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Banking in India

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Banking in India

  1. 1. Banking Industry In India Presented by: Group 6_Sec B
  2. 2. Banking as a Whole Types and Functions Commercial Banking Retail Financial Services Investment Bank Divisions Asset and wealth Management Treasury and Securities Services Card Services
  3. 3. Functions of Bank • Accepting deposits from Public • Lending money to public • Remittances/Collection Business • Keeping valuables in safe custody • Government business • Acting as trustee • Treasury services • Capital Market activity
  4. 4. History of Banking in India
  5. 5. The reminisce of banking in India can be traced back to the 4th century BC in the 'Kautilya Arthashastra‘. However the real roots of commercial banking in India can be traced back to the early eighteenth century. Bank of Hindustan was set up in 1870,it was the earliest Indian Bank. Later, three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras were set up, which laid foundation for modern banking in India In 1921, all presidency banks were amalgamated to form the Imperial Bank of India.
  6. 6. The first bank which was exclusively set up by Indians was Allahabad Bank, followed by Punjab National Bank Ltd. set up in 1895 with headquarters at Lahore The Reserve Bank of India was established on April 1, 1935 to control & regulate these banks in accordance with the provisions of the Reserve Bank of India Act, 1934. In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its 100% subsidiaries. The plan for nationalization was passed in1968. Thus forming the third turning point in the history of Indian Banking in India. The Narasimha Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks. private sector banks.
  7. 7. Who Regulates the Financial Sector in India? Ministry of Finance • Controls and assists the financial sector • Every year the finance minister announces the budget • Also acts as the policy maker and regulates the financial sector Reserve Bank of India • Apex Financial Institution of India, established in April 1935 • Advises the central board on various matters • Acts as the investment banker to the Government Securities and Exchange Board of India • Regulator of securities market in India • Protects the interest of investors in securities • Also regulates the development of securities market Insurance Regulatory and Development Authority • An agency of the Government, based in Hyderabad • It works on the guidelines of IRDA Act, 1999 • Safeguards the interest of the common man
  8. 8. Banking Structure in India
  9. 9. Indian Financial System –Share by Asset Size - 2013 Indian Banking System – Share by Asset Size - 2013 Segment Market Share of Financial Assets (%) Institutions Banks 63 Market Share of Banking Assets (%) Insurance Companies 19 92.4 Non-Banking Financial Institutions 8 Scheduled Commercial Banks Public Sector Banks 67.2 Mutual Funds 6 Private Sector Banks 18.7 Provident and Pension Funds 4 Foreign Banks 6.5 Regional Rural Bank 2.7 Co-operative Banks 3.4 Local Area Banks 1.5 Banks dominate the Indian Financial System The Banking System is dominated by Commercial Banks
  10. 10. Share in the Banking Space Type of Banks Number of Banks Number of Branches %age Share of Number of Branches Market Share of Assets (%) Public Sector 26 67,466 83.0 72.8 Private Sector 20 13,452 16.6 20.2 Foreign Banks 41 323 0.4 7.0 Total 87 81,241 100.0 100.0 Public sector banks have more presence relative to their share of assets.
  11. 11. Analysis of the previous Data • Within the banking system, public sector banks (PSB) continue to dominate with 73% of market share of assets and 83% of branches. • Rural and urban co-operatives banks have a relatively small share in the banking system. However, given their geographic and demographic outreach, they play a key role in providing access to financial services to low and middle income households in both rural and urban areas. • Similarly, RRBs play a key role in promoting financial inclusion. The Government is pursuing branch expansion and capital infusion plans for the RRBs.
  12. 12. Types of Banks Central Bank (RBI) Non Banking Finance Companies (NBFCs) Commercial Banks Public Sector E.g. SBI PNB BOB Private Sector Foreign E.g. HDFC Bank UTI Bank ICICI Bank E.g. Citibank ABN Amro HSBC State/Central Co-operative Banks Term Financial Institutions Regional Rural Banks State Finance Corporations (SFCs) Indian Financial Institutions E.g. IFCI NABARD SIDBI Private Primary Credit Societies
  13. 13. Business Division • Loans to individuals (Auto loan, housing loan, Education Loan and other personal loan) or small businesses • Loans to Mid and Large corporate (Working Capital loans, Project finance, Term loans, Lease Finance) • Investment in Equity, Derivatives, Commodities, Mutual funds, Bonds, Trading and Forex operations • Merchant Banking, Leasing Business, Hire purchase, Syndication services etc. Retail Banking Wholesale Banking Treasury Operations Other Banking Businesses
  14. 14. 1 2 3 Retail Banking Loan Products • Auto Loan • Gold Loan • House Loan • Credit cards • Education Loan • Loan against Securities • Retail Banking Business Deposit Products • Deposits • Saving Accounts • Current Accounts • Fixed / Recurring • Corporate Salary A/C Treasury Banking Transaction Banking • Cash Management • Custodian Services • Clearing Bank Services • Tax Collections • Banker to Public Issues Commodities(Inc Hedging) Product Segment • Equities • Derivatives • Capital Market • Debt Securities • Foreign Exchange Wholesale Banking Commercial Banking • Term Loan • Guarantees • Bill Collection • Letter of Credit • Working Capital • Forex & Derivatives • Wholesale Deposits Other Financing • Cash Management • Statutory Reserve • Financial Decisions • Asset Liability Management Other Products/Services • NRI services • POS Terminals • Private Banking • Demat Services • Mutual Fund Sales • Foreign Exchange Services Key Segment • Large Corporate • Emerging Corporate • Financial Institutions • Government/PSUs • Agriculture Commodities
  15. 15. Expansion of banks since Nationalization Year 1969 1991 2007 2013 No of Commercial Banks (Incl. RRBs and LABs) 73 272 182 173 No of Bank Offices 8,262 60,570 74,563 1,01,261 5,172 46,550 47,179 62,061 Population per office 64,000 14,000 15,000 13,000 Per capita Deposit of Scheduled Commercial Banks 88/- 2,368/- 23,382/- 51,106/- Per capita Credit of SCBs 68/- 1,434/- 17,541/- 39,909/- (of which Rural and Semi-urban bank office)
  16. 16. Analysis of Previous Data • Since nationalization of 14 major commercial banks in 1969, followed by nationalization of another 6 banks in 1980, Indian banking system has expanded rapidly. • The number of bank offices increased from about 8,000 in 1969 to over 100,000 by 2013. • The average population per branch office has sharply declined from 64,000 in 1969 to 13,000 today. • Both per capita deposit and per capita credit have expanded about 600 times. Even accounting for inflation, this is significant expansion.
  17. 17. Operation and Performance of Commercial Banks (KPIs)
  18. 18. BSE Bankex Performance 40000 35000 Value of Index 30000 25000 Sensex 20000 Bankex 15000 10000 5000 0 27-Jan-09 27-Jan-10 27-Jan-11 27-Jan-12 27-Jan-13
  19. 19. Bank Credit Growth Compared with Economic and Banking aggregates
  20. 20. Growth in Balance Sheet of SCBs
  21. 21. Trends in Income and Expenditure of SCBs
  22. 22. Growth in Gross Advances across Bank Groups Trends in Current and Savings Account
  23. 23. Trends on Incremental Credit-Deposit and Investment Deposit Ratios Trends in Outstanding C-D Ratio, Bank Wise
  24. 24. Gap between Proportion of Liabilities and Assets in Various Maturity Buckets Growth in Balance Sheet and Offbalance Sheet Transactions
  25. 25. Trends in Deposit and Lending Rates of SCBs
  26. 26. ROA and ROE of SCBs – Bank Group wise Growth of Selected Items of Income and Expenditure
  27. 27. Laws controlling Indian Banking Sector
  28. 28. Legal frame work of Banks Banking Regulation Act,1949 Reserve Bank of India Act,1934
  29. 29. Banking Regulations and Laws • Banking in India is governed by • Banking Regulation Act,1949 and • RBI Act,1934 • Banking in India is controlled/monitored by RBI and Govt. of India. • The controls for different banks are different based on whether the bank is a) statutory corporation b) a banking company c) a cooperative society
  30. 30. The Reserve Bank of India Act, 1934 • The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935. • The Bank was constituted to • Regulate the issue of banknotes • Maintain reserves with a view to securing monetary stability • To operate the credit and currency system of the country to its advantage • Amendments have been made from time to time to include the latest requirements. (A provision was inserted by the Information Technology Act,2000 to enable RBI to make regulations for regulating payment systems of banks and financial institutions)
  31. 31. Reserve Bank of India Act,1934(RBI Act)-2 RBI Act deals with: • Incorporation, capital management and business of banks • Central banking functions • Financial supervision of banks and financial institutions • Management of forex/reserves • Control functions : bank rate, audit accounts,penalities for violation
  32. 32. Banking Regulation Act,1949 (BR Act) • The Central Banking Enquiry Committee recommended the need of a separate legislation to control banks due to mushroom growth of banks with inadequate capital, dishonest management, speculative business etc.. • A bill was Passed in parliament in February 1949 and The Banking Regulation Act 1949 came to exist from 16th March 1949. • BR Act covers banking companies and cooperative banks, with certain modifications. • BR Act is not applicable to a) primary agricultural credit societies b) land development banks • BR Act allows RBI (Sec 22) to issue license for banks
  33. 33. Important Provisions of Act  Definition of Banking.  Provision Regarding Loans and Advances.  Form of Business.  Inspection of Banks.  Provision of Capital  Powers of the Reserve Bank of India.  Management  Returns to Be Submitted.  Maintenance of Liquid Assets.  Acquisition of Business.  Licensing of Banks.  Mergers/Amalgamations.  Opening of New Banks.  Winding up of Banking Companies.
  34. 34. Laws related to Banking Sector Other Acts Companies Act (1956) Banking Companies Act Negotiable Instruments Act (1881) SARFAESI act (2002) Bankers’ Books Evidence Act (1891) Regional Rural Bank Act (1976) SBI Act (1955)
  35. 35. Different stages of developments • From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Phase-I • Early phase from 1786 to 1969 of Indian Banks. Phase-II • Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. Phase-III • New phase of Indian Banking System with the arrival of Indian Financial & Banking Sector Reforms after 1991.
  36. 36. Phase-I • During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. • There were approximately 1100 banks, mostly small. • To streamline the functioning and activities of commercial banks, the Government of India came up with • The Banking Companies Act, 1949 Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). • Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.
  37. 37. Phase-II • There were major reforms in the Indian Banking Sector after independence. • In 1955, the Govt. nationalized Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas • The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: • • • • • • • • 1949 : Enactment of Banking Regulation Act. 1955 : Nationalization of State Bank of India. 1959 : Nationalization of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalization of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalization of seven banks with deposits over 200 crore.
  38. 38. Phase-III • This phase has introduced many more products and facilities in the banking sector in its reforms measure. • In 1991, under the chairmanship of M Narasimham, a committee was setup(Narasimham Committee on Banking Sector Reforms) which worked for the liberalization of banking practices
  39. 39. Different Banks in India
  40. 40. Classification of Banks One classification divides banks into the following types : • Saving Banks • Commercial Banks • Industrial Banks • Land mortgage Banks • Indigenous Banks • Central, federal, national bank • Co-operative Banks • Exchange Banks • Cooperative Banks
  41. 41. For the ease of understanding, we’ve decided to focus on India’s top most banks which have been classified into Private Banks, Public Banks and Foreign Banks. • The private-sector banks in India represent part of the Banking sector that is made up of both private and public sector banks.  The "private-sector banks" are banks where greater parts of stake or equity are held by the private shareholders and not by government.  The private sector banks are split into two groups by financial regulators in India, old and new.  The old private sector banks existed prior to the nationalization in 1969 and kept their independence because they were either too small or specialist to be included in nationalization.  The new private sector banks are those that have gained their banking license since the liberalization in the 1990s. • Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 29 PSBs in India • Foreign Banks are banks who entered
  42. 42. Source Business week
  43. 43. Private Banks in India
  44. 44. YES BANK • YES BANK was founded by Ashok Kapur and Rana Kapoor, with the duo holding a collective financial stake of 27.16%. • YES BANK is the only Greenfield license awarded by the RBI in the last 17 years, associated with the finest pedigree investors. • Since its inception in 2004, YES BANK has fructified into a ‘“Full Service Commercial Bank” that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Branch Banking, Business and Transaction Banking, and Wealth Management business lines across the country. • Today, YES BANK has a widespread branch network of over 500 branches across 350 cities, with 1050+ ATMs and 2 National Operating Centers in Mumbai and Gurgaon.
  45. 45. ICICI BANK • The second largest bank in India in terms of assets, ICICI was founded in the year 1955 as Industrial Credit and Investment Corporation of India, a wholly owned subsidiary. • The bank has subsidiaries in the United Kingdom, Russia, and Canada; branches in Bahrain, United States, Singapore, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre; and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The company's UK subsidiary has established branches in Belgium and Germany. • The current CEO of ICICI is Chanda Kochhar. She’s been credited to have transformed the bank after she took over as CEO.
  46. 46. HDFC • HDFC Bank began operations in 1995 with a simple mission: to be a"World-class Indian Bank". • HDFC Bank is the fifth largest bank in India by assets. It is also the largest bank by market capitalization as of 1 November 2012. As on Jan 2 2014, the market cap value of HDFC was around USD 26.88B, as compared to Credit Suisse Group with USD 47.63B. The bank provides the following services • Personal banking • NRI banking • SME banking • Wholesale banking
  47. 47. AXIS Bank • Axis Bank Limited is the third largest private sector bank in India. It offers financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses. Axis Bank has its headquarters in Mumbai, Maharashtra. • Shikha Sharma is the bank’s current CEO. • The Most Trusted Brands Survey 2013 rated Axis Bank as the Most Trusted Private Sector Bank in India.
  48. 48. Public Owned Banks
  49. 49. State Bank of India • SBI is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of December 2013, it had assets of US$388 billion and 16,000 branches, including 190 foreign offices, making it the largest banking and financial services company in India by assets. • The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay and the Bank of Madras . All three Presidency banks were incorporated as joint stock companies. • The Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company but without Government participation. • Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, acquired a controlling interest in the Imperial Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of India.
  50. 50. Punjab National Bank • Punjab National Bank is based in New Delhi, India and was founded by Lala Lajpat Rai. • The Bank was founded on April 12, 1895 in Lahore (Pakistan)
  51. 51. Bank of Baroda • Known as India’s International Bank, Bank of Baroda started its journey in the year 1908. • Bank of Baroda prides its self in keeping a mission of becoming a top ranking National Bank of International Standards committed to augmenting stakeholders value through concern, care and competence. • Bank of Baroda started a new brand identity, one that is more than just cosmetic change. It adopted a new logo that stands for the Baroda Sun – simple yet powerful.
  52. 52. Syndicate Bank • It is one of the oldest and major commercial banks founded by TMA Pai in the city of Udupi. • It was known as Canara Industrial and Banking Syndicate Limited. • The bank, along with 13 major commercial banks of India, was nationalised on 19 July 1969, by the Government of India. • By 1937, it had secured its membership as a clearing house at Mumbai. The primary objective of the business was to extend the financial assistance to local weavers. Initially, the bank collected as low as two annas from the door steps of the depositors daily through its agents. This type of system wherein the agents of the bank come doorsteps to collect deposit is still prevailing in India and is referred to as the Pigmy Deposit Scheme
  53. 53. IDBI BANK • The industrial development Bank of India was established on 1st July 1964, under an Act of the Parliament as a wholly owned subsidiary of the RBI. On 16th February 1976, the ownership of IDBI was transferred to the government of India and it was made the principle financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. • Its Headquartered in India and its current CMD is M.S Raghavan.
  54. 54. Top foreign banks in India
  55. 55. Standard Chartered • Standard Chartered PLC is a British multinational banking and financial services company. It is headquartered in London. • It operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) across more than 70 countries and employs around 87,000 people. • SC is India's largest international bank with 99 branches in 42 cities. • It started its operation in the year 1858. • Standard Chartered PLC, SC’s UK based parent, became the first foreign company to list in India through the issuance of Indian Depository Receipts in June 2010
  56. 56. Citi Bank • Headed by Pramit Jhaveri, Citi bank is a subsidiary of Citigroup, a multinational financial services corporation headquartered in New York City, United States. It is headquartered in Mumbai, India • It started its operations in 1902 in Kolkata and today is the largest direct investor in financial services in India. • As of 2012, Citibank India has been recognized as the 'Best Consumer Internet Bank in India' by Global Finance four years in a row, and has received the ‘Best Corporate/Institutional Internet Bank’ Award for two years in a row.
  57. 57. JP MORGAN CHASE • The firm's roots in India date back to 1922, when J.P. Morgan & Co. in New York and Morgan Grenfell, its affiliated partnership in London, took an ownership interest in the Calcutta merchant banking firm of Andrew Yule & Co. Ltd. J.P. Morgan had ambitions to start a banking business in India as early as 1902, and Morgan Grenfell had begun extending credit to Yule & Co. in 1911. • Chase National Bank opened its first representative office in Mumbai in 1945. Mumbai is one of J.P. Morgan's largest locations outside of the U.S. and serves as a regional hub. • JP Morgan considers India as one of its most important hubs. . The lines of business include the Investment Bank, the Global Corporate Bank, Private Equity, Asset Management and Treasury and Securities Services.
  58. 58. HSBC INDIA • HSBC's origins in India date back to 1853, when the Mercantile Bank of India was established in Mumbai. The Bank has since, steadily grown in reach and service offerings, keeping pace with the evolving banking and financial needs of its customers. • In India, the Bank offers a comprehensive suite of world-class products and services to its corporate and commercial banking clients as also to a fast growing personal banking customer base. • The following are some of the entities of HSBC in India • HSBC Securities and Capital Markets (India) Private Limited • HSBC Software Development (India) Private Limited • The Hongkong and Shanghai Banking Corporation Limited • HSBC Asset Management (India) Private Limited • HSBC Global Resourcing / HSBC Electronic Data Processing (India) Private Limited
  59. 59. Deutsche Bank Deutsche Bank in India is a fully integrated financial services provider to Indian corporate, institutional and individual clients. DB’s services include on-shore investment banking, institutional equities broking, asset and private wealth management, retail banking and business processes outsourcing. Deutsche Bank established its first branch in India in 1980. It has operating branches in 15 cities. DB has been recognized with the following awards 2009 2008 2008 2008 2008 2007 Best Sub-Custodian India Best Bank in India Best Equity House in India Best Cash Management Specialist Best Private Bank in India Financial Express Award for Growth The Asset The Asset The Asset The Asset Asia money Financial Express
  60. 60. Technological developments in Indian Banking Industry
  61. 61. • Information technology is one of the most important facilitators for the transformation of the Indian banking industry in terms of its transactions processing as well as for various other internal systems and processes. • The technological evolution of the Indian banking industry has been largely directed by the various committees set up by the RBI and the government of India to review the implementation of technological change. No major breakthrough in technology implementation was achieved by the industry till the early 80s. • The early 1980s were instrumental in the introduction of mechanization and computerization in Indian banks. This was the period when banks as well as the RBI went very slow on mechanization, carefully avoiding the use of ‘computers’ to avoid resistance from employee unions. However, this was the critical period acting as the icebreaker, which led to the slow and steady move towards large scale technology adoption.
  62. 62. Computerization • The process of computerization marked the beginning of all technological initiatives in the banking industry. Computerization of bank branches had started with installation of simple computers to automate the functioning of branches, especially at high traffic branches. Thereafter, Total Branch Automation was in use, which did not involve bank level branch networking, and did not mean much to the customer. • Networking of branches are now undertaken to ensure better customer service. Core Banking Solutions (CBS) is the networking of the branches of a bank, so as to enable the customers to operate their accounts from any bank branch, regardless of which branch he opened the account with. The networking of branches under CBS enables centralized data management and aids in the implementation of internet and mobile banking. Besides, CBS helps in bringing the complete operations of banks under a single technological platform. • CBS implementation in the Indian banking industry is still underway. The vast geographical spread of the branches in the country is the primary reason for the inability of banks to attain complete CBS implementation.
  63. 63. Satellite Banking • Satellite banking is an upcoming technological innovation in the Indian banking industry, which is expected to help in solving the problem of weak terrestrial communication links in many parts of the country. • The use of satellites for establishing connectivity between branches will help banks to reach rural and hilly areas in a better way, and offer better facilities, particularly in relation to electronic funds transfers. However, this involves very high costs to the banks
  64. 64. Automatic Teller Machines • ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign banks. Most foreign banks and some private sector players suffered from a serious handicap at that time- lack of a strong branch network. • ATM technology was used as a means to partially overcome this handicap by reaching out to the customers at a lower initial and transaction costs and offering hassle free services. Since then, innovations in ATM technology have come a long way and customer receptiveness has also increased manifold.
  65. 65. Internet Banking • Internet banking in India began taking roots only from the early 2000s. Internet banking services are offered in three levels. The first level is of a bank’s informational website, wherein only queries are handled; the second level includes Simple Transactional Websites, which enables customers to give instructions, online applications and balance enquiries. Under Simple Transactional Websites, no fund based transactions are allowed to be conducted. Internet banking in India has reached level three, offering Fully Transactional Websites, which allow for fund transfers and various value added services. • Internet banking poses high operational, security and legal risks. This has restrained the development of internet banking in India. The guidelines governing internet banking operations in India covers a number of technological, security related and legal issues to be addressed in relation to internet banking
  66. 66. Phone Banking and Mobile Banking • Phone and mobile banking are a fairly recent phenomenon for the Indian banking industry. Phone banking channels function through an Interactive Voice Response System (IVRS) or tele banking executives of the banks. • The transactions are limited to balance enquiries, transaction enquiries, stop payment instructions on cheques and funds transfers of small amounts (per transaction limit of Rs 2500, overall cap of Rs 5000 per day per customer). • With the rapidly growing mobile penetration in the country, mobile banking has the potential to become a mass banking channel, with very minimum investment required by the banks. However, more security issues need to be addressed before banking can be conducted more freely via this channel.
  67. 67. Electronic Funds Transfer Systems • The EFT System was operationalised in 1995 covering 15 centers where the Reserve Bank managed the clearing houses. • Special EFT (SEFT) scheme was introduced with effect from April 1, 2003, in order to increase the coverage of the scheme and to provide for quicker funds transfers. • A new variant of the EFT called the National EFT (NEFT) was a nation wide retail electronic funds transfer mechanism between the networked branches of banks. NEFT provided for integration with the Structured Financial Messaging Solution (SFMS) of the Indian Financial Network (INFINET). As the NEFT system stabilized over time, the number of settlements in NEFT was increased from the initial two to six. NEFT now provides six settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis, bringing it closer to real time settlement. • The commencement of NEFT led to discontinuation of SEFT, and EFT is now available only for government payments. Using the NEFT infrastructure, a one-way remittance facility from India to Nepal has also been implemented by the RBI since 15th May 2008. • In order to increase the coverage of NEFT to a wider section of bank customers in semi-urban and rural areas, an enhancement of the NEFT called the NEFT-X [National EFT (Extended)] is also proposed for phase wise implementation. This would facilitate non-networked branches of banks to transfer funds electronically by accessing NEFT-enabled branches for transfer of funds. NEFT (Extended) would work on a T+1 basis and would ensure wide rural coverage of the electronic funds transfer system.
  68. 68. Innovation in the Banking Industry Biometric ATM’s • These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose • Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low literacy population to use banks M-Pesa • M-pesa is a mobile-phone based money transfer and micro financing service, which allows users with a national ID to use their money easily with a mobile • Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank Plastic Money • Plastic money, cash cards, credit/debit cards and polymer notes will boom as the e-commerce space boom in India and people get used to the idea of carrying less cash • Many cards have a micro chip embedded in them which makes it a transit card also Virtual Banking • This technology will have a deep impact on the lives of professionals who believe in the life-on-the-go approach • A user can have access to his/her bank accounts at a nominal cost and at a fast speed from anywhere in the world
  69. 69. Analysis of Indian Banking Industry
  70. 70. Porter Analysis for Banking Industry
  71. 71. PEST Analysis on Banking Industry Factors Affecting the Industry Political Factors Economic Factors • Monetary Policy • Regulatory Framework • Budget & Budget measures • Change in interest rates • More savings • More Capital Formation • Increase in GDP • Banking Channels Social Factors Technological Factors • Increase in population • Changes in lifestyle • Easy way of lending money • Exploring banking facilities in rural areas • Internet Banking • IT Services & Mobile Banking • Credit Cards • Improvement in efficiencies
  72. 72. Growth Drivers of the Banking Industry High growth of Indian Economy & Favorable Demographics • Growth of infrastructure, industry, services and agriculture is expected to grow corporate credit of the economy • Nearly 35% of the Indian population has a median age of 25.5 years which signifies that India will gain its demographic dividend Financial Inclusion (FI) • Given that 40% of Indians lack access even to the simplest kind of formal financial services, the RBI on July 2011, mandated banks to allocate at least 25% of the total number of branches proposed to be opened in unbanked rural sector • Banks considering FI as a banking opportunity rather than a Regulatory obligation are likely to see long term profitable growth and a cushion against market volatility Private Banking & Wealth Management Technology Innovation • India not only enjoys a favorable demographic dividend but also has a strong population of High Net worth Individuals (HNWI) • Given the improved performance of the equity markets in 2013 & increasing affluence beyond urban and metro areas the number of HNWIs is expected to rise further, HNWIS will continue to demand better or more sophisticated service • New channels in banking services such as internet banking, mobile banking have increased productivity and help in acquiring new customers • As per a survey conducted by PwC, today banks spend 15% of the total expenditure on technology today
  73. 73. Opportunities in the Banking Sector • Mortgage to cross Rs 40 lakh crores by 2020 • Wealth Management to be a big business • Rapid growth of branches & ATMs • Mobile banking to see huge growth • Infrastructure financing to reach over Rs 20 trillion on commercial banks book by 2020 • New Models to serve the small & Medium Enterprises (SME)
  74. 74. Re-orientation recommendations for Global Standards • On tap licensing as compared to a block licensing approach to enhance competition and bring in new ideas and variety into the system and Allowing banks for niche segments to take care of specialized banking needs through differentiated licensing. • Creating three or four global sized banks to have a global presence through consolidation among large public and private sector banks (on a voluntary basis), keeping in view the need for competition within the domestic banking sector and avoiding complex structures. • Encouraging investment banks/investment banking activities. • Encouraging inclusion to reach out to the excluded and under-banked regions. Small banks at the bottom of the tiered structure may be the preferred vehicle for these objectives to facilitate financial inclusion. • Enhancing the regulatory and supervisory regimes with increased intensity of supervision for the systemically important banks. • Converting urban co-operative banks which meet the necessary criteria into commercial banks or local area banks/small banks. • Enhancing the presence of foreign banks to stimulate competition and their subsidiarisation from the perspective of financial stability.
  75. 75. Challenges Faced by Indian Banking Industry • Management of Risks • Increasing NPAs • Introduction of Basel III Norms in April 2013 • Licensing Requirements • Market Discipline and Transparency • Human Resource Management • Financial Inclusion • Employees’ Retention • Customer Retention • Intensifying Competition • Social and Ethical Concerns
  76. 76. The Banking Outlook In 2014 With the Banking laws (Amendment) Bill cleared on 20th December 2012 in RajyaSabha, it is likely that the RBI may issue 3-4 licenses within the next 12 months NBFCs like PFC, L&T finance, Shriram group as well as some corporate group (Reliance, Tata etc.) have applied for the banking licenses New Entrants in the space may result in price based competition on deposits, loans and human resources and some M&A among the small private banks In order to scale up operations rapidly, smaller private banks with larger distribution networks might be the possible targets of the new banks for e.g. Federal Bank, Karur Bank, Dhanalaxmi Bank
  77. 77. Thank You