Indian Banking Industry

Agenda
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. World banking scenario Industry overview Industry Value Chain And structure Market Size And Growth Industry Segments Major Players And Competition Regulations Mergers and Acquisition Technology Operating Metrics of Banking industry Issues And Concerns Growth Drivers Outlook

World Scenario Banking Industry

Globally banking industry underwent transformation after collapse of LB, ML China is aggressively rising in banking industry with huge forex reserve US based big banks experiencing maturity in growth Global banks to focus on India, china and other developing countries for growth FII investing in emerging markets to get better and safer returns Financial inclusion has become major agenda for bankers

Worlds Top 10 banks by assets

Sl 1 2 3 4 5 6 7 8 9 10 Name of bank BNP Royal Bank of Scotland Group HSBC Holdings Crdit Agricole Barclays Bank of America Mitsubishi Deutsche Bank JPMorgan Chase Citigroup Country France United Kingdom UK France UK USA Japan Germany USA USA Total Assets (US$bn) 2,964 2,747 2,364 2,243 2,233 2,223 2,196* 2,162 2,032 1,857

China has 6 banks among the worlds biggest 50 China accounts for US$6.9 trillion,i.e. 10% of the assets of the top 50

Industry Overview
Banking industry facilitates in creating GDP For every 1% growth of GDP credit growth shall be 3.5% Rise in domestic interest rates makes credit unattractive to industry Public sector bank dominates in branches and lending; Pvt sector spearheads growth Lower penetration for banking industry 10 person per 100 people Retail banking witness strong growth; Auto and Personal drives demand 100% organized industry and controlled by RBI Basel 2 norms being implemented with industry average CAR at 12% RBI controls CRR, Repo, Reverse Repo Rise in NPA major issue for industry

Industry Value Chain & Structure

SUPPORTS

RBI

INSURANCE REGULATES MUTUAL FUNDS MARKETING & ITES VALUE-ADDED SERVICES C.M.S. CORE BANKING SOLUTION

BANKS
DEPOSITS INTEREST LOANS INTEREST

SALARIES/ PENSIONS

HOUSEHOLDS
CONSUMPTION

INDUSTRIES

Industry Structure

RESERVE BANK OF INDIA

Commercial Banks Scheduled Banks Co-Operatives Banks

Foreign Banks

Regional Rural Banks

Urban Co-operatives Banks

State Co-operatives

Public Sector Banks

Private Sector banks

State Bank of India & Associates

Other Nationalized Bank

Old Generation

New Generation

Market Size & Growth

Total Banking Deposit and Credit

Deposits witness moderate growth banks were not actively mobilising deposits Small savings gave more return than time deposit Credit to agriculture has declined Banks choosy on lending to industries Credit to industry focused on infrastructure and other mfg

6,000,000 5,000,000 4,000,000 Rs cr 3,000,000 2,000,000 1,000,000 0 2007 2009 2010 Deposits Jun-10 Credit Sep-10 Oct-10

Trend of Credit Deposit ratio

73.5 73 72.5 % 72 71.5 71 70.5 70 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10

Segments of Banking Industry

Ownership wise Foreign banks Public sector Private sector Revenue wise Interest income Non Interest Income Customers wise Industry Retail

Segments Ownership
Foreign banks dominates in terms of banks Nationalized banks dominates in terms of overall business Private players fail to attract depositors Aggressive Private sector banks dominate for growth Biggies are acquiring small banks in private sector
Nationalized 26%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Nationalised Banks Private Sector Banks

Banks Share in Deposits

5.8 20.3 2.2 23.3

5.3 18.1 2.8 24.8

48.4

49.1

2008
State Bank Group Foreign Banks

2009 Other Public Sector Bank

Banking Segments - Ownership - 2009-10

Old pvt Bank 18% Foreign bank 38% SBI and Associates 9%

New pvt Bank 9%

Segments Revenue
Non-interest income witnessed acceleration at a higher pace Non Interest income share is again witnessing a rise, but decline in share of interest income Non interest income includes treasury income and other income Interest income dips due to rise in interest rates compared to global rates

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Trend of Interest income and Non Interest Income

15.7 16.4 16.2

84.3

83.6

83.8

2006-07

2007-08 Interest Income

2008-09

Non Interest Income

Segments Customer
Industry credit slowed on account of rise in interest rates in domestic market Industry accessing foreign market for loans RBI hikes CRR, Repo rates to control inflation Banks giving more weightage for infrastructure and traditional mfg inds
Disbursement of Industry Credit - 2010 Engineering 7% Food Processing 6% Coal, Oil and Gas 5% Other 16% Construction 3% Transport Equip 3% Non Ferrous metals 3% Gems paper 3% 2% Rubber and Plastic 2% Chemicals 7% Textiles 10% Iron and Steel 11%

Infrastructure 38%

12 10 8 6 4 2 0

ECB approval

US$bn

Apr-Sept 2009

Apr-Sept 2010

Retail banking
Housing loans recovers and rainy reasons holds growth Consumer durable loan rises as growth in PDI and launch of new products Huge domestic untapped market in retail segment Auto loan also witness strong growth especially form rural areas Intro of New products is driving auto sector Education loan slowed due to dip in job market
30000 25000 20000 Rs cr 15000 10000 5000 0 Mar-09 Feb-10 May-10 Sep-10

Trend of Housing Loan

Trend of Consumer Durable Loan

1000 800 Rs cr 600 400 200 0 -200 Mar-09 Feb-10 May-10 Sep-10

Credit Cards and Debt cards

Transactions amount per cards have risen Credit cards volume and cards have dipped Value and volume wise Debit cards are has risen Banks have becoming cautious to issue credit card post recession Banks have hiked default charges credit card payment
Rs
cr Trends of Debit and Credit cards 30 25 20 15 10 5 0 2007-08 2008-09 Credit Cards 2009-10 Debit cards Apr-Aug 2009

Transaction Amount per Debit and Credit Card 3000 2500 2000 1500 1000 500 0 2007-08 2008-09 Credit Cards 2009-10 Debit cards Apr-Aug 2009

Forex and Treasury

In Rs crore

Daily Interbank Turnover in Foreign Exchange Market 40000 30000 20000 10000 0 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10(P)

Current Scenario: India`s forex reserves stood around $258 billion in july 2010 Globalization has increased business Rising Volumes in currency future confirm the trend Liberalized exchange rate management system in 1992 helped growth Huge volumes with low spreads

Volum e in Currency Futures 20000 15000

Future Outlook: Robust growth in India to boost trade Banks to remain major fund mobilizers Sector to provide decent growth of around 10% in transactions.

Rs. crore

10000 5000 0 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10(P)

Source: RBI

Major players
Public Sector Banks State bank of India Punjab National bank Bank of baroda Canara bank Bank of India Private Sector bank ICICI bank HDFC bank Axis bank Yes bank Kotak mahindra bank Foreign bank RBS BANK Citi BANK HSBC BANK Standard chartered BANK ANZ Grindlays BANK

Competition - Michael Porter Analysis

5 Forces
Bargaining Power of Buyer Bargaining Power of Supplier Threat of New Entry Threat of Substitute Competitive Rivalry

L/M/ HL-M

Reason
Agriculture Customer have less Bargaining power. Household have less bargaining power. Big Corporates have high bargaining power. HNI`s have some bargaining power Household have much low bargaining power. New norms to allow entry of new players Existing Firm has strong presence & name. Substitutes for banks are NBFC, Post office, Mutual fund, Insurance. So moderately threat of substitute. Presence of many Indian & Foreign banks and their high market share will increase competitive rivalry.

L-M L M M-H

L/M/H Low/Moderate/High

HERFINDHAL INDEX
NAME OF BANK SBI PNB CANARA BANK BANK OF INDIA UNION BANK ICICI HDFC AXIS KOTAK MAHINDRA YES TOTAL TOTAL INCOME (STAND ALONE) Rs mn 328080.6 68633.8 58948.5 54076.2 41206.6 74930.5 53600.3 43263.7 23265.14 8830.3 754835.6 MARKET SHARE (%) 43.463 9.092 7.809 7.163 5.459 9.926 7.1 5.731 3.082 1.169 100 (MARKET SHARE) 1889.032 82.664 60.98 51.308 29.8 98.525 50.41 32.844 9.498 1.367 2306.428

Source: www.bseindia.com

Regulations
Restrictions on External Debt Intermediation by Banks. CAR to be 9% 40% of net bank credit must be provided as loans to the priority sector. At least 25% of their total number of branches should be in rural and semi urban area. Foreign shareholding in the new banks is restricted to 40%

Movement of Repo,Reverse Repo rates

7 6 5 4 3 2 1 0 M ar-09 J an-09

Repo Rate

IN %

Reverse Repo

M ay -09

M ay -10

N ov -09

J ul-09

M ar-10

Source: RBI

Sep-09

J an-10

J ul-10

RegulationContd
Minimum capital requirement for new Private banks is Rs 500 Cr Real estate companies are not eligible to get banking license Banks shouldn't pay any commission, brokerage, discount more than 2.5% of paid up value of one share
Movement of SLR and CRR
25.5 SLR in % 25 24.5 24 23.5 Jan- Apr- Jul- Oct- Jan- Feb- Feb- Apr- Jul09 09 09 09 10 10 10 10 10 Source: RBI SLR 7.5 7 6.5 6 5.5 5 4.5 CRR in %

CRR

Regulations SARFAESI( Securitization and reconstruction

of financial assets and enforcement of security interest) Act
Empowers the bank to recover their NPAS without the intervention of the court. Notice to the person who has acquired the property of the borrower To issue demand notice to the defaulter or guarantor to discharge their dues Any security created over agriculture land cannot be proceeded with Take possession of the security or sale the security on failure to comply Applicable for loans above 1 lakh

Merger and Acquisitions

Year of Acquisition 2001 2006 2006 2006 2008 2010 Price of acquisition NA NA Rs 300 crore NA Rs 240 crores Rs 1,471 crore

Name Bank of Madura Indian Overseas Bank Sangli Bank IDBI Centurion Bank of India Bank of Rajasthan

Acquirer ICICI Bank Bharat Overseas Bank ICICI Bank United Western Bank HDFC Bank ICICI Bank

Technology Core Banking Solution

Technolog y Software Provider

Used by ICICI, AXIS, IDBI, Andhra Bank of India Axis bank Dhanalaxmi Bank,Yes Bank All big players like SBI,ICICI. BOI,etc

Remarks Enable banks to differentiate their product and services Finnone Provides Core banking solution like Universal banking, Payments, compliance,

Finnacle Finnone

Infosys Nucleus Software

BaNCS

TCS

Operating metrics of Banking Industry

Net interest margin Net NPA C/D ratio quarters Capital adequacy ratio Interest and Non interest income Gross Deployment of Loans Business per Employee Profit per Employee Profitability per branches

Growth drivers
Rising income levels of middle class Increase in deposits due to rising personal disposable income Growing Industries to require more funds Large untapped rural area market Strong Economic Growth (More lending for industry and services) Strong Growth in Retail Banking (Automobile, Education, Housing, Credit Cards) More Reliance of Funding on Banks for Capital Expenditure Focusing on SMES

PERSONAL DISPOSABLE INCOME 700 600 US$ PER CAPITA 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YEAR
Source :Euromonitor International

Issues And Concerns Skilled Workforce Implementation of Basel II Rising NPAS Low penetration into rural areas IT infrastructure Growing interest of foreign banks to further intensify competition Phishing of accounts Multiple A/C holders International Financial Reporting Standard

Outlook

Strong economic growth to drive banking industry ahead Interest rates likely to move north to control inflation Industry credit growth more likely to pick up as GDP is rising Auto and home loans to drive further growth Financial inclusion to be of high priority for all banks Entry of more foreign banks to create more competition Lack of skilled workforce to become big challenge for PSB Treasury income of bank to be under pressure due to rising yields of GSecs

Growth depend upon GDP & Inflation Rate

12 10 In Percentage 8 6 4 2 0 Q1 Q2 2011-2012 Real GDP growth rate Q3 Inflation WPI Q4

Growth in Banking Respect to Exchange Rate

46.5 46 1$=Rs 45.5 45 44.5 44 43.5 Q1 Q2 Q3 Q4 2011-2012

Source:www.rbi.org.in

Thank You