Report of management of banking services

Submitted by:Ankit Malhotra

29011
Section:B
 INDEX
 FICO
 INDIAN RETAIL SECTOR
 FAILURE OF SUBIKSHA AND VISHAL RETAIL
 CONSORTIUM
 BRIDGE LOANS
 SYNDICATION
FICO
Fair Isaac Corporation (NYSE: FICO), is a public company that provides analytics and decision
making solutions—including credit scoring--that help financial services companies make
complex, high-volume decisions.

FICO is based in Minneapolis, Minnesota, United States and has offices in North America, South
America, Europe, Australia, and Asia.

FICO™ (NYSE:FICO) is the leader in Decision Management, transforming business by making

every decision count. We use predictive analytics to help businesses automate, improve and
connect decisions across organizational silos and customer lifecycles.

Clients in 80 countries work with FICO to increase customer loyalty and profitability, cut fraud
losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market
share. Most leading banks and credit card issuers rely on FICO solutions, as do insurers,
retailers,  healthcare organizations and other companies. Through the www.myfico.com Web
site, consumers use the company's FICO® scores, the standard measure of credit risk, to manage
their financial health.

They have pioneered the development and application of critical technologies behind advanced
Decision Management. These include predictive analytics, business rules management and
optimization. They use these technologies to help businesses improve the precision, consistency
and agility of their complex, high-volume decisions.

Credit Score

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to
represent the creditworthiness of that person. A credit score is primarily based on credit report
information, typically sourced from credit bureaus.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk
posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit
scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders
also use credit scores to determine which customers are likely to bring in the most revenue. The
use of credit or identity scoring prior to authorizing access or granting credit is an
implementation of a trusted system.

Credit scoring is not limited to banks. Other organizations, such as mobile phone companies,
insurance companies, employers, landlords, and government departments employ the same
techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar
techniques.

FICO is a publicly-traded corporation (under the ticker symbol FICO) that created the best-
known and most widely used credit score model in the United States.

The following is a percentage breakdown of a FICO score:

35% - Payment History

30% - Debt Ratio
15% - Length of Credit History
10% - Types of Credit
10% - Number of Credit Inquiries

Score Interpretation

One first has to determine exactly what type of score one is referring to. There are numerous
scores sold in the marketplace. FICO produces scores used by TransUnion and Equifax and has
been a score developer the longest. Experian has abandoned this scoring model and relies on
their less-popular "PLUS" system. The 3 companies also use VantageScore, a competing score
technology to FICO. Finally, there are other scoring systems such as TransUnion's "TransRisk"
or Experian's "ScoreX". These are educational scores in that while not used by lenders for
underwriting loans, they do provide insight into how scores are calculated.

In the United states, FICO Credit scores range from 300-850, with 723 being the median FICO
score of Americans. FICO scores below 600 are considered high risk borrowers, 620 being the
dividing line between good and bad, 640 or above being "pretty good", 650 as average general
credit-use behavior, and above 690 or 720 being excellent.Scores are based on payment history,
outstanding debts, credit history, new credit, and credit in use.In addition, Experian's PLUS score
system ranges from 330-830, and the VantageScore ranges from 501-990. The variations can be
easily confusing to consumers.

India

CIBIL (India's first credit information bureau) is a repository of information, which contains the
credit history of commercial and consumer borrowers. CIBIL provides this information to its
members in the form of credit information reports.The Credit Information Bureau (India)
Limited (CIBIL) was incorporated in 2000 by the Government of India and the Reserve Bank of
India to provide credit information about commercial and consumer borrowers to a limited group
of members, including banks, financial institutions, non banking financial companies, housing
finance companies and credit card companies.

History and origin

The need of credit information system was increasingly felt in order to enable informed credit
decisions and aid fact based risk management. It was also imperative to arrest accretion of fresh
NPAs in the banking system through an efficient system of credit information on borrowers as a
first step in credit risk management. In this context, the requirement of an adequate,
comprehensive and reliable information system on the borrowers through an efficient database
system was keenly felt by the Reserve Bank of India Government as well as credit institutions. A
Working Group with representatives from select public sector banks, IDBI, ICICI, Indian Banks'
Association and Reserve Bank was constituted by the Reserve Bank in the year 1999, to explore
the possibilities of setting up a Credit Information Bureau (CIB). The Working Group had
recommended setting up a CIB under the Companies Act, 1956 with equity participation from
commercial banks, FIs and NBFCs registered with the Reserve Bank. As per the
recommendations made by the Working Group, Credit Information Bureau (India) Ltd., (CIBIL)
was set up in January 2001.[1]
CIBIL was promoted by the State Bank of India, Housing Development Finance Corporation
Limited, Dun & Bradstreet Information Services India Private Limited and TransUnion
International Inc. The shareholding pattern was as follows:

 SBI 40%
 HDFC 40%
 Dun & Bradstreet 10%
 TransUnion 10%

TransUnion and Dun & Bradstreet are the technical and equity partners of CIBIL. TransUnion is
one of the largest consumer credit bureaus in the world. Dun & Bradstreet is world’s leading
source of commercial information and insights on businesses.

In 2004, SBI and HDFC divested a part of their stake in CIBIL to other shareholders comprising
of leading banks and financial institutions in the country.

Lending to retail sector

Retail banking refers to the dealing of commercial banks with individual customers, both on
liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities
side; and loans e.g., personal, housing, car, and educational, on the assets side are the more
important of the products offered by banks. Related ancillary services include credit cards, or
depository services.

Today’s retail banking sector is characterized by three main basic characteristics:

-Multiple products (deposits, credit cards,insurance, investments and securities);

-Multiple channels of distribution (call centre, branch, Internet and kiosk); and

-Multiple customer groups (consumer,small business, and corporate).

Across the globe, retail lending has been a spectacular innovation in the commercial banking
sector in recent years. The growth of retail lending, especially, in emerging economies like
India, is attributable to the rapid advances in information technology, the evolving macro-
economic environment, financial market reform, several micro-level demand and supply side
factors.

India too experienced a surge in retail banking. There are various pointers towards this.

• Retail loan is estimated to have accounted for nearly one-fifth of all bank credit.

• Housing sector is experiencing a boom in its credit.

• The retail loan market has decisively got transformed from a sellers’ market to a buyers’
market. Gone are the days where getting a retail loan was somewhat cumbersome.
Indian Retail – The fall of Subhiksha and
Vishal!

The Indian retail industry has been riding a wave for the last couple of years. According to a
latest report, retail sales are expected to rise from US$ 343 billion currently to US$ 543 billion.

Subhiksha was started by R. Subramaniam, an IIM A and IIT Chennai alumnus with its first
store at Chennai. Ram Chandra Aggarwal set up his Vishal Garments Store in 1994 – three years
before Biyani’s Pantaloon and seven years before setting up Vishal Retail. Both of them are
discount stores at prices which are much lower than other retail outlets.

Though, Subhiksha has closed down and Vishal is still in the market, there are some points of
similarity in their fall from glory which I would like to mention here –

Un-mindful expansion spree across different parts of the country

Subhiksha didn’t realize that with this only a few stores would be profitable and generate
positive cash flows. It moved across different sectors such as medicine, grocery, IT, mobile etc
very fast.

Vishal expanded without having the proper capital. They got the orders from the suppliers but
when the stores didn’t work out, the entire supply chain got choked.

IPO problem

Subhiksha was thinking of going for an IPO in 2007 but shelved it in view of “uncertain market
conditions”. But I believe that they got greedy as they expected a market correction.
Vishal on the other hand raised Rs 110 crore from an IPO in June 2007 which wasn’t enough to
meet it scorching growth pattern. It had 50 stores by then and was looking to expand to 130
stores in a year. But it went for short term debt which resulted in a big blow to their entire supply
chain when the stores didn’t happen as intended.

Both of them didn’t consolidate

Subhiksha and Vishal instead of stabilizing and consolidating themselves first in different places
and then moving to newer locations, tried to be the first in every town.

Poor inventory management

Subhiksha had a bad history of credit defaults and this led to supply breakages. This led to
situations where sometimes the store had very high inventory and at others, the stocks were out.
This led to great dissatisfaction.

Vishal’s distribution center led model failed as it couldn’t build an IT network. Buying at
warehouses was mostly not aligned to what the customers needed and resulted in dead inventory.

Private Labels

Vishal tried to develop private labels in almost every category but had limited scale to support
them.

Subhiksha closed down in 2009 amid allegations of defaults, non – wages payments and
bankruptcy. The people behind it are still struggling to come up with valid explanations.

Vishal has brought down the rentals of the properties, decreased its expenses and closed down
two dozen stores and warehouses and plans to close more. They still need an infusion of about
Rs 50 crore. Would the lenders give them?

CURRENT STATUS:Subiksha

Subhiksha operations came to a standstill by end-February 2009. All around the print media and
vendors were screaming for Government intervention. Industry experts came in saying the
management did not have a plan B, some were direct in saying they were not careful in
managing their money. Independent directors quit, relations with ICICI Venture’s soured and it
withdrew it nominees from the board. Both Zash Investments and ICICI Ventures objected to the
merger plan of Subhiksha with Blue Green Constructions Ltd.

Several top managers have quit the jobs at Subhiksha and the employees are clamoring for 4
months wage arrears and were planning to press charges against the company. Vendors and lease
rentals of stores remain unpaid and now the vendors and property owners have threatened more
legal action. Subhiksha lawyer has said this is the case where the party (Subhiksha) is not “able”
to pay and it is not a case of “un-willing” to pay.

There is also the case brewing up with Employee Provident Fund Organization (EPFO) where an
enquiry was initiated as to why Subhiksha has not remitted to the employee PF account – though
Subhiksha has clarified that in view of non-payment of salaries there is a corresponding non-
payment of PF’s and the two are related – the amount in question is Rs. 5 Crores and the matter
is not closed yet.

R. Subramanian is banking on the much delayed corporate debt restructuring process (CDR). He
wants to start with 1,200 stores again once the CDR process is through. He knows the biggest
challenge is to win back the credibility from vendors, lenders, investors and the employees.

However, he has not given up. Firm in the belief that Subhiksha can still be a viable business, he
is making a last-ditch effort to survive by pitching for an Rs 300-crore loan from a consortium of
13 banks, besides attempting a debt restructuring exercise. In a letter sent to Business World5,
Subramanian says, “The infusion of Rs 300 Crores would revive Subhiksha soon.” That would
allow him to pay off the vendors and resume operations at a minimal level. though he might also
have to shell out a significant chunk of his 59% stake. Subramanian’s confidence stems from his
belief that his business model is viable. “We did not raise enough equity, and we paid the price,”
he says. “It was a capital structure problem rather than a business model problem.”

As of the now the compromise formula6 is running into trouble. The compromise suggestion
with creditors offered for settling the Subhiksha Trading Services imbroglio isn’t going to be
decided quickly, for one thing, Subhiksha says it can offer the needed funding, of Rs 250 Crores,
only after the court approves its proposed merger with Chennai-based Blue Green
Construction Pvt. Ltd, already a contentious issue. For another, some of the creditors say they
don’t agree with the scheme; Kotak Bank, ICICI Ventures and Zash Investments have told the
court they have various objections.

Accordingly, the court decided to defer the hearing on the issue. It wants first to focus on the
amalgamation scheme with Blue Green Construction Pvt. Ltd..

The compromise formula with its various creditors was offered by the cash-strapped retail chain
through its subsidiary, Cash and Carry Wholesale Traders Pvt Ltd. According to the scheme,
secured creditors should settle for half the principal amount taken from October 2008 and the
remaining amount will be paid in installments after a while. For the unsecured lenders, the
company would start repaying the principal amount from January to December 2011.

Current status: Vishal Retail

Vishal Retail Ltd has filed applications in the Delhi high court to vacate different court orders
that bar the troubled firm from selling or transferring its assets.

The company on Monday filed five separate applications in the court for “modification” of its
earlier orders so that it can enter into a sale agreement with TPG Capital Lp

Consortium
A grouping of corporations to fulfill a combined objective or project that usually requires
interbusiness cooperation and sharing of the goods.

BOLLYWOOD MEETS THE BANKERS.

This article deals with the financing of the film industry in India. The country may be the world's
most prolific producer of feature films, but the country's movie industry--with annual revenues
of Rs59 billion (US$1.36 billion)--accounts for just 1 percent of global film industry revenues,
KPMG LLP estimates. It is a situation that those in the business have decided to address. The
Industrial Development Bank of India (IDBI), one of the region's largest development banks, has
been happy to bank-roll the salaries of the country's film stars. The Export-Import Bank of India
is enjoying itself in movie land too, receiving regular repayments on loans extended to finance
three Bollywood films released in the fiscal year ending March 31, 2005. Now other banks want
in on the act, and the acting. Several banks want to form a consortium with IDBI to lend to the
country's film industry. Top Indian bankers are being deployed to study the industry and build
domain expertise before venturing into film financing in a bigger way. The stock market, too, is
warming up to the prospect of funding corporates engaged in the business of production,
distribution and exhibition of films, and is giving firms, some of which have recently gone
public, healthy valuations.

Bridge loan
A short-term loan that is used until a person or company secures permanent financing or removes
an existing obligation. This type of financing allows the user to meet current obligations by
providing immediate cash flow. The loans are short-term (up to one year) with relatively high
interest rates and are backed by some form of collateral such as real estate or inventory.

AIR INDIA GETS $1bn BRIDGE LOAN.

The article reports that Air India Ltd. received a bridge loan of 1 billion dollars in a deal with
Standard Chartered Bank. The funding will be used for financing 10 Boeing aircrafts that will be
delivered in 2010 and 2011. The most important thing about the deal was that it was not
supported by a government guarantee or assurances from the US Ex-Im Bank and a single lender
provided the loan.

Syndication
A group of investment banks which jointly underwrite and distribute a new security offering, or
jointly lend money to a specific borrower. A banking syndicate is not a permanent entity, but
forms specifically to handle a deal that might be too difficult or too risky for a single underwriter
or borrower to handle. also called underwriting group or purchase group or banking syndicate or
investment banking syndicate or distributing syndicate.
India: back in fashion.
The article discusses the syndication of the 7.5-billion-U.S.-dollar Bharti-Zain acquisition
facility. It points out that Bharti has set the benchmark that other Indian borrowers are using for
their pricing as they deal with banks. It notes that the return in the Bharti syndicated loan is
below the levels banking institutions need to make sound financial sense.