August A 4, 201 11 Mumbai

Tie er 2 cities more attr ractive fo or retail lo oan produ ucts

CRISIL C Re esearch, Ind dias larges st independ dent and in ntegrated re esearch hou use, expect ts increasin ng finance f pene etration and d the entry of o more play yers to drive faster growth in retai il loans dem mand in tier 2 cities. c Desp pite lower volumes, v th hese market ts are as pr rofitable as the larger markets on n account of o higher h yield ds, says its recent repo ort titled R Retail loan products: p O Opportunitie es and risks s beyond th he metros m and mini-metro os. Howev ver, given the differences in gro owth prosp pects and asset a quality y, selecting s the e right mark kets will be critical for profitable growth. g The T report details the current market m oppo ortunity, lik kely growth h prospects, , emerging competitiv ve scenario s and d key opera ating param meters such as finance penetration p , average ti icket size, loan l to valu ue ratio, r and no on-perform ming assets in i respect of o five retai il loan prod ducts housing loans, loan agains st property p (LA AP), car loa ans, two wh heeler loans s, and gold loans acr ross 15 tier 2 markets. The market ts covered c are Bhopal, Coimbatore, Indore, Jai ipur, Kanpu ur, Kozhiko ode, Luckno ow, Ludhian na, Madura ai, Mysore, M Na agpur, Nash hik, Rajkot t, Thiruvan nanthapuram m, and Vis shakhapatna am. These markets ar re significant s in terms of size, s and tog gether account for abou ut 15 per ce ent of the de emand for retail loans in i India. I CRISIL C Res search belie eves that gr rowth prosp pects in man ny of these markets ar re extremely y strong. Fo or example, e ca ar loan disbu ursements in i 10 of the e 15 market ts assessed are expecte ed to grow a at around 20 2 per p cent com mpounded annual a grow wth rate (CA AGR) over r the next 2 years as compared to o 13 per cen nt CAGR C in th he larger cit ties. In 7 of f these tier 2 cities, LA AP disburse ements wou uld grow fa aster than th he rest r of India a. Gold loan ns are expec cted to grow w at a much h faster pace (more tha an 50 per ce ent annually y) in five non-southern cities assessed. Strong ger growth prospects, lesser com mpetition, higher h yield ds and a profita ability comp parable to the larger r cities ma ake tier 2 markets an a extremely attractiv ve proposition p for finan nciers, exp plained Pr rasad Kop parkar, He ead Ind dustry & Customise ed Research, R C CRISIL Re esearch. CRISIL C Res search has used u cumula ative marke et share of th he largest tw wo players in i each mar rket to asses ss the level of competition n prevalent. The larges st two playe ers are estim mated to acc count for 50 0 per cent of o LAP L disbur rsements in n 2010-11, on an aver rage, across s the 15 markets m analysed. In fo four of thes se markets, m the ey accounted d for over 60 6 per cent of o disbursem ments. The correspond ding percent tage in large er cities c is muc ch lower, at t 35-40 per cent. c In case e of other lo oan product ts as well, th he trend is similar. s The T yield to o financiers is slightly higher h in tie er 2 cities, especially e in n the case of housing lo oans and tw wo wheeler w loan ns. Therefo ore, despite lower volu umes, these cities would be as pro ofitable as larger cities, provided p cre edit quality y is tightly monitored m Contrary t popular perception, not all tie to er 2 market ts fare f poorly in respect of o asset quality. In 8 out o of the 15 1 cities stu udied, the le evel of NPA As compare es favourably f with the all l-India aver rage for all l the five re etail loan pr roducts, added a Ajay y Srinivasan n, Head H Ind dustry Research, CRIS SIL Resear rch.

August A 4, 2011

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Media Contacts Mitu Samar Head, Communications and Brand Management CRISIL Limited Tel: +91-22- 3342 1838 Mobile: +91- 98200 61934 Fax: +91-22- 3342 3001 E-mail: msamar@crisil.com Tanuja Abhinandan Communications and Brand Management CRISIL Limited Tel: +91-22- 3342 1818 Mobile: +91- 98192 48980 Fax: +91-22- 3342 3001 E-mail: tabhinandan@crisil.com

Analytical Contacts Prasad Koparkar Head Industry & Customised Research, CRISIL Research Tel: +91-22- 3342 3137 E-mail: pkoparkar@crisil.com Ajay Srinivasan Head Industry Research, CRISIL Research Tel: +91-22- 3342 3530 E-mail: ajsrinivasan@crisil.com

About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is the countrys largest independent and integrated research house with strong domain expertise on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to deliver superior perspectives and insights to over 1200 domestic and global clients, through a range of research reports, analytical tools, subscription products and customised solutions.
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August 4, 2011

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