>Indian Banks (ABN-AMRO)

Sensitivity analysis

We assess that the negative impact of the proposed change in the method of calculating interest payments on savings accounts will be 3-8% of FY11F earnings across our coverage universe, assuming the banks do not pass on the increased cost to customers or alter the deposit rates.

Interest payments on savings accounts to be calculated on a daily basis from 2010: Currently, administered interest payment of 3.5% is calculated on the minimum balance held in the account from the tenth day to the last day of each calendar month. RBI has proposed that the payment of interest on savings bank accounts by scheduled commercial banks (SCBs) be calculated on a daily product basis with effect from 1 April 2010.

Sensitivity suggests negative impact on earnings of 3-8%, actuals may be lower: We estimate the adverse impact from this move will be 3-8% of reported earnings in our
universe. This is assuming the banks do not pass on the increased costs to customers or
realign their deposit rates. We believe banks will most likely reduce the deposit rates on
short-term products to compensate for the higher cost of deposits on savings bank balances.

Impact would be a function of the proportion of savings deposits and return on assets: We believe the impact on a bank’s profitability is a function of the proportion of savings deposits and the return on assets (RoAs). Generally, banks with a higher proportion of savings deposits would be adversely placed relative to peers. However, if the RoAs are high, the overall impact may not be as much.

Key assumptions of our sensitivity analysis
Our calculations assume banks do not pass on the increased cost to borrowers or align their
deposit rates. We assume a flat cost of 3% on savings account balance, while actuals may
vary by +/- 10bp. Also, note that sensitivity is based on FY10F RoAs, whereas the impact of
the development would be on FY11F earnings.

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