Compiled by: Economic Intelligence Department Date: 04/12/2010 Page No.1 also available at : http://10.1.17.57/forstaffonly

Daily News December 4, 2010

Capital Market BSE Sensex 19966.93 S&P CNX Nifty 5992.80 Central Bank of India 194.80 RBI Reference Rates INR/1 USD 45.0900 INR / 1 EURO 59.6300 Banks will meet Basel III norms: RBI chief (Business Line): The Reserve Bank of India is confident that domestic banks will not face a problem to conform to the Basel III. Delivering his inaugural address at the BANCON 2010, the RBI Governor, Dr D Subbarao, said that the Indian banks are well capitalised and conforming to Basel III will not be a problem.“Our assessment is that at the aggregate level, Indian banks will not have any problem in adjusting to the new capital rules both in terms of quantum and quality,” said Dr Subbarao.“We expect to have a more accurate picture when banks review their Basel III compliance position following the publication of the final Basel III rules scheduled around the year end,” he added. Requisites : The new Basel III norms require banks to have a CRAR of 10.5 per cent of which Tier-I capital should be 8.5 per cent and common equity should be 7 per cent. Indian banks as on June 30 under Basel III calculations have a CRAR of 11.7 per cent, Tier-I capital of 9 per cent and common equity of 7.4 per cent.The Governor stressed that Indian banks should start effectively predicting business cycles at aggregate and sectoral levels. “This will require better quality economic and financial data as well as improved analytical capabilities,” he said.On the issue of leverage ratios, Dr Subbarao said that the leverage in Indian banking system is quite moderate. “Indian banks will not have a problem in meeting the leverage ratio requirement since the Tier-I capital of many Indian banks is comfortable (more than 9 per cent) and their derivatives portfolios are also not very large,” he added.Liquidity though remains a major challenge for Indian banks, said Dr Subbarao. “But on a positive side most of our banks follow a retail business model and their dependence on short term or overnight wholesale funding is limited. They also have a large amount of liquid assets which should enable them to meet the new standards,” he said. Banks need to lift deposit rates: RBI (Economic Times) : India's central bank chief said on Friday that banks need to increase their deposit rates and reduce lending rates to accelerate the savings, investment rate and boost a double-digit growth."This means banks need to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers - in other words, reduce their intermediation costs, or in technical terminology, reduce the net interest margin (NIM)," Duvvuri Subbarao said in a speech on Friday. There is a need to raise the level of national savings and channel those into investments to achieve double-digit inclusive growth, he added. Subbarao said that Indian banks' NIM was still higher than their peers in other emerging market economies even after accounting for mandated social sector obligation."Banks are short of funds and probably the direction that the RBI governor wants to give is to banks to lend more. Since banks don't have much resources, there is still scope for hike of 25-50 basis points in deposit rates, said Sandeep Shah, head of equity sales and research ar Tower Capital. Indian bank loans rose 22 per cent on year as of Nov. 5.The growth is in line with the central bank's projection of 20 percent by March end but deposit growth at 15.3 percent as of early November lags the central bank's projection of 18 percent. Once financial inclusion happens, NIM will come down but for the next 1-2 years the transaction cost will remain high and so margins of banks are likely to stay at high levels," said D.L. Rawal, chairman and managing director of Dena Bank . Subbarao urged banks to improve their efficiency ratio by optimizing non-interest expenses, which will in turn enable banks to protect their net interest margin. At the aggregate level, the net interest margin of the Indian banking system has narrowed from 3 per cent in 1999/2000 to 2.5 per cent in 2009/10," Subbarao said in his speech.

Compiled by: Economic Intelligence Department Date: 04/12/2010 Page No.2 also available at : http://10.1.17.57/forstaffonly

Loyal customers, key to higher profits (Business Line) Customer loyalty can help improve profitability of banks, and is important for Indian banks to outperform their peers going ahead. This was one of the topics discussed at Bancon 2010 on Friday. According to a survey conducted by McKinsey, though 95 per cent of Indian customers are satisfied, they are not loyal to their banks. About 33 per cent of satisfied customers are willing to switch banks. This is true for public, private and foreign banks.Indian customers have low expectations, hence they are highly satisfied, said Mr Alok Kshirsagar, Director and Head, Mc Kinsey. Customer loyalty can help improve profitability two to three times, Mr Kshirasagar added. According to Mr Aditya Puri, Managing Director, HDFC Bank, as customer needs change banks must change technology, products, marketing and delivery channels, while managing both costs and revenue. “Banks have to make profits and satisfy their customers,'” he said. Ms Chanda Kochhar, CEO and MD, ICICI Bank, said given the growth of the Indian economy, the banking sector can grow almost eight times in a decade. The size of opportunity is large and scale is humungous.

Segments :In the next 10 years, the banking sector will see customers ranging from the microfinance sector on one side to the large infrastructure on the other side. Between these two categories there will be mass, mass-affluent, high net-worth individuals, small and medium enterprises and corporate clients. These customers have to be served differently. The distribution mix, therefore, should involve both brick-and-mortar and technology. Banks will have to also rely more on analytics for improving customer satisfaction. And the learning from customer experience, in turn, has to go into improving analytics.Mr Rana Kapoor, MD and CEO, YES Bank, said over the next 10 years, Indian banks will get retail business from both a burgeoning middle class and a large retired class. “Both ends of the spectrum provide opportunities for retail banking to provide all kinds of services and products. Therefore, banks should have scalable models driven by technology and telecommunication and not just brick and mortar,” Mr Kapoor said.Mr Neeraj Swaroop, CEO-India, Standard Chartered Bank, said banks have to carefully choose segments they want to service. Citing the example of StanChart in India, Mr Swaroop said being a foreign bank it followed a tech-driven model earlier, but was now focusing more on relationship and branch-banking model for customer acquisition and delivery of products.

Indian banks should target global acqusitions: Subbarao (Economic Times) Reserve Bank of India Governor Duvvuri Subbarao has revived the debate on global acquisitions by Indian banks, after a two-year hiatus, suggesting that local lenders would be able to pick up some valuable firms from the global financial wreckage. The governor tempered the likely euphoria, saying that banks should be opportunistic in buying in regions with business potential and at attractive valuations , which would come with associated risk. He neither specified the regions nor valuation parameters.“Notwithstanding the risks involved ... some of our larger banks (should) be looking out for opportunities for consolidation both organically and inorganically,’’ Subbarao said at an annual bankers’ conference. “They should look (at)... regions which hold out a promise of attractive acquisitions. Indian banks should increase their global footprint opportunistically even if they do not get to the top of the league table.’’ The need for global expansion of Indian banks is necessitated by the rising aspirations of domestic companies to buy up assets as also rising trade with other emerging markets such as Indonesia and African nations. On treatment of foreign banks in India , he left the door wide open, saying the soon-to-be-released discussion paper would address it, but said mandating incorporation of subsidiaries alone is not necessarily the safest net. Former Finance Minister P Chidambaram had advocated consolidation among Indian banks and acquisitions overseas, including an audacious bid for the then sinking Citigroup by State Bank of India . Dalmia to invest Rs 2,500 cr in 2 greenfield cement projects (Business Line): Dalmia Bharat Enterprises plans to invest Rs 2,500 crore to set up two greenfield cement plants in Karnataka and Meghalaya.Mr Puneet Dalmia, Managing Director, Dalmia Bharat Enterprises Ltd, said the mining and environmental clearances are in place, work on the projects has started, and the company hopes to commission the units in 24 months.Dalmia Bharat is the new company handling the cement, power and refractories business of Dalmia Cement (Bharat) Ltd, which was recently restructured. Dalmia Cement, which included operations in sugar, has been renamed Dalmia Bharat Sugar and Industries Ltd.Mr Dalmia said the two greenfield units with a capacity of about 2.5 million tonnes a year each, will add to the company's existing capacity of 14 million tonnes.

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