1. ndian Banking Industry: An analysis
1. INTRODUCTION
1.1Industry definition:
The Banking industry comprises of segments that provide financial assistance and
advisory services to its customers by means of varied functions such as commercial
banking, wholesale banking, personal banking, internet banking, mobile banking,
credit unions, investment banking and the like.
With years, banks are also adding services to their customers. The Indian banking
industry is passing through a phase of customers market. The customers have more
choices in choosing their banks. A competition has been established within the banks
operating in India.
With stiff competition and advancement of technology, the services provided by
banks have become more easy and convenient. The past days are witness to an hour
wait before withdrawing cash from accounts or a cheque from north of the country
being cleared in one month in the south.
Banks are among the main participants of the financial system in India. Banking
offers several facilities & Opportunities. This section provides comprehensive and
updated information, guidance and assistance in all areas of banking in India.
Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on
modern lines started with the establishment of three presidency banks under
Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of
Madras.
The commercial banking structure in India consists of: Scheduled Commercial Banks
& Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as
"accepting, for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdrawable by cheques, draft, order
or otherwise."
The arrival of foreign and private banks with their superior state-of-the-art
technology-based services pushed Indian Banks also to follow suit by going in for the
latest technologies so as to meet the threat of competition and retain customer base.
The evolution of IT services outsourcing in the Indian banks has presently moved on
to the level of Facilities Management (FM). Banks now looking at business process

2. management (BPM) to increase returns on investment, improve customer relationship
management (CRM) and employee productivity.
For, these entities sustaining long-term customer relationship management (CRM) has
become a challenge with almost everyone in the market with similar products.
1.2 Classification of the Industry
Public Sector Banks:
Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs
are still dominating the commercial banking system. Shares of the leading PSBs are
already listed on the stock exchanges.
The PSBs will play an important role in the industry due to its number of branches
and foreign banks facing the constraint of limited number of branches. Hence, in order
to achieve an efficient banking system, the onus is on the Government to encourage
the PSBs to be run on professional lines.
Private Sector Banks:
The RBI has given licenses to new private sector banks as part of the liberalisation
process. The RBI has also been granting licences to industrial houses. Many banks are
successfully running in the retail and consumer segments but are yet to deliver
services to industrial finance, retail trade, small business and agricultural finance.
Foreign banks:
Foreign banks have been operating in India for decades with a few of them having
operations in India for over a century. The number of foreign bank branches in India
has increased significantly in recent years since RBI issued a number of licenses -
well beyond the commitments made to the World Trade Organisation. The presence
of foreign banks in India has benefited the financial system by enhancing competition,
resulting in higher efficiency. There has also been transfer of technology and
specialised skills which has had some "demonstration effect" as Indian banks too have
upgraded their skills, improved their scale of operations and diversified into other
activities. At a time when access to foreign currency funds was a constraint for the
Indian companies, the presence of foreign banks in India enabled large Indian
companies to access foreign currency resources from the overseas branches of these
banks. Also with the presence of foreign banks, as borrowers in the money market and
their operation in the foreign exchange market has resulted in the creation and
deepening of the inter-bank money market. Now, it is the challenge for the

3. supervisors to maximize the advantages and minimize the disadvantages of the
foreign banks' local presence.
1.3 Industry Segments
Commercial Banking
Wholesale banking
Investment Banking
Internet banking
Mobile banking
Rural banking
Micro Finance
Industrial Finance
a2. Market Dynamics
2.1 Market Overview
The banking industry too has evolved rapidly over the last few years in India due to
the availability of cheaper technology and falling communication costs. De-
regulation, competition from non-financial players, new compliance requirements,
and changing customer expectations has added complexity and challenges to banking
systems and processes.
Banks, however, face an uphill task in reaching out to the customers in remote
locations such as villages. There is a lower level of literacy and access to Internet.
Setting up branches involves higher cost and operating expenses, and lower return on
investment. Given the 742-million rural population, the penetration of deposit
accounts languishes at a deplorable 18 per cent. (Source: Extending Banking to the
poor in India‖, Amit Singhal and Bikram Duggal, ICICI Bank).
Qualitative growth :
The growth of banking in the coming years is likely to be more qualitative than
quantitative, according to the report. Based on the projections made in the "India

4. 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
Rs 40, 90,000 crore. That will form about 65 per cent of GDP at current market prices
as compared to 67 per cent in 2002-03. Banks assets are expected to grow at an annual
composite rate of growth of 13.4 per cent during the rest of the decade against 16.7
per cent between 1994-95 and 2002-03.
On the liability side, there is likely to be large additions to capital base and reserves.
As the reliance on borrowed funds increases, the pace of deposit growth may slow
down. On the asset side, the pace of growth in both advances and investments is
forecast to weaken.
The high GDP growth in India is creating lots of job opportunities in urban and semi-
urban India and it will go further into rural India — increasing the potential for rural
entrepreneurships and rural growth with higher per-capita income and savings
opportunities.
Investment in Indian market
India, among the European investors, is believed to be a good investment despite
political uncertainty, bureaucratic hassles, shortages of power and infrastructural
deficiencies. India presents a vast potential for overseas investment and is actively
encouraging the entrance of foreign players into the market. No companies, of any
size, aspiring to be a global player can, for long ignore this country which is expected
to become one of the top three emerging economies.
Market potential:
India is the fifth largest economy in the world (ranking above France, Italy, the United
Kingdom, and Russia) and has the third largest GDP in the entire continent of Asia. It
is also the second largest among emerging nations. (These indicators are based on
purchasing power parity.) India is also one of the few markets in the world which
offers high prospects for growth and earning potential in practically all areas of
business. Yet, despite the practically unlimited possibilities in India for overseas
businesses, the world's most populous democracy has, until fairly recently, failed to
get the kind of enthusiastic attention generated by other emerging economies such as
China.
1.2 Industry Segments:

5. Public Sector Banks:
Almost 80% of the business is still controlled by Public Sector Banks (PSBs). PSBs
are still dominating the commercial banking system. Shares of the leading PSBs are
already listed on the stock exchanges.
The PSBs will play an important role in the industry due to its number of branches
and foreign banks facing the constraint of limited number of branches. Hence, in order
to achieve an efficient banking system, the onus is on the Government to encourage
the PSBs to be run on professional lines.
Private Sector Banks:
The RBI has given licenses to new private sector banks as part of the liberalization
process. The RBI has also been granting licenses to industrial houses. Many banks are
successfully running in the retail and consumer segments but are yet to deliver
services to industrial finance, retail trade, small business and agricultural finance.
Foreign banks:
Foreign banks have been operating in India for decades with a few of them having
operations in India for over a century. The number of foreign bank branches in India
has increased significantly in recent years since RBI issued a number of licenses -
well beyond the commitments made to the World Trade Organization. The presence
of foreign banks in India has benefited the financial system by enhancing competition,
resulting in higher efficiency. There has also been transfer of technology and
specialized skills which has had some "demonstration effect" as Indian banks too have
upgraded their skills, improved their scale of operations and diversified into other
activities. At a time when access to foreign currency funds was a constraint for the
Indian companies, the presence of foreign banks in India enabled large Indian
companies to access foreign currency resources from the overseas branches of these
banks. Also with the presence of foreign banks, as borrowers in the money market and
their operation in the foreign exchange market has resulted in the creation and
deepening of the inter-bank money market. Now, it is the challenge for the
supervisors to maximize the advantages and minimize the disadvantages of the
foreign banks' local presence.
2.2 Trend Analysis
Financial And Banking Sector Reforms

6. The last decade witnessed the maturity of India's financial markets. Since 1991, every
governments of India took major steps in reforming the financial sector of the country.
The important achievements in the following fields is discussed under separate heads:
• Financial markets
• Regulators
• Non-banking finance companies
• The capital market
• Mutual funds
• Overall approach to reforms
• Deregulation of banking system
• Consolidation imperative
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew
rapidly in commercial banking and asset management business. With the openings in
the insurance sector for these institutions, they started making debt in the market.
Competition among financial intermediaries gradually helped the interest rates to
decline. Deregulation added to it. The real interest rate was maintained. The
borrowers did not pay high price while depositors had incentives to save. It was
something between the nominal rate of interest and the expected rate of inflation.
Regulators
The Finance Ministry continuously formulated major policies in the field of financial
sector of the country. The Government accepted the important role of regulators. The
Reserve Bank of India (RBI) has become more independant. Securities and Exchange
Board of India (SEBI) and the Insurance Regulatory and Development Authority
(IRDA) became important institutions. Opinions are also there that there should be a
super-regulator for the financial services sector instead of multiplicity of regulators.
Development finance institutions

7. FIs's access to SLR funds reduced. Now they have to approach the capital market for
debt and equity funds. Convertibility clause no longer obligatory for assistance to
corporates sanctioned by term-lending institutions. Capital adequacy norms extended
to financial institutions.
DFIs such as IDBI and ICICI have entered other segments of financial services such
as commercial banking, asset management and insurance through separate ventures.
The move to universal banking has started.
Non-banking finance companies:
In the case of new NBFCs seeking registration with the RBI, the requirement of
minimum net owned funds, has been raised to Rs.2 crores.
Until recently, the money market in India was narrow and circumscribed by tight
regulations over interest rates and participants. The secondary market was
underdeveloped and lacked liquidity. Several measures have been initiated and
include new money market instruments, strengthening of existing instruments and
setting up of the Discount and Finance House of India (DFHI).
Long-term debt market: The development of a long-term debt market is crucial to the
financing of infrastructure. After bringing some order to the equity market, the SEBI
has now decided to concentrate on the development of the debt market. Stamp duty is
being withdrawn at the time of dematerialisation of debt instruments in order to
encourage paperless trading.
Mutual funds
The mutual funds industry is now regulated under the SEBI (Mutual Funds)
Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines, the
industry had a framework for the establishment of many more players, both Indian
and foreign players.
The insurance industry is the latest to be thrown open to competition from the private
sector including foreign players. Foreign companies can only enter joint ventures with
Indian companies, with participation restricted to 26 per cent of equity. It is too early
to conclude whether the erstwhile public sector monopolies will successfully be able
to face up to the competition posed by the new players, but it can be expected that the
customer will gain from improved service.

8. The new players will need to bring in innovative products as well as fresh ideas on
marketing and distribution, in order to improve the low per capita insurance coverage.
Good regulation will, of course, be essential.
Overall approach to reforms
The last ten years have seen major improvements in the working of various financial
market participants. The government and the regulatory authorities have followed a
step-by-step approach, not a big bang one. The entry of foreign players has assisted in
the introduction of international practices and systems. Technology developments
have improved customer service. Some gaps however remain (for example: lack of an
inter-bank interest rate benchmark, an active corporate debt market and a developed
derivatives market). On the whole, the cumulative effect of the developments since
1991 has been quite encouraging. An indication of the strength of the reformed Indian
financial system can be seen from the way India was not affected by the Southeast
Asian crisis.
Deregulation of banking system
Prudential norms were introduced for income recognition, asset classification,
provisioning for delinquent loans and for capital adequacy. In order to reach the
stipulated capital adequacy norms, substantial capital were provided by the
Government to PSBs.
Government pre-emption of banks' resources through statutory liquidity ratio (SLR)
and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and
lending sides almost entirely were deregulated.
New private sector banks allowed to promote and encourage competition. PSBs were
encouraged to approach the public for raising resources. Recovery of debts due to
banks and the Financial Institutions Act, 1993 was passed, and special recovery
tribunals set up to facilitate quicker recovery of loan arrears.
Bank lending norms liberalised and a loan system to ensure better control over credit
introduced. Banks asked to set up asset liability management (ALM) systems. RBI
guidelines issued for risk management systems in banks encompassing credit, market
and operational risks. A credit information bureau being established to identify bad
risks. Derivative products such as forward rate agreements (FRAs) and interest rate
swaps (IRSs) introduced.
Consolidation imperative

9. Another aspect of the financial sector reforms in India is the consolidation of existing
institutions which is especially applicable to the commercial banks. In India the banks
are in huge quantity. First, there is no need for 27 PSBs with branches all over India.
A number of them can be merged. The merger of Punjab National Bank and New
Bank of India was a difficult one, but the situation is different now. No one expected
so many employees to take voluntary retirement from PSBs, which at one time were
much sought after jobs. Private sector banks will be self consolidated while co-
operative and rural banks will be encouraged for consolidation, and anyway play only
a niche role.
We finally come to convergence in the financial sector, the new buzzword
internationally. Hi-tech and the need to meet increasing consumer needs is
encouraging convergence, even though it has not always been a success till date. In
India organisations such as IDBI, ICICI, HDFC and SBI are already trying to offer
various services to the customer under one umbrella. This phenomenon is expected to
grow rapidly in the coming years. Where mergers may not be possible, alliances
between organisations may be effective. Various forms of bancassurance are being
introduced, with the RBI having already come out with detailed guidelines for entry of
banks into insurance.
2.3 Key Drivers of sustainability in the banking industry
Lender's liability
Lender's liability is associated with the financial risks banks face when granting or
extending loans. Banks and other lenders rely on financial statements of companies
when deciding whether to grant or extend credit. Under current reporting
requirements, potential environmental liabilities can easily remain undiscovered
unless a lender develops its own procedure to assess the environmental risks.
Therefore, some banks can end up spending the money on clean-ups of sites
contaminated through their clients' activities.
Borrower's ability to meet financial obligations
The borrower's obligation to clean up contaminated sites might impair his or her
ability to repay a loan. The contamination might also reduce the value of the
collateral. Prudent lenders are following the environmental trends and changes in
regulatory framework to assess the possible implications of these changes on their
clients' overall financial position.
Growing environmental concerns

10. The last few decades have been marked by numerous changes in the regulatory
framework relating to environmental protection. Recent scientific discoveries of
environmental and health risks associated with pollution have contributed to an
increase in public demand for environmental quality. These growing concerns have
contributed to a major shift in public perception of corporate roles in society.
Influenced by these trends, some banks have begun looking closely into their own
environmental and social performance. In many cases this effort has resulted in
adoption of energy and resource efficiency programs within the institutions
themselves.
Business opportunities
The traditional approach of the banking sector to sustainability is often regarded as
reactive and defensive. However, several international banks have recently adopted
innovative, proactive strategies to capture the opportunities associated with
sustainability. They have developed new products such as ethical funds or loans
specifically designed for environmental businesses to capture new market
opportunities associated with sustainability.
Risk and reward
The ability to gauge the risks and take appropriate position will be the key to
successful banking in the emerging scenario. Risk-takers will survive, effective risk
mangers will prosper and risk-averse are likely to perish, the report asserts.
In this context, the report makes a very pertinent recommendation that risk
management has to trickle down from the corporate office to branches.
As audit and supervision shifts to a risk-based approach rather than transaction
oriented, the risk awareness levels of line functionaries also will have to increase.
The report also talks of the need for banks to deal with issues relating to `reputational
risk' to maintain a high degree of public confidence for raising capital and other
resources.
2.4 Issues and Implications
Consolidation
On the growing influence of globalisation on the Indian banking industry, the report is
of the opinion that the financial sector would be opened up for greater international
competition under WTO. Opening up of the financial sector from 2005, under WTO,

11. would see a number of global banks taking large stakes and control over banking
entities in the country.
They are expected to bring with them capital, technology, and management skills
which would increase the competitive spirit in the system leading to greater
efficiency. Government policy to allow greater FDI in banking and the move to
amend Banking regulations Act to remove the existing 10 per cent cap on voting
rights of shareholders are pointer to these developments, says the report.
The pressure on banks to gear up to meet stringent prudential capital adequacy norms
under Basel II and the various Free Trade Agreements that India is entering into with
other countries, such as Singapore, will also impact on globalisation of Indian
banking.
However, according to the report, the flow need not be one way. Some of the Indian
banks may also emerge global players. As globalisation opens up opportunities for
Indian corporate entities to expand their business overseas, banks in India wanting to
increase their international presence could naturally be expected to follow these
corporate entities and other trade flows out of India.
Alongside, the growing pressure on capital structure of banks is expected to trigger a
phase of consolidation in the banking industry. In the past mergers were initiated by
regulators to protect the interest of depositors of weak banks. In recent years, there
have been a number of market-led mergers between private banks.
This process is expected to gain momentum in the coming years, says the report.
Mergers between public sector banks or public sector banks and private banks could
be the next logical development, the report adds. Consolidation could also take place
through strategic alliances or partnerships covering specific areas of business such as
credit cards, insurance etc.
Branch Authorisation Policy
As you are aware, the RBI announced a new Branch Authorisation Policy in
September 2005 under
which certain changes were brought about in the authorisation process adopted by the
RBI for the bank
branches in the country. As against the earlier system, where the banks approached
the RBI, piece meal,

12. through out the year for branch authorisation, the revised system provides for a
holistic and streamlined
approach for the purpose, by granting a bank-wise, annual aggregated authorisation, in
consultation and
interaction with each applicant bank. The objective is to ensure that the banks take an
integrated view of
their branch- network needs, including branch relocations, mergers, conversions and
closures as well as
setting up of the ATMs, over a one-year time horizon, in tune with their own business
strategy, and then
approach the RBI for consolidated annual authorisations accordingly.
There seems to be some misunderstanding in some quarters that, under the new
policy, the banks
have to wait for the annual authorisation exercise and are constrained in approaching
the RBI for any
emergent authorisation in between. Since the branch expansion planning of the banks
is expected to be a
well thought out, Board-approved annual process, normally, there should be no need
for any emergent or
urgent authorisation being required by the banks, in the interim. However, I would
like to emphasise that the
new policy does not preclude the possibility of any urgent proposals for opening bank
branches being
considered by the RBI even outside the annual plan, specially in the rural / under-
banked areas, anytime
during the year. This flexibility has been clearly articulated in our policy guidelines as
contained in the
Master Circular of July 2007 but somehow, it seems to have got overlooked.

13. There also seems to be a feeling among some banks that under the new authorisation
policy, the
process adopted is more cumbersome and, as a result, there have been delays in
issuing authorisations.
Since the banks are required to approach the RBI only after obtaining the approval of
their respective
Boards for their annual branch expansion plan, it is possible that the preparatory time
required for filing their
annual plan with the RBI might be a little longer. The processing time at the end of
the RBI, however, has
been generally in the range of one to two months – which I consider to be reasonable,
given the element of
consultation with the banks built into the process. However, the actual number of
authorisations issued by
the RBI under the new policy has been much higher than before. For instance, as
against the a total of 881,
1125 and 1259 authorisations given by the RBI under the old policy regime during
2003-04, 2004-05 and
2005-06, respectively, the number of authorisations issued under the new policy
during 2006-07 was 2028.
Thus, as against the general perception that the new policy has been more restrictive
in granting
authorisations, the fact is that there has been a sharp increase of about 61 per cent in
the total number of
authorisations granted last year.
3.PEST Analysis
3.1 Political Analysis
Regulation

14. The expected integration of various intermediaries in the financial system would
require a strong regulatory framework, the report states. It would also require a
number of legislative changes to enable the banking system to remain contemporary
and competitive. Underscoring that there would be an increased need for self-
regulation, the report states that development of best practices could evolve better
through self-regulation rather than based on regulatory prescriptions.
For instance, to enlist the confidence of the global investors and international market
players, the banks will have to adopt the best global practices of financial accounting
and reporting. It is expected that banks would migrate to global accounting standards
smoothly, although it would mean greater disclosure and tighter norms, the report
adds.
Notwithstanding the limited time ahead, the expectations, suggestions and
recommendations of the Banking Industry Vision report are well within the realm of
realisation in part or whole. The first phase of banking reforms was born out of panic.
The second phase can be implemented from a position of strength and confidence in a
compressed time-frame.
3.2 Economic Analysis3.2 Economic Analysis
Growing economy
THE INDIAN economy has shown tremendous growth over the past decade. This
statement may seem odd to the economists who keep comparing the growth rates to
that of China or the East Asian Tigers. These countries have definitely shown good
economic growth, but India's is nothing to be scoffed at.
This assertion is not being made by comparing the GDP growth, FDI inflow, changes
in per capita income and other economic criteria, but by looking at the increase in the
availability of goods and services.
A while ago, visiting foreign countries, one used to wonder when would India catch
up? People walking around with mobile phones, shopping malls overflowing with
goods, and even dozens of branded water. Coming from India, where water had to be
boiled and filtered before consumption, these countries seemed like paradise.
Now, a decade later, India seems to have caught up with some of these things at least.
Take the cell phones and pagers. Hong Kong went through the pager phase for two or
three years before going cell. In India, pagers did not take off, while cell phones
clicked. The accelerated telecommunications revolution has made cell phone easily
affordable. India is no longer the backwaters of for hi-tech products.

15. An economist may argue that availability of cell phones and branded water does not
indicate a developed economy. But even they have to agree that India seems to have
changed from a country of shortages to one of plenty. And along with plentiful
supplies, there is also variety.
In the early 1990s, there were three varieties of car models/makers — Ambassador,
Fiat and Maruti 800. Today there are apparently some 500 models from more than 10
manufacturers.
Developmental economists may argue that plentiful supply of goods and services does
not mean that India has become prosperous and that India has a long way to catch up
with the developed economies. But one has to agree that the India has made much
progress over the past decade.
Western economies have grown partly because of consumption economics. Those
economies produced large number of goods, employing more and more people to
produce these goods. These employees in turn consumed the goods, creating a
virtuous cycle. Maybe India is following this path.
All the good are available in plenty. Now the living standards of people have to be
improved so that they start consuming these goods. Maybe, that is why the new
Finance Minister wants to put more money in the housewives' hand.
3.3 Social Analysis
All these developments need not mean banks will give the go-by to social banking.
Rather than being seen as directed lending such lending would be business driven, the
report predicts. Rural market comprises 74 per cent of the population, 41 per cent of
the middle-class, and 58 per cent of disposable income.
Consumer growth is taking place at a fast pace in 17,000-odd villages with a
population of more than 5,000. Of these, more than 50 per cent are concentrated in
just seven states. Small-scale industries would remain important for banks.
However, instead of the narrow definition of SSI based on the investment in fixed
assets, the focus may shift to small and medium enterprises (SMEs) as a group.
Changes could be expected in the delivery channel for small borrowers, agriculturists
and unorganised sectors also.
3.4 Technological Analysis

16. Technological developments would render flow of information and data faster leading
to faster appraisal and decision-making. This would enable banks to make credit
management more effective, besides leading to an appreciable reduction in transaction
cost.
To reduce investment costs in technology, banks are likely to resort more and more to
sharing facilities such as ATM networks, the report says. Banks and financial
institutions will join together to share facilities in the areas of payment and settlement,
back-office processing, date warehousing, and so on.
The advent of new technologies could see the emergence of new players doing
financial intermediation. For example, according to the report, we could see utility
service providers offering, say, bill payment services or supermarkets or retailers
doing basic lending operations. The conventional definition of banking might undergo
changes.
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4. PORTER’S FIVE FORCE ANALYSIS
5.Competitive landscape
Public Sector Banks
Indian Bank
Bank of India
Union Bank
Syndicate Bank
Sate Bank of Saurashtra
State Bank of Travancore
Bank of Maharashtra
Vijaya Bank
UCO Bank

18. Indian Overseas Bank
Punjab National Bank
Dena Bank
State Bank of Hyderabad
State Bank of Bikaner & Jaipur
State Bank of India
State Bank of Mysore
State Bank of Indore
Corporation Bank
Allahabad Bank
Andhra Bank
Canara Bank
Bank of Baroda
Oriental Bank
Punjab & Sind Bank
IDBI Bank
ICICI Bank
UTI Bank
United Bank
Private Sector Banks
South Indian Bank
IndusInd Bank

19. HDFC Bank
Jammu & Kashmir Bank
Nedungadi Bank
Development Credit Bank
Ratnakar Bank
Mandavi Bank
Centurian Bank
City Union Bank
Federal Bank
Catholic Syrian Bank
Saraswat Bank
DhanLakshmi Bank
Kotak Bank
Cosmos Bank
Lakshmi Vilas Bank
Bank of Rajasthan
Bank of Punjab
ING-Vysya Bank
Kalyan Bank
Karur Vysya Bank
United Western Bank
Internet Banking

20. ICICI Bank
Federal Bank
State Bank of India
IDBI Bank
Bank of Baroda
Bank of Baroda
HDFC Bank
State Bank of Travancore
HSBC
Punjab National Bank
IndusInd Bank
UTI Bank
Bank of Punjab
Canara Bank
Corporation Bank
ING-Vysya
Foreign Banks in India
Standard Chartered Bank
American Express Bank
Banque Nationale De Paris
Citi Bank
ABN Amro Bank

21. Asian Developmant Bank
Abu Dhabi C.Bank
ANG Bank
HSBC
Indian banks Abroad
State Bank of India
5.1 Competitive Positioning
To avoid complication in the analysis, I am considering the following banks for the
study from hereon.
Centurion Bank of Punjab
ICICI
Barclays
SBI
HDFC
ICICI
a. Market share: ICICI Bank is India's second-largest bank with total assets of
Rs. 3,767.00 billion (US$ 96 billion) at December 31, 2007 and profit after tax of Rs.
30.08 billion for the nine months ended December 31, 2007. ICICI Bank is second
amongst all the companies listed on the Indian stock exchanges in terms of free float
market capitalisation*
b. The Bank has a network of about 955 branches and 3,687 ATMs in India and
presence in 17 countries.
Says Morparia, "The convenience proposition together with the geographical reach
has paid off. We rolled out ATMs far ahead of the others and were able to cross-sell
our products."

22. Share of the walle
Mar-05 HDFC Bank ICICI Bank
Branches 467 565
ATMs 1,147 2,000
Cities 211 371
Retail assets (Rs crore) 18,000 56,000
Deposits (Rs crore) 38,000 99,800
Car loans (Rs crore) 2,500 11,500
Credit cards (Mn) 1.3 3
Retail customers (Mn) 6.4 13.7
Cost of deposits (%) 3.2 4.5
Net interest margin (%) 3.2 2.4
Net NPLs (%) 0.2 2
Even in the number of customers ICICI Bank leads by a distance (See table: Share of
the wallet). Nearly 14 million customers bank with ICICI Bank, while the number for
HDFC Bank is less than half (6.4 million).
HDFC
HDFC Bank was incorporated in August 1994, and, currently has an nationwide
network of 746 Branches and 1647 ATM's in
329 Indian towns and cities.
The Bank earned total income of Rs.3,405.8 crores for the quarter ended
December 31, 2007, a growth of 64.4% over the corresponding quarter ended
December 31, 2006. Net revenues (net interest income plus other income) for

23. the quarter ended December 31, 2007 were Rs.2,116.5 crores, an increase of
70.5% over the corresponding quarter of the previous year.
CBOP
Centurion Bank of Punjab has a nationwide reach through its network of 393
branches/ECs, 452 ATMs 180 Locations. The bank aims to serve all the banking and
financial needs of its customers through multiple delivery channels, each of which is
supported by state-of-the-art technology architecture.
Centurion Bank of Punjab‘s Net Profit for the quarter ended December 31,
2007 up 44% to Rs.483 million;
Operating profit for the quarter up 108%
Net Advances increase by 60%; Deposits increase by 65%
SBI
The Bank is forging ahead with cutting edge technology and innovative new banking
models, to expand its Rural Banking base, looking at the vast untapped potential in the
hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to
provide India‘s growing mid / large Corporate with a complete array of products and
services. It is consolidating its global treasury operations and entering into structured
products and derivative instruments. Today, the Bank is the largest provider of
infrastructure debt and the largest arranger of external commercial borrowings in the
country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer
friendly processes to help improve the total customer experience.
With about 8500 of its own 10000 branches and another 5100 branches of its
Associate Banks already networked, today it offers the largest banking network to the
Indian customer. The Bank is also in the process of providing complete payment
solution to its clientele with its over 8500 ATMs, and other electronic channels such
as Internet banking, debit cards, mobile banking, etc.
Barclays is spreading its reach across India and now has 4 offices in the country. We
have our head office in the financial hub of Mumbai in Western India. We recently

24. strengthened our presence in Northern India with a branch in Delhi, India‘s capital,
which is also one of the subcontinent‘s key business centres. Additionally, Barclays
has a branch in Kanchipuram, which is near Chennai, and another at Nelamangala
near Bangalore, both of which cover important nodes in Southern India.
Barclays eyes double-digit market-share in India
Barclays, which recently infused $70-million in Indian retail operations, is targeting a
double-digit market-share in the segment, according to Samir Bhatia, Managing
Director.
5.2 Competition Strategies
ICICI SIZE, range and low-cost resources have been recurring themes in ICICI's
strategy over the last few years.
HDFC The cornerstone of HDFC business strategy has been its retail focus, first on
the liability side in terms of deposits and now in assets.All banks focus on retail
liabilities, but none did it to the extent that HDFC did. "Our focus has always been
low-cost retail deposits. Corporate deposits tend to be very volatile and command a
higher cost, hence our reticence toward it," says Paresh Sukhtankar, head of credit and
market risk. Besides cost, this approach also reduced the volatility and price
sensitivity in deposits, since corporate deposits typically tend to be parked at the short
end and flowed out easily with changes in interest rates.
Barclays Barclays market strategy to tap bottom of pyramid
Barclays sees a huge potential in the mass segment. In fact, it plans to launch a
banking product aimed at the ―un-banked and under-banked‖ segment in the country.
Unlike other foreign banks in India, which started their journey in the market top-
down by tapping high net-worth clients, Barclays, somewhat of a late entrant, is
seeking its fortunes from the ground up, at the bottom of the pyramid.
SBI
CBOP strategic alliance with HDFC
Future of Banking in India – Changing Imperatives
Uploaded by tanujadunga (76) on Nov 28, 2006
________________________________________

25. EXECUTIVE SUMMARY
A healthy banking system is essential for any economy striving to achieve good
growth and yet remain stable in an increasingly global business environment. The
Indian banking system has witnessed a series of reforms in the past, like deregulation
of interest rates, dilution of government stake in PSBs, and increased participation of
private sector banks. It has also undergone rapid changes, reflecting a number of
underlying developments. This trend has created new competitive threats as well as
new opportunities. This paper aims to foresee major future banking trends, based on
these past and current movements in the market.
Given the competitive market, banking will (and to a great extent already has) become
a process of choice and convenience. The future of banking would be in terms of
integration. This is already becoming a reality with new-age banks such as YES Bank,
and others too adopting a single-PIN. Geography will no longer be an inhibitor.
Technology will prove to be the differentiator in the short-term but the dynamic
environment will soon lead to its saturation and what will ultimately be the key to
success will be a better relationship management.
OVERVIEW
If one were to say that the future of banking in India is bright, it would be a gross
understatement. With the growing competition and convergence of services, the
customers (you and I) stand only to benefit more to say the least. At the same time,
emergence of a multitude of complex financial instruments is foreseen in the near
future (the trend is visible in the current scenario too) which is bound to confuse the
customer more than ever unless she spends hours (maybe days) to understand the
same. Hence, I see a growing trend towards the importance of relationship managers.
The success (or failure) of any bank would depend not only on tapping the untapped
customer base (from other departments of the same bank, customers of related similar
institutions or those of the competitors) but also on the effectiveness in retaining the
existing base.
India has witness to a sea change in the way banking is done in the past more than two
decades. Since 1991, the Reserve Bank of India (RBI) took steps to reform the Indian
banking system at a measured pace so that growth could be achieved without
exposure to any macro-environment and systemic risks. Some of these initiatives were
deregulation of interest rates, dilution of the government stake in public sector banks
(PSBs), guidelines being issued for risk management, asset classification, and
provisioning. Technology has made tremendous impact in banking. ‗Anywhere
banking‘ and ‗Anytime banking‘ have become a reality. The financial sector now
operates in a more competitive environment than before and intermediates relatively

26. large volume of international financial flows. In the wake of greater financial
deregulation and global financial integration, the biggest challenge before the
regulators is of avoiding instability in the financial system.
Meaning of NPAs
An asset is classified as Non-performing Asset (NPA) if due in the form of principal
and interest are not paid by the borrower for a period of 180 days. However with
effect from March 2004, default status would be given to a borrower if dues are not
paid for 90 days. If any advance or credit facilities granted by banks to a borrower
becomes non-performing, then the bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing without having any regard to the
fact that there may still exist certain advances / credit facilities having performing
status.
Though the term NPA connotes a financial asset of a commercial bank, which has
stopped earning an expected reasonable return, it is also a reflection of the
productivity of the unit, firm, concern, industry and nation where that asset is idling.
Viewed with this perspective, the NPA is a result of an environment that prevents it
from performing up to expected levels.
The definition of NPAs in Indian context is certainly more liberal with two quarters
norm being applied for classification of such assets. The RBI is moving over to one-
quarter norm from 2004 onwards.
Magnitude of NPAs
Inn India, the NPAs that are considered to be at higher levels than those in other
countries have of late, attracted the attention of public. The Indian banking system had
acquired a large quantum of NPAs, which can be termed as legacy NPAs.
NPAs seem to be growing in public sector banks over the years.
Macro Perspective Behind NPAs
A lot of practical problems have been found in Indian banks, especially in public
sector banks. For Example, the government of India had given a massive wavier of
Rs. 15,000 Crs. under the Prime Minister ship of Mr. V.P. Singh, for rural debt during
1989-90. This was not a unique incident in India and left a negative impression on the
payer of the loan.

27. Poverty elevation programs like IRDP, RREP, SUME, SEPUP, JRY, PMRY etc.,
failed on various grounds in meeting their objectives. The huge amount of loan
granted under these schemes were totally unrecoverable by banks due to political
manipulation, misuse of funds and non-reliability of target audience of these sections.
Loans given by banks are their assets and as the repayment of several of the loans
were poor, the quality of these assets were steadily deteriorating. Credit allocation
became 'Lon Melas', loan proposal evaluations were slack and as a result repayment
were very poor.
There are several reasons for an account becoming NPA.
* Internal factors
* External factors
Internal factors:
1. Funds borrowed for a particular purpose but not use for the said purpose.
2. Project not completed in time.
3. Poor recovery of receivables.
4. Excess capacities created on non-economic costs.
5. In-ability of the corporate to raise capital through the issue of equity or other debt
instrument from capital markets.
6. Business failures.
7. Diversion of funds for expansionmodernizationsetting up new projects helping or
promoting sister concerns.
8. Willful defaults, siphoning of funds, fraud, disputes, management disputes, mis-
appropriation etc.,
9. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-
ups, delay in settlement of payments subsidiaries by government bodies etc.,
External factors:

28. 1. Sluggish legal system -
Long legal tangles
Changes that had taken place in labour laws
Lack of sincere effort.
2. Scarcity of raw material, power and other resources.
3. Industrial recession.
4. Shortage of raw material, raw materialinput price escalation, power shortage,
industrial recession, excess capacity, natural calamities like floods, accidents.
5. Failures, non payment over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc.
6. Government policies like excise duty changes, Import duty changes etc.,
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