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BACKGROUND

ING Vysya is a private sector bank in India; it offers banking solutions like retail banking, foreig

n exchange, corporate banking, consumer loans, and wholesale banking. During

FY10 the bank set up 27 new branches (including conversion of 19 extension counters to branche

s) across India, as a result the number of branches increased from 441 to 468.

The bank continues to generate sizable proportion of its business from South India. Around 45%

of its deposits and 50% of advances come from Karnataka, Andhra Pradesh and

Tamil Nadu where it has good reach, especially in semi urban and rural areas. In the western, nort

hern, and eastern regions of the country, the banks presence is limited

Primarily to the metros and Tier I cities. As of March 2010, it had one wholly owned subsidiary, I

NG Vysya Financial Services Limited (IVFSL). The main business of IVFSL is

Tocarry on business of non fund/fee based activities of marketing and distribution of various fina

ncial products/services of ING Vysya and other companies, apart from recovery

of the old lease rentals due to the company. The ING Group of Dutch is the majority stake owner

in ING Vysya, the bank benefits from management support from its parent; the

group has seven representatives on the eleven member board of ING Vysya. The group has provi

ded funding support to ING Vysya from time to time; which provides the

stability to the bank both on an ongoing basis as well as in the event of any distress.

intoduction

ING Vysya Bank Ltd (ING Vysya) is an entity formed with the coming together of erstwhile,

Vysya Bank Ltd (Vysya Bank), of India and ING Group (Dutch), in 2002. Vysya Bank was set

up in 1930. In 1996 it entered into a strategic alliance with the erstwhile Bank Brussels Lambert

SA (BBL), which was later acquired by ING Group. ING Group increased its stake in ING Vysya

to around 44% in 2002; in the same

year, the banks name was changed to the current one.

KEY HIGHLIGHTS

Operational, funding, and management support from ING Group

ING Group, which holds 44.4% stake as on March 31, 2010 in ING Vysya through investment

subsidiaries registered in Mauritius, is the single-largest shareholder in the bank. The group has

provided loans, as well as infused equity capital into the bank in the form of rights and

preferential allotment; in September 2009, ING Vysya raised Rs.4.15 billion through a

combination of preferential allotment of equity shares to ING Group and private placement with

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qualified institutional buyers. In 2008-09, ING Group infused Rs.2.95 billion into ING Vysya in

the form of Tier I perpetual bonds and Upper Tier II bonds. The group also provides operational

support to the bank in the form of risk

management processes and systems, and also offers products from its global suite of products to

Indian customers.

Adequate capitalization and resource profile

ING Vysya has adequate capitalization backed by financial support from its parent. The bank had

Tier I capital adequacy ratio (CAR) and overall CAR of 10.1% and 14.9% respectively as on

March 31, 2010. ING Vysya also has an adequate resource profile supported by its increased

proportion of low cost current account and savings account (CASA) deposits. The banks CASA

deposits increased to 32.6% of total deposits as on March 31, 2010 (industry average of 35.4 per

cent) from 27% as on March 31,2009.

Moderate asset quality

ING Vysya has moderate asset quality because unsecured retail asset portfolio and corporate loan

book. The banks gross non performing assets (NPAs), at 3% as on March 31, 2010, were higher

than the industry average of 2.4%. The gross NPAs were 1.8% as on March 31, 2009. However,

the bank has restructured advances of around Rs.2.5 billion during 2008-0 9 and 2 0 0 9-10. The

outstanding restructured advances were around Rs.1.4 billion constituting around 0.8% of its

advances as on March 31, 2009.

FINANCIAL PROFILE

Interest income dropped, however resource profile improved in FY10

ING Vysya witnessed a significant growth of 27.7% in its NII for FY10. NII growth was on

account of ~12% decline in interest cost during the year. Interest cost declined mainly due to

increased proportion of low cost CASA deposits to 32.6% of the total deposits in FY10 from 27%

in FY09. The cost of deposits decreased to 4.6% in FY10 from 6.2% in FY09. However total

deposits grew by merely 4% while total interest income de grew by 0.3% y-o-y. Non interest

income (which includes commission, exchange and brokerage and profit on sale of investments)

grew by 9% during the year; as a result pre provisioning profit grew to Rs. 6.1 billion in FY10 as

compared to Rs. 4.1 billion in FY09. But total provisions and contingencies which grew

phenomenally by 172% over FY09 has limited the PAT growth to 12.2% y o y. PAT stood at Rs.

2.4 billion for FY10 as against Rs. 1.8 billion for FY09. As on March 31, 2010, ING Vysya had

gross NPAs of 3% of the total advances, against 1.9% as on March 31, 2009. However, higher

provisions made have maintained net NPAs at 1.2% as on March 31, 2010 and were at similar

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levels as on March 31, 2009. Consequently provision cover for NPAs increased to ~60% as on

March 31, 2010, from 36% as on March 31, 2009

INDUSTRY PROFILE

Banking

The Indian banking system emerged relatively unscathed from the global economic downturn of

2008 09. While credit growth slowed down, banks were able to control the level of non

performing assets (NPAs), thanks partly to the Reserve Bank of Indian allowing one time

restructuring of accounts. NPAs as a proportion of gross advances increased slightly from 2.3 per

cent as on March 31, 2009 and 2.5 per cent as the end of March 31, 2010. The government has

been supporting the growth of public sector banks by infusing capital as per requirement. The

government is expected to continue to maintain its strong support for the banking system, while

simultaneously imposing stringent prudential norms to ensure its orderly growth. Aggregate y-o-y

bank credit growth was 22 per cent as of the first week of November 2010, primarily supported

by large borrowings for 3G spectrum and broadband wireless access auctions. Despite hike in

deposit rates by 50 bps (on an average) in the first half of 2010-11, the deposit growth

rate has been 14-15 per cent till 5th November, 2010. This is primarily because of investors

preferring to channelise their savings to other avenues on account of negative real interest rates

on bank deposits. For inflows to revive, the deposit rates will need to be more attractive.

Realising this, several banks increased their deposit rates by a further 25-

75 bps in the first week of October 2010.