Business Environment
Business Environment
BANKING INDUSTRY
By:-
Sarveshwar Sharma
Swati Rakesh Choudhary
Ravi Bhaskar
Ruchi Pal
Rashmi Poddar
Roopanshi Jain
Introduction
• 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.
• There are three different phases of Indian Banking Industry :
1. Pre-Nationalization Era
2. Nationalization Stage : This phase of financial reforms resulted in the
nationalization of 14 major banks in 1969 and resulted in a shift from
Class banking to Mass banking
3. Post Liberalization Era : By the beginning of 1990, the social banking
goals set for the banking industry made most of the public sector
resulted in the presumption that there was no need to look at the
fundamental financial strength of this bank..
Structure Of Indian Banking Industry
Size of Indian Banking Industry
• The total asset size of the Indian banking sector is US$ 270
billion
• Total deposits amount to US$ 220 billion
• Branch network exceeding 66,000 branches and 17,000 ATMs
across the country
• Currently, India has 88 scheduled commercial banks - 28
public sector banks, 29 private banks and 31 foreign banks
• According to a report by ICRA Limited, a rating agency, the
public sector banks hold over 75 percent of total assets of the
banking industry.
• The private and foreign banks holding 18.2% and 6.5%
respectively.
Banking Sector Analysis
• Banking Sector Analysis :
Strengths Weakness
• Indian banks have compared • PSBs need to fundamentally
favourably on growth, asset quality strengthen institutional skill levels.
and profitability with other regional • Old private sector banks also have
banks. the need to fundamentally
• Positive impact of changes in policy strengthen skill levels
and regulation . • The cost of intermediation remains
• Bank lending has been a significant high and bank penetration is limited
driver of GDP growth and to only a few customer segments and
employment. geographies.
• Extensive Reach • Impediments in sectorial reforms
• Clean, strong and transparent • Structural weaknesses such as a
working. fragmented industry structure,
• Huge and Efficient infrastructure. restrictions on capital availability and
deployment
Opportunity Threat
• Discontinuous growth driven by new • Threat of stability of the system:
products and services will create new failure of some weak banks has often
job opportunities. threatened the stability of the
• With increased interest in India, system.
competition from foreign banks will • Rise in inflation figures which would
only intensify. lead to increase in interest rates.
• Demographic shifts. • Increase in the number of foreign
• Innovation and develop differentiated players would pose a threat to the
business models to profitably serve PSB as well as the private players.
segments like the rural/low income
and affluent/HNI segments .
• Liberalisation of ECB norms.
PEST ANALYSIS
• Political
• Baseline projection of WPI for FY11 stands at 5.5% which would require significant monetary
tightening
• 2009
• Banks were allowed to open offsite ATMs without prior approval from RBI
• Branch authorization policy was also liberalized in December 2009 and
banks were allowed to open branches in Tier III-VI cities without prior RBI approval
tier 3 and 4
• RBI also issued guidelines relating to the issuance and operation of mobile phone based
pre-paid payment instruments
• The provisioning requirement for advances to commercial real estate classified as
standard assets was increased from 0.4% to 1.0%
• 2010
• RBI - guidelines directing banks to replace the benchmark prime lending rate system
with a base rate system effective July 2010
• Guidelines revising the method of payment of interest on savings accounts to a daily
average basis effective April 1, 2010
• Economic
• RBI declares its 6 monthly policy yearly
• union budget affects the banking sector to boost the economy by giving certain concessions
or facilities
• Increase in budget savings
• FDI limits relax
• Growth of economy
• Social
• banks provide various types of loan to farmers, working women, professionals, and traders
• personalized banking
• special provisions
• Main Social Factors:
• Shift towards nuclear family
• Change in lifestyle
• Population
• Literacy rate
Technological factors
The Banking sector has been immensely benefited from the implementation
of superior technology during the recent past, almost in every nation in the
world.
Advantages
• Productivity enhancement, innovative products, speedy transactions
seamless transfer of funds, real time information system, and efficient risk
management are some of the advantage derived through the technology.
• One is communication and connectivity and other is business process
reengineering.
The process of reforms in payment for implementation
of project are as:
• a. NEFT (National Electronic Fund Transfer)
• b. RTGS(Real Time Gross Settlement)
• c. ATM(Automatic Teller Machine)
Legal Factors
1. The advent of liberalization and globalization has seen a lot of changes in the
focus of Reserve Bank of India as a regulator of the banking industry. De-
regulation of interest rates and moving away from issuing operational
prescriptions have been important changes. The role of regulator would be
critical for:
[Link] soundness of the system by fixing benchmark standards for capital
adequacy and prudential norms for key performance parameters.
[Link] of best practices especially in areas like risk-management,
provisioning, disclosures, credit delivery, etc.
[Link] of good corporate governance practices.
[Link] of an institutional framework to protect the interest of depositors.
regulating the entry and exit of banks including cross-border institutions.
,
The need for changes in the legislative framework has been felt in several areas and steps have
been taken in respect of many of these issues, such as,
a) abolition of SICA / BIFR setup and formation of a National Company Law Tribunal to take up
industrial re-construction.
b) enabling legislation for sharing of credit information about borrowers among lending
institutions.
Environmental Factors
• 1. Important changes are the deregulation of interest rates and moving away
from issuing operational prescriptions.
• 2. Micro monitoring changed into macro management.
• 3. Supervisory role transferred from online inspections to off-site surveillance.
• 4. Barring commercial banks, the other rural financial institutions have a weak
structural base and the issue of their strengthening requires to be taken up on
priority. Co-operatives will have to be made viable by infusion of capital. Bringing
all cooperative institutions under the regulatory control of RBI would help in
better control and supervision over the functioning of these institutions.
BARGAINING
1. Nature
POWER of OF
suppliers
2. Few alternatives
SUPPLIERS
3. RBI rules and regulations
4. Suppliers are not
concentrated
5. Forward integration
1. Large number of banks
2. High market growth rate
[Link] fivecosts
THREAT OF 1. THREAT
Non banking
OF financial
BARRIERS
1. Product TO
differentiation Low switching
COMPETITOR sector increasing rapidly
SUBSTITUTES
ENTRY
very difficult force Smodel
4. Undifferentiated services
2. Deposits in posts
2. Licensing requirement 5. High fixed cost
3. Stock market
6. High exit barriers
1. Large number of
alternatives
2. Low switching costs
3. Undifferentiated services
4. FullBARGAINING
information about
POWEROF
the market
CONSUMER
Bibliography
• Kranthi Kiran, Market Structure of Indian Banking Sector, Jan
2010
• S.P. Talwar, Competition, consolidation and systemic stability
in the Indian banking industry
• [Link]
• [Link]
THANK YOU