Phuket, Thailand October 28-30, 2009

ASIAN EXIM BANKS FORUM 2009

Global Financial Crisis & Asian Exim BanksReflections from Exim Bank India’s Experience

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Global Financial Crisis: A Macro Perspective

Values in parentheses indicate July 2009 estimates; *: ProjectionsSource: IMF, World Economic Outlook Update, October 2009

Global economy expected to recover after an unprecedented projected decline of 1.1% in 2009

(Annual % change) 2007 2008 2009* 2010*

World Output 5.2 3.0 -1.1(-1.4)

3.1(2.5)

World Trade Volume (Goods and Services)

7.3 3.0 -11.9 (-12.2)

2.5(1.0)

Exports

Advanced economies 6.3 1.9 -13.7 1.2

Emerging & developing economies 9.8 4.6 -7.2 3.6

Imports

Advanced economies 4.7 0.5 -13.7 1.2

Emerging & developing economies 13.8 9.4 -9.5 4.6

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Impact of Crisis on Asian Exports

Slowdown in overall exports in 2009 is a global phenomenon

Source: Ministry of Commerce, IMF, IIF

Country Parameter Jan Feb Mar Apr May June July Avg. Growth

China Value (US$ bn) 90.4 64.9 90.3 91.9 88.7 95.4 105.2Growth (y-o-y, %) -17.5 -25.7 -17.1 -22.6 -26.4 -21.3 -23.0 -22.0%

Indonesia Value (US$ bn) 7.2 7.1 8.6 8.5 9.3 9.4 9.6Growth (y-o-y, %) -36.1 -32.8 -27.6 -22.9 -28.2 -27.2 -23.1 -28.3%

Malaysia Value (US$ bn) 10.7 10.9 11.9 11.4 12.2 12.8 13.8Growth (y-o-y, %) -33.8 -25.4 -26.6 -35.4 -35.3 -28.3 -29.3 -30.6%

Philippines Value (US$ bn) 2.5 2.5 2.9 2.8 3.1 3.4 3.3Growth (y-o-y, %) -40.6 -39.0 -30.8 -35.2 -27.0 -24.8 -25.4 -31.8%

Korea Value (US$ bn) 21.2 25.5 28.1 30.4 28.2 32.6 32.0Growth (y-o-y, %) -34.2 -18.3 -22.0 -19.6 -28.3 -12.5 -21.8 -22.6%

Thailand Value (US$ bn) 10.4 11.6 11.4 10.3 11.5 24.8 27.0Growth (y-o-y, %) -25.3 -11.1 -22.7 -25.2 -26.5 12.2 12.8 -23.3%

India Value (US$ bn) 12.4 11.9 11.5 10.7 11.0 -26.4 -25.7Growth (y-o-y, %) -15.9 -21.7 -33.3 -33.2 -29.2 12.8 13.6 -27.1%

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Global financial crisis, which has resulted in slowdown in economic growth, has also

impaired the access to trade finance.

Market for trade financing has deteriorated – shortage in trade finance liquidity estimated to be in the

range of US$ 100-300 billion.

World Bank estimates that the lack of trade finance credit in the market today could account for 10-

15% of the decline in trade

Global trade finance estimated to have shrunk by 40% in the last quarter of 2008. It is estimated that

only 116 trade finance loans (excluding aircraft and shipping) were signed in the last quarter of 2008,

the lowest quarterly deal count since 2004.

Decreases in value of trade finance business accelerated between October 2008 and January 2009 in

almost all regions (IMF & BAFT survey).

Exporters in general are seeking confirmed letters of credit, where they had exported on the

basis of open account or cash against delivery.

The banks’ perception of risk is leading to tightening of liquidity, and therefore greater

difficulty in getting confirmed letters of credit.

Global Crisis: Impact on Trade Finance… (1)

Trade Finance availability continues to be tight on the back of global economic slowdown

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Many countries borrowed short-term to finance their growing trade.

In China, trade finance in 2007 amounted to US$133 bn (> half the country’s short-term debt).

93% of India’s US$ 49.4 bn in short-term debt in 2008-09 was trade-related (US$ 46 bn)

Spreads on trade finance credit in 2008 increased by a factor of three to five in major

emerging markets, including China, Brazil, India, Indonesia, Mexico, and Turkey

Spread (over the 6-month LIBOR) for Turkey jumped to 200 basis points in Nov from 70 basis points

in the Q3, while Brazil’s spread almost trebled in 2008 (from 60 bps to 175 bps); India’s spread

increased from 50 bps to 150 bps during the same period.

Most banks have moved away from funding open-account facilities to more traditional forms of cash-

backed or collateralized letters of credit.

Several countries entered into bilateral agreements to ease the strains on access to foreign

currencies, including trade credit.

In Dec 2008, the US Federal Reserve entered into currency swap agreements with some of its

counterparts, including Brazil and Mexico. Each partner received a swap line of $30 bn.

US & China, acting through their respective exim banks, have created bilateral trade facility of $20 bn.

Global Crisis: Impact on Trade Finance… (2)

Access to trade finance has become more difficult

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Stimulus Package for Indian Exporters

Interest subvention for labour intensive sectors – validity period extended till end March 2010

Extension in period for realisation of export proceeds increased from six months to one year, since June 2008

Period of pre-shipment credit eligible for concessional rate increased from 180 days to 270 days add post-shipment credit increased from 90 days to 180 days

RBI Export credit refinance to banks increased from 15% to 50% of net demand & time liabilities

Liquidity push by RBI by reducing Repo rate (9% to 4.75%), Cash Reserve Ratio (9% to 5%) and Statutory Liquidity Ratio (25% to 24%).

Banks’ Prime Lending Rates reduced by 1.5% p.a. to 2.0% p.a. since November 2008

Special regulatory treatment granted for second restructuring of exposures [other than exposures to commercial real estate, capital market and personal / consumer loans] upto June 30, 2009, so as not to categorize as non performing loans if viable units are facing temporary cash flow problems.

Adjustment assistance scheme, to provide enhanced ECGC coverage at 95% to badly hit export sectors extended upto March 2010.

RBI refinance facility of Rs. 50 billion and swap facility of upto US$ 1 billion to Exim Bank.

Key Measures from the Indian Banking Perspective

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Textile exports, which grew at 10% during Apr-Sep 2008 (y-o-y) has contracted.

Exports in Oct-Feb 2008-09 declined by

6.7%.

Cotton yarn, fabrics, and made-ups worst

hit – exports declined steeply by 20%

Exim Bank, being one of the nodal agencies identified by GOI under Technology Upgradation Fund Scheme (TUFS), has a reasonably good exposure to the sector and has been monitoring it very closely to take appropriate actions.

Exim Bank’s Sectoral Exposure… (1)

Sector-wise Exposure as on March 31, 2009 Textile sector amongst the worst hit by crisis

Bank’s exposure is well spread across industries

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The growth of textiles and garments sector is heavily dependent on the demand

from USA and EU.

US and EU are the major consumers of textile and clothing accounting for over 45% of

world’s textile imports and around 72% of world’s clothing imports.

Together, these two regions account for 61% of world textiles and clothing imports.

India accounts for 9.7% of total textiles imported by US and 4.1% of its clothing

import; In EU market, the share of India is 3.8% and 3.5%, respectively.

During 2008-09 (Apr-Feb), share of USA in India’s total exports of textiles and

clothing was 21.3% as compared to overall market share of (for all products) 12%.

The share of EU was 34.9% as compared to overall market share of (for all

products) 21.1%.

Exim Bank’s Sectoral Exposure… (2)

Exports from textile and clothing sector will recover once demand from US & EU revives

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RUPEE : Rs 264.24 bn

FOREIGN CURRENCY : USD 2,888

mn

MARKET BORROWINGS

(as % of total resources) : 81.4% INTERNATIONAL RATINGS [SINCE 2004]

(SOVEREIGN) FC MEDIUM TERM*

MOODY’S : Baa3 (Stable)

S&P : BBB- (Negative)

FITCH : BBB- (Stable)

JCRA** : BBB+ (Stable)

DOMESTIC RATINGS [SINCE 1993]

CRISIL : AAA

ICRA : LAAA

* All investment grade** 2 notches above Investment Grade

Total Resources : Rs. 410.7 bn (as on 31st March, 2009)

Resources

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Overseas investments by Indian companies have witnessed a decline of 14.9% during 2008-09, owing to the current economic slowdown.

Indian corporates availing of Bank’s support under its OIF program has fallen:

Overseas Investment Finance

Global FDI outflows down in 2008 & 2009…

Region / Country 2007 2008 Growth

World 2,063.4 1,868.9 -9.4

Developed Economies 1,743.4 1,536.4 -11.9

Europe 1,270.7 990.3 -22.1

United States 313.8 298.6 -4.8

Japan 73.5 127.4 73.2

Developing Economies 268.8 274.1 2.0

Latin America & Caribb. 52.1 36.1 -30.7

Asia and Oceania 211.4 239.6 13.4

Transition Economies 51.2 58.3 13.9

India* 18.7 15.9 -14.9

Note: Values in US$ bn, growth in %

* Financial year [2007-08 & 2008-09] Source: UNCTAD, RBI

… impact visible on Bank’s OIF program

OIF Program 2007-08 2008-09

No. of Corporates 41 16

Sanctioned Assistance (Rs. bn) 50 23

No. of Countries 20 11 Investments abroad likely to remain moderate in 2009-10.

Bank has so far provided finance to 245 ventures set up by nearly 200 companies in 63 countries. Aggregate assistance for overseas investment : Rs. 124 bn.

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The Bank signed an agreement for a long term loan of € 150 mn with European

Investment Bank (EIB), the European Union’s major long term lending institution.

First time in the past 15 years that EIB has extended a credit line to an Indian

entity.

Purpose: supporting projects that contribute to climate change mitigation and to

EU presence in India through FDI, transfer of technology or know-how from

Europe.

The borrowings under this facility will enable the Bank to on-lend for import of

equipment for projects including renewable energy projects, energy efficiency

enhancement as well as projects that would reduce greenhouse gases emission,

clean environment, afforestation.

Loan Agreement with European Investment Bank

Exim Bank – Response to Crisis… (1)

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Reserve Bank of India extended Refinance facility of Rs. 50 billion and buy-sell

swap facility of US$ 1 bn to Exim Bank to :

Mitigate the pressures on account of recent developments on loan disbursements to Indian

exporting companies

For honouring disbursements under Lines of Credit extended by the Bank at the behest of

the Government of India to overseas financial institutions, regional development banks,

sovereign governments and other entities overseas.

Loan Agreement with IFC (World Bank Group) and Bank of Tokyo-Mitsubishi, UFJ

Ltd. for US$ 60 mn .

New bilateral trade finance loan from Japan Bank for International Development

(JBIC) for financing exports under negotiation.

Exim Bank – Response to Crisis… (2)

RBI Refinance Facility to Exim Bank, Bilateral Loans with IFC, BOTM, JBIC

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Exim Bank – Response to Crisis… (3)

Exim Bank exploring various markets like Eurodollar, Samurai, Thai and Malaysia.

Bank in discussions with US Exim Bank and SACE (export credit agency of Italy)

for a similar facility like IFC.

Exim Bank is a part of Global Trade Finance Programme of IFC.

Exim India has also fostered greater level of institutional cooperation among the

developing countries through the formation of the Global Network of Exim Banks

and Development Financing Institutions (G-NEXID), under the auspices of

UNCTAD to boost south-south cooperation in trade and investment.

G-NEXID signed a Memorandum of Cooperation with IFC for providing trade finance so

as to increase liquidity in member countries thereby facilitating trade between southern

countries.

Other options in the pipeline

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Lessons Learnt

At Global Level: Multilateral/regional DFIs should play a pivotal role in rebuilding confidence amongst member

governments, banks and financial institutions in the region, through provision of well-targeted credit enhancements, policy support, and capacity building initiatives.

Institutional partnership is also required between the financing agencies and credit insurance agencies (wherever there are two separate entities in a country) by way participation in intensive learning programmes, and periodic exchange of learning at global level, to sustain cross border trade finance flows.

At National Level: There is a need for periodic review and change in policies related to trade finance, to reflect the

changing international environment, as also in the context of changing business climate (recessionary trends).

At Institutional Level: Thus, greater level of institutional cooperation among the developing countries is required for

closely monitoring payment delays and sharing of information on credit risks; such cooperation would be collectively beneficial to enhance trade finance and cope with the financial crisis. This is where initiatives such as the Asian Exim Banks Forum and G-NEXID, and bilateral memorandum of cooperation for co-financing activities, needs to be leveraged to respond to the trade finance needs of the exporters from member countries.

Measures for enhancing trade finance

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