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University Business School

Case Analysis:
Punjab National Bank
Submitted to: Prof. Karamjit Singh,
Professor, University business school
Panjab University, Chandigarh
Submitted by: Payal Gupta & Preeti Kaushal


Case Analysis: PNB

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my sincere thanks
to all of them.
I am highly indebted to Prof. Karamjeet Singh for his guidance and constant supervision as well
as for providing necessary information regarding the project & also for their support in completing
the project.

I would like to express my gratitude towards the author of the book Strategic Management, Theory
and Practice, John Parnell, Ph.D. without which this project would not have been a success.

I would like to express my special gratitude and thanks to industry persons for making the
information regarding their organisations available on the internet, which was a crucial input to this

My thanks and appreciations also go to my colleague in developing the project and people who
have willingly helped me out with their abilities.


The name you can BANK upon!



Traded as

BSE: 532461
CNX Nifty Constituent


Banking, Financial services


19 May 1894


Lala Lajpat Rai

Headquarters New Delhi, Delhi, India

Key people

Sh. K.V. Brahmaji Rao (Executive



Credit cards, consumer banking,

corporate banking, finance and
insurance, investment
banking, mortgage loans, private
banking, private equity, wealth

47400 crore (US$7.5 billion)(2013)
Net income

INR 49.54 billion ( million)


Total assets

566291 ( billion) (as on December



Government of India

Number of

62,392 (March 2013)


Punjab National Bank is an Indian financial services company based in New Delhi, Delhi, India.
Founded in 1894, the bank has over 6,300 branches and over 7,900 ATMs across 764 cities. It
serves over 80 million customers.
Punjab National Bank is one of the Big Four banks of India, along with State Bank of India, ICICI
Bank and Bank of Baroda. It is the third largest bank in India in terms of asset size (billion by the
end of FY 2012-13). The bank has been ranked 248th biggest bank in the world by the Bankers'
PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul. It
has representative offices in Almaty (Kazakhstan), Dubai, Shanghai (China), Oslo (Norway)
and Sydney (Australia).
PNB was born on May 19, 1894. The Bank opened for business on 12 April, 1895. In 1913, the
banking industry in India was hit by a severe crisis following the failure of the Peoples Bank of
India founded by Lala Harkishan Lal. As many as 78 banks failed during this crisis. Punjab
National Bank survived.
The five years from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71,
the number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores.
In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second
largest bank in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From
its dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the July
1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in 1949 to Rs.
243 crores by July 1969 when it was nationalised.
To be a Leading Global Bank with Pan India footprints and become a household brand in the
Indo-Gangetic Plains, providing entire range of financial products and services under one roof.
Banking for the unbanked
Acquisitions by PNB
1939: PNB acquired Bhagwandas Bank
1951: PNB acquired the 39 branches of Bharat Bank.
1961: PNB acquired Universal Bank of India
1960s: PNB amalgamated Indo Commercial Bank
1986: PNB acquired Hindustan Commercial Bank
1993: PNB acquired New Bank of India
2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala

Financial position
Banks Business (Amt in Rs. Cr.)
Business parameters
Total Global Business
Global Deposits
Core Domestic Deposits
CASA Share %
Net Advances
Core Deposit Circles Shown Positive variation :61
Credit Circles shown Positive variation: 44
As.on 17.10.2014
Deposit Growth: Banking System 12.6% PNB 9.0%
Net Bank Credit Growth: Banking System 11.1% PNB 10.6%




The Indian banking sector consists of 28 public sector banks, 23 private sector banks and 28
foreign banks along with 133 regional rural banks (RRBs) and more than 90,000 credit
Structure of the Indian Banking Industry

The aggregate deposits reached Rs 85,331 billion as at the end of 31st March 2014 while the
Bank credit increased from Rs.5 billion to Rs 67352 billion during the same period.
There was massive branch expansion from 8262 in 1969 to 1,16,450 in 2014. Public Sector Banks
(PSBs) in India have been the major player in the Indian banking system with their market at
72.1% (31st Mar'14). They are distantly followed by New Private Banks (15.9%), Foreign Banks
(7.2%) and Old Private Banks (4.9%).

Q2 and H1 FY15

Source PNB Monthly Review December 2015


Source PNB Monthly Review December 2015

Source PNB Monthly Review December 2015



Source PNB Monthly Review December 2015


Source PNB Monthly Review December 2015

Source PNB Monthly Review December 2015

The Indian banks witnessed a low credit growth and increasing stressed assets during the Q2 and
H1 FY15. The Gross NPAs of public-sector banks stood at 5.32% of their gross advances as at
the end of September'14, compared with 4.72% in March'14. Similarly, restructured loans as a
percentage of total gross advances rose to 7.25% from 7.17% during this period. This has affected
the profitability of the banks.
However, with the reforms and developments on the policy front from the Government in the areas
of coal, sugar, power sector, etc., the banking sector can see the light on the other side of the long
and dark tunnel of NPAs. The banks still need to carefully watch the developments and should
strengthen its risk and credit appraisal system.
The ongoing financial sector reforms since 1991 have contributed significantly to the increased
competition in the banking industry. The increasing deregulation, coupled with growing
disintermediation has resulted in squeezing margins with rather no control on operational
expenses. The relatively higher growth rate of deposits and lack of lending opportunities on
account of increasing delinquencies has resulted in lower growth of the business. This has
negative effect on the bottom-line parameter of the banks. With revenues of Indian banks growing
fourfold and profits nine times, the future seems to be positive for Indian banks.
The Government proposed to set up an autonomous Bank Board Bureau to select heads of PSBs
and to help them developing strategy including capital raising through innovative means. This
would be an interim step towards establishing a holding and investment Company for Banks.
Government introduced Gold Monetisation Scheme. The new scheme will allow the depositors of
gold to earn interest in their metal account and the jewellers to obtain loans in their metal account.
Banks/other dealers would also be able to monetize this gold.
Banks possess inherent competitive advantages in the digital world. They have large customer
bases; vast amounts of customer and transaction data; and capabilities to enable payments,
security, and financing all of which are tough to replicate. Instead of simply enabling customers
to save money and pay for things, banks have the potential to combine their vast transaction data
with new digital tools to help customers make decisions on what to buy, and where and when to
buy it whether its dinner and a movie or a new home.
With Government promoting the entrepreneurship, infrastructure and industrial sector of the
country, there is an improvement expected in the employment front and income level. Such
initiatives will pave way for lot of opportunities for the banking sector in India as well.
Double financial repression: The Indian banking balance sheet is suffering from 'double financial
repression'. On the liabilities side, high inflation lowered real rates of return on deposits. On the
assets side, Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) requirements have
depressed returns to bank assets. As inflation moderates and the banking sector exits liability-side
repression, it is a good time to consider addressing the asset-side counterpart.
As regards banking industry in India a four D solution; deregulation, differentiation, diversification
and disinterring, meaning improving exit mechanisms, can help the industry grow.
Reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from
22.0 % to 21.5 % of their NDTL with effect from the fortnight beginning February 7, 2015.

Reduction of SLR will release additional liquidity into the system to the extent of around Rs 45,000
cr which may enable the banks to lend to the productive sectors of the economy.
This may further increase the quantum of excess SLR (as banks are already maintaining SLR
more than the prudential limit) enabling banks to have better Liquidity Coverage Ratio (LCR).
Earlier the banks were allowed to borrow from RBI through export credit refinance (ECR) window
to the extent of 32% of their export credit outstanding @ repo rate i.e. 7.75% at present. Now this
liquidity window is dispensed with. Banks can borrow from Liquidity window of RBI when they are
short of liquidity. RBI feels that availability of liquidity through this window is less than 50% of the
available funds which shows easy liquidity condition in the system.
RBI's decision of reducing SLR will help the banks in infusion of liquidity and maintenance of LCR.
Changes proposed to be introduced on restructuring front will be helpful for banks. Allowing banks
to devise products for non-callable differential rate deposits will help solving the asset-liability
mismatch problems of the banks.
Economys speedy decision making in clearing some stalled infra and industrial projects in the
recent few months is a positive move for banking industry. In addition, initiatives such as making
online environmental and forest clearances for industrial projects, have generated a lot of
enthusiasm among the corporate sector and investors. This opportunity is favourable for Bankers
as many corporate and Industrial houses dealing with the banking sector were facing such issues.
Sometimes the loans were sanctioned with certain conditions to be fulfilled which obviously were
not in the hands of borrowers or the sanctioning Authority. There are 20 banks which have higher
share in the total stressed advances of all SCBs than their share in the total advances of SCBs.
These 20 banks together have 43 per cent of the total SCB loans and contribute around 60 per
cent of the total stressed advances of the banking system. So if such clearances have been
provided by the Government, they will open up many opportunities for the bankers to repair their
asset quality and increase profitability.
What opportunities exist for the industry?
Retail banking has huge growth opportunities in India and it has to conquer many more heights
before getting exhausted like its counter parts in developed markets like US and Europe. The
customer deposit garnered by retail banking represents an extremely important source of stable
funding for most banks. In this context, it is essential for the banks to keep pushing the frontiers of
innovation and experimentation in the retail banking space to survive and also to remain relevant.
The retail segment is relatively less risky as the NPA levels are low compare to corporate sector
and offers relatively high returns. In addition, there is scope to increase fee based income in terms
of administration/processing fees. Today, banks are viewing retail banking as an attractive market
segment with opportunities for growth with profits. With the growing middle class segments,
increasing opportunities in the rural India, young generation employed at higher packages, all the
banks are increasingly adopting the strategy of 'Go retail'. All the banks in India are evolving
strategies to tap this emerging retail banking market. Hence the changing banking environment
has, in a way, compelled banks to look at retail banking as a solution to some of their immediate
concerns. There has been a greater amount of consumerism in the country. Some analysts term
this phenomenon as middle-class bubble' or mass affluence in restricted sense. The fact remains
that there has been an up spring in the income levels of people who can afford to reach higher
levels of expenditures. This has opened up opportunities for banks to intervene and offer various
products to suit different segments of the retail market. The retail market is enlarging and
accordingly the scope for retail banking is on the upswing. The increasing income levels of the

middle class in tandem with the depressed stock/real estate market also offers substantial scope
for developing and offering new deposit products by banks. There is growing scope for crossselling various other retail products like credit card, insurance, mutual fund lined products, demat
facilities and so on to depositors. Most banks have not been able to take full advantage of 'crossselling' of products and services, which is the very essence of retail banking. It is imperative that
banks intending to enter/expand retail banking should first identify the segments that they are
capable of servicing and accordingly evolve products and services.
Financial inclusion: Growth in banking especially retail is also due to thrust from the
regulators/policymakers on inclusive growth in the wake of the global financial crisis. We in India,
have also been promoting a bank-led financial inclusion model and retail mass banking is the
stepping stone towards achievement of universal financial inclusion. Considering that nearly 50%
of total population of the country is still untouched by the formal financial institutions, FI will open
up a plethora of opportunities to the banks in general and PSBs in particular.
Technology: The increasing application of technology (or computerization) in the banking sector,
more so in the case of PSBs in the country is regarded as 'not by choice' rather a compulsion. It is
also true that banks have not been able to exploit the technology to the fullest and therefore, some
amount of scepticism in some circles about the cost-benefit relationship is not totally baseless.
Having invested huge amounts in technology (also training), now banks can make optimal use of
the same. Globally retail banks rely on electronic networks and web-based strategies. A fully
integrated financial automation system is a precondition for the successful retail banking and in the
process it is possible to reduce the transaction cost and enhance customer service. With regard to
range of products and services offered under retail banking, there is no perceptible difference
except that of the nomenclatures of schemes and this holds good particularly in the case of PSBs.
Technology has brought in a wave of revolution in the banking sector in terms of service delivery.
It has helped banks to reach the doorstep of the customer by overcoming the limitations on
physical reach in branch banking. A combination of regulatory and market forces has supported
the implementation of technology and automation in the Indian banking industry. In todays
technologically advanced environment, Core Banking Solution (CBS) does not remain an edge
anymore, but has become the basic prerequisite for any bank. Infact banks have moved from the
CBS to ATMs, Internet banking, Mobile banking and Tablet-based banking. These channels are
designed to create a wow experience for the customers, thereby capturing these channels full
sales potential.
Data about the customers, collected apart from Customer-relationship-management, transaction
histories generated through mobile-phone and use of point-of sale (POS) devices can greatly
assist the process of risk management
Make in India Concept: Government has identified 25 sectors which will help the country to
boost its manufactures sector. In this scenario, MSME sector will have chances to grow further
thereby giving an opportunity for the banking industry. Manufacturing as well as service sector will
get a boost. The above measures will help generating employment and income of the society. This
will also boost the export sector of the country. All these scenarios will augment the credit demand
and also make cash flows vibrant.
Structuring of stressed Project Loans: The Reserve Bank of India, on December 15, 2014,
allowed scheduled commercial banks (excluding local area banks and regional rural banks) to
flexibly structure the existing project loans to infrastructure projects and core industries projects,

with the option to periodically refinance these loans as per certain norms. This can help banks look
into the aspect and this may revitalize the project and give a sound opportunity to the banks.
Housing & Education to all: The aim of the Government towards Housing and education to all
will boost the economy. As far as housing for all is concerned, there will be increased demand for
construction material and will create job opportunities for the people. From the Banking
perspective, there will be increased demand for loans from this sector which will boost credit
growth and interest income.
Similarly, education for all ensures that every child in India is not deprived of education of one's
choice. Education loans by the Banks will enable the future of India to pursue the education of his
desire. This will also benefit the banking system by not just increasing its credit portfolio but also
creating a pool of future customers with them.
The concept of Smart Cities: The Government of India is promoting the creation of 'smart city' in
India wherein a city will developed in terms of overall infrastructure, sustainable real estate, and
communications and market viability. Smart city will have information technology as the principal
infrastructure and the basis for providing essential services to residents. Developing such cities in
India will entail huge cost thereby generating the demand for credit from the Infrastructure sector.
The Bank should prepare them for meeting the rising expectations.
What threats exist for the industry?
Role of third parties: Banks are engaging the third parties like Advocates, Valuers, Chartered
accountants, Lender engineers in marketing/ delivering their retail banking products. Any
professional deficiency of these personnel will lead the Banks to the reputation risk besides
operational risk. Hence banks should have effective mechanism on due diligence of these parties.
Competition: The financial services market is highly over-leveraged in India. Competition is
fierce, particularly from local private banks, New Generation Pvt. banks, Foreign banks and
NBFCs in the business of home, car, consumer loans. All banks are targeting the fluffiest segment
i.e. the upwardly mobile urban salaried class. Overdependence on this segment is bound to bring
in inflexibility in the business.
Commissions & Charges: Commissions are earned on sales of third party products and on
activities like Issuance of BG /LC, Discounting of Bills etc and Charges are applied on non
maintenance of requisite balances (AMB/AQB etc) and on maintenance of accounts, high cash
transactions, high ATM usage, branch visits etc and these varies from Bank to Bank and customer
to customer. Over all slow down in business and investments have impacted the revenue streams
of the banks and in order to retain good customers in the fold most of the banks are now offering
most of the products and services free of charges. As a result revenues from Commission &
Charges are now moving downwards impacting the profitability.
Ever growing Operating Cost: Against the shrinking NIMs and Commission & Charges,
Operating cost has been rising alarmingly, whether it's the compensation, infrastructure or the
technological investments and maintenance cost which are fixed in nature and are difficult to
control. All the above parameters have led to a situation where cost to income ratio is all set to
drain banks' profitability in the short term and sustainability in the long term.

Saturation at Urban & Semi-Urban centres on acquisition of new customers and low
profitability of customers in the rural markets: It is very difficult to find a person without having
bank account at Metro, Urban and Semi- Urban areas. Switching customers from one bank to
another is very common in these areas than acquiring and this has impacted the free flow on
CASA float by way of large acquisition for banks over the last few years. And most of the banks
are not keen on going to rural markets as the scope of business does not justify the cost of
Large chunk of inoperative accounts: On one side the acquisition numbers have dropped
drastically and on the other side large chunk of data base is filled with inoperative accounts, that
are either dormant or belong to once in a blue moon customers. Banks have been taking solace in
management mantras like 20:80, whereby 20% provides business of 80% and vice-versa. But that
logic no more looks practical as free flow of CASA from new acquisition is drying up every day and
no new customer is willing to open an account at an additional cost for them rather new accounts
which are switched from other banks are acquired at a higher cost now by adding many freebies.
Low level of customer loyalty resulting in switching of banks: Customer loyalty is something
Banks in India have failed to attract, notwithstanding the higher acquisition and maintenance cost
compared to pre globalization era. The availability of same set of products and services across
banks with no difference does not attract customer loyalty and wherever they see lower charges
and fees or lower interest rates, prefer to switch their account. The logic of hooking the customers
with multiple products will act as forced loyalty for the bank but with concepts like account
portability coming in, Banks will find it difficult to retain their customers resulting in high volatility of
portfolios impacting profitability.
Competition from non banking entities: Nowadays NBFCs, Mobile operators and Retail chains
like Walmart are providing various payment products like Credit Cards, Mobile payment services
etc to customers with little requirements compared to Banks and similarly Investment advisory
services offered by various NBFCs have diminished Banks' role as the IAS (Investment Advisory
Service) provider. Further NBFCs, Micro finance companies have succeeded in providing easy
and quick finances like Gold Loan, Housing Loan, Mortgage loan etc to customers resulting in
erosion of potential business for Banks and if the trend continues, banks will struggle to retain
customers and lose them to other businesses offering banking products & services at a better
price and pace.
White label ATMS (Private ATMs) around, will attract many customers to use non Bank ATMS
which will further add to the cost of running Banks and dent their profitability.
The banks are facing tougher competition, dwindling profit margins and reducing negotiating
NBFCs registered with RBI and having asset base of Rs 5 billion and above will be considered as
'Financial Institution' in terms of the SARFAESI Act 2002.
Challenges for banking Industry
Delivery Mechanism: While there is not much scope for the banks to differentiate their product
and service offerings in so far as the basic products are concerned, it is important for the bank to
enhance the customer experience by ensuring that the services are made available whenever and

wherever the customer demands them. The banks should be able to deliver the products and
services to the customers in safe, secure, prompt and cost effective manner by leveraging
A new generation of the workforce will be working alongside an older generation as a team.
Banking, in my opinion is a team work and this new situation will require cultural adjustments and
therefore, change management.
Public sector banks have opened more number of branches across the country over the past few
years but it is the private sector where most of the hirings have happened, according to latest data
released by the Reserve Bank of India. According to RBI, one in every four bank employees works
with a private bank today, a sharp rise from one in 10 in 2005. With the growing size of the banks
and declining size of the workforce (due to mass retirements).
Continuous skill up-gradation to cope up with rapid technological changes transforms business.
Banks today need a 'digital workforce' to converge diverse platforms like mobile solutions, social
media, biometrics, etc. to render seamless and highly customized banking services.
Cyber attacks have grown multi-fold and have become highly sophisticated in nature.
Business models of banks, telecom operators and other stakeholders need to converge to
effectively deliver the services to the customers.
Double financial repression: The Indian banking balance sheet is suffering from 'double financial
repression'. On the liabilities side, high inflation lowered real rates of return on deposits. On the
assets side, Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) requirements have
depressed returns to bank assets. As inflation moderates and the banking sector exits liability-side
repression, it is a good time to consider addressing the asset-side counterpart.
NBFCs: Non-banks are taking advantage by proceeding aggressively with digital innovations and
capturing more and more of the banking value chain. Accenture estimates that competition from
non-banks could erode one-third of traditional bank revenues by 2020. Payments, a source of upto one-quarter of traditional bank revenues, are one of the most contested areas. PayPal is now
the number one online payment method in some countries, and start-up companies like Square
and Stripe are earning multi-billion dollar valuations. Retailers are also moving in as well: nearly
one-third of domestic Starbucks revenues are paid through its own loyalty cards. Non-banks are
also edging into other core areas like checking and savings as well. Google recently introduced a
plastic debit card for its Google Wallet. T-Mobile launched a new checking service with a
smartphone app and ATM card. Walmart teamed up with American Express to launch a prepaid
card that functions like a debit account; it captured more than a million customers in less than a
year. Technology giants, telcos, and retailers have a long way to go to compete against banks
product-for-product and service-for-service, and many believe that regulatory barriers will dampen
disruption. But new entrants already pose a threat to banks by raising service expectations and
creating distance between banks and their customers. The risk for banks is that new competitors
will consign them to a limited role as back-office utilities, while non-banks become the new face of
their customers financial lives. The rise of private-label banks, like The Bancorp, which power the
new offerings not only by upstarts like Simple and Moven but by major players likes T-Mobile
and Google shows how regulatory barriers are lower than they seem.


Rivalry among the industry: Rivalry in banking industry is very high. There are so many private,
public, co-operative and non-financial institutions operating in the industry. They are fighting for
same customers. Due to government liberalization and globalization policy, banking sector
became open for everybody. So, newer and newer private and foreign firms are opening their
branches in India. This has intensified the competition. The factors that have contributed to
increase in rivalry are:
Number of players: There are so many banks and non-financial institutions fighting for the same
pie which has intensified competition.
High market growth rate: India is seen as one of the biggest market place and growth rate in
Indian banking industry is also very high. This has ignited the competition.
Low switching cost: Customer switching cost is very low. They can easily switch from one bank to
another bank and very little loyalty exists.
Undifferentiated services: Almost every bank provides similar services. No differentiation exists.
Every bank tries to copy each others services and technology, which increases the level of
Low government regulations: There are low regulations to start a new business due to the LPG
policy adopted by India post 1991. So, sector is open for everybody.
Bargaining power of suppliers: Suppliers of banks are depositors. These are those people who
have excess money and prefer regular income and safety. In banking industry suppliers have low
bargaining power.

Following are the reasons for low bargaining power of suppliers:

Nature of suppliers: Suppliers of banks are generally those people who prefer low risk and those
who need regular income and safety as well. Bank is best place for them to deposit their surplus
money. They believe that banks are safer than other investment alternatives. So, they do not
consider other alternatives very seriously, which lowers their bargaining power.
Few alternatives: Suppliers are risk averters and want regular income. So, they have few
alternatives available with them to invest like Treasury bills, government bonds. So, few
alternatives lower their bargaining power.
RBI Rules and Regulations: Banks are subject to RBI rules and regulations. Banks have to behave
in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This reduces
suppliers bargaining power.
Suppliers are not concentrated: Banking industrys suppliers are not concentrated. There are
numerous suppliers with negligible portion to offer. So, this reduces their bargaining power. If they
were concentrated then they can bargain with banks or can collectively invest in other non risky
Forward integration: Forward integration is possible like mutual funds, but only few people now
about this. Only educated people can forwardly integrate where as a large number of suppliers are
unaware about these alternatives.
Bargaining power of customers: Customers of the banks are those who take loans, advances
and use services of banks. Customers have high bargaining power. Following are the reasons for
high bargaining power of customers:
Large number of players: Customers have very large number of alternatives. There are so many
banks, which fight for the same pie. There are many non-financial institutions which have also
jumped into this business. There are foreign banks, private banks, cooperative banks and
development banks together with the specialized financial companies that provide finance to
customers. These all increase preferences for customers.
Low switching cost: Cost of switching from one bank to another is low. Banks are also providing
zero balance account and other types of facilities. They are free to select any banks service.
Switching costs are becoming lower with internet banking gaining momentum and as a result
consumers loyalties are harder to retain.
Undifferentiated service: Banks provide merely similar services. There is not much difference in
services provided by different banks. So, bargaining power of customers increases. They cannot
be charged for differentiation.
Full information about the market: Customers have full information about the market. Internet has
increased the customers access to information. So, banks have to be more competitive and
customer friendly to serve them.
Threat of substitutes: Competition from the non-banking financial sector is increasing rapidly.
The threat of substitute products is very high. These new products include credit unions and
investment houses. One feature of using an investment house is that the fees that the investment
house charges are tax deductible, whereas for a bank it is considered a personal expense, which
is not tax deductible. The rate of return with using investment houses is greater than a bank. There

are other substitutes as well for banks like mutual funds, stocks (shares), government securities,
debentures, gold, real estate etc. so, there is a high threat from substitutes. DFIs and NBFCs are
posing a fierce competition to the banks. New entrants have been nibbling at the banking value
chain since before the global financial crisis. This has intensified following the crisis as trust in
traditional banks has eroded and customers have turned to other organizations to meet their
borrowing and investment needs. Some of these organizations have been welcomed by
governments and regulators, particularly as a source of finance for small and medium-sized
businesses. Banks must respond to defend their position.
Increased Competition among universal banking value chain

Threat of new entrant: Barriers to entry in banking industry no longer exist. So, lots of private and
foreign banks are entering in the market. Product differentiation is low and exit is difficult. So,
every bank strives to survive in highly competitive market. So, we see intense competition and
mergers and acquisitions. Government policies are supportive to start a new bank. There are less
statutory requirements needed to start a new venture. Every bank tries to achieve economies of
scale through use of technology and selecting and training manpower.
The New Bank Customer
There will be profound changes in consumer and business profiles over the next decade.
Demographic, social and technological factors will fragment customer needs, tastes and
references. As people live longer, travel more and work and play virtually, banks will not only
have to manage their costs, but also refine their value propositions and service concepts if they
are to compete effectively. As banks look for ways to design specific products and services to
address these changes, packaging, labelling and category management will become crucial.
Diminished public confidence in the banking system will force banks to re-learn how to
communicate their service offerings and restore consumer confidence.
How can banks serve these various segments profitably? Tailoring products and distribution to
each segment will be difficult and expensive, as geographic boundaries will fade. Even with the

Internet, it is difficult for banks to operate outside their home countries. What choices must be
Consistency: A consistent approach to defining product offerings, channels, brands and costefficient delivery will be essential. Banks will have to satisfy dozens of customer segments from a
single product factory,
Flexibility: Flexible delivery will be essential. For example; can a college savings account be fed
by monthly allowances from two accounts in different countries? Banks will have to bundle existing
accounts into packages tailored to meet such specific needs.
Information technology: All of the ideas discussed so far can be realized, but they require the
right IT infrastructures.
Branch banking: While the Internet will be a dominant channel for transaction banking and
investment decisions, more complex customer needs will still require some form of local branch
office. New models are already emerging in Europe and Australia. These branches do not handle
cash or valuables, but rather they serve as a kind of foyer, with ATMs to handle cash
transactions, laptop computers to initiate services, scanners to process required documentation
and printers to produce necessary paperwork. Although bank employees are present in these
bank foyers, they operate more in the role of financial butlers. Business hours are flexibly geared
to early morning, lunchtime and early evening peak traffic. With the elimination of cash, the
atmosphere has transformed from a secured, limited-access environment to one that is open.
During low-traffic periods, staffers can visit elderly customers who have subscribed to a home
delivery package. This is what new-generation retail banking looks like.
Brands and service models: Brands will keep their unique identity but will need to be associated
with emerging communities. One customer segment may need an affiliation with social networking
brands, while another may need to be associated with a care provider. It is unlikely that a single
brand will be able to cover all segments. Banking, there might be a concept for customers who
want their bank to be based on Islamic principles. There is another concept for young people who
want instant gratification (as is the norm with iTunes) and still another for older people who may be
more interested in home delivery. Mixing these different service models will require some skill and
may seem daunting at first; however, such mixing has been practiced for years by booksellers and
by restaurant chains that provide take-away meals and in-house seating. In short, the best banks
will set up specific service delivery and channels for each segment, and track cross-channel needs
and preferences, without adding cost.
Banking on business: As the economy evolves, businesses will also face new challenges. Many
companies have already leveraged existing credit lines and hoarded cash, postponed investment
and trimmed their workforce. Stock-market valuations may favor mergers and acquisitions. No
longer can banks be guided by historical patternstheyve become obsolete. Thus banks must
take a segmented approach to developing new service models for the corporate market.
What the future might hold for key banking functions:
Ecosystems as a segment. Businesses have been coalescing into networks that supply each
other, much like natures ecosystems. These ecosystems actually operate as virtual
conglomerates, linked by strong information backbones. Suppliers exchange production and
ordering messages electronically using a special protocol, and they are able to orchestrate a
highly efficient supply chain. Its only a matter of time before this ecosystem begins organizing

tenders for banks to bid on financing or cash-management services. Few banks will be able to
cover all services, however, and a banking consortium may be needed. This, in turn, could create
a new breed of correspondent banking. This scenario may be a blessing for banks. Getting deeply
involved in working-capital finance may reduce the total credit exposure in a supply chain, lead to
better use of banking capital and minimize risk. In an era when most banks are trying to reduce
the leverage on their balance sheet, this would be most welcome.
No more paper. Many countries have standardized electronic identification numbers and
supplemented them with digital identification and signature powers. Leading global firms such as
Johnson & Johnson already invoice electronically. This is forcing banks to rethink their service
models and offers opportunities for new services, such as the handling of accounts receivable and
payable. Transaction banking could eventually become fully electronic, with a product supply
mirrored by a financial supply chain, and with components and assemblies paid for immediately as
they move through the chain.
All of these possibilities raise interesting questions for the banking industry:
Which ecosystems should we back? Banks must determine whether they have the skills and the
distribution footprint to become the financial supplier of choice. They must also consider their
ability to implement the technology that will help gain true visibility in the ecosystem.
What digital real estate should we occupy? As purchase orders, invoices and payments become
fully electronic, banks must determine which service they can offer immediately, which they can
develop and who will be the likely competition. (Could Google become the next bank?) Banks
must also think through the roles of postal agencies, couriers and other logistics partners.
How should we think about credit? In the aftermath of the current financial crisis, business
practices will change drastically due to greater regulation and increased industry stoicism. Banks
will have to help companies shorten their balance sheets without lengthening their own. With
securitization markets currently frozen, this will be no easy taskbut in the longer term, advanced
syndication may prove beneficial.
Supply: Wheres the Money?
Given the obvious trend toward globalization, certain banking activities will need an international
footprint. When business choices lead to presence in a certain country, cultural and managerial
challenges follow. Can banks deal with them in a cost-effective way?
Finally, banks may be forced to do some severe product pruning, especially if activity is
geographically capped. New IT tools to optimize price sensitivity may help in this exercise.
Limits of generic risk buffers: The argument for separation of banking activities is the forced breakup of correlation. Unlike the insurance business, equity in banking is a generic risk buffer covering
all activities. But doesnt this genericness increase correlation? Simply put, if the dealing room
incurs an excessive loss, the risk buffer can also be eliminated for mortgages.
The promise of Allfinanz: Combining banking and insurance was once roundly applauded because
of synergies in distribution, product development and asset or liability management. As for
Allfinanzs long-term future, product synergies could be achieved through outsourcing and lead to
faster product development, but the benefits are limited. In assets and liabilities, real synergies
may be elusive. The size of a banks balance sheet is substantially greater than that of an

insurance company, and the efficient swap market is a good alternative to hedging interest-rate
risk. Again, there is limited benefit here.
Banks: Under New Management
Regulators are rethinking their monitoring practices, and this could lead to new accounting
standards, capital adequacy and even the restructuring of the entire financial system. The focus is
on several areas: limiting mark-to-market accounting practices, despite their advantages in times
of high liquidity; determining capital adequacy of credit and liquidity provisioning; and allocating
capital to different banking areas. But the focus may spread further. Regulators could demand
online and confidential access to the risk position of every supervised situation, thereby creating a
heat map as risk builds. They could then claim the right to limit certain risk positions.
Technology and Infrastructure
In information technology and infrastructure covering such functions as exchanges, clearing and
settlementimprovements have yet to be made fully, so there are numerous opportunities for
cutting costs and upgrading capabilities in this area. The process of opening accounts is still
largely a manual one, and mandate management still involves extensive paperwork. Its telling that
in countries with high penetration of broadband Internet, up to 80 percent of bank customers use
online banking. Law-making bodies can be catalysts for IT change by mandating or offering
incentives to handle bank documentation electronically. But the industry must act on other factors
to take full advantage of ITs potential.
Killing legacy systems: In the 1970s, banks were among the first to embrace IT, but they are now
handicapped by the costs and risks of maintaining myriad legacy applications. Modernizing these
infrastructures could cut costs significantly. (It has already done so in credit card and mortgage
processing and payments).Young people, for example, prefer text messaging and online chatting;
business professionals are likely to opt for email; and older people still prefer the personal
conversation. The delivery of financial products and services should be tailored to these various
Performance: Making Profits
Most important force that will shape the banking industry in the future: performance and profit.
Additional capital requirements could dampen returns, thereby rendering the sector unattractive for
investors. The industry has to think about its long-term appeal as an employer, particularly with
regard to executive positions. Regulatory compensation capping may be unavoidable, but we think
its ineffective. Nonetheless, the banking industry must rethink how best to attract and develop
people with leadership abilities, particularly since many current executives may move on earlier
than planned. The industry must also face pricing changes. Credit will come at a premium,with
higher margins; and deposits may become a temporary loss leader as banks try to maintain stable
funding. As volatility increases, trading and derivatives could become tempting (albeit risky)
activities. In any case, the profit mix may shift dramatically, and banks need to figure out how to
deal with it. Theres also the question of how government intervention will affect the economy. For
example, will what some observers call out-of-control government spending spur inflation?
Ironically, such a scenario could have an upside, as house prices would likely also rise, thus
allowing homeowners to service their mortgage debt. On the other hand, differences in inflation
around the world could distort trade balances, further fueling disenchantment with protectionism.
Finally, theres the well-publicized question of executive compensation. We believe the banking
industry sector canindeed, mustoffer compensation and incentives that will attract and retain

solid leaders. Furthermore, banking executives should be compensated on the same order of
magnitude as those with whom they deal, perhaps through long-term vesting of variable
compensation tied to long-term risk-taking. There must be this kind of equilibrium in compensation.
There is a legion of serious bankers trying to strengthen the industry. While they are trying to
restore capital and profitability, their customers are rapidly fragmenting into new, unique segments
with new needs that require capital investments. Inevitably, increased regulation will require more
investment. The banking industry must develop well-thought-out initiatives to manage both talent
and money if prosperity is to be restored. Segment specialization, IT upgrading and transforming
into leaner institutions are among the key ingredients for banks to succeed in the not-so-distant
Demographic segmentation: Changing consumer demographics indicates vast potential for
growth in consumption both qualitatively and quantitatively, due to burgeoning affluent middle
class with the lowest average age in the world. India has more than 50% of its population below
the age of 25 and more than 65% below the age of 35. As per a survey 130 million Indians are
going to be added to working population in the coming years. Economic prosperity and the
consequent increase in purchasing power have led to a boom in consumerism. Indian consumers
are now more open to new services and products.
Increasing literacy levels and higher adaptability to technology: Due to increase in the
literacy ratio, people have developed a taste for latest technology-and variety of products and
services. It will lead to greater demand for retail activities specially retail banking activities.
Continuing Growth: Even with concerted efforts on increasing the banking penetration and
bringing more and more adult population under the formal financial system over the last 6-7 years,
more than half of the target population still remains uncovered. Of the 6 lakh plus villages in India,
only about 3.84 lakh villages had access to banking service either through a branch mode, a
banking correspondent or other channels as on March 2014. Similarly, the credit penetration from
the banking system in the country is abysmally low at about 10%. All this means that the retail
banks have a huge potential to grow in India over time. Banks should get convinced that financial
inclusion is a viable and profit-making business proposition and pursue the objective with a
missionary zeal.
Countering the effects of disruptive new technologies: Banks should quickly adjust to the new
paradigm where more and more of their customers move online for accessing banking services.
As the demographic changes take place the technology acceptors will soon outnumber the
technology deniers and banks have to use this short transitory period to adequately equip
themselves to manage the disruptions arising out of this alternate delivery channel. Further, since
the internet is available on a 24 X 7 basis, the banks would have to substantially invest in
appropriate technology and ensure that their service offerings are available round the clock with
minimal downtime. The first is innovations in the payment space such as mobile money, e-wallets
and payment aggregators, which, collaborating with the exploding e-commerce segment, threaten
to take away a sizeable chunk of a banks cash flows and revenue streams.

For example, Mswipe has given an alternative solution to point of sale machines given by banks.
This has increased the reach of digital payment to traditionally cash-only transaction-based
services (such as barber shops,kirana stores) in a cost-effective manner.
Technology: Retail banking requires mass production techniques and the availability of
technology have enabled the banks to design appropriate technology-based delivery channels.
Marketing: In the digital era, marketing has become substantially more sophisticated. Digital
marketing is another profile which is likely to be in demand in 2015 as banks look to leverage their
social media strategies. Banks can now leverage analytics and interactive marketing. Banks can
optimize channels to create differentiated digital customer experiences.
Digital Banking: Digital Banking is the paperless banking which eradicates the cash/ paper
based transactions leading to reduction in corruption. Digital Banking combines the befit of two
worlds: a new customer experience on the outside and an efficient, effective operating model on
the inside both enabled by digitalization.
By digitalizing processes in banks, engaging customers on digital channels for transactions and
sales, and collectively working towards eradicating cash, banks can achieve upto 30% jump in
sales productivity, reduce administrative staff by about 10-15% and improve back office staff
productivity by 20%. The digital banks have a cost to income ratio advantage of 10-15% over
conventional models. This is driven by the rate of customer acquisition that is more than twice as
productive as conventional models where the customer uses the bank as primary mode of
Continuing Trend in Urbanization: Urbanization is taking place at a faster rate in India.
Population residing in urban areas in India, according to 1991 census, was 11.4%. This count
increased to 28.53% according to 2001 census, and crossing 30% as per 2011 census, standing
at 31.16%.
Economy slowdown in productive sectors: Due to economic slowdown in productive sectors,
credit demand from the basic industrial and infrastructure sectors have waned somewhat and the
regulators have been more accommodating in allowing the banks to lend liberally for consumption
Sluggish growth of Bank Deposits: Inflation adversely affects the purchasing power,
consumption and inflation adjusted returns on assets. There has been a fall in net financial assets
of households as a percentage of GDP. Over the recent years there has been sluggish growth in
Bank deposits. The reason has been high inflation which has marred down the saving capacity of
the masses, better returns for non financial assets such as gold and real estate and the differential
tax treatment of bank deposits, capital market instruments and non-financial assets like realestate. With the decline in financial savings the saving investment gap has increased and this has
increased the economys dependence on external capital.
Declining Treasury Income of the Banks: The Treasury income of the banks, which had
strengthened the bottom lines of banks in the past few years, has been on the decline for last two
to three years. The banks are moving to alternative recourse for profitability.

Less NPA/Impaired Assets: Considering the fact that retail's share in impaired assets is far lower
than the overall bank loans and advances, retail loans have put comparatively less provisioning
burden on banks apart from diversifying their income streams.
Risk spread: The banks are risk averse in lending to corporate and hence to spread the risk,
Banks should focus on small ticket retail loans.


Basel III Capital Requirement
Basel III guidelines attempt to enhance the ability of banks to withstand periods of economic and
financial stress by prescribing more stringent capital and liquidity requirements for them.
The new Basel III capital requirement would be a positive impact for banks as it raises the
minimum core capital stipulation, introduces counter-cyclical measures, and enhances banks
ability to conserve core capital in the event of stress through a conservation capital buffer. The
prescribed liquidity requirements, on the other hand, would bring in uniformity in the liquidity
standards followed by the banks globally. This liquidity standard requirement, would benefit the
Indian banks manage pressure on liquidity in a stress scenario more effectively. Although
implementing Basel III will only be an evolutionary step, the impact of Basel III on the banking
sector cannot be underestimated, as it will drive significant challenges. Working out the most costeffective model for implementation of Basel III will be a critical issue for Indian banking.
Further, there would be a drastic impact on the weaker banks leading to their crowding out. As is
well established, as conditions deteriorate and the regulatory position gets even more intensive,
the weaker banks would definitely find it very challenging to raise the required capital and funding.
In turn, this would affect their business models apart from tilting the banking businesses in favour
of large financial institutions and thereby tilting the competition.
Impact on banks in India
Pressure on Return on Equity (RoE):
To meet the new norms, apart from government support a significant number of banks have to
raise capital from the market. This will push the interest rate up, and in turn, cost of capital will rise
while RoE will come down. To compensate the RoE loss, banks may increase their lending rates.
However, this will adversely affect the effective demand for loan and, thereby, interest income.
With effective cost of capital rising, the relative immobility displayed by Indian banks with respect
to raising fresh capital is also likely to directly affect credit off take in the long run. All these affect
the profitability of banks.
Pressure on yield on assets
On account of higher deployment of funds in liquid assets that give comparatively lower returns,
banks' yield on assets, and thereby their profit margins, may be under pressure. Further higher
deployment of more funds in liquid assets may crowd out good private sector investments and
also affect economic growth.

Higher capital requirement

The increase in the minimum capital ratio, combined with loan growth outpacing internal capital
generation in most government banks, will lead to a shortfall of capital. The CCB is designed to
ensure that banks build up capital buffers during normal times, which can be drawn down as
losses are incurred during a stressed period. The requirement of capital will be less to large
private sector banks due to their higher capital ratios and stronger profitability. The international
credit ratings agency, Fitch, estimates this figure to be at around $ 50 billion, while ICRA projects a
figure of around $ 80 billion.
Growth barrier
Growth and financial stability seem to be two conflicting goals for an economy. The Indian
economy is transforming structurally and moving towards rapid growth although some seasonal
down trends are seen. The average investment in infrastructure sector for the 12th Plan as a
whole is likely to be about 9.14 percent of the GDP. The economists' projections are that the
Indian economy will see higher growth in the manufacturing sector which enhances demand for
credit. The outstanding credit gap for the Micro Small and Medium Enterprises (MSMEs) sector is
estimated at 62 percent, which is estimated to reduce to 43 percent in March 2017 with the
assumption of minimum 20 percent year on year (Y-o-Y) credit growth to MSME sector and 10
percent Y-o-Y credit growth to medium enterprises by Scheduled Commercial Banks (SCBs).
In a structurally transforming economy like India with rapid upward mobility, credit demand will
expand faster than GDP for several reasons. What all this means is that banks need to maintain
higher capital requirements as per Basel III at a time when credit demand is going to expand
Difficulties with implementing Basel-III
There are worries among certain bankers that implementation of Basel-III proposals will have an
adverse impact on the return on equity and financial ratios. There are concerns that PSBs may not
be able to grow their loans since government-dependent lenders would not have adequate capital.
Critics of Basel- III norms feel that just because banks would have more capital, it does not mean
that a bank will not get into trouble. The crises may at best be postponed. Walter Bagehot, the
former editor of 'The Economist', had famously said, No capital is required for a well-run bank and
no amount of capital can save a badly-run bank! A taskforce of leading bankers warned in
June'2012 that the Basel III rules were too focused on problems that occurred in Europe and the
US. They argued that the standards unfairly penalise trade finance and project finance, two forms
of credit that are particularly important in developing nations. This school of thought believes that
the Indian banking system has proved robust due to constant monitoring by the RBI. As per past
instance, Indian banks had carried a huge negative net-worth for three years without any problem.
As per this argument, PSBs do not need more capital. Since Basel-III is an international norm,
therefore, Indian banks, including PSBs with international presence, would find it an obstacle if
they are non-compliant. One of the solutions proposed by policymakers is to go slow on imposing
new capital adequacy norms for PSBs as all of them do not have a foreign presence. However,
the difficulty in increasing the capital of PSBs is not because of their inability to attract investors. If
investors are given confidence, banks would be able to raise sufficient capital. But the government
would have to dilute its holding in the PSBs. It seems difficult because the government may be
unwilling to let go its majority stake in these banks. If fresh equity is to be raised without diluting
the government's share, huge budget allocations are required. As per estimates, about INR

60000-75000 crore demands for capital from banks could be there in the next five years. Again, it
may not be easy for the government, considering its fiscal deficit.
The government may have to work on two options. One is to ask PSBs to keep their loan portfolios
at current levels or even shrink them. But it would be a retrograde step and will affect the funds
available to industry adversely. The other is to accept a dilution of its stake, may be up to 26
percent. After declaring in the Parliament that every company -private or government, should have
a minimum of 25 percent float, the proposal was diluted when the investment banking circles said
it would be impossible for the government to meet its disinvestment target. Their implementation of
capital norms are seen as unwelcomed move not only in India but are opposed by most bankers
across the world. While capital is just one of the focus items, the bigger worry for Indian banks
could come from the treatment of their pension liabilities. This liability is still to an extent not been
quantified. With its focus on the quality of the capital after the financial crises, RBI has proposed
full recognition of liabilities from defined benefit pension funds in the calculation of CET1 to ensure
it is able to absorb losses. This also eliminates the risk of this being used to protect depositors and
other creditors.

Low- Cost Leader- SBI, the countrys biggest lender is a corporate colossus, with 215,000 staff,
16,000 employees and almost 25 per cent of Indian banking system assets.
SBI's strategy has always been to offer the lowest rates in the market, which is then followed by
In the recent new also it was stated that State Bank of India (SBI), India's largest bank by assets,
may reduce its base rate once again to take the competition head on. SBI has built a good chunk
of its portfolio by taking over corporate and retail loans from other banks (refinance).
The State Bank of India has initiated a three-pronged strategy to push its home loan business. SBI
sells its home loan products through the entire group network instead of limiting it to the bank,
develop a mechanism to identify right customers for home loans, and implement a uniform delivery
system across its branches. The bank has put in place an operational plan to focus on nonperforming assets (NPAs) and is also hiring turnaround specialists to monitor restructured loans to
avoid any slippages. SBI has created review teams for stressed loans for each region.
To monitor stressed or restructured loans, the bank is engaging turnaround specialists like global
professional services firm Alvarez & Marsal. Banks hire these specialists to help the companies
under stress to improve their cash flows, cut costs or increase market share. Banking industry
observers say hiring external experts is a good strategy as SBI does not have the expertise and
the resources to monitor stressed accounts spread across sectors and regions.BCG is its
management consulting partner.
Defenders: PNB and BOB

The public sector banks have largely been followers because of the conservative approach being
publicly managed.
Bank of Baroda is an Indian state-owned banking and financial services company headquartered
in Vadodara(earlier known as Baroda) in Gujarat, India. It is the second-largest bank in India,
after State Bank of India. Based on 2014 data, it is ranked 801 on Forbes Global 2000 list.[2][3] BoB
has total assets in excess of 3.58 trillion, a network of 5089 branches in India and abroad, and
over 6900 ATMs.
Bank of Baroda provides commercial banking services. The bank operates in wholesale banking,
retail banking, rural and agricultural banking, wealth management, mobile and Internet banking. Its
offerings include deposits, commercial and institutional credit, project finance, treasury, forex,
investment and risk management and other related financial services. The bank operates through
four segments: Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking
Operations. The Treasury segment engages in bank's domestic treasury operations and covers
activities in various markets, which include foreign exchange, interest rates, fixed income,
derivatives, equity and other alternative asset classes. The Corporate/Wholesale Banking
segment offers an array of loan products and services, which include term, short-term and
demand loans, working capital facilities, trade finance products, bridge, syndicated, infrastructure
and foreign currency loans, loan against future rent receivables and many more to its large and
mid corporate clients depending upon their needs. The Retail Banking segment products include
home, auto, education, traders and mortgage loans. The Other Banking Operations segment
includes other banking operations and nonbanking operations. Bank of Baroda was founded by
Sayajirao Gaekwad III on July 20, 1908 and is headquartered in Vadodara, India.

Canara Bank during 2013-14, expanded its network by adding 1027 branches and 2786 ATMs,
taking the number of branches to 4755 and ATMs to 6312 as at March 2014. Canara bank is
relatively much smaller than SBI, BOB and PNB. Its strategy had been usually to capitalize on the
best of the market leader strategies. For example its only in 2013 that it took over many online
Prospectors: The private banks have been leaders in technology adoption and digital marketing
initiatives. HDFC and ICICI have been the leaders in this field. First m-banking initiatives in Indian
banking are also initiated by private banks.

Aggressive Marketer, First In technology Adoption: HDFC bagged a lot of technology initiative
awards. HDFC also has the largest presence on social media with 1.5 Mn Face book fan
threshold. HDFC Bank is the leading bank on social media with a score of 110 followed by ICICI
bank with a score of 108 and Axis Bank with a score of 93. The bank is nimble-footed enough to
change its loan mix in different scenarios. It is a market leader in housing loan segment. HDFC
Bank, with $86 billion in assets and a mere 0.25 NPL ratio, has Indias highest credit risk and loan
underwriting metrics. Modinomics benefits the bank since it has scaled up its branch network to

The private players are more aggressive in marketing in technology initiatives. HDFC and ICICI
the market leaders among private banks are forerunners in marketing and technology initiatives in
Indian banking industry. The private players have better social media presence with ICICI (2 Mn)
and Axis ban k(1 Mn) trailing HDFC, than public sector banks. Only IDBI bank, out of the 26 public
sector banks has its presence on twitter and YouTube apart from Facebook.
Largest private sector lender ICICI Bank in collaboration with Tech Mahindra launched a payment
service 'Tap-n-Pay' based on the near-field communications (NFC) technology, enabling
customers make over-the-counter payments without using cash.
It can be used for merchant payments by merely tapping a NFC-enabled mobile phone or a tag on
the counter. ICICI Bank is focusing on harnessing technology for integrating diverse products by
unifying the enterprise IT architecture.
In ICICI Bank, the cost to income ratio has declined by around 45% to 35%. They are promoting
tablet banking to improve customer services by facilitating their sales team with tablets which has
further enhanced their productivity. Further amongst Public sector banks, Union Bank and SBI
have launched tablet banking so far.
The Company was amongst the early entrants in India to an online application for customers to
trade while on the move. This widely used application won the Company the Mobbys award for the
Best Mobile application in Mobile Trading. won the award for Innovation at
Banking Frontiers Finnoviti Awards 2013. The Company won the Outlook Smart use Technology
eRetailer of the year 2013 conferred by FIHL in association with The Company
also won the Innovation Award for Oracle Fusion Middleware. The Company has consistently
demonstrated the best usage of Oracle Tuxedo as an OLTP engine. These Asia-Pacific awards
honour Oracle customers for their optimum and innovative solutions using Oracle Fusion

Fundamentally sound bank

Predominant presence in less

3.7 crore strong customer base

Well-entrenched Brand Image
Dominant position in Indo-Gangetic
Plain No competition

developed areas leading to high

operating cost
Complacency (Structural &
Weak & Inconsistent MIS rendering
decision making difficult

A leader amongst Public Sector Banks

High proportion of customer base in

Limited International presence. Low

NRI business

Strong Risk Management Practices

More dependence on conventional low

margin business

Redefined processes through

technology initiatives like CBS, ATM,
Internet Banking

No Income from Financial Products

such as Insurance, Mutual Fund,
Credit Card etc.

100% CBS branches

State Ownership has affected level

playing field and competitive ability

High tech platform incorporating

EDW, CRM etc.
Large network of branches with 66%
in Rural & Semi-urban areas

Less flexibility in dealing with strategic

HR & operational issues
Imbalance in distribution/ deployment
of staff
Inadequate skills for modern banking
Changing environment, adoption of
technological advancement, marketing
of products requires change in the
mind-set of employees
Low per employee productivity

Aggressive marketing by competitor
Expansion of peer Banks/Private
Sector Banks in Indo-Gangetic belt
eroding our dominance
Loss of savings business to Mutual
Fund/ Insurance Products which are
aggressively marketed as being more

Rural India is the next growth horizon
with an opportunity 3 times the size of
Urban India
Financial Inclusion is a clear-cut
opportunity with overall exposure to
formal services of finance being about




Technological parity of competitor
Aggressive strategy and innovative
products, larger risk appetite of other

business with over 60% population

outside the banking service net
IT Initiative creating a back bone for
increasing reach. It provides an
opportunity to go beyond the Brick &
Bank has a visionary leadership which
can transform the bank
Large workforce of 55398 number of
employees. Each and every employee
has to believe we can do it, usher in
change in our attitudes/conventional
wisdom, be a learner willing to adapt
to the changing banking environment


Leveraging IT Initiatives
IT initiatives by Banks are likely to gain momentum with more and more banks going for anywhere,
everywhere and anytime banking. Banks are likely to expand ATM network, both off-site/onsite on
standalone/shared basis. Banks would provide more value added services besides exploring
alternate delivery channels for reducing their cost of transactions. Internet Banking is likely to
spread. Various IT initiatives would require secured gateways providing security for transactions.
Banks would also be facilitating all customer payments like utility bills, insurance premia, tax
payments, investments in bonds/equities etc. Mobile banking will take off in the banking sector
rapidly and will open new avenues for personal and merchant transactions. PNB can also
capitalize on this opportunity.
Priority Sector
Bank can turn this segment into a commercially viable sector focusing on the growing areas of
food processing, dairy products, poultry, the new areas of horticulture & floriculture and looking at
innovative methods of financing through the big mills with success met with the sugar mill for
financing sugarcane farmers.
Growth can be achieved through financing agro based industries, MFIs, development agencies
and supply chains of the big mills.
Focus can also be on financing to the disadvantaged section of the society under financial
Banks approach to the rural lending can be guided mainly by commercial considerations in future.
Rural financial arm of the bank will have to enlarge their functions and range of services offered so

as to emerge as "one stop destination for all types of credit requirements in rural and semi-urban
With the greater disintermediation by large corporate for sourcing their funds, banks would need to
focus more on the SMEs and become partner in their growth.
Efforts can be towards enhancing loans under Tie-up arrangements with Sugar Mills, Dal Mills,
Rice Mills, Tractor and Agricultural implements manufacturers while focusing on Intensive
Campaigns for issuing fresh KCCs, diversified financing for activities, such as, fisheries, poultry,
dairy, bee-keeping, etc.
Financing to food and agri-processing units particularly in rural areas can also be a thrust area
including dairy and agro processing sector while utilising BCs/BFs to cover a vast segment of
Small/Marginal Farmers, Agricultural Labourers, Sharecroppers & Oral Lessees by the rural/semiurban branches.
Financial Inclusion
The relatively under bank/unbanked rural segment offers great opportunity to the banking sector,
especially in the Indo-Gangetic belt where PNB has a dominant presence. In order to effectively
leverage this opportunity, bank would need to realign the business and operating model. In this
context, the bank will have to understand the needs of rural consumers and use marketing to
improve financial literacy. New Design organizational models will have to be created that would
foster collaboration with other players. The concept of business facilitators/business
correspondents will have to be implemented and used.
To reach the unbanked and under banked areas and to expand their presence, we propose the
bank to have a Brick & Mortar model, financial Inclusion BC/BF Models and a Kiosk Model which
will be technology driven. The bank aims to increase customer touch Points to 100000 by 2016.
The Indian Diaspora
Indian Diaspora constitute of Non Resident Indians (NRIs) as also the Persons of Indian Origin
(PIOs). The Indian Diaspora today stands at around 30 million spread over 130 countries and is
estimated to produce an economic output of about US$ 400 billion. They are estimated to
generate an annual income of around 30% of Indias GDP.
Almost all Non Resident Indians remit funds to India for family maintenance and investment in
landed property/shares/bank deposits. In 2007-08, India received $42.6 billion by way of
remittances (private transfers in the balance of payment), up by 47% over the previous years
levels. In fact the tempo has been maintained despite the deepening financial crisis in the US and
Europe. The personal remittances segment is expected to grow at a faster pace as the US
currency is at a high and is expected to remain so in the short term. India continues to retain its
position as the leading recipient of remittances in the world.
Therefore, an important aspect of diasporic policy should be to tap their capital and establish long
term partnership with Indian domestic entrepreneurs. Appreciating the role of Non Resident
Indians in the economic development of the country, the Government has progressively
announced various schemes to facilitate investment by Non Resident Indians. The challenge is to
effectively channel the impressive remittances flows for the socio-economic development of the

Creation of synergy between Domestic and Overseas Operation

The liberalization and globalization has paved the way for Indian corporate for raising cheap funds
overseas for domestic operations and for setting up of global ventures. The acquisition of
companies and joint ventures overseas along with tie up and franchisee agreements have become
the order of the day.
As a strategy PNBs overseas offices can focus on identifying such corporate and arrange for loan
syndication/ FCCB and market for the accounts of the overseas units of the domestic corporate.
The overseas branches will be a one stop solution for their credit requirement, remittance and
correspondent banking solution.
PNB can aim to target the accounts of the employees of the overseas units of the Indian corporate
and target for the third country businesses and expansion projects of the overseas ventures for
enhancement of business.
Marketing Desk can be set up at IBD with FOCUS on Liaising with key branches for identifying
potential Indian companies with overseas presence, pursuing with Correspondents for trade
/money market lines, taking up with domestic banks for placement of short term foreign funds with
their overseas offices, liaisoning with local banks to market the buyers credit requirements of their
clients, marketing for business of domestic clients having overseas operations and marketing of
deposit placements in overseas offices from banks in underdeveloped countries.
NRI business can be enhanced by creation of NRI cells in more centres by increasing inward
remittances by tie up with more exchange houses/increasing volumes with existing exchange
houses, introduction of white labelled remittance products with back up of prominent banks,
development of a cash based, web based remittance product and having a strong centralized NRI
service centre/help desk.
Centralized Trade Finance branch can be strengthened by offering trade Documentation services
to banks in countries with good trade flows and finance where feasible.
Visibility of overseas offices can be created by developing correspondent banking relationship with
countries having substantial trade flows with India, providing inputs to various financial magazines
and by sending guest speakers to overseas conferences.
Retail Lending
The existing thrust on retail lending is likely to continue. There could be a convergence of all retail
lending schemes, giving more flexibility to the customers. Retail lending is likely to form a sizeable
part of the overall lending portfolio of banks. However, banks will also develop IT enabled system
for tracking early warning signals of NPA in retail lending.
In the Housing sector, with increasing population, urbanisation and disposable income, there
would be great demand for fresh housing. The 11th Plan also proposes large spend on the housing
sector. Bank can tie-up with builders of repute to offer loans to customers.
Special focus can be on Education Loans. There is a need to tie-up with Educational institutions
offering professional degrees to fund students and in turn build a long-lasting relationship with the
future generation. The process of globalization & integration of world economies has brought in
new opportunities in Higher Education in India and abroad. Hence there has been a surge in
education loans in recent years.

New Products & Services

Leveraging technological initiatives, 100% CBS environment in the Bank, FOREX TREASURY
integration, Operationalization of centralized back end activities etc, a focus is now required
towards development of customer oriented new products & services (like recently introduced Cash
Management Services, Global Credit Card, Depository & Custodial Services and MIBOR Linked
Notice Deposit Scheme) by various owner Divisions and updation of existing retail products on an
ongoing basis. With the aim to achieve total customer satisfaction as well as to enlarge reach
Towards this direction, branches can be identified in high activity locales and Dressed up as
Boutique Branches especially catering to High Value Customers providing ambience and all
modern facilities like Internet, Cyber Caf, telecom facilities, etc. with global standards which are
available in private and foreign banks. For Young India, educative paid up services can be
provided. The penetration in the rural areas can be through financial inclusion while in the urban
areas it can be by expanding ATM network, ensuring instant money.
For building up the Customer Trust educative classes for staff members could be conducted to
teach basic business etiquettes.
There could be continuous market research and analysis of the Banking products of various other
Financial Institutions and the feedback from the customers, both existing as well as potential, for
catering to their requirements, with a pro-active attitude.
Marketing Initiatives
Presently the Lack of focus on marketing is affecting business development. Bank is mostly
banking on only walk-in business. Banks are likely to see greater customer centricity. Crossselling amongst existing products is fairly low with not many liability product holders also holder of
asset products of the same bank.
Mobilizing deposits, especially low cost deposits could become very aggressive with diminishing
walk-in customers and increasingly banks soliciting customers. With banks providing a wide range
of financial services, there could be cannibalization of bank deposits, with customers moving from
pure deposits products to other products like Mutual Funds, Insurance, etc. thus putting greater
strain on mobilizing deposits. There could be a change in the transaction/classical banking to
Relationship Banking with a strong customer-centric focus.
Human Resources
Bank staff is to be re-skilled and skills to be upgraded continuously through training and the banks
may have to re-look at the existing training modules and effect necessary changes, wherever
Human Resource Management shall play the role as Support Division for manpower
requirements, re-designing human resource and up gradation of skills and knowledge to leverage
Focus could be on skill up gradation in employees to enable them to shoulder diverse
responsibilities of the present and future. The ambitious aspirations would need identification of
dynamic employees, who could be suitably groomed for meeting the above strategies.

Customer Segmentation
Banking is also likely to witness a decline in brand loyalty and customer switching to banks who
are better providers of services. More than customer acquisition, customer retention will pose a
great challenge. Banks will have to quickly adapt to these changes through customer
segmentation. Relationship banking and quality and speed of services rendered will determine the
survival. Banking increasingly would be done outside the branches and geographical location of a
branch would cease to matter.
Banking has to have hybrid structure, hybrid delivery channels for different customer segments,
i.e. a combination of traditional/ conventional products to wide range sophisticated financial
products suiting different customer segments.
In conclusion,
The strategies mentioned represent broad direction and the thrust areas, require further detailing
which should be converted as action steps and closely monitored regularly. The quantitative
dimensions similarly would need to be converted into targets and monitored on an annual, half
yearly, quarterly basis so as to ensure the targets are met.
Designing of clear-cut and comprehensive corporate policy covering strengths and limitations with
regard to retail banking is the immediate need of Banks. Banks must build awareness amongst
staff in retail banking centres. Proper assessment of ever-increasing customers' expectations is
very important. Innovate and respond to the changing needs of customers in terms of new
products and services needs to be looked into. Hence identification of retail segments, maintaining
range of products and services for diverse needs of customers, strengthening bank's staff
competence in handling products and services is must. Optimal utilization of the available
technology is the need of the hour.
Banks need to utilize existing data-base and building ability to 'cross sell' to increase fee based
income of the bank. Apart from this the technology can also be used to build marketing thrust and
capturing 'walk-in businesses' effectively.
With similar products offered by the banks, service is the only differentiator which makes the
difference. In such scenario, service quality and Customer Relationship Management needs
special attention to create moment-of-truth for the customer. This will enable the banks to enhance
the customer loyalty towards them. The banks should adorn the image of 'most customers friendly'
bank by simplifying the banking for them.
Though there are multiple e-delivery channels in the banks, yet the branch banking is important
since it creates the personal touch with the customers. However with the changing demands of the
Customers, the branches should be transformed from the traditional branches to sales-touch point.
The branch personnel should focus on marketing and cross-selling activities and routine task such
as account opening/loan processing can be done at the back office level/centralized hubs. There
is Need for 'systematic approach' which is a pre-condition for successful retail banking. In today's
life 'Innovation is necessity, not option'. Hence the banks must continue to innovate in terms of
products & services to cater to the needs of the vast segment of the society. To innovate,
understanding the changing customer/market needs is fundamental. Banks must function
efficiently as service providers.

Retail banking is moving from class banking to mass banking in a competitive scenario. Customer
satisfaction requires innovations to facilitate banking. Banks are moving to rule based lending and
facilitating click banking rather than brick banking.
Ongoing training for empowering the staff to market the products along with external marketing to
attract the customer by raising his expectations is the need of the hour in banking. Often staff is of
the view that marketing is the job of marketing department. There is an urgency to signal that each
staff has to be a marketing agent. Staff must have complete knowledge about products & services
and should promote them.
Internet Banking, Mobile Banking and making ATMs more customers friendly is the need of the
hour to promote retail deposits. Deposit products are dependent on the technological services
extended by the Bank. Greater is the efficiency the scope for their growth is better.
Growing affluence of agriculture sector needs to be closely watched and potential for banks retail
products is growing among the neo-class of agriculturists. Continuous innovation in financial
inclusion shall play an important role in the retail banking in rural areas of India.
Focus on customer centricity, product innovation, quick delivery, better customer relationship,
formation of marketing teams, leveraging from technology, identification of emerging markets in
rural India are the developments that retail banking needs to look into to sustain the profitability of
the banks.
Recent measures such as the re-introduction of inflation indexed bonds (IIBs) and introduction of
CPI linked saving certificates for retail customers are part of the strategy to encourage investors to
invest in financial assets.


Deployments of big IT systems:
Decentralisation of decision making: Bank should improve its information transfer and approval
process. Currently all banks branches have to contact the officials in their head offices before
approving clients. Decentralization on behalf of the bank would solve this problem. To fasten the
process of decision making and ascertain better customer service in these times of fierce
competition decentralisation is a strategic choice shall be made by PNB.
Enchasing on Brand Equity: As the firm has a well established reputation in Northern India, this
shall be used to expand not only in rest of the country but in European and other emerging
markets of the world.
Disinvestment: The bank shall disinvest and offer fresh shares for sale to raise capital in view of
the GOIs decision to reduce fund injection in the banking system.
Implementation of BASEL III earlier than competitors: Strong Capital management practices of the
firm can help it implement BASEL III norms earlier than in its competitors helping in international
expansion and global presence. This could get the firm early mover advantage.
Strategic Alliances: For expansion in new markets, the knowhow of the strategic partnering
consultant BCG can be put to use to find the right targets and culturally fit organisations for

mergers or acquisitions. As the organisation has huge financial resources the merger and
acquisition could be a good option to expand in new markets. For financial evaluation of the same
collaboration with other strategic partners like JP Morgan or KPMG is suggested.
Corporate excellence through mergers and acquisitions: To attain size-benefits, PNB, should look
for a marriageable bride for myriad of synergies leading to sustainable competitive advantages.
To continue focus on cash management service: With more and more banks preferring to
outsource their collection and payment, fee based activity is growing. Given the vast geographical
presence of PNB that can be leveraged upon, the bank is better placed to offer these services at a
competitive rate as compared to foreign banks.
To continue targeting SME segment: The foreign banks have also started targeting this segment.
As such leveraging on the expertise of the experienced personnel of the bank it should try to move
faster than competition and make use of the first move.
Should focus on FX services: FX service is an area that is being concentrated upon only by very
few banks. With Indian industries looking for a global presence, the need for this product is likely
to grow. PNB should target this product and try to make attractive offerings to the clients in the
Should provide advisory services via specialists: The bank should appoint specialists in certain
industrial sectors who would not only evaluate projects for the bank but would also give advisory
services to the clients.
Single point interface: One of the complaints that clients usually have against public sector banks
is that, the company has to deal with multiple managers depending upon the products that the
company needs. That is, for cash management services there is one relationship manager, while
treasury has another. The companies find this highly disconcerting and prefer to deal with a single
individual from a bank, which could in turn interact with his colleagues.
Flexibility and personalization of services: Companies prefer sticking on to the private sector
banks because of the rigidity and impersonal touch with the public sector banks. PNB should
provide personalized service too.
Effective use of social media: The Bank should launch publicity campaigns for its new products
and services and use effectively all channels of communication including advertising, social media
and marketing collaterals to enhance its brand image. The bank shall try to increase its social
media presence.
The well established network of branches shall be intelligently used for distribution of new
innovative products to tap in those markets. As the government of India is focusing on agriculture
and MSME this could push the rural incomes. The bank shall tap on this opportunity by introducing
new innovative products to tap on the potential of the areas where it already has a presence.
In UK, the Pay M service launched by the payments council allows for instantaneous transfer of
funds from one account to another purely on the basis of mobile number. This is facilitated by
central registry where mobile numbers are linked to specific bank accounts. It is proposed that all
banks in UK will participate in the system. The response to PayM has been extraordinary, with
over one million customers signing up within three months of its launch.

PNB should also launch the service similar to the PayM facility of UK. This mobile-to-mobile
payment mechanism has an advantage of the instant mode of payment and is highly convenient to
the customers even in the far flung areas.
The bank should launch an online remittance product after obtaining regulatory approval for the
same. Existing Maestro debit cards shall be replaced with a new contactless MasterCard debit
cards. Cash ISA scheme shall be popularised. Pension schemes for employees under auto
enrolment scheme shall be implemented. To expand in European markets, the bank shall explore
the possibility of establishing an office in one of the European countries.
Security breaches can damage reputations and destroy trust, bank should invest heavily in cyber
security programmes equipped with predictive analytic solutions and reactive readiness. When
any big IT system is implemented banks are exposed to three types of risks e.g.
1. Technology Risk,
2. Business Risk and
3. Organisational Risk.
Business risk attempts to determine the odds that the new system will fail to deliver productivity
and financial benefits that are worth more than the cost to achieve them. Bank managements
should make a beginning and try to work out some strategy and implement some frame work /
methodology in order to measure business value of IT.
Organisational risk is a term that attempts to quantify the possibility that users would not exploit
the full potential of the new system. While implementing the big IT systems constant evaluation of
the environment must be done to find the relevance of the investment as IT have the most risk of
fast obsolesce. Also IT infrastructure must be accompanied with Business process reengineering
and a robust and continuing training to end users who will lead to a complete ownership of the
system at user level.
Though in the present times decentralization could be a good opportunity, it should be controlled
by effective and experienced management. Also continues vigilance is a necessity. As the
organization is already facing the issue of generation gap in the workforce, attitude training shall
be accompanied with decentralization.
Though MSME could be viable opportunity for the firm to stretch its loan portfolio, stringent
measures to evaluate the creditability of the borrowers as many of them could be first time
customers to the bank shall be done. Collaboration with credit rating agencies can possibly be a
good strategy and hence outsourcing the evaluation of creditability of borrowers.
The disinvestment should be timed correctly to tap the maximum positive sentiment and buying
spree in the markets.
Though the firm shall target implementing BASEL III norms earlier than the competition , it should
be done in a phased out manner to avoid undue risky practices and loss of opportunity pertaining
to blocked funds for liquidity requirements of BASEL III implementation.

Mergers and acquisition shall be done through a well-crafted strategy to generate synergistic
advantages for the merged entity. Expert consultation in the field as from KPMG must be sort to
achieve the same.
Given the economic environment, Bank shall target cautious and controlled growth, particularly in
new lending activities; and the Bank shall continue to focus and enhance its credit risk framework
to make it more robust. Risk rating modules shall be updated based on past experience. Well
capitalised, highly liquid and diverse balance sheet and disciplined growth shall be the core
Investment in delivery channels, IT infrastructure, customer service, and business process
reengineering, innovative products / services and staff knowledge. Offshore expansions in
consultation with strategic experts as partners.
Expansion of asset base to a well diversified productive segments of the economy like Agriculture
and Micro, Small and Medium Enterprises (MSMEs), Retail, including Housing, Education, Vehicle
and others, exposure to Corporate and various Infrastructure segments.