1. Indias Top Banks 2014

2. Dun & Bradstreet Risk Management Solutions Sales & Marketing Solutions Learning Solutions Economic Analysis Group 3. Indias Top Banks 2014 4. Indias Top Banks 2014 Published in India by Dun & Bradstreet Information Services India Pvt Ltd. (D&B) Registered Office ICC Chambers, Saki Vihar Road, Powai, Mumbai - 400072. CIN: U74140MH1997PTC107813 Tel: +91 22 6676 5555, 2857 4190 / 92 / 94 Fax: +91 22 2857 2060 Email: eagops@mail.dnb.co.in URL: www.dnb.co.in New Delhi Office 1st Floor, Administrative Building, Block E, NSIC - Technical Services Center, Okhla Industrial Estate Phase - III, New Delhi - 110020. Tel: +91 11 41497900/01 Fax: +91 11 41497902 Kolkata Office 166B, S. P. Mukherjee Road, Merlin Links, Unit 3E, 3rd Floor, Kolkata - 700026. Tel: +91 33 24650204 Fax: +91 33 24650205 Chennai Office New No: 28, Old No: 195, 1st Floor, North Usman Road, T. Nagar, Chennai - 600017. 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Tel: +91 40 66624102, 66514102 Fax: +91 40 66619358 Editor Pawan Bindal Sub-Editor Naina Acharya, Yogesh Jambhale, Mihir Shah Editorial Team Sneha Talreja, Christopher Dsouza, Omesh Kandalkar, Ankit Kemmu, Prashant Mirgule, Rohit Pawar, Suvidh Shah, Akshat Ligga Sales Head Jayesh Bahadur Sales Team Nittin Maheshwari, Apoorba Kumar Patranabish, Pankaj Sharma, Anandita Pongurlekar, Vini Batheja, Kalyan Basu, Vaibhav Dhote, Sunena Jain, Anubha Garg, Nupur Khanna, Mayank Bhanu, Shubhra Upadhyay, Tanya Bedi, Neetu Dhamija, Rupit Kar, Avishek Tiwari, Sujata Bhakat, Sarita Sharma, Anupam Dass, Raj Choudhury, Nitin Chaudhary, Amanpreet Bindra, Rakesh Goyal, Shipra Thakur, Yashaswini Chandrashekar, Sindhu Ravi, Aisha Rashyani, Vishwa Desai Operations Team Nadeem Kazi, Ankur Singh, Sumit Sakhrani, Rajesh Gupta, Shankar Iyer, Parmeshwar More, Saadat Shaikh, Nikita Sachdev Design Team Mohan Chilvery All rights reserved This publication is copyright and all rights are reserved. Apart from any fair dealing for the purpose of private study, research, criticism or review as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the publishers. Although every effort has been made in compiling and checking the information given in this publication to ensure that it is accurate, the authors, the publishers and their servants or agents shall not be held responsible for the continued accuracy of the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefrom. Indias Top Banks 2014 8th Edition ISBN 978-93-82060-44-4 5. Contents Message from Shri Yashwant Sinha.........................................................I Preface .................................................................................................III executive summary .............................................................................. V Methodology ..................................................................................... VII Definitions & Calculations.................................................................... IX Industry Overview Global Overview...............................................................................................XIII Overview on Indian Banking Sector................................................................. XIX Insights............................................................................................XXIX Interview Section...................................................................... I - 1 - I - 4 Listings.......................................................................................... L1-L27 Bank Profiles.................................................................................... 1-40 Public Banks.................................................................................................. 3-16 Private Banks............................................................................................... 19-28 Foreign Banks.............................................................................................. 31-40 Abbreviation ................................................................................. 43-47 Index ............................................................................................. 49-50 6. I Message I am glad to announce the launch of the publication Indias Top Banks 2014. The Indian banking sector has been playing a vital role in countrys economic progress. The banks have not only catalyzed economic growth in various sectors, but also have displayed resilience and stability in difficult times. The publication profiles Indias leading banks and acknowledges their contribution to the economy amidst a challenging macro-economic environment. I believe that as a nation, we need to be proud of our achievements and celebrate our success and share it as widely as possible. In this context, I compliment Dun & Bradstreet and Polaris Financial Technology for producing this publication which will serve as a useful reference point for stakeholders in the country as well as across the globe. I also congratulate the leaders and the staff of various banks, since it is their efforts that reflect in the success of respective banks. At the same time, I would like to remind everyone that the financial sector is faced with a dynamic external environment. Given this, banks need to be alert, agile and continuously evolve to succeed in their fiduciary responsibilities. In particular, the rise in Non-Performing Assets (NPAs) in banking system is a challenge that the bankers and other stakeholders must vigorously and urgently address. As we all know, the Indian banking system has facilitated growth of different types of banking entities i.e. public sector banks, private banks, foreign banks as well as co-operative and regional rural banks. The publication highlights that 77% of banking business in India is currently done through public sector banks. This figure is a reminder that financial sector policies and reforms, should accord high priority to enhancing efficiency and productivity of the public sector banks. It is also useful to note that the banking sector is actively involved in implementing the financial inclusion agenda. I would like to compliment banks for their efforts and encourage them to find innovative solutions to make financial services available to all Indians across the length and breadth of the country. In conclusion, I wish all the banks good luck for future, and hope that the next edition of Indias Top Banks will have even greater successes to report. Shri Yashwant Sinha 7. II 8. III Preface Dun & Bradstreet India is happy to announce the launch the eighth edition of Indias Top Banks series - Indias Top Banks 2014. Global growth continued to remain sedate in 2014, with the International Monetary Fund (IMF) having downgraded its growth forecast for 2014 for the global economy to 3.4% down from an earlier forecast of a 3.7% growth. The IMF attributes the downgrade largely to slowdown in the US and Chinese economies and capital flight due to Russias involvement in the conflict in Ukraine. Although the IMFs Global Financial Stability Report, April 2014, suggests an improvement in financial stability in advanced economies, the global financial system is undergoing a plethora of challenging transitions in the path to greater stability. Indian banks continued to display high levels of resilience aided by strong economic policies despite the financial instability. The total business of the featured banks registered a growth of 15% in FY14. The continuing uncertain economic situation with moderation in key sectors such as infrastructure, mining, textiles, cement and engineering has kept credit demand subdued. This led to a slight deceleration in the Bank Credit growth rate from approximately 16% in FY 13 to 15% in FY 14. Lower share of CASA deposits and higher share of costlier term deposits impacted net profit of the banks which declined 11% in FY14. Macro-economic conditions in India continued to affect asset quality which further deteriorated; thus turning it into a major area of concern for the entire banking industry. The net NPA as a percentage of total net advances increased to 2.2% as on 31st March 2014 from 1.7% as on 31st March 2013. Policy initiatives such as to classify incremental loans to medium manufacturing enterprises extended after Nov-13 under the priority sector lending target and also double the credit limit to micro and small units to ` 100 mn until March 14-end seems to have led the 28% surge in priority sector lending, nearly double compared to previous year. Indias Top Banks 2014 is an endeavor to encapsulate the growth pattern and performance of Indias banking industry, and a platform offering a profile of its leading players. We are confident that this publication will serve as an authoritative and useful ready reference tool for business leaders globally. I hope you enjoy reading this edition. We look forward to your feedback and suggestions. Kaushal Sampat President & Managing Director - India Dun & Bradstreet 9. V Executive Summary Indias Top Banks 2014, the eighth edition of Indias Top Banks series, captures trends and developments of the Indian banking sector during FY14. The publication, evaluates performance of the featured 70 scheduled commercial banks (SCBs) for the financial analysis section, comprising 26 Public Sector Banks (PSBs), 20 Private Sector Banks, and 24 Foreign Banks. During FY14, domestic economic growth continued to be moderate with a below 5% growth for the second consecutive year primarily led by stagnation in the industrial sector. The Index of industrial production (IIP) declined 0.1% in FY14 against 1% growth in FY13. FY14 was characterized by high interest rates, persistent inflation, weak business confidence, and corporate balance sheets, which led to worsening of asset quality for banks. Consequently, credit growth and profitability of banks were impacted. Following are some of the key findings from our study based on the analysis of the featured 70 SCBs: Sustained economic slowdown, risk aversion by banks due to deteriorating asset quality, and high interest rates weakened bank credit growth, which decelerated from 15.6% in FY13 to 14.5% in FY14 for the 70 featured SCBs High interest rate environment led to revival in growth of bank deposits as featured SCBs registered an accelerated 15% growth in FY14 compared with 13.8% in FY13, since the median deposit rate of SCBs grew by 35 bps in FY14 Deteriorating asset quality of SCBs continues to be a major concern in FY14. Net NPA ratio of SCBs grew to 2.2% in FY14 from 1.7% in FY13 and 1.1% in FY12. Slowdown in economic growth and industrial output along with high interest rates impacted loan repayment obligations of borrowers, which led to a sharp increase in NPAs Total income registered decelerated growth of 12.5% in FY14 against 16.1% in FY13. Gross interest income, which accounted for more than 88% of the total income, saw decelerated growth of 12% in FY14 compared with 16.4% in FY13 Net Interest Margin (NIM) of SCBs declined marginally from 2.8% in FY13 to 2.7% in FY14. Tight liquidity conditions and lower share of low cost CASA deposits in FY14 impacted NIM along with slowdown in industry and manufacturing sector and slackened credit demand NPM of SCBs dropped to 8.3% in FY14 from 10.6% in FY13 due to pressure on NIM and deterioration in asset quality, consequently necessitating higher provisions The prolonged slowdown in economic environment impacted performance of the banking sector in FY14. The gradual development in the economic environment is expected to decrease the stress on the asset quality of banks. Further, infusion of bank capital due to the introduction of Basel III norms would enable banks to expand their core business of lending for further growth. With the way paved for new banks to enter the sector, competition is expected to intensify, contributing towards financial inclusion. The key factors leading to the growth of the sector include financial inclusion, enhanced technological adoption and innovation, and expansion in overseas markets, among others. D&B India will endeavor to keep track of various developments in this sector through future editions of Indias Top Banks. Pawan Bindal Director Dun & Bradstreet India 10. VI 11. VII Methodology The publication Indias Top Banks 2014 features 70 scheduled commercial banks (SCBs), comprising 26 Public Sector Banks (PSBs), 20 private sector banks and 24 foreign banks. The status of the banks has been considered as enumerated by the Reserve Bank of India (RBI) during FY14. Banks with total income of more than ` 1,000 mn for FY14 and operating for more than two years as on FY14 were considered eligible for the publication. The group of PSBs includes nationalised banks and State Bank of India and its associates. The publication excludes Co-operative Banks and Regional Rural Banks. All the financial information in the publication is based on standalone financials, year ending March 2014, and has been sourced from the respective banks annual reports, financial statements, websites, information provided by the RBI in its various documents and other authenticated secondary sources. Banks profiled in this publication have been listed on the basis of important parameters such as total income, total business, net profit, and return on assets. The publication also encloses an industry review that presents an analysis on aspects such as growth, profitability etc. In addition, the publication also provides a brief section on insights on the featured banks derived from the in-depth analysis from the recent developments and trends in the sector. The required information for these special sections has been sourced from various secondary sources such as RBI, IMF, World Bank and Indian Bankers Association (IBA). Dun and Bradstreets standard format has been used for reporting information on the banks. Each bank featured in the publication has been allotted a unique identification number (D-U-N-S Data Universal Numbering System). This will help readers locate and obtain full-fledged information reports on these companies from the Dun & Bradstreet database. The editorial team is confident that Indias Top Banks 2014 will prove a useful guide on the sector. It is our editorial teams persistent effort to provide accurate and updated information and therefore would appreciate if our esteemed readers would keep Dun & Bradstreet regularly updated regarding any changes in their banks, as and when they occur. We would be pleased to receive your invaluable feedback and suggestions as well. Your satisfaction remains our goal in Dun & Bradstreets journey towards excellence. 12. VIII 13. IX Definitions & Calculations This section defines financial terms and ratios used for FY14 data in this publication Particulars Formulae Total Income Total Interest Earned + Other Income Net Profit Profit After Tax as per Annual Report Total Interest Earned Interest/discount on advances/bills + Interest from Investments + Other Interest Total interest Expended Interest on Deposits + Interest on RBI/Other borrowings + Other Interest Net Interest Income Interest Earned Interest Expended Total Business Total Advances as per balance sheet + Total Deposits as per balance sheet Total Assets Cash in hand + Balances with RBI + Balances with banks inside/outside India + Money at call and short notice + Investments + Advances + Fixed Assets + Other Assets Average Assets (Opening Total Assets + Closing Total Assets)/2 Cash & balances Cash in hand + Balances with Banks in & outside India + Money at call and short notice CASA Deposits Demand Deposits + Savings Bank Deposits Return on Assets (%) As per Annual Report (For Aggregate- [Net Profit/Average Assets]*100 Net Interest Margin (%) (Net Interest Income/Average Assets)*100 Net Profit Margin (%) (Net Profit/ Total Income)*100 Credit Deposit (%) (Total Advances/Total Deposits) *100 CASA /Total Deposit or CASA Ratio (%) [(Demand Deposits + Savings Bank Deposits)/ Total Deposits] *100 Gross NPA Ratio (%) Gross NPA to Gross Advance as per Annual Report Net NPA Ratio Net NPA to Net Advance as per Annual Report CRAR (%) Basel III As per Annual Report Business/Employee As per Annual Report Profit/Employee As per Annual Report 14. Industry Overview Global Perspective Indian Perspective 15. XII 16. Global Overview 17. IndustryOverview Global Perspective XIV Global Overview The global economic crisis of 2008 exposed the weakness in the global financial system. This led policy-makers in most countries to establish a macroeconomic environment aimed at facilitating the repair of over-leveraged balance sheets. This exercise entailed an array of accommodative monetary and liquidity policies, including a reduction in certain extraordinary policy supports. Banks managed to reinforce their capital base by retaining their earnings instead of doling out dividend. However, whatever balance sheet repair happened during the year was without uniformity, since some banks (especially in Europe) continued to remain under strain. Although key trends in some regions reflected stronger capital positions and a reduction in risk weighted assets, these trends have been met with skepticism. Banks worldwide achieve capital ratio target for 2019 well before schedule Banks worldwide went on an overdrive boosting their capital ratios, eventually outpacing the targets implied in the Basel III phase-in arrangements by six years. By 30th June 2013, large internationally active banks (banks whose cross-border business accounts for more than 20-25% of their total business), as a group, increased the average ratio of their Common Equity Tier 1 capital to risk weighed assets (RWAs) to 9.5% from 8.5% as on 30th June 2012. In doing so, they comfortably exceeded the 7% target set for 2019. Smaller regionally-oriented banks also reached the same average capital ratio levels on the same date. Overall, the capital ratios of banks improved due to a reduction in RWAs. Most banks grew in size, but lowered the average risk weight of their asset portfolios. In the Euro zone, however, the improvement in capital ratios is largely attributed to a reduction in assets. As per media reports, banks in the Euro Zone reduced their assets by renewing fewer loans, repurchase and derivative contracts, and by selling non-core businesses. Some of them also sold sovereign bonds. Some quarters also perceive the reduction in RWAs to largely be the outcome of overtly optimistic risk reporting by many banks or redesigning of risk models so as to underestimate risks, rather than outright balance sheet repair. The fact that the RWA to total assets ratio in 2013 was about 20% lower than the levels witnessed six years ago raises concerns about the credibility of the numbers and vulnerabilities that might reveal themselves in future. Fully phased-in Basel III ratios (%) Type of Banks 2009 2011 2012 2013 31 Dec 30 June 31 Dec 30 June 31 Dec 30 June Large internationally active banks 5.7 7.1 7.7 8.5 9.2 9.5 Other banks 7.8 8.8 8.7 8.8 9.4 9.5 Source: Basel Committee on Banking Supervision Degrading asset quality affects lending, drags profitability Although, the pre-tax profits of banks outside the Euro area improved, they remained below pre-crisis averages. The improvement in profits is largely attributed to lower credit-related costs. Loan loss provisions declined, reflecting economic recovery and better loss recognition. Some banks relied heavily on their reserves to absorb losses. The Chinese banking sector, for instance, fell back on retained earnings, in order to absorb credit losses twice as large as a year earlier, i.e. in 2012. This helped them post strong profits and maintain high capital ratios. 18. IndustryOverview Global Perspective XV In the Euro zone, however, profits were lack-lustre. This was due to a combined effect of sovereign debt strains and a stagnating economic situation. The stock of impaired assets remained high relative to overall buffers in some countries. This proved to be a major challenge for weaker banks to support new lending. Without flow of new credit, banks in the Euro zone face a challenge in making a transition from financial fragmentation to integration. Policy makers in the Euro zone, therefore, face a new challenge in cleaning up banks balance sheets, without disrupting the recovery in market sentiment. Banks Return on Assets in 2013 (%) 2.1 1.9 1.6 1.4 1.3 0.8 0.5 0.5 0.3 -0.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Greece Russia United States Brazil China India Spain France Japan Portugal Banks Return on Assets - 2013 (%) Source: FSI Tables, April 2014 Database, IMF NPAs on the rise in Euro zone After the crisis, fresh infusion of capital in the case of many banks spurred an upward trend in their market capitalisation. However, banks in the Euro Zone remain burdened by the large and growing stock of non-performing assets (NPAs), which are largely the outcome of corporate debt overhang and the economic slowdown (Global Financial Stability Report, April 2014). As per the Annual Report 2013 of the Bank for International Settlements, the failure to recognise losses on legacy assets (assets that have lost their original value, are outdated/obsolete, or have lost their productivity) has also hurt the capacity of banks in the zone to absorb future losses. These unrecognised losses distorted banks incentives and diverted resources that could have otherwise been used for new projects towards keeping troubled borrowers afloat. Eventually, these unrecognised losses added to banks non-performing assets (NPAs). By the end of 2013, banks in the Euro region witnessed the soaring of their NPAs-to-total loans ratio to very high levels, even to the extent of more than 10 per cent in many economies. The situation was the worst in Greece, with almost one-thirds (31.3%) of its total loans marked as NPAs. Ireland (24.6%), Slovenia (18%), Cyprus (16.6%), Italy (15.1%) and Portugal (11%) also witnessed high levels of NPAs. On the other hand, banks in the USA made steady progress in managing their NPAs. The countrys banking sector posted steady declines in the aggregate NPA ratio, which fell to 2.6% by 2013 from 5% in 2009. The fact that the reduction in NPAs was accompanied with robust asset growth shows that USA was more efficient in its efforts to tide over the crisis. 19. IndustryOverview Global Perspective XVI Ratio of Non Performing Loans to Total Loans (%) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2009 2010 2011 2012 2013 Non-performingLoanstoTotalLoans (%) Greece Italy Portugal Spain United States China India Source: FSI Tables, April 2014 Database, IMF The Way Forward for Expediting Recovery Although financial reform is on track, it is still largely incomplete. The emergence of geo-political risks in the past couple of years is likely to hinder recovery. Whatever growth is taking place is not even. Policy efforts should be directed towards restoring confidence, ensuring growth and also lowering downside risks. Policymakers in advanced economies need to stick to an accommodative monetary policy. The Euro zone requires monetary easing and certain unconventional measures in order to sustain activity and help achieve price stability. This will help check the risk of lower inflation or deflation, which are not conducive to economic growth in the region. The Euro Zone requires the repairing of bank balance sheets while conducting a credible asset quality review and recapitalising weak banks, in order to restore confidence and revive credit. In emerging economies, policymakers should allow exchange rates to respond to changing fundamentals and to facilitate external adjustment. In economies where inflation is relatively high, or where a depreciation in the home currency is likely to lead to high inflation, further tightening of monetary policy might be needed. On the fiscal front, budget deficits need to be reduced. Many of these economies require a new round of structural reforms including investment in public infrastructure and removal of barriers to entry in product and services markets. Another measure that is essential in the long road to recovery is rapid progress on the plan of completing the banking union. 20. IndustryOverview Global Perspective XVII 21. Overview on Indian Banking Sector 22. IndustryOverview Indian Perspective XX Overview on Indian Banking Sector The macroeconomic environment has remained subdued over the last five years. Even as Indias GDP growth improved moderately to 4.7% in FY14 against 4.5% in FY13, it continued to be in the sub-5% range for the second consecutive year. Industrial growth remained sluggish due to a lacklustre investment climate. Supply constraints indicated by the poor performance in mining output, sticky retail inflation, and restrained demand conditions weighed down upon industrial production. The services sector, particularly trade, hotel, transport, and communications segments saw a marked deceleration in growth. The downward spiral in growth caused in large parts by structural factors that impeded investment activity has had a profound effect on the Indian banking sector. The operating environment for the banking industry continues to be challenging. The prolonged phase of slowdown has strongly impacted asset quality of banks. The sector saw a rise in Non-Performing Assets (NPAs) along with high incidence of restructured assets. Weak corporate sector performance, risk aversion by banks due to rise in bad debts, regulatory bottlenecks, and lower rate of return due to high inflation led to deceleration in credit and deposit growth, which in turn affected the profitability of banks. However, comfortable capital base continues to lend resilience to the Indian banking sector. Prolonged economic slowdown decelerates the growth in total assets of PSBs and private banks The overall balance sheet of the Indian banking sector continued to moderate during FY13, primarily led by a sharp slowdown in credit growth. The total assets/liabilities of all scheduled commercial banks (SCBs) in FY13 grew 15.1%, after growing 15.8% in FY12 and 19.2% in FY11. The public sector banks had the maximum share of more than 72% in total assets of all SCBs as on Mar 2013. Although growth in asset size of foreign banks moderated significantly in FY13, growing by only 5.7% compared with 19.8% in FY12, the growth rate of the public sector banks in FY13 stood at 15.3%, exceeding 14.1% seen in FY12. The growth rate of public sector banks however decelerated to 14.4% in FY14. Further, asset size of private sector banks moderated to 17.5% in FY13 from 21.1% in FY12. The growth rate of private sector banks further decelerated to 13.5% in FY14. Credit growth continues to remain sluggish The moderation in GDP growth, sluggish industrial activity, and policy uncertainty restricted the overall demand for bank credit over the past five years. Although economic recovery from the financial turmoil increased demand for credit in FY11 (22.9% in FY11 as against 16.6% in the previous fiscal), the subsequent years have been marked by perceptible slowdown in credit off-take. The subdued demand in the economy and the risk aversion by banks led to slowdown in credit growth in FY13. Even as expectations of improved policy environment and robust government initiatives towards the end of FY14 improved business sentiment to a certain extent, banks continued to adopt a cautious lending strategy. During FY14, total credit deployed by SCBs moderated for the third consecutive year to 13.6% compared with 15.1% in FY13. 23. IndustryOverview Indian Perspective XXI Trends in Credit and Deposit Growth (y-o-y) 0 5 10 15 20 25 FY10 FY11 FY12 FY13 FY14 (%) Deposits Growth Credit Growth Source: RBI and D&B Research As per RBI, the sectoral deployment of credit reveals that credit off-take to industries moderated in FY14, even as credit to agriculture and allied activities, services, and personal loans picked up. There was a sharp rise of 22% in the growth of priority sector credit in FY14 as against 8.4% in the previous fiscal. RBIs decision to classify incremental loans to medium manufacturing enterprises extended after Nov 2013 under the priority sector lending target of 40% along with doubling the credit limit to micro and small units to ` 100 mn until March-end could be responsible for the surge in priority sector lending. Credit to the services sector recorded a growth of 16% during FY14 as against 12.6% during FY13. This was primarily driven by a 22.4% growth in credit to the commercial real estate (CRE) segment. In June 2013, RBI announced measures to increase the flow of bank credit to builders/ developers for residential housing projects by carving out a sub-sector within CRE as Residential Housing CRE-RH. This segment was given a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% risk weight and 1.00% standard asset provisioning, respectively, for the CRE segment. This relaxation of norms could have been responsible for the pick-up in credit to the CRE segment. Within the industry, there has been a slowdown in growth of credit to the infrastructure sector. Over the last two years (FY14 and FY13) the average credit growth to infrastructure has averaged 15% as against 29% during FY12 and FY11. This is primarily attributable to a much slower 17.4% growth in loans to power companies in FY14 compared with 25.7% in the previous fiscal. Systemic challenges such as fuel shortages, weak financial profiles of distribution companies, and delays in commissioning projects could have played a role in lower bank exposure in the power sector. Deceleration in credit growth has been observed in the mining, cement, coal, metals, and gems and jewellery sectors while pick up was seen in sectors such as food processing, construction, leather, rubber, glass, and paper. 24. IndustryOverview Indian Perspective XXII Sectoral Deployment of Credit 0 5,000 10,000 15,000 20,000 25,000 30,000 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Rsbn Agriculture & Allied Activities Industry (Micro & Small, Medium and Large) Services Personal Loans Source: RBI and D&B Research Banks have been increasingly investing in government securities since the global financial crisis to reduce their credit risk. Investment in government securities increased 19.3% in FY10 as against 20% in the previous fiscal. Investments in government securities have seen some moderation since then. During FY13, while banks investments in government securities decelerated compared with the previous year, investments in non-approved securities saw an almost five-fold increase. In FY14, investments in government securities moderated considerably to 10.4% as against 15.5% in the previous fiscal. Deposits yet to gather pace The overall trend in deposit growth over the past years has not been encouraging, with bank deposits, the largest component on the liabilities side, on a slowdown since FY08. The slower growth during FY10-FY14 primarily emanated from contraction of demand deposits during FY11 and FY12 as well as slower growth of savings bank deposits. However, the share of term deposits reflects a rising trend during this period. The higher interest rate environment saw funds being shifted to term deposits. Revival in the growth of current and savings accounts (CASA) supported the growth in the overall deposits in FY13, with new private sector banks recording the highest growth rate amongst the other categories of banks. This could be partly explained by the fact that number of private sector banks revised their savings bank deposits rates upwards after the deregulation of savings bank interest rate in Oct 2011. In FY13, growth in CASA for new private sector banks, at 18.5%, was the highest among all bank groups. The growth rate of aggregate deposits marginally moderated to 13.9% in FY14 compared with 14.4% in the previous fiscal. Demand deposits recorded a higher growth of 7.9% as against 5.9% in FY13. The acceleration in deposits came mostly from large accretion to non-resident Indian (NRI) deposits. A host of measures announced by RBI to help prop up the Rupee and shore up foreign exchange reserves was largely responsible for the increase in NRI deposits. Among others, RBI increased interest rates on FCNR (B) deposits of 3-5 year maturity by 100 bps to 400 bps above the London Interbank Offered Rate (LIBOR) in Aug 2013 in the light of prevailing exchange rate pressures. Further, RBI also opened a special window for banks to swap their FCNR deposits and overseas borrowings with rupee funds to bolster reserves. The higher expansion in deposits relative to credit has caused slight moderation in the credit- deposit ratio to 77.8% as on Mar 2014 from 77.9% in the previous fiscal. 25. IndustryOverview Indian Perspective XXIII Profitability pressures continue Prolonged slowdown in general macroeconomic conditions has impacted business and profitability of SCBs over the last few years. The total income of Indian banks, that grew phenomenally by 29.7% in FY12, has slowed down to 16.2% in FY13. Total income of PSBs grew 12% in FY14 compared with 14.3% in FY13. Total income of private sector banks grew 14.5% in FY14 compared with 23% in FY13. Net Interest income of Indian banks, that grew by 15.8% in FY12, has slowed down to 10.8% in FY13 and has revived to 12.8% in FY14. The profitability of Indian banks continues to be under increasing pressure. In FY14, net profits of SCBs declined by 13.8% as against a growth of 12.9% in FY13. Lower yield on advances and higher provisions for bad loans were the key factors weighing on the profitability of SCBs. Trends in net profit growth (y-o-y) -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 FY08 FY09 FY10 FY11 FY12 FY13 FY14 %y-o-y Source: RBI and D&B Research The profit after tax (PAT) growth of different bank groups varies significantly. The new private banks were able to maintain a healthy growth in their PAT at 19.7% in FY14 against a contraction of 30.7% of public sector banks. The poorer financial health of public sector banks compared with the new private banks was primarily owing to lower growth in income and higher provisioning. The net interest income of public sector banks grew 12.2% in FY14 as against a much higher 19.1% growth of new private banks. This was due to lower credit growth and income losses on account of higher stressed advances. On the other hand, the risk provisions of public sector banks increased to 44.8% of their earnings before provisions and taxes (EBPT) in FY14 (as against 36.9% in FY13), whereas they declined for new private banks to 6.4% of their EBPT in FY14 from 11.9% in FY13. Concomitantly, the contribution of public sector banks to total PAT of SCBs declined from 68.9% to 41.5% between Mar 2010 and Mar 2014. However, their share in the total assets of SCBs has not changed much. Return on Assets (RoA) and Return on Equity (RoE), the two major indicators of profitability, have also reflected declines over the past few years. Return on Assets (RoA), has declined to 0.8% in FY14 compared with 1.1% in FY13. On the other hand, Return on Equity (RoE) saw a steeper decline to 9.5% in FY14 from 12.9% in FY13. 26. IndustryOverview Indian Perspective XXIV Capital adequacy ratios under stress The capital to risk weighted assets ratio (CRAR) for Indian banks under Basel III as at end-March 2014 stood at a comfortable level of 13%. Despite the drop in their financial performance due to slowdown in credit growth and higher interest expenditure, Indian banks remained adequately capitalised. CRAR of SCBs under Basel II increased marginally from 14.19% in FY11 to 14.24% in FY12, indicating the healthy capital position of Indian banks. However, CRAR under Basil II declined to 13.9% in FY13. This decline in capital positions at the aggregate level was majorly because of deterioration in the capital positions of public sector banks. The Basel III capital regulation has been implemented in India effective Apr 01, 2013, which will be fully implemented in a phased manner by Mar 31, 2019. Although Indian banks are well capitalised, going ahead, there will be a need for raising additional capital to comply with the Basel III requirements. According to some rough RBI estimates based on a set of assumptions, Indian banks additional capital requirements will be to the tune of ` 4.95 trillion over the period of phasing in of the Basel III requirements. This estimate does not include the impact of comprehensive pillar II capital add-ons under Basel III, which Indian banks have not been subjected to so far. To adopt Basel III norms, PSBs alone will require an additional capital to the tune of ` 4.15 trillion over the period of the phasing in of Basel III, of which equity capital accounts for ` 1.43 trillion, while non-equity capital will be of the order of ` 2.72 trillion. The governments contribution to PSBs equity capital will be of the order of ` 900 bn at the existing level of the governments shareholding. Asset quality concerns looms large Before 2008, asset quality of SCBs was improving on a secular basis, following implementation of Prudential Guidelines. The GNPA ratio had declined sharply from 12.7% as at end March 2000 to 2.5% as at end-March 2007 and thereafter, this ratio has been largely flat until March 2011. A key feature discernible in the banking industry since FY12 is the gradual contraction in the growth of credit and growth in NPAs showing a sharp spurt. The slowdown of the Indian economy while impinging credit growth has also had a strong bearing on revenues of firms, thereby, weakening their repayment capacities. A number of companies/projects are under stress and the investment related policy log-jams are only preventing companies from making new investments, fearing higher costs due to delays. Consequently, the Indian banking system has seen an increase in NPAs and restructured accounts during the recent years. Gross NPAs of the banking sector increased from 3.4% of total credit advanced in Mar 2013 to 4.1% of total credit advanced in Mar 2014. The net NPA as percentage of total net advances also increased to 2.2% in Mar 2014 from 1.7% in Mar 2013. The GNPAs of public-sector banks (PSBs) have shown a rising trend, increasing by almost four times from Mar 2010 (` 599.7 bn) to Mar 2014 (` 2,042.5 bn) (provisional). As a percentage of credit advanced, NPAs of PSBs stood at 4.7% in Mar 2014 compared with 2.2% in FY10. The significant deterioration of asset quality of the banking system has led to an increase in the total stressed assets in the banking system (NPAs plus restructured assets). Amongst banks groups, PSBs had the highest level of stress in terms of NPAs and restructured advances. Public sector banks continued to register the highest stressed advances at 11.7% of the total advances as on Mar 2014, followed by old private banks at 5.9%. Industries such as infrastructure, iron and steel, textiles, mining, and aviation account for a significant share of total stressed assets (NPAs and restructured advances) of public sector banks. While share of advances to infrastructure continued increasing, albeit slowly (the share of the other four sub-sectors have dropped), from 27. IndustryOverview Indian Perspective XXV 13.5% in Mar 2011 to 14.4%, in Mar 2014; infrastructure as a share of stressed assets, has increased, from 8.4% to 29.2%. Steep rise in the growth of restructured debt In recent years there has also been a sharp increase in the amount of debt restructured under the corporate debt restructuring mechanism. This has implications for the banks already stressed asset quality in the period ahead. Significant increase in restructured asset as indicated by higher Corporate Debt Restructuring (CDR) also points towards worsening asset quality of Indian banks. Number of cases approved for CDR increased to 476 in FY14 from 401 in FY13. Aggregate debt that was brought under CDR mechanism increased by 44.3% in FY14 over previous year to reach ` 3,304.4 bn. Maximum distress in debt was seen in iron & steel sector and infrastructure sector. High exposure to projects in infrastructure and the iron & steel sector is the primary reason for higher NPAs for public sector banks. With continued deceleration in the industrial growth, pick-up in activity in the infrastructure and iron & steel sectors is expected to be delayed. Since concentration of distressed assets is higher in these sectors, asset quality of Indian banks is set to worsen further. However, effectiveness of the new government in clearing stalled infrastructure project would play a major role in determining the asset quality of the banking sector, going ahead. A faster clearance rate would help Indian banks contain the pace of growth of distressed loan assets. Financial Inclusion Plans (FIPs) to continue to improve accessibility of rural population to banking services FIPs which was approved and adopted by SCBs in 2010 for a period of three years (2010-13) to improve financial inclusion is set to continue. Under FIP (2010-13), almost all unbanked villages with a population more than 2000 have been covered with a banking outlet. Following is a snapshot of the progress made by banks under the FIP during the period from Apr 2010 to Mar 2014: Banking outlets in villages have increased to 383,804 in Mar 2014 from 268,454 in Mar 2013 from 67,694 in Mar 2010. Basic Savings Bank Deposit Accounts (BSBDAs) stood at 182 mn in Mar 2013 which further grew to 243 mn in Mar 2014. About 7,400 rural branches have been opened during 2010-2013 compared with a reduction of about 1,300 rural branches during the last two decades. The above statistics point towards the effectiveness of FIPs in penetrating rural areas and improving the financial inclusion in the country. This success has prompted central banks to continue with the FIP policy. FIP 2013-16 would focus on increasing banking presence in villages having population below 2,000. Competition in the banking sector to intensity To promote financial inclusion and make the sector competitive, RBI has invited applications for granting new banking licenses. After withdrawal by two applicants, 25 applications have been considered. The RBI has granted in-principle approval to two applicants to set up banks under the Guidelines on Licensing of New Banks in the Private Sector. Entry of new players would increase the competition in the sector, thereby increasing the choice for customers as well as introduction of innovative financial products and services. 28. IndustryOverview Indian Perspective XXVI Outlook The Budget has enunciated a host of new ideas and initiatives that will have a long-term impact on reviving economic growth, going forward. The focus on infrastructure (rural) and reforms has set the tone for a revival in aggregate demand as well as gradual recovery of economic growth. As the economy recovers, investment demand and the need for credit will pick up. The RBIs decision to cut the statutory liquidity ratio (SLR) by 50 basis points to 22.5% from 23% while keeping key policy rates unchanged in the recent monetary policy could be viewed as its optimism regarding growth revival. However, any meaningful recovery in banking industry would be contingent on reduction in asset quality pressures. Further, the effectiveness of various measures to improve the asset quality of banks will depend on the efficient functioning of the CDR mechanism and debt recovery tribunals (DRTs). Union Budget Announcements for Banking Sector 2014-15 Agriculture and Rural Finance Increase in the target for credit flow to the agricultural sector from ` 7 tn to ` 8 tn in FY15. Continuation of the interest subvention scheme for short-term crop loans and rebate of 3% on farm loans repaid on time in FY15. Long Term Rural Credit Fund with an initial corpus of ` 50 bn proposed to be set up in NABARD to give a boost to long-term investment credit in agriculture. Allocation of ` 500 bn to Short Term Cooperative Rural Credit (STCRC) to ensure increased and uninterrupted credit flow to farmers. Additional 100 districts to be covered under Ajeevika, the National Rural Livelihood Mission to provide bank loans to woman Self Help Group (SHGs) at 4%. Proposal to set up Start Up Village Entrepreneurship Programme with an initial corpus of ` 1 bn for encouraging rural youth to take up local entrepreneurship programs. Proposal to reintroduce Kissan Vikas Patra (KVP) to encourage people who may have banked and unbanked savings to invest in this instrument. Housing Credit Enhance the provision under Rural Housing Fund from ` 60 bn to ` 80 bn. Provision for setting up a Mission on Low Cost Affordable Housing with initial corpus of ` 40 bn to incentivise the development of low cost affordable housing for urban poor/EWS/LIG segment. Enhance the deduction limit of interest on home loan from ` 0.15 mn to ` 0.2 mn. Financial Inclusion Financial Inclusion Mission program to be launched on August 15, 2014 to provide banking services to the weaker sections of the society including women, small & marginal farmers and labourers. Two bank accounts in each household are proposed to be opened which will also be eligible for credit. Capital Support and Funding To infuse ` 2.4 tn in PSBs under Basel III, citizens of India will be allowed direct shareholding in these banks through the sale of shares through retail. Banks to be provided greater autonomy while making them accountable. The corpus of the Rural Infrastructure Development Fund (RIDF) rasied to ` 250 bn for FY15. Banks permitted to raise long-term funds for lending to the infrastructure sector with minimum regulatory pre- emption such as CRR, SLR and Priority Sector Lending. New framework to be created for licensing of small banks and other differentiated banks. Current framework for authorisation of universal banks in private sector to be revised to put in place continuous authorisation of these banks. Six new debt recovery tribunals to be set up to keep in check the rising non-performing assets of PSBs. Additional provision of ` 2 bn extended to NABARDs Producers Organisation Development Fund for building 2,000 producers organisations across India over next two years. Corpus of ` 100 bn extended to the MSME sector to act as catalyst to attract private capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies. Under the PPF Scheme, enhancement of annual ceiling from current ` 0.1 mn to ` 0.15 mn. 29. IndustryOverview Indian Perspective XXVII BPR Project Approach Stage 1 - Launch Stage 2 - As Is 1.1 Initial request & project definition 1.2 Complete project documentation 1.3 Kick off meeting steering group 2.1 Data gathering and analysis 2.2 Map Processes 2.3 Discuss findings & priorities in steering group workshop Stage 4 - Implement Stage 3 - To Be 4.1 Plan programme 4.2 Steering group workshop 4.3 Start to implement 4.4 Regular progress reviews 3.1 Develop to be process 3.2 Consult stakeholders 3.3 Finalise to be design 3.4 Approve to be processes in steering group workshop Knowledge Transfer 30. Insights 31. Insights Insights XXX In this section, Dun and Bradstreet analyses 70 Scheduled Commercial Banks (SCBs), from the featured 70 SCBs in the publication, based on the availability of their audited financial statements for FY14 to gain an in-depth understanding of the latest banking trends and developments. This section comprises 70 banks, further bifurcated into 26 public sector banks (PSBs), 20 private banks, and 24 foreign banks. Dun and Bradstreet examined various parameters such as income growth, business growth, profit, and asset quality among others to gain insights. Insights Analysis Domestic economic growth continued to moderate in FY14, with a below 5% growth for the second consecutive year primarily led by stagnation in the industrial sector. Supply constraints (persistent deterioration in the mining sector) and weakened demand conditions affected the industrial sector. Decline of 0.1% in the index of industrial production (IIP) in FY14 compared with a minimal growth of 1% in FY13 reflected the slowdown in industrial production. Further, manufacturing output declined by 0.8% during FY14, resulting in deceleration of production in capital goods and consumer durables. Furthermore, the services sector observed slowdown in growth of 6% during Q2FY14, the lowest in 12 years. FY14 was characterized by high interest rates, persistent inflation, weak business confidence, and weaker corporate balance sheets, which led to worsening of asset quality for banks. Consequently, credit growth and profitability of banks were impacted. The balance sheets of the 70 SCBs covered for the study saw decelerated growth of 14.3% in FY14 compared with 15.5% in FY13. Total business of the featured SCBs stood at ` 151,281.3 bn in FY14 compared with ` 131,817.4 bn in FY13, achieving a flat business growth of 14.8% in FY14 compared with 14.6% in FY13. Prolonged economic slowdown, risk aversion and high interest rates weakened credit growth in FY14 During FY14, the interest rates of banks firmed up post July 2013, when the Reserve Bank of India (RBI) recalibrated Marginal Standing Facility (MSF) rate at 300 bps above repo rate at 10.25% to curtail exchange rate fluctuations. However, during H2FY14, the MSF rate was regularised to 100bps above repo rate after the currency volatility reduced. Due to currency fluctuation pressures, the weighted average lending rate (WALR) of banks increased by Sep 2013, softening a bit in H2FY14. Further, RBI raised the repo rate thrice by 25 basis points (bps) each in Sep 2013, Oct 2013, and Jan 2014 from 7.25% to 8% to curtail persistent inflation. High interest rate environment along with risk aversion by banks due to deteriorating asset quality dampened credit growth of banks during FY14. As per RBI, credit off-take to industries experienced a slowdown in FY14, although credit to agriculture and allied activities, services, and personal loans saw a rise. Credit to industry decelerated by 13.1% in FY14 compared with 15.1% in FY13. Thus, moderation in the industrial and manufacturing output affected the banks credit to industries. Deceleration in credit growth was observed in mining and quarrying, textiles, wood and wood products, petroleum and coal product, chemical and chemical products, glass and glassware, cement and cement products, basic metals, engineering, gems and jewellery, and infrastructure sectors. 32. Insights Insights XXXI Bank group wise Advances and y-o-y growth 0 2 4 6 8 10 12 14 16 18 20 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 SCBs PSBs Private banks Foreign banks (%) Rsbn Advances Advances Growth (y-o-y) Source: Annual Reports of Banks and D&B Research Against this backdrop, credit growth of the featured SCBs decelerated from 15.6% in FY13 to 14.5% in FY14. During FY14, public sector banks and foreign banks experienced decelerated growth in advances, whereas private sector banks saw accelerated growth in advances. Priority sector lending by banks registered accelerated growth in FY14 Total lending in priority sector saw 28.2% growth in FY14 (15.3% in FY13) compared with 14.5% growth in total advances. The proportion of priority sector lending as a percentage of total advances increased from 29% in FY13 to 32.5% in FY14, primarily driven by accelerated lending to micro and small enterprises and other weaker sections. Among bank groups, private sector banks saw accelerated and the highest growth in priority sector lending in FY14. Priority Sector Advances as a % of Total Advances 25 29 33 37 FY12 FY13 FY14 (%) SCBs PSBs Private banks Foreign banks Source: Annual Reports of Banks and D&B Research The RBIs mandates, which remained in force until Mar 31, 2014, of classifying incremental bank loans to medium manufacturing enterprises after Nov 2013; incremental bank loans to medium service enterprises after Nov 2013, up to the credit limit of ` 100 mn; and incremental loans to micro and small service units up to credit limit of ` 100 mn under the priority sector lending target further aided growth in priority sector lending. 33. Insights Insights XXXII Revival in deposit growth seen due to higher interest rates in FY14 Aggregate bank deposits, which accounted for 77.8% of the total liabilities of SCBs in FY14, recorded an accelerated 15% growth in FY14 compared with 13.8% growth in FY13 due to the high interest rate environment in FY14. The median deposit rate of SCBs grew by 35 bps in FY14, which aided growth in aggregate bank deposits. The growth in bank deposits exceeded RBIs initial target of 14% in FY14. The momentum in mobilising FCNR (B) deposits on account of the swap facility also drove growth in aggregate deposits. RBI opened a special window for banks to swap their FCNR (B) dollar funds and overseas borrowings until Nov 2013. Bank group wise Deposits and y-o-y growth 0 5 10 15 20 25 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 SCBs PSBs Private banks Foreign banks (%) Rsbn Deposits Deposits Growth (y-o-y) Source: Annual Reports of Banks and D&B Research All bank groups recorded accelerated growth in deposits except private sector banks. The growth in deposits of private banks decelerated to 14% in FY14 from 18.9% in FY13. The public sector banks recorded growth in deposits of 14.8% in FY14 compared with 13.2% in FY13. However, foreign banks recorded the highest growth in deposits of 22.8% in FY14 compared with 3.1% in FY13. Term deposits accounted for 68% of the total deposits of the featured SCBs in FY14 and registered higher growth of 16.3% in FY14 (15.4% in FY13) compared with 12.1% growth (10.6% in FY13) in CASA deposits (demand and savings). The low cost CASA deposits as a percentage of total deposits have dropped from 33.5% in FY12 to 32.5% in FY13 to 31.7% in FY14 due to slowdown in growth of CASA deposits in FY14. The CASA ratio for public sector banks stood at 30.1% in FY14 (31% in FY13), for private sector banks stood at 37.7% in FY14 (37.1% in FY13), and for foreign banks stood at 35.2% in FY14 (41% in FY13). 34. Insights Insights XXXIII CASA and Term Deposits as a % of Total Deposits 33.5 32.5 31.7 66.5 67.5 68.3 0 10 20 30 40 50 60 70 80 90 100 FY12 FY13 FY14 (%) CASA Term Deposits 12.1% 15.4% 16.3% 10.6% Source: Annual Reports of Banks and D&B Research On the contrary, term deposits as a percentage of total deposits rose from 66.5% in FY12 to 67.5% in FY13, it increased to 68.3% in FY14 due to accelerated growth in term deposits in FY14. Marginal moderation registered in credit deposit ratio in FY14 Credit deposit (CD) ratio marginally moderated to 79.3% in FY14 from 79.7% in FY13 (78.4% in FY12) due to superior growth in deposits vis--vis advances. CD ratio moderated across all bank groups, except private sector banks, which registered an increase in CD ratio from 79.8% in FY13 to 82.2% in FY14. Bank group wise CD ratio Bank Category CD ratio (%) FY12 FY13 FY14 SCBs 78.4% 79.7% 79.3% PSBs 77.5% 79.0% 78.5% Private banks 81.2% 79.8% 82.2% Foreign banks 82.6% 91.7% 82.2% Source: Annual Reports of Banks and D&B Research Deteriorating asset quality of SCBs continues to be a major concern SCBs saw significant deterioration in asset quality in FY13, which further deteriorated in FY14 owing to slowdown in economic growth, rise in interest rates, and slowdown in industrial output, which impacted the interest and loan repayment obligations of borrowers and led to a sharp increase in non-performing assets (NPAs). SCBs posted Net NPA (NNPA) ratio of 2.2% in FY14 compared with 1.7% in FY13 and 1.1% in FY12. This was due to higher growth of 43.2% in net NPAs compared with 14.5% growth in net advances in FY14. Further, aggregate restructured assets of the featured SCBs increased from ` 3.4 trillion in FY13 to ` 4.1 trillion in FY14. Restructured assets as a proportion of total advances stood at 6.2% in FY14, growing from 5.8% in FY13. PSBs recorded the highest rise in NNPA ratio to 2.7% in FY14 from 2.1% in FY13 and 1.3% in FY12, followed by foreign banks with a NNPA ratio of 0.9% in FY14 compared with 0.7% in FY13 and 0.6% in FY12. As per RBI, the infrastructure, iron and steel, textiles, aviation, and mining sectors 35. Insights Insights XXXIV have been identified as the stressed sectors. Further, as per RBI, PSBs have high exposures to the industry sector and to such stressed sectors. In addition to higher NPAs, PSBs saw a rise in restructured assets as a percentage of advances to 7.5% in FY14 from 7.1% in FY13. Net NPA Ratio 0.0 0.5 1.0 1.5 2.0 2.5 3.0 FY12 FY13 FY14 (%) SCBs PSBs Private banks Foreign banks Source: Annual Reports of Banks and D&B Research Private sector banks recorded the lowest NNPA below 1% at 0.6% in FY14 compared with 0.5% in FY13 and 0.4% in FY12. Restructured assets as a percentage of advances stood lower at 2.3% in FY14 from 1.7% in FY13. Foreign banks recorded a NNPA ratio of 0.9% in FY14 compared with 0.7% in FY13 and 0.6% in FY12. The growth in NPAs is also apparent from the substantial increase in corporate debt restructured (CDR). As per the CDR cell, a total of 475+ cases of debt restructuring to the extent of ` 3,304 bn as on Mar 2014 were approved by CDR Cell India. Aggregate debt restructured registered significant growth of 44.3% in Mar 2014 compared with 52.2% in Mar 2013. The contribution of five sectors in terms of live cases in CDR namely, infrastructure (20.72%), iron and steel (17.96%), power (10.85%), textiles (8.31%), and ship building (6.93%) cumulatively constituted for 65% of the aggregate debt as on Mar 2014. Infrastructure recorded the highest increase in share over Mar 2013, followed by power. SCBs registered decelerated total income growth in FY14 Total income of the featured SCBs registered 16.1% growth in FY13, which decelerated to 12.5% in FY14. Gross interest income, which accounted for more than 88% of the total income of SCBs in FY14, saw 12% growth in FY14 compared with 16.4% in FY13. 36. Insights Insights XXXV Total Income 0 5 10 15 20 25 0 2,000 4,000 6,000 8,000 10,000 12,000 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 SCBs PSBs Private banks Foreign banks (%) Rsbn Total Income Total Income Growth (y-o-y) Source: Annual Reports of Banks and D&B Research Bank group wise, all banks saw decelerated aggregate income and interest income growth in FY14. However, private banks outperformed peers by registering a better total income and interest income growth of 14.5% and 13.6% respectively in FY14. Total income and interest income of PSBs grew 12% and 11.8% respectively whereas foreign banks clocked the slowest growth of 10.6% in total income and 8% in interest income in FY14. Private banks recorded a rise in NIM; other bank groups witnessed a decline In FY14, Net Interest Income (NII) registered 11.2% growth in FY14 compared with 10.2% growth in FY13. Gross interest income registered growth of 12% in FY14 (16.4% in FY13) whereas total interest expenses saw 12.3% growth in FY14 (19.7% in FY13). In FY14, public banks outperformed other banking counterparts with accelerated growth of 9.6% in NII compared with 6.9% growth in FY13. Foreign banks registered decelerated growth of 3.8% in FY14 (9.1% in FY13) and private banks recorded decelerated growth of 18.4% in FY14 (21.1% in FY13). However, despite growth in NII, Net Interest Margin (NIM) of SCBs declined marginally from 2.8% in FY13 to 2.7% in FY14. Tight liquidity conditions and lower share of low cost CASA deposits in FY14 impacted NIM along with slackened credit demand. Bank group wise Net Interest Margin (NIM) Bank Category NIM (%) FY13 FY14 SCBs 2.8% 2.7% PSBs 2.6% 2.5% Private banks 3.25% 3.32% Foreign banks 3.8% 3.5% Source: Annual Reports of Banks and D&B Research NIM dropped across all bank groups except for private banks, which saw growth from 3.25% in FY13 to 3.32% in FY14 due to superior growth in total advances compared with PSBs and foreign banks. Slowdown in credit growth and industry and manufacturing sector impacted the public sector banks. The NIM for public sector banks dropped to 2.5% in FY14 compared with 2.6% in FY13. 37. Insights Insights XXXVI Deteriorating asset quality impacted profitability of SCBs Net profit for SCBs declined 11.3% in FY14 compared with 8.3% growth in FY13. Banks recorded lower share of low cost CASA deposits and higher share of relatively costlier term deposits along with deteriorating asset quality, which impacted profitability of SCBs. NPM dropped to 8.3% in FY14 from 10.6% in FY13 due to pressure on NIM and high deterioration in asset quality consequently necessitating higher provisions. The provision and contingencies cost for the featured banks grew 29.1% y-o-y in FY14. Due to decline in NIM coupled with rise in share of provisions as a percentage of total income because of deteriorating asset quality, the net profit of public sector banks registered a decline of 26.8% in FY14 compared with 0.9% y-o-y growth in FY13. Net Profit Margin 0 5 10 15 20 25 FY12 FY13 FY14 (%) SCBs PSBs Private banks Foreign banks Source: Annual Reports of Banks and D&B Research Private banks performed better than peers with a growth of 16.4% in net profit compared with 18.3% in FY13. Further, due to lower NNPA ratio, private banks recorded lower share of provisions and contingencies in total income of 11.3% in FY14 (10% in FY13). Thus, post a decline in NPM from 15.4% in FY12 to 14.8% in FY13, private banks saw a rise in NPM to 15% in FY14. The private sector banks were able to sustain NIM and asset quality, which led to a growth in net profit in FY14. Foreign banks under study registered a decline of 12.9% in net profit in FY14 compared with growth of 21.5% in FY13. Foreign banks saw a decline in NPM from 21.7% in FY13 to 17.1% in FY14, partially attributable to the provisions and contingencies expenses for foreign banks. These saw the highest growth among peers in FY14, with an increase in share of provisions and contingencies as a percentage of total income from 16.5% in FY13 to 21.3% in FY14. In FY14 total assets of SCBs continued to witness subdued growth Total assets of SCBs saw decelerated growth of 14.3% in FY14 compared with 15.5% growth in FY13. The ratio of commercial banking assets to GDP (at factor cost at current prices) grew from 98.7% in FY12 to 101.9% in FY13 to 104.5% in FY14. Among bank groups, foreign banks recorded accelerated growth in total assets of 15.9% in FY14 (8.1% in FY13). However, PSBs saw decelerated growth of 14.4% in FY14 (15.3% in FY13) and private banks experienced decelerated growth of 13.5% in FY14 compared with 19% growth in FY13. 38. Insights Insights XXXVII ROA (%) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 FY12 FY13 FY14 (%) SCBs PSBs Private banks Foreign banks Source: Annual Reports of Banks and D&B Research Return on assets (ROA), an important indicator of profit generated from every asset unit, has consecutively declined for SCBs from 2% in FY12 to 1% in FY13 to 0.8% in FY14. PSBs reported a decline in ROA from 0.8% in FY13 to 0.5% in FY14 and foreign banks registered a decline in ROA from 1.9% in FY13 to 1.5% in FY14. On the contrary, ROA remained stagnant for private banks at 1.6% in FY13 and FY14. The way forward The prolonged slowdown in economic environment has impacted the performance of the banking sector in FY13 and FY14. To improve performance and profitability, banks would need to address the sustained concern of rising NPAs. Gradual development in the economic environment is expected to decrease the stress on asset quality of banks. Some of the factors that would lead to growth of the Indian banking sector include financial inclusion, enhanced technological adoption - mobile banking, improved payment systems; technological innovations, innovative product offerings, and expansion in overseas markets, among others. With the passing of Banking Laws (Amendment) Bill, 2011 and way paved for new banks to enter the banking industry, competition in the sector is expected to intensify, contributing towards financial inclusion. The Basel III capital regulation has been implemented in India effective Apr 1, 2013, which will be fully implemented in a phased manner by Mar 31, 2019. Further, the implementation of Basel III norms would improve risk management systems and governance and make banks more capital efficient, thereby, improving banking sectors ability to absorb shocks arising from financial and economic crisis. Infusion of bank capital would enable banks to expand its core business of lending for further growth. 39. Insights Insights XXXVIII Foreword The role of credit rating agencies (CRA) in assessment of credit risk and its mitigation is universally recognised. CRAs have played and continue to play a critical role in the development of debt markets. This role has led global banking regulators to advocate the use of rating systems by banks for assessing credit risk. One such regulation is the Basel Accord, which requires banks to use external credit ratings in assessing credit risk. As a result, the relationship between credit ratings by rating agencies and credit assessment by banks has deepened. Banks are now increasingly relying on external credit ratings for making lending decisions. Credit discipline is an important factor considered while assessing the ability or intention of the borrower/issuer to honour debt obligations in a timely manner. The norms in evaluating credit discipline are stringent and require a rating agency to closely monitor the repayment track record of a borrower. This article explains the challenges of credit discipline and highlights the need to inculcate better credit discipline amongst borrowers. Differing perceptions on credit discipline Credit discipline broadly implies timely repayment of debt obligations. While this definition is simple, a dichotomy emerges in adoption of default definition by CRAs and banks. A bank would declare a borrower as a non-performing asset (NPA) account (often viewed as default as per the borrowers understanding) only after he is unable to service his interest and principal payment over a sustained period of time, whereas credit rating agencies would assign default rating to a borrower if he has missed payment even by a single rupee or a single day for long-term loans and a fixed period for short- term loans. For instance, under banking, an asset is treated as non-performing asset (equated with default) only when a scheduled payment remains overdue for a period of more than 90 days. While each of these approaches has merits, the impact on the borrower differs. Risk management systems of banks are often geared to manage and mitigate losses arising from NPAs; hence, the early warning systems in banks are geared towards NPA reporting. Consequently, banks exert greater pressure on a borrower to repay as the account moves closer to NPA. While NPA denotes a loss sustained by the bank as a result of continuous default by borrower, a lower or a default rating by a CRA implies that a bank has taken a higher risk on its book and hence needs to set aside higher capital for contingency. This is the fundamental tenet on which the Basel accord is based. Thus, NPAs have a loss implication and defaults have a capital implication for banks (see table 1). Moreover, due to differences in defining defaults, it is probable that borrowers that have been assigned default category rating may not fall under NPA classification of banks. Table 1: Key differences between NPAs recognition by banks and default recognition by CRAs DEFAULT (CRAs) NPA (Banks) Missing payment by a single rupee or a single day in servicing a scheduled debt obligation. Continuous default for a sustained period (continuous non-payment of dues for 90 days). Implication for providing capital against the risk. Ensuring loss provisions are made against a risk. Globally recognised definitions of default, adopted by RBI. RBI defines prudential regulations with respect to NPA recognition. Consistently applied across global banks and debt markets. Applied only in the Indian banking system. Direct implications for financial systems. Implications on financial systems through banking channels. More forward-looking. More historical analysis based. CREDIT DISCIPLINE THE WAY FORWARD 40. Insights Insights XXXIX Infographic 1: How Default and NPA are different from a systemic perspective http://www.rbi.org.in/scripts/PublicationReportDetails. aspx?UrlPage=&ID=715 The infographic above indicates that default is an early warning signal of a stress in the account as compared to NPA. Differing definitions of default prevailing currently could delay meeting the end objective of Basel accord viz. scientific allocation of risk based capital in the banking system. RBI, in its recent papers, has also underscored the importance of early identification of default risks. Hence, it can be fairly assumed that the banking system could see, sooner than later, policy level changes towards instilling early warning systems in recognising stress for risk based allocation of capital. Need for borrowers and lenders to acknowledge default in stringent terms The one day one rupee default criterion is in line with Basel regulations, which derive credit risk weights and probability of default from globally accepted practices (see box 1 for the risk weights suggested by Basel II). These practices have been consistently applied in debt markets across all countries. The criteria are stringent, universally accepted and consistent. Default definitions across markets follow the single rupee; single day norm, which means that a borrower will be classified as a defaulter even if he misses a term loan repayment by a single rupee or a single day. Over time, the definitions of default have evolved to become stringent because of the need to identify early warning signals of financial stress. This identification gives time to the policy makers to enact proactive regulations to prevent stress and thus protect the financial system (see box 1 for default definition prescribed by RBI). The relevance of early warning signals has only increased after the financial crisis of 2008 given the integrated nature of the global financial system. The crisis has brought forth the need for relooking at regulatory oversight in the financial system (including rating agencies) and a closer scrutiny of lead indicators of stress. Credit rating by CRAs is a 360-degree evaluation of the borrowers credit profile. These ratings factor in industry risk, business risk, financial strength and management capabilities of the borrower. Thus, credit rating is not only an opinion on default but also an indication of the borrowers overall creditworthiness. A rating not only fulfills a regulatory requirement but also gives the banker an independent opinion on the borrowers credit profile. Consequently, banks attach importance to credit ratings while extending credit. Borrowers thus need to be aware of the implications of external credit ratings for the sustainability and growth of business given the evolving regulatory landscape in an increasingly integrated financial world. Why credit discipline is a step in the right direction for borrowers: As financial system integration increases, the need for consistency in approach to risk (globally accepted) also increases. Hence, a move towards stringent globally accepted default definitions is a step in the right direction. Moreover, borrowers are diversifying their sources of finance and are increasingly tapping capital markets for funding needs (see chart 1) 41. Insights Insights XL Chart 1: Corporate debt and CP to GDP (at current prices) India http://www.sebi.gov.in/sebiweb/ and SMERA research The above chart implies that diversity in funding sources is increasing in India. Also, as increasing number of Indian entities seek international funding; it becomes prudent for borrowers to adopt international standards of credit discipline. Availability of different funding sources is important from two perspectives viz. availability of funds and cost of funds. India is witnessing rapid growth in sources of funding, be it private equity, SME exchanges, country specific funds, multilaterals or foreign investors. This implies that supply of funds is getting broad based and credit evaluation standards are becoming stringent and globally aligned. Thus, credit ratings play a critical role in risk assessment, and more so if the default definitions are based on global standards. The opinions by CRAs are already enabling local borrowers to access funding from diverse sources. This is facilitated by publicly available independent opinion, which a prospective lender can easily access from the CRAs website. Accordingly, whether it is from a regulatory or a funding diversity perspective, credit discipline (as enunciated by globally accepted standards) is fast becoming the norm. Consequently, companies which exhibit credit discipline often tend to have an edge as compared to others. Box 1: Regulations with respect to default and risk weights Default definition as laid down by RBI vide communication no. DBOD.BP.N/5378/ 21.06.007/ 2012-13 For the facilities having a pre-defined repayment date/due date, the definition of 'one day one rupee' may be adhered to. For revolving facilities like cash credit, CRAs may allow, as of now, grace period up to the maximum of 30 days from the date of overdrawal, beyond which an entity would be considered to be in 'default'. After the default is cured and the loan facility is regularized, the CRAs should upgrade the rating only if the rated entity shows satisfactory track record for at least of 90 days i.e. three months from the date of default. Generally in such cases, the rating would move to non-investment grade after curing. Proposed risk weights as per BASEL II Rating Basel II Probability of default AAA and AA 0.1 A 0.3 BBB 1.0 BB 7.5 B 20 42. Insights Insights XLI 43. Insights Insights XLII 44. Interview Section 45. I - 2 Indias Top Banks 2014 Suneel Aiyer CEO Writer Safeguard Q. Kindly brief us on the companys operations, how it is shaping up in the current economic scenario? A. Writer Safeguard Pvt. Ltd. (WSG) is one of Indias largest Cash Management Company, with an illustrious heritage. As an organization, WSG continues to maintain its service leadership position in the market through continuous focus on improvement, superior risk management capabilities, operational excellence through implementation of pioneering technology solutions, and constant upskilling of its workforce. WSG service suite encompasses: 1. Currency Management Solutions, 2. ATM Cash Replenishment, 3. Retail Cash Management cash pickup and Delivery, 4. End to End ATM deployment and Managed Services. WSG takes a lot of pride in its esteemed portfolio of customers such as MNCs, private and public sector companies, cooperative banks, and large format retail organizations across various service verticals. We have made significant investments over the past year to increase our footprint across the country by building new secured facilities, expanding of our fleet of highly secured vehicles, and by bringing in cutting-edge technology into our operations. We monitor our ground operations across the country on an online real-time basis from our command center in Mumbai. All of the above actions ensure that WSG is well positioned to move up the value chain and maintain its high growth trajectory. Q. Please elaborate on the companys various achievements over the past years? A. Over the past years, we have made significant inroads in expanding our portfolio of products and services. We have recently been awarded a large contract for end-to-end deployment and management of a leading public sector banks ATM network. Further, we have made inroads into operationalizing cash processing centers for some of our partner banks in the private sector. Apart from this, we have invested heavily on technology and network expansion projects. Today, we have a significantly larger footprint across the country compared with last year, since we expanded our network from 18 states to 25 states currently. On the technology front, we setup and operationalized our round-the-clock command center operations. Furthermore, we are extending our hand held technology from retail cash management to the ATM operations. This is currently in the testing stage and would be operationalized during the second half of this financial year. Q.What opportunities do you see in the industry and what are the future plans of the company? A. The last couple of quarters saw a reduction in new ATM Deployment. However, public sector banks have floated significant number of RFPs in the recent past for deployment of new ATMs. We expect these deployments to commence in Q4 of 2014, thereby, ending this downward trend. Although the countrys ATM base grew significantly over the past years, card issuance in select geographies has not kept pace with the acquiring capabilities of the ATM network, placing a significant amount of transaction pressure on the existing ATM network. However, other avenues within the banking industry are opening up. With the increasing focus of banks on reducing the holding cost of cash through various cash optimization techniques such as cash forecasting, single window processing, and cash recycling, opens up a fresh dimension for WSGs expansion. Further, we see an increasing trend of public sector banks offering doorstep banking services to its portfolio of corporate and HNI customers, which has been a growth feeder for our retail cash management business. Furthermore, private sector banks being open to the idea of outsourcing cash processing centers provides us with significant growth opportunities in the near future. Q. Please elaborate on any changes that should be laid down by the new government in the near future for the growth and development of the cash logistics industry in India? A. WSG has been instrumental in the formation of Cash Logistics Association (CLA) with the objective of bringing in regulations and minimum standards in the industry. There is currently a committee that has been formed under the directive of RBI comprising IBA, Leading Banks, FICCI, and the CLA for the same. We are hopeful that the guidelines will be finalized and published soon. Further, we hope that the new government revisits the Arms Act for creating a provision and a uniform law across states to enable deployment of armed guards for secure movement of cash and valuables. Q.What are the major challenges faced by the industry? A. With the increasing knowledge of common people about the organization and vehicles that move cash, threats and risk factors related to armed attacks on such vehicles is increasing. The industry continues to face shortage of armed guards due to lack of clarity on the Arms Act and its differing interpretation in each state resulting in continuous state of confusion for people holding individual licenses. Rudimentary insurance claim settlement processes elongate settlement cycle, which puts additional cash flow burden on the operators. Although the input costs such as salaries, fuel, and cost of vehicles are on a continuous rise, stagnation/ dispersed ATM deployment has resulted in pressure on margins. Q.What are the future plans of the company to tap opportunities posed by the banking industry? A. We are highly optimistic on the industrys outlook, since we see new opportunities and avenues opening up in the banking industry. This relates to further expansion of ATM networks based on the already awarded fresh contracts of such deployments and focus of the banks on cash optimization. Private sector banks have opened up to outsourcing of cash processing centre operations. Simultaneously, there has been an increasing requirement in the market for improvement of cash efficiencies and reduced cycle time for cash in circulation, automation in the branch banking space through automation of cash deposits, cheque deposits, and self-service kiosks. This has led to creation of significant opportunity for growth and expansion in the cash logistics, cash processing, cash optimization, cash forecasting, and payment processing space. 46. I - 3 Indias Top Banks 2014 Hitesh Gupta CEO Writer Information Management Services Q. Kindly brief us about Writer Informations leadership in Records & Information Management Solutions and services with special emphasis on the Banking sector. A. As is known in the industry and particularly in the financial sector Writer Information continues to be Indias largest and Asias 3rd largest Records and Data Management company. Apart from providing state-of-the-art Infrastructure for information storage and retrieval, we also provide Data Tape Storage, Digitization of documents and Data Governance Solutions. In view of our ability to provide all these services under one roof, over 2600 enterprises across India have benefitted and this includes Industries across various verticals. What started as an experiment i.e to outsource physical storage of records has today grown into a full-fledged industry extending the services beyond mere storage to digitization of documents and integration of business intelligence workflows etc. Since Writer Information could offer the complete bouquet of services as a one-stop solution provider for every need, the business today has grown by leaps and bounds and we compete with the best Global service providers. The positive vibes sent out by new Government has given an impetus to further growth of this industry and this is bound to infuse unprecedented enthusiasm within the industry. Writer Information is clearly ahead of this growth curve creating new markets and newer milestones with a market share of over 50%. Since we stood by Indian Banking industry during the downturn by optimizing cost & efficiencies, it is but natural that we clearly surged ahead of the rest by creating new markets and logging new mild stones. Again, when the Banking Industry is now poised for an exciting growth phase, we too are ready with our investments to enable Customers leverage this growth. With PSU Banks already on an outsourcing spree, Writer Information is ideally positioned to meet with their PAN-India requirement for faster and assured information management solutions. Q.What would you describe as your key USPs? A. The biggest differentiator is our unflinching commitment to this Business. Ensuring world class services consistently and our in-depth understanding of processes separate us from the rest. The variety of services, specialized products and our continuous investments make us an ideal partner for Customers wanting us to manage Big Data in physical and digital forms. We have continuously invested in technology to become one of the largest IT implementers in Records Management with our in-house cloud based DMS workflow delivered as a SaaS application. In a nutshell, we can manage information contents anywhere and centralize back office operations at any location in a cost effective manner. Nationalized Banks with deeper penetration into semi-urban and rural areas and even new Banks, can leverage their growth riding on our reach, operational versatility and world class processes. Most of our senior personnel come from Banking, IT & Logistics backgrounds and understand Banking Business and its emerging needs. Across the country, we have over 1500 talented work force for Records Management and digitization operations. Our process champions drive solutions-based approach as per Six Sigma standards. Our security team is also trained by ex-fire brigade / ex-army personnel and have won various state level competitions. We have a dedicated infra team focused on the structural aspect of our warehouses and have been instrumental in setting up our state-of-the-art facilities. Q.What are your thoughts on Indian banking sectors contributions? A. I feel that Banking sector has contributed immensely to the socio-economic development of our Nation ensuring financial stability and overall growth. With more than 100 Thousand Branches spread across rural and urban areas and with an ever increasing demand for financial inclusion, Indian Banking sector has coped well with the challenges of a growing economy with speed and maturity. With an young and enterprising Governor heading our Central Bank and an equally enthused Government at the centre, there is all round optimism and Banking sector is here to set new benchmarks and compete with the best. Q. In the current macro-economic scenario, what will be Writer Informations role in managing emerging needs of the Banking Industry? A. We believe that Banking industry is entering into phase of increasing growth, increasing competition, cost optimization and financial inclusion. The changing Banking regulations and the need for technological innovations will necessitate the need for risk management and effective monitoring. This will drive up demand for Records Management and we are uniquely positioned to partner Banking Industry in this endeavor. Our leadership is synonymous with the innovations that we have brought into the Banking sector. We have provided / tailored excellent solutions for some of the largest players to enable streamline their operations in the most cost-effective manner. Our foot prints cover more than 90% of Indian territory with over 9000 touch-points. We deliver services from our 22 locations across the country with processes that have ISO 9001 and ISO 27001 accreditation. We have created completely new class of storage solutions with customized, environment-controlled and multi-layered security for the emerging needs of safe handling of high value documents of various asset classes.. We offer specialized services like Indias first P4 Level Secured Destruction for highly confidential documents, logistics services for media tapes, specialized content audit, Records Management consulting and even data centre co-location. We also deliver Business Process Management solutions that involves Offsite Regional Processing Centers and Back Office Management. Q. Kindly mention the companys expansion plans? A. We continue to invest in capacity expansion in existing and new markets in India to cater to customers increasing business needs. We plan to invest over ` 2.5 billion in new state of art facilities, storage capacity expansion, Information technology and branches at new locations in next 3-4 years. We are also vigorously pursuing our international expansion plans and soon our presence will be felt in the Middle East and in some of the Asian markets. 47. I - 4 Indias Top Banks 2014 Murali M. Natrajan Managing Director & CEO DCB Bank Limited Q.Could you give us insights on how the bank has managed its performance in FY14 amid the economic slowdown? A. The main reasons for improvement in performance is (i) Control of NPAs; (ii) Systematic growth of balance sheet with focus on retail deposits; (iii) Careful cost investments for branch expansion; (d) Steady NIMs and (e) Improvement in service and operating efficiency. Q. Asset quality of Indian banks has been deteriorating. Besides the weak economic conditions, what are the other prime reasons for weak asset quality of banking industry? What strategy does your bank plan to adopt to improve its asset quality? A. Our balance sheet is approx. ` 13,000 Crs. We have a deposit base approx. ` 10,600 Cr. and loan book of approx ` 8,200 Cr. From current level the Bank aims to double its balance sheet in 36 to 42 months. The Bank is targeting approximately 40% contribution from Mortgages, 20% from MSME / SME, 20% from Agri & Inclusive Banking and 20% from mid- Corporate. Q. Kindly elaborate on the banks expansion plan and the steps that it plans to take to make bank more competitive. A. At present, the Bank has 138 branches. The ambition is to double in 3 to 4 years. DCB Bank core target is self employed segment for both deposits and loans. For the past 5 years, our focus is on secured retail and MSME / SME loans. We have very limited exposure to mid corporate segment. The Bank has steadily expanded its operations. It is now present in 88 locations through 138 branches. Much of the recent branch expansion has been in Tier 2 to Tier 6 cities. We prefer small granular loans. Our strategy is to have limited exposures in large ticket loans. Q.With new banking licenses being issued, how do you view the competition? A. There may be some consolidation in the public sector banks. With increased competition, banks may be forced to rethink their strategy and sharpen their product, geography and segment focus. There will be a