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INDUSTRIAL DEVELOPMENT BANK OF INDIA

INDUSTRIAL DEVELOPMENT BANK OF INDIA. Presentation Outline. Economic Environment IDBI Performance 2002-03 Prospects 2003-04. Industrial Development Bank of India. 2. ECONOMIC ENVIRONMENT. Industrial Development Bank of India. 3. Growth and Inflation.

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INDUSTRIAL DEVELOPMENT BANK OF INDIA

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  1. INDUSTRIAL DEVELOPMENT BANK OF INDIA

  2. Presentation Outline • Economic Environment • IDBI • Performance 2002-03 • Prospects 2003-04 Industrial Development Bank of India 2

  3. ECONOMIC ENVIRONMENT Industrial Development Bank of India 3

  4. Growth and Inflation Industrial Development Bank of India 4

  5. Foreign Trade and Reserves # # - April- Feb 2003 Industrial Development Bank of India 5

  6. Foreign Investment FDI Approvals pertain to calendar years Industrial Development Bank of India 6

  7. Primary Capital Markets Data include private placements Industrial Development Bank of India 7

  8. IDBI Industrial Development Bank of India 8

  9. Milestones 1964 1976 1982 Ownership transferred to Government of India Export Import Bank spun off Set up by an Act of Parliament as a wholly owned subsidiary of RBI 1994 1995 1990 IDBI Act amended to permit public ownership Successful IPO - Government stake reduced to 72% SIDBI set up as a wholly owned subsidiary 2001 51% of ownership in SIDBI divested Further reduced to 58% post capital restructuring 2002 GoI plans Corporatisation of IDBI Industrial Development Bank of India 9

  10. Contribution • Catalyst for industrial progress • Significant contribution to industrial development in the country • Lending across all sectors – Steel, Textiles, Infrastructure, Chemicals, Metals, Automobiles, Services • Engineered Capital market development • NSEIL, OTCIL, SHCIL, NSDL • Promotional activities • Entrepreneurship Development - EDPs, EDII • Technological Services - TCOs Industrial Development Bank of India

  11. Strengths • Capacity to leverage • High Net Worth and asset base • High Capital Adequacy • Low DER • Close relation with major clients • Brand Equity • Dedicated, professional management • Well diversified presence • Across the financial sector through subsidiaries • Across a wide cross section of industry Industrial Development Bank of India

  12. Shareholding Pattern As at end March 2003 Industrial Development Bank of India 12

  13. PERFORMANCE 2002-03 Industrial Development Bank of India 13

  14. Operations • Despite recovery in industrial sector, investment climate remained subdued • Depressed investment climate reflected in sluggish capital market, low demand for project assistance and delayed project implementation • Sanctions to infrastructure sector - Rs.365.4 crore (13.1% of total sanctions, as against 24% in 2001-02) • Incresed flow to services sector – 13% of sanctions and 18% of disbursements • Deliberate corporate strategy to direct fresh funds to prime rated corporates to improve quality of assets Industrial Development Bank of India 14

  15. Borrowings • Total borrowings during 2002-03 – Rs.10831 crore (Rs.8614 crore) • FC borrowings – Rs.497 crore (Rs.209 cr) • Rupee borrowings-Rs.10334 cr.(Rs.8405 cr) • Flexibonds - Rs.2183 crore, Omni bonds - Rs.2691 crore, short term instruments - Rs.3792 crore, fixed deposits - Rs.1668 crore • Incremental cost – 8.4% (9.8%) • Incremental maturity – 2.75 years (2.64 years) Industrial Development Bank of India 15

  16. Assets • Focus on acquiring quality assets • Prepayments • Securitisation of Assets • Aim of de-risking portfolio, asset-liability manage-ment, alternative source of funding, profitability. • In 2002-03, principal outstanding of Rs.583.29 crore securitised without recourse; a gain of Rs.46.75 crore. Industrial Development Bank of India 16

  17. Profitability • Despite sluggish operations and pressure on margins, • Gross Profits increased by close to 32% • Profit before tax increased by about 10% • Significant cost cutting, particularly in interest costs, that declined by 13% • Prepayments of high cost rupee debt • Reduction in cost of FC liabilities • Restructuring of liabilities; interest subsidy • Increased capital gains • Divestment of holdings in Associates Industrial Development Bank of India 17

  18. Profitability (contd) RoA RoNW # # # # - includes Rs.19.4 crore of deferred tax income ## - includes Rs.41 crore of deferred tax income Industrial Development Bank of India 18

  19. Financial Ratios 18.9 18.0 CAR DER Industrial Development Bank of India 19

  20. Exposure - by Industry As at end March 2003 Rs.9045 crore Rs.5030 crore Rs.4415 crore Rs2118 crore Rs.1979 crore Industrial Development Bank of India 20

  21. Asset Quality Dbt 8.6 Dbt 7.2% SubStd 5.6 SubStd 4.5% 2001-02 2002-03 Std 85.8 Std 88.3 • Accelerated provisioning of Rs.2500 crore had brought down the level of NPAs to 11.7% in 2001-02 • Net addition to NPAs during the year was Rs.830 crore • Higher Provision for bad and doubtful debts – Rs.1110 cr (Rs773 cr); growth of about 44% Industrial Development Bank of India 21

  22. NPA - by Industry As at end March 2003 Rs.1482 crore Rs.963 crore Rs.486 crore Rs.374 crore Rs.346 crore Rs.345 crore Industrial Development Bank of India 22

  23. Maturing Assets and Liabilities (Rs.crore) Industrial Development Bank of India 23

  24. Trends in Returns and Costs Industrial Development Bank of India 24

  25. One Time Settlements • During the year, IDBI approved 130 One Time Settlement (OTS) cases • Rs.961.3 crore recoverable towards principal, Rs.101.5 crore towards interest and Rs.2.23 crore towards other charges. • Recoveries made during the year in respect of OTS cases amounted to Rs.398.19 crore (Rs.390.70 crore in the previous year). Industrial Development Bank of India 25

  26. CDR System • Set up in August 2001 • CDR mechanism is based upon an effective co-ordination among banks and FIs • CDR system comprises 12 FIs and 49 Banks • 27 PSU Banks, 22 Private Sector banks • Objectives • Preserve viable corporates • Minimize losses to creditors and other stakeholders • Review by high level Kamesam Committee has widened the ambit of the scheme Industrial Development Bank of India 26

  27. CDR – Activity so far • 60 cases referred for restructuring; amount involved Rs.44595 crore • Of the total, 15 applications received in the textiles sector, 9 in Petrochemicals/ Chemicals, 8 in Steel • In 29 cases final scheme approved involving an amount of Rs.29069 crore • 15 cases Restructuring has been rejected; involving Rs.6405 crore and; • 16 cases being processed involving Rs. 9121 crore • Campaign on to increase involvement of banks Industrial Development Bank of India 27

  28. Action under SRES Act • As at end March 2003, IDBI issued notices under SRES Act to 41 borrowers; aggregate principal outstanding of Rs.1459 crore. • Also, consented with lead institution(s) for action under the Act in respect of 31 more borrowers; principal outstanding Rs.822 crore • Of these, 20 borrowers have approached for amicable settlement of dues and a few of them have submitted One Time Settlement (OTS) proposals Industrial Development Bank of India 28

  29. Action under SRES Act • Apart from these 72 cases, consent of other creditors sought for serving notice on 28 other cases with aggregate principal outstanding of Rs.492 crore • IDBI has so far seized assets of two units under the Act. However, pending Supreme Court decision on disposal of assets, no recovery has been made from these assets till date Industrial Development Bank of India 29

  30. Asset Reconstruction Companies • Initiatives for Setting up of ARCs • Asset Reconstruction Company (India) Ltd • Pilot ARC - jointly sponsored by IDBI, ICICI Bank and SBI; • Initial issued and paid up capital Rs 20 crore /Rs 10 crore; • IDBI, SBI and ICICI Bank 24.5% each; • Balance 26.5% with other private banks • Asset Care Enterprise Ltd. (ACE) • Being floated by IFCI; Focus on strategic management of non-performing and stressed assets • For the ARC to be successful • Pricing of assets sold has to be right • Banks and FIs need to sell NPAs at a discount to book value • Difficult to recognize losses by selling assets at discount; • Funding of the ARC is an important issue Industrial Development Bank of India 30

  31. SRES Act - Issues/Problems • Validity of legislation challenged • Lenders can acquire assets of defaulting companies but cannot sell these assets • Supreme Court ruling on this issue awaited • Working capital lenders keen to decide sharing modality before giving consents • Lender with Performing Assets in its books hesitant to give consent for foreclosure. • Most of the cases involve joint financing • Introduction of ‘lead’ concept can facilitate action to a great extent Industrial Development Bank of India 31

  32. Asset Restructuring • Debt of several companies restructured to enable smoother repayments • Loans to large steel cases restructured as part of GoI initiative to improve their viability • Involves reschedulement of principal and reduction in interest rates • 40% of rupee loan converted to FC with fixed cost of 8%; some part converted to equity, remaining rupee at 14% • Compound interest overdue converted to zero coupon loans; simple interest portion converted to CRPS Industrial Development Bank of India 32

  33. Cost Reduction • Sustained efforts to control expenses, mainly interest expenses, by prepayments of high-cost borrowings • During the last three years (2000-03), rupee borrowingsofaround Rs.21000 crore repaid • Of this, Rs.6840 crore retired during 2002-03 • Such prepayments helped reduce interest cost by Rs.462 crore last year. • Interest costs declined substantially over the 3 year period • During 2003-04 savings of around Rs.650 crore expected in interest cost (including benefits of liability restructuring) Industrial Development Bank of India

  34. Liability Restructuring • High cost debt of around Rs.17000 crore from 33 banks and FIs restructured • Outstanding debt to carry an interest rate of 8% beginning March 2003 • GoI to bear the interest differential • All this debt to be rolled over for its original maturity at market relevant floating rates • Favourable impact on liquidity and profitability • Lower borrowing requirements Industrial Development Bank of India 34

  35. Divestment of stake in Associates • With a view to refocus its activities IDBI divested some of its holdings • Entire stake in Discount & Finance House of India Ltd. (DFHI) divested • In favour of SBI through a negotiated offer in February 2003 • Consideration received Rs.78.6 crore • Exited from asset management activity in March 2003. • Divested entire shareholding in IDBI Principal Asset Management Company Ltd., IDBI Principal Trustee Company Limited and all Trust Corpus rights of IDBI Mutual Fund to joint venture partner Principal Financial Services Inc. USA. • Consideration received Rs.94 crore. Industrial Development Bank of India 35

  36. Risk Management Systems • IDBI recognises the critical importance of an effective Risk Management system • Optimum allocation of capital and maximization of shareholder value core principles of the risk management function • A Risk Management Committee set up • Central point for risk management policy formulation and review in line with RBI Guidelines and requirements of the Basle Capital Accord of the Bank for International Settlements (BIS) Industrial Development Bank of India

  37. Risk Management Systems • Credit Risk Management • To devise a rating methodology to evaluate transaction risks of each company / project • Approvals by Executive Committee / Credit Committee / Zonal Committee after assessing risks • Asset-Liability Management • A system has been put in place to measure, monitor and manage market risks. • Investment Committee to manage the Investment portfolio and its associated risks Industrial Development Bank of India

  38. Subsidiaries Consolidated Accounts of IDBI Industrial Development Bank of India 38

  39. Subsidiaries IDBI Bank • Deposits for year ended March 2003 – Rs.6032 crore (Rs.5234 crore 2000-01); growth of 15% • Advances – Rs.4325 crore (Rs.3099 crore); growth of 40% • Net Profit 2002-03 – Rs.71.1 crore (Rs.52.4 crore); growth of 36%; Dividend approved – 12.5% IDBI Capital • One of the Primary Dealers accredited by the RBI to act as a market maker in government securities • Secondary market turnover in excess of Rs.100000 crore in G-secs for the second time; repo turnover in excess of Rs 125000 crore • PBT – Rs.367 crore (Rs. 370 crore); PAT – Rs.228 crore (Rs.234 crore); Interim Dividend – 95% Industrial Development Bank of India 39

  40. Subsidiaries (contd) IDBI Intech • Total Income of Rs.6.13 crore (Rs.7.85 crore); PBT – Rs.0.44 crore (Rs. 0.42 crore) • Set up a 100 seats Contact Center which would commence commercial production soon • Would leverage contact center operations for procuring BPO assignments. • Has tied up with an USA based Company for providing prospect lists and telemarketing services • Awarded the ISO 9001-2002 quality certification by BVQi. • Initiated activities in quality process for CMM Level 3 and the certification is expected to be received by September 2003. Industrial Development Bank of India 40

  41. 2003-04 Industrial Development Bank of India 41

  42. Outlook • RBI signaled soft interest rate regime reducing both the Bank Rate and CRR • SRES Act would aid banks and FIs • To release funds locked up in NPAs and also remove these sticky assets from their books. • To bring credit discipline among borrowers. • To set up Asset Reconstruction Companies • CDR could be an additional safeguard to protect the interest of the creditors and revive weak but potentially viable units Industrial Development Bank of India 42

  43. Prospects • Improved performance of infrastructure sector likely to have a positive impact on industrial investment climate • IDBI’s operations would be driven by passing of corporatisation Bill • Likely foray into banking operations October 2003 • Level of operations as well as product mix, would undergo a change accordingly • Likely levels of Sanctions and Disbursements – Rs.7000 and Rs.7000 crore respectively Industrial Development Bank of India 43

  44. Strategy • Present portfolio would continue to have a dominant position in asset composition • Focus on asset quality • Improve recovery from the existing assets to enable migration to a higher level of performance • Selective lending to add quality assets to the portfolio • Effective cost management • Continued focus on reducing high cost debt • Thrust on increasing retail reach to widen resource base and bring down costs Industrial Development Bank of India 44

  45. Thank You

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