March 20th 2010

Indian Auto component Industry

Banking Industry

• The banking scenario in India has gained all the momentum, with both the domestic and international banks
meeting its pace. The Indian banks have shifted their approach to 'cost', determined by revenue minus profit.
This shows that all the resources need to be used efficiently to better the productivity and ensure a positive
situation. It is very much essential for the Indian banks to focus on cost saving for its survival. Initially, banks
focused on the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks shifted their
approach to the 'profit' model, which meant that banks aimed at higher profit maximization.
• Banking industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the
Indian Banking system, are in the process of exceeding its manpower, excessive non Performing Assets (NPAs)
and excessive governmental equity, while on the other hand the private sector banks are consolidating
themselves through mergers and acquisitions. PSBs, which currently account for more than 78 percent of total
banking industry assets are loaded with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from
traditional sources, lack of modern technology and a massive workforce while the new private sector banks are
forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service.
The PSBs are of course currently working out challenging strategies even as 20 percent of their massive
employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes.
The private players however cannot match the PSB’s great reach, great size and access to low cost deposits.
Therefore one of the means for them to combat the PSBs has been through the merger and acquisition (M& A)
route.

• We believe that RBI, which recently increased the CRR by 75 bps beating the street expectations of 50
bps, to 5.75%. They also hiked reverse repo by 25 bps in order to moderate the inflation. Along with that they also
hiked repo rate by 25bps. It will result in better C/D ratio and margins. Deterioration in the asset quality has largely
started to moderate. If this trend continues, lower slippages across the sector would suggest strong case for upward
revision in the earnings estimates of the banks.
A variety of financial intermediaries in the public and private sectors participate in India’s Financial sector, including the
following:
1). Commercial Banks;
2). Non-bank finance companies, including housing finance companies;
3). Long-Term lending Institutions;
4). Insurance Companies; and
5). Mutual Funds.

Commercial Banks
There are 171 scheduled commercial banks in the country with a network of 81090 branches serving approximately Rs.
41,01,518 crore in deposit accounts and Rs. 28,81,898 crore in loan accounts.

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Mar 20th’ 2010

Public Sector Banks

This includes the State Bank of India and its six associate banks, 19 nationalised banks and IDBI Bank Limited, 86
regional rural banks. Public sector banks have 56,574 branches, and account for 74.2% of the outstanding gross bank
credit and 74.3% of the aggregate deposits of the scheduled commercial banks.

Non-Bank Finance Companies

The primary activities of the non-bank finance companies are consumer credit, including automobile finance, home
finance and consumer durable products finance, wholesale finance products such as bill discounting for small and
medium-sized companies.

Long Term Lending Institutions

These institutions provide fund-based and non-fund-based assistance to industry in the form of loans, underwriting,
direct subscription to shares, debentures and guarantees. In addition, long-term lending institutions also offer:
• fee-based activities such as investment banking and advisory services; and
• short-term lending activity including corporate finance and issuing working capital loans.

Insurance Companies
There are 45 companies registered with IRDA (Insurance Regulatory and Development Authority) in India. The total
number of life insurers with IRDA is 23, while the total number of general insurers registered with IRDA is 22. The Indian
Insurance sector is open for foreign and private participation by permitting foreign equity participation in new insurance
companies of up to 26% for life insurance and 74% for general insurance.

Mutual Funds
SEBI issued the Securities and Exchange Board of India (Mutual Fund) Regulations, 1993, under which all mutual funds
barring the Unit Trust of India were to be registered and governed. In recent past, steps have been taken to improve
governance practices in the industry, which have helped the growth of the mutual funds industry.

Reverse Repo Rate:

Repo is the rate at which RBI lends to Bank and Reverse Repo is the rate of interest RBI pays banks when they deposit
funds. These rates are important with which RBI attempts to manage the economy. The reason for raising these rates
was to slow down the rate of which prices are rising, which is eroding living standards. Borrowing cost and prices of
goods and services move in opposite direction, people tend to borrow less to buy goods, which reduces the demand.

KRC RESEARCH 2
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Mar 20th’ 2010

Reverse Repo Rate Repo Rate

7 11

9
5
7

5
3
3

1 1

Oct'2 2004

A pr'29 2005

Jan'24 2006

Oct'31 2006

Jan'6 2007

Jun'23 2008

Oct'20 2008

D ec'6 2008
O ct'2 2 0 0 4

A p r'2 9 2 0 0 5

Jan '2 4 2 0 0 6

O ct'3 1 2 0 0 6

Jan '6 2 0 0 7

Ju n '2 3 2 0 0 8

O ct'2 0 2 0 0 8

D e c'6 2 0 0 8

M ar 31 2004

M ar'3 2007

M ar'5 2009

M ar'19 2010
M ar 3 1 2 0 0 4

M ar'3 2 0 0 7

M ar'5 2 0 0 9

M ar'1 9 2 0 1 0
But due to this the holders of fixed income securities and bank deposits would get affected. Since fund raisers will offer
high rates, bondholders will sell, depressing prices, to buy higher yield bonds. Along with this the Governments interest
cost will go up, leaving less for social welfare.

Relative valuations

Company HDFC ICICI KOTAK

CMP (Rs)
Mcap (Rs
Crore)
P/E 26.0 24.1 25
P/BV 3.8 1.8 2.4
CAR (%) 15.10 15.53 19.50
Net NPA (%) 0.59 2.40 2.34

Disclaimer:
This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the
information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any
investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports and
consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis. All
opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As a matter of practice, KRC
refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or
individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation.

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.

1102, Stock Exchange Tower, Dalal Street, Mumbai 400 001. Members: BSE & NSE
Head-Off Phone : 91-22-66535000 Fax : 66338060 www.krchoksey.com
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KRC RESEARCH 3