Indian Retail Banking Sector

Section-C, Group-9 PGP-1

Contents
Industry Overview

Definition
Size and Growth Share of Retail Banking Structure of Industry Regulations and Policies Major Players Key Trends Effect of Union Budget 2011-12 Future Outlook

Industry Overview

Indian Banking Sector - Overview

The banking industry consists of financial institutions that receive demand deposits and term deposits from customers and channelize this money into lending activities

Definition

The retail banking industry comprises those banks which provide banking services to retail customers These services include offering personal loans, home mortgages, education loans, handling retail accounts etc.

Size and Growth

The banking industry in India grew at a rate of 20.38% per annum between 2004 and 2010
CAGR: 20.38%

As on 31st March 2010, the banking sector in India comprised of 167 commercial banks Retail loans account for about 6% of GDP of India

Key Growth Drivers

Globalization Liberalization Expansion of foreign banks in India
Source: Banking, India Brand Equity Foundation (November 2010); Indian Banking System, FICCI (February 2010)
3

Industry Overview

Breakup of Loan Assets Retail and Corporate Banking

Over the last two decades, the business composition of banks has witnessed a significant change
While in mid-nineties the industrial lending accounted for more than half of total lending, presently, its share has reduced to 44% This can be attributed to drastic change in personal lending which almost doubled during this period

Within retail banking, the semi-urban and rural segments have been driving the growth Increased purchasing power of consumers has also contributed towards growth in personal loans

Source: Banking, India Brand Equity Foundation (November 2010)

4

Industry Overview

Structure of Indian Banking Sector

Banks in India

Public Sector
SBI PNB Bank of Baroda Canara Bank
Foreign Banks 7.0% Private Sector Banks 19.0%

Private Sector
ICICI Bank HDFC Bank Axis Bank Yes Bank Share of Total Assets (%)

Foreign Banks
Citi Bank HSBC Standard Chartered Bank The Royal Bank of Scotland

Co-operative Institutions
Delhi State Cooperative Bank

Maharashtra State Cooperative Bank

Punjab State Cooperative Bank

Governmentcontrolled Banks 74.0%

Indian banking sector is dominated by government-controlled banks which account for about three-fourths of the total bank assets

Source: Banking, India Brand Equity Foundation (November 2010)

5

Contents
Industry Overview

Regulations and Policies

Regulatory Framework Instruments used by RBI Major Players Key Trends Effect of Union Budget 2011-12 Future Outlook

Regulations and Policies

Regulatory Framework
Formulating and implementing the monetary policies Monetary Authority

Provides support to national objectives and financial inclusion

Development al Role

Regulator of financial system

Prescription of broad parameters of operations of banks

Managing the currency circulation

Issuer of Currency

Manager of foreign exchange

Managing foreign exchange as per the Foreign Exchange Management Act, 1999

Source: Banking, India Brand Equity Foundation (November 2010)

7

Regulations and Policies

Regulations and Policies

Interest rate at which RBI lends money to commercial banks Bank Rate

Minimum amount of cash reserves that a bank has to deposit with RBI

Cash Reserve Ratio

Instruments for monetary regulations

Statutor y Liquidit y Ratio

Minimum amount of assets to be kept in liquid form

Repo/ Reverse Repo Rate Short-term money market interest rates for transactions between RBI and commercial banks
Source: Banking, India Brand Equity Foundation (November 2010)
8

Contents
Industry Overview

Regulations and Policies

Major Players Private Sector Banks Public Sector Banks Foreign Banks Key Trends Effect of Union Budget 2011-12 Future Outlook

Major Players

Major Private Sector Banks in India

In-segment No. of Interest Total Profit Deposits (Cr) Market Share Employees Income (Cr) (Cr) (%)

Year of No. of Establishment branches

ICICI Bank

1994

2564

56969

225602

42.5%

25974

5151

HDFC Bank

1994

1963

55752

208586

14.2%

19928

3936

Axis Bank

1994

1459

26435

189238

11.7%

15155

3388

Source: A Profile of Banks 2010-11, Reserve Bank of India; Capitaline Database

10

Major Players

Major Public Sector Banks in India

In-segment Interest EBITDA Market Income (Cr) (Cr) Share (%)

Year of No. of No. of Deposits Establishment branches Employees (Cr)

Total Profit (Cr)

SBI

1805

13929

222933

933933

23.9%

81394

64,809.3

7370.35

PNB

1895

4997

56963

312899

6.6%

26986

21,998

4430

Canara Bank

1906

3329

43397

293973

6.0%

23064

20,417.99

4025

Source: A Profile of Banks 2010-11, Reserve Bank of India; Capitaline Database

11

Major Players

Major Foreign Banks in India

In-segment Market Share (%) Profit per employee (lakh)

Year of No. of Establishment branches

No. of Deposits (Cr) Employees

Interest Income

Citibank

1902

43

5327

56668

23.0%

6298

28.61

HSBC

1853

50

6373

54107

20.9%

5195

23

Standard Chartered Bank

1858

95

7813

58419

20.2%

6352

26.36

Source: A Profile of Banks 2010-11, Reserve Bank of India; Capitaline Database

12

Contents
Industry Overview

Regulations and Policies

Major Players Key Trends Mergers and Acquisitions Innovation and Technological Trends Effect of Union Budget 2011-12 Future Outlook

13

Key Trends

Mergers and Acquisitions

The banking industry in India has been witnessing a rise in consolidation activities through mergers and acquisitions More number of banks are opting for mergers and acquisitions to expand their consumer base and market share

Date of M&A

Acquirer Bank

Target Bank

Number of branches of target bank 503 478 394 110

August 2010 May 2010 February 2008 August 2007

State Bank of India ICICI Bank HDFC Bank Centurion Bank of Punjab

State Bank of Indore Bank of Rajasthan Centurion Bank of Punjab Lord Krishna Bank

April 2007

ICICI Bank

Sangli Bank

190

Source: Banking, India Brand Equity Foundation (November 2010)

14

Key Trends

Increasing Use of Technology

The banking industry in India has been witnessing a rise in consolidation activities through mergers and acquisitions More number of banks are opting for mergers and acquisitions to expand their consumer base and market share

Rising Concerns about Identity Theft

Retail banks are spending heavily on technology projects such as End-to-End Encryption that ensure information security and fraud prevention Canara Bank has recently implemented biometric identification in its ATMs Due to increasing number of internet consumers, retail banks are introducing online banking services These services include online fund transfers and gross settlements

Internet Banking

Consumers can access their bank accounts on-the-move using mobile banking
Mobile Banking Notification of account balances, withdrawal details, due date of payment, blocking of cards, etc.

Plastic Money

With the advent of technology, consumers can now transact in any part of the country using debit or credit cards

Source: Banking, India Brand Equity Foundation (November 2010); www.livemint.com/2011/04/26205637/SBI-plans-to-merge-anassociat.html

15

Contents
Industry Overview

Regulations and Policies

Major Players Key Trends Effect of Union Budget 2011-12 Future Outlook

16

Effect of Union Budget 2011-12

Union Budget 2011-12

Salient features specific to banking industry
Rs.500 crore to be provided to regional rural banks to maintain 9% CRAR (Capital to Risk Assets Ratio) Credit flow to farmers raised from Rs.3,75,000 crore to Rs.4,75,000 crore

Additional banking license to private sector players proposed

Rs.10,000 crore for NABARDs Short Term Rural Credit Fund for 2011-12

Expected Effects on Banking Industry

Strengthening of regional rural banks (RRB) due to investment of more capital by government Government is also assisting in improved lending of the rural financial system Increased competition due to introduction of new private sector banks Diversification of banking operations to cater to needs of both rural as well as urban customers

Source: http://www.bankingonly.com/detail-news.php?news_id=411
17

Contents
Industry Overview

Regulations and Policies

Major Players Key Trends Effect of Union Budget 2011-12 Future Outlook

18

Future Outlook

Future Outlook
Better capitalization for private sector banks Due to lower exposure to credit risks, the private sector banks are poised to grow more than public sector counterparts

Loyalty programs

More and more retail banks are expected to build on loyalty and focus on data collection through data mining and CRM

Diversification programs

To counter increasing competition, banks are likely to diversify their banking operations to cater to needs of both rural as well as urban customers

Increased involvement of banks in government policies

The players in banking industry are expected to gain higher level of involvement in government policies such as New Pension Scheme

Source: India Commercial Banking Report, Business Monitor International (Q3 2011)
19