NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS

UNCLAS SECTION 01 OF 02 NEW DELHI 003132 SIPDIS SENSITIVE SIPDIS USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN STATE FOR SCA/INS MICHAEL NEWBILL AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE PASS TO FAA THOMAS NASKOVIAK PASS TO DOT DAVID MODESSIT E.O. 12958: N/A 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