November 26, 2005, Hotel Taj President, Mumbai

IBA jointly with JPMorgan organized a half day Conference on ‘Introduction to Hybrid Capital for Indian Banking Sector’ on November 26, 2005 at Hotel Taj President, Mumbai.

Background & Objective

Hybrid capital combines features of both debt and equity. Like debt, hybrid capital does not dilute the ownership of existing shareholders, and is often structured to provide tax-deductible payments. Like equity, hybrid capital absorbs operating losses and is subordinated to depositors and senior debt holders in the event of default. Since the Bank of International Settlements ("BIS") released guidelines for hybrid capital in 1998, international banks have enthusiastically adopted hybrid capital as banks are facing growing pressure from shareholders to maintain and improve returns, while satisfying demands of regulators to maintain healthy balance sheets. Hybrid capital helps improve return on equity, as it is non-dilutive and of significantly lower cost compared to equity. The ability to raise cost-efficient non-dilutive subordinated capital is increasingly recognized as a means of balancing the often divergent interests of regulators and shareholders.

Indian banks need increasingly larger amounts of capital to fund the strong asset growth that they are now experiencing. In addition, beginning in March 2007, Indian banks will be required to comply with the new capital adequacy framework outlined in Basel II. The RBI has already issued draft guidelines for the implementation of the New Capital Adequacy framework in February 2005 and the final guidelines will be drafted after considering feedback from market participants. The new guidelines provide for graded prescriptions for credit risk capital charge and introduce capital charges for operational risk. CRISIL has projected that implementation of these guidelines will increase regulatory capital requirements for most banks.

Given their need for capital, hybrid capital promises to provide an important source of non-dilutive, tax efficient, and relatively low cost funding for Indian banks. This is especially true for Public Sector Banks, who must comply with the threshold levels of dilution prescribed under the Banking Act. Given that some of these banks are already on the threshold, the asset growth for these banks would be seriously constrained if limited by internally generated Tier I capital. As active capital management becomes a core focus areas for all Indian banks.

Against this backdrop, JPMorgan and IBA thought it fit to conduct a half day Conference on ‘Introduction to Hybrid Capital’ with the objective of discussing the concept and benefits of Hybrid Capital to the Indian banking sector.

Mr. H N Sinor, Chief Executive, IBA delivered the Welcome Address. Mr. Srinivasan Varadarajan, Managing Director & Head of Treasury India, JPMorgan made a presentatation on “Basel II and Implications for Bank Capital” followed by a presentation by Mr. Marc P Jones, Head of Financial Institutions Group, Asia Pacific, JPMorgan on ‘Introduction to Hybrid Capital – Benefits to the Indian Banking Sector.

During the Question & Answer session, all speakers responded to a series of interesting questions from the participants. Around fifty bankers participated in the event.

Ms. Vedika Bhandarkar, Managing Director & Head of Investment Banking, JPMorgan proposed a Vote of Thanks.

FEEDBACK from Participants

“An excellent seminar which gave us very good insights on the topic. Marc Jones has excellent depth of knowledge and we will probably use expertise of J P Morgan in due course. Thanks to IBA too for organising such a wonderful seminar.

Shri Shailendra Maur

DGM (PPR), State Bank of India

“A highly useful seminar in the present scenario and must compliment IBA for arranging this programme. Please, in due course of time issue some working guidelines to the banking community on the regulating prescription in raising hybrid capital”.

Shri Pradeep Shankar

Chief General Manager, S.B.Travancore

A very useful and thought provoking seminar. Congrats to IBA for arranging such joint seminars with experts like J P Morgan. Look forward to more such seminars.

Shri T A Padmanabhan

CGM (Designate), State Bank of Indore

A very good program-should have been for full day to understand it better and have more elaborate discussion.

Shri Ashok K Gupta

Dy. General Manager, B. O Baroda

A good insight into the instruments.

Shri Rajiv Madhok

GM, Oriental Bank of Commerce

A very important and educative programme. Marc is thorough with the subject and has very clear concepts.

Shri G S Malth

GM, Punjab & Sind Bank

Excellent both content wise and the way it was structured.

Shri Y P Narang

Dy. General Manager,Punjab National Bank

Very informative and thought provoking.

Meena Hemchandra

Chief General Manager, RBI

Speakers’ Reactions

Well organized seminar that met significant interest and very timely.

Marc Jones

Head(Asia Pacific)J P Morgan

Very well organized and timely. Generated very good attendance and participation.

Ms.Vedika Bhandarkar

MD & Head of Investment Bkg.-J P Morgan

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Mr. Srinivasan Varadarajan, MD & Head of Treasury-India-JPMorgan on ‘Basel II & Implications for Bank Capital’

Mr. Marc P Jones, Head of Financial Institutions Group, Asia Pacific, JPMorgan during his presentation on ‘Hybrid Capital’ – its features and benefits for Indian Banks.

Mr. Marc Jones during the question & answer session

Power Point presentations by :

· Mr. Srinivasan Varadarajan, MD & Head of Treasury-India-JPMorgan on ‘Basel II & Implications for Bank Capital

· Mr. Marc P Jones, Head of Financial Institutions Group, Asia Pacific, JPMorgan on ‘Introduction to Hybrid Capital – Benefits to the Indian Banking Sector’