THE BANKING INDUSTRY STATE BANK OF INDIA

VIJAY RAGHUNATHAN DIV A ROLL NO: 36 MBA CORE

TABLE OF CONTENTS PART I

Introduction to the Sector Government Regulations pertaining to the sector Key Players/Major Companies in the Sector

PART II
Introduction and USP Product Portfolio/Services offered Key Financial Indicators of the past three years (Profits/Losses, Growth in Net Sales etc.) Marketing Initiatives CSR Activities

PART III
Porters Five Force Model

PART IV
SWOT Analysis

PART I Introduction to the Sector

In a recent television advertisement a servant opens the door and tells the master of the house, Sir, Bank.. Yes, banks have made their way into our homes and evolved into the fabric of every household. Like SBI (State Bank of India)s tagline The banker to every Indian, every person is now associated with a bank. Banks have moved from Class Banking to Mass Banking. Technology has once again brought forth a sea change in this sector through the invention of ATMs, credit cards, debit cards, self-service kiosks, servicing requests online, etc. Bank lending has been a significant driver of GDP growth and employment.

History of Banking in India

Lets take a glimpse of the evolution of the banking industry. Banking could arguably said to have begun through unscrupulous moneylenders, who would target poor peasants and make huge profits. The Roman Empire is credited with the institutionalizing of banking. It was the Imperial Bank of India (IBI) which made the footholds of commercial banking in India. The Imperial Bank was an amalgamation of three presidency banks, namely, Bank of Bengal, Bank of Bombay and the Bank of Madras. In 1955, IBI was transformed into what we today know as the State Bank of India. The Indian Banking Industry is governed by the Banking Regulation Act of India and can be classified into two categories non-scheduled banks and the scheduled banks. All commercial banks come under scheduled banks, including the nationalized banks. Indias central banking authority, the Reserve Bank of India, was formed in 1948, to regulate and control banking in India. The power to control the credit flow gave way to nationalization. Nationalization gripped the banking sector first in 1969, with 20 banks nationalized and then another 6 in 1980. The early 1990s saw the policy of liberalization mooted, which saw many private players enter the sector.

Banking elsewhere
Banks today are setting shop across the globe to compete with foreign banks and also to cater to international clients. Tax haven countries have always been a lucrative geography and hence countries like Switzerland, Mauritius, Cayman Islands have seen increasing number of private banks set shop. The international financial system is governed by recommendations from Basel II of Basel Accords. UBS, Bank of America Merrill Lynch, Citigroup, JPMorgan Chase, HSBC, Barclays, etc.

Key Ratios and Parameters

Running a bank is just as difficult as analyzing it for investment purposes. A bank's management must look at the following criteria before it decides how many loans to extend, to whom the loans can be given, what rates to set, and so on:

Capital Adequacy and the Role of Capital Asset and Liability Management - There is a happy medium between banks overextending themselves (lending too much) and lending enough to make a profit. Interest Rate Risk - This indicates how changes in interest rates affect profitability. Liquidity - This is formulated as the proportion of outstanding loans to total assets. If more than 60-70% of total assets are loaned out, the bank is considered to be highly illiquid. Asset Quality - What is the likelihood of default? Profitability - This is earnings and revenue growth.

Reserve Bank The regulatory body of banking in India The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following:

To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage.

(Source: Wikipedia.)

Government regulations
Banks of yester years were crippled due to tight regulations, nationalizations and strong monetary policies. Some of the challenges were administered interest rates, quantitative restrictions on credit flows, high reserve requirements, and reservation of some portions of government spending. This in turn led to low levels of investment and growth. Post the liberalization of 90s, the regulations has been liberal and policies favorable which has led to banks posting strong growth and profits. Liberalization led to the reduction in reserve capitals, interest rate flexibility and a lot of structural measures. Thus, banks are now free to fix their prime lending rates and deposit rates. In addition to these, the foreign direct investment (FDI) limit was increased up to 74 percent with some restrictions. Besides these the countrys macroeconomic policies, both fiscal and monetary affect the banks profitability. The central regulatory body for the banks in India is the Reserve Bank. The Reserve Bank decides upon the cash-reserve-ratio, repo rates, reverse repo rate, as well as cash adequacy ratio.

Key Players
The Indian banking industry is largely dominated by the Big Four State Bank of India, ICICI Bank, Axis Bank and HDFC Bank. A few other bigger players in the sector are the Punjab National Bank, Bank of Baroda, Central Bank of India, Union Bank, etc. ICICI Bank ICICI Bank is the second largest bank in India and the largest private sector bank. ICICI's retail banking group offers lending and deposit services to small businesses and individuals; larger businesses are served by the corporate banking group, which offers finance services and treasury products. The rural and government banking unit offers micro-loans and agricultural banking. Foreign operations, as well as services related to international trade finance and expatriate Indians, fall under the international banking group. Other offerings include online banking, asset management, and insurance. Axis Bank Axis Bank Limited (Axis Bank) offers a broad range of retail & corporate banking products and services in India. The bank was earlier known as UTI Bank Limited. The company offers several products including accounts, deposits, cards, credits, advisory services, treasury, mutual funds, cash management, international banking and transaction services. Axis Bank is the third largest ATM network provider in India. It also has branches in China, Hong Kong, Singapore and UAE. HDFC Bank The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

PART II SBI The Bank to every Indian.

The State Bank of India is the largest bank in India with a market capitalization of 1,50,000 crores and leads the other banks in almost all parameters.SBI is the only Indian bank to figure in the Fortunes top 100 banks. Transformed from Imperial Bank and nationalized in 1995, State Bank of India has about 2, 00,000 employees. There are six associate banks that fall under SBI,

and together these seven banks constitute the State Bank Group. They are: State Bank of Indore ,State Bank of Bikaner & Jaipur ,State Bank of Hyderabad ,State Bank of Mysore ,State Bank of Patiala ,State Bank of Travancore.

Products and Services

The various products and services offered by SBI include: Investment Banking Consumer Banking Commercial Banking Retail Banking Private Banking Asset Management Pensions Mortgages Credit Cards Custody services (the safe-keeping and processing of the world's securities trades and servicing the associated portfolios)

Key Financial Indicators

Key Financial Metrics (in Rs. billions) 2008 2009 2010 489.50 637.88 709.93 Net Interest Income 94.87 126.90 149.6 Non-Interest Income 584.37 764.78 859.53 Total Income 67.29 91.21 91.66 Reported Net Profit 48.18 35.54 Growth(Y-o-Y) SBIs income has risen at an average of 29% over 2002-2008 and it has been able to overcome the financial crisis, which crippled growth and destroyed many banks.

Marketing Initiatives
SBI is building its image as a customer friendly bank by launching various promotional deals and innovative products. SBI has tied up with Indian Railways and brought out the SBI Railway Card. Customers are entitled to exclusive benefits while purchasing ticket through the card or utilizing any service through it. Co-branded financing options for purchase of cars, rooms, etc.

CSR Activities
State Bank of India is actively involved in a non-profit activity called Community Services Banking. All branches and offices of SBI across the country actively participate in a large number of welfare activities and social causes. The bank has been reinvesting part of its profit in

various community welfare projects to improve the quality of life of the poor, neglected, weaker and the downtrodden sections of the society. In addition, the bank has made donations worth crores to various NGOs, trusts and societies with social orientation. Under the scheme of Adoption of the Girl Child over eight thousand girl children have been adopted by various branches throughout the country which takes care of their personal and educational expenses. Further to this, from the Research and Development Fund, the bank has contributed more than six crore rupees as grants to research projects at various universities.

PART III Market analysis based on different frameworks

There are different tools which can be used to do market analysis of which some of them are: Porters Five Force analysis SWOT (Strength, Weakness, Opportunities and Threats) analysis CAMELS (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, Systems and Structure). PESTEL (Political, Economic, Sociological, Technological, Environmental, Legal) analysis.

PORTERs FIVE FORCE MODEL

Banking industry is getting more and more competitive with the entry of foreign players into the market.

Threat of new entrants

SBI has a strong brand name and huge distribution network and resources and low cost deposit base. It has increased its retail base while other banks had to restructure their products and portfolios. Technology has helped SBI compete with foreign banks and other private players and thus increase their market share in 2010. Companies offering other financial services can now foray into banking services which could prove competitive to a large number of public players. Mega non-banking financial companies are a serious threat to the current players.

Power of suppliers
Lack of manpower, poaching of skilled manpower from public companies through lucrative offers can be a significant loss of human capital.

Competitive rivalry
The banking industry is highly competitive post liberalization. Banks unlike other sectors need to lure clients into banking with them. They have to maintain a high standard of customer relationship and customer loyalty plays a huge part. Banks have tended to privileged customer banking services as a result of this. In addition to it, banks are rated on how fast and efficiently they can render service and make transactions possible. In this context, banks largely work on improving customer flows in banks and reducing response times.

Power of buyers
The individual doesn't pose much of a threat to the banking industry, but one major factor affecting the power of buyers is relatively high switching costs. If a person has a mortgage, car loan, credit card, checking account and mutual funds with one particular bank, it can be extremely tough for that person to switch to another bank. In an attempt to lure in customers, banks try to lower the price of switching, but many people would still rather stick with their current bank. On the other hand, large corporate clients have banks wrapped around their little fingers. Financial institutions - by offering better exchange rates, more services, and exposure to foreign capital markets - work extremely hard to get high-margin corporate clients.

Availability of substitutes
In a sector with a huge number of players, customers can always look for an alternate choice. Non-banking financial service companies are a substitute in case of other financial services for the customers.

PART IV SWOT ANALYSIS

Environmental factors internal to the firm usually are classified as Strengths (S) or Weaknesses (W), while external factors are classified into Opportunities (O) or Threats (T). The internal factors are those which the management of the company can see and identify. This decides whether you can improve upon some of it and enable growth. The external elements are those over which you have little control. There should be an awareness of these factors and efforts have to be put to convert the threats into opportunities. For example, a global meltdown should be seen as an opportunity to enable consolidation, adopt new strategies and innovate. In the

banking world, an external factor could be anything from location to better accessibility, laws or city regulations which impedes you from expanding, etc. Anything which affects a customer directly can be considered to be an external factor.

SBI SWOT analysis

Internal Origin Positive / Helpful for achieving the goal Strengths: I. SBI has a huge customer base, wide distribution network and resources as well as a low cost deposit base. II. The use of technology has helped it to compete with private players and foreign banks. III. Various loan schemes to tap the growth in economy. IV. SBI has huge cash flow which could be used for acquisitions. Opportunities: I. Expansion into new markets and geographical locations to leverage non-resident Indians and Indian MNCs. II. Can go on an acquisition spree during economic turmoil. Negative / Harmful for achieving the goal Weakness: I. A large workforce waiting to retire would create a lack of skilled manpower. II. Have to strengthen their skill level in sales and marketing operations and services.

External Origin

Threats: I. Customers demand more and due to various players results in diffused customer loyalty. II. Increase in nonperforming assets (NPAs). III. Matching skill.

ICICI Bank SWOT analysis

Internal Origin Positive / Helpful for achieving the goal Strengths: I. Strong brand name. II. Acquisitions and mergers of small players have increased its distribution network to smaller towns. III. Good market share. Negative / Harmful for achieving the goal Weakness: I. Not having a strong presence in rural markets. II. Presence outside India is still limited. III. Service and transaction costs are high.

External Origin

Great technology platform. V. Aggressive marketing. Opportunities: I. Rise in income of individuals. II. Could target the huge young population of India. III. Look for buying opportunities of stressed institutions with good rural networks.

IV.

Focused on richer markets and high-end customers. Threats: I. Strong competition from among other players like HSBC, Axis Bank, etc. II. PSU Banks following it up with latest technologies have closed the gap in competition.

IV.

References www.wikipedia.org

http://finance.indiamart.com/investment_in_india/rbi.html http://en.wikipedia.org/wiki/Banking_in_India http://www.netmba.com/strategy/swot/ http://en.wikipedia.org/wiki/SWOT_analysis