Analysis of the banking

Sector A Services Marketing Assignment

Abhijith Shetty 02A

Amit Nayak 04A

Anubhav Nanda 07A

Gaurav Midha 16A

Sachin Thomas 42A

Indian Banking

India has a large population with almost 65 percent of the population residing in rural and semi

urban areas. It is a land of diverse cultures and unique socio economic and geographic

characteristics. The Indian economy is heavily biased towards the public sector with an economic

policy that combines both socialistic and capitalistic features. All these features determine the size,

structure, diversity and nature of the banking sector in India.

The Indian banking system comprises the following institutions:

Commercial banks

-public sector

-private sector

-foreign banks

-cooperative institutions

a. urban cooperative banks

b. state cooperative banks

c. central cooperative banks

Market Size

� Total assets of US$ 335 billion

� Total deposits of US$ 279 billion

� Over 290 scheduled banks

� Public sector: 27

� Private sector: new – 9; old – 24

� Foreign: 37

� Over 190 regional rural banks

� Over 66,000 branches

� Public sector: 46,000

� Private sector: 5,500

� Foreign: 190

� Regional rural: 14,400

LIST OF BANKS IN INDIA

Public Sector Banks:

1. Allahabad Bank

2. Andhra Bank

3. Bank of Baroda

4. Bank of India

5. Bank of Maharashtra

6. Canara Bank

7. Central Bank of India

8. Corporation Bank

9. Dena Bank

10. Indian Bank

11. Indian Overseas Bank

12. Oriental Bank of Commerce

13. Punjab and Sind Bank

14. Punjab National Bank

15. Syndicate Bank

16. UCO Bank

17. Union Bank of India

18. United Bank of India

19. Vijaya Bank

Private Sector Banks

1. Bank of Rajasthan Ltd.

2. Catholic Syrian Bank Ltd.

3. City Union Bank Ltd.

4. Dhanalakshmi Bank Ltd.

5 Federal Bank Ltd

6. ING Vysya Bank Ltd.

7. Jammu and Kashmir Bank Ltd.

8 Karnataka Bank Ltd.

9. Karur Vysya Bank Ltd.

10. Lakshmi Vilas Bank Ltd.

11. Bank of Punjab Ltd. (since merged with

Centurion Bank)

12. Centurion Bank of Punjab (since merged

with HDFC Bank)

13. Development Credit Bank Ltd.

14. HDFC Bank Ltd.

15. ICICI Bank Ltd.

16. IndusInd Bank Ltd.

17. Kotak Mahindra Bank Ltd.

18. Axis Bank (earlier UTI Bank)

19. Yes Bank Ltd.

20. IDBI Bank Ltd.

Foreign Banks in India

ABN-AMRO Bank N.V.

Abu Dhabi Commercial Bank Ltd.

American Express Bank Ltd.

Barclays Bank PLC

BNP Paribas

Citibank N.A.

DBS Bank Ltd

Deutsche Bank AG

HSBC Ltd.

Standard Chartered Bank

State Bank of Mauritius Ltd.

Main Competitors for Banking

• Post offices.

• Mutual fund

• Share market

• Insurance.

• Money lenders

• Family and friends

SERVICES OFFERINGS

Courtesy the advances in technology, the bank customer now has access to ATMs, mobile banking,

any branch banking, Electronic Fund Transfer(EFT), etc; treasury managers have transparent

Negotiated Delivery Systems(NDS); and commercial bankers with the comfort of Real Time Gross

Settlement(RTGS). Thus, transaction processing is done at the back office and bank now focuses on

building relationships and products with each of the distinct customer categories:

Personal

Personal category has been the most focussed and hence with the most diverse offerings.

Conventional services include:

Deposits: Term (Fixed, Savings), Non-term(Current)

Free debit/credit card

Free/nominal premium insurance coverage

Loans: Housing, Education, Vehicle

Lockers and safety vaults

Gift cheques

Specialised services include the Vishwa Yatra Foreign Card by the SBI, which clubs together the

benefits of international access with those of a debit card; Eshoppe by Bank of Baroda (BoB) and

Central Bank of India(CBI) which enables the frequent shopper the ease of shopping safely from the

comfort of his house; Gen Next services like Lifestyle, Power, Suvidha, Junior offered by BoB

facilitating an improved access to new generation products, consumer goods and saving schemes ;

World Gold Council certified gold bars as an alternative form of investment; Retail loans for home

improvement, loans against rent receivable, to finance purchase of an IPO, career development etc.;

Electronic Clearance Service(ECS) to facilitate speedy and time bound clearance of outstation

cheques and fund transfers; mobile payment facilities for the customer on the move; prepaid charge

cards for purchases and Forex; Ashray – the reverse mortgage scheme by BoB for the elderly; no

frills account having no initial balance or initial payment by HDFC.

Rural

The nationalisation of banks in 1969 and subsequently in 1980, the Narsimham committee reforms

and the Tarapore committee recommendations all led to heightened emphasis on rural banking. To

focus on the villages, the Service Area Approach (SAA) and the Villager Adoption Scheme were

earlier efforts in this direction.

Regional Rural Banks (RRBs) in India account for a lion’s share of the banking services provided in the

rural sector with lending rates being 1% less than the market rate and deposits enjoying 1% greater

interests.

Specialised service offerings include locker deposits with lockers supplied by the banks; Priority

Sector lending for agriculture, retail, self-help groups, small businesses and government activities;

Kisan No-frills account by HDFC; Money Lender Free Village project by South Indian bank; Agriculture

Advisory Services by SBI.

The Cent Sahyog Scheme was launched as a financial literacy and credit counselling centre by the

Central Bank of India to provide awareness on banking products and counselling to distressed

farmers irrespective of which bank they had borrowed from.

Corporate and Business (B2B)

To cater to the fast growing corporate clientele, specialised service packages are being offered.

Wholesale banking provides facilities of syndication and internalisation of loans; loans to meet

working capital requirements; Line of Credit; Export Finance; MBOR loan; Sub PLR loan; FCNR loan;

Bridge loan; Advance against shares; Project loans; SME loans for the business enterprises; Clear

Traders’ loan; Takeover of Accounts are normal services which are indispensable for the corporate

sector.

Merchant banking services provided to corporates during equity issue including underwriting, issue

management, collection and dispensing, letter of guarantee; foreign capital arrangement etc. are

essential to any corporate.

International (NRIs)

For NRIs, remittances from abroad can be channelized through a number of banks in collaboration

with Western Union Money Transfer like SBI and BoB.

Specialised facilities to returning Indians is a focus of BoB wherein it makes arrangements for

transferring savings and investments from abroad to India and advising them on taxes and other

compulsory border charges.

FGN Currency credits are provided; FCNR (B) loans; off shore banking; Correspondent banking; Exim

banking etc. are other services

Other Services

This includes services beneficial to all categories like bill payment, internet banking, money transfer,

Demat account etc.

Treasury services are provided by banks both in domestic and foreign currencies for Commercial

Papers (CP), Certificates of Deposits (CDs), Government Securities, Bonds and Certificates,

Debentures, Equities etc. National Securities Depository Limited (NSDL) works in collaboration with

the banks to provide soft depository maintenance of equities and shares, also enabling transferring

and easy sale via the electronic medium.

Wealth management services are provided to help clients maintain the financial portfolios like

mutual funds, gold funds, off shore funds, energy funds, future markets etc. Cash management

services are also provided to help compound present investments.

Letters of credit are provided to help enable foreign trade on credit and letters of credit worthiness

may also be issued. Free tax consultation and tax filing services are also provided to all clients as and

when required. SMS alerts (pull or push) in the OTS format as well as toll free service numbers are

provided to keep the interface active during non-banking hours.

Internet banking helps create a 24 hour banking experience for all kinds of customers, thus, making

banking truly accessible and available. 24 hour bank branches also cater to this requirement.

SERVICE QUALITY

Indian banks have traditionally been seen as staid, bureaucratic organizations where there is lot of

red tape to go through for even the simplest tasks. A big grouse of customers (increasingly, the

young) is that banks have no human ‘face’ to them. Since the economic reforms of the early 90’s,

Indian banks have come under increasing pressure from other industrial sectors to match up with

their levels of customer service. When sectors as diverse as healthcare, transport, entertainment

etc. all placed a high premium on satisfying customers through impeccable service, banks could not

wait and watch. It is well established that today, customer loyalty is of prime importance and can’t

be ignored. A dissatisfied customer can well take his business elsewhere, and this is becoming

increasingly true today because we have so many new private (and foreign) entrants to the category.

Plus, when today’s customers are busy and short of time, they expect to be treated well.

Since the nationalization of banks in 1969, banking has primarily been a domain of the central

government. In 1991 after the liberalization policies the private sector banks were allowed to be set

up. These private sector banks have been very successful in capturing the market share which is

primarily due to the superior quality of services that these banks have been able to provide. The

question now arises as to what is quality? Quality can be defined as the ability to meet the

customers’ requirements and needs to the fullest on an ongoing basis. Service quality is the most

important factor in the banking sector because the duplication of services and products is very easy

and differentiation between products is very difficult and hazy. So the quality of service becomes the

only differentiator and is the key to continuous success.

In today’s times with the increased competition the banks that want to survive will have to provide

quality service. SBI realized that if it had to compete with the private banks it had to improve and it

did so and now it is one of the best banks in the country. Research studies have even proved that

customers are willing to pay for better quality service. ‘Customers’ for a bank are heterogeneous.

They come from varying cultural and socio economic backgrounds so the perception of the quality of

banking services will vary from customer to customer and even for the same customer at different

points of time. For e.g. a person who goes to an ATM to withdraw cash specially on a Sunday finds it

temporarily out of order is more likely to be dissatisfied than he would be if he just happened to pop

into an ATM on his way to work.

Capacity Constraints in Banks

The growth of the Indian banking industry has been the primary driver for the development of India.

India has 88 scheduled commercial banks, 27 public sector banks and 31 private banks.

Even though social obligation weigh heavily on banks, forcing them to expand, this is not possible in

an economy that is currently growing at 9%. With the real estate sky rocketing, a tough challenge

has been thrown at the banking in terms of physical space. Presence of physical banks is by and large

adequate in cities. Cities hence do not provide the ground to expand. Rural expansion poses auxiliary

constraints like scare availability of electricity, skilled professionals etc.

Economic reforms in India have led to substantial growth in financial institutions. Certain constraints

prevent these institutions i.e. banks from expanding at the rate that the reforms provide them.

� Physical Constraints – Real Estate, Operational Facilities

� Human Resources Constraints

� Performance Issues

� Market Issues – Lack in Depth in the Debt markets, inadequate foreclosure laws, heavy

stamp duties etc

� People Sentiments

The current attempt at growing in the online space will soon stagnate taking into consideration the

load that an ever penetrating internet channel would infuse on the online application. The speed

with which this would expand would, also, be restricted and a direct function of the % increase in

internet penetration.

A growing economy allows its citizens to take higher financial risk by using several other financial

instruments. The positive markets provide positive sentiments converting banks into a secondary

fallback option.

Marketing Strategy

• Financing rapid industrial growth

– With the Indian economy growing at a blistering pace on the back of strong

industrial and services growth, the Indian companies are looking to build up capacity

to meet future demand.

– Banks play a pivotal role in financing this industrial growth.

– Technological innovations & challenges

– Banks are aggressively adopting the latest technology in order to improve product

offerings, customer service, and operational efficiency and risk management

systems.

– Financial inclusion & Rural – Microfinance

– In the quest for new markets and customer segments, as well as with the RBI

directives in this area, banks are looking at the rural and unbanked segments in a

new light as a huge business opportunity.

• Convergence to a single solution provider

– With pressures on the spreads and the competition in the urban markets increasing

rapidly, banks need to develop new ways to sustain profitability.

– Banks led to a plethora of new products, hence becoming a one stop shop for all

financial solutions.

– Roadmap by RBI for foreign banks

– The RBI has laid out a two phased roadmap for giving greater freedom to the foreign

banks in India.

– This has spurred the entry of several other foreign banks in India, along with acting

as a signal to the domestic players to pull up their socks to face the new

competitors.

– Growth in retail lending

– The under banked Indian population as well as the high margin on retail products

makes this a very attractive market for the banks.

– The all-inclusive nature of this growth in terms of sectors covers all consumer

segments as well as product segments.

• Demand for derivatives & other risk management products

– The increasingly dynamic business scenario and financial sophistication also increase

the need for customized exotic financial products.

– The complex and peculiar nature of risks faced by the companies are passed onto

the banks.

– Innovative financial tools and advanced risk management methods are required by

the banks to capitalize on this business opportunity.

– Consolidation

– The process of consolidation in India aims at ironing out these deficiencies.

– The Indian banking industry may soon be characterized by fewer but very

competitive banks.

• Capital account convertibility

– With the possible introduction of capital account convertibility in India, it will

provide additional inflow and outflow of foreign currency.

– This exposes banks to additional exchange risk apart from providing an additional

source of revenue generation.

– Global expansion plans

– Most Indian banks including the PSU banks already have branches abroad, albeit

with minimal presence in terms of market share.

• E.g. ICICI and SBI

– SME Financing

– SMEs, with the recent growth, are the new goldmine that the banks have hit upon.

With a host of services ranging from bill discounting, factoring and even venture

capital funding, banks are knocking at their doors, ready to customize offerings to

suit their needs and acquire these customers.

New Orientation among Banks

Traditional/Public Sector

� Sell products

� Product research: what will sell?

� Product sales and profitability targets

� Product specialist groups

� Introduce new offerings every few years/months

� “Branch banking”

� Focus - customer acquisition

New/Private Sector

� Meet customers’ needs

� Customer research: what does the customer want?

� Customer segment sales and profitability targets

� Customer owners

� Customer specific new offerings every week/day

� Customer convenience

� Deepen relationships

Summary

� The reform and liberalization process has transformed the Indian economy

� Structural shift with service sector growth

� Immense potential to leverage technology and knowledge capital

� Improved competitiveness in manufacturing after intermediate period of restructuring &

rationalization

� Growing international linkages

� Exports, manufacturing and distribution overseas

� India as a manufacturing base

� Globally benchmarked businesses, capable of competing internationally

� The banking sector has achieved significant success in addressing legacy concerns

� Resolution of asset quality concerns through recovery, restructuring and provisioning

� Focus on technology and customer orientation

� The economic transformation provides major opportunities for the banking sector

� Retail finance – credit and banking services

� Corporate finance - banking services and structured finance

� The sector is poised to capitalize on these opportunities