Industry Analysis

Sector Report

Banking –Investment, Corporate, HNI, Retail

By Group-15 | Sec-G
Ambar Mani Anand (2021PGP036)
Ankit Champramary (2020PGP042)
Harshita Dhiman (2021PGP143)
Priyanka Bedarkar (2021PGP268)

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 Table of Content
Executive summary………………………………………………………. 3

Overview of the industry………………………………………………… 4

Market Size……………………………………………………………….. 4

The major segments in the Banking Industry………………………….. 4

Size and Growth of Banking Sector over years………………………… 6

Present and future trends………………………………………………... 7

Major events in the Banking sector…………………………………………. 8

Importance to the economy……………………………………………… 8

Key drivers of Growth…………………………………………………… 8

Merger -Acquisition activity in the industry…………………………… 9

Analysts’ views of the sector………………………………………….…. 10

Major Players in Banking Sector in India……………………………… 10

Impact of Union Budget…………………………………………………. 14

Government Schemes……………………………………………………. 14

New and emerging technologies………………………………………… 15

References………………………………………………………………… 18

Exhibits…………………………………………………………………… 19

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Executive summary

The banking sector is one of the most important constituents of a country’s economic system.
It plays an important role in terms of mobilizing the nation’s savings and channelizing them
into high investment priorities for the purpose of better utilization. The primary activities of
the banking system are to accept deposits, retail or commercial for the purpose of lending and
investing. Thus by Retail Credit and Business Credit management, regulate the demand and
supply determining the Economic Growth. Banking contributes to GDP about 7.7% of GDP.

The major players in the Indian Banking system are HDFC Bank, SBI Bank, ICICI Bank,
Axis bank in retail and commercial banking, and JP Morgan Chase, Goldman Sachs in
investment banking. Established in 1994, HDFC bank is a major player dealing with retail,
commercial and financial services with a net asset value of 17.46L Cr with a total of 5608
branches, 14897 ATMs in 2902 cities/towns. ICICI Bank, also established in 1994 has
expanded to 5288 branches with 15000 plus ATMs with a market valuation of 15.74L Cr.
SBI is the largest public sector bank, listed in fortune 500 list, dealing with individuals,
corporates, public bodies, and institutional customers, with 22,000 branches & 58500 ATMs
across the country at operating profits crossing 138,485.38 crores (US$ 18.88 billion).

Indian Banking Sector has witnessed gradual and continuous evolution in terms of size and
innovation. With the growth in the working population, disposable income along with rapid
urbanization, the Rural banking is on the impetus of expansion. Innovation in services
including mobile, online banking, UPI introduction, improvement of facilities & efficiency of
ATMs & blockchain, Banking is tapping deeper into the vast unbanked population. Banks
across segments are evaluating the business fundamentals by rising fee incomes to improve
the revenue mix. Low NPA levels with high net interest margins are fundamental to a healthy
business.

This sector is highly regulated and responds along with changes & policies implemented by
RBI. Credit monetary policy, healthy regulatory oversight by RBI, is lending stability to the
banking system. Various Government policies like Pradhan Mantri Jan Dhan Yojana have
resulted in 43 plus crore accounts by FY21. Rural Income rise & housing demand is further
expected to boost banking as key drivers as the economy is expected to grow stronger. With
the recent pandemic hit, the credit growth of the public and private sector observed a fall to
5% in FY21 compared to 6.8% credit growth in FY 20. However, with Government pushing

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relief funds and promoting investment in MSMEs, the credit growth for private banking has
finally reached 9.1% in FY21.

Overview of the industry

Banking is an important pillar in the financial sector of an economy. Banking deals deposit
mobilization and credit disbursement to other sectors of the economy by securing financial
assets and investing to generate wealth. The banking activities are regulated by government
agencies, investor services, etc

Market Size

The total number of ATMs in India has increased to a number of 209,282.

The major segments in the Banking Industry-

 Retail Banking- It involves deposits, loans, mortgages & cash services like credit-
debit cards, etc. Major banks in this segment are SBI, Punjab National Bank, HDFC,
etc.

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 Retail Banking Production (turnover) MSP
INR million
2,500,000.0
2,214,232.4 2,264,171.7 2,147,179.6
2,055,939.7
2,000,000.0
1,701,484.6
1,561,670.9
1,500,000.0

1,000,000.0

500,000.0

0.0
2015 2016 2017 2018 2019 2020

Source: Euromonitor

 Investment Banking- This branch of banking is related to the creation of capital for
different entities inclusive of companies to government.

Investment Banking and Brokerage Production

(turnover) MSP INR million
5,000,000.0 4,615,974.8 4,717,627.8 4,513,485.8
4,500,000.0 4,132,616.9
4,000,000.0 3,594,599.7
3,500,000.0 3,343,131.1
3,000,000.0
2,500,000.0
2,000,000.0
1,500,000.0
1,000,000.0
500,000.0
0.0
2015 2016 2017 2018 2019 2020

Source: Euromonitor

 Commercial Banking- It specifically deals with corporates & commercial businesses,

catering to commercial needs like business loans, overseas operations, industrial
loans, securities investment, etc. Banks detailing in commercial segments are ICICI
bank, HDFC, Axis Bank.

 High Net-worth Individuals / Wealth Management Banking- This segment deals with
the investment of affluent individuals & asset management

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 Other Banking and Financial Services Production
(turnover) MSP INR million
4,000,000.0
3,582,587.6
3,355,112.0 3,435,312.8
3,500,000.0
3,113,486.1
3,000,000.0
2,652,588.3
2,431,423.2
2,500,000.0

2,000,000.0

1,500,000.0

1,000,000.0

500,000.0

0.0
2015 2016 2017 2018 2019 2020

Source: Euromonitor

Size and Growth of Banking Sector over years-

The size of the banking sector has seen a surge in the last few years given strong economic
growth, rise in disposable income, increase in consumerism, and accessibility of cash.

The deposit during FY19-FY20 grew at a CAGR of 13.93%, amounting to US$ 1.93 trillion.
However, the overall growth was slowed down in India in FY 2021 to 5.6% from 6.4% in FY
20 as the economy was hit by Covid 19 pandemic and the impose of lockdown country-wide.

Overall, Bank credit observed a positive growth at a CAGR of 3.75% during FY 16- FY 21.
Growth in demand for corporate & retails loans, real estate & agricultural allied growth has
resulted in this credit growth.

Private Sector Banks credit growth declined to 7.1% in FY20 from 10.4% in FY19 however
Public Sector Banks registered a slow increase in credit growth in Sept 2020 to 4.6% from
3% in FY19 (Exhibit 1)

Urban, semi-urban & rural area bank branches recorded credit growth of double-digit by
March 2021.

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Present and future trends-

1) Online Banking – With the government promoting and supporting online banking
technology and promotion in a rural areas, the banking system has improved. Ease of
operation due to Unified Payment Interface Introduction has resulted in 2.73 billion
online transactions with Central Bank removing the Rs 50,000 transaction limit and
allowing banks to have customized limits.

2) The digital lending scenario in the market is growing & lending to micro, small and
MSMEs is observing an increasing trend reaching up to US$ 100 by FY23, due to a
rise in a digital footprint. (Exhibit 2)

3) Improved risk management practices- apart from the change in customer behavior
towards banking activities, banks are becoming increasingly focused on taking an
integrated approach for management of risk and modifying the framework for asset &
Liability matching & credit risk management.

4) Technological Innovations-Digital assistant, third party channels will emerge as

primary banking channels by FY23

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Major events in the Banking sector-

1) Under Pradhan Mantri Jan Dhan Yojana, the government’s financial inclusion drive,
the number of accounts reached 42.44 crores amounting to a total of INR 1.45 lakh
crore (US$ 19.81 billion).

2) Disinvestment of government from IDBI bank with the privatization of two major
public sector banks.

3) HDFC partnered with Apollo Hospital launching Healthy Life Program increasing
affordability & accessibility on its online portal given pandemic situations

4) The total number of transactions over Unified Payments Interface UPI reached 2.54
billion with a total worth of INR 4.91 lakh crore and that over Immediate Payments
Services reached 279.81 million, amounting to INR 2.66 trillion showcasing the
penetration of online banking.

Importance to the economy –

The banking sector plays a pivotal role in the economy of India and its development. The
capital requirement of setting up and running businesses or industries is fulfilled by the
Banking sector generating direct employment and eventually contributes to the growth of
GDP. The total contribution of the banking sector is 7.7% of GDP

Commercial banks involving in financing Agriculture sectors and supporting farmers also
indicate economic growth.

Key drivers of Growth-

1) The rise in per capita income of the Indian population and the expected growth of the
working population by 9.3% in the new 10 years will push new consumers in the
Banking sector boosting banking services (Exhibit 3).

2) The rise in Disposable Rural Income and Internet Connectivity is likely to enhance
the need for banking and drive growth.

3) The growth in Housing and Personal Finance due to rapid urbanization & decrease in
household size is emerging as a key driver in home loans and the housing sector
increasing credit at CAGR of 13.4% from FY19 to FY20.

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Merger -Acquisition activity in the industry-

1) The Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India
came into the act on April 1, 2020, with the central government exercising the power
of the Acquisition and Transfer of Undertakings Act after consultation with The
Reserve Bank of India.

2) There was complete integration of Vijaya Bank and Dena Bank with Bank of Baroda
(BOB). A total of 3,898 banks were integrated under this merger, increasing the
accessibility for all the customers to 8,248 branches and 10,318 ATMs all over the
country.

3) One major Three-way Bank merger for the United Bank of India and Orient Bank of
Commerce with Punjab National Bank was announced after the Nirav Modi Laon
Default case.

4) Ten Public Sector Undertaking (PSU) banks amalgamated into four banks and after
the merger, there will be 12 PSUs - six merged banks and six independent public
sector banks.

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Analysts’ views of the sector-

With enhancement on digital infrastructure, implementation of technological projects, and

reforms supporting the transition across demographics, the Banking sector is expected to be
gain further Impetus to growth.

There will be rapid growth in businesses with government incentives after the pandemic as
the credit need increases. The technological advancement through internet accessibility and
online banking has laid a great emphasis on providing improved services to customers,
clients, and up-gradation of infrastructure to enhance the overall customer experience.

India’s digital lending is standing at US$ 75 billion as of FY18 and is estimated to reach US$
1 trillion by FY23 driving the digital disbursements to five folds.

Major Players in Banking Sector in India-

India is home to opportunities for the banking sector taking its population and growth
capacity into count. It is home to 27 public sector banks (21 nationalized & 6 state bank
groups). Apart from this, 45nforeign private sector banks are functional. Few major players
of the market and their details are-

Bank Name Key products Comparative statistics

HDFC Banking Market Cap.- 8.58L Cr.

Total assets- 17.46L Cr.

EBITDA- 1,14,643 Cr.

PAT- 31,116.5 Cr.

No. of branches- 5314

SBI Consumer banking, corporate
banking, finance and
insurance, investment banking,
mortgage loans, private
Market Cap.- 3.86L Cr.
Total assets- 39.5L Cr.
EBITDA- 1,80,442 Cr.

banking, private equity, PAT- 20,410.5 Cr.

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 savings, securities, asset No. of branches- 24000
management, wealth
management, credit cards

ICICI Credit cards, consumer Market Cap.- 4.36L Cr.

banking, corporate banking,
Total assets- 15.74L Cr.
finance and insurance,
investment banking, mortgage EBITDA- 77,598 Cr.

loans, private banking, wealth PAT- 16192.7 Cr.

management, personal loans,
No. of branches- 5275
payment solutions

AXIS Bank Credit cards, consumer Market Cap.- 2.31L Cr.

banking, corporate banking, Total assets- 10.1L Cr.

finance and insurance,
investment banking, mortgage
loans, private banking, private
equity, wealth management
Kotak Bank Credit cards, Life Insurance,
Mutual Funds, Car Finance,
Securities, Institutional
Equities, Investment Banking,
EBITDA- 61,056 Cr.
PAT- 6588.5 Cr.
No. of branches- 4050
Market Cap.- 3.41L Cr.
Total assets- 4.78L Cr.
EBITDA- 24,082 Cr.

International Business, Kotak PAT- 6964 Cr.

Private Equity, Kotak Realty
No. of branches- 1500
Fund, Wealth Management
Induslnd Bank Market Cap.- 76.65T Cr.

Total assets- 3.07L Cr.

Credit cards, Car Loan, Gold
Loan, Home Loan, Loan EBITDA- 19,256 Cr.
Against Property
PAT- 2836.4 Cr.

No. of branches- 1558

Yes Bank Investment Banking Solutions, Market Cap.- 27.61T Cr.
Yes Property Purchase Credit
Card, Yes First Corporate

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Credit Card, Loans, Surplus
and Investments, Debt Capital
Markets, Digital Banking
PNB Credit cards, consumer
banking, corporate banking,
finance and insurance,
investment banking, mortgage
loans, private banking, private
equity, wealth management
Bank of Baroda Credit cards, consumer
banking, corporate banking,
finance and insurance,
investment banking, mortgage
loans, private banking, private
equity, wealth management
Bank of India (BOI) Commercial Banking, Retail
Banking, Private Banking,
Asset Management,
Mortgages, Credit Cards
Total assets- 2.78L Cr.
EBITDA- 17,943.8 Cr.
PAT- 3462 Cr.
No. of branches- 1000
Market Cap.- 39.80T Cr.
Total assets- 12.6L Cr.
EBITDA- 74,227 Cr.
PAT- 2021.6 Cr.
No. of branches- 7036
Market Cap.- 38.57T Cr.
Total assets- 11.55L Cr.
EBITDA- 63,630.4 Cr.
PAT- 829 Cr.
No. of branches- 2130
Market Cap.- 22.09T Cr.
Total assets- 7.26L Cr.
EBITDA- 37574 Cr.
PAT- 829 Cr.
No. of branches-1727
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Impact of Union Budget-

 The Government has announced that the disinvestment of IDBI bank will be
completed in the years 2021-22.
 Legislative amendments have been introduced so has to privatize two public sector
banks and one general insurance company. The name of the banks which will be
privatized has yet not been disclosed by the government.
 Due to the increasing number of NPA (Non-performing assets) of the banks the
government has decided to set up an Asset Reconstruction Company Limited and
Asset Management Company so that they can take over existing stressed debt, and
manage and dispose of assets.
 There are further plans of creating an institutional framework for the corporate bond
markets to instill confidence among participants and enhance the liquidity of
secondary markets.
 Under the SARFAESI Act, 2002, the minimum loan size has been reduced from Rs
50 Lakhs to Rs 20 Lakhs for NBFCs to be eligible for debt recovery
 The government will introduce a bill this year to set up DFI and has already allocated
Rs 20,000 crore for this institution. The government is targeting a lending portfolio of
at least Rs 5.5 lakh crores for this DFI in the coming next three years.

Government Schemes-

Most of the schemes introduced by the government are run through public sector banks so it
is important to look at them.

Pradhan Mantri Jan Dhan Yojana-

As of May 5, 2021, 43.37 crore bank accounts have been opened under the umbrella of
financial inclusion initiative, “Pradhan Mantri Jan Dhan Yojana (PMJDY), and also the
deposits in the Jan Dhan bank accounts stood at $19.62 billion

The purpose of the scheme was to open a zero balance account for each and every citizen of
India. Under this scheme life insurance of 30,000 was also covered for every person who
opened his/her account

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Atal Pension Yojana-

The scheme was introduced in the year 2015 as an up-gradation of the Swavalamban Scheme.
Under this scheme, all the subscribers would receive Rs 5000 at the age of 60 years. As of
March 31, 2021, the total number of enrolments under this scheme is more than 3.02 crore.

New and emerging technologies, innovations, disruptions, in banking and financial

services in India-

1) Digitization
With the introduction of digital services, we are witnessing revolutionary changes in
the banking sector all over the world and especially in India. Now customers can avail
of banking services from anywhere due to the facilities like telebanking, online
banking, RTGS (Real-time gross settlement), IMPS (Immediate payment service), etc.
2) Mobile Banking
In the year 2021, the number of smartphone users could reach up to 748 million and
could exceed 1.5 billion worldwide. There were approx. 10.4 million mobile
transactions were recorded in the month of June 2021 which was 62.1% greater than
June 2020. This shows an increased usage of mobile banking year on year.

3) Unified Payment Interface (UPI)

Unified Payment Interface (UPI) Unified Payment Interface developed by NPCI is an
ecosystem that connects multiple bank accounts into a single mobile application,

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 merging several banking features, & also enabling seamless fund routing as well as
merchant payments into one hood. As of August 2021, 10% of all retail transactions
were done using UPI. In the financial year 2021, Rs 41 trillion worth of transactions
were done through UPI which is 2.8 times the transactions done through debit and
credit cards at POS terminals. Google Pay and Phone Pe are the biggest market
players in this UPI ecosystem with a market share of 42.54% and 36.11%
respectively.

4) Blockchain
Blockchain in financial services can be used as a form of digital ledger technology
that contains linearly linked information blocks secured by cryptography to be shared
among participants. It provides a secured decentralized framework that runs on the
algorithmically enforced protocol. In the BFSI sector, it can improve security and
data quality information, reduce infrastructure costs, increase the rate of settlements,
and can provide transaction transparency.
Recent developments
 On June 15, 2021, more than 10 banks united together to form a new
company that will use blockchain technology to process the inland letter of
credit (LCs). This system will quicken the transactions and reduce the risk of
fraud by using invoices on goods and services tax (GST) and e-way bills.

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  JP Morgan partnered with the State Bank of India to work on Blockchain
technology
 Yes Bank, Axis Bank, and ICICI joined the interbank information network
(IIN) launched by JP Morgan
 Axis Bank has tied up with Ripple which is a blockchain-based digital
payment network so as to make cross broader payments faster and more
efficient.
 Banks like HDFC, ICICI, State Bank of India, IDFC Bank, and South Indian
Bank are investing in equity shared by IBBIC which is a fintech company that
provides DLT solutions in the finance sector.
5) Fintech companies
Fintech is indeed a disrupting force in the banking sector. According to the data of
350 fintech start-ups collected by McKinsey, 62% of the start-ups are interested in the
retail banking segment as shown in exhibit 1. The most lucrative sector being targeted
by start-ups is the lending segment and payment being the most popular one. There
are various services that Fintech start-ups provide better than traditional banks like
 Better services = Most of the traditional banks build a relationship with
customers by providing them a large range of services so that the customer is
retained in the ecosystem as there will be large switching costs. On the other
hand, Fintech companies focus more on enhancing customer experience.
 Cheaper prices = Fintech companies have a leaner virtual operating system
and fewer regulations as compared to traditional banks; they tend to attract
customers with competitive pricing.
So, to move ahead of fintech start-ups, banks are responding to this fintech movement
in different ways like setting up accelerator and venture funds or simply by acquiring
these fintech companies as shown in exhibit 2. The amount of money invested by
banks in fintech start-ups is around 3.6 billion dollars. On the other hand, only 7% of
banks are actually working on their own fintech R&D offshoot to create proprietary
solutions.

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References-

 https://www.ibef.org/industry/banking-india.aspx
 https://data.worldbank.org/indicator/SP.POP.DPND.OL?locations=IN
 https://www.mckinsey.com/featured-insights/india/mastering-the-new-realities-of-
indias-banking-sector
 https://timesofindia.indiatimes.com/blogs/economic-update/public-sector-banks-
merger-a-half-yearly-review/
 https://economictimes.indiatimes.com/topic/indian-banking-sector
 https://www.livemint.com/industry/banking/merger-of-10-public-sector-banks-to-
come-into-effect-from-today-10-points-11585632469446.html
 https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/bank-private.html
 https://economictimes.indiatimes.com/industry/banking/finance/banking/15-banks-to-
start-new-trade-finance-system-using-blockchain-tech/articleshow/83545043.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
 https://law.asia/blockchain-technology-indian-financial-services/
 https://www.toptal.com/finance/investment-banking-freelancer/fintech-and-banks
 https://www.google.com/search?
q=banking+industry+blockchain+in+banking&tbm=isch&hl=en&rlz=1C1ONGR_enI
N963IN963&sa=X&ved=2ahUKEwi7j5SKtNbyAhXQ0HMBHT7eBgcQrNwCKAB
6BQgBEOAB&biw=1349&bih=625
 https://www.bizencyclopedia.com/article/latest-trends-in-banking-and-financial-
services-in-india
 https://www.indiabudget.gov.in/doc/budget_speech.pdf
 file:///C:/Users/91903/Downloads/BFSI%20Sector%20Report'%2020.pdf

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Exhibit 1

Exhibit 2

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Exhibit 3

Age dependency Ratio (% of working age population )

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