July 2014 Edition of BEACON, A Monthly Newsletter by SIMCON. Inside this issue: INDUSTRY ANALYSIS :Banking Industry COMPANY ANALYSIS : ICICI Bank Concept of the Month Quiz Did You Know?

1. B E A C O N
A Newsletter by SIMCON– SIMSREE Consulting Club
Volume : 2
Issue : 9 July 2014

2. INDUSTRY ANALYSIS : BANKING
In India, 26 Public sector Banks (PSBs), 20 Private sector banks, 43 foreign banks, 4 Local area banks and 64 regional rural Banks, make the scheduled commercial bank space while there are more than 94,000 cooperative credit institutions.
RBI took a major step towards expanding the banking sector by granting licenses to the 2 new entities - IDFC, a Mumbai-based NBFC specialising in infrastructure lending and Bandhan Fi- nancial services, a MFI based in Kolkata - mandating them to start the operations within a year. According to new policy change, Issue of new license will be on the tap facility i.e. RBI will issue new licenses to institutions it deems fit as and when required.
Market share:
From 88% in 2000, the market share of Public sector banks (PSB) has reduced to 76.8%, as of 2012-13. Their market share is declining and is expected to come down to 60% by 2025 (RBI report, May 2014). Taking the tractor financing (PSL) as a case study segment, PSBs (50% of the segment a few years ago) are now reduced to 10%. In fact, private sector banks and NBFCs have filled their shoes, accounting for 60% market share though their loan terms are lower and interest rates higher. While PSBs reported 50% NPAs in the segment, the others have negligible NPAs.
Porter’s 5 forces
Rivalry among the industry: High
Not only there are many banking institutions of different types such as private, cooperative or public banks but also there are NBFCs and other financial government institutions which offer similar financing services. Although there are regulations and licensing in banking, banks will face high competition due to new licenses. Following points affect the rivalry in the industry:
Number of players: Many players fighting for the same share.
Low switching cost: Very little cost involved in switching, also banks offer same kind of services and differentiation in offered services is absent.
Bargaining power of suppliers: Low
Suppliers of banks are depositors.
Nature of suppliers: Depositors are normally people who seek safe investment for their money. Also liquidity is the other rea- son. Hence there are very few risk free instruments such as gov- ernment bonds and treasury bills etc. outside banking for their money which reduces their bargaining power.
RBI Rules and Regulations: Banks are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This re- duces suppliers bargaining power.
Suppliers are not concentrated: Due to their small portions of assets, they cannot collectively bargain with the banks.
Bargaining power of customers: Moderate
Customers of the banks are those who take loans, advances and use services of banks.
Large number of players: Customers have very large number of alternatives. There are so many banks, which fight for the same pie. There are many non-financial institutions which have also jumped into this business. There are foreign banks, private banks, cooperative banks and development banks together with the specialized financial companies that provide finance to cus- tomers. These all increase preferences for customers.
Low switching cost: Due to this, customers can switch to any other bank which offers them greater benefits. Also customer loyalty is hard to retain in the internet banking.
Full information about the market: Customers have full infor- mation about the market. Internet has increased the customer’s access to information. So, banks have to be more competitive and customer friendly to serve them.
Threat of substitutes: Moderate
Competition from the non-banking financial sector is increasing rapidly. The new products include credit unions and investment houses. One feature of using an investment house is that the fees that the investment house charges are tax deductible, whereas for a bank it is considered a personal expense, which is not tax deductible. The rate of return with using investment houses is greater than a bank. There are other substitutes as well for banks like mutual funds, stocks (shares), government securities, debentures, gold, real estate etc. so, there is a high threat from substitutes.
Threat of new entrants: Low
Barriers to entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Product differentiation is low and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisitions. Government policies are supportive to start a new bank. There are less statutory re- quirements needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and se- lecting and training manpower.
Trends
1. Asset quality still an issue
Total net profit of all public sector banks (PSBs) plunged by 26.8 % to Rs 37,017 crore for fiscal ended March 2014 over the previous year. The gross NPAs of all PSBs stood at Rs 2.27 lakh crore. Public sector banks have higher gross NPAs, than the industry average. As per a CARE Ratings study of 39 banks, Gross NPAs increased by 35.5% (y-o-y) versus credit growth of 14.5% (y-o-y) in FY14. The Gross NPAs of PSBs grew at 38.2% while that of the private sector banks was at a lesser pace of 13.6%. NPAs remain higher in the non-PSL than PSL.
Volume : 2
Issue : 9
BEACON : Page 1
July - 2014
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3. For detailed report and all industry analysis from previous Beacons together, please visit our blog :
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Restructured Assets to Advances ratio stood at 6.16%. Restruc- tured assets increased from Rs.2.6 trillion (FY12) to Rs.3.9 tril- lion (FY14). A Corporate Debt Restructuring (CDR) Cell report said Infrastructure, Power, Iron & Steel, Textiles and Aviation were major sectors where restructuring happened in FY12 to FY14. As of June 2014, CDR has most live cases pertaining to the Infrastructure, Iron & Steel, Textiles, Power and Shipping in terms of largest aggregate debt.
2. Focus on Non-interest Income
In an area of slowdown, non-interest income grew rapidly and shielded earnings of select banks from the slowing growth in net interest income. ICICI Bank grew on fee-based income, commissions, trading profit (especially from its equity portfo- lio), Foreign exchange gains as well as dividends from Subsidi- aries. Bancassurance products (e.g. AxisBank with Max Life insurance)
3. Looking at Rural India
Banks are turning towards the unbanked India, 41% of the total adult population as April 2014. HFDC bank, ICICI Bank and Axis Bank are increasing their branch presence in rural India. With the launch of the Pradhan Mantri Jan Dhan Yojana, the government has signaled its intentions of focusing on financial inclusion. However, banks still need to balance financial inclu- sion and PSL norms with profitability.
4. Rise of Mobile Banking
On July 2014, RBI released a circular for simplified mobile banking and raised the limit of fund transfer to 10,000 Rs. From 5,000 Rs. As per RBI June data, ICICI Bank became the first bank to breach 1000 Rs. Crore mark in terms of mobile banking monthly volume even though it has only a fifth of the registered mobile users of SBI, which has the largest number of mobile banking users (1.15 crore, 4.5% of its accounts) and accounts for half of the total 1,07,28,715 mobile transactions in the coun- try. Mobile Banking users as well as transactions are on a rise, however RBI deputy governor H R Khan said that the growth was slower than his expectations and emphasized the need of communication between banking and telecom companies.
Key Statistics
As per RBI data (April), in terms of credit growth as per sector, services (16.1%) and personal loans (15.5%) shone. The trend of rising retail loans with focus on car and housing loans may continue, with the corporate credit growth facing a slowdown due to slowdown in some industries.
Conclusion
Banking remains the backbone of any economy. A robust bank- ing sector drives the nation’s growth. With two more banking licenses and approval of WOS of foreign banks, India trends on the path of banking its unbanked population and fostering com- petition. Garnter estimates that more than 2000 new branches will be opened by end of this year. Deposits will see growth of 14% (CARE estimates). Bank credit in FY15 is estimated to grow at 15-17% (CARE and FICCI estimates), with greater growth in the retail segment; however mounting NPAs remain a grave concern.
References:
RBI, Business Today, Economic Times, Business Standard, CII, CARE Ratings, FICCI etc.
Volume : 2
Issue : 9
BEACON : Page 2
July- 2014
INDUSTRY ANALYSIS : BANKING
Overall
PSB
Private sector Banks
CASA
31 March 2014
32.9%
30.5%
38.89%
BANK
Total Assets
Net Profit (In Cr)
Indusind
87,025.94
1408.02
Kotak Mahindra
87,585.34
1502.52
Axis
383,244.89
6217.67
ICICI
594,641.60
9810.48
HDFC
491,599.50
8478.4
Bank of India
573,190.20
2729.27
Canara Bank
374,160.20
2438.19
PNB
550,419.92
3342.57
BOB
550,419.92
4541.08
SBI
1,792,234.60
10891.17

4. COMPANY ANALYSIS : ICICI BANK
Volume : 2
Issue : 9
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BEACON : Page 3
July - 2014
Introduction
In 1955, ICICI was formed as a development financial institution for providing medium-term to long-term project fi- nancing to Indian businesses at the initiative of the World Bank, the Government and representatives of Indian industry. In the 1990s, with the changing business scenario in India, ICICI saw an opportunity to diversify its financial services offering and provide a wide variety of products and services.
Promoted in 1994 by ICICI Limited as a wholly- owned subsidiary, ICICI bank become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. With the emerging competition in the Indian banking industry and the group’s strategy of offering universal banking services, ICICI reverse merged into ICICI bank in 2002 resulting in ICICI getting access to low-cost de- posits, earning fee-based income and participating in the pay- ments system and providing transaction-banking services, while ICICI bank got an access to a large capital base and scale of operations, strong corporate relationships built up over five dec- ades, and higher market share in several business segments.
Today, ICICI Bank is India's largest private sector bank and second largest overall bank with total assets of Rs. 5,946.42 billion (US$ 99 billion) and 17 subsidiaries as on March 31, 2014 which are listed below:
Business Segments
Shareholding Pattern
Management
Financials
Domestic Subsidiaries
International
Subsidiaries
ICICI Prudential Life Insurance Company Limited
ICICI Bank UK Plc
ICICI Lombard General Insur- ance Company Limited
ICICI Bank Canada
ICICI Prudential Asset Manage- ment Company Limited
ICICI Bank Eurasia Limited Liability Com- pany
ICICI Prudential Trust Limited
ICICI Securities Hold- ings Inc.
ICICI Securities Limited
ICICI Securities Inc.
ICICI Securities Primary Deal- ership Limited
ICICI International Lim- ited
ICICI Venture Funds Manage- ment Company Limited
ICICI Home Finance Company Limited
ICICI Investment Management Company Limited
ICICI Trusteeship Services Lim- ited
ICICI Prudential Pension Funds Management Company Limited
Name
Designation
K.V. Kamath
Chairman
ChandaKochhar
Managing Director & CEO
DileepChoksi
Independent Director
N. S. Kannan
Executive Director
K. Ramkumar
Executive Director
Rajiv Sabharwal
Executive Director
Vijay Chandok
President
ZarinDaruwala
President
· Retail Banking
· International Banking
· SME Banking
· Rural & Inclusive Banking
· Wholesale Banking
· Treasury
· Project Finance
· Risk Management

5. COMPANY ANALYSIS : ICICI BANK
Volume : 2
Issue : 9
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BEACON : Page 4
July - 2014
SWOT Analysis
BASEL III
At March 31, 2014, Basel III guidelines require the Bank to maintain a minimum capital to risk-weighted assets ratio (CRAR) of 9.0% with minimum CET1 of 5.0% and mini- mum Tier-1 CRAR of 6.5%.Computation of capital adequacy as per Basel III framework of ICICI bank is as below:
Developments
Tab Banking - The Bank has deployed mobility in the form of Tab Banking to minimize physical documents and improve effi- ciency in opening of new deposit accounts. A large part of the mortgage process has also been moved to tablets, thereby em- powering the field force with all relevant information.
Touch Banking - During fiscal 2014, the Bank extended its Touch Banking network to 101 branches. Insta Banking kiosks have been launched in select branches that support many end-to-end transactions as well as help the customer to pre-process certain frequent transactions, reducing the waiting time of the customers in the branches. The kiosks provide real-time cus- tomer information and are integrated with core banking applica- tions.
Online Tendering - ICICI Bank launched banking solutions for online tendering, supporting multiple payment modes and strad- dling various electronic collection and payment products. The Bank has implemented project for the Government of Karnataka called The Government Internet Banking (GIB) platform - a solution which offers a single window platform for facilitating both collections and payments of government entities. It allows multi-level disbursements and is available with multilingual capability across various devices.
Mobile Banking - ICICI bank witnessed a 3x growth y-o-y in the number of mobile transactions in 2014. Mobile banking now constitutes 5 percent of overall banking transactions at ICICI and 7-10 percent of the total digital channel.
Challenges
 Considering the huge customer base and the spread of the same, innovations and improvements in this area could be a major challenge. The bank has been trying to convey its ser- vice efficiency in a major way through its commercials
 Challengers like HDFC and AXIS are rated better in terms of service provided and even to some extent are nearing ICICI when it comes to diversity of products offered. Hence, product development happens to be another key area that the bank should focus on. The bank has been developing prod- ucts like forex risk hedging products to counter risks coun- tered by corporates in foreign exchange related transactions
 With huge impetus being given to the rural banking by RBI, major challenge for most banks would be expanding in rural areas. With the presence of MFIs in rural and mammoth SBI aggressively expanding its already huge presence in India, ICICI can stand to lose here as well. It should focus on areas like lending via appointment of a business correspondents, which could be an MFI having weak financials
 Even in digital space many banks like ING Vysya are giving better facilities compared to ICICI. SBI is making major inroads into digital banking with them partnering with Ac- centure to develop its digital infrastructure. Though ICICI has been a pioneer in ATMs deployment across nation, it needs to improve its digital landscape through innovations in terms of customer interface.
STRENGTHS
Bank with second highest assets and market share (highest in pri- vate sector)
Has a strong and transparent bal- ance sheet
Has first mover advantage in many of the banking and financial ser- vices (first bank in India to intro- duce complete mobile banking solutions and jewelry card)
The bank has a wide PAN India presence through branches and ATMs
ICICI bank has the longest work- ing hours and additional services offering at ATM’s which attracts customers
Marketing and advertising strate- gies of ICICI have good reach compared to other banks in India
THREATS
RBI allowed foreign banks to invest up to 74% in Indian bank- ing, which means higher competi- tion from outside players, who can possibly offer more competitive products if they enter the market aggressively
Government sector banks are in urge of modernizing the capacities to ensure the customers switching to new age banks are minimized (e.g. SBI coming with totally digi- tized branches)
Competitors like HDFC, AXIS are growing at faster pace ,with better customer & employee perception compared to ICICI
In rural areas the micro financing groups hold a major share
Though customer acquisition is high on one side, the unsatisfied customers are increasing and make them to switch to other banks
OPPORTUNITIES
Banking sector is expected to grow at a high rate with huge opportu- nity in rural areas
Ample availability of talent in financial products and banking services
Aggressive expansion plans of the banks, which are expected to get a green signal from RBI
Lots of small and non performing banks present, which can be ac- quired by ICICI
WEAKNESS
Customer support of ICICI section is not very effective
Aggressive loan recovering pay- ment practices, which puts them in the bad books of customers and also for which the bank has re- ceived warning from the RBI
The bank service charges are com- paratively higher
High stress levels of employees owing to high targets by the man- agement to stay ahead in the race
At March 31, 2014
Common Equity Tier 1 capital ratio (%)
12.78%
Tier-1 capital ratio (%)
12.78%
Tier-2 capital ratio (%)
4.92%
Total Capital ratio (CRAR) (%)
17.70%

6. Concept of the Month
Volume : 2
Issue : 9
BEACON : Page 5
July - 2014
Kapferer’s Brand Identity Prism
It is very important for marketers to understand the identity of a brand. Because understanding of identity would help to decide positioning and design the web presence better. J. Kapferer introduced the model of Brand Identity Prism in 1986 which helps marketers to understand any brand.
In this model, J. Kapferer identifies six aspects of brand identity i.e. physique, personality, culture, self-image, re- flection and relation. He divides these six aspects into two dimension i.e. Constructed Source vs. Constructed re- ceiver and Internalization vs. Exter- nalization.
He divides these six aspects into two dimension i.e. constructed source vs. constructed receiver and internaliza- tion vs. externalization.
Constructed Source vs. Constructed Receiver: A brand should be able to be seen as a person (Physique and Per- sonality) as well as a stereotypical user (Reflection and self-image)
Externalization vs. Internalization: Externalization parameters i.e. Phy- sique, Relationship and Reflection define how the brand socializes. Inter- nalization parameters i.e. Personality, Culture, Self-image define the brand internally.
Six aspects of Brand Identity Prism:
1. Physique: Set of physical features which evoked in the mind of people when the brand name is mentioned. E.g. brand colour, shape, smell, size etc.
2. Personality: By communicating with the customer in certain way, the brand can personified and its traits are perceived in the eyes of the consumer in a particular way. E.g. Ronald McDonald refers to someone who loves kids
3. Culture: This represents where the brand comes from, values and principles a brand stand for. E.g. Mercedes- Benz: German auto engineering excellence
4. Relationship: A brand can symbolize a certain relationship for which the brand should express the relationship his brands stand for. It also refers to the way a brand treats its consumer. E.g. Red carpet treatment by HOG (Harley Owners Group)
5. Reflection: This aspect makes reference to stereotypical user of brand. E.g. Nike (the athletic super achiever)
6. Self-image: This refer how a customer perceives himself by using a particular brand. E.g. Porsche owner think that he is rich because he can afford expensive car.
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7.  Email was founded by an Indian American scientist V A Shiva Ayyadurai in 1978 at the age of 14 years !!
 Smoking near an Apple computer voids the warranty
 Pepsi got its name from the digestive enzyme pepsin
QUIZ OF July
1. X: Charles-EdouardBouée Y: Roland Berger
2. MH 17 bombing
3. Bain Capital, EY, improper auditing of balance sheets of Liliput Kidswear by EY
4. X :Dhiraj Rajaram , Y : Mu Sigma, Z: Mastercard
5. Amazon India and Cataraman Ventures
1. Name the company related to these images.
2. Recently this company had launched a low cost smartphone in India via an online portal which got sold off in mere 4.2 seconds in the first phase. Name the mobile company and the smartphone brand .
3. X is one of the Big 4 accounting firms. Recently New York State has imposed a 2 years ban on it. Name X.
4. The Government of India has recently given approval to 6 new airlines in India. One of these new air- lines is backed by a Telugu superstar. Also it is in talks with a Brazilian aerospace company for leasing airplanes. Name this new airline
5. The company was supposed to be named X. But it was cancelled after someone misheard it as a word which meant a dead body in medical terminology. Subsequently the company was named Y. Find X & Y.
ANSWERS : JUNE ISSUE
Answer To: simcon.simsree@gmail.com with Subject= simcon_quiz_july_2014 Winner will be recognized.
All Correct Answers will be published in next month’s Edition.
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Volume : 2
Issue : 9
BEACON : Page 6
July - 2014
Winner:-
Gaurav Chattopadhyay
SIMSREE