Domestic News - January 2011 RBI hikes repo rate, reverse repo by 25 bps The Reserve Bank of India (RBI) increased the key policy rates by 25 basis points (bps) each, as the central bank steps up its efforts to tackle a stubbornly high inflation at the cost of some moderation in economic growth. The repurchase rate (repo rate) has been hiked by 25 bps to 6.50%, while the reverse repo rate has also been increased by 25 bps to 5.50%. The central bank also extended the 1% leeway in the SLR up to April 8. CRR has been left unchanged at 6%. The inflation target for FY11 has been increased to 7% from 5.5% earlier while the GDP forecast for the current fiscal year has been kept steady at 8.5% with an upward bias. The RBI had raised key policy rates six times last year as the Indian economy accelerated, sending inflation sharply higher. But several factors, including unseasonal rains and spike in global commodity prices has kept inflation elevated. Dr. D. Subbarao, Governor of the RBI had decided to take a pause in its last meeting on December 16 amid a severe shortage of cash in the banking system and some softening in food inflation. Inflation shot up to 8.43% in December, from 7.48% in the previous month, the Government said on January 14. October's inflation rate was revised to 9.12% as against the provisional estimate of 8.58%. Inflation in the Food Articles group fell to 15.52% in the week ended January 8 from 16.91% in the week ended January 1, the Commerce & Industry said on January 20. Anand Sinha takes over as RBI Deputy Governor Anand Sinha took over as Deputy Governor of the Reserve Bank of India. As Deputy Governor, Sinha has been appointed for a period upto February 28, 2013. He will look after two regulatory departments, namely, Department of Banking Operations and Development and Urban Banks Department. He will also look after the Departments of Information Technology, Expenditure and Budgetary Control, Inspection, Legal and Premises. SC pulls up Govt on Black Money issue In yet another embarrassment for the UPA government, the Supreme Court has lashed out at its feeble and lackadaisical efforts in tackling the contentious issue of black money parked abroad. The apex court has sought speedy action against those involved in the rampant practice of stashing money earned in India through dubious and illegal sources in overseas bank accounts. The Supreme Court on Wednesday expressed its displeasure over the Government's reluctance in coming forward with credible information on the black money stashed by Indians in foreign banks, saying that it is a theft of national wealth and amounted to "plunder" of the nation. "It is a pure and simple theft of the national money. We are talking about mind-boggling crime. We are not on the niceties of various treaties," remarked a bench comprising Justice B Sudershan Reddy and Justice S S Nijjar. Read more… LIC Housing stops loans to builders: report LIC Housing Finance Ltd has stopped financing project developers, according to a report. The report stated that the company has not done any project financing and also stopped loans to individual builders. Citibank fraud: FIR against global CEO The Gurgaon police have registered an FIR against 11 Citibank officials, including the global chief executive officer Vikram S Pandit in the Rs. 300 crore Citibank fraud case. The FIR has been registered on the complaint of Sanjeev Aggarwal, a resident of DLF phase one, who was reportedly duped of R32.43 crore. Aggarwal told police in his complaint that he was had opened a wealth management account with Citibank in 2004. "Citibank has developed a practice of getting blank demand drafts requisition forms and common transfer forms signed by customers on the grounds that customers

Weekly Industry Newsletter

1 of 93

Rewind 2011 Rewind 2011: Agriculture Newsletter Rewind 2011: Automobile Newsletter Rewind 2011: Aviation Newsletter Rewind 2011: Banking Newsletter Rewind 2011: Hotels & Tourism Newsletter Rewind 2011: Information Technology Newsletter Rewind 2011: Infrastructure Newsletter Rewind 2011: M&A Newsletter Rewind 2011: Metal & Mining Newsletter Rewind 2011: Oil & Gas Newsletter Rewind 2011: Real Estate Newsletter Rewind 2011: Retail Newsletter Rewind 2011: Telecom Newsletter

being busy professionals would not always be available for signing these papers," Aggarwal alleged in the complaint. The bank, however, used to send portfolios statement through the Citibank email account of prime accused Shivraj Puri. "In the month of December, we received a call from a senior executive at Citibank telling us that our relationship manager was on leave and would not be coming to the office for some time. Read More… Bankers seek cut in CRR and SLR Bankers requested the Reserve Bank of India (RBI) to slash the CRR and SLR in its upcoming Third Quarter Review of Monetary Policy 2010-11 on January 25, besides keeping the key policy rates unchanged. At present the CRR (Cash Reserve Ratio) stands at 6% and SLR (Statutory Liquidity Ratio) stands at 24%. Since October, the RBI temporarily brought down the SLR by 100 bps to ease the liquidity situation and at its mid-quarter review on December 16, the RBI brought it down to 24% as a permanent measure to ease the liquidity pressure in the system. After the pre-policy meet with the central bank, Indian banks Association CEO R. Ramakrishnan was quoted as saying that the bankers led by SBI, ICICI Bank, HDFC Bank, Bank of Baroda and Union Bank among others, demanded reduction in both the CRR and SLR. Govt to clean up financial sector laws: FM The Union Finance Minister, Pranab Mukherjee has said that the resilience shown by Indian economy during the global crisis reflects a maturing of the economic management of the country and the growing competitiveness of our enterprise. The overall GDP growth of 8.9 per cent in the first half of 2010-11 takes us back on a high growth path that the economy was traversing on in the years prior to the crisis, however, concern on inflation remains, he said. Mentioning that India’s growth momentum, to some extent, is affected by the developments in the Western World, he said that a faster recovery in the West will benefit all. Mukherjee was speaking at the inaugural session of Second International Finance Conference, organized by IIM Calcutta in Kolkata. Referring to FSDC, set up by the Government to strengthen and institutionalize the mechanism for maintaining financial stability, Mukherjee said that the Government will also set up a Financial Sector Legislative Reforms Commission (FSLRC) to rewrite and clean up the financial sector laws and bring them in line with the requirements of the sector. He said that Government has accorded high importance to financial inclusion as it is a key determinant of sustainable and inclusive growth. Read More… PM meets RBI Governor on monetary measures The Prime Minister, Dr. Manmohan Singh met D Subbarao, Governor of Reserve Bank of India (RBI), to discuss on the monetary steps to check price rise. The PM’s meeting with the Governor Subbarao comes ahead of RBI's quarterly review of monetary policy on January 25. Prime Minister, Dr. Manmohan Singh on January 11, also held a high level meeting on spiraling food prices and to conduct a review on food inflation, which has gone past 18%. Senior ministers, including Finance Minister Pranab Mukherjee, Food and Agriculture Minister Sharad Pawar and Planning Commission Deputy Chairman Montek Singh Ahluwalia attended the meeting. CBI probes SBI, others on telecom loans: reports The Central Bureau of Investigation (CBI) has reportedly conducted search operations at the Mumbai headquarter of State Bank of India (SBI) and is also probing other state-run banks in connection with the loans given to new 2G licencees. But, the chairman of SBI, India's largest commercial bank, today denied any knowledge of the CBI probe at the bank's Mumbai headquarter. He told a news conference in New Delhi today that reports about the CBI conducting searches at its offices had come as a surprise to him. A leading business news channel today reported that the CBI was

Weekly Industry Newsletter

2 of 93

conducting searches in some offices of the SBI and some other public sector banks as part of the 2G mobile licence allocation probe. REC increases lending rates In tune with the current market scenario, REC has revised its lending rates upwards by 25 basis points to 50 basis points w.e.f. 6th January, 2011. For large power generation projects, lending rates have been increased by 25 bps while short term lending rates for loans up to one year have been increased by 50 bps and those for 1 year to 3 years have been increased by 25 bps. Cooperative banks may give a better deal The new year promises a lot of action in the interest rate space and the first half of 2011 will see rate hikes is the expert prediction. For a person looking for a loan, the rising rates are only a part of the problem. And the terms on which you will get the loan may not necessarily get any easier either. So if you want to sidestep the rate barrier when buying a house and want the loan on slightly easier terms, you may want to look at cooperative banks. Unlike commercial banks that enter a business for the sole purpose of making a profit, cooperative banks look to make profits but also strive to provide additional benefits to the members of the cooperative association. Hence, they offer slightly better rates than commercial banks. Moreover, the terms and conditions they offer are more flexible compared with commercial banks. Here is how to approach a cooperative bank and why it makes sense to do so. SKS Microfinance to offer loans at 24.55% across India Pursuant to the Listing Agreement, SKS Microfinance Limited had, on the 8th November 2010, informed the stock exchanges about the planned move to reduce interest rates to 24.55% across India. Further to that notification, SKS Microfinance Limited has informed the stock exchanges about their decision to reduce the interest rate across the country to 24.55% with effect from January 11, 2010. ICICI Bank inks pact with Vodafone Essar for financial inclusion ICICI Bank Ltd, India’s largest private sector Bank and Vodafone Essar Ltd, one of the largest Mobile Network Operators in India, announced a joint initiative to drive financial inclusion in the country. Under this tie-up, both entities will offer a bouquet of financial products such as savings accounts, pre-paid instruments and credit products through a mobile phone based platform. Malegam panel unveils report on MFIs...Moots separate NBFC The Reserve Bank of India (RBI) released on its website the report of the RBI Sub-Committee of its Central Board of Directors to study Issues and concerns in the micro finance institutions (MFI) sector. The sub-committee has recommended creation of a separate category of NBFCs operating in the microfinance sector to be designated as NBFC-MFIs. To qualify as a NBFC-MFI, the sub-committee has stated that the NBFC should be "a company which provides financial services pre-dominantly to low-income borrowers, with loans of small amounts, for short-terms, on unsecured basis, mainly for income-generating activities, with repayment schedules which are more frequent than those normally stipulated by commercial banks" and which further satisfies the regulations specified in that behalf. The sub-committee has also recommended some additional qualifications for NBFC to be classified as NBFC-MFI. RBI may define good, bad years, adjust bank provisioning norms The Reserve Bank of India (RBI) may define good and bad years for banks, based on certain economic indicators, to determine how much provisioning they should make for bad debts, according to two people familiar with the

Weekly Industry Newsletter

3 of 93

matter. This is part of the move by RBI to align banks with Basel III norms, which offer guidance on various operational issues, including capital adequacy. As per the norms, it is a macro prudential issue to set aside more capital when the economy and profitability is good and use those extra provisions when these are not performing as well. When profitability weakens, banks can set aside less capital. The move may placate banks that have been complaining to RBI about stiff provisioning norms. Under the proposal, the provision coverage ratio, or PCR, will vary instead of being fixed as now. Read More… Subbarao reiterates concern over inflation Reserve Bank of India (RBI) governor D. Subbarao reiterated his concern over inflation a week before the next monetary policy review, which is expected to feature further tightening measures. "For the Reserve Bank, the challenge is to calibrate monetary policy, taking into account the demands of inflation management and the demand of supportive recovery," Subbarao said, addressing students at the Indira Gandhi Institute of Development Research (IGIDR). The apex bank is forecast to raise the key policy rates by at least 25 basis points at its 25 January review. RBI raised the key rate six times in 2010 to 6.25% but that hasn't succeeded in reining in food prices. Inflation in the fastest growing economy after China accelerated to 8.43% in December, led by the rising cost of food, fuel and commodities. RBI warns public on Sahara deposit schemes The Reserve Bank of India (RBI) has warned investors against putting money in Sahara Group Companies deposits, according to a report. The report stated that RBI came out with the notice after it received complaints from investors that the Sahara Group has been mobilising deposits from the public under the generic name of "Sahara Pariwar/ Sahara India Pariwar. Lakshmi Vilas Bank revises interest rates Lakshmi Vilas Bank revised interest rates on domestic term deposits w.e.f. 10.01.11, for fresh and renewals. Please find appended the same for your kind perusal. Vijaya Bank ties up with TimesofMoney Vijaya Bank, the leading Bengaluru based public-sector undertaking recently tied up with TimesofMoney, India’s leading digital payments service provider for a range of customer friendly online solutions. As part of its NRI strategy, the Bank has partnered with TimesofMoney to offer an online remittance platform for its customers across the globe. With this partnership, NRIs can use the Vijaya Bank website to transfer money online from 22 countries leveraging TimesofMoney’s branded remittance service. This ensures that Vijaya Bank customers get a state-of-the-art service with faster transactions, a secure platform & a price advantage both in terms of the lower fee & the better exchange rate that they get. IDBI Bank becomes registrar for UIDAI IDBI Bank has become a Registrar for Unique Identification Authority of India (UIDAI). A Memorandum of Understanding (MoU) was signed by the Bank and Unique Identification Authority of India (UIDAI), at a function held at New Delhi on January 10, 2011. B. P. Singh, Deputy Managing Director, IDBI Bank and A. P. Singh, Deputy Director General, UIDAI, signed the MoU. Nandan M. Nilekani, Chairman, UIDAI, R. S. Sharma, Director General, UIDAI and R. M. Malla, Chairman and Managing Director, IDBI Bank Limited were also present at the event. IndusInd Bank revises interest rates on Domestic Term Deposits IndusInd Bank has revised the interest rates on Domestic Term Deposits. Please find below the details of the same for your kind perusal. Revised rates are effective from 8th Jan 2011 (% per annum)

Weekly Industry Newsletter

4 of 93

Strong growth on the horizon for retail banking technology: OVUM The independent technology analyst believes the increase in investment will be driven by the need to grow revenues and improve customers' trust. This will lead to accelerated investment in online and mobile banking, technology in branches (in emerging markets) and channel integration. Bond redemptions, govt spending to ease crunch A combination of higher government spending, redemptions of bonds and better deposit mobilization by banks offering higher interest rates is expected to improve liquidity in banking system in the March quarter and reduce the bond market's dependence on liquidity support from the Reserve Bank of India (RBI), analysts said a day before the RBI holds the last of its four-phase Rs. 48,000 crore bond buyback programme on Wednesday. The bond buy-back programme was introduced in December to provide liquidity to tide over the cash crunch in the wake of large advance tax payments and equity outflow from large initial and follow-on public offerings such as the Rs. 14,970.20 crore one from Coal India Ltd. Besides, the government's reluctance to spend also added to the tightness. Ibankers improve score, deal hit rate up Investment bankers involved in arranging private equity (PE) deals are a happy lot. An increase in the number of PE firms in the market and the greater openness of Indian company promoters to accept PE funding has raised the deal hit rate for bankers. While two-three years ago, only four out of 10 transactions that bankers worked on typically resulted in concrete deals, these days as many as eight may be leading to investments by PE firms, bankers say. "Today we are explaining to them (promoters) which fund they should opt for rather than why should they opt for PE," said Deepesh Garg, director, o3 Capital Advisors Pvt. Ltd, on the increased willingness of company founders to take PE firms on board. In 2010, there were 376 PE deals worth $8.3 billion (Rs.37,682 crore), up from 331 deals worth $4.7 billion in 2009 in the aftermath of the global financial crisis, according to VCCEdge, a financial research platform. CARE assigns ‘CARE AAA’ rating to SIDBI CARE has assigned the ‘CARE AAA (Triple A)’ rating to the proposed issue of Unsecured Bonds of Small Industries Development Bank of India (SIDBI) amounting to Rs. 1,000 crore. M&M Financial inks pact with De Lage Landen Mahindra & Mahindra Financial Services Ltd has entered into a joint venture with De Lage Landen Financial Services Inc., a wholly-owned subsidiary of the Rabobank Group, for setting up a joint venture Company namely Mahindra Finance USA LLC, a state of Delaware limited liability Company, to inter alia provide wholesale inventory financing to US based dealers, to finance dealer purchases of Mahindra products and to provide retail financing to end-user customers to finance their lease or purchase of Mahindra products or used products from dealers, in U.S.A. Doha Bank seeks licence again from RBI Doha Bank, one of the largest lenders in the Middle East, is keen to enter the Indian market. The bank was among the few ones that had applied for a license in 2005. "This is the second time that we have applied for a banking license and we are hopeful, especially as several Indian banks are operating in the Gulf region and this supports the reciprocity model which the Reserve Bank of India may keep in mind while granting licenses," R Seetharaman, CEO, Doha Bank told Hindustan Times. Foreign banks of certain countries, which allow Indian banks to operate, are likely to be given priority while granting licences. The RBI guidelines are expected to be issued in the next few weeks. The bank already caters to a large section of the Indian

Weekly Industry Newsletter

5 of 93

population residing in the Gulf region. "Despite the financial crisis in a few middle east markets including Dubai, remittances have continued to grow and the Middle-East continues to be the largest contributor," Seetharaman said. Several other Wall Street investment banking icons including Goldman Sachs, Morgan Stanley, JP Morgan and Rabo have also applied for banking licences with the RBI. Read More….

Weekly Industry Newsletter

6 of 93

International News - January 2011 Lanka ready to reap peace dividend: Central Bank Sri Lanka on Tuesday expressed confidence to reap post-war peace dividend in the next couple of years and grow at 8.5% in 2011 and follow it up with a 9% growth in 2012. Presenting the financial roadmap for this year, Central Bank governor Ajith Nivard Cabraal said the challenge would be to maintain inflation at around mid-single digit levels in the short and medium term and the Bank will continue to monitor monetary and economic developments closely and respond appropriately. In his presentation titled, 'Road Map Monetary and Financial Sector Policies for 2011 and Beyond', Cabraal predicted an 8.5% growth for 2011 rising to 9.5% by 2013. The Central Bank said that there were two major aims in the process of development: firstly, double the country's per capita income to $4000 by 2010 and brand Sri Lankan the 'Wonder of Asia'. According to the information department, Cabraal added that the gross foreign exchange reserves reached $6.6 billion by the end of 2010, and the country's external outlook had improved with higher export and tourism earnings and inflows from foreign direct investment and lending institutions. Read More… RBS appoints Madan Menon as Country Executive of Singapore The Royal Bank of Scotland ("RBS") has appointed Madan Menon as Country Executive for Singapore as part of its commitment to build its wholesale and investment banking franchise across India and South East Asia. In this new role he will relocate from India to lead the RBS franchise in Singapore, one of six global trading hubs for RBS. This appointment is in addition to his existing responsibilities as Head of Global Banking & Markets (GBM) for India and Head of Global Banking for South East Asia. Singapore is currently the regional hub for Fixed Income, Currencies and Commodities (FICC) Trading and Sales; Credit Risk Management; and Global Transaction Services. In addition, Singapore houses RBS Group’s Asia Operations Centre, which provides infrastructure support globally. Read More… China hikes banks' reserve ratio again China's central bank announced that it was raising the banks' reserve requirement ratio by half a percentage point, as it continues efforts to check spiraling inflation. The new ratio will be effective from Jan. 20. The ratio, which determines the amount of funds banks must put aside as reserves, will rise to 19% for major lenders. The ratio had already been increased six times over the previous year. The move came around three weeks after China surprisingly lifted its benchmark interest rate on Christmas Day in a bid to keep inflation under control. Reports say China's consumer price index (CPI) likely accelerated in December from the prior month. Gains in the CPI in December likely exceeded 5.1%, Cheng Siwei, a prominent China economist and former lawmaker told reporters in Beijing on Friday. China is scheduled to release monthly CPI and PPI figures for December on January 20 in Beijing. China's CPI rose 5.1% from a year earlier in November, the fastest pace of gains in more than two years. ECB chief warns on rising inflation The European Central Bank (ECB) ratcheted up its rhetoric on inflation concerns in the euro zone. The ECB kept interest rates on hold at a record low of 1% but warned that the euro zone faces short-term price pressures - taken by some in financial markets as a sign it could raise rates earlier than previously thought. Citigroup said it had brought forward its expectation of an interest rate increase from the ECB into this year, following the latest hawkish-sounding remarks from ECB President Jean-Claude Trichet. Trichet sounded a warning on euro-zone inflation. He said inflation risks - although currently "broadly balanced" -could pick up going forward, noting that the

Weekly Industry Newsletter

7 of 93

ECB won't hesitate to hike rates if those risks materialize and, in turn, drive up prices and wages across the board. Meanwhile, rising fuel prices helped push annual eurozone inflation up to 2.2% in December, from 1.9% in November, according to official figures. Consumer prices in countries using the euro climbed 0.6% on a monthly basis, Eurostat added. The ECB has a target of 2% for eurozone inflation. A year ago it stood at 0.9%. Bank of England maintains Bank Rate at 0.5% The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion. Bank of Korea hikes key rates by 25 bps The Bank of Korea on Thursday unexpectedly increased interest rates besides announcing a string of other steps aimed at reining in spiraling inflation in a fast-expanding economy. The South Korean won rose and bonds fell after the Bank of Korea Governor Kim Choong Soo and the policy board raised the seven-day repurchase rate by a quarter of a percentage point to 2.75% in Seoul today. The Korean central bank had earlier hiked interest rates by 25 basis points each in July and November last year. The move came nine days after South Korean President Lee Myung Bak declared a war on inflation that threatens to breach the central bank’s ceiling. Brazil's central bank hikes rates by 50 bps Brazil's Central Bank Monetary Policy Committee (Copom) announced its decision to raise its benchmark Selic interest rate by 0.5%, to 11.25%. Copom said the decision was unanimously approved, in a bid to keep the country's inflation rate below the 4.5% target set for this year. In 2010, Brazil's inflation rate reached 5.91%, the highest in six years. With the rise, Brazil maintains one of the highest benchmark interest rates and real interest rates in the world. Last year, the Selic rate was up by 2%, after it was cut to a record low. According to the latest market surveys, economists expect another rise in the Selic rate in the coming months. RBS sells Priory Group in US$1.47bn deal Royal Bank of Scotland reportedly said that it is selling care home operator and mental health services company Priory Group Ltd to private equity firm Advent International in a deal worth up to 925 million pounds ($1.47 billion). After the settlement of outstanding debt, RBS expects to receive gross proceeds of up to 133 million pounds in cash. Priory Group's operations include running care homes and psychiatric hospitals, but it is most famous as a retreat for celebrities who are dealing with addictions, adds report. Santander CEO may have to quit after court ruling: report Alfredo Saenz, CEO, Banco Santander may reportedly have to leave his job after a ruling by the Spanish Supreme Court related to when he worked as chairman of Banco Espanol de Credito in 1994. According to reports, Spain's High Court has barred Saenz from working in a bank a year after he was found guilty of fraud while at his post at Banco Espanol de Credito. Fed leaves rates, QE2 unchanged The US Federal Reserve left interest rates steady near zero and also maintained a status-quo on its bond purchase programme, citing high unemployment rate, even as it acknowledged improvement in the economic outlook. At the end of a two-day meeting, the Fed's policy-setting Federal Open Market Committee (FOMC) voted to hold its key interest rate at a record low 0%-to-0.25% range. The vote was unanimous. Fed policy makers said that signs of an accelerating recovery don’t warrant reducing efforts to reduce unemployment that is hovering near the highest levels since the early 1980s.

Weekly Industry Newsletter

8 of 93

Treasuries fell as Fed policy makers said they are on course with its US$600bn bond-buying program. The Dow Jones Industrial Average briefly breached 12,000 for the first time since June 2008 but closed shy of that landmark. The Dow and S&P finished at their highest levels since the summer of 2008. Economists had expected the Fed policy makers to leave its key interest rate and bond-buying program unchanged. In its accompanying statement, the FOMC made relatively few changes to the policy statement that was issued in December. The Fed noted the recent spike in commodity prices but repeated its position that underlying inflation is still trending lower. The Fed also took note of better economic conditions but stressed that the rate of growth is not fast enough to bring about a significant improvement in labor market conditions. BOJ holds rates steady; revises GDP view Bank of Japan (BOJ) left its key policy rate unchanged but altered its GDP forecast for the current fiscal year and the next. The Japanese central bank held its key overnight call rate range steady at zero to 0.1% by a unanimous vote on Tuesday, besides holding its overall economic assessment unchanged. The BOJ revised its economic growth forecast for the fiscal year ending in March to 3.3% from 2.1% predicted in October, but cut its GDP forecast for the fiscal year beginning in April 2011 to 1.6% from 1.8%. The Japanese central bank projects a 0.3% fall in the core consumer price index (CPI) this fiscal year, compared with a 0.4% fall forecast in October. "Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing," the BOJ said in a statement. Spain orders banks to boost core-capital ratio In an effort to boost confidence in its banking sector, Spain ordered all listed banks in the country to increase their minimum core-capital ratio to 8% of risk-weighted assets by the autumn. Some unlisted firms may need to raise their buffers even further. The government also adjusted regulations to allow it partially to nationalise Spanish cajas, or savings banks, that are undercapitalised by taking equity stakes in them for up to five years. Separately, European finance chiefs breathed a sigh of relief as the first bond issued by the euro zone’s European Financial Stability Facility was well received by investors. The €5 billion ($6.8 billion) maturity attracted total bids in excess of €40 billion. Citigroup increases CEO Vikram Pandit's salary Citigroup CEO Vikram Pandit got a US$1,749,999 raise on Friday. According to reports, Pandit pledged in 2009 to receive an annual salary of US$1 until the struggling Citigroup returned to sustained profitability. The Citigroup board raised Vikram Pandit's salary to an annual base of US$1.75mn. The pay raise will be effective immediately, Citigroup's board said. Earlier in September, it said that it intended to raise his pay in 2011, without disclosing the amount. ICBC to buy 80% of Bank of East Asia, U.S. unit for US$140mn: report Industrial & Commercial Bank of China Ltd. has reportedly agreed to the first Chinese takeover of a U.S. retail bank. ICBC will buy 80% of Bank of East Asia Ltd.’s U.S. unit for US$140mn. Both banks are seeking regulatory approval in the U.S. and China for the transaction, according to reports. With this acquisition ICBC will get 10 branches in California and three in New York as a platform for growth in the U.S. The deal was one of as many as 60 signed between Chinese and U.S. companies during Hu’s visit as he met with executives from both nations to promote closer economic relations.

Weekly Industry Newsletter

9 of 93

Domestic News - February 2011 Fitch Ratings' outlook on Indian banks remains Stable in 2011 Fitch's Outlook on Long-term ratings for Indian banks remains Stable in 2011, after a negative bias in 2009 following the credit crisis. The Stable Outlook reflects easing asset quality concerns, together with an improving loan loss reserves position and expectations of further infusions of common equity by the government. India's strong growth environment and improved corporate credit profiles are likely to ease asset quality concerns for a large part of banks' loan portfolios, although a few vulnerable sectors, including commercial real estate, may see rising delinquencies. The Reserve Bank of India's requirement to raise specific loan loss provisions to 70% on incremental NPLs should also strengthen the banks' historically low reserves position. This will be timely, given the challenges of managing asset quality through a rising interest rate regime, together with the impact of any sharp corrections in property or equity prices. Read More… ICICI Group announces management changes The Board of Directors of ICICI Securities Limited (ICICI Securities) has appointed Anup Bagchi, Executive Director, ICICI Securities, as Managing Director & CEO effective May 1, 2011. Madhabi Puri-Buch, presently Managing Director & CEO, ICICI Securities will move to ICICI Bank effective May 1, 2011 and proceed on a sabbatical for personal reasons, to join her husband who is based overseas. Chanda Kochhar, Managing Director & CEO, ICICI Bank and Chairperson, ICICI Securities, said "Madhabi has been a member of our team for over 17 years, and has played a key role in many of our businesses and initiatives, from building ICICI as a retail brand to leading ICICI Securities. While she remains a valued member of our leadership team, we respect her decision to accord priority to her family and wish her all the very best. Anup has spent his whole career with the ICICI Group and has deep experience in capital markets and retail financial services. I am sure he will take ICICI Securities to even greater heights". Madhabi Puri-Buch said "I am touched by the ICICI Group's support and empathy for my personal priorities. I am glad that I will be able to give time to my family, while remaining a part of the ICICI Group. I look forward to continuing to contribute to the Group in the coming years”. The Board of Directors of ICICI Lombard General Insurance Company (ICICI General) has appointed Alok Agarwal and Neelesh Garg as Executive Directors. Agarwal and Garg have long experience in the ICICI Group and have been with ICICI General for several years, playing a key role in the company's corporate and retail businesses respectively. Bank of India raises US$750mn via Reg-S bonds Bank of India has reportedly raised US$750mn by issuing Reg-S international dual tranche bonds to support overseas operations. According to reports, the issue includes bonds worth US$500mn and US$250mn maturing in 2021 and 2015, respectively. This is part of its overall US$2bn medium-term note (MTN) programme launched in 2005. Of this, it has already raised US$1bn.Alok Misra, Chairman and Managing Director was quoted as the issuance will enable us to provide liquidity for our existing bonds and also fund long-term assets. The money will be used to fund the banks international business. Corporation Bank hikes base rate by 50bps Corporation Bank has revised its Benchmark Prime Lending Rate (COBAR) from 13.25% p.a. to 13.60% p.a. with effect from February 14, 2011 and the Base Rate for lending from 8.90% p.a. to 9,40% p.a. with effect from February 14, 2011. Goodbye to high returns at SKS The glory days are over for micro lenders in India. Nowhere is it clearer than the December quarter results of SKS Microfinance Ltd. The company reported

Weekly Industry Newsletter

10 of 93

a third quarter profit of Rs38.15 crore, down 38% from a year ago, as it had to increase provisioning some six-and-a-half times. More than a quarter of its Rs5,000 crore loans are given to customers in Andhra Pradesh, which passed an act to stop micro lenders collecting dues from a weekly basis to once a month and seek state approval for fresh advances. As a result, SKS' collection rates have declined to 43.6% in Andhra compared with at least 95% in other states. The lender had to spend Rs58.74 crore in provisioning just for its Andhra Pradesh portfolio. What's more, its loan book has shrunk by 7.5% from the September quarter, adding to woes. True, the company has pre-emptively provided Rs27 crore provisioning based on the recommendations of the Malegam committee on the microfinance sector, which are yet to become law. But even adjusting for that, its profit growth would have come in at just 10%. That's a 36% decline sequentially and a far cry from the threefold jump in net profit seen in the past. In the December 2009 quarter, SKS has returned a yield of 6.5% on its average asset books and had return on equity (RoE) rates of close to 23%. But in the third quarter of the current fiscal, its return on average assets declined to 2.4% and RoE to 7.5%. These are signs of things to come. Read More… RBI asks NBFCs to lift CAR to 15% Reserve Bank of India (RBI) directed deposit-taking non-banking finance companies (NBFCs) to raise their capital adequacy ratio (CAR) to at least 15%t from March 2012. The step would enable the RBI to “regulate the credit system to the advantage of the country”. The central bank, however, did not give any reason for increase in CAR. At present, the CAR of deposit taking NBFCs is minimum 12% of their risk weighted assets. CAR is the ratio of capital (comprising equity, free reserves and long-tenure debt) to risk-weighted assets. The new rule, laid down by the RBI, will apply to large NBFCs such as Mahindra Finance, Shriram Transport Finance and Sundaram Finance, among others. Large finance firms which do not raise public deposits but are considered to be systematically important by the central bank, were asked to step up their CAR to 15% by March 2011 while the same was not applied for deposit-taking NBFCs. RBI warns against fake prize money offers The Reserve Bank once again issued an advisory cautioning the members of public against responding in any manner to offers of moneys from abroad. It has stated that such offers are fraudulent and has advised the public to immediately register a complaint with the local police/ cyber crime authorities when they receive such offers or become a victim of any such fraud. Members of public have also been cautioned against making any remittance towards participation in such schemes/offers from unknown entities since such remittances are illegal and any resident in India collecting and effecting/remitting such payments directly/indirectly outside India is liable to be proceeded against for contravention of the Foreign Exchange Management Act, 1999. They are also liable for violation of regulations relating to Know Your Customer (KYC) norms/Anti Money Laundering (AML) standards. The Reserve Bank has further stated that it does not undertake any type of money arrangement, by whatever name called, and it does not take any responsibility for recovering moneys remitted in response to such bogus communication. The Reserve Bank has stated that it has urged the Indian Banks’ Association and banks to educate their customers to be extra vigilant with regard to such fictitious offers. Banks have also been advised to take up with law enforcing agencies whenever accounts of their customers are misused for such fraudulent activities. Read More… RBI releases Minutes of TAC on Monetary Policy The Reserve Bank of India released, for the first time, the minutes of the meeting of the Technical Advisory Committee (TAC) on Monetary Policy held on January 19, 2011 in the run up to the Third Quarter Review of the Monetary Policy announced on January 25, 2011. This follows the decision of

Weekly Industry Newsletter

11 of 93

placing in public domain, the main points of discussion at the TAC with a lag of roughly four weeks after the meeting of the Committee. The Reserve Bank of India constituted a Technical Advisory Committee (TAC) on Monetary Policy in July 2005 with a view to further strengthening the consultative process in monetary policy formulation, with external experts in the areas of monetary economics, central banking, financial markets and public finance. The Committee was last reconstituted in July 2009. The role of the Committee is advisory in nature. While the Reserve Bank takes into account the advice of the Committee, its final decision is in no way constrained by the views of the Committee. The Reserve Bank alone is responsible and accountable for policy actions and the time paths for decision-making. Read More… SBI bonds receive strong response State Bank of India's (SBI) Rs. 20bn bonds were subscribed more than 4 times on the fourth day of the issue. SBI received subscriptions of around Rs. 90bn for the bond issue, of which retail investor demand is worth about Rs. 38.97bn, according to reports. SBI Chairman O.P. Bhatt said that he expects total subscriptions to touch Rs. 100bn by February 28, when the issue closes. "We have decided to come out with one such issue every quarter. We will increase the branches from next quarter onwards," he had said. Available in two options, Series 3 bonds have a tenor of 10 years with a call option by SBI after five years and a coupon rate of 9.75 per cent per annum for retail and 9.30 per cent for non-retail applicants. The other, Series 4 bonds have a tenor of 15 years and a coupon rate of 9.95 per cent for retail and 9.45 per cent for non-retail investors. Bhatt said he "regrets" that a majority of investors were unable to access the issue as the branches selling the issue need to have demat facility. "We have decided to come out with one such issue every quarter. We will increase the branches from next quarter onwards," he said. The SBI bond issue opened on February 7. The bank has decided to accept oversubscription from retail investors up to Rs. 100bn. Govt to infuse fresh capital into public sector banks The Government decided to infuse Rs. 12.48bn into two public sector banks UCO Bank and United Bank of India as part of recapitalisation effort to shore up equity capital. United Bank of India said that the Government plans an equity infusion of Rs. 3.08bn through a preferential allotment. UCO Bank said that the Government plans to invest Rs. 9.4bn as Tier I capital through a preferential allotment of equity. Bank of Maharashtra said that the Union Ministry of Finance has decided to infuse Rs. 3.52bn in the bank by way of a preferential allotment of equity shares in favour of the Government of India. Dena Bank Ltd. said that it was in receipt of a communication from the Ministry of Finance, conveying its decision to infuse Rs. 5.39bn into the bank by way of a preferential allotment of equity shares in favour of the Government of India. Vijaya Bank Ltd. said that its Board of Directors will meet on February 22, inter alia, to consider a preferential allotment of equity shares, aggregating to Rs. 3.68bn to the Government of India. Beside, Allahabad Bank, Andhra Bank and Indian Overseas Bank will have their Board meetings to consider preferential allotment of equity shares to the Government of India. Finance Minister Pranab Mukherjee had announced capital infusion of Rs. 150bn into public sector banks during the current fiscal year to ensure that these entities are able to attain a minimum 8% Tier-I capital by March 31, 2011. As part of recapitalisation, the Government had infused Rs. 62.11bn into five banks. The banks, which received capital from the Government in the first tranche included Union Bank of India, Bank of Maharashtra, IDBI Bank, UCO Bank and Central Bank India. The Government also approved additional capital infusion of Rs. 60bn into 10 public sector banks with an objective to raise its holding to a minimum 58% in all state-run banks.

Weekly Industry Newsletter

12 of 93

International News - February 2011 ECB keeps rates steady...Trichet softens stance on inflation The European Central Bank (ECB) left its key interest rate unchanged at a record-low of 1%, a move which was widely anticipated. ECB President Jean-Claude Trichet said that inflation risks remain broadly balanced, but could move to the upside. Trichet and the ECB governing council are inching toward a rate hike later this year, but at a slower pace than the market expected. Trichet was expected to maintain his anti-inflation rhetoric during his monthly press conference. The market had already priced in two interest-rate hikes by the European Central Bank by August. Trichet said the ECB will continue to closely watch price developments, and indicated that the central bank believes the recent spike in inflation is temporary, driven by rising commodity prices. The ECB still expects price pressures to remain in line with its definition of price stability over the medium term. “We might have a hump [in the inflation rate] from time to time ... what counts is that we deliver in the medium term,” Trichet said. Reserve Bank of Australia leaves cash rate unchanged at 4.75% The Board decided to leave the cash rate unchanged at 4.75%. Global output grew strongly in 2010, notwithstanding the relatively subdued performance of several of the major economies. The Chinese and Indian economies in particular have recorded very strong expansions, and price pressures, particularly for food and raw materials, have picked up. Read More… Dominique Strauss-Kahn calls for strengthening of International Monetary System Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), warned that lack of action to reform the international monetary system could sow the seeds of the next crisis, and he called for renewed international cooperation for a better and stronger global recovery.“Global imbalances are back, and issues that worried us before the crisis—large and volatile capital flows, exchange rate pressures, rapidly growing excess reserves—are on the front burner once again,” Mr. Strauss-Kahn said during a panel discussion on the international monetary system held at the IMF in Washington, DC. He said that “reforms to the international monetary system could both bolster the recovery and strengthen the system’s ability to prevent future crises.” Just as cooperation helped pull the global economy out of the crisis, Mr. Strauss-Kahn said further cooperation can now lay the foundations for more stable global growth. He pointed to the G-20’s Mutual Assessment Process (MAP)—as as an important first step toward creating more permanent frameworks for global policy cooperation—and to the IMF’s Financial Sector Assessment Programs and new reports on the spillover effects of countries’ policies on one another, as measures in train to strengthen surveillance. Countries’ policy responses to inflows of capital have an impact on other countries, Mr. Strauss-Kahn noted. He said that the Fund is looking at these issues including whether there was a need for globally agreed “rules of the road” for managing capital flows. The global financial safety net has been strengthened in the wake of the crisis. Mr. Strauss-Kahn noted, for example, the introduction of the Flexible Credit Line and Precautionary Credit Line by the IMF. Another avenue worth exploring, he said, is how to “strengthen partnerships with regional financing arrangements.” Read More… China hikes reserve ratio for banks by 50bps The Chinese central bank announced yet another increase in the reserve requirement ratio for the local lenders as part of its persistent effort to rein in spiraling prices in a fast-growing economy. The People's Bank of China (PNOC) hiked the reserve ratio for banks by 50 basis points, according to media reports. The adjustment will bring the official reserve requirement

Weekly Industry Newsletter

13 of 93

ratio for big banks to 19.5% effective Feb. 24., according to reports. Earlier today, the Chinese shares closed in the red, falling for the first time in seven days, as investors dumped cement and auto shares amid lingering concerns about further monetary tightening measures. The Shanghai Composite index lost 27 points, or 0.9% to close at 2,900 after a report in the state-run China Securities journal said that the central bank may hike the reserve requirement ratio for banks in the near term. Moody's puts Australia's big four banks on review Moody's Investors Service said it had placed Australia's four leading banks on a review for a possible downgrade, saying that access to overseas markets for funding will be significantly restrained. The global credit rating agency reiterated its negative outlook on these banks, warning that the proportion of wholesale funding the lenders raised in offshore markets remains high in relation to their size. "The review will focus on the Australian banking system's structural sensitivity to conditions in the wholesale funding market," said Patrick Winsbury, a senior vice president based in Moody's Sydney office. Moody’s said that funds from capital markets account on average for 43% of the lenders’ liabilities, making them vulnerable to shifts in investor confidence. Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Banking Corp. were relegated to negative watch with a Aa1 rating in March 2009. National Australia Bank had been placed on negative watch in 2008. The Australian and New Zealand currencies pared gains after the announcement. Read More… ADB board approves US$1 bn financial support facility in Vietnam The Asian Development Bank's (ADB's) Board of Directors has approved a US$1 bn financial support facility that will help improve clean water access for three million families in Viet Nam, including half a million poor households who will receive their own piped water connection for the first time. The assistance is part of a nearly US$2.8 bn investment program involving ADB, the Government of Viet Nam, development partners and water company financiers. The program will help water companies improve and expand clean water supply in some of Viet Nam's largest cities through the installation of new pipelines and the repair and extension of existing networks. In addition to infrastructure improvements, the program will enhance the operational management and commercial viability of water companies. At present, four in every ten families living in Viet Nam's largest cities are not connected to a central water supply system, and only one in three towns have any form of piped water supply. Many piped water systems in urban areas urgently need upgrades, with as much as 30% to 40% of water lost before it reaches the end consumer, due foremost to leaky pipes. Water loss contributes to intermittent service from low pressure. Read More… Qatar 'very open' to buying up shares in Royal Bank or Lloyds: report QATAR will reportedly consider taking stakes in Royal Bank of Scotland and Lloyds Banking Group when the Government decides to try to recoup some of UK taxpayers’ investment in the lenders. The Qatar Prime Minister, Sheikh Hamad bin Jassim bin Jabr al-Thani said that “We are very open to any investment in the UK and we have discussed some.” The Sheikh appeared with Prime Minister David Cameron, who is on a trade visit to the Middle East. The visit might include canvassing potential buyers of some of the 83% holding in Royal Bank and the 41% stake in Lloyds Banking group that the Government acquired after providing bailouts for both lenders, adds report. Executives from both groups are reported to have made regular trips to Asia to try to drum up interest in their shares among sovereign wealth funds. Hinting that Qatar would be ready to listen when the Government decides to seek buyers for shares in the banks, Sheikh Hamad was quoted as saying that “We are capable of being engaged and will continue to be engaged in discussions", a said a financial daily.

Weekly Industry Newsletter

14 of 93

Deutsche Bank gets six-month ban in Korea on Derivatives: report Deutsche Bank will reportedly be banned from trading shares and derivatives for its own account in the country for six months, the Financial Services Commission said. According to reports, the slump in the benchmark Kospi index during the last minutes of trading on Nov. 11 prompted regulators to limit the number of equity derivative contracts investors can hold. The penalty against the local unit comes amid heightened scrutiny globally of equity-market swings since a 20-minute drop in U.S. equities on May 6 briefly erased US$862 billion of market value.

Weekly Industry Newsletter

15 of 93

Domestic News - March 2011 RBI hikes repo rate, reverse repo rate by 25 bps The Reserve Bank of India (RBI) increased the repurchase rate (repo rate) and the reverse repurchase rate (reverse repo rate) by quarter percentage point each as part of a continuous effort to check stubbornly high inflation. The central bank hiked the repo rate to 6.75% from 6.50% while the reverse repo rate has been raised to 5.75% from 5.50%. The RBI left the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) unchanged at 6% and 24%, respectively. The March 2011 WPI inflation is now estimated to be higher at around 8%, the RBI said. In its Third Quarter Review on January 25, the RBI had projected year-on-year WPI inflation for March 2011 at 7%. However, further upside risks have stemmed from high international crude prices, their impact on freely priced petroleum products, the increase in administered coal prices and pick-up in non-food manufactured product prices, the central bank said today. The policy action in the Mid-Quarter Review is expected to continue to rein in demand-side inflationary pressures while minimising risks to growth, the Reserve Bank of India (RBI) said. Read More… …RBI's Mid-Quarter Monetary Policy Review ….RBI expects current account deficit at 2.5% of GDP ….RBI: policy will check demand-side inflationary pressures ….RBI affirms FY11 GDP estimate of 8.6% ….RBI raises year-end inflation target to 8% RBI permits IRF trading in 91-day T-bills The Reserve Bank of India (RBI) placed on its web site the amendment directions on Interest Rate Futures (IRFs) permitting trading of IRFs on 91-Day Treasury Bills. The 91-Day T-Bill Futures would have the following features: a) The contract shall be on 91-Day Treasury Bills issued by the Government of India; b) The contract shall be cash settled in Indian Rupees; and c) The final settlement price of the contract shall be based on the weighted average price/yield obtained in the weekly auction of the 91-Day Treasury Bills on the date of expiry of the contract. The amendment directions will come into effect immediately. It may be recalled that the Reserve Bank had, on August 28, 2009, issued directions covering the framework for trading of IRFs on recognised exchanges. RBI sets up panel to examine NBFC issues The Reserve Bank of India (RBI) said that it has constituted a Working Group under the Chairmanship of Usha Thorat, Director, Centre for Advanced Financial Research and Learning (CAFRAL) to examine a range of emerging issues pertaining to regulation of the NBFC (non-banking financial companies) sector. The NBFC sector in India has undergone a significant transformation in the

Weekly Industry Newsletter

16 of 93

past few years and has come to be recognised as a systemically important element of the financial system, the central bank said in a statement. The recent global financial crisis has also highlighted the regulatory imperatives concerning the non-banking financial sector and the risks arising from regulatory gaps, arbitrage and systemic inter-connectedness, it added. A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs keeping in view the economic role and heterogeneity of this sector and the recent international experience, the RBI said. Read More… Cabinet clears Banking Laws Amendment Bill The Government gave a green signal to the Banking Laws Amendment Bill that seeks to align the voting rights in banks in proportion with the equity shareholding. At present, the voting rights of a shareholder are limited to 1% in state-owned banks and 10% in private banks irrespective of the equity holding. According to reports, the Amendment Bill will now be tabled in Parliament for approval. The amendments, once approved by Parliament, will enhance the voting power of shareholders in line with the portion of equity held by them. During his budget speech, Finance Minister Pranab Mukherjee listed banking laws amendment legislation as one of the seven bills that Government proposed to take up to pursue financial sector reforms. “The financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. The UPA government is committed to take this process further,” Mukherjee said in his budget speech. Besides the Banking Laws Amendment Bill, the other important financial sector bills that Mukherjee proposed to pursue include Insurance Laws (Amendment) Bill, 2008, Life Insurance Corporation (Amendment) Bill, 2009 and revised Pension Fund Regulatory and Development Authority Bill, 2005. Govt presents Banking Amendment Bill in parliament The Government introduced a bill in the Lok Sabha, seeking to amend three banking laws, including the removal of restrictions on the voting rights of a bank's shareholders. Under existing rules, the voting rights of a shareholder are capped at 1% in nationalised banks and 10% in private banks, irrespective of the equity stake. The proposed Banking Laws (Amendment) Bill 2011 proposes aligning the voting rights in private banks in proportion to the shareholding and raise the ceiling in public sector banks from 1% to 10%. The proposed changes will also let state-run banks issue bonus shares and rights shares. The amendments also propose letting public sector banks raise their authorized capital beyond the current ceiling of Rs. 30bn. The bill, if cleared by Parliament, will let the RBI inspect banks' merger proposals. The proposed Bill also aims to empower the RBI to seek and scrutinise information from associate companies of banks - such as insurance or mutual fund units. …Banking Bill proposes to remove 10% cap on voting rights Central bank bars ARCs from converting debt into equity India's banking regulator has prohibited asset reconstruction companies (ARCs) from converting part of the stressed loans they buy from banks into equity, three people with direct knowledge of the development said. It is common practice for some ARCs to convert a small portion of so-called non-performing assets (NPAs) acquired from banks into equity. This equity can be sold in the market when the affected company turns around. A few months ago, the Reserve Bank of India (RBI) had written to the Asset Reconstruction Co. of India Ltd (Arcil), India's largest ARC, asking it to furnish details of such conversions of debt into equity. The regulator has told Arcil to refrain from such conversions till further notice, a person familiar with the matter said. He did not want to be identified since the regulator's note is not in the public domain. S. Khasnobis, Arcil's managing director and chief executive officer, confirmed that Arcil was not currently in a position to convert any debt into

Weekly Industry Newsletter

17 of 93

equity in assets it was trying to revive. Arcil holds stakes in the range of 8.5-10% in several companies whose debt it has bought from banks. Though the letter was addressed to Arcil, the directive is applicable to other companies as well. An email sent to RBI on Friday did not elicit any response. There are 13 ARCs operational in India. The oldest among them, Arcil, began operations in 2003 and continues to be the market leader. Read More… New draft of MFI Bill to give more teeth to RBI The proposed microfinance Bill for governing India's Rs. 22,000 crore microlending industry is set to give more teeth to the Reserve Bank of India (RBI) to regulate larger microfinance institutions (MFIs). This will be done by removing such entities from the purview of laws enacted by state governments such as the recent Andhra Pradesh Act. The Union government last week appointed a committee under financial services joint secretary K.V. Eapen to redraft the Bill factoring in the current realities in the microfinance industry and the recommendations of the Malegam panel, appointed by RBI. The panel had suggested the creation of a new category of non-banking financial company MFIs, or NBFC-MFIs. In keeping with the recommendations of the Malegam panel, the Bill will focus more on borrowers and strengthen the hands of RBI to regulate MFIs by way of clearly defining such institutions, according to two members of the panel. The earlier draft covered only non-NBFC MFIs incorporated as trusts and non-governmental organizations that constitute a very small part of the total industry. It also envisaged National Bank for Agriculture and Rural Development (Nabard) as the regulator for smaller MFIs. The proposed microfinance Bill assumes significance as it is expected to resolve the regulatory uncertainty in the ailing Indian microlending sector by providing a clear framework. Most banks have stopped giving fresh loans to MFIs due to this uncertainty. Top officials from RBI, Nabard and microfinance industry associations are members of the committee headed by Eapen. The committee is expected to submit the modified Bill to the government by the end of April and this will be tabled in Parliament in the monsoon session, according to members of the panel. Read More… OP Bhatt's stint as SBI chief ends O.P. Bhatt retired as the Chairman of the largest bank in the country. Under his leadership, the net profits of the bank increased to Rs. 11,734 crore as on March 2010. It was Rs. 5,530 crore in March 2006. During Bhatt's stint, both loan and deposit books of the bank experienced five fold growth. He aggressively pushed into the highly competitive home loan segment with a special scheme. Not only that, he also fought tooth and nail with the regulator to keep that scheme going. Bhatt reportedly said that the RBI has not understood SBI's special home loan product and none of the charges raised by the central bank on teaser loans apply to SBI's special home loans. SBI, therefore, not made any additional provisions. He further added that SBI had internally discussed the issue of savings rate deregulation and was not in favour of it as it would increase volatility and hurt state-owned banks. L&T Finance raises planned IPO size L&T Finance Holdings Ltd., a subsidiary of engineering and construction titan Larsen and Toubro (L&T) has raised the size of its planned IPO to Rs. 17.5bn (US$392mn). It is considering raising up to Rs. 4bn of this, through a pre-IPO share placement, it said. The Company has filed a fresh DRHP with markets regulator SEBI. It had filed a DRHP in September to raise up to US$333mn through the planned IPO, but was awaiting approval from the market watchdog. HSBC, Citigroup, JM Financial, Barclays Capital and Credit Suisse are the arrangers to the L&T Finance offer. Banks to extend working hours on March 30, 31: RBI The Reserve Bank of India (RBI) has asked banks to extend working hours on March 30 and 31, 2011, to facilitate receipt of government revenue from

Weekly Industry Newsletter

18 of 93

members of public even at late hours. In consultation Controller General of Accounts it has been decided that all regional offices of RBI and branches of agency banks conducting government business will suitably extend the banking hours to conduct government business by keeping their counters open for the purpose on March 30 and 31, 2011, RBI said. It will help in accounting of all the government transactions of the current financial year (2010-11) by March 31, 2011, RBI said.

Weekly Industry Newsletter

19 of 93

International News - March 2011 ECB chief Trichet hints at rate hike next month The European Central Bank (ECB) President Jean-Claude Trichet took most economists and markets by surprise when he hinted that he may opt for a rate hike in the central bank's policy meeting next month to contain spiraling inflation. At his monthly news conference in Frankfurt, Trichet said a move at the central bank’s next meeting was possible, but not a certainty. The 23-member Governing Council never commits to a rate move ahead of time, he said, adding that a decision will depend on incoming data. Trichet also said that the ECB's decision to leave rates unchanged on Thursday was "unanimous." He added that any subsequent move to hike interest rates would "certainly not" be the start of a "series" of increases in borrowing costs. Trichet warned that “strong vigilance” was required in order to contain upside risks to price stability. The use of the phrase “strong vigilance” was interpreted by most experts as an indication that a rate hike is coming. Trichet also omitted language seen in recent ECB statements describing current interest rates as “appropriate,” which had been taken to mean that rates will remain on hold. He also said the central bank would continue to fully meet demand for loans from commercial banks across the euro zone over the next three months. Rajat Gupta charged with insider trading charges The Securities and Exchange Commission slapped a civil charge of insider trading against Rajat Gupta, one of America’s best-known management consultants. Among other things the SEC alleges that Gupta tipped off Galleon, a hedge-fund management firm, about a US$5bn investment that Warren Buffett made in Goldman Sachs in 2008. The SEC also accused Gupta of giving . Rajaratnam confidential information about Procter & Gamble Co. Gupta served as a board member in Goldman and P&G. Galleon is alleged to have reaped US$18m as a result of various information it received from Gupta. A former head of McKinsey, Gupta advises the UN on management reform. Gupta called the charges baseless. Goldman Sachs CEO Lloyd Blankfein agreed to testify for the US government at the upcoming trial of Galleon founder Raj Rajaratnam. Prosecutors have charged Sri Lanka-born Rajaratnam with 14 counts of securities fraud and conspiracy in the biggest insider trading case. The criminal trial of 56-year old Rajaratnam is scheduled to start on March 8 in a Manhattan federal court. The investigation has led to guilty pleas from 19 of 26 defendants. Gupta, who had previously left Goldman, stepped down from P&G's board on March 1. His lawyer has said Gupta did nothing wrong. Brazil hikes key interest rate to 11.75 percent The central bank of Brazil has raised the benchmark Selic rate to 11.75%, up 50 basis points. It is the second straight increase in the rate. It was last hiked in January. Brazil's 12-month inflation rate is hovering around 6%, well above the government's target of 4.5%. Bank of Korea raises rates by 25 bps...2nd time in 2011 South Korea's central bank lifted its benchmark interest rate by a quarter percentage point on Thursday as it extends monetary tightening efforts to keep a check on consumer inflation. Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3% from 2.75%, the Bank of Korea said in a statement in Seoul today. The decision was predicted by most economists. The latest move by the Bank of Korea was the second this year, and follows a pause in February. The Bank of Korea said in its statement today that the South Korean economy appears supported by robust exports and healthy facilities investment, though it noted risks to the economic

Weekly Industry Newsletter

20 of 93

outlook were mounting in the form of higher crude oil prices and eurozone sovereign debt concerns. Most economists had expected the central bank to boost rates after data showed that consumer prices rose 4.5% in February from a year earlier, picking up from a 4.1% rise in January. Read More… Yunus moves apex court to challenge his ouster from Grameen A court in Bangladesh ruled that the country's central bank did have the authority to force Muhammad Yunus to resign as managing director of Grameen, a micro lender he founded. Grameen said it was "very disappointed". Yunus insisted the move was political and lodged an appeal. The Nobel laureate appealed against the high court order. The supreme court said that it would hear the appeal on March 15.Yunus, 70, had been removed as head of the bank on the grounds that he stayed on past legal retirement age of 60. There was no explanation why the removal came now and not 10 years ago. Yunus has been under attack by the government since late last year, after a Norwegian documentary alleged the bank was dodging taxes. Yunus has denied any financial irregularities and the Norwegian government found no evidence of corruption. BOJ pumps additional US$245bn into markets The Bank of Japan (BOJ) injected another 20 trillion yen (US$245bn) into the money markets in a continuous effort to keep the markets calm in the aftermath of last Friday's powerful earthquake and Tsunami. The move is aimed at ensuring liquidity in the banking system to meet any sudden spurt in demand for funds from companies and households. The latest round of cash infusion from the BOJ today came after yet another explosion and fire at Japan's severely damaged Fukushima nuclear complex. The blast occurred at reactor No. 2. Elevated radiation levels were reported in Tokyo as southerly winds carried the radioactive plume from Japan's eastern coast towards urban areas. Nikkei stock futures traded in Osaka tumbled more than 16% at one point today after Japanese Prime Minister Naoto Kan said that radiation levels had become high around the damaged nuclear power plant. On Monday, the Japanese central bank had doubled its bond purchase plan to 10 trillion yen as it moved to improve the sentiment in the financial markets. Read More… Moody's downgrades Portugal's debt rating Moody's Investors Service downgraded Portugal's long-term government bond ratings by two levels to "A3" from "A1", citing subdued growth prospects and high government borrowing costs. The country will continue to face low growth and funding pressure for years, even if it taps the European Union's bailout fund, the global credit rating agency said. Moody's has assigned a negative outlook to Portugal's ratings - meaning further downgrades are possible. "Accessing the European Financial Stability Facility may lead to a reduction in financing costs, but questions would remain as to when the government would be able to re-access the capital markets and on what terms," Moody's said. The rating is now four levels into investment-grade territory. Moody's also cut Portuguese short-term debt to Prime-2 from Prime. According to central bank forecasts, the economy will contract by 1.3% this year, pushing Portugal into its second recession in three years. China raises bank reserve ratio by 50 bps China's central bank hiked the banks' reserve requirement ratio by another quarter percentage point as it continues to take measures to check spiraling inflation in a fast-expanding economy. The latest 0.5% hike in the RRR marked the third such tightening by the People's Bank of China (PBOC) this year after inflation and industrial output exceeded forecasts in February. The nation's biggest banks must set aside 20% of deposits as reserves with the PBOC from March 25, according to the Chinese central bank. Before this move, reserve ratios stood at 19.5% for the nation’s biggest banks.

Weekly Industry Newsletter

21 of 93

Citigroup Inc. announces 1-for-10 reverse stock split Citigroup Inc. announced a 1-for-10 reverse stock split of Citigroup common stock. Citi also announced that it intends to reinstate a quarterly dividend of $0.01 per common share in the second quarter of 2011, following the effective date of the reverse stock split. "Citi is a fundamentally different company than it was three years ago," said Vikram Pandit, Chief Executive Officer of Citigroup. "The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year." Read More… Ireland to restructure banking sector Shares of Bank of Ireland rallied while those of Allied Irish Banks dropped, as investors digested news that the Irish banking sector will be radically restructured by the government. Shares of Irish Life and Permanent Group tumbled in Dublin after the Irish government said that it will reduce the number of domestic lenders by creating two new universal banks. The first bank will be created from Bank of Ireland, while Allied Irish Banks and the EBS Building Society will be combined to form the second bank. Irish Life & Permanent will go through a significant restructuring, involving "in all likelihood" a majority stake held by the government. Ireland’s finance minister announced a radical restructuring of the domestic banking sector, after stress tests showed that four lenders need to raise about US$34bn in new capital to meet liquidity requirements.

Weekly Industry Newsletter

22 of 93

Domestic News - April 2011 RBI moots deregulation of savings rate Interest rates on your savings bank account may earn more for you if the Reserve Bank of India (RBI) has its way. The central bank has floated a discussion paper on the deregulation of the savings rate saying that it will help in the transmission of the monetary policy. It said that savers would benefit from deregulation as rates are likely to rise. The central bank pointed out that real interest rates - interest rates adjusted for inflation - have been largely negative for savings account holders. Deregulation would essentially give banks the freedom to set interest rates on savings accounts. Banks will have to revise savings rates according to the policy rates set by the RBI. At present, savings bank accounts earn a fixed 3.5% interest rate. But, the extent to which deregulation will benefit small depositors is not yet clear. Large banks like SBI and HDFC Bank are against the apex bank's move. former RBI governor Y V Reddy was strongly opposed to savings rate deregulation. While the RBI deregulated interest rates on fixed deposit schemes in 1997, it continues to fix the rate on savings deposits. RBI unveils discussion paper on deregulation of savings rate RBI imposes penalty on 19 commercial banks The Reserve Bank of India has imposed penalties on 19 commercial banks, as detailed below, in exercise of the powers vested with it under the provisions of Section 47A(1)(b) read with Section 46(4)(i) of the Banking Regulation Act, 1949. The penalties have been imposed on these banks for contravention of various instructions issued by the Reserve Bank in respect of derivatives, such as, failure to carry out due diligence in regard to suitability of products, selling derivative products to users not having risk management policies and not verifying the underlying/ adequacy of underlying and eligible limits under past performance route. The Reserve Bank had issued show cause notices to these banks. In response to this, the banks submitted their written replies. On a careful examination of the banks' written replies and the oral submissions made during the personal hearings, the Reserve Bank found that the violations were established and the penalties were thus imposed. Standard Chartered PE invests Rs. 1,100 mn in Bush Foods Overseas Standard Chartered Private Equity (“SCPE”) has invested Rs. 1,100 Million (approximately US $ 25 Million) in Bush Foods Overseas Private Limited (“BFL”), one of India’s leading Basmati rice companies. The funding will part finance the expansion of Bush Foods’s state of art fully automated manufacturing and processing facilities in Sonepat, Haryana and also support the company’s long term working capital requirements. Read More… Development Credit Bank to raise Rs3bn Development Credit Bank Ltd said that pursuant to the authority given by the Board of Directors of the Bank, the Capital Raising Committee of the Board has approved to raise an amount not exceeding Rs.3bn (including Rs. 150 crore which has been authorised by the shareholders at fifteenth AGM held on June 01, 2010 and could not be raised till date) through issue of further shares including under QIP, subject to securing appropriate regulatory and other approvals, as applicable. Two banks reduce deposit rates despite high inflation Deposit rates were on the rise in the last few months, but they are unlikely to move any further. At least two state-run banks have revised deposit rates. "Deposits rates have certainly peaked and as far as lending rates are concerned it would depend upon the Reserve Bank of India's (RBI) policy stance," says S.C. Sinha, executive director, Oriental Bank of Commerce (OBC). Interest rates on certificate of deposits (CDs), too, have declined.

Weekly Industry Newsletter

23 of 93

Interest rates on CDs of three months have fallen by close to 200 basis points (bps) and is now in the range of 8-8.50%. One basis point is one-hundredth of a percentage point. Central Bank of India has reduced interest rates on various maturity periods, most of them less than a year, by 25-100 bps. The bank has reduced interest rate by 100 bps on fixed deposits maturing between 91 days and 179 days. With the latest revision, the peak rate offered by the bank now stands at 9.25% compared with 9.60% offered earlier for a maturity of 555 days. Education loan norms to be reworked to cut bad debt Millions of students seeking bank loans for higher studies and professional courses may soon get more time to repay after finding a job, but those who don't have sufficient academic credentials and are getting admission through other means such as donation and "quotas" may find it tough to get money from banks. Concerned over a rise in default rates in loans given to students, Indian banks are reworking the existing norms to give such advances. The Indian Banks' Association (IBA), the industry lobby of lenders, has constituted an expert committee under Indian Bank chairman and managing director T.M. Bhasin to modify the so-called education loan scheme. This scheme was launched in 2001-02 by then finance minister Yashwant Sinha in a budget announcement. It was later modified in 2004-05, when P. Chidambaram was the finance minister. "Since banks are not allowed to ask security for loans (of) up to '4 lakh under the current scheme, there is a problem in the business. Some of the students are not getting jobs. What we, therefore, intend to do is track students' progress. There is some extension required (for repayment)," Bhasin said. The committee, which is expected to submit its report by the end of this month, is planning to make some sort of security mandatory for loans given to those students who are securing admissions not by merit, but through recommendations or hefty donations. Read More… ASSOCHAM calls for deregulating saving bank interest rates To induce competition and benefit a large number of savings account holders. ASSOCHAM has mooted a proposal to the central bank for deregulating saving bank interest rates. As the country pursues high growth strategy while braving pains of high inflation, a large savings community is currently facing severe negative returns from bank deposits. In an open and transparent system, it is discomforting for the banks to derive benefit for prosperous corporates and be an organised class for further shifting away wealth from the majority of savings community, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM). The Reserve Bank of India (RBI) recently advised banks to reduce the cost of intermediation by increasing deposit rates and reducing lending rates. This could be a major corporate social responsibility initiative by banks, said the chamber. A substantial portion of Rs. 53 lakh crore worth of deposits with Indian banks are in saving accounts. At the same time, bank advances total Rs. 41 lakh crore, showing a deposit-credit ratio of 73 per cent. Corporates and banks can afford to absorb a part of this to improve the return for this set of depositors, it said. IndusInd agrees to buy Deutsche Bank's credit card biz Under the agreement, IndusInd Bank will get access to close to 200,000 card customers and the entire operating platform of the cards franchise including talent and technology," IndusInd said in a press release. IndusInd, which is founded by the Hinduja Group does not have a credit card business and it is expected that the bank will launch it this financial year with the help of this acquisition. "We are happy to have come to an agreement with Deutsche Bank on acquiring this business. This will accelerate the launch of credit cards which we consider a critical link in our suite of consumer banking products,"

Weekly Industry Newsletter

24 of 93

said Romesh Sobti, managing director and chief executive officer, IndusInd Bank. Read More…

Weekly Industry Newsletter

25 of 93

International News - April 2011 BOJ leaves rates steady...Unveils special lending facility The Bank of Japan (BOJ) left its key policy rates unchanged while announcing a special lending window for financial institutions in areas hit by the March 11 earthquake and tsunami. The Japanese central bank also lowered its assessment of the economy after last month's triple disasters cut power supplies and forced manufacturers to slash output. The BOJ policy board unanimously voted to keep its overnight call rate range from zero to 0.1%. The BOJ said it plans to lend a total of 1 trillion yen (US$12.3bn) in one-year loans at 0.1%, and added that it would broaden the range of eligible collateral for its money-market operations, with a view to securing sufficient financing capacity of financial institutions. The Japanese central bank downgraded its broad economic outlook saying that the world's third-biggest economy was under strong downward pressure, mainly on the production side. But the BOJ said that the economy is expected to return to a moderate recovery path, backed by an increase in exports reflecting the improvement in overseas economic conditions. ECB hikes rates by 25 bps to check inflation As expected, the European Central Bank (ECB) increased its benchmark interest rate by a quarter percentage point, its first such move in three years, as it looks to control inflation. The Frankfurt-based ECB, which sets monetary policy for the 17-nation eurozone, raised its refinance rate to 1.25% from 1%. ECB President Jean-Claude Trichet’s will address his monthly news conference in a short while from now. Markets and economists had forecast a rate hike since Trichet last month said that the ECB Governing Council would watch inflation with strong vigilance. Market interest rates have already moved higher in anticipation of a rate move. BOE leaves rates steady The Bank of England (BOE) left benchmark interest rates unchanged at record low as the British central bank's policymakers continue to debate available options. The Monetary Policy Committee, led by Governor Mervyn King, kept the key rate steady at 0.5% for a 26th month. Most economists had anticipated the move. The BOE also left its bond-purchase program at £200bn (US$327bn), as predicted by most economists. The latest BOE monetary policy decision comes at a time when UK's inflation has soared to more than twice the central bank’s 2% target. While a few MPC members have been voting in favour of monetary tightening, the others are still unsure whether the ongoing economic recovery can withstand deep budget cuts. Moody's downgrades Ireland by two notches Moody's Investors Service cut its rating on Irish government bonds by two notches to Baa3 from Baa1 and said that the outlook on the ratings remains negative. The rating agency said that the main drivers for the downgrade are the further weakening of the Irish government's financial strength and the uncertainty created by the solvency test required by the European Stabilization Mechanism, which is required for the provision of future liquidity support. Moody's said that the ongoing austerity package in Ireland is weakening domestic demand and that the government's financial strength may suffer due to what may be the first in a series of policy rate increases by the European Central Bank (ECB). Goldman Sachs under fire from Senate panel Shares of Goldman Sachs tumbled after a Congressional report raised investor fears of more regulatory scrutiny on the company. On Wednesday evening, the Senate Permanent Subcommittee on Investigations released a long-awaited report on the financial crisis. The report prominently featured activities of Goldman Sachs in 2007 as the credit crisis intensified. Senator Carl Levin, a Democrat from Michigan who heads the subcommittee,

Weekly Industry Newsletter

26 of 93

suggested that the company may face additional scrutiny from the Department of Justice or the US Securities and Exchange Commission (SEC). He accused Goldman employees of exploiting clients and lying to Congress during testimony last year. A Goldman Sachs spokesman said, "While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee." Fed leaves rates steady…To end QE2 in June As anticipated, the Federal Reserve chose to keep the benchmark interest rates unchanged at record low while reiterating its pledge to end the so-called “QE2” in June. The decision to leave rates unchanged was a unanimous one. The Fed policymakers reaffirmed their commitment to maintain borrowing costs at exceptionally low level for the extended period of time to sustain the ongoing recovery. At the end of its two-day policy meeting, the FOMC said that the US economy is growing at a moderate pace and that the labour market is improving gradually. However, it did raise some concern on the comatose housing market, which it termed as “depressed”. The FOMC said that the recent spike in commodity prices will have a “transitory” effect on inflation. “But longer-term inflation expectations have remained stable,” it added. The Fed policymakers said they will pay close attention to the evolution of inflation and inflation expectations. On the monetary stimulus, the FOMC decided to continue expanding its holdings of securities as announced in November. So, it will reinvest principal payments from its securities holdings even as it completes purchases of US$600bn of longer-term Treasury debt by the end of June. Bernanke rules out QE3…To keep balance sheet steady Fed cuts US growth forecast, ups inflation view Dollar slips as Fed keeps stimulus...Gold, crude gain S&P cuts outlook on Japan debt to 'Negative' Standard & Poor's (S&P) said that it had cut its outlook on Japan's sovereign debt rating to "negative" from "stable", besides also warning of a possible downgrade if fiscal deterioration exceeds its estimates. The global credit rating agency said that it expects costs related to the March 11 triple disasters to increase Japan's fiscal deficit above prior estimates of a cumulative 3.7% of GDP through 2013. "Still, Japan's sovereign ratings are supported at the 'AA-' level by the country's ample net external asset position, relatively strong financial system, and diversified economy," S&P said in a statement. Japan's financial system appears sound as well, it added. “The negative outlook indicates that if fiscal rebuilding measures to put a stop to the fiscal worsening aren’t introduced, and if the fiscal situation worsens more than S&P expects, there’s a possibility of a downgrade within two years,” S&P said. S&P also said that it will be difficult for Japan to achieve economic growth rates much higher than 1% in the medium term because of deflation and the aging population. S&P had reduced the rating by one step in January in the first cut since 2002. The fiscal outlook will depend on political leadership to manage Japan’s debt challenge, S&P said. S&P predicted that rebuilding will cost 20 trillion yen ($245 billion) to 50 trillion yen. China regulator hikes CAR for top 5 banks China's banking regulator has reportedly increased the capital adequacy ratio (CAR) for the nation's top five lenders above the minimum 11.5% on concern that credit risks may rise. The report said that the regulator has asked Agricultural Bank of China Ltd. to target a CAR of 11.7%. The CAR target for the other four banks - Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Bank of Communications Co. - has been set at 11.8%, the report said. The China Banking Regulatory

Weekly Industry Newsletter

27 of 93

Commission has set differentiated targets and triggers on the five banks’ capital levels, with the target for all the banks’ capital adequacy ratios being no lower than the 11.5% minimum, according to reports. The move is seen to be a part of ongoing efforts by the Chinese policymakers to curtail rapid lending and rein in spiraling inflation in a fast-growing economy. The five banks control about half of the nation’s banking assets.

Weekly Industry Newsletter

28 of 93

Domestic News - May 2011 RBI hikes repo rate by 50 bps to tame inflation beast The Reserve Bank of India (RBI) increased the repurchase rate (repo rate) by 50 basis points (bps), as it continues to contain stubbornly high inflation in a fast-growing economy. The repo rate now stands at 7.25%. The reverse repo rate will be 100 bps lower than the repo rate at 6.25%. The bank rate and the CRR have been left unchanged at 6% each. The RBI also decided to increase the savings bank deposit interest rate from the present 3.5% to 4% with immediate effect. The RBI said it will be instituting a new Marginal Standing Facility (MSF). Banks can borrow overnight from the MSF up to 1% of their respective net demand and time liabilities (NDTL). "The rate of interest on amounts accessed from this facility will be 100 basis points above the repo rate," the RBI said in a statement. As per the above scheme, the revised corridor will have a fixed width of 200 basis points. The repo rate will be in the middle. The reverse repo rate will be 100 basis points below it, and the MSF rate 100 basis points above it. These changes in the operating framework, except that pertaining to the MSF, will come into force immediately, the RBI said. The MSF will come into effect from the fortnight beginning 7th May, 2011. The MSF rate, determined with a spread of 100 bps above the repo rate, gets calibrated at 8.25%. The latest RBI measures have been taken on the basis of the policy stance outlined by the central bank Governor D. Subbarao today, and in accordance with changes in operating procedure. Monetary Policy...Statement by D. Subbarao FM and Montek endorse RBI's 50 bps rate hike A steep half a percentage point hike in benchmark interest rates by the Reserve Bank of India (RBI) is aimed at containing inflation, Finance Minister Pranab Mukherjee said. The RBI raised key interest rates for the ninth time since March 2010 by a larger-than-expected 50 basis points (bps) as part of its protracted efforts to rein in high inflation. The Finance Minister said that he was expecting a GDP growth in the range of 8.75% to 9.25% for the current fiscal year, notwithstanding the hawkish stance of the monetary policy. Crude oil prices and monsoon rains will shape inflation going forward, he told reporters in New Delhi. Read More… …RBI Monetary Policy…read what experts say ...RBIMacroeconomic and Monetary Developments in 2010-11 RBI releases report on Financial Holding Company Structure The Reserve Bank of India placed on its website the Report of the Working Group on Introduction of Financial Holding Company Structure in India. The key recommendations of the Working Group are:

The financial holding company (FHC) model should be pursued as a preferred model for the financial sector in India.

The FHC model can be extended to all large financial groups – irrespective of whether they contain a bank or not. Therefore, there can be banking FHCs controlling a bank and non-banking FHCs which do not contain a bank in the group.

There should be a separate regulatory framework for financial holding companies.

A separate new Act for regulation of financial holding companies should be enacted.

Weekly Industry Newsletter

29 of 93

Amendments should also be simultaneously made to other statutes/Acts governing public sector banks, Companies Act and others, wherever necessary. Alternatively, in order to avoid separate legislation for amending all individual Acts, the provisions of the new Act for FHCs should have the effect of amending all the relevant provisions of individual Acts and have over-riding powers over other Acts in case of any conflict. Read More… KKR led consortium invests Rs. 4.40 bn in Magma Fincorp Magma Fincorp today announced an investment of Rs. 4.40 billion led by funds managed by Kohlberg Kravis Roberts & Co. L.P (together with its affiliates, KKR) along with International Finance Corporation (IFC). The capital infusion will be used to support Magma’s growth plans in existing businesses in addition to newer areas. Maintaining our aggressive growth pattern, we expect to increase our disbursements by 50% in FY12, reduce our dependency on securitization and maintain a healthy NIM via greater contribution from higher yielding products. With this capital infusion, we believe Magma is well positioned to capitalize on its existing business opportunities, increase its thrust into new products in addition to accretive M&A," said Sanjay Chamria, vice chairman & managing director of Magma. We believe that our partnership will help propel the growth in rural and semi urban segments by promoting consumer credit, agri lending and corporate lending to small and medium scale enterprises,” said Sanjay Nayar, member of KKR and Head of KKR India. RCOM draws final tranche of Rs. 12bn from China Development Bank Reliance Communications Ltd has drawn final tranche of Rs. 12bn (US$ 266 Million) from China Development Bank. This facility includes Rs60bn for refinancing 3G spectrum fee payment by RCOM and Rs27bn for equipment from Chinese vendors. With this, RCOM has drawn Rs. 60bn (US$ 1.33bn) towards refinancing of 3G spectrum fees. The drawn down amount will be used to refinance RCOM’s short term rupee borrowings resulting in substantial savings in its interest cost apart from extending RCOM’s debt maturity profile. The loan facility which is fully underwritten by CDB, and is being funded by a syndicate of Chinese Banks/ Financial Institutions including CDB. This represents the first and largest ever Syndicated Loan for refinancing Spectrum Fees by any telecom company. Savings bank rate hiked to 4% from 3.5% Pending a final decision on the de-regulation of interest rate on the savings bank accounts, the RBI has decided to increase the rate from the present 3.5% to 4.0% with immediate effect. The interest rate on the savings bank accounts was last revised eight years ago. A week ago, the RBI put out a discussion paper debating the pros and cons of the proposal to de-regulate interest rate on the savings bank accounts. "We will review the policy of de-regulating the savings bank deposit rate based on the feedback that we get," RBI Governor D. Subbarao said. Unlike the time deposits, the savings bank account interest rates are still regulated. But, the central bank has put out a discussion paper for freeing the same. Interest rates on fixed deposit schemes were deregulated in 1997. The RBI has said in the discussion paper that the deregulation of the savings bank rates would allow banks to introduce product innovations which could benefit the depositors. RBI accepts Malegam Committee views on MFI sector The Reserve Bank of India (RBI) decided to accept the broad framework of regulations recommended by the Malegam Committee that submitted its report on the Micro finance institutions (MFIs). Bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will be eligible for classification as priority sector loans under respective category of indirect finance only if the prescribed percentage of their total assets are in the nature of 'qualifying assets' and they adhere to the pricing of interest guidelines, the RBI said. Banks should ensure a margin cap of 12% and an

Weekly Industry Newsletter

30 of 93

interest rate cap of 26% for their lending to be eligible to be classified as priority sector loans. Loans by MFIs can also be extended to individuals outside the self-help group (SHG)/joint liability group (JLG) mechanism. Bank loans to other NBFCs would not be reckoned as priority sector loans with effect from April 1, 2011. MFIN Reaction to Monitory Policy issued by RBIMFIN welcomes the policy announcement for the microfinance sector announced by the RBI today. “The guidelines give much needed regulatory clarity to the microfinance sector and represent a big step forward in putting the microfinance industry on the path to recovery”, said MFIN CEO, Alok Prasad. “RBI has taken a balanced and calibrated approach towards the evolving policy framework for the sector. The role played by Microfinance Institutions in promoting financial inclusion is increasingly being recognized and the need to support the microfinance industry is therefore a clear policy imperative. MFIN looks forward to a continuous process of dialogue with the RBI and evolution of a comprehensive regulatory framework for the microfinance sector”, added Prasad. MFIN is the premier representative body for the NBFC-MFI sector and has been involved with a number of initiatives promoting transparency, client protection and responsible lending. Read More… Nandan Nilekani buys stake in Dhanlaxmi Bank...Stock spurts Nandan Nilekani has reportedly acquired over 1.17% stake in Dhanlaxmi Bank. Nilekani holds 9,93,827 shares in Dhanlaxmi Bank, which translates into 1.17% stake as on March 31, 2011. According to reports, apart from Nilekani, there are 22 shareholders which hold stakes between 1% and 7% in Dhanlaxmi Bank. SKS Microfinance moves to Supreme Court SKS Microfinance reportedly moved to Supreme Court of India against Andhra Pradesh’s Microfinance Act which was passed by the state government late last year. The AP government issued Microfinance Act to put a check on the coercive recovery methods and high interest rates charged by microfinance institutions in the state. Certain provisions of the act however have hampered the daily lending operation of MFIs in the state, reports said. RBI’s governor, Dr. D. Subbarao however reportedly said that the RBI’s regulatory policy will not supersede the state or the Andhra Pradesh Government Act. SBI to defer Rs. 200bn Rights Issue: reports State Bank of India reportedly may have to defer a planned $4.5 bn rights share issue to the next financial year as a cash-starved government, its biggest shareholder, is unable to put in money. It will be difficult to take out funds in the current financial year. A decision would be taken soon after taking into account the government's finances and the bank's need for funds, reports said. Last month it expected to launch the rights offering in the June quarter. The government was expected to inject up to 150 billion rupees ($3.3 billion) through the rights issue, added reports. RBI discontinues 2nd LAF on reporting Fridays The Reserve Bank said that the second liquidity adjustment facility (LAF) will be discontinued on reporting Friday's, effective May 20. The facility will be discontinued in the light of modified operating procedure of monetary policy introduced from May 3, 2011 and introduction of the marginal standing facility (MSF), the Reserve Bank of India said. SKS raises Rs6bn via securitization SKS Microfinance has raised Rs6bn through securitisation this month, including Rs500mn transaction comprising of 65,438 rated contracts with Yes Bank. S Dilli Raj, chief financial officer, SKS, was quoted as saying that “This

Weekly Industry Newsletter

31 of 93

development reiterates SKS Microfinance’s leadership position in the MFI sector and the confidence of the financial world in the MFI model followed by the company”. The company reportedly said that the contracts involved in transaction with Yes Bank have been the first rated pool assignment for the MFI sector after notification of YH Malegam Committee recommendations. PFC FPO subscribed 4.32 times...QIB portion subscribed 7 times The follow-onpublic offering (FPO) of Power Finance Corporation (PFC) was oversubscribed after receiving a very lukewarm response on the first two says of its subscription. The issue was subscribed 4.32 times as at 6:00 pm (IST) on Friday, as per the data published on the NSE's web site. It received bids for999,332,664 shares as against the issue size of 229,553,340 shares. The issue closed for the QIBs on Thursday and was subscribed nearly seven times. For the HNIs and Retail investors the issue closed on Friday. The issue comprises fresh issue of 172,165,005 equity shares by the company and an offer for sale of 57,388,335 equity shares by the Government of India, acting through the Union Ministry of Power. The empowered group of ministers (EGoM) of the Government of India had fixed a price band of Rs. 193 and Rs. 203 for the PFCFPO. The first disinvestment of FY11 is expected to raise about Rs. 47bn. The Government plans to raise Rs. 400bn through the disinvestment programme in FY12. The book running lead managers of the issue are DSP Merrill Lynch Ltd., Goldman Sachs India Securities, ICICI Securities and JM Financial Consultants. PFC is offering a 5% discount for retail investors and eligible employees. PFC plans to use the proceeds to mainly boost its capital base. ICICI Bank revises Base Rate and Prime Lending Rate CICI Bank has announced an increase of 0.50% in the ICICI Bank Base Rate (“I-Base”) with effect from May 7, 2011. The revised rate will be 9.25% p.a. as against 8.75% p.a. at present. With effect from July 1, 2010, interest rates on new loans and advances, including consumer loans, are determined with reference to I-Base. ICICI Bank has also announced an increase of 0.50% in its benchmark prime lending rate and in its Floating Reference Rate (FRR) for consumer loans (including home loans) with effect from May 7, 2011. The above benchmark rates are used for determining interest rates on loans and advances sanctioned upto June 30, 2010. The fixed rate customers will not be impacted by the above increase and their contracted rates will remain unchanged. NHB hikes own funds floor for HFCs to Rs. 100mn The National Housing Bank (NHB), the regulator for housing finance companies, reportedly plans to introduce standard asset provisioning of 0.4% on retail advances. The Housing finance companies (HFCs) will now have to face higher provisioning norms and will have to set aside additional capital for their performing retail home loan portfolio, adds report. R V Verma, chairman and managing director, NHB was quoted as saying that “As a proactive measure, we are planning to introduce this additional provisioning norm for HFCs. Taking into account the current high interest scenario, this would act as an extra cushion for HFCs.” He further added that HFCs were exempted from the extra provisioning norm in a bid to encourage them to channelize more advances towards retail. HFCs account for nearly 30% of the home loan market in India.

Weekly Industry Newsletter

32 of 93

International News - May 2011 Bank of England leaves rates steady The Bank of England (BOE) left the key interest rate unchanged at 0.5%. The move was widely expected by markets and economists. The British central bank also kept its asset-purchase program at £200bn (US$330bn). The pound was little changed against the dollar after the announcement. BOE Governor Mervyn King and his colleagues continue to hold monetary policy steady as the UK economy remains subdued after virtually stalling in the past two quarters. At the same time, inflation is running at double the central bank’s 2% target. The National Institute for Economic and Social Research today lowered its 2011 growth forecast to 1.4% from 1.5% in January, and raised its inflation projection to 4.5% from 3.8%. BOE officials will publish new growth and inflation forecasts next week. Philippines and Malaysia hike policy rates The Philippines and Malaysia joined India and Vietnam in raising interest rates this week. Bangko Sentral ng Pilipinas increased the rate it pays lenders for overnight deposits to 4.5% from 4.25% in its second move this year, while Bank Negara Malaysia lifted the benchmark overnight policy rate for the first time in 2011, boosting it by a quarter point to 3%. India on May 3 increased rates by 50 basis points and the State Bank of Vietnam raised its repurchase rate the following day for the fifth time in 2011. Vietnam raised its repurchase rate to 14%, doubling the benchmark from November. Inflation in the Philippines accelerated to a 12-month high of 4.5% in April. The central bank targets average inflation of 3% to 5% this year and in 2012. Malaysia's inflation climbed to a 23-month high. Malaysian central bank Governor Zeti Akhtar Aziz also boosted the statutory reserve requirement level to 3% from 2% effective May 16. World food prices rose to near a record in April as grain costs advanced, adding pressure to inflation and spurring central banks to raise interest rates. An index of 55 commodities rose to 232.1 points from 231 points in March, the United Nations’ Rome-based Food and Agriculture Organization said in a report on its website. The gauge climbed to an all-time high of 237.2 in February before dropping 2.6% in March. Portugal secures EU-IMF bailout: reports Portugal has reportedly sealed the much-awaited financial rescue package with the European Union (EU) and the International Monetary Fund (IMF) to help it tide over the ongoing debt crisis. Portugal has reached a deal with the EU and the IMF on a €78bn (US$116bn) three-year bailout, interim Prime Minister José Sócrates has been quoted as saying. "The government has obtained a good deal. This is a deal that defends Portugal," said Sócrates. With this, Portugal has become the third eurozone nation to tap into the EU-IMF bailout fund after Greece and Ireland. The bailout includes aid for Portugal's cash-strapped banks, according to reports. The deadline for meeting budget deficit goals will be extended, with this year's target raised to 5.9% of GDP from 4.6% earlier. The deficit must be cut to 4.5% of GDP in 2012 and 3% in 2013. Media reports quoted Sócrates as saying that the bailout deal will not require the privatization of Portugal's social security. Officials from the European Commission, the IMF and ECB have been in Lisbon for almost a month to hammer out an agreement with Portugal on the bailout. The bailout agreement would be presented to Portugal's opposition Social Democrats and the caretaker government for their approval ahead of the June 5 general election. Portugal's government collapsed in late March. Opposition Social Democrat leader Pedro Passos Coelho said he was ready to meet the lenders. Any of the bailout terms that need parliamentary approval will have to be passed after the election.

Weekly Industry Newsletter

33 of 93

US Justice Dept. sues Deutsche Bank The US Justice Department filed a lawsuit against Deutsche Bank and one of its subsidiaries for allegedly concealing the poor quality of some of the mortgages it submitted to be covered by a federal mortgage-insurance scheme. The US government claimed that it has paid US$386mn in insurance claims on 3,100 mortgages because of the German bank's actions, but is seeking damages of more than US$1bn in its suit. The complaint from the Justice Department said that the German Deutsche Bank repeatedly lied to be a part of a government program. The bank profited from the insured mortgages while many American homeowners received default and eviction. As a result, the US government has paid for insurance claims worth millions of dollars - with more expected to come in the future. Bank of Korea surprises...Leaves rates unchanged The Bank of Korea on May 13 surprisingly left its benchmark interest rates unchanged after two increases earlier this year, as central bank policymakers await the impact of a stronger won on inflation. Governor Kim Choong Soo and the policy board of the Bank of Korea left the benchmark seven-day repurchase rate at 3% after boosting it by a quarter percentage points each in January and March. But, the decision wasn’t unanimous, Kim said. Most economists had expected the central bank to hike rates due to spiraling inflationary pressures. The move marked the second straight month in which the Bank of Korea has kept its interest rate steady. The Korean won declined against the US dollar after the central bank's move. BOJ leaves rates and stimulus unchanged The Bank of Japan (BOJ) on May 20 left its benchmark interest rates unchanged while refraining from announcing any fresh stimulus measures despite the world's third-biggest economy sliding back into recession in the January-March quarter. The BOJ policy board voted unanimously to maintain the key overnight rate at zero to 0.1%. Governor Masaaki Shirakawa and his eight colleagues decided to keep a 30-trillion yen (US$370 billion) credit program and a 10-trillion yen asset-purchase fund. Most economists had expected the BOJ to leave its policy unchanged. The yen was little changed at 81.68 per dollar after the decision. “Japan’s economy faces strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster on March 11, and this pressure will continue for the time being,” the BOJ said in a statement. Fed reaffirms policy stance...No immediate tightening seen Minutes of the Federal Reserve’s April policy meeting showed that talks about an exit strategy from record stimulus measures don’t necessarily mean any immediate monetary tightening. Separately, Federal Reserve Bank of St. Louis President James Bullard was quoted as saying that the central bank may keep its monetary-policy unchanged until late this year. Declining inflation expectations have curbed the need to begin withdrawing the stimulus, he said. Gains in the US and other world equity markets accelerated after the minutes from the last FOMC meet showed that Fed policy makers won't raise interest rates anytime soon. The FOMC discussed a string of ‘exit strategies’ at its April meeting, but there was still lack of consensus on what should be the first action on the part of the central bank. The Fed's April meeting minutes showed some differences among the key central bankers on when to begin raising rates. But, those divisions did not affect voting, as all voted unanimously to keep rates low and end QE2 on schedule. Dominique Strauss-Kahn resigns as IMF chief over sexual assault case Dominique Strauss-Kahn resigned as the managing director of International Monetary Fund (IMF) amid mounting pressure in the wake of his arrest over

Weekly Industry Newsletter

34 of 93

the weekend on charges of sexual assault on a hotel maid. Strauss-Kahn, 62, was arrested on May 14 in New York and was charged with sexually assaulting a hotel maid. He has been charged with attempted rape, sexual assault and unlawful imprisonment, according to reports. The IMF board held an emergency meeting on May 15 evening in Washington DC, to consider its options following the bizarre episode involving the current chief over the weekend. Strauss-Kahn, who is a potential French presidential candidate for the 2012 elections, was arrested on board an Air France jet about to depart from John F. Kennedy International Airport. Strauss-Kahn reportedly posted US$1 million bail and was to be confined to his wife’s New York City apartment, shortly after being indicted for alleged sexual assault. “I deny with the greatest possible firmness all of the allegations that have been made against me,” Strauss-Kahn said in a statement. "I want to devote all my strength, all my time and all my energy to proving my innocence,” Strauss-Kahn added. His resignation set off the official process to select his successor at the Washington-based institution. US Treasury Secretary Timothy Geithner said that Strauss-Kahn was in no position to continue leading the IMF. Other international leaders had also called for his exit. The IMF has played a key role in efforts to resolve the euro zone’s long-running sovereign-debt crisis. The IMF said it will announce in the near future how it will select Strauss-Kahn’s replacement, adding that the current acting Managing Director, John Lipsky, will be the representative for eurozone for the time being. French Finance Minister Christine Lagarde was reportedly tipped to replace Strauss-Kahn as head of the IMF. Former Turkish Finance Minister Kemal Dervis is also widely touted as potential compromise candidate. Christine Lagarde launches bid for IMF top job French Finance Minister Christine Lagarde officially mounted her bid for the top job at the International Monetary Fund (IMF) with backing from Europe and the US. But, governments of emerging economies expressed their displeasure at her candidature. The emerging countries have been against the tradition of appointing the IMF head from Europe and the World bank chief from the US. The so-called BRIC nations along with South Africa argued in a joint letter that the choice of IMF head should be based on competence, not nationality. However, they have not come up with a common candidate to replace Dominique Strauss-Kahn, who stepped down after being charged with sexually assaulting a hotel maid in New York. Mexico's central bank chief, Agustín Carstens, has emerged as Lagarde's main rival for the IMF job. The French Finance Minister said that the emerging nations would be fairly represented at senior positions in the IMF. "I would want to remedy the situation," Lagarde was quoted as saying. "We need appropriate representation of high-level staff based on merit from various nationalities and academic backgrounds." Officials in Paris said that Lagarde was planning a support-seeking tour that would include countries such as India, Brazil and China. Moody's places 14 UK banks under scanner Moody's Investors Service said that it has placed 14 U.K. firms on review for possible downgrade as it reassesses the level of government support that is factored into their ratings. The announcement came after Moody's said in April that it would review the level of systemic support incorporated into the senior debt ratings of U.K. firms. Among the lenders being reviewed for a possible downgrade are the U.K. banking operations of Lloyds Banking Group, Royal Bank of Scotland Group and Banco Santander. Moody's also said that the outlook on the Aa3 senior debt and deposit ratings of Barclays has been changed to negative from stable and the Aa2 senior debt and deposit ratings of HSBC Holdings Plc have been affirmed with a negative outlook.

Weekly Industry Newsletter

35 of 93

Moody's reviews BofA, Citi, Wells Fargo supported ratings for downgrade Moody's Investors Service has placed the deposit, senior debt, and senior subordinated debt ratings of Bank of America Corporation (A2 senior), Citigroup Inc. (A3 senior), Wells Fargo & Company (A1 senior), and their subsidiaries on review for possible downgrade. Each of these ratings currently incorporates an unusual amount of "uplift" from Moody's systemic support assumptions that were increased during the financial crisis. The review will focus on whether these ratings should be adjusted to remove this unusual uplift and include only pre-crisis levels of government support. At the same time, Moody's said that it will assess improvements in Bank of America's and Citigroup's standalone financial strength, and that this may temper the extent of any ratings downgrades that could result from its review of these firms' unusual level of systemic support. Moody's also placed the Prime-1 ratings of Bank of America's and Citigroup's holding companies on review for possible downgrade. The Prime-1 rating of Wells Fargo's holding company, Wells Fargo & Company, was affirmed. Moody's also affirmed the Prime-1 ratings of all three companies' banking operations, including the Prime-1 ratings of Bank of America, N.A., Citibank, N.A., and Wells Fargo Bank N.A. These actions had no impact on the FDIC-guaranteed debt issued by these firms, which remain at Aaa with a stable outlook. Read More… CIMB Group, Malayan Banking to begin merger talks with RHB Capital: report CIMB Group Holdings Bhd. (CIMB) and Malayan Banking Bhd has received separate Malaysian central bank approval to begin competing merger talks with RHB Capital Bhd, according to a report. The report stated that the combined capitalization of CIMB and RHB would be $27.3 bn. Maybank could boost its market worth to $28.8 bn, which would exceed the $27.7 bn value for Singapore’s DBS Group Holdings Ltd. (DBS), adds report. M&I Bank recognized most reputable banks in the U.S. M&I Bank announced it has been recognized as one of the most reputable U.S. banks by Reputation Institute in a study conducted in collaboration with American Banker. M&I Bank ranked #6 out of thirty U.S. Banks in the 2011 study. "M&I is honored to be recognized by the Reputation Institute through its annual reputation rankings," said Mark Furlong, chairman and CEO, Marshall & Ilsley Corporation. "We are pleased that consumers continue to value and appreciate our ongoing commitment to providing unparalleled customer service. In addition, this ranking reflects M&I's dedication to being an involved and engaged corporate citizen in the communities we serve." Read More… MasterCard and Nuance-Watson team up to empower women in Asia AIG shares fall after follow-on share sale Shares of American International Group Inc. (AIG) sank a day after the insurer and the US government sold US$8.7bn in stock. On May 25, the stock ended 2.5% below the US$29 price at which the Treasury and AIG sold a total of 300 million shares on May 24. Of the other 14 follow-on offerings over US$1bn tracked by Dealogic, 11 showed gains of up to 6.3% and three showed losses of 0.1% to 1.8%. The stock rose shortly after the offering was launched May 11, then fell. It was priced at a 1.6% discount to the closing market price. The sale enabled the US Treasury to recoup US$5.8bn of a US$47.5bn investment in AIG shares, and reaped a US$54mn profit for taxpayers. At current prices, the Treasury is sitting on a roughly US$655mn paper loss for its remaining 77% stake.

Weekly Industry Newsletter

36 of 93

Domestic News - June 2011 India has resumed talks with Mauritius on DTAA: FM The Indian Government has resumed talks with Mauritius on the double taxation avoidance agreement (DTAA), Finance Minister Pranab Mukherjee said in New Delhi. "So far as the Mauritius double taxation avoidance agreement negotiations are concerned, it is an old one. For some time the talks were suspended; now it has resumed," Mukherjee told reporters. Indian stocks had tumbled on Monday amid media speculation that the two countries could alter the current tax treaty to tax capital gains on investments routed through Mauritius. The Government has been under pressure to renegotiate the DTAA with Mauritius as it leads to substantial revenue loss. The country is losing more than US$600mn every year in revenue because of the tax treaty. India and Mauritius are expected to meet soon to work out the details of the new DTAA, the Central Board of Direct Taxes (CBDT) chairman Prakash Chandra was quoted as saying. His comments were the prime reason behind Monday's crash in the Indian markets. The Government tried to calm the jittery markets by saying that New Delhi cannot impose arbitrarily capital gains tax on investments routed through Mauritius and that the two nations are likely to hold talks on revision of the DTAA. "How can you do that? There has to be some agreement on that. Right now, it is not there in the agreement. You cannot impose it arbitrarily," the Finance Secretary, Sunil Mitra was quoted as saying. The Finance Secretary also said that the process of renegotiation of the DTAA with Mauritius began in 2006 through a joint working group, but got stalled in 2008. New Delhi has suggested dates in July and August for resumption of the talks, he said. More than 40% of total FDI entering India originate from Mauritius. Local authorities suspect that most of these investments are nothing but treaty shopping to avoid paying taxes here. Capital gains is exempted from tax in Mauritius, and under the DTAA, a Mauritian company cannot be taxed in India. India has DTAAs with 79 countries and is in the process of negotiating more such agreements to broaden the information sharing mechanism. To give more teeth to its tax laws and bring tax evaders to book, the Government has devised a Tax Information Exchange Agreement (TIEA) which is being negotiated with 22 tax havens. The Finance Ministry has been negotiating fresh tax treaties with other countries as well while also revising the existing tax treaties to replace liberal clauses with more stringent norms to avoid misuse and abuse of the same. RBI hikes repo rate, reverse repo rate by 25 bps The Reserve Bank of India (RBI) hiked the key policy rates by 25 basis points (bps) in its ongoing fight against stubborn inflation, showing increasing preference for price stability in the growth-inflation tradeoff. The repo rate now stands at 7.50%. The reverse repo rate will be 100 bps lower than the repo rate at 6.50%. The bank rate and the CRR have been left unchanged at 6% each. Today's policy action is expected to contain inflation and anchor inflationary expectations by reining in demand side pressures and mitigate the risk to growth from potentially adverse global developments, the RBI said in a statement. The RBI also said that based on the current and evolving growth and inflation scenario, it will need to persist with its anti-inflationary stance of monetary policy. Read More… Christine Lagarde seeks FM’s support for IMF, MD Candidature The French Finance Minister, Christine Lagarde called on the Union Finance Minister Pranab Mukherjee today as part of her effort to seek support for her candidature to the post of Managing Director, IMF. During her talks, she outlined her vision for reforms that IMF needs to undertake and the role it can play in addressing the current challenges confronting the world economy including G-20 matters.

Weekly Industry Newsletter

37 of 93

Lagarde conveyed to the Finance Minister that her conviction is that the IMF should reflect current global economic realities and there is need for greater voice for the emerging market developing countries in all the significant issues that the world today confronts. Read More… India banks' asset quality to improve in FY12: S&P The outlook for Indian banks is stable for the fiscal year ending March 2012. That's according to an article, titled "India Banking Outlook 2011: Stability Ahead, But Some Headwinds Remain," that Standard & Poor's Ratings Services published recently. The sector's growth is likely to be high in the next two to three years. But high inflation, increased competition, and evolving risk management processes will be key challenges, the article noted. "We believe the asset quality of Indian banks will improve in view of India's sound economic growth and reasonable leverage. Banks' focus on low-to-moderate risk segments and the increased diversification in their loan portfolios should also help their asset quality," said Standard & Poor's credit analyst Geeta Chugh. "We expect the sector's overall nonperforming loan ratio to have peaked at about 2.6% in fiscal 2011 and decline to 2.4% in fiscal 2012." Read More… Fitch: RBI's CDS Guidelines pave way for credit risk mitigation Fitch Ratings says in a comment published today that the credit default swaps (CDS) guidelines issued by the Reserve Bank of India (RBI) on 23 May 2011 introduce a much needed credit risk management tool for India's debt investors. Currently, the unavailability of a financial guarantee for debentures severely limits the options available to debt investors. However, further clarification may be expected from RBI, particularly with respect to capital adequacy requirements in CDS transactions. Fitch notes that while 'restructuring' is considered under RBI's CDS guidelines as a credit event, it could be clarified whether a CDS contract needs to mandatorily include 'restructuring' as a credit event to be eligible for maximum capital release. As per Basel II guidelines, if restructuring of the underlying obligation is not covered by the credit derivative, only partial recognition (capped at 60% of the underlying value) may be provided for such an instrument for the purpose of capital adequacy calculation. However, the guidelines state that the protection buyer shall replace his original exposure to the reference entity with that of the protection seller. Read More… Standard Chartered IDRs nosedive on SEBI ruling The Indian depository receipts (IDRs) of Standard Chartered Bank, UK plunged after the Securities and Exchange Board of India (SEBI) ruled that companies will not be allowed to convert frequently-traded IDRs into shares. The IDRs of Standard Chartered Bank touched a new 52-week low of Rs. 91.75. SEBI issued framework for investors to redeem IDRs into underlying equity shares if they become illiquid. According to SEBI norms, investors can redeem IDRs only after one year of its issuance and only if the IDRs are infrequently traded on the stock exchange. The IDRs will be termed illiquid if the annualised trading turnover in the IDRs during the six months immediately preceding the month of redemption is less than 5%. The issuer company will have to check the frequency of trading on a half yearly basis ending on June and December of every year. If IDRs are found to be infrequently traded, then the issuer company will have to make a public announcement and investors will have to submit their application within 30 days. The redemption process will have to be completed within 30 days of the receipt of the application. Bank credit grows 20.9%...Deposits expand by 17.7% Bank loans grew by 20.9% to over Rs. 41 lakh crore during the one-year period ended June 17. According to the RBI data, credit offtake during the period stood at Rs. 41.23 lakh crore against Rs. 34.10 lakh crore in the same

Weekly Industry Newsletter

38 of 93

period of the previous year. Meanwhile, deposits stood at over Rs. 54.94 lakh crore till mid-June as against Rs. 46.64 lakh crore as on June 18. This represents an annual increase of over 17.7%. In the annual monetary policy for FY12 announced last month, the RBI had said that bank credit is likely to rise at a faster pace because of the economy’s growth momentum. “Sustained growth momentum could continue to exert pressure on interest rates through high demand for credit,” the central bank said. The RBI has projected a credit growth of 19% for FY12, while deposit growth has been pegged at 17%. During FY11, bank credit had increased by 21.5%, while deposits grew by only 15.5%. RBI allows issue of equity shares under FDI scheme Attention of Authorised Dealers Category – I (AD Category - I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. In terms of the Schedule 1 of the Notification, ibid, an Indian company may, under the automatic route, issue equity shares/ preference shares to a person resident outside India, being a provider of technology / technical know-how and against royalty / lumpsum fees due for payment subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws. Read More… DHFL revises retail prime lending rate on housing loans by 25 bps Dewan Housing Finance Corporation Ltd, India’s third largest housing finance company announced an increase of 25 basis points in its Retail Prime Lending Rate. The increase in lending rate is the result in the increase in reverse repo and repo rates by RBI recently. This change will be effective for its existing customers from July 1, 2011. DHFL’s current loan portfolio stood at Rs. 14,111.27 crore as on March 31, 2011. NSE seeks more time for stake sale in NCDEX The National Stock Exchange (NSE) has reportedly approached the Consumer Affairs Ministry once again for further extension of three months to divest its stake in the commodity bourse NCDEX to 5%. NSE had earlier sought an extension for three months in April, the deadline for which expires on the 30th of June. According to reports, NSE presently holds 11.1% stake in NCDEX. The new guidelines for commodity bourses which have completed a five-year term however states that a stock exchange cannot hold more than 5% stake in a commodity bourse. NSE is in talks with an Indian company and a Qatar-based firm for dilution of stake in NCDEX, the report adds. Global turmoil poses some risk to India's growth: RBI The domestic growth outlook as indicated in the Annual Monetary Statement of May 3 remains unchanged, the Reserve Bank of India (RBI) said. However, given the high degree of integration with the global economy, recent global macroeconomic developments pose some risks to domestic growth, it added. Domestic inflation remains high and much above the comfort zone of the central bank, the RBI said today. Particularly, non-food manufactured products inflation rose in May after showing some moderation in April, it said. Domestic fuel prices do not yet reflect the current trends of global prices, the RBI warned. Although global commodity prices moderated in recent weeks, it is too early to downgrade this as a risk factor, it said. Read More… PNB to raise Rs. 20bn this fiscal Punjab National Bank (PNB) is reportedly said to raise about Rs. 20bn of capital in the third or fourth quarter of this fiscal to fund business growth. Chairman and Managing Director, K. R. Kamath, was quoted as saying that, “As of now our capital adequacy is 12.46%. We may require some capital at the end of the year. We have headroom both in Tier-I and Tier-II. We are

Weekly Industry Newsletter

39 of 93

keeping it open since the interest rates are very high now. We are just waiting to see if interest rates soften in the third or fourth quarter. Maybe that is the time we will enter the market,” Kamath told newspersons after inaugurating the bank's first e-lobby facility here." According to reports, capital raising will happen through bonds. PNB is not looking at any equity dilution in the next few months. SIDBI crosses Rs. 2 lakh crores in cumulative disbursement in FY11 The Small Industries Development Bank of India (SIDBI) held its 13th Annual General Meeting on June 24, 2011, at Lucknow. The meeting was chaired by Shri Sushil Muhnot, Chairman and Managing Director, and attended by its Directors and shareholders. Muhnot, in his address to the shareholders, detailed the progressive role of SIDBI as the principal financial institution for the MSME sector and highlighted the proactive initiatives and innovative measures taken for development of the MSME sector. He mentioned the operational and financial milestones achieved by SIDBI in its credit support to the MSME sector. Read More… Salaried taxpayers with income up to Rs. 5 lakh exempted from filing The Central Board of Direct Taxes has notified the scheme exempting salaried taxpayers with total income up to Rs. 5 lakh from filing income tax return for assessment year 2011-12, which will be due on July 31, 2011. Individuals having total income up to Rs. 5,00,000 for FY 2010-11, after allowable deductions, consisting of salary from a single employer and interest income from deposits in a saving bank account up to Rs. 10,000 are not required to file their income tax return. Read More…

Weekly Industry Newsletter

40 of 93

International News - June 2011 Bank of Korea hikes rates by quarter percentage point he Bank of Korea (BOK) increased its key interest rate for a third time this year to check spiraling inflation and curb record household debt. Governor Kim Choong Soo boosted the benchmark seven-day repurchase rate to 3.25% from 3%, following a 25 bps increases in January and March, the central bank said in a statement in Seoul. The BOK had left rates steady in its previous two meetings. Kim said today's decision was unanimous. Today's move followed recent above-target inflation data. The Korean central bank signaled that it will continue to raise rates because of persistent price pressures. Read More… BOE and ECB leave rates steady As anticipated, the Bank of England (BOE) left its main interest rate unchanged, as the central bank policymakers continued to weigh a subdued UK economy against stubbornly high inflation. The monetary policy committee of the BOE left its key lending rate on hold at a record low 0.5%, as expected. It also left unchanged the British central bank’s bond purchase program at 200 billion British pounds ($328.2 billion). The British pound hardly moved post the BOE decision. UK's GDP grew by 0.5% in the first quarter after contracting by 0.5% in the final three months of 2010. At the same time, consumer price inflation jumped to 4.5% in April, more than twice the central bank’s 2% target. The European Central Bank (ECB) left its key interest-rate on hold at 1.25%. At his monthly news conference, ECB President Jean-Claude Trichet signaled that the central bank was prepared to hike rates in July. Trichet said that “strong vigilance“ was needed to keep inflation risks at bay, with the central bank ready to “act in a firm and timely manner.” The ECB President also said that the central bank hadn’t raised next year’s inflation forecast from 1.7%, fueling speculation that it won’t increase rates as quickly as previously expected. IMF nominates Lagarde and Carstens for top job The IMF formally accepted the nominations of French finance minister Christine Lagarde and Agustín Carstens, the governor of the Bank of Mexico for the position of managing director. Stanley Fischer, a renowned academic economist who heads Israel's central bank, made a late entry into the field but was excluded from the final list because at 67 he is two years older than the maximum for candidates. Without mentioning Fischer by name, the IMF board statement suggested that he had missed the deadline for submitting his application. “The period for submitting nominations for the position of the next managing director closed on Friday, June 10,” the board said. Fischer, a former deputy director of the IMF, announced his candidacy on June 11. Fischer said that he had been eliminated because, at 67, he exceeded the age limit of 65 for candidates for managing director. He criticized the IMF for refusing to change its rules. The post of the IMF chief fell vacant after Dominique Strauss-Kahn resigned last month after he was charged with sexually assaulting a hotel maid in New York. Moody's puts 3 French banks on review Moody's Investors Service said that it has placed the financial-strength ratings and long-term debt and deposit ratings of Credit Agricole SA, BNP Paribas SA and Societe General SA on review for a possible downgrade. The global ratings agency said that the move follows its downgrade of Greek government bonds to "Caa1" on June 1. The primary focus of the reviews will be the banks' credit exposures to Greek government debt and the Greek private sector, and the potential for inconsistency between the impact of a possible Greek default or restructuring, Moody's said. The reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one notch, Moody’s said. But, Societe Generale’s debt and deposit ratings may be cut as much as two grades. Read More…

Weekly Industry Newsletter

41 of 93

China hikes reserve requirement by 50 bps China's bank lending and money supply moderate in May Bank lending in China fell sharply last month while money supply grew at a slower-than-expected pace, as government efforts to cool the world's second-largest economy continued to show results. Chinese financial institutions issued 551.6 billion yuan ($85 billion) of new loans in May, easing from the 739.6 billion yuan in April, economic data released by the central bank showed. The reading missed consensus expectations of 650 billion yuan. Bank loans stood at 639 billion yuan in the same month a year earlier. Money supply, as measured by M2, grew by 15.1% at the end of May from a year earlier, easing from a 16.6% rise in April. It fell short of the 15.5% increase pegged by economists. The latest economic data fueled concerns that a series of monetary tightening to combat inflation will slow the Chinese economy. The People's Bank of China (PBOC) has raised interest rates four times since September besides increasing the lenders’ reserve requirement ratio to record levels. BOJ keeps rates steady...Unveils new lending plan The Bank of Japan (BOJ) left its key policy rate unchanged but announced a new lending programme for domestic companies, as the world's third-largest economy struggles to revive after the March tragedy. BOJ Governor Masaaki Shirakawa and his policy board held the benchmark interest rate at a range of zero to 0.1% and kept unchanged a 30 trillion yen (US$374bn) credit program and a 10-trillion yen asset-purchase fund. The BOJ said it was expanding its special lending facility, introduced last summer, for industries to promote economic growth. The Japanese economy continues to face downward pressure, mainly on the production side and that there is a high decree of uncertainty about the effects of the earthquake disaster, the BOJ said in a statement. But, it added that household and business sentiment is improving somewhat. The Japanese economy may shrink by 3% annual pace in the second quarter before returning to growth in the second half of the year, economists said in a survey by the government-affiliated Economic Planning Association released last week. Japan's GDP contracted by an annualized 3.5% in the first quarter of 2011. Fed leaves rates steady...To end QE2 end-June To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Federal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate at 0% to 0.25%. The US central bank policy makers continue to anticipate that economic conditions - including low rates of resource utilization and a subdued outlook for inflation over the medium run - are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Fed said that it will complete its purchases of US$600bn of longer-term Treasury securities by the end of this month. It will also maintain its existing policy of reinvesting principal payments from its securities holdings. The Fed policymakers will regularly review the size and composition of its securities holdings and could adjust those holdings if the need arises. The US central bank will continue to monitor the economic outlook and financial developments, and will act as needed to best foster maximum employment and price stability. Read More... Greek parliament approves new austerity measures Greek lawmakers on Thursday passed legislation on the implementation of the new five-year austerity measures. With this, Greece looks to have cleared the way for getting additional international aid, which is crucial to avoid a near-term default. Greek lawmakers had on Wednesday backed a US$112bn package of additional budget cuts even as police clashed with protesters in central Athens. A debt crisis in Greece could have shaken the

Weekly Industry Newsletter

42 of 93

entire eurozone and potentially weakened the global economy as well. The austerity steps, which include wage cuts, tax increases and privatizations in a recession-starved country, were required to unlock the next installment of the EU-IMF aid next month and win a fresh rescue plan. Concerns about a banking crisis in the eurozone eased after Greek parliament on Wednesday passed new five-year budget cuts and German financial institutions pushed toward an agreement to roll over Greek debt holdings. But, anti-government protests escalated in Greece, fueling worries that problems for the debt-strapped eurozone nation are far from over. Weaker nations may exit the Euro: Soros Billionaire investor George Soros predicts that weaker nations could exit the euro. Speaking at a panel discussion in Vienna on whether liberal democracy is at risk in Europe, Soros said there was no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable. "We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread. The financial system remains extremely vulnerable”, he added. World's top banks told to hold up to 2.5% more capital The world's biggest and most important banks must hold up to 2.5% in additional capital on their balance sheets to protect them in the event of another global financial crisis, the Basel Committee on Banking Supervision said on Saturday. The Basel Committee is the body of central bankers and regulators that sets capital standards for global banks. As many as 30 banks may face some level of surcharges, according to reports. "The agreements will help address the negative externalities and moral hazard posed by global systemically important banks,” Jean-Claude Trichet, president of the ECB and the group that oversees the Basel Committee, said following a meeting in Basel, Switzerland. Depending on their systemic importance, world banks' required capital buffer will be between 1% and 2.5% in Tier 1 common equity. That buffer would be in addition to the 7% Tier 1 common equity that the Basel III committee had mandated for all financial institutions. Read More… China and Germany sign deals worth US$15bn BIS calls for more monetary tightening Separately, the Bank for International Settlements (BIS) has warned that some central banks risk sowing the seeds of another global financial crisis and weakening their inflation-fighting credibility by keeping interest rates too low and magnifying their balance sheets. “The persistence of very low interest rates in major advanced economies delays the necessary balance sheet adjustments of households and financial institutions,” the BIS said. “And it is magnifying the risk that the distortions that arose ahead of the crisis will return. If we are to build a more stable future, our attempts to cushion the blow from the last crisis must not sow the seeds of the next one,” it said. Once central banks start lifting rates, they may need to do so more quickly than they did in the past, the BIS said. It also spoke out against the risks of the large size and complexity of central bank balance sheets. The Basel, Switzerland institution has 56 central bank members. Bank of America settles on mortgage-backed securities Bank of America and its Countrywide unit agreed to pay US$8.5bn to settle claims that mortgage-backed securities sold by the latter contained loans that fell short of underwriting guidelines on things like borrowers' income and credit scores. BofA will book charges totaling more than US$20bn in the second quarter because of the settlement and other toxic-mortgage-related claims. Countrywide Financial, a distressed bank was bought by BofA for US$4bn in 2008.

Weekly Industry Newsletter

43 of 93

The deal comes after a group of 22 investors demanded that Bank of America repurchase US$47bn in mortgages that its Countrywide unit sold to them in the form of bonds. The group, which includes the Federal Reserve Bank of New York, Pimco Investment Management, and Blackrock Financial Management, argued that Countrywide enriched itself at the expense of investors by continuing to service bad loans while running up servicing fees. Bank of America denied those claims. Bank of America CEO Brian Moynihan said that the settlement would minimize future economic uncertainty in the banking business and clean up the mortgage issues largely stemming from our purchase of Countrywide. The settlement is subject to court approval and covers 530 trusts with original principal balance of US$424bn. Fed sets higher cap on debit card fees Shares of electronic payments companies Visa and MasterCard rallied after the US Federal Reserve set a higher than expected cap on debit card transaction fees. The Fed’s board voted 4-1 to set so-called interchange fees at 21 cents per transaction, above the 12 cents limit the regulator had proposed in December. A 12 cent cap would have reduced debit fees by more than 70%, according to some estimates. Banks currently charge an average of 44 cents per transaction. In addition to the 21 cent cap, the Fed’s new rules would allow banks to charge an additional 0.05% of each transaction’s value. If the Fed found banks’ fraud-prevention systems adequate, banks could add another penny. These additional charges would bring the fees on the average debit card transaction - US$38 - to as much as 24 cents. The Fed also banned banks from agreeing to route customers’ debit-card transactions exclusively through any one payments network. "It was one of our most challenging rulemakings under the financial regulatory law," Fed Chairman Ben Bernanke said. It is unclear how consumers will be affected by the change, which was required under last year's overhaul of financial regulations and goes into effect in October.

Weekly Industry Newsletter

44 of 93

Domestic News - July 2011 RBI issues draft guidelines on banks' equity investments The Reserve Bank of India (RBI) released on its website, Draft Guidelines on Equity Investments by scheduled commercial banks in subsidiaries and other companies for comments and feedback. Comments/feedback on the draft circular may please be sent before July 22, the central bank said in a statement. In the Second Quarter Review of Monetary Policy for FY 2010-11, the RBI had announced that guidelines stipulating the prudential limits to regulate the investment of banks in companies engaged in forms of business other than financial services will be issued separately. In the following paragraphs, first the regulations governing banks’ setting up subsidiaries and banks’ investments in companies (not being subsidiaries) engaged in financial services are reviewed to provide a perspective and then prudential regulations for governing banks’ investments in companies (not being subsidiaries) which are non-financial services companies are set out. Read more Harun Rashid Khan takes charge as RBI Deputy Governor Harun Rashid Khan took over as Deputy Governor of the Reserve Bank of India. As Deputy Governor he has been appointed for a period of three years. He will look after Central Security Cell, Department of External Investments and Operations, Department of Government and Bank Accounts, Department of Payment and Settlement Systems, Foreign Exchange Department, Internal Debt Management Department and Inspection Department. Prior to being appointed as Deputy Governor Khan was Executive Director of Reserve Bank of India since October 2007 and looked after the Department of External Investments and Operations, Foreign Exchange Department, Internal Debt Management Department and Department of Government and Bank Accounts. He was earlier Regional Director of the Bank’s New Delhi Office and prior to that he was Principal of the College of Agricultural Banking in Pune. Khan’s central banking career spanned over 32 years during which he has discharged diverse responsibilities in RBI in areas of rural credit, currency management, banking supervision & regulation, debt management, reserve management, exchange control, personnel administration and internal accounts of the Bank. Citibank fined Rs. 2.5mn by RBI The Reserve Bank of India (RBI) announced that it has imposed a monetary penalty of Rs. 25.00 lakh on Citibank N.A., for contravention of various guidelines and instructions relating to Know Your Bank (KYC)/Anti Money Laundering (AML) issued by the central bank. The failure in following the KYC/AML guidelines while opening accounts led to the perpetration of a fraud at its Gurgaon branch, the RBI said in a statement. The RBI had issued a show cause notice to the bank on April 21, in response to which the central bank submitted a written reply dated May 6, 2011. After considering the facts of the case and the US bank's reply, and also oral submissions made during the personal hearings held on June 7, the RBI came to the conclusion that the violations were substantiated and warranted imposition of the penalty. EPFO selects 4 new fund managers: reports The Employees’ Provident Fund Organisation (EPFO) reportedly appointed four new fund managers—State Bank of India (SBI), ICICI Securities, Reliance Capital and HSBC Asset Management Company—for managing its corpus of Rs. 3.5 lakh crore. According to reports, SBI will manage 35% of the funds, ICICI 25%, while the other two would manage 20% each. ICICI Securities is the only new entrant to the list, while ICICI Prudential has been excluded from the previous list of four companies managing the corpus till March 31.

Weekly Industry Newsletter

45 of 93

SBI profit to be hit by provisions: Chairman The profitability of the State Bank of India (SBI) could be slightly subdued during the first two quarters of FY12 on account of provisioning towards building the ‘countercyclical buffer' stipulated by the Reserve Bank of India (RBI), Chairman Pratip Chaudhuri said on Thursday. “Our profits could be slightly subdued during the first and second quarters. However, we should start seeing some good profits from the third quarter of this fiscal,” Chaudhuri told reporters on the sidelines of a banking summit organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) in Kolkata. Read More… Bajaj Finance to issue warrants: reports Bajaj Finance is reportedly raising close to Rs. 7.5bn through the issue of warrants to its promoters, Bajaj Finserv. According to reports, the non-banking finance company will make a preferential issue of 60 lakh warrants to Bajaj Finserv, convertible into equity shares, at an issue price of Rs. 651 per share. It also plans to sell 75 lakh shares to qualified institutional players that will yield another Rs. 3.6bn. India will get access to Swiss banks by April: FM The Finance Minister on Thursday reportedly announced that India could get access to the black money in Swiss banks by April 2012. Reports quoted the Pranab Mukherjee as saying that, "I was told that it may be possible for them to give it in September…but some information is coming from our mission that it could be April 1, 2012." Reports added that, the agreement which was signed last year may come into force by October 7, however the treaty will be applicable only since January 1, 2011, which means the money lying there before this date will not be accessible to Indian authorities. “It has not been easy to get this co-operation from foreign jurisdictions, It was only after the Pittsburgh G20 Summit (in September, 2009) that all countries were told action would be taken by the international community against non-cooperative countries and jurisdictions that they started cooperating," Mukherjee was further quoted as saying. Cabinet approves merger of SBI Commercial with SBI The Union Cabinet on Thursday approved the consolidation of SBI Commercial & International Bank Ltd. with the State Bank of India (SBI). “Cabinet gave its nod to the merger of State Bank of Indore with SBI," Ambika Soni, Union Minister for Information & Broadcasting was quoted as saying. According to reports, the merger proposal was approved by the central board of SBI last year. Following this, the Centre also gave an in-principle approval. SBI holds 98% stake in State Bank of Indore. L&T Finance IPO price band at Rs. 51-59/share L&T Finance Holdings Ltd. on Thursday announced that it has set a price band of Rs. 51 to Rs. 59 per share for its initial public offering (IPO). The announcement was made at a press conference in Mumbai today. JM Financial is one of the lead managers of the company’s IPO. The IPO will open on July 27 and will close on July 29. The company plans to raise Rs. 15.75bn via the IPO. The net size for public in L&T Finance IPO has been fixed at Rs. 10.75bn. L&T started NBFC business in 2005 for infrastructure funding. L&T Finance has grown by over 30% CAGR since 2005. L&T Finance raised Rs. 3.3bn via pre-IPO placement. It issued 60mn shares at Rs. 55 a share to US-based PE fund of Capital International. The IPO proceeds are proposed to be used for augmenting the capital base of L&T Finance and L&T Infra to meet the capital requirements arising out of expected growth in their assets, primarily the loan portfolio. Equirus Capital is the co-book running lead manager.

Weekly Industry Newsletter

46 of 93

IDFC appoints Girish Nadkarni as ‘Partner’ at its Private Equity Business IDFC has appointed Girish Nadkarni as ‘Partner’ at IDFC Private Equity business today. A seasoned finance and business professional Girish brings to the table two decades’ of experience in diverse fields like Buyouts, Corporate Finance, Treasury and Risk management, Business Strategy, Mergers & Acquisitions, Global Financial Reporting, Taxation and setting up new businesses. Satish Mandhana, Managing Partner, IDFC PE, said “The Private Equity business is a key pillar of IDFC's Alternative Assets strategy and Girish’s addition as ‘partner’ to our team of experienced professionals is a boon. I take this opportunity to wish him every success at IDFC”. Prior to joining IDFC, Nadkarni was Executive Vice President (Finance & Legal) and Chief Financial Officer of Rallis India Ltd and was member of Executive Committee. His earlier assignments include Deputy CFO at Tata Chemicals and Vice President at Tata Industries. While working at Tata Industries, he was involved in acquisition of VSNL, Hughes Tele.com, Escotel Mobile etc. and divestments of Tata’s stake in Idea, Tata Honeywell as also managing joint venture relationships like Avaya, Honeywell, Ascendas, Cingular, Birla, etc. He has served on the Boards and Chaired Audit Committees of various Tata companies.

Weekly Industry Newsletter

47 of 93

International News - July 2011 China hikes interest rates by 25 bps China's central bank said that it would increase the benchmark deposit and lending rates by a quarter percentage point as part of the government's efforts to rein in spiraling inflation. The People's Bank of China (PBOC) said that it will raise the one-year yuan lending rate to 6.56% from 6.31%. The one-year yuan deposit rate will be hiked to 3.50% from 3.25%. This is the third rate increase by PBOC this year and its fifth rate increase in the latest round of monetary tightening. The Chinese central bank has also hiked banks' reserve requirement ratio (RRR) six times in 2010 and six times so far this year. The move is effective July 7. China's consumer price index rose 5.5% in May, the fastest increase in nearly three years. Analysts widely expect the headline inflation to hit another high in June because of rising food prices. The data is due to be released on July 15. ECB ups refinance rate by 25 bps to 1.5% The European Central Bank (ECB) increased its benchmark rate by a quarter percentage point to tame inflation that has been consistently running ahead of the central bank's comfort level. The ECB lifted its refinance rate to 1.5% today from 1.25%. This was the second rate hike by the ECB in three months. ECB was widely expected to press ahead with a rate hike. ECB President Jean-Claude Trichet will sometime later hold his monthly news conference where he is expected to face a barrage of questions on the central bank's response to the ongoing sovereign debt crisis. Australia leaves key rate on hold Australia's central bank left its key interest rate steady as the central bank continues to examine the impact of its previous actions amid signs of moderation in the global economy. The Reserve Bank of Australia (RBA) kept the cash rate at 4.75%, with the rate-setting board saying that it judged the current mildly restrictive stance of monetary policy as appropriate. The RBA last raised its key cash rate in November 2010. The RBA board noted that the global economy is continuing to expand but the pace of growth slowed in the April to June quarter. Wall Street confused by Bernanke remarks Federal Reserve Chairman Ben S. Bernanke repeated his statement that the Fed stood ready to take more action should the economy weaken further. But, Bernanke also said that inflation was higher now than it was late last year, so the Fed is not ready yet to take action. He was addressing the US lawmakers during his second day of congressional testimony. US stocks closed lower on Thursday following Bernanke's second appearance on Capital Hill. This was in stark contrast to Wednesday, when the US market advanced after Bernanke hinted that the Fed was open to adopting new measures to stimulate the world's largest economy, which is going through a soft patch. S&P raises red flag over US debt As if the concerns on eurozone credit crisis were not enough, the world now has to contend with back-to-back warnings on US debt situation by Moody's and Standard & Poor's. The dollar was under pressure against most trading rivals while gold touched a new record high as global risk appetite waned. S&P placed US credit ratings on watch, a day after a similar action was taken by competitor Moody's. S&P said there was a 50% chance of it cutting US' triple-A rating within 90 days on risks that Whit House will fail to clinch a deal on raising the nation's debt limit, triggering a default. Negotiations on Thursday between US President Barack Obama and congressional leaders ended without reaching a deal on the country's debt, according to media reports. The US president was likely to address reporters on Friday. JPMorgan Chase announces Q2 2011 earnings

Weekly Industry Newsletter

48 of 93

JPMorgan Chase & Co. today reported second-quarter 2011 net income of $5.4 billion, compared with net income of $4.8 billion in the second quarter of 2010. Earnings per share were $1.27, compared with $1.09 in the second quarter of 2010. Jamie Dimon, Chairman and Chief Executive Officer, commented: “Our second-quarter earnings reflected solid performance across most of our businesses. The Investment Bank delivered strong earnings across most products and maintained its No.1 ranking in Global Investment Banking Fees. Read More… Eurozone debt woes persist as focus shifts to Italy Eurozone and world markets continue to be on tenterhooks despite Greece averting an imminent default and obtaining approval for a fresh EU-IMF bailout, as the focus shifts to other indebted nations like Portugal, Ireland, Italy and Spain. Italy was the center of attention this week, with yields on its government bonds surging amid apprehensions over the passage of a crucial austerity package. The anxiety was caused in part by a standoff between Italian premier Silvio Berlusconi and Finance Minister Giulio Tremonti. Italy has the world's third-largest government-bond market. Its debt stands at 120% of GDP, the highest ratio in the euro area after Greece. Meanwhile, the Italian Senate passed the government's four-year, 40 billion euro {$56.6 billion) austerity plan, sending the package to the parliament's lower chamber where it is expected to win approval on Friday. Fitch Ratings said that the deficit targets laid out in the austerity plan expected to be approved by Italy’s parliament would help stabilize the country’s sovereign risk profile and maintain its rating at AA-minus. The euro area finance ministers discussed the option to allow Greece to default on some of its debt and possibly abandon the French proposal for the private-sector participation. The plan could also involve governments helping Greece buy back its bonds. Top officials from the European Commission and the European Central Bank met to discuss a new bailout for Greece and recent developments in the euro area. Fitch Ratings downgraded Greece deeper into junk territory, citing the absence of a new and fully funded financing programme for the country. It cut Greece's rating by four notches to CCC, a rating that implies a substantial risk of default. Meanwhile, Ireland became the third country in the euro zone to have its credit rating downgraded to junk status. Moody's made the cut on the basis that Ireland will also eventually need another bail-out, provoking more grumbles in Brussels about the role of ratings agencies in the debt crisis. Eight European banks fail stress test Eight out of 90 European banks failed the July 15 stress tests with a combined capital shortfall of only 2.5 billion euros, the European Banking Authority said. But, the exercise has been criticised yet again for being too easy to pass. It may not help shore up confidence in eurozone's precarious banking system. Regulators didn’t include a Greek default in the tests even though credit default swaps (CDS) indicate investors see an almost 90% chance of one. The EBA included a 25% writedown on 10-year Greek government bonds held in banks’ trading books even as the securities trade at about 51 cents on the euro. European banks may have to raise as much as 80 billion euros ($113 billion) of additional capital as the stress tests failed to allay investor concern about a Greek default and governments’ ability to bail out their lenders. As many as 20 banks need to bolster capital, according to JPMorgan Cazenove analysts.Based on a stricter 7 percent capital target, and including writedowns on sovereign debt in the banking book, 20 banks would need to raise capital, according to JMorgan analysts. As many as 16 more will need to bolster capital after their core Tier 1 ratio dropped below 6%, little more than the assessment’s 5% pass-mark, the EBA said. South Korea leaves rates unchanged

Weekly Industry Newsletter

49 of 93

The Bank of Korea (BOK) left its benchmark interest rate steady as the central bank examines the deteriorating sovereign debt situation in Europe and signs of a slowdown in the United States. Some moderation in inflation pressure in the domestic market has also given it time to pause after raising rates last month for the third time this year. The BOK would keep its policy interest rate unchanged at 3.25%, in line with market expectations. The South Korean central bank began raising the benchmark rate from a record-low 2% in July 2010. The local foreign-exchange and bond markets barely reacted to the widely expected BOK decision. The Korean won is up 7% so far this year, and reached a 34-month high against the dollar last week. Read More… European officials unveil new bailout for Greece European leaders agreed to a new US$229bn bailout plan for debt-plagued Greece that includes private sector support. They also strengthened their 440-bn euro rescue fund to buy debt of the struggling eurozone nations. EU members agreed to provide €109bn (US$156.7bn) in official support and another €50bn from the private sector, the European Council said in a statement. The heads of state, including France's Nicolas Sarkozy and Germany's Angela Merkel, also agreed to extend the maturity of future loans for Greece to a maximum 30 years from the current 7.5 years. The new funds will be provided to Greece at about 3.5%. EU member nations will also work closely to come up with concrete proposals by October to improve working methods and enhance crisis management in the euro area, the statement said. As many as 30 non-US firms, including HSBC, Deutsche Bank, Allianz, BNP Paribas and Munich Re agreed to accept a debt exchange of Greek bonds as well as a still-undetermined-sized buyback, according to the Institute of International Finance. The euro rallied and the dollar declined after the news. Global investors have been nervous over the past several days about the seemingly never-ending credit crisis in eurozone and the protracted political logjam in the US over debt ceiling. Germany had insisted on the participation of private bondholders to fund the cost of a new Greek bailout. But, France and the ECB had resisted such calls, warning that it could cause the crisis to spread. The ECB had also warned that any measure that results in a default on Greek debt would render the bonds ineligible to be used as collateral in return for central bank's funding. Meanwhile, France reportedly dropped a so-called bank tax that was supposed to raise as much as €50 billion over five years to finance buybacks of Greek government bonds. Obama may be close to deal with Republicans: reports The Obama administration is reportedly close to a deal with House Republicans to boost the US debt ceiling and reduce deficits by ~US$3 trillion over the next 10 years without any immediate increase in revenues. The New York Times reported that the US President and House Speaker John Boehner were close to reaching a deal on raising the debt ceiling. The Wall Street Journal (WSJ) reported that the proposed deal between Obama and Boehner to reduce the deficit would include spending cuts upfront but leave a revamp of the tax code later. But, both sides refuted the media reports and said there was no agreement yet. White House press secretary Jay Carney told reporters that the report was incorrect and said that the situation was fluid. He added that the Obama administration was absolutely confident that an agreement to avert a default can be reached before an Aug. 2 deadline. Meanwhile, the Standard & Poor's (S&P) reiterated that there was a 50% chance that it will lower the US credit rating within three months because of the impasse. On Friday, the Senate is expected to reject a bill cleared by the House earlier this week. That bill aims to raise the borrowing limit and would reduce spending. At the same time, it urges both chambers of Congress to

Weekly Industry Newsletter

50 of 93

pass a balanced budget amendments. President Obama has said that he would veto that bill if it gets to his desk. The WSJ reported that the Obama-Boehner deal would include about US$3 trillion in spending cuts over 10 years, and a tax overhaul by the end of 2012. It would raise roughly US$1 trillion in additional revenue over a decade. According to the New York Times report, the deal would involve substantial spending cuts and seek future revenues through a tax overhaul. A plan by the Senate’s so-called “Gang of Six” have proposed to cut about US$3.7 trillion from deficits in a decade. That proposal would lower overall tax rates but would also reduce mortgage deductions and other tax breaks. Sri Lanka to raise US$1bn via 10-year sovereign bond issue Sri Lanka will reportedly be raising $1 bn from the international markets through a 10-year sovereign bond issue. According to reports, this would be the fourth sovereign bond issue by the Government since 2007 and would carry a coupon rate of 6.25% a year. Earlier in the week, Fitch, Moody’s and Standard & Poor raised Sri Lanka’s economic outlook to positive from stable. Reports quoted Economic Development Minister, Basil Rajapaksa, as saying that “the rating upgrade confirms that Sri Lanka has won the confidence of the world on its economic development policies and macro economic strategies.” HSBC may cut up to 10,000 jobs: report HSBC to announce that will curb thousands of jobs for cost-cutting drive. The plans are not yet finalised, according to reports. In May, the bank was looking for sustainable cost savings of $2.5 billion to $3.5 billion in order to reach a cost efficiency ratio target of 48-52 percent by 2013. The bank will also conduct a strategic review of its cards business in the US, and would limit its retail banking operations to markets where it can achieve profitable scale, added reports. Singapore Mercantile Exchange (SMX) sets new record Singapore Mercantile Exchange (SMX), the first trans-Asian multi-product commodity and currency derivatives exchange, set a new record yesterday when the trading volume hit a historic high of 9,659 contracts and the turnover crossed INR 1,610 crores (USD 350 million). Trading on SMX has consistently witnessed a surge in trading volumes and turnover over the last few weeks. SMX which went live on August 31, 2010 has seen its membership number double over the past 11 months crossing 50. The exchange had started with 25 members and four contracts and today has more than 50 members including 7 clearing members and 11 contracts. Read More… China does not need such high foreign reserves, Yu Yongding Prof Yu Yongding is an Academician with Chinese Academy of Social Sciences (CASS), former Director- General of Institute of World Economics and Politics (IWEP) (1998- ), Professor with Post- Graduate School of Chinese Academy of Social Sciences, President of the China Society of World Economics (2001- ), Editor of China and World Economy, Associate Editor of Asian Economic Policy Review. He was formerly the academic member of the Monetary Policy Committee of the People's Bank of China (PBOC) and member of National Advisory Committee of the 11th Five Years Plan of National Reform and Development Commission (NDRC). He is a foreign member of Academie Hassan II Des Sciences Et Techniques, Royaume Du Maroc. He has co-authored and edited more than 10 books, and published numerous papers and articles on macroeconomics, international finance and other subjects in various academic journals and mediums. Read More…

Weekly Industry Newsletter

51 of 93

Domestic News - August 2011 IIISL's Public Issue of Secured Redeemable NCDs India Infoline Investment Services Limited (IIISL or “the Company”), an NBFC subsidiary of India Infoline Limited (IIFL) will open, its maiden public issue of Secured Redeemable NCDs of the face-value of Rs. 1,000 each aggregating to Rs. 375 crores, with an option to retain over-subscription up to Rs. 375 crores, aggregating up to a total of Rs. 750 crores (the “Issue”). The NCD Issue with 3 investment options and yield on redemption of up to 11.90% (per annum) opens on August 4, 2011 and closes on August 12, 2011. Read More… Nationwide bank strike...Over 1mn employees protest Banking operations across the country were affected with the employees of public sector and old private sector banks going on a day-long strike in protest against banking sector reforms. According to reports, the employees are protesting against outsourcing of bank jobs, recommendations of the Khandelwal Committee, issues related with pension and regulated working hours for officers. S&P assigns 'A-1' to Axis Bank's US CP Program Standard & Poor's Ratings Services said that it had assigned its 'A-1' short-term issue rating to the proposed US$240 million U.S. commercial paper (USCP) program of Axis Bank Ltd. (BBB-/Stable/A-3). A US$240 million irrevocable direct-pay letter of credit issued by Citibank N.A. (A+/Negative/A-1) supports this program. Read More… Quantum Mutual Fund now paperless India’s first and only direct-to-investor mutual fund, Quantum Mutual Fund, is now also India’s First Mutual Fund to offer investors a safe and secure Paperless online platform to invest in its products and is towards its way to provide online investment easier and convenient for its valued investors. Read More… Subbarao gets 2 more years as RBI chief Dr. Duvvuri Subbarao has been given an extension of two years as the Governor of the Reserve Bank of India (RBI), media reports said on Tuesday. His current term was to end on Sept. 4. The Prime Minister has approved the extension of the term of Dr. Subbarao as Governor of the RBI for a further period of two years with effect from September 5. SBI curtails size of proposed Rights Issue State Bank of India (SBI) has reportedly scaled down the requirement of funds from the government for its proposed rights issue. The bank had earlier requested for Rs. 200bn from the government, has now settled for Rs. 50bn-Rs 150bn. Pratip Chaudhuri, Chairman, SBI was quoted as saying “We are working on the number and the government are very supportive. It will be required for capital. A part of it would come from internal accruals. The details are being worked out. The amount we have put on the table is between Rs. 5,000 crore and 5,000 crore from the government.” Govt to provide stimulus measures The Government will provide stimulus measures to absorb the impact of moderation in exports following a rating downgrade of the United States by Standard & Poor's, Union Minister for Commerce & Industry, Anand Sharma said. However, the current volatility in global markets seems to be a temporary turbulence and Indian exports should grow more than 25 percent in the current financial year 2011-12, he said while releasing ASSOCHAM’s Africa manual titled Opportunities Unlimited. Read More… RBI allows foreign individuals to invest in MFs

Weekly Industry Newsletter

52 of 93

The Reserve Bank of India (RBI) on Tuesday said that it has decided to allow non-resident investors (other than SEBI registered FIIs and SEBI registered FVCIs) who meet the KYC requirements of SEBI [hereinafter called ‘Qualified Foreign Investors’ (QFIs)], to purchase on repatriation basis rupee denominated units of equity schemes of domestic MFs issued by SEBI registered domestic MFs in accordance with the terms and conditions as stipulated by the SEBI and the RBI from time to time in this regard. RBI minutes...2 TAC members sought status quo on July 20 The Reserve Bank has been placing the main points of discussion of the Technical Advisory Committee (TAC) on Monetary Policy meeting in public domain with a lag of roughly four weeks after its meeting. Accordingly, the minutes of the twenty-fourth meeting of the TAC held on April 27, 2011 were placed in public domain on May 30, 2011. The twenty-fifth meeting of the Committee was held on July 20, 2011 in the run up to the First Quarter Review of the Monetary Policy 2011-12 on July 26, 2011. The main points of discussion of this meeting are set out below. Read More… Registration of AEGON Mutual Fund cancelled Securities and Exchange Board of India has cancelled the certificate of registration of AEGON Mutual Fund and has withdrawn the approval granted to AEGON Asset Management Company Pvt. Ltd. to act as the Asset Management Company. Consequently, with immediate effect, AEGON Mutual Fund, AEGON Trustee Company Pvt. Ltd. and AEGON Asset Management Company Pvt. Ltd. cannot carry out any activity as a Mutual Fund, Trustee Company and Asset Management Company respectively. ICICI Bank unveils fixed-cum-floating rate home loan scheme ICICI Bank Ltd. has announced a new fixed cum floating interest rate product for home loans. According to reports, the new scheme will allow customers to avail a home loan at a fixed interest rate valid for a period of one year or two years. From the second and third years, the home loans will be linked to ICICI Bank’s base rate plus margin decided at the time of sanctioning of the loan. "Fixed interest rates will shield customers from frequent changes in home loan interest rates and protect them from any rise in interest rates over the next one year or two years depending on the product availed of by the customer," ICICI Bank said. Under the one-year fixed rate home loan, customers can obtain a loan at 10.50% for an amount less than or equal to Rs. 25 lakh; 11% for loans over Rs. 25 lakh and less than or equal to Rs. 75 lakh; and 11.50% for over Rs. 75 lakh. Under the two-year fixed rate home loan, the customer can avail themselves of a loan at 10.75% for an amount less than or equal to Rs. 25 lakh; 11.25% for over Rs. 25 lakh and less than or equal to Rs. 75 lakh; and 11.75% for loans over Rs. 75 lakh. The new product will be available from August 19, ICICI Bank said. New India Assurance chief suspended for irregularities: report New India Assurance Chairman M Ramadoss was reportedly suspended by the government on alleged irregularities in the distribution of credit insurance cover to Paramount Airways during his tenure as CMD of Oriental Insurance Company. According to reports, United India Insurance head G Srinivasan would take additional charge of New India Assurance temporarily. The Central Bureau of Investigation (CBI) had filed a report against Ramadoss on allegations of favouring the Chennai-based Paramount Airways by giving it credit-based insurance policies without following procedures. “It is a government order. Hopefully, everything would be sorted out quickly, but it will not affect day-to-day business,” said a New India official. Muthoot Finance to raise upto Rs. 1,000 crore through a Public Issue Muthoot Finance Limited (the “Company” or “Issuer”), the largest gold financing company in India in terms of loan portfolio, according to the 2010 update to the IMaCS Research & Analytics Industry Reports, Gold Loans

Weekly Industry Newsletter

53 of 93

Market in India, 2009 [“IMaCS Industry Report, (2010 Update)”], will open on August 23, 2011, its maiden public issue of secured, redeemable, non-convertible debentures (“NCDs”) of face value of Rs. 1,000 each aggregating upto Rs. 500 crore with an option to retain over subscription upto Rs. 500 crore, aggregating to a total of upto Rs. 1,000 crore (the “Issue”). Read More… ADB to give US$200mn to tackle power problems in MP The Government of India and the Asian Development Bank (ADB) signed an agreement for the first tranche ($200mn loan) under the $400mn Madhya Pradesh Energy Efficiency Improvement Investment Programme. The programme will help improve electricity distribution in rural areas of Madhya Pradesh, and help in providing reliable 24-hour electricity to rural households that will stimulate business, employment and education. The signatories were Venu Rajamony, Joint Secretary (Multilateral Institutions), Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India, and Hun Kim, ADB Country Director for India. Mohd. Suleman, Nitesh Vyas, Manish Rastogi and D. P. Ahuja signed the project agreements on behalf of the state Government of Madhya Pradesh. Read More… SEBI speeds investigations, builds confidence with SAS Increasing regulations and scrutiny demand sophisticated analysis and monitoring to spot market malpractice and trading compliance. To achieve the robust surveillance required to ensure unbiased trading platforms, the Securities and Exchange Board of India (SEBI). Read More… Milesone Capital Advisors CEO passes away Ved Prakash Arya, MD and CEO of Milesone Capital Advisors, died in an accident after a tree fell on him, while he was taking his morning walk on Thursday. He is survived by his wife and two children. Ved was among the youngest leaders who shaped the retail industry in India. Kishore Biyani, Group CEO, Future Group was quoted as saying "the Future Group benefited immensely from his entrepreneurial zeal and leadership during our formative years." M V Nair to Chair RBI Committee on Priority Sector The Reserve Bank of India has constituted a committee on priority sector under the Chairmanship of M V Nair, Chairman & Managing Director of Union Bank of India. “RBI has set up a committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues”, said RBI in a press release. According to Nair, it is essential from the political economy perspective that extension of formal credit is broad-based, timely and adequate. Read More… Fitch affirms HDFC Bank's ratings at 'Fitch AAA(ind)' The announcement corrects the version published on 24 August 2011, to include the affirmation of HDFC Bank's term deposit programme at 'Fitch tAAA(ind)'. Fitch Ratings has affirmed India-based HDFC Bank Ltd's (HBL) National Long-Term (LT) Rating at 'Fitch AAA(ind)' with a Stable Outlook, and National Short-Term (ST) Rating at 'Fitch A1+(ind)'. HBL's lower tier 2 debt has also been affirmed at 'Fitch AAA(ind)' based on Fitch's criteria. A full list of rating actions is given at the end of this commentary. Read More… BOI raises USD200mn through 3 year syndicated loan: reports Bank of India (BOI) reportedly said that it has raised a loan of USD 200 million to expand its foreign operations. The bank has raised the money through a syndicated foreign currency loan for three years at an "attractive rate of interest". According to reports, the proceeds will be utilised for expansion at the foreign operations. However, the bank has not clearly elaborated on the international expansion front.

Weekly Industry Newsletter

54 of 93

Former RBI director DS Brar joins KKR as advisor Kohlberg Kravis Roberts & Co (KKR) a Global investment firm on Monday announced its appointment of former Reserve Bank of India (RBI) director D S Brar, as a senior advisor to the firm, reports stated. Brar under his new role will oversee KKR’s Asia portfolio management committee, which interacts with the company management, monitors all of KKR’s private equity investments in the region and provides guidance and input on the operations of companies, KKR said in a statement. Read More… Reliance Capital signs MoU with Nippon Nippon Life Insurance Company signed a Memorandum of Understanding (MoU) with Reliance Capital, with a view to further strengthening the business relationship between the two companies. The MoU was signed by Anil D. Ambani, Chairman, Reliance Capital and Yoshinobu Tsutsui, President, Nippon Life, in Tokyo. Nippon Life will be evaluating collaboration opportunities – including strategic partnership – across all Reliance Capital promoted financial businesses. The company has already agreed to be a strategic partner in Reliance Life Insurance with 26 per cent stake. Read More…

Weekly Industry Newsletter

55 of 93

International News - August 2011 US seals debt ceiling deal US President Barack Obama announced that the Democratic and Republican leaders of the Senate had reached a deal to raise the nation’s debt ceiling and avert a default. Both the chambers of the US Congress then approved the measure, which would raise the US$14.3 trillion debt ceiling by at least US$2.1 trillion through 2012, and cut spending by about US$2.4 trillion by 2021. The US Treasury Department has said that the debt ceiling must be raised by Aug. 2 or the financing arm of the American government will start running out of cash to pay its bills. A downgrade of the US credit rating is still is not out of question - even if the debt ceiling is raised. The debt-limit compromise averted the threat of an imminent debt default but failed to calm jittery financial markets. The debt ceiling issue will not arise again before the 2012 presidential election. The Treasury would immediately get US$400bn in additional borrowing authority, with an extra US$500bn to come later in the year. The Congressional Budget Office estimated the deal would reduce projected budget deficits by US$2.1 trillion over the next 10 years. Even with the cuts, however, the US is projected to increase the national debt by US$7 trillion or more over the next decade, based on the current rate of spending and revenue. RBA cuts growth forecast...Ups inflation projection The Reserve Bank of Australia has cut its forecast for economic growth this year and raised the outlook for inflation, according to a report. The report stated that the RBA forecast growth in 2011 will average 2 percent, down from its May 6 estimate of 3.25%. The RBA has reportedly said that the underlying inflation will remain “relatively high” in 2012 and 2013. Consumer prices will rise 3.5% in the year through to the final quarter of 2011, from a previous prediction of 3.25%. Obama wants Geithner to stay as Treasury chief US President Barack Obama has reportedly asked Timothy Geithner to stay on as U.S. Treasury secretary, a decision on which is expected soon. According to reports, Geithner has not yet decided whether to depart but would likely come to a decision soon. Obama and William Daley, the White House Chief of Staff have both encouraged Geithner to stay. Geithner indicated he might leave once an increase in the U.S. debt limit was secured. ECB sees downside risks to growth...Resumes bond purchases The European Central Bank (ECB) President Jean-Claude Trichet said that he saw downside risks to the regional growth amid growing uncertainties surrounding the credit crisis and the global economy in general. During his monthly news conference following the central bank’s policy meeting, Trichet said that downside economic risks may have intensified and that recent data showed that the growth pace in Europe has decelerated. Trichet also indicated that the ECB has resumed purchases of government bonds amid mounting fears that the eurozone’s sovereign-debt crisis could eventually engulf larger economies such as Italy and Spain. Trichet’s comments temporarily boosted the euro and drove down bond yields for Italy, Spain and peripheral markets but the relief was short lived after traders found out that the central bank had bought bonds of Portugal and Ireland. What also hurt sentiment was Trichet's comment saying that the move to buy regional bonds had not been unanimous although it had been approved by an overwhelming majority. Also, doubts prevail as to whether the central bank’s bond purchases will be adequate to prevent the debt contagion from spreading to Italy and Spain. The ECB also boosted liquidity in money markets amid signs of strain in bank funding markets. Trichet said the ECB would hold more liquidity operations to

Weekly Industry Newsletter

56 of 93

give eurozone banks more cash. He also hinted at intervention, saying that the government’s bond-buying program was ongoing and had never been halted. BOE leaves rates steady...Bond purchase plan unchanged The Bank of England (BOE) on Thursday kept its monetary policy unchanged as the central bank policymakers continued to be trapped between higher-than-normal inflation and a slowing British economy. The nine-member Monetary Policy Committee left the bank’s key lending rate steady at a record low 0.5% and left the size of its asset-purchase program unchanged at £200bn (US$327.8bn). Read More… Bank Chinatrust Indonesia implements core banking solutions Bank Chinatrust Indonesia and Infosys announced the successful implementation of Finacle core banking solution. Replacing the bank’s legacy system, Finacle now drives operations across 13 branches. The core banking rejuvenation project was successfully completed in less than 14 months. Read More… Fed to leave rates steady for two more years The Federal Reserve policymakers in the United States swung into action to calm jittery world markets by pledging to keep interest rates at record low for at least another couple of years. The Federal Open Market Committee (FOMC), the US central bank's main policy setting body, also painted a much bleaker picture of the world's largest economy. This was the first time the Fed has set a definite time frame on the duration of its current loose monetary policy. The Fed had been ambiguous in all its prior policy announcements, saying that it would keep the federal funds rate near zero for an "extended period." The Fed has kept the rate near zero since 2008. Surprisingly, three of the Fed's 10 voting members formally dissented against putting a timeframe to the duration of its monetary policy. Regional Fed presidents Richard Fisher of Dallas, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia were in favour of the "extended period" phrase. There was also a change in the economic assessment, with the Fed now saying that growth in the US is "considerably slower" as opposed to saying that the recovery was at a "moderate pace." The Fed indicated that it was considering a range of policy tools available to promote a stronger economic recovery, and that it was prepared to employ these tools as appropriate. In June, the FOMC had said that it would monitor the economic outlook and act as needed. The Fed completed a US$600bn stimulus plan in June widely known as the second round of quantitative easing, or QE2. The US central bank said it expects a much slower pace of recovery than what it anticipated during the last meeting in late June. In June, the Fed policymakers had cut their forecasts for US economic growth to between 2.7% and 2.9% for the year overall. BOE cuts GDP growth and inflation forecasts The Bank of England (BOE) scaled down its forecast for GDP growth and inflation, saying that the pace of economic expansion has slowed and vulnerabilities, especially within the euro area have increased. The UK central bank said that inflation would fall rapidly in 2012, indicating that monetary policy will need to remain ultra-loose amid growing uncertainty surrounding the global economy. The BOE's latest report shows inflation dipping below 2% in late 2012 and holding slightly below the 2% target rate in 2013. In the short term, inflation could reach as high as 5%, BOE Governor Mervyn King told a press conference. The central projection for 2011 GDP growth was around 2%, having been closer to 2.5% in the May inflation report. Governor King said that headwinds buffeting the UK economy are intensifying by the day and officials can expand stimulus if the outlook for growth

Weekly Industry Newsletter

57 of 93

deteriorates further. "While there is no reason for the Monetary Policy Committee to add stimulus for now, in the committee’s view, the weakness in underlying activity is likely to be somewhat more persistent than previously expected," King told reporters in London. King said inflation may undershoot the 2% target and the UK has flexibility to adjust policies if growth is weaker than expected. China's inflation spurts in July on swelling food prices China's consumer prices accelerated more than expected in July, stoking fears of fresh monetary tightening by the central bank. Consumer prices surged 6.5% last month from a year earlier, as food costs increased, the Beijing-based National Bureau of Statistics said today. That was more than the 6.4% median estimate of economists. In June, China's main consumer inflation was at 6.4%. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, closed flat at 2,526 after being as high as 2,537 and as low as 2,437. The index yesterday entered into the so-called "bear market" after falling 20% from a November high. Meanwhile, China's producer prices rose 7.5% in July from a year earlier, the biggest gain in almost three years, after jumping 7.1% in the previous month. Bank of Korea holds rates steady The central bank of South Korea held its key rate steady for the second month in a row amid worsening outlook for the global economy in the wake of the US downgrade and lingering fiscal mess in the Eurozone. Governor Kim Choong Soo and his colleagues decided to keep the benchmark seven-day repurchase rate at 3.25%, the central bank said in a statement in Seoul. Kim said the vote was unanimous. The move was widely expected by the markets. BofA in talks to sell bulk of Merrill Lynch’s realty investments to Blackstone Bank of America is reportedly in exclusive talks to sell the bulk of Merrill Lynch’s boom-time real estate investments to Blackstone for up to $1bn, as the largest US bank by assets tries to clear up its balance sheet and bolster capital ratios. According to reports, the sale, which is still weeks away, would comprise between $800m and $1bn of unwanted property investments in Europe, the US and South America, and is part of the bank’s wider efforts to dispose of non-core assets. The talks could still fail to result in a deal. Warren Buffett to invest US$5bn in Bank of America Billionaire investor Warren Buffet will reportedly be investing US$5 bn in Bank of America. The US banking giant, under pressure of late, confirmed the investment made by Warren Buffet’s Berkshire Hathaway which will buy 50,000 preferred shares, reports stated. “In the shaky couple of weeks that we’ve gone through in the financial markets, it’s a good time for this vote of confidence by a savvy investor…We didn’t need the capital, but it doesn’t hurt to have more in a volatile time,” reports quoted BofA chairman, Charles O. Holliday Jr., as saying. UBS to cut 3,500 jobs as part of cost-saving plan UBS AG said on Tuesday that it plans to axe around 3,500 employees in a bid to save ~2 billion Swiss francs (US$2.54bn) from annual costs by the end of 2013. The Zurich-based financial services giant said that it would report 550mn francs of charges tied to the cost-cutting plan, with 450mn francs booked in second-half 2011. Of the 450mn, most will be reported in the third quarter, UBS said. The job cuts, which include dismissals and attrition, would come 45% in the investment bank, 35% in wealth management & Swiss bank, 10% from global asset management and 10% from wealth-management Americas.

Weekly Industry Newsletter

58 of 93

Alphabank acquires Eurobank to form biggest Greek lender Alpha Bank and Eurobank, Greece’s second and third largest banks respectively will merge following a capital injection of US$720mn by the Qatari government to create the nation’s biggest lender amid the country’s sovereign debt crisis. According to reports, Alpha will offer Eurobank shareholders five new shares for each seven they hold, or 0.714 Alpha shares for each Eurobank share, according to a statement from the banks in Athens on Monday. Alpha Bank shareholders will own 57.5% of the new group, and Eurobank stakeholders 42.5%. Qatar investors, who already have a stake in Alpha, will be one of the main three shareholders. Read More… US set to sue big banks over mortgages A federal US agency that oversees the operations of mortgage giants Fannie Mae and Freddie Mac is set to file law suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble. The Federal Housing Finance Agency will seek billions of dollars in compensation. The suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, Goldman Sachs, JP Morgan Chase and Deutsche Bank, among others, according to reports. Fed pulls up Goldman Sachs over foreclosure practices The Federal Reserve sanctioned Goldman Sachs over deficient practices involving residential mortgage loan servicing and foreclosure processing at its former subsidiary, Litton Loan Servicing LP. The action orders Goldman to retain an independent consultant to review foreclosure proceedings initiated by Litton that were pending at any time in 2009 or 2010. It also provides remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified. The Fed added that monetary sanctions are appropriate and that it will announce them later. Before it sold Litton to Ocwen Financial Corporation, Goldman Sachs was the 23rd largest mortgage servicer in the US, responsible for a portfolio of over 280,309 residential mortgage loans. Litton initiated 135,586 foreclosure actions between the start of 2009 and the end of 2010. BofA sells half of its China Construction stake Bank of America Corp. (BAC) has reportedly agreed to sell about half its stake in China Construction Bank Corp. (939) for a $3.3 billion gain as the biggest U.S. lender bolsters capital ahead of new international standards. According to reports, a group of investors will buy 13.1 billion shares this quarter in a private transaction that will generate $8.3 billion in cash proceeds. The companies are also discussing an expansion of strategic ties. The sale has removed concern that BoA’s shares would be dumped into the market and a few investors were able to buy the shares, so it reduced market uncertainty about an oversupply, added reports. China asks banks to hold more types of deposits In what is seen as another monetary tightening move, the People's Bank of China (PBOC) will reportedly ask Chinese banks to hold more types of deposits in reserve as it continues its efforts to keep liquidity in check and rein in elevated inflation. The Chinese central bank will require banks to include so-called "margin deposits," or collateral deposited by customers for letters of credit and other guarantees, in calculating the reserve requirement ratio, according to reports. Read More… Global recovery in dangerous phase: IMF’s Lagarde Christine Lagarde, the new chief of the International Monetary Fund was quoted as saying that the U.S. and the euro-zone must take radical steps to get their economies and the global recovery out of the “dangerous phase.”

Weekly Industry Newsletter

59 of 93

Christine further said that the stakes are clear: we risk seeing the fragile recovery derailed. So we must act now. Europe must come to the aid of its struggling banking sector and should consider using its European Financial Stability Facility to inject money into capital-starved banks.

Weekly Industry Newsletter

60 of 93

Domestic News - September 2011 RBI hikes policy rates by 25 bps...Maintains hawkish stance The Reserve Bank of India (RBI) raised the key policy rates - the repo rate and the reverse repo rate - by a quarter percentage point, as it persists with its efforts to tame the inflation beast despite signs of moderation in economic growth. So, the repo rate now stands at 8.25% and the reverse repo rate now stands at 7.25%. There has been no change in the Cash Reserve Ratio (CRR), which stands at 6%. The bank rate has been retained at 6%. The Marginal Standing Facility (MSF) rate, determined with a spread of 100 bps above the repo rate, stands recalibrated at 9.25% with immediate effect. The policy action in this review is expected to reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations, the RBI said in a statement. Inflation remains high, generalised and much above the comfort zone, the RBI said. After slight moderation in July, non-food manufactured products inflation rose again in August, suggesting continuing demand pressures, it said. Global crude oil prices have remained elevated despite weakening of global recovery, the RBI added. Moreover, there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete, the RBI said. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases, the central bank said. Food inflation is at near-double digit levels, despite normal monsoon, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon, the RBI said. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists, according to the central bank. Planning Commission proposes US$10bn sovereign wealth fund The Planning Commission has reportedly proposed that India should set up a sovereign wealth fund with an initial corpus of $10bn, mainly to invest in energy and mining assets abroad. According to reports, RBI has agreed to allow $5bn to be used from forex reserve while the rest will be pooled in from reserves of rich PSUs. The proposal has been forwarded to a group of ministers. However, no certain timeframe is set for establishing the fund or how the government would capitalise it. Subir Gokarn rules out RBI intervention in currency market The Reserve Bank of India (RBI) will consider intervention in the foreign exchange market only if there is a danger of currency fluctuations adversely affecting the markets and the economy, Subir Gokarn, a deputy governor in the central bank said. Gokarn was speaking at the annual conference of Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai. Gokarn was reacting to questions on Switzerland central bank’s move to cap the franc’s gains by setting a floor against the euro. The Swiss National Bank yesterday imposed a ceiling on the franc of 1.20 versus the euro, and pledged to defend the target with the utmost determination. Read More… Parliament passes SBI Subsidiary Banks Bill Parliament has reportedly approved the State Bank of India (SBI) subsidiary Bill which would pave the way for subsidiary banks of SBI to raise capital through preferential allotment/private placement of shares. According to reports, SBI, Subsidiary Banks Laws amendment Bill, 2011, was passed by the Lok Sabha through a voice vote after an amendment was moved by the Minister of State for Finance, Namo Narain Meena, following the Rajya Sabha making a similar amendment to the Bill. The amendment had to be carried out to remove a technical glitch and that it had no major implications. The

Weekly Industry Newsletter

61 of 93

transfer of powers to the Centre has been necessitated after the ownership of the SBI was transferred from the RBI to the Government, added reports. FM seeks suggestions to boost liquidity in markets The Finance Ministry has reportedly asked the stock exchanges to provide “consolidated inputs” for improving the depth and liquidity of stock markets. They were also asked to give suggestions for expediting the setting up of SME platforms so that resource mobilisation by SMEs can be facilitated. According to reports, this meeting is “follow-up” to the one held on August 11. Representatives of stock exchanges put forth their suggestions to improve liquidity including extending the trading hours for currency derivative segments, allowing foreign institutional investors (FIIs) to participate in the currency derivatives segment and also encouraging SMEs to list on regional stock exchanges. Finance Ministry officials also wanted the stock exchanges to enhance financial literacy in a concerted manner, added reports. RBS expands India Equities Team The Royal Bank of Scotland ("RBS") is pleased to announce a number of new hires in India as it continues to enhance its onshore Equities platform. India is one of three priority markets for RBS in the region and the new India appointments are integral to RBS’s overall Equities strategy for the Bank. Ramit Bhasin, Head of Markets, Global Banking & Markets, India said, “The additions are yet another step toward our plan to be a leading Equities house in India. RBS remains committed to our India and off-shore clients by providing them with deep, relevant research and excellent execution capability in order to capture the long-term growth potential of India.” Read More… Fitch Ratings downgrade First Blue Home Finance Fitch Ratings has downgraded India's First Blue Home Finance Limited's (FBHF; formerly Deutsche Postbank Home Finance Limited) National Long-Term Rating to 'Fitch AA-(ind)' from 'Fitch AA+(ind)'. Its INR2.25bn debt issuance programme (including INR1.557bn notes issued) and INR2.83bn bank loans have also been downgraded to 'Fitch AA-(ind)' from 'Fitch AA+(ind)'. All ratings have been removed from Rating Watch Negative (RWN). The Outlook is Stable. The National Short-term rating has been affirmed at 'Fitch A1+(ind)'. Read More… Broadridge Financial enters into alliance with InGovern Broadridge Financial Solutions, Inc. and InGovern Research Services Pvt. Ltd jointly announced an alliance for the sale and distribution of InGovern’s proxy research and vote recommendations for listed Indian companies through Broadridge’s ProxyEdge voting platform. This will immediately allow institutional investors, who are current users of the ProxyEdge platform, access to insights on governance of listed companies in India. Also, this will enable institutional investors to exercise their votes at shareholder meetings of Indian companies in a more informed manner. Read More… Banks and NBFCs allowed to set up IDFs The Reserve Bank of India (RBI) announced on Friday that banks and Non Banking Financial Companies (NBFCs) would be eligible to sponsor Infrastructure Debt Funds (IDFs), to be set up as Mutual Funds (MFs) and NBFCs. The Securities and Exchange Board of India (SEBI) has amended the (Mutual Funds) Regulations to provide regulatory framework for IDF-MFs by inserting Chapter VI – B to the MF Regulations. It may be recalled that the Union Finance Minister in his budget speech for FY12 had announced setting up of IDFs in order to accelerate and enhance the flow of long term debt in infrastructure projects for funding the Government’s ambitious programme of infrastructure development.

Weekly Industry Newsletter

62 of 93

Axis Bank approves acquisition of Enam Securities Axis Bank reportedly announced its board’s approval of the new structure for the transfer of financial services business of Enam Securities formulated in compliance with conditions prescribed by the Reserve Bank of India. According to reports, the central bank had its reservations on share transfer of Axis Bank while Enam’s acquisition was executed done by Axis Securities and Sales Limited (ASSL), a wholly owned subsidiary of the bank. SBI raises MTN programme from US$5bn to US$10bn: reports State Bank of India (SBI) has reportedly increased its Medium Term Note (MTN) programme to USD 10bn to fund overseas business. According to reports, MTN programme has been upsized from USD 5bn to USD 10bn. The offering circular (OC) under the said MTN Programme has been updated on September 19, 2011, with the audited financial data of the Bank as on March 31, 2011, and filed with the Singapore Exchange. SBI extended 25 basis point concessional home loan scheme till December , which was opened till October 31, 2011. Under the scheme, SBI offers 25 bps discount on interest rates on its card rate across the tenor of a floating home loan, added reports. Govt to borrow more in H2 FY12 The Government borrowing has swelled because of a reduction in small savings collections and dwindling cash surplus, R. Gopalan, Economic Affairs Secretary in the Finance Ministry, said in New Delhi. The Government expects a Rs. 350bn shortfall in collections from small savings funds while the cash surplus at the beginning of FY12 was Rs. 170bn less than expected, according to a Finance Ministry official. The Government plans to raise Rs. 2.2 trillion selling debt in the six months starting October 1, Gopalan told reporters in New Delhi today. This is higher than the initial estimate of Rs. 1.67 trillion. In the Union Budget announced in February, Finance Minister Pranab Mukherjee had projected gross market borrowing of Rs. 4.17 trillion for FY12. He has forecast a fiscal deficit of 4.6% of GDP for FY12. The Centre has completed borrowing of Rs. 2.5 trillion between April and September. The full-year borrowing would now stand at Rs. 4.7 trillion. Reliance Capital to mull entry into banking space Reliance Capital Ltd. will consider entering the banking industry, Chairman Anil Ambani said on Tuesday. He was speaking at the company’s annual general meeting (AGM) in Mumbai. "Banking is a new growth opportunity. We will evaluate opportunities to enter this high growth sector and are keeping track of all regulatory developments on this front," Ambani told the shareholders. According to Anil Ambani, Reliance Capital is now India's top non-banking finance company (NBFC) with net worth of nearly Rs. 80bn, having over 20mn customers, 8,000-plus offices and a pool of over 18,000 men and women as its human capital. Reliance Capital hopes to shortly conclude a 26% stake sale in its life insurance business to Japan's Nippon Life Insurance, Ambani said. Earlier this year, Reliance Capital had signed a definitive agreement with Nippon Life Insurance to sell a 26% stake in Reliance Life Insurance, subject to regulatory approvals. The money from the proceeds - an estimated Rs. 30bn - will help in restructuring the company's debt, Anil Ambani said. Reliance Capital has also signed a pact with Nippon Life for collaboration opportunities and strategic partnerships in all financial businesses. "Our strategy is now to unlock value from all our major businesses for the benefit of our 1.3 million shareholders," he said. Kumar Mangalam Birla latest victim of credit card fraud Whoever thought credit card scams were only limited to the regular citizens should think again. The latest to join the list of credit card fraud victims is none other than Mr. Kumar Mangalam Birla, the Chairman of the multi-billion-dollar Aditya Birla group. The leading industrialist’s card was reportedly cloned and used to make purchases worth Rs. 286,000 in Bangalore while Birla was in Mumbai. He learned of the fraudulent

Weekly Industry Newsletter

63 of 93

transactions when he received his monthly account statement. An FIR filed with the Mumbai police says that Birla's credit card was used to buy electronics items. Read More… RBI: 9% GDP growth challenging but not unattainable It is an honour and privilege for me to be speaking at Harvard to such a distinguished audience. I thank Professor Benjamin Friedman and Professor Tarun Khanna for this opportunity. I will be speaking on the Indian Economy. India is home to 1.21 billion people, which is about 17.4% of the global population. However, it accounts for only 2.4% of world GDP in US dollar terms and 5.5% in purchasing power parity (ppp) terms. Hence, there exists a huge potential for catch up. The global welfare too is linked to progress in India as reflected in the keen global interest in India. But, India seems to inspire and disappoint at the same time. Read More…

Weekly Industry Newsletter

64 of 93

International News - September 2011 Bernanke reiterates Fed's pledge to act if needed Federal Reserve Chairman Ben S. Bernanke repeated the pledge that the central bank stands ready to use certain tools to help stimulate the world's largest economy. But he offered no clear indication as to what those tools will be. He also said he was not worried about a pickup in inflation earlier this year. "The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment," he said in a speech at the Economic Club of Minneapolis. The US central bank has a range of tools that could be used to provide additional monetary stimulus, he said. The Fed's policymaking committee is next scheduled to meet Sept. 20 and 21. Bernanke once again urged the Congress not to put the US recovery at risk and focus on slashing government spending over the longer term. "While prompt and decisive action to put the federal government's finances on a sustainable trajectory is urgently needed, fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery," Bernanke said. However, for the short-term, Bernanke is not in favour of massive government spending cuts owing to fears that it could choke the already sluggish recovery. US stocks closed lower on Thursday, as investors were disappointed at the Fed chief not announcing any new specific measures to lift the economic gloom. The Fed has already committed to keeping interest rates low for the next two years. But recent economic data, including a dismal August jobs report, have raised expectations of more stimulus measures from the central bank. ECB warns of further slowdown in euro area European Central Bank (ECB) President Jean-Claude Trichet warned that the eurozone economy will grow more slowly than previously expected and abandoned its warning on inflation. The ECB President also said that economic threats to the euro area had increased lately amid fears that the region's sovereign debt contagion will spread amid political wrangling on how to resolve the crisis. "The eurozone economy faces particularly high uncertainty and intensified downside risks," Trichet said at a press conference in Frankfurt on Thursday after the ECB left its benchmark rate at 1.5%. The warning from Trichet, who retires next month, helped send German bonds to a record low. The ECB cut its 2011 growth forecast to 1.6% from 1.9%. It also cut 2012 growth forecast to 1.3% from 1.7%. Inflation projections were left unchanged at 2.6% for 2011 and 1.7% for next year. While monetary policy is still accommodative, financing conditions have worsened in parts of the euro region and the ECB stands ready to pump more cash into markets should that be required, he said. Bank of Korea keeps rates steady on global uncertainty The Bank of Korea on Thursday held its benchmark policy rate unchanged amid mounting concerns about slowing economic growth in the US and worsening debt contagion in Europe. Governor Kim Choong Soo and his board held the benchmark seven-day repurchase rate at 3.25% for a third straight month, the central bank said in a statement in Seoul. The decision was widely expected by economists and markets. The benchmark Kospi stock index gained 0.7% to 1,846 after touching a day's high of 1,858 and a day's low of 1,826. The index plunged 12% in August, the biggest monthly drop since the global financial crisis in 2008. Central banks of Malaysia, Indonesia and the Philippines will probably also keep their benchmark rates unchanged when they meet. The Bank of England and the European Central Bank (ECB) are also likely to follow suit later in the day. Central banks move to boost dollar liquidity in Europe The European Central Bank (ECB), the Federal Reserve and three other central banks on Thursday agreed to take emergency steps to boost dollar liquidity for banks in Europe. The ECB, the Bank of England (BOE), the Bank of Japan (BOJ), and the Swiss National Bank (SNB) announced that they will

Weekly Industry Newsletter

65 of 93

each conduct additional dollar tenders in an effort to provide liquidity through the end of the year. Read More… Bank of America to axe 30,000 employees Bank of America announced that it will cut nearly 30,000 jobs over the next few years. The proposed job cuts represent a 10% reduction in total staff for Bank of America, which has a workforce of around 288,000. These cuts are in addition to the 6,000 jobs already eliminated by the bank this year. The job cuts are part of Bank of America’s efforts to downsize the company after suffering massive losses during the financial meltdown of 2008. Bank of America has also had a number of problems with poorly written mortgages through the acquisition of Countrywide Financial. The bank's stock has taken a beating this year, losing half of its value. Bank of America is also facing a spate of lawsuits from investors and regulators over mortgage-backed securities sales that decreased in value when the US housing boom collapsed. UBS announces US$2bn trading loss UBS AG said on Thursday that it has made a trading loss of about US$2bn due to unauthorized trading by a trader at its investment banking unit. The Swiss lender may book a loss in the third quarter of 2011, the Zurich-based bank said. "The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of US$2bn," the Zurich-based bank said in a statement just before the stock market opened. Read More… Fed unleashes US$400bn 'operation twist' The following is the text of the US Federal Reserve announcing its so-called 'operation twist' in order to breathe some life into the anemic US economy. “Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable. Read More… IFC unveils report on 7 Inclusive Business Models IFC, a member of the World Bank Group, launched a new report that identifies seven inclusive business models that expand access to goods, services, and livelihoods for the world’s poorest people while generating strong financial returns. The report underscores IFC’s commitment to creating opportunity at the base of the economic pyramid. IFC clients from South Asia profiled in the report include Dialog Telekom in Sri Lanka, and Apollo Hospitals, Husk Power, FINO, Idea Cellular, Jain Irrigation, Suvidhaa, and WaterHealth International in India. Accelerating Inclusive Business Opportunities: Business Models that Make a Difference, was released at IFC’s 2nd Annual Inclusive Business Leaders Forum, which took place on September 22, ahead of the Annual Meetings of the International Monetary Fund and the World Bank Group. The forum brings together IFC clients, global experts, and donors to exchange experiences and insight on inclusive business. Read More… Moody's downgrades Citi, Wells Fargo and BofA Moody's Investors Services announced the downgrade of Citigroup, Wells Fargo and Bank of America, three of the United States' top banks. Shares of BofA fell 7.5% following the rating agency's move. Shares of Wells Fargo

Weekly Industry Newsletter

66 of 93

slipped 4%, and Citigroup's stock fell 5%. Share of JPMorgan Chase, also took a slide, falling almost 6%. Moody's cut long-term as well as short-term debt of Bank of America's holding company besides lowering the rating of long-term deposits at its lead bank. Read More… Moody’s downgrades ratings of 8 Greek banks Moody’s Investor Service has downgraded the long-term deposit and senior debt ratings of eight rated Greek banks by two notches, citing a shrinking domestic economy and declining deposits. All of the banks’ long-term deposit and debt ratings carry a negative outlook. The agency cut National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank AE, Piraeus Bank SA, Agricultural Bank of Greece and Attica Bank SA downgraded to "Caa2" from "B3". Emporiki Bank of Greece and General Bank of Greece were downgraded to "B3" from "B1". The downgrade concluded a review begun on July 25. Oswald Grübel to step down as UBS CEO The UBS Board of Directors has accepted the decision of Group CEO Oswald J. Grübel to resign from the bank. The Board of Directors asked Sergio P. Ermotti to take up the position of Group CEO on an interim basis. The appointment will take effect immediately. UBS's Chairman Kaspar Villiger said: "The Board regrets Oswald Grübel's decision. Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorized trading incident. It is testimony to his uncompromising principles and integrity. During his tenure, he achieved an impressive turnaround and strengthened UBS fundamentally. He steps down having helped make UBS one of the world’s best capitalized banks. On behalf of the Board of Directors, I extend my heartfelt gratitude to him for everything he has done for UBS." Read More… Goldman Sachs invests US$201mn in ReNew Wind Power Goldman Sachs to reportedly invest up to Rs. 10bn ($202 mn) in an Indian renewable energy start-up, as the U.S. investment bank bets big on the sector in the world's second-fastest growing major economy. Sumant Sinha, ReNew Chief Executive was quoted as saying "All I can say right now is that it will be a majority stake. This investment in a volatile market environment is a testimony to their (Goldman's) very strong belief in the opportunity in the sector." Read More… Berkshire Hathaway announces share buyback Shares of Warren Buffet's Berkshire Hathaway led the gains in the S&P 500 index in the US on Monday after the company announced a buyback of class A and B shares at a premium of no more than 10% of the shares' book value. "In the opinion of our board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise," Berkshire said in a statement. The buyback program will run indefinitely, the company said. Read More… Brickwork Ratings assigns “BWR AA+” for Reliance Home Finance Brickwork Ratings (BWR) has assigned BWR AA+ (Pronounced BWR Double A Plus) Rating for Reliance Home Finance Private Ltd’s (RHFPL) Proposed Secured Redeemable long term Non-Convertible Debenture (NCD) Issue of ` 500 crores and Subordinated Tier II unsecured NCD Issue of ` 150crores. Instruments with this rating are considered to have High degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. The rating factors, inter alia, RHFPL’s strong parentage (Reliance Capital Ltd - rated BWR AAA), comfortable asset liability management profile, conservative provisioning policy and healthy net interest margin. Read More… Ogone Payment Services to acquire EBS

Weekly Industry Newsletter

67 of 93

EBS (E-Billing Solutions), the second largest on-line payment provider in India, has announced that Ogone Payment Services, one of Europe’s leading payment service providers, has signed a binding agreement to acquire the company. This acquisition marks Ogone’s first foray outside of the European market and into the rapidly expanding Indian on-line payments market. However, EBS will continue to operate under its current management structure and market approach and will be responsible for running the operations and the continued expansion of the company. EBS will also retain its name and brand in the Indian market. The EBS board is supported by 3 members of the Ogone Payment Services Board. Read More…

Weekly Industry Newsletter

68 of 93

Domestic News - October 2011 The Carlyle Group acquires 9% stake in IIFL India Infoline Group (IIFL) announced that one of the largest global alternative asset managers The Carlyle Group (Carlyle) has acquired a 9% stake in India Infoline Ltd, the flagship company of IIFL, through secondary market purchase of equity shares. Carlyle becomes a key institutional shareholder in IIFL and will be invited to join IIFL’s Board of Directors to support its future development, subject to necessary approvals. The acquisition cost is not disclosed. The investment was made by Carlyle Mauritius Investment Advisors Limited, a part of Carlyle Asia Partners (CAP), one of the largest private equity investors in Asia since 1998. CAP has five major investments in the financial services industry in the region encompassing banking, insurance and housing finance businesses, including HDFC in India. Read More… Moody’s downgrades SBI's standalone rating Moody’s Investors Service downgraded State Bank of India’s (SBI) bank financial strength rating, or standalone rating, to ‘D+’ from ‘C-’. The revised rating maps to a baseline credit assessment of ‘Baa3’. The hybrid debt rating of SBI was cut to ‘Ba3(hyb)’ from ‘Ba2(hyb)’. The revised bank rating carries a 'stable' outlook and the hybrid rating a 'negative' outlook, Moody's said. "Our expectations that non-performing assets are likely to continue rising in the near-term - due to higher rates and a slower economy - have caused us to adopt a negative view on SBI's creditworthiness," Beatrice Woo, Moody's Vice President and Senior Credit Officer, said in a statement. Read More… Axis Bank US Commercial Paper assigned 'A-1' rating by S&P Standard & Poor's Ratings Services assigned its 'A-1' short-term issue rating to the proposed US$200 million U.S. commercial paper (USCP) program of Axis Bank Ltd. (BBB-/Stable/A-3). This program is an extension of the bank's earlier program (rated on Oct. 5, 2010). A US$200 million irrevocable direct-pay letter of credit issued by Bank of America N.A. (BofA; A+/Negative/A-1) supports the program. The USCP program constitutes direct, unconditional, unsubordinated, and unsecured obligations of Axis Bank, and will rank pari passu with all of the bank's unsecured and unsubordinated obligations. Read More… Microfinance sector contracts 40% post AP crisis: report Microfinance sector has reportedly shrunk by about 40% exactly a year after the crisis began to unfold in Andhra Pradesh. According to reports, SKS Microfinance Ltd's gross loan portfolio decreased from Rs. 54,340mn in September 2010 to Rs. 34,500mn as on June 30, 2011. It also posted Rs. 2,190mn loss due to losses in Andhra Pradesh. Padmaja Reddy, Managing Director, Spandana was quoted as saying “We have lost business portfolio and assets which have been built carefully for over a decade, in the last one year." IDBI gets ISO 9001: 2008 certificate IDBI Bank has been awarded the coveted international certification ISO 9001:2008 for its Customer Care Centre as well as their In-House Journal. B.P.Singh, Deputy Managing Director, IDBI Bank received the Certificate from Dr. Amit Gupta, Director Finance, QA Certification Pvt Ltd on behalf of the Bank, at a function held at New Delhi. Recognized in more than 150 countries, 9001:2008 Standards. places a strong emphasis on customer satisfaction, management responsibility, continual improvement and organizational performance measurement. It further demonstrates the Bank’s commitment to regulatory requirement and quality of service standards. This gives the customer added confidence and enhances their satisfaction and trust. Shree Vayam, the in-house journal of the Bank also received the ISO

Weekly Industry Newsletter

69 of 93

9001: 2008 certificate for its design, publication and timely distribution. Federal Bank signs an MOU with NSIC Federal Bank, the Kerala-based private bank has signed an MOU with NSIC (National Small Industries Corporation Ltd) last week, with the objective of facilitating smooth credit flow to the MSME (Micro, Small and Medium Enterprises) sector. NSIC is a Central Government agency under Ministry of MSME, engaged in promotion and growth of MSME sector. This tie-up would provide a broader platform for extension of easy credit to Federal Bank’s MSME customers. Federal Bank that currently has over 750 branches across India, expects to see a 5% addition to the existing 29% of their current total advance MSME portfolio. Under this tie up, NSIC shall identify entrepreneurs and forward viable loan proposals to different branches of Federal Bank and the bank will in turn sanction the loan proposals subject to eligibility. Read More… Bajaj Finance partners with Standard Chartered for credit cards: reports Bajaj Finance Limited has reportedly launched co-branded credit card with Standard Chartered Bank. With this launch the bank has marked its entry in the credit card business sector. According to reports, the company aims to issue 150,000-200,000 cards within 12 months of starting operations. The company would initially offer only premium segments cards, Platinum and World, powered by Mastercard, and the risk would be managed by the bank. The company is expected to announce its foray in the credit card business in a week. The company aims to tap the affluent customers with a low-cost acquisition model. The credit cards would focus on rewarding the customer for daily purchases made through the card, reports added. No rights issue for SBI in FY12: FinMin The finance ministry reportedly ruled out a rights issue for State Bank of India (SBI) in this financial year, assuring the lender that its capital requirements would be met by March 31, 2012. According to reports, all the public sector banks have been asked by the ministry to come out with details of their capital requirements for the next ten years, and this could be as high as Rs. 3.5 lakh crore. The exact recapitalisation amount for the banks was not ascertained at a meeting of the committee on capital requirements for financial institutions. Read More… Black money...9900 overseas accounts under scanner Finance minister Pranab Mukherjee reportedly said that around 10,000 suspicious transactions made by Indian citizens abroad to crack down on tax evaders are being investigated by the agencies. According to reports, over 9900 pieces of Information has been obtained---9743 information by foreign tax Division of Central Board of Direct Taxes (CBDT) and 177 by financial intelligence unit regarding suspicious transactions by Indian citizens from several countries. Specific requests in 333 cases have been made by Indian authorities for obtaining information from foreign jurisdictions. Pranab Mukherjee was quoted as saying "Due to our sustained efforts in the last two years, both domestically as well as internationally, we have been successful in creating an environment where a regular flow of banking information has started. Over 30,700 pieces of domestic information about suspicious transactions has been obtained by FIU, which are under investigation by respective agencies". “In 69 cases, the taxpayers have admitted to the unaccounted income of Rs. 397.17 crore. Taxes of Rs. 30.07 crore have also been paid. During the first five months of the current financial year, concealed income of Rs. 3,014 crore has been detected due to searches on the basis of information received from foreign jurisdictions", said Pranab. RBI deregulates Savings Bank Deposit Rate

Weekly Industry Newsletter

70 of 93

The Reserve Bank of India (RBI) decided to deregulate the savings bank deposit interest rate with immediate effect. It is felt that the time is appropriate to move forward and complete the process of deregulation of rupee interest rates, the central bank said in a statement. Read More… RBI hikes repo rate by 25 bps The Reserve Bank of India (RBI) raised its key lending rate by another quarter percentage point as it continues its fight against stubborn inflation while equally being concerned about slowdown in the Indian economy. The central bank hiked the repurchase rate, or repo rate (at which it lends to banks) by 25 basis points (bps) to 8.50%. The reverse repo rate (at which the RBI absorbs money from banks) will now stand at 7.50%. The Marginal Standing Facility Rate will now be at 9.50%. The Bank Rate has been retained at 6%t. The Cash Reserve Ratio (CRR) of scheduled banks has been left unchanged at 6% of their net demand and time liabilities (NDTL). Read More… Moody's reaffirms ICICI Bank's C- rating Moody's reportedly re-affirmed its rating for ICICI Bank and said the private sector lender continues to maintain a robust franchise and a strong liquidity, capitalisation and earnings profile. According to reports, Moody's believes that the probability of systemic support for ICICI Bank is high, given its sizeable retail deposit franchise as well as its importance to the national payment system as the second-largest commercial bank. The reiteration of a financial strength rating of 'C-' for ICICI Bank came a day after Moody's downgraded SBI from 'C-' to 'D+' on account of the public sector lender's deteriorating asset quality and rising non-performing assets (NPAs), added reports.

Weekly Industry Newsletter

71 of 93

International News - October 2011 ECB unveils liquidity-boosting measures...Rates steady The European Central Bank (ECB) on Thursday kept its key interest rate unchanged at 1.5%, but it also announced new liquidity measures to support banks and a program to purchase covered bonds. The ECB will buy €40bn (US$53bn) worth of covered bonds, which are an important source of long-term funding for the European banking sector. The central bank also announced that it would provide an uncapped amount of collateralized longer-term loans at fixed rates to commercial banks through a 12-month auction in October and a roughly 13-month operation in December. The central bank will also continue a range of medium-term funding operations at fixed rates through at least the middle of next year. European money market rates and other gauges have shown rising signs of stress in the interbank market as institutions become wary of lending to each other, forcing some banks to rely solely on the ECB to meet crucial short-term funding needs. "The situation of the banking sector calls for particular attention, taking into account the interplay between sovereign risk issues and banks’ funding needs," Trichet said. Greece budget deficits miss bailout targets...Read More BOJ leaves rates steady...Extends special lending program The Bank of Japan (BOJ) left its monetary policy unchanged on Friday, as it awaited the outcome of its easing steps taken in August to sustain recovery from the March twin disasters amid persistent fears of a deeper slowdown in the global economy. BOJ's policy board voted unanimously to hold its overnight benchmark lending rate unchanged at a range of 0% to 0.1%, as expected. The Japanese central bank extended a special post-earthquake lending program by six months. The program makes cheap funds available for financial institutions in areas hit by the March 11 disaster. Read More… Moody's downgrades 12 UK financial institutions oody's Investors Service on Friday downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of one institution. This concludes its review of systemic support assumptions from the UK government for these institutions initiated on May 24. The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for 7 smaller institutions and the reduction of systemic support by one to three notches for 5 larger, more systemically important financial institutions. According to Moody's, announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term. Read More… Moody's downgrades 9 Portuguese banks Moody's Investors Service has today taken rating actions on Portuguese banks, involving downgrades by one or two notches of the senior debt and deposit ratings of nine banks and downgrades by one or two notches of the standalone ratings of six of these banks. All of the banks' ratings carry a negative outlook with the exception of Banco Portugues de Negocios (BPN), which has a developing outlook on all of its ratings. Rating actions conclude the review for downgrade initiated on 15 July 2011, following the downgrade of the Republic of Portugal to Ba2, outlook negative, from Baa1. Read More… Dexia shares slide on funding concerns Shares of Dexia SA tumbled after Moody’s Investors Service said that it may downgrade the bank on concerns it may have trouble getting market funding. Dexia has heavy exposure to Greek debt.Dexia's Board asked Belgium’s biggest bank by assets to solve its structural problems amid fears that it was going to collapse. The lender said that the size of its non-strategic portfolio of assets was having a negative structural impact on the group. Media reports suggested there plans were on the anvil to split the troubled bank and create

Weekly Industry Newsletter

72 of 93

a "bad" bank for toxic assets. France, Belgium and Luxembourg sought to protect local units of Dexia from the sovereign debt crisis threatening to engulf Europe’s financial system. Luxembourg said an investor is interested in buying its local unit, Belgian Prime Minister Yves Leterme said he will do whatever it takes to safeguard the bank in Belgium, and a plan emerged to take over the French municipal lending arm.The board of Dexia meets on Saturday to discuss the options. Dexia shares were suspended in Brussels and will resume trading on Oct. 10. The stock has dropped 42% this week and more than 90% since the bailout in 2008. Fitch: Rating Banks in a changing world Fitch Ratings has published a report entitled Rating Banks in a Changing World which summarises its view on several high level themes that continue to affect banks and their ratings. Such themes include the macroeconomic environment and sovereign context, the evolving regulatory regime, changing support frameworks as well as the evolution of bank business models in light of these and other factors. Although some of the themes will manifest themselves over an extended period of time, the collective impact of these factors implies revised ratings for some banks, particularly large and currently highly rated ones. In Fitch's view there will be fewer banks globally whose credit profiles are consistent with Issuer Default Ratings (IDRs) in the 'AA' rating category or above, and more whose profiles are consistent with the 'A' category. Read More… Moody’s threatens to downgrade Belgium Moody’s Investor Service has warned that it may downgrade Belgium's local and foreign currency government bond ratings on increased sovereign debt risk in Europe. The international credit ratings agency has a "Aa1" rating on Belgium. Moody's cited fragile market sentiment for euro-zone sovereigns, challenges to the banking system, and the increased likelihood for government support for such banks as French-Belgian bank Dexia SA as factors for placing the country's rating on review for a possible downgrade. Singapore softens monetary stance as growth slows Singapore on Friday scaled down its GDP growth forecast while its central bank eased the monetary policy for the first time in two years amid mounting worries over a faltering global economy. Singapore will slow gains in the local currency because the deteriorating global economic outlook is expected to lead to a moderation in inflation, the central bank said today in its semi-annual exchange-rate review. “Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated,” the Monetary Authority of Singapore said in a statement. Read More… Fitch cuts UBS, Lloyds & RBS...Puts 7 banks on notice Fitch Ratings on Thursday cut credit ratings or signalled possible downgrades for several major European banks. Fitch downgraded UBS, Lloyds and Royal Bank of Scotland (RBS). It also placed Barclays Bank, BNP Paribas, Credit Suisse, Deutsche Bank and Societe Generale on watch negative. Lloyds and RBS were lowered two steps to A from AA- as Fitch said that the UK is less likely to provide future support. Read More… Eurozone to hold second summit on Oct. 26: reports Eurozone leaders, who are struggling to cope with the region's deepening debt crisis, have reportedly scheduled a second meeting no later than October 26. A communique from French President Nicolas Sarkozy and German Chancellor Angela Merkel says that a wide-ranging plan would now be announced no later than Wednesday. The plan for a second eurozone summit comes as prospects for a comprehensive agreement on leveraging the region's bailout fund and agreeing on larger writedowns on Greek government debt for private bondholders at this Sunday summit in Brussels

Weekly Industry Newsletter

73 of 93

fade amid reported differences between France and Germany. Merkel and Sarkozy could not resolve their differences over further boosting the European Financial Stability Facility (EFSF), recapitalisation of European banks and a partial writedown of Greek government’s debts at an emergency meeting in Frankfurt on Wednesday. Read More… Troika report warns on Greece finances The so-called troika comprising the EU, ECB and IMF on Thursday warned that a second bailout package for Greece that was tentatively agreed in July may not be enough to save the debt-stricken eurozone nation from bankruptcy. Still, the international creditors recommended extending the latest tranche of the first rescue package to Athens to avert the eurozone's first ever debt default. According to a draft of the troika's assessment report, Athens should get €8 billion ($11 billion) of bailout loans as soon as possible. Moody's downgrades Spain by two notches Moody's Investors Service on Tuesday cut Spain's sovereign debt ratings by two notches, saying that high levels of debt in the banking and corporate sectors leave the country vulnerable to funding stress. Moody's cut Spain's bond rating to A1, from Aa2, taking it a notch below the ratings of Standard & Poor's and Fitch. "Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored," Moody's said. The fresh blow from Moody's came just a day after the debt rating agency warned France that its triple-A rating could be at risk. Moody's may lower outlook on France to negative Moody's on Monday warned that it could revise the outlook on France's "AAA" debt rating to negative in the next three months if the costs for helping to bail out stressed banks and debt-strapped eurozone members stretch its budget. France's progress on crucial fiscal and economic reforms as well as potential adverse developments in financial markets or the economy will also be taken into account under the review, Moody's said in a statement. "The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's AAA debt rating," the credit rating agency said. Read More… Eurozone leaders seal deal on debt crisis European leaders agreed to expand a bailout fund to stem the region’s debt crisis. The European region’s rescue fund was boosted to 1 trillion euros (US$1.4 trillion) and investors agreed to a voluntary writedown of 50% on Greek debt. French. Other measures in the bailout plan included recapitalization of European banks, a potentially bigger role for the IMF, a commitment from Italy to do more to reduce its debt and a signal from leaders that the ECB will maintain bond purchases in the secondary market. French President Nicolas Sarkozy spoke with Chinese leader Hu Jintao, seeking help in funding the bailout. The head of Europe's €440bn bailout fund played down hopes of a quick deal with China to throw its support behind efforts to resolve the bloc's debt crisis but said he expects Beijing to continue to buy bonds issued by the fund. Investors' focus will turn to the G-20 meeting next week in Cannes, southern France where details of Thursday's anti-crisis measures for the eurozone are likely to emerge. For the moment though, global investors were focusing on the broad contours of the eurozone debt plan. Global stocks were expected to record their best week in over two years, bolstered by the Brussels deal, while the euro held just below a seven-week high. Moody's lowers outlook for Russian banks to negative The outlook change to negative for the Russian banking system reflects concerns that the weak global economic landscape and financial market

Weekly Industry Newsletter

74 of 93

volatility will weaken Russia's operating environment, negatively affecting banks through a system-wide liquidity contraction, slower credit growth and pressured asset quality, says Moody's Investors Service in a Banking System Outlook for Russia published today. The outlook expresses Moody's expectations for the fundamental credit conditions in the banking sector over the next 12-18 months. Moody's forecasts that due to a weak global recovery, Russia's real GDP growth will decelerate to 2.8% in 2012, from an estimated 3.8% in 2011. As Russian economic growth is largely driven by oil prices, increasing downside risks to global energy demand may further impact the operating environment for Russian banks over the outlook horizon. Read More… SGX clears first Asian FX forwards Singapore Exchange (SGX) successfully launched its clearing service for OTC traded Asian Foreign Exchange (FX) Forwards (non-deliverable) with Deutsche Bank, DBS Bank and OCBC Bank clearing their first Asian FX Forwards with the Exchange. A world’s first, this initiative is aligned with global developments toward central counterparty clearing (CCP) of OTC derivatives to promote systemic stability in financial markets. The clearing of Asian FX Forwards covers non-deliverable Asian currencies, namely Chinese Yuan, Indian Rupee, Korean Won, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso and Taiwanese Dollar. Read More…

Weekly Industry Newsletter

75 of 93

Domestic News - November 2011 RBI eases rule for FII investment in infra bonds The Reserve Bank of India (RBI) said on Thursday that the FIIs would also be allowed to invest in non-convertible debentures (NCDs)/ bonds issued by Non-Banking Financial Companies (NBFC) categorized as ‘Infrastructure Finance Companies’(IFCs) within the overall limit of US$25bn. The lock-in-period of three years for FII investment stands reduced to one year up to an amount of US$5bn within the overall limit of US$25bn. This lock-in-period shall be computed from the time of first purchase by FIIs. The residual maturity of five years and above stipulated would now onwards refer to the original maturity of the instrument at the time of first purchase by an FII. Read More… SKS Microfinance to raise up to Rs. 9bn via QIP SKS Microfinance has reportedly got an approval from its board to raise up to Rs. 9bn ($183 million) from share sale to institutional investors. According to reports, the company went public last August in a successful initial public offering and raised $358 million. The board has also approved an increase in the authorized share capital from Rs. 950mn to Rs. 1.35bn. IOB identifies 14 locations across globe to set up branches: reports Indian Overseas Bank (IOB) has reportedly identified 14 different geographies as part of expanding its presence in overseas markets. The bank plans to open two branches in U.S.A., one each in Australia and New Zealand and two in Africa. M Narendra, Chairman and Managing Director, IOB was quoted as saying "We have fairly deployed the USD 500 million we raised. Hopefully the India International Bank in Malaysia which we partnered with Bank of Baroda and Andhra Bank will come into operation in another two months. These are all our long term views. We have separated the 14 locations into four Waves -- Wave I, Wave II, Wave III and Wave IV. These are based on the priorities." Read More… A tale of two ratings Moody's Investors Service on Wednesday downgraded its outlook for India's banking system to'negative' from 'stable' due to concerns that an increasingly challenging operating environment will adversely affect asset quality, capitalization, and profitability. Moody's rates 15commercial banks in India, which together account for about 66% of the system’s total assets as of March 2011. The system is dominated by public-sector banks, which account for around 75% of the market in asset terms. The weighted average stand-alone banking financial strength rating (BFSR) is D+, and mapping to aBaseline Credit Assessment of Baa3. The average long-term deposit rating isBaa2/Prime-2. On the other hand, asa contrast to Moody’s, ratings agency Standard & Poor’s has upgraded the Indian banking sector saying its domestic regulations are in line with international standards. Read More… ING Vysya Bank signs MoU with LIC ING Vysya Bank(ING) signed an MoU with Life Insurance Corporation of India for offeringePayments services for all LIC branches across the country. The initiativebetween the two institutions was taken on the back of a regulatory directive toLIC to use ePayments as a mode for making payments to policy holders. ING hasoffered its state-of-the-art Payments platform, ING P@y built on cutting edgetechnology, to LIC. ING has madetechnology as one of its core investment areas as a result of which most of thetransaction processing systems and electronic banking delivery channels havebeen built around evolving domestic payments & clearing systems. Providingspeedy, safe and convenient transaction processing environment has been thefocal point of all the technological advancements of the bank. In the last 2years, ING’s technology initiatives have received highest recognition fromvarious technology forums. The most recent recognitions were in the month ofJuly

Weekly Industry Newsletter

76 of 93

2011 when ING Converge, the corporate internet banking platform, with anin-built state-of-the-art payments platform, was recognized as the Best ManagedIT project, and ING Inwards, the electronic collections, was recognized as theMost Innovative IT solution across industries. Kailash Baheti joins Magma as Chief –Corporate Affairs & Strategy Magma FincorpLimited, India’s leading retail finance company announced the joining of MrKailash Baheti as Chief – Corporate Affairs & Strategy. Baheti is a CA, CSand AICWA and has more than 25 years of experience. After a brief stint at FortGloster Jute Mills, he joined Century Extrusions Ltd. Here, he handled variousresponsibilities and since 2005, was the CEO of the organization. At Magma,Baheti will look after the Secretarial, Accounts, Taxation and MIS Functionsand will support MD in Mergers/Acquisitions and related Strategic Initiatives. He is married withtwo daughters. He loves playing golf and table tennis. India's debt ratings not under review: Moody's India's debt ratings are not under a formal review, a Moody’s Investors Service analyst was quoted as saying. India’s public debt at 70% of its GDP is preventing it from securing an investment-grade rating, Atsi Sheth, Moody’s Mumbai-based sovereign analyst was quoted as saying. Fiscal deficit and the debt burden, which is high relative to similar-rated countries, are among the constraints, Sheth said. “For the ratings to be improved, we will have to be comfortable that India’s government debt is at a level that can be sustained over the medium term,” she said. It may be recalled that last week Moody's downgraded the outlook on India’s banking sector to negative from stable, citing a slowing domestic economy and chaos in global markets. But the Government dubbed the Moody's action “unwarranted” and “uncalled for” saying that the Indian banking system was adequately capitalized and strongly regulated. This week, the Government asked Moody's for a higher sovereign rating citing good growth prospects and economic reforms as the strengths. The Centre emphasised that the country’s credit strengths were “much better” than most similar-rated economies. Govt hikes FII limit in G-secs, corporate bonds by US$5bn each The Government raised the investment limit for FIIs in Government securities (G-secs) by US$5bn to US$15bn, Thomas Mathew, Joint Secretary - Capital Markets in the Finance Ministry said. At the same time, the Government raised the investment limit for FIIs in corporate bonds by US$5bn to US$20bn, Mathew said. FII limit in corporate debt now stands at a combined US$45bn, of which US$25bn must be invested in infrastructure bonds. The capital markets regulator, Securities and Exchange Board of India (SEBI), notified the decisions on Friday. The present enhancements would increase investments in debt securities and help in further development of the Government securities and the Corporate bond markets in the country. Separately, a finance ministry official was quoted as saying that the Government will raise limits on external commercial borrowings (ECBs) for corporates if needed. Indian companies have borrowed US$20.8bn from overseas markets till Oct. 31 this fiscal year, said Mathew. Indian companies had borrowed US$24.6bn from overseas markets in the last fiscal year. India’s benchmark 10-year Government bonds rose, pushing yields to this month’s lowest level, after the RBI said that it will purchase government debt for the first time since January. The RBI will buy Rs. 100bn of securities at an open-market auction on Nov. 24. It will resume bond purchases after 10 months. Bonds also gained on news that the Government had raised the cap for foreign investments in local-currency debt. Cabinet approves hike in Exim Bank's authorised capital The Union Cabinet approved the introduction of “The Export Import Bank of India (Amendment) Bill, 2011” to amend the Export – Import Bank Act, 1981

Weekly Industry Newsletter

77 of 93

(the Act) in the Parliament. The Bill seeks to increase the authorised capital of the Exim Bank from Rs. 2000 crore to Rs. 10,000 crore with the provision that the Central Government may, further, by notification, increase the said capital up to an amount that it may deem necessary from time to time and also to make a provision for appointment of two-whole time Directors, other than the Chairman and Managing Director (CMD), in the Bank by the Central Government. Read More… Rupee crumbles below 52 per dollar mark The rupee dropped below 52 per dollar mark, as global investors continued to shun risky asset classes like emerging market equities and currencies. The partially-convertible Indian currency fell on all but one day of the week. The rupee ended the week at 52.2550 after being as low as 52.73 earlier in the week. The rupee is down ~14-15% this year. From its 2011 high reached in late July, it has lost ~17%. The RBI eased rules for companies to borrow abroad and sell foreign currencies through swaps besides raising the interest rate on bank deposits for non-resident Indians. The RBI has removed a US$100 million limit on net foreign-currency sales via swaps. Companies borrowing abroad can now pay as much as 3.5% over the London Interbank Offered Rate (Libor) for loans longer than three years and up to five years, raising the cap by 50 basis points, or 0.5%. For non-resident Indians, the spread over Libor was increased by between 25 basis points and 100 basis points for two different deposit plans. The RBI Governor D. Subbarao said that he could not comment on whether the central bank was intervening in the foreign exchange market to stem the rupee's slide, but it was watching the situation and would ensure the exchange rate does not impair economic stability. The exchange rate movement, especially in the last three to four days was driven by global dynamics and the RBI expects reverse adjustment to take place when the European situation resolves itself, Subbarao told reporters in Hyderabad on the sidelines of a conference. "Till then obviously I can't comment whether the RBI is intervening or not but we are watching the market," he said. Subbarao said that the RBI's rupee policy remains the same. "Our (RBI's) policy remains the same, which is to manage volatility in exchange rate and to ensure that exchange rate volatility does not impair macro-economic stability," he said. RBI tweaks ECB policy...Ups all-in-cost ceiling On a review of the developments in the global financial markets and current macro-economic conditions, it has been decided, in consultation with the Government of India, to modify certain aspects of the External Commercial Borrowings (ECB) policy. The proceeds of the ECB raised abroad for Rupee expenditure in India, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, etc., should be brought immediately for credit to Rupee accounts with AD Category I banks in India. In other words, ECB proceeds meant only for foreign currency expenditure can be retained abroad pending utilisation. As hitherto, however, the Rupee funds will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending. These amendments in ECB policy will come into force immediately and the enhancement in all-in-cost ceiling is applicable up to March 31, 2012 subject to review thereafter. Read More… Dion Global Solutions acquires Investmaster grou Dion Global Solutions (Dion) announced that it has acquired the entire issued share capital of Investmaster Group Limited (Investmaster), the UK based specialist provider of wealth management and stockbroking software. The acquisition is part of Dion’s strategy to become a leading provider of a comprehensive, diversified suite of solutions to financial markets worldwide. Investmaster has been a specialist provider of wealth management and

Weekly Industry Newsletter

78 of 93

stockbroking software to the UK private client market for over 25 years. Their client base has combined Assets under Management exceeding £28 billion and over 800 users across the UK and Ireland. This transaction gives Dion a significantly increased presence in the UK and an established base upon which further expansion can be built. Investmaster’s private client product suite complements Dion’s existing range of products, which cover portfolio management, trading, settlement, risk management, analytics, treasury and research services. Read More… Fitch affirms Bank of Baroda's ratings – Fitch Ratings has affirmed Bank of Baroda's (BOB) Foreign Currency Long-Term Issuer Default Rating (FC LT IDR) and Bank of Baroda New Zealand's (BOBNZ) LT IDR at 'BBB-'. BOB's National Long-Term rating has also been affirmed at 'Fitch AAA(ind)'. The Outlook is Stable. A full list of rating actions is provided at the end of this commentary. BOB's FC LT IDR, Support Rating Floor and National ratings factor in Fitch's expectation of continued strong support from its principal shareholder – the Government of India (GOI, 57.03%, 'BBB-'/ Stable). The expectation is driven by BOB's systemic importance as India's fourth-largest bank by assets and third-largest by deposits, and its strong franchise. The LT IDR also derives strength from its viability rating (VR: 'bbb-'), reflecting its consistently strong financials and robust funding. BOBNZ's ratings reflect Fitch's expectation of continued strong support from BOB, given 100% ownership and management control. Read More… Fitch affirms Union Bank of India's national long-term rating at AA+ The ratings of Union's tier 1 bonds and upper and lower tier 2 bonds are based on Fitch's criteria for rating Indian national bank hybrids and subordinated debt. Fitch Ratings has affirmed Union Bank of India's (Union Bank) National Long-Term Rating at 'Fitch AA+(ind)'. The Outlook is Stable. A complete list of rating actions is included at the end of this commentary. Union Bank's National Long-Term Rating is support-driven as there is high probability of support from the Government of India (GoI), if required, in view of the bank's high systemic importance and the GoI's 57.1% stake (H1FY12). However, the rating is a notch lower than its peers to reflect moderate credit matrices. Union Bank is India's seventh-largest public sector bank and 10th largest commercial bank by assets. The ratings of Union's tier 1 bonds and upper and lower tier 2 bonds are based on Fitch's criteria for rating Indian national bank hybrids and subordinated debt. Read More… Religare Finvest gets Rs. 1.5bn from Avigo Capital Religare Finvest Limited (RFL), one of India’s largest capitalized NBFCs and a wholly owned subsidiary of Religare Enterprises Limited, today announced that Avigo Capital (Avigo) has completed an investment of Rs150cr in the form of compulsory convertible preference shares (CCPS). Religare Finvest Limited is on a fast growth trajectory, focusing on small and medium enterprises (SME) financing. It has recently successfully raised Rs754crore from a retail issue of non-convertible debentures earlier this year and its loan book size stands at Rs11,380cr(as on September 30, 2011). Avigo Capital, as an Indian private equity fund manager focuses on private equity investments in the country’s SME sector.

Weekly Industry Newsletter

79 of 93

International News - November 2011 ECB cuts rates by 25 bps The European Central Bank (ECB) cut interest rates by 25 basis points (bps) to 1.25% amid looming eurozone recession and ongoing turmoil in Greece. The new ECB president Mario Draghi also left the door open for another rate cut next month. At the same time, Draghi ruled out ramping up ECB bond buying to reduce governments’ borrowing costs, saying that the program is temporary and limited. Draghi said that the debt crisis was damping growth and a mild recession was on the cards. He ruled out the ECB becoming the lender of last resort for governments and said that the responsibility for financial stability rested squarely with politicians. The euro fell after the ECB rate cut before recovering. Italian bond yields declined after setting euro-era records earlier. In a press conference, Draghi suggested the euro area could slip into a mild recession by the end of the year. Credit Suisse to cut 1,500 more jobs Credit Suisse Group AG on Tuesday announced fresh round of cost cuts that would require more job cuts after its investment bank posted a third-quarter loss. The Swiss bank reported earnings that missed analysts’ estimates, sending its shares tumbling in weak European markets. The Swiss financial services giant announced 1,500 more job cuts and said it plans to reorganize its securities unit after the division reported its first quarterly loss since 2008. Credit Suisse had said in July it would cut about 2,000 jobs out of a total staff of about 50,700 as it targeted 1 billion francs in annual cost savings. Today it said that the new cuts should bring those cost savings to 2 billion francs by 2013. Credit Suisse reported that its third-quarter net income rose 12% to 683 million Swiss francs (US$772mn), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said. Fed keeps rates steady...Promises more action if needed The Federal Reserve on Wednesday left interest rates unchanged and refrained from announcing any new steps to stimulate the world's largest economy. Fed chairman Ben S. Bernanke said that he was disappointed with the economic outlook and indicated he was prepared to do more, including more asset purchases. Separately, the Fed scaled down its outlook for US economic growth for this year, 2012 and 2013, besides also significantly raising its unemployment forecast. Economic growth in the US strengthened somewhat in the third quarter but recent indicators point to continuing weakness in overall labor market conditions, the FOMC said in a statement. The unemployment rate remains elevated, it said. Read More… RBA cuts growth, inflation forecast citing global turmoil The Reserve Bank of Australia (RBA) on Friday scaled down its forecasts for economic growth and inflation for the next two years citing the eurozone financial mess and slowdown in the US economy. Australia's central bank today also said that it could cut rates further, saying that the biggest risk to the economy was Europe's sovereign debt crisis. On November 1, the RBA cut its key interest rate for the first time since early 2009, from 4.75% to 4.50%. "A worse outcome in Europe would adversely affect the Australian economy, and underlying inflation would be likely to decline," the RBA said in its statement on Monetary Policy. Read More… RBA cuts policy rate by 25 bps The Reserve Bank of Australia (RBA) on Tuesday cut its benchmark interest rate by a quarter percentage point in order to boost growth amid growing signs of a slowdown in the global economy. The RBA's interest-rate setting board cut its key cash rate by 25 basis points to 4.5%. This is the first rate cut by the RBA since April 2009. “Recent information suggests the subdued demand conditions and the high exchange rate have contained inflation,” RBA Governor Glenn Stevens said in a statement. Most economists had

Weekly Industry Newsletter

80 of 93

predicted the move by the RBA. The RBA board said today that trade performance was starting to see some effects of a significant slowing in economic activity in Europe. It also said that commodity prices, while still at high levels, have declined over recent months. Read More… S&P’s erroneous message shakes France As if the ongoing debt crisis in the Euro zone was not enough, ratings agency Standard and Poor’s caused fresh jitters in an already anxious global market when it erroneously announced the downgrade of the top credit rating of France. S&P, however, later admitted that the downgrade announcement to some of its clients was due to a ‘technical error’ and that France’s AAA credit rating was unchanged. “The ratings on Republic of France remain 'AAA/A-1+' with a stable outlook, and this incidentis not related to any ratings surveillance activity,” S&P said. Pan-African exchange Bourse Africa to commence operations in mid-2012 Bourse Africa Limited(BAL), the first pan-African commodity spot and multi-asset class exchange, will commence operations in mid-2012. BAL is establishing a pan-African exchange platform in Botswana and a network of linked exchanges, fully localized in national and regional markets across the continent. A formal launch announcement to this effect was made by Shreekant Javalgekar, Director (Finance),Financial Technologies (India) Limited (FTIL), at the International Convening on Commodity Exchanges in Africa, held in Addis Ababa, Ethiopia, from 8th-9thNovember, 2011. Mr. Javalgekar was accompanied by Mr. Chris Goromonzi, MD &CEO, BAL; Mr. Denys Denya, Executive Vice President, African Export Import Bank (Afreximbank); and Mr. Lamon Rutten, Director of BAL and MD & CEO of Multi Commodity Exchange of India (MCX). BAL is promoted byFinancial Technologies (India) Limited (FTIL), the flagship company ofIndia-based Financial Technologies Group (FT Group), a global leader inoffering technology solutions and domain expertise to create and operatefinancial markets in multi-asset classes across Africa, the Middle-East, Indiaand the Far East. The FT Group operates a network of nine exchanges includingMCX, the world’s fifth largest commodity futures derivatives market in terms ofcontracts traded (January to June 2011, based on Futures Industry Association(FIA) statistics). Read More… ECB steps in to counter bond rout: reports The European Central Bank (ECB) has reportedly stepped in to stem an accelerating sell-off of euro zone government bonds after the United States called for more decisive action to halt a spreading sovereign debt crisis. According to reports, ECB policymakers continue to reject growing international calls to intervene decisively as Europe's lender of last resort, stressing it is up to governments to resolve the debt crisis through austerity measures and reforms. S&P focuses on economic uncertainty in US and Europe Economic and financial uncertainty continues to characterize the state of the global economy. The slowdown that began in 2008 persists in some form or another in many parts of the world, albeit to varying degrees, said an article published by Standard & Poor's Global Fixed Income Research. In the U.S., conditions in the housing and labor markets remain weak, and Europe's sovereign debt crisis appears to be spreading. The emerging markets, which are largely export driven, are also feeling the pinch as demand from trading partners in developed regions remains weak. Nonetheless, the recovery in the emerging markets appears to be stronger than the recovery in developed markets, according to the article, titled "Emerging Markets: A Viable Alternative Amid The Global Slowdown." Read More…

Weekly Industry Newsletter

81 of 93

Temasek Holdings raises stake in China Construction Bank: reports Temasek Holdings has acquired about one-third of the China Construction Bank (CCB) shares that have been offloaded by Bank of America in recent days, according to reports. The report stated that Temasek is believed to have paid about HK$4.93 a piece for the shares. China, India and Indonesia make up more than half of Temasek's portfolio of investments, which stood at $193 bn at the end of March, says report. Ackermann drops plan to be Deutsche Bank chairman Josef Ackermann said he would not take up the position of chairman of the supervisory Board at Deutsche Bank. Ackermann is stepping down as the German bank's chief executive in May next year. He withdrew his candidacy to join the supervisory board, following an uphill battle to win shareholder support for his appointment. Ackermann's surprise move changes the dynamics of the German bank's leadership structure. Ackermann was named to take over as Deutsche Ban Chairman to ensure continuity. The German bank's Investment banking head Anshu Jain and Germany chief Juergen Fitschen will take charge as co-CEOs in 2012. Ackermann was to stay on at the bank as chairman, but shareholders disliked the idea. Deutsche Bank now wants Paul Achleitner, Allianz's chief financial officer, as chairman. A German daily said that two members of the management board had asked Ackermann to leave. But Deutsche Bank denied the report. BOE sees UK growth weakening further Bad news from Europe just refuses to subside, with the Bank of England (BOE) on Wednesday warning that the prospects for the UK economy have worsened amid a worldwide economic downturn. Economic growth in the UK will be about 1% in 2011 as against August forecast of about 1.7%, the British central bank said in its latest quarterly Inflation Report. The BOE forecast growth of about 1% for 2012 as well, down from 2% earlier, and forecast 2.5% growth in 2013, down from its earlier forecast of 3%. On inflation, the BOE said that it may be below its 2% target in two years time. Based on the current 275 billion-pound ($433 billion) bond program remaining unchanged, inflation is judged more likely to be below than above the 2% target at the forecast horizon, the BOE said. "The big picture is that inflation will come down," BOE Governor, Sir Mervyn King said. King said that UK growth over the next few quarters was likely to be markedly weaker than what the central bank had previously thought, as businesses postpone investment and households turn more reluctant to spend. UK activity was likely to be broadly flat until the middle of next year, King said. The BOE policy makers also said today that failure by European officials to resolve the turmoil could lead to significant adverse effects on the global economy. “Implementation of a credible and effective policy response in the euro area would help to reduce uncertainty and so support UK growth,” the BOE said. “Its absence poses the single biggest risk to the domestic recovery.” Eurozone leaders rule out bigger role for ECB Leaders of the eurozone’s three biggest nations - Germany, France and Italy - have ruled out a bigger role for the ECB in tackling the region’s sovereign debt crisis. Separately, German Chancellor Angela Merkel reiterated her opposition for the so-called euro bonds. France and Germany agreed on Thursday to stop their public spat over whether the ECB should do more to rescue the eurozone from a deepening sovereign debt crisis. They also expressed their backing for new Italian Prime Minister Mario Monti while he sets about reducing the country's massive debt burden. French President Nicolas Sarkozy also said that Paris and Berlin would circulate joint proposals before a Dec. 9 European Union summit for treaty amendments to incorporate tougher budget discipline in the 17-nation euro area. Read More…

Weekly Industry Newsletter

82 of 93

IFC gives US$40mn to MBAC to expand fertilizer production, create jobs IFC, a member of the World Bank Group, is providing a $40 million loan to MBAC Fertilizer Corporation to expand the company’s production facilities, which will help create jobs and increase food production. The investment is part of IFC's effort to promote private sector development in the Amazon and Cerrado regions in Brazil. IFC’s loan will be used for the development of the Itafós Arraias SSP project, which includes a phosphate mine, a processing plant, and related infrastructure in central Brazil, near the border of Goiás and Tocantins states. MBAC’s close proximity to phosphate resources and its local customer base makes its fertilizer products a cost-effective alternative to imported phosphate fertilizers that dominate much of Brazil’s agricultural sector. “We are extremely pleased with the continued support we have received from IFC,” said Antenor Silva, President and CEO of MBAC. “They have played an important role in mobilizing the financial resources needed to finance our project and aggressively pursue our start-up schedule and commence production.” Read More… Developing East Asia faces risks from global uncertainty: WB Growth is still strong in developing East Asia, but continues to moderate mainly due to weakening external demand, underscoring the need for governments to refocus on reforms to increase domestic demand and productivity, says the World Bank in its latest East Asia and Pacific Economic The report, issued biannually, projects that amid uncertainties in Europe and a global growth slowdown, real GDP in developing East Asia will increase by 8.2% in 2011 (4.7% excluding China) and by 7.8% in 2012. Domestic demand in middle-income countries was the largest contributor to growth in the region, although it is easing driven by the normalization of fiscal and monetary policy. "Lower growth in Europe in the course of fiscal austerity and the banks?needs to increase capital coverage would affect East Asia. Less credit from European banks can also affect capital flows to East Asia, but high reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress," said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region. Read More… Moody's maintains stable outlook for Thai banking system Moody's Investors Service says it is maintaining its stable outlook for Thailand's banking system, given that the economic impact of the floods will likely be temporary and that the fundamentals of Thai banks remain robust. "In coming to a stable outlook, we weighed the impact of the difficult operating environment -- resulting from the recent floods -- against the broadly more positive fundamentals in the economy and banking system," says Karolyn Seet, a Moody's Assistant Vice President and Analyst. "Our maintenance of the stable outlook also takes into consideration the absence of a robust global recovery, and assumes that the combined effect of these difficult conditions will lead to asset quality deteriorations and higher non-performing loans (NPLs) formation in the coming six months, particularly in the agriculture, automobile and electronics sectors," says Seet. Seet was speaking on the release of Moody's outlook for the Thai banking system, and which she authored. Moody's rates 10 banks in Thailand, including 8 commercial banks and 2 policy banks. The commercial banks accounted for approximately 87% of Thai commercial banking system assets at end-2010. The other 2 banks are specialized financial institutions and policy banks, with 100% government ownership. Read More… S&P downgrades dozens of banks citing rule changes Standard & Poor's has downgraded several global banks following a revision in its rating criteria for the world's 37 largest financial institution. The widely expected move did not signal a change to any of the banks' individual credit

Weekly Industry Newsletter

83 of 93

metrics. Bank of America, Goldman Sachs, Citigroup, JPMorgan Chase, Wells Fargo, Morgan Stanley, Barclays, HSBC, Royal Bank of Scotland and UBS had their long-term credit grades reduced one notch each by S&P. S&P also left the ratings of 20 banks unchanged and raised the ratings of two others. Bank of China and China Construction Bank Corp. ratings were raised to A from A-minus. The credit ratings agency also updated ratings for dozens of bank subsidiaries of the companies. The S&P move is part of a broad drive by the firm to improve its products and boost its image that was dented in the aftermath of the US sub-prime crisis in 2008. S&P had wrongly kept 'AAA' ratings on securities backed by subprime mortgages. The new system will reportedly allow S&P to more quickly change ratings when it sees new threats. Moody's Investors Service said late on Monday that it could soon downgrade subordinated debt of 87 banks across 15 European Union nations on concerns that eurozone governments would be too cash-strapped to bail out the lenders.

Weekly Industry Newsletter

84 of 93

Domestic News - December 2011 RBI leaves Repo Rate steady...CRR too unchanged The Reserve Bank of India (RBI) on Friday left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. The Central bank also refrained from cutting the cash reserve ratio (CRR) despite tight liquidity in the system. The repo rate has been left steady at 8.5% after increasing it 13 times since March 2010. The reverse repo rate stands unchanged as well at 7.5%. The marginal standing facility rate is at 9.5%. The bank rate also remains static at 6%. In its mid-year policy review in October, the RBI had indicated that it might halt the rise in interest rates if the inflationary situation does not worsen. Read More… Parliament panel rejects voting right changes in banks Parliament's standing committee on finance, headed by Yashwant Sinha turned down a key clause in the banking Bill, to raise the cap on voting rights of a single shareholder in government-run banks to 10% from the existing 1%, and in other banks from the existing 10% to a level proportionate to the shareholding. The Banking Laws (Amendment) Bill was tabled in the Lok Sabha earlier this year. The Bill also seeks to make it mandatory for any shareholder who acquires 5% or more stake in a bank to get prior approval from the Reserve Bank of India (RBI). It also seeks to take away the power of scrutinising mergers and acquisitions in the banking sector from the Competition Commission of India. Standard Chartered set to acquire bulk of Barclays credit cards: reports Standard Chartered Bank is planning to acquire half of the Indian credit card portfolio of Barclays, according to reports. The reports stated that the two banks are expected to sign a deal in the next couple of days. StanChart would acquire around 180,000 cards from the 3 lakh customers that Barclays has, says reports. There are reports that Barclays had put up the Indian credit card business for sale as part of a restructuring of its business. Parliament panel rejects higher FDI in insurance The UPA government's reform agenda gets yet another blow after the parliamentary standing committee on finance reportedly struck down the suggestion to increase the cap on FDI in insurance from 26% to 49%. According to reports, the panel has also opposed an amendment to banking laws which entails raising the ceiling on voting rights of shareholders of nationalised banks from the present 1% to 10%. Congress members in the panel were opposed to the big ticket reforms of the Centre in insurance and banking sectors. The reports are likely to be tabled in the House next week. The present 26% cap on FDI in insurance should be continued was recommended by the committee. The panel has allowed foreign insurance companies to operate from special economic zones (SEZs), reports said. The panel has also struck down the proposal to remove the existing restrictions on voting rights limited to 10% of the total voting rights of all the shareholders of a banking company, as provided by the banking laws (amendment) Bill, added reports. SKS Microfinance to cap RoA at 3% SKS Microfinance Limited reiterated its commitment to client protection by integrating customer grievance redressal into the business plan and by capping the Return on Assets at 3 per cent for the microfinance business. The Company plans to appoint a social sector veteran as its Ombudsman by the end of December 2011 to herald a new chapter in customer grievance redressal and customer protection in the microfinance industry. SKS Microfinance, which has been demonstrating its business agility in inventing innovative solutions with quickest implementation time-frames,

Weekly Industry Newsletter

85 of 93

also unveiled its plans to launch a wholly owned subsidiary for its non-microfinance business, seven months after diversifying into Sangam Stores, Mobile Handset Loans and Gold Loans. The Company plans to invest Rs. 150mn in the next three years in order to align its customer grievance redressal and client protection practices with globally recognised benchmarks. The investment will drive a five-pronged customer protection strategy: 1. privacy of client data; 2. transparent and responsible pricing; 3. mechanism for redressal of grievances; 4. avoidance of over-indebtedness among borrowers; and 5. appropriate collection practices. Read More… …SKS faces collection issues in WB, Gujarat Axis Bank to scale up retail operations: reports Axis Bank is reportedly planning to scale up its retail operations by cashing in on the demand in smaller cities. Jairam Shridharan, senior vice-president and head consumer lending and payments was quoted as saying "The bank aims at increasing the share of retail loans to 30% of total loans from the current 21% in the next three years." According to reports, Tier II and Tier III centres and smaller cities have emerged as drivers of incremental loan growth. Around 60% of the new business comes from these centres. Bulk of the new business will come from smaller cities. To push car sales, dealers are setting up dealership points in semi-urban and rural centres as the Tier I cities are saturated. The net credit loss for the industry in cards business had slipped to a low of 8% from the peak of 25% in 2008, added reports. RBI’s recent revision in provisioning norms unlikely to impact MFIs’ profitability A year after the Government of Andhra Pradesh (Andhra) promulgated its ordinance for microfinance institutions (MFIs), leading to a major upheaval in the MFI sector, India’s MFIs are redesigning their business models. Driven by moderation in growth, decline in profitability and subdued funding prospects in their core business, several MFIs are starting new ventures that are focused on secured asset classes or leveraging their branch networks to offer other retail products. CRISIL has consistently highlighted the need to increase stakeholder confidence for the long-term sustainability of the sector. The Reserve Bank of India’s (RBI’s) recent guidelines are a positive step in this regard, and are aimed at structurally strengthening the MFI sector over the long run. RBI’s revision in provisioning norms and change in recognition of non-performing assets (to 90 days overdue from 180 days overdue) is unlikely to impact the profitability of the non-Andhra operations of CRISIL-rated MFIs over the medium term. Read More… Parliamentary panel demands CBI probe against IFCI chief The Parliamentary Panel has found Industrial Finance Corporation of India CEO and MD, Atul K. Rai, guilty of suppressing facts and misleading the committee regarding his appointment and has recommended a CBI probe against him, reports said. Reports added that according to sources, it was found that the Finance Ministry had no control over the functioning of the IFCI despite a enormous bailout package worth million of rupees given to IFCI. Rai has also been charged with misbehaviour with BJP MP Rajiv Pratap Rudy who had met the former in Jan 2010 in connection with rehabilitation of a sick sugar mill, reports said. Parliament panel opposed to FDI in insurance The Parliamentary Standing Committee on Finance, headed by BJP leader Yashwant Sinha has rejected the proposal to increase the foreign direct investment (FDI) limit in the insurance sector. In its report tabled in Lok Sabha today, the Standing Committee said that any further hike in FDI may not be in the interest of the insurance sector given the bleak prospect for the global economy. The Insurance Laws Amendment Bill had proposed that FDI limit in insurance companies be raised to 49% from 26% at present. The

Weekly Industry Newsletter

86 of 93

Standing Committee noted that the Union Finance Ministry could not convincingly justify the proposed hike in FDI limit in the insurance sector. Broad-base financial inclusion by literacy initiatives: SEBI SEBI proposes to take host of measures to broad-base financial inclusion through literacy initiatives and build infrastructure for 1.2 billion Indians who are still not a part of capital markets, says Prashant Saran, its whole-time member while addressing ASSOCHAM conference on Mutual Fund Summit here today. He said mutual funds must increase their penetration in smaller cities and rural areas while financial literacy should spread among the uneducated also. “The focus should be on small investors so that the base widens. Financial education should be sector-specific and product-neutral,” he said. Most of the money parked in mutual funds comes from institutional investors which include corporates, banks and foreign institutional investors (FIIs). Saran said many financial products are becoming complicated and it is not easy for even an educated person to understand and analyse them. At the same time, financial structures across the world do not command as much respect as they used to in the past. Read More… Loan growth picks up in early December The credit loans have reportedly again picked up as economic activity gains momentum on the back of festivals, harvest of kharif (monsoon) crop and companies planning fresh investments. According to reports, loans rose Rs. 463.77mn in the latest fortnight ended December 2. Outstanding bank loans are at Rs. 42.35-lakh crore, representing a growth of 17.7% on a YoY basis. Term deposits raised by banks, too, continue to post a strong growth. Total loans rose 23% in the same period a year ago. Loans are expected to pick up in the coming months as corporates draw up their investment plans, post-monsoon. Borrowers are expected to look to domestic banks for funds. During the April-October'12 period loans to the manufacturing sector rose marginally over the previous year's levels sector wise. Much of the loan growth during the first half of this fiscal is driven by loans to mediumsized firms and the shipping industry, and some retail loans, like vehicle loans, reports said. Read More… RBI releases Financial Stability Report The Reserve Bank of India presented its half-yearly assessment of the health of India’s financial sector in its Financial Stability Report (FSR), released here today. The FSR embodies the Reserve Bank’s continuing endeavour to communicate its assessment of the incipient risks to financial sector stability. The FSR was first released in March 2010, followed by December 2010 and June 2011. The FSR holistically assesses soft spots in India’s financial sector from a systemic perspective. It outlines the key risks arising from macroeconomic environment, financial markets and institutions and regulatory and other infrastructure. It also seeks to assess the position in respect of continuing vulnerabilities even as new ones are emerging. There are two distinguishing features of this FSR vis-à-vis the earlier ones. It represents the collective views of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to systemic stability and hence is a more holistic assessment of financial stability. The FSR also showcases the Reserve Bank’s endeavour to constantly upgrade its tools to identify and measure systemic risk through a new chapter describing them. In addition, stability maps and indicators have been designed for every segment to present a bird’s eye view of the assessment of risks and their evolution in various segments over the previous period. Dena Bank and Tata Motor signs MOU for commercial vehicle finance Dena Bank signed a MoU with Tata Motors Ltd. on 21st December 21, 2011 for financing commercial vehicles in India manufactured by Tata Motors Ltd. M.K Sharma, General Manager (MSME), Dena Bank and Mr. Sudhanshu Verma, Head – Retail Channel Finance and Insurance Tata Motors Ltd.

Weekly Industry Newsletter

87 of 93

(CVBU) who have signed the MoU at a function held in Mumbai. Dena Bank will provide loan up to 85% (on road) to eligible borrowers on merits for purchase of commercial vehicles manufactured by TATA Motors Ltd. for a maximum tenure of 7 Years, at a very attractive rate of interest.

Weekly Industry Newsletter

88 of 93

International News - December 2011 Moody's downgrades BNP, SocGen & Credit Agricole Moody's Investors Service said it was downgrading the long-term debt ratings of French banks BNP Paribas, Societe Generale and Credit Agricole, citing funding constraints and deteriorating macroeconomic conditions in Europe. The long-term ratings for BNP Paribas and Credit Agricole were cut by one notch to Aa3, while Societe Generale's rating was cut by one notch to A1. The actions conclude reviews initiated June 15 and extended on Sept. 14. Moody's said that the outlook on the long-term ratings for all three banks are negative. "Liquidity and funding conditions have deteriorated significantly, for all three banks, and their creditworthiness is being hurt by the "fragile operating environment for all European banks," Moody's said in a statement. Moody's said that its ratings did take into account the fact that all three French banks were likely to benefit from state support if the eurozone debt crisis deepened. European banks need to raise €114.7bn in fresh capital The European Banking Authority (EBA) said on Thursday that the region’s banks will need to raise €114.7 billion ($152.7 billion) in fresh capital, up from a previous estimate of 106 billion euros. The new capital raising is part of measures to respond to the euro area’s sovereign-debt crisis, the European Banking Authority in London said. The European banks need to increase their core Tier 1 capital to a target of 9% of risk-weighted assets by mid-2012. The region’s banks have been asked to bolster capital in order to withstand writedowns after they agreed to take losses on Greek bonds. “The objective of the capital exercise is to create an exceptional and temporary capital buffer to address current market concerns over sovereign risk and other residual credit risk,” the EBA said in a report. Read More… S. Korea, NZ and Indonesia leave rates steady South Korea's central bank left its main policy rate steady to protect domestic growth amid growing concerns about the health of the US and European economies. The Bank of Korea kept its benchmark rate at 3.25% for a sixth month, it said in Seoul today. The rate has been on hold since the last rate increase in June. The Bank of Korea's decision was in line with expectations. “Downside risks to growth are high” because of Europe’s woes, the possibility of slumps in major economies and swings in international financial markets, the Bank of Korea said in a statement. New Zealand’s central bank also held the official cash rate at a record-low of 2.5%. ECB cuts refinance rate by 25 bps The ECB cut its main rate by 25 bps to 1% besides announcing a number of measures to boost euro-area liquidity. ECB president Mario Draghi rebuffed calls for additional bond purchases to support struggling euro area nations. At his news conference in Frankfurt, Draghi said that the EU treaty prohibits the central bank from monetary financing. The ECB President said that he did not necessarily signal additional bond purchases by the central bank when he spoke last week, adding that the program was not eternal or infinite. Draghi also emphasized "substantial downside risks" for the euro area economy. BOE leaves rates, QE program unchanged The Bank of England (BOE) on Thursday left its benchmark interest rate steady while also keeping a status quo on its quantitative easing program. The UK central bank kept its key rate at a record low 0.5%. The BOE's Monetary Policy Committee also voted to keep the target for bond purchases at 275 billion pounds (US$432 billion), as predicted by all economists. The British central bank increased the target by 75 billion pounds in October and expects those purchases to be completed in February. Markets' attention will now turn to the policy meeting of the European

Weekly Industry Newsletter

89 of 93

Central Bank (ECB), which is likely to cut its benchmark rate by a quarter percentage point to 1%. ECB President Mario Draghi will hold a press conference later today in Frankfurt. Market players are interested in knowing whether Draghi announces any new measures to help the eurozone’s struggling banking sector. Read More… Moody's revises Bank Permata's D- BFSR outlook to positive Moody's Investors Service has revised the outlook on Bank Permata's bank financial strength rating (BFSR) of D- to positive from stable. The BFSR currently maps to a baseline credit assessment of Ba3. All other ratings are unaffected, and carry stable outlooks as detailed below. "The revised outlook reflects the positive trajectory in Bank Permata's financial metrics and franchise, partly due to the stability of its shareholding structure. The bank has been owned by a consortium comprising Standard Chartered Bank (B/A1 stable) and Astra International (not rated) since October 2004," says Beatrice Woo, a Moody's Vice President and Senior Credit Officer. "Each entity holds an equal 44.515% stake in the bank. The benefits which we had anticipated the bank would derive from its parents -- technical expertise, management skills and business relationships -- have materialized. As a result, Permata's financial and operating metrics are breaking out of the bank's current standalone rating band," says Woo. Read More… Morgan Stanley plans to cut 1600 jobs Morgan Stanley to reportedly eliminate 1,600 employees in the first quarter to cut costs as trading and banking revenue show few signs of recovering. According to reports, the will begin with its cuts next year, amount to nearly 3% of its global personnel, and will be spread across the company. The job cuts will come across all staff levels and geographic areas, including investment banking, trading and back-office functions. Reports said that the bank will trim more jobs toward the middle of next year, as the Morgan Stanley Smith Barney franchise is further integrated . The company has also cut costs unrelated to pay, such as Blackberry use, travel and data services, and lifted an annual expense savings target from the Smith Barney integration to $1.4 billion a year from $1.1 billion. The news of jobs cuts come after the profitability of the bank falls amid the weak global economy and European debt crisis, added reports. Fitch downgrades seven banks in US, Europe Fitch Ratings, the third-biggest of the major credit rating agencies, has downgraded seven global banks based in Europe and the United States, citing "increased challenges" in the financial markets. Bank of America Corp., Goldman Sachs and Citigroup had their credit grades cut by Fitch. Barclays, Credit Suisse, Deutsche Bank and BNP Paribas also had their grades lowered by Fitch. The moves complete a review of financial firms by the three major rating companies. Fitch downgraded Barclays and Credit Suisse to A from AA-, while lowering France’s BNP Paribas (BNP) and Deutsche Bank to A+ from AA-. Fitch corrected an earlier version of its statement to announce that Frankfurt-based Deutsche Bank was cut one level instead of two. Morgan Stanley’s long-term issuer default rating was affirmed at A. Fed holds rates, stimulus unchanged The Federal Reserve has maintained a status quo on its monetary policy, keeping borrowing costs at record low and holding the stimulus measures. The Federal Open Market Committee (FOMC) voted 9-to-1 for keeping interest rates at record lows at least through mid-2013, while also holding the line on ongoing stimulus policies. “The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability,” the FOMC said in a statement. There was one dissent though. Charles Evans, the president of the Chicago Fed, argued in favor of more policy easing for the second straight meeting.

Weekly Industry Newsletter

90 of 93

ECB extends €489bn in 3-yr loans to European banks The European Central Bank (ECB) on Wednesday disbursed €489bn in three-year funding to euro area banks as part of ongoing efforts to contain the credit crisis in the region and mitigate its fallout on the region's financial system. Analysts expected banks to borrow €293bn under the first of the ECB's three-year refinancing operations. Estimates ranged from €150bn to as much as €600bn. The money will be lent at the average of the ECB’s benchmark rate - currently at 1% - over the period of the loan. Earlier this month, the ECB announced a series of non-standard measures, designed to boost liquidity for European banks struggling to secure funding in the wholesale market. Talk that European banks were buying substantial amounts of sovereign debt as part of a recently unveiled European Central Bank (ECB) program contributed to the bullish mood. Draghi warns of downside risks to eurozone economy Financial stocks in the US and Europe were under pressure after the European Central Bank (ECB) President Mario Draghi warned of substantial downside risks to the euro area economy and forecast that 2012 will be a tough year for banks. Draghi also reiterated his earlier stance on additional bond purchases, saying that the ECB treaty prevents him from stepping up government bond purchases as a way of fighting the long-running sovereign debt crisis. He sought to play down the ECB's role in tackling the debt crisis, saying that the region's political leaders have to take the lead by ensuring fiscal discipline and making the European Financial Stability Facility (EFSF) fully operational. Read More… BOJ leaves rates steady...Warns on recovery The Bank of Japan (BOJ) on Wednesday left its benchmark interest rate steady and monetary stimulus unchanged while scaling down the prospects for the world's third-biggest economy. The BOJ policymakers held the overnight call rate target steady at 0-0.1% by a unanimous vote, as was widely expected. No changes are planned in the monetary stance until prices show medium- to long-term stability, the BOJ said. The Japanese central bank also said that the nation’s economic recovery from the March disasters has stalled due to weakness in key markets and a rising yen. “The pick-up in Japan’s economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen ... as well as of the flooding in Thailand,” it said. Japanese stocks pared some of the day's gains following the BOJ announcement. On the domestic demand, the BOJ said that business fixed investment has been on a moderate increasing trend and private consumption has remained firm. Read More… Russia unexpectedly cuts refinancing rate by 25 bps Russia has surprisingly lowered its refinancing rate while increasing the overnight deposit rate as inflation drops. The refinancing rate was cut to 8% from 8.25%, effective Dec. 26, Bank Rossii said in a statement. Economists were expecting the bank to maintain the rate at 8.25%. The overnight auction-based repurchase rate, the Russian central bank’s main lending tool, will stay at 5.25% and the overnight deposit rate will increase 25 bps to 4%. “The decision was made based on the estimation of inflation risks and risks to the stability of economic growth,” Bank Rossii said in the statement. The Russian central bank said that the latest move to narrow the broad rate corridor is neutral with regard to the direction of monetary policy. Further, Bank Rossii judged the current level of money market interest as appropriate to balance the inflationary risks and the risks of economic growth slowdown. Credit Suisse to buy HSBC's Japan unit Credit Suisse's plan to acquire HSBC Holdings Plc has reportedly reached to a definitive agreement, which is subjected to regulatory approval. According to reports, the terms of the deal, which is expected to close in

Weekly Industry Newsletter

91 of 93

mid-2012 is not yet revealed. Credit Suisse private banking operations have been among the fastest-growing of its international wealth management businesses in the Asia-Pacific region. ANSYS earns highest rating from Investor’s Business Daily ANSYS, a developer of engineering simulation software, is one of only six technology businesses worldwide to receive the highest possible score in a new list of stock ratings published by Investor's Business Daily. The financial publication’s SmartSelect Composite Ratings of publicly traded companies grade stock performance on a scale of 1 to 99. ANSYS earned a rating of 99 earlier this month, the highest possible score. This places ANSYS among the top 1 percent of all stocks reviewed by the publication. In compiling its SmartSelect Composite Ratings, Investor's Business Daily considers many factors, including earnings per share, relative price strength, sales and profit growth and return on equity. In 2011, shares in ANSYS grew 18 percent. Read More… Bank of America falls below US$5 on new capital rules Bank of America Corp. shares dropped below US$5 for the first time since March 2009, closing at US$4.99 on Monday. The 4% drop in Bank of America shares led declines for all but three of the 30 components of the Dow Jones Industrial Average. American bank stocks fell sharply on Monday on media reports that the Federal Reserve was expected to adopt a new global framework that requires large financial institutions to hold extra capital. The Wall Street Journal reported that the Fed was expected to accept the rules laid out by the Basel Committee. The financial sub-sector in the S&P 500 index led losses for all the 10 industry groups, falling more than 2%. Citigroup, Bank of America and JPMorgan Chase shares tumbled at least 3.7% to help lead losses in all 24 stocks in the KBW Bank Index. Banks should be forced to reveal more data about their financial reserves so that they can’t conceal poor management decisions and excessive risk-taking, international financial sector regulators said. Lenders should disclose the full list of instruments that they are counting toward meeting their required minimum capital levels, the Basel Committee on Banking Supervision said in a statement.

Weekly Industry Newsletter 92 of 93

Notes

93

Published in 2011 © India Infoline Ltd 2011 This report is for the personal information of the authorised recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. The information provided in the document is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from use of this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities mentioned in the document. The report also includes analysis and views expressed by our research team. The report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this information. India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons.

India Infoline Ltd. IIFL centre, Kamla Mill City, Senapati Bapat Marg, Nr, Elphinstone Road, Lower Parel (W), Mumbai 400 013.

For any content related queries, write to: The Editor at editor@indiainfoline.com

Weekly Industry Newsletter

of 93