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Indian Banking Industry

Course: - PostGraduate Program

Name of the Students: - Kaushal,Shivani, Manindra, Nisha

Name of the College: - SkylineBusiness School

Month & Year of submission: - November,2011

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Indian Banking Industry

FIELD ASSIGNMENT

ON

INDIAN BANKING INDUSTRY

Submitted to

Mrs. Anita Singhal

(A guest faculty of Skyline Business School)

In partial fulfillment of the requirements

For the award of the degree of

POST GRADUATE PROGRAM

(III semester)

Submitted by

Kaushal Kumar

Shivani JainManindra Kumar

Nisha Rani

SKYLINE BUSINESS SCHOOL

122 Institutional Area, Sector 44, Gurgaon -122003

October 2011

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Indian Banking Industry

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Indian Banking Industry

Literature Review

AN INTRODUCTION TO INDIAN BANKING INDUSTRY:

The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949

can be broadly classified into two major categories, non-scheduled banks and scheduled banks.

Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership,

commercial banks can be further grouped into nationalized banks, the State Bank of India and its

group banks, regional rural banks and private sector banks (the old/ new domestic and foreign).

These banks have over 67,000 branches spread across the country.

The first phase of financial reforms resulted in the nationalization of 14 major banks in1969 and

resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth

in the geographical coverage of banks. Every bank had to earmark a minimum percentage of

their loan portfolio to sectors identified as priority sectors. The manufacturing sector also grew

during the 1970s in protected environs and the banking sector was a critical source. The next

wave of reforms saw the nationalization of 6 more commercial banks in 1980.Since then the

number of scheduled commercial banks increased four-fold and the number of bank branches

increased eight fold.

After the second phase of financial sector reforms and liberalization of the sector in the early

nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new

private sector banks and the foreign banks. The new private sector banks first made

their appearance after the guidelines permitting them were issued in January 1993. Eight new

private sector banks are presently in operation. These banks due to their late start have access to

state-of the-art technology, which in turn helps them to save on manpower costs and provide

better services.

During the year 2000, the State Bank of India (SBI) and its 7 associates accounted for a25

percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks accounted

for 53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of

foreign banks (numbering 42), regional rural banks and other scheduled commercial banks

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Indian Banking Industry

accounted for 5.7 percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41percent,

3.14 percent and 12.85 percent respectively in credit during the year 2000.

Current Scenario

The industry is currently in a transition phase. On the one hand, the PSBs, which are the

mainstay of the Indian Banking system, are in the process of shedding their flab in terms

of excessive manpower, excessive non Performing Assets (NPAs) and excessive governmental

equity, while on the other hand the private sector banks are consolidating themselves through

mergers and acquisitions.

Private sector Banks have pioneered internet banking, phone banking, anywhere banking, and

mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various

other services and integrated them into the mainstream banking arena, while the PSBs are still

grappling with disgruntled employees in the aftermath of successful VRS schemes. Also,

following Indias commitment to the w to agreement in respect of the services sector, foreign

banks, including both new and the existing ones, have been permitted to open up to 12 branches

a year with effect from 1998-99 as against the earlier stipulation of 8 branches.

Meanwhile the economic and corporate sector slowdown has led to an increasing number of

banks focusing on the retail segment. Many of them are also entering the new vistas

of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor

are the best placed to enter into the insurance sector. Banks in India have been allowed to

provide fee-based insurance services without risk participation invest in an insurance company

for providing infrastructure and services support and set up of a separate joint-venture insurance

company with risk participation.

Major Developments:

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The Monetary Authority of Singapore (MAS) has provided qualified full banking (QFB

privileges to ICICI Bank for its branch operations in Singapore. Currently, only SBI had QFB

privileges in country.

The Indian operations of Standard Chartered reported a profit of above US$ 1 billion for the first

time. The bank posted a profit before tax (PAT) of US$ 1.06 billion in the calendar year 2009, as

compared to US$ 891 million in 2008.

Punjab National Bank (PNB) plans to expand its international operations by foraying into

Indonesia and South Africa. The bank is also planning to increase its share in the international

business operations to 7 per cent in the next three years.

The State Bank of India (SBI) has posted a net profit of US$ 1.56 billion for the nine months

ended December 2009, up 14.43 per cent from US$ 175.4 million posted in the nine months

ended December 2008.

Amongst the private banks, Axis Bank's net profit surged by 32 per cent to US$ 115.4million on

21.2 per cent rise in total income to US$ 852.16 million in the second quarter of 2009-10, over

the corresponding period last year. HDFC Bank has posted a 32 per cent rise in its net profit at

US$ 175.4 million for the quarter ended December 31, 2009 over the figure of US$128.05

million for the same quarter in the previous year.

CURRENT SCENARIO IN INDIAN BANKING:-

BUSINESS ENVIRONMENT

The Indian economy is on a growth path with the real GDP growth upwards of 9%. Industrial

and services sectors have accelerated growth while growth in agricultural sector has continued to

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remain moderate. Inflation remained an area of concern. There was however robust build up of

foreign exchange resources - close to $ 200 bn. Stockmarkets were buoyant while the Indian

Rupee continued to appreciate against US Dollar.

BANKING SCENARIO

The future of the banking sector appears quite promising though there are quite a few challenges

to contend with. The customer is more discerning and has a much wider access to technology

and knowledge. Hence the imperative need to roll out innovative customized products which will

be the key differentiator amongst banks. Time and distance have shrunk and the internet has

greatly facilitated global reach and therefore, evolution of delivery channels and interactive

services have been a boon to banking. The core banking solution platform is being increasingly

adopted by the banks to fully realize the opportunity thrown up by technology.

Unlike the previous year, credit growth of the system was not as profound but quite robust

nonetheless and resources though not really scarce, were a bit expensive. RBI initiated various

measures such as increase of reverse repo rate, higher CRR prescriptions etc. which were aimed

at moderating credit growth. To certain sector specific instruction have also been issued by RBI

to rein in expansion of Bank credit to such sectors. All this ushered in a period of increasing cost,

declining yields and consequently pressure on margins. Healthy rebalancing of the creditportfolio was the answer to this syndrome.

HIGHLIGHTS OF THE BANK'S PERFORMANCE

The year gone by was an exceptional year for the Bank in terms of most parameters. Net profit

surged by 60% from Rs. 701 Cr. to Rs. 1123 Cr. and the global business mix crossed the

milestone mark of Rs. 200,000 Cr. to touch Rs. 207,000 Cr. While deposits grew by 27.6% to

Rs. 119882 Cr., the share of low cost deposits hovered at 40% and your bank continues to be one

of the few banks with such a large share of low cost deposits. Credit expansion was a robust 30%

touching an aggregate level of Rs.86791 cr. The growth has been quite broad based

encompassing various segments such as agriculture, industry, SME and retail. Foreign branches

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accounted for a smart rise of 34% in advances.

Priority Sector not only constitutes the Bank's social commitment, but is recognized today as a

profitable business opportunity. With almost two third branches in rural and semi urban