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BANKING INDUSTRY




                            Amulya
                   Nikita Singhania
                    Reuben Joseph
                     Sayonee Datta
                     Vinayak Mittal
OBJECTIVES
   To identify the market share on the basis of revenue and nature of competition
    on the basis of Herfindal’s Index.

   Segmenting the market on the basis of customers.

   Conducting and Analyzing the PEST factors for Banking Sector.

   Looking into other profitable business of leading Banks. (Diversification)

   Ascertaining the mergers and Acquisitions in Banking Industry.

   Looking into the international exposures of the banks.

   To find out the technological changes in the Banking Sector.

   To find out the marketing initiatives by the Banking Sector.

   To look into the future outlook of the Banking Industry.

   To make a comparison with US and Other developing or developed countries.
MARKET STRUCTURE IN INDIAN SCENARIO



                                        RBI


                             Schedule     Unsched
                                d           uled


              Commerc                             Cooperat
                ial                                 ive



Public   Private   Foreign   RRB              Urban      Rural
MARKET STRUCTURE IN THE GLOBAL
                                SCENARIO
   In the world’s top 1000 banks, there are many more large and medium-
    sized domestic banks from the developed countries than from the emerging
    economies.
   Illustratively, according to The Banker 2011, out of the top 1000 banks
    globally,
   over 200 are located in USA,
   just above 100 in Japan,
   over 80 in Germany,
   over 40 in Spain and
   around 40 in the UK.
   Even China has as many as 16 banks within the top 1000, out of which, as
    many as 14 are in the top 500.
TOP 10 BANKS IN INDIA
PUBLIC SECTOR BANKS
 State Bank of India(SBI)
 Punjab National Bank
 Bank of Baroda
 Canara Bank
 Bank of India


PRIVATE SECTOR BANKS
 HDFC Bank
 ICICI Bank
 Axis Bank
 Citi Bank
 IDBI Bank


                                      thetoplist.in
TOP 10 BANKS IN THE WORLD


 Deutsche Bank, Germany
 Mitsubishi UFJ Bank, Japan

 Industrial & Commercial Bank of China

 HSBC Holdings, UK

 Barclays PLC, UK

 BNP Paribas, France

 Japan Post Bank

 J. P. Morgan Chase & Co. USA

 Credit Agricole SA, France

 Royal Bank of Scotland Group(RBS)
                                          thetoptenz.net
INDUSTRY CONENTRATION IN PUBLIC SECTOR

HERFINDAHL INDEX:
                        SOURCE: CAPITAL LINE DATABASE
HERFINDAHL INDEX RANGE:-

   A HHI index below 100 indicates a highly competitive
    index.
   A HHI index below 1,500 indicates an unconcentrated
    index.
   A HHI index 1,500 to 2,500 indicates moderate
    concentration.
   A HHI index above 2,500 indicates high concentration.
   The Herfindahl index for the public sector banks is
    0.1994.
   So, In Banking Industry public sector indicates moderate
    concentration so the concentration ratio lies between 0-
    50percent. So it ranges from perfect competition to
    oligopoly.
HERFINDAHL INDEX IN PRIVATE SECTOR
         SOURCE: CAPITALINE DATABASE
   The Herfindahl index for the private sector banks is
    0.2442.



   So, In Banking Industry private sector indicates
    moderate concentration so the concentration ratio
    lies between 0-50percent. So it ranges from perfect
    competition to oligopoly.
TECHNOLOGICAL & COST CONDITIONS
 ATM
 IT services & Mobile Banking

 Virtual Wallet



Cost Conditions
    The cost function controls the input prices, output quantities and other
    conditions- found very substantial improvements in cost productivity over
    time, although the improvements were smaller in last few years. Some of
    these improvements are clearly due to IT advances.
Eg: Previously, the automated clearing house was run primarily as batch jobs
  with physical delivery of computer tapes from the banks whereas the data
  are now sent electronically.
DEMAND CONDITIONS

   demand for financial product soaring,

   demand for driving down costs,

   demand for leveraging technology, focusing on

    alternative delivery channels ,

   demand for providing effective logistics for cash

    management to tap the rural population.
CONDUCT
Pricing
    The price mix is the various interest rates charged by different banks. All
    the banks of India charge interest rates on the basis of RBI directives.
   There is also competition among banks in terms of annual fees for
    services like credit cards, DMAT etc.
   Interest charged on home loans and car loans are another important
    pricing aspect of banking industry.
   In banking sector it is very important to understand that the main pricing
    policy is concerned with the interest rate charged.
   there are mainly three types of pricing methods adopted by the banks:
   Value pricing
   Going rate pricing
   Mark up pricing
ADVERTISING
The major objectives for using advertising techniques
  or campaigns by banks are:
 Making customers aware of the all kinds of services
  provided by the banks.
 Increase the use of services

 Creation of a proper image about banks and
  services
 Change customers’ attitudes

 Support personal selling

 Emphasize well service
RESEARCH AND DEVELOPMENT
   Banks are lumped in to the “other” category of all
    industries except the top nine.
   According to the FDIC, the banking industry generated
    more than $529 billion in revenue 2011 (net interest
    income + non interest income). If the industry spent at
    just the average rate of all industries, that would mean
    more than $18 billion in research and development
    spending. That doesn’t seem unreasonable, since the
    banking industry contributes about 3.6% of U.S. GDP.
   That would have put the banking industry tied for 8th
    place with Consumer companies at 3% of the total and
    just ahead of Telecom. (Adjusting for the fact that the
    United States makes up about 31% of the total global
    spend, that would scale out to about 10% in total, tied
    for fourth place with Industrials.)
MERGERS & ACQUISTIONS
 Oriental bank of commerce acquires global trust
  bank ltd
 ICICI bank ltd acquires bank of Madura

 HDFC bank acquire centurion bank of punjab

 Bank of Baroda Acquires South Gujrat Local Area
  Bank Ltd
PERFORMANCE
Profitability
 The profitability of banking sector will remain under
  pressure during the year on account of market
  volatility, global rating agency.
 The component of trading income is expected to
  come down.
 The rate of interest income would remain the same.

 The asset quality non performing loan ratio for
  Indian banks in 2008 is expected to move up.
SOCIAL WELFARE
 Services to enterprises and consumers to
  undertake their business activates and to easily
  perform their day to day transactions.
 Social insurance

 Pensions

 Disability insurance

 Survivor benefits

 Unemployment insurance

 Basic Security

 Rural Banking
PORTER’S FIVE FORCE MODEL
           Threat of
             new
           Entrants
             Low




   Buyer   Competitiv     Supplier
   Power    e Rivalry      Power
   High       High          Low




           Availability
               of
           Substitute
                s
             High
Patents & Copyrights
 innovating in the financial securities industry is very
  costly
 financial innovations are quickly imitated by

competitors.
 there is a pronounced advantage of

   being first, with the innovator retaining a 50-
  60%market share even in the long-run.
ECONOMIES OF SCALE
 banking consolidation will result in a small number
  of large monopoly banks that can achieve
  substantial economies of scale and outperform
  small competitors.
 But research suggests that small banks are
  sometimes more efficient than their large
  counterparts. One competitive strategy undertaken
  by numerous small banks is agricultural lending.
 it is not necessary to be large to be efficient for the
  banks with loan specialization.
CAPITAL & LIQUIDITY REQUIREMENT
 They ensure that banks are not making investments
  that increase the risk of failure.
 They have enough capital to sustain operating
  losses while still honoring withdrawals.
 33% raise in the capital requirements leads to 50%
  drop in bank entry and exit rates by small banks.
ECONOMIES OF SCOPE
 During the period characterized by rapid growth
  and considerable regulation of the capital market,
  banks sought to reduce fixed unit costs by
  expanding their landing and deposit bases.
 In such situations, their quantitative expansions-
  supported by prevailing competitive parity among
  banks could increase profits.
 Thus banks seek to maximize a kind of economy of
  scale by increasing output of single products.
 Economies of scope will provide the theoretical
  foundation for the diversification of the banking
  industry in an era of slower economic growth and
  advances in economic technologies.
PESTLE ANALYSIS

                Political




Technological               Economic




                 Social
COMPARISON BETWEEN PEERS IN PUBLIC
             SECTOR
COMPARISON BETWEEN PEERS IN PRIVATE
              SECTOR
COMPARISON OF INDIAN BANKING SYSTEM WITH GLOBAL
                BANKING SYSTEM

                    Russia

                     USA

                   Australia

                    China

                    Brazil
FUTURE OUTLOOK
   Two critical factors driving change over the next 10-20
    years: firstly, India has a large number of young
    population in the country and will see a sharp rise in its
    working age population. Secondly, more people in India
    will get rich within one generation.

   A study by Mc Kinsey suggests that average households
    income will triple over the next two decades and it will
    become the world’s fifth largest consumer economy by
    2025.
   The demand for financial services will increase ant the
    banking and the financial sector will have a key role in
    intermediating savings and investment from large
    number and growing incomes, which will fuel growth.

   It is estimated that under the Unique Identification
    Authority of India, by 2017 nearly 1.2 billion people in
    the country would be enrolled under Aadhaar.

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Banking industry ppt

  • 1. BANKING INDUSTRY Amulya Nikita Singhania Reuben Joseph Sayonee Datta Vinayak Mittal
  • 2. OBJECTIVES  To identify the market share on the basis of revenue and nature of competition on the basis of Herfindal’s Index.  Segmenting the market on the basis of customers.  Conducting and Analyzing the PEST factors for Banking Sector.  Looking into other profitable business of leading Banks. (Diversification)  Ascertaining the mergers and Acquisitions in Banking Industry.  Looking into the international exposures of the banks.  To find out the technological changes in the Banking Sector.  To find out the marketing initiatives by the Banking Sector.  To look into the future outlook of the Banking Industry.  To make a comparison with US and Other developing or developed countries.
  • 3. MARKET STRUCTURE IN INDIAN SCENARIO RBI Schedule Unsched d uled Commerc Cooperat ial ive Public Private Foreign RRB Urban Rural
  • 4. MARKET STRUCTURE IN THE GLOBAL SCENARIO  In the world’s top 1000 banks, there are many more large and medium- sized domestic banks from the developed countries than from the emerging economies.  Illustratively, according to The Banker 2011, out of the top 1000 banks globally,  over 200 are located in USA,  just above 100 in Japan,  over 80 in Germany,  over 40 in Spain and  around 40 in the UK.  Even China has as many as 16 banks within the top 1000, out of which, as many as 14 are in the top 500.
  • 5. TOP 10 BANKS IN INDIA PUBLIC SECTOR BANKS  State Bank of India(SBI)  Punjab National Bank  Bank of Baroda  Canara Bank  Bank of India PRIVATE SECTOR BANKS  HDFC Bank  ICICI Bank  Axis Bank  Citi Bank  IDBI Bank thetoplist.in
  • 6. TOP 10 BANKS IN THE WORLD  Deutsche Bank, Germany  Mitsubishi UFJ Bank, Japan  Industrial & Commercial Bank of China  HSBC Holdings, UK  Barclays PLC, UK  BNP Paribas, France  Japan Post Bank  J. P. Morgan Chase & Co. USA  Credit Agricole SA, France  Royal Bank of Scotland Group(RBS) thetoptenz.net
  • 7. INDUSTRY CONENTRATION IN PUBLIC SECTOR HERFINDAHL INDEX: SOURCE: CAPITAL LINE DATABASE
  • 8. HERFINDAHL INDEX RANGE:-  A HHI index below 100 indicates a highly competitive index.  A HHI index below 1,500 indicates an unconcentrated index.  A HHI index 1,500 to 2,500 indicates moderate concentration.  A HHI index above 2,500 indicates high concentration.  The Herfindahl index for the public sector banks is 0.1994.  So, In Banking Industry public sector indicates moderate concentration so the concentration ratio lies between 0- 50percent. So it ranges from perfect competition to oligopoly.
  • 9. HERFINDAHL INDEX IN PRIVATE SECTOR SOURCE: CAPITALINE DATABASE
  • 10. The Herfindahl index for the private sector banks is 0.2442.  So, In Banking Industry private sector indicates moderate concentration so the concentration ratio lies between 0-50percent. So it ranges from perfect competition to oligopoly.
  • 11. TECHNOLOGICAL & COST CONDITIONS  ATM  IT services & Mobile Banking  Virtual Wallet Cost Conditions The cost function controls the input prices, output quantities and other conditions- found very substantial improvements in cost productivity over time, although the improvements were smaller in last few years. Some of these improvements are clearly due to IT advances. Eg: Previously, the automated clearing house was run primarily as batch jobs with physical delivery of computer tapes from the banks whereas the data are now sent electronically.
  • 12. DEMAND CONDITIONS  demand for financial product soaring,  demand for driving down costs,  demand for leveraging technology, focusing on alternative delivery channels ,  demand for providing effective logistics for cash management to tap the rural population.
  • 13. CONDUCT Pricing  The price mix is the various interest rates charged by different banks. All the banks of India charge interest rates on the basis of RBI directives.  There is also competition among banks in terms of annual fees for services like credit cards, DMAT etc.  Interest charged on home loans and car loans are another important pricing aspect of banking industry.  In banking sector it is very important to understand that the main pricing policy is concerned with the interest rate charged.  there are mainly three types of pricing methods adopted by the banks:  Value pricing  Going rate pricing  Mark up pricing
  • 14. ADVERTISING The major objectives for using advertising techniques or campaigns by banks are:  Making customers aware of the all kinds of services provided by the banks.  Increase the use of services  Creation of a proper image about banks and services  Change customers’ attitudes  Support personal selling  Emphasize well service
  • 16. Banks are lumped in to the “other” category of all industries except the top nine.  According to the FDIC, the banking industry generated more than $529 billion in revenue 2011 (net interest income + non interest income). If the industry spent at just the average rate of all industries, that would mean more than $18 billion in research and development spending. That doesn’t seem unreasonable, since the banking industry contributes about 3.6% of U.S. GDP.  That would have put the banking industry tied for 8th place with Consumer companies at 3% of the total and just ahead of Telecom. (Adjusting for the fact that the United States makes up about 31% of the total global spend, that would scale out to about 10% in total, tied for fourth place with Industrials.)
  • 17. MERGERS & ACQUISTIONS  Oriental bank of commerce acquires global trust bank ltd  ICICI bank ltd acquires bank of Madura  HDFC bank acquire centurion bank of punjab  Bank of Baroda Acquires South Gujrat Local Area Bank Ltd
  • 18. PERFORMANCE Profitability  The profitability of banking sector will remain under pressure during the year on account of market volatility, global rating agency.  The component of trading income is expected to come down.  The rate of interest income would remain the same.  The asset quality non performing loan ratio for Indian banks in 2008 is expected to move up.
  • 19. SOCIAL WELFARE  Services to enterprises and consumers to undertake their business activates and to easily perform their day to day transactions.  Social insurance  Pensions  Disability insurance  Survivor benefits  Unemployment insurance  Basic Security  Rural Banking
  • 20. PORTER’S FIVE FORCE MODEL Threat of new Entrants Low Buyer Competitiv Supplier Power e Rivalry Power High High Low Availability of Substitute s High
  • 21. Patents & Copyrights  innovating in the financial securities industry is very costly  financial innovations are quickly imitated by competitors.  there is a pronounced advantage of being first, with the innovator retaining a 50- 60%market share even in the long-run.
  • 22. ECONOMIES OF SCALE  banking consolidation will result in a small number of large monopoly banks that can achieve substantial economies of scale and outperform small competitors.  But research suggests that small banks are sometimes more efficient than their large counterparts. One competitive strategy undertaken by numerous small banks is agricultural lending.  it is not necessary to be large to be efficient for the banks with loan specialization.
  • 23. CAPITAL & LIQUIDITY REQUIREMENT  They ensure that banks are not making investments that increase the risk of failure.  They have enough capital to sustain operating losses while still honoring withdrawals.  33% raise in the capital requirements leads to 50% drop in bank entry and exit rates by small banks.
  • 24. ECONOMIES OF SCOPE  During the period characterized by rapid growth and considerable regulation of the capital market, banks sought to reduce fixed unit costs by expanding their landing and deposit bases.  In such situations, their quantitative expansions- supported by prevailing competitive parity among banks could increase profits.  Thus banks seek to maximize a kind of economy of scale by increasing output of single products.  Economies of scope will provide the theoretical foundation for the diversification of the banking industry in an era of slower economic growth and advances in economic technologies.
  • 25. PESTLE ANALYSIS Political Technological Economic Social
  • 26. COMPARISON BETWEEN PEERS IN PUBLIC SECTOR
  • 27. COMPARISON BETWEEN PEERS IN PRIVATE SECTOR
  • 28. COMPARISON OF INDIAN BANKING SYSTEM WITH GLOBAL BANKING SYSTEM Russia USA Australia China Brazil
  • 29. FUTURE OUTLOOK  Two critical factors driving change over the next 10-20 years: firstly, India has a large number of young population in the country and will see a sharp rise in its working age population. Secondly, more people in India will get rich within one generation.  A study by Mc Kinsey suggests that average households income will triple over the next two decades and it will become the world’s fifth largest consumer economy by 2025.
  • 30. The demand for financial services will increase ant the banking and the financial sector will have a key role in intermediating savings and investment from large number and growing incomes, which will fuel growth.  It is estimated that under the Unique Identification Authority of India, by 2017 nearly 1.2 billion people in the country would be enrolled under Aadhaar.