ndian Banking Industry: An analysis1. INTRODUCTION1.1Industry definition:The Banking industry comprises of segments that provide financial assistance andadvisory services to its customers by means of varied functions such as commercialbanking, wholesale banking, personal banking, internet banking, mobile banking,credit unions, investment banking and the like.With years, banks are also adding services to their customers. The Indian bankingindustry is passing through a phase of customers market. The customers have morechoices in choosing their banks. A competition has been established within the banksoperating in India.With stiff competition and advancement of technology, the services provided bybanks have become more easy and convenient. The past days are witness to an hourwait before withdrawing cash from accounts or a cheque from north of the countrybeing cleared in one month in the south.Banks are among the main participants of the financial system in India. Bankingoffers several facilities & Opportunities. This section provides comprehensive andupdated information, guidance and assistance in all areas of banking in India.Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India onmodern lines started with the establishment of three presidency banks underPresidency Banks act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank ofMadras.The commercial banking structure in India consists of: Scheduled Commercial Banks& Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as"accepting, for the purpose of lending or investment of deposits of money from thepublic, repayable on demand or otherwise and withdrawable by cheques, draft, orderor otherwise."The arrival of foreign and private banks with their superior state-of-the-arttechnology-based services pushed Indian Banks also to follow suit by going in for thelatest technologies so as to meet the threat of competition and retain customer base.The evolution of IT services outsourcing in the Indian banks has presently moved onto the level of Facilities Management (FM). Banks now looking at business process
management (BPM) to increase returns on investment, improve customer relationshipmanagement (CRM) and employee productivity.For, these entities sustaining long-term customer relationship management (CRM) hasbecome a challenge with almost everyone in the market with similar products.1.2 Classification of the IndustryPublic Sector Banks:Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBsare still dominating the commercial banking system. Shares of the leading PSBs arealready listed on the stock exchanges.The PSBs will play an important role in the industry due to its number of branchesand foreign banks facing the constraint of limited number of branches. Hence, in orderto achieve an efficient banking system, the onus is on the Government to encouragethe PSBs to be run on professional lines.Private Sector Banks:The RBI has given licenses to new private sector banks as part of the liberalisationprocess. The RBI has also been granting licences to industrial houses. Many banks aresuccessfully running in the retail and consumer segments but are yet to deliverservices to industrial finance, retail trade, small business and agricultural finance.Foreign banks:Foreign banks have been operating in India for decades with a few of them havingoperations in India for over a century. The number of foreign bank branches in Indiahas increased significantly in recent years since RBI issued a number of licenses -well beyond the commitments made to the World Trade Organisation. The presenceof foreign banks in India has benefited the financial system by enhancing competition,resulting in higher efficiency. There has also been transfer of technology andspecialised skills which has had some "demonstration effect" as Indian banks too haveupgraded their skills, improved their scale of operations and diversified into otheractivities. At a time when access to foreign currency funds was a constraint for theIndian companies, the presence of foreign banks in India enabled large Indiancompanies to access foreign currency resources from the overseas branches of thesebanks. Also with the presence of foreign banks, as borrowers in the money market andtheir operation in the foreign exchange market has resulted in the creation anddeepening of the inter-bank money market. Now, it is the challenge for the
supervisors to maximize the advantages and minimize the disadvantages of theforeign banks local presence.1.3 Industry Segments Commercial Banking Wholesale banking Investment Banking Internet banking Mobile banking Rural banking Micro Finance Industrial Financea2. Market Dynamics2.1 Market OverviewThe banking industry too has evolved rapidly over the last few years in India due tothe availability of cheaper technology and falling communication costs. De-regulation, competition from non-financial players, new compliance requirements,and changing customer expectations has added complexity and challenges to bankingsystems and processes.Banks, however, face an uphill task in reaching out to the customers in remotelocations such as villages. There is a lower level of literacy and access to Internet.Setting up branches involves higher cost and operating expenses, and lower return oninvestment. Given the 742-million rural population, the penetration of depositaccounts languishes at a deplorable 18 per cent. (Source: Extending Banking to thepoor in India‖, Amit Singhal and Bikram Duggal, ICICI Bank).Qualitative growth :The growth of banking in the coming years is likely to be more qualitative thanquantitative, according to the report. Based on the projections made in the "India
Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, thereport forecasts that the pace of expansion in the balance-sheets of banks is likely todecelerate.The total assets of all scheduled commercial banks by end-March 2010 is estimated atRs 40, 90,000 crore. That will form about 65 per cent of GDP at current market pricesas compared to 67 per cent in 2002-03. Banks assets are expected to grow at an annualcomposite rate of growth of 13.4 per cent during the rest of the decade against 16.7per cent between 1994-95 and 2002-03.On the liability side, there is likely to be large additions to capital base and reserves.As the reliance on borrowed funds increases, the pace of deposit growth may slowdown. On the asset side, the pace of growth in both advances and investments isforecast to weaken.The high GDP growth in India is creating lots of job opportunities in urban and semi-urban India and it will go further into rural India — increasing the potential for ruralentrepreneurships and rural growth with higher per-capita income and savingsopportunities.Investment in Indian marketIndia, among the European investors, is believed to be a good investment despitepolitical uncertainty, bureaucratic hassles, shortages of power and infrastructuraldeficiencies. India presents a vast potential for overseas investment and is activelyencouraging the entrance of foreign players into the market. No companies, of anysize, aspiring to be a global player can, for long ignore this country which is expectedto become one of the top three emerging economies.Market potential:India is the fifth largest economy in the world (ranking above France, Italy, the UnitedKingdom, and Russia) and has the third largest GDP in the entire continent of Asia. Itis also the second largest among emerging nations. (These indicators are based onpurchasing power parity.) India is also one of the few markets in the world whichoffers high prospects for growth and earning potential in practically all areas ofbusiness. Yet, despite the practically unlimited possibilities in India for overseasbusinesses, the worlds most populous democracy has, until fairly recently, failed toget the kind of enthusiastic attention generated by other emerging economies such asChina.1.2 Industry Segments:
Public Sector Banks:Almost 80% of the business is still controlled by Public Sector Banks (PSBs). PSBsare still dominating the commercial banking system. Shares of the leading PSBs arealready listed on the stock exchanges.The PSBs will play an important role in the industry due to its number of branchesand foreign banks facing the constraint of limited number of branches. Hence, in orderto achieve an efficient banking system, the onus is on the Government to encouragethe PSBs to be run on professional lines.Private Sector Banks:The RBI has given licenses to new private sector banks as part of the liberalizationprocess. The RBI has also been granting licenses to industrial houses. Many banks aresuccessfully running in the retail and consumer segments but are yet to deliverservices to industrial finance, retail trade, small business and agricultural finance.Foreign banks:Foreign banks have been operating in India for decades with a few of them havingoperations in India for over a century. The number of foreign bank branches in Indiahas increased significantly in recent years since RBI issued a number of licenses -well beyond the commitments made to the World Trade Organization. The presenceof foreign banks in India has benefited the financial system by enhancing competition,resulting in higher efficiency. There has also been transfer of technology andspecialized skills which has had some "demonstration effect" as Indian banks too haveupgraded their skills, improved their scale of operations and diversified into otheractivities. At a time when access to foreign currency funds was a constraint for theIndian companies, the presence of foreign banks in India enabled large Indiancompanies to access foreign currency resources from the overseas branches of thesebanks. Also with the presence of foreign banks, as borrowers in the money market andtheir operation in the foreign exchange market has resulted in the creation anddeepening of the inter-bank money market. Now, it is the challenge for thesupervisors to maximize the advantages and minimize the disadvantages of theforeign banks local presence.2.2 Trend AnalysisFinancial And Banking Sector Reforms
The last decade witnessed the maturity of Indias financial markets. Since 1991, everygovernments of India took major steps in reforming the financial sector of the country.The important achievements in the following fields is discussed under separate heads:• Financial markets• Regulators• Non-banking finance companies• The capital market• Mutual funds• Overall approach to reforms• Deregulation of banking system• Consolidation imperativeFinancial MarketsIn the last decade, Private Sector Institutions played an important role. They grewrapidly in commercial banking and asset management business. With the openings inthe insurance sector for these institutions, they started making debt in the market.Competition among financial intermediaries gradually helped the interest rates todecline. Deregulation added to it. The real interest rate was maintained. Theborrowers did not pay high price while depositors had incentives to save. It wassomething between the nominal rate of interest and the expected rate of inflation.RegulatorsThe Finance Ministry continuously formulated major policies in the field of financialsector of the country. The Government accepted the important role of regulators. TheReserve Bank of India (RBI) has become more independant. Securities and ExchangeBoard of India (SEBI) and the Insurance Regulatory and Development Authority(IRDA) became important institutions. Opinions are also there that there should be asuper-regulator for the financial services sector instead of multiplicity of regulators.Development finance institutions
FIss access to SLR funds reduced. Now they have to approach the capital market fordebt and equity funds. Convertibility clause no longer obligatory for assistance tocorporates sanctioned by term-lending institutions. Capital adequacy norms extendedto financial institutions.DFIs such as IDBI and ICICI have entered other segments of financial services suchas commercial banking, asset management and insurance through separate ventures.The move to universal banking has started.Non-banking finance companies:In the case of new NBFCs seeking registration with the RBI, the requirement ofminimum net owned funds, has been raised to Rs.2 crores.Until recently, the money market in India was narrow and circumscribed by tightregulations over interest rates and participants. The secondary market wasunderdeveloped and lacked liquidity. Several measures have been initiated andinclude new money market instruments, strengthening of existing instruments andsetting up of the Discount and Finance House of India (DFHI).Long-term debt market: The development of a long-term debt market is crucial to thefinancing of infrastructure. After bringing some order to the equity market, the SEBIhas now decided to concentrate on the development of the debt market. Stamp duty isbeing withdrawn at the time of dematerialisation of debt instruments in order toencourage paperless trading.Mutual fundsThe mutual funds industry is now regulated under the SEBI (Mutual Funds)Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines, theindustry had a framework for the establishment of many more players, both Indianand foreign players.The insurance industry is the latest to be thrown open to competition from the privatesector including foreign players. Foreign companies can only enter joint ventures withIndian companies, with participation restricted to 26 per cent of equity. It is too earlyto conclude whether the erstwhile public sector monopolies will successfully be ableto face up to the competition posed by the new players, but it can be expected that thecustomer will gain from improved service.
The new players will need to bring in innovative products as well as fresh ideas onmarketing and distribution, in order to improve the low per capita insurance coverage.Good regulation will, of course, be essential.Overall approach to reformsThe last ten years have seen major improvements in the working of various financialmarket participants. The government and the regulatory authorities have followed astep-by-step approach, not a big bang one. The entry of foreign players has assisted inthe introduction of international practices and systems. Technology developmentshave improved customer service. Some gaps however remain (for example: lack of aninter-bank interest rate benchmark, an active corporate debt market and a developedderivatives market). On the whole, the cumulative effect of the developments since1991 has been quite encouraging. An indication of the strength of the reformed Indianfinancial system can be seen from the way India was not affected by the SoutheastAsian crisis.Deregulation of banking systemPrudential norms were introduced for income recognition, asset classification,provisioning for delinquent loans and for capital adequacy. In order to reach thestipulated capital adequacy norms, substantial capital were provided by theGovernment to PSBs.Government pre-emption of banks resources through statutory liquidity ratio (SLR)and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits andlending sides almost entirely were deregulated.New private sector banks allowed to promote and encourage competition. PSBs wereencouraged to approach the public for raising resources. Recovery of debts due tobanks and the Financial Institutions Act, 1993 was passed, and special recoverytribunals set up to facilitate quicker recovery of loan arrears.Bank lending norms liberalised and a loan system to ensure better control over creditintroduced. Banks asked to set up asset liability management (ALM) systems. RBIguidelines issued for risk management systems in banks encompassing credit, marketand operational risks. A credit information bureau being established to identify badrisks. Derivative products such as forward rate agreements (FRAs) and interest rateswaps (IRSs) introduced.Consolidation imperative
Another aspect of the financial sector reforms in India is the consolidation of existinginstitutions which is especially applicable to the commercial banks. In India the banksare in huge quantity. First, there is no need for 27 PSBs with branches all over India.A number of them can be merged. The merger of Punjab National Bank and NewBank of India was a difficult one, but the situation is different now. No one expectedso many employees to take voluntary retirement from PSBs, which at one time weremuch sought after jobs. Private sector banks will be self consolidated while co-operative and rural banks will be encouraged for consolidation, and anyway play onlya niche role.We finally come to convergence in the financial sector, the new buzzwordinternationally. Hi-tech and the need to meet increasing consumer needs isencouraging convergence, even though it has not always been a success till date. InIndia organisations such as IDBI, ICICI, HDFC and SBI are already trying to offervarious services to the customer under one umbrella. This phenomenon is expected togrow rapidly in the coming years. Where mergers may not be possible, alliancesbetween organisations may be effective. Various forms of bancassurance are beingintroduced, with the RBI having already come out with detailed guidelines for entry ofbanks into insurance.2.3 Key Drivers of sustainability in the banking industryLenders liabilityLenders liability is associated with the financial risks banks face when granting orextending loans. Banks and other lenders rely on financial statements of companieswhen deciding whether to grant or extend credit. Under current reportingrequirements, potential environmental liabilities can easily remain undiscoveredunless a lender develops its own procedure to assess the environmental risks.Therefore, some banks can end up spending the money on clean-ups of sitescontaminated through their clients activities.Borrowers ability to meet financial obligationsThe borrowers obligation to clean up contaminated sites might impair his or herability to repay a loan. The contamination might also reduce the value of thecollateral. Prudent lenders are following the environmental trends and changes inregulatory framework to assess the possible implications of these changes on theirclients overall financial position.Growing environmental concerns
The last few decades have been marked by numerous changes in the regulatoryframework relating to environmental protection. Recent scientific discoveries ofenvironmental and health risks associated with pollution have contributed to anincrease in public demand for environmental quality. These growing concerns havecontributed to a major shift in public perception of corporate roles in society.Influenced by these trends, some banks have begun looking closely into their ownenvironmental and social performance. In many cases this effort has resulted inadoption of energy and resource efficiency programs within the institutionsthemselves.Business opportunitiesThe traditional approach of the banking sector to sustainability is often regarded asreactive and defensive. However, several international banks have recently adoptedinnovative, proactive strategies to capture the opportunities associated withsustainability. They have developed new products such as ethical funds or loansspecifically designed for environmental businesses to capture new marketopportunities associated with sustainability.Risk and rewardThe ability to gauge the risks and take appropriate position will be the key tosuccessful banking in the emerging scenario. Risk-takers will survive, effective riskmangers will prosper and risk-averse are likely to perish, the report asserts.In this context, the report makes a very pertinent recommendation that riskmanagement has to trickle down from the corporate office to branches.As audit and supervision shifts to a risk-based approach rather than transactionoriented, the risk awareness levels of line functionaries also will have to increase.The report also talks of the need for banks to deal with issues relating to `reputationalrisk to maintain a high degree of public confidence for raising capital and otherresources.2.4 Issues and ImplicationsConsolidationOn the growing influence of globalisation on the Indian banking industry, the report isof the opinion that the financial sector would be opened up for greater internationalcompetition under WTO. Opening up of the financial sector from 2005, under WTO,
would see a number of global banks taking large stakes and control over bankingentities in the country.They are expected to bring with them capital, technology, and management skillswhich would increase the competitive spirit in the system leading to greaterefficiency. Government policy to allow greater FDI in banking and the move toamend Banking regulations Act to remove the existing 10 per cent cap on votingrights of shareholders are pointer to these developments, says the report.The pressure on banks to gear up to meet stringent prudential capital adequacy normsunder Basel II and the various Free Trade Agreements that India is entering into withother countries, such as Singapore, will also impact on globalisation of Indianbanking.However, according to the report, the flow need not be one way. Some of the Indianbanks may also emerge global players. As globalisation opens up opportunities forIndian corporate entities to expand their business overseas, banks in India wanting toincrease their international presence could naturally be expected to follow thesecorporate entities and other trade flows out of India.Alongside, the growing pressure on capital structure of banks is expected to trigger aphase of consolidation in the banking industry. In the past mergers were initiated byregulators to protect the interest of depositors of weak banks. In recent years, therehave been a number of market-led mergers between private banks.This process is expected to gain momentum in the coming years, says the report.Mergers between public sector banks or public sector banks and private banks couldbe the next logical development, the report adds. Consolidation could also take placethrough strategic alliances or partnerships covering specific areas of business such ascredit cards, insurance etc.Branch Authorisation PolicyAs you are aware, the RBI announced a new Branch Authorisation Policy inSeptember 2005 underwhich certain changes were brought about in the authorisation process adopted by theRBI for the bankbranches in the country. As against the earlier system, where the banks approachedthe RBI, piece meal,
through out the year for branch authorisation, the revised system provides for aholistic and streamlinedapproach for the purpose, by granting a bank-wise, annual aggregated authorisation, inconsultation andinteraction with each applicant bank. The objective is to ensure that the banks take anintegrated view oftheir branch- network needs, including branch relocations, mergers, conversions andclosures as well assetting up of the ATMs, over a one-year time horizon, in tune with their own businessstrategy, and thenapproach the RBI for consolidated annual authorisations accordingly.There seems to be some misunderstanding in some quarters that, under the newpolicy, the bankshave to wait for the annual authorisation exercise and are constrained in approachingthe RBI for anyemergent authorisation in between. Since the branch expansion planning of the banksis expected to be awell thought out, Board-approved annual process, normally, there should be no needfor any emergent orurgent authorisation being required by the banks, in the interim. However, I wouldlike to emphasise that thenew policy does not preclude the possibility of any urgent proposals for opening bankbranches beingconsidered by the RBI even outside the annual plan, specially in the rural / under-banked areas, anytimeduring the year. This flexibility has been clearly articulated in our policy guidelines ascontained in theMaster Circular of July 2007 but somehow, it seems to have got overlooked.
There also seems to be a feeling among some banks that under the new authorisationpolicy, theprocess adopted is more cumbersome and, as a result, there have been delays inissuing authorisations.Since the banks are required to approach the RBI only after obtaining the approval oftheir respectiveBoards for their annual branch expansion plan, it is possible that the preparatory timerequired for filing theirannual plan with the RBI might be a little longer. The processing time at the end ofthe RBI, however, hasbeen generally in the range of one to two months – which I consider to be reasonable,given the element ofconsultation with the banks built into the process. However, the actual number ofauthorisations issued bythe RBI under the new policy has been much higher than before. For instance, asagainst the a total of 881,1125 and 1259 authorisations given by the RBI under the old policy regime during2003-04, 2004-05 and2005-06, respectively, the number of authorisations issued under the new policyduring 2006-07 was 2028.Thus, as against the general perception that the new policy has been more restrictivein grantingauthorisations, the fact is that there has been a sharp increase of about 61 per cent inthe total number ofauthorisations granted last year.3.PEST Analysis3.1 Political AnalysisRegulation
The expected integration of various intermediaries in the financial system wouldrequire a strong regulatory framework, the report states. It would also require anumber of legislative changes to enable the banking system to remain contemporaryand competitive. Underscoring that there would be an increased need for self-regulation, the report states that development of best practices could evolve betterthrough self-regulation rather than based on regulatory prescriptions.For instance, to enlist the confidence of the global investors and international marketplayers, the banks will have to adopt the best global practices of financial accountingand reporting. It is expected that banks would migrate to global accounting standardssmoothly, although it would mean greater disclosure and tighter norms, the reportadds.Notwithstanding the limited time ahead, the expectations, suggestions andrecommendations of the Banking Industry Vision report are well within the realm ofrealisation in part or whole. The first phase of banking reforms was born out of panic.The second phase can be implemented from a position of strength and confidence in acompressed time-frame.3.2 Economic Analysis3.2 Economic AnalysisGrowing economyTHE INDIAN economy has shown tremendous growth over the past decade. Thisstatement may seem odd to the economists who keep comparing the growth rates tothat of China or the East Asian Tigers. These countries have definitely shown goodeconomic growth, but Indias is nothing to be scoffed at.This assertion is not being made by comparing the GDP growth, FDI inflow, changesin per capita income and other economic criteria, but by looking at the increase in theavailability of goods and services.A while ago, visiting foreign countries, one used to wonder when would India catchup? People walking around with mobile phones, shopping malls overflowing withgoods, and even dozens of branded water. Coming from India, where water had to beboiled and filtered before consumption, these countries seemed like paradise.Now, a decade later, India seems to have caught up with some of these things at least.Take the cell phones and pagers. Hong Kong went through the pager phase for two orthree years before going cell. In India, pagers did not take off, while cell phonesclicked. The accelerated telecommunications revolution has made cell phone easilyaffordable. India is no longer the backwaters of for hi-tech products.
An economist may argue that availability of cell phones and branded water does notindicate a developed economy. But even they have to agree that India seems to havechanged from a country of shortages to one of plenty. And along with plentifulsupplies, there is also variety.In the early 1990s, there were three varieties of car models/makers — Ambassador,Fiat and Maruti 800. Today there are apparently some 500 models from more than 10manufacturers.Developmental economists may argue that plentiful supply of goods and services doesnot mean that India has become prosperous and that India has a long way to catch upwith the developed economies. But one has to agree that the India has made muchprogress over the past decade.Western economies have grown partly because of consumption economics. Thoseeconomies produced large number of goods, employing more and more people toproduce these goods. These employees in turn consumed the goods, creating avirtuous cycle. Maybe India is following this path.All the good are available in plenty. Now the living standards of people have to beimproved so that they start consuming these goods. Maybe, that is why the newFinance Minister wants to put more money in the housewives hand.3.3 Social AnalysisAll these developments need not mean banks will give the go-by to social banking.Rather than being seen as directed lending such lending would be business driven, thereport predicts. Rural market comprises 74 per cent of the population, 41 per cent ofthe middle-class, and 58 per cent of disposable income.Consumer growth is taking place at a fast pace in 17,000-odd villages with apopulation of more than 5,000. Of these, more than 50 per cent are concentrated injust seven states. Small-scale industries would remain important for banks.However, instead of the narrow definition of SSI based on the investment in fixedassets, the focus may shift to small and medium enterprises (SMEs) as a group.Changes could be expected in the delivery channel for small borrowers, agriculturistsand unorganised sectors also.3.4 Technological Analysis
Technological developments would render flow of information and data faster leadingto faster appraisal and decision-making. This would enable banks to make creditmanagement more effective, besides leading to an appreciable reduction in transactioncost.To reduce investment costs in technology, banks are likely to resort more and more tosharing facilities such as ATM networks, the report says. Banks and financialinstitutions will join together to share facilities in the areas of payment and settlement,back-office processing, date warehousing, and so on.The advent of new technologies could see the emergence of new players doingfinancial intermediation. For example, according to the report, we could see utilityservice providers offering, say, bill payment services or supermarkets or retailersdoing basic lending operations. The conventional definition of banking might undergochanges.Mobile bankingBanking on WirelessGet realtime banking information on your handset. Just register your mobile numberwith us , Choose alerts and set limits that you require and relax. You will receiveautomated alerts on the transactions in your account instantly, anywhere in the world.What is more, it is flexible and can be personalised to your needs. In addition you canalso "PULL" account information at your convenience !Register now and get into the world of conveneience through the unique Mobile Alertservice of Federal Bank which is comprehensive and flexible.Mobile Banking services enables a customer to get information whenever he wants bysending an SMS in the specified format. Also he will get Mobile Alerts for transactionhappening in his account. He can restrict the Alerts to desired transactions only. Theservice is available to customers all over the world.Please register mobile phone number with your branch to avail of this service. Whenregistration is done for Mobile Banking, preset Alerts will be enabled automatically tothe customer. For availing Mobile Banking facilities, the customer has to indicate afour-digit access code number, which will act as a password to ensure privacy andsecurity.The Mobile Banking facility is available to SB, SBNRE, SBONR, CA and ODCCcustomers
Facilities Available• View Account Balance• Mini Statement• Change four-digit access code / PIN.• Mobile Phone Number change• Discontinue / Re enable alerts• Options for changing the amount for sending the alerts.• Account Statement Request• Cheque Book Request• Help about the available options .4. PORTER’S FIVE FORCE ANALYSIS5.Competitive landscapePublic Sector Banks Indian Bank Bank of IndiaUnion BankSyndicate BankSate Bank of SaurashtraState Bank of TravancoreBank of MaharashtraVijaya BankUCO Bank
Indian Overseas BankPunjab National BankDena BankState Bank of HyderabadState Bank of Bikaner & JaipurState Bank of IndiaState Bank of MysoreState Bank of IndoreCorporation Bank Allahabad BankAndhra BankCanara BankBank of BarodaOriental BankPunjab & Sind BankIDBI BankICICI BankUTI BankUnited BankPrivate Sector BanksSouth Indian BankIndusInd Bank
HDFC BankJammu & Kashmir BankNedungadi BankDevelopment Credit BankRatnakar BankMandavi BankCenturian BankCity Union BankFederal BankCatholic Syrian BankSaraswat BankDhanLakshmi BankKotak BankCosmos BankLakshmi Vilas BankBank of RajasthanBank of PunjabING-Vysya BankKalyan BankKarur Vysya BankUnited Western BankInternet Banking
ICICI BankFederal BankState Bank of IndiaIDBI BankBank of BarodaBank of BarodaHDFC BankState Bank of TravancoreHSBCPunjab National BankIndusInd BankUTI BankBank of PunjabCanara BankCorporation BankING-VysyaForeign Banks in IndiaStandard Chartered BankAmerican Express BankBanque Nationale De ParisCiti BankABN Amro Bank
Asian Developmant BankAbu Dhabi C.BankANG BankHSBCIndian banks AbroadState Bank of India5.1 Competitive PositioningTo avoid complication in the analysis, I am considering the following banks for thestudy from hereon.Centurion Bank of PunjabICICIBarclaysSBIHDFCICICIa. Market share: ICICI Bank is Indias second-largest bank with total assets ofRs. 3,767.00 billion (US$ 96 billion) at December 31, 2007 and profit after tax of Rs.30.08 billion for the nine months ended December 31, 2007. ICICI Bank is secondamongst all the companies listed on the Indian stock exchanges in terms of free floatmarket capitalisation*b. The Bank has a network of about 955 branches and 3,687 ATMs in India andpresence in 17 countries.Says Morparia, "The convenience proposition together with the geographical reachhas paid off. We rolled out ATMs far ahead of the others and were able to cross-sellour products."
Share of the walleMar-05 HDFC Bank ICICI BankBranches 467 565ATMs 1,147 2,000Cities 211 371Retail assets (Rs crore) 18,000 56,000Deposits (Rs crore) 38,000 99,800Car loans (Rs crore) 2,500 11,500Credit cards (Mn) 1.3 3Retail customers (Mn) 6.4 13.7Cost of deposits (%) 3.2 4.5Net interest margin (%) 3.2 2.4Net NPLs (%) 0.2 2Even in the number of customers ICICI Bank leads by a distance (See table: Share ofthe wallet). Nearly 14 million customers bank with ICICI Bank, while the number forHDFC Bank is less than half (6.4 million).HDFCHDFC Bank was incorporated in August 1994, and, currently has an nationwidenetwork of 746 Branches and 1647 ATMs in329 Indian towns and cities.The Bank earned total income of Rs.3,405.8 crores for the quarter endedDecember 31, 2007, a growth of 64.4% over the corresponding quarter endedDecember 31, 2006. Net revenues (net interest income plus other income) for
the quarter ended December 31, 2007 were Rs.2,116.5 crores, an increase of70.5% over the corresponding quarter of the previous year.CBOPCenturion Bank of Punjab has a nationwide reach through its network of 393branches/ECs, 452 ATMs 180 Locations. The bank aims to serve all the banking andfinancial needs of its customers through multiple delivery channels, each of which issupported by state-of-the-art technology architecture.Centurion Bank of Punjab‘s Net Profit for the quarter ended December 31,2007 up 44% to Rs.483 million;Operating profit for the quarter up 108%Net Advances increase by 60%; Deposits increase by 65%SBIThe Bank is forging ahead with cutting edge technology and innovative new bankingmodels, to expand its Rural Banking base, looking at the vast untapped potential in thehinterland and proposes to cover 100,000 villages in the next two years.It is also focusing at the top end of the market, on whole sale banking capabilities toprovide India‘s growing mid / large Corporate with a complete array of products andservices. It is consolidating its global treasury operations and entering into structuredproducts and derivative instruments. Today, the Bank is the largest provider ofinfrastructure debt and the largest arranger of external commercial borrowings in thecountry. It is the only Indian bank to feature in the Fortune 500 list.The Bank is changing outdated front and back end processes to modern customerfriendly processes to help improve the total customer experience.With about 8500 of its own 10000 branches and another 5100 branches of itsAssociate Banks already networked, today it offers the largest banking network to theIndian customer. The Bank is also in the process of providing complete paymentsolution to its clientele with its over 8500 ATMs, and other electronic channels suchas Internet banking, debit cards, mobile banking, etc.Barclays is spreading its reach across India and now has 4 offices in the country. Wehave our head office in the financial hub of Mumbai in Western India. We recently
strengthened our presence in Northern India with a branch in Delhi, India‘s capital,which is also one of the subcontinent‘s key business centres. Additionally, Barclayshas a branch in Kanchipuram, which is near Chennai, and another at Nelamangalanear Bangalore, both of which cover important nodes in Southern India.Barclays eyes double-digit market-share in IndiaBarclays, which recently infused $70-million in Indian retail operations, is targeting adouble-digit market-share in the segment, according to Samir Bhatia, ManagingDirector.5.2 Competition StrategiesICICI SIZE, range and low-cost resources have been recurring themes in ICICIsstrategy over the last few years.HDFC The cornerstone of HDFC business strategy has been its retail focus, first onthe liability side in terms of deposits and now in assets.All banks focus on retailliabilities, but none did it to the extent that HDFC did. "Our focus has always beenlow-cost retail deposits. Corporate deposits tend to be very volatile and command ahigher cost, hence our reticence toward it," says Paresh Sukhtankar, head of credit andmarket risk. Besides cost, this approach also reduced the volatility and pricesensitivity in deposits, since corporate deposits typically tend to be parked at the shortend and flowed out easily with changes in interest rates.Barclays Barclays market strategy to tap bottom of pyramidBarclays sees a huge potential in the mass segment. In fact, it plans to launch abanking product aimed at the ―un-banked and under-banked‖ segment in the country.Unlike other foreign banks in India, which started their journey in the market top-down by tapping high net-worth clients, Barclays, somewhat of a late entrant, isseeking its fortunes from the ground up, at the bottom of the pyramid.SBICBOP strategic alliance with HDFCFuture of Banking in India – Changing ImperativesUploaded by tanujadunga (76) on Nov 28, 2006________________________________________
EXECUTIVE SUMMARYA healthy banking system is essential for any economy striving to achieve goodgrowth and yet remain stable in an increasingly global business environment. TheIndian banking system has witnessed a series of reforms in the past, like deregulationof interest rates, dilution of government stake in PSBs, and increased participation ofprivate sector banks. It has also undergone rapid changes, reflecting a number ofunderlying developments. This trend has created new competitive threats as well asnew opportunities. This paper aims to foresee major future banking trends, based onthese past and current movements in the market.Given the competitive market, banking will (and to a great extent already has) becomea process of choice and convenience. The future of banking would be in terms ofintegration. This is already becoming a reality with new-age banks such as YES Bank,and others too adopting a single-PIN. Geography will no longer be an inhibitor.Technology will prove to be the differentiator in the short-term but the dynamicenvironment will soon lead to its saturation and what will ultimately be the key tosuccess will be a better relationship management.OVERVIEWIf one were to say that the future of banking in India is bright, it would be a grossunderstatement. With the growing competition and convergence of services, thecustomers (you and I) stand only to benefit more to say the least. At the same time,emergence of a multitude of complex financial instruments is foreseen in the nearfuture (the trend is visible in the current scenario too) which is bound to confuse thecustomer more than ever unless she spends hours (maybe days) to understand thesame. Hence, I see a growing trend towards the importance of relationship managers.The success (or failure) of any bank would depend not only on tapping the untappedcustomer base (from other departments of the same bank, customers of related similarinstitutions or those of the competitors) but also on the effectiveness in retaining theexisting base.India has witness to a sea change in the way banking is done in the past more than twodecades. Since 1991, the Reserve Bank of India (RBI) took steps to reform the Indianbanking system at a measured pace so that growth could be achieved withoutexposure to any macro-environment and systemic risks. Some of these initiatives werederegulation of interest rates, dilution of the government stake in public sector banks(PSBs), guidelines being issued for risk management, asset classification, andprovisioning. Technology has made tremendous impact in banking. ‗Anywherebanking‘ and ‗Anytime banking‘ have become a reality. The financial sector nowoperates in a more competitive environment than before and intermediates relatively
large volume of international financial flows. In the wake of greater financialderegulation and global financial integration, the biggest challenge before theregulators is of avoiding instability in the financial system.Meaning of NPAsAn asset is classified as Non-performing Asset (NPA) if due in the form of principaland interest are not paid by the borrower for a period of 180 days. However witheffect from March 2004, default status would be given to a borrower if dues are notpaid for 90 days. If any advance or credit facilities granted by banks to a borrowerbecomes non-performing, then the bank will have to treat all the advances/creditfacilities granted to that borrower as non-performing without having any regard to thefact that there may still exist certain advances / credit facilities having performingstatus.Though the term NPA connotes a financial asset of a commercial bank, which hasstopped earning an expected reasonable return, it is also a reflection of theproductivity of the unit, firm, concern, industry and nation where that asset is idling.Viewed with this perspective, the NPA is a result of an environment that prevents itfrom performing up to expected levels.The definition of NPAs in Indian context is certainly more liberal with two quartersnorm being applied for classification of such assets. The RBI is moving over to one-quarter norm from 2004 onwards.Magnitude of NPAsInn India, the NPAs that are considered to be at higher levels than those in othercountries have of late, attracted the attention of public. The Indian banking system hadacquired a large quantum of NPAs, which can be termed as legacy NPAs.NPAs seem to be growing in public sector banks over the years.Macro Perspective Behind NPAsA lot of practical problems have been found in Indian banks, especially in publicsector banks. For Example, the government of India had given a massive wavier ofRs. 15,000 Crs. under the Prime Minister ship of Mr. V.P. Singh, for rural debt during1989-90. This was not a unique incident in India and left a negative impression on thepayer of the loan.
Poverty elevation programs like IRDP, RREP, SUME, SEPUP, JRY, PMRY etc.,failed on various grounds in meeting their objectives. The huge amount of loangranted under these schemes were totally unrecoverable by banks due to politicalmanipulation, misuse of funds and non-reliability of target audience of these sections.Loans given by banks are their assets and as the repayment of several of the loanswere poor, the quality of these assets were steadily deteriorating. Credit allocationbecame Lon Melas, loan proposal evaluations were slack and as a result repaymentwere very poor.There are several reasons for an account becoming NPA.* Internal factors* External factorsInternal factors:1. Funds borrowed for a particular purpose but not use for the said purpose.2. Project not completed in time.3. Poor recovery of receivables.4. Excess capacities created on non-economic costs.5. In-ability of the corporate to raise capital through the issue of equity or other debtinstrument from capital markets.6. Business failures.7. Diversion of funds for expansionmodernizationsetting up new projects helping orpromoting sister concerns.8. Willful defaults, siphoning of funds, fraud, disputes, management disputes, mis-appropriation etc.,9. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups, delay in settlement of payments subsidiaries by government bodies etc.,External factors:
1. Sluggish legal system -Long legal tanglesChanges that had taken place in labour lawsLack of sincere effort.2. Scarcity of raw material, power and other resources.3. Industrial recession.4. Shortage of raw material, raw materialinput price escalation, power shortage,industrial recession, excess capacity, natural calamities like floods, accidents.5. Failures, non payment over dues in other countries, recession in other countries,externalization problems, adverse exchange rates etc.6. Government policies like excise duty changes, Import duty changes etc.,Read 3554 timesPublished in Banking, Insurance & FinanceSocial sharing Add to Google Buzz Add to Facebook Add to Delicious Digg this Add to Reddit Add to StumbleUpon Add to MySpace Add to TechnoratiMore in this category: « Banking Career Banking Interview »Login to post commentsback to topAll about Bhiwandi Bhiwandi - At Glance History of Bhiwandi Textile Industry in Bhiwandi