Influenced by the global financial turmoil and repercussion of the subprime crisis, the global banking

sector has been witness to some of the largest and best known names succumb to multi-billion dollar
write-offs and face near bankruptcy. However, the Indian banking sector has been well shielded by
the central bank and has managed to sail through most of the crisis with relative ease. Further with
the economic buoyancy the world over showing signs of cooling off, the investment cycle has also
been wavering. Having said that, the latent demand for credit (both from the food and non food
segments) and structural reforms have paved the way for a change in the dynamics of the sector
itself. Besides gearing up for the compliance with Basel II accord, the sector is also looking forward to
consolidation and investments on the FDI front.

Public sector banks have been very proactive in their restructuring initiatives be it in technology
implementation or pruning their loss assets. While the likes of SBI have made already attempts
towards consolidation, others are keen to take off in that direction. Incremental provisioning made for
asset slippages have safeguarded the banks from witnessing a sudden impact on their bottomlines.

Retail lending (especially mortgage financing) that formed a significant portion of the portfolio for most
banks in the last two years lost some weightage on the banks' portfolios due to their risk weightage.
However, on the liabilities side, with better penetration in the semi urban and rural areas the banks
garnered a higher proportion of low cost deposits thereby economising on the cost of funds.

Apart from streamlining their processes through technology initiatives such as ATMs, telephone
banking, online banking and web based products, banks also resorted to cross selling of financial
products such as credit cards, mutual funds and insurance policies to augment their fee based
income.

Liquidity is controlled by the Reserve Bank of India (RBI). Supply

India is a growing economy and demand for credit is high though it could be cyclical. Demand

Licensing requirement, investment in technology and branch network. Barriers to entry

High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms.
Depositors may invest elsewhere if interest rates fall. Bargaining power of suppliers

For good creditworthy borrowers bargaining power is high due to the availability of large number of
banks Bargaining power of customers

High- There are public sector banks, private sector and foreign banks along with non banking finance
companies competing in similar business segments. Competition

 Financial Year '09

The liquidity crisis that swept the heavyweights of global financial sector off their feet in FY09 did
affect the entities in Indian banking sector as well, albeit marginally. Other than the temporary crunch
after bankruptcy of Lehman Brothers, the global financial meltdown was weathered by banks in India
with relative ease. The monetary stimuli (reduction in repo rate, cash reserve ratio (CRR) and
statutory liquidity ratio (SLR)) offered to the banks by the RBI made things easier. Despite the severe
liquidity pressure and poor credit appetite at the retail and corporate levels, Indian banks managed to
grow their advances and deposits by 24% YoY and 22% YoY respectively in FY09. The growth was
mainly driven by a sharp expansion in term deposits and growth in agricultural and large corporate
credit. Having said that, higher delinquency levels in retail credit and debt restructuring took its toll on
the sector.

Indian Banks : Marginal signs of stress

daigram
Indian banks also enjoyed higher levels of money supply, credit and deposits as a percentage of GDP
in FY09 as compared to that in FY08 showing improved maturity in the financial sector.

Diagram

Despite poor pricing power lower cost of funds helped Indian banks grow their net interest margins in
FY09. While few like ICICI Bank chose to reduce their balance sheet size, most entities chose to
reasonably grow their franchise as well as assets. Public sector banks outdid their private sector
counterparts in terms of growth and franchise expansion in the last fiscal. Improved capital adequacy
also helped banks to comfortably comply with Basel II. The higher efficiency levels were the hallmarks
of better performance of Indian banks last year.

Most banks had to restructure some loans in their portfolio during FY09 which deferred their interest
income. Further the PSU banks had also to provide for the loss of interest on the agri-loans waived by
the government.

With lesser avenues of credit disbursal, banks had to park most of the liquidity available with them
with the RBI. At the end of FY09, banks' investment in SLR securities increased to 28.1% of total
deposits from 27.8% in FY08 and higher than the RBI prescribed level of 24%. Feeble credit offtake
coupled with the fear of bad loans going up in the scenario of economic slowdown prompted banks to
park their surplus funds with the RBI.

In FY09, as per the RBI mandate, all foreign banks operating in India and Indian banks having
operational presence outside India migrated to the Basel II norms. All other commercial banks have
been encouraged to migrate to these approaches not later than FY10.

Prospects

With banks having complied with Basel II and having sufficient capital in their books; it will be a
challenge to deploy the same safely and profitably in the event of persistence of economic slowdown.
Banks are likely to concentrate more on non funded income in this scenario.

Banks, especially the private sector ones, are likely to face penetration concerns. The lack of credit
penetration and the geographic concentration of bank credit is evident from the fact that 5 states
having the highest proportion of per capita credit enjoy 55% of the total credit disbursals in the
country.

RBI's roadmap for the entry of foreign banks and the acquisition of stake by the foreign entities in
Indian private banks has been deferred for the time being. However, the tussle for higher market
share in the already fragmented sector is only set to aggravate.

The proposal for Cabinet's approval to allow PSU banks to bring down the government's stake in
them below the stipulated 51%, which is yet to be tabled, can help the bank raise substantial capital
without borrowing at high rates and give the entities an opportunity to enhance their capital adequacy
ratios besides competing with their private sector peers.

ANALYSIS OF INDIAN FINANCIAL MARKET

Analysis of Indian Financial Sector reveals that it is at present going through a phase of stable growth rate which is experiencing a upward swing. The rise
can be maintained over a long period by keeping the inflation down. The financial sector in India has experienced a growth rate of 8.5% per annum. The rise in
the growth rate suggests the growth of the economy. The financial policies and the monetary policies are able to sustain a stable growth rate. The reforms
pertaining to the monetary policies and the macro economic policies over the last few years has influenced the Indian economy to the core.

The major step towards opening up of the financial market further was the nullification of the regulations restricting the growth in the financial sector. To
maintain such a growth for a long term the inflation has to come down further. The analysis of Indian financial sector shows the growth of the sector was the
result of the individual development of the divisions under the sector.
The analysis of Indian financial sector

Analysis of the Indian Capital market

 The ratio of the transaction was increased with the share ratio and deposit system
 The removal of the pliable but ill-used forward trading mechanism
 The introduction of infotech systems in the National Stock Exchange (NSE) in order to cater to the various investors in different locations
 Privatization of stock exchanges

Analysis of the Indian Venture Capital market

 The venture capital sector in India is one of the most active in the financial sector inspite of the hindrances by the external set up
 Presently in India there are around 34 national and 2 international SEBI registered venture capital funds

Analysis of the Indian Banking sector

 The banking system in India is the most extensive. The total asset value of the entire banking sector in India is nearly US$ 270 billion. The total
deposits is nearly US$ 220 billion. Banking sector in India has been transformed completely. Presently the latest inclusions such as Internet banking
and Core banking have made banking operations more user friendly and easy.

PEST analysis of any industry sector investigates the important factors that are affecting the
industry and influencing the companies operating in that sector. PEST is an acronym for
political, economic, social and technological analysis. Political factors include government
policies relating to the industry, tax policies, laws and regulations, trade restrictions and
tariffs etc. The economic factors relate to changes in the wider economy such as economic
growth, interest rates, exchange rates and inflation rate, etc. Social factors often look at the
cultural aspects and include health consciousness, population growth rate, age distribution,
changes in tastes and buying patterns, etc. The technological factors relate to the application
of new inventions and ideas such as R&D activity, automation, technology incentives and the
rate of technological change.

Synergyst’s PEST Analysis is a perfect tool for managers and policy makers; helping them in
analyzing the forces that are driving their industry and how these factors will influence their
businesses and the whole industry in general. Our product also presents a brief profile of the
industry comprising of current market, competition in it and future prospects of that sector.

Please note that the report compilation, presentation and dispatch may take 1-2 working
days.

Middle East Banking Sector Analysis (2007-2011)

'Middle East Banking Sector Analysis (2007-2011)” provides extensive research and in-depth
analysis of the country-wise banking sector in Middle East, their product, and services. This
report will help clients to analyze the leading-edge opportunities critical to the success of the
banking Industry in the countries of Middle East. Detailed data and analysis help investors,
financial service providers, and global banking players navigate through the evolving banking
sector in the Middle East.

Key Findings

- The total bank loans demand in the Middle East is expected to grow at the CAGR of 21.81%
during 2007-2011.
- The total bank deposit of the region is expected to grow at the CAGR of 19.18% during
2007-2011.
- Bancassurance will emerge as a big opportunity for the Middle East as it offers vast room
for growth in insurance market as the insurance penetration rate of the region was below
10% in 2006. But with Bancassurance, insurance sales are expected to rise up to US$ 100
Million in 2010.
- There exist plenty of opportunities in Microfinance sector as the potential for the sector is
enormous and today's microfinance intermediaries meet around 5% of the region's total
demand.
- Growth in young and educated population has been the main driver for banking in the
Middle East as this population proved to be more demanding, have a good knowledge and
understand of banking products and their need.
- Credit card market in Oman is expected to grow at a rate of 10% in 2007 and 8% in 2008.
As this market in Oman remains small and undeveloped, there exist vast scope for further
growth.
- The credit cards industry in Qatar is expected to sustain current levels of growth of over
20% per annum (by number of cards and billed volume in 2007 and 2008) due to low credit
losses, continued economic growth and the entry of new players in the market.

Key Issues and Facts Analyzed

This research report also addresses the issues and facts vital to the success of banking
business, such as:

- How competitive is the market landscape for banking industry in the Middle East?
- What is the nature of services driving the banking sector in the Middle East countries?
- What are the country and region-wise opportunities and challenges for this industry?
- What are the prospective areas of investment for the banks in near future?
- Which factors will lead to the growth of bankcards, loans and deposits in the Middle East?
- What is the extent of foreign penetration in the Middle East banking industry?

Key Products

The key products analyzed in the report are Deposits, Credit Cards, Debit Card, Loans, ATM,
POS (Point of Sale) Terminals and Bancassurance.

Key Players

This section provides an overview, key facts, and financials of several prominent players in
the industry, including National Bank of Bahrain, Bank Hapoalim Ltd, National Bank of Kuwait,
National Commercial Bank, Oman International Bank, Jordan Ahli Bank, Bank Saderat,
National Bank of Dubai, Qatar National Bank and Akbank.

Research Methodology Used

Information Sources
The information has been sourced from multiple credible sources like books, newspapers,
trade journals, and white papers, industry portals, government agencies, trade associations,
monitoring industry news and developments, and through access to more than 3000 paid
databases.

Analysis Methods
The analysis methods include Ratio Analysis, Historical Trend Analysis, Linear Regression
Analysis using software tools, Judgmental Forecasting and Cause and Effect Analysis.