global-meltdown-and-retail-banking-in-india

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global-meltdown-and-retail-banking-in-india

  1. 1. “A WORKSHOP ONPERSPECTIVES OF ECONOMIC MELTDOWN: CRISES & CHALLENGES” AT THE FIN-FEST 2009OF MANIPAL INSTITUTE OF MANAGEMENT ON 4TH SEPT, 2009 “GLOBAL MELTDOWN AND ITS IMPACT ON RETAIL BANKING IN INDIA” -BY PROF. CHOWDARI PRASAD, PROFESSOR, TAPMI, MANIPAL
  2. 2. The US Financial Crises in a Century1) PANIC OF 1907 –BANKERS’ PANIC2) Wall Street Crash 1929-The Great Crash3) Depression in 1930-The Great Depression4) 1973 Oil Crisis5) Savings and Loan Companies Crisis in late 1980s6) Long Term Capital Bailout7) DOT COM BUBBLE in 20018) California Electricity Crisis9) Credit Crisis – Sub-prime Mortgage Crisis 2008 MIM FinFest 2009 Global Meltdown n Retail Banking 2
  3. 3. Depression in 1930 The Great Depression• The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries.• It was the largest and most important economic depression in the 20th century, and is used in the 21st century as an example of how far the worlds economy can fall.• The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black TuesdayMIM FinFest 2009 Global Meltdown n Retail Banking 3
  4. 4. Timeline of key events over the period7th Sep Two US mortgage finance agencies (Fannie Mae and Freddie Mac) are2008 taken into conservatorship.18th Sep UK Bank HBOS announces its merger with rival Lloyds TSB; Central2008 bank measures address the squeeze in US Dollar funding with $160 billion in new or Expanded swap lines; The UK authorities prohibit short selling of financial shares.29th Sep UK mortgage lender Bradford & Bingley is nationalised banking and2008 insurance company Fortis receives a $16 (€11.2) billion capital injection; German commercial property lender Hypo Real Estate secures a Government-facilitated credit line.30th Sep Financial group Dexia receives a $9 (€6.4) billion capital injection; the2008 Irish government announces a guarantee safeguarding all deposits, Covered bonds and senior and subordinated debt of six Irish banks; Other governments follow up with similar initiatives or expand existing guarantee schemes over the following weeks. MIM FinFest 2009 Global Meltdown n Retail Banking 4
  5. 5. 3rd Oct The US Congress approves the revised TARP Plan.20088th Oct Major Central Banks undertake a coordinated round of policy rate2008 cuts; including capital injections for UK-incorporated banks and guarantees for new short-to medium-term senior unsecured bank debt. The UK authorities announce a comprehensive support package,13th Oct Major Central Banks jointly announce measures to improve liquidity2008 in short-term US dollar fund markets, Supported by uncapped US dollar swap lines between the Federal Reserve and the other central banks; Euro area governments pledge system-wide bank recapitalizations and guarantees for new bank debt.14th Oct The US government announces that up to $250bn of previously2008 approved TARP funds are to be used to recapitalize banks, 9 large US banks agree to public recapitalization. MIM FinFest 2009 Global Meltdown n Retail Banking 5
  6. 6. Reasons behind the Global Financial crisis:How did this crisis start?3. Banks lending enormous housing loans to borrowers with inadequate security and poor credit history. – These banks repackaged the housing loans as tradable sanction and sold them to investment banks such as Merrill Lynch (1914), Bear Sterns (1923) and Morgan Stanley (1935) and AIG6. When housing loan went bust, the property market collapsed – adding to the losses of these investment banks8. Credit markets have suffered10. Exotic financial investments like Credit Default Swaps (CDS) also have contributed for the crisis.12. The spill over efforts had been felt by a number of financial institutions, stock markets melt down and investors started suffering.MIM FinFest 2009 Global Meltdown n Retail Banking 6
  7. 7. The rise and fall of investment Banks• Lehman Brothers (1850)• Goldman Sachs (1869) – Merrill Lynch (1914) – Bear Sterns (1923) and – Morgan Stanley (1935) – AIG All of them became the victims of the current financial turmoil in the US and have changed their identity during the last six months.• Bear Sterns and Merrill Lynch were taken over by commercial banks.• Lehman was wound up and the other two have now become commercial banks.• I-BANK MODEL: The great stock market crash of 1929 in the US brought about drastic changes in the financial sector.• The Glass Steagall Act, 1933 which separated commercial banking from I-banking. MIM FinFest 2009 Global Meltdown n Retail Banking 7
  8. 8. • Till late 1990s banks were prohibited from engaging in share- broking or investing in shares.• This gave a fillip to I-banks to fill in the void and expand their activities. In fact, Morgan Stanley was started after this Act.• The Act was repealed by Gramm-Leach Billey Act of 1999 in theUS and now commercial banks there can be universal, viz, canengage in investment banking also.• These funds in turn provided by commercial banks, mutualfunds and even members of public.• However, Federal Reserve Bank in the US had no control overthe I-banks. MIM FinFest 2009 Global Meltdown n Retail Banking 8
  9. 9. MIM FinFest 2009 Global Meltdown n Retail Banking 9
  10. 10. MIM FinFest 2009 Global Meltdown n Retail Banking 10
  11. 11. Five Year Plans in India • I Plan (1951 - 1956) • VI Plan (1980 – 1985) • II Plan (1956 - 1961) • VII Plan (1985 – 1990) • III Plan (1961 – 1966) • Break 1990 - 1992 • Plan Holiday 1966-69 • VIII Plan (1992 – 1997) • IV Plan (1969 – 1974) • IX Plan (1997 – 2002) • V Plan (1974 – 1979) • X Plan (2002 – 2007) • Break 1979 - 1980 • XI Plan (2007-2012) Global Meltdown n Retail 11 MIM FinFest 2009 Banking
  12. 12. India : 1947-69 Planned Development Planned National Development includes Bombay Plan, etc. Import Substitution Industrialisation (ISI) + Agrarian Transition  Egalitarian agrarian reforms = Higher productivity, surpluses, market  Planned industrial development = Large Public sector + diversified industrial structure + self-reliance Quasi Marxist strategy undermined by agrarian power Crisis of planning in Late 1960s = Green RevolutionMIM FinFest 2009 Global Meltdown n Retail Banking 12
  13. 13. Growth of GDP and major Sectors (% per year)Global Meltdown n Retail 13 MIM FinFest 2009Banking
  14. 14. India : 1969-84 Under-cover Liberalization Prima facie increase in statism: nationalization of Banks, industrial control increased, anti- smuggling, FERA, MRTP, etc. Underlying trend point elsewhere:  labour repression  Green and White Revolutions,  State intervention pro-capitalist by default Inflation + middle-class political unrest + emergency + 1977 Janata Government Self-constraining inequitous growth process set patternMIM FinFest 2009 Global Meltdown n Retail Banking 14
  15. 15. India : 1984-92 Domestic Liberalization From late 1970s onwards hesitant but then accelerating decontrol: various reports (Desai, 1969, Jha, 1981) critical of state intervention 1984 Rajiv Gandhi’s domestic liberalization with limited international opening Accompanied by usual rhetoric about free market and export-led growth; though exports remain stagnant Growth rate picks up circa 1980 not after 1991 Consumer durables-led boom (mainly vehicles) Energy/import intensity real cause of Balance of Payments crisisMIM FinFest 2009 Global Meltdown n Retail Banking 15
  16. 16. India : 1991-01 Global Opening? Structural Adjustment (but like 1981 IMF loan, paid back early) Privatization of parts of very large public sector Growth and industrial growth accelerate Export led-rhetoric, exports rise only in traditional categories: Textiles, Gems and Jewellery, Leather, etc. Balance of Payments gap closed by remittances Import penetration increases Mainly driven by pent-up demand for goods with high import content Narrow domestic market easily saturated: industrial recession by 2001. Capital Controls remain:  RBI’s conservatism prevails over Ministry of Finance enthusiasm  India escapes 1998 Asian meltdown  Continuing caution about portfolio investments and reserve accumulationMIM FinFest 2009 Global Meltdown n Retail Banking 16
  17. 17. 2002-07 Credit Fuelled Industrial Boom Govt capacity for stimulus lower ; Fuelled by easy consumption credit Increase in retail banking Inflow of foreign loans + portfolio inv. + foreign financial institutions Seemingly lifts historically heavy Foreign Exchange constraint India’s reserves in August 2008 $310 bn, third in world But accompanied by trade deficit (unlike China and Japan) But Trade Deficit > software + remittances  current account deficit Covered only by capital movements M&As abroad rise, investment income rising but also outflows Deficit on business services But India begins exporting higher value added products: Chemicals, engineering goods and pharma. Growth concentrated in some sectors Slowdown evident since 2006MIM FinFest 2009 Global Meltdown n Retail Banking 17
  18. 18. 2008: Financial Crisis Transmission Mechanisms Portfolio Investments and Withdrawals by IFIs  Fall in Sensex  Depreciation of rupee Exposure of Indian banks to toxic assets:  RBI estimate 450m (90m public + 360 pvt)  + depositors and investors in foreign banks operating in India (recently increased operations) Exposure of non-bank FIs and corporates to domestic stock and currency markets.  Expected to be large, RBI permits banks to provide loans to mutual funds against Certificates of Deposit (CDs) or buy-back their own CDs before maturity Cut-backs on credit to individuals by banks. Marked deterioration in growth of all consumer loans. Given reliance of growth on this sort of credit, impact on growth could be high.MIM FinFest 2009 Global Meltdown n Retail Banking 18
  19. 19. Sensex: Halved by CrisisMIM FinFest 2009 Global Meltdown n Retail Banking 19
  20. 20. Rupee Value 1/12/2008 50.1MIM FinFest 2009 Global Meltdown n Retail Banking 20
  21. 21. SLOW DOWN OR BREAK DOWN?Indian history is witnessing steep downslide in all segments of the economy. The vastinvestment in basic, core sector, infrastructure, housing sector in early 21st century gavemomentum to the Indian economy. 8.5% growth since 2003. The jubilant Economysuddenly seems to have burst.•Bubble created in the Economy during 2007 & 2008•Bubble has burst•Industry facing turmoil•Sensex disaster•Prices of 17 essential commodities doubled in 4 years•Closures, slow down in industries•Chaos in job marketresulting inLOSS OF ONE CRORE JOBS & SUFFERING OF COMMON MAN
  22. 22. DISASTER SYMPTOMS• Financial services segment witnessed steep downfall• Real estate – lost estate• Large retailers/malls closing down speedily• Half of small scale industries of industrial townships facing closure• Several Large Industries have declared Closure /PartialClosure e.g.:• Tata Motors • Thyseeankurup Industries• Ford Motors • Tata Yazaki• Kirloskar Brothers • Bosch• Bharat Forge • Bajaj Auto
  23. 23. DOWN…INCOME TAX COLLECTIONS• Direct Tax receipt down by 13.4% in Dec 2008.• Direct Tax collection down to Rs.52,749 Cr in Dec 2008 against Rs.60,976 Cr of December 2007• Central Board of Direct Taxes Chairman stated “Direct Tax collection shall be short by Rs 1 Lac Crores in 2008/09• The tax collection will be less than Rs.3 lac crore against the target of Rs.3 lac 95 thousand crores
  24. 24. SLOWDOWN BLUES: TAXES COLLECTION DOWNTax Times Actuals % of Actuals % of Actuals BE FY 08 till Dec. to BE FY 09 to BE FY 08 Excise duty 10671 9017 75485 77108 -15.5 Customs duty 8175 7399 74455 82741 -9.5 Service tax 4414 4254 31420 39416 -3.6 Total 23260 20670 181360 199265 -11.1
  25. 25. FISCAL DEFICIT UP Actuals % of Actuals % of Actuals BE FY 08 till Dec. to BE FY 09 to BE FY 08 Total receipts 6,17,597 3,78,954 61.40 74.90 Fiscal Deficit 1,33,287 2,18,262 163.80 51.40 Revenue deficit 55,184 1,73,830 315.50 54.90• Revenue deficit was estimated at Rs.55,184 crores in the Budget of• 28.2.08. This has gone up by Rs.1,73,830 crores as on 31.12.08
  26. 26. FOREX RESERVE DIPS• Forex reserve down by $4.5 billion to $247.6 billion• Forex reserve had gone up to $315 billion• The reserve was increasing since the year 2000• Forex reserve is coming down consistently for more than 3 months
  27. 27. GOVT. EXPECTS JAN. EXPORTS TO FALL 22%• December figures showed exports declining by 1.1% to $12.69 billion against 21% growth in December 2007. Exports had shrunk 12.1% in October 2008 and 10% in November 2008• Exports have dipped for the first time in 7 years• Trends of overseas shipments taking a plunge in January due to slump in demand for Indian goods in the global market• India may achieve $170 billion exports in the current fiscal against the target of $200 billion % growth in December 2007 ($) % growth in December 2008 ($) Exports 20.85 - 1.1 Imports 24.26 8.8
  28. 28. FUNDS FLOW TO INDIA SHRINKS Rs.94,000 CRORE 2007-08 ($bn) 2008-09 ($bn) Credit by commercial banks (A) 50 63.7 Flow from other major sources (B) 68.4 41.6 Public issues by non-financial entities 8.6 2.9 Gross private placements by non-finance entities 8.6 2.9 ECB 15.7 12.6 Short-term credit from abroad 10.4 8.3 FDI 4.8 3.8 Total (A+B) 124.5 105.2• External commercial borrowing (ECB) and short-term credit from abroad contributed 8.2% in 2008-09 of the financing against 20% in 2007-08• While credit to the agriculture & service sectors have remained largely unchanged, personal loans have declined due to falling housing loans
  29. 29. SUBHIKSHA – LARGE RETAILERCLOSING DOWN PART OPERATION • Subhiksha has chain of 1600 stores • Turnover in 2008 – Rs.2305 crores • Total staff employed – 15,000 • 6500 stores closed down • Due to lack of funds, may closed down half of its chain of stores • Unable to pay rental and salaries of employees
  30. 30. CAPITAL MARKET• 25% Stocks / Shares on NSE & BSE found illquid in Dec. 2008• 9th January BSE Sensex touched 21000. Finance Minister immediately came on TV & stated “Its my economic policies. India will not look back. We are now in double digit Growth”.• Bull run in an Open Economy - Capital Market may be accepted but conversion of it into Bubble is dangerous. Bubble is to Burst, we are observing the same now. 2009 could be the worst year India has seen in decades.
  31. 31. SMALL INVESTORS RUBBED• Bubble was created in Capital Market in 2007-08• Sensex was manipulated upto 21000 from 15000• Promoters (bogus intention) sold their stakes at higher rates• Promoters pledged their stakes at higher value with banks and financial institutions and borrowed heavily• Satyam Promoters’ stake has come down to 4% as on 7.1.2009
  32. 32. 3 CRORE SMALL INVESTORS LOOTED• Congress Govt. – Mr. Chidambaram pushed creation of Bubble in Share Bazar – Capital Market• Sensex was 21,000 – Jan 2008• Sensex now 9,000 – Jan 2009• Small Investors of Share Bazar, Mutual Fund, ULIP lost their savings• 1 Crore Small Investor-Demat Accounts holders & 2 Crores Small Investors of Mutual Funds, Unit Link Insurance Policy lost heavily.• Rs.10,000 Invested in year 2007 has become Rs.4,900 now
  33. 33. DIWALI OR DIWALA BSE mkt cap Diwali Day Sensex close % change Change (Rs. Cr) Oct 28,2008 8,510 -55 2,651,933 -3,594,012 Nov. 9, 2007 19,059 50 6,245,945 2,984,939 Oct. 21, 2006 12,709 61 3,261,006 1,208,448 Nov. 1, 2005 7,892 33 2,052,561 899,642 Nov. 12, 2004 5,954 25 1,452,919 501,102 Oct. 28, 2003 4,757 61 951,817 412,557• Since Diwali (Muhurt) 2002 Sensex gone up till Diwali of 2007. At the end of Samvat year on Diwali 2008 Sensex lost 55%, loss of Rs.35,94,012 Crore of Market Capital
  34. 34. SMALL INVESTOR – MUTUAL FUND DISASTERLargest Mutual Fund Companies Loss in 2008• Franklin Templeton Mutual Fund - - 37.85%• ICICI Prudential Mutual Fund - - 26.13%• UTI Mutual Fund - - 19.30%• Baroda Pioneer Mutual Fund - - 63.51%• Sahara Mutual Fund - - 28.07%• Taurus Mutual Fund - - 47.21%
  35. 35. TOP 10 PERFORMANCESCHEME RETURNS*(IN%)UTI MNC -32.34Birla Sun Life Asset Allocation -32.51Birla Sun Life Dividend Yield -33.27UTIDivident Yield -34.08IDFC Imperial Equity -35.21FT India Life State FoF -36.77UTI Contra -37.11DSPBR Top 100 Equity Inst. -37.21Sahara Growth -37.48DSPBR Top 100 Equity Reg -37.67Source : Value research;*1 year
  36. 36. MUTUAL FUNDS GET POORER BY RS. 1,50,000 CRORE• In 2008 Mutual funds became poorer by about Rs 1,50,000 crore, or about one-third of their total size.• The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007 — when their total wealth grew by more than Rs 2,30,000 crore to Rs 5,50,000 crore.• However, in 2008, lost Rs 1,50,000 crore, bringing its asset size to nearly Rs 4,00,000 crore.
  37. 37. 90% IPOS TRADE BELOW ISSUE PRICE• 38 of 42 initial public offers (IPOs) that were listed since January 2008 trading below their issue price.• Mumbai-based engineering and construction company Niraj Cement Structurals is the worst performer. The stock at Rs 17.80 on the BSE, down 90.6 per cent from the issue price of Rs 190.• For the remaining 37 firms, 2008 has been no different. Stock of companies — Chemcal Biotech, First Winner Industries, Tulsi Extrusions, — are down over 80 per cent from their issue prices.
  38. 38. ULIP (LIC) – VALUE DEPRECIATED TO 50% IN ONE YEAR Investment Value on Plan Premium 1 year ago 26.10.2008 (in Rs.) (in Rs.) Market Plus Annual 10,000 5818 Money Plus Annual 10,000 4743 Profit Plus Annual 10,000 4920
  39. 39. Defaults threaten fixed maturity plans Joydeep Ghosh & Sidhartha K / Mumbai October 8, 2008, 0:22 IST – BUSINESS STANDARDThe mutual fund industry is under A senior executive in the industrypressure and not just from falling WHAT ARE FMPs? FMPs are funds in which investors park claimed that around 10 to 15 permarkets. Fixed maturity plans their funds for one to six months, cent money of the total AAUM has(FMPs), which have garnered Rs sometimes for more than a year. These been invested in real estate and102,133 crore of average assets plans invest in corporate bonds, bank NBFC papers. Over the last twounder management (AAUM), are deposits and commercial papers. The longer tenure is offered to take years, the real estate sector wasfacing the prospect of rising advantage of double indexation benefits. offering 1-2 per cent higher yielddefaults on their investments in This implies that if someone invests in an than the market, luring many fundreal estate and non-banking FMP for 13 months, say, between March managers to invest almost 60 to 70financial companies (NBFCs). This 2008 and April 2009, his capital gains will get indexation benefit for 2007-2008 and per cent of their corpus in them.implies that if there are 2009-2010. So his tax liability would go In fact, for the past eight to tenredemption pressures from their down substantially. That is why retail months, most fund managers havecorporate and retail clients, these investors prefer to invest in the longer- stayed away from these papers.FMPs would have to raise cash term FMPs. The shorter-term ones cater to the needs of corporate clients. Market Some like UTI Mutual Fund stoppedfrom other resources to meet the experts say retail investors contribute 20 investing in them since Decemberdemand. to 30 per cent of the AAUM. 2007 and Kotak Mutual Fund evenFMPs contribute almost 19 per “There may be isolated instances but declared in the offer documents ofcent to the Rs 5.29 lakh crore According to senior banking sources, a the overall system is sound,” said the some of their FMPs that they wouldaverage assets of the industry. large fund recently had to borrow on head of a fund house. not have any exposure to realThough mutual funds have turned the call money market at over 20 per Though the industry has not seen any estate and NBFCs.cautious about investing in these cent to meet redemption pressures. pressure from corporate clients as of Another important development insectors since early 2008, the fear Last month, a medium-sized fund faced now, the head of a financial the recent months has been that allis that the money that has already redemption pressure on its FMP from conglomerate said there have been high net worth individuals, when it was fund houses have started declaringbeen invested could be in for some withdrawals by companies in declared that the company was being their FMP portfolios to investors.some trouble in terms of payment the last few weeks to meet their taken over. Earlier, only a few leading fundsdelays. immediate liquidity needs. Over the “When investors are willing to even last fortnight, the liquidity in the would do so.Sources said some of the leading shell out 2 per cent as exit load to market has been tight as companies The threat of exit of large investorsreal estate companies have redeem, it becomes very difficult for had to pay advance tax and there accentuates the problem for FMPsdefaulted on their repayments us,” said a fund manager. Many others were large borrowings by cash- as there will be pressure orand are seeking rollovers. And have resorted to rolling over schemes strapped oil and fertiliser companies. withdrawal. Also, little money willthough there hasn’t been any to avoid paying their clients. As a result, banks borrowed heavily trickle in from fresh investors tohuge redemption pressure, Mutual funds, on their part, said from RBI and call rates touched 17 per investor wealth is not at risk at the counter the outflowsmutual funds are gearing up for it, cent.especially from companies that moment.have invested in the FMPs.
  40. 40. TATA STEEL – STEEP DOWN • Revenue & profit of Tata Steel goes up and up till Diwali of 2008 • Steep down slide since Diwali 2008 may be observed Quarter ending Total Revenue Profit (Rs.Cr.) (Rs.Cr.) 30.6.08 6,177 1,488 30.9.08 7,089 1,787 31.12.08 4,735 466• Turnover and profit of Tata Steel for the Quarter ended 30th June 2008 was Rs.6,177 crores and Rs.1,488 crores respectively.• The same went up by 75% for the Quarter ended 30th Sept. 2008• Steep downfall observed in 3 months ended 31st Dec. 2008. Profit down by 80%, turnover down by 40%
  41. 41. TATA MOTORS DOWN DOWN Quarter ending Total Revenue Profit (Rs.Cr.) (Rs.Cr.) 30.12.07 7,251.8 499.0 30.6.08 6,928.4 326.1 30.9.08 7,078.8 346.9 31.12.08 4,758.6 - 263.2 (loss)• Revenue of Tata Motors has come down to Rs.4758 crores in the Quarter ended 31.12.08 from the previous Quarter of Rs.7078 crores• In just 3 months, the Profit of Rs.346 crores has turned into loss of Rs.263 crores
  42. 42. QUARTERLY RESULTS Dec ’07 Mar ’08 Jun ’08 Sep ’08 Dec ’08 Sales 7,251.83 8,749.52 6,928.44 7,078.85 4,758.62 Turnover Other 91.81 234.34 315.61 429.28 99.51 IncomeGross Profit 924.38 890.16 838.14 994.18 -49.08 Profit 665.10 698.05 345.09 358.01 -419.15Before Tax Net Profit 499.05 536.27 326.11 346.99 -263.26
  43. 43. QUARTERLY RESULT OF 31.12.2008DOWN! DOWN! DOWN! Company Down by Videocon Industries 76% M&M 93% DLF 67% Parsvnath 95% Unitech 74%• Experts feel these results also do not reflect the correct status of the company• Window dressing is adopted to show less loss/downfall• Sales to subsidiaries form bigger part of the above
  44. 44. NOIDA• Automobile, BPO, Automobile ancillaries worst affected• Large companies production down by 25% to 60%• 40% of Small Scale units affected• 1 lac casual contract, construction workers affected• BPO sector facing• Noida & Gurgaon heavily affected• Construction work is at halt since Feb. 2008
  45. 45. HYDERABAD• IT, KPO, BPO, Automobile, construction industry worst affected• The above industries growing upward continuously since the year 2000/01• 1 lac labour affected• Large industries, particularly Automobile functioning at 50% level• Small scale units production down by 40 to 50%• Default started in loans repayment
  46. 46. STORIES OF SOME OF THOSE AFFECTED BYTHE RECESSION IN THE JOB MARKET• ASHOK JAISWAL, 30 Company: GlobalLogic Position: Software engineer Salary: Rs 18 lakh p.a. The week couldn’t have started on a worse note for Ashok Jaiswal, an employee of the Noida-based Itcompany who was summoned by his employer only to be told that he was among the 17 employees who were being “laid off”.• AYUSH JAIN, 30 Company: Kotak Mahindra Position: Trainee (wealth management) Salary: Rs 15,000 and above Family: Seven members. This business administration graduate from University of Indiana, US, thought he was one of the luckiest guys to have returned to India and clinched an offer from a leading bank. Not any longer. He was told resign on October 31, with three others.“It was a rude shattering of a dream,” says Ayush. “Buoyed by the increasing presence of high networth individuals in India,I was looking forward to a career in this lucrative line. ”Within 3 month of working,the ominous signs made their telltale presence felt. Courtesy: India Today
  47. 47. STORIES OF SOME OF THOSE AFFECTED BYTHE RECESSION IN THE JOB MARKET.• Sunil Jain, Proprietor/Exporter IC Textiles- 1100 workers sacked• It was a 100 per cent export oriented unit with a turnover of Rs 120 crore. Last November unit shut down. 1100 workers retrenched.• Ashok Leyland has decided to moderate the production plan for the next two months. Ashok Leylands manufacturing plants, worked 3 days a week, till December 08.• S.P. Oswal, chairman, Vardhman Group, Ludhiana-based Rs 3000-crore textile giant says ‘ The textile industry is definitely hit by detrimental effect of slowdown. More so, because exports form 40 per cent of Indias 55 billion dollar textile industry.• Never before in my 42 years in textile industry did I ever have to shut down our capacity because of a lack of orders. Courtesy: India Today
  48. 48. Some top Indian information Polaris is another firm that maytechnology (IT) firms such as Tata be in a spot if Citi sells some of itsConsultancy Services (TCS), business units. “Citi does sourceSatyam Computer and Polaris some work to Polaris as well. Butcould feel the heat if Citigroup the biggest impact would be ifdecides to sell part of its business Citi sells its stake in Polaris, whichor look for partners to tide over is over 40 per cent,” said anits losses. analyst. Citigroup holds 22.88 perAnalysts feel TCS’ revenue might cent in Chennai-based Polaris andhave an impact as Citi has signed an additional 20.45 per cent Our agreement with Citigroup in case Citi has a change of through its wholly-ownedan assured revenue agreement of adequately addresses our interests owners, we assume even the $2.5$2.5 billion (Rs 12,500 crore) for a subsidiary, Orbitech. in case of a sale or merger of the billion contract will also come The rumours on Citigroup led toperiod of over nine years. This bank.” However, analysts are not under review. It’s too early towas the part of the $505 million changes in share prices of the convinced. Citi is a $300 million predict anything. But there are Indian IT companies in differentacquisition of Citigroup Global account for TCS. With the chances of price negotiations,”Services (CGSL) — the business ways. While the TCS stock price acquisition of CGSL, Citi not only said another deal tracker. went up by 7.8 per cent to closeprocess outsourcing (BPO) arm of catapults itself as the largest client Analysts said they are hoping thatCitigroup — by TCS a few months at Rs 506 on Friday, Satyam was for the IT giant but also means an TCS has made no upfront up 3.08 per cent. However,back. account size of half abillion. payment. “However, we thinkWhen contacted, a TCS Polaris was down by 0.52 per Experts point out that Citi would TCS would have structured the cent on buzz that Citi might sellspokesperson said, “TCS easily account for around 5-6 per deal accordingly and would haveannounced its intention to its stake in the company. cent of the IT giant’s revenue. built such a scenario into the TCS, Satyam and Polaris are likelyacquire Citigroup Global Services “Whenever the ownership of a contract,” they said.in October and the transaction is to be impacted by the change of company changes, all the contracts TCS is not the only IT firm. fortunes of Citigroupproceeding as per the terms of and deals come under the review Satyam, India’s fourth largest ITthe agreement in a planned of the new owner. So, firm might also be impacted asmanner. Citi is part of its top 10 clients.
  49. 49. “1 CRORE JOB LOSS IN 2009”• Horrible downslide in Textile Jwellery exports• Industries Association & Govt. Official wories 1 Cr Job loss• Exports orders dying up• Exporter says no order beyond January 2009• Labur intensive industry affected• Export down by 54% in Oct – Dec 2008
  50. 50. ECONOMIC CRISIS – AFFECTED FROM BIG TO SMALL MANChaos started from the Capital Market, then Real Estate, Automobile, luxury segments, hasgone up to the Smallest person. More than 1 crore lost jobs. Industry Job loss (in lacs) Construction workers 10 Small scale industries/workshops 25 Labour-oriented export 25 Service sector, financial services, large retailers, hospitality, 20 tourism, transport Contract/casual workers of big industries 10 Job loss/partial loss/income loss to tempo, autoriskshaw, tea 25 vendors, hamals, etc. Total job loss/income loss in all 1.15 crore
  51. 51. Reasons for growth of Retail Banking in India1. Introduction of Technology2. Increased competition among Banks3. Opening of New Gen’ of Private Banks4. Inviting of more Foreign Banks after WTO5. Focus on Productivity and Profitability6. Deregulation of Interest Rates7. Absence of Directed LendingMIM FinFest 2009 Global Meltdown n Retail Banking 71
  52. 52. Reasons for Retail Banking …8.Drive to bring down Non Performing Assets9.Tilt towards consumer and life style spending10.Innovation of new products and services11.Implementation of Pru-Norms, ALM, RM12.Closure / Re-locating of Loss-making brs13.VRS of surplus staff – and Sales orientation14.Corporates sourcing funds from non-Banking MIM FinFest 2009 Global Meltdown n Retail Banking 72
  53. 53. Reasons for Retail Banking …15. Revival of Mutual Fund Market16. Revitalising of Stock Market17. Increase in Life Expectancy - health care18. Increasing contribution to GDP from Services Sector19. Change in Govt policy of FDI in Banking20. Thrust on Infrastructure Dev’ment by GOI21. Opening up of Insurance SectorMIM FinFest 2009 Global Meltdown n Retail Banking 73
  54. 54. Personal Loans : Growth in 5 years (A/cs in Mns and Amt is Rs ‘000s Crs : CMIE Data) A/cs Amt o/s A/cs Amt o/sDetails Mar 1997 Mar 1997 Mar Mar 2002 2002Total 55.6 284.4 56.4 656.0Loans P Ls 11.4 28.0 17.6 82.5Cons Ln 0.8 0.9 1.2 3.2Hsg Lns 1.0 7.9 1.8 32.8Others 9.6 19.2 14.6 46.5MIM FinFest 2009 Global Meltdown n Retail Banking 74
  55. 55. Retail Portfolio Status as on 31st March 2004 (RBI Data)S Retail Loan Amt o/s in % Gross % NetNo Particulars Rs Crs NPAs NPAs1 Housing Loans 89,449 1.9 1.42 Consumer Loans 6,256 6.6 4.03 Credit Card dues 6,167 6.3 2.44 Other Per Loans 87,170 2.6 1.65 Total Retail Loans 1,89,041 2.5 1.66 Total Loans 8,59,092 7.4 2.8 MIM FinFest 2009 Global Meltdown n Retail Banking 75
  56. 56. Retail lending takes the lead ! (Ref: IIBF News dt Nov 30, 2004)Adv’s (Rs Cr) Variation 2003-04 Variation ‘02-03Retail Loans 41,811 26,188 of which Housing 15,394 12,308Cons Durables 1,055 -111NBFCs 2,675 4,399Shares, Bonds.. 19 242Real Estate .. -317 502Other Personal 7,260 2,687 Against FDs 3,638 1,458 Tourism 841 266 MIM FinFest 2009 Global Meltdown n Retail Banking 76
  57. 57. Retail Portfolio of Banks (Amt in Rs Crs) – T&P OF BKG IN INDIA 2005S Item March March %Vari-No 2004 2005 ation01 Housing Loans 89,449 1,34,653 50.502 Consumer Loans 6,256 3,810 -39.103 Credit Card Dues 6,167 8,405 36.304 Other Per. Loans 87,170 1,20,120 37.805 Total Retail Lns 1,89,041 2,66,988 41.206 Total Loans 8,64,271 11,05,725 27.907 % of (5) out of (6) 21.9 24.1 MIM FinFest 2009 Global Meltdown n Retail Banking 77
  58. 58. Personal Loans : Rs in CrsParticulars Oct 2006 Dec 2006 May 2007Retail 3,98,055 4,27,909 4,55,439LoansHousing 2,09,468 2,17,829 2,30,751Agst FDs 33,744 35,764 39,092Cr Cards 11,870 11,913 14,221Education 12,692 13,399 15,438Con Dur’ble 9,291 8,558 8,831Others 1,20,990 1,40446 1,47,106MIM FinFest 2009 Global Meltdown n Retail Banking 78
  59. 59. Share of Select Instruments in Financial Savings (Source: RBI) Instruments 2005-06 2006-07Currency 8.7 8.6Bank Deposits 46.2 55.7Equities / Debentures 1.3 1.4Mutual Funds 3.6 4.8Small Savings 12.2 4.9Life Insurance 13.4 14.6PF & Pension Funds 10.5 9.2MIM FinFest 2009 Global Meltdown n Retail Banking 79
  60. 60. MIM FinFest 2009 Global Meltdown n Retail Banking 80
  61. 61. MIM FinFest 2009 Global Meltdown n Retail Banking 81
  62. 62. MIM FinFest 2009 Global Meltdown n Retail Banking 82
  63. 63. And now,• Credit Cards • Payment of Utility Bills• Mutual Funds • Auto-Sweep• Sale of Gold • Rail Ticket Reservations• Home Equity Loans • ECS, EFT, ATMs• Reverse Mortgage Loans • Core Banking Facility• Insurance Products • Demat Accounts• Micro Finance • Internet Banking• Finance to SMEs • Mobile/SMS Banking • Wealth Management MIM FinFest 2009 Global Meltdown n Retail Banking 83
  64. 64. Retail Portfolio of Banks (Amt in Rs Crs) – T&P OF BKG IN INDIA 2008S Item March 2007 March 2008 %Var’nNo01 Housing Loans 2,24,481 2,52,932 12.702 Consumer Loans 7,296 4,802 -34.203 Credit Card Dues 18,317 27,437 49.804 Auto Loans 82,562 87,998 6.605 Other Per. Loans 1,55,204 1,97,879 27.506 Total Retail Loans 4,87,860 5,71,048 17.107 Total Loans 18,93,775 23,32,490 23.208 FinFest 2009 (6) out of (7) Meltdown n Retail Banking MIM % of Global 25.8 24.5 84
  65. 65. No revival in Credit demand (BS 8/8/2009) Bank credit grew at unprecedented rates during the 5 years upto 2008 So also India’s GDP Overall credit grew at 27 per cent Retail advances grew at 32 per cent Credit growth declines in 2009 : 18% Expected to grow at 12-14% in 2010 (CRISIL)MIM FinFest 2009 Global Meltdown n Retail Banking 85
  66. 66. Retail Business Downtrend in Q1 of 2009 : BL dt August 09, 2009 (Rs Cr) Some Public Sector Banks Profit from Total Profits : Retail : 1,039 Rs. 10,5401. State Bank of India - 1,034 4,1162. Punjab National Bank 701 1,7403. Bank of Baroda 198 1,5204. Canara Bank 372 1,0015. Bank of India 215 8706. Union Bank 270 5977. IDBI Bank 42 1968. Corporation Bank 275 500 MIM FinFest 2009 Global Meltdown n Retail Banking 86
  67. 67. Some Private Sector BanksPrivate Sector Banks Retail Profit / Loss Total Profit / Loss - Rs in Crores - Rs in CroresICICI BANK -437 1,205HDFC BANK 144 860AXIS BANK -49 861KOTAK BANK -19 127TOTAL -361 3,053MIM FinFest 2009 Global Meltdown n Retail Banking 87
  68. 68. Retail Segment share in profits slips to 10% for top 8 Banks• SBI, the leader posted highest – loss in Retail• Profits from retail down from 69% last year• Profits recorded from treasury and corporate• Both SBI and ICICI recorded losses in retail• Retail depositors paid high interest rates• Defaults in retail portfolio loans increasing• Lending avenues in corporate & retail slipping• Substantial drop in fee income in distributionMIM FinFest 2009 Global Meltdown n Retail Banking 88
  69. 69. BS 8/8/2009 contd………CRISIL• Sharp decline expected in retail advances• Growth in retail credit slowed sharply to around 4 per cent in 2008-09 from a peak of 42 per cent in 2004-05• Expected to revive, marginally, to 8 per cent in 2009-10 and to 13 per cent in 2010-11• Housing Loans, Auto Loans – weak demand• Sharp raise in delinquencies and recovery…MIM FinFest 2009 Global Meltdown n Retail Banking 89
  70. 70. Thanks for your attention Questions Please? Prof Chowdari Prasad TAPMI, Manipal Off: 0820-2701045 Mobile: 09242124642 Email: chowdarip@tapmi.edu.inMIM FinFest 2009 Global Meltdown n Retail Banking 90

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