Indian Banking Industry

An Analysis
Structural Analysis of the Industry
Banking Products - Corporate
Funded Services

- Working Capital Finance
- Short Term Finance
- Bill Discounting
- Export Credit
- Structured Cash Flow
Financing
- Channel/Vendor Financing
Non Funded Services

- Letters of Credit
- Guarantees
- Collection of Documents
- Bills Collection
- Cash Management Services
- Loan Syndication
- Supply Chain Management
- Payment Gateway Services

Banking Products - Retail
Assets

- Auto Loans
- Housing Loans
- Credit Card And Debit Card
- Wealth Management
- Insurance

Liabilities

- Retail Deposit

Porters Five Forces Analysis
Suppliers Power
Public & Corporate Deposits
- 80% of total liabilities
- Base too fragmented

Power increasing due to
- Integration of rural areas
- Improved Communication & Reach
Suppliers Power (Contd.)

RBI
- Supplier of funds only
- 2% of total liabilities

Workforce
- highly unionized industry.

THUS SUPPLIER POWER IS LOW



Buyers Power
Priority Sector

Agriculture
Small Scale Industries
Others
- Each accounts for 13% of Bank Credit
- Wide dispersion of the borrowers.
- Low Credit Standing

THI S SEGMENT POWER I S LOW
Buyers Power (Contd.)
Wholesale Trade
- Diffused base
- Low credit rating
- 3.8% of Bank Credit
Industry- Medium and Large firms.
- 35% of total Bank Credit
- Credit Surplus situation.
- Alternate avenues
THI S SEGMENT POWER I S MODERATE
Buyers Power (Contd.)
Others
NBFC 4% of Bank Credit
Individuals 15% of Bank Credit
RBI
- Control over SLR

POWER I S LOW
Threat of New Entrants
Barriers to entry

Government policies and regulations
Reach for economies of scale
Product differentiation
Low Profitability
THREAT OF NEW ENTRANT LOW
Threat of Substitutes
Unorganized Market
Capital Market
Insurance
NBFC
Financial Institutions
Post office deposits
External Commercial borrowings

THREAT OF SUBSTI TUTES HI GH.
Rivalry
10 Banks Deposit Concentration Ratio: 60.9
82.2% Deposits with PSBs.
Friendlier Regulation promoting Competition
Slow Industrial Growth increasing rivalry to capture
potentially good clients
Increased Rivalry in Retail Banking
Brand Building Exercise
Customer Service
Coverage
Undifferentiated Products
RI VALRY I NTENSE
External Factors affecting the Industry
Government Regulations
Agri lending concerns
Infrastructure focus
FDI Policy
Securitisation Act fillip
Revival of Core Industry Segments
Inflationary Pressures- RBI Increasing interest rates
Impact of Basel II norms

HUGE IMPACT OF GOVERNMENT REGULATIONS

External Factors affecting the Industry
Lifestyle Changes
I ndian culture is changing towards lesser hesistance to
taking credit
People are having lesser and lesser time.. Banking
products and services need to customized according to
this.
Technology
I nternet banking/ATM
Bank branch offices become more of Relationship
management offices

Rivalry/Competition
Threat of Substitutes

Threat of New entrant


Bargaining Power
of suppliers-

Bargaining Power
of Buyers
LOW
LOW
MODERATE
HIGH
HIGH
Industry Drivers
Technology
Customer service
Strategic alliances
Lifestyle changes
Economic growth
Structural Analysis within the
Industry
Competitive Strategy
KEY DIMENSIONS
- Size of deposit
- Technology
- Capital Adequacy Ratio
- NPA
- Operating Profit
- Staff Productivity
- Geographic Spread
- Service Quality
- Fee based Income
- Implicit cost of funds
Public Sector Banks
Parameters

SBI

PNB

BOB

Canara

Bank of
India

Size of
deposits

Very
High

High

High

High

High


Technology

Medium

Low

Low

Low

Low

Capital
Adequacy ratio

High

Medium

High

Low

High

NPAs

Very
High

Very High

Very High

High

Very High

Operating
profit

Medium

Low

Low

Medium

Low

Staff
productivity

Very Low

Very Low

Low

Low

Low

Geographic
spread

Very
High

High

High

High

High

Service Quality

Low

Low

Low

Low

Low

Fee-based
income

Medium

Low

Low

Low

Low

Implicit
Cost of funds

Medium

Medium

Medium

Medium

Medium


Parameters


J&K Bank


ICICI bank


HDFC bank


Vysya bank

Size of deposits

Low

Medium

Low

Low

Technology

Medium

High

High

Low

Capital Adequacy
ratio

Very High

High

Medium

High

NPAs

Medium

Medium

Very Low

High

Operating profit

Medium

Medium

Medium

Low

Staff productivity

Low

High

High

Low

Geographic spread

Low

Very Low

Low

Low

Service Quality

Medium

Good

Very Good

Poor

Fee-based income

Very Low

Medium

High

Low

Cost of funds

High

Low

Low

High

Private Sector Banks

Parameters



Standard
chartered


ABN AMRO


HSBC


Citibank


Size of deposits

Low

Low

Low

Medium

Technology

High

High

High

High

Capital
Adequacy ratio

High

Medium

High

Medium

NPAs


Very Low


Low


Low


Low

Operating profit

Medium

High

High

High

Staff
productivity

Medium

High

Medium

Very High

Geographic
spread

Very Low

Very Low

Very Low

Very Low

Service Quality

Good

Good

Good

Very Good

Fee-based
income

Low

Medium

High

High

Cost of funds

Very High

Very High

Very High

Very High

Foreign Banks
Strategic Groups
L
E
V
E
L

O
F

T
E
C
H
N
O
L
O
G
Y

SIZE OF DEPOSITS
LOW MEDIUM HIGH
.CITI

.ICICI

.CANARA

.PNB

.BOI

.BOB

.HDFC

.STANC

.HSBC

.ABN

LOW
MEDIUM
HIGH
. SBI
. J & K
.VYASA
Mobility Barriers
TECHNOLOGY
Ability to leverage technology
Huge investment outlay& time
Ability of workforce to adapt
REACH
Number of branches
Distribution
OPERATIONAL EFFICIENCY
Staff productivity
NPAs
Cost of funds

Strategic Options
CONSOLIDATION & STRATEGIC ALLIANCES

PNB and BOB tie up to enter insurance business
HDFC bought out housing finance portfolio of two companies.
Co-branding credit card of HSBC and PNB, Amex and MTNL co- .
. branded card for phone payments.

Strategic options(Contd.)
TECHNOLOGY UP GRADATION

- SBI and PNB spending heavily on IT infrastructure, primarily
. Telebanking and ATMs

- Future lies in phone banking , Internet banking, e-CRM and .
. data mining.
Strategic Options (Contd.)
UNIVERSAL BANKING

- ICICI merger with ICICI Bank
- Cross selling of products
- Enables banks to achieve cost efficiency through economies .
. of scale and scope.

The Road Ahead.
Consumer Banking business as main growth driver
Major consolidation 5 large nationalized banks, 4-5
private sector banks and about 4 foreign banks.
Survival of cost efficient players.
Select References

www.indianbanksassociation.com
www.bankersindia.com
www.indiainfoline.com
www.icicibank.com
J. P. Morgan Report on Retail banking




Thank you
The team.
Amit Kr. Jain Maloy Haldar
Anirban Banerjee Nitin
Gaurav Moda Priyanka Kanodia
Govind Rao Ramandeep Singh
Jyoti Kr. Agarwal Varun Lohchab
K.Ramakrishnan