Banking Sector in india

Agenda
Sectoral Landscape Banking Value Chain Important Regulations Major Reforms Latest Trends Basel Norms (In India) Challenges for banking in India Banks on Campus & Selection Process

Sectoral Landscape

Detailed Generic Value Chain of the Banking Industry

Marketing
Advertising Branding Sales Support

Sales
Funding
Acquisition Offering Multichannel Management Deposits Securitization Credits

Products
Investment
Credits Securities Fin. Products Corp. Invest. Other assets

Services
Acct. Mgmt. Asset Mgmt. Issuance/IPO M&A Advis. Serv. Other Serv.

Transactions
Payments Trading Clearing & Settlement Custody

Risk Management Technology Development Human Resources Firm Infrastructure

In opposite to the industrial value chain from Porter (1985, p. 86), the developed banking value chain starts from the customer side. First the product will be offered to the market, sold, provided to the customer and finally corresponding transactions will be executed. Additionally, Risk Management is introduced as supporting activity.
http://www.efinancelab.de/

Important regulations

Banking Regulation Act 1949

Cash reserve - Non-scheduled banks to maintain 3% of the demand and time liabilities by way of cash Prohibits payment of dividend by any bank until all of its capitalised expenses have been completely written off No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owners Every bank to maintain a percentage of its demand and time liabilities by way of cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd preceding fortnight

Major reforms so far..

Latest trends

Basel norms
Why Basel? To encourage convergence toward common standards To promote adoption of stronger risk management practices Basel I: Addressed Credit risk Banks to hold capital equal to 8% of risk-weighted assets Assets of banks were classified in 5 categories to credit risk weights of 0, 10, 20, 50 and up to 100% Basel II: International standard that regulators can use to guard against financial and operational risks Three Pillars: Minimum capital requirements (addressing credit, operational and market risks) Supervisory review Market discipline

Basel norms in India

Basel I implementation started in 1992 Capital to Risk Weighted Assets Ratio (CRAR): 9% Banks with foreign operations to comply by 1994 Domestic Banks to comply by 1996

Basel II was expected to be implemented by 31st March, 2009 Public sector banks must have a capital cushion with a CRAR of at least 12% Tier I capital (common equity + non-cumulative preferred shares + minority interests in consolidated subsidiaries less goodwill) to be 6% Failure to adhere to Basel II can attract RBI action including restricting lending and investment activities

Challenges

Lack of product expertise Lower Bank penetration Limited use of technology Lack of distribution expertise Reliance on branch channel and human intervention Relatively high unit cost of delivery given small transaction size Structural weaknesses: Fragmented industry structure, Restrictions on capital availability Restrictive labour laws, weak corporate governance

***Restricted Capital Account Convertibility

Name

Banks on campus and selection process overview

Profile Offered
I-banking I-banking Wholesale/ Retail Corporate/ Personal Wholesale/ Retail I-banking I-banking GMC Corporate Corporate FCE/ RIM

Offers made
3 1 4 5 1 2 1 2 1 1 1

Online test
No No

Group Discussion
Yes No

Written test
No No No

PI Rounds
1

JP Morgan Lazard Standard Chartered Citi bank HSBC Langham Nomura Deutsche ICICI Axis American Express

2
1 2 1 1

Yes.

Yes Yes No No No

No No No No No No No No

Yes
No No Yes Yes Yes No Yes No No No

3
2 1 1 1

Thank you!

Varun Arora (varun.a11@fms.edu)

Shashi Shekhar (shashi.s11@fms.edu)