BE Long Assignment Banking Industry 10-23-38!62!70 73 79

7/29/2019 BE Long Assignment Banking Industry 10-23-38!62!70 73 79

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INDUSTRY ANALYSIS

PRIVATE

BANKING INDUSTRY


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INDUSTRY ANALYSIS Banking in India originated in the last decades of the

18th century

The first banks were THE GENERAL BANK OF INDIA,which started in 1786

The oldest bank in existence in India is the STATEBANK OF INDIA, which originated as the BANK OFCALCUTTA in June 1806


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Industry Analysis Cont The first fully Indian owned bank was the ALLAHABAD

BANK, established in 1865

The banking industry has grown at a compounded annual

rate of over 51 per cent since April 2001

Industry life cycle Growing stage


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88 Scheduled

commercial banks

27 Public sector

banks

31 Private banks 38 Foreign banks

Banking

OVERVIEW OF THE INDUSTRY


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MARKET STRUCTURE


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GROWTH RATE Private Bank 50%

Public sector bank 15%

Private and Public Bank 35%

Foreign 20%


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INDUSTRY OVERVIEW :PRIVATE BANKING


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BACKGROUND The first private bank in India to be set up in Private

Sector Banks in India was IndusInd Bank

The first Private Bank in India to receive an inprinciple approval from the Reserve Bank of India wasHDFC

ING Vysya, yet another Private Bank of India was

incorporated in the year 1930


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SOME PRIVATE BANKS Dhanalakshmi Bank

HDFC Bank

ICICI Bank IndusInd Bank

ING Vysya Bank
http://finance.indiamart.com/investment_in_india/dhanalakshmi_bank.htmlhttp://finance.indiamart.com/investment_in_india/hdfc_bank.htmlhttp://finance.indiamart.com/investment_in_india/icici_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/icici_bank.htmlhttp://finance.indiamart.com/investment_in_india/hdfc_bank.htmlhttp://finance.indiamart.com/investment_in_india/dhanalakshmi_bank.html


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Some Major Players


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SIZE Still at a nascent stage but growing very rapidly

The public sector banks hold over 75% of total assets of thebanking industry, with the private and foreign banksholding 18.2% and 6.5% respectively.


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Today, we find ourselves at a stage where the

banking environment is underpinned by:

Sufficient operational flexibility for banks, whichensures decision making on a commercial basis

Increased competition for banks on both assets as wellas liabilities side

Emergence of other non-bank financial intermediaries

Technology-aided proliferation of different serviceplatforms

Integration of a risk management culture within thestrategy framework with availability of various riskmanagement instruments


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GROWTH DRIVERS

1

CONSTANT INNOVATION AND DEVELOPMENTOF EFFECTIVE BUSINESS MODEL

2

RELAXATION IN GOVERNMENT LAWS WHICHHELP TO STRENGTHEN SECTOR

3 REDUCTION IN INTERMEDIATION COST

4 MOVE INTO NEW CUSTOMER SEGMENTS ANDGEOGRAPHIES

5 INCREASE IN THE DEMAND FOR LOANS


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1 INCREASING LITERACY RATES ACROSS THE COUNTRY

2 OUR COUNTRY WILL UNDERGO DEMOGRAPHIC REVOLUTION AS

BIRTH RATES DECLINE AND RISE IN WORKING POPULATION

3 RIS E IN CONSTRUCTION AND MANUFACTURING SECTORS

4 INCREASE IN INDUSTRIAL CAPACITY

5 MIDDLE CLASS SIZE

UPCOMING GROWTH

DRIVERS


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CHANGING TRENDS The private banking industry is adapting to take advantage of

the changes by setting up satellite offices near the new centers

of wealth creation.

Fee-only private banking is challenging the old commission-

based private banking model

The phrase "private banking" is beginning to smell like old

caviar.

Value-add is the rule of the day.


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RETAIL BANKING Retail banking is becoming an increasingly

complex concept to define. While

pure retail banking is generally conceived to be

the provision of mass market

banking services to private individuals, it has beenexpanded over the years to

include in many cases services provided to small-and medium sized businesses.


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GROWTH DRIVERS IN RETAIL

BANKING

Shift in the pattern of GDP from hitherto agriculture andmanufacturing sectors to services sector with increase percapital

Growing concept of nuclear families than the joint familiesnecessitating need for housing units as well as other items ofconsumer durables

Increased demand for dwelling units due to gradual shift of

population from rural/semi-urban centre to urban/metrocentre for employment.


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GROWTH DRIVERS IN RETAIL

BANKING

Increased middle-income segment and their income levels.

Emergence of new sectors such as Information Technology,media, etc. In the economy that resulted in higher incomeopportunities and major impact on change in urbanconsumption pattern.

Awareness and sophistication in urban and semi-urbanhouseholds for urban convenience. Social security and statushave also contributed to higher demand for housing units, cars,etc.


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CRITICAL SUCCESS FACTORS Technology: Helps in introducing innovative

products, improve the quality of products, lower downthe costs ,lower transaction times, bring convenienceto the customers.

Service Quality: All the dimensions of the servicesoffered to the customer . Be it quality of customerrelationship service, ATM facilities, mobile bankingetc.

Best rates: For survival , banks have to offer rates areamong the lowest among competition.


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CRITICAL SUCCESS FACTORS Brand Image: Plays an important part in customers

choosing the bank or product. Good Brand imagegenerally implies reliability and better quality ofservices to many customers.

Size of the company: Total market share , total assets, total ATMS, total customer base. Bigger size meanshigher reach, penetration.

Marketing:A bank must market its services,convenience , financial advantages to attract newcustomers. Stagnation will lead to decline.


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CRITICAL SUCCESS FACTORS Location and convenience: Customers will prefer to

use a bank located at a easily accessible location .Onewhich has more branches, making transactions easy.

Product Innovation: Generally all the banks offeralmost same products, even a small differentiation orinnovation can make a huge difference.


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CRITICAL SUCCESS FACTORS Increase in NPAs(non performing assets)

Increased regulatory constraints

Periodic failure of weak banks threatens theconfidence in the sector.

Individual fraud by employees could shake confidencein the entire brand.


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RISK FACTORS & CHALLENGES Bank penetration limited to few areas and geographies

Retain and also retain new talent

Increase profits outside an elite customer base withsmaller transactions

Inability to differentiate with respect to other banks

Strong challenge from government banks


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RBI Reserve Bank of India ESTABLISHED in 1935

Central bank of India

Function performs :-

I. Banker to Government

II. Currency issuer

III. Development role

IV. Manager of exchange control


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REGULATORY FRAMEWORK


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(Continued..) The RBI is the sole regulator for the industry while the

Ministry of Finance (MoF) is responsible for formingthe enabling legislative framework

Total aggregate foreign investment e.g. FDI, FII, etc -


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Banking Regulation Act, 1949

No single entity or group of related entities can haveshareholding or control, directly or indirectly, in any

bank in excess of 10% of the paid up capital of theprivate sector bank

Any higher level of acquisition will be with the priorapproval of RBI according to guidelines issued by RBIfor grant of acknowledgement acquisition of shares


(CONTINUED..)


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FDI will mandatorily required to have a credit rating

Initial minimum paid-up capital Rs. 200 crore

Initial Capital required Rs. 300 crore within 3 yearsof commencement of business.


(CONTINUED..)


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SBI18%

ICICI14%

HDFC12%PNB

10%

AXIS

10%

OTHERS

36%

MAJOR MARKET SHARE


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DATA ANALYSIS (In Million INR)

Bank Name Net sales2009

Net profit2009

Net sales2008

Net profit2008

SBI 177797 24790 180303 24784

ICICI 60896 11011 78361 12721

HDFC 40348 8185 44685 6217

PNB 55055 10113 52947 10058

AXIS 28837 6560 29848 5005


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CHALLENGES FACED BY BANKING INDUSTRYIN INDIA

Deregulation

New rules

Efficiency

Diffused customer loyalty

Misaligned mindset

Competency gap


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INNOVATIONS

CUSTOMERSERVICE

CREDIT

MANAGEMENT

ASSET LIABILITYMANAGEMENT

ATMSSMART CARDS

INTERNET

BANKING

RESOURCEMOBILISATION


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KEY FINDINGS

Market Structure PERFECT COMPETITION

Many sellers and Many buyers

Homogeneous product

Perfect knowledge of the market conditions

Free entry of firms


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COMPETITION ANALYSIS


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Porters Analysis-Bargaining

powers of suppliers-LOW

Non critical nature of suppliers

Few alternatives for the suppliers Suppliers are not unionized or have a strong group

Supplier bound by SLA's and other binding contracts

Forward integration a standard practice


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Porters Analysis-Threat of

competitors-HIGH

Large no of banks

Low switching costs for customers Highly undifferentiated services

Aggressive wooing of customers and HNIs by rivals


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Porters Analysis-Threat of

substitutes-MEDIUM

Other means of savings like gold, real estate, etc.

Deposits in post offices Instruments like KVP's and infrastructure bonds.

Equity market exposure of investors


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Porters Analysis-Threat of new

entrants-LOW

Product differentiation can be very difficult

Licensing requirements can be very complex High fixed starting cost and complex regulations

High exit barriers


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Porters Analysis-Bargaining power

of customers-HIGH

Large no. of alternatives

Low switching costs Undifferentiated services

Well informed about competitors


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Porters Analysis-Summary

Threat ofcompetitors-

HIGH

Threat ofsubstitutes-MEDIUM

Threat ofnew

entrants-LOW

Bargainingpower of

Customers-HIGH

Bargainingpower of

suppliers-LOW


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ELASTICITY ANALYSIS

LENDING RATE SAVING RATE

CONSUMERS NOTATTRACTED

CONSUMERS ATTRACTED

CONSUMERS ATTRACTED

CONSUMERS NOTATTRACTED


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DEMAND AND SUPPLY ANALYSISREAL ESTATE

Recession(2008) Holding back money

CRR rate increases Affected wholebanking industry


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Strengths

-Valuable contributor to GDP over a periodof 15 years and of pivotal importance to theIslands economy.

-High standard regulatory environment

-Flexible work permit system and goodquality staff offering personal client service.

Weaknesses

Weak retail and mass affluent customerproposition.

Lack of legitimate access to markets,

especially the EU. Lack of competitive differential with otheroffshore centres.

Rigid legislation that inhibits developent

Opportunities

Unified trade body to leadfinance sector program change.

Active and aggressive targeting ofcorporate & private clients, and institutionsthat attract such clients, to shift focus frommass affluent to HNW business.

Morphing of Banking propositions tocreate a bigger market share for all.

Threats

ESD significantly impacts business levels,affecting the Savings Banks in particular.

Anti-offshore regulations in foreign targetmarkets restricting the development ofproducts and new markets.

Downsizing and reduction in bankingoperations in favour of rival jurisdictions.

Outsourcing to cheaper jurisdictions

SWOTAnalysis


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CONSUMER SATISFACTION

Consumer (The King ) Reaching at doorstepsProviding in a

customized manner

Differentiating quality(Education, Marriage,Status, Age, Income,

etc.)

Behavior Loyalty with the product


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Industry Direction Profit growth is expected to be mid-market high-net-

worth individuals (HNWI) in the developed wealthmanagement markets

Global private banks are actively developing activitiesin the three key markets of China, India and Russia

Growth in the offshore wealth management area isexpected to lag that of onshore business;


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Transformation of wealth

management


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Geographic participation New emerging wealth markets:

Particular attention has focused on the BRICeconomies Brazil, Russia, India and China in

particular the latter three economies, given theprojected economic growth over the coming decades

Indias economy could be larger than Japans by 2032

Goldman Sachs forecasts show that the combined BRICeconomies will be larger than the current G6 (US, Japan,UK, Germany, France and Italy) by 2039


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Client relationship deepening Focus to cultivate new business on client relationships

Focusing aggressively on intergenerational wealthtransfers, especially for mid-range

Expand the advisory role to encompassintergenerational wealth transfer products andservices

Wealth managers to understand the needs andexpectations of clients

ew propos ons : es y e


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ew propos ons : es y eservices


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Key is to develop common skills in

building relationships


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Product Line and Value Proposition

for ICICI Digitally signed statement Corporate benefit tracking Mobile Alerts and Requests

Demat General Insurance Life Insurance

Card Protection Plans

Insurance

Micro Banking Tractor Loans

Agri Traders and ProcessorsAgri Corporate

Agri and Rural

Debit Credit

Corporate Pre-paidCards Net banking and Mobile Banking Investments LoansAccounts and Deposits

Loans

Others


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Product Line and Value Proposition for

ICICI Meal Card Gift Card

LIC Co branded Annuity CardCards

Debt and Equity Solutions Private Equity, M& A

Depository, Trusteeship and Advisory Services Capital market funding

E-Broking

CapitalMarket

Working Capital Finance Term Loans and Structured Finance

Trade Services and Trade Finance SME Standard Products

Supply Chain Management

Overseas Financing and Transaction Power Trac

Credit


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Product Line and Value Proposition for

ICICIWealth Advisory ServicesMutual FundsTax Planning

Insurance, General & Health InsuranceBonds, Equities & Derivatives

Mudra Gold and Silver Bar

Investmentsand Insurance

ForexPlus card

ForexPlus Chip cardRemittancesCash to MasterTravellers Cheque and trade Services

Forex Services

Debit and Credit CardsPrepaid CardsForexPlus CardGiftPlus Card

FoodPlus CardMoneyPlus CardForexPlus Chip Card

Cards


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MERGERS ANDACQUISITIONS

Important Deals in Banking


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Important Deals in Banking

Date ofmerger

Acquirer bank Target bankAssets of targetbank as % ofacquiring banks

assets

Number

ofbranchesof target

bank

August 2010 ICICI Bank Bank of Rajasthan 0.05 463

February 2008 HDFC BankCenturion Bank ofPunjab 20 394

August 2007Centurion Bank ofPunjab

Lord Krishna Bank 11 110

March 2007 Indian Overseas Bank Bharat Overseas Bank 6 102

October 2006 IDBI United Western Bank 8 230

October 2005 Centurion Bank Bank of Punjab 106 136


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ICICI Bank of Rajasthan ICICI Bank increase its branch network by 25 per cent

to about 2,500 across the country

Greater visibility to ICICI Bank in western andnorthern parts of the country.

With the merger, the balance sheet of ICICI Bankwould cross Rs four lakh crore


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ICICI Bank of Rajasthan Shares of ICICI Bank closed at Rs 963.95, down 0.74 %

Bank of Rajasthan shares slipped 0.03 per cent to Rs190.15

In May, boards of both the banks approved a share-swap deal that valued BOR at over Rs 3,000-crore

The share swap ratio was fixed at one ICICI Bank share

for every 4.72 shares of BOR


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HDFC-Centurial Bank of Punjab Figures after combination

The combined entity would have a nationwide networkof 1,148 branches, largest among private banks

Deposit base of around Rs. 1,200 billion and netadvances of around Rs. 850 billion

The balance sheet size of the combined entity would beover Rs. 1,500 billion


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HDFC-Centurial Bank of Punjab The share exchange ratio approved by the respective

Boards was based on the recommendations made by

M/s Dalal & Shah

Ernst & Young Private Ltd. who acted as

The board has approved the share swap ratio of oneshare of Rs 10 each of HDFC Bank for every 29 sharesof Re 1 each held in Centurion Bank of Punjab,


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Indian Overseas Bank-Bharat

Overseas Bank BhOB is owned by seven banks, including Indian

Overseas Bank (30%)

Indian Overseas Bank owned 30 per cent inBharat Overseas Bank

IOB took over BhOB in 2007with employees,

assets and deposits


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IDBI-United Western Bank In 2006, IDBI Bank acquired United Western Bank

in a rescue

The stock was available at a price-to-book multiple of

0.8 and a price-to-earnings multiple of about eighttimes its trailing 12 months earnings

UWB accepted an offer at 28 Rs per share

The merger would give IDBI immediate access to the230-branch network of UWB,


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IDBI-United Western Bank IDBI, with a balance-sheet size of Rs 81,700 crore, has a

network of 181 branches now

The merger would give IDBI immediate access to the

230-branch network of UWB, thereby widening itsdeposit franchise

The merger with UWB is likely to help IDBI diversifyits credit profile. Dominant in industrial financing,IDBI should get exposure to agriculture credit throughUWB

Benefit of an improved deposit mix for IDBI


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Centurion Bank-Bank of Punjab In July 2005 the approval was given to the Centurion

Bank and Bank of Punjab to merge the ratio being4:9

This means that for 4 shares of Bank of Punjab theshareholder would get 9 shares of the Centurion Bank

The merger was activated due to considerations ofcommon goal and area of operation.


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Possible future M&As In a bid to strengthen the development financing

character of IDBI, the UPA government has revived theproposal to merge two ailing institutions -- IIBI and

IFCI -- with it after segregating their bad assets. IFCI should not be a mere restructuring of balance

sheet, which is the easiest way to address a problem

Referring to the McKinsey report on IFCI, he said thebad and good assets have to be segregated before it ismerged.


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Possible future M&As BI Caps' assessment of IFCI was not accepted by the

institution's top brass

Sources said merger of IFCI with another FI like IDBIwill make more sense

Gupta admitted that IFCI was in financial trouble andthe government had backed it, considering therelevance of DFI in the country.


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Possible future M&As The Hongkong and Shanghai Banking Corporation

(HSBC) reported it had agreed on a deal that will see ittakeover the Royal Bank of Scotland (RBS) Group Plcs

retail and commercial businesses in India RBS retail and commercial businesses in the country

are estimated to have a net asset value of $1.8 billion,

The deal agreed upon requires that 90% of any creditlosses that are incurred on RBS unsecured lendingportfolios over the two years


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Impact of M&A ICICI Bank

Bank of Rajasthan

Strengthen ICICI Banks network in northern as well as

western India Sangli Bank & Bank of Madura

Strengthen ICICI Banks network in western India

Centurion Bank of Punjab

Lord Krishna Bank

In-depth coverage in Punjab, NCR & Kerala


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Impact of M&A HDFC Bank Centurion Bank of Punjab

HDFC to add scale, geography & experienced staff to its

franchise Merger will position the combined entity to significantly

exploit opportunities in market

Combined will be greater force in the market

Times Bank Increase the presence of HDFC Bank in the depository

participant activities

HDFC Bank saves on the cost associated with technology upgradation


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Impact of M&A Oriental Bank of Commerce

Global Trust Bank

OBC will get much needed edge in the southern part of the

country Both banks will get benefited from common core banking

solution Finacle, which will help in the consolidation

Punjab National Bank

Nedungadi Bank PNB will be able to reach out to southern region, especially in

Kerala


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Documents

BE Long Assignment Banking Industry 10-23-38!62!70 73 79