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Cablegate: New Delhi Weekly Econ Office Highlights

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
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R 091013Z JUL 07
FM AMEMBASSY NEW DELHI
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UNCLAS SECTION 01 OF 02 NEW DELHI 003132

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TAGS: EFIN EINV ETRD EAIR PTER KTFN PREL ENRG ECON IN IR
GM, UK
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS

REF A: NEW DELHI 02347

NEW DELHI 00003132 001.2 OF 002


1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of July 2-6, 2007.

Foreign Banks Report High Profit Growth, Yet Opportunity Costs are
Extreme
-----------------

2. (U) Major foreign banks in India have reported a healthy growth
in net profits in the last Indian fiscal year which ended on March
31. Citi's profits grew 39 percent to $386.7 million (excluding
$540 million from the gain of sale of holding in one of the group
companies), Bank of America's grew 35 percent to $48.3 million, and
JPMorganChase, which does not publicly report its results, told us
that it, too, had strong profit growth. Non-U.S. banks also
reported solid results: HSBC (64 percent), Standard Chartered (51
percent), ABN Amro (59 percent) and Deutsche Bank (73 percent).
Going against the trend, American Express Bank showed a small
decline in profits having reduced its banking operations in India.


3. (U) Fee-based income was the main driver of profit growth for
most foreign banks we surveyed, reflecting the buoyancy of India's
financial markets. Sanjay Nayar, CEO of Citi India, said that
fee-based income more than offset a 25 basis points compression in
interest margins. Citi financed about $15 billion of merger and
acquisitions by Indians abroad in the past fiscal year. About 70
percent of Citi's profits came from corporate banking. Vishwavir
Ahuja of Bank of America said structured finance engagements with
large Indian corporations were mainly responsible for his bank's
profit growth. Bank of America does not have retail banking
operations.

4. (U) U.S. bankers expect continued strong growth in the current
fiscal year. Indian companies are continuing their buying spree
abroad, are seeking more structured finance products, and are
raising more funds in international markets. Asit Bhatia, Managing
Director at Bank of America told us that his bank helped companies
such as Reliance and Indian Oil to access long-term funds from
U.S.-based pension funds and insurance companies through private
placements. Sanjay Nayar said Citi was in "hyper mode" seeking to
bring new multinational clients from Europe, U.S., Korea and Japan
to India.

Comment
-------

5. (SBU) At the same time, the opportunity costs foreign banks
incur from the country's restrictive policies towards bank ownership
and branches are extreme. In particular, foreign banks are losing
market share in the rapidly growing retail banking sector, since the
RBI only issues about a dozen new branch licenses to foreigners each
year while doling out hundreds to Indian banks. In contrast,
foreign banks are doing well and even have a leading, if not
dominant role, in those areas where there are few restrictions to
foreign involvement, such as capital markets and corporate finance.
End comment.

Continental Partnering with Kingfisher
------------------------------------

6. (U) India's Kingfisher Airlines has agreed to partner with
Continental Airlines on frequent flying, airport lounge access, and
future codesharing to improve service for customers traveling
between the U.S. and India, The Economic Times reported July 5.
Starting in October, members of Continental's OnePass and
Kingfisher's King Club frequent flyer programs will be able to earn
and redeem miles on all flights operated by the other carrier.
Reciprocal airport lounge access for eligible customers, including

NEW DELHI 00003132 002.2 OF 002


Continental BusinessFirst and Presidents Club members, will also
begin in October. The airlines plan codesharing by the end of the
year. Continental has operated daily, non-stop flights between
Newark and Delhi since 2005. The airline will launch daily,
non-stop eastbound flights between Newark and Mumbai on October 1,
according to CNN Money of July 5. Continental will place its code,
CO, on Kingfisher flights connecting to Continental's daily
Delhi-New York and Mumbai-New York flights.

GOI Waives Backlog on Tax for Tourists' Roaming Services
--------------------------------------

7. (U) According to The Economic Times of June 20, India's Central
Board of Excise and Customs (CBEC) said domestic telecom operators
will not be charged tax on services offered to inbound roaming
subscribers from July 1, 1994 to January 14, 2007. Domestic telecom
operators and the Finance Ministry have been in debate over the
payment of service tax on roaming facilities provided to
international tourists in India. The CBEC resolution is estimated
to save telecom operators $245 million. The article states that the
Finance Ministry ruled earlier this year that telecom operators
would have to pay the tax starting January 15, 2007, including the
backlog from July 1994. Telecom operators have been adding the 12%
tax on roaming services used by international tourists in India
since January 15 - raising travelers' costs - but had refused to pay
unanticipated charges from the past.


India's Telecom Majors To Offer Satellite-based Broadband
--------------------------------------------- -------

8. (U) Bharti Airtel and Reliance Communications may provide
satellite-based broadband services alongside their Direct To Home
(DTH) offerings, which are planned for market by year end, according
to The Economic Times of July 2. This move may prompt Dish TV,
India's largest private DTH player, to enter the satellite-based
broadband services market as well. Bharti said it will provide
broadband services in areas where it does not make sense to lay
copper wire. Reliance is also considering satellite internet
services, which are an ideal solution for rural users but are often
too costly as a stand-alone offering. Separately, in an attempt to
monetize its tower assets valued at about $3 billion, Tata
Teleservices (TTSL) short listed nine tower companies (including US
Crown Castle) to sell or lease out its approximately 6,000 telecom
towers across India, The Economic Times reported July 3. The new
towers are to be on a build-operate-lease basis and the holding
companies will be able to offer sites to other operators. TTSL
plans to spin off its tower business with a goal of reinvesting
money earned from sales and rentals of towers into core telephone
services.

9. (U) Visit New Delhi's Classified Website:
http://www.state.sgov/p/sa/newdelhi.

Mulford

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