PESTLE ANALYSIS: BANKING SECTOR

ECONOMICAL

POLITICAL

Gdp monsoon inflation savings & accounts agriculture credit interest rates raising living Standred disposable incomE

SOCIOCULTURAL

Government policy & budgect budject measures monatory policy fdi limit Organizatio n LEGAL

changes in life style literacy rate demographic of large population shift towards the nuclear family

TECHNICAL

RESERVE BANK OF INDIA ACT BANKING REGULATION ACT

technology in banks core banking solutions(cbs) ATM internate i.t serves and mobile banking

Presented By:Group 12

AXIS BANK

Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank as on 31st December, 2011 is capitalized to the extent of Rs. 412.57 crores with the public holding (other than promoters and GDRs) at 53.63%. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1281 branches (including 169 Service Branches/CPCs as on 31st March, 2011). The Bank has a network of over 7591 ATMs (as on 30th September, 2011) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence.

PESTLE ANALYSIS:-

POLITICAL ASPECTS:Government and RBI policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By doing so the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks.

Focus on Regulations of government Indian Banking is least affected as compare to other developed economy which is attributed to Reserve Bank of India for its robust policy framework, stricter prudential regulations with respect to capital and liquidity. This gives India an advantage in terms of credibility over other countries. Government affects the performance of banking sector most by legislature and framing policy .government through its budget affects the banking activities securitization act has given more power to banking sector against defaulting borrowers. Monetary policy Repo Rate, Reverse Repo Rate, the Liquidity Adjustment Facility (LAF), CRR, etc are some of the tools used by the RBI in their free market operations in order to control the banking operations and bank like the Axis are affected by these policies. FDI LIMIT The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who are starved of net worth to meet CAR norms. Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0 percent and have been included within the ambit of FDI investment Budget measures

Increase Farm Credit: The FM has further increase the farm credit target for 2009-10 at Rs 325000 crore compared to Rs 287000 crore targeted in 2008-09. Subvention of 1% to be paid as incentive to farmers: The Budget continued the Interest subvention scheme for short-term crop loans up to Rs 300000 per farmer at the interest rate of 7% per annum. Also additional subvention of 1% to be paid from this year, as incentive to those farmers who repay short-term crop loans on schedule. Also additional allocation of Rs 411 crore over Interim Budget 2009-10 was made for the same. Debt Waiver for Farmers: The Union Budget 2009-10 extended the debt waiver scheme by six more months for farmers owing more than 2 hectare of land. The Union Budget 2008-09 allowed these farmers 25% rebate on loan if they repay 75% of their overdue within stipulated period of 30th June 2009. Currently this facility has been extended from 30th June, 2009 to 31st December, 2009. Setting up of separate task force for those not covered under the debt waiver scheme: The government also announced that it will set up a task force to examine the issue of debt taken by a large number of farmers in some regions of Maharashtra from private money lenders who were not covered by the loan waiver scheme announced last year. Other provisions

The threshold for non-promoter public shareholding for all listed companies to be raised in a phased manner. To allow scheduled commercial banks setting up off-site ATMs without prior approval subject to reporting. To provide banking facilities in under-banked/un-banked areas in the next three years. A sub-committee of State level Bankers Committee (SLBC) would identify and formulate an action plan for the same. The Ministry has also granted Rs 100 crore of grants in aid to ensure provision of at least one Centre/Point of Sales (POS) for banking services in each of the un-banked blocks.

Budget impact The Union Budget 2008-09 has focused on farm credit. The agriculture sector has recorded a growth of about 4% per annum with substantial increase in plan allocations and capital formation in the sector. The one-time bank loan waiver of nearly Rs 71000 crore (Rs 710 billion) to cover an estimated 40 million farmers was one of the major highlights of the last Budget. This Union Budget has provided further six months extension of 25% rebate on loan for farmers owing more than 2 hectare of land. With Government bearing this burden, banks would not be affected much. It will only help banks to clear their most stubborn NPA accounts on banks book.

Moreover the emphasize on hiking promoter shareholding in Public sector banks, expanding network with ATM's, opening of banking centre in un-banked blocks are some of the positive moves for the sector. On the flipside, the spike in government borrowings is set to adversely affect the treasury income of banks in general and public sector banks in particular, through rise in yields on government securities. Budget Impact: Industry 1. Long-term refinancing from IIFCL for infrastructure projects will ensure better asset-liability match for banks. 2. Debt waiver and interest subvention schemes will not have much impact on banks. 3. Recapitalization will ensure adequate capital for the growth of the public sector banks and insurance companies. 4. Rural Housing fund will boost the resource base of NHB for their refinance operation in rural housing sector. 5. Tax break for NPS trust will have positive impact on the same.

ECONOMIC ASPECTS:-

Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others followed. Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels

Growing Economy / GDP Indian economy has registered a growth of more that 9 per cent for last three year and is expected to maintain robust growth rate as compare to other developed and developing countries. Banking Industry is directly related to the growth of the economy. Low Interest Rates Reserve Bank of India controls the Interest rate, which is based on several monetary policies. Recently RBI has reduced the interest rate which stimulates the growth rate of banking industry. As on September 11, 2009 Bank Rate was 6.00 per cent, the same as on the corresponding date of last year. Call money rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with 5.25/11.00 per cent on the corresponding date of last year. Inflation Rates Inflation represents a rise in general level of prices of goods and services over a period of time. It leads to an erosion in the purchasing power of money. Resultantly, each unit of currency buys fewer goods and services Different fiscal and monetary policies have curbed the Inflation rate from the high of 12.63 per cent to 3.92 per cent. To fight against the slowdown of the Economy, Government of India & Reserve Bank of India took many fiscal as well as monetary actions. Clubbed with fiscal & monetary actions, decreasing commodity prices, decreasing crude prices and lowering interest rate, we expect that

Indian Economy could again register a robust growth rate in the year 2009-10. Inflation stands at 3.92 per cent on 7th February 2009 against a high of 12.63 per cent on 9th August 2008. Savings & Accounts As stated earlier, India continues to remain one of the high savings economies among the emerging market economies. Gross Domestic Savings (GDS) of the Indian economy constitutes savings of public, private corporate and household sectors. In the recent period the high growth performance of the Indian economy is driven by rise in savings

Agriculture Credit Agriculture has been the mainstay of our economy with 60% of our population deriving their sustenance from it. In the recent past, the sector has recorded a growth of about 4% per annum with substantial increase in plan allocations and capital formation in the sector. Agriculture credit flow was Rs 2,87,000 crore in 2008-09. The target for agriculture credit flow for the year 200910 is being set at Rs.3,25,000 crore. To achieve this, I propose to continue the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this year, the government shall pay an additional subvention of 1% as an incentive to those farmers who repay their short term crop loans on schedule. Thus, the interest rate for these farmers will come down to 6% per annum. For this, I am making an additional Budget provision of Rs 411 crore over Interim BE.

Debt relief for farmers The one-time bank loan waiver of nearly Rs 71,000 crore to cover an estimated 40 million farmers was one of the major highlights of the last Budget. Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having more than two hectares of land were given time upto 30th June, 2009 to pay 75% of their overdues. Due to the late arrival of monsoon, I propose to extend this period by six months upto 31st December, 2009 .

SOCIO-CULTURAL FACTORS:-

Socio culture factors also affect the business. They show in which people behave in country. Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and consumption habit of people, their language, beliefs and values affect the business. Banking industry is also operates under this social environment and it is also affect by this factor. These factor are changing continuously peoples life style, their behavior, consumption pattern etc. is changing and also creating opportunities and threat for banking industry. There are some socio-culture factors that affect banking in India have been analyzed below.

Shift to nuclear families Attitude of people of India is changing. Now, younger generation wants to remain separate from their parents after they get married. Joint families are breaking up. There are many reasons behind that. But banking sector is positively affected by this trend. A family need home consumer durables like freeze, washing machine, television, bike, car, etc.. so, they demand for these products and borrow from banks. Recently there is boost in housing finance and vehicle loans. As they do not have money they go for installments. So, banks satisfy nuclear families wants. Change in life style Life style of India is changing rapidly. They are demanding high class products. They have become more advanced. People want everything car, mobile, etc.. what their fore father had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also want to have well furnished home, television, mobile, vehicle and this has opened opportunities for banking secter to tap this change. Every thing is available so it has become easy to purchase anything if you do not have lump sum. Population Increase in population is one of he important factor, which affect the private sector banks. Banks would open their branches after looking into the population demographics of the area. Percentage of deposit in any branches of banks depends upon the population demographic of that area. The population of India is about 102.90 is expected to reach about 119.70 cores in 2011. About 70% of population is below 35years of age. They are in the prime earning stage and this increase the earning of the banks. Total Deposits mobilized by the Private Sector Banks increased from Rs, 2,52,335 crore as on 31st March 2004 to Rs. 3,12,645 crore as on 31st March 2005. Deposits showed a subdued growth during 2004-05.Income distributions also affects the operations and overall business of private sector banks. Literacy Rate

Literacy rate in India is very low compared to developed countries. Illiterate people hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side of this as well i.e. illiterate people trust more on banks to deposit their money, they do not have market information. Opportunities in stocks or mutual funds. So, they look bank as their sole and safe alternative. Literacy rate of India is around 65%

TECHNOLOGICAL ASPECTS:Technology plays a very important role in banks internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. ATM The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post.

IT Services & Mobile Banking Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your

mobile. The messages are then recognized by the bank to provide you with the required information. All these technological changes have forced the bankers to adopt customer-based approach instead of product-based approach Technology advancement has changed the face of traditional banking systems. Technology advancement has offer 24X7 banking even giving faster and secured service.

Core banking solutions

It is the buzzword today and every bank is trying to adopt it is the centralize banking platform through which a bank can control its entire operation the adoption of core banking solution will help bank to roll out new product and services.

LEGAL ASPECTS:The advent of liberalization and globalization had 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 focus has clearly shifted from micro monitoring to macro management. Supervisory role is also shifting more towards off-site surveillance rather than on-site inspections. The focus of inspection is also shifting from transaction-based exercise to risk based supervision. In a totally de-regulated and globalised banking scenario, a strong regulatory framework would be needed. The role of regulator would be critical for: a) Ensuring soundness of the system by fixing benchmark standards for capital adequacy and prudential norms for key performance parameters. b) Adoption of best practices especially in areas like risk-management, provisioning, disclosures, credit delivery, etc. c) Adoption of good corporate governance practices. d) Creation of an institutional framework to protect the interest of depositors.

e) Regulating the entry and exit of banks including cross-border institutions. Further, the expected integration of various intermediaries in the financial system would add a new dimension to the role of regulators. Also as the co-operative banks are expected to come under the direct regulatory control of RBI as against the dual control system in vogue, regulation and supervision of these institutions will get a new direction. Some of these issues are addressed in the recent amendment Bill to the Banking Regulation Act introduced in the Parliament. The integration of various financial services would need a number of legislative changes to be brought about for the system to remain contemporary and competitive. 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, i) Abolition of SICA / BIFR setup and formation of a National Company Law Tribunal to take up industrial re-construction. ii) Enabling legislation for sharing of credit information about borrowers among lending institutions. iii) Integration of the financial system would change the way we look at banking functions. The present definition of banking under Banking Regulation Act would require changes, if banking institutions and non-banking entities are to merge into a unified financial system. iv) While the recent enactments like amendments to Debt Recovery Tribunal (DRT) procedures and passage of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) have helped to improve the climate for recovery of bank dues, their impact is yet to be felt at the ground level. It would be necessary to give further teeth to the legislations, to ensure that recovery of dues by creditors is possible within a reasonable time. v) The procedure for winding up of companies and sale of assets will also have to be streamlined. IN the recent past, Corporate Debt Restructuring has evolved as an effective voluntary mechanism. With the borrowers gaining confidence in the mechanism, it is expected that CDR setup would gain more prominence making NPA management somewhat easier. It is expected that the issue of giving statutory backing for CDR system will be debated in times to come. ENVIRONMENTAL ASPECTS:Banks don't have much effect on the environment; in fact I think I have heard a few banks are actually helping rainforests etc

Hong Kong and Shanghai Banking Corporation

HSBC Holdings plc is a global financial services company headquartered in London, United Kingdom. As of 2010, it is the world's 6th largest banking and financial services group and the world's 8th largest company according to a composite measure by Forbes magazine. It has around 8,000 offices in 87 countries and territories across Africa, Asia, Europe, North America and South America and around 100 million customers. As of 30 June 2010 it had total assets of $2.418 trillion, of which roughly half were in Europe, a quarter in the Americas and a quarter in Asia. HSBC Holdings plc was founded in London in 1991 by The Hongkong and Shanghai Banking Corporation to act as a new group holding company and to enable the acquisition of UK-based Midland Bank. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. Today HSBC remains the largest bank in Hong Kong, where the Group Chief Executive is currently based, and recent expansion in mainland China, where it is now the largest international bank, has returned it to that part of its roots. Its primary listing is on the London Stock Exchange and it is a constituent of the FTSE 100 Index. It has secondary listings on the Hong Kong Stock Exchange (where it is a constituent of the Hang Seng Index), New York Stock Exchange, Euronext Paris and Bermuda Stock Exchange. As of August 2010, it was the largest company listed on the London Stock Exchange, with a market capitalization of 115.8 billion.

PESTLE ANALYSIS:-

Political Aspects HSBC Banking has been protected by the regulations and policies formulated by different government in the countries where they are operating. The company has been able to adhere to the policies given by each government to make sure that the company will be able to conduct business operations successfully and effectively. Furthermore, the company also formulates their own protection strategies against any governmental restrictions and limitations. Government is hounding the banking industry because of the image if politicians did not and that they did caused the fin crisis; future possible problems include stricter regulations and breaking down the power of the banking sector. the government would also be thinking of a way to get back taxpayers' money that they invested in these institutions and what to do with the banks that have already merged or made acquisitions with other banks

Economic Aspect Being the worlds largest and competitive industry in terms of banking and finance, HSBC, is said to have a stable and successful economic stability. In spite of many dangers that they encounter in different parts of the world, the management of HSBC sees to it that they would be able to surpass such struggles and strives to have a better economic condition. Higher interest rates because of the high default rates over the last few years. Liquidity of banks is a worry but nothing is happening in the interbank market. at the same time, banks are trying to build their balance sheets back up. Recently we all have received post of loans they are offering us at rates as high as 22%. No much business going on. Share prices are recovering, but slowly like the rest of the financial market.

Social Aspect HSBC is being affected by the situation of the society in which they are operating. Along with this, HSBC tries harder to make sure that each society is given equal chances to take advantage of the resources given by the organization. The company adheres to having good reputation and relations in the society that they belong. people are less trusting of banks and the public now see banks as power and money hungry institutions who messed up society - doubt it's all true. Publicity is not all that good either; bank bonuses are taxed at 50% in order to deter paying them, but banks are still paying them in order to try to keep their star players within their organization.

Technological Aspect The emergence of information technology and internet affects how HSBC has been operating in the past years. The company adopts different IT/IS systems and used internet to reach their customer all over the world and to know the latest trends in the global business. Aside from these, the company also uses facilities which helps them improved their productions and operations. There have been things like the PIN entry device, online banking, etc. nothing all that new. there have been credit cards issued before the boom. At the moment, R&D is cooking up new forms of investments (we call that financial innovation) to get more business, when confidence in the financial industry is restored. Things are rather slow in this area as well, except for the fact banks are now opening on Saturdays as well as on weekdays

Legal Aspects Stricter regulations and there have been quite a few court cases with a few banks because shareholders lost money (not that all of these cases actually get much of a fight) Environmental Aspects Banks don't have much effect on the environment; in fact I think I have heard a few banks are actually helping rainforests etc