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Banking Industry: Structure and Comparison

A PROJECT REPORT ON Banking Industry: Structure and Comparison

GUIDANCE OF: Mr. Anil Suvarna

SUBMITTED BY: Rafat Khan Semester III, Roll no 30 Nerul Batch 2009 - 2011

In partial fulfillment of Executive Post Graduate Program in Business Management (Finance)

SIES College of Management Studies Nerul, Navi-Mumbai

Banking Industry: Structure and Comparison

TABLE OF CONTENTS

Chapter 1 Introduction7 Chapter 2 Bank Overview...8 2.1 2.1.1 2.2 2.2.1 2.3 2.3.1 2.4 2.4.1 2.5 2.5.1 State Bank of India9 Services...10 ICICI Bank.16 Services...17 Punjab National Bank20 Services...21 HDFC Bank...22 Services.......23 Axis Bank..25 Services...........26

Chapter 3 Capital Structure...27 3.1 3.2 3.3 3.4 3.5 State Bank of India...27 ICICI Bank...28 Punjab National Bank...31 HDFC Bank...33 Axis Bank..36

Chapter 4 Financial Performance..39 4.1 4.2 4.3 4.4 Balance Sheet of State Bank of India39 Profit & Loss Account of State Bank of India.......40 Balance Sheet of ICICI Bank.41 Profit & Loss Account of ICICI Bank....42

Banking Industry: Structure and Comparison

TABLE OF CONTENTS
4.5 4.6 4.7 4.8 4.9 4.10 Balance Sheet of Punjab National Bank43 Profit & Loss Account of Punjab National Bank .44 Balance Sheet of HDFC Bank45 Profit & Loss Account of HDFC Bank..46 Balance Sheet of Axis Bank...47 Profit & Loss Account of Axis Bank.48

Chapter 5 Key performance indicators..........................................56 Chapter 6 Ratio Analysis.........................................58 Chapter 7 SWOT Analysis..............................65 6.1 6.2 6.3 6.4 6.5 State Bank of India65 ICICI Bank66 Punjab National Bank67 HDFC Bank68 Axis Bank....69

Chapter 8 Corporate Social Responsibility...70 7.1 7.2 7.3 7.4 7.5 State Bank of India..70 ICICI Bank.75 Punjab National Bank79 HDFC Bank81 Axis Bank82

Chapter 9 Challenges facing Banking industry in India...83 WEBLIOGRAPHY.88


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Banking Industry: Structure and Comparison

Acknowledgement

I owe a great many thanks to a great many people who helped and supported me during the writing of this Project report. My deepest thanks to my Guide Mr. Anil Suvarna for Guiding me on Banking Industry: Structure and Comparison and correcting various documents of mine with attention and care. They have taken pain to go through the project and make necessary correction as and when needed. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

Banking Industry: Structure and Comparison

Declaration

I, Ms. Rafat Khan of SIES College of Management Studies hereby declare that I have completed this project on Banking Industry: Structure and Comparison in the academic year 2009 2011. The information submitted is true and original to the best of my knowledge.

Signature of the student

Banking Industry: Structure and Comparison

Executive Summary

I as a student of SIES College of Management Studies have been asked to prepare a Capstone project as a part of my Curriculum. I have prepared my project on Banking Industry: Structure and Comparison. The way of doing every business has been changing drastically. Banking industry is not untouchable of it. Even there is more implication of changes in the banking. The whole definition of banking has been changed by the competition and the application of IT enabled services. Earlier it was people who use to persuade the banks, for availing the services of banks, but now we say that banks are persuading customers by creating need of financial services for customers. They are doing each effort to make customers loyal and add new customers. So, now it is the customers, who run the Banks, not the governments or any individual organization. Banks are bound to provide the personalized products to different category of customers. Customers need to be segmented and classified according to the different attributes. Once we divide them into the different segments, we can easily provide them the products which is suitable for them, and from which he can be satisfied. If we talk about specially Investments, there are varieties of schemes available in Investments, and we cannot sell same products to all customers, and here the segmentation comes in light. Once we define the segments, we need to promote the products to the different classes of customers. As for Preferred customers, we need to pitch them personally. And for the regular customer, we need to promote through cross selling at banks. This project compares the five top banking companies in terms of its assets State Bank of India, ICICI Bank, Punjab National Bank, HDFC Bank and Axis Bank.

Banking Industry: Structure and Comparison

Chapter 1: Introduction

A bank is a financial institution that provides banking and other financial services. By the term bank is generally understood an institution that holds a banking license. Banking licenses are granted by bank regulatory authorities and provides rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-banking financial company. Banks are a subset of the financial services industry.

Figure 1: Structure of the organised banking sector in India.


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Banking Industry: Structure and Comparison

Chapter 2: Bank Overview

The current report examines major trends in the Banking sector focusing on five top companies in terms of its assets State Bank of India, ICICI Bank, Punjab National Bank, HDFC Bank and Axis Bank. Summary information for each company is presented in Figure 1.

(Rs. in crores) State Bank of India Last Price Market Capitalization Net Interest Income Net Profit Total Assets 8,264.52 1,053,413.74 5,151.38 363,399.71 4,433.50 296,632.79 3,926.39 262,458.56 3,388.49 242,713.37 81,394.36 25,974.05 26,986.48 19,928.21 15,154.81 2,312.50 146,843.52 ICICI Bank 1,047.40 120,636.64 1,080.25 34,223.63 PNB HDFC Bank 2,356.75 109,642.06 1,242.75 51,065.78 Axis Bank

Figure 1 Summary company information Throughout the report analysis has been presented based on information gathered from various sources, including company annual reports, company website, moneycontrol website, BSE website and NSE website. I have tried to acknowledge each source of information where possible.

Banking Industry: Structure and Comparison C 2.1 State Bank of India

State Bank of India (SBI) is the largest Indian banking and financial services company (by services turnover and total assets) with its headquarters in Mumbai, India. It is state owned. The bank state-owned. traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of oldest Madras merged into the other two presidency banks, Bank of Calcutta and Bank of Bombay to form Imperial Bank of India, which in turn became State Bank of India. The government of India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India.

SBI
3% 3% 4% 6%

Promoters FII/NRI Financial Institutions/Bank/Insurance Individuals

12%
MutualFunds/UTI

13%

59%
Depository receipts Bodies Corporate

Figure 2 State Bank of India shareholding pattern

Banking Industry: Structure and Comparison 2.1.1 Services

Personal Banking The SBI Personal Banking service is controlled and accessible from the entire SBI branches available throughout the country. In fact, it will be unfair to mention only about the branches. The network can be accessible through online banking services available from the SBI. The Personal Banking services that are offered by the State Bank of India offer certain list of services, and facility related schemes. Some of the most popular ones are availing of personal loans with lowest interest rates, online money transferring facility, opening up of tax saving policies, fixed deposit schemes with higher and effective interest rates, etc. The genuineness in service providing facility have made the State Bank of India a name to be reckoned and respected by millions of users and customers. The services are quick, fast and genuine. The State Bank of India personal banking services and schemes are created keeping in mind the needs and demands of each and every individual customers. The services are available twenty four hours online banking technique. Moreover, the toll free customer care number can be called anytime to clear the doubts and misconceptions regarding any service. The SBI ATM service is available throughout the country with the inclusion of wide range of outlets opened twenty four hours and seven days a week. Following are the list of services offered by State Bank of India: SBI Term Deposits SBI Recurring Deposits SBI Housing Loan SBI Car Loan SBI Educational Loan SBI Personal Loan SBI Loan for Pensioners Loan against Mortgage Of Property Loan against Shares & Debentures Rent-Plus Scheme Medi-Plus Scheme Rates of Interest

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Banking Industry: Structure and Comparison Agricultural/Rural Banking State Bank of India Caters to the needs of agriculturists and landless agricultural labourers through a network of 8750 rural and semi-urban branches. Apart from the branches, there are 428 Agricultural Development Branches (ADBs) which also cater to agriculturists. SBI are the leaders in agri finance in the country with a portfolio of Rs. 64,000 crs in agri advances covering around 80 lac accounts. Their branches have covered a whole gamut of agricultural activities like crop production, horticulture, plantation crops, farm mechanization, land development and reclamation, digging of wells, tube wells and irrigation projects, forestry, construction of cold storages and godowns, processing of agri-products, finance to agri-input dealers, allied activities like dairy, fisheries, poultry, sheep-goat, piggery and rearing of silk worms. To give special focus to agriculture lending Bank has also appointed agri specialists in various disciplines to handle projects/ guide farmers in their agri ventures. Advances are given to borrowers for very small activities covering poorest of the poor to hitech activities involving large fund outlays. Now SBI is setting up Agri Commercial Branches (ACBs) which will handle high value agri financing involving large investments. It envisages lending through corporate partnerships and other large enterprises for commodity financing, investment credit, other high value agriculture segments like horticulture, floriculture & food processing etc. It also focuses on Agri related SME including setting up of Rice and Dhal mills, seed processing industry, food processing industry, large and small scale dairy units, etc. Traditionally, rural business is associated with agriculture and allied activities. Of late however, the trickle down effect of economic growth, renewed focus on infrastructure development, and employment generation in rural areas have led to huge investment by the Government in rural India, with a view to bridge the urban and rural divide.

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Banking Industry: Structure and Comparison Considering that agriculture would continue to be significant driver of Indian economy, with the possibilities of rapid growth in emerging areas like contract farming, agro-processing and agroexport zones, etc., a separate Agri Business Unit (ABU) with a distinct organizational structure has been set up in the Bank and under noted objectives has been created in 2004: Providing focused attention on the banking requirements of the agriculture segment, Achieving 18% target under agricultural advances as required under priority sector norms, Focus on micro finance and SHG opportunities (now part of non-farm sector in Rural Business), Focus on Key Corporate and Institutional relationships in agriculture, emerging opportunities, and special initiatives, as may be necessary, Focus on product development and management, Reduce NPA levels in Agriculture, Make agriculture a commercial proposition.

ABU has four departments headed by Deputy General Managers: 1. Agri Business, Planning, Monitoring and Market Intelligence. 2. Corporate and Institutional Relationship. 3. Product Development and Marketing. 4. RRBs & Lead Bank Department. SBI also have an effective Marketing and recovery team in each region with responsibilities for marketing and building relationships with dealers of agri-products, organizing promotional events and for loan sanction, processing, monitoring and recovery. With a collective effort of Govt. and the people, SBI are set forth to continue growth in the rural and agri development and become the Banker to Every Indian.

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Banking Industry: Structure and Comparison NRI Services SBI offers specifically designed banking services to the expatriate Indians settled in various parts of the world in the name of SBI NRI services or SBI NRI Banking services with over 73 SBI NRI branches in 30 countries along with representative offices and off shore banking units across the globe. NRI accounts, deposit schemes, loans, remittance, investments, are some of the services being offered by the state bank of India to its NRI customers throughout the world. Being India's largest and the most trusted bank State bank of India provides special services through SBI Online to its NRI customers spread across the globe.

International Banking International banking services of State Bank of India are delivered for the benefit of its Indian customers, non-resident Indians, foreign entities and banks through a network of 131 offices/branches in 32 countries as on 31 July 2009, spread over all time zones. The network is augmented by a cluster of Overseas and NRI branches within India and correspondent links with over 522 banks, the world over. Bank's Joint Ventures and Subsidiaries abroad further underline the Bank's international presence. The services include corporate lending, loan syndications, merchant banking, handling Letters of Credit and Guarantees, short-term financing, collection of clean and documentary credits and remittances. The Bank has carved a niche for itself in the Euroland with branches located in Antwerp, Paris and Frankfurt. Indian banks and corporates are able to avail single-window Euro services from the Bank's Frankfurt branch.

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Banking Industry: Structure and Comparison Corporate Banking The SBIs powerful corporate banking formation deploys multiple channels to deliver integrated solutions for all financial challenges faced by the corporate universe. The Corporate Banking Group and the National Banking Group are the primary delivery channels for corporate banking products. The Corporate Banking Group consists of dedicated Strategic Business Units that cater exclusively to specific client groups or specialize in particular product clusters. Foremost among these specialized groups are the Corporate Accounts Group (CAG), focusing on the prime corporate and institutional clients of the countrys biggest business centers. The others are the Project Finance unit and the Leasing unit. The National Banking Group also delivers the entire spectrum of corporate banking products to other corporate clients, on a nationwide platform. The SBI offers an exhaustive range of financial products and services that answers any business or market circumstance, backed by an assublack expertise in customizing the product to meet the most sensitive specificities of each client and each business context. It is committed to understanding the finest nuances of your business objectives and engineering cblackit and non-cblackit solutions to suit them. Its team of highly skilled and experienced product specialists can help you forecast your cblackit patterns and structure complex transaction requirements. Commanding unsurpassed respect and legacy in the Indian financial expanse, the SBI is committed to offering you financial solutions that extract maximum value from business and market situations. While the bank is strongly positioned to structure financial packages that anticipate the changing business environment, its vast network--the worlds largestensures delivery channels of unmatched reach, both in India and abroad.

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Banking Industry: Structure and Comparison Government Business State Bank of India's linkage with Government business is widespread. No wonder that out of 9315 branches in India, about 7000 branches are conducting Government Business. The large network of our branches provides easy access to the common man to deposit the following Government dues and pension payments. SBI e-Freight Centralised Pension Processing Center (CPPC) Government Accounts SBI e-TAX Senior Citizens Savings Scheme Public Provident Fund

SME State Bank of India has been playing a vital role in the development of small scale industries since 1956.The Bank has financed over 8 lakhs SSI units in the country. It has 55 specialised SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisions. The Bank finances for Small Business activities which are of special significance to a large number of people as many of these activities can be started with relatively lower investment and with no special skills on the part of the entrepreneurs.

Other Services Domestic Treasury Broking services ATM services E-Pay/E-Rail RBIEFT SBI Vishwa Yatra Foreign Travel Card Foreign inward remittances Internet Banking Micro codes Safe deposit locker
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Banking Industry: Structure and Comparison C 2.2 ICICI Bank

ICICI Bank (formerly Industrial Credit and Investment Corporation of India) established in 1955 is a major banking and financial services organization in India. It is the second largest bank in India and the largest private sector bank in India by market capitalization. ICICI Bank's shares capitalization. are listed on the stock exchanges at BSE, NSE, Kolkata and Vadodara; its ADRs are traded on the New York Stock Exchange (NYSE). The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks. ICICI Bank now has wholly owned among subsidiaries, branches and representatives offices in 19 countries, including an offshore unit in Mumbai.

ICICI
1% 3% 6% 7% 38%

FIIs/NRIs/Foreign Banks/Foreign Companies/OCBs/Foreign Nationals/NRI Directors Deuts che Bank Trust Co. (Depositary For ADS Holders )

Insurance Companies

Mutual Funds

17%
Individuals

Bodies Corporates

28%

Banks/Financial Institutions/UTI MF

Figure 3 ICICI Bank shareholding pattern

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Banking Industry: Structure and Comparison 2.2.1 Services

Personal Banking ICICI Bank personal banking services include customized products to suit each individual investor and customer. The diversity of requirements makes each individual unique. ICICI Bank addresses to personal banking needs of everyone with specially designed products and highly efficient in-house teamwork. The wide array of ICICI personal banking solutions include: Personal Deposits in the form of usual and special savings accounts, fixed and recurrent deposits, tax-saver deposits, outward remittance accounts, EEFC accounts and many more. Personal Loans available for buying home, vehicles, business investments, and also against property and securities. Personal Use Cards that include credit cards, ATM/ debit cards, travel, pre-paid cards, and many more. Personal Investments in ICICI Bank bonds, GOI bonds, mutual funds, IPO, pure gold, and senior citizens savings. Personalized Online Share Trading through demat accounts. Personal Insurance for students medical or overseas travel, health insurance, vehicle (car or two-wheeler) insurance and home insurance.

Wealth Management ICICI bank is a leader in the wealth management service with its exclusive ICICI wealth management offerings. ICICI bank wealth management department has a dedicated team of experts with a rich experience in finance and related areas. When you subscribe to ICICI wealth management services, a dedicated wealth manager works closely with you in understanding your current assets, your risk profiles and your financial objectives. The wealth managers are backed up by a highly expert ICICI bank wealth management team. Based on a thorough study, your wealth manager along with the ICICI wealth management team comes up with solutions and recommendations. A professionally built portfolio is the main output of the whole exercise. Of
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Banking Industry: Structure and Comparison course, it is an ongoing process with regular portfolio updates and reviews done by the same ICICI wealth management experts.

NRI Banking ICICI Bank offers specifically designed banking services to the expatriate Indians settled in various parts of the world in the name of ICICI NRI services or ICICI NRI Banking services along with representative offices and off shore banking units across the globe. NRI accounts, deposit schemes, loans, remittance, investments, are some of the services being offered by the ICICI Bank to its NRI customers throughout the world.

Corporate Banking ICICI Bank corporate banking strategy is based on providing comprehensive and customised financial solutions to corporate customers. The Bank offers a complete range of corporate banking products including rupee and foreign currency debt, working capital credit, structured financing, syndication and commercial banking products and services. The corporate and investment banking franchise is built around a core relationship team that has strong relationships with almost all of the countrys corporate houses. The relationship team is product agnostic and is responsible for managing banking relationships with clients. They have also put in place product specific teams with a view to focus on designing financial solutions for clients. The investment banking team is responsible for working with the relationship team in India and our international subsidiaries and branches, for structuring and execution of investment banking mandates. The Bank have a Commercial Banking Group within the Wholesale Banking Group for growing this business through identified branches, while working closely with the corporate relationship teams. Their strategy for growth in commercial banking, or meeting the regular banking requirements of companies for transactions and trade, is based on leveraging our strong client relationships and focusing on enhancing client servicing capability at the operational level.

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Banking Industry: Structure and Comparison Business Banking At ICICI Bank, there is an ideal bank account that takes care of all the customers cashflow and banking needs. Whether the customer business is local or national, starting up or scaling up, ICICI Bank's business services and banking facilities keep the customers on top of their business, round the clock, all the time. For a small or medium business, timely finance is the key to making the most of business opportunities. ICICI Bank has a host of innovative loan and overdraft products that can make all the difference to the customers bottomline. ICICI Bank provides with vital services to help the customers focus on their business and compete in global markets. ICICI Banks trade services strengthen the customers business relationships by ensuring reliability and speed in their business documentation and payments. ICICI Bank credit facilities smoothen the customers cash flows. ICICI Bank's Small Enterprises Group's (SEG) Investment Banking team is dedicated to provide the customers niche and exclusive investment banking services.

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Banking Industry: Structure and Comparison C 2.3 Punjab National Bank

Punjab National Bank (PNB) is the third largest bank in India. It was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. Today, the Bank is Bazaar, the second largest state owned commercial bank in India with about 5000 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by the Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo, and Shanghai.

PNB
3% 1% 4%

President of India

FIIs/NRIs/OCBs

15%

Banks/Financial Institutions/Insurance Companies Mutual Funds

19%

58%
Domestic Companies/Trusts

Indian Public/Resident Individuals

Figure 4 Punjab National Bank shareholding pattern

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Banking Industry: Structure and Comparison 2.3.1 Services

Punjab National Bank offers financial solutions and services in an array of sectors. All these services that are offered keep pace with the changing market trends in order to fulfill the needs and preferences of the customers. Some of the well known sectors on which the main functions of the bank are based are: Personal Banking The company offers personal banking products and services comprising savings accounts, current accounts, fixed deposits, nomination facilities, and debit cards, as well as various credit schemes, such as housing loans, car finance, personal loans, professional loans, educational loans, reverse mortgage loans, and various other credit schemes.

Corporate Banking The corporate banking products and services of PNB are loans against future lease rentals, EXIM finance products, cash management services, and gold card schemes for exporters.

Financial Services The Bank provides agriculture finance services, industrial finance services and trade financial services.

International banking/NRI Punjab National Bank is extensively catering to banking needs of Non-resident Indians, Importers & Exporters particularly relating to foreign exchange business including Imports & Exports of Goods & Services as also Remittances etc. PNB offers various schemes / products /services relating to international banking.

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Banking Industry: Structure and Comparison C

2.4

HDFC Bank

HDFC Bank Limited is a major Indian financial services company based in India, incorporated in August 1994, after the Reserve Bank of India allowed establishing private sector banks. The Bank was promoted by the Housing Development Finance Corporation, a p premier housing finance company (set up in 1977) of India. HDFC Bank has 1,725 branches and over 5,000 ATMs, in 780 cities in India, and all branches of the bank are linked on an online real real-time basis. As of 30 September 2008 the bank had total assets of Rs.1006.82 billion. For the fiscal year Rs.1006.82 2008-09, the bank has reported net profit of 2,244.9 crore (US$498.37 million), up 41% from the 09, previous fiscal. Total annual earnings of the bank increased by 58% reaching at 19,622.8 crore (US$4.36 billion) in 2008-09.

HDFC
FII/OCBs/NRIs 5% 7% 9% 9% Depository receipts 17% 30% Promoters

23%

Indian Public/Resident Individuals

Figure 5 HDFC Bank shareholding pattern

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Banking Industry: Structure and Comparison

2.4.1

Services

HDFC Bank deals with three key business segments. - Wholesale Banking Services, Retail Banking Services, Treasury. It has entered the banking consortia of over 50 corporates for providing working capital finance, trade services, corporate finance and merchant banking. It is also providing sophisticated product structures in areas of foreign exchange and derivatives, money markets and debt trading and equity research.

HDFC Bank

Wholesale Banking

Retail Banking

Treasuries

Wholesale Banking Services The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks.
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Banking Industry: Structure and Comparison Retail Banking Services The HDFC Bank products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the MasterCard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2010, the bank had a total card base (debit and credit cards) of over 14 million. The Bank is also one of the leading players in the merchant acquiring business with over 90,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.
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Banking Industry: Structure and Comparison C

2.5

Axis Bank

Axis Bank Limited, formerly UTI Bank, is a financial services firm that had begun operations in 1994. The Bank was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance I), (LIC), Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United India Insurance Company. The bank changed its name to Axis Bank in April 2007 to avoid confusion with other unrelated entities with similar other name. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence.

Axis
5% 6% 9% 3%

2% 0% 0%

FII/NRIs Promoters Depository receipts Bodies Corporate

38%
Individuals MutualFunds/UTI Financial Institutions Others ForeignOthers

37%

Figure 6 AXIS Bank shareholding pattern

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Banking Industry: Structure and Comparison 2.5.1 Services

Personal Banking Axis Bank offers Personal Banking in accounts, loans, deposits, cards, forex, investments, insurance, payments and other services.

Corporate Banking The Bank's Corporate Banking franchise aims to provide a wide array of products across several customer segments, including credit, trade finance, structured finance and syndication services for debt and equity. Since each corporate engagement also offers opportunities on the retail side of the business, products anchored in the Retail SBUs also form a part of the corporate marketing effort. New customer acquisition and relationship-deepening constitute the two-pronged strategy for growth. In order to leverage growth opportunities offered by India's infrastructure sector, a separate infrastructure business group has been established within the corporate banking group.

NRI services Wide gamut of services and fast application processing are tempting many NRI to open Axis bank NRI account/Axis bank NRE account. Any Indian residing abroad and is of Indian origin is eligible to open Axis bank NRI account/Axis bank NRE account.

Agri & Rural services Axis Bank one of the largest private sector financer in India for Agriculture loans wiz Retail Agri, Commodity & Corporate Agri.

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Banking Industry: Structure and Comparison

Chapter 3: Capital Structure

As per the RBI capital adequacy norms, Banks regulatory capital is classified into Tier-1 capital and Tier-2 capital. a) Tier-1 capital: includes paid-up equity capital, statutory reserves, other disclosed free reserves, capital reserves and innovative perpetual debt instruments (Tier-1 bonds) eligible for inclusion in Tier-1 capital that comply with requirement specified by RBI.

b) Tier-2 capital: includes revaluation reserves (if any), general provision and loss reserve, investment reserve, upper Tier-2 instruments (upper Tier-2 bonds) and subordinate debt instruments (lower Tier-2 bonds) eligible for inclusion in Tier-2 capital.

3.1

State Bank of India

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Banking Industry: Structure and Comparison 3.2 ICICI Bank

Tier-1 bonds are non-cumulative and perpetual in nature with a call option after 10 years. Interest on Tier-1 bonds is payable either annually or semi-annually. These Tier-1 bonds have a step-up clause on interest payment ranging up to 100 basis points. The upper Tier-2 bonds are cumulative and have an original maturity of 15 years with call option after 10 years. The interest on upper Tier-2 bonds is payable either annually or semiannually. Some of the upper Tier-2 debt instruments have a step-up clause on interest payment ranging up to 100 basis points. The lower Tier-2 bonds (subordinated debt) are cumulative and have an original maturity between 5 to 15 years. The interest on lower Tier-2 capital instruments is payable quarterly, semi-annually or annually. a) Details of amount of Tier-1 capital (Rs. in billion) Tier-1 capital elements Paid-up share capital^1 Reserves^2 Innovative Tier-1 capital instruments Minority interest Gross Tier-1 capital Deductions: Investments in instruments eligible for regulatory capital of financial subsidiaries/associates Securitisation exposures including credit enhancements Deferred tax assets Others^3 Minority interest not eligible for inclusion in Tier-1 capital Net Tier-1 capital 36.17 21.43 1.82 0.16 459.68 23.45 Amount 12.65 501.44 28.21 0.41 542.71

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Banking Industry: Structure and Comparison 1. Includes preference shares permitted by RBI for inclusion in Tier-1 capital. 2. Includes statutory reserves, disclosed free reserves, capital reserves and special reserves (net of tax payable). 3. Includes goodwill and adjustments for less liquid positions.

b) Details of amount of Tier-2 capital (Rs. in billions) Tier-2 capital elements General provisions Investment reserves Upper Tier-2 capital instruments Lower Tier-2 capital instruments Gross Tier-2 capital Deductions: Investments in instruments eligible for regulatory capital of financial subsidiaries/associates Securitisation exposures including credit enhancements Net Tier-2 capital 36.17 221.54 23.45 Amount 16.65 1.16 141.73 121.61 281.15

c) Debt capital instruments eligible for inclusion in Tier-1 and Tier-2 capital (Rs. in billions) Particulars Tier-1 Upper Tier-2 Total amount outstanding at March 31, 2010 Of which, amounts raised during the year Amount eligible to be reckoned as capital funds at March 31, 2010
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Lower Tier-2 150.12 30.27 121.61

28.21 __ 28.21

141.73 33.80 141.73

Banking Industry: Structure and Comparison

d) Total eligible capital (Rs. in billions) Particulars Tier-1 capital Tier-2 capital Total eligible capital Amount 459.68 221.54 681.22

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Banking Industry: Structure and Comparison 3.3 PNB Bank

Banks Tier 1 capital comprises of Equity Shares, Reserves and Innovative Perpetual Bonds. Bank has issued Innovative Perpetual Bonds (Tier 1 capital) and also other bonds eligible for inclusion in Tier 2 capital.

a) The Tier 1 capital of the bank comprises:

b) The amount of Tier 2 capital (net of deductions) is:

c) The debt capital instruments eligible for inclusion in Upper Tier 2 capital are:

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Banking Industry: Structure and Comparison

d) The subordinated debts eligible for inclusion in Lower Tier 2 capital is:

e) Other deductions from capital, if any:

f) The total eligible capital comprises:

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Banking Industry: Structure and Comparison 3.4 HDFC Bank

The Bank has issued debt instruments that form part of Tier I and Tier II capital. The terms and conditions that are applicable for these instruments comply with the stipulated regulatory requirements. The Bank has not issued any Tier I and Tier II bonds in the financial year 2009 2010. Tier I bonds are perpetual in nature with a call option after 10 years from the date of allotment. Interest on Tier I bonds is payable semi-annually and is not cumulative. There is a step up clause on interest payment of 100 basis points in conjunction with call option. The upper Tier II bonds have an original maturity of minimum 15 years with call option after 10 years from the date of allotment. These Tier II bonds have a step-up clause on interest payment ranging from 50 bps to 100 bps in conjunction with call option. The interest on upper Tier II bonds is payable either annually or semi-annually. The lower Tier II bonds have an original maturity upto 14 years. The interest on lower Tier II capital instruments is payable either annually or semi-annually. a) The details of Tier I capital of the Bank are given below : (Rs. Lacs) Particulars Paid-up share capital Reserves Innovative Tier-1 capital instruments Gross Tier-1 capital Deductions: Deferred tax assets Securitisation exposures including credit enhancements Total Deductions Net Tier-1 capital (84416) (24075) (108491) 2068393 Amount 457,74 21,111,10 200,00 2176884

33

Banking Industry: Structure and Comparison b) The details of Tier II capital of the Bank are given below: (Rs. lacs) Tier-2 capital elements Provision for Standard assets Investment Reserve Account Upper Tier-2 capital instruments Lower Tier-2 capital instruments Gross Tier-2 capital Deductions: Securitisation exposures including credit enhancements Net Tier-2 capital 24075 655382 Amount 76029 2614 275990 324824 679457

c) Debt capital instruments eligible for inclusion in Upper Tier-2 are given below: (Rs. lacs) Particulars Total amount outstanding at March 31, 2010 Of which, amounts raised during the year Amount eligible to be reckoned as capital funds at March 31, 2010 Amount 275990 __ 275990

34

Banking Industry: Structure and Comparison d) Subordinated debt eligible for inclusion in Lower Tier II capital is given below : (Rs. lacs) Particulars Total amount outstanding at March 31, 2010 Of which, amounts raised during the year Amount eligible to be reckoned as capital funds at March 31, 2010 Amount 339320 __ 324824

e) Other deductions from capital: Nil as on March 31, 2010 (Nil as on March 31, 2009).

f) The total eligible capital of the Bank outstanding as of March 31, 2010 amounts to Rs. 27,237,75 lacs (previous year: Rs. 20,440,32 lacs).

35

Banking Industry: Structure and Comparison 3.5 Axis Bank

Axis Bank has issued debt instruments that form a part of Tier-1 and Tier-2 capital. The terms and conditions that are applicable for these instruments comply with the stipulated regulatory requirements. Tier-1 bonds are non-cumulative and perpetual in nature with a call option after 10 years. Interest on Tier-1 bonds is payable either annually or semi-annually. Some of the Tier-1 bonds have a step-up clause on interest payment ranging up to 100 bps. The Upper Tier-2 bonds have an original maturity of 15 years with a call option after 10 years. The interest on Upper Tier-2 bonds is payable either annually or semi-annually. Some of the Upper Tier-2 debt instruments have a step-up clause on interest payment ranging up to 100 bps. The Lower Tier-2 bonds have an original maturity between 5 to 10 years. The interest on lower Tier-2 capital instruments is payable either semi-annually or annually.

Equity Capital The Bank has authorized share capital of Rs. 500.00 crores comprising 500,000,000 equity shares of Rs. 10/- each. As on 31 March 2010 the Bank has issued, subscribed and paid-up equity capital of Rs. 405.17 crores, constituting 405,174,119 numbers of shares of Rs. 10/- each. The Bank's shares are listed on the National Stock Exchange and the Bombay Stock Exchange. The GDRs issued by the Bank are listed on the London Stock Exchange (LSE). During the year ended 31 March 2010, the Bank raised additional equity capital in the form of 5,055,500 Global Depository Receipts (GDRs) (each GDR representing 1 underlying equity share of Rs. 10/- each), at a price of US$ 18.90 per GDR. The Bank also undertook a Qualified Institutional Placement (QIP) of 33,044,500 shares and a preferential allotment of 3,976,632 shares at a price of Rs. 906.70 per share. As a consequence, the paid-up share capital of the Bank has increased by Rs. 42.08 crores and the reserves of the Bank have increased by Rs. 3,725.64 crores after charging of issue related expenses.

36

Banking Industry: Structure and Comparison During the year, the Bank has also allotted equity shares to employees under its Employee Stock Option Plan. The provisions of the Companies Act, 1956 and other applicable laws and regulations govern the rights and obligations of the equity share capital of the Bank.

Debt Capital Instruments The Bank has raised capital through Innovative Perpetual Debt Instrument (IPDI) eligible as Tier 1 Capital and Tier 2 Capital in the form of Upper Tier 2 and Subordinated bonds (unsecured redeemable non-convertible debentures). a) The details of Tier I capital of the Bank are given below : (Rs. crores) Particulars Paid-up share capital Reserves Innovative Tier-1 capital instruments Gross Tier-1 capital Deductions: Deferred tax assets Investments in subsidiaries Total Deductions Net Tier-1 capital (611.33) (57.28) (668.61) 15789 Amount 405.17 15632.32 420.54 16458

37

Banking Industry: Structure and Comparison b) The details of Tier II capital of the Bank are given below: (Rs. crores) Tier-2 capital elements Provision for Standard assets Upper Tier-2 capital instruments Lower Tier-2 capital instruments Gross Tier-2 capital Deductions: Investments in subsidiaries Net Tier-2 capital (57) 6519 Amount 484 1249 4843 6576

c) Debt capital instruments eligible for inclusion in Upper Tier-2 are given below: (Rs. crores) Particulars Total amount outstanding at March 31, 2010 Of which, amounts raised during the year Amount eligible to be reckoned as capital funds at March 31, 2010 Amount 1249 __ 1249

d) Subordinated debt eligible for inclusion in Lower Tier II capital is given below: (Rs. crores) Particulars Total amount outstanding at March 31, 2010 Of which, amounts raised during the year Amount eligible to be reckoned as capital funds at March 31, 2010 Amount 5486 2000 4843

38

Banking Industry: Structure and Comparison

Chapter 4: Financial Performance


4.1 Balance Sheet of SBI as on 31st March 2010

39

Banking Industry: Structure and Comparison

4.2

Profit and Loss Account of SBI for the year ended 31st March 2010

40

Banking Industry: Structure and Comparison

4.3

Balance Sheet of ICICI Bank as on 31st March 2010

41

Banking Industry: Structure and Comparison

4.4 Profit and Loss Account of ICICI Bank for the year ended 31st March 2010

42

Banking Industry: Structure and Comparison

4.5

Balance Sheet of PNB as on 31st March 2010

43

Banking Industry: Structure and Comparison

4.6

Profit and Loss Account of PNB for the year ended 31st March 2010

44

Banking Industry: Structure and Comparison

4.7

Balance Sheet of HDFC Bank as on 31st March 2010

45

Banking Industry: Structure and Comparison

4.8 Profit and Loss Account of HDFC Bank for the year ended 31st March 2010

46

Banking Industry: Structure and Comparison

4.9

Balance Sheet of Axis Bank as on 31st March 2010

47

Banking Industry: Structure and Comparison

4.10 Profit and Loss Account of Axis Bank for the year ended 31st March 2010

48

Banking Industry: Structure and Comparison C

Net Profit

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 SBI ICICI

PNB

HDFC

AXIS

Figure 7 Net profit of the five Banks

The net profit of SBI Bank stood at Rs. 9166.05 crores in 2009-10 whereas ICICI Bank 10 registered a growth of Rs. 4024.98 crores. HDFC Bank made a profit of Rs. 3926.4 crores, PNB of Rs. 3905.36 crores and Axis Bank of Rs. 2514.53.

49

Banking Industry: Structure and Comparison C

Operating Expense

25000

20000

15000

10000

5000 0 SBI ICICI

PNB HDFC AXIS

Figure 8 Operating expense of the five Banks

SBI Banks Operating Expense stood at Rs. 24941.01 crores as compared to Rs. 10221.99 crores s of ICICI Banks. HDFC Banks operating expense is Rs. 8045.36 crores, PNB operating expense is Rs. 5761.36 crores and Axis Banks is Rs. 5066.76 crores.

50

Banking Industry: Structure and Comparison C

Reserves and Surplus

70000 60000 50000 40000 30000 20000 10000 0 SBI ICICI

PNB

HDFC

AXIS

Figure 9 Reserves & Surplus of the five Banks

SBI Banks reserves and surplus is Rs. 65314.32 crores, ICICI Banks is Rs. 50503.48 crores, s HDFC Bank is Rs. 24914.04 crores, PNB is Rs. 17407.62 crores and Axis Banks is Rs. 15639.27 crores.

51

Banking Industry: Structure and Comparison C

Provisions and Contingencies

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 SBI ICICI

PNB HDFC AXIS

Figure 10 Provisions & Contingencies of the five Banks

SBI Bank ranks higher in terms of provisions and contingencies with Rs. 4532.53 crores, HDFC Bank ranks second with Rs. 3004.88 crores, PNB with Rs. 2421.49 crores, AXIS bank with Rs. 1368.98 crores and least is the ICICI B Bank with Rs. 1159.81 crores.

52

Banking Industry: Structure and Comparison C

Assets

1200000

1000000

800000

600000

400000 200000 0 SBI ICICI

PNB HDFC AXIS

Figure 11 Total Assets of the five Banks

The total assets of SBI Bank is Rs. 1053413.74 crores, ICICI Bank total assets is Rs. 363399.71 crores, PNB with Rs. 296632.79 crores, HDFC Bank with Rs. 277352.61 crores and Axis Bank with Rs. 180647.87 crores.

53

Banking Industry: Structure and Comparison C

Total Advances

700000 600000 500000 400000 300000 200000 100000 0 SBI ICICI PNB

HDFC

AXIS

Figure 12 Total Advances of the five Banks

The total advances of SBI Bank is Rs. 631914.15 crores, PNB Banks is Rs. 186601.21 crores, ICICI Banks is Rs. 181205.6 crores, HDFC Banks is Rs. 159982.67 crores and Axis Banks is Rs. 104343.12 crores.

54

Banking Industry: Structure and Comparison C

Total Deposits

900000 800000 700000 600000 500000 400000 300000 200000 100000 0 SBI ICICI PNB

HDFC

AXIS

Figure 13 Total Deposit of the five Banks

The total deposit of SBI Bank is Rs. 804116.23 crores, PNB Bank has Rs. 249329.8 crores, ICICI Bank has Rs. 202016.6 crores HDFC Bank has Rs. 208586.41 crores and Axis Bank has crores, Rs. 141300.22 crores.

55

Banking Industry: Structure and Comparison

Chapter 5: Key Performance Indicators


No. of offices
4% 8%

SBI ICICI 22% PNB HDFC 58% AXIS

8%

Figure 14 No. of offices of the five Banks

250000

No. of employees
200000

150000

Axis Title

100000

50000

0 SBI Series1 200299 ICICI 35256 PNB 53417 HDFC 51888 AXIS 21640

Figure 15 No. of employees of the five Banks


56

Banking Industry: Structure and Comparison

Business per employee


1200 1000 800 600
Axis Title

400 200 0 SBI ICICI

PNB

HDFC

AXIS HDFC 590 AXIS 1111

SBI Series1 636

ICICI 1029

PNB 807.95

Figure 16 Business per employee of the five Banks

Profit per employee


14 12 10 8 6 4 2 0 SBI Series1 4.46 ICICI 12 PNB 7.31 HDFC 5.98 AXIS 12

Axis Title

Figure 17 Profit per employee of the five Banks

57

Banking Industry: Structure and Comparison C

Chapter 6: Ratio Analysis

Credit to deposit ratio (CD ratio): This ratio indicates how much of the advances lent by banks is done through deposits. It is the proportion of loan assets created by banks from the deposits loan-assets received. The higher the ratio, the higher the loan assets created from deposits. Deposits would loan-assets be in the form of current and saving account as well as term deposits. The outcome of this ratio e reflects the ability of the bank to make optimal use of the available resources.

Credit deposit ratio


100.00 80.00 60.00 40.00 20.00 0.00 SBI ICICI PNB

HDFC

AXIS

SBI Credit to deposit ratio (CD ratio) 78.58

ICICI 90.04

PNB 74.34

HDFC 75.17

AXIS 71.87

Figure 18 Credit Deposit ratio of the five Banks

58

Banking Industry: Structure and Comparison Capital adequacy ratio (CAR): A bank's capital ratio is the ratio of qualifying capital to risk adjusted (or weighted) assets. The RBI has set the minimum capital adequacy ratio at 9% for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital. CAR = Tier I capital + Tier II capital / Risk weighted assets It must be noted that it would be difficult for an investor to calculate this ratio as banks do not disclose the details required for calculating the denominator (risk weighted average) of this ratio in detail. As such, banks provide their CAR from time to time. Tier I Capital funds include paid-up equity capital, statutory and capital reserves, and perpetual debt instruments eligible for inclusion in Tier I capital. Tier II capital is the secondary bank capital which includes items such as undisclosed reserves, general loss reserves, subordinated term debt, amongst others.

Capital adequacy ratio


25 20 15 10 5 0 SBI ICICI PNB Series1 HDFC AXIS

Figure 19 Capital adequacy ratio of the five Banks


Basel - I Basel - II Tier II Total Tier I Tier II Total 3.54 12 9.45 3.94 13.39 5.66 19.14 13.96 5.45 19.41 4.59 12.97 9.11 5.05 14.16 3.95 16.45 13.26 4.18 17.44 4.4 15.05 11.18 4.62 15.8

Tier I State Bank of India ICICI Bank Punjab National Bank HDFC Bank AXIS Bank 8.46 13.48 8.38 12.5 10.65

59

Banking Industry: Structure and Comparison

Non-performing asset (NPA) ratio: The net NPA to loans (advances) ratio is used as a measure of the overall quality of the banks loan book. An NPA are those assets for which interest is overdue for more than 90 days (or 3 months). Net NPAs are calculated by reducing cumulative balance of provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality of loans.

NPA ratio = Net non-performing assets / Loans given

Net NPA ratio


2.5 2 1.72 1.5 1 0.5 0 SBI ICICI PNB HDFC AXIS 0.53 0.31 Series1 2.12

0.4

Figure 20 Net NPA ratio of the five Banks

60

Banking Industry: Structure and Comparison C Return on assets (ROA): Returns on asset ratio is the net income (profits) generated by the bank on its total assets (including fixed assets). The higher the proportion of average earnings assets, the better would be the resulting returns on total assets. Similarly, ROE (returns on equity) indicates returns earned by the bank on its total net worth.

ROA = Net profits / Avg. total assets

Return on Assets
2 1.5 1 0.5 0 SBI ICICI PNB

HDFC

AXIS

Figure 21 Return on Assets of the five Banks

61

Banking Industry: Structure and Comparison C Earning per share: The portion of a company's profit allocated to each outstanding share of allocated common stock. Earnings per share serve as an indicator of a company's profitability.

EPS = (Net profit after tax Preference dividend) / No. of equity shares

Earning per share


40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 SBI ICICI PNB

HDFC

AXIS

Figure 22 Earning per share of the five Banks

62

Banking Industry: Structure and Comparison C Return on Equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Return on Equity = Net Income after tax/Shareholder's Equity

Return on equity
40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 SBI ICICI PNB

HDFC

AXIS

Figure 23 Return on Equity of the five Banks

63

Banking Industry: Structure and Comparison C Dividend per share: The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire divided by the number of outstanding ordinary shares issued.

DPS = dividends paid/ paid/number of shares in issue

Dividend per share


40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 SBI ICICI PNB

HDFC

AXIS

Figure 24 Dividend per share of the five Banks

64

Banking Industry: Structure and Comparison

Chapter 7: SWOT Analysis

State Bank of India

Strengths Brand Name Market Leader Wide Distribution Network Diversified Portfolio Government Owned Low Transition Costs

Opportunities Merger of associate banks with SBI Additional 2000 branches and 3000 ATMs Increasing trade and business relations Low Transition Costs

Weakness Hierarchical management structure of the bank Non performing assets (NPAs) Modernisation

Threats Advent of MNC banks Consumer expectations Employee Strike Private banks venturing into the rural and semiurban sector

65

Banking Industry: Structure and Comparison ICICI Bank

Strenghts Brand Name Market Share Huge Network Diversified Portfolio Salary Account Working Hours Treasury Management Aggressive Marketing

Opportunities

New IT & ITES Companies Dissatisfied Customers of Other Banks Remittances Business advising for smaller Players

Weakness Transaction Cost Focus on High end customers Defensive Approach in lending Little Presence outside India Poor customer Care/ service

Threats Advent of MNC banks Dissatisfied Customers Ever improving nationalized banks

66

Banking Industry: Structure and Comparison Punjab National Bank

Strengths Brand name Single window clearance Appraisal techniques specialised softwares no penalty for prepayment from borrowers own service

Weakness High interest rates Only through direct sales agent No publicity People not aware of wide variety of schemes Shortage of staff Delegation of authority not proper

Opportunities Special rate of interest during exhibitions Special rate of interest can be introduced for employees of PSU Product life cycle is to be reviewed

Threats Competition in market very high Rate of interest of other players are very low Innovative schemes from other players Processing process quite slow

67

Banking Industry: Structure and Comparison HDFC Bank Strengths Right strategy for the right products. Superior customer service vs. competitors. Great Brand Image. Products have required accreditation. High degree of customer satisfaction. Good place to work Lower response time with efficient and effective service. Opportunities Profit margins will be good. Could extend to overseas broadly. New specialist applications. Could seek better customer deals. Fast-track career development opportunities on an industry-wide basis. An applied research center to create opportunities for developing techniques to provide added-value services.

Weakness Some gaps in range for certain sectors. Customer service staff needs training. Processes and systems, etc Management cover insufficient. Sectoral growth is constrained by low unemployment levels and competition for staff

Threats Legislation could impact. Great risk involved Very high competition prevailing in the industry. Vulnerable to reactive attack by major competitors. Lack of infrastructure in rural areas could constrain investment. High volume/low cost market is intensely competitive.

Axis Bank
68

Banking Industry: Structure and Comparison Axis Bank

Strengths Extremely competitive and profitable banking franchise Sound technological platform with centralized database and operations Support of various promoters

Opportunities Large retail and corporate market Wide scope in rural India Other activity (non banking activity) People are becoming more service oriented

Weakness Not having image UTI (fraud) Higher cost Customer service Market capitalization very low

Threats Very high competition with private sector and public sector Government rules and regulation Rising rates Other better saving, investment option available

69

Banking Industry: Structure and Comparison

Chapter 8: Corporate Social Responsibility

Due to the wide variability of business environments under which the five firms operate, I have chosen to do a firm specific analysis of social issues. State Bank of India Corporate Social Responsibility has been a part of the State Bank of India since 1973 under the name of Community Service Banking covering various social, environmental and welfare activities. The stated Corporate philosophy is as follows The Bank is a corporate citizen, with resources at its command and benefits which it derives from operating in the society in general. It, therefore, owes a solemn duty to the less fortunate and underprivileged members of the same society. Staff members are expected to make their contribution by understanding the aspirations of the public around them and by endeavouring to evolve measures to remove the apolitically indisputable social and developmental lacunae. During the financial year 2009-10, the Bank implemented 136 projects with donations aggregating Rs.19.72 crores. Numerous welfare and social activities were implemented both in Banking and Non- Banking areas with the basic aim of raising the quality of life in the community, especially in and around the area of operation of the branches. Particular attention was given to ameliorating the condition of the downtrodden and underprivileged common man. Currently, the focus areas under Community Service Banking are Health Education Adoption of Girl Child
70

Banking Industry: Structure and Comparison Womens empowerment Child development Welfare and rehabilitation of poor and handicapped Assistance to poor and underprivileged Entrepreneur development programmes Vocational guidance Thrust for assistance to IT education in Rural/Tribal/unreached areas Environment Protection Assistance during natural calamities.

Projects during FY 2009-10 1. Community Service Banking a. 114 projects were assisted with Rs.6.93 crores covering the areas of Health, Education, Assistance for Handicapped, Sports, Environment and Assistance to tribals & other underprivileged members of the society. b. Natural Calamities: 6 Projects amounting to Rs.5.22 crores were undertaken for providing relief and rehabilitation to victims of Natural Calamities. Of this Rs.5.15 crores was donated to the Chief Ministers Relief Funds of 4 States. c. Adoption of Girl Child: Societys preference for the boy child resulted in a large number of instances when the girl child was deprived of familial attention, education, affection, healthcare, in extreme cases, even food etc. This saw a high incidence of female infanticide or ill-treatment of girl children.

71

Banking Industry: Structure and Comparison As a part of its commitment to the welfare of our society, the Bank decided to adopt Girl Children in the age group of 6 to 14 who were orphans, destitute, physically handicapped, belonging to poor families. This initiative was started in 2008 with 8,338 children. There are presently 19,534 girl children covered under the scheme. These belong to 6,658 schools spread all over the country and have been adopted by 5,726 branches. An assistance of Rs.4.84 crores was extended during Financial year 2009-10. Apart from financial assistance, individual employees from the Bank/spouses of employees or members of SBI Ladies Club adopt one or two children for care, mentoring, counselling, to try and fulfill the role of a guide. This includes periodic visits to the schools by Staff Members / SBI Ladies Club Members, talking to the girl child to understand her difficulties, academic or otherwise, and offering solutions. A close liaison is also maintained with the teachers and the academic progress of the girl child is monitored. If felt necessary, timely corrective action is suggested. While gradually increasing the coverage, the Bank has emphasized that individual care and attention to the adopted children as originally envisaged, should not be diluted. d. R&D Fund The Bank has set up a chair named Indian Observatory and IG Patel Chair at Asia Research Centre of the London School of Economics jointly with the Reserve Bank of India. In addition, the Bank has established an SBI Chair for Public Leadership in the Indian School of Business, Hyderabad. These 2 chairs have been assisted with donations amounting to Rs.2.73 crores during FY 2009-10. SBI Childrens Welfare Fund Apart from the projects reported above, the SBI Childrens Welfare Fund, which was set up with donations from the employees of SBI with matching contributions from the Bank to assist underprivileged and poor children in their educational and economic development, undertook 6 projects during FY 2009-10 and distributed grants of Rs.4.58 lacs for child welfare projects.

72

Banking Industry: Structure and Comparison Green Banking Initiatives of the Bank Global warming has become a serious issue attracting attention from all the Nations of the world warranting urgent measures to combat the climate change, which may otherwise result in irregular Monsoons, floods, draughts and uneven temperatures, altogether keeping the existence of flora and fauna of the universe at stake. As the Countrys Premier Financial Conglomerate providing financial resources and services to clients pan India, the Bank has a strategic role to play in addressing this issue, both in terms of its obligations and in terms of its opportunities. Being a responsible Corporate Citizen of the country, the Bank has adopted a Green Banking Policy with an objective of contributing towards the fight against the adverse climatic changes. The policy envisages two pronged approach to address the issue viz. i) to reduce the Banks own carbon footprint and ii) to sensitise the Banks clients to adopt low carbon emission practices. As part of the Banks initiatives to move towards low carbon operations, the Bank has initiated several measures, which include switching over to energy efficient lighting systems, installation of energy savers, efficient water management systems, waste disposal and tree plantation etc. First of its kind in the entire Banking, Finance and Insurance Sector (BFIS), the Bank has conceptualised generation of energy through renewable energy resources and therefore, resolved to install windmills for the Banks captive use with a view to substitute the polluting power with green power. A total of 10 windmills with an installed capacity of 15 MW came up in the States of Tamilnadu, Gujarat and Maharashtra. The project has been installed and commissioned in a record time of four months which reflects the Banks sincerity and urge in its efforts to protect the environment and mankind.

Financial Inclusion Considering the fact that a majority of 6.38 lacs habitations in India are not served by any Commercial Bank or Regional Rural Bank, the Bank took upon itself the task of reaching out to these unbanked villages and making available the basic banking facilities at affordable cost. Thus, the Bank envisioned a mission of covering 1 lac unbanked villages by March 2010.

73

Banking Industry: Structure and Comparison The realization that the job demands highly innovative and technological initiative in view of the fact that brick and mortar branches alone were not sufficient to reach out, the Bank decided to take on multipronged approach of engaging Business Facilitators (BF), Business Correspondents (BC) and technological innovations to cover the unbanked villages besides expanding through new branches. In the process, the Bank engaged 10 National level partners as BC /BFs and 8,000 BC/BFs as regional level alliances. The alternate channel of BC/BF expanded its footprints at 25,000 Customer Service Points throughout the length and breadth of the country for serving unbanked villages. The Bank also added 1,001 new branches during the last two years in Rural and Semi Urban areas to contribute to this national cause.

Education Partnership with the Municipal Corporation of Greater Mumbai The Municipal Corporation of Greater Mumbai (MCGM) has launched a project to transform and upgrade the outcome of education in schools run by the Municipal Corporation. The Bank has agreed to support this project as a partner for a period of 2 years as this project may evolve as a model for replication across the country. The project has the following objectives: Improvement in average learning outcomes from 30-35% to 70-80%. Improvement in student attendance from 50-60% to 90%+. Reduction in drop-out rates especially at upper primary level. Enabling at least 30-50% of the children to speak English comfortably. At least 20% of secondary school children getting strong vocational training. At least 20% of parents being highly involved in the childs learning. Creating infrastructure of the right quality in each school.

74

Banking Industry: Structure and Comparison

ICICI Bank

In January 2008, the ICICI Group established the ICICI Foundation for Inclusive Growth (ICICI Foundation). ICICI Foundations mission is to create and support strong independent organisations that work towards empowering the poor to participate in and benefit from the Indian growth process. Since its inception, ICICI Foundation has taken forward the ICICI Groups existing initiatives in the areas of primary health, elementary education and access to finance and supported new initiatives in the areas of civil society and environmental sustainability. ICICI Bank and its subsidiaries have, till year-end fiscal 2010, provided grants aggregating Rs. 854.0 million to ICICI Foundation.

75

Banking Industry: Structure and Comparison Areas of focus a) Primary health: Through the ICICI Centre for Child Health and Nutrition (ICICI Child Health) in Pune, ICICI Foundation seeks to support mothers and children in the poorest communities across India through improvements in government health systems. In Ranchi district, Jharkhand, ICICI Child Health has worked in partnership with Krishi Gram Vikas Kendra, Child in Need Institute and the Government of Jharkhand to reduce the number of babies born with low birth weight. Village Health Committees (VHCs) and voluntary health workers (Sahiyyas) were developed that work together to help improve access to health services and the functioning of health centres, through organising medical camps, awareness campaigns and building roads to ensure reach of mobile medical vans to remote areas. This five-year initiative has covered 200,000 women, newborns up to one year of age and adolescents in two blocks of Ranchi district. The VHC and Sahiyya models have been adopted by the State Government for larger health sector reforms. In Bihar, ICICI Child Health has worked with the Public Health Resource Network and the National Health Systems Resource Centre to support preparation of District Health Action Plans in all 38 districts of the state for fiscal 2011. ICICI Child Health has also conducted extensive capacity building training right up to the block level in Bhagalpur district. Through the City Initiative for Child Health in Mumbai, ICICI Child Health partnered with Bombay Municipal Corporation (BMC) to improve antenatal, postnatal and neonatal care in public health facilities in eight wards of the city and improved the quality of service accessed by 400,000 households in 48 slum communities. BMC has subsequently replicated the project across the citys western suburbs.

b) Elementary education: Through the ICICI Centre for Elementary Education (ICICI Elementary Education) in Pune, ICICI Foundation seeks to support the transformation of student learning by focusing on quality of learning at government-run pre-schools and elementary schools across India. Among other activities, ICICI Elementary Education works to improve the

76

Banking Industry: Structure and Comparison support available to teachers, to accurately measure performance of schools and students and strengthen capabilities of state and district functionaries. In partnership with the State of Chhattisgarh since it was constituted in 2002, ICICI Elementary Education has taken on the task of developing school curriculum and textbooks, teacher training and issues relating to the improvement of quality of school education. In the district of Baran, Rajasthan, ICICI Elementary Education has worked with the Vidya Bhawan Education Resource Centre and the Government of Rajasthan to strengthen and improve the quality of the government system of elementary education. ICICI Elementary Education is strengthening the capacity of district level institutions and providing training and in-classroom support for teachers in 78 schools, aiming to improve the quality of education for 450,000 children. ICICI Elementary Education has supported the development of the MA Education (Elementary) course at the Tata Institute for Social Sciences, Mumbai, aiming to enhance knowledge and skills that are relevant to strengthening elementary education. Since the inception of the programme, two batches of 25 students each have been admitted.

c) Access to finance: In addition to the ICICI Groups direct work in the area of financial inclusion, which is described subsequently, ICICI Foundation has supported the IFMR Finance Foundation in projects to develop models for enhancing access to financial services among lowincome communities in rural and urban areas. IFMR Finance Foundation works with partners like Aajeevika Bureau (for migrants) and Kshetriya Gramin Financial Services (for remote rural geographies). It has also participated in product development and training efforts for local financial institutions covering micro money market mutual funds, livestock insurance, emergency loans and weather insurance. It also works on strengthening risk management capabilities of local financial institutions and has currently focused on access to debt securitisation markets for Micro Finance Institutions (MFIs). IFMR Finance Foundation has worked with partners to develop recommendations to strengthen the policy environment for financial inclusion in India.

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Banking Industry: Structure and Comparison d) Civil society: Through its support to CSO Partners in Chennai, ICICI Foundation supports civil society organisations across India by enabling them to tap into new resources and networks of support. CSO Partners provides human and financial resources to NGOs and creates platforms for individuals, corporates and government to engage with NGOs. Corporate Disaster Resource Network (CDRN): CDRN is a web-based supply chain management system that enables relief agencies, first responders and local governments to highlight their immediate resource needs and access response offers from potential product suppliers, donors and volunteers. Currently, it has 300 NGOs and 5,000 corporate organisations as members. CDRN is a joint initiative of CSO Partners, the National Disaster Management Authority and Aidmatrix. NGO Marketplace: NGO Marketplace is an online portal providing national networking opportunities for the social sector in India. The intent is to facilitate collaborative work and networking by NGOs with other civil society organisations as well as donors, social contributors, researchers, policymakers and other stakeholders. The ICICI Group has supported GiveIndia, an online platform to enable individuals to support social causes and in turn garner funds for Indias social sector. GiveIndia has cumulatively risen over Rs.800.0 million for over 200 NGOs; last year alone it raised approximately Rs.270.0 million. GiveIndia eventually aims to raise Rs. 3.00 billion annually to support NGOs across India. e) Environmental sustainability: ICICI Foundation has supported the Environmentally Sustainable Finance group at the Centre for Development Finance at IFMR, in Chennai. One example of the groups work is the Environmental Sustainability Index, an index ranking the environmental performances of Indian states, which policymakers are using as a diagnostic tool for planning better environmental policies.

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Banking Industry: Structure and Comparison Punjab National Bank

PNB regards Corporate Social Responsibility (CSR) as an investment in society and in its own future. Its goal as a responsible corporate citizen is to create social capital. PNB leverage its core competencies in five areas of activity. Sustainability: An integral part of all PNB activities- in their core business and beyond- is being responsible to its shareholders, clients, employees, society and the environment. Corporate Volunteering: A growing number of PNB employees are committed to civic leadership and responsibility- with the support and encouragement of the Bank. Social Investments: PNB create opportunities for people and communities. They help them overcome unemployment and poverty and shape their own futures. The Bank has set up numerous training institutes and counseling centres for this purpose. Health: PNB believe that healthy mind and healthy body in a healthy environment is essential for overall growth of society and the nation. That is why they invest in areas that facilitate such enhancements. Education: PNB enable talent across all disciplines as one of the most important sources of growth and progress. Their philosophy is to catch the young and empower them through skill enhancement.

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Banking Industry: Structure and Comparison

PNB awarded Golden Peacock Corporate Social Award 2011

Punjab National Bank, the leading Nationalised Bank bagged the 'Golden Peacock Award for Corporate Social Responsibility' for the year 2011 by the Awards Jury of Institute of Directors under the Chairmanship of Justice P N Bhagwati, former Chief Justice of India and Member, UN Human Rights Commission. Punjab National Bank is the Second largest bank in the country with a business of over Rs 5 lakh crore and pan India presence of more than 5000 branches. PNB believes that being profitable and doing good work for the people and the world around us arent exclusive of each other; they're an integrated goal. PNB said in a statement, "A strong and well governed business enables us to translate positive financial results into sustainable community and environmental efforts that benefit everyone. This is the essence of Bank's CSR paradigm. Everyday Bank strives to be a good corporate citizen and in the process-the most respected financial services institution." PNB said that it has a vision of reaching the poor through technology driven, foolproof and risk free door step banking, improving their financial awareness and education; developing and upgrading their farming and other skills. The Bank has created social structures like Farmers' Training Centres; Financial Literacy & Credit Counselling Centres; PNB Rural Self Employment Traning Institutes; PNB Prerna; Hockey Academy etc. that impart training to people from underprivileged segments aimed at their empowerment for their sustainable upliftment.

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Banking Industry: Structure and Comparison

HDFC Bank

HDFC Banks CSR initiatives range across the spectrum of purely operational and financial parameters at one end to social and altruistic at the other. Together, these elements go towards fulfilling its CSR objectives. The Bank seeks to achieve its corporate and social objectives by focusing on the following strategic areas. Environmental Responsibility: HDFC Bank is aware of its role of an influencer towards the environment, which is embodied in its approach to Carbon Emission Reduction. The Bank demonstrates this commitment to contribute positively to the environment and sustainable development by calculating its carbon footprint and preparing a carbon management plan to reduce it. In addition, in order to create awareness amongst employees on climate change and the need to reduce and recycle various drives to conserve the environment including tree plantation are organized on a regular basis. Employee Engagement: The Banks employees are encouraged to volunteer time and skills through the Corporate Volunteering Program. Banks employees have engaged in activities such as academic support classes, held English speaking courses and helped in organizing special events in order to celebrate festivals with the underprivileged. Additionally the Bank has facilitated employee donations to charities of their choice through Give India. The bank makes a donation matching the amounts donated by its employees on a monthly basis. Community Initiatives: As a responsible Corporate Citizen HDFC Bank strives for community empowerment through socio-economic development of underprivileged and marginalized sections of society. The Bank partners with NGOs across India to support educational initiatives and livelihood training programs. The Bank also supports projects that provide skills training to school dropouts, youth, women and other disadvantaged groups. The Banks social development programs have so far touched the lives of over 73,000 children and 700 women and youth.

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Banking Industry: Structure and Comparison

Axis Bank

As an integral part of society, the Bank is aware of its corporate social responsibilities and has been engaged in community and social investments. For this purpose, the Bank has set up a Trust - the Axis Bank Foundation, to channel its philanthropic initiatives. The Axis Bank Foundation has committed itself to participate in various socially relevant endeavours with a special focus on education for the special/underprivileged children. The Trustees of the Foundation have focused on education for underprivileged children and these are largely supported by programme grants in order that the projects become replicable. The Bank has decided to contribute upto one percent of its net profit annually to the Foundation under its CSR initiative. During the year, the Foundation partnered with twelve more NGOs, taking the partnership to a total of 42 NGOs, for educating underprivileged children and special children all over India. The Foundation has committed grants for projects running upto three years. Eight hundred and fifty nine education centres, involving 12 States are covered by the Foundation programmes. 55,452 children are covered under the programmes that include 27,899 girls and 27,553 boys. The projects supported by the Foundation involves imparting quality education for the underprivileged child (with a special focus on the girl child), focusing on early childhood programmes for 2-6 year olds, focusing on projects that encourage 'Inclusive Education' for physically challenged children, teacher training programmes that result in competencies to teach pre-primary and primary school children and supporting vocational training centres in slum areas to imparting training to school dropouts. The Axis Bank Foundation will also play an important role under the Banks Financial Inclusion initiative. It is proposed that literacy campaigns will be launched by the Bank in all regions where financial inclusion is undertaken where the objective of the Bank will be to impart financial awareness. It will also undertake various other initiatives such as healthcare, vocational training and other community development programmes like afforestation and rain-water harvesting in these areas.

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Chapter 9: Challenges facing Banking industry in India

The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated seller market to completed deregulated customers market.

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Deregulation: This continuous deregulation has made the Banking market extremely competitive with greater autonomy, operational flexibility and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off take thanks to sluggish economy has resulted in large number of competitors batting for the same pie.

New rules: As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this has led to a series of innovative product offerings catering to various customer segments, specifically retail credit.

Efficiency: This in turn has made it necessary to look for efficiencies in the business. Banks need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets.

Diffused Customer loyalty: This will definitely impact Customer preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. There are multiple choices, the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery.

Misaligned mindset: These changes are creating challenges, as employees are made to adapt to changing conditions. There is resistance to change from employees and the Seller market mindset is yet to be changed coupled with Fear of uncertainty and Control orientation. Acceptance of technology is slowly creeping in but the utilization is not maximized.

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Banking Industry: Structure and Comparison

Competency Gap: Placing the right skill at the right place will determine success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be on doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

Strategic options with banks to cope with the challenges Leading players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives include: Investing in state of the art technology as the back bone to ensure reliable service delivery Leveraging the branch network and sales structure to mobilize low cost current and savings deposits Making aggressive forays in the retail advances segment of home and personal loans Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and cost per transaction Focusing on fee based income to compensate for squeezed spread, (e.g. CMS, trade services) Innovating Products to capture customer mind share to begin with and later the wallet share Improving the asset quality as per Base II norms

Transformation initiatives needed for banks Strategy Sales & Marketing strategy for both retail & wholesale banking Expanding geographies
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Banking Industry: Structure and Comparison Brand Understanding the values of the brand Repositioning the brand to communicate the values

Organization restructuring Re organization of the bank in line with the strategic thrust

Re engineering of the key business processes Redesign of Sales processes to increase conversion ratio Six Sigma process improvements for branch channel, Call Center & back office processes Centralization of branch operations and deferred processes to free up resources

Cost efficiency Reduction in Total cost of acquisition Reduction in transaction costs Reduction in fixed and overheads cost

Right sizing and matching of skills Manpower modeling for branch & back office at various volume scenarios Productivity improvement for sales & service functions Competency Assessments & profiling

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Banking Industry: Structure and Comparison Creating a high performing organization Define new roles & responsibilities, KRA Assessing competencies of people across levels and match the position with the skill set Designing and implementing a new PMS for restructured organization

Change management & creating a new mind set Developing critical mass of champions and drive Change across the organisation to move from conventional banking to new age banking

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Webliography
http://www.bseindia.com http://www.nseindia.com http://www.moneycontrol.com http://www.rbi.org.in
http://www.statebankofindia.com

http://www.icicibank.com
http://www.pnbindia.in http://www.hdfcbank.com http://www.axisbank.com

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