IDBI Bank- Reinvesting in building blocks, for growth Way forward towards rebuilding a strong foundation • IDBI Bank is changing… • Capital Formation- Human and technological capital to generate financial capital • Strategic initiatives going forward • Financials for the year ended March 31,2001 Operating Model at IDBI Bank is undergoing metamorphosis • Traditional focus of the bank has been on corporate banking business – 95% of assets have been corporate assets – 77% of liabilities have been corporate liabilities • Technology has been deployed mainly as business support and not to create business opportunities • Organization structure has been branch driven with no clear focus on product suite delivery to the customer • Key performance attribute continued to be building of assets and total deposits as against profitability Way forward towards rebuilding a strong foundation • IDBI Bank is changing… • Capital Formation- Human and technological capital to generate financial capital • Strategic initiatives going forward • Financials for the year ended March 31,2001 Recognizing Key Value Drivers Q3FY02 Build Sales Focus Q4FY02 De-risk Credit Portfolio Enhance Operational Productivity Q3FY02 Build Product Superiority Q2FY02 Complete Technology Revamp New Skilled Senior Management Team Completed Value Driver # 1 - People Erstwhile Org. Structure New Org. structure Branch driven Functional Top mgmt. Retail Corp. Treasury Ops.&Tech Retail Bank + Within each business group, creation of Corporate Product and Sales Matrix to ensure superior Bank+ Ops. At product suite delivery to customers all branches Building up Human Capital has been a priority • Reconstitution of Senior Management Team with significant experience from foreign banks and private sector banks: CEO, Retail Bank Head, Retail Risk Head, Product Heads, Treasurer, Treasury Marketing Head, CFO, CTO, Ops. Head, HR Head, • Performance Assessment changed to focus on leading indicators and profits – Formulation of KRAs, Tiering process to differentiate performers – Performance linked ESOP scheme initiated in Oct. 2000 covering 75% of employees • Significant training initiatives undertaken – Relationship and sales management – New technology platforms • Young Professionals (85% CAs/MBAs)with average age of 31 years • Lower cost base than foreign banks Value Driver # 2: Technology • Corp. Banking and Trade Finance- Finacle (Q1) • Cash Management- CashTeck Tech. Expenditure (Q1) • Credit Rating System- CRISIL (Q1) 55 60 • Treasury – F/Office- Reuters Rs. in crs. B/Office- ITMS (Q1) 35 40 • Retail Lending- (Q2) 19 • Internet Banking- Bancaway (Q2) 20 • Tele banking- BK Systems (Q2) • WAP/SMS- Hexaware 0 (Completed) • ATM Switch- Oasis (Q2) FY00 FY01 FY02(Est.) • Networking – Talisma/Network Financial Years Solutions (Q2) • Fixed Asset Systems ,Payables Systems, FTP, ALM (Q2) Large initial investments to establish Product Superiority • In FY01, 44% of total operating expenses on people Break-up of Operating and technology v/s 33% in Expenses FY00 • Technology to 103 23 – Create strong back-end 90 Rs. in crs. 63 foundation 60 14 21 – Create product delivery 8 platforms 30 – Free human resources to 41 59 concentrate on product design 0 and sales FY00 FY01 • Investments in human capital Financial years and technological capital will create long term value Others Tech. People Cost Management - a Challenge • Increase in Operating Expenses/Total Income ratio mainly due to Operating Expenses – Higher Investment costs – Accelerated depreciation policy Review – Lag between costs and resultant revenue benefits 59% • Big focus to control consumable Percentage costs 43% – Premises renegotiation (Rs. 2 crores p.a. savings expected) – All vendors and supliers (Rs. 2 crores p.a. savings) – Technology renegotiations (Rs.5 crores p.a.) – Media Spend Negotiation (Rs. 70 FY00 FY01 lacs p.a.) – CTC concept for employees Cost/Total income – Target ratio of 50% in FY03/04 Value Driver #3: De-Risk Corporate Portfolio Rs. in crs . FY 00 FY 01 Total Net Customer Risk Assets (A) 2772 3136 Gross NPAs plus Write-Offs (B) 45 150 Total Provisioning plus Write-Offs (C) 9 54 (C) as % of (B) – Provision Cover 20% 36% Over 70% exposure to mid-size, large companies Turnoverwise distribution of companies- Exposures 19% 29% 4% 48% <100 crs. 100-500 crs. 500-1000 crs. >1000 crs. Establishing a new Credit Risk Regime • Implementation of Credit Rating Model from CRISIL by Q1 FY02 • Formation of Remedial Team focusing on remedial accounts since Q3 FY01 • Reduced exposures of Rs.248 crs. across 5% of customer base since Q3 FY01 • Migrating up in credit quality for new exposures along with building Industry Approach to risk management • No industry over-concentration of exposures • Across products, re-priced exposures to reflect RAROC and credit risk • Strategy: 25%+ growth towards a superior risk adjusted credit portfolio Value Driver #4: Enhance Operational Productivity and build Product Superiority • Operations initiative of establishing Central/Regional Processing Units by Q3 FY02 • 2/3 shift operation proposed in a low cost location • Handling of increased volumes without any business disruption • Main objective to take away transaction processing from branches and increase thrust on sales, knowing the customer – “From Good bankers to Good salesmen” Way forward towards rebuilding a strong foundation • IDBI Bank is changing… • Capital Formation- Human and technological capital to create financial capital • Strategic initiatives going forward • Financials for the year ended March 31,2001 Strategic Focus Areas • Manage for ROE – Capital Leverage – Net Interest Income – Other income – Cost Management • New Retail Thrust • Reposition Corporate Banking • Reposition Treasury Retail Banking: Customer Service, cornerstone of strategy • Focused on taking market share in 2nd and 3rd tier towns before intensifying focus on Metros • Re-branding of Bank – Logo, Color (Teal) – Customer proposition –what can i do for you? • Retail banking thrust with twin objective of – Building up distributed, lower risk asset base (target to have 25% of total asset base in retail by FY03) – Lowering cost of funding ( 50% of total deposits to be retail and 40% to be low cost deposits by FY03) Making rapid moves • Launched Mobile Banking • Proposed deployment of during FY01 in 29 cities with sales team for retail asset 4000 plus customers acquisition • Newsletter for customers, U&I • Upgrading ATMs for Bill Payment Presentation and to build credible personalization communication channel for • Upgraded Tele-banking in 17 cross sell cities • Aggressive Third Party • Debit Card Launch in FY02 Distribution • Internet Banking Launch in – MFs/Flexibonds/RBI Bonds Q2 FY02 – Insurance to follow soon • Retail Broking • Credit Cards Leading indicators Low Cost Deposits/Total Deposits Retail Deposits/Total Deposits 23 25 34 Percentage 40 Percentage 20 17 23 15 20 10 5 0 0 FY00 FY01 FY00 FY01 Financial Years Financial Years Retail Deposits/Total Deposits 40 34 Percentage 30 23 20 10 0 2000 2001 Financial Years No. of Retail Accounts Presence among Top 100 Deposit Centres in India 2.7 Nos. in lacs 3 1.61 No. of Centres 60 48 2 36 40 1 20 0 0 FY00 FY01 FY00 FY01 Financial Years Financial Years Corporate Banking: RAROC will be the driver • Balance focus between mid- market corporate customers and Improved provisioning top-tier customers policy • Decline in asset yields due to improved risk profile to be arrested 200 by lower cost of deposit and 36% cover increased fee income (Cash Mgmt., 150 Rs. in crs. Treasury, Trade Finance,Re- Pricing) 100 20% • Focus on FI and PSU clients Cover • Dynamic risk management policy 50 (No losses during recent capital markets downturn) 0 • Aggressive provisioning policy FY00 FY01 aimed at achieving Provision Cover well above statutory stipulations Net NPA Prov+W/off In Summary, Management Quality Brand Reach (Pan-India) Investment Resources (Technology/People) Process Management Risk Management Size ? I Surat Mhow Jabalpur 77 ATMs countrywide Way forward for rebuilding a strong foundation • IDBI Bank is changing… • Capital Formation- Creating human, technological and financial capital • Strategic initiatives going forward • Financials for the year ended March 31,2001 Profitability Review Rs. in crs. Financial year ended 31-03-2000 31-03-2001 Change (%) Interest income 424 539 27% Interest expense 333 438 31% Net interest income 91 101 11% Other income 55 70 27% Total income 146 171 17% Operating Expenses 62 103 63% Profit before prov. and taxes 84 68 (17%) Provisions and write-offs 6 45 650% Taxes 17 4 (77%) Net Profit 61 19 (69%) Key Performance Indicators Rs. in crs Financial year ended 31-03-2000 31-03-2001 Low cost Deposits as % of total 17% 23% deposits Fee income as % of Total 38% 41% Income Net NPA to Total Net Customer 1.28% 3.04% Risk Assets (%) Provision Cover 20% 36% Capital Adequacy 11.8% 11.72% of which, Tier I Capital 8.43% 7.89% Safe Harbor Except for the historical information contained herein, statements in this release which contain words or phrases such as “will”, “aim”, “will likely result”, “would”, “believe”, “may”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue” and similar expressions or variations of such expressions may constitute "forward-looking statements". These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to our ability to successfully implement our strategy, future levels of non-performing loans, our growth and expansion, the adequacy of our allowance for credit losses, our provisioning policies, technological changes, investment income, cash flow projections, our exposure to market risks as well as other risks.IDBI Bank Limited undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.