UKIBC -HSBC Presentation(1)

8/8/2019 UKIBC -HSBC Presentation(1)

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DOING BUSINESS IN INDIA

Financial Perspective

Dalip Puri

Head of Multicultural Commercial Banking UK

HSBC Holdings Plc

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Contents

Section 1 INDIA OVERVIEW

Section 2 TRADE FLOWS

Section 3 INVESTING IN INDIA

Section 4 AVAILABILITY OF CREDIT

Section 5 HSBC IN INDIA

Disclaimer: This presentation pertains to investment issues, financial markets and other related areas and is for information purpose only.

Investors and interested parties should seek to get relevant business related information from a qualified professional.

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Section 1

INDIA OVERVIEW

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India Overview ± Snapshot

Population: 1.123 billion (Est. 2007)

Average literacy rate is 65%

Land area: 1.27 million square miles (1/3 of US)

Languages: 18 Languages (English widely used)

New Government: Strong Mandate & Reform Driven Agenda

Executive system : Constitutional head ± President; real executive power vests in

the Council of Ministers with the Prime Minister as its head.

4



India Overview ± Economic Indicators

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Average GD growth of 7.5% from 2001-2008.

GD growth ex ected to slow down to 6.2% in

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GD growth is forecast to accelerate to 8.0%

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India Overview ± Financial Landscape6

RESERVE BANK OF INDIACentral bank and supreme monetary

authority

Commercial BanksForeign Banks (40)

Regional Banks (196)

Co-operative BanksUrban (52)State (16)

Public Sector

BanksPublic Sector (2 )

Private Sector

BanksPrivate Sector (30)



Section 2

TRADE FLOWS

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Trade Flows ± India

Source: Ministry of Commerce, Govt. of India, Feb 2008

IMPORT/EXPORT DESTINATIONS:

8

RankImports (Top 10& UK)

y-o-y%Growth2007-08 %Share

1 CHINA58.10 11.48

2 SAUDI ARABIA40.57 8.05

3 UAE60.52 5.65

4 USA31.83 5.63

5 IRAN47.72 4.60

6 SWITZERLAND11.23 4.11

7 GERMANY27.70 3.98

8 AUSTRALIA14.08 3.30

9 SINGAPORE43.51 3.28

10 NIGERIA5.52 3.18

16 UK25.05 2.13

RankExports (Top10)

y-o-y%Growth2007-08 %Share

1 USA10.23 13.03

2 UAE29.26 9.77

3 CHINA27.14 6.59

4 SINGAPORE17.27 4.48

5 UK18.54 4.17

6 HONG KONG37.09 3.90

7 GERMANY30.35 3.18

8 NETHERLANDS 92.05 3.16

9 BELGIUM19.77 2.60

10 ITALY8.81 2.45



Trade Flows ± India/UK

Source: Ministry of Commerce & Industry, Febl 2009

UK

16th Largest exporter to India

UK is India¶s 2nd largest trading partner in

Europe

MAJOR ITEMS OF TRADE

Exports from India:

Textiles

Precious stones

Jewellery

Leather products

Tea/Coffee

Ore & Minerals

Imports into India:

Pharmaceutical Products

Biotechnology Product

Engineering products

Cosmetics

Precision instruments

Watches

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FDI SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS

Rank CountryCumulative Inflows (US bn)(Apr 2000-2009)

%age to totalInflows

1 MAURITIUS 38.30 44%

2 SINGAPORE 7.93 9%

3 U.S.A. 6.40 7%

4 U.K. 5.24 6%

5 NETHERLANDS 3.61 4%

6 JAPAN 2.69 3%

7 CYPRUS 2.49 3%

8 GERMANY 2.19 3%

9 FRANCE 1.22 1%10 U.A.E. 0.94 1%

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS:

Rank Sector

Cumulative Inflows(US bn) (Apr 2000-2009)

%age to totalInflows

1SERVICES SECTOR (financial& non-financial)

19.83 23%

2

COMPUTER SOFTWARE &

HARDWARE

9.02 10%

3 TELECOMMUNICATIONS 6.96 8%

4 HOUSING & REAL ESTATE 5.87 7%

5 CONSTRUCTION ACTIVITIES 5.33 6%

6 AUTOMOBILE INDUSTRY 3.43 4%

7 POWER 3.23 4%

8METALLURGICALINDUSTRIES

2.73 3%

9PETROLEUM & NATURALGAS

2.57 3%

10 CEHMICALS 2.15 3%

FDI from UK to India:

Cumulative FDI 2000-09: 5.24bn

UK 4th Largest investor in India

*Please note: UK is No 1 investor in India once you take

into account (indirect) trade flows through Mauritius

according to Ernst & Young.

Main FDI Sectors from UK:

Services sector

Computer software & Hardware

Telecommunications

Engineering

Positively Supported Sectors:

Biotech

Healthcare

Pharmaceuticals

Automotive

IT and Hi-Tech areas

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Section 3

INVESTING IN INDIA

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Foreign Equity Ownership Limits - Automatic Route

± Insurance (26%)

± Airlines (Domestic/ cargo)/ elecom services/ Private sector banks (74%)

± Pharmaceuticals, Non banking financial companies, Food processing (100%)

Foreign Equity Ownership Limits ± With Permission (Foreign Investment Promotion Board)

± News & current affairs (26%)

± Broadcasting Cable, D H (49%)

± rading (100%)

± Development of airports (100%)

Foreign Institutional Investors: Investment in primary and secondary markets

± Registration with Securities and change Board of India

± Own upto10% of the paid up capital of an Indian company

± Foreign Institutional Investors can cumulatively hold up to 24% of paid up capital of a company

Investing in India12



Investing in India ± Business Presence

INDIAN INCORPORATED COMPANIES

Joint Venture

Strategic alliances with Indian partners where sectoral caps do not allow foreign companies to

set up business on its own

Advantages:

± established distribution / marketing set up of the Indian partner

± available financial resource & contacts of the Indian partners

Wholly Owned Subsidiary

Is treated as a domestic company (limited liability) for ta purposes

Advantages:

± provides fle ibility of operations

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Investing in India ± Business Presence

FOREIGN CONCERN

Liaison Offices, Representative Offices

No commercial or industrial activity may be undertaken

Branch Offices

Manufacturing and rading companies may open branch offices

Specific Reserve Bank of India approval required; registration with Registrar of Companies required,

Advantages:

± Can acquire immovable property

± Post ta profits freely repatriable

Project Offices

For those that have been awarded an Indian project

Treated as a branch office for ta purposes

No prior permission required from RBI

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Investing in India ± Taxation

Corporate tax for companies incorporated in India: 33.9%

Foreign Companies operating in India: 41.2%

Tax on dividends: 15%

Withholding Tax - Royalties and Fees for Technical Services 15%-20%

Income tax holiday for new units exporting goods or services from a Special

Economic Zone (SEZ) ± 100% for the first 5 years and 50% for another 5 years

10 year income tax holiday for infrastructure/housing projects

Currency transfer methods: SWIFT, Multiple Currency Accounts

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Section 4

AVAILABILITY OF CREDIT

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Types of Debt Products

Working Capital

± Overdrafts / On Demand Loans

± Letters of Credit, Buyers Credit, Suppliers Credit

± Receivable Financing, Factoring, Purchase order finance

Vanilla Long Term Loans

± INR term loans for Cape

± FCY term loans for Cape under RBI CB norms (limited appetite)

Structured Finance (limited appetite)

± Bridge Loans

± Acquisition Financing ± Highly Leveraged transactions

Raising Debt Finance for SME¶s17



Working Capital

Business plan of the company with projections for one year

MPBF (Ma . permissible bank finance) assessed in India by

banks in line with company¶s trade cycle

Usually banks finance 75% of the working capital and the

balance is promoter¶s contribution Security function of the company credit standing, however

basic terms are:

First charge over current assets

First / Second charge over fi ed assets Personal guarantees (subject to negotiation)

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Debt Finance - Typical Credit Requirements



Term Loans

Business plan of the company with projections up to the tenor of

the loan.

Such loans are usually for a defined capital e penditure for

which a separate project report is e pected. Typical Debt /

quity ± 2:1

Green field projects / non core diversifications are discouraged

in this environment. Higher equity contributions e pected.

Hedging solutions are a important for FCY Loans

Some basic terms for security are as follows:

First charge over fi ed assets 1.3x asset cover at least

First / Second charge over current assets

Personal guarantees (subject to negotiation)

Debt Finance - Typical Credit Requirements19



Section 5

HSBC IN INDIA

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HSBC in India

The Leading International Bank in India

Presence in India since 1853

Coverage with 47 branches

Presence in 26 cities

Arrangements with 10 Public &

Private sector correspondence Banks.

Correspondence Bank Network

reaches out to 3000 cities.

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UKIBC -HSBC Presentation(1)