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8/11/2019 Indian Banking Industry Market
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INDIAN BANKING INDUSTRYA P R I L 2 0 1 2
The Indian banking sector has emerged as one of the strongest drivers of Indias economigrowth. The Indian banking industry (US$ 1.22 triion! has made outstanding advancement in
ast few years" even during the times when the rest of the word was strugging with #nancia
metdown. Indias economic deveo%ment and #nancia sector iberai&ation have ed to a
transformation of the Indian banking sector over the %ast two decades.
Today Indian 'anking is at the crossroads of an invisibe revoution. The sector has undergone
significant deveo%ments and investments in the recent %ast. ost of banks %rovide various
services such as obie banking" SS 'anking" )et banking and *Ts to their cients.
Indian banks" the dominant #nancia intermediaries in India" have made high+,uaity %rogressover the ast #ve years" as is evident from severa factors" incuding annua credit growth
%ro#tabiity" and trend in gross non+%erforming assets ()-*s!. hie annua rate of credit growth
cocked 2/0 during the ast #ve years" %ro#tabiity (average eturn on )et orth! wa
maintained at around 10 during the same %eriod" whie gross )-*s fe from /./0 as on arch
/1" 2334 to
2./0 as on arch /1"2311.
The Indian banking sector is a mi5ture of %ubic" %rivate and foreign ownershi%s. The beow
tabe highights to% 13 banks which contributed 60 share of the tota credit as on arch /1
2311. The State bank of India has recorded highest market share. The )et Interest argin o789: 'anks is ;.20 which is highest among others.
Name of Bank Credit
Portfolio
$arketS%are
NI$$ar'11
Tier ICa(ital
' $ar2011
R)N*$ar ' 11
Gro!!
NPA ' $ar
State 'ank of India
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Source ? *nnua e%ort"
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1.1
1.13
1.3
1.33
3.=
3.=3
1.3
2
NPA (%)
1.33
1.3
1.12
3.=ective of ensuring monetary stabiity and o%erating the currency
and credit system of the country to its advantage.
'I
Schedued Unschedued
:ommercia :oo%erative
-ubic -rivate 9oreign'
ura Urban
In India" the banks are being segregated in different grou%s. Cach grou% has their own benefits
own dedicated target markets" imitations in o%erating in India. The commercia banking
structure in India consists of Schedued :ommercia 'anks and Unschedued 'anks.
Schedued commercia 'anks constitute those banks which have been incuded in the Second
Schedue of eserve 'ank of India ('I! *ct" 1=/;. 9or the %ur%ose of assessment o
%erformance of banks" the eserve 'ank of India categorise them as %ubic sector banks" od
%rivate sector banks" new %rivate sector banks and foreign banks.
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BUSIN,SS DI-ISI)N
Retail.ankin/
Retail .ankin/ ' Eoans to Individuas
(*uto oan" 7ousing Eoan" Cducation
Eoan and other %ersona
oan! or sma businesses.
*%ole!ale.ankin/
B!ine!!
Dii!ion
Trea!0
r2)(eratio
n!
)t%erBankin/B0!ine!!e!
*%ole!ale .ankin/ 3 Eoans to id
and Earge cor%orate (orking :a%ita
oans" -ro>ect #nance" Term oans" Eease
9inance!
Trea!r )(eration! 3 Investment in
C,uity" 8erivates" :ommodities" utua
9unds" 'onds" Trading and 9ore5
o%erations
)t%er Bankin/ B!ine!!e! 3erchant 'anking" Eeasing business" 7ire
%urchase" Syndication services
etc.
S*)T ANALYSIS
ST R,N GT+S
Fauabe contributor to@8- eguatoryenvironment@overnment Su%%ort
*,A KN ,SS,S
Increasing)-* Eow%enetrationEack of %roduct
)PP)RTUNI TI ,S
odernTechnoogyUnta%%ed uraarket@obai&ation
T +R,AT S
Unorgani&ed money
ending market:ustomer
P)RT,R4S 5I-,5)RC,S $)D,L
'anking is mainy a cient oriented business. * high+,uaity of services to the cient is crucia fo
the growth and stabiity of any bank. * wider distribution and access of #nancia services he%s
both consumers and %roducers to raise their wefare and %roductivity. Such access is es%eciay
%owerfu for the %oor as it %rovides them o%%ortunities to buid savings" make investments" avai
credit" and more im%ortant" insure themseves against income shocks and emergencies. To
survive in an increasingy com%etitive environment" bank need to come u% with variou
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faciities ike Internet banking" mobie banking etc. ith the onset of mobie banking" the
industry #nds itsef at the threshod of the ne5t ma>or technoogica ea%.
T%reat ofNe6
,ntrant!
(Eow!
Buyer Power ' +i/% bargaining %ower o
customers on account of banks render
uniform services to the cients. )ow a
days amost a banks woud ike to %rovide
re,uisite information very easiy by way
to
Internet" obie banking tothe cients
BerPo6er
(7igh!
Com(etitie
Rialr
(7igh!
S((lier
Po6er
(Eow!
Supplier Power' Lo6 bargaining %ower o
su%%iers on account of 'I reguatory
benchmarks. 'anks have to mee
numerous reguatory standards created by
'I
Competitive Rivalry' +i/% com%etition o
account of number of %rominent %ubic
%rivate" foreign aong
with coo%erativebanks
Aaila.ilit of
S.!titte!
(7igh!
Availability of Substitutes ' +i/%
menace from substitutes ike )'9:s
utua funds" @overnment securities and T
bis
Threat of new entrants + Lo6 threat o
new entrants on account of bankingreguations. 'efore setting u% of
a new bank" it is essentia to take theconsent of 'I.
P,R5)R$ANC,
The em%irica studies have found a strong reationshi% between economic growth and #nancia
deveo%ment. 9inance %ays an im%ortant roe in the economic growth. The charts de%ictthe %erformance of 'anke5 in ast 13 year and eative %erformance of 'SC 'anke5 D 'SC
Sense5 in 2313+11. The %erformance of 'anke5 acceerated during the %eriod arch 2332 to
arch 2336. The %erformance of banke5 deceerated during arch 2336 G arch 233= but
thereafter it has shown increasing trend ti arch 2311.
The four+month %eriod ()ovember 2313+9ebruary 2311! was marked by a consistent decine in
a the indices caused by a number of goba and domestic deveo%ments. The Sense5
decined by 12.;0" whie the 'anke5 Inde5 decined by
16./0.
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Some of the goba factors" such as increase in crude oi %rices and high commodity %rices
contributed to inHation in the domestic economy. 7igh inHation cou%ed with ow growth rate in
the Inde5 of Industria -roduction (II-! and tightening interest rates has caused some concerns
over the short+term economic growth" hitting the stocks in a the sectors" %articuary those in
the #nancia services sector.
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Source? '
In recent years" 8e%osit" which constitutes "; ;8"2
13
3
63
43
;3
23
>";8";
:2"
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The other vita factors which determine the %ro#tabiity of banking sectors are net interes
margin ()I!" o%erating e5%enses and other income. )et Interest argin ()I! is used to assess
eMciency of the banking sector. In India" during the ast one decade" )I was in the range 2.
%er cent to /.1 %er cent. The )I of the Indian banking sector continues to be higher than some
of the emerging market economies of the word.
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$oement! in )(eratin/ ,?(en!e! @$oement in
Source?
The asset ,uaity of Indian banks has im%roved dramaticay over the %ast 1 years. The gross)-* has reduced from
1.
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Capital to Risk Weighted Assets Ratio (CRAR)
The Ca(ital to Ri!k *ei/%ted A!!et! Ratio
:*! of a bank grou%s under 'ase I remained
we above the sti%uated reguatory norm of =
%er cent in 2313+11. *mong the bank grou%s
foreign banks registered the highest :* in
2313+11. To im%rove the ca%ita ade,uacy of the
%ubic sector banks" government infuse cor%us so
that -SU banks can be in a %osition to com%ete
with the other key %ayers. The eturn on *ssets
(J*! of foreign bank is high com%ared to %rivate
and %ubic banks during the %eriod 2334+3< to
2313+2311.
GL)BAL BANKINGTR,NDS
The @oba #nancia crisis makes significant changes in the o%erating framework of banks. The
%erformance of banks im%roves owing to strong ending growth and ow credit osses. The
%resent goba macro+economic situation is differentiated by an unbaanced economic recovery
across advanced and emerging economies" high eves of unem%oyment" inHationary %ressures
and eevated eves of government debt. The eturn on *ssets (o*!" an indicator o
banking systems %ro#tabiity and soundness showed a moderate increase in the US and 9rance
in 2313. The o* of US banks turned %ositive by 2313 after staying in the negative &one in
2336 and 233=N it showed a further
increase in 2311. The o* of Indian banks showed a modest risebetween 2336 and 2313.
Retrn on A!!et! R)A# of Bank! BankSto7k Indi7e! in Sele7t ,7onomie!
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Capital to Risk Weighted Assets Ratio (CRAR)
SourceGI9"OU%to the %eriod ending ar 11" P)ot *vaiabe
Source? euters"8ataStream
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K,Y PLAY,RS
PUBLICS,CT)R
State Bank of India SBI#
State 'ank of India is the argest banking and #nancia services com%any in India. In addition to
the banking services" the 'ank through their subsidiaries" %rovides a range of #nancia services
which incude ife insurance" merchant banking" mutua funds" credit card" factoring" security
trading" %ension fund management and %rimary deaershi% in the money market. The State 'an
@rou%" with over 14"333 branches" has the argest banking branch network in India. The bank
has 1/1 overseas oQices s%read over /2 countries. The bank offers convenience of over 21333
*Ts in India.
The bank has recorded tremendous growth in )et Interest Income. The )et Interest Income haregistered a growth of
/
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Source? *nnua e%ort
Peer Com(ari!on $ar7% 2011#
Parti7lar! State Bankof
Pna.National
CanaraBank
Bank ofBaroda
)et -rofit :28
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8uring 9A 2313+11" with /=.140 share of :*S* to domestic de%osits" the 'ank achieved a ne
%ro#t of s ;;// crore. 'ank has a strong ca%ita base with ca%ita ade,uacy ratio of 12.;20 as
on ar11 as %er 'ase II with Tier I and Tier II ca%ita ratio at 6.;;0 and /.=60 res%ectivey. *s
on arch11" the 'ank has the @ross and )et )-* ratio of 1.
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3.3
233"33
3
133"33
3
3
164"6=/1/6"21=
212";414="//
3.33
233= 23132311
233= 23132311
8e%osits *dvances
"s$
Crore
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1.12
1.11
1.13
1.3=
1.36
1.3or source of infrastructure
#nancing and their e5%osure to infrastructure is aready high at 1< %er cent. There are severa
ma>or concerns which are noted beow.
Inten!ifin/ 7om(etition
Indian banking industry has undergone ,uaitative changes due to banking sector reforms
Indian banking sector" which is dominated by state+controed banks" has been facing formidabe
chaenges. 8ue to this new emerging com%etition" Indian banks" es%eciay -S's" are trying
their best to im%rove their %erformance and %re%aring to com%ete in the emerging goba
market. )ew %rivate sector banks and foreign banks have more customer+centric %oicies" high
,uaity services" new attractive schemes and com%uteri&ed branches. * these services attracted
more and more customers to their banks.
In this conte5t" there is a need to e5amine the eMciency of %ubic sector banks o%erating in
India. ainy" com%etition can intensify and banks wi become more eMcient. The transaction
cost of customers coud come down and a bank which is eMcient" nimbe and customer focused
woud aways be abe to do better than others. *s a resut of gobai&ation" many new banks have
entered the Indian banking industry" further intensifying the com%etition.
In7rea!in/ NPA
The asset ,uaity of banks is one of the most im%ortant indicators of their #nancia heath. It aso
reHects the eMcacy of banks credit risk management and the recovery environment. The Indianbanks have shown very good %erformance as far as the #nancia o%erations are concerned. 'u
)on+%erforming *ssets ()-*! has caused some concerns. 8es%ite write+oQs" gross )-*s have
continued to rise significanty. The new accretion to )-*s has been much faster than the
reduction in e5isting )-*s due to ower eves of u%gradation and recoveries.
To im%rove the banks abiity to manage their non+%erforming assets ()-*s! and restructured
accounts in an eQective manner and considering that amost a branches of banks have been
fuy com%uteri&ed" the eserve bank of India in its onetary -oicy Statement 2312+1/ %ro%osed
the foowing measures?
To mandate banks to %ut in %ace a robust mechanism for eary detection of signs o
distress" and measures" incuding %rom%t restructuring in the case of a viabe accounts
wherever re,uired" with a view to %reserving the economic vaue of such accountsN and
To mandate banks to have %ro%er system generated segmentGwise data on their )-*
accounts" write+oQs" com%romise settements" recovery and restructured accounts.
8es%ite these concerns" it is %ro>ected that the Indian banking industry wi grow through ea%s
and bounds ooking at the huge growth %otentia of Indian economy. 7igh %o%uation base o
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India" rising dis%osabe income" etc. wi drive the growth of Indian banking industry in the ong+
term.
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BUDG,T2012'18
The #nancia market %erformance is often considered as a barometer of the economy. The
'anking system is the dominant ife+ine of the #nancia market. The budget 2312+1/ was argey
%ositive for the banking sector. Though no ma>or announcements were made" the 9inance
inister target to reduce #sca de#cit wi indirecty bene#t the sector as it wi ead to reduced
inHation which in turn wi ead to a reduction in %oicy rates.
'udget 2312 G 1/ has %ro%osed that individua ta5 %ayers be aowed ta5 deductions of u% to s
13"333 on interests that they earn from their saving de%osits. This %ro%osa may give some
boost to current and savings accounts (:*S*! de%osits. *ny increase in these de%osits wi
%ositivey im%act the net interest margins of banks. The other ma>or announcement is to set
aside s 1"666 crore for reca%itai&ation of %ubic sector bank and the target for agricutura
credit raised by s. 1"33"333 crore to s. "
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eevated eves for a arge %art of 9A11" was argey driven by food and fue items and ate
on transmitted to manufacturing %roducts to become a genera %henomenon. The
average inHation rate in India was
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T,C+N)L)GICALANALYSIS
In recent time" Indian banking industry has been consistenty working towards the
deveo%ment of technoogica changes and its usage in the banking o%erations for the
im%rovement of their eMciency. ith the a%%ication of new and im%roved technoogies banks
e5%ected to reduce costs" time and give customer satisfaction. :ore banking has changed the
face of banking by oQering vaue added services. :ore banking a%%ications he%s to %rovide
com%ete front and backend automation of banks. Technoogica deveo%ments woud rendeHow of information and data faster eading to faster a%%raisa and decision+making. This woud
enabe banks to make credit management more eQective" besides eading to an a%%reciabe
reduction in transaction cost.
Internet .ankin/ or banking via the Internet can be considered a
remarkabe deveo%ment in the banking sector. The abiity to
carry out banking transactions through the Internet has em%owered
customers to e5ecute their #nancia transactions within the comfort of
their homes and oQices. In todays busy word" when %eo%e do not
have much time even for %ersona work" Internet banking a%%ears as aboon.
Internet 'anking he%ed give the customers anytime access to their banks. 'ut for Interne
banking there is a re,uirement of a -: Ea%to% with an Internet connection
obie usage has seen an e5%osive growth in economies ike India. India ha
reached 6=/.6; miion mobie subscriber mark (Source? T*I" 8ec 2311! for a
%o%uation of 1.21 biion. ith $o.ile Bankin/" customer can check thei
account baance" transfer funds 2; 5
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of the financia system but aso to the sovereignty and safety of nations wordwide. In the
coming days" chaenges before banks woud %rimariy ie in saving themseves from the
growing threat of money aundering.