indian bankingfin

8/10/2019 Indian Bankingfin

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Indian Banking IndustryAn Analysis


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Structural Analysis of the Industry


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Banking Products - Corporate

Funded Services

- Working Capital Finance

- Short Term Finance

- Bill Discounting

- Export Credit

- Structured Cash Flow

Financing

- Channel/Vendor Financing

Non Funded Services

- Letters of Credit

- Guarantees- Collection of Documents

- Bills Collection

- Cash Management Services

- Loan Syndication

- Supply Chain Management

- Payment Gateway Services


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Banking Products - Retail

Assets

- Auto Loans

- Housing Loans

- Credit Card And Debit Card

- Wealth Management

- Insurance

Liabilities

- Retail Deposit


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Porters Five Forces Analysis


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Suppliers PowerPublic & Corporate Deposits

- 80% of total liabilities

- Base too fragmented

Power increasing due to

- Integration of rural areas- Improved Communication & Reach


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Suppliers Power (Contd.)

RBI

- Supplier of funds only

- 2% of total liabilities

Workforce

- highly unionized industry.

THUS SUPPLIER POWER IS LOW


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Buyers Power

Priority Sector

Agriculture

Small Scale Industries Others

- Each accounts for 13% of Bank Credit

- Wide dispersion of the borrowers.

- Low Credit Standing

TH IS SEGMENT POWER IS LOW


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Buyers Power (Contd.)

Wholesale Trade

- Diffused base

- Low credit rating

- 3.8% of Bank Credit

Industry- Medium and Large firms.

- 35% of total Bank Credit

- Credit Surplus situation.

- Alternate avenues

TH IS SEGMENT POWER IS MODERATE


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Buyers Power (Contd.)Others

NBFC4% of Bank Credit

Individuals15% of Bank Credit

RBI

- Control over SLR

POWER IS LOW


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Threat of New Entrants Barriers to entry

Government policies and regulations

Reach for economies of scale

Product differentiation

Low Profitability

THREAT OF NEW ENTRANT LOW


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Threat of Substitutes

Unorganized Market

Capital Market

Insurance

NBFC

Financial Institutions

Post office deposits

External Commercial borrowings

THREAT OF SUBSTI TUTES H IGH.


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Rivalry

10 Banks Deposit Concentration Ratio: 60.9

82.2% Deposits with PSBs.

Friendlier Regulation promoting Competition

Slow Industrial Growth increasing rivalry to capture

potentially good clients

Increased Rivalry in Retail Banking

Brand Building Exercise

Customer Service

Coverage

Undifferentiated Products

RIVALRY INTENSE


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External Factors affecting the Industry

Government Regulations

Agri lending concerns

Infrastructure focus

FDI Policy

Securitisation Act fillip

Revival of Core Industry Segments

Inflationary Pressures- RBI Increasing interest rates

Impact of Basel II norms

HUGE IMPACT OF GOVERNMENT REGULATIONS


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External Factors affecting the Industry

Lifestyle Changes

I ndian culture is changing towards lesser hesistance to

taking credit

People are having lesser and lesser time.. Bankingproducts and services need to customized according to

this.

Technology

I nternet banking/ATM

Bank branch off ices become more of Relationship

management off ices


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Rivalry/Competition

Threat of Substitutes

Threat of New entrant

Bargaining Power

of suppliers-

Bargaining Power

of Buyers

LOW

LOW

MODERATE

HIGH

HIGH


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Industry Drivers Technology

Customer service

Strategic alliances

Lifestyle changes

Economic growth


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Structural Analysis within the

Industry


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Competitive Strategy

KEY DIMENSIONS

- Size of deposit

- Technology

- Capital Adequacy Ratio

- NPA

- Operating Profit

- Staff Productivity

- Geographic Spread

- Service Quality

- Fee based Income

- Implicit cost of funds

bli k


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Public Sector BanksParameters SBI PNB BOB

CanaraBank ofIndia

Size ofdeposits

VeryHigh

High High High High

TechnologyMedium Low Low Low Low

CapitalAdequacy ratio

High Medium High Low High

NPAs VeryHigh

Very High Very High High Very High

Operatingprofit

Medium Low Low Medium Low

Staffproductivity

Very Low Very Low Low Low Low

Geographicspread

VeryHigh

High High High High

Service Quality Low Low Low Low Low

Fee-basedincome

Medium Low Low Low Low

Implicit

Cost of funds

Medium Medium Medium Medium Medium

i k


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Parameters J&K Bank ICICI bank HDFC bank Vysya bank

Size of deposits Low Medium Low Low

Technology Medium High High Low

Capital Adequacyratio

Very High High Medium High

NPAs Medium Medium Very Low High

Operating profit Medium Medium Medium Low

Staff productivity Low High High Low

Geographic spread Low Very Low Low Low

Service Quality Medium Good Very Good Poor

Fee-based income Very Low Medium High Low

Cost of funds High Low Low High

Private Sector Banks

F i B k


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Parameters Standard

charteredABN AMRO HSBC Citibank

Size of depositsLow Low Low Medium

TechnologyHigh High High High

CapitalAdequacy ratio

High Medium High Medium

NPAs Very Low Low Low Low

Operating profit Medium High High High

Staffproductivity

Medium High Medium Very High

Geographicspread

Very Low Very Low Very Low Very Low

Service Quality Good Good Good Very Good

Fee-basedincome

Low Medium High High

Cost of funds Very High Very High Very High Very High

Foreign Banks


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Mobility Barriers TECHNOLOGY

Ability to leverage technology

Huge investment outlay& time

Ability of workforce to adapt

REACH

Number of branches

Distribution

OPERATIONAL EFFICIENCY

Staff productivity

NPAs

Cost of funds


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Strategic Options

CONSOLIDATION & STRATEGIC ALLIANCES

PNB and BOB tie up to enter insurance business

HDFC bought out housing finance portfolio of two companies.

Co-brandingcredit card of HSBC and PNB, Amex and MTNL co- .

. branded card for phone payments.


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Strategic Options (Contd.)

UNIVERSAL BANKING

- ICICI merger with ICICI Bank

- Cross selling of products

- Enables banks to achieve cost efficiency through economies .

. of scale and scope.


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The Road Ahead. Consumer Banking business as main growth driver

Major consolidation5 large nationalized banks, 4-5

private sector banks and about 4 foreign banks.

Survival of cost efficient players.


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Select References

www.indianbanksassociation.com

www.bankersindia.com

www.indiainfoline.com

www.icicibank.com

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


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