Tata group's struggle with liquidity continues

Tata group is trying hard to raise more than Rs 15,000 crore to support its cash requirements. This is in addition to Rs 13,070 crore it has obtained from the sale of 26% equity stake in Tata Teleservices to NTT DoCoMo. According to news reports, Tata group has plans to obtain these funds by the sale of vehicle loan portfolio of Tata Motors, selected private equity placement, and through the public offer of debt securities.

Notably, Tata Group had taken INR 9,200 crore bridge loan in June 2008 to finance the purchase UK’s Jaguar and Land Rover (JLR) brands of luxury cars from Ford. While that loan is required to be paid by June 2009, Tata Motors will further need to invest more than hundred crore rupees into JLR to save it from going illiquid. JLR has sought financial assistance from the UK government to the order of 1 billion pound as it is facing credit crisis due to sharp fall in sales. The UK government is in still pondering whether to use taxpayer money to bail out JLR.

As an outcome of the JLR deal, Tata Motors outlook may be degraded to negative by rating agencies which will further put pressure on the company to raise cash from the market.

Tata group is planning to fulfil this cash requirement by following ways:

1. Rights Issue: Rs. 4,200 crores

2. Sale of stake: Rs. 3,000 crores
It had raised Rs. 545 crore through through two major sales: Rs. 485 crore by selling TATA Steel stake, stake in TATA Teleservices of around INR 60 crore.

3. Foreign Equity Offer: $ 500 million (Rs. 2,400 crores)
This might be a hard option to pursue in the current market conditions.

4. Public Debt Offer: Rs. 2700 crores
In November 28 2008, Tata Motors has gone to the public with a fixed deposit scheme offering as much as 12.83% to general public. According to the Companies Rules, Tata Motors can raise a maximum of Rs. 772 crore from its shareholders and another Rs. 1931 crores from the general public through the fixed deposit scheme. The last time Tata Motors went for public borrowings was in the year 1995 when it received good support. However in the current situation it might be difficult if not impossible for Tata Motors to raise the maximum possible amount from public.

5. Sale of vehicle loan portfolio of Tata Motors: About Rs. 8,000 crores
The vehicle loan pool of Tata Motors is about Rs. 8,000 crores.

About Tata Motors
Tata Motors Limited is India’s largest automobile company. In FY08 it reported revenues of Rs. 35651 crores (USD 8.8 billion). It is the leader in each segment of commercial vehicles in India. Also, it is among the top three players in the car & utility vehicle market. On global scale, it is world’s fourth largest truck and second largest bus manufacturer. Though it is a part of India’s biggest business group, Tata group, it gained world’s attention last year with its announcement of buying Jaguar and Land Rover from Ford. Also it came into limelight with the proposal of manufacturing world cheapest car: Tata Nano, popularised as ‘The people’s car’.

Tata Motors takes retail debt route for raising funds

Tata Motors has been trying to raise funds by offering debt securities to retail investors. The public offering of debt securities if successful will reduce some liquidity problems which the company is facing because of the Jaguar Land Rover.

Tata Motors has appointed Tata Securities, Kotak Securities, and JM Financial as the authorised brokers for this offer know as "Tata Motors Fixed Deposit Scheme". A retail investor will require to deposit a minimum amount of Rs 20,000 (and thereby in multiples of Rs 10,000) to participate in the scheme. The deposits for 1 year carry an interest rate of 10% p.a. For 2 years the interest rate is 10.50% p.a. and for 3 years it is 11.00% p.a. The income tax will be deducted at source from the amount of interest payable to the depositor in accordance with the provisions of the Income Tax Act, 1961 if it exceeds Rs.5,000 in a financial year.

Tata Motors has long term credit rating of AA+ and AAA for its debt instruments. It has made profits after tax of over 2000 crores in FY08.

	(Rs. in crores)
Year	Profit before tax	Profit after tax
2007-08	2,576	2,029
2006-07	2,573	1,913
2005-06	2,053	1,529

Moreover, its leverage ratio is also not high. However, its debt/equity ratio has increased from 0.44 in FY04 to 0.7 in FY08. Still, Tata Motors has enough profits to easily service its debt. Its interest coverage ratio was 7.0 in FY08.

Balance Sheet (Rs. in crores)
	As at	As at
Liabilities	31.03.08	31.03.07
Share Capital	386	385
Reserves & Surplus	7,454	6,484
Secured Loans	2,462	2,022
Unsecured Loans	3,819	1,987
Deferred Tax Liabilities	976	787
Current Liabilities
& Provision	10,657	7,728
Total	25,752	19,394

	As at	As at
Assets	31.03.08	31.03.07
Fixed Assets and
intangible Assets (Net)	10452	6395
Investments	4910	2477
Current Assets, Loans
and Advances	10384	10512
Misc. Expenditure	6	10
Total	25752	19394

Though Tata Motors has strong fundamentals, the macroeconomic situation is adverse and its acquisition of JLR is adding extra burden on its performance. However, with a strong balance sheet and backup of the biggest group of India Tata Motors should be able to wither off these concerns and emerge out of this crisis.

This however doesn't eliminate the risk that in near future it may see its credit rating getting downgraded. Hence, the question: is the spread between interest rates offered in the scheme and risk free rate adequate enough to compensate for the risk. It is more favorable to Tata Motors as it has a very strong brand reputation and the risk free rates are on downward movement thereby increasing the spread and making the scheme a very attractive investment option.

Decline in inter bank offer rate indicates easing liquidity

The BSE Inter Bank Offer Rate (BIBOR) which reversed its upward move in October last year is continuing to go down since then. There are four kind of BIBOR: o, 14 day, 1 month and 3 month. The overnight BIBOR which generally has high volatility is showing signs of stability at lower rates. This is the best indication that the liquidity situation has improved a lot since November last year when the overnight BIBOR rate touched as high as 20% as banks were not willing to lend money even for short term. The decrease in CRR, repo and reverse repo rate has increasedthe money supply into the system thereby releiving the pressure from banks to maintain liquidity.

Source of Data: BSE

Retail debt market in India

The top Indian stock exchanges, BSE and NSE, offer trading in debt instruments for retail investors. The Retail trading in Debt Market was started in January 2003. All investors who have equity broking account can trade in the Retail Debt Market. The debt instruments available for trading are government securities (G-Secs or Gilts). Government securities are issued by government and have no default risk (sovereign bonds). Government issues these securities through auction to major players like banks and other financial institutions. After that trading on these securities occur in secondary market. Government pays coupons (equivalent to annual interest) on these securities to its holder. G-secs are characterized by the coupon rate (usually expressed annually) and maturity (the time after which the securities can be redeemed). The returns from a G-Sec are the coupon payment every six months (half the annual coupon rate) and the face value payment at the maturity.

G-sec are a cost-effective way of raising long term money for government and it is a long term secure investment for investors. It has the lowest risk and the coupons provide regular stream of money. Unlike fixed deposits an investor can liquidate these securities in the secondary market depending on liquidity requirements. It has the lowest risk and the coupons provide regular stream of money. Unlike fixed deposits an investor can liquidate these securities in the secondary market depending on liquidity requirements.

There is tax benefit associated with the G-sec investment. Apart from having no tax deduction at source, G-sec offer tax rebate of Rs 3000 under Sec 80L of IT act.

About government securities

Face value = Rs. 100
Minimum size = 10 units
Credit Risk = NIL

Coupon rate = total interest paid by the government to the G-Sec holder.
This coupon amount in paid in two equal instalments (half of coupon rate every six months)

Maturity = the date till which the G-sec is issued for. At maturity government pays back the amount equal to the face value of the security.

Accrued Interest rates
Since government securities pay interest at fixed interval of 6 months, anyone buying G-sec from secondary market is entitled to the partial interest payment depending on when he buys the security. For example, if an investor buys G-sec which has its coupon due after next 4 months, he/she will have to pay to the seller the interest for 2 months in addition to the market price. This is also called the interest accrued. In NSE and BSE trading systems, the accrued interest is added to the price of the G-sec while entering the quote on the system.

Dirty Price and Clean Price
The price of G-sec without the accrued interest is known as Clean price while Dirty price includes the accrued interest.
Dirty Price = Clean Price + Accrued Interest

Valuation of G-Secs
The price of G-sec is relatively easier to obtain than the price of an equity. The cash flow in the case of G-Sec are known with certainty. The only debatable factor is the discount rate at which these cash flows will be factored since they will be available at a future period. Knowing it, one can easily discount the cash flow streams with their respective discount rates to bring down their present value. The discount rate is all that creates some uncertainity and involves different parties trading actively to make profit.
Working reversely since the price of a market traded G-Sec is available one can find the effective discount rate which the market is assuming. This rate is termed as yield-to-maturity.

Premium and Discount
The face value of a G-Sec is Rs 100 but it can trade anything above or below 100. When it is trading above 100 it is said to be trading at premium and on the other side when it is trading below 100 it is said to be trading at discount.
Generally the premium and the discount for a G-Sec depends on its coupon rate and prevailing discount rate. A G-Sec having coupon rate more than the current discount rate is likely to trade above Rs 100 and hence at premium to its face value.


For more information, please visit:
BSE
NSE

Introduction of exchange traded currency derivatives in India

Over the years the foreign exchange market in India has shown significant growth in terms of volumes, product range, liquidity, and participation level. The average daily turnover in the foreign exchange market in March 2007 was a whopping 33 billion USD. Due to lack of exchange traded currency instruments, these transactions were done in over-the-counter (OTC) market like currency forwards, swaps, and options. There was always a need for a more developed currency markets in India to match the international standards.

Benefits of Exchange traded over OTC
The exchange trading makes the transaction more transparent. The price discovery is more efficient in case of exchange trading because of presence of large number of market players. It also offers trading opportunity for relatively smaller players because of small contract size compared to OTC market. Moreover, in exchange traded products the counter-party risk is eliminated by the clearing corporation. Using electronic trading superior risk management systems can be used for exchange trading thereby minimizing the overall risk in the portfolio.

In August 2008, RBI and SEBI allowed selected exchanges to offer currency trading and issued guidelines for the same. RBI & SEBI allowed USD-INR to be traded on exchange. The size of the contract will be USD 1000. The contract can have a maximum maturity of 1 year and it should be quoted and settled in Indian Rupees. Settlement price will be the RBI’s reference rate. Some more specific details in the guidelines about the currency derivatives were:

Underlying

• US Dollar – Indian Rupee (US$-INR)

Trading Hours

• The trading on currency futures would be available from 9 a.m. to 5 p.m.

Size of the contract

• US$ 1000

Quotation

• The currency futures contract would be quoted in rupee terms.

Tenor of the contract

• The currency futures contract shall have a maximum maturity of 12 months.

Available contracts

• All monthly maturities from 1 to 12 months would be made available.

Settlement mechanism

• The currency futures contract shall be settled in cash in Indian Rupee.

Settlement price

• The settlement price would be the Reserve Bank Reference Rate on the date of expiry.

Final settlement day

• The currency futures contract would expire on the last working day (excluding Saturdays) of the month.

The excerpt, from the guidelines, about the trading member is shown below:

"
The Trading Member will be subject to a balance sheet net worth requirement of Rs. 1 crore while the Clearing Member would be subject to a balance sheet net worth requirement of Rs 10 crore. Banks authorized by the Reserve Bank of India under Section 10 of the Foreign Exchange Management Act, 1999 as 'AD Category - I bank' are permitted to become Trading and/or Trading-cum-Clearing Members of the Currency Futures market, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:

a. Minimum net worth of Rs. 500 crore.
b. Minimum CRAR of 10 %.
c. Net NPA should not exceed 3 %.
d. Bank should have made a net profit in last 3 years.

The Trading Members and sales persons in the Currency Futures market must pass a Certification Programme which is considered adequate by SEBI. BSE Training Institute offers a training course and it also separately runs a Certification Programme. All approved users and sales personnel of the Trading Member are required by SEBI to have passed the Certification Programme.

"

Pursuant to the guidelines BSE and NSE have started currency derivative trading. The Currency Futures trading at BSE takes place through a fully automated screen-based trading platform called BSE-CDX (BSE's Currency Derivatives Exchange). The CDX is designed to allow trading on a real-time basis. In addition to generating trades by matching opposite orders, the CDX also generates various reports for the Member participants.
















Source: BSE, NSE, RBI, SEBI websites

NSE adds "Option Chain" tool on its website

National Stock Exchange (NSE), the biggest stock exchange of India, has improved upon the interface for providing quotes on options (derivatives). NSE has the largest volumes of derivative trades in India. The new interface called "Option Chain" provides a simplified view of all the tradeable options for a particular scrip/index expiring on a particular month. This is one more step from NSE in helping investors get better information.

Source: NSE

Day off/ holiday of trading in NSE, BSE in 2009

Following is the list of holidays in 2009 which fall on working day of the week and hence trading in equity and derivatives markets will be off during these days. There are total 17 such days in 2009 very close to 16 official holidays in 2008.

Date	Day	Holiday
08-Jan-09	Thursday	Moharram
26-Jan-09	Monday	Republic Day
23-Feb-09	Monday	Mahashivratri
10-Mar-09	Tuesday	Id-E-Milad
11-Mar-09	Wednesday	Holi
03-Apr-09	Friday	Ram Navmi
07-Apr-09	Tuesday	Mahavir Jayanti
10-Apr-09	Friday	Good Friday
14-Apr-09	Tuesday	Dr. Ambedkar Jayanti
01-May-09	Friday	Maharashtra Day
21-Sep-09	Monday	Ramzan ID
28-Sep-09	Monday	Dussehra
02-Oct-09	Friday	Gandhi Jayanti
19-Oct-09	Monday	Diwali
02-Nov-09	Monday	Gurunanak Jayanti
25-Dec-09	Friday	Christmas
28-Dec-09	Monday	Moharram

Source: BSE , NSE

How Indian investment banks and brokerage firms performed on stock market during financial crisis

Amid the stock market crash lets look at how the Indian investment and brokerage firms fared. Below is the list of main companies in this category along with their one year high and low prices. The Price column shown the current market price (as on 17 January 2009).

	52Week High	52Week Low	Price
Apollo Sindhoori	77	25	52
Centrum Capital	1,839	722	1,625
Edelweiss Capital	1,508	234	239
Emkay Global	401	24	32
Future Capital	1,190	125	157
Geojit Fin Serv	132	20	24
IL & FS Investmart	227	58	65
India Infoline	344	34	46
Indiabulls Securities	300	17	19
JM Financial	137	17	21
Motilal Oswal	379	48	63
Religare Enterprises Limited	650	275	321

The table below shows an estimate of variation between their year high and low prices. We have presented the percentage of fall in share price occurring when the prices fell from year high to reach the year low price.

	Variation
Religare Enterprises Limited	-58%
Centrum Capital	-61%
Apollo Sindhoori	-68%
IL & FS Investmart	-74%
Edelweiss Capital	-84%
Geojit Fin Serv	-85%
Motilal Oswal	-87%
JM Financial	-88%
Future Capital	-89%
India Infoline	-90%
Emkay Global	-94%
Indiabulls Securities	-94%

Finally, lets look at how much these stocks have fallen from their highs to current levels and what percentage have they risen from their

	Fall from highs	Rise from lows
Centrum Capital	-12%	125%
Apollo Sindhoori	-32%	108%
Religare Enterprises Limited	-51%	17%
IL & FS Investmart	-71%	12%
Geojit Fin Serv	-82%	20%
Motilal Oswal	-83%	31%
Edelweiss Capital	-84%	2%
JM Financial	-85%	24%
India Infoline	-87%	35%
Future Capital	-87%	26%
Emkay Global	-92%	33%
Indiabulls Securities	-94%	12%

With an exception of Centrum Capital and Apollo the entire sector has seen huge decline in its market value. Most of the stocks have fallen by more than 80% from their year highs.

Performance of Indian investment banks and brokerage firms

This article in continuation to the previous post on Top Investment banks, brokerage companies of India. Here we have looked at few fundamentals of these companies mainly their revenues and profits. It should be noted that the comparison is not perfect because many of these firms have multiple business whereas others are just into investment banking or brokerage. In terms of ttm (trailing twelve months) revenues the standings are:

	Mkt Cap.	Sales
India Infoline	13.1	7.95
Indiabulls Securities	4.8	6.26
Edelweiss Capital	17.9	2.29
Geojit Fin Serv	4.9	1.79
Emkay Global	0.8	1.34
Apollo Sindhoori	2.9	1.14
Future Capital	9.9	1.00
Motilal Oswal	9.0	0.72
JM Financial	15.8	0.52
Centrum Capital	11.1	0.46
IL & FS Investmart	4.6	0.31
Religare Enterprises Limited	24.5	0.29

The table below shows the same companies in order of their ttm earnings.

	Sales	Profit	Margin
Indiabulls Securities	6.26	2.23	36%
India Infoline	7.95	1.85	23%
Motilal Oswal	0.72	0.44	60%
Edelweiss Capital	2.29	0.26	11%
Geojit Fin Serv	1.79	0.25	14%
JM Financial	0.52	0.25	48%
Apollo Sindhoori	1.14	0.15	13%
Emkay Global	1.34	0.13	10%
Centrum Capital	0.46	0.12	27%
IL & FS Investmart	0.31	0.07	23%
Religare Enterprises Limited	0.29	-0.05	-16%
Future Capital	1.00	-0.06	-6%

In comparison to their market value how these company fare is shown below.

	Price	EPS Rs.	P/E
Indiabulls Securities	19	8.8	2.2
India Infoline	46	6.5	7.1
Motilal Oswal	63	3.1	20.5
Edelweiss Capital	239	3.4	69.8
Geojit Fin Serv	24	1.2	19.8
JM Financial	21	0.3	0.0
Apollo Sindhoori	52	2.7	19.1
Emkay Global	32	5.5	5.8
Centrum Capital	1,625	17.9	91.1
IL & FS Investmart	65	1.0	62.7
Religare Enterprises Limited	321	loss
Future Capital	157	loss

It is interesting to note that the highest valued firm in this category, Religare, has the least revenues of them and has reported loss in last quarter. However, being promoted by a well established group it is expected to grow fast and gain market share. This may be one reason why it is trading at high multiples.

Top Investment banks, brokerage companies of India

We have looked at the exchange listed investment and or brokerage companies: companies which either are directly into investment banking companies or provide brokerage services to retail and corporate investors. Based on the market value of these companies, as on Jan 17 2009, we have listed the top in this field along with their market capitalization.

	Market Cap (Rs. Billion)
Religare Enterprises Limited	24.5
Edelweiss Capital	17.9
JM Financial	15.8
India Infoline	13.1
Centrum Capital	11.1
Future Capital	9.9
Motilal Oswal	9.0
Geojit Fin Services	4.9
Indiabulls Securities	4.8
IL & FS Investmart	4.6
Apollo Sindhoori	2.9

Below is some information about these companies as provided on their websites.

Religare Enterprises Limited (REL) is an integrated financial services groups. It offers a diverse services ranging from investment in equities & commodities, wealth management, portfolio management services, personal financial services, insurance broking, investment banking and institutional broking services. The Investment Banking business is offered through Religare Capital Markets Limited (RCML), a wholly owned subsidiary of the Religare Enterprises Limited. It deals in merchant banking, transaction advisory and corporate finance servicing the Corporate, Entrepreneurs and Investors.

Edelweis is one of the leading investment bank of India. It ranked first in Mid-market Private Equity placements 2007 and IPOs in Mid-market segment in 2008. Edelweiss’ operations are broadly divided into Agency and Capital business lines. The Agency business line includes Investment Banking, Broking - both Institutional and HNI, Asset Management and Investment advisory services. The Capital business line includes Lending and Treasury Operations.

JM Financial is an integrated financial services group, offering a wide range of services. It offers research-based investment advisory and equity broking services to corporates, high net-worth individuals and retail investors across a wide range of financial products.

India Infoline Investment Banking offers service rangeing from Merchant Banking and Mergers & Acquisition transactions to Private Equity and High Yield Debt Syndication for both public and private companies.

Centrum is a financial services company in India with a network of over 75 branches operating in India. It has provides debt and equity services to some esteemed corporates.

It offers investment advisory services with domain expertise in private equity and real estate. It claims to be in capital management business which is beyond the traditional banking and brokerage businesses.

Motilal Oswal Financial Services Ltd(MOFSL) is an Indian Investment Banking firm with wide network of brokerage facility. It services include equity broking, commodity broking, distribution of third party products, investment banking and venture capital management. With over 1500 offices and franchisees in about 500 cities it is a well established brand among retail and institutional investors in India.

Geojit is a leading retail broking house of India. It has a network of over 450 branches in India and abroad. It also provides automated online trading services.

Indiabulls Securities Limited is one of the premier capital markets company and has a strong client base. Its brokerage house was assigned the highest rating BQ – 1 by CRISIL.

IL&FS Investsmart Limited is one of the top financial services organizations providing individuals and corporates with customised financial management solutions.

It is a financial services company promoted by Apollo Hospitals Group. It provides Trading facility in Equity and Derivative segment, commodity segment, IPOs, and MFs. It has 700 offices across the country.

Performance of Indian Navratna companies (contd.)

(Contd. from previous post)

The market performance of the 16 listed Navratna CPSE out of total 18 are as below:

	Market Cap. (billion Rs.)	P/E	P/BV
NTPC	1,483	21.4	2.8
ONGC	1,386	8.9	2.0
BHEL	684	25	6.4
NMDC	602	19.2	7.3
IOCL	522	7.3	1.3
SAIL	327	4.7	1.4
Power Grid	317	20.9	2.3
GAIL	263	10.7	2.0
PFC	150	13.2	1.5
BPCL	139	9	1.2
NALCO	118	7.5	1.3
HPCL	95	7.6	0.9
REC	67	8.3	1.3
Bharat Electronics	62	8	1.9
MTNL	47	8.3	0.4
SCI	34	4.4	0.6
Coal India	Not Listed
HAL

The biggest of them by market capitalization is the power sector giant NTPC with 1.48 trillion rupees ($30 billion). It is trading at 21 times its FY08 earnings because of expected high growth of power sector in India.

Performance of Indian Navratna companies

Department of Public Enterprises (DPE), an organizing body of government of India confers status of Navratna to some state owned companies, Central Public Sector Enterprises (CPSE). As of today there are 18 Navratna companies. The selection criterion is based on financials like net worth, revenues, net profits, etc. To be specific, there are six parameters to be evaluated by DPE when assigning Navratna title to a company. Each company is benchmarked on

(1) ratio of employee cost to the production cost,
(2) ratio of net profit to net worth,
(3) ratio of PBDIT to revenues,
(4) ratio of PBDIT to capital employed,
(5) EPS, and
(6) relative performance in its sector

Below is the performance of 18 Navratna companies in the FY08.

Figures in billion rupees	Block Assets	Sales	Net Profit
ONGC	1232.2	598.5	167.0
IOCL	568.3	2467.6	71.9
NTPC	533.7	370.9	74.2
Power Grid	354.2	46.1	16.0
SAIL	309.2	397.7	73.0
BPCL	215.0	1102.1	15.5
HPCL	195.7	1052.2	12.7
GAIL	169.6	180.1	26.1
MTNL	158.4	47.2	6.1
NALCO	91.4	50.2	16.3
SCI	67.4	37.3	8.1
HAL	52.1	86.2	16.3
BHEL	44.4	194.9	28.6
Bharat Electronics	14.3	40.6	8.1
NMDC	14.2	57.1	32.5
PFC	3.7	50.6	12.1
Coal India	3.5	2.7	17.1
REC	0.8	35.4	8.6
Composite	4,028	6,817	610

Acronym expanded:

BHEL	Bharat Heavy Electricals Limited
BPCL	Bharat Petroleum Corporation Limited
GAIL	(erstwhile) Gas Authority of India Ltd
HAL	Hindustan Aeronautics Limited
HPCL	Hindustan Petroleum Corporation Limited
IOCL	Indian Oil Corporation Limited
MTNL	Mahanagar Telephone Nigam Limited
NALCO	National Aluminium Company Limited
NMDC	National Mineral Development Corporation Ltd.
NTPC	National Thermal Power Corporation Ltd
ONGC	Oil & Natural Gas Corporation Limited
PFC	Power Finance Corporation Limited
REC	Rural Electrification Corporation Limited
SCI	Shipping Corporation of India Limited
SAIL	Steel Authority of India Limited

ONGC is the biggest in terms of assets and profits whereas IOCL has the highest turnover.

Navratna status comes with a great degree for these state run firms. Also, its government endeavour to support these Navratnas to grow up to global giant.

Top 20 non-banking finance companies of India

The top finance companies of India excluding banks when ranked on their market value were following as on 17 Jan 2008.

Company Name	Market Cap. (Rs. Billion)*
HDFC	445.3
Power Finance Corp.	150.1
Reliance Capital	105.2
IDFC	77.1
Rural Electricity Corp.	67.4
Shree Global	61.5
Shriram Transport Finance	39.7
Bajaj Finserv	27.1
Indiabulls	25.7
Religare Enterprises	24.5
Bajaj Holdings	23.5
M&M Financial	22.6
LIC Housing Finance	20.1
Edelweiss Capital	17.9
KGN Industries	17.1
Shriram City	15.8
IFCI	15.8
JM Financial	15.8
India Infoline	13.1
Centrum Finance	11.1

*as on Jan 17 2008.

Housing Development Finance Corporation Limited (HDFC) headquartered in Mumbai is the biggest private sector public housing mortgage company. Its major shareholders are Foreign Institutional Investors with about 59% holdings. FDI holds 15% while Insurance companies and mutual funds hold about 12% of its shares. Citigroup through its Mauritius subsidiary, Citigroup Strategic Holdings Mauritius Ltd, is the biggest shareholder with 9.1% in HDFC.

Power Finance Corporation Ltd (PFC) is one of the Navratna Public Sector Undertakings (the best government companies in India). PFC is the provider of large range of financial products in the power finance sector. It is playing an important role in developing India’s power sector.

Reliance Capital Ltd, a Reliance - Anil Dhirubhai Ambani Group (aka ADAG) company, is one of India’s fastest growing private sector financial services firm. Reliance Capital has business spread across domains like asset management, insurance, private equity, stock broking, depository services, consumer finance etc. Promoters group holds 53% of shares in Reliance Capital.

When can an Indian bank rank in global top 10?

Today there is only one bank from India in global top 500 companies by their market value (Dec 2008). There are 81 banks and financial services firms in that list with only entry from India in this sector being SBI. In the top 10 banks there are three companies each from U.S. and China, two from Spain, and one each from Japan and U.K. The tenth largest bank is three times more valued than SBI. Despite of being a trillion dollar economy ranking 12th in world, Indian financial sector has failed to produce a big player at world level so far. This is even when there is huge growth potential for the Indian banks because of emerging economy.

The Indian banking industry is highly fragmented. The consolidation is taking place but there is a big limitation due to most of the banks being in public sector with government as their majority shareholder and controller. There are several restrictions on the operations of these state-owned banks. Moreover mergers and acquisition process within these banks is very difficult. The good part is that government is taking steps towards merging small banks with the bigger ones.

We have looked at the possible players from India which can grow up to the global level. The top three players – SBI, ICICI and HDFC are most likely to be the front-runners in this race. To grow to the size of global giants in terms of assets, and revenues will take more than 10 years for these banks if they pursue organic growth. In such a case, if the Indian economy continues to grow at healthy rate and there are not adverse conditions, SBI could come in global top 10 by 2020-2025. For ICICI and HDFC Bank it should take similar amount of time, as being in private sector they can pursue aggressive growth strategies.

M&A could shorten the journey considerably. After the recent merger of HDFC and Centurion Bank of Punjab, HDFC has been able to gain a wider coverage. M&A activities are likely to happen more often in the private sector banks. However, because of very small size of many private sector banks the incentive to acquire them is not much. Consolidation will still occur because of competitive pressure. A merger of two big players is likely to change the direction of the industry. In the absence of such mergers these banks will be prone to acquisition by foreign banks.

So, in any case it is unlikely for an Indian Bank to get on global top 10’s list in next 5-10 years on the fundamental basis. But on the basis of market capitalization it is still achievable in next 5 years as markets are believed to be ahead of and discount the future.

SBI retains the top spot as loan provider in Asia ex-Japan

In the underwriter league table published by Bloomberg, SBI has retained top spot in year 2008 in both categories: Loans mandated arranger and loans book runner. With 46 deals worth 17 billion dollar, SBI enjoys a market share of 9.5% as loan mandate arranger. At the second position is HSBC with 4.3% market share. As a loan book runner SBI has 13.3% market share with 40 deals worth 18.7 billion dollars. At the second spot is Bank of China with 7.1% market share. Another Indian bank featuring in the top 20 list is ICICI Bank placed at 13th in book runner and 20th in mandate arranger ranking. Overall the loan disbursement volumes have fallen by 20-25% from year 2007.

The banks which holds the mandate of the borrower for the loan is Mandated Arranger. If there are multiple mandate holders each of them can be called mandate arranger provided they unanimously agree upon it.
The bank that keeps the book for a deal gets the book runner status. Generally, it is the lead arranger / main underwriter of the syndicate for the deal.

Data Souce: Bloomberg's Underwriter League Tables December 2008

Top 10 Banks of India

As of 16 January 2009 the top 14 listed banks of India are:

Name of Bank	Market Cap billion $ *	Sector
State Bank of India	15.26	Public Sector
ICICI Bank	9.73	Private Sector
HDFC Bank	8.21	Private Sector
State Bank of Mysore	3.91	Public Sector
Axis Bank	3.29	Private Sector
Punjab National Bank	2.96	Public Sector
Bank of India	2.75	Public Sector
Kotak Mahindra Bank	2.25	Private Sector
Bank of Baroda	1.82	Public Sector
Canara Bank	1.70	Public Sector
Union Bank	1.60	Public Sector
IDBI Bank	0.90	Public Sector
Indian Overseas Bank	0.75	Public Sector
Central Bank	0.33	Public Sector

Out of 14 banks only 4 are private sector banks emphasizing the important role of public sector banks in the Indian Banking system. The public sector banks are so called as the government is the major shareholder in these banks and has a lot of authority in their policies and actions.

Here are the financials of these banks.

Name of Bank	Assets	Net Sales	Net Profit
State Bank of India	110.32	10.09	1.39
ICICI Bank	60.88	6.35	0.86
HDFC Bank	20.45	2.09	0.33
State Bnk My	5.65	0.51	0.07
Axis Bank	18.08	1.44	0.22
PNB	33.75	2.94	0.42
Bank of India	30.72	2.55	0.41
Kotak Mahindra Bank	4.54	0.52	0.06
Bank of Baroda	29.44	2.44	0.30
Canara Bank	30.45	2.93	0.32
Union Bank	21.44	1.95	0.29
IDBI Bank	22.83	1.65	0.15
IOB	17.44	1.64	0.25
Central Bank	20.97	1.65	0.11

State Bank of India (SBI) is clearly the dominant player in the Indian Banking Industry. It is the only bank of India with profit above 1 billion dollar. However, SBI is very small comparison to the top banks in the world. While Royal Bank of Scotland has assets worth about 2 trillion dollars, SBI's total assets value is about110 billion dollars. It will take some time before Indian banks become significant at the world level.

*The conversion rate of 1$ ~ 48.5 Indian Rupees has been taken for above data.