India's Economic Transformation: Challenges and Opportunities

1. Why India ? 30 May 2006

2. Table of content • Executive Summary • China – India • India • ING in India • Conclusion

3. Executive Summary • India has always held great promise. Soon after independence, in 1947, its foreign reserves were among the world’s largest, at $2.1 billion in 1950-51, and it accounted for 2.4% of global trade. Over the next 44 years, however, attempts to follow the Soviet model of self-sufficiency brought the country to the verge of bankruptcy. Domestic savings failed to keep pace with the investment needed to contain unemployment, especially as India’s working-age population expanded. The crisis begged for drastic reform, and in 1991 the government delivered. • The reform program took its cue from China, which by 1991 had surpassed India on all major economic indicators. But in the shadow of the Chinese economic miracle, it is easy to overlook what India’s reforms have accomplished during the past 15 years. A solid foundation for growth is now in place: the program of renewal backed by successive governments, has increased the country’s foreign reserves to an enviable USD 140 billion and raised annual economic growth from an average of around 4% in the four decades before reform to 8%. Sustainable growth rates of 8% to 10% are within reach. The amount of FDI coming into the country, often cited as a failure of India’s policy, has grown from about $100 million in the early 1990s to about $7 billion today. If China were not the yardstick used to measure India, this increase would be a matter of celebration, not censure.

4. Executive Summary • India leads the market in off-shored back-office services, but as a manufacturing center it is perceived to lag behind China and other parts of Asia. The reasons are well documented: companies operating in India must overcome erratic electricity supplies, poor roads, and gridlocked seaports and airports while contending with government policies that discourage hiring. Such obstacles can be considerable, but they haven’t stopped the creation of a number of major global manufacturing entities as well as multinational manufacturing companies from setting up shop in India. The common characteristic is that they operate in skill-intensive industries (ex. auto components and assembly, fabricated metal products, pharmaceuticals and telecom equipment) requiring advanced technical expertise – areas in which India is likely to become a primary sourcing and manufacturing base. Research supports the view that the next wave of global outsourcing in manufacturing will take place in just these kind of industries. • ING has a unique position in the Indian financial market with a presence in the banking, insurance as well as the mutual fund space, leveraging on a common branding • ING Vysya Bank is unique in that it is a domestic bank (established in 1931) with ING control and: has a long history across multiple customer segments, does not have restrictions imposed on other foreign banks present in India, has a geographic reach which exceeds any of the foreign banks and offers a wide range of services to multiple customer segments (retail, agri, SME, mid-corporates, large corporates, multinationals etc…)

5. China - India • First it was China. The rest of the world looked on in disbelief, then awe, as the Chinese economy began to take off in the 1980s at what seemed like lightning speed and the country positioned itself as a global economic power. GDP growth, driven largely by manufacturing reached unseen levels. China used its vast reservoirs of domestic savings to build an impressive infrastructure and sucked in huge amounts of foreign money to build factories and to acquire the expertise it needed. • India began its economic transformation almost a decade after China did but India has recently grabbed just as much attention, prompted largely by the number of jobs transferred to it from the West. At the same time, the country is rapidly creating world-class businesses in knowledge-based industries such as software, IT services, pharmaceuticals. These companies, which emerged with little government assistance, have propelled the economy. But India’s level of foreign direct investment is a fraction of China’s. • China and India have followed radically different approaches to economic development. China’s resulted from a conscious decision; India more or less happened upon its course. Is one better than the other? There is no gainsaying the fact that China’s growth has rocketed ahead of India’s, but the conventional view that the Chinese model is unambiguously the better of the two is wrong in many ways; each has its advantages. And it is far from clear which will deliver the more sustainable growth.

6. China – India • The approaches differ on two dimensions: • The Chinese government nurtures and directs economic activity more than the Indian government does. It invests heavily in physical infrastructure and often decides which companies – not necessarily the best – receive government resources and listing on local stock markets. By contrast, since the early 90s the Indian government has become less and less interventionist • FDI: China has embraced it, India remains cautious • The differences have an impact on the type of companies that succeed and on entrepreneurialism. • China trumps India when it comes to industries that rely on “hard” infrastructure (roads, ports, power) and will do so for the foreseeable future. • But, when it comes to “soft” infrastructure business – those in which intangible assets matter more – India tends to come out ahead, be it in software, biotechnology or creative industries. Soft assets underpin even the Indian car industry. Where in China the car industry has expanded as a result of big capital investments from multinational companies, India’s has succeeded on the back of clever designs that make it possible to produce cheap indigenous models. India actually sends China high-value-added mechanized and electronic components whose production depends more on know-how than on infrastructure. • Many hard asset companies in China exist because the government funnels money to them. The government can do this because it intervenes in the domestic capital markets. In India there is no such government intervention. Hence successful companies tend to cluster in industries where capital constraints are less of an issue. You do not need a deep reservoir of capital to start a software company; you do for a big steel plant.

7. China – India • The Indian government’s lower level of intervention in capital markets and its decision not to regulate industries that lack tangible assets have created room for entrepreneurs. Entrepreneurial activity is fueled both by incumbent enterprises and new entrants. The first use cash flows from diverse existing businesses to invest in new ventures. However many new “soft” companies with no links to the government have emerged from pure entrepreneurial effort. • Good hard infrastructure and the Chinese government’s decision to welcome FDI make it reasonably easy for multinationals to do business in China, and since they bring their own capital and senior talent, they do not have to rely heavily on local institutions. China has no shortage of homegrown entrepreneurial talent, however indigenous companies have a much tougher time, hindered as they are by inefficient capital markets, a banking system heavily influenced by government policy and the fact that local officials rather than the market forces largely decide on who receives funding • India’s stock and bond markets are hardly perfect, however they do on the whole support private enterprise. Both the BSE and NSE are today highly efficient and successful. • Conclusion: China and India both have the ability to keep growing in their own different ways for a decade or so. While the strong economic performance has been primarily driven by the service sector over the past decade, India has also strong capabilities in manufacturing. This is slowly gaining in prominence. It is believed that the next wave of growth in India will be powered by the manufacturing sector. Indian manufactured products are gaining increasing acceptance in world markets. India already exports about USD 50 billion in manufactured goods and this is increasing at a rate of 20% p.a. By 2015 expected to reach USD 300 billion and a third of this will be captured by apparel, auto components, specialty chemicals and electrical and electronic products.

8. LT Foreign currency rating: Moody’s: Baa3 S&P: BB+ Fitch: BB+ Strengths FX reserves in excess of USD 140 billion There is great confidence in India’s potential to sustain a period of high growth. India ranks 4th in terms of Purchasing Power Parity, next only to the USA, China and Japan Modest and declining external debt burden (32% of current external receipts) Unblemished debt service record Relatively robust democratic and private sector institutions High savings rate (+25%) Availability of highly qualified/inexpensive talent pool Weaknesses Persistently high fiscal deficit (10.1% of GDP) Increasing government debt burden (80% of GDP), which is primarily financed through the domestic markets) Coalition politics deter effective policy formulation Challenges Improving physical infrastructure Maintaining pace of reform Expansion of industry base to create employment opportunities Positive macro economic picture with extremely favourable demographics India is the only country with increasing proportion of earning population out to 2025 India is home to the youngest population in the world, where 50% are under the age of 25, and 85% below that of 50. The median age of the population is 24 years. This growing working population is providing “fire-power” to the demand for lifestyle products and services. Discretionary spending has increased by 16% for the upper and middle class Indians. Trends Increasing urbanisation (population classified as middle-class: 300 million), increased nuclearisation of families, change in traditional debt averse nature of consumers As per BRICs report of Goldman Sachs, India’s GDP currently surpasses Mexico, Brazil and Russia, by 2010 will surpass Korea and by 2025 will surpass Italy, France, UK and Germany

9. India – Some facts • India is the largest three wheeler market and the second largest two wheeler market in the world • India is the second largest jewelry market and largest diamond cutting and polishing centre in the world • India stands 19th in production and 16th in consumption of machine tools in the world • India’s textile industry is the second largest in the world in cotton trade • The Indian chemical industry ranks 12th by volume in the world for production of chemicals. • India is the 3rd largest leather producer in the world after China and Italy • India is the world’s largest producer of milk, tea and pulses and the world’s second largest fruit and vegetable producer • India has the world’s largest livestock population • India has the largest irrigated land area in the world • India ranks 6th in the world in iron ore deposits and 5th in terms of bauxite deposits

10. 10 key sectors that comprise the bulk of Indian manufacturing • Engineering • Electronics • Automotive • Textiles • Chemicals • Leather • Metals • Machine tools • Food processing • Gems and Jewelry

11. Competitive advantage of Indian manufacturing • Availability of skilled labor • Availability of raw materials • Engineering and managerial capabilities • Quality focus • Large domestic market • Large target consumer base and rising income levels • Increasing consumerism • Changing age profile of Indian population • Changing lifestyles • Location and infrastructure • Government support and regulation

12. ING Vysya : at present in top 10 among private and foreign banks Overall Market Size - Deposits (%) Overall Market Size - Advances (%) Overall Market Size - Profits in Mio Euro IVB Position (Private + Foreign Banks) Advances Deposits IVB Private Sector Foreign Source: Business Standard, Banking Annual Data as of March, 2004

13. Vysya Bank renamed as ING Vysya Bank ING Vysya Bank acquired 26% stake in ING Investment Management (India) Private Limited (this is the Asset Management Company which manages the ING Vysya Mutual Fund) Barings Private Equity established in India ING Group acquired Barings globally thereby acquiring the business of Barings in India as well ING set up joint venture with Vysya Bank and GMR group for the foray into Insurance Sector in India ING Investment Trust (Asset Management business) incorporated in India Barings started Investment Banking operations in India 2005 1990 1991 1994 1995 1996 1997 1998 2000 2001 2002 2003 ING Bank N.V. set up a representative office in India ING Bank N.V. representative office converted into full-service branch Bank Brussels Lambert acquired a strategic stake in Vysya Bank ING Group sets up representative office for Insurance in India MoU signed with Vysya Bank ING Vysya Life Insurance Company begins operations ING became the single largest shareholder in Vysya Bank by increasing its stake to 44% ING Vysya Bank sold its entire 14.87% shareholding in ING Vysya Life Insurance to Gujarat Ambuja Cements Key milestones

14. A broad based presence across all segments of financial markets unmatched by any other international bank in India Entire spectrum of corporate, SME and individual clients addressed • JV ING, Exide Industries and Gujarat Ambuja Cements • Over US$90m invested • Operates through 43 branches in 25 cities and distributes products through 400+ bank branch network Retail & SME Banking • Over US$700m of assets • Nineteen funds targeting different sectors with varied growth profile • Unmatched SMEcapabilities • 1.8 million customers Life Insurance • Combination of ING’s global network with ING Vysya Bank’s domestic reach and balance sheet • Relationships with global clients and large domestic corporates • Rupee & Forex Products • Hedging and Structured Products Private Banking • Focus on high net worth individuals Financial Markets Corporate & InvestmentBanking Broad Based Financial Services Provider

15. Wholesale Bank Retail Bank • Corporate & Investment Banking • Emerging Corporates • Banks & Financial Institutions • Financial Markets • Branch Banking • Small & Medium Enterprises (turnover of less than 750 million rs) • Agri & Social Banking • Private Banking • Distribution & Marketing ING Vysya Bank Structure

16. Wholesale Products Credit Products Investment Banking Cash Management Financial Markets Trade & Commodity Finance • Working Capital • Cash credit • Export credit • LCs • Guarantees • Banker’s Acceptances • Commercial paper • Bill discounting • Term lending • Corporate lending • Project finance • Bridge financing • Structured finance • Channel financing • Cross border loan syndications • Financial Advisory • Mergers & Acquisitions • Private capital raising • Debt restructuring • Project finance / Structured finance advisory • Local debt distribution • Loan syndication • Local currency bond distribution • Securitisation • ECA financing • Commodity finance • L/Cs, guarantees • Bid / performance bonds • Trade syndications • Forex Products • Spot • Forward covers • Swaps • Hedging & Structured Products • O/n indexed swaps • MIFOR swaps / Coupon swaps • Quontos / Corridor swaps • G - 7 options / FRAs / FX IRS • Collection and Payment Service • Rapid collection service • Upcountry collection • Pay-out services • Electronic clearing • Concentration Accounts • Payable at par cheques • Escrow accounts Wholesale Bank Product Matrix

17. Key statistics Key financials – FYE March, 2005 Shareholders Equity Deposits Advances Investments Total Assets € 189 mn € 2.3 bn € 1.7 bn € 764 mn € 2.9 bn Branches: 454 Employees: 4,871 ATMs: 79 (access to more than 9,000 shared ATMs) North & East Region # of Branches- 33 West Region # of Branches- 30 € 185 mn € 118 mn € 67 mn € 35 mn Interest Income Interest Expense NII Non Interest Income South (ex AP) # of Branches- 193 AP Region # of Branches-196 Regional Offices: 11 + 10.4% 2.13% 79% CAR (as on Dec 31, 2005) Net NPA Credit Deposit Ratio INR / Euro – 53.5 ING Vysya Bank Overview Credit ratings: AA+ from Fitch and Crisil (S&P affiliate) and P1+ from Crisil

18. Summarising the India Opportunity Sound Economic Fundamentals Favourable Demographics Positive Business Environment Market Attractiveness Opportunity for long term value creation Huge Untapped Retail Opportunity Unique position of ING

19. Key Contacts Name Designation Location Tel No. Mobile Email id Vaughn Richtor MD & CEO - ING Vysya Bank Limited Bangalore 91 80 2500 5602 vaughnr@ingvysyabank.com Ravindra Kumar Country Head - Wholesale Bank Mumbai 91 22 5666 6411 98210 25192 ravindrak@ingvysyabank.com S. Vishwanathan Head - Emerging Corporates Bangalore 91 80 2500 5633 98440 77843 viswanathans@ingvysyabank.com Atul Joshi Head - Banks & Financial Institutions Mumbai 91 22 5666 6421 98213 34211 atuljoshi@ingvysyabank.com Sunil Varma Head Client Coverage - C&IB* - West & East Mumbai 91 22 5666 6414 98203 21007 sunilv@ingvysyabank.com Devang Rawal Head Client Coverage - C&IB - West Mumbai 91 22 5666 6419 98203 31757 devangr@ingvysyabank.com Sanjeev Mittal Head Client Coverage - C&IB - North Delhi 91 11 5551 0107 98715 55445 sanjeevm@ingvysyabank.com Satish Menon Head Client Coverage - C&IB - South Bangalore 91 80 2500 5201 98454 52255 satishmenon@ingvysyabank.com *C&IB – Corporate & Investment Banking

20. Thank You Any questions?

21. Annexures

22. India Map

23. Client Relationships: A Wide Cross Section

24. August 2004 November 2004 February 2005 March 2005 March 2005 Reliance Industries Limited Indian Oil Corporation Limited Jindal Vijayanagar Steel United Phosphorus Limited Tata Teleservices Limited USD 350 mn USD 50 mn USD 35.75 mn USD 75 mn INR 500 mn Offshore Loan Syndication Structured Oil Import Financing Acquisition of Agvalue, US Structured Commodity Finance Term Financing Mandated Lead Arranger Bilateral Financing Financial Adviser Mandated Lead Arranger Structured Bilateral Facility August 2005 May 2005 June 2005 April 2005 June 2005 ICICI Bank Limited National Housing Bank ING Group ICICI Bank Limited DLF Universal USD 60 mn INR 5,000 mn INR 609 mn INR 5,250 mn INR 1,600 mn Offshore Term Loan Facility Private Placement of Bonds Sale of 14.87% stake in Private Placement of Local Debt Syndication ING Vysya Life Insurance to Subordinated Bonds Gujarat Ambuja Cement Mandated Lead Arranger Lead Arranger Financial Advisor Lead Arranger Lead Arranger Wholesale Bank: Select milestone transactions August 2005 August 2005 August 2005 August 2005 September 2005 National Bank for Agriculture Indian Oil Corporation Limited Gujarat Ambuja Cements Ltd Corporation Bank Reliance Industries Limited USD 348 mn And Rural Development USD 200 mn USD 50 mn USD 100 mn INR 7,850 mn Offshore Loan Syndication Offshore Loan Syndication Term Loan Facility Offshore Loan Syndication - Non-Priority Sector Bonds Coordinating Arranger Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger

25. September 2005 September 2005 September 2005 September 2005 September 2005 ICICI Bank Limited State Bank of Patiala Bank of India Bank of Baroda Canara Bank INR 10,000 mn INR 5,000 mn INR 7,500 mn INR 7,700 mn INR 5,000 mn Certificate of Deposit Placement Private Placement of Private Placement of Private Placement of Private Placement of Subordinated Bonds Subordinated Bonds Subordinated Bonds Subordinated Bonds Lead Arranger Lead Arranger Advisor & Sole Placement Agent Lead Arranger Lead Arranger November 2005 October 2005 June 2005 December 2005 The Catholic Syrian Bank Ltd Randstad Holding NV GMR Industries Limited Syndicate Bank INR 400 mn INR 2,032 mn INR 5,000 mn Private Placement of Acquisition of major stake in Sale of 49.13% stake in Private Placement of ING Vysya Life Insurance to EmmayHR Service Private Ltd Subordinated Bonds Subordinated Bonds Exide Industries Limited Financial Advisor Lead Arranger Advisor Lead Arranger December 2005 December 2005 January 2006 January 2006 February 2006 ICICI Bank Limited Indian Oil Corporation Limited IDBI Bank Housing and Urban Hindustan Petroleum Corporation Limited INR 2,920 mn USD 300 mn Development Corporation Ltd INR 6,850 mn Private Placement of Offshore Loan Syndication Private Placement of Bonds INR 6,414 mn USD 348 mn Subordinated Bonds Private Placement of Bonds Offshore Loan Syndication Lead Arranger Mandated Lead Arranger Lead Arranger Lead Arranger Mandated Lead Arranger Wholesale Bank: Select milestone transactions October 2005 HDFC Bank INR 2,030 mn Private Placement of Subordinated Bonds Lead Arranger