Report on Banking Sector HDFC Bank

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Table of Contents
1. 2. Part-I (Report on Banking Industry)

a. Banking Sector b. Banking Industry c. Challenges facing by banking industry in India d. Generic Value Chain of Banking Industry e. Porters Five Forces Model in the Banking Industry

3. Part-II (Report on HDFC Bank)

a. About HDFC Bank b. Profile c. Business Focus d. Capital Structure e. Management f. Network g. Rating h. Awards i. Segmentation Strategy j. Targeting strategy k. Positioning strategy l. SWOT Analysis

Part-I (Report on Banking Industry)

Banking Sector
Banking Sector is basically divided into four segments under the Central Bank of India/Reserve Bank of India
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Private Sector Public Sector Banks Private Sector Banks Cooperative Sector Banks Development Sector Banks Rural Sector Banks

Banking Industry
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Modern banking in India began in the 18th century, with the foundation of the English Agency House in Calcutta and Bombay.

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In the first half of the 19th century, three Presidency banks were established. After the 1860 introduction of limited liability, private banks began to appear, and foreign banks entered the market.

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The beginning of the 20th century saw the introduction of joint stock banks. In 1935, the presidency banks were merged together to form the Imperial Bank of India, which was subsequently renamed the State Bank of India.

In 1935, Indias central bank, the Reserve Bank of India (RBI), began its operation. Following independence, the RBI was given broad regulatory authority over commercial banks in India

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In 1959, the State Bank of India acquired the state-owned banks of eight former princely states In July 1969, approximately 31 percent of scheduled bank branches throughout India were government controlled, as part of the State Bank of India.

In July 1969, the government nationalized all banks whose nationwide deposits were greater than Rs. 500 million, resulting in the nationalization of 54 percent more of the branches in India, and bringing the total number of branches under government control to 84 percent.

The deregulation has opened up new opportunities for banks to increase revenues by diversifying into
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Investment Banking Insurance Credit Cards Depository Services Mortgage Financing Securitization

At the same time, liberalization has brought greater competition among banks, both domestic and foreign.

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The competition arises from mutual funds, NBFCs, and other financial institutions. Increasing competition is squeezing profitability and forcing banks to work efficiently on Shrinking spreads.

Challenges facing Banking industry in India

From the beginning of the banking industry, it faces many challenges. Because of those challenges it was require changing the game rule of the banking industry. So the challenges are given as under. Deregulation: Because of deregulation the following problem were arose as that time,
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Banking market affected as extremely competitive with greater autonomy, operational flexibility and decontrolled interest rate and liberalized norms for foreign exchange.

Deregulation also affect to the banking industry as coupled with decontrol in interest rates has led to entry of a number of players in the banking industry.

Because of the deregulation it affected the credited rate, as the credit rate was low so corporate were trying to invest more. And it increases the competition.

New rules: As the problem were arise, the new rules were define for the solving the problems,
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Banks were transforming to universal banking, adding new channels with profitable pricing and freebees to offer.

Because of the new rules it has led to a series of innovative product offerings catering to various customer segments, specifically retail credit.

Efficiency: At that time it became necessary for the bank to look for efficiencies in the business
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Banks need to access low cost funds and simultaneously improve the efficiency. The banks were facing pricing pressure, squeeze on spread and have to give thrust on retail assets.

Diffused Customer loyalty: This will definitely impact Customer preferences, as they are bound to react to the value added offerings,
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Customers have become demanding and the loyalties were diffused. There were multiple choices available for the customers. The wallet share was reduced per bank with demand on flexibility and customization. Given the relatively low switching costs. Customer retention calls for customized service and flawless service delivery.

Generic Value Chain of Banking Industry

In any industry, the value chain is always applicable and it is require showing the generic value chain of banking industry to understand the structure of the industry. In the particular value chain it has basically two parts which are given as below.
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Primary Activity Secondary Activity

Primary Activity External Factors: For any banks it is require having a particular amount to the fund for start up their business. In this activity it covers funding/capital structure, banking regulatory agency which control the activity of the banking sector, Federal Reserve, clearing partners as well as alliance partners which are the part of the external factor of the banking industry. Banking Operations: For banking industry operations are the main components of industry. As banking services include different operations like Deposit Services, Loan Administration, Tracery Operations, Payment Process and regular reporting. Delivery Channel: For any bank it is require delivering the services by different ways. In this section how to deliver different services through branch network, ATM network, internets, customer care, mobile banking as well as net banking. Marketing & Sales: Marketing is important for banking as to increases the awareness in the customer. So the primary marketing covers branding of bank, deposit gathering, new account acquisitions, cross sales, fee revenue, public relations, community relations and commutative affairs.

Revenue Streams: For any banks it revenue stream is the most important segment. Bank earn revenue by different, in this it covers banking products, insurance products, investment products, business services, treasury services, wealth management services, lobby services. Secondary Activity Strategic Decision: There are certain types of strategic decision contain by every bank for further growing in the market so in strategic decision, it covers strategic planning, risk management, assets & liability management and compliance. Human Resource Management: Human resource is the most important segment of the banking sector to run bank smoothly. For HRM the generic value chain covers, recruitment, training, performance management, incentive program. Technological Development: Basically banking sector requires technological support to connect with their branches or with the customer and to expansion. It covers CRM, operational efficiency, market expansion, self direction and comparative positioning. Procurement: For further development it is require procuring proper sources and for this it covers solution selection, strategic sourcing, and vendor selection are come under procurement.

Porters Five Forces Model in the Banking Industry

Porters Five Forces is also applicable in Banking Industry. It covers by different segment like Degree of rivalry, threat of substitutes, buyers bargaining power, Suppliers bargaining power, Barriers to entry / Threat of new entrants. Degree of rivalry In the traditional economic model, competition among rival firms drives profits to zero. However, competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms (banks) strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences. These differences give some firms a competitive advantage while to others a disadvantage. Threat of Substitutes In Porter's model, substitute products refer to products in other industry. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms (banks) in an industry to raise prices.

Buyers bargaining power The power of buyers is the impact that customers have on a buying process of the products from a certain industry. In general, when buyers power is strong, the relationship to the industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. Suppliers bargaining power A producing industry requires raw materials - labour, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. In a service sector there is no direct supplier of raw material. However the supply of supporting facilities like cheque books, furniture, stationeries, etc can give the same analogy. Barriers to entry / Threat of new entrants It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.

Part-II (Report on HDFC Bank)

About 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. Profile Currently has a nationwide network of 1,780 Branches and 5,318 ATM's in 833 Indian towns and cities.

Business Focus HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People. Capital Structure As on 30th June, 2010 the authorized share capital of the Bank is Rs. 550 crore. The paid-up capital as on said date is Rs. 459, 69, 07,030/- (45, 96, 90,703 equity shares of Rs. 10/- each). The HDFC Group holds 23.63 % of the Bank's equity and about 17.05 % of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). 27.45% of the equity is held by Foreign Institutional Investors. The shares are listed on the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No US40415F2002. Management Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th July 2010 subject to the approval of the Reserve Bank of India and the shareholders. Mr. Vasudev has been a Director of the Bank since October 2006. A retired IAS officer, Mr. Vasudev has had an illustrious career in the civil services and has held several key positions in India and overseas, including Finance Secretary, Government of India, Executive Director, World Bank and Government nominee on the Boards of many companies in the financial sector. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Network HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs).

Rating Credit Rating The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE CRISIL Corporate Governance Rating The bank was one of the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity's current performance and an expectation on its "balanced value creation and corporate governance practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating Awards Bloomberg UTVs Financial Leadership Awards 2011:
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Best Bank

IBA Banking Technology Awards 2010:

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Technology Bank of the Year Best Online Bank Best Customer Initiative Best use of Business Intelligence Best Risk Management System

IDC FIIA Awards 2011:

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Excellence in Customer Experience

Segmentation Strategy: Demographics variables

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Location: Metros & divisional cities Occupation: Business person, Salaried class (both Govt. & private) Age : Senior citizens, Minor

Psychographic variables
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Lifestyle: people who believes in modern banking with higher set of service i.e. Internet banking

Targeting strategy: Target market

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Corporate banking market: for the industries & fulfill their financial needs. Capital market: for long term needs of the individual as well as of industries. Retail banking market: for retail investors & provide the short term financial credit for their personal, household needs.

Positioning strategy: It focuses mainly on following points:

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Customer centric Service oriented Product innovation

SWOT Analysis: Strengths

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Support of various promoters High level of services Knowledge of Indian Market

Weakness
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Some gaps in range for certain sectors. Customer service staff needs training. Management cover insufficient. Growth is constrained by low unemployment levels and competition for staff

Opportunities:
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Growing Indian banking sector People are becoming more service oriented Global market

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Threats
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Various competitors Foreign banks Govt. banks Future market trends

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