BEAT THE STREET

Road Map for NBFC to Banking

A Finance Case Study

Contents
Introduction .................................................................................................................................................. 3 Business Segments ........................................................................................................................................ 4 Consumer Finance .................................................................................................................................... 4 Corporate Finance..................................................................................................................................... 5 Others ....................................................................................................................................................... 6 Banking Sector Overview`6 Key Statistics ............................................................................................................................................. 7 Government Initiatives ............................................................................................................................. 8 Key Deliverables ............................................................................................................................................ 9 Financial Summary of ABC Bank ................................................................................................................. 10 Annexure A.................................................................................................................................................. 12 Format & Other details ............................................................................................................................... 12 Key Guidelines.12

Introduction
Date: September 30, 2011 Venue: Corporate Office, ABC Finance Limited. The Union Finance Minister, in his budget speech for the year 2010-11 had announced that The Indian banking system has emerged unscathed from the crisis. We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services. In this context, I am happy to inform the Honorable Members that the RBI is considering giving some additional banking licenses to private sector players. Non Banking Financial Companies could also be considered, if they meet the RBIs eligibility criteria. Ever since this announcement by Finance Minister Mr. Sarabhai, Chairman of ABC Finance Limited is excited about the new licenses. He is sure that ABC Finance Limited will meet the criteria to get banking license. Mr. Sarabhai calls for a meeting of the top management and discusses the plan of action for his firm in terms of expansion and growth. He has a vision to grow the business of ABC Finance Limited once they get the banking license. Suppose you are the head strategist at ABC Finance Limited, and RBI has given a banking license to ABC Finance Limited. Mr. Sarabhai, Chairman of ABC Finance Limited has asked you to draft a strategy for growth and expansion in the next 5 years.
About ABC Finance Limited

The Company has created unique, common sales and service structure which dovetails all consumer finance & advisory products and services into a common branch network. This translates into a one stop shop for the customer servicing his entire financial requirements through a single window.

Business Segments

Consumer Finance
It offers a wide range of products which include home loans, loans against property, SME loans, commercial vehicle loans, auto loans, loans for construction equipment, and loans against securitiesand infrastructure loans Two-wheeler financing Riding on the back of a robust two-wheeler sales growth, loan deployment in this segment grew by 37% YOY. ABCFLs two wheeler financing is available across 151 dealership locations and 870 sub-dealers across the country. The company acquired more than 112,000 customers in the year, representing a 28% growth over the previous year. Consumer durables financing This business is present in 69 cities of India. Consumer durable financing deployment grew by 68% to Rs. 492 cr. in FY2011, versus an estimated industry growth of 31%. The company acquired over 56,000 new customers, and is currently present in over 1,200 points of sale across the country. ABCFLs strategy of focusing on relatively affluent customers and major dealerships has yielded benefits through lower operating costs and improved risk performance.

Personal loan cross-sell This business is present in 68 cities of India. It targets customers with good repayment history of their two-wheeler and/or consumer durables loans to cross-sell a personal loan. ABCFL grew this business in a cautious manner in FY2011. During the year, deployment under this category grew by 46% to Rs.820 cr. ABCFL financed 140,500 new customers in FY2011. Vendor financing ABCFL started to grow this new line of business in the current year. It focuses on short and medium term lending needs of vendors of large auto manufacturers. Mortgage business Present in 23 cities of India, the business targets affluent and high net worth small business customers, and offers loans against the mortgage of retail, residential and commercial premises.

Corporate Finance
Infrastructure Finance Business The company has started its foray in infrastructure finance and sanctioned loans worth Rs. 2050 cr.The Company also launched its construction equipment finance business during FY2012. It focuses on financing small, mid and large strategic contractors for their construction equipment financing needs. This is asset-backed financing collateralized by the construction equipment assets. During the first year of operation, the company deployed Rs.1694 cr. and added some 42,900 customers. SME loans This is present in 23 cities across India. Small business loan deployments grew by 51% to Rs. 870 cr. in FY2011. The Companys strategy of focusing on affluent SME and its cautious approach has helped it to steadily grow this business without unwarranted risks.

Others
Securities Business Under this vertical the company provides Equity Research, Advisory and Broking for both institutional and retail customers. It also provides Wealth Management services to clients. Investment Banking This includes M&A Advisory, Debt and Equity Capital Market services for institutional and corporate enterprises. Private Equity This includes Private equity investments in India and overseas. ABCFL continues to evaluate investment opportunities in the promising and fast growing sectors viz., consumer durables, auto components, power equipment manufacturer, print & media and fashion & designer apparel.

Banking Sector Overview

The banking sector in India is expected to have another good year during 2011, with growth being propelled by factors such as good economic growth, favorable demographics and low penetration, according to a report titled Indian banks are likely to ride an economic growth wave, by research firm Standard & Poors.

The countrys economy grew by 8.5 per cent in the last fiscal and the government expects the growth impetus to continue this year as well More than 50 per cent of Indias population is under the age of 30 years, which is a major target group for banks Penetration of banking services in the country remains low. The government has set targets to provide banking facilities to all areas with a population of over 2,000 by March, 2012.

In the last decade, the sector witnessed many positive developments, as policy makers which comprise the Reserve Bank of India (RBI), Ministry of Finance and associated government and financial sector regulatory entities, made several distinguished efforts to improve regulation.

Key Statistics
The banking sector in India is well capitalized, with capital ratios being above the global average. The average tier-1 Capital Adequacy Ratio (CAR) of the Indian banking industry is above 10 per cent compared to the Basel III norm of 8.5 per cent including the contingency buffer. The banking sector in India has made significant progress in the last five years the growth is well reflected through parameters including profitability, annual credit growth, and decline in non-performing assets (NPAs). During the last five years, while the annual rate of credit growth was 23 per cent, profitability was maintained at around 15 per cent. The total assets size of the banking industry rose by more than five times between March 2000 and March 2010 - from US$ 250 billion to more than US$ 1.3 trillion - a Compound Annual Growth Rate (CAGR) of 18 per cent compared to the average GDP growth of 7.2 per cent during the same period. Efficient internal capital generation, fairly active capital markets, and strong support from the government ensured good capitalization for most banks. The overall CAR reached 14 per cent as on March 31, 2011. High levels of public deposits also ensured a comfortable liquidity profile. While the Indian banking sector is characterized by the presence of a large number of players, the top 10 banks accounted for a significant 57 per cent share of the total credit as on March 31, 2011. With respect to gross bank credit, nationalized banks had the highest share of 51.6 per cent in the total bank credit. They were followed by SBI and its associates at 22.7 per cent and new private sector banks at 13.7 per cent. Foreign banks, old private sector banks and regional rural banks had comparatively lower shares in the total bank credit at 5.1 per cent, 4.5 per cent and 2.5 per cent, respectively. Real GDP growth for 2010-11 was estimated at 8.6 per cent. Signs of moderation, however, emerged in the second half of the year. Particularly significant were the slowdown in capital

goods production and investment spending. Going forward, high oil and other commodity prices and the impact of the anti-inflationary monetary stance will weigh on growth. Most business confidence surveys conducted by various agencies show a decline in business confidence.

Government Initiatives
The policy makers for the banking sector, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. These changes include:

Strengthening prudential norms Developing the payments system Integrating regulations between commercial and co-operative banks To support capitalization, the government has infused Rs 23,200 crore (US$ 5.2 billion) into state-owned banks during the last three fiscals With financial inclusion being a key program for RBI and the government, the central bank has decided to give private banks a push to go rural. The RBI has, in its circular, said that banks should open at least 25 per cent of the branches under the annual branch expansion plan in un-banked rural centers

Reserve Bank of Indias (RBI) recent draft guidelines on issuing new bank licenses have generated significant excitement among companies that have been waiting for RBIs move on the subject. The step will encourage competition, which will result in lower interest rates and customized loan and deposit products for the consumer. Considering that banking penetration of loans and deposits in India is extremely lowmortgage as a percentage of the gross domestic product (GDP) in India was 7% compared with an average of 22.5% in other developing countries and 80% in the US (2008 statistics)more competition and greater financial inclusion are worthy policy objectives to pursue while managing the inherent risk that goes with such a change in licensing regime The license will help ABC Bank to substantially expand its current range of services in the Indian market. ABC application for this license is part of the Bank's international strategy to expand its activities in major growth markets With the banking license, ABC will broaden its product suite. ABC bank will be able to accept deposits and use its balance sheet to provide working capital financing to clients. The license

will also permit the Bank to deal in foreign exchange, domestic fixed income products and trade finance.

Key Deliverables
Targets for ABC Finance Limited (in terms of profit, loan book, distribution network and others) Financial and Marketing strategy for ABC Finance Limited for a period of 5 years. Projected Financials for next 5 years (till March 2016) Risks anticipated and Mitigation strategies

Financial Summary of ABC Bank

Balance Sheet for ABC CAPITAL (In Cr.):

Annexure A

Loan Book Composition

Infrastructure Finance 33% SMEs 12%

Mortgages 23%

Personal 10%

Auto 6%

Commercial Vehicle 16%

Format & Other details

Submission should include a PowerPoint presentation for strategic plan (not more than 15 slides) and an Excel for financial plan. Please submit a detailed excel for the financial plan, with a separate sheet capturing the assumptions used in building the model. Please add 1-2 slides presenting snapshot of the model, and capturing the key assumptions used in building the model. Wherever data sources are referred to (industry data), clearly indicate the source of data.

Rules and Regulations

Participants need to register for the Beat the Street at http://www.prerana.nitie.net/ A team must consist of 2/3 members (bonafide Management School Students only) from the same institute, but can be from different programs. The event is open to both first year and second year students A student cannot be a member of more than one team for the same event. There is no restriction on number of teams from the same institute. Each team can submit a maximum of one entry for the case study. Each team needs to submit a 8 slide presentation for the case study (excluding the cover slides) The front slide should carry Institute Name & address Team Name Details of the team members (Name, Course, Email IDs, Phone nos.)

These details of the participants SHOULD NOT appear anywhere else in the entry submitted. Entries should be mailed to events@prerana2011.com with the document name and subject name as Beat the Street<space>College Name<space>Team Name . Team Name: eg: Invincible (to be decided by the team)

The decision of the panel of judges regarding evaluation will be final and binding. The short listed teams would be informed by mail. Teams need to send their confirmation regarding participation within a day of receipt of the mail, failing which the next best team in order of ranking of all submissions would be invited.

In case of any ambiguity, the decisions of the organizing committee will be final and binding. The finalists shall be reimbursed for 2-way sleeper tickets for the shortest distance between NITIE and their college.