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Strictly Private and Confidential

RBI trends and progress 2010: Key takeaways

Nilesh Parikh Kunal Shah Vivek Verma

+91-22-4063 5470 +91-22-4040 7579 +91-22-4040 7576

December, 2010

Operational highlights of Scheduled Commercial Banks (SCBs) Key attributes of balance sheet: Contribution of CASA in incremental deposits touched 48.4% in FY10 (21.7% in FY09) PSBs gained market share in FY10, foreign banks saw contraction Asset-liability management: ALM mismatch was noticeable for PSBs with a shift in liabilities towards short end and assets towards the longer end New private banks shifted deposits towards medium and long term, while loans moved closer towards the term shorter end Attributes of P&L account: Modest growth in earnings due to slow NII and other income growth ROAs and ROEs (sector) contracted; however new pvt. banks showed improvement Asset quality deteriorated: Gross NPL ratio increased; however, private banks showed improvement Slippages increased (to INR 657 bn) in FY10; recoveries remained weak (at INR 390 bn) Weaker sections have shown steady decline in NPA ratio in recent years, corroborating the point that weaker sections are in fact not less creditworthy than other sections Other highlights: Gross NPL ratio increased; however, private banks showed improvement however Global banks are faced with three major challenges: Refinancing a large portion of their liabilities Ending their dependence on emergency support measures by the public sector Redressing balance sheet weaknesses and reducing operating costs

Operation and performance of SCBs

Balance sheet composition

Liability composition
100.0 80.0 60.0 40.0 20.0 0.0 PSB Other liab. Private TD Old pvt SA New pvt CA Foreign SCBs Capital

Liability composition As a funding option (system level), contribution of CASA increased by 2.2% pts while that of TD/borrowings declined 1 2% pts TD/b i d li d 1.2% t PSB had higher dependence on term deposits compared with other groups F private and f d foreign b k borrowings was i i For i t banks, b an important source of funding In Indian operations, foreign banks have lower leverage Asset composition Y-o-Y, contribution of investments (up 87bps), working capital loans (up 39bps) and term loans (up 40bps) increased New private sector banks had higher proportion of term loans in their assets



Res. & and surp.

Asset composition
100.0 80.0


60.0 40.0 20.0 0.0 00 PSB Private Old pvt New pvt Foreign SCBs Fixed & other assets Bills pur./disc. Govt. sec. Term loans Non approved sec. Cash & call money Cash credits Other approved sec.

New private banks and foreign banks have higher exposure to non-approved securities Foreign banks were heavily invested in GSECs and fixed assets compared with other groups

Source: RBI

Asset growth: PSBs witness strong asset growth

Asset growth: PSBs witness strong growth
Sector Foreign New private Old private Private PSB (5.0) 0.0 5.0 10.0 FY10 (%) 15.0 FY09 20.0 25.0 30.0

Y-o-Y, asset growth moderated for PSBs, but remained ahead of other banking groups Foreign banks witnessed contraction in assets, a break in th t b k i the trend observed i th recent past d b d in the t t

PSBs gained market share in assets of banking sector

100 80 60 40 20 0 2007 Public sector banks
Source: RBI

7.9 16.9 4.6

8.4 17.2 4.5

8.5 15.2 4.4 44

7.2 14.6 4.5 45

Despite the moderation in growth of assets of PSBs, their relative share in the total assets of the banking sector rose in FY10 The share of old private sector banks stood almost unchanged Y-o-Y, while foreign and private banks saw a decline







2009 Old private sector banks


CASA contribution to incremental deposits on the rise

Increasing contribution of CASA deposits in overall deposit base
100.0 80.0 80 0 60.0 40.0 20.0 0.0 FY07 FY08 Term deposits FY09 CASA FY10 48.4 48 4 28.3 32 21.7 0.0 FY07 CASA FY08 TD FY09 Total Deposits FY10 71.7 68 78.3
Sector Foreign New private Old private Private P i t PSB (40.0) (20.0) 0.0 20.0 40.0 60.0 80.0 100.0 FY10 FY09 (%)
Source: RBI 6

Strong CASA growth (~18%) registered in FY10

30.0 24.0 24 0 18.0 12.0 6.0



While overall borrowings slowed down, foreign banks saw a contraction in borrowings

Advances growth moderated over FY09-10

Advances growth dropped in FY10
35 28 35.0 28.0 28 0 21.0 14.0 7.0 0.0 FY05 FY06 Advances FY07 FY08 FY09 FY10 Growth (%)

Industry CD ratio remained stable - Foreign/new private bank saw decline, while it increased for PSBs/old private banks
SCBs Foreign

(INR tn)


21 14 7 0

New pvt Old pvt PSB FY10 20.0 40.0 60.0 80.0 FY08 100.0

(%) FY09

Percentage contribution of industry in incremental bank credit continued to increase

100.0 100 0 80.0 60.0 40.0 20.0 0.0 FY07 Personal Source: RBI FY08 Services FY09 Industy FY10 Agri

Sectoral credit/sectoral GDP continued to increase for industrial sector

125.0 125 0 100.0 75.0 50.0 25.0 0.0 Agri A i FY08 Industry I d t FY09 Services S i FY10

(% %)

( (%)

Relationship between industrial credit and industrial production

Empirical study: Industrial credit and industrial production

The regression used: Ln(industrial credit) = 2.01 + 2.08 Ln(industrial production) ( (1.40) ) ( (8.17)* ) * Significant at 1 per cent probability. R2 = 0.650.

Conclusion Taking monthly data on industrial credit and production April 2006 onwards, the elasticity of industrial credit with respect to industrial production worked out to 2.08

Source: RBI 8

Business contribution: Regional performance

Share of top 100 centers in total amount of deposits and bank credit remained stable
80.5 77.0 77 0 73.5 70.0 66.5 63.0 FY09 % deposits % advances FY10

Regional loan-deposit ratios - High in South; low in North-East and central regions
North-east Central East North West South All India 0 20 FY10 40 (%) 60 FY09 80 100


Banking penetration on a rise- atleast at slow pace

(No . of persons in'00 00)
20 16 12 8 4 0 2007 2008 2009 2010 Population per branch in rural areas Total T t l population per b k b l ti bank branch h
Source: RBI 9

17.8 16 12.7

17 15.1 15 1 11.7

16.6 14.5 11

16.1 14 10.4

Population per branch in urban areas

ALM profile
Maturity profile - Deposits
75.0 60.0 45.0 30.0 15.0 0.0 Public Up to 1 year
Source: RBI

Maturity profile - Advances

65.0 52.0 39.0 26.0 13.0 0.0



Old private New private Foreign 1 year to 3 year



Public Up to 1 year


Old private New private 1 year to 3 year



Over 3 years

Over 3 years

Key takeaways In FY10, there was a shift towards short and medium-term deposits mobilised by banks; there was a decline in the share of deposits with long-term maturity of over three years While the maturity distribution of loans and advances remained largely unchanged in FY10, there was a shift in favour of long-term investments by banks Asset liability mismatch was noticeable for public sector banks with a shift in their deposit liabilities during FY10 towards the short-term end of the maturity spectrum, alongside a shift in their loans and investments towards the long-term end New private sector banks, which normally relied heavily on short-term deposits, exhibited a shift in favour of p , y y p , medium- and long term deposits in FY10, while their loans moved closer to the short end of the spectrum

Non-SLR investment: Growing contribution of MF

Absolute exposure to CPs declined while that to MFs increased

Break-up of non-SLR investments

H1FY10 (INR bn) C ommercial Paper Shares PSB Private Bonds/debentures PSB Private Units of MFs Instruments issued by Fis Total
Source: RBI

FY10 (%) 17.7 17 7 15.2 2.9 10.9 42.7 8.1 20.3 13.6 10.8 100.0 (INR bn) 252 302 46 255 937 227 401 529 326 2,345 (%) 10.7 10 7 12.9 2.0 10.9 39.9 9.7 17.1 22.5 13.9 100.0

438 377 71 270 1,057 202 503 335 267 2,474


RBI study: Inter-linkage between SCBs and MFs

(INR bn) Dec 08 Banks' investments in debt oriented MFs Growth (%) G th MFs investments in C Ds Mfs' funds placements in repo/C BLO held by banks MFs funds with SC Bs Growth (%) Net borrowing by banks from MFs Growth (%)
Source: RBI

Mar 09 513 190.9 190 9 1,376 483 1,859 37.5 1,346 14.5

Jun 09 917 78.6 78 6 1,873 637 2,509 35.0 1,592 18.3

Sep 09 1,124 22.5 22 5 1,781 787 2,567 2.3 1,444 (9.3)

Nov 09 1,259 12.0 12 0 2,183 639 2,822 9.9 1,563 8.3

177 1,093 260 1,352 1,176

Key takeaways During the period, strong growth was observed in bank's investments in Debt Oriented Mutual Funds (DOMFs) However, growth in investments of DOMFs outpaced the bank's investments in DOMFs Banks were net borrowers since December 2008 and not net lenders to MFs g g y g , g When banks were arranged in descending order by the amount of their net borrowings from MFs, PSB figured prominently 90% of investments in DOMFS by SCBs was held by 14 banks in November 2008; it increased to 24 banks in November 2009


International business profile

International liability profile
1,500 1,200 900 600 300 0

International asset profile

1,500 1,200 900 600 300 0

(IN bn) NR

(IN bn) NR

Foreign cu urrency loans to s reside ents

Nostro ba alances

Other assets r

Capital/rem mittab le profits of s foreign n

Own issue of es securities/b bonds





Maturity of international claims remained stable

70.0 56.0 42.0 28.0 14.0 14 0 0.0 Short term maturity Long-term maturity FY09
Source: RBI

Key takeaways Inflows from FCNR (B)/NRE deposits remained weak in FY10 This could be explained by: FY10. A steady fall in the benchmark LIBOR during FY10, resulting in a fall in the effective rate of interest payable Appreciation in the exchange rate of INR with respect to major international currencies during this period





Holdings of debt securi ities

Equities of s banks he by eld NRI

O/S ex bills xp. drawn on NRs sidents by res


Loans to NR

thers Ot





Off balance sheet exposure

Significant contraction in forex contracts in FY10

% of total liab. of concerned banking group

% of total liab. of concerned banking group Forward exchange contract Guarantees given Acceptances, endorsements PSB FY09 41.6 4.4 4.2 FY10 36.7 4.6 4.9 New private FY09 115.7 11.7 76.7 FY10 98.8 13.7 82.4 Foreign FY09 1,414.1 12.9 259.8 FY10 1,206.5 13.8 378.2 SCBs FY09 159.3 8.0 45.6 FY10 118.8 8.7 47.3

Off balance sheet exposure: New private and foreign banks have significant off balance sheet exposure
100.0 80.0 60.0

40.0 20.0 0.0 PSB Old private banks New private banks Foreign banks On balance On-balance sheet liabilities
Source: RBI 14

Off balance Off-balance sheet liabilities

P&L: Banking sector

P&L INR bn Interest income Interest expended Net Interest Income Other income Operating expenses Wage Bill Provision and contingencies Operating Profit Net Profit for the year

FY09 Growth (%) 25.9 26.5 26 5 24.7 24.6 15.9 20.1 20 1 42.3 32.7 23.5 3,885 2,632 2 632 1,253 752 896 480 581 1,109 528 4,158 2,721 2 721 1,437 785 998 552 653 1,224 571

FY10 INR bn Growth (%) 7.0 3.4 34 14.7 4.4 11.4 15.0 15 0 12.3 10.4 8.3

Key takeaways Moderate NII/PAT growth in FY10 over FY09 Other income growth moderated (due to decline in treasury profits) Wage bill up 15% Y-o-Y


Yield/profitability analysis
Cost of funds declined 87bps Y-o-Y; drop high for foreign/new Y o Y; private banks (>150bps)
7.5 6.0

ROEs contracted 113bps Y-o-Y; against the industry trend, Y o Y; new private banks showed improvement of 118bps
20.0 16.0

(% %)

3.0 1.5 0.0

(%) Nationalised New priv vate Public S SBI Old priv vate Fore eign Priv vate SC CBs


12.0 8.0 4.0 0.0

Nationalis sed

SBI gro oup

New priva ate

Old priva ate

Fore ign


Priva ate





Return on funds fell 95bps Y-o-Y; decline high at 225bps for foreign banks and 140bps for new private
12.5 10.0

ROAs declined 8bps Y-o-Y; against the industry trend, new private banks showed improvement of 26bps
2.5 2.0



7.5 5.0 2.5 0.0

1.5 1.0 0.5 0.0


SBI group

New private


Old private




New private


Old private




Source: RBI








Asset quality deteriorated during FY10

Gross NPL ratio increased 14bps Y-o-Y to 2.39%; private banks showed improvement, while foreign banks showed above average deterioration
5.0 4.0

Net NPL ratio increased 7bps to 1.12%; nationalised banks showed above average deterioration
2.0 1.6


2.0 1.0 0.0

(%) SBI Group


1.2 0.8 0.4 0.0

SBI Group


N Nationalised

N Nationalised

Old private

Old private





New private





Movement of NPLs (FY10)

1,500 1,200

Movement of NPLs (FY09)

1,500 390 1,200

(INR bn)

(I INR bn)

900 600 300 0 683



900 600 300 0 554




New private


Opening GNPLs Slippages p g pp g

Source: RBI

Recovery y

Write offs

Closing g

Opening GNPLs Slippages


Write offs






Empirical study: Asset quality compromised during high growth

Empirical analysis indicated that NPA growth follows credit growth with a lag of two years
Growth in NPAs of Indian banks has largely followed a lagged cyclical pattern with regard to credit growth The empirical analysis, taking growth rates of gross advances and gross NPAs since June 2000, indicated that NPA growth follows credit growth with a lag of two years The coefficients of credit growth were positive and statistically significant from the second lag, reflecting that credit growth fed into growth in NPAs in a lagged manner This underlined the pro-cyclical behaviour of the banking system, wherein asset quality can get compromised during periods of hi h credit growth and this can result i the creation of nonperforming assets f b k i the d i i d f high di h d hi l in h i f f i for banks in h later years

Estimate The estimation was carried out for contemporaneous credit growth and credit growth with lags up to three years. The regression with lags showing significant coefficients is reported below: NPA growth = + 0.62*Credit growth (t-2) + 1.41*Credit growth (t-3) (1.9)* (5.8)** * Significant at 5% probability ** Significant at 1% probability

Source: RBI 18

PSBs non-std assets increased marginally; down for private banks

Public sector banks: sub-standard assets increased by 3% pts while loss assets increased by 1% pt FY09- non std. assets at 2% of total assets FY10- non std. assets at 2.2% of total assets
Loss 9% Loss 10%

Sub standard 45% Doubtful 46% Doubtful 42%

Sub standard 48%

New private banks: doubtful assets increase by 8% pts, while loss assets increased by 5% pts FY09- non std. assets at 3.1% of total assets FY10- non std. assets 2.9% of total assets
Loss 7% Doubtful 27% Doubtful 35% Sub standard 53% Loss 12% %

Sub standard 66%

Scheduled Commercial Banks: doubtful assets increased by 2% pts while loss assets increased by 1% pt FY09- non std. assets at 2.3% of total assets
Loss 9%

FY10- non std. assets 2.4% of total assets

Loss 10%

Doubtful 38%

Sub standard 53%

Doubtful 40%

Sub standard 50%

Source: RBI


NPLs for PSL higher than those for Non-PSL

Non- performing loans (FY10)
650 520

Increase in NPLs for priority sector higher than that for nonpriority sector
4.0 3.2 32 2.4 1.6 0.8 3.18 3.37

(INR bn)

390 260 130 0




Nonpriority sector

Public sector




0.0 2009 Priority sector 2010 Non-priority sector

Source: RBI

New private

Old private

SBI group

Note: PSL stands for priority sector lending; NPSL stands for non-priority sector lending

Key takeaways Sectoral distribution of NPAs showed a growing proportion of priority sector NPAs between FY09 and FY10 Priority sector NPAs, which constituted little over half of the total NPAs of domestic banks up to FY08, had shown a steep decline in FY09, attributable primarily to the Agricultural Debt Waiver and Debt Relief Scheme of 2008 Between FY09 and FY10, however, the share of priority sector NPAs, in general, and SSIs, in particular, went up, partly a reflection of the impact of the financial crisis and economic slowdown At end of FY10, the percentage of priority sector NPAs in total NPAs was 53.8% for PSBs against 27.6% for private banks


Weaker sections not less creditworthy than others

Weaker section NPLs on the decline Weaker section (group wise) - PSBs have higher NPLs in the segment
4.0 3.2

6.0 4.8


2.4 1.6 0.8


3.6 2.4 1.2 0.0 FY07 FY08 FY09 FY10 Weaker section



SBI group

Private banks

NPA percent

Source: RBI

Key takeaways
Weaker W k sections have shown a steady decline i th NPA ratio i recent years, corroborating th point th t ti h h t d d li in the ti in t b ti the i t that weaker sections are, in fact, not less creditworthy than other sections and strengthens the argument for furthering the process of financial inclusion At end of FY10, the NPA ratio for weaker sections stood at 2.73% for domestic banks, a little higher than the NPA ratio for non-priority sectors NPA ratio for weaker sections for public sector banks was higher at 3.0% than 0.5% for private sector banks at end of FY10


New private banks


Old private banks

Bank lending to sensitive sector marginally down

Exposure to sensitive sector (% of loans)-FY10
35.0 28.0 21.0 14.0 7.0 0.0 PSB Commodities SBI group Old private New private Foreign banks Capital market Real Estate

Exposure to sensitive sector (% of loans)-FY09

35.0 28.0 21.0 14.0 7.0 0.0 PSB Commodities SBI group Old private New private Foreign banks Capital market Real Estate


PSB SBI group Old private Real Estate New private Foreign banks Commodities Capital market

Change in exposure (% of loans) in FY10 over FY09

200 100

Source: RBI


(100) (200) (300)

Marginal reduction in exposure (expressed as % of loans) to sensitive sectors in FY10 over FY09 Decline sharper in real estate vis--vis capital markets PSBs reduced exposure to both capital markets and l h d real estate; h however, SBI, contrary to the group trend, increased its exposure to real estate, while maintaining exposure to capital markets Old private banks decreased exposure to all three (commodities, segments (commodities real estate and capital markets) New private banks decreased exposure to real estate, but increased their exposure to capital markets Foreign banks increased their exposure to both capital g p p markets and real estate (but overall, foreign banks saw overall 3% contraction in assets)

Global comparison

Global scenario
In the wake of crises: Bank credit to private sector decelerated in the mature markets Securitisation markets outside those supported by public sector remained weak Low quality borrowers lacked access to capital funding

What has changed? Despite credit and quantitative easing policies, global real private borrowing rates remained stable since April 2009 Public sector interventions increased public sector indebtedness By October 2009, market and liquidity risks fell as interbank markets and some channels of private wholesale 2009 funding markets reopened Stronger banks faced no difficulty obtaining funding; some weaker banks were less able to access interbank and capital markets or only at penal rates Credit recovery expected to respond slowly as banks were still engaged in repairing their balance sheets


Credit to pvt. sector up; refinancing needs to create pressure

Key takeaways Loan book contraction reversed Contraction of BIS reporting banks international balance sheets, which had begun in the Q4CY08, came to an end during 9mCY10 Turnaround was led by sizeable increases in international claims on residents of the UK/US. Claims on Asia-Pacific, Latin America and Caribbean increased, increased while those against Euro zone and emerging Europe declined Nevertheless, internationally active banks increased their exposure to Greece, Ireland, Portugal and Spain, mainly as a result of rising off-balance sheet items Progress towards global financial stability experienced setback in April and May 2010 with the emergence of Euro zone sovereign debt stress
15.0 10.0 5.0 0.0 (5.0) (5 0) (10.0) Q1FY09 US
Source: RBI 25

Private lending - BRICs/Mexico

42.0 33.0 24.0 15.0 6.0 (3.0) Q1FY09 China Q2FY09 Russia Q3FY09 Brazil Q4FY09 Q1FY10 Q2FY10 India Mexico

Private lending - Developed countries

According to the IMF, the huge refinancing need of ~EUR 300 bn for maturing bonds in the PIIGS has the potential t spill over t other regions t ti l to ill to th i Going forward, the large and significant rollover needs in the PIIGS would create insurmountable pressure on bond markets as simultaneous funding , , p , needs of US, UK, Japan, and Euro zone of the order of ~USD 4 tn for bonds due for redemption in the 3rd and 4th quarters come to fore


Refinancing needs to create pressure in bond markets



Q3FY09 France

Q4FY09 Germany




IMF revised down LLP estimates for global banks

NPL levels increased across countries
15.0 12.0


9.0 6.0 3.0 0.0















Source: RBI


Key takeaways
For 2007-10, IMFs GSFR of October 2009 estimated the total write downs and loan provisions of the global banking 2007 10, IMF s system would amount to ~USD 2.8 tn on account of loan losses (US:USD 1.025 tn, UK: USD 604 bn) GSFR for April 2010 reduced the size of estimated global write downs and LLP to USD 2.3 tn, taking account of the estimated decline in the implied cumulative loss rate from 5.0% to 4.1% Despite this moderation, th D it thi d ti there i littl evidence t suggest th t l is little id to t that losses h have fi ll abated d finally b t d due t th uncertainty to the t i t surrounding the estimates of delinquencies as a result of differences in accounting procedures, reporting lags across regions, uncertain path of future delinquencies and covert concealment of losses through extension of maturities of loans sold by banks







A glance at large banking systems

Banking ROEs - Returning to profitability
28.0 14.0

Capital adequacy ratio

25.0 20.0

(% %)

(14.0) (28.0) (42.0)

(%) ) Switzerla and Indone esia Euro are ea* Philippin nes Germa any Malay sia Portug gal Thaila and Gree ece Mex ico Russia Jap pan Bra azil Belgiu um Ind dia Spa ain Fran nce Chi ina Ita aly U UK U US


15.0 10.0 5.0 0.0

German ny

Indones sia

Philippine es

Thailan nd

Greec ce

zil Braz

Spa in


Source: RBI




Key takeaways: According to BIS Annual Report 2010

Banks returned to profitability and strengthened their capital ratios in 2009 However profits continued to be largely dependent on poor quality revenue from fixed income and currency transactions However, Going forward, banks would have to address three major challenges: Refinancing a large portion of their liabilities Reducing dependence on emergency support measures by the public sector Redressing balance sheet weaknesses and reducing operating costs



ce Franc

Mexic co

Japa an


Chin na


Ita ly



A glance at large banking systems (contd)

US banking system Key takeaways Four largest bank holding companies recorded profits in Q1CY10 as trading revenues and lower loss provisioning boosted earnings Regional and smaller banks continued to struggle with profitability as credit losses on core operations remained high Pace of failures of small banks continued in 2010 at the same pace as 2009, driven largely be credit losses in the commercial real estate lending The Euro zone banking system Key takeaways LCBG losses have finally abated due to uncertainty surrounding: (a) Delinquencies as a result of differences in accounting standards; (b) lags across regions; uncertain path of future delinquencies; and (d) covert concealment of losses through extension of maturities of loans sold by banks Tier I capital rose to the highest level in 15 years due to slower growth in private credit and shift to govt. securities and other liquid assets; CAR improved to 10 6% from 10.1% due to support from retained 10 1% 10.6% earnings and efforts made to raise capital from public and private sources ECB FSR estimates for cumulative write downs for 2007-10 revised down from 515 bn in June 2010 from 553 bn estimated in December 2009 However concerns started mounting high since sovereign credit risk rose in early months of 2010 However, According to the BIS Annual Report 2010, the European banking system needs more capital even if there were no increase in the regulatory capital requirements under enhanced Basel II regime


A glance at large banking systems (contd)

UK banking system Key takeaways The implied mark-to-market losses of the UK banks in their banking books declined by ~50% from the assessment in March 2009. Loan loss provisions for the UK banking system were reduced by USD 99 bn to 2009 USD 398 bn by April 2010, reflecting improvement in expected losses on residential mortgages. Accordingly, the projected loss provision rate for the first half of 2009 was revised downwards by IMF in April 2010 Core Tier 1 capital ratios at 9.6% as at end 2009 exceeded the pre-crisis levels, but remained low when compared historically Emerging markets banking system Key takeaways Emerging markets banks are pre-eminent gatherers of savings, unlike western banks that borrowed heavily e g g a ets ba s a e p e e e t gat e e s o sa gs, u e este ba s t at bo o ed ea y to finance business and suffered significantly from the financial crisis Banks in emerging Asia gained significantly from a favourable combination of macroeconomic circumstances such as a sharp rise in domestic savings and easy monetary policies that led to low cost financing However going forward, credit and market risks may increase owing to larger scale of future lending and forward However, exposure to government bonds


A glance at large banking systems (contd)

Chinese banking system Key takeaways Chinese banks lent a record USD 1.4 tn in 2009, more than double the new loans issued in 2009, despite the regulator warning that many of the loans used to fund infrastructure spending and property boom may go bad According to the rating agency, S&P, if 30% of the loans to local government vehicles become bad, it would add 4-6 percentage points to overall non-performing loan ratio of banks that is presently at a respectable level. Losses could be magnified if the real estate exposures are also affected by delinquencies Banks have also been asked to put all loans sold or transferred to lightly regulated trusts back on their books and refrain from informal securitisation



NBFC: Operational highlights of NBCFs

Key attributes of balance sheet: Assets have grown by 12% to INR 1.1 tn Balance sheet of NBFCs-D expanded by 22% Networth increased by 19% to INR 162 bn.

Assets, deposits and networth of NBFCs


Number of NBFCs registered in RBI

15,000 1,000 12,000 (INR bn) R

(INR bn) b

750 500 250 0 Assets FY09 Deposits FY10 Net Owned funds

9,000 6,000 3,000 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 NBFCs-D Regd NBFCs

Source: RBI


NBFCs-D: Assets grew 22% but operating profits declined 19%

Assets registered significant growth of 22% to INR 937 bn 3/4th of the assets were held by asset finance companies Only 7% of NBFCs-D has an asset size of >INR 5 bn, which had 97% share in total assets. NBFCs-D source 45% of borrowings via term loans and 21% through debentures Operating profits declined 19% to INR 24.9 bn and PAT came off 32% to INR 14.1 bn.

Liability profile of NBFCs-D


Borrowing profile of NBFCs-D

FY10 Government 7% Others 26% External sources 1%

2.8 2.1 1.4 0.7 0.0 00 March 2009 Gross NPA to gross advances
Source: RBI


Banks/FIs 45% March 2010 June 2010 Debentures 21%

Net NPA to net advances


NBFCs-D: NPLs decline; adequately capitalised

Gross NPLs declining trend continued; net NPLs remained negative due to excess provisioning 212 out of 216 NBFCs-D had CAR of >12%.

Gross NPLs declining continuously; still carries excess provisioning

13 10 8
5 3 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gross NPA to credit exposure
Source: RBI

NBFCs-D in India are primarily adequately capitalised

NBFCs-D break-up based on capital adequacy 3.0 1 1 7 27

(%) )

< 9%

177 9-12% 12-15%



> 50%


NBFCs-ND-SI: Earnings flat despite 17% asset growth

Assets registered a growth of 16.7% to INR 5.63 tn PAT was almost flat Y-o-Y at INR 109 bn; RoAs came off from 2.2% in FY09 to 1.9% in FY10 Gross NPLs deteriorated marginally in FY10; however asset quality improved in subsequent quarter

NBFCs-ND-SI: NPLs deteriorate marginally in FY10; however subsequent quarter showed some improvement
3.5 2.8

Earnings flat despite asset growth of 17%

7,500 6,000

(INR bn n)


2.1 21 1.4 0.7 0.0 March 2009 March 2010 June 2010 Gross NPA to gross advances

4,500 4 500 3,000 1,500 0 Net Profit FY09 FY10 Assets Q1FY11

Source: RBI



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