PROJECT REPORT ON INDIAN BANKING SECTOR

ACKNOWLEDGEMENT
Any accomplishment requires the effort of many people and this work is not different. We would like to express our gratitude to the faculty for his invaluable insights, without which this project would not have been completed. We would also like to thank everyone including our friends who directly or indirectly helped us in the completion of this project.

DECLARATION
We hereby declare that the project titled Indian Banking Sector is an original and independent work and is the end result of our own efforts and that the acknowledgement has been given in the bibliography and references to the sources are they printed, electronic or personal.

TABLE OF CONTENTS
1. ACKNOWLEDGEMENT...1 2. DECLARATION..2 3. INTRODUCTION4 4. CURRENT TRNEDS..5 5. INDUSTRY STRUCTURE.7 6. MARKET STRUCTURE.9

7. NATURE OF COMPETITIVENESS.10 8. FUTURE PROSPECTS.11

9. CONCLUSION.12

10. BIBLIOGRAPHY/WEBLIOGRAPHY.13

INTRODUCTION:
The executives of India's banking community nodded their heads proudly when Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system. Standard&Poor the global rating agency has rated the Indian banks higher than Chinese banks.It is because of such achievement that banking industry in the country is driving economic growth. Banks are the most important players in the Indian financial market. They are the biggest suppliers of credit, and they also attract most of the savings from the population. Dominated by public sector, the banking industry in India has so far acted as an efficient partner in the growth and the development of the country. They have acted as crucial channels of the government in its efforts to ensure equitable economic development over the years. The banking industry in the country also has the capital and commitment to support the financial needs of individuals, businesses and all levels of household. India has 79 scheduled commercial banks with 28 public sector banks, 23 private banks and 28 foreign banks. They have a combined network of over 67,000 branches and 914,241 employees According to a report by ICRA Limited, a rating agency, the public sector banks hold around 75.3 per cent of total assets of the banking industry and the private and foreign banks hold of 18.2 per cent and 6.5 per cent respectively. The Indian banking industry is presently in a situation of great flux. There are various developments, changes within the Indian economy and deregulations occurring that
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have the potential to drastically change the way this industry functions in the future. . Banking Industry is the most dominant sector of the financial system in India, and with good valuations and increasing profits, the sector has been among the top performers in the markets. But currently worldwide the banking industry is facing a tough time due to the failure of financial system in the biggest economy i.e. United State of America.

CURRENT TRENDS:
The Indian banking industry is currently in an evolution phase. On one hand, the public sector banks i.e. Nationalized Bank, which are the mainstay of the Indian banking system, are in the process of consolidating their position by capitalizing on the strength of their huge networks and customer bases. On the other, the private sector banks are venturing into a whole new area of mergers and acquisitions to expand their bases and business. In India, there has been a tremendous growth and diversification of banking industry has been so astonishing that it has no parallel in the comparasion of banking anywhere in the world. The system is moving from a regime of large number of small banks to small number of large banks. In India, one of the largest financial institutions, ICICI, took the lead towards universal banking with its reverse merger with ICICI Bank a couple of years ago. Another major financial institution, IDBI, has also adopted the same strategy and has already transformed itself into a universal bank. This trend may lead to promoting the concept of a financial super market chain which is famous in western countries, making available all types of credit and non-fund facilities under one roof or specialized subsidiaries under one umbrella organization. E.g.JP MORGAN CHASE. The growing credit demand along with growing competition has lead Banks for innovative product designing as well as of highly efficient functioning. Another important trend which needs to be looked at is change in focused location of the major banks in the country from urban area to rural area because of growing
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prospect in the villages and also because of the fact that urban market is slowly becoming saturated. It is about 80% of the rural households in India have no access to formal lending and 46% of these used informal lending channels, 24% of which is resorted to unregulated money lenders. These unregulated money lenders charge high interest rates on their loans which reflect that there is scope for cheaper and more formal lending in the rural credit market. The rural economy accounts for more than two-thirds of India's population and has great untapped potential.To capture this area many banks have already launched projects e.g. ICICI bank the countrys largest private sector has come out with the project namely NO WHITE SPACE were bank aims to reach the farmers with the support of corporate houses and self-help group. Many more such project has been launched by various banks to tap in the untapped rural market of the nation. It is expected that by 2020 as per RBI forecasting rural area is going to account for more than 40% of revenue for all scheduled banks in the country. The main revenue generation for bank is the interest it earns on the lended amount. The main lending area of banks are in the four sector namely Agriculture, Personnel loans, Industry and Services.

Source: RBI

The above figure shows that of the total credit lended by banks around an average of 40%goes to industry whereas personnel loans have been the second most lending area for bank in the past 4FY.

INDUSTRY STRUCTURE:
The Indian banking can be broadly classified into nationalized (government owned), private banks and banking institutions. The Reserve Bank of India acts a centralized body monitoring any problem and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of importance and has since then seen tremendous progress. The need to become highly customer focused due to growing competition from Private banks as well as Foreign bank has forced the slow-moving public sector banks to adopt a fast track approach. In India banks can be classified in various categories according to different criteria

1. The Reserve Bank of India (RBI): The RBI is the monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the Reserve Bank. The bank was formed in 1935 and nationalized in 1949. 2. Public Sector Banks :(28)

State Bank of India and its Associates Nationalized Banks e.g. Bank of Baroda, Bank of India etc. Regional Rural Banks

3. Private Sector Banks :(29) E.g.ICICI Bank, HDFC Bank etc. 4. Co-operative Sector Banks:

State Co-operative Banks Central Co-operative Banks Primary Agricultural Credit Societies Land Development Banks State Land Development Banks

5. Development Banks: Development Banks provide long term finance for setting up industries. They also provide short-term finance (for export and import activities)

Industrial Finance Co-operation of India (IFCI)

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Industrial Development of India (IDBI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) Export-Import Bank of India

MARKET STRUCTURE:
The banking structure in the country is oligopolistic in nature. The sector after liberalization has become open to private players as well as to foreign players which has increased competition in the market resulting into innovative style of banking. The private banks in some way have outperformed public sector bank as a whole in the last decade due to its customer focused, infrastructure and efficient leadership. Public sector banks hold over 70 percent of total assets of the entire banking industry. However they are lacking in sales and marketing, service operations, risk management and as a result these banks have not been able to match the aggressive growth by the private players. It is because of this that currently the BIG FOUR banks of India constituent of 2 private players i.e. ICICI Bank and HDFC bank along with public sector SBI and PNB. . According to RBI report 2011 the total deposits in all scheduled
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commercial bank are 56, 16,432 crores which compromises of Demand Deposits around 6,41,939 crores, Saving Deposits 13,51,782 and term deposit of 36,22,712 crores. In terms of market share SBI leads the race in overall comparison of banks in the nations. The table below shows the statistics of top 5 banks in the country. BANKS SBI ICICI BANK PNB HDFC BOB REVENUE US$28.09Bill US$13.81BIll US$5.649Bill US$5.585Bill US$4.69Bill ASSETS US$322.077Bill US$91Bill US$67.422Bill US$65.483Bill US$68.1Bill BRANCHES 12,448 2546 3850 2150 2409

NATURE OF COMPETITIVENESS:
In the recent times, the competition in the Indian Banking Sector has become very intense. The reasons for this competition are as follows:1. Market Size:- In any industry, as the market increases, the level of competition

increases. Banking sector is no different. With the current banking industry becoming very large and the GDP expected to grow at around 8%, the Indian banking industry has become very lucrative and competitive.
2. Industry profitability:- The banking sector has become very profitable and

therefore, it is attracting new entrants. Thus increasing competition.

3. Rapid technological change:- The new entrants are technologically more

equipped than the existing players. This has led to an increased sense of

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competition among the existing players. They are now adopting the new technologies.
4. Product innovations:- Twenty years back, very few people were aware of trends

like net banking, ATMs, home banking. But today, these advances are a common thing and these innovations have led to fierce competition.
5. Customer awareness:- Today, the customers are more aware than the past. This

has led to cut-throat competition in the banking fraternity. One of the results of this competition is strategic alliance. The clearing house is one form of strategic co-operation already in place. In fact, such strategic cooperation will give banks a competitive advantage over others. Some of the areas where the banks can enter into strategic alliance are:
1. Technology alliances:- This will give interconnectivity among the banks, which will

be of great advantage.
2. Marketing alliances:- These include exchange of information on credit record of

customers, customer guarantees, inter-bank participation, syndication.

3. Organizational alliances:- These include deliberations with the regulators on the

need for changes.

4. Segmented alliances:- For example a particular segment come together to create

common supporting services that will help them to capture economies of scale.

FUTURE PROSPECTS:
Predicted by many the Indian economy is expected to grow at a significant rate in the next couple of years not only in India but also overseas. The Indian banking industry is likely to record tremendous growth in the short to medium term. By the end of 2011, the total asset size of the Indian banking industry is expected to exceed the $1 trillion mark, with profits of about $10 billion.

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New banking licenses are expected to be issued by the RBI to private sector players. However, these licenses will be conditionally be awarded to certain players meeting strict requirement on the capital exposures and corporate governance front. Lots of players including NBFCs, industrial houses are all vying for this coveted license. It is expected that big financial players like Religare and IndiaBulls might get the nod from RBI to set up bank. However, growth is still a concern for the banking sector in FY12 on the account a slowdown in economy as well as reduced demand for credit on the account of the current high interest rate environment due to inflation concerns. Asset quality concerns are also an issue especially in the infrastructure, power and real estate space. Over the years the number of market player has significantly increased. This Intense competition could adversely affect the margins of the bank. So the there is threat of the stability of the system and threat from existing players. Though the Indian banking system is highly regulated and well managed still the threat posed by capital market slow down cannot be overlooked. Another area of concern for banking industry have been the fact that in spite of penetrating to the semi urban areas have the banking sector havent been able to fully penetrate through the rural areas. And if overall profitability of industry needs to be improved this segment cannot be ignored. According to a McKinsey report, even though Indian households save 28% of their disposable income, they invest only half their savings in financial assets. The rest goes towards buying gold, housing, and buying of equipment for the various small Indian enterprises.

CONCLUSION
The future looks very promising for the banking industry in the country. According to PriceWaterCooper the size of Indian banking industry will overtake many developed nations and will become the third largest by 2050 behind USA and China. One of the main reasons why the banking industry is flourishing because of stringent regulatory measures taken by RBI the banks are considered to have clean, strong and transparent balance sheets thus good quality of assets relative to other banks in comparable
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economies in its region. Also due to growth rate the demand for credit has become quite high increasing the revenue aspects of bank.Inspite of such high hopes still there are various concerns from transparency in private sector to burecracy in public sector banks which might hamper the growth of banking sector. But at this moment everything looks fine and future holds great return for the banks in the country.

WEBLIOGRAPHY

www.rbi.org.in www.icra.in www.pwc.com www.mckinsey.com www.moneycontrol.com

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www.statebankofindia.com www.bankofbaroda.com www.pnbindia.in www.icicibank.com www.hdfcbank.com

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