SERVICES MARKETING ASSIGNMENT

ANALYSIS OF “BANKING” INDUSTRY

SUBMITTED BY
SAKSHI SOOD 18-042
SHAIKI AGARWAL 18-046
VIVEK AGRAWAL 18-059
DEEPIKA 18-120
 The Banking Industry

The Banking Industry was once a simple and reliable business that took deposits from investors
at a lower interest rate and loaned it out to borrowers at a higher rate.

However deregulation and technology led to a revolution in the Banking Industry that saw it
transformed. Banks have become global industrial powerhouses that have created ever more
complex products that use risk and securitisation in models that only PhD students can
understand. Through technology development, banking services have become available 24 hours
a day, 365 days a week, through ATMs, at online bankings, and in electronically enabled
exchanges where everything from stocks to currency futures contracts can be traded .

The Banking Industry at its core provides access to credit. In the lenders case, this includes
access to their own savings and investments, and interest payments on those amounts. In the case
of borrowers, it includes access to loans for the creditworthy, at a competitive interest rate.

Banking services include transactional services, such as verification of account details, account
balance details and the transfer of funds, as well as advisory services, that help individuals and
institutions to properly plan and manage their finances. Online banking channels have become
key in the last 10 years.

The collapse of the Banking Industry in the Financial Crisis, however, means that some of the
more extreme risk-taking and complex securitisation activities that banks increasingly engaged
in since 2000 will be limited and carefully watched, to ensure that there is not another banking
system meltdown in the future.

HISTORY

The business of banking around the globe is changing due to integration of global financial
markets, development of new technologies, universalization of banking operations and
diversification in non-banking activities. Due to all these movements, the boundaries that have
kept various financial services separate from each other have vanished. The coming together of
different financial services has provided synergies in operations and development of new
concepts.
Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of
the country. This is one of the main reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India.

DIFFERENT PHASES IN INDIAN BANKING SYSTEM

The first bank in India was established in 1786. From 1786 till today, the journey of Indian
Banking System can be segregated into three distinct phases. They are:

 Early phase from 1786 to 1969 of Indian Banks

 Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
 New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.

PHASE I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which started
as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and Punjab National Bank Ltd. was set up in 1894 with
headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India
came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as the Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal department
was comparatively safer. Moreover, funds were largely given to traders.
PHASE II

Government took major steps in this Indian Banking Sector Reform after independence. In 1955,
it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially
in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI
and to handle banking transactions of the Union and State Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19 th July,
1969, major process of nationalization was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were
nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in
the Country:

 1949: Enactment of Banking Regulation Act.

 1955: Nationalization of State Bank of India.
 1959: Nationalization of SBI subsidiaries.
 1961: Insurance cover extended to deposits.
 1969: Nationalization of 14 major banks.
 1971: Creation of credit guarantee corporation.
 1975: Creation of regional rural banks.
 1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.
PHASE III

This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking is introduced. The entire
system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This is
all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not
yet fully convertible, and banks and their customers have limited foreign exchange exposure.

The Indian banking can be broadly categorized into:

Nationalized (government owned), Private banks and Specialized Banking institutions. The
Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in
the system. Since the nationalization of banks in 1969, the public sector banks or the
nationalized banks have acquired a place of prominence and has since then seen tremendous
progress. The need to become highly customer focused has forced the slow-moving public
sector banks to adopt a fast track approach. The unleashing of products and services through the
net has galvanized players at all levels of the banking and financial institutions market grid to
look anew at their existing portfolio offering. Conservative banking practices allowed Indian
banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al
higher valuation when compared to banks in other Asian countries (Hong Kong, Singapore,
Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and
payment defaults. Co-operative banks are nimble footed in approach and armed with efficient
branch networks focus primarily on the ‘high revenue’ niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian
market and is addressing the relevant issues to take on the multifarious challenges of
globalization. Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive
players capable of meeting the multifarious requirements of the large customer’s base. Private
Banks have been fast on the uptake and are reorienting their strategies using the internet as a
medium The Internet has emerged as the new and challenging frontier of marketing with the
conventional physical world tenets being just as applicable like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business institution to a
highly proactive and dynamic entity.  This transformation has been largely brought about by the
large dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and
lending).  The banking in India is highly fragmented with 30 banking units contributing to
almost 50% of deposits and 60% of advances.  Indian nationalized banks (banks owned by the
government) continue to be the major lenders in the economy due to their sheer size and
penetrative networks which assures them high deposit mobilization.  The Indian banking can be
broadly categorized into nationalized, private banks and specialized banking institutions.
The Reserve Bank of India act as a centralized body monitoring any discrepancies and
shortcoming in the system.  It is the foremost monitoring body in the Indian financial sector. 
The nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking
arena.  Industry estimates indicate that out of 274 commercial banks operating in India, 223
banks are in the public sector and 51 are in the private sector.  The private sector bank grid also
includes 24 foreign banks that have started their operations here.  Under the ambit of the
nationalized banks come the specialized banking institutions.  These co-operatives, rural banks
focus on areas of agriculture, rural development etc.,
 
Unlike commercial banks, co-operative banks do not lend on the basis of a prime lending rate. 
They also have various tax sops because of their holding pattern and lending structure and hence
have lower overheads.  This enables them to give a marginally higher percentage on savings
deposits.  Many of these cooperative banks diversified into specialized areas (catering to the
vast retail audience) like car finance, housing loans, truck finance etc.  in order to keep pace
with their public sector and private counterparts, the co-operative banks too have invested
heavily in information technology to offer high-end computerized banking services to its clients.

Future challenges of banks in India

The Indian banks are hopeful of becoming a global brand as they are the major source of
financial sector revenue and profit growth. The financial services penetration in India continues
to be healthy, thus the banking industry is also not far behind. As a result of this, the profit for
the Indian banking industry will surely surge ahead. The profit pool of the Indian banking
industry is probable to augment from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and
further to US$ 40 billion by 2015. This growth and expansion pace would be driven by the chunk
of middle class population. The increase in the number of private banks, the domestic credit
market of India is estimated to grow from US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050.
Third largest banking hub of the globe by 2040 - is that vision too far away

The Benefits of Banking

The benefits of banking, there are many who wonder exactly what they are. If you are interested
in opening up a bank account with a finical institution, but you have yet to do so, you may be
wondering what the benefit of banking are. There are an unlimited number of banking benefits.
To determine how you can benefit from having a bank account, it is important to examine your
needs.

Bank accounts are often obtained because they allow you to have money. If you are employed, it
is likely that you will receive a paycheck. There are many financial institutions that you will
charge you a fee each time you go to cash in your paycheck. This fee is typically assessed to
those individuals who do not have a bank account. While the fee may not seem like a large
amount of money at the time, the fees can easily add up. By opening up a savings account or a
checking account, you will not be subject to these fees.

Having a bank account often means having a safe place to store your money. If you do not have a
bank account, it is likely that you are carrying around large amounts of cash. It is advised, no
matter where you live, that you do not carry large amounts of cash with you or keep large
amounts of cash in your home. In the event that your money becomes lost or stolen, you will be
unable to have that money replaced. A bank account provides you with a safe place to store your
money. It also provides you with easy access to your money, either with checks or a debit card.

The elimination of check chasing fees and the security of a bank account are just a few of the
many benefits of banking. You may also find that having a bank account will improve your
chances of being able to obtain a loan. If you are in need of a personal loan, automobile loan,
student loan, or mortgage, you have a higher chance of being approved if you are already the
customer a bank. This is because many banks are more likely to do business with their existing
customers.

In addition to being approved for a loan with your bank, having a bank account can improve your
chances of obtaining financing elsewhere. Before financing is granted, the lender in question will
examine your ability to pay. If you have a savings account or a checking account, the balance of
those accounts will be taken into consideration. The more money you have in your account, the
more likely it is that you will be approved for financing.

If do not already have an account with a bank, it is advised that you at least consider opening
one. You should be able to obtain free information from a number of local financial institutions.
This information may provide insight into all of the ways that you can benefit from opening up a
bank account.
SWOT ANALYSIS OF BANKING INDUSTRY
STRENGTH

 Indian banks have compared favorably on growth, asset quality and profitability with
other regional banks over the last few years. The banking index has grown at a
compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per
cent growth in the market index for the same period.

 Policy makers have made some notable changes in policy and regulation to help
strengthen the sector. These changes include strengthening prudential norms, enhancing
the payments system and integrating regulations between commercial and co-operative
banks.

 Bank lending has been a significant driver of GDP growth and employment.

 Extensive reach: the vast networking & growing number of branches & ATMs. Indian
Banking system has reached even to the remote corners of the country.

 The government's regular policy for Indian bank since 1969 has paid rich dividends with
the nationalization of 14 major private banks of India.

 In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region.

WEAKNESS

 PSBs need to fundamentally strengthen institutional skill levels especially in sales and
marketing, service operations, risk management and the overall organizational
performance ethic & strengthen human capital.

 Old private sector banks also have the need to fundamentally strengthen skill levels.

 The cost of intermediation remains high and bank penetration is limited to only a few
Customer segments and geographies.

 Structural weaknesses such as a fragmented industry structure, restrictions on capital

availability and deployment, lack of institutional support infrastructure, restrictive labour
laws, weak corporate governance and ineffective regulations beyond Scheduled
Commercial Banks (SCBs), unless industry utilities and service bureaus.
  Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in
PSU banks below 51% thus choking the headroom available to these banks for raining
Equity capital.

 Impediments in sectoral reforms: Opposition from Left and resultant cautious approach
From the North Block in terms of approving merger of PSU banks may hamper their
Growth prospects in the medium term.

OPPORTUNITY

 The market is seeing discontinuous growth driven by new products and services that
include opportunities in credit cards, consumer finance and wealth management on the
retail side, and in fee-based income and investment banking on the wholesale banking
side. These require new skills in sales & marketing, credit and operations.

 Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in
interest rates provided. This will expose the weaker banks.

 With increased interest in India, competition from foreign banks will only intensify.

 Given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.

 New private banks could reach the next level of their growth in the Indian banking sector
by continuing to innovate and develop differentiated business models to profitably serve
segments like the rural/low income and affluent/HNI segments; actively adopting
acquisitions as a means to grow and reaching the next level of performance in their
service platforms. Attracting, developing and retaining more leadership capacity.

 Foreign banks committed to making a play in India will need to adopt alternative
approaches to win the “race for the customer” and build a value-creating customer
franchise in advance of regulations.

 At the same time they should stay in the game for potential acquisition opportunities as
and when they appear in the near term. Maintaining a fundamentally long-term value-
creation mindset.

 Reach in rural India for the private sector and foreign banks.

 With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong.
 The Reserve Bank of India (RBI) has approved a proposal from the government to amend
the Banking Regulation Act to permit banks to trade in commodities and commodity
derivatives.
 Liberalization of ECB norms: The government also liberalized the ECB norms to permit
financial sector entities engaged in infrastructure funding to raise ECBs. This enabled
banks and financial institutions, which were earlier not permitted to raise such funds,
explore this route for raising cheaper funds in the overseas markets.

 Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed
them to raise perpetual bonds and other hybrid capital securities to shore up their capital.
If the new instruments find takers, it would help PSU banks, left with little headroom for
raising equity. Significantly, FII and NRI investment limits in these securities have been
fixed at 49%, compared to 20% foreign equity holding allowed in PSU banks.

THREATS

 Threat of stability of the system: failure of some weak banks has often threatened the
stability of the system.

 Rise in inflation figures which would lead to increase in interest rates.

 Increase in the number of foreign players would pose a threat to the PSB as well as the
Private players.