UNITEDWORLD SCHOOL OF LAW

Assignment On

PRINCIPLES OF MANAGEMENT
Report on

BANKING INDUSTRY

For Internal Evaluation

Submitted to

Dr. Malay Patel

Prepared by

Palak Katta

BBA-LLB SEM-1 2019

Roll No.- 1006AL0067

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 DECLARATION

The text reported in the project is the outcome of my own efforts

and no part of this project assignment has been copied in any unauthorized

manner and no part of it has been incorporated without due acknowledgement.

PALAK KATTA

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 A. INTRODUCTION

Banking is an industry that handles cash, credit, and other financial transactions. Banks provide a safe place
to store extra cash and credit. They offer savings accounts, certificates of deposit, and checking accounts.
Banks use these deposits to make loans. These loans include home mortgages, business loans, and car
loans.1

The modern banking industry is a network of financial institutions licensed by the state to supply banking
services. The principal services offered relate to storing, transferring, extending credit against, or managing
the risks associated with holding various forms of wealth. The precise bundle of financial services offered at
any given time has varied considerably across institutions, across time, and across jurisdictions, evolving in
step with changes in the regulation of the industry, the development of the economy, and advances in
information and communications technologies.2

Banks as financial intermediaries are party to a transfer of funds from the ultimate saver to the ultimate user
of funds. Often, banks usefully alter the terms of the contractual arrangement as the funds move through the
transfer process in a manner that supports and promotes economic activity. By issuing tradable claims (bank
deposits) against itself, the bank can add a flexibility to the circulating media of exchange in a manner that
enhances the performance of the payments system. These deposits may support the extension of personal
credit to consumers (retail banking) or short-term credit to nonfinancial businesses (commercial banking). If
so, the bank aids the management of liquidity, thus promoting household consumption and commerce. By
facilitating the collection of funds from a large number of small savers, each for a short period, the bank
promotes the pooling of funds to lend out in larger denominations for longer periods to those seeking to
finance investment in larger capital projects. Financing investment may take the form of underwriting issues
of securities (investment banking) or lending against real estate (mortgage banking). By specializing in the
assessment of risk, the bank can monitor borrower performance; by diversifying across investment projects,
the bank minimizes some types of risk and promotes the allocation of funds to those endeavours with the
greatest economic potential. By extending trade credit internationally (merchant banking), the bank can
facilitate international trade and commerce. As one last example, by lending to other banks in times of
external pressures on liquidity, the bank can manage core liquidity in the financial system, thus potentially
stabilizing prices and output (central banking).

To discharge its various functions, banks of all types manage highly leveraged portfolios of financial assets
and liabilities. Some of the most crucial questions for the banking industry and state regulators center on

1
https://www.thebalance.com/what-is-banking-3305812 accessed on 8 October 2019
2
encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/banking-industry accessed on 8 October 2019
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 questions of how best to manage the portfolio of deposit banks, given the vital role of these banks in
extending commercial credit and enabling payments. With bank capital (roughly equal to the net value of its
assets after deduction of its liabilities) but a small fraction of total assets, bank solvency is particularly
vulnerable to credit risk, market risk, and liquidity risk. An increase in non-performing loans, a drop in the
market price of assets, or a shortage of cash reserves that forces a distress sale of assets to meet
depositors’ demand can each, if transpiring over a period of time too short for the bank to manage the
losses, threaten bank solvency.3

TYPES OF BANKS

1. Commercial Banks:
These banks play the most important role in modern economic organisation. Their business mainly
consists of receiving deposits, giving loans and financing the trade of a country. They provide short-
term credit, i.e., lend money for short periods. This is their special feature.4

2. Exchange Banks:
Exchange banks finance mostly the foreign trade of a country. Their main function is to discount, accept
and collect foreign bills of exchange. They also buy and sell foreign currencies and help businessmen to
convert their money into any foreign money they need. Their share in the internal trade of a country is
usually small. In addition, they carry on ordinary banking business too.5

3. Industrial Banks:
There are a few industrial banks in India. But in some other countries, notably Germany and Japan,
these banks perform the function of advancing loans to industrial undertakings. Industries require capital
for a long period for buying machinery and equipment. Industrial banks provide this type of Mock
capital. Industrial banks have a large capital of their own. They also receive deposits for longer periods.
They are thus in a position to advance long-term loans.

In India, the Central Government set up an Industrial Finance Corporation of India (IFC1) in 1948. Its
activities have since then been greatly enlarged. Further the States have also set up State Financial
Corporations. The Central Government has also established the Industrial Credit and Investment
Corporation of India (ICICI) and the National Industrial Development Corporation for the financing and
promotion of industrial enterprises. In 1964 the Industrial Development Bank of India (1DBI) was

3
Ibid
4
http://www.economicsdiscussion.net/banks/7-important-types-of-banks-discussed/1879 accessed on 8 October 2019
5
Ibid
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 established as the apex or top term-lending institution. These new institutions fill important gaps in our
system of industrial finance.6

4. Agricultural or Co-operative Banks:

The main business of agricultural banks is to provide funds to farmers. They are worked on the co-
operative principle. Long-term capital is provided by land mortgage banks, nowadays called land-
development banks, while short-term loans are given by co-operative societies and co-operative banks.
Long-term loans are needed by the farmers for purchasing land or for permanent improvements on land,
while short-period loans help them in purchasing implements, fertilizers and seeds. Such banks and
societies are doing useful work in India.7

5. Savings Banks:
These banks (perform the useful service of collecting small savings. Commercial banks too run “savings
departments” to mobilise the savings of men of small means. The idea is to encourage thrift and
discourage hoarding. Post Office Saving Banks in India are doing this useful work.8

6. Central Banks:
Over and above the various types of banks mentioned above, there exists in almost all countries today a
Central Bank. It is usually controlled and quite often owned by the government of the country.9

B. SWOT ANALYSIS

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying
both the Opportunities, open to you and the Threats you face.

Used in a business context, it helps you to carve a sustainable niche in your market. Used in a personal
context , it helps you to develop your career in a way that takes best advantage of your talents, abilities and
opportunities.10

SWOT Analysis is done by looking at yourself and your competitors using the SWOT framework, you can
start to craft a strategy that helps you distinguish yourself from your competitors, so that you can compete
successfully in your market.11

6
Ibid
7
ibid
8
http://www.economicsdiscussion.net/banks/7-important-types-of-banks-discussed/1879 accessed on 8 October 2019
9
Ibid
10
https://www.mindtools.com/pages/article/newTMC_05.htm accessed on 8 October
11
https://www.liveplan.com/blog/what-is-a-swot-analysis-and-how-to-do-it-right-with-examples/accessed on 8 October 2019
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Strengths and weakness are frequently internally related, while opportunities and threats commonly focus on
the external environment. The name is an acronym for the four parameters the technique examines:12

 Strengths: characteristics of the business or project that give it an advantage over others.
 Weaknesses: characteristics of the business that place the business or project at a disadvantage relative
to others.
 Opportunities: elements in the environment that the business or project could exploit to its advantage.
 Threats: elements in the environment that could cause trouble for the business or project.

C. SWOT ANALYSIS OF BANKING INDUSTRIES

A SWOT analysis of a bank formally evaluates the financial institution’s strengths, weaknesses,
opportunities and threats. This analysis identifies these four main elements to help upper management better
leverage its strengths to take advantage of future business opportunities while better understanding its
operational weaknesses to combat threats to potential growth. A SWOT analysis can also address many
other scenarios, such as new business initiatives, marketing budgets or even advertising campaigns.13

12
https://en.wikipedia.org/wiki/SWOT_analysis accessed on 8 October 2019
13
https://www.sapling.com/6680601/swot-analysis-bank accessed on 8 October 2019
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 D. CRITICAL EVOLUTION OF ‘SWOT ANALYSIS OF BANKING INDUSTRY’

I. STRENGTHS

In the area of strengths, a SWOT analysis should list the areas where the bank is succeeding and excelling in
reaching its goals. These successes should also be internal components reflective of the bank’s physical and
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human resources. For example, a bank’s strengths may be high client retention, higher than average checking
account balances, high-yield bond rates, a user-friendly website, product line diversification, low staff turnover
and low overhead.14

a) One of the oldest industries.

So long as humans have been alive, there’s been forms of banking. Initially, it was a bartering and
exchange system, but now it’s much more than that. Banking teaches us the value of money, gives us
access to loans to reach our dreams, and provides a host of other services related to credit cards, savings,
and bonds.15

b) A leader in economic growth.

There is a consensus among economists that development of the financial system contributes to
economic growth. Financial development creates enabling conditions for growth through either a
supply-leading (financial development spurs growth) or a demand-following. It is this industry which
continuously works to secure financial stability, facilitate international trade, promote employment, &
reduce poverty around the world.16

c) Hedge from risk

Whether it is natural calamity or man-made calamity banks mitigate the after effect of the destruction by
providing financial support to the victims to stand –up & lead a peaceful life again.17 The banking
industry helps customers get back on their feet. Insurance, investment, and loan options are to thank for
this.18

d) Digital banking convenience.

It’s now easier than ever to do banking online. You can deposit your check, pay your bills, and apply for
a credit card without stepping foot into your bank’s branch. However, for more “in-depth” services,
you’ll likely still need to make an appointment with a financial advisor. Some things are better handled
in-person than electronically.
Banks have plenty of competition. That’s why many are making their customers’ lives easier by offering
specific services like free credit score checks. The focus is about improving regulatory compliance and
asset quality.

14
https://www.sapling.com/6680601/swot-analysis-bank accessed on 8 October 2019
15
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 8 October 2019
16
https://www.marketing91.com/swot-analysis-of-banking-industry/accessed on 8 October 2019
17
Ibid
18
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 8 October 2019

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 e) Changing from mere savings & loan facilitator role
Changing from mere savings & loan facilitator role: Top priorities of banks now days include regulatory
compliance, improving asset quality, enhancing customer centricity, focusing on digital convergence,
and tackling competition from non-banks. Banks are therefore making business and technology
investments to change their business models.19

II. WEAKNESS

The weaknesses in a bank’s SWOT analysis should list the areas where the bank is falling short of reaching its
goals or is non-competitive. These areas of improvement should also be internal components reflective of the
bank’s physical and human resources. For example, a bank’s weaknesses may be low customer satisfaction,
poor website features, low staff morale, high loan rates, low brand recognition or a minimal product line.20

The major weaknesses which a banking industry in general have to face are-

a) Lack of worldwide coordination.

Because the banking industry handles finances, it’s a vulnerable industry. It also relies heavily on the
coordination of the economy, but this is a problem on a global scale. Europe holds more than 50% of the
global market. Should it face a recession, the rest of the world (and banks) could suffer by proxy.
Fluctuating currencies and exchange rates can also be trouble for banks.21 The global banking industry
faces short-term uncertainty due to the debt crises that challenge several major economies. Industry
assets stand at $143 trillion (2013) &the EU is the largest regional market, with over 57% of the global
market. Volatility in different market/Currencies has created problems for the banks in order to work
properly across the borders.

b) Vulnerable to risk
Since this sector deals with finances, it is the most risky sector that can change the fate of any
business/Industry. Many banks still use outdated IT infrastructure to host online services. For instance,
some banking websites don’t use case sensitive passwords or allow customers to put special characters

19
https://www.marketing91.com/swot-analysis-of-banking-industry/accessed on 9 October 2019
20
https://www.sapling.com/6680601/swot-analysis-bank accessed on 9 October 2019
21
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 9 October 2019
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 in passwords. This makes passwords extremely weak and easy for hackers to brute-force into your
accounts.

Considering it holds your life savings, most customers expect their banks to follow updated policies,
regulations, and infrastructure to keep their information protected. And yet, it’s taking the banking
industry too long to keep up with technological advancements. Because of that, many banks suffer from
digital vulnerabilities and potential security bugs.22

c) Can’t reach to Under-penetrated market

 Due to several conflicting objectives of government & banks which goes hand in hand, rural areas of
developing nations are still not in the shadow of banks. Although PMJDY (Pradhan Mantri Jan
DhanYojna)23 implemented by the Indian banks got acknowledged by World Bank for financial
inclusion but the Idea is not fully capitalized even in the home country.

Other common weakness which include 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, Political pressure and ineffective regulations.

III. OPPORTUNITIES

The opportunities section in a bank’s SWOT analysis should list the areas where the bank has room for growth
or could take advantage of opportunities in the marketplace. These areas ripe for development should be
external components reflective of the current business environment. For example, a bank’s opportunities may
include a growing economy, new high-yield investment products, banking deregulation, less competitors in the
marketplace or an increase in the average savings rate.24

The banking industries have many opportunities within the industry and for consumers:

22
Ibid
23
https://www.pmjdy.gov.in/ accessed on 9 October 2019
24
https://www.sapling.com/6680601/swot-analysis-bank accessed on 9 0ctober 2019
12
 a) Move into rural regions.25
As mentioned in the weaknesses section, the banking industry has not approached rural areas yet. It is
an opportunity to get more customers, but achieving such a move isn’t a small feat. It may take dozens
of years before this approach is successful.

b) Offer more or lose customers.

Banks should keep up with consumer demands and demographic changes. Having a banking app isn’t
enough — consumers (especially millennials) crave more options. Providing what people want will
require heavy research from banks. It will also require segmenting customers to create custom-service
options. For instance, what students opening their first account needs will differ greatly from
homeowners or business owners.
If banks fail to address the demands and desires of customers, they’ll lose them. After all, there’s always
another bank they can easily go to.

c) Rise in private sector banking

Banking Industry across the world is highly regulated &lead by PSU’s with their respective central
banks. With the advent of private sector banks this sector is going through structural & functional
changes mainly due to the adaptation of the advanced technologies & increased competition thereby
benefiting to the end customers.

IV. THREATS26

Just like any other industry, the banking industry also has its fair share of threats:

a) The biggest threat of all: recessions.

The biggest threat to any industry handling money is a recession. It’s the most critical threat that can
make or break a business. If small and big businesses fall, it’ll have a direct consequence on the banking
industry.

25
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 9 October 2019
26
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 9 October 2019
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 b) Data breaches.
With banks offering more online options, it also increases the risk for data breaches. People give other
websites like invoicing companies (like PayPal) access to their bank to receive and transfer money. If
these companies have a breach, it gives hackers access to personal bank accounts. Although there is
nothing banks can do for breaches on other websites they can make sure their own is heavily protected
against hackers.

c) So much competition.
Banks have a ton of competition; not just with other banks, but with other alternative finance
companies. This includes mutual fund companies and insurance companies. Millennials are especially
receptive to getting financial services from fintech companies rather than traditional banks.

Unlike banks, Fintech companies are proving to be more accommodating to millennials needs (for
instance, offering digital services, online banking, and building a relationship with the user). The
banking industry needs to change its approach if it wants to keep the younger generation as customers.

These were some of the threats which a banking company must be aware. They must scan such risks in order to
predict the future circumstances and react to them at an early stage. So that they don’t have to face any losses
and can capture any opportunity they have at their disposal.

SIGNIFICANCE OF ANALYSIS OF BANKING INDUSTRY IN INDIA

Today the banking sector in India is fairly mature in terms of supply, product range and reach. As far as
private sector and foreign banks are concerned, the reach in rural India still remains a challenge. A

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 growing economy like India requires a right blend of risk capital and long term resources for corporate
to choose an appropriate mix of debt and equity, particularly for infrastructure projects which is the
need of the day. A well functioning domestic capital market is also necessary for the banking sector to
raise capital and support growth and also have suitable capital adequacy ratio to mitigate risk. Bank
investments are also showing an increasing trend. After researching banking sector researcher found that
different problems are increasing to banking sector because of the money market has always down.27

E. CONCLUSION

After the SWOT analysis of the Banking industry it can be analysed that the environment in which banking
industries are working is very dynamic in nature. They keep on changing very frequently.

https://www.researchgate.net/publication/260869341_A_STUDY_OF_BANKING_SECTOR_IN_INDIA_AND_OVERVIEW_OF_
27

PERFORMANCE_OF_INDIAN_BANKS_WITH_REFERENCE_TO_NET_INTEREST_MARGIN_AND_MARKET_CAPITALIZ
ATION_OF_BANKS/link/02e7e532887b847cd0000000/download accessed on 9 October 2019
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 Banking Industry is becoming strong with the change in time. Almost all of the businesses are run with the
consistent and efficient transfer of money and people start trusting over the safe and secure banking
business and they do not need to travel with heavy cash in presence of their ATM or VISA cards. People
like to carry out their business activities and solve their financial matters by dealing with the banks. Banks
provide them huge amount of loan on simple guarantee and the users have to pay it back in easy
instalments, so they can start their business and earn their living with their hard work.28

The banking industry is old, which proves its reliability. It’s there when we need to get back on our feet
after a natural (or man-made) disaster. It offers a variety of ways for us to gain credit, save more money,
and easily transfer funds when necessary. But it’s also slow to technological changes and fails to meet the
needs of the younger generation. The banking industry is held accountable by the government. What and
how they offer services is determined by politics and current governmental laws. Additionally, banks are at
the whim of the economy — inflation rates can devastate banking prospects as it affects the value of
currency.29

The good news is that there are opportunities for where it fails. Banks can update their infrastructure to
remain secure; it can create new offerings to appease millennials. It can also reach more people by
spreading into rural areas. But the industry must first look at its weaknesses honestly before it can make any
headway.

So, we can conclude that only after taking in account the Strengths, Weaknesses, Opportunities and Threats a
firm should take its decision related to any matter and as the banking system is the heart of an economy, they
should take even more caution towards such subjects.

28
http://marketingdawn.com/swot-analysis-of-banking-industry/accessed on 9 October 2019
29
https://pestleanalysis.com/swot-analysis-of-the-banking-industry/accessed on 9 October 2019
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