Alliance university

Alliance university2014

Executive SummaryIndias Banking sector current worth of Rs.81 trillion (US$ 1.31 trillion). It has the ability and potential to become the fifth largest banking industry in the world by 2020 and the third largest Banking Industry by 2025, estimated by the report and the experts of the industry. The way of delivering and channelizing to its customers of Indian Banking sector has changed over the time. Banks are now reaching out to the masses including the urban areas and small villages of India with technology to facilitate their customers with greater ease of communication, and transactions facilities are carried out through the internet and mobiles.

With the Parliament passing the Banking Laws (Amendment) Bill in 2012, the terrain of the sector is likely to change. The bill entitle the Reserve Bank of India (RBI) to make final recommendations on publishing new Bank licenses to the banks which want to operate in India. This will lead to a greater number of banks in the country; the style of operation could also evolve more with the incorporation of modern technology into the Banking industry. Since foreign banks are also allowed in the Indian banking sector this has led to higher competition and banks are broaching abroad also. FDI, FII and portfolio investments have been liberalized in both public and private sector banks. Where public sector contributed up to 73%.The lending and deposit have increased to 22.8% at CAGR.The last two decade has substantially observed a drastic change in the type of services provided by the Banks which made a affirmative impact on the Indian economy and on the customers as well. Though the public sector ruled the scenario of the Indian banking it has come a long way to the current situation where public sectors Banks are operating along with private sector bank leading to the fast growth of the Indian economy. The Indian Banking Industry has adequately seen the growth and working quite well in adjusting itself to the new market force and changing environment to achieve greater challenges of the Banking Industry.

This report focuses on providing overview of ongoing banking scenario in India and aims to the various factors affecting the Indian Banking Industry. It also emphasizes on the future prospects of the Indian Banking Industry and the upcoming challenges.

1.1 INTRODUCTION: AN INSIGHT TO THE INDIAN BANKING SECTORBanking Industry is one of the major contributors to the Indian Economy in the country, as it is the most important segment of the financial sector.The commercial banks consist of: Scheduled commercial banks (SCBs) and Non-scheduled commercial banks. Co-operative credit institutions.

Source: indiabankandfinance.comFigure1: The structure of banking sector in IndiaThe reserve bank of India is the central banks of India that is responsible for issuing currency notes, maintaining deposits of other banks and maintaining advances of other banks.Under the RBI there are banks and financial institutions. The banks are of two types Scheduled bank, that comprise of all the banks that are listed in the second Schedule of Reserve Bank or India Act of 1934 and Unscheduled banks ,whichare not listed under the Reserve Bank or India Act of 1934.Scheduled banks can further be divided into public sector banks, private sector banks foreign banks and rural cooperatives.

Source:IBEFFigure2: Components of various banks in the banking sectorConsidering the present scenario of the banking industry in India, major players are the public sector banks with 74.4% market share followed by private sector with 18.7% and foreign banks of 4%.

Source: IBEFFigure3: Contribution of Banking to GDPBanking industry which is a part of service sector has been doing a significant contribution to GDP. Service sector contributes 56% of GDP out of which 5.8% has been from banking industry. For the past 6years banking industry contribution has been more or less the same except for the year 2009-2010 due to effect of foreign countries.Deposits Growth

Source: IBEFFigure4: Deposits Growth As seen in the figure there has been I significant rise in the value of deposits over the past 9years.The value of deposits in 2013 has been more than doubled since 2006.Deposits have grown at CAGR of 21.2% from FY06 to FY13.Objectives for theStudy on Banking industry1. To analyze the Market Share and to identify the Nature of Competition.2. To categorise the Market Segment for the Industry.3. To identify the PESTLE factors.4. To identify the key players of the Industry.5. To present the observations of Mergers and Acquisitions.6. To analyze the International Exposure.7. To study the impact of Research and Development and Technology in Banking industry.8. To understand the role of Advertising and Marketing in the industry.9. To forecast the future of the Industry.10. To do a comparative study of the Indian Banking industry with US and other countries.

1.2. CONCLUSION:Indian banking has evolved and shows positive signs of growth. Even though there has been a significant growth, but the penetration is very low.With the efforts taken by RBI Indian Banking system will be able to bring financial inclusion in the country. The study on the objectives will give more insights into the industry. These will give a picture of global position of Indian economy .

CHAPTER2- REVIEW OF LITERATURE

2.1. INTRODUCTIONThe various studies which were conducted with the respect to the banking industry in India and the objectives under study are discussed and summarized in this chapter.2.2. CURRENT BANKING SCENARIOAccording to IMF working paper Indian Banking Sector is growing tremendously.it has emerged as one of the major growth drivers in the Indian economy which was a much required aspect for a developing country like India. The paper talks about the structural changes that the banking sector has undergone and the domination of public sector banks over private sector banks but still following a mixed ownership.2.3. IMPACT OF TECHNOLOGYE-banking came up as a major change in the banking processes which made the banking industry and its services more accessible and very easy to use.but it has also increased the challenges of fraud and theft with the advancement in the technology.2.4. BUSINESS DIVERSIFICATION IN THE BANKING SECTORBanking sector in India constitutes of public sector as well as private sector banks and it also includes the foreign banks which shows how diversified the banking sector is.it has led many domestic banks to diversify their operations to maintain stability and profitability ratio effectively. Study was conducted to know the operational diversification in the banking sector.(operational diversification and stability of financial performance in Indian banking sector, Sahoo, Deepti ,2012)

2.5. MERGERS AND ACQUISITIONS OF THE BANKING SECTORM&A in the banking sector in India post liberalisation,2011.this study was conducted to know the condition of the banks pre and post mergers and acquisitions by tracking their net profit margin, profitability index, ROCE, operating profit margin and its liquidity position.it was proved in the study that most of the banks showed better results post mergers and acquisitions as compared to the results before M&A.2.6. INTERNATIONAL EXPOSUREThe study talks about how the international exposure forced Indian Banking sector to think globally and expand according to the international standards. Introduction of international banks in the Indian banking sector led to growth and increased opportunities as well as latest technologies but at the same time also increased competition.2.7. Future outlook of the industryIndian banking industry maintains high stability. Higher rate of credit expansion, more focus is on the financial inclusion which is one the major concerns. The major growth drivers of banking sector like commercial banks will contribute more in the future growth of the banking sector. According to PWC publications, destination India, banking opportunities: entry strategy and the road ahead.2.8. Technology intensityAccording to Ernst and Young report on Technology in Banking, Financial inclusion has been a major issue for banks. In order to achieve financial inclusion banks are relying on the technology. The average amount invested by banks in technology has been growing in the recent years. The report has given info regarding the rise in Atms, new features in mobile banking etc

2.9. CONCLUSIONThe research papers and the study helps in getting an inside and a very clear view of the banking sector in India and its position in the global market. It helped in knowing how banking industry has evolved and how it is going to change in the future with the change in technology and other factors.

CHAPTER 3 INDUSTRY ANALYSIS

3.1. INTRODUCTIONIndustry analysis is a tool which is used for evaluating designs for providing the business an idea of complexity. Its purpose is to find out the main factors which affects the industry. It involves the study of many factors like economic, political , technological etc. All these factors helps in the growth of the industry. The major factors are the power that are used both by the buyers and the suppliers, the competitive condition and the expectations from the new market players. It is an analysis in the business environment where the industry operates. It also involves finding out the strengths, weaknesses, opportunities and threats which exists within the industry. It is very important to know the strengths that currently exists for an industry that is being analysed and also the weaknesses that has to be worked upon and removed to a greater extent. Statistics and historical data gives an idea about the nature and the type of the industry and also its potential to grow. It gives us an idea about the complication of the industry and then we have to decide and form strategies to rectify and come out from the complications. When an industry merges with another industry it is important to analyse for the industry to determine whether the industry is growing or is about to die while merging with another industry. It is used to analyse the amount of profits or losses the business is making and find out the reasons for the losses and work on it to improve it and try to convert the losses to profits. It is a way of understanding a companys effectiveness relative to the competition. It basically consists of 3 components they are overall attractiveness , relevance of the field and the underlying forces that have moulded and try continue to shape the industry and also the important elements that helps to determine an industry ability to rise above its competitors. It is important to understand the risks and opportunities of knowing how to go about a business with the specific industries by conducting a good research methodology analysis. It is important to know the facts that we need to efficiently segment the market and push the sales strategy. Industry analysis provides companies with information on products, trends, regions, demographics. It helps the companies to find the market data and analyse the market to make the important decisions.

OBJECTIVES:1. To identify the market share and nature of competition in banking industry in India.

2. To conduct PEST analysis of banking industry India.

3. To identify the market segmentation of Indian Banking industry

4. To identify the business diversification of different companies.

5. To study the growth strategy of banking Industry. (Merger and acquisition)

6. To analyse the International exposure.

7. To analyse the technology intensity in banking Industry in India.

8. To examine the marketing initiatives in Banking Industry in India.

9. To predict the future trend of banking Industry.

10. To examine the comparative study of banking Sector with US and China.

3.2. Market Share and Nature of CompetitionThere are 147 SCBs in India with deposits worth 77 trillion as on august 2013.70% of the countrys banking sector is controlled by 26 public sector banks. There are 20 private banks and 41 foreign banks in India at present.(IBEF, 2013)As on march 2013,RBIs Quarterly statistics on deposits and credit of scheduled commercial banks stated that 52.4% of aggregate deposits are held by nationalised banks, whereas 22% of aggregate deposits are held by SBI and its associates. New private sector banks, old private sector banks, foreign banks and RRBs hold 13.6%, 5.1%, 4% and 2.9 % respectively. The gross bank credit 51%being the highest accounted by the nationalised banks followed by State Bank Of India and its associates(22.7%)and new private sector banks (14%).Foreign banks ,old private sector banks and regional banks had shares of around 4.9%, 5%, and 2.5% respectively.(IBEF 2013)Market Share of leading players based on total credit and split between Public, private, foreign banks and RRBs in India.

Source-IBEFFigure-5

Source-capitalineFigure-63.2.1 Major Players in the banking industryThe total net profit for the public sector banks in India isRs.53141.4 crores. Table 1 shows the net profit of ten major public sector banks and their percentage (out of the total profit of Rs.53141.4 Crores).the total contribution to net profit is 70.93% and rest 29.07% is contributed by other public sector banks.(Capitaline Database 2013)

Bank Net profitPercentage

State Bank of India14,127.9426.58

CanaraBank2871.385.40

Punjab National Bank 4745.788.92

IDBI Bank1882.083.54

Bank of India2749.355.17

NABARD1808.073.40

Oriental Bank1309.462.46

Bank of Baroda4481.378.43

Indian Bank1581.142.97

Union Bank2159.124.06

Others15425.7129.07

Total53141.4100

Source: Capitaline Database (Table-1)The total net profit of private and foreign sector banks in India is Rs.44197.07 Crores. Table 2 showsthe net profit of ten major private sector banks and their percentage (out of the total profit of Rs.44197.07Crores).The total contribution to net profit is 71.59% and rest 28.41% is contributed by other private and foreignsector banks.(Capitaline Database 2013)Bank nameNet profitPercentage

Standard chartered Bank2951.776.67

ICICI Bank8,299.7018.77

HDFC Bank6,726.9815.22

Kotak Mahindra Bank1359.953.07

Axis Bank5,182.2911.72

CitiBank2,694.436.09

Deutsche Bank1,034.482.34

Yes Bank1,301.192.94

IndusIndBank1,057.542.39

J&K Bank1055.102.38

Others1533.6428.41

Total44197.07100

Source: Capitaline Database.(Table -2)

Figure-73.2.2. Applying Porters five forces analysis in the banking industry

1. Threat off new entrant- There is low threat of new entrant in the banking industry as licencing requirement for starting up a new bank are very tough and product differential is also very difficult.2. Threat of new substitutes- there is medium threat of new substitutes as NBFCs, mutual funds, government securities and T- bills are increasing rapidly.3. Competitive rivalry- there is high competitive rivalry as a large number of banks already exist in the industry. The switching cost is low switching cost, high fixed cost and high exit barriers.4. Bargaining power of suppliers the bargaining power of supplier is low because individuals are the suppliers to the banks and they dont have a say on the norms decided by the banks.5. Bargaining power of customers- The bargaining power of customers is very high in the industry as banks provide homogeneous kind of services and customers can get all kind of informations very easily. Therefore, the switching cost is low for the customers.Therefore, the banks in India should try to differentiate their products and services from others to gain competitive advantage. (DCA, 2013).

3.3. Pest Analysis3.3.1. POLITICAL FACTORS The Indian banking sector relies on RBI for all its decisions and implications which are to be followed. There are regulations with regards to flow of capital and liquidity in the banking sector. RBI controls the inflation by increasing or decreasing the interest rates in the market. Banks lend credit growth in different sectors according to RBI guidelines only.

3.3.2. Economic Factors: The economic factor in our country has both pros and cons for the banking sector. When the inflation is normal and per capita income is high along with higher income and savings will also increase, the banks have an advantage as people have more money for depositing in the banks. With the help of banking channels more FDI is brought in the country. During recession, banks encourage lending by issuing fresh credit. The service sector contribution is highest in GDP of India as of 2012-13 service sector contribution to GDP has been of 56.5% and growth rate is 6.17%.Financing insurance, and real estate contribute the maximum.(Press information Bureau, Govt of India)3.3.3. Social Factors: Rural market could not be captured yet even after having huge number of banks in India. Loans are still lent at higher interest rates to the farmers from the moneylenders. Banks are having good opportunities with the huge population and more and more savings and deposits increasing. There is a change in the lifestyle of the urban population in India who can now easily get their desires financed. There is an increase in the literacy rate of India to 74.4% in 2013.which leads to more and more people having knowledge about banks and savings.3.3.4. Technological Factors: The development of technologies has led to the betterment and tremendous growth in banking sector. Improved technologies led to reduction in cost and time and increased level of customer satisfaction. Internet banking and mobile banking have made it very easy and handy for the banks as well as the customers. Customers need not stand in the long queues to know about their account balance, ticket bookings, bill payments etc. Everything is made very easy and available.

Figure-8

3.4.Business Diversification standalone or conglomerate

3.4.1Conglomerate: Conglomerate arises when two or more firms in different markets producing unrelated goods joint together to form a single firm. E.g. Between athletic shoe company and Soft drink Company.3.4.2 Five leading Indian Banks are taken and their business diversification:3.4.2.1. SBI Life Insurance: SBI Life Insurance is a joint venture between state bank of india and BNP Paribas cardif. SBI owns 74% of the total capital and BNP Paribas cardif the remaining 26%. SBI Life Insurance has an authorized capital of Rs. 2000 cr. and a paid up capital of Rs. 1000 cr. Multi Distribution Model: SBI life has a very different multi distribution model encompassing vibrant Bancassurance, retail agency, institutional alliance and corporate solutions distribution channels. SBI Life extensively leverages the State Bank group relationship as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans and personal loans. SBI also provides services like calculator premium, need analysis calculator, retirement calculator, HLV calculator, child education planner etc.3.4.2.2 SBI Mutual Fund:It covers the following: Here the investors gets unique opportunity of setting financial goals and different set of products therefore SBI mutual fund have a wide range of schemes which will fulfill investors requirements. They provide six basic asset classes they are as given : Equity Schemes: The objective of this scheme is to provide growth in the capital or appreciation in the investment of equity and equity related instruments. Debt or Income Schemes: In this scheme the investment is done in fixed income securities like corporate debentures, money market instruments, government securities etc. Liquid Schemes: This scheme includes investment in short investment like cash asset (treasury bills), commercial papers. Hybrid Schemes: In this scheme the investment is done in a mixture of debt and equity securities in different proportion as prescribed in the scheme information document. Fixed Maturity Plans: They are closed ended debt schemes where there is a fixed maturity date and the investment is done in debt and money market instruments. Exchange Traded Funds (ETF): They are a basket of securities which are traded on the stock exchange such as SBI gold exchange traded scheme, SBI Sensex ETF.

3.4.2.3 Axis Bank General Insurance: It covers the following: Life Insurance: It helps in safe guarding the financial stability of peoples family in the event of an unfortunate incident. Health Insurance: Emergency in health can come without any advance notice and this may lead to a financial emergency for self and family. In this case it may will b difficult to prevent health emergency but it can be prevented from becoming a financial burden. Business Guard: The small and medium business enterprises are always in threat from various disruptions in everyday life. It can be due to natural disasters like earthquakes or manmade disasters. Home Insurance: It is for securing the most important asset from any possible kind of manmade or natural disaster. Travel Insurance: It is used in case of unseen emergencies like lost passport, license, baggage, flight delay etc. Motor Insurance: It is very important to ensure peoples valuable possession so they need a comprehensive that covers them against the mandatory third party liability and also any damage cause to vehicles like explosion, fire, strikes etc.

3.4.2.4. ICICI Lombard:It covers the following: Motor Insurance: In this following insurance in which it works namely Car Insurance, Two wheeler Insurance and Car guide. Health Insurance: In this following insurances in which it works namely Complete Health Insurance, Health Care Plus, Personal Protect, critical care. Travel Insurance: In this following insurances in which it works namely International Travel, Senior Citizen, Gold Multi- Trip. Student Medical Insurance: In this following insurance in which it works namely Overseas Student Travel Insurance. Home Insurance: Protect home structure and contents from natural calamities and manmade disaster.

3.4.2.5. IDBI FEDERAL Life Insurance:It has the following products: Bondsurance: Advantage Insurance plan is a single premium plan where only one time investment is made. Childsurance: Dream builder insurance plan wherein a child who wants to become a doctor, an engineer, an MBA etc. The IDBI federal childsurance dream builder insurance plan will keep the future ready against both changing dreams an lifes twists. IDBI Federal Homesurance Plan: It is a mortgage reducing term plan which offers protection to self and family from the home loan liability.This plan covers equal to the outstanding balance of the home loan in the unfortunate event of expiry of the insured. LifesuranceSuvidha Savings Plan: It is a participating endowment that allows to safe for long-term responsibilities in life. 3.4.2.6.HDFCERGO General Insurance: It covers the following: Motor insurance: In this following insurances in which it works namely Private car insurance, commercial vehicles insurance and two wheeler insurance. Health Insurance: In this following insurances in which it works namely Health Suraksha, Critical diseases. Travel Insurance: In this following insurances in which it works namely Travel insurance, Suraksha for student. Rural Insurance: In this following insurances in which it works namely GraminArogyaNidhi, Agriculture, Cattle, Rainfall Index insurance.

3.5. MERGER ANDACQUISITIONS.3.5.1 Merger: merger is a combination of two or more companies into one company. In India merger called as amalgamations, in legal terms. The acquiring company, acquires the assets and liabilities of the target company.

3.5.2. Types of merger:-

Vertical merger: This is the merger of the corporate engaged in various stages of production in an industry. Vertical merger may help in optimal achievement of profit efficiency. E.g. Mobile producing company merges with the company which provides them parts of mobile and software. Horizontal merger: This is the merger of the corporate engaged with those businesses which are of same kind. E.g. merger of bank with another bank. Conglomerate: Conglomerate arises when two or more firms in different markets producing unrelated goods joint together to form a single firm. E.g. Between athletic shoe company and Soft drink Company. Acquisition: This may be define as an act of acquiring effective control by one corporate over the assets or management of the other corporate without any combination of both of them. E.g. case of oracle major software firm as agreed to acquire majority stake in Indian banking software company i-flex solutions.

3.5.3 Reasons for Merger: Merger of weak banks: The weak banks merge with strong banks is done to provide stability to weak banks but this practice was opposed by narsimhan committee as it can diversify risk management. Increase in market competition: Reason for merger is innovation of new financial products and consolidation of regional financial system. Markets are developing and becoming more competitive and since the market share of all the firms reduced, therefore merger and acquisition started. Globalization is also an important reason for mergers. Technology: Due to the removal of entry barrier, it thus open the gate for new banks with high technology and since the old banks could not compete with them so they decided to merge with the new banks. 3.5.4 Impacts of Merger Diversification: When the merging of two firms takes place the risk in investing assets diversify accordingly. So when a firm operates alone they dont have much options to diversify their portfolio investment which they can get after merger.

Merger and acquisition also help firm to obtain the efficiency gains by cost reduction, revenue increases etc. Broader Array of Products: When two firms merge they have variety of products and so when after the merger each customer in both the firms will get the benefit with a range of products or services to choose from. Merger and acquisition widens firms consumer portfolio and it also leads to a more diversified range of services and scope in economies. In cost efficiency and revenue efficiency it has been found out that in domestic merger the organization get the benefit of cost reduction and cross broader merger organization is benefited to get revenue efficiency due to the benefit of geographical expansion and diversification. After the merger and acquisition the efficiency may be improved if the acquiring company is more efficient and brings the efficiency of the target at its own level by providing its managerial expertise, policies and other operations.Merger and Acquisitions that took place in the Indian Banking Sector. 3.5.5.1. Recent merger/acquisition-Announced DateAcquirerTargetStake (%)Value (USD mn)

Dec 2011Standard Chartered Bank IndiaBarclays Bank Plc, Performing credit Card Portfolio10036.00

Apr 2011Standard Chartered Bank IndiaTamilnad Mercantile Bank Ltd.4.64NA

Nov 2010Axis Bank LtdEnam Securities Direct Pvt. Ltd.NA439.79

Aug 2010ICICI Bank Ltd.Bank of Rajasthan Ltd.

100658.65

Jul 2010Sumitomo Mitsui Banking CorporationKotak Mahindra Bank Ltd.4.5294.00

Feb 2008HDFC BankCenturion Bank of Punjab1002200.00

Source: Dinodia Capital Advisors (Table-3)

In December 2011 The Standard Chartered Bank India has acquired the Barclays Bank Plc, with an amount of 36 million USD. In April 2011 The Standard Chartered Bank India has acquired The Tamilnad Mercantile Bank Ltd. In November 2010 The Axis Bank Ltd has acquired theEnam Securities Direct Pvt.Ltd at an amount of 439.79 million USD. In August 2010 ICICI Bank Ltd has acquired the Bank of Rajasthan Ltd at an amount of 658.65 million USD. In July 2010 Sumitomo Mitsui Banking Corporation has acquired the kotak Mahindra Bank Ltd at an amount of 294 million USD. In February 2008 the HDFC Bank has acquired the Centurion Bank of Punjab at an amount of 2200 million USD.

3.5.5.2 Older merger/acquisition:BanksMergedPeriod

1HDFC BankCenturion bank of Punjab23rd may 2008

2IDBI Ltd.United western bank3rd October 2008

3The Federal BankGanesh Bank of Kurundwad25th Jan 2006

4IDBI Ltd.IDBI Bank2nd April 2005

5PNBCenturion Bank27th September 2005

6Oriental Bank of commerceGlobal Trust Bank14th August 2004

7Bank of PunjabNedungadi Bank1st Feb 2003

8Bank of Baroda Banaras State Bank20th June 2002

9ICICI BankBank of Madura10th March 2001

10Union BankSikkim Bank

22nd Dec 1999

11Bareilly Corporation BankBank of Baroda (BoB)1st April 1998

Source: IBEF(Table-4)

3.6. INTERNATIONAL EXPOSURE

The rise of external banks in India have held alongside itself latest knowledge and latest investment habits in India. The external banks have helped the Indian banks to come to be extra competitive and efficient. Power of India has come up alongside a road chart for the development of the external banks in India. The road chart had two period, early period been amid March 2005 and March 2009, and the subsequent period commenced 2009 onwards. The external banks were asked to institute attendance by method of setting up a wholly owned subsidiary (WOS) or conversion of continuing divisions into a wholly owned subsidiary.The external banks phenomena is not new to Indian investment sector . One of the oldest external banks working in India is the Average Charted Bank that commenced as main as 1858 supplementary one being Citi Bank that opened its early division in India in 1902 .HSBC commenced is working as 1953 .Globalization and the commercial improvements of 1991 inspired countless global banks to open there divisions here in India. Nowadays nearly all the global banks are working in India. Emergences of external banks have helped the internal banks to enhance their presentation and enhance the client service. Due to their disparate working style the external banks have been able to arrest a colossal client center here.At present there are 29 external banks working in India. Insufficient of the vital external banks working in India are as follows:

Abu Dhabi Business BankCiti BankStandard Chartered BankJP Morgan Pursue BankRBS Goldman Sachs Deutsche Bank

Foreign banks working in India have helped to enhance the Indian External Transactions marketplace significantly. Across 2005-2006 external banks had incomings of 41% and it increased to 52% in 2007-2008 . The external banks have modified the method of working of the Indian investment arrangement . There has been a finished change in the method the banks work nowadays . All the internal banks in India nowadays have sleek their procedure by familiarizing knowledge and adopting best investment habits .The new laws agreed by the RBI for the external banks in India in the last years budget has shown outstanding hopes amid the external banks that permits them to produce unfettered. New laws havepermitted the external banks to set up innate subsidiaries . The strategy additionally says that external banks in India could not buy Indian banks and their subsidiaries.

3.7 Technology intensity (R&D intensity)Technology has held large change in the working of the investment sector. A combination of manipulating and competitive adjustments has managed to rising significance of finished investment automation in the Indian investment industry. Knowledge helps in commercial inclusion. According to All-India Inclusix an index of commercial inclusion it has increased to 40.1 from 35.4 in 2009.3.7.1 MOBILE BANKING With the producing custom of mobiles mobile investment looks to be the promising.Mobile investment can present all the investment purposes such as money transfer, trust card payment, bill payment, report updates and supplementary transactionsMobile investment has concerning 55million clients and the average daily worth of transfers has increased from Rs.3.7 crores in 2012 to Rs.25.58 crores in 2013.The managing banks in the space are ICICI Bank, HDFC and SBI. A little of the supplementary key contestants that will link the contest in the upcoming contain Axis Bank, Syndicate Bank, CanaraBank and Bank of BarodaMany client segments are clearly becoming cozy alongside employing mobile banking. It is chiefly real of the Generation-Y cluster (18-32-year olds) who are three timesmore probable to accept mobile investment than older usersThe custom of mobile apps has increased by 150% from 2012. Mobile apps users as of nowadays contain to merely 7% of the finished client base.Overall the development in mobile investment that has seized locale in the state till date, nevertheless at a quick pace, is yet to grasp the critical mass that will enable it to hold on itspromise of seizing investment, encompassing payment services, at a cheaper, safeguard and seamless manner to the continuing and possible customers. The new events in mobile investment are IMPS and NUUP.IMPS :Immediate payment services- is a mobile established remittance arrangement that helps the clients in transferring money 24*7. This is a interbank request that is funds can be transferred from one bank to one more bank. It has been gave in 2010 and has been successful. IMPS can be utilized to make payments to sellers and power bills, across assorted admission channels such as internet, mobile net, SMS, USSD.

NUUP :National United USSD Period has been dispatched by Nationwide Payments Firm India in 2012, alongside an goal to seize investment ability to public man. The ability should permit clients to admission services presented by bank across a solitary number across all banks irrespective of telecom ability provider and handset.The main feature of this is that it can be utilized on all GSM phones and doesnt demand GPRS or internet, it can be utilized on the frank voice connectivity. Benefits to the customers: Works on frank voice connectivity unlike an request, GPRS connectivity is not required Question and answer driven contact facile to understand The client demand not download each request on the phone

Figure-9

3.7.2 OTHER INNOVATIONBIOMETRIC ATMs These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low literacy population to use banks

M PESA It is a mobile phone based money transfer and micro financing service that allows users, with a national ID to use their money easily with a mobile. Vodafone is expected to launch M-Pesa in India in association with ICICI and HDFC bank.

PLASTIC MONEY Cash cards, credit and debit cards and polymer notes will boom the e commerce space boom in India and people will get used to the idea of carrying less cash Many cards have a microchip embedded in them which makes it a transit card alsoin the world.

3.8 Marketing initiatives

Marketing in banking sector is the aggregate function to provide service to satisfy customers financial needs and wants, in a better andeffective way than the competing banks keeping in mind the organizational objective and purpose for being in banking sector. There is no meaning of a bank, if it has not any customer. One of the key tasks of the bank is not only create or get more customer but also retain them through effective service and innovative products. Most of the customers are attracted and retained by the innovative financial products and satisfaction of the fulfilment of expectation.

In order to understand the marketing strategy of banking services in a better way,one must consider banking as a service industry.In the era of 1950, marketing into the banking sector emerged in the western world. It was mainly the advertisement and promotion concept.Marketing concepts of banking products came into India only after 1950s, in a similar manner, it originated in the west.

In 1972, it was Indias largest bank state bank of India which took the first initiative in the direction of marketing its product and services, it recognised itself on the major marketing segments by segregating its customers on the basis of their activities and based on that it carved them into four categories.They are as following a) Commercial segmentsb) Agriculture segmentsc) Personal d) Services banking segment.

3.8.1 Marketing Approach to Banking Services

Identifying and developing products to meet customers needs and wants. Advertise and promote the product to existing and potential customer of financial services. Setting up efficient distribution channels and bank branches. Forecasting and research of future market needs.

3.8.2 Challenge of Bank Marketing

Technology: - Marketing by private sector banks and foreign banks is more effective than public sector banks because these banks are technology oriented. Private sector banks and foreign banks are attracting more customers by providing various attractive services. Thus, technology has become a challenge before the government banks.

Rural Marketing: - it is really a big challenge for Indian banks to penetrate into the rural segment to increase their customers that is why new bank norms have a mandate that many of their branches should be in rural area. Banks should open their branches not only in the urban and semi-urban areas but also in the rural areas.

Trust of Customer: - Marketing can be improved only by placing the products into customers mind. Customers can be increased or attracted only by winning the trust of the customers. In service industry, this could only be done by the good feedback and on the time services.

Customer Awareness: -Customer awareness is a major problem to any industry. Banks have been facing a problem of reaching to rural customers and creating awareness about their products. Bank should literate the customers through various ways, such as making a kiosk at various places or by providing the pamphlet. Now the mandate has already come from the RBI that all the money from dormant account to be used for financial inclusion.

Emphasis on Deposits:-There has been a CAGR of 21% in deposits from 2012-2013. It is the major source of money for the bans. Banks must focus in order to design or innovate new products, such as products comparable to KisanVikasPatra of post office and product with the facility of tax rebate, which will of much help in this regard.

Form a Saleable Product Scheme :- Bank should form such scheme that meets the needs of maximum customers. A collection of all these schemes form a product. A bank product may include deposit scheme, an account which offers more flexibilities, sound banking, telemobile ,net banking, an innovative scheme targeted to special category of customers like children, females, old aged persons, businessman etc, mutual funds for those who are not good with speculating the market but want to earn a better return than the banking service. In short, a bank product may consist of anything that you offer to customers and it must meet the needs of customer.

Products for Women :-The national perspective plan for women states that 94 % of women workers are engaged in the unorganized sector and 83% of these in agriculture and allied activities like dairy, animal husbandry, handloom, handicrafts and forestry. Banks should do something to improve their access to credit which they require. if we look into the business model of gramin bank, then it proves that women are able to save money/funds better than men. That is why; even government has approved the special bank for women, which is going to start its operation from 1st November 2013.

Selling Products in Rural Areas: - For enhancing the marketing of their product, bank should sell their products in rural areas. As the income level of rural India and urban India is very much disparate, so banks need to design an innovative product in order to attractive more customers. For it, there is a need to open branches in the rural areas.

Sales of products and services through E-delivery channel:- After the information technology, many new e-delivery channels are very helpful in enhancing the marketing of various product and services. Thus Indian bank should sale the products and services through e-delivery channel.

Sale of Products and Services through Web-sites: - Internet is a network of network which connects the world. Thus, banks should sale their products through website. This will enhance the marketing of the products not only at the national but also at the international level. Now a days many banks has already started selling their different products through electronic way such as insurance products by ICICI Bank and different other banks, demat account by several other service provider.

IndicatorPre 1993Post 1993

Customer ServiceMandated by committee reports and lawConsciously practiced as a way of banking

Customer feedbackDone based on regulators guideline complaint/suggestion boxes symbolized this

Willingly attempted

Product innovationMinor variations of vanilla productsNew products with value additions

ToolsManualTechnology driven

Delivery channel BranchMore alternate delivery channels like ATMs, phone banking, internet banking, mobile banking, DSAs

Pricing Price=cost plus profitProfit=price-minus cost

OrientationInward looking Outward looking

Status of the consumer

Slave to the bankKing because more bankers chasing him

Branch ambience Resembled erstwhile government officesAims to simulate supermarket buying experience

Table: 5 Nature of services provided by the bank before and after 1993

3.9 Future scope of Indian banking industry

The portray of economic growth of India tells clearly about the Indian banks. There are various challenges in retaining of the profitability in the coming time. The banking industry in India is the huge industry and they have to live up to the expectations of the people of the country in several quarters. Currently Indian banking sector is facing many challenges like improving and maintaining the capital requirement managing non-performing assets increasing the sales of each branch and services work upon and improve the organization design Using advance and innovative technology with different channels and working on lean channels. Apart from this continuous changes in the policy will help in bringing the economic stability. Despite of all this concerns India has the huge scope of expansion in the coming decade

Today India is standing at its crucial junction of evolution and is having a lot of hope in the next decade regarding different aspects. There are a lot of scopes regarding rapid growth, creation of the wealth, availability of jobs, improved standard of living, better infrastructure, high class Indian companies, high class banking experience. Now Indian banks to make subsequent impact just like Indian banks had made by low cost innovations. Entrance of non banking finance companies (NBFCs) creates huge competition for banks especially public sector banks in terms of customer relationships and innovative technology

Some of the major trends which will impact the Indian banking in terms of challenges and threats and help in shaping the future

Mortgages to cross Rs 40 trillion by 2020 :- mortgages has rise in the books of banks from 1.5 percent to 10 percent of the total bank advances over a span of 10 years. the ratio of total outstanding mortgages which include housing finance companies (HFCs) to the GDP is currently approximately 7.7 percent. If this ratio has to reach around 20 percent by the year 2020, a number which is similar to china than we would expect that the mortgages industry will grow at an average rate of 20 percent over a next decade.Rs 40 trillion is the amount of the outstanding mortgages which is even higher than the entire loan of the banking industry.

Figure-10

the next billion will be the largest segment :-as it is shown in the table 1d that the income of the middle class in the household income range from Rs 90000 to Rs 200000. Only those customer will be served profitably who has having low cost business modals n having low break even size of business. The coming decade will experience banks experimenting different types of low cost business models, branches of cost effective nature and using of latest technologies to serve the highly profitable segment[footnoteRef:1] [1: ]

1.) Mobile banking will see huge growth and modify transaction banking paradigm :-updating of internet call centers is low in all the segments other than foreign banks. If we see the usage pattern in US the online and phone channels are more frequent but in case of India use of internet and brand access has been very low. However with the introduction of mobile banking the access of banking facilities becomes very convenient and save time. About 25-30 percent of mobile users have GPRS/3G activated and there are 250-300 million customers who are using banking service. According to the survey conducted in urban areas most of the people does not prefer call centers and internet. We expect that Indian banking industry will improve their technology infrastructure and then will set an example for rest of the world.

2.) Customer relationship management and data warehousing:-the average number of banking products per customer in India is significantly lesser as compared to global benchmarks. There is a very much scope for cross selling amongst different categories of banks all over India. As it is stated that cross selling is very costeffective as compared to other means of customer acquisition.

3.) Investment banking will grow ten- fold:-Investment banking will become the fastest growing segments in the banking sector which rises from 4 percent to 7 percent of the total corporate banking revenue. The large number of corporate customers will demand for higher support for international expansion and also mergers and acquisitions over a period of next decade. Moreover, as the wholesale debt markets deepen, more of the corporate will go to avail advisory and capital market services from banks in order to access capital markets. As a result of this the revenue pool will going to shift from traditional corporate banking to investment banking and advisory. Banks which is having international appearance will have benefited all over.[footnoteRef:2] [2: ]

Figure-11

Challenges faced by Indian banking There are two areas in which Indian banking industry is challenged to find measures for the next decade. First deals with the rising expectation from banks to find the solution which is feasible for the financial exclusion and the second generally deals with human resource in public sector. Amongst the two, first concerns about the innovative and experiments and second deals with the ability of banks to be innovative and have competitive advantage over the others.

1. Financial inclusion :-The issue of financial inclusion is very important and main issue for the Indian government. As the expectation from our banks is very high, the government is encouraging non banking industries to come forward with a good solution. If the answer does not come from the banking industry than non-banks had to come in action and sought out the revenue problem for the economy. As it is known that the customer segment will be the largest in the coming decade and the banks has to lose their relationship.

Figure-12Measures by RBI to improve financial inclusion 1. No frills account: people finds quite difficulty to meet the requirements of having normal saving account in some of the excluded zone. So RBI has decided and made it compulsory for all banks to provide no-frills saving account without the condition of having minimum balance requirement. Under this the transaction charges are kept very low small overdrafts are also allowed.

1. Overcoming the language barrier: major portions of Indian population are not able to converse in English and Hindi, as these are the languages which are used in banks. So in order to provide the forms of opening of bank accounts or for any other purposes the bank should have the facility of providing all that in the regional language.

1. Simplification KYC forms: most of the peoples in rural do not have any identification which is required for account opening and compliance with know your customer (KYC) norms. So for this reason process of opening an account should be kept easy and the balance should not exceed Rs 50000. Under this small account can be open by an introduction for another account that has already satisfied KYC norms.[footnoteRef:3] [3: ]

1. Electronic bank transfers: it mainly refers to transferring social security benefits directly to the beneficiaries. This reduces the dependence on cash and also helps in keeping the transaction cost low and also reduces frauds.

1. Easier credit: banks have been advised to introduce the concept of credit cards for the rural people with the limit of around Rs 25000 in the rural and semi urban branches.[footnoteRef:4] [4: ]

1. Simplified branch authorization: RBI has permitted the banks to freely open their branches in tier iii to tier vi centers with the population of around 50000.banks can also open their branches anywhere i.e. rural, semi-urban ETC.

The HR challenge in the public sector: the public sector is carrying the same expectations as their private sector peers before entering into the next decade but they are facing the severe disadvantage in the human resources. Public sector banks are witnessing the loss of skills and also the competitive advantage over the others because of their seniors officials and middle management executives are either leaving their jobs or not performing their jobs. They need to attract fresh talents and at the same time need to preserve the existing ones.

Figure-13

NBFCs in IndiaNon-banking financial company is a company which is incorporated under companies act of 1956 .it is occupied in the business of loans and advances, acquiring of shares/debentures/stock etc. which is issued by the government of India or any of the marketable securities such as hire purchase, leasing etc .It does not have any principal like business of agriculture, various industry for granting any services.

Figure-14NBFC are regarded as the major credit purveyors in India because of following reason:1) They provide unorganized sector and also local level and small borrowers with the credit.2) Fulfilling the gaps between demand and supply of funds3) Credit needs are met very easily4) They have the ability to take instant decisions and they also tend to change the demand and supply as they are not able to meet many of their requirement or expectations that the banks need to.5) NBFCs are encouraging the business activities in order to have high growth in this sector and it also increases the efficiency of the economy of our nation.

Comparison of Indian banks with other banksIndian banking industry as compared to others is those which maintain high stability. Greater rate of credit expansion, innovative, highly productive and focusing more on the financial inclusion as it is the major concern for our banking industry. along with financial inclusion, commercial banks, retail and wholesale banking are some of the growth drivers of the Indian banking which will contribute towards the future growth of our banking industry as mentioned in (PWC publications, destination India, banking opportunities: entry strategy and road ahead).other than financial inclusion, the HR challenge in the public sector (INDIAN BANKING 2020: making the decades promise come true) is the major concerns in the banking industry. So in order to overcome this problems or challenges the RBI has taken some measures (Infosys Finacle) which will help in filling the gaps and help the economy to proliferate in terms of GDP, credit expansion etc

3.10. Comparison with U.S and other countries: 3.10.1. Comparison between Indian Banking Sector and Chinese Banking Sector: Size &Volume :Chinese banks are far much ahead of the Indian banks in terms of size and numbers.In 2010 alone ,China consisted of 3,769 banking institutions ,with commercial banks beyond the 250,196000 business outlets and 3 million happy customers. India lags behind in comparison with commercial banks touching 167,87768 business centers and 0.8 million clients.

Revenue Growth: Similar is the case in terms of asset size.Atleast 11 banks in China are listed in the top 100 category depending upon market size whereas only three Indian players are present in this list .To support this statement ,let us take an example of the Commercial Bank Of China which is the biggest bank in Chinahas an excellent market size of $201 billion whereas its Indian Counterpart State Bank Of India which is the largest bank in india has a market size of only a fifthat $40 billion .Coverage:Banks in China are huge and extremely rich and are even far better in terms of coverage of population that utilises both formal and semi formal financial business services.

Power Performance:Banks of both India and China have recorded good growth in terms of revenue when compared to their counterparts in developed countries.Unlike in developed countries , the banking sector pattern of both the nations is closely similar in terms of public ownership of assets.In India 75% of the banking assets are owned by the Indian Government, whereas the private sector enjoys 18% and the rest lies in the hands of foreign players. In China 51% of banking assets are held under the government sector with 48% under private ownership, and negligible percentage under foreign ownership.3.10.2. Comparison between Indian Banking Industry and UK Banking Industry:Indian banks face a lot of inefficiency and always try to pass this inefficiency to their clients in terms of huge costs. Over the last decade, Indian banks were successful enough in maintaining their profitability. If we try to compare Indian Banks with that of UK banks ,then we can easily deduce that customers in India pay more price for inadequate competition.In 2012, the relative operating cost of the Indian Banking Sector was much higher than that of UK's Banking Sector. But, even as this fact persisted, the profitability of Indian banks went too high thereby indicating that the customers were giving their shoulders to these banks by paying a hefty price.Comparison between Indian Banking Sector and US banking Sector:When compared to US banking industry, Indian banking industry is much better in terms of stability and position. In India the ratio between lending and depositing is very vast making the Indian Banking sector very strong in terms of position.American banks had a blind belief and trust on their real estate sector and believed that it would never go low and happily lent on it, but they proved themselves wrong.Till the onset of heavy recession, US banks used to lend money to people who had even zero income. But finally they have understood the situation and have made tremendous changes in their banking and financial rules and regulationsConclusionStudying market share gives information that SBI is the market leader in the country. Demographic of buyers talks about the various segments of people that are focus upon by different banks and what are the products that are offered to them.Banks have tried focusing on NRIs, minor accounts, senior citizen accounts and Women accountsBanks have diversified into many businesses like insurance, securities etc also touches major mergers and acquisitions that have taken place in the industry which has helped the industry grow. With Globalization banks have witnessed an International exposure, Indian banks are now expanding overseas. Impact of technology has changed the Indian banking system. Banks hare using various innovative ways to market banking products and services social media being one of the platforms.The future of banking industry is bright and a comparison with worlds other economies gives an insight into global standing of Indian Banking and steps that needs to be taken to improve it.

CHAPTER4-CONCLUSION

4.1. CONCLUSIONIndia is a developing country and the banking sector of India is one of the major growth drivers in the economy. Banking industry has evolved from where it started. It is still growing and expected to continue the growth rate and prosper in the future.42% of the total population of India do not have access to the banks and are still unaware of the facilities and benefits of maintaining a bank account which is one of the major challenge for the banking sector at present as well as coming future.Government and RBI are taking steps to provide financial literacy to the people but it is not working out therefore, the rate of financial literacy is very low and needs to be improved. It is one of the major issues of concern which can deter the growth of banking sector in India.RBI has taken certain steps to provide relaxation to the banks: If banks want to open their branch in tier 1 city they do not need to seek permission from RBI. This will help the banks to reach more and more people and achieve the goal of financial inclusion. This will lead to financial literacy even in the rural areas and will lead to development in the Indian Economy.Diversification and Mergers and acquisitions have led to growth in the opportunities in the banking sector. Now there are more options as well as better facilities available for all type of income group as the competition is very high therefore every bank tries their best to get the customer and provide them maximum satisfaction. FDI allowance of 74% to the private banks which is another booster to the Indian Banking Industry. Increase in the number of foreign banks coming to the country asa result increase in competition which has made the domestic banks to push themselves harder to keep up with the competition.Use of technology has impacted the banking sector. It is one of the major factors that have influenced the banking sector. The introduction of new technologies like E-banking , M-banking and transactions through ATMs has improved the services offered by the banks nowadays.The current banking scenario is changed with all its pros and cons.It is still growing and is expected to match up with foreign banks in coming future.

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