BSE to Launch Bank Index

On 16^th June 2003

Indian banking is riding on a major recovery both in terms of strength and soundness. In the year 2002, return on assets in Indian banking was higher compared to many emerging economies and the Moody’s Bank Financial Strength Index (2002) placed India at 27.5, which is much better than 16.7 of Korea, 15.8 of Thailand and 12.5 of Japan. Similar to experience in other rapidly growing countries, India is making sizeable gains in expanding into consumer credit with tightening of credit administration procedures. Major policy actions that led to sharp fall in the interest rates enabled banks to post significant rise in operational profits. For instance trading profits of the public sector banks shot up by Rs. 3749 crores taking their net profits to an all time high of Rs. 8301 crores in FY 02. This year too banks are showing sizeable gains in their profitability. The enactment of Securitization Bill offered great opportunities to step up loan recoveries that could further enhance the scope of greater profitability.

These developments impacted the performance of bank stocks significantly. Since bank stocks are emerging as a major segment in the equity markets, BSE considered it important to design an index exclusively for bank stocks. The index is computed on the basis of the globally accepted free float methodology. Earlier BSE had launched its first free float index on TMT stocks now popularly known as the BSE TECk Index.

A few important features of the BSE Bank Index, which will be known as BANKEX, are given below:

• BANKEX is based on the free float methodology of index construction

• The base date for BANKEX is 1^st January 2002.

• The base value is 1000 points

• BSE has calculated the historical index values of BANKEX since 1^st January 2002.

• 12 stocks which represent 90 percent of the total market capitalization of all banking sector stocks listed on BSE are included in the Index

• The Index will be disseminated on a real-time basis through BSE Online Trading (BOLT) terminals

• BANKEX will track the performance of the leading banking sector stocks listed on the BSE

• Stocks forming part of the BANKEX along with the particulars of their free float adjusted market capitalization are listed below.

Performance of the BANKEX

During the period between 1 Jan 2002 and 13 June 2003, the total market capitalization of BANKEX stocks has increased from 22970 cr to 55283 cr while the total market capitalization of BSE TECk index stocks has fallen from 105956 cr to 80787 cr and that of FMCG Index stocks from 87637 cr to 75947 cr. During this period, BANKEX rose by 62 percent showing impressive gains among other major indices. The average daily volatility of BANKEX from its inception to date has been 1.38% as compared to 2.24% for BSE TECk and 1.06% for BSE FMCG Index for the same period.

BANKEX, which will be a new entrant in BSE’s current portfolio of 13 indices, will enhance BSE’s ability in reflecting both the broad market and specific sector movements in the Indian Equity Markets.

Dr. Bandiram Prasad

Chief Economist

June 13, 2003