Corporate Banking

Strictly Private and Confidential

Indian Corporate Growth Story

Indian corporate sector is expected to grow at a rapid pace with reasonably leveraged balance sheets leading to emergence of global champions. While ROE takes a cyclical dip, it remains meaningfully above long term bond yield.
Balance Sheets - Leverage Global Champions - Indian Corporates in Fortune-500

600 500 400 300 200 10 0 0 2007

US$565.3 US$367.9

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 F1992 F1995 F1998 F2001 F2004 F2007 F2010E Cash to Total Capital Employed (RS)

25% 20% 15% 10% 5% 0%

2005

2010

2015

2 0 10

Debt to Equity (LS)

Source: Broker Research.

#5

#8

#25

R e v e nue o f B S E 2 0 0 C o m pa nie s ( US $ B n)

Source: McKinsey, Citi Research.

Sales Growth of BSE 200 Companies

Excess ROE Over Long Bond Yield: 8-year Low

18% 16% 14% 12% 10% 8% 6% 4% 2% 1994 1996 1998 2000 2002 2004 2006 2008 2010
MSCI India ROE minus 10-year Govt. Bond Yield 5-year moving average

Private Sector Focused unlike China

India
31% 49% 68% 20%

China
1% 28%

3%

Controlling shareholders of listed companies

Private Foreign Government Others

Source: Factset.

Source: Broker research.

Source: Broker research.

Internationalization of Revenue
India is expected to edge out China in terms of number of new multinationals. Indias largest corporate houses already derive a large part of their revenue from beyond the borders.
FDI Inflow & Outflow Trends (In US$ Bn)
3.0 7.6 20.3 25.5 41.3 34.7 24.5 0.0 FDI Inflow 20.0 FDI Outflow 40.0 60.0

Current and Projected Share of New Multinationals

25% India

Projected Growth New Multinationals vs. GDP

Growth in Average Level of Real GDP from Base (20052009) to Projection (20102024) Period
160% 140% 120% IND 100% 80% 60% KOR 40% 20% M AL BRA POL UKR ARG 20% RUS CHL ROM M EX 40% 60% SIN VIE CHN

Share of Total New Multinationals 20102024

2006

14.3 17.3

20%

China

1 5% Singapo re 1 0% Russia 5% 0% B razil Vietnam P o land Ro mania Ukraine 0% 5% M alaysia Ko rea

2008

18.4 14.0

2010
40.0

13.2 20.0

HUN 80% 100%

1 0%

1 5%

20%

25%

0% 0%

Share o f To tal New M ultinatio nals 20052009

Growth in Average Amount of New M ultinatinals Between the Base (20052009) and Projection Periods (20102024)

FDI inflow in India from FY2001 till now is led by Mauritius (42%), followed by Singapore (9%), USA (7%) & UK (5%)
Source: EIU

India is expected to edges out China in terms of number of new multinationals, despite slower forecast growth
Source: PWC

Foreign Revenue Share of BSE 500 Companies

22% 18% 14% 7% 23%

Foreign forays fuel ascent of Indian MNCs

82.7 73.5 70.1 65.6 59.2

52.6 26.3 26.0 18.7

10.7

CY05

CY06

CY07

CY08

CY09

BSE 500 Revenues from Foreign Subsidiaries (%)

Source: CMIE.

Indias largest corporate houses like the Tatas and Birlas already derive a large part of their revenue from beyond the borders Companies are using acquistion route to expand overseas Drivers for Indian Corporates going abroad include Diversifying the revenue base and lowering risks Regulatory hurdles back home Absence of good acquisition opportunities at home in feed stocks like coal and iron ore

Rcomm

Hindalco

Sun Pharma

Dr Reddy's

Tata Motors

Tata Steel

% of Total revenue from Overseas

Source: The Financial Express: January 28, 2011.

Bharat Forge

Bharti Airtel

M&M

L&T

Wholesale Banking Revenue

Wholesale Banking revenues in India are expected to grow at a CAGR of 17% with mid corporate revenues continuing to remain a significant portion of the wholesale banking revenue.
Total Wholesale Banking Revenue
100% =
IB FCY Credit TF PF CMS

Growth Rates
(%)

International Revenues from Indian Companies

Figures in US$ mm

CAGR
(%) 6,239 15 15
2,278 539

US$ 16 bn 12 4 12 9

US$ 3540 bn 15 4 13 12

17
22 19 19 25 6 18 Fees Trade Finance Credit 2,539 249
857 1,434 FY10 FY16 3,422

19 13 31 2010

11 13 32 2015

19

Fx & Rates Local Credit

19

Wholesale Banking wallet includes local revenue from domestic Large Corporates, Global Subsidiaries and Mid Market enterprises

Wholesale Banking Revenue Split by Corporate Size

100% = US$ 16bn 31 US$ 3540 bn 33

69

67

2008 Large Corporate

Note: Wholesale Banking comprises of large and mid corporate companies including Public sector with revenues > US$ 110 MM Mid Corporate revenue of US$ 10 MM to US$ 110 MM.
Source: McKinsey

2015 Mid Corporate

Financial Institutions Group Segment Overview

Banks and NBFIs
Total Loans (1) and Deposits (1)
21% (US$ in Billions)

Mutual Funds
Low Penetration of Mutual Fund in India
67%
21%

1,039 903 738 667 765

AUM as % of GDP

599 481 337 440

550

30%

30% 23% 14%

2006

2007 Loan

2008 2009 Loan to Deposit Aatlo

2010

US

Brazil

S. Africa

S. Korea

India

Net NPA Ratio

1.20 1.00 1.00 1.05 1.12

AUM Growth
(US$ in Billions) CAGR: 32.3%

143 90 105

158

169

159

144

146

107 49 69

32

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Dec-08

Dec-09

Mar-10

Jun-09

Sep-09

Jun-10

2006

2007

2008 Npa Ratio

2009

2010

Indian banks have weathered the Global Credit crisis well. There was no direct exposure to sub-prime assets Witnessed a healthy growth during the last few years, propelled by strong economic fundamentals Large NBFI are mostly government promoted and have sector specific focus such as housing, small scale industries etc.

India represents a very large and underpenetrated market Mutual fund AUMs as a % to household financial savings represent only ~7.7% Every 1% increase in AUM penetration will lead to an increase of US$ 9 bn in AUMs

Source: RBI, EIU. (1) Does not include assets/loans/deposits of co-operative banks. 1

Aug-10

Financial Institutions Group Segment Overview (Cont'd)

Insurance
Under-penetrated Insurance Market
50,000 40,000 30,000 20,000 10,000 0 0 Korea Malaysia China India 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Canada Germany Italy Taiw an Australia US Singapore Japan HK UK

Broker Dealer Segment

Market Share of Top 5 and Top 100 Brokers
96 98 85 73 53 40 9596 9798 9900 52 44 41 98 96 94 97 96 95 91 84 73 77 77 88 80

83

31 26 0304 Top 100

22 0506

17

16 0708

20

16 0910

0102 Top 5

Increasing Private Sector Market Share in Life Insurance

26.30 35.50 37.00

Division of Total Turnover

Cash 22%

51.90

58.90

55.20

Institutional 40% Retail 60% Futures 39%

Option 39%

73.70

64.50

63.00

48.10

41.10 FY09

44.80

FY05

FY06

FY07 LIC

FY08 Private

FY10

Growth in per capita income, low penetration levels will drive high growth in insurance sector Private players will add to high rates of growth Recent slowdown in growth due to lacklustre ULIP sales is a area of concern

The brokerage industry in India continues to remain fragmented Brokerage yields have declined to 56bps (among the lowest globally) from 78bps a few years ago due to higher competition and larger proportion of option trading volume Cash segment has higher average broking yield of 1012bps as compared to that of 3-5 bps for derivative segment and 12bps in options

Source: RBI, EIU.

MNCs Expanding in India

Trends in FDI (US$ bn)
55.0 41.3 34.6 20.3 25.5 27.6 41.0 45.0 50.0 60.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: McKinsey

Growth Drivers Today

As outcome of government initiatives and liberalization measures equity flows into India have seen a thirteen fold growth between 2003-04 to 2009-10 Strong economic fundamentals and attractive investor returns makes India preferred investment destination Cost Considerations: Differentiated cost value proposition powered by low manufacturing cost Skilled manpower, strong technical capabilities and fluency in English Need for customized products require a strong local presence

Growth Drivers for Tomorrow

Population in Indias highest income class expected to grow to 25 million in 2015 from 10 million in 2009 Increasing urbanization of population works in favor of large corporates expecting to thrive off the expanding customer base in the FMGC, Pharma & IT sector Government focus on Infrastructure development & significant achievements in telecom, roads and power sector Increasing Joint ventures by MNCs with Indian companies locally to overcome their inability to influence public policies, leverage existing products, marketing & sale capabilities and comply with regulatory requirement where foreign participation is restricted

2015

Emerging Theme - Infrastructure

Overview
The Planning Commission of India announced infrastructure spend of US$ 500 bn in the 11th plan(2007-2012) and US$ 1,000bn for the 12th plan (2013-17) Of the total infrastructure spend of US$ 500 bn in the 11th plan, government plans to invest US$ 100 bn in the rural areas The government estimates that the Infrastructure Sector needs to grow at a CAGR of 15% over the next five years to support the growing requirements of virtually every other sector of the Indian Economy As a result the Union Ministry for Finance pointed out the need to develop a rupee-denominated long-term bond market for funding the infrastructure sector As per government estimates the Indian infrastructure sector has the potential to absorb US$ 150 bn (including the power sector) in FDI over the next five years

Revenue Split Product wise

US$ MM

19,274

6,277

2,060

14,803 28%

50% 71%

60%

72% 50% 29% Power

Source: Mckinsey.

40%

Roads Other Products

Ports Lending

Others

RoE from Infrastructure Financing

Project Lifecycle
Inception Completion

Nll Upfront Fee Operating Costs Risk Costs PBT Lending DCM ECM Transaction Banking Equity Fund Management PBT Overall Tax PAT 0
Source: Mckinsey.

225 22 45 40 162 18 5 104 30 319 72 247 50 100 150 200 250 300 350

Operational
3 years CLP ECA GTS Flows FX Flows HFS Position Refinancing: Bond/ Capital Market Exit: IPO Episodic Opportunities 12 years

Basis Points