ANALYSTS MEET

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INDUSTRIAL DEVELOPMENT BANK OF INDIA

• ANALYSTS MEET
• May 20, 2003

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Presentation Outline

• Economic Environment
• IDBI
• Performance 2002-03
• Prospects 2003-04

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ECONOMIC ENVIRONMENT
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Growth and Inflation
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Foreign Trade and Reserves

- April- Feb 2003
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Foreign Investment
FDI Approvals pertain to calendar years
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Primary Capital Markets
Data include private placements
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IDBI
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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
1995
1994
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
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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

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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

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Shareholding Pattern
As at end March 2003
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PERFORMANCE 2002-03
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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

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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)

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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.

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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

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Profitability (contd)
RoA
RoNW


- includes Rs.19.4 crore of deferred tax
income - includes Rs.41 crore of deferred tax
income
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Financial Ratios
18.9
18.0
CAR
DER
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Exposure - by Industry
As at end March 2003
Rs.9045 crore
Rs.5030 crore
Rs.4415 crore
Rs2118 crore
Rs.1979 crore
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Asset Quality
Dbt 8.6
SubStd 5.6
Dbt 7.2
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

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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
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Maturing Assets and Liabilities
(Rs.crore)
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Trends in Returns and Costs
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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).

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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

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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

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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

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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

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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

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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

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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

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Cost Reduction

• Sustained efforts to control expenses, mainly
  interest expenses, by prepayments of high-cost
  borrowings
• During the last three years (2000-03), rupee
  borrowings of around 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)

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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

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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.

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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)

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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

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Subsidiaries
Consolidated Accounts of IDBI
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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

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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.

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2003-04
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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

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Prospects

• Improved performance of infrastructure sector
  likely to have a positive impact on industrial
  investment climate
• IDBIs 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

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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

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Thank You