Indian Banking Industry Market

8/11/2019 Indian Banking Industry Market

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INDIAN BANKING INDUSTRYA P R I L 2 0 1 2

The Indian banking sector has emerged as one of the strongest drivers of Indias economigrowth. The Indian banking industry (US$ 1.22 triion! has made outstanding advancement in

ast few years" even during the times when the rest of the word was strugging with #nancia

metdown. Indias economic deveo%ment and #nancia sector iberai&ation have ed to a

transformation of the Indian banking sector over the %ast two decades.

Today Indian 'anking is at the crossroads of an invisibe revoution. The sector has undergone

significant deveo%ments and investments in the recent %ast. ost of banks %rovide various

services such as obie banking" SS 'anking" )et banking and *Ts to their cients.

Indian banks" the dominant #nancia intermediaries in India" have made high+,uaity %rogressover the ast #ve years" as is evident from severa factors" incuding annua credit growth

%ro#tabiity" and trend in gross non+%erforming assets ()-*s!. hie annua rate of credit growth

cocked 2/0 during the ast #ve years" %ro#tabiity (average eturn on )et orth! wa

maintained at around 10 during the same %eriod" whie gross )-*s fe from /./0 as on arch

/1" 2334 to

2./0 as on arch /1"2311.

The Indian banking sector is a mi5ture of %ubic" %rivate and foreign ownershi%s. The beow

tabe highights to% 13 banks which contributed 60 share of the tota credit as on arch /1

2311. The State bank of India has recorded highest market share. The )et Interest argin o789: 'anks is ;.20 which is highest among others.

Name of Bank Credit

Portfolio

$arketS%are

NI$$ar'11

Tier ICa(ital

' $ar2011

R)N*$ar ' 11

Gro!!

NPA ' $ar

State 'ank of India


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Source ? *nnua e%ort"


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1.1

1.13

1.3

1.33

3.=

3.=3

1.3

2

NPA (%)

1.33

1.3

1.12

3.=ective of ensuring monetary stabiity and o%erating the currency

and credit system of the country to its advantage.

'I

Schedued Unschedued

:ommercia :oo%erative

-ubic -rivate 9oreign'

ura Urban

In India" the banks are being segregated in different grou%s. Cach grou% has their own benefits

own dedicated target markets" imitations in o%erating in India. The commercia banking

structure in India consists of Schedued :ommercia 'anks and Unschedued 'anks.

Schedued commercia 'anks constitute those banks which have been incuded in the Second

Schedue of eserve 'ank of India ('I! *ct" 1=/;. 9or the %ur%ose of assessment o

%erformance of banks" the eserve 'ank of India categorise them as %ubic sector banks" od

%rivate sector banks" new %rivate sector banks and foreign banks.


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BUSIN,SS DI-ISI)N

Retail.ankin/

Retail .ankin/ ' Eoans to Individuas

(*uto oan" 7ousing Eoan" Cducation

Eoan and other %ersona

oan! or sma businesses.

*%ole!ale.ankin/

B!ine!!

Dii!ion

Trea!0

r2)(eratio

n!

)t%erBankin/B0!ine!!e!

*%ole!ale .ankin/ 3 Eoans to id

and Earge cor%orate (orking :a%ita

oans" -ro>ect #nance" Term oans" Eease

9inance!

Trea!r )(eration! 3 Investment in

C,uity" 8erivates" :ommodities" utua

9unds" 'onds" Trading and 9ore5

o%erations

)t%er Bankin/ B!ine!!e! 3erchant 'anking" Eeasing business" 7ire

%urchase" Syndication services

etc.

S*)T ANALYSIS

ST R,N GT+S

Fauabe contributor to@8- eguatoryenvironment@overnment Su%%ort

*,A KN ,SS,S

Increasing)-* Eow%enetrationEack of %roduct

)PP)RTUNI TI ,S

odernTechnoogyUnta%%ed uraarket@obai&ation

T +R,AT S

Unorgani&ed money

ending market:ustomer

P)RT,R4S 5I-,5)RC,S $)D,L

'anking is mainy a cient oriented business. * high+,uaity of services to the cient is crucia fo

the growth and stabiity of any bank. * wider distribution and access of #nancia services he%s

both consumers and %roducers to raise their wefare and %roductivity. Such access is es%eciay

%owerfu for the %oor as it %rovides them o%%ortunities to buid savings" make investments" avai

credit" and more im%ortant" insure themseves against income shocks and emergencies. To

survive in an increasingy com%etitive environment" bank need to come u% with variou


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faciities ike Internet banking" mobie banking etc. ith the onset of mobie banking" the

industry #nds itsef at the threshod of the ne5t ma>or technoogica ea%.

T%reat ofNe6

,ntrant!

(Eow!

Buyer Power ' +i/% bargaining %ower o

customers on account of banks render

uniform services to the cients. )ow a

days amost a banks woud ike to %rovide

re,uisite information very easiy by way

to

Internet" obie banking tothe cients

BerPo6er

(7igh!

Com(etitie

Rialr

(7igh!

S((lier

Po6er

(Eow!

Supplier Power' Lo6 bargaining %ower o

su%%iers on account of 'I reguatory

benchmarks. 'anks have to mee

numerous reguatory standards created by

'I

Competitive Rivalry' +i/% com%etition o

account of number of %rominent %ubic

%rivate" foreign aong

with coo%erativebanks

Aaila.ilit of

S.!titte!

(7igh!

Availability of Substitutes ' +i/%

menace from substitutes ike )'9:s

utua funds" @overnment securities and T

bis

Threat of new entrants + Lo6 threat o

new entrants on account of bankingreguations. 'efore setting u% of

a new bank" it is essentia to take theconsent of 'I.

P,R5)R$ANC,

The em%irica studies have found a strong reationshi% between economic growth and #nancia

deveo%ment. 9inance %ays an im%ortant roe in the economic growth. The charts de%ictthe %erformance of 'anke5 in ast 13 year and eative %erformance of 'SC 'anke5 D 'SC

Sense5 in 2313+11. The %erformance of 'anke5 acceerated during the %eriod arch 2332 to

arch 2336. The %erformance of banke5 deceerated during arch 2336 G arch 233= but

thereafter it has shown increasing trend ti arch 2311.

The four+month %eriod ()ovember 2313+9ebruary 2311! was marked by a consistent decine in

a the indices caused by a number of goba and domestic deveo%ments. The Sense5

decined by 12.;0" whie the 'anke5 Inde5 decined by

16./0.


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Some of the goba factors" such as increase in crude oi %rices and high commodity %rices

contributed to inHation in the domestic economy. 7igh inHation cou%ed with ow growth rate in

the Inde5 of Industria -roduction (II-! and tightening interest rates has caused some concerns

over the short+term economic growth" hitting the stocks in a the sectors" %articuary those in

the #nancia services sector.


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Source? '

In recent years" 8e%osit" which constitutes "; ;8"2

13

3

63

43

;3

23

>";8";

:2"


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The other vita factors which determine the %ro#tabiity of banking sectors are net interes

margin ()I!" o%erating e5%enses and other income. )et Interest argin ()I! is used to assess

eMciency of the banking sector. In India" during the ast one decade" )I was in the range 2.

%er cent to /.1 %er cent. The )I of the Indian banking sector continues to be higher than some

of the emerging market economies of the word.


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$oement! in )(eratin/ ,?(en!e! @$oement in

Source?

The asset ,uaity of Indian banks has im%roved dramaticay over the %ast 1 years. The gross)-* has reduced from

1.


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Capital to Risk Weighted Assets Ratio (CRAR)

The Ca(ital to Ri!k *ei/%ted A!!et! Ratio

:*! of a bank grou%s under 'ase I remained

we above the sti%uated reguatory norm of =

%er cent in 2313+11. *mong the bank grou%s

foreign banks registered the highest :* in

2313+11. To im%rove the ca%ita ade,uacy of the

%ubic sector banks" government infuse cor%us so

that -SU banks can be in a %osition to com%ete

with the other key %ayers. The eturn on *ssets

(J*! of foreign bank is high com%ared to %rivate

and %ubic banks during the %eriod 2334+3< to

2313+2311.

GL)BAL BANKINGTR,NDS

The @oba #nancia crisis makes significant changes in the o%erating framework of banks. The

%erformance of banks im%roves owing to strong ending growth and ow credit osses. The

%resent goba macro+economic situation is differentiated by an unbaanced economic recovery

across advanced and emerging economies" high eves of unem%oyment" inHationary %ressures

and eevated eves of government debt. The eturn on *ssets (o*!" an indicator o

banking systems %ro#tabiity and soundness showed a moderate increase in the US and 9rance

in 2313. The o* of US banks turned %ositive by 2313 after staying in the negative &one in

2336 and 233=N it showed a further

increase in 2311. The o* of Indian banks showed a modest risebetween 2336 and 2313.

Retrn on A!!et! R)A# of Bank! BankSto7k Indi7e! in Sele7t ,7onomie!


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Capital to Risk Weighted Assets Ratio (CRAR)

SourceGI9"OU%to the %eriod ending ar 11" P)ot *vaiabe

Source? euters"8ataStream


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K,Y PLAY,RS

PUBLICS,CT)R

State Bank of India SBI#

State 'ank of India is the argest banking and #nancia services com%any in India. In addition to

the banking services" the 'ank through their subsidiaries" %rovides a range of #nancia services

which incude ife insurance" merchant banking" mutua funds" credit card" factoring" security

trading" %ension fund management and %rimary deaershi% in the money market. The State 'an

@rou%" with over 14"333 branches" has the argest banking branch network in India. The bank

has 1/1 overseas oQices s%read over /2 countries. The bank offers convenience of over 21333

*Ts in India.

The bank has recorded tremendous growth in )et Interest Income. The )et Interest Income haregistered a growth of

/


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Source? *nnua e%ort

Peer Com(ari!on $ar7% 2011#

Parti7lar! State Bankof

Pna.National

CanaraBank

Bank ofBaroda

)et -rofit :28


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8uring 9A 2313+11" with /=.140 share of :*S* to domestic de%osits" the 'ank achieved a ne

%ro#t of s ;;// crore. 'ank has a strong ca%ita base with ca%ita ade,uacy ratio of 12.;20 as

on ar11 as %er 'ase II with Tier I and Tier II ca%ita ratio at 6.;;0 and /.=60 res%ectivey. *s

on arch11" the 'ank has the @ross and )et )-* ratio of 1.


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3.3

233"33

3

133"33

3

3

164"6=/1/6"21=

212";414="//

3.33

233= 23132311

233= 23132311

8e%osits *dvances

"s$

Crore


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1.12

1.11

1.13

1.3=

1.36

1.3or source of infrastructure

#nancing and their e5%osure to infrastructure is aready high at 1< %er cent. There are severa

ma>or concerns which are noted beow.

Inten!ifin/ 7om(etition

Indian banking industry has undergone ,uaitative changes due to banking sector reforms

Indian banking sector" which is dominated by state+controed banks" has been facing formidabe

chaenges. 8ue to this new emerging com%etition" Indian banks" es%eciay -S's" are trying

their best to im%rove their %erformance and %re%aring to com%ete in the emerging goba

market. )ew %rivate sector banks and foreign banks have more customer+centric %oicies" high

,uaity services" new attractive schemes and com%uteri&ed branches. * these services attracted

more and more customers to their banks.

In this conte5t" there is a need to e5amine the eMciency of %ubic sector banks o%erating in

India. ainy" com%etition can intensify and banks wi become more eMcient. The transaction

cost of customers coud come down and a bank which is eMcient" nimbe and customer focused

woud aways be abe to do better than others. *s a resut of gobai&ation" many new banks have

entered the Indian banking industry" further intensifying the com%etition.

In7rea!in/ NPA

The asset ,uaity of banks is one of the most im%ortant indicators of their #nancia heath. It aso

reHects the eMcacy of banks credit risk management and the recovery environment. The Indianbanks have shown very good %erformance as far as the #nancia o%erations are concerned. 'u

)on+%erforming *ssets ()-*! has caused some concerns. 8es%ite write+oQs" gross )-*s have

continued to rise significanty. The new accretion to )-*s has been much faster than the

reduction in e5isting )-*s due to ower eves of u%gradation and recoveries.

To im%rove the banks abiity to manage their non+%erforming assets ()-*s! and restructured

accounts in an eQective manner and considering that amost a branches of banks have been

fuy com%uteri&ed" the eserve bank of India in its onetary -oicy Statement 2312+1/ %ro%osed

the foowing measures?

To mandate banks to %ut in %ace a robust mechanism for eary detection of signs o

distress" and measures" incuding %rom%t restructuring in the case of a viabe accounts

wherever re,uired" with a view to %reserving the economic vaue of such accountsN and

To mandate banks to have %ro%er system generated segmentGwise data on their )-*

accounts" write+oQs" com%romise settements" recovery and restructured accounts.

8es%ite these concerns" it is %ro>ected that the Indian banking industry wi grow through ea%s

and bounds ooking at the huge growth %otentia of Indian economy. 7igh %o%uation base o


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India" rising dis%osabe income" etc. wi drive the growth of Indian banking industry in the ong+

term.


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BUDG,T2012'18

The #nancia market %erformance is often considered as a barometer of the economy. The

'anking system is the dominant ife+ine of the #nancia market. The budget 2312+1/ was argey

%ositive for the banking sector. Though no ma>or announcements were made" the 9inance

inister target to reduce #sca de#cit wi indirecty bene#t the sector as it wi ead to reduced

inHation which in turn wi ead to a reduction in %oicy rates.

'udget 2312 G 1/ has %ro%osed that individua ta5 %ayers be aowed ta5 deductions of u% to s

13"333 on interests that they earn from their saving de%osits. This %ro%osa may give some

boost to current and savings accounts (:*S*! de%osits. *ny increase in these de%osits wi

%ositivey im%act the net interest margins of banks. The other ma>or announcement is to set

aside s 1"666 crore for reca%itai&ation of %ubic sector bank and the target for agricutura

credit raised by s. 1"33"333 crore to s. "


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eevated eves for a arge %art of 9A11" was argey driven by food and fue items and ate

on transmitted to manufacturing %roducts to become a genera %henomenon. The

average inHation rate in India was


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T,C+N)L)GICALANALYSIS

In recent time" Indian banking industry has been consistenty working towards the

deveo%ment of technoogica changes and its usage in the banking o%erations for the

im%rovement of their eMciency. ith the a%%ication of new and im%roved technoogies banks

e5%ected to reduce costs" time and give customer satisfaction. :ore banking has changed the

face of banking by oQering vaue added services. :ore banking a%%ications he%s to %rovide

com%ete front and backend automation of banks. Technoogica deveo%ments woud rendeHow of information and data faster eading to faster a%%raisa and decision+making. This woud

enabe banks to make credit management more eQective" besides eading to an a%%reciabe

reduction in transaction cost.

Internet .ankin/ or banking via the Internet can be considered a

remarkabe deveo%ment in the banking sector. The abiity to

carry out banking transactions through the Internet has em%owered

customers to e5ecute their #nancia transactions within the comfort of

their homes and oQices. In todays busy word" when %eo%e do not

have much time even for %ersona work" Internet banking a%%ears as aboon.

Internet 'anking he%ed give the customers anytime access to their banks. 'ut for Interne

banking there is a re,uirement of a -: Ea%to% with an Internet connection

obie usage has seen an e5%osive growth in economies ike India. India ha

reached 6=/.6; miion mobie subscriber mark (Source? T*I" 8ec 2311! for a

%o%uation of 1.21 biion. ith $o.ile Bankin/" customer can check thei

account baance" transfer funds 2; 5


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of the financia system but aso to the sovereignty and safety of nations wordwide. In the

coming days" chaenges before banks woud %rimariy ie in saving themseves from the

growing threat of money aundering.

Indian Banking Industry Market

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