LARSEN & TOUBRO Challenges & Opportunities Global Meltdown Challenges & Opportunities 7 th November 2008 N. Sivaraman Executive Vice-President Financial Services

LARSEN & TOUBRO The Times of Turmoil

LARSEN & TOUBRO Great Past Low interest rates to spur growth after the dotcom bust Growth world over supported by Easy and cheap money Low commodity prices Improving efficiencies Opening up of economies Rising income and credit leading to large investments in housing sector across the globe More in US and UK

LARSEN & TOUBRO Recent past Sharp rise in commodity prices Investors chasing commodities accelerated the trend Rising global inflation on the back of rising commodity and food prices Central banks responded by raising interest rates Housing prices dropped in response to higher cost of credit and delinquencies Signs of stress visible in mid-2007 in the global financial system Start of a spiral?

LARSEN & TOUBRO Current gloom Near paralysis of credit markets Lack of liquidity Preserving cash for fear of loss and unknowns Lack of trust Non-availability of capital Equity or debt Fear all over World’s major economies on the throes of negative economic cycle Could it be for long?

LARSEN & TOUBRO Themes across the world Cash is King Large losses have reduced cash availability Institutions holding on to cash for fear of unknown Lending among banks is at premium over Libor (even L+ 3-4%) Libor loses benchmark status, Lending on ‘Cost of funds’ basis Corporate lending is for shorter tenors (3-5yrs) Indian Mibor touching 18% Asia-Pac banks, though healthier, have increased their lending margins due to high opportunity cost Flight to safety Risk Aversion De-leveraging, Re-capitalisation 6

LARSEN & TOUBRO Cause of gloom Creativity Confidence Comfort Everything got stretched at the margin – almost continuously Expectations of perpetuity

LARSEN & TOUBRO Cure administered Fire-sale of institutions Massive injection of liquidity by central banks Infusion of equity by governments Quasi-nationalisation Large rate cuts Federal Reserve lends directly to corporates

LARSEN & TOUBRO In India India was a beneficiary of large capital flows over the last five years Excessive liquidity and consumption growth Exuberance – justifiable to a large extent Recent sharp increase in inflation RBI curtails liquidity and raises rates A decoupled India? India suffers the pangs of global financial crisis as capital flows reversed/dried up Financial systems remains resilient with RBI’s right balance between control and de-regulation

LARSEN & TOUBRO Recent RBI actions Cuts CRR by 350 bps Cuts Repo-rate by 150 bps Cuts SLR by 100 bps 90 day refinancing facility of upto 100 bps of deposits Refinancing 150 bps of deposits for financing MFs and NBFCs Relaxed ECB norms for NBFCs also Repurchase of Market Stabilisation Securities – Rs. 160,000 crores Cumulative increase in liquidity of about Rs. 440,000 crores in various stages

LARSEN & TOUBRO Challenges & Opportunities

LARSEN & TOUBRO The Challenges Sustain economic growth Difficult financial conditions Overcoming balance of payment issues Need to find capital in the absence of overseas flows Restoration of confidence in banking system Ensure liquidity in the system Continued lending by banks Mitigate credit losses due to bankruptcy Mitigate the impact of mutual funds ceasing to be a source of capital Delay in availability/Increased cost of capital leading to cost overruns and project delays Balancing of growth and inflation Slowdown in jobs

LARSEN & TOUBRO Opportunities Wave of industry consolidation Increase in “restructuring mergers” Improved cost control measures Sustainable initiatives Outsourcing opportunities Strong Indian entities can grow globally World moves to a conservative regulatory regime Complex & over-clever financial instruments under check

LARSEN & TOUBRO Thank You