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: 8. Corporation Bank

9. Dena Bank
1. Allahabad Bank 10. Indian Bank
2. Andhra Bank
11. Indian Overseas Bank
3. Bank of Baroda 12. Oriental Bank of Commerce
4. Bank of India 13. Punjab and Sind Bank
5. Bank of Maharashtra
14. Punjab National Bank
6. Canara Bank 15. Syndicate Bank
7. Central Bank of India
16. UCO Bank 14. HDFC Bank Ltd.
17. Union Bank of India 15. ICICI Bank Ltd.
18. United Bank of India 16. IndusInd Bank Ltd.
19. Vijaya Bank 17. Kotak Mahindra Bank Ltd.
18. Axis Bank (earlier UTI Bank)
Private Sector Banks 19. Yes Bank Ltd.
20. IDBI Bank Ltd.
1. Bank of Rajasthan Ltd.
2. Catholic Syrian Bank Ltd. Foreign Banks in India
3. City Union Bank Ltd.
4. Dhanalakshmi Bank Ltd. ABN-AMRO Bank N.V.
5 Federal Bank Ltd Abu Dhabi Commercial Bank Ltd.
6. ING Vysya Bank Ltd. American Express Bank Ltd.
7. Jammu and Kashmir Bank Ltd. Barclays Bank PLC
8 Karnataka Bank Ltd. BNP Paribas
9. Karur Vysya Bank Ltd. Citibank N.A.
10. Lakshmi Vilas Bank Ltd. DBS Bank Ltd
11. Bank of Punjab Ltd. (since merged with Deutsche Bank AG
Centurion Bank) HSBC Ltd.
12. Centurion Bank of Punjab (since merged Standard Chartered Bank
with HDFC Bank) State Bank of Mauritius Ltd.
13. Development Credit Bank 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