INDUSTRIAL DEVELOPMENT BANK OF INDIA. Presentation Outline Economic Environment IDBI Performance 2002-03 Prospects 2003-04 Industrial Development

INDUSTRIAL DEVELOPMENT BANK

OF INDIA

Presentation Outline

Economic Environment IDBI Performance 2002-03 Prospects 2003-04

Industrial Development Bank of India 2

ECONOMIC ENVIRONMENT


Growth and Inflation


1998-9

9

1999-2

000

2000-0

1

2001-0

2

2002-0

3 GDP GrowthI IP Growth

Inflation Rate

0%

2%

4%

6%

8%

10%

GDP Growth 6.50% 6.00% 4.40% 5.60% 4.40%

IIP Growth 4.10% 6.60% 5.10% 2.70% 5.80%

Inflation Rate 5.90% 3.30% 7.10% 3.60% 3.30%

1998-99 1999-2000 2000-01 2001-02 2002-03

Foreign Trade and Reserves

0

10

20

30

40

50

60

70

US$

Bill

ion

0

10

20

30

40

50

60

70

80

US$

Bill

ion

Exports 33.22 36.82 44.56 43.83 51.70

Imports 42.39 49.67 50.54 51.41 59.39

Forex Reserves (excl.Gold & SDRs)

29.52 35.05 39.55 51.05 71.10

1998-99 1999-2000 2000-01 2001-02 2002-03


#

# - April- Feb 2003

Foreign Investment

-2

0

2

4

6

8

10

US$

Bill

ion

FDI Approvals 7.80 6.75 8.61 5.93 3.10

FDI Inflows 2.46 2.16 2.34 3.90 2.40

Net FII Investment -0.39 2.14 1.80 1.34 0.39

1998-99 1999-2000 2000-01 2001-02 2002-03


FDI Approvals pertain to calendar years

Primary Capital Markets

0

10000

20000

30000

40000

50000

60000

70000

Rs.

crore

Equity 10372.5 24870.7 14082.2 8165.2 6548.1

Debt 30978.8 40982.7 34276.6 39573.5 33327.6

Total 41351.3 65853.4 48358.8 47738.7 39875.7

1998-99 1999-2000 2000-01 2001-02 2002-03

Data include private placements


IDBI


Milestones1964

199519941990

1976 1982

Set up by an Act of Parliament as a wholly owned

subsidiary of RBI

Ownership transferred to Government of

India

Export Import Bank

spun off

SIDBI set up as a wholly owned

subsidiary

IDBI Act amended to permit public

ownership

Successful IPO - Government

stake reduced to 72%


2001 51% of ownership in SIDBI divested

Further reduced to 58% post capital

restructuring

2002 GoI plans Corporatisation of IDBI


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


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

Shareholding Pattern

Banks & FIs19.77%

Corporate Bodies4.20%

Individuals17.44%

Others0.12%

Government58.47%


As at end March 2003

PERFORMANCE 2002-03


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


2001-02 2002-03(Rs.crore)Sanctions 13656 2950Disbursements 11159 3892

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)


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.


2001-02 2002-03(Rs.crore)

66643 63116

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


Profitability (contd)

0

100

200

300

400

500

600

Rs.

cror

e

PBT 414.9 455.6

PAT 424.3 401.4

2001-02 2002-03


#

# - includes Rs.19.4 crore of deferred tax income## - includes Rs.41 crore of deferred tax income

0.60.6

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2001-02 2002-03

RoA

6.5

5.3

0

1

2

3

4

5

6

7

2001-02 2002-03

RoNW

# #

Financial Ratios


8.67.8

0

1

2

3

4

5

6

7

8

9

2001-02 2002-03

12.214.3

0

2

4

6

8

10

12

14

16

18

20

2002 2003

Tier I Tier II

6.5

102.3

6.2

107.1

0

20

40

60

80

100

120

Rs.

2001-02 2002-03

EPS Book Value

DER

CAR

18.0 18.9

Exposure - by Industry

Iron & Steel Elec.Gen. Cott.Text. Telecomservices

Ref&Oil Expl

18.81%

10.46%9.18%

4.41% 4.11%

Rs.9045crore

Rs.5030crore

Rs.4415crore

Rs2118

crore

Rs.1979crore



Asset Quality


2001-02 2002-03

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%

Std88.3

Std85.8

SubStd4.5%

SubStd5.6

Dbt7.2%

Dbt8.6

NPA - by Industry

Iron & Steel Cot.Tex Food (Oth) Metal Pro Chemicals Vehicles

21.18%

13.69%

6.91%5.32% 4.92% 4.90%

Rs.1482 crore

Rs.963crore Rs.486

croreRs.374crore

Rs.346crore



Rs.345crore

Maturing Assets and Liabilities


Upto 1 Over 1 year Over 3 years Over 5 years Over 7 Totalyear to 3 years to 5 years to 7 years years

Rupee assets 11,711 15,547 10,910 9,657 8,987 56,812FC assets 2,517 1,631 1,141 564 451 6,304Total assets 14,228 17,178 12,051 10,221 9,438 63,116

Rupee liabilities 10,553 13,780 4,909 6,034 21,471 56,748FC liabilities 1,621 2,826 1,264 572 86 6,368Total liabilities 12,174 16,606 6,174 6,605 21,557 63,116

(Rs.crore)

Trends in Returns and Costs


0

2

4

6

8

10

12

Av.Ret. 11.6 11.1 10.4 10.4 9.8Av.Cost 9.0 9.2 9.0 9.2 8.5Margin 2.6 1.9 1.4 1.2 1.3

1998-99 1999-2000 2000-01 2001-02 2002-03


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).


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


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


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


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


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


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


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


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)


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


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.


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)


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


Subsidiaries

(Rs.crore)2001-02 2002-03

Total Assets 75290 74108Income 8990 8584Total Expenditure 7352 6648Profit before Tax 813 777

Consolidated Accounts of IDBI


SubsidiariesIDBI 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%


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.

2003-04



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


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


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

Thank You

Documents

INDUSTRIAL DEVELOPMENT BANK OF INDIA. Presentation Outline Economic Environment IDBI Performance 2002-03 Prospects 2003-04 Industrial Development