SECTOR-1 REPORT

BANKING & FINANCE

BANKING & FINANCE SECTOR:

In addition to cooperative credit institutions, the Indian banking system includes 12 public
sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban
cooperative banks, and 96,000 rural cooperative banks. The total number of ATMs in India
has grown to 209,282 as of November 2020.
The Reserve Bank of India (RBI) claims that India's banking industry is adequately
capitalised and regulated. The country's financial and economic conditions are considerably
superior to those of any other country on the planet. According to credit, market, and liquidity
risk analyses, Indian banks are usually robust and have fared well during the global crisis.
Innovative banking concepts such as payments and small financing banks have lately been
introduced in the Indian banking market. The RBI's new policies may go a long way toward
assisting the domestic banking industry's reorganization. India's digital payments system has
advanced the most among 25 nations, with India's Immediate Payment Service (IMPS)
ranking fifth in the Faster Payments Innovation Index (FPII).

KEY DEVELOPMENTS IN BANKING SECTOR

- WhatsApp began accepting UPI payments in India on November 6, 2020, after getting
clearance from the National Payments Corporation of India (NPCI) to ‘Go Live' on
UPI in a phased way
- The number of bank accounts established under the government's main financial
inclusion campaign, the Pradhan Mantri Jan Dhan Yojana (PMJDY), as of February
27, 2021. Deposits in Jan Dhan bank accounts totaled more than Rs. 1.70 lakh crore
(US$ 23.07 billion), bringing the total to Rs. 41.93 crore
- In the previous four years, commercial banks have recovered Rs. 400,000 crore (US$
57.23 billion) in non-performing assets, with a record recovery of Rs. 156,746 crore
(US$ 22.42 billion) in FY19

PORTERS FIVE FORCES OF BANKING/FINANCE SECTOR ARE AS FOLLOWS:

1) BARGAINING POWER OF BUYER:
The evolution of internet has played a vital role in the bargaining power of buyers in the
banking sector. Due to this consumers may now compare the costs of opening/holding
accounts as well as the rates given by other banks much more easily and at a lower cost.
Many customers face a lot of hurdles in switching to another bank for their services when
they are already been given various financial services in the current banking firm in the areas
of savings, checking, mortgage, hypothecation, & other banking products. To attract new
customers, banking firms offer them quality services at low switching costs to ensure cost
effectiveness in availing the same services at the competitor’s banking firm.

2) BARGAINING POWER OF SUPPLIERS:

The competitive nature of BFSI sector has improved the size, cost & price of banking
services. The efficiency in which banks manage these price, cost/size is impacted in their
position statement. Suppliers' power is primarily determined by the market, and it is
frequently estimated to range from modest to high.
1. Deposits from customers.
2. Loans and mortgages
3. Mortgage-backed securities (MBS) are a type of mortgage-backed security
4. Other financial institutions' loans
The bank may be guaranteed that they have the resources to fulfil their clients' borrowing
requirements while still having adequate capital to meet withdrawal expectations if they use
these four key suppliers.
3) RIVALRY AMONG EXISTING COMPETITORS:
The banking business is known for its fierce competition. The financial services sector has
existed for hundreds of years, and almost everyone who need banking services has access to
it. As a result, banks must try to entice customers away from competitors. They accomplish it
by providing better loans, higher rates, investment options, and conveniences than their
competitors. The banking rivalry is frequently a battle to see which bank can provide the
finest and fastest services, but it has resulted in reduced ROA for banks (Return on Assets).
The banking industry is more likely to undergo additional consolidation due to the nature of
the industry. Rather than spending money on marketing and advertising, major banks choose
to purchase or merge with other banks.
4) THREAT TO SUBSTITUTE PRODUCTS:
Non-financial rivals are posing some of the banking industry's most serious risks of
replacement.
In terms of deposits and withdrawals, the industry is unaffected by alternatives; nevertheless,
non-banking firms provide a variety of banking services, including insurance, mutual funds,
and fixed-income securities. There is also the threat of payment method replacements, and
the industry's loan ratio is quite high. Big-name electronics, jewellers, auto dealers, and other
retailers, for example, frequently provide preferential financing on "big ticket" products.
These non-banking firms frequently provide cheaper interest rates on instalments than a
typical bank loan.
5) THREAT OF NEW ENTRANTS:
Influence on forces of liberalization of financial sector on BFSI sector is felt to a larger extent
wherin the DFI’s are diversified to universal banking activities with the entry of new private
banks in the industry. This increases the threat from new entrants. People are more inclined to
put their confidence in large brand, well-known, significant banks that they believe are
trustworthy due to the nature of the industry.
Major banks are attempting to service all of a customer's financial needs under one roof,
which has resulted in a consolidation of the banking sector. Consumers are more inclined to
allow one bank to handle all of their accounts and fulfil their financial requirements as a
result of this consolidation, which increases the role of trust as a barrier to entry for new
banks trying to compete with large banks. In the end, the banking business has relatively low
entrance barriers. While it is virtually hard for new banks to enter the business and provide
the same level of trust and services as a large bank, it is very simple to start a regional bank.