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Portfolio AnalysisIndian Banking Sector
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Strategic Management - II
Portfolio Analysis Indian Banking Sector
Group-7, Section-C PGP-1
Participant Roll Number Abhimanyu Malhotra 2011PGP504
Akshay Gupta 2011PGP526 Archita Joshi 2011PGP568
Dinabandhu Kejriwal 2011PGP625 Kunal Biswal 2011PGP703 Richa Singh 2011PGP823
Shivendra Raizada 2011PGP876
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 2
CONTENTS
S. No. Topic Page
1. Industry Overview 3
2. Market Divisions 5
3. Banks Selected for study 9
4. Portfolio Analysis 12
5. References 23
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 3
1. Industry Overview
1.1 Definition
The banking industry consists of financial institutions that receive demand deposits and term
deposits from customers and channelize this money into lending activities. The banking industry
can be broadly divided into retail banking, corporate banking, treasury services, wealth
management and agricultural banking.
1.2 Size, Growth and Growth Drivers
The banking industry in India has witnessed a constant growth in the last decade. The most
common form of measuring the size of the banking industry is measuring the total assets of the
banks. According to BMI India
Commercial Banking Report, in 2011,
the assets of the banking sector of India
were valued at $1,267.7 billion. The
banking industry in India grew at a rate
of 13.92% between 2008 and 2011 and
is expected to grow at 27.59% between
2012 and 2016As on 31st March 2011,
the banking sector in India comprised
of 170 commercial banks.
The growth in this sector has primarily been driven by increasing globalization and liberalization
of Indian economy. Realising the potential of the Indian banking sector, many foreign banks are
entering the industry which in turn is further driving the growth and opportunities of the industry.
1.3 Breakup of Loan Assets – Growth of retail banking in last two decades
The loan assets of the banks can be divided into four broad categories – industrial lending,
personal lending, services lending and farm & other sector lending. According to IBEF, during
the past two decades, the share of industrial lending has reduced to 44%( was 50% in
1990s).This decline can be attributed to increase in the share of personal lending which almost
857 1,033 1,276 1,267 1,632
2,069 1255.0
3,482
4,352
2008 2009 2010 2011 2012F2013F2014F2015F2016F
Asset Size of the Industry ($ billion, 2008-2016F)
CAGR: 27.59%
CAGR: 13.92%
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 4
doubled during the same period. Within personal lending, the semi-urban and rural segments are
driving the growth of the industry.
Increased purchasing power of consumers has also led to increase in demand for personal items,
which has contributed towards the growth of this sector. The retail loans amount to 6% of the
GDP of India (FICCI, 2010).
1.4 Structure of Indian Banking Sector
The banks in India can be divided into four broad categories
Public Sector – Major Nationalized banks are State Bank of India, Punjab National Bank
and Canara Bank.(GOI owned and run)
Private Sector – These banks are owned by
individuals and are headquartered in India.
Major banks in this segment are ICICI Bank,
HDFC Bank and Axis Bank.
Foreign Banks – These banks are
headquartered outside India but have
operations in India. Major foreign banks
include Citi Bank, HSBC, Standard Chartered Bank and The Royal Bank of Scotland.
Co-operative Institutions – These banks belong to its members, who are simultaneously
the owners and the customers of the bank. Some of the co-operative banks operating in
Home
Mortgages
52%
Personal
Loans
16%
Credit
Card
Outstandin
gs
3%
Other
Loans
29%
Breakup of Personal Lending
(%, 2010)
Industrial
44%
Personal
Lending
19%
Services
24%
Farm and
other
sectors
13%
Share of Loan Assets
(%, 2010)
Public
Sector
Banks
74.0% Private
Sector
Banks
19.0%
Foreign
Banks
7.0%
Share of Total Deposits
(%)
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 5
India are Delhi State Co-operative Bank, Maharashtra State Co-operative Bank and
Punjab State Co-operative Bank.
The public sector, private sector and foreign banks are collectively known as scheduled
commercial banks (SCBs). The banking industry in India is dominated by SCBs while the co-
operative banks have a very limited reach. Within SCBs, the public sector banks account for
78% of the total assets of the industry.
2. Market Divisions of Indian Banking Sector
The divisional structure of the Indian banking sector is as follows:
2.1 Retail Banking
Retail banking is banking in which banking institutions execute transactions directly with
consumers, rather than corporations or
other banks. Services offered include:
savings and transactional accounts,
mortgages, personal loans, debit cards,
credit cards. Retail banking comprises of
services offered to retail individuals. It
includes savings account, current
account, loans, credit cards facility etc.
The largest bank in retail banking sector is State Bank of India, followed by ICICI Bank. This
sector has grown at a CAGR of 30% over the past five years.
Within retail banking, the semi-urban and rural segments have been driving the growth.
Increased purchasing power of consumers has also contributed towards growth in personal loans.
Banking Sectors
Retail Banking Corporate
Banking Treasury
Private Wealth
Management
Agribusiness
Banking
Home Mortgages
52%
Personal Loans 16%
Credit Cards
3%
Other Loans 29%
Breakup of Personal Lending (%, 2011)
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 6
2.2 Corporate Banking
Corporate banking typically refers to financial services offered to large clients ('wholesale
clients'). Although many wholesale clients are large corporations, they may also include other
institutions like pension funds, governments and other (semi-) public entities. Corporate banking
is generally a very profitable division for banks, far more profitable than retail banking, which is
aimed towards households and small and medium enterprises (SME's). Corporate banking
comprises of services offered to industries, both manufacturing and services. These services
mostly include corporate credit i.e. advancing loans. This sector has grown at a CAGR of
21.20% over the past few years.
2.3 Treasury
Treasury management (or treasury operations) includes management of an enterprise's holdings,
with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial
and reputational risk. Treasury Management includes a firm's collections, disbursements,
concentration, investment and funding activities. In larger firms, it may also include trading in
bonds, currencies, financial derivatives and the associated financial risk management. Most
banks have whole departments devoted to treasury management and supporting their clients'
needs in this area. Treasury manages both SLR (80%) and non-SLR (20%) investments. smaller
banks are increasingly launching and/or expanding their treasury management functions and
38% 39% 40% 43% 44% 45% 46%
23% 24% 24% 24% 24% 24% 24%
2007 2008 2009 2010 2011 2012E 2013E
Sector wise credit growth
Industry Services
26%
26%
21%
24%
24%
21%
27%
11% 11%
4%
17%
13%
2007 2008 2009 2010 2011 2012
Industry Services
Growth Rate (%)
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 7
offerings, because of the market opportunity afforded by the recent economic environment. Bank
Treasuries may have the following departments:
A Fixed Income or Money Market desk that is devoted to buying and selling interest
bearing securities
A Foreign exchange or "FX" desk that buys and sells currencies
A Capital Markets or Equities desk that deals in shares listed on the stock market.
Treasury services include trading in foreign exchange, money markets, bonds and derivatives
both proprietary and on behalf of the customers. This segment is one of the most important
sources of income for any bank.
2.4 Private Wealth Management
Private banking includes banking, investment and other financial services provided by banks to
private individuals investing sizable assets. The term „private‟ refers to the customer service
being rendered on a more personal basis than in mass-market retail banking, usually via
dedicated bank advisers. It comprises personalized asset management services provided to High
Net worth Individuals. The major players in this sector include Reliance Money, Edelweiss
Capital and Karvy Broking Ltd. Most commercial banks also offer these services; however, they
are not very prominent. This sector is projected to grow at a CAGR of 32% between 2009 and
2013.
23.70% 23.10%
18.60%
2008 2009 2010
Growth Rate
13724 14240 14804 15458 15860 16158 16572 17421
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10
Net Investments (Billion Rupees)
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 8
The number of people with more than
$1 million of financial assets is
estimated to double between 2008 and
2013. By 2012, the country‟s wealth
management market is expected to be
USD 1 trillion.
2.5 Agribusiness Banking
Agribusiness banking comprises of banking services provided to farmers and people employed in
agricultural business. These services include savings account, loans, debit cards facility etc. The
banking regulator, the Reserve Bank of India, has prescribed that a portion of bank lending
should be for developmental
activities, which it calls the priority
sector. The agricultural sector has
been declared as a priority sector by
government of India and commercial
banks are required to lend a minimum
ratio of their total advances to
agricultural sector. While for local
banks, both the public and private
sectors have to lend 40 % of their net
bank credit, or NBC, to the priority sector as defined by RBI, foreign banks have to lend 32% of
their NBC to the priority sector. This sector comprises of mostly nationalized banks and regional
rural banks.
Commercial banks, most nationalized banks, hold a major chunk of agricultural lending. The
commercial banks benefit from their vast networks to reach the rural areas.
84000
105840 118720
132966 148922
166793
2008 2009 2010 2011 2012E 2013E
Number of people having more than $1 million assets
Commercial Banks
70%
RRBs 12%
Cooperative Banks
18%
Breakup of Agricultural Lending
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 9
3. Banks selected for study
3.1 Axis Bank
Axis Bank Limited, formerly UTI Bank, is an Indian financial services firm that had begun
operations in 1994, after the Government of India allowed new private banks to be established.
The bank changed its name to Axis Bank in April 2007 to avoid confusion with other unrelated
entities with similar name. After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named
as the bank's managing director and CEO on 20 April 2009. Axis Bank is the third largest private
sector bank in India. The bank operates through treasury, retail banking, corporate/wholesale
banking and other businesses divisions. The Bank's Registered Office is at Ahmedabad and its
Central Office is located at Mumbai. At the end of December 2011, the Bank has a very wide
network of more than had a network of 1,493 domestic branches and extension counters and
8,324 ATMs situated in 971 cities and town.
Interest margins of Axis bank, while they have declined from the 3.15 per cent seen in 2003-04,
are still hovering close to the 3 per cent mark. (The comparable margins for ICICI Bank and
HDFC Bank are around 2.60 per cent and 4 per cent respectively. The margins for ICICI Bank
are lower despite its much larger share of the higher margin retail business, since funding costs
also are higher).
1.1 1.24
1.44
1.67 1.68
21.84
16.09
19.93
19.89 20.13
2007 2008 2009 2010 2011
ROA ROE
7,32,572
10,95,778
14,77,220
18,06,479
24,27,133
2007 2008 2009 2010 2011
Total Assets (INR million, 2007-2011)
Key Ratios
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 10
3.2 ICICI Bank
ICICI (Industrial Credit and
Investment Corporation of
India) Bank Ltd. is an Indian
diversified financial services
company headquartered in
Mumbai, Maharashtra. It is a
wholly owned subsidiary of
ICICI Ltd. Established in 1994,
it is the second largest bank in
India by assets and third largest
by market capitalization. It offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its specialized
subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and
asset management. The Bank has a network of 2,575 branches and 8,003 ATM's in India, and
has a presence in 19 countries, including India. ICICI Bank is one of the Big Four banks of India,
along with State Bank of India, Punjab National Bank and HDFC Bank. Established in 1994,
ICICI Bank is India‟s second largest bank. It is a wholly owned subsidiary of ICICI Ltd. The
bank has a network of 2533 branches and 6800 ATMS in India. Between 2004 and 2009, the
total assets of the bank increased at a CAGR of 30%.
1.32 1.55
1.42
0.83 0.79 0.79
21.91 23.92 18.75
12.11 10.1 7.82
102.31 102.06 95.66
89.25 94.73 109.91
2004 2005 2006 2007 2008 2009
ROA ROE Loan/Deposit Ratio
13,07,476 17,84,336
27,72,296
39,43,347
48,56,166 48,26,910
2004 2005 2006 2007 2008 2009
Total Assets (INR million, 2004-2009)
Key Ratios
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 11
3.3 State Bank of India
State Bank of India (SBI) is the largest banking and financial services company in India by
revenue, assets and market capitalization. It‟s a state-owned corporation with its headquarters in
Mumbai, Maharashtra. As of March 2011, it had assets of US$ 370 billion with over 13,000
outlets including 150 overseas branches and agents globally. Between 2004 and 2009, the total
assets of the bank increased at
a CAGR of 19%.
SBI provides a range of
banking products through its
vast network of branches in
India and overseas, including
products aimed at non-resident
Indians (NRIs). The State
Bank Group, with over 16,000
branches, has the largest
banking branch network in
India. SBI has 14 Local Head Offices situated at Chandigarh, Delhi, Lucknow, Patna, Kolkata,
Guwahati (North East Circle), Bhuwaneshwar, Hyderabad, Chennai, Trivandram, Bangalore,
Mumbai, Bhopal & Ahmedabad and 57 Zonal Offices that are located at important cities
throughout the country. It also has around 130 branches overseas.
Established in 1806, State Bank of India (SBI) is the oldest and the largest bank of India. SBI has
14 local head offices and 57 regional offices across India. The bank has 8,500 ATMs, about
18,000 SBI branches and 5,100 associate branches. Between 2004 and 2009, the total assets of
the bank increased at a CAGR of 19%.
1.05
1.69 1.67
0.95 0.97 0.94
22.14
33.2 31.74 18.04 17.27
16.4
52.65
58.42
70.56
77.76 79.46 75.46
2004 2005 2006 2007 2008 2009ROA ROE Loan/Deposit Ratio
55,09,844 62,85,776
69,68,324 81,51,744
1,02,72,700
1,30,48,260
2004 2005 2006 2007 2008 2009
Total Assets (INR million, 2004-2009)
Key Ratios
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 12
4. Portfolio Analysis
4.1 Approach
4.2 Market Attractiveness
For measuring the market attractiveness, we translated the standard parameters to proxies which
were relevant for the banking industry. The proxies were chosen in such a way that most of them
were objective and provided quantified results which could be easily compared with others. After
obtaining data for all these parameters, weights were assigned to each one of them in the order of
their importance in determining market attractiveness of banking industry. Thereafter, the rating
points for each banking segment were obtained by taking a weighted mean of the proxies. The
results thus obtained are displayed below.
Identified the business segments of the industry
Identified the three biggest banks in the industry
Identified the factors governing the market attractiveness and competitive strength
Translated these factors into measurable and quantifiable indicators relevant for banking industry
Found the values of these indicators for each bank in each business segment
Assigned weights to each factor and calculated overall rating of each business segment of each bank
Plotted the different business segments on BCG matrix and obtained the GE matrix
Identified the stronger and weaker areas of respective banks and generated recommendations
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 13
Retail Corporate Credit Private Wealth Agricultural
Related
Treasury
6.02 6.45 7.97 2.99 5.12
4.3 Competitive Strength
For measuring competitive strength, we translated the standard parameters to proxies which were
relevant for the banking industry. The proxies were chosen in such a way that most of them were
objective and provided quantified results which could be easily compared with others. After
obtaining data for all these parameters, weights were assigned to each one of them in the order of
their importance in determining competitive strength of respective banks. Thereafter, the rating
Market Attractiveness Parameter Weight
Market Size Aggregate Lending or AUM or Investment 15%
Market Growth CAGR over 5 years 20%
Profitability Income/Advances and Income/Investment 15%
Pricing trends Spread between lending and deposit rate 5%
Opportunity to Differentiate Average Deposits/Customer 5%
Entry Barriers Regulation and licensing requirements 5%
Competitive rivalry Number of Competitors, Herfindahl index 10%
Distribution Structure
Requirements
Number of channels and ease of set-up and
maintenance 10%
Necessary Investments Licensing cost & set-up cost 5%
Risk of return Overall risk exposure of the bank 10%
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 14
points for each bank were obtained by taking a weighted mean of the proxies. The results thus
obtained are displayed below.
Competitive Strength Parameter Weight
Company Image Awards received and law suits filed 10%
Strength of Assets and Competencies NPA/Advances 20%
Market Share Investment or Advances 25%
Distribution Strength ATMs/branches/sales reps/telephone expenses 15%
Access to Financial Resources Deposits 15%
Cost Position Expenses 10%
Record of Innovation No of Products launched last year 3%
Sales Force No of Sales Reps 2%
Retail Corporate
Credit
Private
Wealth
Agricultural
Related
Treasury
Axis Bank 3.1 4.3 1.2 2.9 4.2
ICICI Bank 4.1 4.7 5.5 3.0 3.5
SBI 8.3 6.2 4.7 6.9 7.7
4.4 BCG Matrix
Three BCG matrices were plotted for the three banks respectively. Agribusiness banking was
found to be a dog for Axis Bank and ICICI Bank while for SBI it was a cash cow because of
high market share. Retail banking and corporate banking were found to stars for all the banks
because of their high growth rates and high market shares. Treasury was question mark for Axis
Bank and ICICI Bank because they have a low market share in this segment.
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 15
4.5 GE Matrix
Based on the rankings obtained as described in the previous section, the GE matrix was obtained
for the banking industry. The competitive strength of respective banks was plotted on the X-axis
while market attractiveness of each banking segment was plotted on Y-axis. The GE matrix thus
obtained is displayed below
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 16
4.6 Observations from GE Matrix
4.6.1 Market Attractivess
4.6.1.1 Retail Banking
Retail banking lies at number three in terms of market attractiveness followed by treasury and
agribusiness banking. Profitability in this segment is a direct function of the number of branches
and reach of the bank. This sector has maintained a good growth in the recent few years and the
profitability is also high. However, the spread between the lending and deposit rates is
decreasing which could reduce the profitability of the sector in future. This segment is
characterized by huge expenditure in setting up distribution channels as compared to other
banking segments. This reduces its attractivess in comparison to wealth management and
corporate banking. In terms of risk of return, this sector ranks on a medium level because of
chances of bad debts. Moreover, this sector does not provide a wide scope of differentiation as
retail banking services have been commoditized over the past few years, thereby further reducing
its attractiveness.
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 17
4.6.1.2 Corporate Banking
This sector ranks at number two in terms of market attractiveness, behind wealth management.
Corporate banking has a higher market size as compared with retail banking. The cost efficiency
of this sector is high because of lower fixed costs in setting up distribution channels. This
segment does not require setting up of a large number of branches and ATMs which reduces the
fixed costs. The average deposit per customer being higher in corporate banking, the opportunity
to differentiate is also higher. Though the growth of retail banking sector is expected to be higher
than corporate banking sector, the huge capital investments and intense competitive rivalry make
it less attractive than corporate banking sector.
4.6.1.3 Private Wealth Management
Private wealth management is a niche segment with a focused set of customers. This sector has
not grown much in comparison to other banking segments such as corporate banking and retail
banking. However, the increasing number of millionaires and billionaires is expected to drive its
growth. There is a very high scope of innovation in this segment due to personalized services.
This segment offers a very high degree of profitability and very less provisions for bad debts.
Further, there are not much stringent entry regulations in terms of license requirements. The
capital investment is very low as most of the communication is done directly with the customers
and no branches and ATMs are required. This sector has a very high growth potential and it is
recommended to innovate and invest in this sector.
4.6.1.4 Treasury
This segment has the lowest market size among all the banking segments. This segment is
involved in investing in SLR and non-SLR securities i.e. shares, bonds, commercial papers of
other companies on its own behalf and that of its clients. Because of government regulations,
80% of treasury investment is SLR investment. These investments are done in government
securities. The returns from these securities being low, this segment ranks very low in terms of
profitability. The growth of this segment is linked to the growth of other segments namely retail
and corporate banking. As a result, it possesses medium growth potential. This segment ranks
best in terms of ease of entry. There are minimal entry barriers for this segment as the
government itself promotes investment by this segment. The competitive rivalry is also not very
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 18
high in this segment. Moreover, the requirement of capital investment is minimal and the risk on
returns is also very low.
4.6.1.5 Agribusiness Banking
This segment ranks lowest on the scale of market attractiveness. This is a generally unattractive
segment. It is characterized by high default risk and political interference. The risk on returns is
also very high because of high chances of bad debts. The profitability is also very low because
there are upper limits on the interest rate being charged on advances made to farmers and other
people employed in agricultural sector. Furthermore, setting up a branch network in rural areas is
a daunting task because of poor infrastructure and technological support. Since this sector has
been declared as a priority sector by the Indian government, the banks are required to lend a
minimum percentage of their total loans to this sector.
4.6.2 Competitive Strength
4.6.2.1 Axis Bank
Axis Bank has the lowest NPA percentage resulting in its high growth. This bank has the least
amount of spending on advertising as a percentage of net profit. It is only 1.2% as against 1.73%
and 3.12% by ICICI and SBI respectively. The bank does not have an as extensive distribution
channel as ICICI bank and State Bank of India do. The market share of this bank is lowest in
comparison with other two banks. Overall, the reputation of the company is lesser as compared
to SBI and ICICI. The bank was previously named UTI Bank and has changed its name a couple
of years back. However, the awareness about the bank is on a rise and is expected to match other
major banks because of its high growth.
4.6.2.2 State Bank of India
State Bank of India is the oldest and largest bank of India. Hence it is a clear winner in terms of
company reputation and image. It has a very extensive distribution network and has reach in
remote areas also. This makes it possible for this bank to serve rural areas too. SBI is clear
winner in retail because of its extensive distribution network and high deposits. However, this
bank suffers from higher NPA percentage as compared to other banks. At the same time, the
advertising budget is highest among the three banks. It is a long established bank, resulting in
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 19
high level of trustworthiness. But it has a lower operating efficiency. Because of its high market
share in most of the business segments, this bank has high competitive strength.
4.6.2.3 ICICI Bank
ICICI Bank is the largest private sector bank of India. It has high competitive strength in private
wealth management segment because of international presence. It has highest market share in
domestic private wealth management segment. The NPA levels are also satisfactory. Its
performance during recent financial turmoil shows that the bank has strong fundamentals. It is
accompanied by moderate expenditure in advertisement. It operates with high operating
efficiency. However, it has high international exposure in risky assets which increases its risk on
returns. This bank ranks second in all the business segments except private wealth management
where it is ranked 1.
4.7 Position of Cost Advantage
COST PARAMETERS (in Rs 000)
AXIS Bank SBI ICICI Bank
Total Income 19,78,69,396 972189580 61,59,47,044
Total expenditure 16,39,84,490 889544390 55,27,65,103
Tot. expenditure as % of Total income 83% 91% 90%
Payments to and provisions for employees 1,61,39,001 144801678 43925959
% of total income 8% 15% 7%
Rent, taxes and lighting 67,98,464 17944879 97,23,158
% of total income 3.4% 1.8% 1.6%
Advertisement and publicity 7,90,153 2578761 38,74,585
% of total income 0.40% 0.27% 0.63%
Profit per employee 14.35 lacs 3.84 Lacs 10 Lacs
From the above table it can be inferred that SBI has the highest percentage of total expenditure
as a percentage of its income. Also the profit per employee is the lowest and there is a substantial
difference between in this regard between SBI and the other two banks in comparison. The total
expenditure of Axis bank is the lowest and its cost per employee is the highest which puts it in
the position of a cost leader amongst the three banks.
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 20
Further it can be noticed that the measure factor of difference for the expenditure amongst the
three banks is the payments to and provisions for the employees. SBI is the least cost efficient in
this parameter owing to being a public sector bank with bureaucracy and government
interferences. However due to economies of scale and due to long years of establishment it
enjoys some advantage in the expenditure in rent taxes and lighting. With regards to advertising
ICICI spends the most as proportion of its total income owing to its aggressive advertisement
campaign compared to the other two banks.
4.8 Recommendations and Suggestions
1. Axis Bank is a recent entrant in Private Wealth Management segment. Hence, either it
has to wait for a long time to be among the top players or it has to look for alliances to
acquire capabilities and resources to survive in this segment. Also since the segment is
very much prone to innovation and differentiation, it is recommended for Axis Bank to
switch from transactional model to advisory model. This will cement its place as value-
added services provider and will help it retain customers and acquire new ones.
2. Axis Bank and ICICI Bank lag behind SBI by a very huge margin in Retail Banking. To
increase their market shares and competitive strength in this segment, it is adviable for
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 21
them to look to acquire small regional banks to develop synergies. Currently, there are a
large number of regional banks. This results in a lot of ATMs and branches setting up in
an area. By consolidating these branches and ATMs, Axis Bank and ICICI Bank can gain
economies of scale and provide competition to a large bank like SBI. Also these banks
have to focus on tier II and III cities and develop a strong foothold there.
3. The agribusiness banking segment is not at all attractive and Axis Bank and ICICI Bank
have very low penetration in this segment. These banks can look forward to exiting from
this business segment. However, due to governmental regulations, they have to allot a
certain minimum percentage of their loans to this segment. Hence, to minimize the losses
due to bad debts, these banks should allocate limited resources to this segment for
ensuring recovery.
4. Axis Bank and ICICI Bank do not fare very well in treasury segment. It is recommended
that they focus on active management of resources in this segment. The source of revenue
from this segment is the interest income and capital gains realised on investing in various
securities. Hence these banks have to identify the securities which provide high returns
and are less risky to invest in.
5. The corporate banking sector is moderately high in market attractiveness, yet none of
these banks is very strong in this sector. To strengthen their presence in this segment, the
banks have to develop competencies to provide core solutions to their clients ranging
from insurance to investment banking. If the banks are able to develop themselves as one-
stop service provider, they will be able to retain their clients for a longer duration and will
lead themselves to a position where they will have high bargaining power.
6. The private wealth management sector is characterized by the presence of a large number
of non-banking financial corporations such as Edelweiss Capital and Reliance Money.
Since these organisations are specialised in this area, they are able to provide better and
more profitable services to their clients. Thus pure banks lag behind in this sector. In
order to develop themselves, all the banks have to work towards building reputation and
establishing offshore presence.
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 22
7. State Bank of India has a very extensive distribution network in terms of number of
branches and ATMs. Yet it suffers from low efficiency because of duplication of
resources. The bank has to work towards achieving economies of scale and should
leverage its unmatched presence. For this, it is recommended that SBI consolidates its
branches and increases productivity in order to increase the operating efficiency. The
bank has already taken measure in this direction and has consolidated some of its
umbrella banks. It is recommended that they continue the trend.
8. SBI holds a competitive advantage over Axis Bank and ICICI Bank in treasury segment.
In order to safeguard its position, it is suggested that the bank invest more in high return
assets and minimize risky assets.
9. The agribusiness banking sector has been declared as a priority sector and being a
nationalised bank, SBI has to cater to this segment. The bank already holds an advantage
over other banks in this segment. Going forward, it is suggested that the bank focuses on
improving its efficiency in this segment by minimizing the scope of bad debts. The bank
should also innovate and come up with customised banking products for agricultural
customers.
Group-7 | Section-C Portfolio Analysis – Indian Banking Sector
PGP 2011-2013 Page 23
5. References
2011-12 RBI report on Bank profiles
„Banking‟, Indian Brand Equity Foundation (November 2011)
“BMI India Commercial Banking Report Q2 2012” from
www.businessmonitor.com
Information about SBI from its website
http://www.statebankofindia.com/user.htm
Information about Axis Bank from its website
http://www.axisbank.com/
Information about ICICI Bank from its website
http://www.icicibank.com/
„Financial Markets and Banking Update – Vol. 3: FY2011-12‟, ICRA Research
Crisil Reports
„India Wealth Management Research‟, Northbridge Capital (February 2011)
„Wealth Management in India: Challenges and Strategies‟, Cognizant (June 2011)
„Competitiveness of the Indian Banking Sector – Public Sector Banks‟, State Bank of
India
Report by TRAI
http://www.trai.gov.in/NFCNPrts/session2/2-SCBhatnagar.pdf