Final RM

TABLE OF CONTENTS
Page no Declaration Acknowledgement Executive summary Chapter 1 Introduction to banking sector 1.1 1.2 1.3 1.4 1.5 1.6 Introduction Narasimham committee report Role of banking sector in India Major reform initiation in banking sector Indian Banking sector Objective 2 3 6 8 8 9 10 10 11 11 12 13 13 13 13 14 14 14 15
Chapter 2 Literature Review 2.1 Introduction 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Market comparison Mergers and Acquisitions Performance Opportunities and challenges Competition Profitability Conclusion
Chapter 3. Industry analysis 3.1. Functions of Indian banking sector 3.1.1. To study the primary function 3.1.2. To study the secondary function 3.2. 3.3. 5Cs prescribed by ministry of finance Market segmentation- Demographics of buyer 17 17 18 19 19
ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS 3.3.1. Retail market segmentation 3.3.2. Profitability of the company 3.4 Market share and Nature of Competition 3.4.1 Porter Five force model of Competition 19 21 21 21
3.5. PEST Analysis 3.5.1. Political Factor 3.5.2 Economic Factor 3.5.3. Social Factors 3.5.4. Technological Factors 3.6. Business diversification 3.7 Mergers and Acquisition 3.7.1. Banks merger in the past 3.7.2. Cross border acquisition by the banks 3.8. International exposure 3.8.1. International presence of Indian banks 3.9 Technology Intensity ( R & D and Technology) 3.9.1 Structural Financial messaging solution 3.10 Marketing Imitation 3.11 Future outlook of Banking sector in India 3.12 Comparison between India & U.S Banks Chapter 4 Bibliography Conclusion
28 28 31 32 34 35 36 37 39 40 40 42 43 44 46 49 51 52
A STUDY ON BANKING SECTOR IN INDIA
ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS
EXECUTIVE SUMMARY
Banking sector in India has made a significant development over the last few decades. After the liberalization in 1990s by Narasimham Rao allowing small number of private banks and these came to be known as New Generation tech-savvy banks. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. There has been a tremendous change in the governance and ownership of private sector banks since 2004 RBI passed guidelines to be followed by private sector banks. In this report we have studied about various committees like Narasimham Committee, Basel committee that formulate the banking regulatory reforms and how does it affect the banking operation and the various development in the banking sector of India. The Reserve Bank of India (RBI), Ministry of Finance and other regulatory authorities will be regulating the economy with the existing and new policies depend upon market condition and help to achieve growth in the economy. Since foreign banks been allowed in Banking Sector led to higher competition and recently banks are venturing abroad also. FDI, FII and portfolio investment been liberalized in both public and private sector banks and investment in those sector been raised. Recently RBI has been planning to issue new license for the new private bank players. Internet replaced the traditional mode of banking, which brought dynamic and competitive services. Political, Economical, social and technological factor will have a greater impact on the Banking Sectors. Indian banking industry will be dominated by Public Sector banks with SBI has a major market share of 27.5 Per cent, since rural market will be dominated by public sector banks. But private sector bank will be efficient in terms of technology and diversified in various fields like mutual fund, insurance, venture capital, forex market, merchant banking, investment banking etc. Banking play a vital role in boosting the economy by providing subsidy in loans to certain sector in order to compete in the global market led to rise in GDP growth rate. Indian banks are going on mergers and acquisition with the renowned banks of the world due to economies of scale, cost efficiency and raise in profitability. In Union budget various reforms and schemes been announced had a great impact on banking business. Banking sector is also planning to tap rural market by providing greater subsidy in loans and also planning to improve the infrastructure and various Regional Rural Banks been formed.
CHAPTER 1 INTRODUCTION
1.1 INTRODUCTION TO BANKING SECTOR

A bank is a financial institution that deals with money and its entire substitute and provides all kinds of financial services. It is an institution that provides a financial assistance and whose primary task is to act as a payment agent for customers and to borrow and lender money to different kinds of customers. Banking sector play a very dominant role in economy. It facilitates the circulation of money in economy. Without the sound and healthy banking system in India it cannot leads to have a healthy economy. The Indian banking system has several outstanding achievements to its credit. It has wide coverage all over India previously it was confined only to the major cities. But now the condition has changed drastically Indian banking system has its reach not only in metropolitan cities but it has reached even to the remote corners of the country. The first bank has been established in India was The General Bank of India1786 and the Bank of Hindustan in 1790. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. The journey of Indian banking sector has been divided into three phase:
Phase I Establishment of first bank in India occurred in phase I. The growth of banking sector was very slow and banks have experienced a failure during that period. The banking regulation act has been amended during this phase. Reserve bank of India has been provided with extensive powers for the supervision of the banking in India as the central banking authority. Phase II The government of India has taken major steps or reform in Indian banking sector after independence. Nationalization of banks has been done in this phase. Before the nationalization of banks started, only State bank of India was nationalized. State bank of India is the India is the largest commercial bank and is one of the top five banks worldwide. Second phase brought the nationalization of banks operating in India. This step has brought 80% of banking sector in the government ownership. After the nationalization of banks, the branches of public sector banks has increased to 800% in deposits and advances took huge jump by 11000%. Phase III The phase has introduced many more products and services to the banking sector in India. In the year 1991, LPG policy has been introduced it has brought a drastic changes in banking sector. In the very same year under the chairman ship of M. Narasimham committee was set up by his name to which is going to work for liberalisation of banking practices. The Narasimham committee has recommended that the minimum start up capital requirement for foreign branches must be higher than for Indian branches and the amount should be raised from US$ 10 million to US$ 20 million . In this phase major steps have been taken to make banking convenient and easy for the customers. Foreign banks were giving competition to Indian public
A STUDY ON BANKING SECTOR IN INDIA 5
and private sector bank. As globalization of economy allowed the foreign institution to set up their branches in India they were coming up with new product and services such as ATM cards and credit cards. During this phase net banking and phone banking were introduced. 1.2 NARASIMHAM COMMITTEE REPORT: Narasimham committee was first set up in the year 1991 under the chairmanship of Mr. M Narasimham who was the 13th governor of reserve bank of India. Narasimham committee first was set up in 1991 was set up in order to study the problems of the Indian financial system. Committee has given some recommendations are as follows: Reduction in SLR and CRR Phasing out directed credit programme Interest rate determination Structural reorganisation of the banking sector Removal dual control
Only few of the recommendation were accepted by government and recommendations became banking reforms of India and other was not accepted. Because of this second Narasimham committee was again set up in 1998. Narasimham committee on Indian banking reform has been set up in December 1997. This report follows 1991 issues by the first Narasimham committee which has made the similar recommendations. The report has made a case for strengthening of Indian banking sector has given some recommendations for capital account convertibility. Some of the major recommendations of Narasimham committee - II are as follows: The merger of some strong public sector banks and the closure of some weak ones to comply with the greater integration of global financial system. Separation of the regulatory and the supervisory functions from the other responsibility of the Reserve bank of India. Report recommended that there should be reduction of the average level of net NPAs for all the banks to below 5 percent by the year 2000 and to 3 percent by 2003. There should be realignment of role of the commercial banks and the development financial institution in India in favour of the concept of universal banking. Removal of the appointment of bank chairman and board member from the realm of politics to encourage professionalism in banking sectors.
1.3 ROLE OF BANKING SECTOR IN INDIA: Banking sector plays a very important role in economy. Banks provides funds for business as well as the personal needs of individual. Banking sector has performed the key function of providing the liquidity and payment services to the real sector and has accounted for the bulk of the financial institutions. Banking sector has played prominent in Indian economy. It has contributed to overall economic development by serving as a source of credit to the individual, households, government and weaker section of the economy like village and small and large scale industries. Some of major role of banks in economy are: It facilitates the capital formation and circulation of money in economy It encourages the saving habits among individuals and thereby makes funds available for productive use It facilitates import export transactions It facilitates the proper management monetary and credit system of country Banks maintain the balance between the demand and supply of money
1.4 MAJOR REFORM INITIATIVE IN BANKING SECTOR: Some of the major reform in the last decade that has changed the face of Indian banking sector are: 1. Deregulation of interest rate. Interest rates on deposits and lending have been deregulated with banks enjoying greater freedom to determine their rates. 2. Government equity in banks has been reduced and private banks have been allowed to access the capital market for raising additional capital.
3. Reduction in pre-emption lowering of reserve thus releasing more lendable resources
which banks can deploy profitably 4. Banks are now enjoying greater operational freedom in terms of opening and swapping of branches and banks with the track record of good profitability have greater flexibility in recruitment. 5. New areas in banking finance has been introduced insurance ,credit cards, debit cards, infrastructure financing, leasing , gold banking, 6. The limit for foreign direct investment in private banks has been increased from 49 % to 74 % and the 10 % cap on voting right has been removed. The limit for foreign institutional investment has been increased to 49%.
7. New private banks have been established and foreign banks have been allowed to set up the branches and permitted to expand their operation in India including through subsidiaries. Banks have also been allowed to set up the offshore banking units in special economic zone. 8. Limits for investment in overseas markets by banks, mutual funds and corporations have been liberalised. 9. Universal banking has been introduced. With the banks permitted to diversify into long term finance and DFI into working capital, guidelines have been put in place for the evolution of universal banks in an orderly passion.
1.5. INDIAN BANKING SERVICES Indian banking sector has taken some major step in recent years to in order to improve it services information technology and increase their customer base, including the launch of an internet banking service by industrial credit and investment corporations of India. The Reserve bank of India has taken crucial steps to set up a very small aperture terminal network to provide reliable communication throughout the financial sector. The RBI is also encouraging the use of RBINET and BANKNET, it is a network to which all public, private and foreign sector banks are connected. Banks are providing extended services to their respective customers. Many banks have set up the shared payment network system and installation of automatic teller machines and cash dispensers. Indian banks in recent years have introduced electronic funds transfer system and electronic funds clearing services for repetitive or low value transactions.
1.6. OBJECTIVES The objective of the study is to do an in depth analysis of banking sector in India. 1) To study the functions of banking sector in India. 2) To compare the performance of public and private sectors banks in India. Market share Profitability Growth
3) To analyze the political, economical, social and technological (PEST) environments. 4) A Comparative study of Indian Banks with banks in U.S and other countries. 5) Impact of LPG on banking sector.
6) Impact of Budget on Banking Sector 7) To analyze the future of banking sector. 8) Role of banking sector in development of Indian Economy.
CHAPTER 3 INDUSTRY ANALYSIS
3.1 FUNCTIONS OF INDIAN BANKING SECTOR

Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheques, draft, and order or otherwise. From the above definition of banking we can derive the major functions of Banking Industry classified as Primary functions and Secondary functions: 1. Primary Functions: Accepting deposits, and Lending loans and advances 2. Secondary Functions:
Issuing letters of credit, travellers cheques, circular notes etc. Security for safe deposits. Providing customers with facilities of foreign exchange. Transferring money from one place to another; and from one branch to another branch of the bank. Collecting and supplying business information; Issuing demand drafts and pay orders; and, Providing reports on the credit worthiness of customers.
3.1.1. To study the Primary Functions: Primary Functions are the main activities that provide major income to the banks. A).Accepting deposits from public: Banks are also called as Custodians of public deposits accepted for the purpose of safe custody. The livelihood of banks is the Interest which it earns by giving these collected deposits to the people who are in need of money, so the banks are obliged to share a proportion of the earned interest with the depositors to attract them which involves lot of book-keeping and maintaining the records of collection of deposits and payment of interest. This also requires effective branch networks, adequate funds, trained staff and infrastructural inputs for its smooth and efficient operations.
B). Lending money to public: The banks play a role of an Intermediary between the set of people who have money for depositing and the set of people who are in need of money to carry on smooth functioning of their business. For performing this role banks need its expertise in aspects like sufficient deposits, legal skills for documentation and recovery of dues through the courts, skills to monitor the end usage of funds lent to the public, skills of reviewing the credit portfolio and credit delivery system.
3.1.2. To study the Secondary Functions: Secondary Functions are the agency functions that are not the main sources of income to the business. A). Remittances of money from one place to another:
Banks not only carry on the primary functions like accepting and lending money to the public, it also provides services like transfer of money from one place to another by issuing instruments like Demand Drafts, Banker's Cheques, Money Orders, Travellers cheques, Letters of credit, Circular Notes etc., It also facilitates quick transfer of money through Telegraphic Transfers and Tele-cash-Orders enabling Foreign Exchange. B). Trustee Business: Banks acts as trustees in various scenarios like whenever a company wishes to issue secured debentures, it has to appoint a financial intermediary as trustee who takes charge of the security for the debenture and looks after the interests of the debenture holders. Such entities necessarily have to have expertise in financial matters and also be of sufficient standing in the market/society to generate confidence in the minds of potential subscribers to the debenture. While Banks are the natural choice for the customers to appoint as trustees. C). Security for safe deposits : Banks are also performing the function of providing the security for the valuables of the general public by offering various deposit schemes and providing security spaces in the shape of LOCKERS where their valuables are deposited by paying a certain fees to the banks for maintaining those lockers. Lockers can neither be opened by the hirer or the Bank individually. Both must come together and use their respective keys to open the locker. D). Government Business: In recent years banks are acting on behalf of government in accepting its tax and non-tax receipts, pension payments, tax refunds etc., for a fee payment to be made by the government.
3.2. 5Cs prescribed by the Ministry of Finance: Challenge Competition Credit Customer Control
Bank of Baroda has the highest number of branches with 38 branches and SBI with 22 branches and Bank of India have 18 branches.
3.3. Market Segmentation- Demographics of buyers:
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Banking industry has unique nature compared to that of manufacturing or trading industry dealing with tangible products. Marketing of banking products is a field of study that is evolving rapidly. Banks deal with various types of customers. Individuals, Group of people, Corporate entities
Who have their likes and dislikes. No bank can afford to assess the need of each and every individual customer separately. It is nearly impossible for banks to market all these categories of customers on a one-to-one basis, particularly if they simply rely on predictable socio-economic data like age and income as the base for dividing customers into segments. To overcome this problem, banks adopt market segmentation strategy, which recognises the wisdom of specialising to suit the need of a segment of the market rather than trying to address the requirements of each and every customer separately. Market segmentation divides the whole market into groups of customers who have the requirement of similar kinds of products and services. Market segmentation must have certain qualities that make it possible to specialise the marketing approaches. The segmentation must be measurable in terms of the criteria used for segmentation; accessible through the distribution system; and sizable in volume in order to generate the economy of operations. One of the rational ways of segmentation could be diving the banking market into retail and wholesale market and subdivide the markets into various segments. 3.3.1 Retail market can be segmented on the basis of Demography Geography Social class and Cultural values
Demographic segmentation divides the market in terms of the characteristics of populations such as age group, sex, size of family, level of income, occupation. On the basis of social class, the market can be segmented into higher class, middle class and the lower class.
o Higher-class customers are generally complicated one, selective in choosing the

products and they may be willing to take risk for earning higher returns. Such customers may also demand for customisation of products to fit their requirement.
o The lower class customers have limited sense of choice and are very much concerned
on the risk inherent in the product.
The market can also be segmented based on the cultural values of the customers. The segmentation may be on the basis of religion, nationality, region etc. Wholesale market can be segmented on the basis of the classification of the companies. Such segmentation may be based on status of the company
o Private company o Public company o Government corporations o Partnership firm o Proprietorship firm
Industry classification:
o Manufacturing industry o Trading industry o Service industry

Requirement of funds: Company needing
o Rs. 20-50 million o Rs. 50-100 million o Above Rs. 100 million
Life-cycle of the company:
o Start-up Company o Growing company o Mature company

Market served by the company:
o Domestic market o Export market.
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3.3.2. Profitability of the company A bank segments its market into more or less homogeneous groups, in terms of their needs and expectations from the banking industry. Marketing strategy of a bank should involve

Dividing the market into major segments Targeting the segments to be catered by the bank; and Developing the products and marketing programs to take care of the selected segments.
Once the bank has identified the market segments that it might address, the next steps will be assessing the market share and the nature of competition prevailing in the industry.
3.4. Market shares and Nature of Competition: The Nature of competition can be detailed with Porters 5 forces model of competition. 3.4.1. PORTERS FIVE FORCES MODEL OF COMPETITION The nature of competition in the industry in large part determines the content of strategy, especially business level strategy based it is on the fundamental economics of the industry, the very profit potential of an industry is determine by competition interaction. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Based on the model derived from the Five Forces Analysis helps the management to decide upon how to influence or to exploit particular characteristics of their industry.
A). Rivalry among Competing Firms: Rivalry among competitors is very violent in Indian Banking Industry.The services banks offer is more of homogeneous which makes the Company to offer the same service at a lower rate and eat their competitor markets share. Market Players use all sorts of aggressive selling strategies and activities from intensive advertisement campaigns to promote their products and services. Even consumer switch from one bank to another, if there is a wide spread in the interest. Hence the intensity of rivalry is very high. The number of factors that has contributed to increase rivalry is:
1. Large no of banks:
There is so many banks and non financial institution fighting for same pie, which has intensified competition.
2. High market growth rate:

India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition.
3. Homogeneous product and services:

The services banks offer is more of homogeneous which makes the company to offer the same service at a lower rate and eat their competitors markets share.
4. Low switching cost:

Costumers switching cost is very low, they can easily switch from one bank to another bank and very little loyalty exist. 5. Undifferentiated services Almost every bank provides similar services. Every bank tries to copy each other services and technology which increase level of competition.
6. High exit barriers:

High exit barriers humiliate banks to earn profit and retain customers by providing world class services.
7. Low government regulations:

There are low regulations exist to start a new business due LPG policy adopted by India.
B). BARGAINING POWER OF SUPPLIERS: Banking industry is governed by Reserve Bank of India. Reserve Bank of India is the authority to take monetary action which leads to direct impact on circulation of money in the Economy. The rules and regulations are laid down by RBI. Suppliers of banks are depositors. These are those people who have excess money and prefer regular income and safety. In banking industry suppliers have low bargaining power. 1. Nature of suppliers: Suppliers of banks are those people who prefer low risk and those who need regular income and safety as well. Banks best place for them to deposits theirs surplus money.
2. RBI rules and regulations:
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Banks are subject to RBI rules and regulations. Bank has to behave in a way that RBI wants. So RBI takes all decisions related to interest rates. This reduces the bargaining power of suppliers. C). BARGAINING POWER OF CONSUMERS: In todays world, Customer is the King. Banks offers different services according to clients need and requirement. They offer loans at Prime Lending Rate (PLR) to their trust worthy clients and higher rate to others clients. Customers of banks are those who take loans and uses services of banks. Customers have high bargaining power. These are 1. Large no of alternatives: Customers have large no of alternatives, there are so many banks, which fight for same pie. There are many non financial institutions like ICICI, HDFC, and IFCI, etc. which has also jump into these business, and there are foreign banks, private banks, co-operative banks and development banks together with specialized financial companies that provides finance to customers, increasing the preference of the customers. 2. Low switching cost: Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching cost is becoming lower with internet-banking gaining momentum and as a result customers loyalties are harder to retain. 3. Un-differentiated service: Bank provide merely similar service there are no much diffracted in service provides by different banks so, bargaining power of customers increase. 4. Full information about the market Customers have full information about the market due to globalization and digitalization. Consumers are aware with each market condition so banks have to be more competitive and customer friendly to serve them. For good creditworthy borrowers bargaining power is high due to the availability of large number of banks.
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C). POTENTIAL ENTRY OF NEW COMPETITORS: Reserve Bank of India has laid out a stringent rules and regulation for newentrant in Banking Industry. Hence, the industry is prone to competition from new competitor Barriers to an entry in banking industry no longer exist. So lots of private and foreign banks are entering in the market. So every bank strives to survive in highly competitive market so we see intense competition. Government policies are supportive to start new bank. There is less statutory requirement needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and selecting and training manpower.
D). POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS: Every day there is one or the other new product in financial sector. Banks are not limited to traditional banking which just offers deposit and lending. In addition, today banks offers loans for all products, derivative. The wide range of choices and needs give a sufficient room for new product development and product enhancement. Substitute products or services are those, which are different but satisfy the same set of customers. In private banking industry following are the substitutes: 1) NBFC: Non-banking financial Institutions play an important role in giving financial assistance. Mobilization of financial resources outside the traditional banking system has witnessed a tremendous growth in recent years in the India. NBFC is a close substitute of banking in respect of raising funds. Borrower can easily raise funds from NBFC because it requires less formal procedure for getting funds compare to private banks. 2) Post Office Products: Post office is also providing some service like fixed deposit facility, saving account, recurring account etc. The interest rate of saving account is higher than private banks. It is fully secured by the government so people who do not want to take risk for them post office saving is good substitute. 3) Government Bond: Govt. Bond also attracts savings from the general compare to savings in private- banks. 4) Mutual Funds: Mutual funds are also now proving as good substitutes for banks. They assure for providing high return with less time in comparison of banks. The administrative expenses are also very low as compared to banks. Investment in Mutual funds is more flexible than investment in banks. 5) Stock-Market:
public. It is less risky and more secured as
People who are ready to bear risk and wants a high return on their investment, stock market is a good substitute for them. Day by day investors are moving towards stock market as interest rate in banks are decreasing. So now stock market has proved as a big competitor for baking sector.
6) Debentures: Debentures are also proved as a good substitute of banks fixed deposit as return on debenture is fixed and high. There are different types of debentures, which attract various classes of investors.
7) Other Investment Alternatives: Now common peoples attraction is shifting from banks to other various alternatives such as gold, precious metals, land, small savings etc. As we can see the growing trend in these alternatives in comparison of decreasing interest rates in banks.
Market share of Public Sector Banks:

Punjab National Bank- 6.85% SBI- 23.5% CANARA Bank- 6.03%
MARK S ET HARE OF PUBLIC S OR BANKS ECT
6.03%
6.85% PNB SBI CANARA BANK
23.50%
Figure 1: Market Share of Public Sector Banks.
Market Share of Private Sector Banks: AXIS Bank- 10.75% HDFC bank- 13.76% ICICI bank- 22.86%
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Figure 2: Market Share on Private Sector Banks.
3.5 PEST Analysis:

PEST stands for political, economical, social and technological analysis. PEST analysis helps to investigate the important factor that affect the industry and influence various sector to operate in the economy. It is a framework of macro environmental factor used in the strategic management for the effective decision making. 3.5.1.Political Factors :
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Political factor analyse to the extent government and RBI intervenes in the economy. Political factor have a greater impact on goods and services by the policy implemented by the government and RBI. Various measures been taken by the government by allowing subsidy to certain sectors and also impose heavy tax and restrictions to particular sectors to maintain stability in the economy. Various policy been introduced by the RBI by looking at present situation of the country and also to have better control over banks. Government impose several policies to provide loans through public sector banks to motivate weaker section of the society. The policy include FDI, FII, disinvestment are discussed in the government policy.
A). Government regulation in banking: New private sector bank has been setup and foreign Bank been allowed to expand their function in India through Subsidiaries.
Banks are allowed to setup offshore bank units in special economic zone (SEZ).
Overseas investment limit has been liberalized.

New instrument been introduced for better flexibility and better risk management
like interest rate,exchangerates, cross currency towards control. RBI has been given primary authority to regulate capital flow through FEMA. Permission of FDI and portfolio investment in banking.
B). FDI Investment: FDI and portfolio investment collectively in nationalized bank and also the state bank of India has a overall statutory limit of 20% as provided in section 3(2D) of the Banking Companies Acts 1970 and of 1980. In private sector bank the FDI was capped at 49% and now it has increased to 74% of the paid up capital of banks. ceiling of FII investment in bank was increased from 24 per cent to 49 per cent It includes funds can be raised from IPOS, private placement, GDRs, ADRs and also acquisition of share from existing shareholder.
C). Budget Measures: Every year budget has been prepared and presented by Finance Minister in the parliament. Various policies and measures been taken by the government for the economic
development of the country. It has huge impact on the various sectors of the economy. In the speech of finance minister Pranabh Mukherjee on Union Budget 2011-12 certain announcement been made by them was, RBI is planning to issue new banking license for new private sector players. Government will raise about Rs. 40000 crore through disinvestment.
Rs.16,500 crore provided to ensure that the Public Sector Banks are able to
attain a min 8% Tier-I capital by March 31, 2011.

Government has introduced the Companies Bill, 2009 in the Parliament to
replace the existing Companies Act, 1956, which will address issues related to regulation in corporate sector. Provide Rs 201.5 billion capital infusion in state-run banks in 2011-12. Total expenditure in 2011-12 seen at Rs 12.58 trillion. To boost infrastructure growth with tax-free bonds of Rs 300 billion.
1% interest subvention on housing loan up to Rs.10 lakhs and the cost of the
house should not exceed Rs. 20 lakhs.
D). Guidelines for setting up foreign banks in India : To set up foreign banks in India, the foreign banks have to follow RBI guidelines to set up their units in India. The following guidelines are,
Foreign Banks will be permitted to either have branches or subsidiaries not both. Foreign banks regulated by banking supervisory authority in the home country and meeting Reserve Banks licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. A foreign bank may operate in India through only one of the three channels viz. (i) branch/es (ii) A wholly-owned subsidiary and (iii) A subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank. A foreign bank will be permitted to establish a wholly owned subsidiary either Through conversion of existing branches into a subsidiary or through a fresh Banking license.
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E). Basel Committee: The Basel committee established by the central bank governor of the group of ten countries at the end of 1974, meets regularly four times a year. It formulate broad supervisory standard guidelines and recommends statement of best practice in the expectation that individual authority will take necessary steps to implement them through detailed arrangements statutory or otherwise which are best suited to their own national systems. The company is best known for its international standard on capital adequacy. The first recommendation was known as Basel Accord I, suggested on 1988 and was implemented by 1992, it introduced the concept of minimum standards of capital adequacy. The committees are,
Basel committee on banking supervision. Basel committee on global financial system.

Basel committee on payments financial system
The markets committee.

The Irving fisher committee on central bank statistics.
Basel Committee on Banking Supervision aims to improve the quality of banking supervision worldwide through fostering regular co-operation on banking supervisory matters. The Committee also formulates broad supervisory standards and guidelines for regulators that do not carry any legal force.
Basel Accord II: In 1999 Basel Accord II was introduced and to be implemented by 2006 but unfortunately India could not implement till 2009. Basel II norms were introduced to overcome the drawbacks of Basel I Accord. Basel Accord II is to create an international standard that banking regulator can use while creating an regulation about how much capital that bank needs to guard against the type of financial and operational risk bank faces. It attempted to setting up risk and capital management requirements designed to ensure that bank must hold appropriate capital reserve to the risk that expose through its lending and investing practices.
Basel Accord III: Basel Accord III is a new global regulatory standard on bank capital adequacy and liquidity agreed by the member of the Basel Committee on banking supervision. Basel III strengthens the banking capital requirement and introduce new regulatory requirement on bank liquidity and bank leakage. The new leverage and liquidity ratios introduces a non risk based measure to supplement the risk based on minimum capital requirements and measure to ensure that adequate funding is maintained in form of crisis.
3.5.2. Economical factors: Economic factor has a major impact on how business operates and makes decision. Every year RBI declares its 6 monthly policy and accordingly the various measures and rates been implemented which has a changes on the banking sector. Changes in economic condition resulted change in policy to boost the economy. RBI policies regarding CRR, SLR, Repo Rate, and Reverse Repo Rate are used as a tool for economic development and to control inflation in the economy.
A).Monetary Policy : Monetary policy announced by RBI after every 45days and various rates like CRR, SLR, Repo Rate, Reverse Repo Rate been announced by the RBI governor to maintain stability and also to boost the economy. It resulted in changes in macroeconomic environment. Globally, the recovery in the advanced economies appears to be consolidating and expectations of growth during 2011. RBI monetary Policy had a greater impact on the country exchange rates and also on the capital market. One of the key indicators the concern monetary policy been prepared was inflation rate.
Bank Rate Statutory liquid ratio Cash reserve ratio Repo rate Reverse repo rate
- 6% - 24% - 6% - 6.5% - 5.5%
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B). Interest Rates: Reserve Bank of India control the interest rates based on several monetary policies. Recently India has been facing a problem of inflation at such scenario RBI in order to tighten money supply in the economy, they increase interest rate which make credit borrower costlier resulted reducing purchasing power of the consumer. The bank rate fixed by central bank to provide loan to commercial bank at a discounted rate was 6%.
C).GDP Growth Rate : GDP refers to total value of goods and services produced within a country in a year and it also s indicator of country standard of living. GDP growth rate refers to increase in value of final goods and services with in a country. The GDP in India expanded 8.20 percent in the fourth quarter of 2010. From 2004 until 2010, India's average quarterly GDP Growth was 8.40 percent reaching an historical high of 10.10 percent in September of 2006 and a record low of 5.50 percent in December of 2004. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labour force. Gross domestic product at factor cost indicates a growth of 8.6% in the year 2010-11. In the next fiscal year GDP is expected to be around 9 % plus or minus 0.25%.
Year 2010 2009 2008
Mar 8.60 5.80 8.50
Jun 8.90 6.00 7.80
Sep 8.90 8.60 7.50
Dec 8.20 6.50 6.10
Source: tradingeconomics.com: Indian central statistical organisation.
D).Inflation rate: Inflation represents a rise in general level of prices of goods and services over a period of time. It leads to erosion in the purchasing power of money results each unit of currency buys lesser unit of goods. The high inflation results due to high crude oil prices, high population results more demand for goods and services and increase in food items etc. Inflation rate in India has been reported at 9.3 per cent in January 2011. High inflation hampers the growth of the economy. Year 2011 2010 2009 2008 Jan 9.30 16.22 10.45 5.51 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
14.86 14.86 13.33 13.91 13.73 11.25 9.88 9.82 9.70 8.33 9.47 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 13.51 14.97 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45 9.70
Source: tradingeconomics.com: Indian Ministry of Labour
3.5.3. Social factors: Bank lend to the weaker section of the society at the reasonable rate of interest for their social and economic development. Government provide huge concession to certain sector like imposing less tax, subsidy etc, for the betterment of the economy which provides huge contribution in growth of the economy. Various Subsidy schemes been implemented in the union budget every year.
A).National Bank For Agricultural and Rural Development (NABARD) : NABARD was established on the recommendation of Shivaramann Committee, by an act of parliament on 12 July 1982 to implement the NABARD Act 1981. It is a premiere agency to provide credit in rural areas for the development of society. It is an apex institution handles various policies in the field of credit for agriculture and for other economic and developmental activities in rural areas. With an aim to achieve total financial inclusion by 2012, NABARD has introduced various schemes to support the capacity building needs of business correspondents and business facilitators of banks. Government of India has constituted an Advisory Board for the Financial Inclusion Fund and the Financial Inclusion Technology Fund, the mandate for which has been given to NABARD by the Union Government. The Reserve Bank in the process of finalising financial inclusion plans for commercial banks, NABARD has undertaken a similar exercise for Regional Rural Banks (RRBs) and Cooperative Banks. In the union budget 2011-12, Capitalisation of National Bank for Agriculture and Rural Development (NABARD) of Rs 30 billion in a phased manner and also Rs. 10000 crore been contributed to NABARD for short term rural credit. Certain programmes and schemes been implemented through the collaboration of banks are, Farmers Club Programme. SHG-Bank Linkage Scheme. Rajiv Gandhi Mahila Vikas Pariyojana. Priyadarshini Project. Adivasi Development Programmes. B).Education loan: Both the public and public sector banks play an important role in encouraging students from low income families and talented students to pursue higher education. Huge investment been
made by the government with the help of various schemes to increase literacy rate resulted in economic development of the economy. In the Budget 2011-12, allocation over education has been increased 24% over the current year. Schemes like Sarva Shiksha Abhiyan has been allocated Rs. 21000 crore 40% higher than the budget 2010-11. C).Rural Banking : In India nearly 66 Regional Rural Banks were operating in the economy, with the objective to provide credit for rural areas in the development of business for both Farm and Non Farm credit. The loan been provided by these banks at a concession rate and also small amount of loan been available for these people. It concentrated on weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, and small entrepreneurs. Interest subvention been proposed from 2 per cent to 3 per cent for providing short- term crop loans to farmers who repay their crop loan on time.
3.5.4. Technological Factor: The banking industry is undergoing a rapid transformation worldwide propelled by two major factors: global convergence and information technology. The Indian banking industry is undergoing a paradigm shift in scope, context, structure, functions and governance. This is the age of cards with rapidly growing upward in India being drawn by the plastic money. A).Automatic Teller Machine : It is an electronic machine, which allows the user to withdraw and lodge cash, pay bills, request statements and other banking transactions. The customer requires ATM card and ID No. to gain access to the machine. Some ATM cards are also debit cards, which can be used in shops and other markets. The banking transactions such as withdrawal of cash up to the daily limits, cash deposit, transfer of funds between accounts, check balances and request for statements etc. can be done through the ATM. As per RBI directions, a customer can use services of any other banks ATM without paying extra service charge from 1st April2009. B).Online Banking : Internet banking is changing the banking industry and is having the major effects on banking relationships. Banking is now no longer confined to the branches were one has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that it is the easiest way of providing banking services. C). Mobile Banking : Mobile banking is a way for the customer to perform banking actions on his or her cell phone or other mobile devices. A more involved type of mobile banking allows the user to log into his or her account from a cell phone, and then use the phone to make payments, check balances, transfer money between accounts, notify the bank of a lost or stolen credit
card, stop payment on a check, receive a new PIN, or view a monthly statement, among other transactions.
3.6.Business Diversification: Diversification in the banking sector has been emerged from a host of considerations. According to Rumelt (1974) diversification strategy as a firms "commitment to diversity per se, together with the strengths, skills or purpose that span this diversity, shown by the way in which business activities are related to one another. banking industry may adopt diversification route in the following forms, 1) Vertical or horizontal integration to create diversified financial group 2) Alliance diversification via joint ventures, tie-ups etc.
Private Sector Banks: In the recent scenario the private sector banks are highly diversified and they diversifying their business in certain sectors. Private banks like HDFC Bank, ICICI Bank, Indusind Bank, Kotak Mahindra Bank and ING Vysya Bank are categorized as banks that have followed BSD (Broad spectrum Diversification) and AD (Alliance Diversification) to expand their banking and non banking products and services. HDFC Bank: HDFC Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small and mid-sized corporate and agric-based businesses. The bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. ICICI Bank: ICICI Banks is India's second-largest bank in India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a varied delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, like life and non-life insurance, venture capital and asset management.
Axis Bank: Axis Bank has diversified his business in complete financial products. The bank has first private equity fund in infrastructure. Its asset management company, set up last year, will launch this fund. The bank has been doing debt financing for infrastructure and equity financing in infrastructure. Public Sector Bank: In respect of public sector banks in India, out of a total of 27 banks, certain banks are diversified and some are not diversified. In respect of technology also, public sector banks has improved and making all bank a computerised and make it interlinked to each other bank.
SBI Bank: State Bank of India has adopted both BSD (Broad spectrum diversification) move and NSD (Narrow spectrum diversification) and also alliance diversification. It has six banking subsidiaries and four non banking subsidiaries along with many foreign subsidiaries. SBI has entered a number of new businesses with strategic tie ups - Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale, Mergers and Acquisition, Advisory Services, Structured Products etc. Bank of Baroda: Bank of Baroda has adopted all the three moves for diversification. In NSD, it has one associate bank i.e., Nainital Bank and several subsidiaries dealing with banking and non banking business. It has diversified into areas of merchant banking, housing finance, credit cards and mutual funds as a move to become a one stop financial supermarket . Others: Banks like Canara bank, Central Bank of India, Corporation Bank, Allahabad bank have diversified through BSD move. Canara Bank has been expanding its market position to emerge as a major 'Financial Conglomerate' with nine subsidiaries/sponsored institutions/joint ventures in India and abroad. Andhra Bank entered Memorandum of understanding with Bank of Baroda and Legal and General Group of UK to form a joint venture life insurance company
3.7. MERGERS & ACQUISITIONS IN THE INDIAN BANKING SECTOR Mergers and acquisitions in India are on rise. Even the banking sector has been going for merger and acquisition with the banks all over the world. Indian banks are merging with some of renowned banks of the world. Indian banks are not only merging with international bank but it is also merging with Indian banks. The sole aim of merging one bank with another is for the purpose of expansion of services as well as diversification of business. The main motives of
conducting a merger and acquisition is to avoid the risk of internal start-ups of expansion. Some of the major benefits of merger are achieving diversification of product base. In todays scenario, globally mergers and acquisitions have become a major way of corporate restructuring and the financial services industry has also experienced merger waves leading to the emergence of very large banks and financial institutions. The key driving force for merger activity is severe competition among firms of the same industry which puts focus on economies of scale, cost efficiency, and profitability. The other factor behind bank mergers is the too big to fail principle followed by the authorities. The Government of India has adopted the route of mergers among others with a view to restructure the banking system. Many small and weak banks have been merged with other banks mainly to protect the interests of depositors. As far as banking sector is concerned following are the reasons of mergers and acquisition: 1. Growth with external affairs As with competition in banking sector has increased due to the liberalisation and hence there is a need for mega bank, which will be intensively competing for market share. 2. Deregulation- with liberalisation of entry barrier, almost all private banks came into existence. So deregulation has made merger and acquisition possible 3. Technology new bank comes up with new technology so the old bank who cannot compete in this technological advance area may decide to for the mergers with these high-tech banks. 4. Overcapacity- due to the overcapacity of work many public and private banks are not able to utilise their resources and capacity properly. So in order to utilise their capacities banks go for merger with bank which can handle all its services. 3.7.1.BANK MERGER IN THE PAST: Table 1: Bank Mergers in India
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NAME OF BANK Lakshmi Commercial Bank Bank of Cochin Miraj state Bank Hindustan Commercial Trader Bank United Industrial Bank New Bank of India Bank of Kharad Kasinath Seth Bank Bari Daob bank operative banks Times Bank Bank of Madura United western Bank Lord Krishna Bank Centurion bank of Punjab Bank of Rajasthan & co-
YEAR OF NO. OF MERGER BRANCHES MERGED WITH 1984 1984 1984 1985 1987 1989 1993 1994 1995 1997 1999 2000 2006 2007 2008 2010 230 108 26 140 34 145 591 48 11 17 57 263 230 112 394 Canara Bank State Bank of India Union Bank of India Punjab National bank Bank of Baroda Allahabad Bank Punjab National Bank Bank of India State Bank of India Oriental Bank Of Commerce HFFC ICICI IDBI Centurion Punjab HDFC ICICI bank of
Some of the new generation banks like HDFC Banks and ICICI Banks have started looking for external growth by the way of merger route. The criteria while selecting the Banks to be merged will be depended on market growth, market presence, and profitability and so on. It has said that Times Bank merger with HDFC Bank in 1999 is the beginning of new trend. HDFC Bank has emerged as the largest private sector bank in India after this merger. ICICI bank merged with Bank of Madura which has provided synergic benefits to the bank after this merger. ICICI bank has taken into the consideration two banks for merger i.e. Federal Bank and Bank of Madura and finally went for Madura, considering its better technological edge, attractive business per employee, and its vast branch network in southern India.
In the banking sector, important mergers and acquisitions in India in recent years are as follows: Bank of Baroda acquires South Gujarat Local area bank Ltd ( June 04)- South Gujarat Local area bank Ltd has been suffering from losses from long time and witnessing
significant decline in its capital and reserves. The decision about the merger was of the government of India in consultation with the RBI. Bank of Baroda was against the merger, and protested against the forced deal.
HDFC Bank Acquire Centurion Bank of Punjab (May 08) - This merger has provided HDFC bank with an opportunity to add scale, geography, and management bandwidth. The deal has created an entity with an asset size Rs. 119718 crore , providing massive scale economies and improved distribution with 1,148 branches and 2358 ATM ICICI acquired Bank of Madura in the year 2001. On 23 May ICICI Bank has made an announced that it would merge with Bank of Rajasthan through a share-swap in a noncash deal that values the Bank of Rajasthan at about 3,000 core IDBI Bank acquired United Western Bank in the year 2006. At the time of the merger with IDBI bank, United Western bank had some 230 branches spread over 47 districts in 9 states. IDBI with its own subsidiary: The merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). The commercial banking arm, IDBI Bank, was merged into IDBI. In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 percent
The merger between Centurion Bank and Bank of Punjab which took place in 2005 was worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of India.
Lord Krishna Bank Merger took place in the year 2006, between Lord Krishna Bank and Centurion Bank of Punjab. This merger helped9 both the bank to form a combined entity which will help in establishing a strong market presence in Kerala and Punjab.
Oriental bank of commerce Acquires Global Trust Bank Ltd ( August 04) - for oriental bank of commerce it was an apparent synergy post merger as the weakness of global trust bank had been bad asset and the strength of OBC lay in recovery. OBC gained from the 104 branches and 276 ATM of GTB in work force of 1400 employees and one billion customers.
Merger of State bank of India and State Bank of Saurashtra: SBS has 460 branches and the merger helped in eliminating the duplicate branches in the same areas. It increased the net profit from 45 percent to 87.4 crore in 2006-2007. The merger has helped the
SBI to consolidate its position as the countrys biggest bank and widen the gap with the private bank operating in country. Merger of State Bank of Saurashtra with SBI enables it to upscale it upscale in term of footprint, manpower and other resources.
ICICI Bank and Sangli bank merger : ICICI Bank leveraged on Sangli banks network of over 190branches and existing customer and employee base across urban and rural centres in its rollout of its rural and small enterprise banking . The merger supplemented ICICI Banks urban distribution network.
3.7.2. Cross Border Acquisitions by the Indian Banks:
ICICI acquired Investitsionno-Kreditny Bank (IKB) in the year 2005, a Russia bank with about US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in Moscow. ICICI renamed the bank ICICI Bank Eurasia
The State Bank of India (SBI) in the year 2005 acquired 51 per cent stake in the Indian Ocean International Bank of Mauritius for $8 million
3.8. INTERNATIONAL EXPOSURE In year 1991, the policy of liberalisation, privatisation and globalization has been introduced. This has changed the complete scenario of Indian economy. The policy of LPG has allowed the private banks to operate in country as well as foreign banks are allowed to set up the branches in the India. With the emergence of foreign banks in India it has brought the latest technology and latest products for the customer. Even Indian banks have merged with some of the major foreign banks in order to make the banking service in India more advance and easy for the customers. Foreign bank operating in the country, most of are actively engaged in increasing their profits and actively wooing high net worth client such as HSBC, CITI Bank, Morgan Stanley etc. At present Standard chartered, the largest foreign bank in India it has been operating in India with more than 100 branches spread all over the India. At present there are 30 foriegn banks operating in India such as HSBC bank CITI bank Morgan Stanley Standard chartered Royal bank of Scotland
Deutsche bank
3.8.1.INTERNATIONAL PRESENCE OF INDIAN BANKS 1. State Bank of India As of 31 December 2009, the bank had 151 overseas offices spread over 32 countries. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Tehran, Johannesburg, London, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town ADB in Boston USA. SBI operates several foreign subsidiaries or affiliates. In 1990, it established an offshore bank: State Bank of India (Mauritius). In 1982, the bank established a subsidiary, State Bank of India (California), which now has nine branches - eight branches in the state of California and one in Washington, D.C. The 9th branch was opened in Tustin, California on 7th March, 2011. The other seven branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park, Fresno, San Diego and Bakersfield. The Canadian subsidiary, State Bank of India (Canada) also dates to 1982. It has seven branches, four in the Toronto area and three in British Columbia. In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian Merchant Bank and received permission in 2002 to commence retail banking. It now has five branches in Nigeria. In Nepal, SBI owns 50% of Nepal SBI Bank, which has branches throughout the country. In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia, it owns 76% of PT Bank Indo Monex. The State Bank of India already has a branch in Shanghai and plans to open one in Tianjin. In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired for US$8 million in October 2005.
2. ICICI Bank In 2003, ICICI Bank has opened its first subsidiary in Canada and the United Kingdom (UK), and in the United Kingdom it has established an alliance with Lloyds TSB. ICICI has opened
an Offshore Banking Unit (OBU) in Singapore and followed by representative offices in Dubai and Shanghai. In the year 2004, ICICI has opened a representative branch in Bangladesh to tap the extensive trade between the two countries. Also, ICIC bank was the first Indian bank to establish a branch in Dubai International Financial Centre and in Hong Kong. In 2006, ICICI Bank UK opened a small branch in Antwerp, in Belgium. ICICI Bank also set up a representative offices in Bangkok, Jakarta, and Kuala Lumpur. With respect to the international sphere, ICICI Banks has also received permission from the government of Qatar to open a branch in Doha. Also, ICICI Bank Eurasia has also opened a second branch in St. Petersburg. In 2008, The US Federal Reserve permitted ICICI to convert its representative office in New York into a branch. ICICI also set up branch in Frankfurt.
3. HDFC Bank In 2008, HDFC Bank has opened its first overseas full-fledged branch in Bahrain with a 25member strong staff. The branch offers cash management and trade finance solutions to corporate clients and wealth management services for NRIs.
4. Bank of Baroda Bank of Baroda is one of most prominent public sector of India which has a significant international presence with a network of 72 offices in 25 countries, six subsidiaries, and four representative offices.
Among the Bank of Barodas 42 overseas branches, some of them are located in the worlds major financial centres (e.g., London, New York, Kong, Dubai Brussels and Singapore), as well as a number in other countries. The bank of Baroda is engaged in retail banking via 17 branches of subsidiaries in Botswana, Guyana, Kenya, Tanzania, and Uganda. The Bank of Baroda also entered into joint-venture with a bank in Zambia with nine branches. The Bank of Baroda has maintained its representative offices in Malaysia, China, Thailand, and Australia. Even the authorities are planning to upgrade its offices in China and Malaysia shortly to a branch and joint-venture, respectively. The Bank of Baroda has received the approval from host country regulators to open new branches in Trinidad and Tobago and Ghana, where it seeks to establish joint ventures or subsidiaries. The bank has received approval from Reserve Bank of India to open branches in the Maldives, and New Zealand. It is also trying to get approval from regulatory authority for starting their in operations in Bahrain, South Africa, Kuwait, Mozambique, and Qatar and is establishing offices in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. Bank of Baroda is planning to extend its existing operations in the United Kingdom, the United Arab Emirates, and Botswana.
5. IDBI Bank: IDBI Bank has opened its first International branch at the Dubai International Financial Centre (DIFC) in June 2006; bank will be providing corporate banking services, including financial advisory and syndication of credit. The DIFC branch will be serving as IDBI Bank's nodal point for raising foreign currency resources from the US and European markets in addition to the Asian markets 3.9 Technology intensity (R & D and technology): Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive changes has led to increasing importance of total banking automation in the Indian Banking Industry. Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. In view of this, technology has changed the contours of three major functions performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further, Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets. The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s saw the plummeting hardware prices a nd advent of cheap and inexpensive but high-powered PCs and servers and banks went in for what was called Total Branch Automation (TBA) Packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation, globalisation etc coupled with rapid revolution in communication technologies and evolution of novel concept of 'convergence' of computer and communication technologies, like Internet, mobile / cell phones etc. In India, banks as well as other financial entities entered the world of information technology with the advent of Indian Financial Net (INFINET) which is a wide area satellite based network (WAN) using VSAT (Very Small Aperture Terminals) technology, jointly set up by the Reserve Bank of India and Institute for Development and Research in Banking Technology (IDBRT) in June 1999. With the evolving technology certain areas in which information technology can be employed are:

Automated processing of back-office operations like processing of forms, policy customization and product selection, pricing and preparation of quotations, etc. Computer assisted telephone and intelligent voice processing for customer call handling, new business marketing or handling after office hours enquirer.
Image processing for documents storage and retrieval, folder management (or all documents related to a customer), and work flow management for the movement of documents with the bank. Artificial intelligence and expert systems for complex decision-making like the appraisal of the creditworthiness of clients, designing of innovative instruments and strategy formulation. Relational Database Management System (RDBMS) for the systematic use of information which would facilitate the cross-selling of products. Electronic Data Interchange (EDI) for company-wise communication and interconnection of systems for the benefit of both the banks MIS and the customer. Office Management Systems for accounting and administrative support.
Some of these technologies has already taken form and are playing a major role in the operation in the banking sector. Some of them are listed below: 3.9.1). INTERNET BANKING: With the mode of communication and interaction changing at a fast pace, the introduction of Internet Banking has transformed the traditional mode of operation in banks. Customers find it easier and time saving banking through internet. It is no longer bounded to PCs, but more and more customers are banking through mobile devices bringing in more customers to the bank and more feasibility to the users. 3.9.2) SFMS (Structured Financial Messaging Solution): The need for a secure and common messaging solution that would serve as the basic platform for intra-bank and inter-bank applications, and would fulfil the requirements of domestic financial messaging, gave birth to the Structured Financial Messaging Solution (SFMS). The SFMS was launched on December 14, 2001, at the IDRBT. The SFMS is built on the lines of SWIFT but has many more utilities to offer. The major advantage of SFMS is that it can be used practically for all purposes of secure communication within the bank and between banks. The intra-bank part of SFMS, which is most important, can be used by the banks to take full advantage of the secure messaging facility it provides. The inter-bank messaging part is useful for applications like Electronic Funds Transfer (EFT), Real Time Gross Settlement System (RTGS), Delivery Versus Payments (DVP), Centralised Funds Management System (CFMS) etc. The SFMS provides easy to use Application Program Interfaces (APIs), which can be used to integrate all existing and future applications with the SFMS. The Banks can develop comprehensive and efficient tools and applications and integrate them easily with SFMS for use on the Corporate Intranet. Banks can link all their important, high volume branches, irrespective of their category to the SFMS through appropriate connectivity like PSTN/ISDN or Leased Lines. Moreover, use of SFMS is not restricted only to computerised or partially computerised branches. Hence, with the innovation and usage of technology, the competition scenario in the banking sector is tremendous thereby enhancing the services which lead to more and more satisfaction for the customers.
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3.10.Marketing Initiatives: The Role of marketing in the banking industry continues to change. For many years the primary focus of bank marketing was public relations. Then the focus shifted to advertising and sales promotion. That was followed by focus on the development of a sales culture. The nationalized banks must face competition from private banks, non-banking financial institutions, foreign banks and others. The competition is in the fields of deposits and credits, foreign trade, consumer credit and miscellaneous banking activities. The competition will benefit customers and force the banking system to raise its productivity, minimize expenses, and remain sensitive to evolving issues. Narasimham Committee Reports while recommending internal autonomy along with compliance with prudential norms suggested rule-based credit policies, fiscal balance and a gradual movement towards liberalization. To deal with the competition from foreign banks, the Indian banks should go in for diversification and extension of services as well as expansion of products and business. BANK MARKETING We define bank marketing as follows: Bank marketing is the aggregate of functions, directed at providing services to satisfy customers financial (and other related) needs and wants, more effectively and efficiently that the competitors keeping in view the organizational objectives of the bank. Bank marketing activity. This aggregate of functions is the sum total of all individual activities consisting of an integrated effort to discover, create, arouse and satisfy customer needs. This means, without exception, that each individual working in the bank is a marketing person who contributes to the total satisfaction to customers and the bank should ultimately develop customer orientation among all the personnel of the bank. Keeping the above factors in mind the private sector bank have been quite successful in adopting marketing strategy for competing against major players. Now that competition is high, the public sectors bank is adopting marketing tools to redefine themselves and win their share of bread. Here are some of the marketing initiatives adopted by some major players: 1. SBI( State Bank of India): With the increasing and aggressive competition from the private sector banks, SBI the countrys biggest public sector commercial bank adopted certain marketing strategies in order to gain back the market share which they were losing to new competitors. One among them being to appoint a global consultant to frame a modern marketing strategy for its products and, appointing a new marketing division out of the officers and award staffs with good communication and public relation skills. SBI primarily focused on their in-house potential as they had a number of officers and staff who were celebrities for their sports background. Those officers were specially deployed in the marketing division, so that their public image can be effectively utilised in marketing the products
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2. HDFC: From doing cross-selling exercises to organising school-level painting competitions, promotional activities are going to be the main focus of HDFC Bank's marketing strategy this year. The bank also tied up with Business Today, to sponsor 10,000 copies of the magazine in each metro. The cover of the sponsored copies was issued as December 2003 copies of Business Today, which rated HDFC Bank as the best bank in the country. On the opposite side, would be an advertorial which would talk about HDFC as a `one-stop financial supermarket'. These copies would be circulated among top corporate and our highprofile customers.
3. ICICI : The country's largest private sector lender, ICICI Bank, carried out a unique campaign on rural marketing, Kamdhenu. The Kamdhenu campaign, unique high-impact marketing and sales campaign through a short-film on the cattle loan, ran for 150-days across five states, touching around 10,000 potential customers with an objective to promote rural marketing. In this the bank inspiration to cover the unexposed market through marketing can be well seen.From the above examples it can well be found out how marketing has created a competitive scenario among the major players and resulted in a number of services being provided by the banks which ultimately led to customer satisfaction and a growing market.
3.11. FUTURE OUTLOOK OF BANKING SECTOR IN INDIA
The economy seems to be bullish and as expected the monetary policy is going to be even tighter. Inflation rate is hiking decreasing the purchasing power of people. Share market seems to be bullish (share price of the banks).
Public Banks31st july,2007 SBI 1623.85 Canara 261.75 Bank PNB 515.10 Name 31st july,2008 1417.25 182.70 451.75 31th july,2009 1811.65 285.90 690.25 31th july,2010 2502.09 479.05 1070.45 31th jan,2011 2642.40 602.90 1104.45 28th feb,2011 2630.45 614.15 1062.00
Private BanksName ICICI Axis Bank HDFC 31th july,2007 927.45 625.90 1200.60 31th july.2008 637.30 653.90 1098.15 31th july,2009 758.50 917.15 1499.10 31th july.2010 904.90 1343.45 2126.90 31th jan,2011 1021.60 1242.20 2047.30 28th feb,2011 970.85 1218.55 2052.25
The future prospects can be in different arms of banking industry including rural banking, bank assurance, mobile banking, financial cards, pension funds future course of action, and strategy role of technology in rural banking. Sales and distribution driven by innovation-There is lot to be explored in rural sector and much to be done in rural areas. Since banks are getting globalised they have to come up with efficient distribution and accessibility. They can make innovation in field of distribution of their services and have edge over it. The banks should utilise all the recent development made in terms of technology. Overall funding and liquidity practices are to be strengthened On technology the best banks in India are among the most efficient in the world. The overall performance is measured in terms of 5 dimension- Corporate leadership and performance, marketing and sales, distribution efficiency, processing efficiency, and credit policies and skills. The Central Bank of India that is, RBI is ready to start up with a working committee which is for the regulation of non-banking financial companies. This committee as a regulatory authority will be handling emerging-issues and also the range of issues arising in regulation of the Non-Banking Financial Company sector. According to a press release Usha Thorat, former RBI
deputy governor will head this committee. Presently Usha Thorat is serving as director of Centre for Advanced Financial Research and Learning (CAFRAL). Since the recession of 2008-09 it was India among the 1st few countries to come out of this depression and this factor can be attributed to the savings habit of the people of India. Governor of RBI Mr. Subbarao said that Indian banks should increase the interest rate on deposits so as to encourage savings among its customers and to increase the money supply in market banks should offer loans at cheaper interest rates. Also according to the press release, the Governor focused on achieving double digit growth which mandates the country people to save more so that they can invest more. To encourage savings banks should hike the interest rate for savings and fixed deposits. There is a positive sign for public sector bank in term of recapitalization by the Union budget 2011-12. The public sector banks are being provided with a capital infusion of Rs. 6000cr as proposed by the Finance Minister to maintain Tier-1 capital to CRAR at 8%. There is raise in the target of credit flow to farmers to Rs. 475000cr in fiscal year 2011-12nas against of Rs. 375000cr in fiscal year 2010-11. NPAs of PSBs will increase as a result of this move. More banking licence is to be provided to private players and NBFCs this fiscal year as the legislative amendments in this regard and RBI will be providing the guidelines for the issue of the licence to private players and NBFCs. The State Bank of India is planning to acquire an Indonesian bank as a part of its expansion plan. In fact, 2-3 banks have been identified by SBI which can be acquired and the acquisition deal of the bank may amount to about $100 millions. The management are not ready to exceed the payment of $100 million as the expansion of its branch is not feasible for the bank in near future. Banks can come up with the introduction of National Pension System which should be online for easy access to its customer. This will give a huge boost to pension product with a wide range of choices and fund managers. The future outlook of Indian bank, in short, is Consolidation, Convergence, and Technology. There will be small number of big banks rather than large number of small banks. Globalization of the Indian economy is providing the opportunities for both ways cross border operation and also the providing Indian Banks the opportunity of acquisition of foreign banks and creating footprints globally. The success of banking system will lie in focus, efficient execution and flexibility.
3.12.COMPARISON BETWEEN INDIAN AND US BANKSUS banking system are largest in the world but small in comparison to its economy. US banks are controlled by both state and federal government. The short term liabilities of the banking sector in US as during October was 15% of the GDP or 43% of its national debt. The average leverage ratio of the bank was 12 is to 1.
The top 3 private bank of US areJP Morgan (deposits- $1009 billion) Bank of America (deposits- $884) Wells Fargo (deposits-$785) United States banks are distinguished into private banks, National banks and State banks. The role of National bank has the same role as the Central Bank of India and is partly regulated by the federal government. Private Banks work on the free banking principle. US banks provide online easy loan services which is speedy and free of cost. Where most of the countrys banking system (including India) is controlled by one bank, in US banking system is controlled at both federal and state level. In US the bank regulatory agencies are separated from insurance regulatory agency, commodities and securities.
Taking an example from recession, US banks were collapsed with heavy backlog of bad mortgage loans and massive defaults in credit card payments whereas our strict settings in terms of banking system helped it survive from this crisis. The strict regulation in India by RBI not present in US are
Lending by banks in India is based on individuals earning, where the bank studies in depth about the individuals expenditure and income before sanctioning of any kind of loan. 70 % of banks in India are nationalised. RBI issues market schemes related to market stabilization and bonds and absorbed dollars. In case, overseas investors for example can suck out the dollars by selling shares as there is no shortage of dollars to sell to them and there will not be any liquidity shortage because of RBI can buy back the bonds and pump back rupees into the market. There is mandatory down payment on mortgage of loan generally 15%-20%. Banks are insisted by the RBI to keep capital ratios in the range of 11%-13%. Banks keep 7.5 % of their deposits in cash and 25% of their deposits in government bonds as made mandatory by RBI. Business structure like securitization and collateralized debt obligation are not focused by the Indian banks. Y V Reddy, the former RBI governor made it sure that there is no Indian banks getting caught up in bubble mentality. The Indians mentality towards credit card is bit on a negative side. Indians are not comfortable with credit cards. Indian joint family system of borrowing money from each
other in times of crises rather than borrowing from banks is also one of the factors which helped Indian economy to revive from recession. These are the reasons for the financial stability in India of banking system.
3.12.1.COMPARISON WITH CHINA In spite of banks being autonomous, banks are under the control of government. The central bank of China the Peoples Bank of China, which acts as the supervisory body. As reported by the central bank non performing loans accounted for 21.4% to 26.1% of the total lending of Chinas 4 big banks in 2002. Four Asset Management Companies were formed to transfer the non performing assets from the banks and also AMC have planned to repackage non performing loans into viable assets and selling them off to the investors. China Minsheng Bank is the only private bank of China. PBOC decided to decontrol the interest rates as with the intention to regulate price mechanism of the deposits and lending rates based on market supply and demand. Presently, there are 34 categories of interest rate which is under PBOC control. The full liberalization of interest rates on other deposits accounts that includes of checking and savings accounts, will take time. Whereas on lending side, rural areas will be the first to be introduced with market determined interest rates on loans and then will be followed by rate liberalization in urban areas. Bank of China in terms of size ranks 11th in the world whereas SBI also occupies the same rank in Asia but worldwide SBI position is 93 rd. Bank of China in terms of assets base is four and a half times bigger than SBI and according to Tier 1 capital Bank of China, which is again a parameter to measure a banks size, is bigger than SBI.
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CHAPTER 4 CONCLUSION
CONCLUSION: The face of banking is changing rapidly. Competition is going to be tough and with financial liberalization under the WTO, banks in India will have to benchmark themselves against the best in the world. For a strong and resilient banking and financial system, therefore, banks need to go beyond terminal issues and tackle significant issues like improvements in profitability, efficiency and technology, while achieving economies of scale through consolidation and exploring available cost-effective solutions. These are some of the issues that need to be addressed if banks are to succeed, not just survive, in the changing scenario.
The banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. The countrys economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the exported growth of other Asian economies, with emphasis on self-reliance through import substitution. As we explained in this document, we think that the improvement of the governance of banks will probably solve a significant number of problems:

Refinement of risk management Adapt service offering to customer target Improve operational efficiency, etc.
Integrating all these components in the global strategy of banks should help to achieve the ultimate goal, i.e. creation of a sustainable competitive advantage. Therefore, due to the significant fall in stock prices of banks, this crisis can been seen as an interesting opportunity for investors who are ready to change and redesign the Banking Sector This banking system project will serve as a useful approach to data base dialog box to deposit and withdraw the money for the person. It serves as a helpful approach for the users. It provides easy way of the deposit and withdraws the money. It reduces the time taken by the user to save the money. Thus the project is the user friendly approach.
BIBLIOGRAPHY
T.T. Rammohan, Economical and political weekly, 38, 8 (February 22, 2003) long run performance of public and private sector bank stock in India Dr. Suresh Chandra Bihari, PMR (JULY-DEC 2010) Banking on Mergers: The story up to ICICI Bank Merger with Bank of Rajasthan
Reserve Bank of India. (2010). Report on Trend and Progress of Banking in India 2009-10. Mumbai: Mohua Roy. A.K. Puwar (2003), Annual capital market review McKinsey& Company. (2010). Indian Banking 2010 Towards a high performing sector. Dr. Sayuri Sirai (2002).Impact of Foreign presence on domestic Indian market Duvvuri Subbarao (2009) Impact of global financial crises on India collateral damage and responses Chartered financial analyst (Feb. 2010) Indian banking sector 2010: Opportunity and challenges Dr. Sampatkumar (Business line December 2009)private sector banks growing faster than industry Reserve bank of India bulletin (2004) Ownership and governance in private sector banks in India 2004: Rakesh mohan Sangeet vohra (2009) FDI in private banks - level the playing field Narasimham committee report (1998)
http://www.assocham.org/policies/budget/Highlights-Union-Budget-2011-12.pdf http://www.indianexpress.com/news/201112-union-budget-highlights/755843/0 http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=INR
http://www.rbi.org.in/home.aspx http://www.bis.org/bcbs/history.htm.
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TABLE OF CONTENTS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

1.1 INTRODUCTION TO BANKING SECTOR

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

CHAPTER 3 INDUSTRY ANALYSIS

3.1 FUNCTIONS OF INDIAN BANKING SECTOR

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3.3. Market Segmentation- Demographics of buyers:

A STUDY ON BANKING SECTOR IN INDIA

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o Higher-class customers are generally complicated one, selective in choosing the

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

o Manufacturing industry o Trading industry o Service industry

Life-cycle of the company:

o Start-up Company o Growing company o Mature company

o Domestic market o Export market.

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

2. High market growth rate:

3. Homogeneous product and services:

4. Low switching cost:

6. High exit barriers:

7. Low government regulations:

2. RBI rules and regulations:

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

public. It is less risky and more secured as

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Market share of Public Sector Banks:

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Punjab National Bank- 6.85% SBI- 23.5% CANARA Bank- 6.03%

MARK S ET HARE OF PUBLIC S OR BANKS ECT

6.85% PNB SBI CANARA BANK

Figure 1: Market Share of Public Sector Banks.

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

Figure 2: Market Share on Private Sector Banks.

3.5 PEST Analysis:

A STUDY ON BANKING SECTOR IN INDIA

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Overseas investment limit has been liberalized.

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attain a min 8% Tier-I capital by March 31, 2011.

house should not exceed Rs. 20 lakhs.

A STUDY ON BANKING SECTOR IN INDIA

ALLIANCE UNIVERSITY, SCHOOL OF BUSINESS

Basel committee on banking supervision. Basel committee on global financial system.