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Current trends in the industry:
The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at ` 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of Scheduled banks spread across India. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. The Public Sector Banks (PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.
Major players in the industry:
In the Indian Banking Industry, Major Private Sector banks are ICICI bank, HDFC bank, Axis bank etc. Major public sector banks are IDBI Bank, State Bank of India, Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank etc. Major foreign banks are ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank etc. Major Co-operative Banks are rural co-operative banks comprise State co-operative banks, district central cooperative banks, SCARDBs and PCARDBs. Competitors of banking industry:
The principal activities of NBFCs include equipment-leasing. the North Eastern Development Financial Institution Ltd. 1997. There are also State Industrial Development Corporations (SIDCs). predominantly from the private sector. hire purchase.. . They provide term loans (i. Such intermediaries form a diverse group in terms of size and nature of their activities.e. which provide finance primarily to medium-sized and large-sized enterprises. which make them competitors to banks in those areas. Non-banking financial companies. loans with medium to long-term maturities) to various industries. Some of these intermediaries include Term-lending institutions. Insurance companies and Mutual funds Term-Lending Institutions Term lending institutions exist at both state and all-India levels. service and infrastructure sectors for setting up new projects and for the expansion of existing facilities and thereby competes with banks. loan and investment and asset finance. NBFCs are required to register with RBI in terms of the Reserve Bank of India (Amendment) Act. but also complementing them in providing a wide range of financial services. These include Export Import Bank of India (EXIM Bank) Small Industries Development Bank of India (SIDBI) Tourism Finance Corporation of India Limited (TFCI) Power Finance Corporation Limited (PFCL) At the state level. In addition to SFCs and SIDCs.Banking industry in India face competition from a wide range of financial intermediaries in the public and private sectors in the areas of financial inter-mediation and financial services (although the payments system is exclusively for banks). these institutions are typically specialized. catering to the needs of specific sectors. All NBFCs together currently account for around nine percent of assets of the total financial system. Non-Banking Finance Companies (NBFCs) India has many thousands of non-banking financial companies. At the all-India level. and play an important role in the financial system by not only competing with banks. (NEDFI) has been set up to cater specifically to the needs of the north-eastern states. various State Financial Corporations (SFCs) have been set up to finance and promote small and medium-sized enterprises. NBFCs have been competing with and complementing the services of commercial banks for a long time.
As a result of some recent government incentives for investing in the housing sector. sometimes on their own and other times in joint venture with others. Housing-finance companies form a distinct sub-group of the NBFCs. these companies’ business has grown substantially. Most mutual funds are standalone asset management companies. are competitors of banks. Location of banking industry on the “Tangibility Spectrum: . LIC is the biggest player in this area. Housing Development Finance Corporation Limited (HDFC). General Insurance Corporation of India (GICI). In addition. Insurance Companies Insurance/reinsurance companies such as Life Insurance Corporation of India (LIC). and others provide substantial long-term financial assistance to the industrial and housing sectors and to that extent. HDFC & HUDCO are major players in the mortgage business. Mutual Funds Mutual funds offer competition to banks in the area of fund mobilization. Banks have thus entered the asset management business. which is in the private sector and the Government-controlled Housing and Urban Development Corporation Limited (HUDCO) are the two premier housing-finance companies. both in the private and public sectors have sponsored asset management companies to undertake mutual fund business. a number of banks. in that they offer alternate routes of investment to households. and provide stiff competition to commercial banks in the disbursal of housing loans.
Demat Account) 6. Travel Companion & Business Advantage) 7. Women's Savings Account. Deposits(Fixed Deposits. Loans (Home Loan. Defence Salary Account. Home. Payment Transfers(Bill Pay. Corporate Salary Account. Senior Citizen's Account. Demat Account. Jewellery Insurance. Recurring Deposits & Tax Saver Fixed Deposit) 3. Health Insurance. Other Services(Locker. Car Loan. Debit Cards & Prepaid Cards) 5. Typical Service Offering 1. Investments (Online Trading. Trust/NGO Savings Account & Pension Savings Account) 2.) . Loan Against Property. Critical Illness Motor Insurance. Cards (Credit Cards. Loan Against Security. Electronic Clearing Service & Tax Payments) 8. Insurance(Life Insurance. Personal Loan. Study Loan & Consumer Loan) 4.2. Online Shopping etc. Personal Accident. Mutual Funds. Accounts (Zero Balance Savings Account. Prime Savings Account. Loan Against Shares.
· Bank lending has been a significant driver of GDP growth and employment.The role of service employees is limited. · The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India. satisfy and facilitate the activities of both conducive to the interaction between the two 3. · Extensive reach: the vast networking & growing number of branches & ATMs. gymnasium and self service restaurants etc. either on their own or with a little help from the provider. A gym layout and design and design (choice of equipment) conveys the segment of population that is targeted – slimming enthusiasts. Indian banks are considered to have clean. schools and banks are examples of this type of servicescapes. The facility design can attempt to position it for the desired market segment. Customer performs most of the activities. hospitals.A SELF SERVICE SERVICESCAPE The service is designed around a customer helping self with the service . · In terms of quality of assets and capital adequacy. they must be designed to attract. strong and transparent balance sheets relative to other banks in comparable economies in its region. cinema halls. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 percent growth in the market index for the same period. sportspersons. AN INTERPERSONAL SERVICESCAPE When a service encounter requires a close interaction between the customer and provider the servicescape must be facilitate this interaction. Service Blue Print STRENGTH · Indian banks have compared favourably on growth. body shapers.The service provider must plan the facility exclusively with the customer in mind. These changes include strengthening prudential norms. by making the facility pleasing and appropriate to use for them. asset quality and profitability with other regional banks over the last few years. · Policy makers have made some notable changes in policy and regulation to help strengthen the sector. Examples are ATMs. . enhancing the payments system and integrating regulations between commercial and co-operative banks. business executives and housewives or the youth. Hotels. An interpersonal servicescape is appropriate. Indian banking system has reached even to the remote corners of the country.
restrictions on capital availability and deployment. they may be publicly listed and traded on stock exchanges) and 31 foreign banks. consumer finance and wealth management on the retail side. · Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital. · Structural weaknesses such as a fragmented industry structure. · Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks. restrictive labour laws.000 branches and 17. This will expose the weaker banks. unless industry utilities and service bureaus.5% respectively. According to a report by ICRA Limited.27 public sector banks (that is with the Government of India holding a stake)after merger of New Bank of India in Punjab National Bank in 1993. · Old private sector banks also have the need to fundamentally strengthen skill levels. WEAKNESS · PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing.2% and 6. · With increased interest in India. · Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term. 29 private banks (these do not have government stake. with the private and foreign banks holding 18.· India has 88 scheduled commercial banks (SCBs) . a rating agency. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs). and in fee-based income and investment banking on the wholesale banking side. .000 ATMs. These require new skills in sales & marketing. · banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. risk management and the overall organizational performance ethic & strengthen human capital. lack of institutional support infrastructure. competition from foreign banks will only intensify. · The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. They have a combined network of over 53. credit and operations. OPPORTUNITY · The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards. service operations. the public sector banks hold over 75 percent of total assets of the banking industry.
the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their capital. they should stay in the game for potential acquisition opportunities as and when they appear in the near term. which were earlier not permitted to raise such funds. . mortgages and investment services are expected to be strong. consumers will increasingly demand enhanced institutional capabilities and service levels from banks. · New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments. · With the growth in the Indian economy expected to be strong for quite some time especially in its services sector-the demand for banking services. Significantly. · the Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives. actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms.· Given the demographic shifts resulting from changes in age profile and household income. left with little headroom for raising equity. FII and NRI investment limits in these securities have been fixed at 49%. At the same time. · Hybrid capital: In an attempt to relieve banks of their capital crunch. · Rise in inflation figures which would lead to increase in interest rates. THREATS · Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. developing and retaining more leadership capacity · Foreign banks committed to making a play in India will need to adopt alternative approaches to win the “race for the customer” and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. · reach in rural India for the private sector and foreign banks. especially retail banking. explore this route for raising cheaper funds in the overseas markets. Attracting. Maintaining a fundamentally long-term value-creation mindset. If the new instruments find takers. · Increase in the number of foreign players would pose a threat to the PSB as well as the private players. · Liberalisation of ECB norms: The government also liberalised the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks and financial institutions. it would help PSU banks. compared to 20% foreign equity holding allowed in PSU banks.