Indian Banking

Alliance university 2014
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Executive Summary
Indias Banking sector current worth of Rs.81 trillion (US$ 1.31 trillion). It has the ability
and potential to become the fifth largest banking industry in the world by 2020 and the third
largest Banking Industry by 2025, estimated by the report and the experts of the industry. The
way of delivering and channelizing to its customers of Indian Banking sector has changed
over the time. Banks are now reaching out to the masses including the urban areas and small
villages of India with technology to facilitate their customers with greater ease of
communication, and transactions facilities are carried out through the internet and mobiles.

With the Parliament passing the Banking Laws (Amendment) Bill in 2012, the terrain of the
sector is likely to change. The bill entitle the Reserve Bank of India (RBI) to make final
recommendations on publishing new Bank licenses to the banks which want to operate in
India. This will lead to a greater number of banks in the country; the style of operation could
also evolve more with the incorporation of modern technology into the Banking industry.
Since foreign banks are also allowed in the Indian banking sector this has led to higher
competition and banks are broaching abroad also. FDI, FII and portfolio investments have
been liberalized in both public and private sector banks. Where public sector contributed up
to 73%.The lending and deposit have increased to 22.8% at CAGR.
The last two decade has substantially observed a drastic change in the type of services
provided by the Banks which made a affirmative impact on the Indian economy and on the
customers as well. Though the public sector ruled the scenario of the Indian banking it has
come a long way to the current situation where public sectors Banks are operating along with
private sector bank leading to the fast growth of the Indian economy. The Indian Banking
Industry has adequately seen the growth and working quite well in adjusting itself to the
new market force and changing environment to achieve greater challenges of the Banking
Industry.

This report focuses on providing overview of ongoing banking scenario in India and aims to
the various factors affecting the Indian Banking Industry. It also emphasizes on the future
prospects of the Indian Banking Industry and the upcoming challenges.


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1.1 INTRODUCTION: AN INSIGHT TO THE INDIAN BANKING SECTOR
Banking Industry is one of the major contributors to the Indian Economy in the country, as it
is the most important segment of the financial sector.
The commercial banks consist of:
Scheduled commercial banks (SCBs) and Non-scheduled commercial banks.
Co-operative credit institutions.

Source: indiabankandfinance.com
Figure1: The structure of banking sector in India
The reserve bank of India is the central banks of India that is responsible for issuing currency
notes, maintaining deposits of other banks and maintaining advances of other banks.Under
the RBI there are banks and financial institutions. The banks are of two types Scheduled
bank, that comprise of all the banks that are listed in the second Schedule of Reserve Bank or
India Act of 1934 and Unscheduled banks ,whichare not listed under the Reserve Bank or
India Act of 1934.Scheduled banks can further be divided into public sector banks, private
sector banks foreign banks and rural cooperatives.

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Source:IBEF
Figure2: Components of various banks in the banking sector
Considering the present scenario of the banking industry in India, major players are the
public sector banks with 74.4% market share followed by private sector with 18.7% and
foreign banks of 4%.

Source: IBEF
Figure3: Contribution of Banking to GDP
Banking industry which is a part of service sector has been doing a significant contribution
to GDP. Service sector contributes 56% of GDP out of which 5.8% has been from banking
industry. For the past 6years banking industry contribution has been more or less the same
except for the year 2009-2010 due to effect of foreign countries.
public sector, 74.4
private sector,
18.7
foreign banks, 4
RRbs, 2.9
public sector
private sector
foreign banks
RRbs
5.20% 5.30% 5.40% 5.50% 5.60% 5.70% 5.80% 5.90%
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
Contribution of Banking to GDP
GDP

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Deposits Growth

Source: IBEF
Figure4: Deposits Growth
As seen in the figure there has been I significant rise in the value of deposits over the past
9years.The value of deposits in 2013 has been more than doubled since 2006.Deposits have
grown at CAGR of 21.2% from FY06 to FY13.
Objectives for theStudy on Banking industry
1. To analyze the Market Share and to identify the Nature of Competition.
2. To categorise the Market Segment for the Industry.
3. To identify the PESTLE factors.
4. To identify the key players of the Industry.
5. To present the observations of Mergers and Acquisitions.
6. To analyze the International Exposure.
7. To study the impact of Research and Development and Technology in
Banking industry.
8. To understand the role of Advertising and Marketing in the industry.
9. To forecast the future of the Industry.
10. To do a comparative study of the Indian Banking industry with US and other
countries.

1.2. CONCLUSION:
Indian banking has evolved and shows positive signs of growth. Even though there has been a
significant growth, but the penetration is very low.With the efforts taken by RBI Indian
Banking system will be able to bring financial inclusion in the country. The study on the
objectives will give more insights into the industry. These will give a picture of global
position of Indian economy .


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CHAPTER2- REVIEW OF LITERATURE


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2.1. INTRODUCTION
The various studies which were conducted with the respect to the banking
industry in India and the objectives under study are discussed and summarized
in this chapter.
2.2. CURRENT BANKING SCENARIO
According to IMF working paper Indian Banking Sector is growing
tremendously.it has emerged as one of the major growth drivers in the Indian
economy which was a much required aspect for a developing country like
India. The paper talks about the structural changes that the banking sector has
undergone and the domination of public sector banks over private sector
banks but still following a mixed ownership.
2.3. IMPACT OF TECHNOLOGY
E-banking came up as a major change in the banking processes which made
the banking industry and its services more accessible and very easy to use.but
it has also increased the challenges of fraud and theft with the advancement in
the technology.
2.4. BUSINESS DIVERSIFICATION IN THE BANKING SECTOR
Banking sector in India constitutes of public sector as well as private sector
banks and it also includes the foreign banks which shows how diversified the
banking sector is.it has led many domestic banks to diversify their operations
to maintain stability and profitability ratio effectively. Study was conducted to
know the operational diversification in the banking sector.(operational
diversification and stability of financial performance in Indian banking sector,
Sahoo, Deepti ,2012)


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2.5. MERGERS AND ACQUISITIONS OF THE BANKING SECTOR
M&A in the banking sector in India post liberalisation,2011.this study was
conducted to know the condition of the banks pre and post mergers and
acquisitions by tracking their net profit margin, profitability index, ROCE,
operating profit margin and its liquidity position.it was proved in the study that
most of the banks showed better results post mergers and acquisitions as
compared to the results before M&A.
2.6. INTERNATIONAL EXPOSURE
The study talks about how the international exposure forced Indian Banking
sector to think globally and expand according to the international standards.
Introduction of international banks in the Indian banking sector led to growth
and increased opportunities as well as latest technologies but at the same time
also increased competition.
2.7. Future outlook of the industry
Indian banking industry maintains high stability. Higher rate of credit
expansion, more focus is on the financial inclusion which is one the major
concerns. The major growth drivers of banking sector like commercial banks
will contribute more in the future growth of the banking sector. According to
PWC publications, destination India, banking opportunities: entry strategy and
the road ahead.
2.8. Technology intensity
According to Ernst and Young report on Technology in Banking, Financial
inclusion has been a major issue for banks. In order to achieve financial
inclusion banks are relying on the technology. The average amount invested by
banks in technology has been growing in the recent years. The report has given
info regarding the rise in Atms, new features in mobile banking etc


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2.9. CONCLUSION
The research papers and the study helps in getting an inside and a very clear
view of the banking sector in India and its position in the global market. It
helped in knowing how banking industry has evolved and how it is going to
change in the future with the change in technology and other factors.


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CHAPTER 3 INDUSTRY ANALYSIS

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3.1. INTRODUCTION
Industry analysis is a tool which is used for evaluating designs for providing the business an
idea of complexity. Its purpose is to find out the main factors which affects the industry. It
involves the study of many factors like economic, political , technological etc. All these
factors helps in the growth of the industry. The major factors are the power that are used both
by the buyers and the suppliers, the competitive condition and the expectations from the new
market players. It is an analysis in the business environment where the industry operates. It
also involves finding out the strengths, weaknesses, opportunities and threats which exists
within the industry.
It is very important to know the strengths that currently exists for an industry that is being
analysed and also the weaknesses that has to be worked upon and removed to a greater
extent. Statistics and historical data gives an idea about the nature and the type of the
industry and also its potential to grow. It gives us an idea about the complication of the
industry and then we have to decide and form strategies to rectify and come out from the
complications.
When an industry merges with another industry it is important to analyse for the industry to
determine whether the industry is growing or is about to die while merging with another
industry. It is used to analyse the amount of profits or losses the business is making and find
out the reasons for the losses and work on it to improve it and try to convert the losses to
profits. It is a way of understanding a companys effectiveness relative to the competition. It
basically consists of 3 components they are overall attractiveness , relevance of the field and
the underlying forces that have moulded and try continue to shape the industry and also the
important elements that helps to determine an industry ability to rise above its competitors.
It is important to understand the risks and opportunities of knowing how to go about a
business with the specific industries by conducting a good research methodology analysis. It
is important to know the facts that we need to efficiently segment the market and push the
sales strategy. Industry analysis provides companies with information on products, trends,
regions, demographics. It helps the companies to find the market data and analyse the market
to make the important decisions.


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OBJECTIVES:
1. To identify the market share and nature of competition in banking industry in India.

2. To conduct PEST analysis of banking industry India.

3. To identify the market segmentation of Indian Banking industry

4. To identify the business diversification of different companies.

5. To study the growth strategy of banking Industry. (Merger and acquisition)

6. To analyse the International exposure.

7. To analyse the technology intensity in banking Industry in India.

8. To examine the marketing initiatives in Banking Industry in India.

9. To predict the future trend of banking Industry.

10. To examine the comparative study of banking Sector with US and China.


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3.2. Market Share and Nature of Competition
There are 147 SCBs in India with deposits worth 77 trillion as on august 2013.70% of the
countrys banking sector is controlled by 26 public sector banks. There are 20 private banks
and 41 foreign banks in India at present.(IBEF, 2013)
As on march 2013,RBIs Quarterly statistics on deposits and credit of scheduled commercial
banks stated that 52.4% of aggregate deposits are held by nationalised banks, whereas 22%
of aggregate deposits are held by SBI and its associates. New private sector banks, old private
sector banks, foreign banks and RRBs hold 13.6%, 5.1%, 4% and 2.9 % respectively.
The gross bank credit 51%being the highest accounted by the nationalised banks followed by
State Bank Of India and its associates(22.7%)and new private sector banks (14%).Foreign
banks ,old private sector banks and regional banks had shares of around 4.9%, 5%, and 2.5%
respectively.(IBEF 2013)
Market Share of leading players based on total credit and split between Public, private,
foreign banks and RRBs in India.

Source-IBEF
Figure-5
public sector, 74.4
private sector,
18.7
foreign banks, 4
RRbs, 2.9
Splits between types of banks
public sector
private sector
foreign banks
RRbs

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Source-capitaline
Figure-6
3.2.1 Major Players in the banking industry
The total net profit for the public sector banks in India isRs.53141.4 crores. Table 1 shows
the net profit of ten major public sector banks and their percentage (out of the total profit of
Rs.53141.4 Crores).the total contribution to net profit is 70.93% and rest 29.07% is
contributed by other public sector banks.(Capitaline Database 2013)

Bank Net profit Percentage
State Bank of India 14,127.94 26.58
CanaraBank 2871.38 5.40
Punjab National Bank 4745.78 8.92
IDBI Bank 1882.08 3.54
Bank of India 2749.35 5.17
NABARD 1808.07 3.40
Oriental Bank 1309.46 2.46
Bank of Baroda 4481.37 8.43
Indian Bank 1581.14 2.97
Union Bank 2159.12 4.06
Others 15425.71 29.07
Total 53141.4 100
Source: Capitaline Database (Table-1)
State Bank Of
India, 26.58
ICICI, 18.77
HDFC Bank,
15.22
AXIS Bank,
11.72
Punjab National
Bank, 8.92
Canara Bank, 5.4
Others,
13.39
Market Share Of Leading Banks
State Bank Of India
ICICI
HDFC Bank
AXIS Bank
Punjab National Bank
Canara Bank
Others

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The total net profit of private and foreign sector banks in India is Rs.44197.07 Crores. Table
2 showsthe net profit of ten major private sector banks and their percentage (out of the total
profit of Rs.44197.07Crores).The total contribution to net profit is 71.59% and rest 28.41% is
contributed by other private and foreignsector banks.(Capitaline Database 2013)
Bank name Net profit Percentage
Standard chartered
Bank
2951.77 6.67
ICICI Bank 8,299.70 18.77
HDFC Bank 6,726.98 15.22
Kotak Mahindra Bank 1359.95 3.07
Axis Bank 5,182.29 11.72
CitiBank 2,694.43 6.09
Deutsche Bank 1,034.48 2.34
Yes Bank 1,301.19 2.94
IndusIndBank 1,057.54 2.39
J&K Bank 1055.10 2.38
Others 1533.64 28.41
Total 44197.07 100
Source: Capitaline Database.(Table -2)
3.2.2. Applying Porters five forces analysis in the banking industry

Figure-7

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1. Threat off new entrant- There is low threat of new entrant in the banking industry as
licencing requirement for starting up a new bank are very tough and product
differential is also very difficult.
2. Threat of new substitutes- there is medium threat of new substitutes as NBFCs,
mutual funds, government securities and T- bills are increasing rapidly.
3. Competitive rivalry- there is high competitive rivalry as a large number of banks
already exist in the industry. The switching cost is low switching cost, high fixed
cost and high exit barriers.
4. Bargaining power of suppliers the bargaining power of supplier is low because
individuals are the suppliers to the banks and they dont have a say on the norms
decided by the banks.
5. Bargaining power of customers- The bargaining power of customers is very high in
the industry as banks provide homogeneous kind of services and customers can get
all kind of informations very easily. Therefore, the switching cost is low for the
customers.
Therefore, the banks in India should try to differentiate their products and services from
others to gain competitive advantage. (DCA, 2013).

3.3. Pest Analysis
3.3.1. POLITICAL FACTORS
The Indian banking sector relies on RBI for all its decisions and implications which
are to be followed.
There are regulations with regards to flow of capital and liquidity in the banking
sector.
RBI controls the inflation by increasing or decreasing the interest rates in the market.
Banks lend credit growth in different sectors according to RBI guidelines only.

3.3.2. Economic Factors:
The economic factor in our country has both pros and cons for the banking sector.
When the inflation is normal and per capita income is high along with higher income
and savings will also increase, the banks have an advantage as people have more
money for depositing in the banks.
With the help of banking channels more FDI is brought in the country.

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During recession, banks encourage lending by issuing fresh credit.
The service sector contribution is highest in GDP of India as of 2012-13 service sector
contribution to GDP has been of 56.5% and growth rate is 6.17%.Financing
insurance, and real estate contribute the maximum.(Press information Bureau, Govt of
India)
3.3.3. Social Factors:
Rural market could not be captured yet even after having huge number of banks in
India.
Loans are still lent at higher interest rates to the farmers from the moneylenders.
Banks are having good opportunities with the huge population and more and more
savings and deposits increasing.
There is a change in the lifestyle of the urban population in India who can now easily
get their desires financed.
There is an increase in the literacy rate of India to 74.4% in 2013.which leads to more
and more people having knowledge about banks and savings.
3.3.4. Technological Factors:
The development of technologies has led to the betterment and tremendous growth in
banking sector.
Improved technologies led to reduction in cost and time and increased level of
customer satisfaction.
Internet banking and mobile banking have made it very easy and handy for the banks
as well as the customers.
Customers need not stand in the long queues to know about their account balance,
ticket bookings, bill payments etc. Everything is made very easy and available.


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Figure-8


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3.4.Business Diversification standalone or conglomerate

3.4.1Conglomerate: Conglomerate arises when two or more firms in different markets
producing unrelated goods joint together to form a single firm. E.g. Between athletic shoe
company and Soft drink Company.
3.4.2 Five leading Indian Banks are taken and their business diversification:
3.4.2.1. SBI Life Insurance:
SBI Life Insurance is a joint venture between state bank of india and BNP Paribas cardif.
SBI owns 74% of the total capital and BNP Paribas cardif the remaining 26%. SBI Life
Insurance has an authorized capital of Rs. 2000 cr. and a paid up capital of Rs. 1000 cr.
Multi Distribution Model: SBI life has a very different multi distribution model
encompassing vibrant Bancassurance, retail agency, institutional alliance and
corporate solutions distribution channels.
SBI Life extensively leverages the State Bank group relationship as a platform for
cross-selling insurance products along with its numerous banking product packages
such as housing loans and personal loans.
SBI also provides services like calculator premium, need analysis calculator,
retirement calculator, HLV calculator, child education planner etc.
3.4.2.2 SBI Mutual Fund:
It covers the following:
Here the investors gets unique opportunity of setting financial goals and different set of
products therefore SBI mutual fund have a wide range of schemes which will fulfill
investors requirements. They provide six basic asset classes they are as given :
Equity Schemes: The objective of this scheme is to provide growth in the capital or
appreciation in the investment of equity and equity related instruments.
Debt or Income Schemes: In this scheme the investment is done in fixed income
securities like corporate debentures, money market instruments, government securities
etc.
Liquid Schemes: This scheme includes investment in short investment like cash asset
(treasury bills), commercial papers.
Hybrid Schemes: In this scheme the investment is done in a mixture of debt and
equity securities in different proportion as prescribed in the scheme information
document.

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Fixed Maturity Plans: They are closed ended debt schemes where there is a fixed
maturity date and the investment is done in debt and money market instruments.
Exchange Traded Funds (ETF): They are a basket of securities which are traded on
the stock exchange such as SBI gold exchange traded scheme, SBI Sensex ETF.

3.4.2.3 Axis Bank General Insurance:
Life Insurance: It helps in safe guarding the financial stability of peoples family in
the event of an unfortunate incident.
Health Insurance: Emergency in health can come without any advance notice and this
may lead to a financial emergency for self and family. In this case it may will b
difficult to prevent health emergency but it can be prevented from becoming a
financial burden.
Business Guard: The small and medium business enterprises are always in threat from
various disruptions in everyday life. It can be due to natural disasters like earthquakes
or manmade disasters.
Home Insurance: It is for securing the most important asset from any possible kind of
manmade or natural disaster.
Travel Insurance: It is used in case of unseen emergencies like lost passport, license,
baggage, flight delay etc.
Motor Insurance: It is very important to ensure peoples valuable possession so they
need a comprehensive that covers them against the mandatory third party liability and
also any damage cause to vehicles like explosion, fire, strikes etc.

3.4.2.4. ICICI Lombard:
Motor Insurance: In this following insurance in which it works namely Car Insurance,
Two wheeler Insurance and Car guide.

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Health Insurance: In this following insurances in which it works namely Complete
Health Insurance, Health Care Plus, Personal Protect, critical care.
Travel Insurance: In this following insurances in which it works namely International
Travel, Senior Citizen, Gold Multi- Trip.
Student Medical Insurance: In this following insurance in which it works namely
Overseas Student Travel Insurance.
Home Insurance: Protect home structure and contents from natural calamities and
manmade disaster.

3.4.2.5. IDBI FEDERAL Life Insurance:
It has the following products:
Bondsurance: Advantage Insurance plan is a single premium plan where only one
time investment is made.
Childsurance: Dream builder insurance plan wherein a child who wants to become a
doctor, an engineer, an MBA etc. The IDBI federal childsurance dream builder
insurance plan will keep the future ready against both changing dreams an lifes
twists.
IDBI Federal Homesurance Plan: It is a mortgage reducing term plan which offers
protection to self and family from the home loan liability.This plan covers equal to the
outstanding balance of the home loan in the unfortunate event of expiry of the
insured.
LifesuranceSuvidha Savings Plan: It is a participating endowment that allows to safe
for long-term responsibilities in life.
3.4.2.6.HDFCERGO General Insurance:
Motor insurance: In this following insurances in which it works namely Private car
insurance, commercial vehicles insurance and two wheeler insurance.
Health Insurance: In this following insurances in which it works namely Health
Suraksha, Critical diseases.
Travel Insurance: In this following insurances in which it works namely Travel
insurance, Suraksha for student.

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Rural Insurance: In this following insurances in which it works namely
GraminArogyaNidhi, Agriculture, Cattle, Rainfall Index insurance.


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3.5. MERGER ANDACQUISITIONS.
3.5.1 Merger: merger is a combination of two or more companies into one company. In India
merger called as amalgamations, in legal terms. The acquiring company, acquires the assets
and liabilities of the target company.

3.5.2. Types of merger:-

Vertical merger: This is the merger of the corporate engaged in various stages of
production in an industry. Vertical merger may help in optimal achievement of profit
efficiency. E.g. Mobile producing company merges with the company which provides
them parts of mobile and software.
Horizontal merger: This is the merger of the corporate engaged with those
businesses which are of same kind. E.g. merger of bank with another bank.
Conglomerate: Conglomerate arises when two or more firms in different markets
producing unrelated goods joint together to form a single firm. E.g. Between athletic
shoe company and Soft drink Company.
Acquisition: This may be define as an act of acquiring effective control by one
corporate over the assets or management of the other corporate without any
combination of both of them. E.g. case of oracle major software firm as agreed to
acquire majority stake in Indian banking software company i-flex solutions.

3.5.3 Reasons for Merger:
Merger of weak banks: The weak banks merge with strong banks is done to provide
stability to weak banks but this practice was opposed by narsimhan committee as it
can diversify risk management.
Increase in market competition: Reason for merger is innovation of new financial
products and consolidation of regional financial system.
Markets are developing and becoming more competitive and since the market share of
all the firms reduced, therefore merger and acquisition started.
Globalization is also an important reason for mergers.
Technology: Due to the removal of entry barrier, it thus open the gate for new banks
with high technology and since the old banks could not compete with them so they
decided to merge with the new banks.

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3.5.4 Impacts of Merger
Diversification: When the merging of two firms takes place the risk in investing
assets diversify accordingly. So when a firm operates alone they dont have much
options to diversify their portfolio investment which they can get after merger.

Merger and acquisition also help firm to obtain the efficiency gains by cost reduction,
revenue increases etc.
Broader Array of Products: When two firms merge they have variety of products and
so when after the merger each customer in both the firms will get the benefit with a
range of products or services to choose from.
Merger and acquisition widens firms consumer portfolio and it also leads to a more
diversified range of services and scope in economies.
In cost efficiency and revenue efficiency it has been found out that in domestic
merger the organization get the benefit of cost reduction and cross broader merger
organization is benefited to get revenue efficiency due to the benefit of geographical
expansion and diversification.
After the merger and acquisition the efficiency may be improved if the acquiring
company is more efficient and brings the efficiency of the target at its own level by
providing its managerial expertise, policies and other operations.
Merger and Acquisitions that took place in the Indian Banking Sector.
3.5.5.1. Recent merger/acquisition-

Announced
Date

Acquirer

Target

Stake (%)

Value (USD
mn)

Dec 2011

Standard
Chartered Bank
India

Barclays Bank
Plc, Performing
credit Card
Portfolio

100

36.00

Apr 2011

Standard
Chartered Bank
India

Tamilnad
Mercantile Bank
Ltd.

4.64

NA

Nov 2010

Axis Bank Ltd

Enam Securities
Direct Pvt. Ltd.

NA

439.79

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Source: Dinodia Capital Advisors (Table-3)

In December 2011 The Standard Chartered Bank India has acquired the Barclays
Bank Plc, with an amount of 36 million USD.
In April 2011 The Standard Chartered Bank India has acquired The Tamilnad
Mercantile Bank Ltd.
In November 2010 The Axis Bank Ltd has acquired theEnam Securities Direct
Pvt.Ltd at an amount of 439.79 million USD.
In August 2010 ICICI Bank Ltd has acquired the Bank of Rajasthan Ltd at an amount
of 658.65 million USD.
In July 2010 Sumitomo Mitsui Banking Corporation has acquired the kotak Mahindra
Bank Ltd at an amount of 294 million USD.
In February 2008 the HDFC Bank has acquired the Centurion Bank of Punjab at an
amount of 2200 million USD.

Aug 2010

ICICI Bank
Ltd.

Bank of Rajasthan
Ltd.

100

658.65

Jul 2010

Sumitomo
Mitsui Banking
Corporation

Kotak Mahindra
Bank Ltd.

4.5

294.00

Feb 2008

HDFC Bank

Centurion Bank of
Punjab

100

2200.00

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3.5.5.2 Older merger/acquisition:
Source: IBEF(Table-4)

Banks Merged Period
1 HDFC Bank Centurion bank of Punjab 23
rd
may 2008
2 IDBI Ltd. United western bank 3
rd
October 2008
3 The Federal Bank Ganesh Bank of Kurundwad 25
th
Jan 2006
4 IDBI Ltd. IDBI Bank 2
nd
April 2005
5 PNB Centurion Bank 27
th
September 2005
6 Oriental Bank of commerce Global Trust Bank 14
th
August 2004
7 Bank of Punjab Nedungadi Bank 1
st
Feb 2003
8 Bank of Baroda Banaras State Bank 20
th
June 2002
9 ICICI Bank Bank of Madura 10
th
March 2001
10 Union Bank Sikkim Bank

22
nd
Dec 1999
11 Bareilly Corporation Bank Bank of Baroda (BoB) 1
st
April 1998

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3.6. INTERNATIONAL EXPOSURE

The rise of external banks in India have held alongside itself latest knowledge and
latest investment habits in India. The external banks have helped the Indian banks to
come to be extra competitive and efficient. Power of India has come up alongside a
road chart for the development of the external banks in India. The road chart had two
period, early period been amid March 2005 and March 2009, and the subsequent
period commenced 2009 onwards. The external banks were asked to institute
attendance by method of setting up a wholly owned subsidiary (WOS) or conversion
of continuing divisions into a wholly owned subsidiary.
The external banks phenomena is not new to Indian investment sector . One of the
oldest external banks working in India is the Average Charted Bank that commenced
as main as 1858 supplementary one being Citi Bank that opened its early division in
India in 1902 .HSBC commenced is working as 1953 .Globalization and the
commercial improvements of 1991 inspired countless global banks to open there
divisions here in India. Nowadays nearly all the global banks are working in India.
Emergences of external banks have helped the internal banks to enhance their
presentation and enhance the client service. Due to their disparate working style the
external banks have been able to arrest a colossal client center here.
At present there are 29 external banks working in India. Insufficient of the vital
external banks working in India are as follows:

Abu Dhabi Business Bank
Citi Bank
Standard Chartered Bank
JP Morgan Pursue Bank
RBS
Goldman Sachs
Deutsche Bank

Foreign banks working in India have helped to enhance the Indian External Transactions
marketplace significantly. Across 2005-2006 external banks had incomings of 41% and it
increased to 52% in 2007-2008 . The external banks have modified the method of working
of the Indian investment arrangement . There has been a finished change in the method the
banks work nowadays . All the internal banks in India nowadays have sleek their procedure
by familiarizing knowledge and adopting best investment habits .The new laws agreed by the
RBI for the external banks in India in the last years budget has shown outstanding hopes
amid the external banks that permits them to produce unfettered. New laws havepermitted
the external banks to set up innate subsidiaries . The strategy additionally says that external
banks in India could not buy Indian banks and their subsidiaries.


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3.7 Technology intensity (R&D intensity)
Technology has held large change in the working of the investment sector. A combination of
manipulating and competitive adjustments has managed to rising significance of finished
investment automation in the Indian investment industry. Knowledge helps in commercial
inclusion. According to All-India Inclusix an index of commercial inclusion it has increased
to 40.1 from 35.4 in 2009.
3.7.1 MOBILE BANKING
With the producing custom of mobiles mobile investment looks to be the promising.
Mobile investment can present all the investment purposes such as money transfer,
trust card payment, bill payment, report updates and supplementary transactions
Mobile investment has concerning 55million clients and the average daily worth of
transfers has increased from Rs.3.7 crores in 2012 to Rs.25.58 crores in 2013.
The managing banks in the space are ICICI Bank, HDFC and SBI. A little of the
supplementary key contestants that will link the contest in the upcoming contain Axis Bank,
Syndicate Bank, CanaraBank and Bank of Baroda
Many client segments are clearly becoming cozy alongside employing mobile
banking. It is chiefly real of the Generation-Y cluster (18-32-year olds) who are three
timesmore probable to accept mobile investment than older users
The custom of mobile apps has increased by 150% from 2012. Mobile apps users as
of nowadays contain to merely 7% of the finished client base.
Overall the development in mobile investment that has seized locale in the state till
date, nevertheless at a quick pace, is yet to grasp the critical mass that will enable it to hold
on itspromise of seizing investment, encompassing payment services, at a cheaper, safeguard
and seamless manner to the continuing and possible customers. The new events in mobile
investment are IMPS and NUUP.
IMPS :
Immediate payment services- is a mobile established remittance arrangement that helps the
clients in transferring money 24*7. This is a interbank request that is funds can be transferred
from one bank to one more bank. It has been gave in 2010 and has been successful. IMPS can
be utilized to make payments to sellers and power bills, across assorted admission channels
such as internet, mobile net, SMS, USSD.


28

NUUP :
National United USSD Period has been dispatched by Nationwide Payments Firm India in
2012, alongside an goal to seize investment ability to public man. The ability should permit
clients to admission services presented by bank across a solitary number across all banks
irrespective of telecom ability provider and handset.
The main feature of this is that it can be utilized on all GSM phones and doesnt demand
GPRS or internet, it can be utilized on the frank voice connectivity.
Benefits to the customers:
Works on frank voice connectivity unlike an request, GPRS connectivity is
not required
Question and answer driven contact facile to understand
The client demand not download each request on the phone

Figure-9

3.7.2 OTHER INNOVATION
BIOMETRIC ATMs
These ATMs use the finger print of the card holder or eye retina scan as a PIN for
verification purpose
0
10
20
30
40
50
60
FY 2012 FY 2013
Mobile Banking Users(Mn)

29

Banks are more focused to put these ATMs in rural areas because biometrics makes it
possible for the low literacy population to use banks

M PESA
It is a mobile phone based money transfer and micro financing service that allows
users, with a national ID to use their money easily with a mobile.
Vodafone is expected to launch M-Pesa in India in association with ICICI and HDFC
bank.

PLASTIC MONEY
Cash cards, credit and debit cards and polymer notes will boom the e commerce
space boom in India and people will get used to the idea of carrying less cash
Many cards have a microchip embedded in them which makes it a transit card also
in the world.


30

3.8 Marketing initiatives

Marketing in banking sector is the aggregate function to provide service to satisfy customers
financial needs and wants, in a better andeffective way than the competing banks keeping in
mind the organizational objective and purpose for being in banking sector. There is no
meaning of a bank, if it has not any customer. One of the key tasks of the bank is not only
create or get more customer but also retain them through effective service and innovative
products. Most of the customers are attracted and retained by the innovative financial
products and satisfaction of the fulfilment of expectation.

In order to understand the marketing strategy of banking services in a better way,one must
consider banking as a service industry.In the era of 1950, marketing into the banking sector
emerged in the western world. It was mainly the advertisement and promotion
concept.Marketing concepts of banking products came into India only after 1950s, in a
similar manner, it originated in the west.

In 1972, it was Indias largest bank state bank of India which took the first initiative in the
direction of marketing its product and services, it recognised itself on the major marketing
segments by segregating its customers on the basis of their activities and based on that it
carved them into four categories.They are as following
a) Commercial segments
b) Agriculture segments
c) Personal
d) Services banking segment.

3.8.1 Marketing Approach to Banking Services

Identifying and developing products to meet customers needs and wants.
Advertise and promote the product to existing and potential customer of financial
services.
Setting up efficient distribution channels and bank branches.
Forecasting and research of future market needs.

3.8.2 Challenge of Bank Marketing

Technology: - Marketing by private sector banks and foreign banks is more effective
than public sector banks because these banks are technology oriented. Private sector
banks and foreign banks are attracting more customers by providing various attractive
services. Thus, technology has become a challenge before the government banks.

Rural Marketing: - it is really a big challenge for Indian banks to penetrate into the
rural segment to increase their customers that is why new bank norms have a mandate

31

that many of their branches should be in rural area. Banks should open their branches
not only in the urban and semi-urban areas but also in the rural areas.

Trust of Customer: - Marketing can be improved only by placing the products into
customers mind. Customers can be increased or attracted only by winning the trust of
the customers. In service industry, this could only be done by the good feedback and
on the time services.

Customer Awareness: -Customer awareness is a major problem to any industry.
Banks have been facing a problem of reaching to rural customers and creating
awareness about their products. Bank should literate the customers through various
ways, such as making a kiosk at various places or by providing the pamphlet. Now the
mandate has already come from the RBI that all the money from dormant account to
be used for financial inclusion.

Emphasis on Deposits:-There has been a CAGR of 21% in deposits from 2012-2013.
It is the major source of money for the bans. Banks must focus in order to design or
innovate new products, such as products comparable to KisanVikasPatra of post
office and product with the facility of tax rebate, which will of much help in this
regard.

Form a Saleable Product Scheme :- Bank should form such scheme that meets the
needs of maximum customers. A collection of all these schemes form a product. A
bank product may include deposit scheme, an account which offers more flexibilities,
sound banking, telemobile ,net banking, an innovative scheme targeted to special
category of customers like children, females, old aged persons, businessman etc,
mutual funds for those who are not good with speculating the market but want to earn
a better return than the banking service. In short, a bank product may consist of
anything that you offer to customers and it must meet the needs of customer.

Products for Women :-The national perspective plan for women states that 94 % of
women workers are engaged in the unorganized sector and 83% of these in agriculture
and allied activities like dairy, animal husbandry, handloom, handicrafts and forestry.
Banks should do something to improve their access to credit which they require. if we
look into the business model of gramin bank, then it proves that women are able to
save money/funds better than men. That is why; even government has approved the
special bank for women, which is going to start its operation from 1st November
2013.

Selling Products in Rural Areas: - For enhancing the marketing of their product, bank
should sell their products in rural areas. As the income level of rural India and urban

32

India is very much disparate, so banks need to design an innovative product in order
to attractive more customers. For it, there is a need to open branches in the rural areas.

Sales of products and services through E-delivery channel:- After the information
technology, many new e-delivery channels are very helpful in enhancing the
marketing of various product and services. Thus Indian bank should sale the products
and services through e-delivery channel.

Sale of Products and Services through Web-sites: - Internet is a network of network
which connects the world. Thus, banks should sale their products through website.
This will enhance the marketing of the products not only at the national but also at the
international level. Now a days many banks has already started selling their different
products through electronic way such as insurance products by ICICI Bank and
different other banks, demat account by several other service provider.


33

Indicator Pre 1993 Post 1993
Customer
Service
Mandated by committee reports and law Consciously practiced as a way of banking
Customer
feedback
Done based on regulators guideline
complaint/suggestion boxes symbolized this

Willingly attempted
Product
innovation
Minor variations of vanilla products New products with value additions
Tools Manual Technology driven
Delivery
channel
Branch More alternate delivery channels like ATMs,
phone banking, internet banking, mobile
banking, DSAs

Pricing Price=cost plus profit Profit=price-minus cost

Orientation Inward looking Outward looking

Status of the
consumer

Slave to the bank King because more bankers chasing him
Branch
ambience
Resembled erstwhile government offices Aims to simulate supermarket buying
experience

Table: 5 Nature of services provided by the bank before and after 1993


34

3.9 Future scope of Indian banking industry

The portray of economic growth of India tells clearly about the Indian banks. There are various
challenges in retaining of the profitability in the coming time. The banking industry in India is the
huge industry and they have to live up to the expectations of the people of the country in several
quarters. Currently Indian banking sector is facing many challenges like
improving and maintaining the capital requirement
managing non-performing assets
increasing the sales of each branch and services
work upon and improve the organization design
Using advance and innovative technology with different channels and working on lean
channels.
Apart from this continuous changes in the policy will help in bringing the economic stability. Despite
of all this concerns India has the huge scope of expansion in the coming decade

Today India is standing at its crucial junction of evolution and is having a lot of hope in the next
decade regarding different aspects. There are a lot of scopes regarding rapid growth, creation of the
wealth, availability of jobs, improved standard of living, better infrastructure, high class Indian
companies, high class banking experience. Now Indian banks to make subsequent impact just like
Indian banks had made by low cost innovations. Entrance of non banking finance companies (NBFCs)
creates huge competition for banks especially public sector banks in terms of customer relationships
and innovative technology

Some of the major trends which will impact the Indian banking in terms of challenges and threats and
help in shaping the future

Mortgages to cross Rs 40 trillion by 2020 :- mortgages has rise in the books of banks from
1.5 percent to 10 percent of the total bank advances over a span of 10 years. the ratio of total
outstanding mortgages which include housing finance companies (HFCs) to the GDP is
currently approximately 7.7 percent. If this ratio has to reach around 20 percent by the year
2020, a number which is similar to china than we would expect that the mortgages industry
will grow at an average rate of 20 percent over a next decade.Rs 40 trillion is the amount of
the outstanding mortgages which is even higher than the entire loan of the banking industry.


35

Figure-10

the next billion will be the largest segment :-as it is shown in the table 1d that the income of
the middle class in the household income range from Rs 90000 to Rs 200000. Only those
customer will be served profitably who has having low cost business modals n having low
break even size of business. The coming decade will experience banks experimenting
different types of low cost business models, branches of cost effective nature and using of
latest technologies to serve the highly profitable segment
1

1.) Mobile banking will see huge growth and modify transaction banking paradigm :-updating
of internet call centers is low in all the segments other than foreign banks. If we see the
usage pattern in US the online and phone channels are more frequent but in case of India use
of internet and brand access has been very low. However with the introduction of mobile
banking the access of banking facilities becomes very convenient and save time. About 25-
30 percent of mobile users have GPRS/3G activated and there are 250-300 million
customers who are using banking service. According to the survey conducted in urban areas
most of the people does not prefer call centers and internet. We expect that Indian banking
industry will improve their technology infrastructure and then will set an example for rest of
the world.

2.) Customer relationship management and data warehousing:-the average number of banking
products per customer in India is significantly lesser as compared to global benchmarks.


36

There is a very much scope for cross selling amongst different categories of banks all over
India. As it is stated that cross selling is very costeffective as compared to other means of
customer acquisition.

3.) Investment banking will grow ten- fold:-Investment banking will become the fastest
growing segments in the banking sector which rises from 4 percent to 7 percent of the total
corporate banking revenue. The large number of corporate customers will demand for higher
support for international expansion and also mergers and acquisitions over a period of next
decade. Moreover, as the wholesale debt markets deepen, more of the corporate will go to
avail advisory and capital market services from banks in order to access capital markets. As
a result of this the revenue pool will going to shift from traditional corporate banking to
investment banking and advisory. Banks which is having international appearance will have
benefited all over.
2

Figure-11

Challenges faced by Indian banking


37

There are two areas in which Indian banking industry is challenged to find measures for the next
decade. First deals with the rising expectation from banks to find the solution which is feasible for the
financial exclusion and the second generally deals with human resource in public sector. Amongst the
two, first concerns about the innovative and experiments and second deals with the ability of banks to
be innovative and have competitive advantage over the others.

1) Financial inclusion :-
The issue of financial inclusion is very important and main issue for the Indian government. As
the expectation from our banks is very high, the government is encouraging non banking
industries to come forward with a good solution. If the answer does not come from the banking
industry than non-banks had to come in action and sought out the revenue problem for the
economy. As it is known that the customer segment will be the largest in the coming decade and
the banks has to lose their relationship.


38

Figure-12
Measures by RBI to improve financial inclusion
1) No frills account: people finds quite difficulty to meet the requirements of having normal
saving account in some of the excluded zone. So RBI has decided and made it compulsory for
all banks to provide no-frills saving account without the condition of having minimum
balance requirement. Under this the transaction charges are kept very low small overdrafts are
also allowed.

2) Overcoming the language barrier: major portions of Indian population are not able to
converse in English and Hindi, as these are the languages which are used in banks. So in order
to provide the forms of opening of bank accounts or for any other purposes the bank should
have the facility of providing all that in the regional language.

3) Simplification KYC forms: most of the peoples in rural do not have any identification which
is required for account opening and compliance with know your customer (KYC) norms. So
for this reason process of opening an account should be kept easy and the balance should not

39

exceed Rs 50000. Under this small account can be open by an introduction for another
account that has already satisfied KYC norms.
3

4) Electronic bank transfers: it mainly refers to transferring social security benefits directly to
the beneficiaries. This reduces the dependence on cash and also helps in keeping the
transaction cost low and also reduces frauds.

5) Easier credit: banks have been advised to introduce the concept of credit cards for the rural
people with the limit of around Rs 25000 in the rural and semi urban branches.
4

6) Simplified branch authorization: RBI has permitted the banks to freely open their branches in
tier iii to tier vi centers with the population of around 50000.banks can also open their
branches anywhere i.e. rural, semi-urban ETC.

The HR challenge in the public sector: the public sector is carrying the same expectations as their
private sector peers before entering into the next decade but they are facing the severe disadvantage in
the human resources. Public sector banks are witnessing the loss of skills and also the competitive
advantage over the others because of their seniors officials and middle management executives are
either leaving their jobs or not performing their jobs. They need to attract fresh talents and at the same
time need to preserve the existing ones.


40

Figure-13

NBFCs in India
Non-banking financial company is a company which is incorporated under companies act of 1956 .it
is occupied in the business of loans and advances, acquiring of shares/debentures/stock etc. which is
issued by the government of India or any of the marketable securities such as hire purchase, leasing
etc .It does not have any principal like business of agriculture, various industry for granting any
services.

41

Figure-14
NBFC are regarded as the major credit purveyors in India because of following reason:
1) They provide unorganized sector and also local level and small borrowers with the credit.
2) Fulfilling the gaps between demand and supply of funds
3) Credit needs are met very easily
4) They have the ability to take instant decisions and they also tend to change the demand and supply
as they are not able to meet many of their requirement or expectations that the banks need to.
5) NBFCs are encouraging the business activities in order to have high growth in this sector and it
also increases the efficiency of the economy of our nation.


42

Comparison of Indian banks with other banks
Indian banking industry as compared to others is those which maintain high stability. Greater rate of
credit expansion, innovative, highly productive and focusing more on the financial inclusion as it is
the major concern for our banking industry. along with financial inclusion, commercial banks, retail
and wholesale banking are some of the growth drivers of the Indian banking which will contribute
towards the future growth of our banking industry as mentioned in (PWC publications, destination
India, banking opportunities: entry strategy and road ahead).other than financial inclusion, the HR
challenge in the public sector (INDIAN BANKING 2020: making the decades promise come true) is
the major concerns in the banking industry. So in order to overcome this problems or challenges the
RBI has taken some measures (Infosys Finacle) which will help in filling the gaps and help the
economy to proliferate in terms of GDP, credit expansion etc

3.10. Comparison with U.S and other countries:
3.10.1. Comparison between Indian Banking Sector and Chinese Banking Sector:
Size &Volume :
Chinese banks are far much ahead of the Indian banks in terms of size and numbers.In 2010
alone ,China consisted of 3,769 banking institutions ,with commercial banks beyond the
250,196000 business outlets and 3 million happy customers. India lags behind in comparison
with commercial banks touching 167,87768 business centers and 0.8 million clients.

Revenue Growth:
Similar is the case in terms of asset size.Atleast 11 banks in China are listed in the top 100
category depending upon market size whereas only three Indian players are present in this list
.To support this statement ,let us take an example of the Commercial Bank Of China which is
the biggest bank in Chinahas an excellent market size of $201 billion whereas its Indian
Counterpart State Bank Of India which is the largest bank in india has a market size of only a
fifthat $40 billion .
Coverage:
Banks in China are huge and extremely rich and are even far better in terms of coverage of
population that utilises both formal and semi formal financial business services.


43

Power Performance:
Banks of both India and China have recorded good growth in terms of revenue when
compared to their counterparts in developed countries.Unlike in developed countries , the
banking sector pattern of both the nations is closely similar in terms of public ownership of
assets.In India 75% of the banking assets are owned by the Indian Government, whereas the
private sector enjoys 18% and the rest lies in the hands of foreign players. In China 51% of
banking assets are held under the government sector with 48% under private ownership, and
negligible percentage under foreign ownership.
3.10.2. Comparison between Indian Banking Industry and UK Banking Industry:
Indian banks face a lot of inefficiency and always try to pass this inefficiency to their
clients in terms of huge costs. Over the last decade, Indian banks were successful enough in
maintaining their profitability. If we try to compare Indian Banks with that of UK banks ,then
we can easily deduce that customers in India pay more price for inadequate competition.
In 2012, the relative operating cost of the Indian Banking Sector was much higher
than that of UK's Banking Sector. But, even as this fact persisted, the profitability of Indian
banks went too high thereby indicating that the customers were giving their shoulders to these
banks by paying a hefty price.
Comparison between Indian Banking Sector and US banking Sector:
When compared to US banking industry, Indian banking industry is much better in
terms of stability and position. In India the ratio between lending and depositing is very vast
making the Indian Banking sector very strong in terms of position.
American banks had a blind belief and trust on their real estate sector and believed
that it would never go low and happily lent on it, but they proved themselves wrong.
Till the onset of heavy recession, US banks used to lend money to people who had even zero
income. But finally they have understood the situation and have made tremendous changes in
their banking and financial rules and regulations
Conclusion
Studying market share gives information that SBI is the market leader in the country. Demographic of
buyers talks about the various segments of people that are focus upon by different banks and what are
the products that are offered to them.Banks have tried focusing on NRIs, minor accounts, senior
citizen accounts and Women accounts
Banks have diversified into many businesses like insurance, securities etc also touches major mergers
and acquisitions that have taken place in the industry which has helped the industry grow. With
Globalization banks have witnessed an International exposure, Indian banks are now expanding
overseas.

44

Impact of technology has changed the Indian banking system. Banks hare using various innovative
ways to market banking products and services social media being one of the platforms.The future of
banking industry is bright and a comparison with worlds other economies gives an insight into global
standing of Indian Banking and steps that needs to be taken to improve it.


45

CHAPTER4-CONCLUSION


46

4.1. CONCLUSION
India is a developing country and the banking sector of India is one of the major growth
drivers in the economy. Banking industry has evolved from where it started. It is still growing
and expected to continue the growth rate and prosper in the future.
42% of the total population of India do not have access to the banks and are still unaware of
the facilities and benefits of maintaining a bank account which is one of the major challenge
for the banking sector at present as well as coming future.
Government and RBI are taking steps to provide financial literacy to the people but it is not
working out therefore, the rate of financial literacy is very low and needs to be improved. It is
one of the major issues of concern which can deter the growth of banking sector in India.
RBI has taken certain steps to provide relaxation to the banks:
If banks want to open their branch in tier 1 city they do not need to seek permission
from RBI.
This will help the banks to reach more and more people and achieve the goal of
financial inclusion.
This will lead to financial literacy even in the rural areas and will lead to development
in the Indian Economy.
Diversification and Mergers and acquisitions have led to growth in the opportunities in the
banking sector. Now there are more options as well as better facilities available for all type of
income group as the competition is very high therefore every bank tries their best to get the
customer and provide them maximum satisfaction.
FDI allowance of 74% to the private banks which is another booster to the Indian Banking
Industry. Increase in the number of foreign banks coming to the country asa result increase in
competition which has made the domestic banks to push themselves harder to keep up with
the competition.
Use of technology has impacted the banking sector. It is one of the major factors that have
influenced the banking sector. The introduction of new technologies like E-banking , M-
banking and transactions through ATMs has improved the services offered by the banks
nowadays.
The current banking scenario is changed with all its pros and cons.It is still growing and is
expected to match up with foreign banks in coming future.

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