidity squeeze in global markets following the collapse of Lehman Brothers compelled Indian banks and corporations to shift their credit demand from external sources to the domestic banking sector. Contrary to the trend. 11 . However. and the auto sector. increased the risk aversion of Indian banks and eventually hurt credit expansion in the domestic market. One danger is of a dip in the employment market. This move exerted a lot of pressure on liquidity in the domestic market and consequently short-term lending rates shot up abnormally. This credit crunch. Indian banks in general. The International Labor Organization predicted that millions of jobs will be lost by the end of 2009 due to the crisis – mostly in “construction. the gap between the rich and the poor will be widened. Our Indian banks are slightly better protected from the financial meltdown. The magnitude of the impact of the crisis can be understood from the fact that non-food credit expansion during last five months of FY2008– 2009 has declined by more than 68% as compared with the same period in previous financial year. Strict regulation and conservative policies adopted by the Reserve Bank of India have ensured that banks in India are relatively insulated from the travails of their western counterparts (Kundu 2008).S accounts for 55 per cent of all global apparel imports (Bageshree and Srivatsa 2008). With job losses. which in turn has affected the apparel industry here in India. have very little exposure to the asset markets of the developed world. non-food credit expansion started declining in November 2008 and became negative in January 2009 (Figure 6).the Americans have forced some of the leading brands in the U. gems and jewellery. largely because of the greater role of the nationalized banks even today and other controls on domestic finance.S to close down their outlets. Effectively speaking. There would also be a significant drop in new hiring (The Hindu 2008) All these will change the complexion of the job market.S. Layoffs and wage cuts are certain to take place in many companies where young employees are working in Business Process Outsourcing and Information Technology sectors (Ratnayake 2008). Some of the Indian banks have invested in derivatives which might have exposure to investment bankers in U. the indirect impacts of the crisis have affected Indian banks quite badly. The global recession will undermine other major export sectors of the Indian economy like sea foods. The U. However. the Indian banks and financial institutions have not experienced the kind of losses and write-downs that banks and financial institutions in the Western world have faced (Venkitaramanan 2008).

However. Most of the companies have put their IPOs on hold and only one IPO has been issued so far in 2009. Given the presence of unutilized liquidity in the global market. FIIs have once again started flowing back to India (Figure 7). only 38 IPOs were issued in 2008 and resulted in accumulations of only US$3.8 billion.3 billion in FY2007–2008.After an impressive performance for nearly five years. equity markets lost more than 60% of their index value and about US$1. owing to prevailing uncertainties.000 in January 2008 to 8. 106 initial public offerings (IPO) were issued and raised a total amount of about US$11 billion.867 by 20 March 2009. Consequently. the primary market has still not shown any sign of recovery. Consequently. foreign capital inflows lost their momentum in the second half of 2008. This massive outflow of FII created panic in the stock markets. fund collection through the primary market declined by 63%. which had been flourishing before the onset of the crisis. The surge in FDI 12 . Indian equity markets received net FII inflows of more than US$5 billion. In 2007. The inflows of FDI increased from US$6 billion in FY2004–2005 to US$34.3 billion in FY2007–2008 (Figure 10). This bad run at Dalal Street8 wiped out the primary market completely. Monthly Net Foreign Institutional Investment (FII) Inflows The economic boom in India from FY2004–2005 to FY2007–2008 has also been accompanied by a substantial increase in the inflows of FDI and external commercial borrowings. The most significant change was observed in the case of FIIs. Between FY2007–2008 and FY2008–2009. In contrast. there was a net outflow of US$15 billion from Indian markets during FY2008–2009 as foreign portfolio investors sought safety and mobilized resources to strengthen the balance sheet of their parent companies. During the first two months of the current financial year (April and May 2009). and India being one of the few countries with positive growth.3 trillion of market capitalization from an index peak of about 21. which saw a strong reversal of flows. Against a net inflow of US$20. equity markets have partially gained their lost value.

FDI inflows witnessed a negative growth of 2% in FY2008–2009. First. they declined by 0. The fall was rather phenomenal during the second half of FY2008–2009 (Figure 11).5%. though not to the same extent. For the first time in last six years. it supported them in their overseas mergers and acquisitions. Like FDI. Indian corporates managed to raise only US$18 billion in FY2008–2009 as commercial credit from the overseas market. when ECB approvals9 declined from US$3 billion in September 2008 to less than US$0.3 billion in FY2007–2008. Approvals Remittances are another source of inward foreign capital flows that in the past have helped to balance India’s large trade account deficit and keep the current account deficit at a reasonable level. Both FDI inflows and ECB volumes have been adversely affected by the turmoil in the financial markets in advanced economies. Secondly. The remittances from overseas Indians started feeling the impact of the global crisis during the third quarter of FY2008– 2009 when. which is 41% less than the amount raised in the previous year. making it easier for them to gain a market presence in target countries. Monthly External Commercial Borrowing. the influx of ECBs allowed Indian firms to finance their domestic capacity expansion at relatively lower capital costs. The spurt in ECBs benefited Indian entrepreneurs in two different ways. The impact becomes more evident in the fourth quarter of FY2008–2009 when the inflow of remittances declined by more then 29% as compared to the same period in 13 . the inflows of ECBs also went up from US$9 billion in FY2004–2005 to US$30. registering a threefold increase over four years. FDI inflows have also taken a hit. Likewise. on a year-on-year basis.5 billion in February 2009.not only improved the domestic rate of capital formation but also helped many industries improve in a technological capacity due to the technology inflows that accompanied these FDI inflows. Given the credit crunch in the global markets since September 2008.

it is expected that remittances will further decline in the coming quarters. The third transmission channel is the exchange rate.previous year (Figure 12). During the third quarter of FY2008–2009. coupled with rising pressure against immigration in advanced countries. With the outflow of portfolio investments and higher foreign exchange demand by Indian entrepreneurs who are seeking to replace external commercial borrowing by domestic financing. the negative impact has expanded to other exportoriented sectors such as garments and textiles. The second transmission of the global downturn to the Indian economy has been through the steep decline in demand for India’s exports in its major markets. exports of services are also facing a rather steep downturn. and auto components. During last 12 months (from April 2008 to 14 . Since then. Merchandise exports have registered a negative average growth of 17% from October 2008 to May 2009.000 workers. The decline in exports has been accelerating. and banking services have contracted. the export slump is expected to have a significant impact on GDP growth in the coming period. This is the first time after a long period that the capital account component of India’s BOP has been negative. leather. while the growth rate of software exports has declined by more than 21 percentage points (Table 4). the capital account surplus as percent of GDP started to decline and disappeared completely by December 2008 (Figure 13).16% in the fourth quarter of FY2008–2009.5% in the third quarter and further to -0. Gems and jewelry was the first sector to feel pressure at the very beginning of the global meltdown. slowed down to 0. marine products. insurances.6% during FY2007–2008 and by 5.9% as compared to 34. growth in service exports declined to a mere 5. transportation.0% in the corresponding period a year back. The earnings from travel. Like merchandise. The sluggishness of the inflows of FDI.6% as compared to the same period in the previous year.2% in May 2009 as compared to the same month in 2008 (Figure 14). falling by 29. From its peak in September 2007. This is reflected in the manufacturing sector output experiencing a sharp slowdown in recent months. which resulted in a retrenchment of more than 300. their multiplier effect for economic activity is quite large as the import content is not high. The real shock came in the fourth quarter of FY2008–2009 when service exports witnessed a contraction of 6. the Indian rupee has come under pressure. handicrafts.3% in the first half of FY2008–2009. Though exports of both goods and services still account for only about 22% of the Indian GDP. which had grown at 9. during which exports have also shown a decline. In all likelihood. ECBs. it witnessed a sharp decline in export orders from the US and Europe. With the poor economic outlook for oil producing economies in the Gulf and West Asia. In November 2008. and remittances combined with the massive outflow of FII has resulted in the significant deterioration of India’s capital account in FY2008–2009. Therefore. unlike Chinese exports. it seems difficult for merchandise exports to recover within this calendar year. The index of manufacturing sector output (Manufacturing IIP).

foreign exchange reserves have also fallen by US$60 billion10 (Figure 15). belying the optimistic official pronouncements and expectations of some economists. and communication services. estimates for economic growth in the final quarter of FY2008–2009 (from January to March 2009) have pegged the growth at 5. The Indian economy was already in the middle of a policy-induced slowdown and the crisis has further aggravated it.11 when the Indian economy registered a modest growth rate of 5. However. 15 . The nearly 25% depreciation in the Indian rupee’s exchange rate has partially nullified the benefits from the decline in global oil and gas prices and has increased the cost of commercial borrowings. In the wake of a decline in domestic and export demand. At the same time. real estate. with foreign exchange reserves remaining at 110% of total external debt at the end of December 2008.March 2009) the Indian rupee has tumbled by 27% vis-à-vis the US dollar.2%. which may be expected to achieve a higher GDP growth in FY2009– 2010. The impact of the global crisis on the real economy became evident in the third quarter of FY2008–2009. The secondary sector in general and the manufacturing sector in particular performed extremely badly. still lower than 6. however. and personal services (22. which was the official estimate announced at the time of the interim budget in February 2009. robust growth in community.9%. In our view.0%. At the sectoral level. However.9% achieved in the corresponding period in FY2007–2008.5%) and financial.8% and the full year’s GDP growth at 6. hotel.8% growth in GDP in the first half of FY2008–2009. while growth in construction slowed down significantly from 9. and business services (8.12 significantly lower than 8. and after having achieved a 7.7%.3%) enabled the services sector to maintain healthy growth despite the sharp decline in trade.3%. encourage exporters and it is possible that with imports declining as sharply as exports that the country’s trade deficit may actually improve in the short run.7% in FY2008–2009. The timing of the external shock arising from the global economic downturn has been rather unfortunate. The key question is whether the 5. transportation. These is sharply lower than the average GDP growth of 8.8% growth in the fourth quarter of FY2008–2009 already reflects a turnaround in the economy. the external sector may remain stable and not pose any major policy issue. this is far too optimistic. the manufacturing sector witnessed a moderate growth of 0.7% to 4. investment sentiments should not be unduly affected in the near term. Additionally. For FY2009–2010 we expect the GDP growth to be about 6. The weaker Indian rupee should. The economy will in all likelihood continue on its downward trend in the first half of FY2009–2010 (from April to September 2009) before it recovers in the second half as the impacts of the global crisis on the Indian economy potentially taper off by October 2009. social.1%.9% during the previous four years (from FY2004–2005 to FY2007–2008) and also lower than 7. This estimate is based on a model of “leading economic indicators”13 that is used to forecast the GDP growth.

14 which is approximately 2% of the GDP.POLICY RESPONSES Fiscal Stimulus It should be pointed out that the initial fiscal stimulus was actually provided in the budget for FY2008–2009. 16 . reduction in indirect taxes. This can be compared to the 4% of GDP that was provided as stimulus in the FY2008–2009 budget discussed in the paragraph above. Electoral considerations made this into an expansionary exercise that included massive increases in public outlays in support of employment guarantee schemes. it did not leave much fiscal space for the Government of India to respond in any significant manner to counter the impacts of the global downturn. the India Infrastructure Finance Company Limited (IIFCL). All of these measures were taken because of political considerations and not in response to the global crisis. a special purpose vehicle (SPV) established in 2007. and increases in food and fertilizer subsidies. This fiscal expansion is expressed by the revenue deficit increasing from 1. some efforts were still mounted to counter the effects of the global economic slow down.7% in FY2007–2008 to 6. they have helped to shore up rural demand for both consumer durables and non-durables.4% of the GDP in FY2007–2008 to 4. funds allocated to the National Rural Employment Guarantee Program (NREGP). Three fiscal stimulus packages—one each in the months of December. The three postDecember 2008 stimulus packages mainly are comprised by increased government spending on infrastructure. These in aggregate amounted to Rs crore 106. pay commission rewards. and a large increase in subsidies for fertilizers and electricity supplied to the farmers (Table 6). and some assistance for export-oriented industries. announced in February 2008. Bharat Nirman (targeted for improving rural infrastructure) Prime Minister’s Rural Road Program. farm loan waivers. has been allowed to issue interest free bonds worth US$6 billion for refinancing the long-term loans for various infrastructure projects. In effect the higher than expected GDP growth rate in both the third and fourth quarters of FY2008–2009 could be attributed to the budgetary splurge announced in February 2008. the Government of India has increased its planned spending by US$4 billion and has also allowed the state governments to borrow an additional amount of US$6 billion from the market. In an attempt to boost the infrastructure spending that has been acknowledged as the most effective tool to counter economic downturn. Apart from this. and March—were announced.050 or US$21 billion. The expansionary public outlays included some measures that implied a hefty transfer of purchasing power to farmers and to the rural sector in general. These included farm loan waivers. At the same time the fiscal deficit of the central government increased from 2. Nevertheless. January. However.1% in FY2008–2009. While this has succeeded in shoring up GDP growth by raising rural demand.3% in FY2008–2009.

while the repo rate15 has 17 . Likewise the services tax rate has also been brought down from 12% to 10%. the RBI has injected a considerable amount of liquidity into the economy through a series of policy rate cuts. monetary policy shifted gear and became expansionary from October 2008. the last two years have been very hectic for policymakers at the RBI. Consequently. the RBI started tightening monetary policy in September 2004. domestic inflation once again started increasing towards the end of 2007 and became a major headline in the first week of June 2008 when it entered the double-digit range for first time since the 1991 BOP crisis. inflation declined from around 8% in the middle of 2004 to less than 4% in September 2007. The rapid decline in Wholesale Price Index (WPI) inflation. the Indian government has in effect expanded its fiscal outlay by 6% of GDP during FY2008–2009. In response to this rise in inflation. which began overheating over the past three years with the actual growth rate exceeding its potential growth rate. It has also allocated US$240 million for a full refund of terminal excise duty or central sales tax. Nevertheless.Secondly. The direct fiscal burden of all the aforementioned measures adds up to about 2% of total GDP. As the inflationary situation worsened in the subsequent period. In the wake of global financial crisis and its potential adverse effects on the Indian economy. and another US$80 million for various export incentives schemes. As a result the growth rate began to slow down from the middle of FY2007–2008. After a comfortable period of low inflation. the Indian economy started feeling the pressure of rising global commodity prices in the first quarter of FY2004–2005. to prop up domestic demand the central excise duty was gradually slashed from 14% in December 2008 to 8% in March 2009 on all products except petroleum products. The cash reserve ratios of banks has been brought down from 9% to 5%. coinciding with the rising global inflation trends. which has come down from its peak level of around 13% in August 2008 to less than 1% in April 2009. subject to a minimum rate of 7% per annum. It can be argued that the economy may have fared better if more fiscal space was available to boost domestic demand to counter the collapse of external demand that started in November 2008. raising the cash reserve ratios from 4. the tightening of monetary policy became even more aggressive. wherever applicable. if we include the stimulus provided in the FY2008–2009 budget. This credit tightening from FY2004–2005 onward ensured a soft landing of Indian economy. It drew a sharp reaction from the RBI and the speed of monetary tightening was further increased.5% to 5. allowed the RBI to completely shift its focus from inflation to growth. The government has also provided some relief to exportoriented industries through subsidizing interest costs of exporters by up to 2%. However. Since October 2008.0%. This looks rather small in comparison to the size of the stimulus in some other economies like the PRC and the US. Monetary Policy Response With the objective of maintaining price stability alongside a reasonable rate of economic growth.

0% in October 2008 to 12. Apart from the above-mentioned initiatives. The call money rates have also remained stable at low levels and the overnight money market rate has remained within the liquidity adjustment-facility corridor.8%. in hindsight. As a result of the policy rate cuts.9 billion has been injected through unwinding the market stabilization scheme. another sum of US$12. Other agencies like the IMF. have saved aggregate demand and prevented GDP growth from plummeting in to negative territory. any hope for a major revival of economic growth in FY2009–2010 looks unrealistic as the positive impact of fiscal measures.0% in November 2008 to 3. in order to discourage the banks from parking overnight funds with the RBI. It could be argued that the three fiscal stimulus packages. In fact. in a bestcase scenario GDP would grow by 6. As of April 2009. we were expecting a growth rate of 5. with an actual growth rate of 5. Apart from this. in conjunction with the transfer of purchasing power to the rural economy through increased budget outlays on the rural sector and the hike in minimum support prices of various crops. Thus. This has also been helped by the quick monetary policy response discussed above. the prime lending rates of commercial banks have come down from 13. In addition. developers have been permitted to raise ECBs for integrated townships projects. the FII limit on corporate bonds has been increased from US$6 billion to US$15 billion.75–14. the RBI has also liberalized the ECBs and FII related norms.5% January 2009. and ADB have also estimated Indian GDP growth in FY2009– 2010 at similar levels in their latest forecasts released in March 2009. Further. The cash reserve ratios reduction of 400 basis points since September 2008 alone has led to an injection of US$32. The statutory liquidity ratio (SLR) has been lowered by one percentage point. our calculation suggests that the fiscal stimulus has neutralized nearly 20% of the impact of the external shock. is bound to taper off. Nevertheless. To attract the foreign portfolio investors. the Indian economy will come down from the 9. while NBFCs dealing exclusively with infrastructure financing have also been allowed to access ECBs from multilateral or bilateral financial institutions.0% level that it had achieved in the 18 .25% in April 2009. in an attempt to boost the construction sector. At the same time.been slashed by 425 basis points. the reverse repo rate16 has been gradually reduced from 6. our shockaugmented leading indicator model that some experts at ICRIER have been using to forecast GDP growth for India17 verifies this hypothesis.7 billion. such as the implementation of 6th Pay Commission.0–12. If we go with this line of argument. With the full impact of the external shock. World Bank. Despite this.3% in the fourth quarter of FY2008–2009. a cumulative amount of nearly US$80 billion has been pumped in to the system (RBI 2009d). According to our revised forecast.0%. it seems that the growth will pickup marginally in the coming quarters because the monetary policy measures taken so far are expected to come in to play.0% in FY2009–2010 while in the worst-case scenario it would only manage a growth rate of 5. some special refinancing schemes have also been announced to improve the liquidity for certain sectors (Table 7).

leaving barely any more for further fiscal stimulus after the crisis. increasing it to 11. India had limited fiscal maneuverability to begin with.last four years to 6. due to electoral considerations a fiscal stimulus of nearly 4% of GDP was induced in the FY2008–2009 budget.5%. Actual and Forecasted Quarterly GDP Growth ASSESSMENT OF THE POLICY RESPONSES The Indian fiscal policy response to the crisis can at best be summarized as having been preempted by political considerations that resulted in a fiscal expansion ahead of the global crisis and left only limited space to respond in the aftermath of the crisis.0–6. This raised the combined fiscal deficit to about 10%.19 Given a high fiscal deficit (central and state combined) of 5. The increase in fiscal deficit had two implications. The fiscal stimulus. The growth targets for the XI Plan18 will also have to be lowered. worsened the fiscal deficit further. though very small in size as compared to other countries. it drew a strong response from international credit rating agencies and the sovereign credit rating of India was in the danger of being lowered. Any further reduction in India’s credit rating 19 . First. Hence the fiscal response after December 2008 could be argued to not have been as large as required. However.4% in FY2008–2009.4% in FY2007–2008.

The budget for FY2009–2010. This is reflected in the continued decline in the growth of non-food credit off-take from commercial banks in recent months. Unfortunately. because of the government’s large borrowing requirement and the stickiness in deposit rates that keep the cost of funds high for the banks. the high fiscal deficit naturally led to an increase in government borrowings. in real terms despite some reduction. In sharp contrast to the fiscal policy response.515 crore (US$65. especially if agriculture output is adversely affected by deficient monsoons. Higher government borrowing also put a lot of pressure on the interest rate.could have serious implications for capital inflows.1 billion) in FY2009–2010. The debt to GDP ratio was around 75% in FY2008–2009 (Figure 18). Secondly. The positive impact of monetary policy actions has therefore been somewhat limited. The commercial bank’s lending rates. as reflected in the 10year bond yield rate going up along with the announcement of the new stimulus packages.996 crore (US$80. The rise in public debt to GDP ratio can be worrisome as it is now well above levels reached in 1991 when the country faced a major crisis. POTENTIAL POLICY MEASURES TO REIGNITE GROWTH There is not much room for further fiscal policy action as the consolidated fiscal deficit of the central and state governments in FY2008–2009 is already approximately 11% of the GDP. which is expected to go up to 77% and may induce credit rating agencies to review their rating of Indian sovereign debt.912 crore (US$25. which accounted for about 58% of total revenue receipts in FY2008–2009. On the one hand it will be trying to hold interest rates down to 20 . are still very high and banks are not able to push up credit off-take. the present situation is not as serious primarily due to the strong external sector balance that India has been successful in building up since the beginning of this decade. Monetary policy will therefore face tough questions in the coming months.3 billion) in FY2008–2009 and is likely to be Rs 400.3 billion) in FY2007–2008 to Rs 326. However. is likely to rise even further and pose a significant risk. presented on 6 July 2009. This also implies a further rise in the debt to GDP ratio. This implies a significant increase in government borrowing. the policy rate cuts have not filtered into the retail credit market. estimates the fiscal deficit in FY2009–2010 to be at the same level. This large volume of government borrowing is bound to exert a significant upward pressure on market interest rates and also result in inflationary pressures. The long run interest rate increase could have serious implications for private investment. the monetary authorities in India acted aggressively once it was clear that inflationary pressures had subsided and growth was beginning to slacken. Debt servicing. which has risen from Rs 126.

and expanding physical infrastructure capacities. Raising the potential growth rate requires another round of structural reforms that will improve the investment climate. These measures will constitute the second generation of structural reforms and will enable the Indian economy to climb out of the downward phase of the growth cycle and then to extend the upward phase for a longer period than was achieved in the last cycle. including a major effort at improving connectivity in the rural regions. SMEs currently suffer from having to face a plethora of official procedures and licensing and regulatory requirements that raise their transactions costs significantly. On the other hand. as shown in the chart below. the focus of policy measures must be to further raise India’s potential output growth rate.0%. The two other areas that require attention and have been often discussed are an urgent improvement in the physical infrastructure and the delivery of public services. Various agencies have set the target growth rate between 8.5–9. it will have to keep a very careful eye on any inflationary tendencies and act quickly to restrain them. improving the delivery of public goods and services.stimulate private investment demand. 21 . With very limited fiscal maneuverability and the monetary policy constrained by the trade off between holding down interest rates and preventing inflationary tendencies. making them uncompetitive in global markets and unable to withstand import competition in domestic markets. Attention on these reforms will be far more effective and have a more permanent positive impact on raising India’s potential rate of growth. The evidence for this will be best reflected in an improvement in India’s rankings in the World Bank surveys in the coming year. The government will do well to review all the policies that have an impact on “doing business” in India with the clear objective of improving the investment climate. especially for small and medium enterprises (SMEs) that have suffered the most with the collapse of external demand and employ the majority of the work force. Other areas for policy attention that will help in removing some of the remaining structural bottlenecks on raising the potential GDP growth rate are the removal of entry barriers for corporate investment in education and vocational training. specifically urban utilities and law and order. which is essential if India is to achieve its goals of poverty reduction and rapid and sustainable growth to improve the overall welfare level of its people.

16.55% as against 81. Net NPAs to Net Advances stood at 0.058 crore respectively.44 on year.666.91 22 .84% and as per Basel II at 14.5% constituting 18. Net Worth improved to Rs 13.21 2.74 2008-09 1.0%. Book Value improved from Rs 313.94% last year.21 4.70 2.31% last year.15.54 7.16.735.818. Net Interest Margin (NIM) in global operations as per cent of interest earning assets was at the level of 2.12%.58 2.785.34% this year against 0.POLICIES BARODA OF BANK OF PERFORMANCE HIGHLIGHTS • • • • • Total Business (Deposit+Advances) increased to Rs 4. Retail Credit posted a growth of 23.14 crore registering a rise of 20.36%.82 to Rs 378.81 1. • • • • • KEY FINANCIAL RATIOS Particulars Return on Average Assets (ROAA) (%) Average Interest Bearing Liabilities (Rs crore) Average Cost of Funds (%) Average Interest Earning Assets (Rs crore) Average Yield(%) Net Interest Margin (%) 2009-10 1.935 crore and Rs 3. Net Profit registered a growth of 37.71. Business per Employee moved up from Rs 911 lakh to Rs 1.886.55 5.6%.3% over previous year.59 8.15% of the Bank’s Gross Domestic Credit in FY10.74% and in domestic operations at 3.068 lakh on year. Gross Profit and Net Profit were Rs 4.080 crore reflecting a growth of 24. Capital Adequacy Ratio (CAR) as per Basel I stood at 12.09 1.98 2. Credit-Deposit Ratio stood at 84.75.

048 crore.38 313.2% for FY10 reflecting a marked improvement over the 6. steel. and of Other Banking Operations was Rs 2.180 crore towards provision for tax.Cost-Income Ratio (%) Book Value per Share (Rs) EPS (Rs) 43.82 61.0% and 5.6% in FY09 reflecting the poor South-West monsoon rains. sectors like consumer non-durables. cement. However. on year on year basis.57 378.058 crore after deducting Rs 1. have grown strongly during FY10. respectively.14 SEGMENT-WISE PERFORMANCE The Segment Results for the year 2009-10 (FY10) reveal that the contribution of Treasury Operations was Rs 1. Other factors that facilitated its bounce-back during FY10 were an improving global economy. So. The Government’s advance estimates for the year have put India’s real GDP growth at 7. Agriculture output. in the wake of the global crisis. a return of risk appetite in financial markets and large capital inflows. that of Corporate/Wholesale Banking was Rs 1. the adverse impact of sub-normal monsoon has been contained to a large extent by a better-than-expected rabi (winter) crop in FY10. automobiles. Within the manufacturing sector. respectively.44 83. plastic & chemical products. The Bank earned a Profit after Tax (PAT) of Rs 3.0%. However.7%) and the services sector (8. thanks to the timely monetary easing and strong fiscal stimulus provided by the Reserve Bank of India (RBI) and the Central Government. is estimated to have fallen by 0.8%). mining & quarrying (8. India was not at the centre of the crisis and its growth is largely dependent on domestic drivers.906 crore of unallocated expenditure and Rs 1. rubber. production of foodgrains and oilseeds is likely to have declined by 8. According to the Government reports. power generation and labour intensive export-oriented 23 . the global crisis could not dent the country’s medium-term growth potential.2% as against a growth of 1. Moreover. etc.. that of Retail Banking was Rs 779 crore.732 crore. The main contributors to this growth have been manufacturing (8.585 crore. however.7% recorded in FY09.96 45. machinery & equipment. MANAGEMENT ANALYSIS DISCUSSION AND Indian economy strongly rebounded during the year FY10 ahead of most countries in the world. transport equipment.9%). the industries like infrastructure.

indications of generalization of inflation became increasingly evident starting from November 2009. A rebound in the economy and rising inflation pressures prompted the RBI to signal the beginning of an exit from its crisis policy stance since October 2009 when it restored the Statutory Liquidity Ratio (SLR) to 25.7% in March 2010. According to the RBI Report. 2010. Final consumption expenditure too remained subdued during FY10.72 in the corresponding period of FY09. especially gross fixed capital formation showed a gradual recovery during the year.8% in FY10. 2008.. Again. However.5 billion during April-December. etc. it raised the Repo and Reverse Repo Rates by 25 bps each on March 19th 2010 ahead of the Annual Monetary Policy in April. FY10. the fall in invisibles surplus led to marginally higher current account deficit during FY10. This was the first change in policy rates since April 2009. 2010 to guard against inflationary expectations becoming entrenched. The expansion of services sector was healthier at 8. The Wholesale Price Index (WPI) inflation. the FII (net) investment in India during FY10 was US$ 29 billion while 24 . 2009 stood at US$ 30. While a significant portion of inflation could be explained by a shortfall in agricultural production and spikes in international crude oil prices. it raised the Cash Reserve Ratio (CRR) by 75 bps to 5.0% and tightened provisioning requirements for property loans. Inflation in non-food manufactured products increased from (-) 0.9% by March. exports declined by 11. The latest available data show that the current account deficit during AprilDecember. as growth in both private and Government final consumption expenditure slowed down. Despite lower trade deficit. In cumulative terms. 2010. it slowed down from a year earlier due to a moderate pace of spending by the Government on compensation to employees.3% (y-o-y) in Apr-Feb. The robust growth in invisible receipts observed during the past few years was reversed in FY10 due to the lagged impact of recession in advanced economies.5%. A noteworthy feature of economic revival during FY10 was the resumption of large capital inflows led by both the FII and FDI inflows. investment demand.4% in November 2009 to 4.42 billion as against US$ 114. Imports too moved to positive growth in December 2009 after 12 months of year on year contraction. while imports declined by 13.3 billion. continued to remain fragile. The trade deficit during the first eleven months of FY10 stood at US$ 95. Subsequently. however. higher than US$ 27. A strong revival in global demand brought back India’s export growth to a positive zone in November 2009 after 13 months of year-on-year declines. However. after remaining significantly subdued during the first half of FY10.75% in late January. gems & jewellery.industries like textiles. increased at a faster pace in the second half and reached 9.

0% customs duty on petroleum products. The Union Budget for FY11 has set the goal of reducing the fiscal deficit to 5. and a restoration of 5.while higher than budgeted spending on pensions and food & fertilizer subsidies can be accommodated through savings on other accounts. an increase in inflation differentials between India and its trading partners during the year resulted in much higher appreciation of real exchange rate. food and fertlisers. The Union Budget for FY11 began the exit from fiscal stimulus by partially rolling back some of the duty relaxations introduced during the crisis period.4 billion at end-December 2009 recorded an increase of US$ 26. The Government’s record market borrowings programme proceeded well and in a non-disruptive manner during FY10 with limited impact on bond yields. FY10. 2009 as part of the RBI’s FER management operations. Furthermore. Furthermore.0% respectively. On the whole.FDI inflows amounted to US$ 33.0%. In nominal terms.1% in FY13.0% to 10.5% of GDP in FY11 and further to 4.8% in FY12 and to 4. on year-on-year basis. the RBI purchased 200 metric tonnes of gold from the IMF on November 3.1 billion to reach US$ 279.8 billion over its level at March 2009 primarily on account of an increase in long-term debt. additional excise duty on petrol & diesel. The other tax proposals included rationalization of income tax slabs. A landmark reform in the area of government subsidy is the introduction of nutrient-based subsidy for fertilizers. However.1 billion as at end-March 2010. This will be facilitated by the expected fall in expenditure items and likely revenue buoyancy. the government has decided not to issue any more special off-budget bonds from FY11 to finance subsidies for fuel.8% of GDP target. India’s foreign exchange reserves (FER) increased by US$ 27. This policy is expected to improve agricultural productivity.5% during FY10 primarily due to an upsurge in capital inflows. India’s external debt stock at US$ 251. During FY10. Another major fiscal development is a revival programme for the disinvestment of state-owned 25 .1 billion during April-February. contain the subsidy bill over time and offer environmental benefits. primarily on the back of huge FII inflows. in 3G auction proceeds and indirect tax collections. The Central Government’s fiscal deficit for FY10 is expected to remain within the 6. going forward. the rupee appreciated against the US Dollar by 11. It hiked the excise duty from 8. if any. Indian equity markets displayed vibrancy and increased momentum during FY10 except for some occasional corrections caused by Dubai World default and the Greek sovereign debt concerns during the last two quarters of FY10. Stronger divestment receipts and direct tax revenue could make up for the shortfall. including crude oil. the benchmark indices Sensex and the Nifty gained 81.0% and 74.

0%.enterprises listed on the stock exchanges. As credit growth was quite muted until November. With the industrial recovery getting increasingly broad-based.2%. The demand for non-food credit from the commercial sector started improving from November.3%. However. While.6% during FY10. 2009 and eventually posted a growth of 16. looks strongly positive. Within this. The Industry’s financial soundness indicators remained strong with the Return on Average Assets (ROAA) at 1. 2009. the scheduled commercial banks’ (SCB) Aggregate Deposits grew by 17.13%. On year on year basis. the banks struggled to protect their net interest margins by reducing the pressure on cost of deposits. the banking industry posted a decent business and financial performance despite several challenges. During FY10. For instance.1% (y-o-y).500 crore through this route. On balance. the state-owned banks played a major role in credit 26 . However. Its economy has been showing steady improvement. the government raised a record Rs 33. 2009. demand for non-food credit revived since endNovember 2009 and pushed upwards the incremental credit-deposit ratio in the second half of FY10. Exports and imports have bounced back since October-November.9% (y-o-y) by endMarch 2010 as against the Reserve Bank of India’s (RBI’s) indicative target of 16.0% with an upside bias.05% as at end-March. Indian banking industry stood firm and resilient amid the global crisis on the back of its improved productivity since the mid-1990s and a robust regulatory and supervisory framework. as the Government financed majority of its market borrowing requirements during this period. The outlook for India. after November. Industrial recovery is expected to take firmer hold on the back of rising domestic and external demand. Net Bank Credit to the Government grew at a strong pace till mid-November.000 crore through disinvestment. In the year up to October 2009. the banks’ demand deposits grew healthily by 22. primarily due to a sharp decline in interest rates offered on term deposits by several banks. A slower growth in term deposits resulted in a slower growth of broad money supply or M3 by 16. the Net Bank Credit to Government (including the RBI Credit) increased by 30. Flows of funds to the commercial sector from both bank and non-bank sources have picked up.98% and Net NPA ratio at 1. under the assumption of normal monsoon and sustained good performance of the industrial and services sectors. 2009 the growth in this component eased considerably. 2009. going forward. Capital Adequacy Ratio (CAR) at 13. whereas the FY11 Budget calls for realisation of Rs 40. Amongst the sources of money supply. 2009. During the year FY10. the RBI has projected real GDP growth for India for FY11 at 8. Business outlook surveys by the RBI and other agencies suggest that business optimism has improved.8% (y-o-y) during FY10 reflecting the industry’s aggressive efforts to mobilize lowcost (CASA) deposits to reduce the pressure on cost of funds. the term deposits grew by 16. deceleration in non-food credit had continued and reached a low of 10.8% (y-oy) during FY10.

For instance. Bank has constituted a Sub Committee of the Board on ALM (Asset Liability Management) and Risk Management to assist the Board on financial risk related issues. industry.0% a year ago. The fears of rising delinquencies have faded now with improving economic outlook and resumption of capital inflows. Within services sector. hotels. services and retail loans from November 2009 onwards.expansion during FY10.8% of their net demand and time liabilities at the end of March. Reflecting the revival in credit demand from the private sector. credit extended by private banks also showed some improvement in FY10 over last year. the Moody’s Rating Agency has changed the fundamental credit outlook for the Indian banking system from “negative” to “stable” on the back of favourable trends in India’s economic indicators over the last few months. tourism. 2009 shifting concerns away from potential bad loans arising from severe economic slowdown to concerns over asset price bubbles. Risk Management Polices and Risk Management Implementation and Monitoring Systems. With improving economic prospects for India. Disaggregated data on sectoral deployment of gross bank credit in FY10 put out by the RBI show an improvement in credit growth (y-o-y) to all major sectors like agriculture. The overall responsibility of setting the Bank’s risk appetite and effective risk management rests with the Board and apex level management of the Bank. Managing various types of financial risks is an integral part of the banking business. restaurants & trade accelerated in February 2010. 2010 as against 20. basic metals and metal products led the demand. The SCBs’ holdings of SLR securities was at 28. For the year FY11. Bank of Baroda has a robust and integrated Risk Management system to ensure that the risks assumed by it are within the defined risk appetites and are adequately compensated. Even the Fitch Rating Agency has stated in its latest report on Asian Banking Industry that the operating environment for banks in Asia (including India) has strengthened unexpectedly fast in June-December. Within industrial sector. the loan portfolio of foreign banks contracted further in FY10. Asset quality of Indian banks too remained largely stable during the year FY10 except for a few banks. The Bank has a full fledged Risk Management Department headed by a 27 . However. computer software. as per the RBI report. the outlook for Indian banking industry remains positive. many International Credit Rating Agencies have revised their outlook for the Indian banking industry in the recent past.5% (y-o-y) as on March 26. the SCBs’ investment in SLR securities increased at a lower rate of 18. The Risk Management Architecture in the Bank comprises Risk Management Structure. 2010. The credit to real estate decelerated sharply in FY10 mainly on account of change in the concept of real estate introduced in September 2009. credit growth for transport operators. the sectors like infrastructure.

Pillar III Disclosure Policy. etc in line with the guidelines of Reserve Bank of strategies to meet asst-liability basically responsible for Management. net short term borrowings and net credit to customer deposit ratio and prime asset ratio. Stress Test Policy and Stress Test Framework. working in the Risk Management Department reviews the liquidity position on a daily basis to ensure that the negative liquidity gap does not exceed the tolerance limit in the respective time buckets. It has the spreads. lending rates. trained and experienced employees. India. manage and mitigate various risks that the Bank is exposed to. Credit Policy Committee (CPC) has the responsibility to formulate and implement various enterprise-wide credit risk strategies including lending policies and also to monitor Bank’s credit risk management functions on a regular basis. Operational Risk Management Policy. transfer pricing. In the financial services industry. Credit Risk. The Bank has Board approved policies and procedures in place to measure. The liquidity risk is measured by flow approach on a daily basis through Structural Liquidity Gap reports and on a dynamic basis by Dynamic Gap reports on fortnightly basis for the next three months. During the year under review. Under Stock Approach. The Bank has set up separate committees. Domestic Loan Policy. the main risk exposures that the Bank faces are Liquidity Risk. the Bank has in place Asset Liability Management and Group Risk Policy. The Asset Liability Management (ALM) Cell.General Manager and consisting of a team of qualified. Operational Risk Management Committee (ORMC) has the responsibility of mitigation of operational risk by creation and maintenance of an explicit operational risk management process. Asset Liability Management Committee (ALCO) is the management of Market Risk and Balance Sheet responsibility of managing deposit rates. In order to provide ready reference and guidance to the various functionaries of the Risk Management System in the Bank. Specialized Integrated Treasury Branch. Internal Capital Adequacy Assessment Process (ICAAP). The Bank’s ALCO has the overall responsibility of monitoring liquidity risk of the Bank. the Bank has established a series of caps on activities such as daily call lending. Market Risk and Operational Risk Liquidity risk is the risk that the Bank either does not have the financial resources available to meet all its obligations and commitments as they fall due or it has to access these resources at excessive cost. Business Continuity Planning Policy. Off Balance Sheet Exposure Policy (domestic). daily call borrowings. Credit Risk Mitigation and Collateral Management Policy duly approved by the Board. Mid Office Policy. of Top Executives of the Bank to supervise respective risk management functions as under. the financial system exhibited a fair level of liquidity with some adjustments done by the monetary authority to balance credit growth and control inflation. Mumbai 28 . It also plans out mismatches. etc.

The Bank uses a robust rating model developed to measure credit risk for majority of the business loans (non personal loans). monitoring and control of credit exposures. Apart from estimating PD and LGD. The Bank has significant level of marketable securities. The funding requirements in case of contingencies are also examined at regular intervals to prepare the Bank to meet any exigencies of a shortfall in funds’ position. The Bank has adopted various credit rating models to measure the level of credit risk in a specific loan transaction. if required.assesses the domestic liquidity in respect of all foreign currency exposures. The objective of market risk management is to avoid excessive exposure of the Bank’s earnings and equity to such losses and to reduce the Bank’s exposure to the volatility 29 . The Bank has managed its liquidity by prudent diversification of the deposit base. wherein the Bank has specified various prudential caps for credit risk exposures. Apart from assessing credit risk at the counterparty level. which can be sold. equity. Loss Given Default (LGD) and unexpected losses in a specific loan asset. the credit rating model will also help the Bank in several other ways as under. The Bank undertakes portfolio reviews at regular intervals to improve the quality of the portfolio or to mitigate the adverse impact of concentration of exposures to certain borrowers. The industry reports are communicated to the operating functionaries to consider the same while lending to these industries. Credit risk management processes involve identification. the Bank has appropriate processes and systems to assess credit risk at portfolio level. sectors or industries. The rating model has the capacity to estimate probability of default (PD). etc. Investment Policy. In order to provide clarity to the operating functionaries. To measure and assess the overall credit risk and to evolve a desired profile of credit risk. The Bank also conducts industry studies to assess the risk prevalent in industries where the Bank has sizable exposure and also for identification of sunrise industries. used for repo borrowings or as collaterals. In respect of overseas operations. Off-Balance Sheet Exposure Policy. control on the level of bulk deposit. • • • To migrate to Rating Based Approaches of computation of Risk Weighted Assets To price a specific credit facility considering the inherent credit risk. etc. the Bank has various policies in place such as Domestic Loan Policy. forex contracts. measurement. and ready access to wholesale funds under normal market conditions. Credit Risk is the risk that the counterparty to a financial transaction will fail to discharge an obligation resulting in a financial loss to the Bank. each territory assesses its currency wise liquidity position at prescribed intervals. Market risk implies possibility of loss arising out of adverse price movements of financial instruments like bonds.

modified duration. the Operational Risk Management Committee (ORMC) has the responsibility of monitoring the operational risk of the Bank. The Bank has a very large overseas presence amongst the Indian banks and has implemented the Basel-II Guidelines from 31st March 2008.2008 31. Based on the RBI directions. and price risk on trading portfolios.94% 14.inherent in financial instruments such as securities. equities and forex positions on monthly basis. the Bank has adopted Standardized Approach for Credit Risk. The Value at Risk for the treasury positions is calculated for 10 days holding period at 99% confidence level.03. The stress testing of fixed interest investment portfolio through sensitivity analysis and equities through scenario analysis is regularly conducted. Operational risk is the risk of loss on account of inadequate or failed internal process. The Bank monitors the short-term Interest rate risk by NII (Net Interest Income) perspective and longterm interest rate risk by EVE (Economic Value of Equity) perspective. As stated above. and Standardized Duration Approach for Market Risk for computing the capital adequacy ratio. Furthermore.2009 Basel I 12. The Interest rate risk is measured through interest rate sensitivity gap reports and Earning at Risk. been computing the Capital to Risk Weighted Assets Ratio (CRAR) on parallel basis under Basel-I and Basel-II Guidelines.88% Basel II 12. procedures. The Bank has clearly articulated policies to control and monitor its treasury functions. equity and derivative instruments. The Bank collects and analyses loss and near miss data on operational risk based on different parameters on a half yearly basis and.05% 30 .03. foreign exchange contracts. the Bank calculates duration. wherever necessary. as well as balance sheet or structural positions. The Bank also has an asset liability management policy to address the market risk. Value at Risk for its investment portfolio consisting of fixed income securities. corrective steps are taken. As on 31. The Bank has. the Bank is also estimating the Economic Value of Equity impact on a quarterly basis. or funding risk. people and systems or external factors. The primary risk that arises for the Bank as a financial intermediary is interest rate risk due to the Bank’s asset-liability management activities. The Bank is also providing additional capital towards Operational Risk under Basel II guidelines. prudential risk limits. The CRAR of the Bank is summarized as under.91% 12. These policies comprise management practices. In keeping with the guidelines of the Reserve Bank of India. review mechanisms and reporting systems. liquidity. Other market related risks to which the Bank is exposed are foreign exchange risk on foreign currency positions. These policies are revised periodically in line with changes in financial and market conditions. Basic Indicator Approach for Operational Risk. therefore. The Bank monitors operational risk by reviewing whether its internal systems and procedures are duly complied with.

72% 0.10% 1.Deposit Ratio 31.14% 2. The Bank conducted its ICAAP tests on semi annual frequency along with stress tests as per the ICAAP Policy of the Bank.69% 23.35% 77. Stress Testing and scenario analysis are used to assess the financial and management capability of the Bank to continue to operate effectively under exceptional but plausible conditions. legal.78% 5.89% 9.No.87% 1. environmental and social factors The Bank has a Board approved Stress Testing Policy describing various techniques used to gauge their potential vulnerability and the Bank’s capacity to sustain such vulnerability.53% 1.11% 31.35% 3.55% 4.77% 24.22% 1.59% 31.15% 1.86% 4.93% 15.20% 2.03.44% 1.2007 7.03. Such conditions may arise from economic.63% 5.89% 0. Key Financial Indicators .2008 7.05% 2.2006 6.03.15% 19.82% 12.32% 81.12% 2.65% 3.25% 55.91% 2.80% 0.80% 8.84% 45.22% 4.43% 4.96% 50.59% 3. the Bank formulated its Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks the Bank is exposed to.03.21% 8. political.15% 74.85% 0.15% 25.03.94% 84.04% 51.Profitability Ratios S.73% 0.78% 10.71% 17. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Particulars (In Percentage) Interest Income / Average Working Funds (AWF) Interest expenses / AWF Net Interest Margin (NIM) Interest spread / AWF Non-Interest Income / AWF Operating expenses / AWF Cost Income Ratio Gross (Operating) profit / AWF Net profit / AWF Return on Net Worth Return on Assets Return on Average Assets Yield on Advances Cost of Deposits Dividend payout Ratio (including Corporate Dividend Tax) Credit -.2010 6.03% 1.2010 12.10% 2.17% 0.48% 0.32% 1.26% 22.56% 43.22% 31.37% 4.53% 5.57% 2.31.64% 1.11% 2.42% 2.89% 1.36% In compliance with the Pillar–II guidelines of the Reserve Bank of India under Basel II framework.94% 0.98% 1.30% 1.03.43% 1.75% 31.50% 5.90% 16 67.2009 7.74% 2.07% 0.19% 1.10% 9.90% 2.42% 1.93% 1.81% 0.84% 14.79% 7.90% 20.55% 31 .38% 2.

17 1.2006 38774 2743 3.56% 12.68 4 3.I Tier .13 55.64 5.09% 14.86 1.40 261.20% 5. The first half of the year was marked by a sharp contraction in agricultural output caused by deficient monsoon.88% 7.63% 5.No.34 7.85 132.03.57 0.50 39.74% 3.14 313.36% 9.21% 82.48 31.05 112.87 0.05% 8.78% 87.91% 7.64% 5.59 3.97 83.62% 14.23 0.83% 18 13.94 7.16% 19 Key Financial Indicators .2009 36838 2974 9.84% 8.90 89.51 4.80% 8.96 378.03.94% 7.03.98% 2.69 12.04 31.49% 5.67 6 7 8 9 10 11 2. a continued 32 .I Tier .01 0.25 1.Efficiency Ratios S.17 Credit + Non SLR Investment (excluding Investments in Subsidiaries) -Deposit Ratio Capital Adequacy Ratio (BASEL I) Tier .03.30 27.65% 10.75 61.44 Economic and Banking Environment Indian economy and its banking industry passed through many ups and downs throughout the year 2009-10.45 0.54 6.96 11.II 74.44% 88.94% 80.06% - 12.03. in lakhs) Net Profit per employee (Rs.82 7.18 2.30% 12. in crore) Average Business per employee (Rs in crore) Gross Profit per employee (Rs.94 5 4.57 8.70 0.2010 38960 3148 10. 1 2 3 Particulars (In Percentage) Employees (number) Branches (number) Business per employee (Rs.22% 4.2008 36774 2899 7.95 6.99 0. in crore) Gross Profit per branch (Rs.67% - 11.II Capital Adequacy Ratio (BASEL II) Tier .70 75. in crore) Earnings per share (Rupees) Book Value per share (Rupees) 31.11 31. in lakhs) Business per branch (Rs.79% 5.10 209. in crore) Net Profit per branch (Rs..37 28.18 231.28% 12.2007 38086 2772 5.96 31.

nonfood inflation too picked up in the last quarter of 2009-10 with overall demand getting stronger and a rise in the administered prices of domestic fuels.5 billion as against US $ 21. The major growth drivers of industrial production were mining and manufacturing sectors and within the manufacturing sector.3 billion in 2008-09. Indian industry saw a substantial turnaround in the latter half of 2009-10. It may be noted that the PSU banks played a major role in financing productive investments during 200910.4% as against 2. Mirroring the real sector progress in the second half of 2009-10. As a result. the banking industry as a whole had witnessed a considerable deceleration in credit demand till October. India’s merchandise trade managed to recover in the latter part of the year from the severe impact of global financial turmoil. The monthly headline inflation for March.7% as against a growth of 3. However.1 billion during 2009-10 to reach US $ 279. the Indian banking industry too posted a decent performance during 2009-10. During the year. Capital flows continued to remain buoyant throughout the year 2009-10. credit costs increased for several banks with the maturing of 33 .1% (y-o-y) and Non-food Credit by 16. This was mainly attributed to higher capital inflows in the form of portfolio investments during the year 2009-10. 2010 sharply rose to 11. the economy witnessed a quick rebound thanks to the timely countercyclical policies of the Government and the Reserve Bank of India (RBI) in response to the global crisis. 2008.1 billion at the end of March 2010. While infl ationary pressures since late 2009 stemmed initially from rising food prices. 2009 after contracting continuously for the previous 12 to 13 months. the industrial production for 2009-10 registered a growth of 10. inflation emerged as the major macro risk during 2009-10. Indian exports contracted by (-) 4. 2009. Accelerated growth in both inflation and industrial production prompted the RBI to normalize its Monetary Policy and move its focus to “recovery management” from “crisis management”. taking the entire year 2009-10. However.4% in 2008-09. a pick up in several economies of the world and a recovery in capital inflows. a negative growth in exports/imports and a muted demand for bank credit. The Scheduled Commercial Banks’ Aggregate Deposits expanded by 17. India’s foreign exchange reserves (FER) increased by US $ 27. the RBI raised Cash Reserve Ratio by 75 bps and Repo/ Reverse Repo rates by 25 bps each to anchor inflation expectations. Both exports and imports too turned positive by November-December.8% in 2008-09. However. While the asset quality remained relatively stable. However. the capital goods and consumer durables sectors.slowdown in final consumption expenditure. During the last quarter of 2009-10. total foreign investments amounted to US $ 66. in the second half of 2009-10.the highest since October.04% .9% (y-o-y) during 2009-10.

restructured loans. In domestic operations. Global (Net) Advances expanded by 22.0%. the Bank took forward its objective of “growth with quality” by creating a solid strategic base.March. Let me now give you a detailed account of your Bank’s business and financial performance during 2009-10 against the economic backdrop just presented. your Bank’s Overseas Credit expanded at the pace of 25.16.3%. While Global Deposits registered a growth of 25. your Bank’s Deposits grew by 22.43% of the Adjusted Net 34 . You are aware that your Bank enjoys considerable advantage from its extensive overseas operations in 25 countries through 78 offices. Your Bank’s low cost deposits (CASA) grew at the healthy pace of 25.1%.1% on year on year basis during 2009-10. profitability and asset quality fronts) for the year 2009-10 at the beginning of the year. Your Bank consciously maintained its business growth well above the banking industry’s average to further improve its market share. Global Business The Global Business of your Bank reached Rs 4. Overview of Bank’s Performance in 2009-10 It was another successful year for Bank of Baroda as once again it delivered impressive results.87%. a rise in fiscal deficit on account of deceleration in tax revenue growth gave rise to higher market borrowings during 2009-10. its credit to Priority Sector grew by 23.1%.080 crore by end. Also. Furthermore.0% to its Global Business during the year under review Segment-wise Business Your Bank maintained its thrust on wellbalanced growth across all business segments during 2009-10.63% from the previous year’s 34.7% (y-o-y) to Rs 48. Let us now discuss the main highlights of your Bank’s performance during the year under review.4% (y-o-y).552 crore in 2009-10 and formed 44.3% (y-o-y). Moreover.5% (y-o-y) in global operations during 2009-10. which helped improve the domestic CASA share to 35. during this year. Cashing in on the early signs of global recovery and surging trade volumes. your Bank achieved all the targets under the Statement of Intent that it had committed to the Government of India (on business. Within India. 2010 with an annual growth of 24.2%. whereas Overseas Deposits grew by 36. Within India also. highlighting the sustainability of its performance despite ongoing economic uncertainty. whereas Advances (net) expanded by 21. the growth of CASA deposits was 25. Your Bank’s Overseas Business contributed almost 24. This resulted in heightened volatility in bond yields and posed tough challenges to the banking industry’s treasury operations.

5% (y-o-y) in 2009-10 and attained the level of Rs 24.90% in 2009-10 as against the regulatory requirement of 70. 2010 on the back of healthy business growth.13% in 2009-10. 2010. Moreover. Within this segment.0% and touched Rs 21.March.248 crore by end-March.111 crore by the end of 2009-10. Asset Quality Your Bank continued to maintain its good performance in asset quality management during 2009-10 also. While your Bank’s Global NIM stood at 2.36% and Net NPA to 0. your Bank could restrict its Gross NPA to 1. 2010. prudent control over cost of funds.939 crore in 2009-10 supported by a sequentialimprovement in the Bank’s Net Interest Margin (NIM) on the back of relatively higher share of CASA deposits.617 crore by end-March. The Bank’s Incremental Delinquency Ratio was contained at 1. Your Bank’s rigorous follow up of all NPA accounts has yielded it Cash Recovery of Rs 383 crore. Your Bank’s credit to Micro. Similarly. While the Indian banking industry witnessed remarkable increase in nonperforming assets during 2009-10.9% (y-o-y) to reach Rs 5. its Domestic NIM stood at 3. Your Bank’s Credit to Weaker Sections too grew by a robust 34.058 crore by end.313 crore by year end. better operational effi ciency and lower provisions on account of stable asset quality.00%.34% thanks to its robust systems of credit origination and monitoring. Your Bank’s NPA Coverage Ratio stood at the healthy level of 74. Cost-Income Ratio 35 . 2010. Small & Medium Enterprises (MSME) showed a robust growth of 44.3% (y-o-y) in 200910 to touch Rs 3. Your Bank’s Retail Credit posted a growth of 23. Agricultural Advances of your Bank recorded a growth of 27.8% and reached the level of Rs 10. Profitability Your Bank’s Net Profit witnessed a respectable growth of 37.74%. Net Interest Income Your Bank’s Net Interest Income grew by 15.12% during 2009-10. your Bank could recover Rs 300 crore from the prudentially written off accounts during the year under review.Bank Credit.945 crore by end-March. besides upgrading of accounts of over Rs 194 crore into standard advances.2% and touched Rs 10. its Home Loan book expanded by 24.4% to reach Rs 21. reduced dependence on high cost bulk deposits and timely downward revisions in deposit rates.

785. the Bank strengthened its Capital Base by raising Rs 1.6% (y-o-y).14 crore in 2009. Return on Average Assets Your Bank’s Return on Average Assets improved from 1.38% in 2008-09 to 43. Capital Adequacy Your Bank’s Capital Adequacy Ratio stood at the comfortable level of 14. Earning Per Share Your Bank’s Earnings per Share also improved signifi cantly from Rs 61.44 in 2009-10 reflecting a decent growth of 20.2% (y-o-y) from Rs 911 lakh in 2008-09 to Rs 1.10 registering a year on year growth of 20.000 crore through unsecured subordinated bonds and Rs 900 crore through innovative perpetual bonds. Business per Employee Your Bank’s Business per Employee grew by a robust 17.57% in 2009-10 reflecting a significant improvement in operating efficiency during the year under review. as your Bank could leverage effectively its newly created technology and marketing platforms. Book Value per Share Your Bank’s Book Value per Share too improved signifi cantly from Rs 313.48% in 2008-09 to 22.14 in 2008-09 to Rs 83.21% in 2009-10 on sustainable improvement in core earnings and operating effi ciency.96 in 2009-10 reflecting a strong growth of 37.Your Bank’s Cost-Income Ratio declined from 45. Return on Equity Your Bank’s Return on Equity improved from 19.068 lakh in 2009.6%.36% under Basel II as on 31st March.3% (y-o-y).19% in 2009-10 on sustained improvement in profi tability and productivity. 36 .20%. Net Worth Your Bank’s Net Worth significantly improved to Rs 13.09% in 2008-09 to 1. 2010 with Tier I Capital at 9.82 in 2008-09 to Rs 378.10. During the year under review.

(5) Centralised MIS & Business Intelligence Unit. Business Process Re-engineering Your Bank embarked upon a massive Business Process Re-engineering and Organization Restructuring initiative and launched Project Navnirmaan in the month of June. New Technology Platform Your Bank achieved 100. front-end automation. to be rolled out in all the Metro and Urban branches of your Bank is intended to provide superior customer experience through improved layout and ambience. (7) Credit flow redesign.0% Core Banking Solutions (CBS) for all its domestic branches during September. The CBS has also been implemented in your Bank’s 46 overseas branches. Your Bank’s ATM network expanded to 1. There are several projects at various stages of implementation under Navnirmaan. Your Bank launched several new IT products and services such as Online Trading Project. 37 . your Bank is hoping to tone up its service delivery system to achieve enhanced business and profi tability. your Bank undertook a major initiative towards Business Process Reengineering to improve the sales and marketing orientation of its employees. ATM Switch application. besides simplifi ed/ redesigned processes aided by self-service.071. 2009. and shifting of many transaction handling processes to different back offices to ensure efficient turnaround time. (3) World-class “Lean Service Factory”. Broadly. (8) Capability building within the organisation for ensuring sustainability of the change efforts through the Academy of Excellence. 2009. This project aims to harness the power of technology and align its processes to bring about enterprisewide sales orientation and process simplification. All the CBS branches of your Bank are enabled for inter-bank remittances through RTGS and NEFT.315 during 2009-10. Your Bank is endowed with a competent and highly motivated employee base of around 38. by fi ne-tuning of its various business units and by focusing on ensuring effi cient working of its branches. Through redesigned work streams and centralization of non-customer facing activities. who are engaged in handling the extensive business operations of the Bank across the globe. (2) Effective usage of alternate delivery channels. The salient features of this project are as follows. these are: (1) Ideal future branch model with sales focus. The prime objective of the HR function is to harness the employee potential for serving the customers better.Bank’s Key Strategic Initiatives The Human Resource (HR) strategies have been a key component of your Bank’s overall strategic effort towards business transformation. During 2009-10. (6) Restructuring of organisation. The Baroda Next Branch Model under this Project. (4) Call centre.

Government of India. and Payment Messaging Solution. Initiatives in Priority Sector & Farm Loan Business Your Bank has always been a frontrunner in the area of Priority Sector and Agriculture lending. Small and Medium Enterprises (MSME) segment has been a vital component of the Indian economy. your Bank took several measures during the year under review. Raebareli. harnessing the vast potential of the rural market through its wide network of 1. Your Bank has identifi ed 450 Thrust Branches across India to enhance Agriculture lending which constituted 34. Your Bank also implemented the Business Facilitators Model across the country to accelerate Financial Inclusion of the excluded segment as well as to augment its agriculture portfolio. Dedicated SME Meets and Interactive Sessions were held at several centres with SME customers. your Bank introduced IT-enabled smart card based technology for fi nancial inclusion. Furthermore. 38 . 3D Secure Implementation under the Internet Payment Gateway Project.0% Financial Inclusion in 21 out of 44 of its lead districts. Going by the past success. Your Bank celebrated a special SME Month from 1st December. In order to achieve the sustained business growth. To promote the growth of this sector. Initiatives in Retail Business Your Bank opened 178 new domestic branches and merged four branches during 2009-10. These centres would be providing fi nancial literacy and credit counselling to needy persons. around nine Baroda Swarojgar Vikas Sansthan (BSVS) / Baroda R-SETI Centres were opened during 2009-10.Phone Banking. your Bank improved and customized several retail lending products and launched a number of business mobilisation campaigns spread over the year. At the instance of Ministry of Finance. Over two million no-frill savings accounts have been opened in your Bank so far. Furthermore. your Bank opened four Financial Literacy and Credit Counselling Centres christened as “SAARTHEE” at Ajmer. The Bank’s Retail Business continued to be one of the thrust areas for achieving business growth during 2009-10. during the year under review. it introduced online modules for Home Loan and Education Loan Applications.0% of total Agriculture lending as at end-March 2010. Initiatives in MSME Business The Micro. Towards effective use of technology in rural agricultural lending. Your Bank introduced seven new customercentric area specifi c products to suit the local cluster needs. Also. These Business Facilitators mainly canvass loan applications for the Bank. Your Bank achieved 100. etc. your Bank launched a new subsidy linked housing loan scheme styled as “Interest Subsidy Scheme for Housing the Urban Poor” on October 10.126 rural branches and 721 semiurban branches. your Bank opened six new Retail Loan Factories during 2009-10. Amethi and Baroda. It set up three new SME Loan factories during 2009-10. 2009.

Moreover.000 were gainfully self employed. Andhra Bank and Legal & General Group Plc (UK). Initiatives in Overseas Business Given the current state of many developed countries.2009 to 31st December. your Bank has so far established 25 Baroda Swarozgar Vikas Sansthan (Baroda RSETI) for imparting training to the unemployed youth. through its untiring efforts. expanded customer base and took various steps in the interest of long-term growth of overseas business. These Santhans so far have trained more than 37. the Bank. the Bank diversifi ed into life insurance business by forming a three-way Joint Venture amongst Bank of Baroda. Mukono (Uganda) and Lira (Uganda). four new branches of the Bank’s subsidiaries were opened at San Fernando (Trinidad & Tobago).000 youth out of which around 22. As stated earlier. The company named as IndiaFirst Life Insurance Company Ltd. Your Bank also implemented CBS at all the overseas centres except New York and Brussels in order to take maximumadvantage of the ‘State of the Art Technology’ and provide quality products and Services to customers at a competitive price. your Bank launched various new products and services and enhanced the features of existing schemes to synchronise with the governmentspecifi c schemes.. received an overwhelming responsefrom the Bank’s esteemed customers across the country making the company the fastest ever Insurance company to reach Rs 100 crore premium collections in the fi rst 100 days. 2009. your Bank launched aggressive marketing campaigns. empowered the community towards the socio-economic development of the underprivileged and weaker sections. which was subsequently extended up to 15th January. During 2009-10. free of cost for gainful self employment and entrepreneurship skill development which would help them improve their family economic status and also give a boost to the local economy in those locations. as a Bank from 1st September. the Reserve Bank of New Zealand registered your Bank’s subsidiary. Besides. Initiatives to Diversify Income Streams During the year under review. Bank of Baroda (New Zealand) Ltd. your Bank’s Overseas Management primarily focused on strengthening the risk management and AML systems. 2009. Your Bank also continued with its branch expansion plans to take advantage of the business opportunities available in various countries around the world. Certain concessions in the rate of interest and service charges were announced for loans sanctioned during the celebration period. To improve the overseas penetration. 39 . Corporate Social Responsibility (CSR) Initiatives Keeping in view the commitment of your Bank to address various social causes as a necessary aspect of its Corporate Governance. Chaguanas (Trinidad & Tobago). 2010 in order to give boost to SME business.

Your Bank has adopted 101 villages across India for their all-around development and to provide financial assistance for development of infrastructure facilities like setting up village libraries. We will try to achieve this by – (a) maintaining healthy CASA growth. (b) achieving balanced growth across all business segments such as wholesale.10. However. which is currently in double digits. your Bank would continue to perform with thrust on sustainable growth. This means long-term interest rates are likely to resume a rising trend with a return to more normal economic and financial conditions. (d) implementing stringent management of asset quality. Against this guidance. In order to spread awareness among the rural mass on various fi nancial and banking services and to speed up the process of financial inclusion.0% with an upside bias during 2010-11. up from 7. MSME.0% financial inclusion.Most of your Bank’s social activities are linked to rural masses. The RBI intends to further raise policy rates along with possibly reserve requirements. your Bank’s business objectives for the year 2010-11. the receding effects of global crisis on the U. retail. problem solving and credit counseling for rural masses across the country. India’s strong domestic growth drivers.S. In that case. Baroda and Raebareli. the current policy mix should prove conducive to achieving strong growth with relatively lower infl ation over the medium term. as monetary and fi scal stimulus is further withdrawn to check galloping pace of headline infl ation. its Motto for the financial year 2010-11 is “Leveraging Technology for Augmenting 40 .0%.0% and 20.4% in 2009. appears to be achievable. As in the past couple of years. Amethi. your Bank had adopted Dungarpur District in Rajasthan for total integrated rural development and 100. Furthermore. Hence. Growth may slightly ease in the year 2011-12. Brand value and Human Resource strengths to serve its customers in the best possible way. respectively. the RBI’s guidance for the Indian banking industry’s deposit and non-food credit growth at 18. Your Bank has so far established 52 Baroda Gramin Paramarsh Kendra for knowledge sharing. your Bank has established four Financial literacy and Credit counseling Centres at Ajmer. economy -India’s major trade partner and prospects for strong domestic private investment and consumption suggest that India’s real GDP is set to grow at 8. Earlier. (c) keeping a strong back up of fee-based income and. under this project. community hall and solar lighting systems in villages. The Road Ahead While the Indian economy may pull back slightly after the strong showing in therecent months. agriculture and overseas operations. your Bank has provided scholarships to 50 tribal girls to promote education among tribal community. I would now like to share with you. which has already been achieved. relatively higher dependence on domestic sources of fi nancing and lower dependence on external official creditors wouldinsulate it from unpredictable changes in global investor and creditor confi dence in 2010-11. Your Bank will continue to leverage its Technology.

Business Growth and Profitability”. a muted demand for bank credit and a negative growth in both exports and imports.1% (y-o-y) in February. However in the second half of 2009-10 (i. The first half of the year (i.. FY10 and came close to 10. FY10) was overcast by the monsoon failure and a sharp decline in foodgrain production. Rapid growth in both inflation and industrial production has prompted the Reserve Bank of India (RBI) to normalise its Monetary Policy and move its focus to “recovery management” from the earlier thrust on “crisis management”. higher level of government market borrowings and resultant volatility in bond yields posed tough challenges for the banking industry’s treasury operations.e.. a pickup in the global economy and a recovery in capital inflows helped India overcome an adverse monsoon and see a quick rebound in the economy. credit costs increased for several banks with the maturing of restructured loans. While the demand for bank credit remained highly subdued and skewed throughout the year under review. FY10 increased at a faster pace in H2.0% (y-o-y) in March. The project “Navnirmaan” launched in 200910 should help your Bank in optimizing the available physical and human resources for maximizing business and profit. The first quarter of 2010-11 has demonstrated that your Bank is well positioned and on the right course to achieve its set business objectives for 2010-11. It is well prepared and poised to make use of growing economic opportunities to add to its strength. The headline inflation (WPI). H2. after remaining subdued during H1. Economic Review Indian economic environment was fairly mixed and uncertain during 2009-10 (FY10). Bank of Baroda has been able to withstand the turbulence more 41 . At the same time. a continued slowdown in final consumption expenditure.e. Moreover. During the last couple of years. countercyclical policies. Both exports and imports turned positive by November-December. driven by manufacturing and mining sectors. 2009 to 15. FY10). which were marked with rising economic challenges and uncertainties. 2009 after contracting continuously for the previous 12-13 months. 2010. Your Bank will continue to remain committed to create as much sustainable value for its stakeholders as possible. your Bank has aligned itself well with the new normal environment.1% (y-o-y) in April. 2010. H1. It has also built strong strategic foundations to sustain its performance in the years ahead. the industrial production recovered from 1. Bank of Baroda’s Resilience to Shocks While it is challenging to remain immune to the disruptions created by economic shocks.

The project envisages redesigning and streamlining of existing processes and structures including revamp of the branch architecture for better service and sales. etc.16. the Bank’s customers enjoy multiple service channels like Baroda Connect (Internet Banking). Again in the year FY10.0% to its operating profits in FY10. that is. transparency. Despite ongoing global economic challenges. Notwithstanding the unprecedented turbulent conditions created by the global economic meltdown during the years FY09 and FY10.47% and net NPA at just 0.” The Bank achieved 100. I am happy to share with you that the Bank too met the stakeholders’ expectations in terms of performance.080 crore during the year FY10. One of the greatest strengths of the Bank over a period of time has been the “trust and confidence” that it enjoys of its stakeholders. Phone Banking. Initiatives During the year under review. NRI Services. The Bank’s gross NPA in international operations stood at 0. customer and technology initiatives to further strengthen its operations and leverage its considerable domestic footprint.0% to the Bank’s total business and 20.0% (y-o-y) to Rs 4. By 31st March 2010. the Bank’s stakeholders remained firmly positive on the Bank’s business and financial performance. corporate governance and integrity in guidance during the last couple of years. The project is primarily designed to optimise on available resources to maximise business and profits and to build a next step for Bank of Baroda. the Bank’s ATM network expanded to 1. the Bank could demonstrate consistent performance by delivering much better quality of earnings. 42 . the Bank maintained its focus on introducing new business. The Bank’s international business grew by 31. higher revenue growth and improved efficiency.315. Baroda Cash Management Services.0% of its overseas business is also covered under the CBS. It has been steadily improving its market share also. Depository Services. It expanded its global business level by 24.effectively during FY09 and FY10 mainly due to its strong business fundamentals.11% in FY10. healthier asset quality compared to banking industry with higher provision coverage and lower interest rate risk.0% (y-o-y) in FY10 without any compromise with credit quality. 2009. The Bank’s CBS branches are enabled for inter-bank remittances through the RTGS and NEFT. Today. Around 94. “Base 24” has been made fully operational for all domestic ATMs and for ATMs in the Bank’s seven overseas territories. the Bank’s international operations continued to remain its mainstay and contributed almost 24. “Baroda Next. The Bank launched a new business process reengineering and organisational restructuring project “Navnirmaan-Baroda Next” on 22nd June. Moreover.0% Core Banking Solution (CBS) for all its domestic branches reflecting the fastest ever roll out of such solutions in the Indian banking industry.

charges. Going by the success of this initiative. The IndiaFirst has received an overwhelming response from the Bank’s customers across the country. in the interest of poor farmers.) – IndiaFirst Life Insurance Co.857 Village Level Credit Camps and disbursed Rs 2. the Bank opened six new Retail Loan Factories during FY10. the Bank introduced a Retail Loan Factory model as a fast delivery channel for the benefit of its retail customers. The Bank’s joint venture in life insurance. etc. The Bank has always believed in making a difference to the society at large..K. the Bank has entered into tie-up arrangements with two more leading asset management companies in FY10 for distribution of mutual fund products. With nine additional Baroda Swarojgar Vikas Sansthan (Baroda R-SETI) Centres opened during FY10. Towards the effective use of technology in rural agricultural lending. To augment its Agriculture advances. During FY10.” A couple of years ago. making the company the fastest growing Insurance company to reach Rs 100 crore premium collections in the first 100 days of its launch. In order to improve credit flows under the retail business and to consolidate that portfolio.9 lakh borrowers during FY10. document management system. the Bank has opened four Financial Literacy and Credit Counselling Centres (FLCCs) christened as “SARTHEE”. many other important technological initiatives were taken in the domain of anti-money laundering. taking the total number of such factories to 30. etc. Leveraging its newly created robust technological platform. The Bank organized 2.The Bank has implemented an Integrated Global Treasury Solution in its major overseas territories. Ltd. the Bank has realigned its retail bouquet of products.484 crore to over 1. the Bank conducted special campaigns for Crop Loans and Investment Credit. Adding its offerings in wealth management products. payment messaging solution. the Bank has introduced IT-enabled smart card based technology for financial inclusion. The Bank took several initiatives on the “Financial Inclusion” front during FY10 to harness the emerging opportunities for rural and agriculture lending. The Bank identified 450 thrust branches across India to enhance agricultural lending. in association with Andhra Bank and L & G (U. It has also started providing Online Institutional Trading to its corporate customers. The Bank has also launched a new subsidy-linked housing loan scheme under the Home Loan Product styled as “Interest Subsidy Scheme for Housing the Urban Poor. commenced its operation during the year. Business & Financial Performance 43 . Over two million no-frill savings accounts have been opened so far. The Bank formulated various area-specific agricultural lending schemes with various concessions in the rate of interest. As part of the Financial Inclusion Initiative. the total number of BSVS has gone up to 25. the Bank made “Home Loan and Education Loan Application Modules” online during the year under review.

The Bank’s Cost-Income ratio also eased from 45. The Bank’s domestic low-cost or CASA deposits grew by an unprecedented 25. 2010. In its overseas business. While the RBI has extended the deadline for recovery from the Agricultural Debt Relief accounts till end-June.The Bank has reported a healthy growth in its business and profits with improvement in all key parameters during FY10.0% in retail credit reflecting a well-diversified growth achievement.058.87% in FY09. The Bank’s Net Profit at Rs 3.0% during FY10. FY10. Within total overseas deposits. the Bank would continue with its thrust on growth with quality. Going forward also. its Global Business touched a new milestone of Rs 4.0% (y-oy).36% with the Tier 1 capital at 9.34% by end-March.90% as on 31st March.63% in FY10 versus 34.0% in farm credit and 24.3%. Despite this. Earnings per Share (EPS) at Rs 83.375 crore registering a growth of 33. the Bank has continued to classify these accounts as NPA as a prudent measure. Total assets of the Bank’s overseas operations increased from Rs 51. The Bank’s NPA coverage ratio at 74. Looking Forward Bank of Baroda’s long standing reputation for financial soundness.165 crore to Rs 68. The Bank’s Capital Adequacy Ratio too stood at the healthy level of 14. the same for Overseas Operations was at 0.57% on year-on-year basis.20% during FY10. Book Value per Share (BVPS) at Rs 378.40.4% and 21. Both its domestic deposits and advances increased at the above-industry pace of 22.96.3%. The Bank recorded a growth of 44.47%. our Bank succeeded in restricting its global Gross NPA level to 1.16.0% (y-o-y). The growth in profits was led by healthy topline growth. As stated earlier.080 crore in FY10 reflecting a growth of 24. At the same time. its advances grew by 25.0% in SME credit. the Bank enjoys one of the lowest ratios for Gross and Net NPA in the industry. it would try to grow above the industry average on the back of strongly positive growth outlook for India in FY11.64% at end-March 2010. while the Bank’s deposits grew by 36. The Bank’s Return on Average Assets (ROAA) at 1.21%.7%. In spite of growing slippages for Indian banking industry during FY10.1% taking the share of domestic CASA deposits to 35. While the Gross NPA in domestic operations stood at 1. the Bank focused on containing the impaired assets to the minimum possible level. long-term customer relationships and proactive management are as important today as ever.33 crore for FY10 reflected a robust year-on-year growth of 37. prudent management of deposit costs and better operating efficiency. respectively.36% and Net NPA level to 0. 44 .19% reflect a significant improvement over their previous year’s levels. 27. As the Bank’s primary objective has been to grow with quality.0% set recently by the RBI.38% to 43. and ROE (Return on Equity) at 22. Its Social Sector Advances or Priority Sector Credit surpassed the mandatory requirement and posted a growth of 24.6% during the year under review. 2010 has been comfortably above the norm of 70. the customer deposits grew by 33.0% (y-o-y).

. strategic and sustainable model of pursuit and perseverance. ROE. The Bank has also focused on evolving a Strategic Mass Communication and Events Plan to ensure brand enhancement. the Bank has selected the motto “Leveraging technology for augmenting business growth and profitability. the Bank has put in place strategies that seek to address near-term challenges as well as to seize opportunities to strengthen its foundations for sustainable growth. In fact. The Bank has been actively designing strategies for enhancing sales and raising brand equity through continuous market research. the Bank also launched a series of marketing campaigns to promote its brand value. The Bank is well geared to ensure that its performance will be driven across all these parameters. To attain this goal. in order to strengthen the Bank’s market share both from the asset and liablity sides.” The ultimate objective of the Top Management of the Bank is to equip the Bank with more stability and growth-orientation. qualitative growth. During FY10. Well-diversified Advances Portfolio. etc. The Bank is aware of the fact that the market leadership can be achieved only through a visionary.The Bank would try to protect or improve further the current levels of its key financials like ROAA. EPS. which alone would give our Bank a unique place in the banking space. Bank’s Corporate Goals & Strategy For the year 2010-11. The Bank has been working on the business process reengineering (BPR) project in consultation with the Mckinsey & Co. In all core operations. 45 . The same would continue in future also. we will work relentlessly to provide financial stability and brand value that matters the most. Strong back up of Non-interest income and Stringent NPA Management. so as to achieve the optimum use of technology and right skilling of the manpower to yield maximum customer satisfaction. The success lies in attaining the acceptance of our stakeholders about the Bank’s core values. The focus of these strategies has been on well-balanced. significant initiatives in customer education would continue for putting in place an effective Customer Relationship Management system in the Bank. Besides this. In a bid to gain better market share. through its dedicated focus on low-cost deposit mobilization & fee-based income. the Bank has been aggressively recruiting the best possible talent in the country from the premier Institutions during the last couple of years. passion for customer service and the credibility of leaders. This model has four pillars – Healthy CASA. BVPS. reduction in high cost or low yielding bulk business and through improved credit origination and effective credit monitoring. service and operational excellence and people management. efficient pricing of deposits and loans. asset quality. we have adopted a Business Model that focuses on achieving sustainable growth.

from expansion to peak and then peak to recession and along the way of "Phase to recovery" and once again to peak. Everyday we can't expect our economy to be in boom. POSITIVE IMPACTS ON INDIAN ECONOMY Emergence of a new economy Perhaps this is the first time during such crisis period when world's big economies like US is struggling to overcome this situation India was able to invest money for launching of chandrayaan-1.This is the time when world's most powerful economies are suffering more than Indian economy. but the businesses have been able to benefit from the weakness of the money value which has allowed exporters additional competitiveness with their international trade. This is because of two human emotions. Whilst overseas markets are increasingly tough. Today the world is in a financial mess. In USA Lehman Brothers has filed for bankruptcy. structural and financial weaknesses of an economy. Washington Mutual Operations are being apprehended by FDIC and Wachovia is being auctioned by Citigroup . Merill Lynch has emerged with Bank of America.e. It affected developed country economies more than developing country's economy. Everyone is talking about financial crisis all over the world. The economy tends to move in various phases i.Behind every dark cloud there is a silver lining. It is worth underlining that we have a number of companies still reporting successes at this time. Expose of weaknesses in the economy The major role of financial crunch is that it exposes the political. Greed during expansion as the cause and sufferance during recession as the result . Some of the businesses bucking the trend at this stage have diversified into a number of areas and others have exposure to export markets. transparency and accountability of new or reformed organizations. But nothing lasts for long.In comparison to such terrific conditions India is in a better place. It explores efficiency in the financial market. 46 .

Today the IT professional will think twice before changing their jobs. During the financial crisis period. It had a bad impact on the job culture of the industry in particular. The fact that we have not been affected reflects the merit of proceeding slowly. We have actually been reforming very slowly and gradual pace of reforms has some advantage and we should continue with that pace. Cost stabilization in real estate market. have appealed the members to slash prices of their proporties. sufficient fund for investment in R&D innovation and education.. 47 . the extent of sufferance of an economy shows its weaknesses. So these expose of weaknesses will definitely help India's fast growing economy in the long run. Along with it funds spent on recruitment. both builders association with around 3500members each across the country. With that lucrative growth rate of salary structure. But with this financial crisis this cannot go further. By developing middle-class families it is for sure that Indian economy will be affected positively in long run. But now the scene is totally reverse in nature. Regulators are trying to assess the situation and taking steps to insulate their economies from the unnecessary shock.Builders feel that cutting down prices will spur buyers and restore confidence. Our country pursued economic reforms in a calibrated manner and escaped the fallout of global financial crisis. No economy can afford 25% to 30% salary hike per industry per annum. Because if the rest of the world gets disturbed and capital flows and liquidity shrinks. India should endeavor to make the regulatory system more sophisticated to ensure that the country does not run into regulator gaps that precipitated the present global financial crisis. IT professionals were changing jobs frequently.opportunity for creating new jobs and technologies. Rationalization of Salary Structure in IT Industry This financial crisis will have a positive impact on the IT industry. Because in comparison to any other country Indian middleclass families are significantly improving in monetary measures. Frequent change of jobs also affected the overall productivity of the industry. So now IT industry slowdown will ensure better quality of work and also prevent attrition. Earlier the scene was quite different. This development will enable middleclass families to think of having their own homes as owning a house had become a distant dream because of unrealistic rise in real estate properties. As a result of this financial crisis professionals are not only in favor of changing the job but also ready to work more with the same salary with the objective to keep his job secure. training and development and retention of man power will come down considerably. there is bound to be spillovers not just on India but all over the world. This sector has seen an unprecedented rise in salaries and increments. Definitely it would help in the improvement of this sector as well as the productivity of the IT industry. Confederation of Real Estate Developers Association of India ( CREDAI) and National Real Estate Development Council (NREDC).

today they are taking a second thought before spending a single penny. Austerity is the targeted path Today Warren Buffet advice of austerity is practically followed by many countries. everyone is ready to give his 100% to his job. costs of goods and services and above all because of financial crisis. Prabhu Guptara. many companies struggle to meet profit forecasts. companies are beginning to discover the powerful link that exists between employee performance and financial success. sectors to big private corporate sectors. Watching the changed job environment use of Performance Appraisal is gaining its ground day by day. 48 . Many companies are relying more heavily on human capital to address consumer demands while lowering operating costs. Splurge will no more be the watchword and greed will no more be good in corporate parlance. Cost cutting seems to be the sole solution to this contemporary problem. Starting from Govt. To understanding how efficient your employees perform was critical to your business. And this time is the best time to do it". It is now trying to tackle the issue of panic resulted out of depression and then pump massive amount of liquidity and confidence into the system. As a result. Financial crunch will force the companies to eliminate all forms of wastage and follow an austerity regime. Deploying employee performance appraisal programs that lead to measurable improvements in employee performance can provide the human capital leverage companies need to overcome many of today's business obstacles. cost cutting is there everywhere. Think-Tank of United Bank of Switzerland (UBS). With increasing customer expectations. India's greatest ability and strength is its tolerance and ability to adapt to difficult situations. As a result. There is a talk that FDI limit in insurance might be hiked to49%. Every year. the role of performance appraisal was less. global competition. Earlier as the job opportunity was more for the people. and improving financial position. Fear of losing the job improves the performance of the employees as a whole. Executive Director.Performance Appraisal is gaining ground Today's businesses are under a great deal of pressure to perform. Now as this financial crisis arises everyone is trying to save one's job. Earlier when big MNCs were spending recklessly for promoting their business where staff luxury was of major portion. India's population plays the most crucial role here Best place for outsourcing "It is time to open up banking and insurance sectors for further foreign direct investments as multinational insurers and bankers are willing to invest more in India. thousands of businesses were losing millions of dollars in revenue due to inefficient employees.

Opportunities for International trade. It will have a great impact on our foreign fund reserve and forex market. there are huge opportunities for when the world economy begins to grow again and demand returns to foreign markets. second Indian outsourcing firms have now matured into true global companies that can offer best services at competitive prices. India is coming under the list of top outsourcing destinations with China. CONCLUSION 49 . Efficient young personnel are India's greatest asset here. There is also a need for more innovative products and global competitiveness. Today countries all over the world are interested for trading with India. US's priority would be given to curtail costs. In view of high credibility. India continues to be the best place or top destination for outsourcing. Another advantage of India in this section is that India is having one of the largest producers of English-speaking graduates including management and engineering graduates. India has the second lowest Its-BPO salary base of $7. Such a huge number of graduates will definitely result in offering higher value-added services to the customers. When looking in particular at International Trade. Mexico. Indian banks should also expand retail and other businesses abroad. The competitive position of Rupees only adds weight to the potential that can be realised.500$8500 followed by China. . Today having the maximum no of youth our country is ready to adapt to this situation.According to Obama Govt. Malaysia and Chile. which would include cutting wage expenditure and there by outsource work to countries like India. First when it comes to salary costs India is extremely competitive. Two factors are responsible for it. Which is very weak in china as the number of youth is less here. Brazil.

There is currently a high level of activity amongst the business support community with a key focus on ensuring businesses survive the downturn. The growth of the public sector and the narrow reliance on financial services for growth needs to change. will return. or fundamentals of businesses. REFERENCES 50 . It is therefore imperative that. and subsequently growth. when this happens.While it is uncertain how prolonged and deep the recession will be. is likely to give local companies the best chance of survival over the next year. To conclude lets hope for a stronger India by rectifying all its economic weaknesses after this so called financial crunch. policymakers have a recovery plan in place. A challenging and critical focus on the basics. it can be said with certainty that demand. with manufacturers and exporters having particular attention paid to them. This plan should act to foster growth in the short-term and lay the foundations for economic stability in the long-term. After watching so many positive points we Indians can ourselves that we are quite in a safer place in comparison to many developed countries economy.

vol. Singh Dhananjay (2009) "Global Financial Crisis –Positive for India".Mar2009 International Monetary Fund (2008) "Global Financial Stability Report".org 51 . 2008). No.com www. June.Mar2009 Venugopal V. October 2008.how it all began" The Guardian.indianmba. Icfai Reader. Annual Policy Statement for the year 20082009 April.Cause and Impact" Icfai Reader. "Credit crisis.46. Vardhani D and Sridevi J (2009) " Downturns and Impact of Global Meltdown" Icfai Reader .wikipedia.bankofbaroda.5.• • Ghosal SN (2009) "Global Financial Crisis. Reserve Bank of India (2008).3 December 2004 World Bank (2008) "Global Development Finance2008". (Aug. • • • • • • WEBSITES www.investopedia. Jan2009.com www.org www. (2004) "India and Global Economy" The Asian Economic Review. Larry Elliott.

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