Indian Banking Industry

Presented by Group 2 H.L institute of commerce

Roll No: 251-260Roll No: 251-260

Introduction

It is a financial Institute It accepts deposits and lends

money. First bank started in 1786. RBI became central bank of

India in1934. Nationalized in 1969.

Agenda Industry Value Chain and its

Structure Market Size and Growth Industry Segments Major Players Level of Competition Technology Regulations Issues and Concerns Growth Drivers Future Outlook

Industry Value Chain & its Structure

Industry Overview

Industry Value Chain

Industry Structure

OverviewBanking Industry is highly Regulated and Organized.

In FY08, contribution of banking industry to GDP is 6.7%.

In India there are 79 banks in total at present. The composition of which are as follows : Nationalised Banks-28, Scheduled Commercial Banks-23 and Foreign Banks-28.

Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs.

Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all ATMs.

Overview Contd……..The market size of Indian banking industry is Rs 39,068.778 bn as on March31,2008.As on 21st Nov.08 the Credit/Deposit Ratio was 74.8% as against 70.95% 07.Some of India major banks are planning to increase their foreign operations, with an eye on the rapidly expanding NRI and corporate financing business in foreign markets. The Indian banking industry is expected to grow at a healthy CAGR of around 23% till 2011.The profit pool of the Indian banking industry is estimated to increase to US$ 20 billion in 2010 and further to US$ 40 billion by 2015.

Value Chain

Marketing

Household Banks

Corporate

Technology

RBI

Other regulatory authorities

Banking StructureRBI

Commercial Banks

Banking Institutions

NBFIs

Public Sector Banks

Private Sector Banks

Foreign Banks

Co-operativeBanks

Regional Rural Banks

Primary Urban Co-op

State and Central Co-op

Primary Agricultural Credit Societies

Land Development Banks

All India Development

Banks

State Finance Companies

Specialized Institutions

(NABARD/NHB)

Housing Finance Comnpanies

Non-BankFinance Companies

Market Size & Growth Rate

The market size of Indian banking industry is Rs 39,068.778 bn as on 31st March, 2007Aggregate bank deposits as on 21st Nov, 2008 stand at Rs. 35195.93 bn as compared to Rs. 29243.07 bn in the corresponding quarter of the last year thereby showing a growth of 20.36%. Total bank credit as on November 21, 2008 stand at Rs. 26327 bn as compared to Rs. 20748.93 bn in the corresponding quarter of the last year thereby showing a growth of 26.88%.

C/ D Ratio

69.570

70.571

71.572

72.573

73.574

74.575

75.576

AMJ07 JAS07 OND07 JFM08 AMJ08 JAS08

%

Source : RBI

SENSEX vs. BANKEX

2500

5000

7500

10000

12500

15000

17500

20000

22500

Dec-07

J an-08

Feb-08

Mar-08

Apr-08

May-08

J un-08

J ul-08 Aug-08

Sep-08

Oct-08

Nov-08

SENSEX BANKEX

Source : www.bseindia.com

Banking

Retail(Savings, Mortgage,

Personal Loans,Debit & Credit

Cards etc.)

Wholesale(Corporate Finance.

Capital Markets,Leasing, Wholesale

Insurance etc. )

Treasury(Arrangement of

Forward contracts,Derivatives and

Rupee quotes etc.)

Industry Segments

Segment wise Revenue is rising

Reasons: Increase in Branch

network. Increase in deposit

& loan products. Using lower cost

alternative channels. Improved

infrastructure & core banking facilities.

Industry Segments Wise Revenue

0

40

80

120

160

200

240

2005- 06 2006- 07 2007- 08

Rs. b

n

Retail Wholesale Treasury

Source: RBI

Major PlayersBank Mkt. Share(%)

SBI 24.2

ICICI 15.0

HDFC 12.8

Axis 5.5

PNB 4.9

Bank Of India 4.6

Bank Of Baroda 3.0

Union Bank 2.4

Canara Bank 2.4

Oriental Bank 1.2

Others 24.2

Source : www.bseindia.com

Current Mkt. Share(%)

2%

2%

5%5%

13%

25%

15% 38%

24%

3%

5%

1%

SBI I CI CI HDFC AxisPNB Bank Of I ndia Bank Of Baroda Union BankCanara Bank Oriental Bank Others

Level of Competition

Herfindahl Index

Michael Porter Analysis

Michael Porter analysis of Indian Banking Industry

Bargaining power

of Suppliers

Low to Moderate

Threat of Entry

Low

Internal Competitive

Rivalry

High

Bargaining power of Buyers

Low

Threat of Substitutes

Low

Highly Capital IntensiveHigh cost of funds for new playersGoodwill is a deciding factorRegulatory requirement like RBI restrictions, legal formalities, minimum net worth requirement and Basel II norms

Other Asset class generally offers high returns but with more risk specially in short term.Rural area people are less aware and Fragmented.Banking deposits offers more liquidity

Huge demand for credits so more chance to grow in long termRequirement for funds to increase business has created competition

Michael Porter Analysis

Threat of New Entrants (Low)

Bargaining Power of Suppliers ( Low to Moderate)

Competitive Rivalry (High)

Threat of Substitutes (Low)External Commercial Borrowing and DebenturesCommercial Papers and Public DepositsMoney Market Post office SchemesGovernment BondsOther available resources are not enough to tap the whole requirement.Relatively higher Covenants and Intervention in management.Low or no access of SMEs to ECB, CP & public deposits due to regulations and larger floatation costs.Bargaining power of big ticket players is more as comparison to small players specially in current scenarios.

Michael porter contd….

Bargaining power of Buyers (low)

Technology : Driving the cost structure

Instruments and services introduced in recent years:

Core Banking Solutions (CBS) Real Time Gross Settlement (RTGS) National Electronic Fund Transfer (NEFT) Electronic Clearing Services (ECS) Mobile Banking Internet Banking Automated Teller Machine Plastic Money

Benefits to Banking Industry

Facilitates paperless inter and intra bank settlements, both inter and intra city.

Fast, secure and irrevocable settlement of major business and financial market transactions.

Reduces operational risk by securing the transmission route.

Reduction in human resource requirement and thus decrease in human resource cost as percentage of total income by 18% in 2007-08.

Lower transaction costs and increase in operational efficiency.

Growth Drivers Large untapped rural market till now. Increase in consumption habits and thus retail

banking. Rapidly expanding NRI in foreign markets. Umbrella or Universal banking (Bank assurance, Non-

fund based services, ASBA, Derivative products ……) Increase in expenditure on Infrastructure and R & D . Rapid advances in technology. Bank penetration is far lower than in other markets

and it is uneven within India also. Innovation in financial products like Flexi fix deposits

and Zero balance saving account. Surge in mergers & acquisitions activities in recent

years.

Growth Drivers contd……..

Decline in value of other asset classes would increase small savings habits.

Decrease in Operating expenses as percentage of total income by 13.3% in 2007-08.

Decrease in human resource costs as percentage of total income by 18% in 2007-08.

Decrease in NNPA as percentage of total advances by 11.1% in 2007-08.

Growth in credit to service sector by 31.1% in 2007-08 and 30.2% in 2006-07.

Surge in India’s two way trade and external transactions as percentage of GDP.

Decreasing Interest Rate scenario will boost the profits.

Challenges

Maintaining the credit flow.

Regulatory forbearance and relaxing regulatory reforms.

Effective implementation of Basle-II framework.

Regulatory FrameworkReserve Bank Of India Act,1934

As Central Banker As Promoter As Regulator

Banking Regulation Act, 1949

Reserve Requirements Restrictions on Loans and Advances Audit Licensing Requirements

Outlook Bank credit is expected to grow by 20% in 2009-10. Indian Banking system is relatively insulated from

factors leading to turmoil in banking industry. India’s banking industry must embrace the concept of

“the learning organization” for continuous development and upgradation.

The future of Indian Banking lies in increased investment in technology.

Banks also need to gear up for consolidation in the banking sector. Consolidation must happen not just between PSU banks but also between PSU and private sector banks.

In current scenario banks should focus more on lending.