Acknowledgements

Industry Analysis of Banking and comprehensive study of top two player

ACKNOWLEDGEMENTS

It is my proud privilege to release the feelings of my gratitude to several

persons who helped me directly or indirectly to conduct this research project work. I express my

heart full indebtness and owe a deep sense of gratitude to my teacher and my faculty guide Mr

Narendra Manral, Mr Nimish Saxena, Shri Ramswaroop Memorial Group of Professional

Colleges, for their sincere guidance and inspiration in completing this project.

I am extremely thankful to the Prof BB Tiwari, Prof Pankaj Dhingra, Mr Nadeem

Qazilbash, and Mr Shayaan Zaidi and all faculties members of PGDM of Shri Ramswaroop

Memorial Group of Professional Colleges for their coordination and cooperation and for there

kind guidance and encouragement.

I also thank all my friends who have more or less contributed to the preparation

of this project report. I will be always indebted to them.

The study has indeed helped me to explore more knowledgeable avenues related to

my topic and I am sure it will help me in my future.

Mohammad Azam

PGDM 2nd year

PGDM 10007

1 | P a g eSHRI RAMSWAROOP MEMORIAL GROUP OF PROFESSIONAL COLLEGES


INTRODUCTION

Banking Industry in India

The Indian banking industry started taking shape after India’s independence in 1947. Though the

Indian banking industry can be traced as far back as 1806 with the establishment of Bank of

Bengal, the industry was in a state of turmoil.

Under the British influence, Calcutta witnessed a surge in trading activities, giving rise to a

number of banking establishments during the period. Several banks, set up in order to finance

trading, went out of business. For instance, Union bank, formed by Indian merchants, failed due

to economic recession during 1848-49 resulting in depositors losing money. Such events resulted

in shifting the reigns of the industry into the hands of Europeans till the early twentieth century.

From 1906 to1911, several banks were set up based on the principles of the Swadesi movement.

The movement inspired Indian businessmen and politicians to set up banks for the Indian

community and many new banks were launched to promote trade and finance in communal

groups. Some of the prominent ones among these are Bank of India, Corporation Bank, Bank of

Baroda, Indian bank, Canara Bank, and Central bank of India.

Bank of Bengal, along with its sister banks, Bank of Bombay and Bank of Madras, set up by

British East India Company, merged in 1921 to give birth to Imperial bank of India, now known

as State bank of India.

During 1914-1945, India went through several ups and downs politically and economically and

the effects were felt in the banking sector too. The World Wars disrupted banking activities of

the nation and almost 94 banks failed during this period. After 1947, however, banking activities

flourished.



After the partition of India, the government toook drastic steps to regulate the banking industry.

For example, in 1948, additional powers and authority were vested in the Reserve bank of India

to monitor the functioning of the entire banking system. The passing the Banking regulation act

in 1949, empowered RBI to further regulate, inspect, and control Indian banks.

The nationalization and liberalization of banks 1969 and 1991 respectively also boosted the

development of the Indian banking sector. Nationalization resulted in 91% of government

holding in the banking industry and liberalization paved the path for private players to participate

in the industry. As a result, banks like Oriental bank of Commerce, HDFC bank, ICICI bank, and

AXIS bank came into being. Foreign banks too were permitted to set up their offices in India.

The rationalization of FDI norms in 2002 also allowed foreign players to acquire stakes in Indian

banks.

These banks implemented innovative forms of banking like ATMs, mobile banking, phone

banking, internet banking, and debit/credit cards. The private players constantly improved

services in order to retain customers and win the severe competition which had become a feature

of the Indian banking industry.

Currently, private banks are going through a series of mergers and acquisitions and public sector

banks are shrinking in the form of manpower, equity, and non-performing assets.

The public sector banks have been grappling with attrition which surfaced after the Voluntary

Retirement Scheme was announced. The dilution of equity from 51% to 33% has opened up

opportunities for takeovers.

The Indian banking system, however, proved resilient to shocks arising out of the global

financial recession. In terms of quality of assets, the Indian banking players have come out clean

with strong and transparent balance sheets compared to their counterparts in other nations.

Following the financial crisis, new deposits made their way towards public sector banks.

According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial

Banks: September 2009', nationalized banks, as a group, accounted for 50.5% of the aggregate

deposits, while State Bank of India (SBI) and its associates accounted for 23.8%. The share of

other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits

were 17.8%, 5.6%, and 3%, respectively.



Ever since US declared recovery from the global financial crisis, the confidence of non-resident

Indians (NRIs) in the Indian economy has revived again. NRI fund inflows increased since April

2009 and touched US$ 45.5 billion on July 2009, as per the RBI's February bulletin. Most of this

has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External

Rupee Accounts. India's foreign exchange reserves rose to US$ 284.26 billion as on January 8,

2010, according to the RBI's February bulletin.

The report also found that scheduled commercial banks served 34,709 banked centers. Of these

centers, 28,095 were single office centers and 64 centers had 100 or more bank offices.

The expansion plans are self evident from the example of SBI, which is adding 23 new branches

abroad, bringing its foreign-branch network number to 160 by March 2010. This will cement its

leading position as the bank with the largest global presence among local peers.

Currently, the Indian banking framework is comprised of 88 scheduled commercial banks

(SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 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.

In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on

June 25, 2009, said that banks should link more branches to the National Electronic Clearing

Service (NECS). NECS was introduced in September 2008 for centralized processing of

repetitive and bulk payment instructions. Currently, a little over 26,000 branches of 114 banks

are enabled to participate in NECS.

Banking in India originated in the first decade of 18th century with The General Bank of India

coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are

now defunct. The oldest bank in existence in India is the State Bank of India being established as

"The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like4 | P a g e

SHRI RAMSWAROOP MEMORIAL GROUP OF PROFESSIONAL COLLEGES


Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was

the most active trading port, mainly due to the trade of the British Empire, and due to which

banking activity took roots there and prospered. The first fully Indian owned bank was the

Allahabad Bank, which was established in 1865.

By the 1900s, the market expanded with the establishment of banks such as Punjab National

Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded

under private ownership. The Reserve Bank of India formally took on the responsibility of

regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve

Bank was nationalized and given broader powers.



OBJECTIVE OF THE PROJECT

The Objectives of the project are as follows:

Analyze the industry environment by applying various strategic tools like PESTANALYSIS and SWOT ANALYSIS.

To find the recent happening in this industry and relate it to draw suitable inferences.

Bring out TOP 2 Banks of Indian Banking Industry on the basis of relevant parameters.

Analyze the financial statement of both the companies and discover the various region where one overcomes the other and try to find reasons for that.

Analyze the Brand lines and try to explore the segmentation, targeting and positioning policies of these TOP 2 players.

Evaluate the current scenario of the industry as well as estimating the chances of entry of new players by the help of PORTER FIVE FORCE ANALYSIS.

Study the management, working style and other organizational parameters of the TOP 2 players.

Conduct a comparative analysis between these TOP 2 players.

S.W.O.T ANALYSIS OF INDIAN BANKING INDUSTRY6 | P a g e



STRENGTH

Bank lending has been a significant driver of GDP growth and employment(The growth

of services, including banking and insurance, improved to 9.9 per cent in 2010-11 from

9.2 per cent in the previous fiscal. articles.economictimes.indiatimes.com)

The vast networking & growing number of branches & ATMs. Indian banking system

has reached even to the remote corners of the country.

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.

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 pr ivate and foreign

banks holding 18.2% and 6.5% respectively.

In terms of quality of assets and capital adequacy, I ndian banks are considered to

have clean, strong and transparent balance sheets relative to other banks in

comparable economies in its region.

Currently, India has 81 scheduled commercial banks (SCBs) - 27 public sector banks

(that is with the Government of India holding a stake), 22 private banks (these do not

have government stake; they may be publicly listed and traded on stock exchanges) and

32 foreign banks.



WEAKNESS

PSBs need to fundamentally strengthen institutional skill levels especially in sales and

marketing, service operations, risk management and the overall organizational

Performance ethic & strengthen human capital.

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

about laws, weak corporate governance and ineffective regulations beyond

Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.

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.

OPPORTUNITY

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.

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 strong8 | P a g e



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

A multi-media campaign, “Swabhimaan”, has been launched to inform, educate and

motivate people to open bank accounts.

The market is seeing discontinuous growth driven by new products 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.

Foreign banks committed to making a play in I ndia 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.

THREATS

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

PEST ANALYSIS OF INDIAN BANKING INDUSTRY



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 y and how those factors can influence the industry.

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 farmer’s 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.


Political

Govt. Policies & Budget measuresFDI limits

Economic

GDP Monetary policyHigh interest rates Inflation rates

SocialChange in life styleLiteracy rateLarge PopulationShift towards nuclear

Technical

Core banking SolutionATMs.InternetIT services and mobile banking

Banking

Industry


BUDGET MEASURES:

Agriculture Credit

To get the best from their land, farmers need access to affordable credit. Banks have been

consistently meeting the targets set for agriculture credit flow in the past few years. For the year

2011-12, The target raised of credit flow to the farmers from `3,75,000 crore this year to

`4,75,000 crore in 2011-12. Banks have been asked to step up direct lending for agriculture and

credit to small and marginal farmers. (Budget 2011-2012 Speech of Pranab Mukherjee

Minister of Finance February 28, 2011)

FDI LIMIT

In the private banking sector of India, FDI is allowed up to a maximum limit of 74 % of the paid-

up capital of the bank.

Benefits of FDI in Banking Sector in India-

Transfer of technology from overseas countries to the domestic market.

Ensure better and improved risk management in the banking sector.

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 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 11 | P a g e



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 8.5 per cent for 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 2010-2011 are as follows: Agriculture: 17% Industry: 29% Service

Sector: 54% It is great news that today the service sector is contributing more than half of the

Indian GDP. It takes India one step closer to the developed economies of the world. Earlier it

was agriculture which mainly contributed to the Indian GDP. 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.

MONETARY POLICY :

Monetary Policy 20010-2011

Cash Reserve Ratio (CRR) 6.00% (w.e.f. 24/04/2010)

Increased from 5.00% to 5.50% wef 13/02/2010; and then again to 5.75% wef 27/02/2010; and

now to 6.00% wef 24/04/2010

Statutory Liquidity Ratio (SLR) 24%(w.e.f. 18/12/2010)

Decreased from 25% which was continuing since 07/11/2009

Repo Rate 8.50% (w.e.f.25/10/2011) Increased from 8.25% which was continuing since

16/09/2011

Reverse Repo Rate 7.50% (w.e.f. 25/10/2011) Increased from 7.25% which was continuing

since 16/09/2011.



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 in India was last reported at 9.36 percent in nov of 2011

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 people‟s 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 inIndia have been analyzed below.

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 likefreeze, 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.

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 thepopulation 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 121 cores is expected to reach about 140 cores in 2018. 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 2009 to Rs. 3,12,645 crore as on 31st March 20010.

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.

TECHNOLOGICAL FACTORS:



TECHNOLOGY IN BANKS

Technology plays a very important role in bank‟s 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. 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 for fund 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 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:15 | P a g e


Bargaining power of suppliers is very low

Nature of suppliersFew alternatives

RBI rules and regulationsSuppliers are not

concentratedforward integration


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.

PORTER’S FIVE FORCES MODEL OF COMPETITION

The nature of competition in the industry in large part determines the content of strategy,

especially business level strategy .based it is on the fundamental economics of the industry, the

very profit potential of an industry is determine by competition interaction. Where these

interactions are intense, profit tends to be whittled away by the activities of competing.

Porter’s model is based on the insight that a corporate strategy should meet the opportunities and

threats in the organizations external environment. Especially, competitive strategy should base

on and understanding of industry structures and the way they change. Porter has identified five

competitive forces that shape every industry and every market. These forces determine the

intensity of competition and hence the profitability and attractiveness of an industry. The

objective of corporate strategy should be to modify these competitive forces in a way that

improves the position of the organization. Porter’s model supports analysis of the driving forces

in an industry. Based on the information derived from the Five Forces Analysis, management can

decide how to influence or to exploit particular characteristics of their industry.



Rivalry among Competing Firms

Rivalry among competitors is very fierce in Indian Banking Industry.



The services banks offer is more of homogeneous which makes the Company to offer the same

service at a lower rate and eat their competitor market’s share. Market Players use all sorts of

aggressive selling strategies and activities from intensive advertisement campaigns to

promotional stuff. Even consumer switch from one bank to another, if there is a wide spread in

the interest. Hence the intensity of rivalry is very high. The no of factors has contributed to

increase rivalry those are.

1. A large no of banks

There is so many banks and non financial institution 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. Homogegeous product and services

The services banks offer is more of homogeneous which makes the company to offer

the same service at a lower rate and eat their competitor market’s share.

4. Low switching cost

Costumers switching cost is very low, they can easily switch from one bank to another

bank and very little loyalty exist .

5. Undifferanciated services

Almost every bank provides similar services. Every bank tries to copy each other services

and technology which increase level of competition.

6. High fixed cost

7. High exit barriers High exit barriers humiliate banks to earn profit and retain customers by providing world

class services.



8. Low government regulations

There are low regulations exist to start a new business due lpg policy adopted by India.

BARGAINING POWER OF SUPPLIERS

Banking industry is governed by Reserve Bank of India. Reserve Bank of India is the

authority to take monetary action which leads to direct impact on circulation of money in the

Economy. The rules and regulation lay down by RBI.

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.

1. Nature of suppliers Suppliers of banks are those people who prefer low risk and those who need regular income and

safety as well. Banks best place for them to deposits theirs surplus money.

2. Few alternatives

3. Rbi rules and regulations

Banks are subject to rbi rules and regulations .bank have to behave in a way that rbi wants. So rbi

takes all decisions related to interest rates . this reduce bargaining power of suppliers .

4. Suppliers not concentrated

Banking industry suppliers sure not concentrated. There are numerous with negligible

portion of offer .so this reduce their bargaining power .

BARGAINING POWER OF CONSUMERS



In today world, Customer is the King. Banks offers different services According to

clients need and requirement. They offer loans at Prime Lending Rate (PLR) to their trust worthy

clients and higher rate to others clients.

Customers of banks are those who take loans and uses services of banks. Customers have

high bargaining power. These are

1. Large no of alternatives

Customers have large no of alternatives, there are so many banks, which fight for same

pie. There are many non financial institutions like icici, hdfc, and ifci, etc. which has also jump

into these business .there are foreign banks , privet banks, co-operative banks and development

banks together with specialized financial companies that provides finance to customers .these all

increase preference for customers.

2. Low switching cost

Cost of switching from one bank to another is low. Banks are also providing zero balance

account and another types of facilities. They are free to select any banks service. Switching cost

are becoming lower with internet banking gaining momentum and a result customers loyalties

are harder to retain.

3. Undiffenciated service

Bank provide merely similar service there are no much diffracted in service provides by

different banks so, bargaining power of customers increase. They can not be charged for

differentiation.

4. Full information about the market

Customers have full information about the market due to globalization and digitalization

Consumers have become advance and sophisticated .they are aware with each market condition

so banks have to be more competive and customer friendly to serve them.

For good creditworthy borrowers bargaining power is high due to the availability of large

number of bank



POTENTIAL ENTRY OF NEW COMPETITORS

Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in

Banking Industry. We expect merger and acquisition in the banking industry in near future.

Hence, the industry is less porn of new competitor.

Barriers to an entry in banking industry no longer exist. So lots of privet and foreign

banks are entering in the market. Competitors can come from an industry to ‘disinter

mediate‘bank product differentiation is very difficult for banks and exit is difficult. So every

bank strives to survive in highly competitive market so we see intense competitive can mergers

and acquisitions. Government policies are supportive to start new bank. There is less statutory

requirement needed to start a new venture? Every bank to tries to achieve economics of scale

through use of technology and selecting and training manpower .

There are public sector banks, private sector and foreign banks along with non banking

finance companies competing in similar business segments.

POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS

Every day there is one or the other new product in financial sector.

Banks are not limited to tradition banking which just offers deposit and lending. In addition,

today banks offers loans for all products, derivatives, ForEx, Insurance, Mutual Fund, Demit

account to name a few. The wide range of choices and needs give a sufficient room for new

product development and product enhancement.

Substitute products or services are those, which are different but satisfy the same set of

customers. In private banking industry following are the substitutes:

1. NBFC : Non-banking financial Institutions play an important role in giving financial

assistance. Mobilization of financial resources outside the traditional banking system

has witnessed a tremendous growth in recent years in the India. NBFC is a close

substitute of banking in respect of raising funds. Borrower can easily raise funds from



NBFC because it requires less formal procedure for getting funds compare to private

banks.

2. Post Office Products : Post office is also providing some service like fixed deposit

facility, saving account, recurring account etc. The interest rate of saving account is

higher than private banks. It is fully secured by the government so people who do not

want to take risk for them post office saving is good substitute.

3. Government Bond : Govt. Bond also attracts savings from the general public. It is less

risky and more secured as compare to savings in private banks.

4. Mutual Funds : Mutual funds are also now proving as good substitutes for banks. They

assure for providing high return with less time in comparison of banks. The

administrative expenses are also very low as compared to banks. Investment in Mutual

funds is more flexible than investment in banks.

5. Stock Market : People who are ready to bear risk and wants a high return on their

investment, stock market is a good substitute for them. Day by day investors are

moving towards stock market as interest rate in banks are decreasing. So now stock

market has proved as a big competitor for baking sector.

6. Debentures : Debentures is also proved as a good substitute of bank’s fixed deposit as

return on debenture is fixed and high. There are different types of debentures, which

attract various classes of investors.

7. Other Investment Alternatives : Now common people’s attraction is shifting from

banks to other various alternatives such as gold, precious metals, land, small savings .

TOP TWO PLAYERS IN BANKING INDUSTRY22 | P a g e



State Bank of India

ICICI bank

SELECTION CRITERIA



CASA or Deposits

Investment

Advances

Deposits Investments Advances

SBI 804116 285790 631914

ICICI 202017 120893 181206

100000

300000

500000

700000

900000

1100000

804116

285790

631914

202017

120893

181206

comparision chart

Axis Title



STATE BANK OF INDIA

(SBI)



History of SBI

The evolution of State Bank of India can be traced back to the first decade of the 19th century. It

began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was

redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever joint-

stock bank of the British India, established under the sponsorship of the Government of Bengal.

Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras

(established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the

modern banking scenario in India, until when they were amalgamated to form the Imperial Bank

of India, on 27 January 1921.

An important turning point in the history of State Bank of India is the launch of the first Five

Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in

general and the rural sector of the country, in particular. Until the Plan, the commercial banks of

the country, including the Imperial Bank of India, confined their services to the urban sector.

Moreover, they were not equipped to respond to the growing needs of the economic revival

taking shape in the rural areas of the country. Therefore, in order to serve the economy as a

whole and rural sector in particular, the All India Rural Credit Survey Committee recommended

the formation of a state-partnered and state-sponsored bank.

The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of

India, and integrating with it, the former state-owned or state-associate banks. Subsequently, an

Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI)

was established on 1 July 1955. This resulted in making the State Bank of India more powerful,

because as much as a quarter of the resources of the Indian banking system were controlled

directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in

1959. The Act enabled the State Bank of India to make the eight former State-associated banks

as its subsidiaries.



The State Bank of India emerged as a pacesetter, with its operations carried out by the 480

offices comprising branches, sub offices and three Local Head Offices, inherited from the

Imperial Bank. Instead of serving as mere repositories of the community's savings and lending to

creditworthy parties, the State Bank of India catered to the needs of the customers, by banking

purposefully. The bank served the heterogeneous financial needs of the planned economic

development.

Branches

The corporate center of SBI is located in Mumbai. In order to cater to different functions, there

are several other establishments in and outside Mumbai, apart from the corporate center. The

bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major

cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater

to its customers throughout India.

ATM Services

SBI provides easy access to money to its customers through more than 8500 ATMs in India. The

Bank also facilitates the free transaction of money at the ATMs of State Bank Group, which

includes the ATMs of State Bank of India as well as the Associate Banks – State Bank of

Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also transact

money through SBI Commercial and International Bank Ltd by using the State Bank ATM-cum-

Debit (Cash Plus) card.

Subsidiaries

The State Bank Group includes a network of eight banking subsidiaries and several non-banking

subsidiaries. Through the establishments, it offers various services including merchant banking

services, fund management, factoring services, primary dealership in government securities,

credit cards and insurance.

The eight banking subsidiaries are:

State Bank of Bikaner and Jaipur (SBBJ)27 | P a g e



State Bank of Hyderabad (SBH)

State Bank of India (SBI)

State Bank of Indore (SBIR)

State Bank of Mysore (SBM)

State Bank of Patiala (SBP)

State Bank of Saurashtra (SBS)

State Bank of Travancore (SBT)

SEGMENTATION ,TARGETING,POSITION OF SBI

SEGMENTATION STRATEGY:

Demographics variables

Location

Metros & divisional cities

Occupation

Business person

Salaried class (both govt. & private)

Age

Senior citizens

Major

Minor

TARGETING STRATEGY:

Corporate banking market: This market targets the industries & fulfills their financial needs.

Capital market : This segment is targeted on the long term needs of the individual as well as of

industries.



Retail banking market : this segment is for retail investors & provide them short term financial

credit for their personal, house hold needs.

POSITIONING STRATEGY:

SBI has positioned itself as a bank which gives higher standard of services through product

innovation for the diverse need of individual & corporate clients

Taglines: With you - all the way and Pure Banking. Nothing Else

DIFFERENT PRODUCTS OF SBI:

DEPOSIT LOANS

Savings Account

Current Account

Fixed Deposits

Demat Account

Life Plus Senior Citizens Savings

Account

Security Deposits

Recurring Deposits

Tax-Saver Fixed Deposit

Salary Account

Advantage Woman

Savings Account

Rural Savings Account

No frill account

Home Loans

Loan Against Property

Personal Loans

Car Loan

Loans against Securities

Two Wheeler

Retail Asset

Farmer Finance

Business Installment

Loans



Industrial Credit and

Investment Corporation of

India(ICICI)

History Of ICICI



ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,

and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46%

through a public offering of shares in India in fiscal 1998, an equity offering in the form of

ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in

an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional

investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World

Bank, the Government of India and representatives of Indian industry. The principal objective

was to create a development financial institution for providing medium-term and long-term

project financing to Indian businesses.

In the 1990s, ICICI transformed its business from a development financial institution offering

only project finance to a diversified financial services group offering a wide variety of products

and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank.

In 1999, ICICI become the first Indian company and the first bank or financial institution from

non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging

competitive scenario in the Indian banking industry, and the move towards universal banking,

the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI

Bank would be the optimal strategic alternative for both entities, and would create the optimal

legal structure for the ICICI group's universal banking strategy. The merger would enhance value

for ICICI shareholders through the merged entity's access to low-cost deposits, greater

opportunities for earning fee-based income and the ability to participate in the payments system

and provide transaction-banking services. The merger would enhance value for ICICI Bank

shareholders through a large capital base and scale of operations, seamless access to ICICI's

strong corporate relationships built up over five decades, entry into new business segments,

higher market share in various business segments, particularly fee-based services, and access to

the vast talent pool of ICICI and its subsidiaries.



In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI

and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services

Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by

shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at

Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve

Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking

operations, both wholesale and retail, have been integrated in a single entity.

SEGMENTATION ,TARGETING,POSITION OF ICICI

SEGMENTATION STRATEGY:

Occupation

Different products for different occupational segment identified

Income

Geographical

Concentrated on Tier 1 & Tier 2 Cities trying to extend reach

Age

Senior citizens

Major

Minor



TARGETING STRATEGY:

Tailors its marketing campaigns to meet the needs of its target prospects.

POSITIONING STRATEGY:

Core proposition – ‘Hum hain na’ – trust, credibility, total financial solution provider

(brought about through its cross selling effort)

DIFFERENT PRODUCTS OF ICICI:



SAVINGS ACCOUNT

SAVINGS ACCOUNT

SAVINGS MAX ACCOUNT

PENSIONS SAVINGS BANK ACCOUNT

SALARY ACCOUNT

CURRENT ACCOUNT

PLUS CURRENT ACCOUNT

TRADE CURRENT ACCOUNT

PREMIUM CURRENT ACCOUNT

FIXED DEPOSIT ACCOUNT

REGULAR FD ACCOUNT

FIVE YEAR TAX SAVING FD ACCOUNT

DEMAT ACCOUNT

LOANS

Home Loan

Personal Loan

Car Loan

Two Wheeler Loan

Commercial Vehicle Loan

Loan Against Securities

Loan Against Gold

Farm Equipment Loan

Construction Equipment Loan

Office Equipment Loan

Medical Equipment Loan

Rural Educational Institute Finance

Customer Durable Loans

FINANCIAL RATIO ANALYSIS



Financial ratio analysis of both banks is as follows:

P/E ratio : A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:

Market Value per ShareEarnings per Share (EPS)

EPS: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.

Calculated as:PAT

Number of Shareholders

DEBT EQUITY RATIO: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Total liabilities

Shareholder’s equity

Debt equity ratio basically tells about the composition of the capital structure that how much is the ratio of equity to debt

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt

CURRENT RATIO: A liquidity ratio that measures a company's ability to pay short-term obligations.



The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The higher the current ratio, the more capable the company is of paying its obligations.

BOOK VALUE: A company's common stock equity as it appears on a balance sheet, equal to

total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how

much the company would have left over in assets if it went out of business immediately.

The book value is calculated by the formula:

Internal liability

Number of shares

DIVIDEND YIELD: A financial ratio that shows how much a company pays out in dividends

each year relative to its share price.In the absence of any capital gains, the dividend yield is the

return on investment for a stock. Dividend yield is calculated as follows:

Ratio SBI ICICI BANK



P/E ratio 17.01 17.27

EPS 116.07 49.68

Dividend yield 1.55% 1.63%

Book Value 1,023.40 478.08

Current Ratio 0.04 0.11

Debt equity ratio 14.37 4.10

RATIO ANALYSIS OF BOTH COMPANIES

BIBLIOGRAPHY

http://www.moneycontrol.com

http://www.nirmalbang.com 37 | P a g e


http://www.nirmalbang.com/

http://www.moneycontrol.com/


articles.economictimes.indiatimes.com )

business.mapsofindia.com

www.allbankingsolutions.com/DATA.htm

www. rbi .org.in/

www. statebankofindia .com/

www. icici bank.com/

Budget 2011-2012 Speech of Pranab Mukherjee Minister of Finance February 28, 2011

www.business-standard.com


http://www.icicibank.com/

http://www.statebankofindia.com/

http://www.rbi.org.in/

http://www.allbankingsolutions.com/DATA.htm

Acknowledgements

Economy & Finance

Transcript of Acknowledgements