SECTORAL ANALYSIS GROUP NO.

32

PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH, INDORE

SECTORAL ANALYSIS
PRESENTATION WRITE-UP
Session: 2018-20

Banking Sector
SUBMITTED BY:

Class: MBA Sem. II Section C

Name & Scholar No. 1 : VINIT SINGH 1121210857

NameSECTORAL
& Scholar No. ANALYSIS WRITE-UPS
2 : MAYUR MATTA 1121210808

Name & Scholar

TABLENo. 3 :OF
KUNAL WAGH 1121210974
CONTENTS
Name & Scholar No. 4 : YASH JOSHI 1121210789.

1
Sign. 1……… Sign. 2………… Sign. 3………. Sign. 4..........
Sr. No. Title Page No.

01. INTRODUCTION OF THE SECTOR 3

02. CONTRIBUTION AND IMPORTANCE IN THE 8

ECONOMY

03. COMPETITIVE SCENARIO 9

04. MAJOR PLAYERS AND THEIR RELATIVE SHARE 12

05. RELATION TO OTHER SECTORS 16

06. PRESENT GOVERNMENT POLICY RELATED TO 20

THE SECTOR

07. SWOT ANALYSIS OF MAJOR 3 PLAYERS IN THE 23

SECTOR

08. FUTURE PROSPECTS 29

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 INTRODUCTION
The banking sector is the section of the economy devoted to the holding of
financial assets for others, investing those financial assets as leverage to create
more wealth and the regulation of those activities by government agencies.

The Indian banking system consists of 27 public sector banks, 26 private sector
banks, 46 foreign banks, 56 regional rural banks, 1,574 urban cooperative
banks and 93,913 rural cooperative banks, in addition to cooperative credit
institutions. Public-sector banks control more than 70 per cent of the banking
system assets, thereby leaving a comparatively smaller share for its private peers.

As per the Reserve Bank of India (RBI), India’s banking sector has sufficient
capital and well-regulated. The financial and economic conditions in the country
are far superior to any other country in the world. Credit, market and liquidity risk
studies suggest that Indian banks are generally resilient and have withstood the
global downturn well.

The Reserve Bank of India was nationalized on January 1, 1949 under the terms of
the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. In 1949, the
Banking Regulation Act was enacted which empowered the Reserve Bank of India
(RBI) “to regulate, control, and inspect the banks in India.” The Banking
Regulation Act also provided that no new bank or branch of an existing bank could
be opened without a license from the RBI, and no two banks could have common
directors. By the 1960s, the Indian banking industry had become an important tool
to facilitate the speed of development of the Indian economy. The Government of
India issued an ordinance and nationalized the 14 largest commercial banks with
effect from the midnight of July 19, 1969. A second dose of nationalization of 6
more commercial banks followed in 1980. The stated reason for the nationalization
was to give the government more control of credit delivery. With the second dose
of nationalization, the Government of India controlled around 91% of the banking
business of India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between nationalized
banks and resulted in the reduction of the number of nationalized banks from 20 to
19.

In the early 1990s, the then Narasimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known
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as New Generation tech-savvy banks, and included Global Trust Bank (the first of
such new generation banks to be set up), which later amalgamated with Oriental
Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank.
This move, along with the rapid growth in the economy of India, revitalized the
banking sector in India, which has seen rapid growth with strong contribution from
both sectors of banks, namely, private banks and public banks.
1.12 Evolution of Indian Banking:
The Banking industry in India has grown in a specific kind of environment and
with some defined objectives.
Figure 1.1: Evolution of Indian Banking
This historicity of this environment and the objectives has a strong bearing on the
operations and management of present day. To appreciate any economic dimension
of the banking industry in India in a proper perspective, understanding of the path
of evolution of the industry is a must. The origin of banking industry may be
tacked back to establishment of Bank of Bengal in Calcutta in 1786. Since then the
industry has witnessed substantial growth and radical changes. As on March 2011,
Indian banking industry consisted of the 234 Commercial Banks.
The first bank in India, though conservative, was established in 1786. From then
till today, the journey of Indian banking system can be classified into four distinct
phases:
Phase I: The General Bank of India was set up in 1786. Next came the Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units
and called them presidency Banks. These three banks were amalgamated in 1920
and the Imperial Bank of India, which started as private shareholders banks, was
established with mostly European shareholders.
In 1865, the Allahbad Bank was established, and, for the first time, exclusively by
Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
Lahore. Between 1906 and 1923, Banks of India, Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank and Bank of Mysore were set up. The Reserve
Bank of India (RBI) was established in 1935.
During the first phase, the growth was very slow and banks also experienced
periodic failures between 1923 and 1948. There were approximately 1100 banks,
mostly small. As per the Reserve Bank India Act of 1934, the Reserve Bank of
India (RBI) was constituted as an apex bank without major government ownership.
To streamline the functioning and activities of commercial banks, the Government
of India came up with the Banking Companies Act, 1949 which was later changed
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to Banking Regulation Act, 1949. As per the Banking Regulation (Amendment)
Act of 1965 (Act No. 23 of 1965), RBI was vested with extensive powers for the
supervision of banking in Indian as the Central Banking Authority. During those
days, the public confidence in banks was somewhat low and, so, deposit
mobilization was slow. Abreast of it the savings banks facility provided by the
postal department was comparatively safer. Moreover, funds were largely given to
traders.
Phase II: The government took major steps in the Indian Banking Sector Reforms
after independence. In 1955, it nationalized the Imperial Bank of India (the State
Bank of India Act) with extensive banking facilities on a large scale, especially in
rural and semi-urban areas as the first phase of nationalization. It formed the State
Bank of India (SBI) to as the principal agent of RBI and to handle banking
transactions of the Union and the State Governments of the Country. In 1969,
seven subsidiary banks of the State Bank of India were nationalized as a major
process of nationalization due to the effort of then Prime Minister Mrs. Indira
Gandhi, Later in 1969, 14 Major Private Commercial Banks in the country were
nationalized. The list of 14 banks nationalized in 1969 was;
1) Central Bank of India
2) Bank of Maharashtra
3) Dena Bank
4) Punjab National Bank
5) Syndicate Bank
6) Canara Bank
7) Indian Bank
8) Indian Overseas Bank
9) Bank of Baroda
10) Union Bank
11) Allahabad Bank
12) United Bank of India
13) UCO Bank
14) Bank of India
The second phase of nationalization of Indian banks was carried out in 1980, with
seven more banks being nationalized. This step brought 80 percent of the banking
segment in India under government ownership The Government of India has taken
the following steps to regulate banking institutions in the country:
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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 more banks with deposits over Rs. 200 crore.
After the nationalization of banks, the branches of the public sector banks in India
rose to approximately 800 percent in deposits, and advances took a huge jump by
11,000 percent. Government ownership gave the public implicit faith and immense
confidence in the sustainability of public sector banks.
Phase III: The third phase of development of Indian banking introduced many
more products and facilities in the banking sector in its reform measures. In 1991,
under the chairmanship of Narasimha, a committee was set up under his name,
which worked for the liberalization of banking practices. The country flooded with
foreign banks and their ATM stations. Efforts are being put in to give a satisfactory
service to customers. Phone banking and Net banking have been introduced. The
entire system has become more convenient and swift. Today, time is given more
importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomic shock as other East
Asian countries suffered. This is all due to a flexible exchange rate regime, high
foreign reserves, the not yet fully convertible capital account, and limited foreign
exchange exposure to banks the their customers.
Phase IV: The next stage for the Indian banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign Investors
in banks may be given voting rights. The new policy shook the Banking sector in
India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at
4%; Lend at 6%; Go home at 4%) of functioning. The new wave ushered in a
modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People not just demanded more from their banks but
also received more.

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7
 CONTRIBUTION AND
IMPORTANCE IN THE ECONOMY

The Indian Banking industry is currently worth Rs. 81 trillion (US $ 1.31 trillion).
Roughly, the Contribution of the banking sector to GDP is about 7.7% of GDP.
Banking sector has generated employment in the economy for about 1.5 million
people.

The financial sector is a category of the economy made up of firms that

providefinancial services to commercial and retail customers. This sector includes
banks, investment funds, insurance companies and real estate. Financial
servicesperform best in low-interest-rate environments.

As of Q1 FY19, total credit extended by commercial banks surged to Rs

86,976.2 billion (US$ 1,297.4 billion) and deposits grew to Rs 115,070.3 billion
(US$ 1,716.4 billion).

Indian banks are increasingly focusing on adopting integrated approach to risk

management. Banks have already embraced the international banking
supervision accord of Basel II, and majority of the banks already meet capital
requirements of Basel III, which has a deadline of 31 March 2019.

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 COMPETITIVE SCENARIO
We are living in the 21st century, everything is revolving around the internet and
technology, and its all about embracing the convergence. This explosion of the
internet and technology has impacted on everything, and its altering the banking
industry as well, from branch banks and papers to networked and digitized banking
services, it has already made its way in, but over all, the banking industry is still
struggling to find a solution for the rapidly changing environment. The root of this
problem is that most banking executives are still not ready to see the real impact of
the Internet age and act accordingly, few impacts of the internet and technology are
discussed below,

Altering the Rules of Competition

Today, because of the internet dissolving the difference of the size of the
businesses, thus letting small business get to set the competitive agenda and get the
advantage. Physical processes are being replaced by virtual, and virtual
environments are being created, sooner or later one has to enter this market, in
order to keep up with the market trend. The only difference is whether you’ll go by
your own rules or follow the ones created by others. Internet representation, and
web based outlets, if executed correctly, can give the power to one, to set its own
rules for the competition.

From Capital Requirements to Knowledge Requirements

Traditionally, absence of funds, has served as a hurdle to access into any particular
industry. This has been especially true in the banking sector. Today, improving
financings of the company is perhaps the one of the least problems, a company
struggles with. Investors know that economical techniques of variation are no
longer an organization’s key asset, its past track record, its brand – or anything.
Investors today anticipate and are interested in company’s knowledge. A large
network system, financial muscle and a huge work power may not seem to have as
much importance, as before.

Brand Building

The last two decades, saw a large focus on the growth of manufacturers, and brand
building as a differentiation means, thus allowing service providers, banks for
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instance, to create brand awareness among the customers for their loyalty towards
the brand (Czerniawska & Potter, 1998). Consequently, multi-million dollars of
investment were solely done on the development of the image of the brand.
Already on the Internet, there are organizations performing as “informers” or
experts, who help prospective buyers go for the best option, thus making the
customers independent, and not be misled by the image created by the brand, and
make more conscious decisions when going for a purchase.

Customer Segmentation and Relationship

With the help of the Internet a bank is able to target specific market online and
provide them product information, personalized web pages and services, and other
data for any client, when they access the company’s web page. In short, the
battlefield has changed, today it is brand or product variation, and focus on the
most profitable clients, and to keep the customer relations and support the best, for
the long term profitability.

From Access In Distribution Channels to Amiss to Customers

In the 1980s and early 90s, one of the key areas of competition was to have the
best distribution networks to make sure that products/services offered by the bank
could be delivered to customers (Czerniawska & Potter, 1998). Banks used to
invest heavily and it was one of the main concerns too, to have the best location of
the outlet, and build up their network. However, with the advent of the Internet
such resources have become less relevant. Today the customer feels more easy
going online and access the their bank account rather than to visit a physical
branch.

From Regulated Government Policy Its Unregulated Global Market

It is believed that regulatory and legal restrictions, other types of hurdle to access
determined by Portia, be decreased because of the Internet. For example, in the
United States, new opportunities for the banks were created, when the act of
branching efficiency or the Rigles Neal Act of 1994 was passed. This Bill allows
banks, to become the full service financial institutions and providers (Kalakota &
Whinston, 1997). Clearly, this change is both a risk and a chance since the
limitations that have ceased some from coming into an industry have also restricted
the regional development of others.

Global competition

The erosion of boundaries due to the Internet has accelerated the trend towards
global competition. Citibank has entered the Japanese market successfully with its
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web-based solution. Similarly, The Royal bank of Canada made its way into the
US market with the help of the internet, by virtual banks.

In summary, the internet is globalizing the banking industry, the battlefield is

evolving around the internet, attracting new customers and coming up with unique
services and products which weren’t possible before are needed of the time today.

Question 2: Provide an analysis of the resources and capabilities a typical bank

needs to have to be able to compete in this environment dominated by the internet
and online banking. (500 words)

Customer service is the key to survival of any bank. Customer loyalty and
commitment is directly proportional to client convenience, personalized services
and innovative offers and products. In the 1970’s and 1980’s, banks were
marketing to a generation raised on an old style of banking: personal service at a
bank. They were not comfortable with automated services, and were scared to use
computers. So, to have a physical branch office nearby was convenience and
relaxation. Today, in a banking relationship, individual assistance and convenience
are still the crucial aspects, but they are described in a different way. Clients still
want the bank to be a financial institution who ‘knows’ them, and bank the one,
they ‘know’, but they do not actually want to go to the bank.

Today, customers are not afraid of computer techniques and technology; they
accept them. Comfort is doing their banking whenever and wherever they want.
They are now relaxed with computers and other gadgets. They anticipate quick,
effective, and precise assistance. And the only way to be successful, is to provide
the immediate, quality assistance that clients demand, and that the competitors
provides, is through intensive use of the most innovative and advance technology
and through good people qualified in the use of these technological innovations.
For all these factors, the banks keep modifying its delivery systems.

The New Delivery Systems

The increasing price of building brick-and-mortar divisions, and decreasing price

of personal computer systems, slow revenue growth and high delivery costs force a
relook at the traditional delivery systems. Furthermore, growing comfort of
technology usage by the client is quickly promoting use online banking for daily
transactions.

The new focus of the banks today is, that the branch be a place of a wide range of
solutions like customer assistance kiosks, telebanking, remote electronic banking
and ATMs, not just a high cost transaction hub.

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MAJOR PLAYERS AND THEIR
RELATIVE SHARE

HDFC Bank
Going by market capitalization, HDFC Bank is the largest bank in India. Its market
cap is pegged at about INR 261,226.94 crore.As of end 2014, the bank boasted of a
strong network of 3,659 branches in 2,287 cities.To facilitate NRI banking, the
bank also has overseas branches in Bahrain, Hong Kong, Abu Dhabi, Kenya and
Dubai.HDFC Bank has over 11,633 ATMs and a customer base of over 28 million.
It is also ranked 45th among the top 50 banks of the world. Employing over 69,065
employees, HDFC Bank is one of the strongest contenders in the private banking
space.

State Bank of India

With a market capitalization of about INR 216,128.73 crore, SBI is the second
most-valued bank in India It and is perhaps the most trusted one, being a state-
owned bank. The bank has a strong network of over 13,000 branches spread across
the nation and has about 190 foreign offices in 36 countries. Along with HDFC
Bank, SBI also features among the top 50 global banks (going by market
capitalization). It is also one of the largest employers in the country and provides
employment to over 220,000 personnel. SBI manages assets worth about USD 390
billion in all. (to be converted into INR---- otherwise inconsistent)

ICICI Bank Limited

ICICI Bank is the third largest entity in the Indian banking space, with a market
capitalization of INR 184,547.26 crore.ICICI Bank has a customer base of over 2.5

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million and boasts of an extensive network of 4050 branches across the country.
With 12,475 ATMs and assets worth USD 99 billion, the bank is currently
celebrating 60 years of existence. ICICI was formed as a World Bank initiative in
1955.The bank is headquartered in Vadodara, Gujarat and has an international
presence in 19 countries. The bank’s employee strength was estimated at over
72,000 last year when it overtook HDFC Bank in terms of people employed.

Axis Bank
With a market capitalization of about INR 134,685.68 crore, Axis Bank takes its
place at the fourth position among Indian banks.Founded in 1994 as UTI Bank,
Axis Bank now has a network of 2402 domestic branches and 12922 ATMs spread
across the nation.The bank also has seven international offices including the ones
in Hong Kong, Singapore, Colombo, Dubai, Abu Dhabi, and Shanghai.Axis Bank
employs over 37,901 employees and is reported to have net assets worth about
USD 53 billion.Apart from retail banking, Axis Bank also operates in NRI
Services, Investment banking and treasury operations and corporate banking.

Kotak Mahindra Bank

Kotak Mahindra Bank, headed by Mr. Uday S Kotak, and with a market
capitalisation of INR 109,631.60 crore comes next. Kotak Mahindra Bank is
currently poised for a spectacular growth due to an all-stockmerger with ING
Vysya Bank. Kotak Mahindra shall now become the fourth largest private bank in
the country in terms of the business done.The combined banking company will
now have a network of 1,214 branches across the country. The bank is likely to
have an employee strength of about 30,000 after the merger. The combined market
capitalisation is estimated to be about INR 1.25 lakh crore.

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IndusInd Bank
Founded in 1994, Hinduja Group owned IndusInd Bank has a market capitalisation
of about INR 50,100.41 crore. The bank employs over 15,500 employees and has a
network of 638 branches and 1238 ATMs across the country. With international
offices in London and Dubai, IndusInd Bank is known for its strong remittances
business. The bank has an exceptionally strong business base in Mumbai, Delhi,
and Chennai.

Bank of Baroda
Bank of Baroda is another large PSU banking company in India with a market
capitalization of about INR 38601.08 crore.The bank is estimated to have over
5193 branches and 38,737 employees. With a significant presence in about 25
countries, the Bank of Baroda balances out NRI services with rural and agricultural
finance. The bank is one of the major banking operators in India’s rural sectors.

Yes Bank
Yes Bank was incorporated in the year 2004 by Mr. Rana Kapoor and Mr. Ashok
Kapoor, and currently has a market capitalisation of about INR 35,169.20
crore.With a strong network of about over 630 branches in 375 cities, and with
over 1150 ATMs spread across the country, Yes Bank is among the fastest
growing banks of India. The bank employs about 12000 employees and has high
ambitions for the years to come.

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Punjab National Bank
Founded in 1894, Punjab National bank is one of the oldest banks in India. Unlike
most Indian banks that have their headquarters in Mumbai or Gujarat, the Punjab
National Bank has its headquarters in Delhi and has a market capitalization of
about INR 30312.73 crore. Like other PSU banks, the bank has a major focus on
agricultural and rural financing but also has a widespread international
presence.The bank has 8.9 crore customers, 6081 branches in India and abroad and
a network of 6940 ATMs spread across the country.

Canara Bank
Canara Bank is another PSU that has made its mark in the Indian banking sector
with a market capitalization of about INR 18630.10 crore. Nationalised in 1976,
the bank has a network of about 3600 branches spread across the country. With
7599 ATMs, the bank is among the first PSUs in the country to emphasise on e-
banking and online services. Apart from commercial banking, Canara Bank has
also become a strong provider of corporat

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 RELATION TO OTHER SECTORS
Information Technology Sector:-

IT refers to processing, storing and transferring information. It uses computers,

electronic devices such as telephones, mobile phones, fax machines etc. and
telecommunication network. IT enables sophisticated product development, better
market infrastructure, implementation of reliable techniques for control of risks
and helps the financial intermediaries to reach geographically distant and
diversified markets. Internet has significantly influenced delivery channels of the
banks. Internet has emerged as an important medium for delivery of banking
products and services. The customers can view the accounts; get account
statements, transfer funds and purchase drafts by just punching on few keys.

The smart card’s i.e., cards with micro processor chip have added new dimension
to the scenario. An introduction of “Cyber Cash” the exchange of cash takes place
entirely through “Cyber-books”. Collection of Electricity bills and telephone bills
has become easy.

The upgradeability and flexibility of internet technology has changed after

unprecedented opportunities for the banks to reach out to its customers. No doubt
banking services have undergone drastic changes and so also the expectation of
customers from the banks has increased greater. IT is increasingly moving from a
back office function to a prime assistant in increasing the value of a bank over
time.

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Insurance Sector:-

Bancassurance is a relationship between a bank and an insurance company that is

aimed at offering insurance products or insurance benefits to the bank's customers.
In this partnership, bank staff and tellers become the point of sale and point of
contact for the customer. Bank staff are advised and supported by the insurance
company through wholesale product information, marketing campaigns and sales
training. The bank and the insurance company share the commission. Insurance
policies are processed and administered by the insurance company.

This partnership arrangement can be profitable for both companies. Banks can earn
additional revenue by selling the insurance products, while insurance companies
are able to expand their customer base without having to expand their sales forces
or pay commissions to insurance agents or brokers. Bancassurance has proved to
be an effective distribution channel in a number of countries in Europe, Latin
America, Asia and Australia.

Telecommunication Sector:-

In the past twenty years technological advances and regulatory changes have not
only altered the banking and telecommunications industries, but have also brought
the two industries closer together. Many banking institutions now provide
telecommunications services, while some telecommunications companies provide
financial services. Banks already lease some communications line capacity to other
users and extensively use telecommunications systems to provide automated teller
machines (ATMs) in locations far removed from bank branches.

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Telecommunications companies offer such traditional bank services as issuing and
processing credit cards. Telecommunication services currently provided by banks:-

1. Leased Lines 2. Automated Teller Machines

3. Home Banking 4. Electronic Data Interchange

Agriculture Sector:-

In a changing environment, banks are diversifying their role in the agriculture

sector in order to get revenue from their significant contribution to agriculture.
Some of the new roles that banks have adopted are: marketing, training and
consultancy, insurance and financing for infrastructure via private-public
participation. Banking has contributed in agriculture in the following way:

1. Kisan Credit Card Scheme - The Kisan credit card scheme was first
introduced in India by Andhra Bank in 1998. The scheme aims to facilitate
access to short-term credit to farmers and to simplify the credit mechanism,
so that farmers can receive credit on time.

2. Insurance - Indian agriculture depends heavily on the monsoon. Crops often

get damaged because of abrupt changes in the weather. The suicide cases of
cotton growing farmers in Andhra Pradesh and Maharashtra are an everyday
thing now. To overcome all these problems, microfinance and general
insurance companies have come up with crop and weather policies which
can be helpful to poor farmers.

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 3. Training and Consultancy - The ratio of extension worker, farmers is very
less, i.e., 1:1000. In this case, it is very difficult for the government to
provide timely information to farmers. It is praiseworthy that many banks
have volunteered to train their officers regarding farm practices, which in
turn help farmers.

4. HDFC Bank and NAFED - HDFC Bank and National Agricultural

Cooperative Marketing Federation of India Ltd. (NAFED) have entered into
an agreement to provide finance to cooperatives associated with the Agri-
Marketing Federation.

Health Sector :-

Since ages Health sector has worked with banks, microfinance institutions,
equipment and product suppliers, credit unions, and other financing entities to
expand lending to the private health sector. In addition, banks stress collateral
concerns, identifying political risk in taking a health facility as collateral and the
lack of a secondary market for medical equipment. Banking on Health includes:

• Lending to the Private Health Care Business.

• Product Development for the Health Sector.

• Market Research and Market Segmentation

• Ensuring Loan Repayment with Loan Structuring and Monitoring- Since

2004 Banking on Health has trained 581 lenders in 51 financial institutions
in eight countries.

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PRESENT GOVERNMENT POLICY
RELATED TO THE SECTOR

Indian Banking: The Present Structure

The Indian Banking industry, which is governed by the Banking Regulation Act of
India, 1949, comprises a large number of commercial and cooperative banks,
specialized developmental banks for industry, agriculture, external trade and
housing, social security institutions, collective investment institutions, etc. The
banking system is at the heart of the financial system.
The Indian banking system has the RBI at the apex. It is the central bank of the
country under which there are the commercial banks including public sector and
private sector banks, foreign banks and local area banks. It also includes regional
rural banks as well as cooperative banks. In India, the most important
intermediaries in the banking system today are scheduled commercial banks, co-
operative banks, development financial institutions (DFI) and non-bank financial
companies. The large state owned and private sector banks that form part of the
scheduled commercial banks are the most visible representatives of the banking
system. While the scheduled commercial banks hold more that 80% of the banking
systems assets, they represent a minority in term of numbers.
The structure of the Indian banking system is given in figure
Figure 1.3: Structure of Indian Banking System
The industry is currently in a transition phase. On one hand, the Public Sector
Banks, which are the mainstay of the Indian Banking system, are in the process of
shedding their flab in terms of excessive manpower, excessive Non Performing
Assets (NPAs) and excessive governmental equity, while on the other hand the
Private Sector Banks are consolidating themselves through mergers and
acquisitions.
Public Sector Banks, which currently account for more than 78 percent of total
banking industry assets are saddled with NPAs, falling revenues from traditional
sources, lack of modern technology and a massive workforce while the Private
Sector Banks are forging ahead and rewriting the traditional banking business
model by way of their sheer innovation and service. The PSBs are of course
currently working out challenging strategies even as 20 percent of their massive
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employee strength has dwindled in the wake of the successful Voluntary
Retirement Schemes (VRS) schemes.
The private players however cannot match the PSB great reach, great size and
access to low cost deposits. Therefore one of the means for them to combat the
PSBs has been through the merger and acquisition (M& A) route. Over the last few
years, the industry has witnessed several such instances.

For instance, HDFC Banks merger with Times Bank, ICICI Banks acquisition of
ITC Classic, Anagram Finance and Bank of Madura, Centurion Bank, IndusInd
Bank, Bank of Punjab, Vysya Bank are said to be on the lookout. The UTI bank-
Global Trust Bank merger however opened a Pandoras box and brought about the
realization that all was not well in the functioning of many of the Private Sector
Banks
Private Sector Banks have pioneered Internet Banking, Phone Banking and Mobile
Banking, Debit Cards, Automatic Teller Machines (ATMs) and combined various
other services and integrated them into the mainstream banking arena, while the
PSBs are still grappling with disgruntled employees in the aftermath of successful
VRS schemes. Also, following Indias commitment to the WTO agreement in
respect of the services sector, foreign banks, including both new and the existing
ones, have been permitted to open up to 12 branches a year with effect from 1998-
99 as against the earlier stipulation of 8 branches.

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22
 SWOT ANALYSIS OF MAJOR 3
PLAYERS IN THE SECTOR
SWOT analysis of SBI

SBI has its roots since 1806 which was later transformed under various names,
finally SBI Was established after the act in parliament on May 1955. In the year
1959 SBI took over 8 state owned banks and since then it started to grow up
carrying its heritage of servicing people at various economic levels.

Strengths in the SWOT analysis of SBI

SBI is the largest bank in India in terms of market share, revenue and assets.
As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres
The bank has its presence in 32 countries engaging currency trade all over the
world
The bank has a merged with State Bank of Saurashtra, State bank of Indore and the
bank is planning to go further acquisition in the current FY2012.
SBI has the first mover advantage in commercial banking service
SBI has recently changed its vision and mission statements showing a sign of
inclination towards new age banking services

Weaknesses in the SWOT analysis of SBI

Lack of proper technology driven services when compared to private banks

Employees show reluctance to solve issues quickly due to higher job security and
customers’ waiting period is long when compared to private banks
The banks spends a huge amount on its rented buildings
SBI has the largest number of employees in banking sector, hence the bank spends
a considerable amount of its income in employee’s salary compensation
In spite of modernization, the bank still carries the perception of traditional bank to
new age customers
SBI fails to attract salary accounts of corporate and many government sector
employees salary accounts are also shifted to private bank for ease
of operationsunlike before
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Opportunities in the SWOT analysis of SBI

SBI’s merger with five more banks namely State Bank of Hyderebad, State bank of
Patiala, State bank of Bikaber and Jaipur, State of bank of Travancore and State
bank of Mysore are in approval stage
Mergers will result in expansion of market share to defend its number one position
SBI is planning to expand and invest in international operations due to good inflow
of money from Asian Market
Since the bank is yet to modernize few of its banking operations, there is a better
scope of using advanced technologies and software to improve customer relations
Young and talented pool of graduates and B schools are in rise to open new
horizon to so called “old government bank”

Threats in the SWOT analysis of SBI

Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in
the year FY2011
This shows the reduce in market share to its close competitor ICICI
Other private banks like HDFC, AXIS bank etc
FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI
as people tend to switch to foreign banks for better facilities and technologies in
banking service
Other government banks like PNB, Andhra, Allahabad bank and Indian bank are
showing
Customer prefer to switch to private banks and financial service providers for loans
and mortgages, as SBI involves stringent verification procedures and take long
time for processing.

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SWOT Analysis of ICICI bank

Strengths in the SWOT analysis of ICICI Bank

• ICICI is the second largest bank in terms of total assets and market share
• Total assets of ICICI is Rs. 4062.34 Billion and recorded a maximum profit
after tax of Rs. 51.51 billion and located in 19 countries
• One of the major strength of ICICI bank according to financial analysts is its
strong and transparent balance sheet
• ICICI bank has first mover advantage in many of the banking and financial
services. ICICI bank is the first bank in India to introduce complete mobile
banking solutions and jewelry card
• The bank has PAN India presence of around 2,567 branches and 8003 ATM’s
• ICICI bank is the first bank in India to attach life style benefits to banking
services for exclusive purchases and tie-ups with best brands in the industry
such as Nakshatra, Asmi, D’damas etc
• ICICI bank has the longest working hours and additional services offering at
ATM’s which attracts customers
• Marketing and advertising strategies of ICICI have good reach compared to
other banks in India

Weaknesses in the SWOT analysis of ICICI Bank

• Customer support of ICICI section is not performing well in terms of

resolving complaints
• There are lot of consumer complaints filed against ICICI
• The ICICI bank has the most stringent policies in terms of recovering the
debts and loans, and credit payments. They employ third party agency to
handle recovery management
• There are also complaints of customer assault and abuse while recovering and
the credit payment reminders are sent even before the deadlines which annoys
the customers
• The bank service charges are comparatively higher
• The employees of ICICI are bank in maximum stress because of the
aggressive policies of the management to win ahead in the race. This may
result in less productivity in future years

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Opportunities in the SWOT analysis of ICICI Bank

• Banking sector is expected to grow at a rate of 17% in the next three years
• The concept of saving in banks and investing in financial products is
increasing in rural areas as more than 62% percentage of India’s population is
still in rural areas.
• As per 2010 data in TOI, the total number b-schools in India are more than
1500. This can ensure regular supply of trained human power in financial
products and banking services
• Within next four years ICICI bank is planning to open 1500 new branches
• Small and non performing banks can be acquired by ICICI because of its
financial strength
• ICICI bank is expected to have 20% credit growth in the coming years.
• ICICI bank has the minimum amount of non performing assets

Threats in the SWOT analysis of ICICI Bank

• RBI allowed foreign banks to invest up to 74% in Indian banking

• Government sector banks are in urge of modernizing the capacities to ensure
the customers switching to new age banks are minimized
• HDFC is the major competitor for ICICI, and other upcoming banks
like AXIS, HSBC impose a major threat
• In rural areas the micro financing groups hold a major share
• Though customer acquisition is high on one side, the unsatisfied customers
are increasing and make them to switch to other banks

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SWOT analysis of HDFC

Strengths in the SWOT analysis of HDFC

• HDFC bank is the second largest private banking sector in India having 2,201
branches and 7,110 ATM’s
• HDFC bank is located in 1,174 cities in India and has more than 800
locations to serve customers through Telephone banking
• The bank’s ATM card is compatible with all domestic
and international Visa/Master card, Visa Electron/ Maestro, Plus/cirus
and American Express. This is one reason for HDFC cards to be the most
preferred card for shopping and online transactions
• HDFC bank has the high degree of customer satisfaction when compared to
other private banks
• The attrition rate in HDFC is low and it is one of the best places to work in
private banking sector
• HDFC has lots of awards and recognition, it has received ‘Best Bank’ award
from various financial rating institutions like Dun and Bradstreet, Financial
express, Euromoney awards for excellence, Finance Asia country awards etc
• HDFC has good financial advisors in terms of guiding customers towards
right investments

Weaknesses in the SWOT analysis of HDFC

• HDFC bank has better asset quality parameters over government banks,
hence the profit growth is likely to increase
• The companies in large and SME are growing at very fast pace. HDFC has
good reputation in terms of maintaining corporate salary accounts
• HDFC bank has improved it’s bad debts portfolio and the recovery of bad
debts are high when compared to government banks
• HDFC has very good opportunities in abroad
• Greater scope for acquisitions and strategic alliances due to strong financial
position

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Threats in the SWOT analysis of HDFC

• HDFC’s nonperforming assets (NPA) increased from 0.18 % to 0.20%.

Though it is a slight variation it’s not a good sign for the financial health of
the bank
• The non banking financial companies and new age banks are increasing in
India
• The HDFC is not able to expand its market share as ICICI imposes major
threat
• The government banks are trying to modernize to compete with private banks
• RBI has opened up to 74% for foreign banks to invest in Indian market

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 FUTURE PROSPECTS

▪ Favourable demographics and rising income levels. India ranks among the top six
economies with a GDP of US$ 2,597 in 2017 and economy is forecasted to grow
at 7.3% in 2018. The sector will benefit from structural economic stability and
continued credibility of Monetary Policy.
▪ Increase in working population & growing disposable incomes will raise demand
for banking & related services. Housing & personal finance are expected to
remain key demand drivers. Rural banking is expected to witness growth in the
future.
▪ Rising fee incomes improving the revenue mix of banks. High net interest
margins, along with low NPA levels, ensure healthy business fundamentals.
▪ Wide policy support in the form of private sector participation & liquidity infusion.
Healthy regulatory oversight & credible Monetary Policy by the Reserve Bank of
India (RBI) have lent strength & stability to the country’s banking sector.
▪ As of August 2018, total number of ATMs in India increased to 213,004 and is
further expected to increase to 407,000 ATMs in 2021.
▪ With entry of foreign banks, competition in the Indian banking sector has
intensified. Banks are increasingly looking at consolidation to derive greater
benefits such as enhanced synergy, cost take-outs from economies of scale,
organizational efficiency & diversification of risks.

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 REFERENCES
https://www.embibe.com/exams/top-10-largest-banks-in-india/

https://www.mbaskool.com/brandguide/banking-and-financial-services/704-
hdfc.html

https://www.ibef.org/industry/banking-india.aspx

https://www.mbaskool.com/brandguide/banking-and-financial-services/2024-
icici-bank.html

https://www.quora.com/What-is-the-contribution-of-the-banking-sector-to-the-
GDP

https://www.investopedia.com/

https://www2.deloitte.com/content/dam/Deloitte/in/Documents/financial-
services/in-fs-deloitte-banking-colloquium-thoughtpaper-cii.pdf

https://www.globalhunt.in/banking-and-insurance.html

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