Group 15 C&S HDFC Bank Final

FINAL REPORT
PREPARED BY GROUP 15
NIKHIL PRANAV - 2214052
NIKUNJ GAUR-2214015
SWATI SINGH-2214066
GAURAV JAGANNATH KUMAR-2214031
JAYANT YADUVIRSINGH YADAV-2214075
INDUSTRY ANALYSIS OF BANKING SECTOR

Contents
1. Introduction .......................................................................................................................................... 5
2. Evolution of the Indian Banking sector[2] .............................................................................................. 6
3. Structure of the Indian Banking Industry[3] ........................................................................................... 6
4. Growth and market share of banks [17] ................................................................................................. 7
5. PESTEL Analysis ..................................................................................................................................... 7
5.1 POLITICAL..................................................................................................................................... 7
5.2 ECONOMIC ................................................................................................................................... 7
5.3 SOCIAL ........................................................................................................................................... 8
5.4 TECHNOLOGICAL ...................................................................................................................... 8
5.5 LEGAL ............................................................................................................................................. 8
5.6 ENVIRONMENT........................................................................................................................... 8
6. Porter Five forces Analysis .................................................................................................................. 10
6.1 Barriers to Entry ..................................................................................................................... 10
6.1.1 Economies of scale .............................................................................................................. 10
6.1.2 Product Differentiation ....................................................................................................... 11
6.1.3 Brand Identity ..................................................................................................................... 11
6.1.4 Switching Cost ..................................................................................................................... 11
6.1.5 Channels of distribution ...................................................................................................... 12
6.1.6 Capital requirements .......................................................................................................... 13
6.1.7 Access to Technology .......................................................................................................... 14
6.1.8 Government Protection ...................................................................................................... 14
6.2 Bargaining power of Suppliers ............................................................................................... 15
6.2.1 Number of suppliers ........................................................................................................... 15
6.2.2 Availability of Substitutes ................................................................................................... 16
6.2.3 Switching Cost ..................................................................................................................... 16
6.2.4 Contribution to quality........................................................................................................ 16
6.2.5 Contribution to cost ............................................................................................................ 16
6.2.6 Industry’s importance to supplier ....................................................................................... 17
6.3 Bargaining power of Buyers ................................................................................................... 18
6.3.1 Number of Buyers ............................................................................................................... 18
6.3.2 Availability of substitutes .................................................................................................... 19
6.3.3 Switching Cost ..................................................................................................................... 19
6.3.4 Buyer’s profitability............................................................................................................. 20
6.4 Threat from Substitutes ......................................................................................................... 21
6.4.1 Availability of Close substitutes .......................................................................................... 21
6.4.2 Switching Cost .................................................................................................................... 23
6.4.3 Non-Traditional Alternatives............................................................................................... 23
6.5 Rivalry Among Competitors ................................................................................................... 24
6.5.1 Number of competitors ...................................................................................................... 24
6.5.2 Industry growth................................................................................................................... 24
6.5.3 Fixed cost ............................................................................................................................ 25
6.5.4 Product Differentiation ....................................................................................................... 25
6.5.5 Brand Identity ..................................................................................................................... 26
6.5.6 Switching Cost ..................................................................................................................... 26
7. Conclusion ........................................................................................................................................... 27
8. Introduction to HDFC Bank ................................................................................................................. 29
9. Origins of HDFC ................................................................................................................................... 29
10. Turning Point (Liberalisation).......................................................................................................... 30
11. A look at the competitors. .............................................................................................................. 31
12. Cost Leadership vs Differentiation Assessment .............................................................................. 31
12.1 Product and Marketing Strategies ............................................................................................. 31
12.1.1 Products .................................................................................................................................. 31
12.1.2 Interest Rates .......................................................................................................................... 32
12.1.3 Fixed Deposits .............................................................................................................................. 32
12.1.4 Credit Card Deposits .................................................................................................................... 33
12.1.5 Advertising ................................................................................................................................... 34
12.2 Operation strategies .............................................................................................................. 36
12.2.1 Branches ..................................................................................................................................... 36
12.2.2 Investment in Technology .......................................................................................................... 40
12.2.3 Net Interest Margin Coverage..................................................................................................... 40
12.2.4 Return on Assets (RoA) & Return on Equity (RoE) .................................................................... 41
12.2.5 Efficiency Ratio ........................................................................................................................... 42
12.3 R&D strategies ................................................................................................................................ 43
12.4 Organization and Control Strategies ............................................................................................ 44
12.4.1 Salary hikes and bonuses ........................................................................................................... 44
12.5 HDFC Bank: Cost Leader or a Product Differentiator? .................................................................. 45
13. Resource Based View of the firm .................................................................................................... 47
13.1 Test of inimitability ........................................................................................................................ 47
1. Physical uniqueness ........................................................................................................................ 47
2. Path dependency ............................................................................................................................ 47
3. Causal Ambiguity............................................................................................................................. 47
4. Economic deterrence ...................................................................................................................... 47
13.2 Test of substitutability ................................................................................................................... 48
14. Recommendations .......................................................................................................................... 50
15. References: ..................................................................................................................................... 51
List of Figures
Fig1: Evolution of the Indian Banking Sector…………………………………………………………………………………………...5
Fig2: Structure of the Indian Banking Sector……………………………………………………………………………………………5
Fig3: Adult Population with Bank Account & Market share across bank accounts…………………………………..6
Fig4: Industry Analysis w.r.t Barriers to Entry………………………………………………………………………………………….8
Fig5: Growth In Deposits in Indian Banking Industry……………………………………………………………………………….8
Fig6: CASA Ratio of banks………………………………………………………………………………………………………………………10
Fig7: Growth of ATMs……………………………………………………………………………………………………………………………11
Fig8: Bank branches per 100,000 people, 2004 – 2019………………………………………………………………………….11
Fig9: Industry Analysis w.r.t to Bargaining power of Suppliers……………………………………………………………..13
Fig10: Growth of Zero-savings account………………………………………………………………………………………………..13
Fig11: Net-Interest Margin of Banks…………………………………………………………………………………………………….15
Fig12: Bargaining Power of Buyers………………………………………………………………………………………………………16
Fig13: Growth in Bank Credit……………………………………………………………………………………………………………….16
Fig14: Industry Analysis w.r.t Threat from substitutes………………………………………………………..18
Fig15: Growth of Commercial Credit Growth……………………………………………………………………………………….19
Fig16: Causes of disruption in the banking space………………………………………………………………………………..19
Fig17: Customer Segment vs Value proposition…………………………………………………………………………………..20
Fig18: Industry Analysis w.r.t to Rivalry Among Competitors……………………………………………….21
Fig19: Growth in P/E ratio of NIFTYBANK index……………………………………………………………..22
Fig20: Overall Industry Analysis of Indian Banking Industry………………………………………………………………..23
Fig21: Timeline of the private banks…………………………………………………………………………………………………..26
Fig22: Interest Rates on Savings Accounts of the banks……………………………………………………………………..27
Fig23: Credit Card Statistics of bank……………………………………………………………………………………………….….29
Fig24: Top 50 Brands of India…………………………………………………………………………………………………………….31
Fig25: Comparison of Indian Banks…………………………………………………………………………………………………...33
Fig26: Distribution of branches of HDFC Bank……………………………………………………………………………………34
Fig27: Distribution of ATMs of HDFC Bank…………………………………………………………………………………………34
Fig28: NIM of HDFC Bank………………………………………………………………………………………………………………….35
Fig29: ICICI Bank vs HDFC Bank: Margins Converge………………………………………………………………………….36
Fig30: ICICI Bank vs HDFC Bank: Return On Equity……………………………………………………………………………37
Fig31: Digital 2.0 Mission of HDFC Ban…………………………………………………………………………………………….39
Fig32: Competitive Advantage of HDFC Bank…………………………………………………………………………………..42
Fig33: Strategic Importance vs Relative Strengths of HDFC Bank……………………………………………………..46
1. Introduction
India is home to almost 1.4 billion people, as well as a massive network of banks and non-banking
financial organisations (NBFCs) that provide a wide range of financial services to individuals, businesses,
and small businesses. The Reserve Bank of India is the regulatory body for the Indian Banking system
which is relatively reliable and stable[1].
The Reserve Bank of India (RBI), the central authority of Indian banking, is responsible for the policy
making and regulatory changes. It issues and supplies the nation’s currency Rupee. The RBI Act of 1934
divided the Indian banking sector into scheduled and non-scheduled banks. The banks that have a paid-
up capital, have funds over five lakh rupees and are eligible for loans from RBI at the bank rate are called
scheduled banks. The rest of the banks are non-scheduled banks.
The banking scene was diversified in the 1900s post the nationalisation of most banks at the end of the
1960s. Several private and foreign banks were given license after the economic liberalisation. The
importance of the digital payments has grown with the nation’s economic development and so the
banking sector has been digitally transformed in recent years. NBFCs’ innovative solutions started a
fierce rivalry in the FinTech sphere.
As of 2021, there were 100,000 scheduled banks and 98,000 comparably small rural and urban
cooperative banks. The assets of 12 public sector banks totalled around 1.5 trillion dollars and the assets
of the 22 private sector banks totalled around 800 billion dollars. India’s biggest bank by market
capitalization was HDFC Bank, a private sector bank, followed by State Bank of India, a public sector
bank.
The Indian Banking industry is diverse. But the majority market share has been captured by private
players like HDFC , ICICI ,SBI, Axis, Kotak bank. The suppliers for the industry are depositors, firms and
institutions. Many firms and institutions from large corporates to MSME’s who fulfil their capital needs
through banks are the buyers for the industry. Banks, thrifts, credit unions, investment banking firms,
investment advice firms, brokerage firms, investment companies, mortgage banking companies, credit
card issuers, and mutual fund companies are the competitors for the banking industry. NBCF’s such as
Aditya Birla Ltd., Bajaj Finserv, Ujjivan SFB etc; and neo-banks such as Jupyter, InstantPay, Open pose
threat of substitution for the banks in the long run.
The total value of gross non-performing assets (GNPA) fell in 2020 as compared to value in 2019. But still
some Indian banks had a higher share of NPAs and so they were in danger. The loans or advances that
cannot or will not be paid back are called NPAs of the bank. Yes Bank was in troubles in March 2020 and
the RBI intervened and ordered the State Bank of India to take over the Yes Bank.
The government and economic sectors in India face many challenges in providing services and reaching
out to rural areas. Therefore, in recent years, the prime goal has been financial inclusion with the help of
digitization. One of the largest national programmes in recent years, the Pradhan Mantri Jan Dhan
Yojana (PMJDY) has been instrumental in providing a accessible and affordable financial services. The
bank account penetration is predicted to reach around 75% and online banking adoption to reach
around 50% by 2025.
2. Evolution of the Indian Banking sector[2]
Fig1: Evolution of the Indian Banking Sector
3. Structure of the Indian Banking Industry[3]
Fig2: Structure of the Indian Banking Sector

4. Growth and market share of banks [17]
Fig3: Adult Population with Bank Account & Market share across bank accounts
5. PESTEL Analysis
5.1 POLITICAL
The first factor is the investigation of the government's impact on the Indian banking industry through the
establishment of regulations and policies. Major events, such as the ones listed below, have had a substantial
impact on the banking business. Nationalization of 14 major banks in 1969, the establishment of the Jan Dhan
Yojna in 2014, and demonetization in 2016 are examples of these developments.
Corporate governance in PSBs is complicated by the fact that effective management of these banks vests with the
government and the top managements and the boards of banks operate merely as functionaries. The ground
reality is such that the Government performs simultaneously multiple functions vis-à-vis the PSBs, such as the
owner, manager, quasi-regulator, and sometimes even as the super-regulator. Throughout all the years, the
government has diluted its stake in PSBs to the threshold limit of 51%.
Some cooperative banks are governed by politicians who take advantage of them or use their power to choose
bank heads or influence their decision-making. As a result, the Indian banking system is influenced by politics.
5.2 ECONOMIC
The banking system and the economy are inextricably linked. The Indian banking system is primarily regulated by
the Reserve Bank of India (RBI). RBI conducts a policy review through Monetary Policy Committee (MPC) every
quarter and publishes measures and rates that have a direct impact on the India through in banking system. The
RBI adjusts the rates in response to changing macroeconomic circumstances, or may even leave it unchanged,
affecting all sectors of the economy, including banking.
RBI majorly influences the private and corporate banks through its policies. Repo rate and Bank rate are the
famous tools through which RBI controls the banks for the inflation and liquidity of the economy.In addition, RBI
keeps close watch on the banks for NPA’s through the Capital Adequacy Ratio (CAR). Accordingly , it bars the
lending and onboarding activities of the bank on timely basis.
The economic liberalization of 1991 led to reforms in the public sector banks and the emergence of private sector
banks in India. The Reserve Bank of India has granted permission to ten private sector banks to operate in the
country. These institutions included: HDFC Bank, ICICI Bank, Axis Bank etc.
Policies implemented during the Union budget have a similar effect. More money in the system and a lot more
credit lending for agricultural and industrial sectors results from encouraging budget savings or lowering lending
rates. As a result, economic forces can quickly influence the banking system.
5.3 SOCIAL
Cultural elements such as purchasing patterns and necessities influence people's perceptions of and use of banking
options. For business, housing, and academic loans, people turn to banks for advice and support. Bank tellers are
frequently asked about savings accounts, bank-related credit cards, investments, and other issues.
Banks offer a variety of loans to farmers, working women, professionals, and traders. They also offer school loans
to students, as well as housing and consumer loans. Because these clients do not believe in running around and
waiting in lines to get their work done, banks with huge clients or corporations must give personalized banking
services to their customers.
5.4 TECHNOLOGICAL
It was once normal to make financial account changes at the local bank. But not anymore. The way people manage
their money is changing because to technological advancements. ATM and Internet banking have made 'anytime,
anyplace banking' possible. Self-service counters are now encouraged, and simple questions are now answered by
automated voice recordings. Currency accounting machines facilitate the process.
For checking accounts, transferring payments, and paying bills, many banks offer a smartphone app. Smartphones
can scan checks, which are subsequently processed at the bank's location. This change cuts down on paper usage
and eliminates the need to visit the branch to handle these issues. One of the most significant benefits of
demonetization, which happened in 2016, was the shift toward cashless transactions and increased digitization in
the industry. The recent pandemic has forced the banks to move from digitization to digital transformation of the
banks at a much higher pace.
5.5 LEGAL
Ensuring structures in the banking industry, are followed by strict privacy laws, consumer laws and trading
structures. Customers in the allocated country and overseas buyers need these facilities.
The Supreme Court of India had overturned the National Banking Authorization Act of 1970, calling it “hateful
discrimination” because other Indian institutions and foreign banks had been excluded.2
5.6 ENVIRONMENT
Paper usage is declining due to technological advances, especially mobile banking applications. Additionally, the
need to drive straight to the branch to do business is reduced.
Many problems can be solved with mobile apps and online banking services. Credit cards can be placed online,
checks can be made online, and many bank inquiries can be resolved online or over the phone.
Environmentally friendly and sustainable processes are becoming increasingly important in the business world.
Other financial institutions are also investing heavily in the development of renewable energy sources. Many banks
have no paperwork, and solar ATMs have been introduced with rechargeable lithium-polymer batteries.
The goal is to reduce pollution and increase energy efficiency. Some banks now publish their annual reports in soft
copy. It also promotes a positive image of the product by reducing the number of people in various locations.
Therefore, carbon footprint of banks is reducing.
6. Porter Five forces Analysis
6.1 Barriers to Entry
Barriers to Entry Barriers to Entry

overnment Protec on
Economies of scale
Access to technology
overnment 4 Product di eren a on
Capital re uirement Protec on 3
Access to channels of distribu on

1
Switching cost Access to technology 0 Brand iden ty
Brand iden ty
Product di eren a on
Capital re uirement Switching cost
Economies of scale
Access to channels of
0 1 3 4 distribu on
Fig4: Industry Analysis w.r.t Barriers to Entry
6.1.1 Economies of scale
The incumbents, especially the big players have the added advantage to leverage their position
and capital to achieve economies of scale which the newer or smaller players can’t compete
against thus increasing the entry barrier for the new players, thus in tern increasing the industry
attractive for the incumbents.
Fig5: Growth In Deposits in Indian Banking Industry

6.1.2 Product Differentiation
With products that provide competitive advantage, over a period of time, product differentiation
becomes the most important part of the business, the banking industry strives to achieve, by building on
their organizational structure. However, the costs associated with providing services put a lot of pressure
on banks[7].
The main reason for this is that in India the average product price of a regular customer with its bank is 2-
2.5, which is significantly lower than the global average of 4-6 products, which is when the cost estimate
becomes more difficult.
The accumulation of products and services, especially in all liabilities and portfolios of assets is key, not
only to stabilize service delivery costs but also to bring some degree of differentiation to product levels,
albeit temporary. Therefore, product segregation in the banking sector is low.
6.1.3 Brand Identity
Brand Identity allows banks to compete on features other than price alone. The brand identity is
considered to be a strategic tool that banks can practice attracting new customers, develop strong
relationships and achieve competitive advantage[8]. Hence, brand identity is of high importance in order
to achieve a sustainable competitive advantage in the marketplace and to stand high in the crowd. Top
banking players like SBI, HDFC, ICICI & Axis banks have a huge brand identity in their respective product
segments. On the other hand, some public sector banks are struggling to maintain a brand identity in the
competitive industry. Leading the brand overhaul is Bank of Baroda (BoB World).
Thus, brand identity is moderate for the banking industry.
6.1.4 Switching Cost
The price war and intense competition in the Indian banking industry have exposed banks to one of the
biggest threats to change. Consumers are now more aware of the price and service of their financial
purchasing method. They are more inclined to change their behaviour in the bank as banking products
and services are almost identical in nature. New entrants can easily entice potential customers to pay the
extra money needed to make the change. However, most customers would like to stay with incumbents
because of the trust and security established over the years. Therefore, the switching cost for a new
entrant is comparatively higher[25].
Fig6: CASA Ratio of banks
6.1.5 Channels of distribution
Access to channels of distribution such as Mobile Banking, Internet Banking & UPI is relatively easier for
any new player once it obtains the banking license from RBI. Channels of distribution such as branches
and ATM machines is difficult due to the huge capital investment, infrastructure, and partnership with
multiple stakeholders[9]. In terms of location and resources accessibility for branches and ATMs, public
sector as well as private banks struggle a lot. And so, banks are heading towards becoming more digital
and branchless with fewer ATMS.
Furthermore, for a new entrant entering the market, the amount of investment in infrastructure,
particularly distribution networks (e.g., setting up a branch network) and IT systems, as well as marketing
expenditure for brand building to compete on the same scale as large incumbents, is significant. And so
overall the channels of distribution for a new entrant are limited.
Fig7: Growth of ATMs
Fig8: Bank branches per 100,000 people, 2004 – 2019
6.1.6 Capital requirements
According to RBI’s new licensing norms, a minimum capital re uirement of Rs. 00 crores will be re uired
for new banks to acquire banking license[10]. The operating private banks can raise capital easily. But the
public sector banks are struggling to raise capital because these banks will have to face the issue of
government holding coming down below 51 per cent.
Moreover, even if a new entrant obtains the banking license, it is very difficult to maintain the minimum
capital adequacy ratio of 9 per cent prescribed by RBI. Hence, the capital requirement of the industry is
humongous.
6.1.7 Access to Technology
The banking industry has shifted from physical to digital, now to hybrid banking models. Thanks to
emerging technologies and fintech companies that use digital tools to transform the way we bank. The
use of Aadhaar card and video know-Your-customer (KYC) as well as card withdrawals, paperless
customer rides, 'tap and pay' on mobile are some of the first technological tools that show the
acceleration of digital banking in India[11]. Banks have access to the latest technological advances such as
Open Banking, Cloud Banking, Biometrics, Blockchain, Chatbots, Wearables, Artificial Intelligence and
Machine Learning.
6.1.8 Government Protection
Currently the RBI, the central regulator, has licensed banks only and there are no other organizations.
According to the RBI, bank licenses are not issued to neo-banks, NBFCs or fintech players due to
compliance guidelines. The last bank licenses were granted to the RBI in 2014 at only two institutions -
IDFC, an institution-funded company, and Bandhan Financial Services[12].
For the past five years, the Indian government has been spending “Rs 3.10 lakh crore on public sector
banks (PSBs) in order to maintain its financial balance (both the Tier I and Tier II capitals under the Basel II
laws.) While meets expectations for credit growth. The fiscal consolidation to date has shifted to a special
equity shareholding of shares by many of its owners — the government[13].
The Reserve Bank of India has extended the lifeline of Rs 60,000 to India's fourth largest private lender,
Yes Bank so that the troubled bank can meet the needs of the depositors[29].
Under the “on-tap” license policy, the Reserve Bank of India (RBI) in 2022 rejected the applications of six
companies seeking approval to set up general and small financial banks [28] .
Therefore, the RBI and the government are more determined to protect the banking industry as it
contributes about 7% of our country's GDP.
Summary: Thus, there is a substantial barrier to entry for the Indian Banking industry majorly because of
the government protection. According to the analysis, the barrier to entry score stands at 3.63.
6.2 Bargaining power of Suppliers
Bargaining Power of Bargaining Power of Suppliers

Suppliers Number of
Suppliers
5
Suppliers… 4
Suppliers 3 Availability
Contribution… profitability 2 of…
1
Contribution… 0
Switching cost
Contribution Switching
Availability of substitutes to cost cost
Number of…
Contribution
0 1 2 3 4 5 6 to quality
Fig9: Industry Analysis w.r.t to Bargaining power of Suppliers
6.2.1 Number of suppliers
Depositors who open bank accounts are the banks' suppliers. These are people who have a lot of money
yet seek a steady income and security. Depositors can be individuals or firms/institutions. RBI is also one
of the suppliers for the bank. Jan Dhan's program is at the forefront of growing bank accounts around the
world. The total number of current and savings accounts in banks increased to 157.1 crore in March,
2017, compared to 122.3 crore two years earlier[4].
Fig10: Growth of Zero-savings account

6.2.2 Availability of Substitutes
Suppliers are in general risk averse and seek consistent revenue. As a result, they have another set of
investment options, such as Commercial banks such as Yes Bank, PNB Bank and Bank of Baroda.
Commercial banks specialize in serving the credit, investment and other financial needs of businesses of
all sizes – from sole proprietors to major corporations as well as professional firms, government entities
and other organizations. A good way to grasp the difference between private banking and commercial
banking is to think of air travel. There is first class for the wealthy traveller, and there is coach for the rest
of us. Private banks concentrate on wealth management and other special services for high net-worth
individuals and their families. These customers are willing to pay extra fees and maintain high bank
balances in return for expert assistance that meets their needs.
As a result, few options for rich customers reduce their bargaining strength.
With the advent of technology improvements in banking, switching cost for suppliers is fairly low.
Features such as digital banking and Video KYC process, have made switching to a new bank hassle free.
According to survey findings, about one-third of respondents have changed their central bank over the
past five years, and in their 30% of cases have made this change for easier banking information. About
26% switched to banks for better interest rates, while 27% sought better financial products and profits[15].
But still the new entrants may not be able to provide the trust and security as the incumbents. Therefore,
the switching cost is high for the suppliers.
6.2.4 Contribution to quality
Though having a large supplier base for the banks, necessarily helps in economies of scale and scope, but
their contribution to quality of products and services offered by banks is less.
6.2.5 Contribution to cost
Suppliers such as general customers or firms/institutions generally have a low impact on the cost of the
products and services of the banks.The repo rate set by RBI’s Monetary Policy Committee has a direct
impact on banks' deposit. If the repo rate is higher, the suppliers tend to earn a higher interest rate on
the savings account and fixed deposits in the banks. But the overall impact on the Net Interest Margin
(NIM) of the bank is still low[25].
Hence, the contribution to cost will be low.

Fig11: Net-Interest Margin of Banks
6.2.6 Industry’s importance to supplier
The banking system plays an important role in the modern economic world. For suppliers, current &
savings accounts, fixed and recurring deposits, Lockers and Debit cards from a single entity, there is no
other safe alternative apart from banks. The banks use these supplier’s resources & play an important
role in the creation of new capital (or capital formation) in a country & thus help the growth process[16].
Summary: Thus, there is low bargaining power of suppliers since banks hold an indispensable part of the
suppliers’ lifestyle. The nation also expects the banks to perform the important task of channel between
supply and demand. According to analysis, the bargaining power of suppliers score stands at 4.13.
6.3 Bargaining power of Buyers
Bargaining Power of Bargaining Power of Buyers

Buyers Number of
buyers
5
4
Buyer’s… Buyer’s Availabilityof
3
Contribution… profitability 2 substitutes
1
Contribution… 0
Switching cost
Contribution Switching
Availabilityof substitutes to cost cost
Number of…
Contribution
0 2 4 6 to quality
Fig12: Bargaining Power of Buyers
6.3.1 Number of Buyers
Buyers of banks are individuals or firms/institutions who take out loans, advances, or use bank services.
RBI is also one of the buyers for the banks. The number of buyers has been surging ahead over the past
decade, aided by strong economic growth, rising disposable incomes, increasing consumerism and easier
access to credit[18].
During FY16-FY21 bank credit increased at a CAGR of 0.29%. As of FY21 total credit extended surged to
USD 148760 billion. Thus, the number of buyers is bound to increase in the coming decade as well [4].
Thus, the number of buyers has been on the increase.

Fig13: Growth in Bank Credit
6.3.2 Availability of substitutes
Buyers can choose from a wide range of options. From the buyers’ perspective, the NBFC’s are the closest
substitutes for the banks. NBCFs’ such as Aditya Birla, Bajaj FinServ, Mahindra Finance, Ujjivan SFB have a
greater outreach among rural customers , who comprise a major portion of the population.
The features of NBFS’s such as easy registration, low stretch on credit score, flexible penalty clauses and
easy access to loans makes it attractive for small borrowers. In addition to this, the NBCFs have developed
a niche in their specialized loans. For example, Bajaj Finserv is good choice among customers for vehicle
loans.
All of these factors increase the preferences for the buyers.
Cost of switching from one bank to another is low. Switching cost will be very low for customers as there
are various options available in the form of NBFCs’.
Banks are also providing zero balance account and other types of facilities. They are free to select any
bank ‘s service. Moreover, the services offered by banks for buyers are undifferentiated. The availability
of hassle free neo banks which can open account 15- 0 mins and as a result consumers’ loyalties are
harder to retain.
Hence, the switching cost for the buyers is very low.

6.3.4 Buyer’s profitability
Buyer’s are in profitable position with banks as compared with NBFC’s. The interest rates charged by
NBFC’s range from 10.99% p.a. to 36,00% p.a. whereas for banks it ranges from 6% p.a. to 10% p.a.
Thus, the banks offer cheaper loans as compared to NBFCs at the cost of extra scrutiny in processing and
disbursal.
Thus, buyers have a good profitability through the banks as compared to NBFCs.
Summary: Thus, there is high bargaining power for buyers as there are numerous options such as NBFCs
available readily. According to analysis, the bargaining power of buyer’s score is fairly low at 2.17.
6.4 Threat from Substitutes
Fig14: Industry Analysis w.r.t Threat from substitutes
6.4.1 Availability of Close substitutes
Nonbank financial companies, or NBFCs, give credit in the same way that banks do. The funding model
used by banks and NBFCs differs significantly. While all banks are allowed to accept public deposits
(including demand and time deposits), no NBFC is allowed to receive demand deposits, and the majority
are not allowed to accept time deposits. In addition to equity capital, most NBFCs fund themselves by
borrowing from commercial banks and issuing bonds or debentures (typically to banks and mutual funds).
NBFCs so typically operate in niche niches where they can compensate for their funding cost disadvantage
by leveraging other strengths such as more effective customer sourcing, prompt service delivery,
specialised sector expertise, and better underwriting. One added advantage of employing an NBFC is that
the costs are tax deductible, but fees charged by banks are considered a personal expense and are not tax
deductible.
Although the rate of interest charged by them is slightly higher than banks, but they have an advantage of
specialization in segments such as housing finance, vehicle loans, education loans etc; Thus, NBFC’s act as
close substitute for banks by expanding the scope and accessibility of financial services[21].
Fig15: Growth of Commercial Credit Growth
Neobanks are financial institutions that provide customers with a less expensive option than regular
banks. You might think of them as digital banks with no physical branches that provide services that
traditional banks don't and do so effectively. They use artificial intelligence and technology to provide
tailored services to clients while lowering operating expenses. These companies in India do not have their
own bank licences and rely on bank partners to provide licenced services. Neobanks support small and
medium companies and retail consumers who are underserved by traditional banks. They use the mobile-
first concept to set themselves apart by releasing new items and providing exceptional customer service.
RazorpayX, Niyo, Open, Jupyter are some of the emerging neo-banks in India.
Fig16: Causes of disruption in the banking space

Customers while keeping the CASA accounts in the traditional banks, would be use the NBFCs for home
loan, vehicle loan and education loan. Examples are Bajaj Finance Ltd, Aditya Birla Capital Ltd etc.
Similarly, the customers would try neo-banks for short-term loans and specialized debit & credit cards.
Examples are Walrus, Slice, Open etc[22].
While customers are more accepting of fintech’s, they still have faith in traditional banks, with 68% saying
they would test a digital-only service from their primary bank. Thus, switching cost would be very
moderate to high for the customers.
Fig17: Customer Segment vs Value proposition
But the RBI’s banking regulation and government protection overpowers all the other factors in play, and
so the threat from substitutes is low to moderate.
6.4.3 Non-Traditional Alternatives
While gifts and loans from family or friends may serve as a stop gap non-traditional alternative to loan
from banks and credit cards, the size of these options is very limited be very limited. Other Alternatives
include loan shark loan or loan repayment day lenders. However, these are not as tightly regulated as
banks and do not have a good reputation among consumers. So the non-traditional alternatives have very
low threat as a substitute.
Summary: Although there are numerous substitutes in the form of NBFC’s and neo-banks, the RBI’s banking
regulation and government protection has been protecting the banking industry for a long. According to analysis,
the threat of substitutes score is 4.33
6.5 Rivalry Among Competitors
Rivalry Among competitors Rivalry Among competitors

Number of
Switching cost competitors
4
Brand Identity 3
Switching Industry
cost 2 growth
Product Differentiation 1
0
Fixed cost
Brand
Industry growth Fixed cost
Identity
Number of competitors
Product
0 1 2 3 4 5 Differentia…
Fig18: Industry Analysis w.r.t to Rivalry Among Competitors
6.5.1 Number of competitors
The number of competitors in the Indian Banking industry is more than then their substitutes. There are
numerous players in various segments who cater to different customer segments such as HNI’s ,MSME’s ,
large corporates, rural customers etc;
Thus the Indian banking industry is heavily concentrated.
6.5.2 Industry growth
The P / E rate is defined as the market value divided by the profit per share (EPS). P / E rates are usually higher
for banks that show higher expected growth, higher payments, and lower risk. Banks that create bad credit
grants expect them to cancel them. Depending on whether the bank maintains or is aggressive in its policy of
providing losses, the P / E rate varies across banks. The financial institutions that save on loss-rate ratios tend
to have higher P / E and vice versa. The P / E rate is a good indicator of the growth of the Indian Banking
industry.
Nifty Bank, or Nifty Bank, is an index that includes the most liquid and large Indian bank shares. It provides
investors with a measure that captures the performance of the Indian banking stock market. The index has 12
shares in the banking sector. Top index stocks include HDFC Bank Ltd. 31.61%, ICICI Bank Ltd. 18.20%, Axis
Bank Ltd. 13.02%, Kotak Mahindra Bank Ltd. 12.74% and the Central Bank of India 10.92%. Bank Nifty, like
others, is computerized using a free float market monetization method.
Nifty Bank has grown at a rate of 14% YOY. Therefore, major independent players have shown excessive
growth in the industry.
Fig19: Growth in P/E ratio of NIFTYBANK index
6.5.3 Fixed cost
Indian banking systems is a capital-intensive industry. As mentioned above in the article according to RBI’s
new licensing norms, a minimum capital requirement of Rs.500 crores will be required for new banks to
acquire banking license. Smaller players' expansion potential is limited by high fixed costs associated with the
construction of physical distribution routes, as well as advertising and brand-building expenses, favouring
consolidation.
6.5.4 Product Differentiation
There is a limited ability to separate services and products within the banking industry which has in turn has
maintained competition. Product division may only exist in the form of fees, interest rates and deposits, loans
limits, withdrawal notification times, and customer convenience, as well as general quality and product range
and service offerings.
Many banks offer a variety of products, including commercial banking (home, small businesses, insurance),
card services, banking investments, asset management, financial management, and e-commerce products.
There are a few banking firms focused on a particular segment or market for a customer niche. So there is very
little product differentiation within the industry.
6.5.5 Brand Identity
The large incumbents make extensive use of their brand familiarity. Advertising and brand-building
expenditures hinder the growth potential of smaller competitors, favouring incumbents in this regard. It the
industry the existing big players have created their brand identity, but the newer or lesser players haven't
been able to do so as well.
Switching costs depends on the product and the type of customer. For individual consumers, early
withdrawals from loans often include payments, while the cost of exchanging credit cards and bank accounts
is minimal. For business customers, who have complex banking requirements, the transition process can be
complex and have a potential impact on the performance of their business. Also, not a lot of customers prefer
to change their banking service provider, especially the large ones, if they are providing the expected services
on account of the long association and the trust developed in the timeframe. So the switching costs are
generally moderate to high in the banking industry.
Summary: Identical products and services and heavy concentration in the banking industry ensures the rivalry is
high among the players. According to analysis, the rivalry among competitors score is low at 2.50.
7. Conclusion
Fig20: Overall Industry Analysis of Indian Banking Industry

Regulation in the banking industry is costly, acting as a major obstacle for new entrants. Banking
institutions must adhere to strict regulations in all aspects of their operations. Players must meet financial
equity standards and maintain discipline and transparency in their own procedures, including the high
cost of compliance.
In addition, uncontrollable barriers, such as product recognition and large network networks of those
holding senior positions, in which they accumulate an immeasurable share of assets, also prevent new
entrants. Low penetration is possible only by working with digital channels, due to the proliferation of
online banking services. However, significant investment is still needed to challenge those in power. In
addition to this the government tries to keep the existing players afloat in case of exigencies, especially
the public sector banks, to safeguard the interests of the citizens. So, barrier to entry is quite high in the
Indian banking industry.
Suppliers in the banking industry are large in number and fragmented in nature thereby reducing the
bargaining power they possess. Also the interests rates are all regulated by RBI which further reduces the
bargaining power strengthening the industry attractiveness.
The banking industry offers a wide range of types of customers: from individual consumers with large
markets to high value people; and from small, local businesses to large companies. Due to the large
number of buyers, the gain or loss of each customer is not significant, thus reducing the potential of the
buyer. However, the large number of buyers also have a large number of substitutes available to them.
Also, the product differentiation is quite low and cost to switch to switch is low to moderate. In addition,
the contribution of the industry to the quality of buyer is very low and similarly the contribution to cost is
also on the lower side making it low to moderately attractiveness.
The substitutes to the banking industry include players like NBFC’s, mutual funds, stocks, borrowings from
friends and family or borrowing sharks. However, these options have limitations related to interest rates
offered and the risk and returns involved. The new emerging Fintech’s have offered interesting options
that people are taking up in terms of payment options but these FinTech’s are not involved in core
banking as of today and we might have to consider them as separate industry as of today but they will
offer quite some challenge in the future.
The industry has large number of competitors in the space and even though over the past 20 years the
industry has witnessed a high Return on Equity but the ROE numbers have been on the decline in the
recent years. A big reason for this has been the increasing number of NPA’s and the economy slowing
down and covid has only made matters worse. Also the fixed costs associated with the industry quite high
and product differentiation is low. All these factors have the made the rivalry as moderate.
Overall considering all the above factors the Indian banking industry seems to have an above moderate
industry attractiveness.
8. Introduction to HDFC Bank
The journey of HDFC Bank (Housing Development Financial Corporation Limited) started in 1994. It was the first
company to establish as an independent bank in India. The HDFC bank's major goal was to become a world- class
Indian bank. It has amassed massive assets and market capitalization since its beginning, paving the road for its
growth. With a wide network of 5,430 branches, the organization now has branches in all 2,848 cities in India.
Its principal goal was to be the top choice for investors in all aspects of banking. Its second purpose was to increase
the amount of money in the bank. Unsurprisingly, it achieved all its business goals and has consistently provided
high-quality services to the new customer. All investors and existing clients continue to place their trust in the bank.
In March 1996, HDFC Bank launched a fifty crore IPO, which received fifty-five times more registrations thanthe
previous IPO. Regarding market value, HDFC Bank is currently India's largest bank (Approximately Rs 8.8lakh
crore). Subsidiary banks HDFC Securities and HDB Financial Services.
HDFC Bank primarily provides the following services:
• Wholesale Banking (Investment Banking, Commercial Banking., etc.)
• Retail Banking (Insurance, Deposits, Loan Products, Cards, Demat services, etc.)
• Treasury (Asset Liability Management, Forex, Debt Securities,)
On February 26, 2000, the Times Bank merged with the HDFC bank. It was the first time that two banks had merged
in the 21st century.
HDFC Bank has a market capitalization of 7.66 Lakh crores and market value of 5.17 Lakh crores with ICICI Bank,one
of its closest rivals having a market share of 3.68 Lakh crores.
9. Origins of HDFC
HDFC was founded in 1977 by HT Parekh after retiring as the chairman of ICICI at the age of 65. It was the first Indian
company to finance real estate projects. The single biggest challenge in the real estate industry was to raise enough
long-term resources. In the 1980’s, HDFC addressed this by securing long-term support from the World bank, the
IMF and USAID under a housing guarantee program. On the domestic front, this was supplemented with funding
from commercial banks, government run insurance companies and Unit Trust of India.
HDFC had a simple business model. They borrowed large sums of money and lend it to customers at fixed interests
rate earning a margin of around 2%. The gulf war in 1990 had a major effect on the Indian economy. To counter the
rising inflation, RBI increased the lending interest rates severely impacting institutions like HDFC. This event made
HDFC realize that they need to find new avenues to raise resources to continue to grow and honor its existing
commitments.
At this point, HDFC decided to encash on its strong brand reputation and the dependable customer service that it
had built over the years to raise and get into retail banking to raise more resources. [32]
10. Turning Point (Liberalisation)
Leading up to 1993, the Indian banking system had declined sharply in absence of sound financial regulations and
poor credit laws. And this was about to change with the opening of the banking sector for the private players.
A committee, under the supervision of Shri. M Narasimhan, was constituted to over the reforms in the Indian
banking industry. Advertisements were floated in the newspapers looking for candidates to start private banks in
the retail banking space. This caught the eye of Mr Deepak Parekh, who had joined his uncle, HT Parekh to assist in
the business. There was a high entry limit with a minimum of 1 billion rupees required. The total valuation of HDFC
at the time was 3 billion rupees and the initial proposal to the board of directors was rejected. But Deepak Parekh
believed this was the right time to enter the retail banking market and pursued with the idea.
After obtaining the license, Deepak Parekh convinced Adhitya Puri to be the CEO of the firm, who was at the time
of the 50 experts Citibank had been nurturing. The head office was setup in Mumbai and even though,one of
the conditions of opening the bank was that the head office should be out of Mumbai, HDFC’s application was so
compelling that the RBI allowed HDFC bank to setup shop in Mumbai. In order to raise more resources for itself to
grow, the leadership at HDFC bank did extensive market research to identify the gaps. They identified the gaps in
the payment system involving the state level corporate banks. The system was inefficient and required a number of
days of clearing payments. HDFC bank offered to clear these payments on the condition that the corporate banks
and brokers/sellers open accounts with HDFC bank thus bringing in a lotof additional resources. Apart from this they
digitised the payment and clearing systems which was revolutionary around that time and it led to almost 80% of
the stock market operators to open accounts with HDFC bank.[32][33]
Following this, RBI gave licenses to 9 more private entities, out of which few survived the market demands, which
are ICICI, Axis Bank, IndusInd Bank, DCB.
Fig21: Timeline of the private banks

11. A look at the competitors.
ICICI bank, arguably one of the biggest competitor of HDFC bank in the private space, is one of the largest banks in
India with total assets of US$210 billion as of 2021 with a network consisting of 5275 bank branches and about 15589
ATM machines across India and also has a footprint in 17 countries.
ICICI Bank Ltd was established in 1994 as part of an ICICI group named ICICI Banking Corporation Ltd. In the 1990s,
ICICI shifted its strategy from being a just a project financing organization to a more diversified corporation
consisting of number of affiliates and subsidiaries including ICICI bank. In 1999, ICICI became the first Indian company
and the first bank or financial institution from Asia other than Japan to be listed on the NYSE.
In October 2001, the Board of Directors of ICICI and ICICI Bank approved the merger of ICICI with two of its
subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, and ICICI Bank. As a
result of the merger, ICICI Group of finance and banking services, integrated into one business giving it a huge
impetus.
Axis bank is another large private sector bank in the private sector domain. It was established on 3rd December1993
but was called UTI bank at the time of its opening with its registered office in Ahmedabad and business office in
Mumbai with the first branch opening in Ahmedabad on April 2, 1994. The bank was listed on the London Stock
Exchange in 2005. From 2006 onwards, the bank opened branches in Singapore, Shanghai and Dubai. In 2007, the
name was changed from UTI to Axis Bank. By December 2020, the branch has developed a chain of 4586 branches
and 12044 ATMS with these resources spread over 2033 cities allowing the bank to cater to a large number of
customers with a wide variety of products and services.[35]
12. Cost Leadership vs Differentiation Assessment
The following analysis is done to investigate whether the HDFC’s goals (strategic intent) match with the actions
that the bank is undertaking. The assessment is done by mapping the banks’ goals with the approach in the
different functional areas
12.1 Product and Marketing Strategies
12.1.1 Products
HDFC Bank offers a number of products and services that include full scale banking, retail banking, treasury,
automobile loan, personal loan, asset loan, long-term consumer loan, lifestyle loan and credit cards. Also it offers a
wide variety of digital products like Payzapp and SmartBUY.[36]
ICICI Bank offers a wide variety of products and services similar to those of HDFC bank that include loans, deposits,
lockers, debit and credit cards, digital wallets called ICICI pocket. Also it came out with an online service called
ICICIStack providing digital services for payments, accounts, loans, insurance and investments.[37]
12.1.2 Interest Rates
HDFC Bank offers interest rate of 3% on savings accounts of less than Rs 50 lakh and a rate of 3.50% for accounts
having balances between 50 lakhs and 1000 crore. It offers 4.50% per annum on balances above 1000 crore.
At ICICI Bank, the interest rates of 3% for accounts with balances up to Rs 50 lakhs and a rate of interest of 3.50
percent on Rs 50 lakhs and more.[38]
Fig22: Interest Rates on Savings Accounts of the banks
12.1.3 Fixed Deposits

The fixed deposits rates of both HDFC and ICICI are mentioned in the figure below[39]:
Fig22: Interest Rates of the banks

12.1.4 Credit Card Deposits
The credit card interest rates for HDFC and ICICI are mentioned below[40]:
Fig23: Credit Card Statistics of bank

Clearly both the close competitors HDFC Bank and ICICI bank offer comparable interest rates onsavings
account, fixed deposits and credit card.
12.1.5 Advertising
HDFC has had large success in marketing and carving out a brand identity for itself even though the product
differentiation in the industry is low. They have used sports event like IPL for advertising which is a premier sporting
event in India which is not a very common to see among the banking industry.
Also, HDFC has used the digital platforms extensively to market itself. Its festive treats offering in 2019 managed to
garner 45+ million views across digital platforms like YouTube and Instagram. The bank has leveraged indigenous
creators and cleverly incorporated their skills to advertise itself in this growingage of digital platforms.[41]
HDFC Bank unveiled some of the most relevant and benevolent campaigns in the midst of the epidemic
- HDFC Bank security grid campaign, HDFC Bank Art project, also signed up AR Rahman to create a song about
hope – ‘Hum Haar Nahi Manenge’ for our frontline heroes , ‘Mooh Band Rakho’ for fraud awareness and other
such campaigns.[43][44]
With above brand strategies and strong fundamentals HDFC managed recover well after the effects of the pandemic
on its business. The brand increased its volume share to 30% in the BFSI category. HDFC Bank also saw an additional
visit to the tune of 88% of Festive Treats areas during the 2019 vis-a-vis campaign. It has also leveraged digital
platforms and released two films for the credit card segment to market it heavily which has helped the bank to retain
the top spot as the largest credit provider. [41]
ICICI Bank has also carved out an identity for itself using a wide variety of marketing strategies. One of them was to
launch a series of five advertisements on the banks mobile app i.e iMobile. The app was heavily marketed using a
campaign ‘Ek App me pura bank’ and has assisted in this platform being voted as the best mobile banking app for
three years in running. [45After the leadership crisis wherein the accusations of wrong doing were levied against the
MD and CEO,an ad campaign by Ogilvy was run by the bank to fire fight against the image crisis it was facing. As part
of the campaign, 5 different films with a witty element were launched. The campaign, launched in the first week of
July, received millions of hits on YouTube. Overall, the campaign increased ICICI Bank's Buzz or Net Sentiment
production across all media (ads, news, word of mouth) significantly from 4.2 to 22.0 in July, 2018. [46]
Fig24: Top 50 Brands of India
Thus, both HDFC Bank and ICICI Bank spend on and leverage advertising and branding. Yet, HDFC Bank holds a
larger brand value (approximately twice) than ICICI bank. HDFC Bank offers comparatively more customized
products for differentiation from its competitor’s products. Also, in terms of interest rates for a range of products
it has a huge hold in the market. Through advertising, it tries to differentiate itself from its competitors.
Advertising is a key strength for the HDFC Bank in projecting its image as a trustable bank. Thus, we can say that
HDFC Bank falls into the category of broad differentiator.
12.2 Operation strategies
12.2.1 Branches
The below chart highlights some of the important financial ratios in looking at the operational strategiesand its
effectiveness for HDFC bank in comparison with other private banks in India.[48]
The segregation of the number of branches for HDFC Bank are as follows[49]
Fig25: Comparison of Indian Banks
Fig26: Distribution of branches of HDFC Bank
The segregation of the number of ATM’s for HDFC Bank are as follows[49]:
Fig27: Distribution of ATMs of HDFC Bank

ICICI Bank currently has a network of 5,418 branches and 13,540 ATMs throughout India.HDFC Bank opened 563
new branches between January and March 2022. In the future ahead, it is aiming that for every 100 branches, it
wants to add another 10 to 15 new ones every year. The number of branches and ATMs are the key strengths of
the HDFC Bank in reaching out to masses. The goal of the bank is to have a branch within 1-2 kms of its customers,
from the current level of 5-6 kms distance.[50]
Not only retail customers, but also business clients, are pursued by HDFC Bank. In a competitive market, however,
this can be difficult. The interest rate margin has been pushed up as a result to achieve this.
Fig28: NIM of HDFC Bank

This year, ICICI Bank has opened 320 bank branches and plans to open another 130 in the following six months.
Both banks were investing extensively in branch expansion and ATMs, but HDFC's aim to create 1500-2000 branches
each year over the next three to four years will double the current accounting rate.
We can position HDFC Bank as a cost leader as all branches and ATMs are in the same position and no
customization is done. The bank and its competitors are trying to capitalize on the economy.
12.2.2 Investment in Technology
ICICI Bank wants to enhance its customer experience through better technology infrastructure in order to avoid any
disruptions. By FY2025, it wants to build an all-encompassing architecture that has digital platforms and deep
statistical analysis based on data along with other emerging technologies like cloud computing.
In order to counter the regulatory outburst over several errors, HDFC bank is targeting to increase IT usage over the
next 3 years by enlarging its overall digital portfolio through development of internal IT platform and upscaling its
current technology platforms. Novel digital products & programs, under the umbrella of “digital industry “, are
planned to be released in 1.5 years - years’ time period. Investment in technology has added to the strengths of
HDFC bank. With a major initiative of “Digital .0”, HDFC is leading the technology investment section [51] [52].
12.2.3 Net Interest Margin Coverage

Net Interest Margin (NIM) is essentially the difference between the interest paid by bank and the interest earned
by the bank. The NIM of HDFC and ICICI has improved from 2.5-3% in the past years to 4% in the recent times. HDFC
though has better NIM compared to ICICI overall, its NIM still has decreased from 4.4% to 4% while ICICI NIM has
increased from 3.6% to 4% in the recent times. This improvement in ICICI NIM can be attributed to changed loan
mixes (reduction in international business to less than 10%) and focus on selected growth areas (majorly in the
debt area lending loans excluding home loans of ICICI was 43.8% compared to mortgage loans of HDFC which stood
at 39%). This advantage of better NIM that HDFC has, provides more cushion and hence reduces its business risk
when compared to ICICI. [54]
Fig29: ICICI Bank vs HDFC Bank: Margins Converge

12.2.4 Return on Assets (RoA) & Return on Equity (RoE)
ROE shows profitability on bank assets front while ROE showcases effective usage of shareholder’s money. HDFC
bank overall has better ROE and ROA compared to ICICI bank but ICICI bank has caught up in the recent times with
much better growth on these parameters. This growth can be attributed to low NPA, strong credit growth, better
operating profit and powerful deposit franchise. It is estimated that ICICI will showcase 1.9% ROA & 16.3% ROE by
FY24. The ROE decline trend can be explained using increase in costs or decrease in loan interest as per Dupont
analysis. But as loan interest rate was constant at 0.15 & cost as income percentage increase marginally, the HDFC
ROE decline trend can be majorly attributed to increase in stock prices.[56] [57]
Fig30: ICICI Bank vs HDFC Bank: Return On Equity

Fig30: ICICI Bank vs HDFC Bank: RoE & RoA
12.2.5 Efficiency Ratio
The efficiency ratio is calculated as a bank's expenses (excluding interest expense) divided by the total revenue. The
main insight that the efficiency ratio provides is how well a bank utilizes its assets in generating revenue. A lower
efficiency ratio signals that a bank is operating well. Efficiency ratios at 50% or below are considered ideal. If an
efficiency ratio starts to go up, then it indicates that a bank's expenses are increasing in comparison to its revenues
or that its revenues are decreasing in comparison to its expenses.
The figures put forth in this regard are that the world economic report on Indian Banking for year 2020 has calculated
the average cost to income ratio of at 46.8%. In the same breath in 2021 some of the Public sector Banks(PSBs) in
India publicly announced that they are committed to bring down the efficiency ratio to below 50% in year 2022
prevailing at that time. At same time some large private Banks including HDFC Bank were reporting efficiency ratio
of around 40% or below and they had declared their commitment to bringing it down further.
So far the general perception of industry watchers, regarding efficiency in PSBs. is concerned most of them are of
the opinion that a very low efficiency in these banks is due to increasing wage bill of organized workforce of these
banks.
Thus, considering all the factors such as: -
• expansion of branches and ATMs,

• the aggressive investment in technology,
• brand image and marketing,
• decreasing RoE and increasing RoA ,
• efficiency ratio
we can place HDFC bank in the broad differentiator segment.

12.3 R&D strategies
To provide seamless banking information on its services, under the new CEO Sashidharan Jagadishan, HDFC has
launched a new initiative- Digital 2.0. The aim of this move is to expose the client to a complete set of financial
solutions such as loans, investments, insurance etc. rather than just a single function, from the comfort of their
homes.
Bank has also stepped-up partnerships with online players such as Amazon, Flipkart and fintech players such as
Paytm, Phonepe, and MobiKwik to provide additional benefits to its customers in form of discounts and No-Cost
EMI.[58]
HDFC Bank is aggressively investing on RnD capabilities leveraging new digital technologies such as Robotic Process
Automation (RPA), Machine Learning (ML), Artificial Intelligence (AI), and blockchain to develop deeper insights into
their current financial services and enhance transaction security.
The Digital 2.0 initiative came to a halt in December 2020 when RBI put curbs on all its digital initiatives and credit
card issuance after repeated outages at its data center. However, the bank quickly chartered out its short, medium
and long terms strategies for IT. The RBI removed the curbs on credit card issuance in August 2021 and the curbs on
Digital initiates were completely lifted in March 2022.[59]
The bank has always leveraged its R&D strategy as a strength in competitive positioning in the industry.
Fig31: Digital 2.0 Mission of HDFC Bank
ICICI Bank has been a pioneer in digital integration and the adoption of emerging new technologies. They have been
leveraging the latest test in technology to bring to their customers a bouquet of services that have made credit
accessible to their customers. Their digital initiatives have provided customers seamless services and contributed to
the environment by reducing paper [60].
ICICI banks initiatives such as ‘ICICIStack ‘-a digital service which encompasses banking activities such as account
opening, loan solutions, payment solutions, investments and maintenance solutions or digital super app ‘InstaBIZ’
have empowered the customers and provided a seamless banking service [61]
Fig32: Products distribution of ICICI Bank
HDFC Bank and its competitors have been trying to integrate the technology of the future into banking activities
improving customer experience. All of this is done for the purpose of product development rather than processing
research. But HDFC Bank has a big hand with its Digital 2.0, SmartHub and Pay-zap programs among all the
independent players which are an outcome of the RnD capabilities of HDFC bank. Therefore, we can separate
HDFC Bank and its competitors into a broader division.
12.4 Organization and Control Strategies
12.4.1 Salary hikes and bonuses

Traditionally, banks have used strict budgeting and internal control procedures to limit costs. However, the fintech
boom and the inclination of traditional banks to hire foreign candidates to perform high profile roles has led to a
spate of exits, thus shooting the attrition rate of these traditional organizations.
To arrest this rise in attrition HDFC Bank and its competitors are exploring some innovative alternatives.
HDFC Bank is trying to leverage RSU to retain talent at the middle and junior levels. For this, it has authorised 10
crores RSU of INR 1 each. These RSUs will be provided to employees at a future date on meeting the performance
standards set by the bank. Incentives can also be linked to employee performance[62].
The RSU program trumps the ESOPs as the employees do not have to pay to acquire RSUs except for the applicable
taxes. Further, RSU comes at a deeper discount and the amount of RSU will not impact the bank balance sheet
considerably. The strategy to provide RSU to employees makes the shareholders more active and engaged.
ICICI Bank on the other hand has decided to step away from the bell curve assessment of the employees as it
promotes individual performance. It has decided to adopt wage increases and bonuses linked to the bank’s
performance [63].
The innovative methods to improve employee morale while keeping costs under check distinguish HDFC Bank from
its competitors in the category of cost leader, with HDFC Bank leading the pack.
12.5 HDFC Bank: Cost Leader or a Product Differentiator?
The following perspectives position HDFC as a broad product differentiator:
• Product and Marketing strategies

• Operating strategies
• R&D Strategies
Further HDFC Bank can also be classified as a broad cost leader if we consider the below perspective:
• Organization & control strategies
Following represents the paradigm shift in the strategies of major private players like HDFC, ICICI, & Axis Bank
from narrow differentiator to broad differentiator over the years as follows:
Fig32: Competitive Advantage of HDFC Bank
13. Resource Based View of the firm
RBV is an approach to achieving sustained competitive advantage. The resource-based view (RBV) is a way of
viewing the firm and in turn of approaching strategy. Fundamentally, this theory formulates the firm to be a bundle
of resources. It is these resources and the way that they are combined, which make firms different from one another.
It is considered as taking an inside-out approach while analyzing the firm. This means that the starting point of the
analysis is the internal environment of the organization.
According to RBV proponents, it is easier and more feasible to exploit external opportunities by deploying existing
resources in a new way. This approach contrasts with acquiring new skills or developing new capabilities for each
different opportunity. According to the RBV model, resources play a major role in organizations achieving higher
performance. The two types of resources are:
• Tangible
• Intangible
13.1 Test of inimitability

Inimitability is at the heart of value creation because it limits competition. If a resource is inimitable, then any profit
stream it generates is more likely to be sustainable. Possessing a resource that competitors easily can copy generates
only temporary value.
1. Physical uniqueness
HDFC Bank has physical uni ueness of having its branches and ATM’s in prime Tier-1 and Tier-2 cities. And
this has given them an edge over its competitor ICICI bank since its inception.
2. Path dependency
HDFC Bank has a first mover advantage since it was the first private bank to receive the license in 1994 and
ICICI Bank received the license in 1996. HDFC Bank leveraged its core banking solution Flexcube from Oracle
to gain a huge share of market especially in Tier-1 and Tier-2 cities. ICICI Bank adopted the popular core
banking solution Finacle from Infosys but HDFC Bank had already switched customers on their side by then
by offering lucrative online features and quicker settlement.
3. Causal Ambiguity
Competitors of HDFC Bank such as ICICI and Axis Bank cannot duplicate the market share and the success
HDFC Bank has achieved. There are numerous reasons such as strong name presence in the market through
the entity HDFC ltd., the emphasis of the bank to lead the digitization of banks, external factors such as
integration with stock-market brokerage firms etc.; which have helped create the value. It is very difficult
to re-create the same by any other competitor.
4. Economic deterrence
Competitors of HDFC Bank don’t invest excessively in Wholesale banking and Treasury segments because
HDFC Bank has already captured the market in those segments. The competitors do possess all the
resources to enter the segments but choose not to do so because of limited market potential and the
segment is crowded with HDFC Bank and foreign players.
13.2 Test of substitutability
The banking industry is the backbone of the Indian economy and HDFC Bank is its poster boy for the same. HDFC
Bank has contributed immensely to the upliftment of the Indian economy. Through its presence in retail banking,
wholesale banking and treasury it has laid the bedrock for the private banks. The competitors tried to switch
customers through different product offerings and services but HDFC Bank’s experience, trust & market value
created over all these years was enough to deter them from switching.
The resources and capabilities of HDFC Bank are listed in the table below. To determine strategic importance,
they are put to the test of inimitability and substitutability on a scale of 1 to 5. Furthermore, these resources
and competencies are compared to those of the competition to determine relative strength.
STRATEGIC IMPORTANCE RELATIVE STRENGTH

RESOURCES/
No Test of inimitability Test of substitutability Total AMONG OTHER
CAPABILITIES
(1-5) (1-5) score PLAYERS
RESOURCES
Top private players are
Physical uniqueness Branches are essential
present in the same
Land & makes it difficult to for greater customer
1 9 locations but can increase
Infrastructure replicate the advantage outreach and financial
their presence in rural
(4) inclusion (5)
areas (7)
Physical uniqueness The technology cannot All the private players

since it has core be substituted but the have revamped and are
Equipment and
2 banking solution other players can 8 aggressively chasing
Materials
different from other leverage their existing digital initiatives in some
players (4) technology (4) segments (6)
Path dependency at
play considering the
Substitutable by other All players are revamping
3 Facilities production units, 5
players (3) their facilities (6)
warehouses, and
support buildings (4)
Hard to substitute in
HDFC Bank has emerged
Hard to copy due to some segments but other
4 Brand reputation to be the top brand in the
path dependency (5) players can do so in other
Indian economy (9)
segments (3)
Other players are also

Intellectual Well protected from
Hard to substitute by coming up with their
5 property, patents, inimitability and 8
other players (4) unique tech stack and
and copyrights ensures novelty (4)
patents (3)
Path dependency has Very hard to substitute Other players are trying to
6 Trust and Goodwill contributed to the trust the trust and goodwill by 6 mark their niche in some
and goodwill (5) other players (2) segments (8)
CAPABILITIES
Hard to copy due to To some extent

HDFC Bank is a partner
path dependency substitutable if other
with all the leading
7 Strategic alliances (influential partners players can use their 5
fintech’s, wallets and
tend to go with the innovation and economic
payment solutions. (6)
established players) (3) might (2)
Path dependency and Customer journey can be

Customer causal ambiguity at play re-created by other HDFC Bank has a unique
8
Experience ensures the experience players, but experience is customer experience. (7)
is unique (4) inimitable. (3)
Can be replaced by other HDFC Bank has partnered

players by coming up with some major e-
Marketing and Hard to copy due to
9 with eccentric digital 6 commerce firms for
advertising path dependency (4)
campaigns and marketing and advertising
advertising (2) (8)
New customers can be

Has elements of path HDFC Bank has enjoyed
acquired but difficult to
Huge Customer dependency which gave the larger pie of customer
10 create the same level of 7
Base HDFC Bank an edge base in treasury and
customer base by other
over other player (4) wholesale banking (8)
players (4)
Fig33: Strategic Importance vs Relative Strengths of HDFC Bank

14. Recommendations
Based on the competitive advantage and resource-based view of the HDFC bank, following are some of the
recommendations through which the bank can diminish its weaknesses and strengthen its competitive
position
• Increase rural and semi-urban presence: HDFC bank should focus on increasing its rural & semi-urban
presence for greater customer outreach. This recommendation is line with the vision of HDFC bank to
increase its presence in rural & semi-urban from 3171 branches to 4231 branches in the current
financial year.
• Focus on aggressive marketing strategies: The bank should do marketing more aggressively to project
the value which it has been delivering to the customers throughout the years.
• Increase its Net-Interest-Margin (NIM): The bank should focus on increasing its NIM to 5 as the
current levels are almost comparable to its peers.
• Undertake Digital 2.0 initiative: Since it has received the much-awaited clearance from RBI, the bank
should use the opportunity to leverage the technology to strengthen its position.
• Develop Buy Now Pay Later (BNPL) product: BNPL is India’s fastest online payment method and is
poised to grow at rate of 8% of e-commerce market value by 2025. The bank should develop a BNPL
product to provide small ticket, small tenure loans and use it as a means of customer acquisition.
• Push for National Umbrella Entity (NUE) framework: NUE is a framework unveiled last year by RBI
through which entities can set up a pan-India digital payment network, exercising the same powers as
NPCI. The bank should partner with other banks such as SBI Bank & Bank of Baroda for a NUE as the
three banks account for more than 50% digital transactions in India.
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banks.html
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nimum%20initial%20capital%20requirement,crore%20for%20small%20finance%20banks.
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life-support-rbi-assures-liquidity-with-a-
condition/1903455/#:~:text=The%20Reserve%20Bank%20of%20India,bank%20to%20meet%
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of-indias- earliest-startups/
33. Reading from the book review of A-Bank-For-The-Buck: The Story of HDFC Bank by Radha
Ravichandran
34. https://www.business-standard.com/company/icici-bank-5418/information/company-
history
35. https://www.business-standard.com/company/axis-bank-5554/information/company-
history
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must-know-sbi-vs- hdfc-bank-vs-icici-bank-vs-idfc-first-11645764859339.html
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performance/articleshow/88247758.cms

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FINAL REPORT

INDUSTRY ANALYSIS OF BANKING SECTOR

Fig1: Evolution of the Indian Banking Sector

3. Structure of the Indian Banking Industry[3]

Fig2: Structure of the Indian Banking Sector

Barriers to Entry Barriers to Entry

Access to channels of distribu on

Fig4: Industry Analysis w.r.t Barriers to Entry

6.1.1 Economies of scale

Fig5: Growth In Deposits in Indian Banking Industry

6.1.3 Brand Identity

Thus, brand identity is moderate for the banking industry.

6.1.4 Switching Cost

6.1.5 Channels of distribution

Fig8: Bank branches per 100,000 people, 2004 – 2019

6.1.6 Capital requirements

6.1.8 Government Protection

Bargaining Power of Bargaining Power of Suppliers

Fig9: Industry Analysis w.r.t to Bargaining power of Suppliers

6.2.1 Number of suppliers

Fig10: Growth of Zero-savings account

6.2.3 Switching Cost

6.2.4 Contribution to quality

6.2.5 Contribution to cost

Hence, the contribution to cost will be low.

6.2.6 Industry’s importance to supplier

Bargaining Power of Bargaining Power of Buyers

Fig12: Bargaining Power of Buyers

6.3.1 Number of Buyers

Thus, the number of buyers has been on the increase.

6.3.2 Availability of substitutes

All of these factors increase the preferences for the buyers.

6.3.3 Switching Cost

Hence, the switching cost for the buyers is very low.

Fig14: Industry Analysis w.r.t Threat from substitutes

6.4.1 Availability of Close substitutes

Fig16: Causes of disruption in the banking space

Fig17: Customer Segment vs Value proposition

6.4.3 Non-Traditional Alternatives

6.5 Rivalry Among Competitors

Rivalry Among competitors Rivalry Among competitors

Fig18: Industry Analysis w.r.t to Rivalry Among Competitors

6.5.1 Number of competitors

Thus the Indian banking industry is heavily concentrated.

6.5.2 Industry growth

6.5.3 Fixed cost

6.5.4 Product Differentiation

6.5.6 Switching Cost

Fig20: Overall Industry Analysis of Indian Banking Industry

HDFC Bank primarily provides the following services:

• Wholesale Banking (Investment Banking, Commercial Banking., etc.)

• Treasury (Asset Liability Management, Forex, Debt Securities,)

Fig21: Timeline of the private banks

12. Cost Leadership vs Differentiation Assessment

12.1 Product and Marketing Strategies

Fig22: Interest Rates on Savings Accounts of the banks

12.1.3 Fixed Deposits

Fig22: Interest Rates of the banks

Fig23: Credit Card Statistics of bank

12.2 Operation strategies

Fig27: Distribution of ATMs of HDFC Bank

Fig28: NIM of HDFC Bank

12.2.3 Net Interest Margin Coverage

Fig29: ICICI Bank vs HDFC Bank: Margins Converge

Group 15 C&S HDFC Bank Final

Group 15 C&S HDFC Bank Final