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Pestel analysis : Banking sector

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PESTLE analysis of Banking Sector

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Pestel analysis : Banking sector

  2. 2.  The banking system remains, as always, the most dominant segment of thefinancial sector. Indian banks continue to build on their strengths under theregulators watchful eye and hence, have emerged stronger. The banking sector in India has made significant progress in the last five years –the growth is well reflected through parameters including profitability, annual creditgrowth, and decline in non-performing assets (NPAs) Growth in the sector has been favoured by factors including low defaulterratio, strong economic growth, central bank’s regular intervention and pre-emptiveadjustment of monetary policy. The policy makers for the banking sector, which comprise the Reserve Bank ofIndia (RBI), Ministry of Finance and related government and financial sectorregulatory entities, have made several notable efforts to improve regulation in thesector
  4. 4.  To what degree a government intervenes in the economy. Ex-taxpolicy, labour law, environmental law, traderestrictions, tariffs, and political stability Some of the major political factors affecting the Bankingindustry are :• Focus on regulation of government• Budget and budget measures• Foreign Direct Investment limits
  5. 5. • Indian banking sector is least affected as compared to other developed countries- thanks to robust policy framework of RBI.• Government affects the performance of banking sector most by legislature and framing policy government through its budget affects the banking activities securitization act has given more power to banking sector against defaulting borrowers.• Stricter prudential regulations with respect to capital and liquidity gives India an advantage in terms of credibility over other countries.• To support capitalisation, the government has infused Rs 23,200 crore (US$ 5.2 billion) into state-owned banks during the last three fiscals
  6. 6. • The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who are starved of net worth to meet CAR norms.• Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0 percent and have been included within the ambit of FDI investment • Increase Farm Credit • Subvention of 1% to be paid as incentive to farmers • Debt Waiver for Farmers • Setting up of separate task force for those not covered under the debt waiver scheme
  7. 7. • Agriculture has been the mainstay of our economy with 60% of our populationderiving their sustenance from it.•In the recent past, the sector has recorded a growth of about 4% per annum withsubstantial increase in plan allocations and capital formation in the sector with help ofbanking assistance.•The one-time bank loan waiver of nearly Rs 71,000 crore to cover an estimated 40 million farmers was one of the major highlights
  8. 8. •Every year RBI declares its 6 monthly policies and accordingly the variousmeasures and rates are implemented which has an impact on the bankingsector.•The Economic measures affects the banking sector to boost the economy by giving certain concessions or facilities. If in the savings are encouraged, thenmore deposits will be attracted towards the banks and inturn they can lendmore money to the agricultural sector and industrialsector, therefore, booming the economy.•If the FDI limits are relaxed, then more FDI are brought in India through banking channels
  9. 9. Key July Sept OctEvery year RBI declares its 6 monthly Rate 26th 16th 25thpolicies and accordingly the various smeasures and rates are implemented whichhas an impact on the banking CRR 6.oo 6.00 6.00sector.In past 24 months RBI has changed its Repo 8.00 8.25 8.50key monetary rates 13 times to curb rateinflation and other economic risks. Rever 7.00 7.25 7.50 se repo rate SLR 24 24 24
  10. 10. Indian economy has registered robust growth in past years and Banking sector isdirectly related to the growth of the economy.GOI is trying to push the economy by framing favorable FDI policies , NRIInvestment plans which directly affect the GDP.These plans directly affect banking industry as money comes through banks andbank earns interest on that.
  11. 11. Interest Rates:RBI controls interest rates, which RBI monitors regularlyRecently RBI reduced bank rate to stimulate growth of banking industryInflation Rate:India is facing huge troubles due to inflation as it is 10% now.To curb the inflation and slowdown of economy RBI has taken varioussteps like lowering interest rates to increase the demand in banking sectorSavings and Investments: Gross domestic saving is 28% of total income in IndiaLatest step taken by RBI to deregulate savings rates is a step to increaseBank savings
  12. 12. It includes cultural aspects and health consciousness, population growth rate, agedistribution, career attitudes and emphasis on safety. This could be classifiedinto:Before the birth of the banks, people of India were used to borrow money localmoneylenders, shahukars, shroffs. They were used to charge higher interest andalso mortgage land and house. But after emergence of banks attitude of people waschanged and they have started lending from the banks Life style of India is changing rapidly. They are demanding high class products. They have become more advanced. People needs and wants are increasing day by day. And this has this has opened opportunities for banking sector to tap this change. This has made things available easily to everyone.
  13. 13. Increase in population is one of he important factor, which affect theprivate sector banks. Banks would open their branches after looking into thepopulation demographics of the area.Newer branches are coming to serve the increasing population. This incentive to bankscomes on the back of the continuing need to open more branches in these States inorder to ensure more uniform spatial distributionLiteracy rate in India is very low compared to developed countries.Illiterate people hesitate to transact with banks. So, this impacts negatively onbanks. But there is positive side of this as well i.e. illiterate people trust more onbanks to deposit their money, they do not have market information.Opportunities in stocks or mutual funds
  14. 14. Technology plays a very important role in bank’s internal control mechanisms as wellas services offered by them. Through the use of technology new products and serviceare introduced. It include technological aspects suchas R&D activity, automation, technology incentives and the rate of technologicalchange. Some of the technological changes which brought radical changes in bankingindustry are described below : The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed ‘anytime, anywhere banking’ facilities Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged.
  15. 15. • Credit card facility has encouraged an era of cashless society. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse.• Some of the banks have also started home banking through telecommunicationfacilities and computer technology by using terminals installed at customers homeand they can make the balance inquiry, get the statement of accounts, giveinstructions for fund transfers, etc.• Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile• Technology advancement has changed the face of traditional banking systems. Technology advancement has offer 24X7 banking even giving faster and securedservice
  16. 16. Indian economy has registered a high growth for last three years and is expected tomaintain robust growth rate as compare to other developed and developingcountries. Banking Industry is directly related to the growth of the economy.The growth rate of different industries were:Agriculture : 18.5%Industry : 26.3%Services : 55.2%• It is great news that today the service sector is contributing more than half of the Indian GDP. It takes India one step closer to the developed economies of the world. Earlier it was agriculture which mainly contributed to the Indian GDP.• This increases the avenues of investment by the industrial sector . This wouldfurther increase the borrowings by the industries leading to the banking Industry• In regards with the service sector , as the income of the people will increase, lending and savings will increase leading to increased business for the banks .
  17. 17. There are two major factors determining the legal aspects of the Banking Industry :In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank ofIndia (RBI) "to regulate, control, and inspect the banks in India.The Banking Regulation Act also provided that no new bank or branch of an existingbank could be opened without a license from the RBI, and no two banks could havecommon directors The Reserve Bank of India (RBI) will intervene to smooth sharp movements in the rupee and prevent a downward spiral in its value, but will balance this with the need to retain reserves in the event of prolonged turbulence
  18. 18. • The impressive performance of Indian banks as compared to other large economies onalmost all parameters - profitability, cost to income ratio, non-performing asset (NPA)levels, valuations, net interest margins, fee income - the industry is on the right side ofaverage among comparable economies.• Transition from class banking to mass banking and increased customer focus isdrastically changing the landscape of Indian banking. Expansion of retail banking has alot of potential as retail assets• New channels (like ATM and mobile phones) allow transactions at a fractional cost.The study exposes a possibility for the next decade. Investment in technology in theIndian banking industry is about half of international average• Consolidation in the banking industry has remained crucial to ensuring technologicalprogress, excess retention capacity, emerging opportunities and deregulation of variousfunctional and product