Indian Banking Scenario Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions.
After India’s independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) – 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs.
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, with the private and foreign banks holding 18. 2% and 6. 5% respectively Organizational Structure of Banks in India In India banks are classified in various categories according to differ rent criteria. The following charts indicate the banking structure: Broad Classification of Banks in India 1)The RBI The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country.
It keeps the reserves of all scheduled banks and hence is known as the “Reserve Bank”. 2) Public Sector Banks •State Bank of India and its Associates (8) •Nationalized Banks (19) •Regional Rural Banks Sponsored by Public Sector Banks (196) 3) Private Sector Banks •Old Generation Private Banks (22) •Foreign New Generation Private Banks (8) •Banks in India (40) 4)Co-operative Sector Banks •State Co-operative Banks •Central Co-operative Banks •Primary Agricultural Credit Societies •Land Development Banks •State Land Development Banks 5) Development Banks
Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities) •Industrial Finance Co-operation of India (IFCI) •Industrial Development of India (IDBI) •Industrial Investment Bank of India (IIBI) •Small Industries Development Bank of India (SIDBI) •National Bank for Agriculture and Rural Development (NABARD) •Export-Import Bank of India Future of Indian banking sector The interplay between policy and regulatory interventions and management strategies will determine the performance of Indian banking over the next few years.
Legislative actions will shape the regulatory stance through six key elements: industry structure and sector consolidation; freedom to deploy capital; regulatory coverage; corporate governance; labour reforms and human capital development; and support for creating industry utilities and service bureaus. Management success will be determined on three fronts: fundamentally upgrading organizational capability to stay in tune with the changing market; adopting value-creating M as an avenue for growth; and continually innovating to develop new business models to access untapped opportunities.
Through these scenarios, one paint a picture of the events and outcomes that will be the consequence of the actions of policy makers and bank managements. These actions will have dramatically different outcomes; the costs of inaction or insufficient action will be high. Specifically, at one extreme, the sector could account for over 7. 7 per cent of GDP with over Rs.. 7,500 billion in market cap, while at the other it could account for just 3. 3 per cent of GDP with a market cap of Rs. 2,400 billion.
Banking sector intermediation, as measured by total loans as a percentage of GDP, could grow marginally from its current levels of 30 per cent to 45 per cent or grow significantly to over 100 per cent of GDP. In all of this, the sector could generate employment to the tune of 1. 5 million compared to 0. 9 million today. Availability of capital would be a key factor — the banking sector will require as much as Rs. 600 billion (US$ 14 billion) in capital to fund growth in advances, non-performing loan (NPL) write offs and investments in IT and human capital up gradation to reach the high-performing scenario.
Three scenarios can be defined to characterize these outcomes: •High performance In this scenario, policy makers intervene only to the extent required to ensure system stability and protection of consumer interests, leaving managements free to drive far-reaching changes. Changes in regulations and bank capabilities reduce intermediation costs leading to increased growth, innovation and productivity. Banking becomes an even greater driver of GDP growth and employment and large sections of the population gain access to quality banking products.
Management is able to overhaul bank organizational structures, focus on industry consolidation and transform the banks into industry shapers. In this scenario we witness consolidation within public sector banks (PSBs) and within private sector banks. Foreign banks begin to be active in M, buying out some old private and newer private banks. Some M activity also begins to take place between private and public sector banks. As a result, foreign and new private banks grow at rates of 50 per cent, while PSBs improve their growth rate to 15 per cent.
The share of the private sector banks (including through mergers with PSBs) increases to 35 per cent and that of foreign banks increases to 20 per cent of total sector assets. The share of banking sector value adds in GDP increases to over 7. 7 per cent, from current levels of 2. 5 per cent. Funding this dramatic growth will require as much as Rs. 600 billion in capital over the next few years. •Evolution Policy makers adopt a pro-market stance but are cautious in liberalizing the industry. As a result of this, some constraints still exist.
Processes to create highly efficient organisations have been initiated but most banks are still not best-in-class operators. Thus, while the sector emerges as an important driver of the economy and wealth in 2010, it has still not come of age in comparison to developed markets. Significant changes are still required in policy and regulation and in capability-building measures, especially by public sector and old private sector banks. In this scenario, M activity is driven primarily by new private banks, which take over some old private banks and also merge among themselves. As a result, growth of these banks increases to 35 per cent.
Foreign banks also grow faster at 30 per cent due to a relaxation of some regulations. The share of private sector banks increases to 30 per cent of total sector assets, from current levels of 18 per cent, while that of foreign banks increases to over 12 per cent of total assets. The share of banking sector value adds to GDP increases to over 4. 7 per cent. •Stagnation In this scenario, policy makers intervene to set restrictive conditions and management is unable to execute the changes needed to enhance returns to shareholders and provide quality products and services to customers.
As a result, growth and productivity levels are low and the banking sector is unable to support a fast-growing economy. This scenario sees limited consolidation in the sector and most banks remain sub-scale. New private sector banks continue on their growth trajectory of 25 per cent. There is a slowdown in PSB and old private sector bank growth. The share of foreign banks remains at 7 per cent of total assets. Banking sector value add, meanwhile, is only 3. 3 per cent of GDP. Recent Trends in Banking Indian Banking
Today, we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the world. During the last 39 years since 1969, tremendous changes have taken place in the banking industry.
The banks have shed their traditional functions and have been innovating, improving and coming out with new types of the services to cater to the emerging needs of their customers. Massive branch expansion in the rural and underdeveloped areas, mobilisation of savings and diversification of credit facilities to the either to neglected areas like small scale industrial sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and deepening of the financial infrastructure and transferred the fundamental character of class banking into mass banking.
There has been considerable innovation and diversification in the business of major commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds and many more are in the process of doing so. Some banks have commenced factoring business. The major challenges faced by banks today are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s.
It is rightly felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets in their books. The resolution of the NPA problem requires greater accountability on the part of the corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an appropriate legal framework pertaining to the banking system so that court procedures can be streamlined and actual recoveries made within an acceptable time frame.
The banking industry cannot afford to sustain itself with such high levels of NPA’s thus, “lend, but lent for a purpose and with a purpose ought to be the slogan for salvation. ” The Indian banks are subject to tremendous pressures to perform as otherwise their very survival would be at stake. IT plays an important role in the banking sector as it would not only ensure smooth passage of interrelated transactions over the electric medium but will also facilitate complex financial product innovation and product development.
The application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual banking. As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World Wide Web (WWW) can be visualised. That means all banks would be interlinked and individual bank identity, as far as the customer is concerned, does not exist. There is no need to have large number of physical bank branches, extension counters. There is no need of person-to-person physical interaction or dealings. Customers would be able to do all their banking operations sitting in their offices or homes and operating through internet.
This would be the case of banking reaching the customers. Banking landscape is changing very fast. Many new players with different muscle powers will enter the market. The Reserve Bank in its bid to move towards the best international banking practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will be more transparency and disclosures. In the days to come, banks are expected to play a very useful role in the economic development and the emerging market will provide ample business opportunities to harness.
Human Resources Management is assuming to be of greater importance. As banking in India will become more and more knowledge supported, human capital will emerge as the finest assets of the banking system. Ultimately banking is people and not just figures. Global Banking The global banking industry has been undergoing deep transformation. The following trends can be outlined: • The technological breakthrough caused by the eruption of e-banking and e-finance. • Worldwide consolidation and consequent restructuring. Increasing competition in terms of both markets (geographic diversification) and products. • Contamination among different industries thanks to a progressive relaxation of regulations and huge interindustry acquisitions. • A slowing population growth and increasing average life expectancy and per capita income. Since Western governments need to cut expenditures for old-age benefits to keep deficits under control, there will be an increase in the importance of private pensions, mutual funds, and private banking operations. • The growing importance of a clear strategic intent in the banking industry.
Banks, especially commercial banks, will be obliged to rethink their strategic positioning. While some banks are opting to offer a vast variety of products/services on a global scale, others are focusing on some specific market segment (retail banking, private banking, corporate banking) or specific geographic area. • New competitors are entering the financial service business. In the retail banking industry, large department stores in the United Kingdom have entered the market for personal and mortgage loans, primarily to retain their customers.
These trends are having and will have a major impact on banks’ and financial institutions’ risk management process. Contamination also means that firms in the different sub industries will face risks that were once specific to another sub industry. The relaxation of the Glass-Steagall Act in the United States and similar processes of deregulation in many other leading countries, are forcing even commercial banks to dedicate growing attention to market risk management and liquidity risk management, in addition to the more traditional credit risk and interest rate risk. Challenges faced by Banking Industry
Liberalisation process has increasingly exposed Indian Industry to international competition and banking being a service industry is also not an exception. Banking Sector in India too faces same strains and challenges at local, national and international level. Indian Banks, functionally diverse and geographically widespread, have played a crucial role in the socio-economic progress of the country after independence. However, the growth led to strains in the operational efficiency of banks and the accumulation of non-performing assets (NPA’s) in their loan portfolios.
Banks face increasing pressure to stand out from the crowd. On the Internet, this means offering your target customers an increasingly broader range of services than your competitors and that too in unique way. All this has resulted in a challenge to managers of banks to develop the right mix of acquired and internally grown IT applications which suits customer’s expectations. Banking sector reforms and liberalisation process raised many challenges before Indian Banks and for sustainable development it has become necessary to face these challenges effectively. Intense Competition:
The RBI and Government of India kept banking industry open for the participants of private sector banks and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private banks, foreign banks, non-banking finance companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech revolution. Heavy weight foreign banks with huge base, latest technology innovative and globally tested products are spreading their wings and wooing away customers form other banks.
For survival and growth in highly competitive environment banks have to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate customer centric policies and customer friendly procedures. Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services. However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial.
Privacy and Safety: Among the most important aspects, of savings, i. e. , safety liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more significance in the emerging scenario as the economic loss caused internationally by these types of crimes might risk area and any lacunae is safety would result in erosion of confidence and the same might possibly paralyse the entire network. The areas among other things, which might endanger security in e-banking can be: •Changes in input data such as changing the amount in ledges, increasing the limits in accounts or face value of cheques.
Though these trends could be detected consequently, prevention is a major problem with these types of crimes. •Use of stolen or falsified cards in ATM machines. •Computer forgery could be committed by way of gaining access to other account, deliberate damage through viruses on data stored in computers. In this case, same criminals might gain entry into the computers and cause damage to the system. This apart, another through which security and privacy are maintained. If a hacker has found out the password, he can cause havoc to the entire network.
Also, if the password is stolen money could be transferred from one account to another. •Software privacy is another area of potential danger faced by the banking industry. In this the entire software could be stolen. If this is done, the hackers could operate a parallel network. Human Resources Management: In the recent past the human resource Policies in banks were mainly guided by the comcept of permanent employment and its necessary concomitants of creating career paths, terminal benfits, etc. for the employees.
In today’s fast-changing world of employee mobility both horizontally and vertically and value systems, the public sector banks need to hire the right talent at market related compensation and to shed surplus manpower/staff. Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are going to change the nature of workforce with many senior and experienced persons opting for it. The key elements that shall provide a competitive edge to banking sector will not be physical assets but knowledge assets and information.
Therefore, banks must understand how to retain knowledge based employees and prevent them to migrating to some other organisation. Banks must believe in people, customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for banks to encourage all employees to take risks and work towards continuous improvements and breakthroughs. Successful banks overcoming the challenges will be those that harness technology in a customer friendly yet cost effective way. This requires enormous internal and external management and the crux of the solution lies in blending human resources with information technology.
Porter five forces analysis of Indian Banking Sector Porter’s five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. 1. RIVALRY AMONG THE INDUSTRY Rivalry in banking industry is very high. There are so many private, public, co-operative and non-financial institutions operating in the industry. They are fighting for same customers.
Due to government liberalization and globalization policy, banking sector became open for everybody. So, newer and newer private and foreign firms are opening their branches in India. This has intensified the competition. The no. of factors has contributed to increase rivalry those are: •A large no. Of banks There are so many banks and non-financial institutions fighting for same pie, which has intensified competition. •High market growth rate India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition. •Low switching cost
Customer switching cost is very low. They can easily switch from one bank to another bank and very little loyalty exists. •In differentiate services Almost every bank provides similar services. No differentiation exists. Every bank tries to copy each other services and technology, which increases the level of competition. •High exit barrier High exist barriers humiliate banks to earn profit and retain customers by providing world-class services. •Low government regulations: There are low regulation exist to start a new business due LPG policy adopted by India. So, sector is open for everybody. 2. BARGAINING POWER OF SUPPLIERS
Suppliers of banks are depositors. These are those people who have excess money and prefer regular income and safety. In banking industry Suppliers have low bargaining power. Following are the reasons for low bargaining power of suppliers. •Nature of suppliers Suppliers of banks are generally those people who prefer low risk and those who need regular income and safety as well. Bank is best place for them to deposit their surplus money. They believe that banks are very safe than other investment alternatives. So, they do not consider other alternatives very seriously, which lower their bargaining power. Few alternatives Suppliers are risk averters and want regular income. So, they have few alternatives available with them to invest like Treasury bills, government bonds. So, few alternatives lower their bargaining power. •RBI Rules and Regulations Banks are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This reduces suppliers bargaining power. •Suppliers are not concentrated Banking industry’s suppliers are not concentrated. There are numerous suppliers with negligible portion to offer.
So, this reduces their bargaining power. If they were concentrated then they can bargain with banks or can collectively invest in other no-risky projects. •Forward integration Forward integration is possible like mutual funds, but only few people now about this. Only educated people can forwardly integrate where as large no. Of suppliers are unaware about these alternatives. 3. BARGAINING POWER OF CUSTOMERS Customers of the banks are those who take loans, advances and use services of banks. Customers have high bargaining power. Following are the reasons for high bargaining power of customers. Large no. Of alternatives Customers have very large no. of alternatives. There are so many banks, which fight for same pie. There are many non-financial institutions like SBI, HDFC, IFCI etc. , which has also jumped into these businesses. There are foreign banks, private banks, cooperative banks and development banks together with the specialized financial companies that provide finance to customers. These all increase preferences for customers. • Low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities.
They are free to select any bank‘s service. Switching costs are becoming lower with Internet Banking gaining momentum and as a result consumers’ loyalties are harder to retain. •Undifferentiated service Banks provide merely similar services. There is no much difference in services provided by different banks. So, bargaining power of customers increases. They cannot be charged for differentiation. •Full information about the market Customers have full information about the market due to globalization and digitization consumers have become advance and sophisticated. They are aware with each market conditions.
So, banks have to be more competitive and customer friendly to serve them. 4. THREAT OF NEW ENTRANT •Barriers to an entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Competitors can come from any industry to “disinter mediate” banks. Product differentiation is very difficult for banks and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisition. •Government policies are supportive to start a new bank. There are less statutory requirements needed to start a new venture.
Every bank tries to achieve economies of scale through use of technology and selecting and training manpower. 5. THREAT OF SUBSTITUTES Competition from the non-banking financial sector is increasing rapidly. Sony and Software giants such as Microsoft are attempting to replace the banks as intermediaries. The threat of substitute products is very high. These new products include credit unions and investment houses. One feature of using an investment house is that the fees that the investment house charges are tax deductible, where as a bank it is considered personal expenses, which are not tax deductible.
The rate of return with using investment houses is greater than a bank. There are other substitutes as well for banks like mutual funds, stocks (shares), government securities, debentures, gold, real estate etc. so, there is a high threat from substitute SWOT Analysis of Banking Industry STRENGTH •Indian banks have compared favourably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and co-operative banks. •Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country. •The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. •India has 88 scheduled commercial banks (SCBs) – 27 public sector banks (that is with the Government of India holding a stake)after merger of New Bank of India in Punjab National Bank in 1993, 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs.
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, with the private and foreign banks holding 18. 2% and 6. 5% respectively. •Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks. WEAKNESS •PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organisational performance ethic & strengthen human capital. Old private sector banks also have the need to fundamentally strengthen skill levels. •The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. •Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus. Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital. •Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term. OPPORTUNITY The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations. •Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks. •With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. •New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms.
Attracting, developing and retaining more leadership capacity •Foreign banks committed to making a play in India will need to adopt alternative approaches to win the “race for the customer” and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. At the same time, they should stay in the game for potential acquisition opportunities as and when they appear in the near term. Maintaining a fundamentally long-term value-creation mindset. •reach in rural India for the private sector and foreign banks. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. •the Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives. •Liberalisation of ECB norms: The government also liberalised the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs.
This enabled banks and financial institutions, which were earlier not permitted to raise such funds, explore this route for raising cheaper funds in the overseas markets. •Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their capital. If the new instruments find takers, it would help PSU banks, left with little headroom for raising equity. Significantly, FII and NRI investment limits in these securities have been fixed at 49%, compared to 20% foreign equity holding allowed in PSU banks.
THREATS •Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. •Rise in inflation figures which would lead to increase in interest rates. •Increase in the number of foreign players would pose a threat to the PSB as well as the private players. FINANCIAL ANALYSIS OF TOP PERFORMING BANKS IN EACH TYPE NAME OF THE BANKAVG P/EPRICE / SALESPRICE/ BOOKNET PROFIT MARGIN (%)BOOK VALUE/ SHAREDEBT/ EQUITYRETURN ON EQUITY (%)RETURN ON ASSETS (%)INTEREST COVERAGE A) DOMESTIC PUBLIC SECTOR 1)STATE BANK OF INDIA12. 871. 382. 0212. 03912. 7312. 819. 90. 941. 23 2)PUNJAB NATIONAL BANK8. 681. 132. 0313. 76416. 7415. 967. 411. 121. 27 3)BANK OF BARODA8. 011. 011. 3912. 86352. 3714. 996. 320. 711. 25 B) DOMESTIC PRIVATE SECTOR 1) ICICI BANK110. 732. 662. 069. 74445. 174. 423. 691. 201. 20 2) HDFC BANK31. 703. 594. 8411. 35344. 449. 753. 211. 661. 29 3) AXIS BANK19. 292. 593. 4413. 31284. 5011. 495. 200. 861. 28 C) FOREIGN BANKS 1) CITIBANK-(3. 00)0. 330. 26-(31. 7)$ 25. 994. 41-(22. 7)-(1. 7)1. 36 2) HSBC159. 44. 241. 266. 1$ 38. 667. 446. 10. 21. 2 3)STANDARD CHARTERED BANK13. 700. 861. 0520. 1$ 11. 684. 5315. 40. 81. ? THE DATA FOR THE FOREIGN BANKS IS IN U. S DOLLARS ($) ?Vision of SBI “Purposeful banking sub serving the growing and diversified financial needs of planned economic development of the country” The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of Change and Transformation – the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc – each one of these initiatives having a huge potential for growth. The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously engaged in skill enhancement of its employees. Some of the training programes are attended by bankers from banks in other countries. The bank is also looking at opportunities to grow in size in India as well as Internationally. It presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards – forming a formidable group in the Indian Banking scenario.
It is in the process of raising capital for its growth and also consolidating its various holdings. Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take all employees together on this exciting road to Transformation. In a recently concluded mass internal communication programme termed ‘Parivartan’ the Bank rolled out over 3300 two day workshops across the country and covered over 130,000 employees in a period of 100 days using about 400 Trainers, to drive home the message of Change and inclusiveness.
The workshops fired the imagination of the employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the programme. History of SBI The evolution of State Bank of India can be traced back to the first decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever joint-stock bank of the British India, established under the sponsorship of the Government of Bengal.
Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January 1921. Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernise India’s economy.
Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework. An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in general and the rural sector of the country, in particular.
Until the Plan, the commercial banks of the country, including the Imperial Bank of India, confined their services to the urban sector. Moreover, they were not equipped to respond to the growing needs of the economic revival taking shape in the rural areas of the country. Therefore, in order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank.
The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959.
The Act enabled the State Bank of India to make the eight former State-associated banks as its subsidiaries. The State Bank of India emerged as a pacesetter, with its operations carried out by the 480 offices comprising branches, sub offices and three Local Head Offices, inherited from the Imperial Bank. Instead of serving as mere repositories of the community’s savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully. The bank served the heterogeneous financial needs of the planned economic development.
Products and Services Personal Banking •SBI Term Deposits SBI Loan For Pensioners •SBI Recurring Deposits Loan Against Mortgage Of Property •SBI Housing Loan Loan Against Shares & Debentures •SBI Car Loan Rent Plus Scheme •SBI Educational Loan Medi-Plus Scheme Other Services •Agriculture/Rural Banking •NRI Services •ATM Services •Demat Services •Corporate Banking •Internet Banking •Mobile Banking •International Banking •Safe Deposit Locker •RBIEFT •E-Pay •E-Rail •SBI Vishwa Yatra Foreign Travel Card •Broking Services •Gift Cheque The BCG Matrix of S. B. I
Stars:- The stars indicate in above matrix as high market growth, high market share in context of S. B. I the star is its widely spread network. SBI is the largest bank in India with deposits of Rs 3,67,000 crore . It dominates the Indian banking sector with a market share of around 20% in terms of total banking sector deposits. The increasing focus on upgrading the technology back-bone of the bank will enable it to leverage its reach better, improve service levels, provide new delivery platforms, and improve operating efficiency to counter the threat of competition effectively.
Once the core banking solution (CBS) is fully implemented, it will cover over 10,000 branches and ATMs of the State Bank group, and emerge as the strongest technology enabled distribution network in India. country. Cash Cow:- The cash cow indicate in above matrix as Low growth & High Market share in context of S. B. I it Caters to the needs of agriculturists and landless agricultural labourers through a network of 7400 rural and semi-urban branches. Apart from the branches, there are 427 Agricultural Development Branches (ADBs) which also cater to agriculturists .
Its branches have covered a whole gamut of agricultural activities like crop production , horticulture , plantation crops, farm mechanization, land development and reclamation, digging of wells, tube wells and irrigation projects, forestry, construction of cold storages and godowns, processing of agri-products, finance to agri-input dealers, allied activities like dairy , fisheries, poultry, sheep-goat, piggery and rearing of silk worms. To give special focus to agriculture lending Bank has set up agri business unit. Bank has also agri specialists in various disciplines to handle projects/ guide farmers in their agri ventures.
Advances are given for very small activity covering poorest of the poor to hitech activities involving large fund outlays. The bank is the leaders in agri finance in the country with a portfolio of Rs. 56,000 crs in agri advances covering around 70 lac farmers. Question Mark (Analysize):- Question marks are products that grow rapidly and as result consume large amounts of cash, but because they have low market shares they don’t generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows.
If it doesn’t become a market leader it will become a dog when market growth declines. Question marks need to be analysed carefully to determine if they are worth the investment required to grow market share. In SBI context the question marks is its Educational Loan service. Dog:- Dogs have a low market share and a low growth rate and neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture.
In SBI context the Dog is its service which is known as Yatra Loan Core Competencies of SBI SBI open to tie-ups for personal banking products: •The bank was focusing not only to increase its size and volume of business but also quality of services through outsourcing the selected technological and operation needs and by networking through subsidiaries as well as other like-minded and like-positioned organisations. •It would be very cost effective and fast, if the bank goes in for expanding its foreign network through alliances and tie-ups with dominating banks in respective countries. Similarly, in India, SBI which holds a 15 per cent equity in Thomas Cook, could easily have a tie-up with Thomas Cook for offering variety of ranges of travel-related products to its clients. •The approach would help an organization like the SBI in retaining its core competencies while providing it with an opportunity to leverage these competencies for increasing business relationships and profitability. Branches The corporate center of SBI is located in Mumbai. In order to cater to different functions, there are several other establishments in and outside Mumbai, apart from the corporate center.
The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater to its customers throughout India. ATM Services SBI provides easy access to money to its customers through more than 8500 ATMs in India. The Bank also facilitates the free transaction of money at the ATMs of State Bank Group, which includes the ATMs of State Bank of India as well as the Associate Banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc.
You may also transact money through SBI Commercial and International Bank Ltd by using the State Bank ATM-cum-Debit (Cash Plus) card. Subsidiaries The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries. Through the establishments, it offers various services including merchant banking services, fund management, factoring services, primary dealership in government securities, credit cards and insurance. There are eight associate banks that fall under SBI, and together these banks constitute the State Bank Group.
All use the same logo of a blue keyhole and all the associates use the “State Bank of” name followed by the regional headquarters’ name. Originally, the then seven banks that became the associate banks belonged to princely states until the government nationalized them between October, 1959 and May, 1960. In tune with the first Five Year Plan, emphasizing the development of rural India, the government integrated these banks into State Bank of India to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a “mega bank” and streamline operations.
The first step along these lines occurred on 13 August 2008 when State Bank of Saurashtra merged with State Bank of India, which reduced the number of state banks from seven to six. Furthermore on 19th June 2009 the SBI board approved the merger of its subsidiary, State Bank of Indore, with itself. SBI holds 98. 3% in the bank, and the balance 1. 77% is owned by individuals, who held the shares prior to its takeover by the government. The acquisition of State Bank of Indore will help SBI add 470 branches to its existing network of 11,448.
Also, following the acquisition, SBI’s total assets will inch very close to the Rs 10-lakh crore mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March 2009. SWOT analysis of SBI Strengths •SBI Bank has earned a reputation in the market over the period of time(Being the oldest bank in India tracing history back to 1806) •SBI is ranked at 380 in 2008 Fortune Global 500 list, and ranked 219 in 2008 Forbes Global 2000. With an asset base of $126 billion and its reach, it is a regional banking behemoth. Excellent penetration in the country with more than 10000 core branches and more than 5100 branches of associate banks (subsidiaries). •SBI Bank has all the products under its belt, which help it to extend the relationship with existing customer. SBI Bank has umbrella of products to offer their customers, if once customer has relationship with the bank. Some Products, which SBI Bank is offering are: Retail Banking Business Banking Merchant Establishment Services (EDC Machine) Personal loans & Car loans Insurance Housing Loans •Government owns 60% stake in SBI.
This gives SBI an edge over private banks in terms of customer security. •SBI offers very low transition costs which attracts small customers. Weaknesses •The existing hierarchical management structure of the bank, although strength in some respects, is a barrier to change. •Though SBI cards are the 2nd largest player in the credit card industry, it has the highest non performing assets (NPAs) in the industry, which stand out to be at 16. 28 % (Dec 2007). •SBI lags with respect to private players in terms of modernisation of its processes, infrastructure, centralisation, etc.
Opportunities •Merger of associate banks with SBI: Merger of all the associate banks (like SBH, SBM, etc) into SBI will create a mega bank which streamlines operations and unlocks value. •Planning to add 2000 branches and 3000 ATMs in 2008-2009. This will further increase its reach. •Increasing trade and business relations and a large number of expatriate populations offers a great opportunity to expand on foreign soil. Threats •Large numbers of MNC banks are mushrooming in the Indian market due to the friendly policies adopted by the government.
This can increase the level of competition and prove a potential threat for the market share of SBI bank. •Consumer expectations have increased many folds in last few years and the bank has not been responsive enough to meet them on time. •Private banks have started venturing into the rural and semi-urban sector, which used to be the bastion of the State Bank and other PSU banks •Employee Strike: There was an employee strike in the year 2006 which disrupted SBI’s activities. This can be repeated in the future. Growth
State Bank of India has often acted as guarantor to the Indian Government, most notably during Chandra Shekhar’s tenure as Prime Minister of India. With 11,448 branches and a further 6500+ associate bank branches, the SBI has extensive coverage. State Bank of India has electronically networked all of its branches under Core Banking System (CBS). The bank has one of the largest ATM networks in the region. More than 8500 ATMs across India. The State Bank of India has had steady growth over its history, though it was marred by the Harshad Mehta scam in 1992.
In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings. About company:- Citigroup Global Services Ltd (formerly e-Serve international Ltd)) is the Global Processing Center for Citigroup entities. A pioneer in the BPO industry it began as the business processing arm for Citigroup India in 1992 and expanded to service Citigroup’s global operations in 1998. CGSL is driven by domain expertise in financial services and a highly evolved quality and control environment.
Our talented and dedicated workforce of 9,000 people demonstrate superior operational efficiency in over 500 different processes handling 600MM transactions and customer contacts annually. Operating out of world class state-of-the-art facilities in Mumbai, Chennai, Delhi, Bangalore, Hyderabad and Kolkata and a soon to be commissioned site in Gurgaon, CGSL offers BPO solutions and services to Citigroup’s consumer, corporate and global wealth management entities in over 45 countries. ” A world-class company is led by an unflinching vision.
Our vision and mission statements reflect our drive to be the best in our league: ? Vision To be the leader in providing business process management services to help our customers. ?Mission To create world-class operations capabilities that deliver unmatched values to Citigroup through: Product Expertise – Cultivate in-depth expertise in chosen financial products, serviced on an end-to-end basis supporting multiple geographies. Delivery Excellence – Ensuring effective and efficient delivery by leveraging scale and a relentless focus on continuous improvement, compliance & controls.
Partner Business Excellence – Building a global network, fostering knowledge transfer, creating “next generation” practices and promoting transparency with clients. Enhancing Human Capital Competencies – Create an environment that provides people opportunity to realize their full potential resulting in becoming the employer of choice in the industry. Industry Leadership – Achieving a premier position in the Indian BPO market and driving process sophistication for the financial services industry, globally. Products and Offerings The Citibank India offers a varied range of financial assistance to its customers like: Deposit Accounts – Savings Accounts, Current Accounts, and Term deposits. • Loans – Personal Loans, Home Loans, Loan against property, Auto Loan, Ready Credit • Credit Cards – Citibank Gold Card, Jet Airways Citibank Gold Card, Hutch Citibank Card, Indian Oil Citibank Card, Shoppers’ Stop Citibank Card, MTV Citibank Card, Citibank Silver International Card, CRY Card, WWF Card, Times Card, Citibank Cricket Visa Card • Investments – Mutual Funds, Demat • Insurance – Life Insurance Solutions, Credit Insurance, Health Insurance, Travel Insurance Banking – Suvidha Account, Debit Cards, Citibanking, CitiGold Wealth Management • CitiBusiness – Current Account, Loans, CitiBusiness Card • NRI Services – Rupee Checking Account, India Deposits • Online Services – Internet Banking, Bill Payment, Statement on E-mail, E-Commerce, CitiAlert BCG Matrix of Citi Bank is as follows:- Stars:- The stars indicate in above matrix as high market growth, high market share in context of Citi bank the star is Credit cards, wealth management, the corporate bank, and investment banking. Since these products and services have high growth potential.
Therefore on 21st September 2009 Citibank made 10 year profit sharing agreement with virgin money to release credit cards. Cash Cow:- The cash cow indicate in above matrix as Low growth & High Market share in context of Citi bank its is personal loan. Question Mark (Analysize):- Question marks are products that grow rapidly and as result consume large amounts of cash, but because they have low market shares they don’t generate much cash. The result is large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows.
If it doesn’t become a market leader it will become a dog when market growth declines. Question marks need to be analysed carefully to determine if they are worth the investment required to grow market share. In Citi bank context the Question marks is its Home loan services. Dog:- Dogs have a low market share and a low growth rate and neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. In Citi bank context. It is “non-core operations”.
Where at this point of time bank has no growth and market share has been low. Therefore Citibank sold off their consultancy services inv October 2008. Core Competencies of CITIBANK •Automated banking card Shortly afterward, the bank launched the Citicard, which allowed customers to perform all transactions without a passbook. Branches also had terminals with simple one line displays that allowed customers to get basic account information without a bank teller. When automatic teller machines were later introduced, customers could use their existing Citicard. •Credit card business
In the 1960s the bank entered into the credit card business. In 1965, First National City Bank bought Carte Blanche from Hilton Hotels. However after three years, the bank (under pressure from the U. S. government) was forced to sell this division. By 1968, the company created its own credit card. The card, known as “The Everything Card,” was promoted as a kind of East Coast version of the BankAmericard. By 1969, First National City Bank decided that the Everything Card was too costly to promote as an independent brand and joined Master Charge (now MasterCard).
Citibank unsuccessfully tried again in 1977–1987 to create a separate credit card brand, the Choice Card. John S. Reed was elected CEO in 1984, and Citi became a founding member of the CHAPS clearing house in London. Under his leadership, the next 14 years would see Citibank become the largest bank in the United States, the largest issuer of credit cards and charge cards in the world, and expand its global reach to over 90 countries. As the bank’s expansion continued, the Narre Warren-Caroline Springs credit card company was purchased in 1981.
In 1981, Citibank chartered a South Dakota subsidiary to take advantage of new laws that raised the state’s maximum permissible interest rate on loans to 25 percent (then the highest in the nation). In many other states, usury laws prevented banks from charging interest that aligned with the extremely high costs of lending money in the late 1970s and early 1980s, making consumer lending unprofitable. 1998 Citibank logo •Automatic teller machines Citibank was one of the first U. S. banks to introduce automatic teller machines in the 1970s, in order to give 24-hour access to accounts.
Customers could use their existing Citicard in this machine to withdraw cash and make deposits, and were already accustomed to using a machine with a card to get information that previously required a teller. In April 2006, Citibank struck a deal with 7-Eleven to put its automated teller machine (ATMs) in more than 5,500 convenience stores in the U. S. In the same month, it also announced it would sell all of its Buffalo and Rochester New York branches and accounts to M&T Bank. •Nationwide expansion Citibank’s major presence in California is fairly recent.
The bank had only a handful of branches in that state before acquiring the assets of California Federal Bank in 2002 with Citicorp’s purchase of Golden State Bancorp which had earlier merged with First Nationwide Mortgage Corp. In 2001, Citibank settled a $45 million class action lawsuit for improperly assessing late fees. Following this Citibank lobbied the United States Congress to pass legislation that would limit class action lawsuits to $5 million unless they were initiated on a federal level. Some consumer advocate websites report that Citibank is still improperly assessing late fees.
In August 2004, Citibank entered the Texas market with the purchase of First American Bank of Bryan, Texas. The deal established Citi’s retail banking presence in Texas, giving Citibank over 100 branches, $3. 5 billion in assets and approximately 120,000 new customers in the state. First American Bank was renamed Citibank Texas after the take-over was completed on March 31, 2005. In 2008, Citibank was crowned Deal of the Year – Securitisation Deal of the Year at the 2008 ALB Japan Law Awards]. •Citi Field It was announced on November 13, 2006 that Citibank would be the corporate sponsor of the new stadium for the New York Mets.
The stadium, Citi Field, opened in 2009. ?Recent losses and cost cutting measures Citi reported losing $8–11 billion several days after Merrill Lynch announced that it too has been losing billions from the subprime mortgage crisis in the US. On April 11, 2007, the parent Citi announced the following staff cuts and relocations. On 4 November, 2007, Charles “Chuck” Prince quit as the chairman and chief executive of Citigroup, following crisis meetings with the board in New York in the wake of billions of dollars in losses related to subprime lending.
Former United States Secretary of the Treasury Robert Rubin has been asked to replace ex-CEO Charles Prince to manage the losses Citi has amassed over the years of being over-exposed to subprime lending during the 2002–2007 surge in the real estate industry. In August 2008, after a three year investigation by California’s Attorney General Citibank was ordered to repay the $14 million (close to $18 million including interest and penalties) that was removed from 53,000 customers accounts over an eleven year period from 1992-2003.
The money was taken under a computerized “account sweeping program” where any positive balances from over-payments or double payments were removed without notice to the customers. On November 23, 2008, Citigroup was forced to seek federal financing to avoid a collapse, in a way similar to its colleagues Bear Stearns and AIG. The US government provided $25 billion and guarantees to risky assets to Citigroup in exchange for stock. This was the latest bailout in a string of bailouts that began with Bear Stearns and peaked with the collapse of the GSE’s, Lehman, AIG and the start of TARP.
On January 16, 2009 Citigroup announced that it was splitting into two companies. Citicorp will continue with the traditional banking business while Citi Holdings Inc. will own the more risky investments, some of which will be sold to strengthen the balance sheet of the core business; Citicorp. The idea behind splitting into two companies is so Citigroup can dump “the dead weight” on Citi Holdings, allowing the prime assets of Citicorp to operate away from that of the toxic assets.