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Indian Banking Industry Presented by Group 2 H.L institute of commerce Roll No: 251-260 Roll No: 251-260

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Indian Banking Industry

Presented by Group 2 H.L institute of commerce

Roll No: 251-260 251-

IntroductionIt is a financial Institute It accepts deposits and lends money. First bank started in 1786. RBI became central bank of India in1934. Nationalized in 1969.

Agenda

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

Industry Value Chain & its Structure

Industry Overview Industry Value Chain Industry Structure

OverviewBanking Industry is highly Regulated and Organized. In FY08, contribution of banking industry to GDP is 6.7%. In India there are 79 banks in total at present. The composition of which are as follows : Nationalised Banks-28, Scheduled Commercial Banks-23 and Foreign Banks-28. Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all ATMs.

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

Value ChainMarketing

Technology Household Banks

RBI

Corporate Other regulatory authorities

Banking StructureRBI Commercial Banks Co-operative Banks Banking Institutions NBFIs

Public Sector Banks

Primary Urban Co-op

All India Development Banks

Housing Finance Comnpanies

Private Sector Banks

State and Central Co-op

State Finance Companies

Non-Bank Finance Companies

Foreign Banks

Primary Agricultural Credit Societies

Specialized Institutions (NABARD/NHB)

Regional Rural Banks

Land Development Banks

Market Size & Growth RateThe market size of Indian banking industry is Rs 39,068.778 bn as on 31st March, 2007 Aggregate bank deposits as on 21st Nov, 2008 stand at Rs. 35195.93 bn as compared to Rs. 29243.07 bn in the corresponding quarter of the last year thereby showing a growth of 20.36%. Total bank credit as on November 21, 2008 stand at Rs. 26327 bn as compared to Rs. 20748.93 bn in the corresponding quarter of the last year thereby showing a growth of 26.88%.C/D Ratio 76 75.5 75 74.5 74 73.5 % 73 72.5 72 71.5 71 70.5 70 69.5 AMJ07 JAS07 OND07 JFM08 AMJ08 JAS08

Source : RBISENSEX vs. BANKEX22500 20000 17500 15000 12500 10000 7500 5000 2500 Dec07 Jan08 Feb08 Mar08 Apr- May- Jun- Jul-08 Aug- Sep- Oct08 08 08 08 08 08 SENSEX BANKEX Nov08

Source : www.bseindia.com

Industry SegmentsBanking

Retail (Savings, Mortgage, Personal Loans, Debit & Credit Cards etc.)

Wholesale (Corporate Finance. Capital Markets, Leasing, Wholesale Insurance etc. )

Treasury (Arrangement of Forward contracts, Derivatives and Rupee quotes etc.)

Segment wise Revenue is risingReasons: Increase in Branch network. Increase in deposit & loan products. Using lower cost alternative channels. Improved infrastructure & core banking facilities.Industry Segments Wise Revenue

240 200Rs . bn

160 120 80 40 0 2005-06 2006-07Retail Wholesale Treasury

2007-08

Source: RBI

Major PlayersBank SBI ICICI HDFC Axis PNB Bank Of India Bank Of Baroda Union Bank Canara Bank Oriental Bank OthersSource : www.bseindia.com

Mkt. Share(%) 24.2 15.0 12.8

Current Mkt. Share(%)5% 5% 5% 13% 2% 2% 15% 38% 24% 25% 1% 3%

5.5 4.9 4.6 3.0 2.4 2.4 1.2 24.2SBI PNB Canara Bank ICICI Bank Of India Oriental Bank HDFC Axis Bank Of Baroda Union Bank Others

Level of Competition

Herfindahl Index

Michael Porter Analysis

Michael Porter analysis of Indian Banking IndustryThreat of Entry Low

Bargaining power of Suppliers Low to Moderate

Internal Competitive Rivalry

Bargaining power of Buyers Low

High

Threat of Substitutes Low

Michael Porter AnalysisThreat of New Entrants (Low)Highly Capital Intensive High cost of funds for new players Goodwill is a deciding factor Regulatory requirement like RBI restrictions, legal formalities, net worth requirement and Basel II norms

minimum

Bargaining Power of Suppliers ( Low to Moderate)Other Asset class generally offers high returns but with more risk specially in short term. Rural area people are less aware and Fragmented. Banking deposits offers more liquidity

Competitive Rivalry (High)Huge demand for credits so more chance to grow in long term Requirement for funds to increase business has created competition

Michael porter contd.Threat of Substitutes (Low) External Commercial Borrowing and Debentures Commercial Papers and Public Deposits Money Market Post office Schemes Government Bonds Bargaining power of Buyers (low) Other available resources are not enough to tap the whole requirement. Relatively higher Covenants and Intervention in management. Low or no access of SMEs to ECB, CP & public deposits due to regulations and larger floatation costs. Bargaining power of big ticket players is more as comparison to small players specially in current scenarios.

Technology : Driving the cost structureInstruments and services introduced in recent years:

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

Benefits to Banking Industry

Facilitates paperless inter and intra bank settlements, both inter and intra city. Fast, secure and irrevocable settlement of major business and financial market transactions. Reduces operational risk by securing the transmission route. Reduction in human resource requirement and thus decrease in human resource cost as percentage of total income by 18% in 2007-08. Lower transaction costs and increase in operational efficiency.

Growth Drivers

Large untapped rural market till now. Increase in consumption habits and thus retail banking. Rapidly expanding NRI in foreign markets. Umbrella or Universal banking (Bank assurance, Non-fund based services, ASBA, Derivative products ) Increase in expenditure on Infrastructure and R & D . Rapid advances in technology. Bank penetration is far lower than in other markets and it is uneven within India also. Innovation in financial products like Flexi fix deposits and Zero balance saving account. Surge in mergers & acquisitions activities in recent years.

Growth Drivers contd..

Decline in value of other asset classes would increase small savings habits. Decrease in Operating expenses as percentage of total income by 13.3% in 2007-08. Decrease in human resource costs as percentage of total income by 18% in 2007-08. Decrease in NNPA as percentage of total advances by 11.1% in 2007-08. Growth in credit to service sector by 31.1% in 2007-08 and 30.2% in 2006-07. Surge in Indias two way trade and external transactions as percentage of GDP. Decreasing Interest Rate scenario will boost the profits.

Challenges

Maintaining the credit flow.

Regulatory forbearance and relaxing regulatory reforms.

Effective implementation of Basle-II framework.

Regulatory FrameworkReserve Bank Of India Act,1934

As Central Banker As Promoter As Regulator

Banking Regulation Act, 1949

Reserve Requirements Restrictions on Loans and Advances Audit Licensing Requirements

Outlook Bank credit is expected to grow by 20% in 2009-10. Indian Banking system is relatively insulated from factors leading to turmoil in banking industry. Indias banking industry must embrace the concept of the learning organization for continuous development and upgradation. The future of Indian Banking lies in increased investment in technology. Banks also need to gear up for consolidation in the banking sector. Consolidation must happen not just between PSU banks but also between PSU and private sector banks. In current scenario banks should focus more on lending.