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PEST ANALYSIS

PEST analysis of any industry investigates the important factors that affect the

industry and influence the companies operating in the sector. PEST stands for Political,

Economic, Social and Technological analysis. The PEST Analysis is a tool to analyze the

forces that drive the industry and how those factors can influence the industry.

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ECONOMICAL

GDP

MONSOON

INFLATION

SAVINGS &

ACCOUNTS

AGRICULTURE

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POLITICAL

GOVERNMENT

POLICY & BUDGECT

BUDJECT MEASURES

MONATORY POLICY

SOCIOCULTURAL

CHANGES IN

LIFE STYLE

LITERACY RATE

DEMOGRAPHIC

OF LARGE

POPULATION

Organizatio

n

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POLITICAL FACTORS

Government and RBI policies affect the banking sector.

Sometimes looking into the political advantage of a particular party,

the Government declares some measures to their benefits like waiver

of short-term agricultural loans, to attract the farmers votes. By doing

so the profits of the bank get affected. Various banks in the

cooperative sector are open and run by the politicians. They exploit

these banks for their benefits. Sometimes the government appoints

various chairmen of the banks.

Various policies are framed by the RBI looking at the present

situation of the country for better control over the banks.

FOCUS ON REGULATIONS OF GOVERNMENT

Indian Banking is least affected as compare to other developed

economy which is attributed to Reserve Bank of India for its robust

policy framework, stricter prudential regulations with respect to capital

and liquidity. This gives India an advantage in terms of credibility over

other countries.

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.

LEGAL

RESERVE BANK OF

INDIA ACT

BANKING

REGULATION ACT

TECHNICAL

TECHNOLOGY IN

BANKS

CORE BANKING

SOLUTIONS(CBS)

ATM

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MONETARY POLICY

Monetary Policy 2009-2010

Bank Rate: The Bank Rate has been retained unchanged at 6.0%.

Repo Rate It has been reduced under the Liquidity Adjustment Facility

(LAF) by 25 basis points from 5.0% to 4.75% with immediate effect.

Reverse Repo Rate : It has been reduced under LAF by 25 basis points

from 3.5% to 3.25% with immediate effect. RBI has retained the option

to conduct overnight or longer term repo/reverse repo under the LAF

depending on market conditions and other relevant factors.

Cash Reserve Ratio: CRR has been retained unchanged at 5.0% of

NDTL.

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FDI LIMIT

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

BUDGET MEASURES

BUDGET PROVISIONS

http://4.bp.blogspot.com/_5i6xumi12nY/SucoRuoE_fI/AAAAAAAAADQ/ErItBQqG8cU/s1600-h/pol.bmp

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Increase Farm Credit: The FM has further increase the farm

credit target for 2009-10 at Rs 325000 crore compared to Rs 287000

crore targeted in 2008-09.

Subvention of 1% to be paid as incentive to farmers: TheBudget continued the Interest subvention scheme for short-term crop

loans up to Rs 300000 per farmer at the interest rate of 7% per

annum. Also additional subvention of 1% to be paid from this year, as

incentive to those farmers who repay short-term crop loans on

schedule. Also additional allocation of Rs 411 crore over Interim

Budget 2009-10 was made for the same.

Debt Waiver for Farmers: The Union Budget 2009-10extended the debt waiver scheme by six more months for farmers

owing more than 2 hectare of land. The Union Budget 2008-09 allowed

these farmers 25% rebate on loan if they repay 75% of their overdue

within stipulated period of 30th June 2009. Currently this facility has

been extended from 30th June, 2009 to 31st December, 2009.

Setting up of separate task force for those not covered

under the debt waiver scheme: The government also announced

that it will set up a task force to examine the issue of debt taken by a

large number of farmers in some regions of Maharashtra from private

money lenders who were not covered by the loan waiver scheme

announced last year.

OTHER PROVISIONS

The threshold for non-promoter public shareholding for all listed

companies to be raised in a phased manner.

To allow scheduled commercial banks setting up off-site ATMs

without prior approval subject to reporting.

To provide banking facilities in under-banked/un-banked areas in

the next three years. A sub-committee of State level Bankers

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Committee (SLBC) would identify and formulate an action plan

for the same.

The Ministry has also granted Rs 100 crore of grants in aid to

ensure provision of at least one Centre/Point of Sales (POS) for

banking services in each of the un-banked blocks.

BUDGET IMPACT

The Union Budget 2008-09 has focused on farm credit. The

agriculture sector has recorded a growth of about 4% per annum with

substantial increase in plan allocations and capital formation in the

sector. The one-time bank loan waiver of nearly Rs 71000 crore (Rs

710 billion) to cover an estimated 40 million farmers was one of the

major highlights of the last Budget. This Union Budget has provided

further six months extension of 25% rebate on loan for farmers owing

more than 2 hectare of land. With Government bearing this burden,

banks would not be affected much. It will only help banks to clear their

most stubborn NPA accounts on banks book.

Moreover the emphasize on hiking promoter shareholding in

Public sector banks, expanding network with ATM's, opening of banking

centre in un-banked blocks are some of the positive moves for the

sector.

On the flipside, the spike in government borrowings is set to

adversely affect the treasury income of banks in general and public

sector banks in particular, through rise in yields on government

securities.

OUTLOOK

The Union Budget 2009-10 has not granted much of new

grants/stimulus to the banking sector as a whole. However it has

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increased the Government borrowing to Rs 451093 crore (Rs 4510.93

billion) compared to Rs 361782 crore

(Rs 3617.82 billion) targeted in the Interim Budget 2009-10.

This is likely to push the Bond yields high moving forward.

Despite ample liquidity in the system, the 10 year benchmark yield has

zoomed above 7% levels owing to rise in borrowing target. Hardening

of yields is likely to affect treasury profits of banks in general and

Public sector banks in particular.

BUDGET PROPOSALS

1. IIFCL to refinance 60% of loans given by commercial banks for PPP-

based projects in critical sectors. IIFCL and banks together will be able

to support infrastructure projects involving total investment of Rs

1,000 bn.

2. Target for agriculture credit flow set at Rs.3250 bn for the year

2009-10. Interest subvention scheme at the interest rate of 7% will be

continued. Additional subvention of 1% for the farmers who repay their

debt on time.

3. Farm debt waiver scheme extended to 31st December 2009 from

30th June 2009.

4. Interest subvention scheme to exporters extended to 31st March

2010.

5. Special fund of Rs.40 bn out of Rural Infrastructure Development

Fund (RIDF) to provide refinance to banks and State Finance

Corporation for incremental lending to Micro and Small

Enterprises (MSEs).

6. Rs.1 bn to ensure provision of at least one centre/Point of Sales

(POS) for banking services in each of the unbanked blocks.

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7. Interest subsidy to poor households for loans up to Rs.1,00,000

from banks.

8. Rs.20 bn earmarked for Rural Housing Fund in National Housing

Bank (NHB)

9. Recapitalization of public sector banks and insurance companies.

10. Exemption of income of New Pension System (NPS) trust from

income tax and dividend paid to NPS trust from dividend distribution

tax. Sale and purchase of equity shares and derivatives by NPS trust

will be exempt from the securities transaction tax.

BUDGET IMPACT: INDUSTRY

1. Long-term refinancing from IIFCL for infrastructure projects will

ensure better asset-liability match for banks.

2. Debt waiver and interest subvention schemes will not have much

impact on banks.

3. Recapitalization will ensure adequate capital for the growth of the

public sector banks and insurance companies.

4. Rural Housing fund will boost the resource base of NHB for their

refinance operation in rural housing sector.

5. Tax break for NPS trust will have positive impact on the same.

ECONOMIC FACTORS

Banking is as old as authentic history and the modern

commercial banking are traceable to ancient times. In India, banking

has existed in one form or the other from time to time. The present era

in banking may be taken to have commenced with establishment of

bank of Bengal in 1809 under the government charter and with

government participation in share capital. Allahabad bank was started

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in the year 1865 and Punjab national bank in 1895, and thus, others

followed.

Every year RBI declares its 6 monthly policy and accordingly the

various measures and rates are implemented which has an impact on

the banking sector. Also the Union budget affects the banking sector to

boost the economy by giving certain concessions or facilities. If in the

Budget savings are encouraged, then more deposits will be attracted

towards the banks and in turn they can lend more money to the

agricultural sector and industrial sector, therefore, booming the

economy. If the FDI limits are relaxed, then more FDI are brought in

India through banking channels

GROWING ECONOMY / GDP

Indian economy has registered a growth of more that 9 per centfor last three year and is expected to maintain robust growth rate as

compare to other developed and developing countries. Banking

Industry is directly related to the growth of the economy.

The contributions of various sectors in the Indian GDP for

2007-2008 are as follows:

Agriculture:17%

Industry:29%

ServiceSector:54%

It is great news that today the service sector is contributing more than

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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.

The Indian government is still looking up to improve the GDP of the

country and so several steps have been taken to boost the economy.

Policies of FDI, SEZs and NRI investment have been framed to give a

push to the economy and hence the GDP.

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MONSOON

The cumulative seasonal rainfall (1st June -30th September

2009) for the country as a whole is 23 per cent below the Long Period

Average (LPA). The year 2009 is the most deficient year after 1972.

LOW INTEREST RATES

Reserve Bank of India controls the Interest rate, which is based

on several monetary policies. Recently RBI has reduced the interest

rate which stimulates the growth rate of banking industry. As on

September 11, 2009 Bank Rate was 6.00 per cent, the same as on the

corresponding date of last year. Call money rates (borrowing &

lending) were in the range of 1.50/3.47 per cent as compared with

5.25/11.00 per cent on the corresponding date of last year.

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INFLATION RATES

Inflation represents a rise in general level of prices of goods and services over a

period of time. It leads to an erosion in the purchasing power of money. Resultantly, each

unit of currency buys fewer goods and services

Different fiscal and monetary policies have curbed the Inflation rate

from the high of 12.63 per cent to 3.92 per cent.

To fight against the slowdown of the Economy, Government of

India & Reserve Bank of India took many fiscal as well as monetary

actions. Clubbed with fiscal & monetary actions, decreasing commodity

prices, decreasing crude prices and lowering interest rate, we expect

that Indian Economy could again register a robust growth rate in the

year 2009-10. Inflation stands at 3.92 per cent on 7th February 2009

against a high of 12.63 per cent on 9th August 2008.

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SAVINGS AND ACCOUNTS

As stated earlier, India continues to remain one of the high

savings economies among the emerging market economies. Gross

Domestic Savings (GDS) of the Indian economy constitutes savings of

public, private corporate and household sectors. In the recent period

the high growth performance of the Indian economy is driven by rise in

savings

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AGRICULTURE CREDIT

Agriculture has been the mainstay of our economy with 60% of

our population deriving their sustenance from it. In the recent past,

the sector has recorded a growth of about 4% per annum with

substantial increase in plan allocations and capital formation in the

sector. Agriculture credit flow was Rs 2,87,000 crore in 2008-09. The

target for agriculture credit flow for the year 2009-10 is being set at

Rs.3,25,000 crore. To achieve this, I propose to continue the interest

subvention scheme for short term crop loans to farmers for loans upto

Rs.3 lakh per farmer at the interest rate of 7% per annum. For thisyear, the government shall pay an additional subvention of 1% as an

incentive to those farmers who repay their short term crop loans on

schedule. Thus, the interest rate for these farmers will come down to

6% per annum. For this, I am making an additional Budget provision of

Rs 411 crore over Interim BE.

DEBT RELIEF FOR FARMERS

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 of the last

Budget. Under the Agricultural Debt Waiver and Debt Relief Scheme

(2008), farmers having more than two hectares of land were given

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time upto 30th June, 2009 to pay 75% of their overdues. Due to the

late arrival of monsoon, I propose to extend this period by six months

upto 31st December, 2009 .

SOCIO CULTUREAL FACTORS

Socio culture factors also affect the business. They show in which

people behave in country. Socio-cultural factors like taboos, customs,

traditions, tastes, preferences, buying and consumption habit of

people, their language, beliefs and values affect the business. Banking

industry is also operates under this social environment and it is also

affect by this factor.

These factor are changing continuously peoples life style, their

behavior, consumption pattern etc. is changing and also creating

opportunities and threat for banking industry. There are some socio-

culture factors that affect banking in India have been analyzed below.

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TRADITIONAL MAHAJAN PRATHA

Before the birth of the banks, people of India were used to

borrow money local moneylenders, shahukars, shroffs. They were used

to charge higher interest and also mortgage land and house. Farmers

were exploited by these shahukars. But farmers need money. So, they

did not have any choice other than going to shahukar and borrowing

money from them in spite of exploitation by these people. But after

emergence of banks attitude of people was changed. Traditional

mahajan pratha still exist in India specially in rural areas. This affects

the banking sector. Rural people afraid to go to bank to borrow moneyinstead they prefer to borrow from shahukar whith whom they have

relationships from the time of their fore fathers. Banking infrastructure

is also week in some interior areas of India. So, this is reason it still

exist.

SHIFT TOWARDS NUCLEAR FAMILY

Attitude of people of India is changing. Now, younger generation

wants to remain separate from their parents after they get married.

Joint families are breaking up. There are many reasons behind that.

But banking sector is positively affected by this trend. A family need

home consumer durables like freeze, washing machine, television,

bike, car, etc.. so, they demand for these products and borrow from

banks. Recently there is boost in housing finance and vehicle loans. As

they do not have money they go for installments. So, banks satisfy

nuclear families wants.

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CHANGE IN LIFE STYLE

Life style of India is changing rapidly. They are demanding high

class products. They have become more advanced. People want

everything car, mobile, etc.. what their fore father had dreamed for.

Now teenagers also have mobile and vehicle. Even middle class people

also want to have well furnished home, television, mobile, vehicle and

this has opened opportunities for banking secter to tap this change.

Every thing is available so it has become easy to purchase anything if

you do not have lump sum.

POPULATION

Increase in population is one of he important factor, which affect

the private sector banks. Banks would open their branches after

looking into the population demographics of the area. Percentage of

deposit in any branches of banks depends upon the population

demographic of that area. The population of India is about 102.90 is

expected to reach about 119.70 cores in 2011. About 70% of

population is below 35years of age. They are in the prime earning

stage and this increase the earning of the banks. Total Deposits

mobilized by the Private Sector Banks increased from Rs, 2,52,335

crore as on 31st March 2004 to Rs. 3,12,645 crore as on 31st March

2005. Deposits showed a subdued growth during 2004-05.Income

distributions also affects the operations and overall business of private

sector banks.

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LITERACY RATE

Literacy rate in India is very low compared to developed

countries. Illiterate people hesitate to transact with banks. So, this

impacts negatively on banks. But there is positive side of this as well

i.e. illiterate people trust more on banks to deposit their money, they

do not have market information. Opportunities in stocks or mutual

funds. So, they look bank as their sole and safe alternative. Literacy

rate of India is around 65%

LITERACY RATE IN INDIA

year persons male female

1951 18.3 27.2 8.9

1961 28.3 40.4 15.3

1971 34.5 46.0 22.0

1981 41.4 53.4 28.5

1991 52.2 64.1 39.3

2001 65.4 75.8 52.1

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TECHNOLOGICAL FACTORS

TECHNOLOGY IN BANKS

Technology plays a very important role in banks internal controlmechanisms as well as services offered by them. It has in fact given

new dimensions to the banks as well as services that they cater to and

the banks are enthusiastically adopting new technological innovations

for devising new products and services.

ATM

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.

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Automatic voice recorders now answer simple queries, currency

accounting machines makes the job easier and self-service counters

are now encouraged.

Credit card facility has encouraged an era of cashless society.

Today MasterCard and Visa card are the two most popular cards used

world over. 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 telecommunication facilities and computer technology by

using terminals installed at customers home and they can make the

balance inquiry, get the statement of accounts, give instructions forfund transfers, etc. Through ECS we can receive the dividends and

interest directly to our account avoiding the delay or chance of loosing

the post.

IT SERVICES & MOBILE BANKING

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. The

messages are then recognized by the bank to provide you with the

required information.

All these technological changes have forced the bankers to adopt

customer-based approach instead of product-based approach

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Technology advancement has changed the face of traditional banking

systems. Technology advancement has offer 24X7 banking even giving

faster and secured service.

CORE BANKING SOLUTIONS

It is the buzzword today and every bank is trying to adopt it is

the centralize banking platform through which a bank can control its

entire operation the adoption of core banking solution will help bank

to roll out new product and services.

S.W.O.T ANALYSIS OF BANKING INDUSTRY

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EXECUTIVE SUMMARY

The rise of retail lending in emerging economies like India has been of

recent origin. Asia Pacifics vast population, combined with high

savings rates, explosive economic growth, and underdeveloped retail

banking services, provide the most significant growth opportunities for

banks. Banks will have to serve the retail banking segment effectively

in order to utilize the growth opportunity.

Banking strategies are presently undergoing various transformations,

as the overall scenario has changed over the last couple of years. Till

the recent past, most of the banks had adopted fierce costcuttingmeasures to sustain their competitiveness. This strategy however has

become obsolete in the new light of immense growth opportunities for

banking industry. Most bankers are now confident about their high

performance in terms of organic growth and in realising high returns.

Nowadays, the growth strategies of banks revolve around customer

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satisfaction. Improved customer relationship management can only

lead to fulfilment of long-term, as well as, short-term objectives of the

bankers. This requires, efficient and accurate customer database

management and development of well-trained sales force to develop

and sustain long-term profitable customer relationship.

The banking system in India is significantly different from that of the

other Asian nations, because of the countrys unique geographic,

social, and economic characteristics. Though the sector opened up

quite late in India compared to other developed nations, like the US

and the UK, the profitability of Indian banking sector is at par with that

of the developed countries and at times even better on someparameters. For instance, return on equity and assets of the Indian

banks are on par with Asian banks, and higher when compared to that

of the US and the UK.

Banks in India are mainly classified into Scheduled Banks and Non-

Scheduled Banks. Scheduled Banks are the ones, which are included in

the second schedule of the RBI Act 1934 and they comply with the

minimum statutory requirements. Non-Scheduled Banks are joint stockbanks, which are not included in the second Schedule of the RBI Act

134, on account of the failure to comply with the minimum

requirements for being scheduled.

STRENGTH

Indian banks have compared favourably on growth, asset quality

and profitability with other regional banks over the last few

years. The banking index has grown at a compounded annual

rate of over 51 per cent since April 2001 as compared to a 27 per

cent growth in the market index for the same period.

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Policy makers have made some notable changes in policy and

regulation to help strengthen the sector. These changes include

strengthening prudential norms, enhancing the payments system

and integrating regulations between commercial and co-

operative banks.

Bank lending has been a significant driver of GDP growth and

employment.

Extensive reach: the vast networking & growing number of

branches & ATMs. Indian banking system has reached even to

the remote corners of the country.

The government's regular policy for Indian bank since 1969 has

paid rich dividends with the nationalisation of 14 major private

banks of India.

In terms of quality of assets and capital adequacy, Indian banks

are considered to have clean, strong and transparent balance

sheets relative to other banks in comparable economies in its

region.

India has 88 scheduled commercial banks (SCBs) - 27 public

sector banks (that is with the Government of India holding a

stake)after merger of New Bank of India in Punjab National Bank

in 1993, 29 private banks (these do not have government stake;

they may be publicly listed and traded on stock exchanges) and

31 foreign banks. They have a combined network of over 53,000

branches and 17,000 ATMs. According to a report by ICRA

Limited, a rating agency, the public sector banks hold over 75

percent of total assets of the banking industry, with the private

and foreign banks holding 18.2% and 6.5% respectively.

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Foreign banks will have the opportunity to own up to 74 per

cent of Indian private sector banks and 20 per cent of

government owned banks.

WEAKNESS

PSBs need to fundamentally strengthen institutional skill levels

especially in sales and marketing, service operations, risk

management and the overall organisational performance ethic &

strengthen human capital.

Old private sector banks also have the need to fundamentally

strengthen skill levels.

The cost of intermediation remains high and bank penetration is

limited to only a few customer segments and geographies.

Structural weaknesses such as a fragmented industry structure,

restrictions on capital availability and deployment, lack of

institutional support infrastructure, restrictive labour laws, weak

corporate governance and ineffective regulations beyond

Scheduled Commercial Banks (SCBs), unless industry utilities and

service bureaus.

Refusal to dilute stake in PSU banks: The government has

refused to dilute its stake in PSU banks below 51% thus choking

the headroom available to these banks for raining equity capital.

Impediments in sectoral reforms: Opposition from Left and

resultant cautious approach from the North Block in terms of

approving merger of PSU banks may hamper their growth

prospects in the medium term.

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OPPORTUNITY

The market is seeing discontinuous growth driven by newproducts and services that include opportunities in credit cards,

consumer finance and wealth management on the retail side,

and in fee-based income and investment banking on the

wholesale banking side. These require new skills in sales &

marketing, credit and operations.

\banks will no longer enjoy windfall treasury gains that the

decade-long secular decline in interest rates provided. This will

expose the weaker banks.

With increased interest in India, competition from foreign banks

will only intensify.

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Given the demographic shifts resulting from changes in age

profile and household income, consumers will increasingly

demand enhanced institutional capabilities and service levels

from banks.

New private banks could reach the next level of their growth in

the Indian banking sector by continuing to innovate and develop

differentiated business models to profitably serve segments like

the rural/low income and affluent/HNI segments; actively

adopting acquisitions as a means to grow and reaching the next

level of performance in their service platforms. Attracting,

developing and retaining more leadership capacity

Foreign banks committed to making a play in India will need to

adopt alternative approaches to win the race for the customer

and build a value-creating customer franchise in advance of

regulations potentially opening up post 2009. At the same time,

they should stay in the game for potential acquisition

opportunities as and when they appear in the near term.

Maintaining a fundamentally long-term value-creation mindset.

reach in rural India for the private sector and foreign banks.

With the growth in the Indian economy expected to be strong for

quite some time-especially in its services sector-the demand for

banking services, especially retail banking, mortgages and

investment services are expected to be strong.

the Reserve Bank of India (RBI) has approved a proposal from

the government to amend the Banking Regulation Act to permit

banks to trade in commodities and commodity derivatives.

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Liberalisation of ECB norms: The government also liberalised

the ECB norms to permit financial sector entities engaged in

infrastructure funding to raise ECBs. This enabled banks and

financial institutions, which were earlier not permitted to raise

such funds, explore this route for raising cheaper funds in the

overseas markets.

Hybrid capital: In an attempt to relieve banks of their capital

crunch, the RBI has allowed them to raise perpetual bonds and

other hybrid capital securities to shore up their capital. If the new

instruments find takers, it would help PSU banks, left with little

headroom for raising equity. Significantly, FII and NRI investment

limits in these securities have been fixed at 49%, compared to

20% foreign equity holding allowed in PSU banks.

THREATS

Threat of stability of the system: failure of some weak banks has

often threatened the stability of the system.

Rise in inflation figures which would lead to increase in interest

rates.

Increase in the number of foreign players would pose a threat to

the PSB as well as the private players.

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Vision

To emerge as the most preferred bank in the country in terms of

brand, values, principles with core competence in fostering customer

aspirations, to build high quality assets leveraging on the strong and

vibrant technology platform in pursuit of excellence and customer

delight and to become a major contributor to the stable economic

growth of the nation.

Mission

To provide a secure, agile, dynamic and conducive banking

environment to customers with commitment to values and unshaken

confidence, deploying the best technology, standards, processes andprocedures where customer convenience is of significant importance

and to increase the stakeholders value.

i. Salient features of Know Your Customer Norms and

the need for production of documents for opening of

accounts. (KYC Norms)

Objectives of KYC Norms: The main objective of the KYC policy is to

prevent banks from being used, intentionally or unintentionally, by

criminal elements for money laundering activities. In order to arrest

money laundering, where Banks are mostly used in the process, it is

imperative that they know their customers well. RBI has issued the

KYC guidelines under Section 35 (A) of the Banking Regulation Act,

1949 and any contravention of the same will attract penalties under

the relevant provisions of the Act. Thus, the Bank has to be fully

compliant with the provisions of the KYC procedures. KYC procedures

also enable Banks to know and understand their customers and their

financial dealings better which in turn help them manage their risks

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prudently. Know Your Customer is the principle on which the banking

system operates to avoid the pitfalls of operational, legal and

reputation risks and consequential losses by scrupulously adhering to

the various procedures laid down for opening and conduct of accounts.

For the purpose of KYC, a customer is defined as:

A person or entity that maintains an account and/or has a

business relationship with the bank.

One on whose behalf the account is maintained (i.e., the

beneficial owner)

Beneficiaries of transactions conducted by professional

intermediaries, such as Stock Brokers, Chartered Accountants,

Solicitors etc., as permitted under the law

Any person or entity connected with a financial transaction which

can pose significant reputational or other risks to the bank, say,

a wire transfer or issue of a high value demand draft as a single

transaction.

To achieve the objectives of KYC guidelines, the following four key

elements have been made as the basis:

1. Customer Acceptance Policy

2. Customer Identification procedures

3. Monitoring of transactions

4. Risk Management

Customer Acceptance Policy:

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Our Banks Customer Acceptance Policy is based on two principles

namely-

No account is opened in anonymous or fictitious/ benami

name(s)

Customers are categorized based on risk perceptions in terms

of the nature of business activity, location of customer and his

clients, mode of payments, volume of turnover, social and

financial status etc.

Customer profile:

Branches should prepare a profile for each new customer. The

customer profile contains information relating to Customers social/financial status, nature of business activity, information about his

clients business and their location etc. However, while preparing

customer profile, branches should take care to seek only such

information from the customer which is relevant and should not be

intrusive. The customer profile will be a confidential document and

details contained therein shall not be divulged for cross selling and any

other purposes. The customer profile should be updated on periodical

basis.

Customer Identification procedures:

Customer identification means identifying the customer and verifying

his/her/its identity by using reliable, independent source documents,

data or information. Banks need to obtain sufficient information to

establish the identity of each new customer and the branches must be

able to satisfy the competent authorities that due diligence was

observed based on the risk profile of the customer in compliance with

the extant guidelines in place.

In the competitive scenario, individuals are increasingly averse to

provide a third party introduction. In respect of Savings Bank and Term

Deposit accounts of individuals, Banks would require following

documents to verify the identity and location of the customer.

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A. Passport alone where the address on the passport is the same as

the address on the account opening form

OR

B. Any one document from each of the below 2 lists, for a photoidentity and proof of residence/address:

List I (latest/ recent) for legal

name

and any other name(s) used.

List II (latest/ recent) for correct

permanent address.

1. Passport where the address

differ

1) Telephone bill

2. Voters Identity Car 2) Bank Account statement

3. PAN car 3) Income/ Wealth Tax assessment

Order

4. Driving License 4) Credit Card statement

5. Govt./ Defense ID card 5) Electricity bill

6. ID cards of reputed employers 6) Ration car

7. Letter from a recognized public

authority or public servant

verifying the identity and

Residence of the customer.*

7) Letter from employer*

Subject to the Banks satisfaction.

1. In case of joint accounts, applicants are required to

independently

establish their identity and address

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2. Care of .. or incomplete address will not be accepted.

3. Ration card is not to be used as a document for establishing

identity or proof of residence, as per directives of Government

of India.

C. In respect of Nonresident accounts, High Net Worth customers and

current accounts, customers would be asked to submit additional

information and documentary evidence, (besides the normal

documents mentioned in the List I and List II in column B).

Type of Customers/ accounts Additional information/ Document

I. For opening Non Resident

Account

Introduction in the form of

passport and/ or by another

bank/Indian Embassy/Notary

Public/Person known to the

account opening branch.

ii. For opening accounts of High

Net worth customers

iii. For Current Accounts

iv. For accounts of other than

individuals

In addition to obtension of

documents/ information for

identityand location of the

customer in addition to documents

mentioned

in List I and List II, introduction by

an existing account holder or by a

person known to the branch.

D. For customers that are legal persons or entities, we furnish the

features required by the Bank for verification and also the documents

to be obtained by the Bank for opening of accounts:

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Features for verification of the

Bank

Documents required for the Bank

Accounts of partnership firm

Legal Name Registration certificate if

registered

Address Partnership deed

Names of all partners and

their

addresses

Power of Attorney granted to a

partner or an employee of the firm

to transact business on its behalf.

Any officially valid document

identifying the partners and the

persons holding the Power of

Attorney and their addresses

Telephone numbers of the

firm

and partners

Telephone bill in the name of

firm and partners

Accounts of companies

Name of the Company o Certificate of incorporation and

Memorandum & Articles of

Association

Principal place of business o Resolution of the Board of

Directors to open an account and

identification of those who have

authority to operate the account

Mailing address of the

Company

o Power of Attorney granted to its

managers, officers or employeesto

transacts business on its behalf

Telephone/ FAX number o Copy of PAN allotment letter

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o Copy of Telephone bill

Quoting of PAN

As per Clause (C) of rule 114 B of Income Tax rules 1962, PAN(Permanent Account Number) or GIR number (General Index Register

Number where PAN has not been allotted) allotted by the Income Tax

Department has to be quoted:

i. In the account opening forms pertaining to time deposits

exceeding Rs.50,000/- and / or

ii. For opening of account

Hence, Banks would obtain the PAN / GIR number of the customer

(whether individual or otherwise) for noting in the opening form.

Branches have already been advised to issue / pay travelers cheques,

demand drafts, mail transfers, telephonic transfers, electronic funds

transfers and other remittances for Rs.50,000/- and above only by

debit/ credit to customers accounts or against cheques and not

against cash. Further, the applicants (whether customers or not) for

the above transactions for amount of Rs.50000/- and above, should

affix PAN (Permanent Account Number allotted by Income Tax

authorities) on the applications.

In case PAN or GIR Number has not been allotted or the person is not

an Income Tax Assesse, a declaration in Form No. 60 or 61 as the case

may be, would be obtained.

Guidelines for opening of new accounts:

Opening of account amounts to a contract between the bank and the

customer in which the parties assume certain obligations and become

entitled to certain legally enforceable rights. Hence, the Bank has to

ensure that the prospective customer has contractual capacity and

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also has any restrictions are imposed by any law on the contractual

capacity of the prospective customer before opening deposit account

for him/her.

The prospective account holder should normally be required to fill in

the account opening form in the presence of banks official. The

account will not be normally opened without meeting between bank

official and the customer.

Following declaration is available in our current account opening form.

I/We am/are not enjoying credit facilities with any other bank or any

other branch of your Bank, and I/we undertake to inform you in writing,

as soon as any credit facility is availed by us from any other Bank or

any other branch of your Bank (OR) I/We am/are enjoying credit

facilities with the bank(s)/other branch(es) of your bank as per details

given in the enclosed sheet.

In the case of a prospective customer who is a corporate or large

borrower enjoying credit facilities from more than one bank, branches

should carry out the due diligence while opening the account.

Branches should inform the fact of opening of account to the

consortium leader, if the account is under consortium, or the banks

concerned, if it is under multiple banking arrangement. Branches may

open current accounts of prospective customers in case no response

is received from the existing bankers after a minimum waiting period

of a fortnight. If response is received within a fortnight, branches

should assess the situation with reference to the information provided

by the bank concerned on the prospective customer. Branches are notrequired to solicit a formal No objection certificate from the existing

bankers consistent with the true freedom to the customer of banks as

well as needed due diligence by the bank on the customer.

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New accounts should be opened only with cash. In special cases (e.g.,

NRI, Government accounts, etc.) cheques on our Bank drawn in favour

of the prospective customer may be accepted for opening the account.

No account should be opened with cheques in favour of some third

party and endorsed in favour of the prospective customer.

Obtention of photographs:

Two copies of latest passport size photographs should be obtained

from all the account holders opening deposit accounts such as SB,

Current Account, Fixed deposit, RD, RIP etc. One copy of the

photograph obtained should be kept along with the opening form after

obtaining the depositors signature, name and account number on the

reverse of the photograph duly attested by the Officer. The second

copy (with the same details marked therein) should be kept along with

the specimen signature card/ in a separate cover.

In the case of joint account and partnership accounts, photographs of

all depositors/ partners authorized to operate the account should be

obtained. In the case of operating accounts, viz., SB, CA, the

photographs should be obtained from all the persons authorized tooperate the accounts. In case of Limited Companies, Clubs,

Associations, Societies, Trust, Institutions etc., the photograph of

person(s)/ official(s) who are authorized to operate the account should

be obtained. Photographs need not be returned at the time of closure

of the account and they need to be retained along with the other

records.

Exemptions from obtaining photographs:

a. For accounts of Banks, Government Departments and Local Bodies

the photographs need not be insisted.

b. Photographs need not be obtained in the case of SB account

operated by withdrawal slips only (non-cheque operated accounts) and

in case of term deposits of Rs.10000/- and below.

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c. Photographs need not be obtained for existing account holders as on

31.12.1993 and for employees accounts.

However, when a fresh account is opened by an existing customer oradditional name is added to existing account, then photographs should

be obtained from such a customer or from all the joint account holders

who are authorized to operate the account.

Introduction of accounts to the Bank

It is essential that the introducer should know full well the prospectiveaccount holder whom he/she is introducing for a sufficiently long time.

The introducer should be in a position to identify or be able to give

more particulars about the account holder from his personal

knowledge, when there arises any occasion at a later date. Introducer

should be aware of his/her responsibility on the implications of

introducing an account. Where the introducer was not present while

introducing the customer at the time of opening the account, no

cheque/draft shall be collected till a confirmation of being introduced

the account is received.

Relaxed KYC Procedure

Refers to acceptance of an introduction in lieu of full KYC procedure

subject to certain conditions prescribed.

This relaxation is applicable for Low Income Group customers,

individuals falling under the 'No frill category, persons affected by

natural calamities like floods, cyclone, tsunami, etc.

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Low Income group customers are those who keep balances not

exceeding Rs.50000/- in all their accounts (FDR/CA/SB) taken together

and the total credit summation in all the accounts taken together is not

expected to exceed Rupees One Lakh (Rs.100000/-) in a year. For

these customers, branches are permitted to open accounts subject to

the following conditions:

i. An introduction (in lieu of the KYC documents) from another

account holder who has been subjected to full KYC procedure

should be given.

ii. The introducer's account with the Bank should be at least six

months old and should show satisfactory transactions.

iii. The photograph of the customer who proposes to open the

account and his address need to be certified by the

introducer.

When, at any point of time, the total balance in all his/her

accounts (FDR/SB/CA) with

the Bank taken together exceeds Rupees Fifty thousands (Rs.50000/-)

or total credit summation in all the accounts exceeds Rupees one lakh(Rs.100000/-) in a year, no further transactions will be permitted until

the full KYC procedure is completed.

KYC norms Customer Identification documents for opening of

accounts of close relatives (eg. Wife, son, daughter, and parents, etc.,

who live with their husband, father/ mother and son, as the case may

be) at the same address: RBI observed that close relatives (eg. Wife,

son, daughter, and parents, etc., who live with their husband, father/

mother and son, as the case may be) at the same address are finding

it difficult to open account, as the utility bills (Telephone bill, Electricity

Bill, Ration Card etc.), required for address verification are not in their

name. In such cases, RBI had advised that banks can obtain an identity

document and a utility bill of the relative with whom the prospective

customer is living along with a declaration from the relative that the

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said person wanting to open an account is a relative and is usually

staying with him/her at the same address.

Closure of accounts on account of non-cooperation from the customer

If the Bank is not able to adhere to the KYC norms in a particular

account due to non cooperation by the customer or non-reliability of

the data/ information furnished to the Bank, it may close the account,

after giving due notice to the customer explaining the reasons for such

a decision.

Customer Education:

As implementation of KYC procedure requires branches to demand

certain information from customers which may be of personal nature or

which has hitherto never been called for, it may sometimes lead to a

lot of questioning by the customer as to the motive and purpose of

collecting such information. Therefore specific literature/ pamphlets

etc., will be prepared and distributed to branches so as to educate the

customer of the objectives of the KYC programmed so that it is

implement smoothly without giving room for customer complaints.

BUSINESS MODEL OF INDIAN BANK

Banking and financial services have increasingly been using information

technology to improve efficiency, cut costs and mitigate risks. But now they are

using it to go a few steps further.

Having successfully implemented the core systems, banks in India are now

focused on differentiating themselves by delivering superior customer experience

across all touch points, Mr Shanker Ramamurthy, General Manager of Global

Banking & Financial Markets at IBM Corporation, tellsBusiness Line.

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Future growth for banks in emerging markets such as India is likely to hinge on

financial inclusion of the unbanked. As in the case of FMCG firms and telecom

service providers, the hinterland is what is offering growth prospects amid a

perceptible saturation in urban markets. Do you see technology applications

having a major role in taking banking to the masses?

Technology and business model transformation are the two most powerful tools

for taking banking to the masses. Traditional banking technology and business

models were developed around the characteristics of urban areas: high density of

clients, relative proximity to cash distribution centres, availability of

infrastructure from a telecommunications perspective.

Not surprisingly, the economics of these models are not appropriate for serving

clients in rural areas.

Technology, however, has enabled new ways to interact with rural clients atsignificantly lower cost levelsit is important to note that technology by itself is

not sufficient to reach these new client segments; a consistent business model

transformation is also required to capture this growth in the banking industry.

What are the key drivers of business transformation across the financial markets?

There are three main trends driving business transformation in the financial

markets space worldwide.

First, clients and regulators alike are pushing for more transparency in the

marketplace, which is driving the demand for new regulation.

Second, the 2008 financial crisis revealed that banks need to become more

sophisticated in understanding and managing risk effectively.

Today, many of the basic assumptions and models are being re-thought and will

continue to be re-examined. Third, banks and financial services companies have

to figure out how to rebuild trust between financial institutions and their clients.

The industry is going to be grappling with these themes for several years and the

industry ecosystem is going to look quite different as the themes play out over thenext several years. IBM is said to be doing some interesting work with the Bank

of China, London. Could you elaborate on it? Besides measurable deliverables

such as reduced paper consumption, does technology intervention involve

streamlining the bank's business strategy or improving the service levels for its

customers?

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The Bank of China in London was manually processing over 3,000 paper

messages a day which posed avoidable operational risks, and was costly in terms

of manpower and paper consumption.

The bank came to IBM for help to move to a digitised model that would help the

company slash messaging-related paper use from about 50 a day to about 2.5,or about 18,000 annually. With new electronic systems in place, BoC employees

now have access to messages through an online search capability, allowing them

to monitor transactions as they are sent and received by the bank.

This new system dramatically helps the bank boost the core efficiency of its

settlement reporting process.

What are the Smarter Banking' initiatives that have been launched from IBM's

array of products?

Smarter Banking is an IBM initiative to help banks adopt solutions to transform

the efficiency of their enterprises, cut costs and mitigate risk.

A smarter bank anticipates client needs and delivers innovative products faster

and more consistently than the competition.

It has full visibility, in real-time, of its risk position and responds quickly and

nimbly to changes in market conditions.

In the insurance space, IBM has helped a major insurance provider in Japan,

Dai-ichi Life, transform its claims processing system to boost customer serviceand shorten the claims lifecycle. Working on a first-of-a-kind project, IBM

researchers developed a new software technology that used semantic analysis to

give Dai-ichi Life a clear view of what was going on inside its claims processes.

The industry is going to be grappling with these themes for several years and the

industry ecosystem is going to look quite different as the themes play out over the

next several years.

In India, are there any specific instances of working with a banking sector client?

Also, are there any specific IT interventions that you think are relevant in thecontext of the Indian banking sector?

IBM is a key partner to the leading banks offering a broad range of solutions and

services that are relevant for their current and future business needs.

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The Indian banks use IBM technology to run core transaction systems, integrate

applications and payment systems, and ensure business continuity by managing

their IT infrastructure and information security.

Having successfully implemented the core systems, banks in India are now

focused on differentiating themselves by delivering superior customer experienceacross all touch points.

NEW TECHNOLOGY

In this area, IBM is leveraging its data warehousing and business analytics

technology to help banks understand their customers better, customise

marketing campaigns, reduce fraud and manage enterprise risk.

Indian banks are also preparing themselves to compete with the best in the

business both in India and globally and we have helped through benchmarking

their IT capability and suggesting a roadmap for the future. IBM's IBV researchalso shows that Indian banks, as well as other banks in the growth markets, are

seeing encouraging growth rates of 20-30 per cent.

Moving ahead, we will also see greater use of mobile technology being leveraged

for financial inclusion and payments

DIFFERENT SERVICES PROVIDED BY BANKS IN INDIA

Account types & other Services

Personal Banking: Other Different

Services

Deposit Scheme Gold

Banking

____ Current Account NRI

Banking

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____ Saving Account International

banking

____ Term Deposit Corporate

Banking

(Other Deposit Scheme as per the cust. convince) SSI

Banking

Personal Finance Small Business

Finance

____ Housing Loan Development

Banking

____ Car Loan Other Services

____ Educational Loan

____ Personal Loan

____ Festival Loan

____ Property Loan

____ Other Loans

(As per banks and its customer base)

Services

ATM Services

Credit Card Services

Internet Banking Services

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Phone Banking Services

Locker Services

PPF Services

Deposit Scheme:

Current Account

Current Account is the accounts which useful to business, a transparent and efficient

banking services support to meet its day-to-day financial requirements. It offers to

serve businesses financial requirements and giving maximum financial leverage and

save time and cost.

Saving Accounts:

Saving bank accounts is for the people who want to save for

something in the future. So its necessity characteristics are

safe and accessible anytime, anyplace to help meet their

needs. So banks are those who help them in planning and

saving their future financial requirements. Here, savings are

completely liquid, and earn competitive interest in our

safety.

Term Deposit Accounts:

With the help of the term deposit one can earn a higher

income on their surplus cash by investing this money in this

type of accounts. Scheduled bank gives promise of security

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and trust and help you to earn extra income with your hard

earned money.

Wide Choice in Period of Deposit

Flexibility in period of term deposit from 15 days to 10

years

It gives the benefits of Safety, Liquidity, Transferability

and Flexible and Timely payment of Interest

Personal Finance:

Banks second function is to give finance and through it banks

can earn hand some return and generate the profits for from

it. Now days banks are giving finance on following different

ways to satisfy the financial needs of the customers.

Following are the different ways through the bank give

finance to its customers:

-Housing Loan, Car Loan, Personal Loan, Educational Loan,

Festival Loan, Property Loan and etc,____

SERVICES:

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In the globally competition time service is quite important for

the any sector and having in nature of service sector the

services of the banking sector is also most important part

following are the services that providing by the banking

sectors various banks but it differ from the bank to banks.

ATM Services

Credit Card Services

Internet Banking Services

Phone Banking Services

Locker Services

PPF Services

7: Porter's Five Forces Model of Competition

The nature of competition in an industry in large part determines the

content of strategy, especially business-level strategy. Based as it is

on the fundamental economics of the industry, the very profit

potential of an industry is determined by competitive interactions.

Where these interactions are intense, profits tend to be whittled away

by the activities of competing. Where they are mild and competitors

appear docile, profit potential tends to be high. Yet a full

understanding of the elements of competition within an industry is

easy to overlook and often difficult to comprehend.

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Porter has identified five basic forces that collectively describe the

state of competition in an industry:

1. The intensity of rivalry among competitors

2. The threat of new entrants to the market

3. The amount of bargaining power possessed by the

firm's/industry's suppliers

4. The amount of bargaining power possessed by the

firm's/industry's customers

5. The extent that substitute products present a threat

to a firm's/industry's products

These forces assist in identifying the presence or absence

of potential high returns. The weaker are Porter's five

forces, the greater is the opportunity for firms in an

industry to experience superior profitability. More

generally, understanding how these forces affect

competition within an industry allows the strategist to

identify the most advantageous strategic position.

The actors within an industry on whom these forces

exert pressure are, respectively, the industry's competing firms

themselves, potential new entrants to the industry's markets,

suppliers (vendors), customers, and makers of substitute products.

Obviously, the starting point for conducting an analysis

of the five forces of competition is to identify all the competitors,

potential new entrants, major suppliers, the demographics of

customers, and makers of and nature of substitute products.

Competitors would not only have to be identified, but various

distinguishing data about the industry would also have to be

specified. For each competitor this data would include market share,

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product line differences/similarities, market segments served,

price/quality relationships represented by products, growth/decline

trends, financial strength differences, and any other information that

will help describe the industry.

Porters FIVE-FORCE analysis for Indian banking industry

BARGAINING POWER OF

SUPPLIERS

-Low supplier bargaining

power

THREAT OF NEW

ENTRANT

-Low barriers to

entry

-Government

policies are

INDUSTRY

RIVARLY

Intense

BARGAINING POWER OF

CUSTOMERS

-High bargaining power

-Low switching cost

-Large no. of alternatives

THREAT

SUBSTI

TES

High threat fro

substitutes

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RIVALRY AMONG THE INDUSTRY

Rivalry in banking industry is very high. There are so

many private, public, co-operative and non-financial institutions

operating in the industry. They are fighting for same customers. Due

to government liberalisation and globalization policy, banking sector

became open for everybody. So, newer and newer private and

foreign firms are opening their branches in India. This has intensified

the competition. The no. of factors have contributed to increase

rivalry those are:

1.A large no. Of banks

There are so many banks and non-financial institutions fighting for

same pie, which has intensified competition.

2.High market growth rate

India is seen as one of the biggest market place and growth

rate in Indian banking industry is also very high. This has

ignited the competition.

3.low switching cost

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Customer switching cost is very low. They can easily switch from one

bank to another bank and very little loyalty exists.

4.indifferentiate services

Almost every bank provides similar services. No differentiation exists.

Every bank tries to copy each other services and technology, which

increases the level of competition.

5.high fixed cost

6.High exit barrier

High exist barriers humiliate banks to earn profit and retain

customers by providing world-class services.

7. Low government regulations:

There are low regulation exist to start a new business due LPG policy

adopted by India. So, sector is open for everybody.

BARGAINING POWER OF SUPPLIERS

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Suppliers of banks are depositors. These are those

people who have excess money and prefer regular income and

safety. In banking industry Suppliers have low bargaining power.

Following are the reasons for low bargaining power of suppliers.

1.Nature of suppliers

Suppliers of banks are generally those people who prefer low risk and those who need

regular income and safety as well. Bank is best place for them to deposit their surplus

money. They believe that banks are very safe than other investment alternatives. So,

they do not consider other alternatives very seriously, which lower their bargaining

power.

2.few alternatives

Suppliers are risk averters and want regular income. So, they have

few alternatives available with them to invest like Treasury bills,

government bonds. So, few alternatives lower their bargaining power.

3.RBI Rules and Regulations

Banks are subject to RBI rules and regulations. Banks have to

behave in the way that RBI wants. So, RBI takes all decisions

relating to interest rates. This reduces suppliers bargaining

power.

4. Suppliers are not concentrated

Banking industrys suppliers are not concentrated. There are

numerous suppliers with negligible portion to offer. So, this reduces

their bargaining power. If they were concentrated then they can

bargain with banks or can collectively invest in other no-risky

projects.

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5.Forward integration

Forward integration is possible like mutual funds, but only few people

now about this. Only educated people can forwardly integrate where

as large no. Of suppliers are unaware about these alternatives.

BARGAINING POWER OF CUSTOMERS

Customers of the banks are those who take loans,

advances and use services of banks. Customers have high bargaining

power. Following are the reasons for high bargaining power of

customers.

1. Large no. Of alternatives

Customers have very large no. of alternatives. There are so many

banks, which fight for same pie. There are many non-financial

institutions like ICICI, HDFC, IFCI etc., which has also jumped into

these business. There are foreign banks, private banks, cooperative

banks and development banks together with the specialized financial

companies that provide finance to customers. These all increase

preferences for customers.

2.low switching cost

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Cost of switching from one bank to another is low. Banks are

also providing zero balance account and other types of

facilities. They are free to select any banks service.

Switching costs are becoming lower with Internet Banking

gaining momentum and as a result consumers loyalties are

harder to retain.

3.undiffernciated service

Banks provide merely similar services. There is no much difference in services

provided by different banks. So, bargaining power of customers increases. They cannot

be charged for differentiation.

4.Full information about the market

Customers have full information about the market due to

globalization and digitization consumers have become advance and

sophisticated. They are aware with each market conditions. So, banks

have to be more competitive and customer friendly to serve them.

THREAT OF NEW ENTRANT

Barriers to an entry in banking industry no longer exist. So, lots of

private and foreign banks are entering in the market. Competitors can come from any

industry to disintermediate banks. Product differentiation is very difficult for banks

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and exit is difficult. So, every bank strives to survive in highly competitive market. So,

we see intense competition and mergers and acquisition.

Government policies are supportive to start a new bank. There are less

statutory requirements needed to start a new venture. Every bank tries to achieve

economies of scale through use of technology and selecting and training manpower.

Threat of substitutes

Competition from the non-banking financial

sector is increasing rapidly. Sony and Software giants such as

Microsoft are attempting to replace the banks as

intermediaries. The threat of substitute products is very high.

These new products include credit unions and investment

houses. One feature of using an investment house is that the

fees that the investment house charges are tax deductible,

where as a bank it is considered a personal expense, which

are not tax deductible. The rate of return with using

investment houses is greater than a bank. There are other

substitutes as well for banks like mutual funds, stocks

(shares), government securities, debentures, gold, real

estate etc. so, there is a high threat from substitute.

Conclusion:

Indian banking sector is one of the highly competitive sectors where

high growth rate and high degree of competition exist. Low entry

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barriers and high degree of competition exist. Low entry barriers and

high exit barriers ignites competition in this industry. Every bank

strives to survive in the shadow of these barriers. There are so many

substitutes available with customers and they have high bargaining

power where as suppliers i.e. depositors have low power in their

hands.

STRATEGIES ADOPTED BY INDIAN BANK

1) INTERNAL CONSULTANT/CHANGE AGENT

To act as catalyst for change in attitudes and orientation of

banking staff and to provide expertise and consultative support

2) FEEDBACK SUPPLIER

To capture and structure feedback from trainees and from the

market

3) THINK TANK

To provide expert and informed suggestions, model, business

strategies, analysis of market developments from a banker

perspective

4) RESEARCH AND DEVELOPMENT ROLE

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To carry out research on contemporary subjects which are

relevant to the banks short term and medium term and

operational needs and policy formulation