Banking – Prepared by C.

Subramanian

Industry Overview
Banks around the world continued to produce record profits and
increased profitability for the fourth successive year in 2006, which proved to
be a good year for the world economy and a bumper year for banks, with
significantly improved growth in all key banking indicators.
IT Spending
The U.S. banking industry is expected to spend $60 billion on IT in 2007, a 5
percent increase over spending last year. Channels for delivering service will
continue to grab the largest share of IT spending, while back office functions
will be the fastest growing area. IT spending on retail and wholesale products
will remain balanced and grow at a slower rate throughout the forecast
period.

Market Overview:
Global
 The aggregate level of bank profitability in the 2007 Top 1000 world banks
continues its upward march, reaching a record 23.4%, up on last year’s 22.7%.
 Aggregate pre-tax profits rose a stunning 21.7% after slowing to 18.6% last
year, reaching a mammoth $786.3bn.
 Growth in Tier 1 capital and assets in the 2007 Top 1000 world banks was
substantial at 18.3% and 16.3% respectively, with aggregate volumes of
$3365.1bn and $74,232.2bn respectively.
 Emerging markets are achieving extremely high lending growth: the four big
state-owned Chinese banks grew their total assets by 27.4%.
 US banks are losing their grip on the rankings in terms of numbers and their
proportion of aggregate totals is slipping but they remain the bulwark of the
Top 1000.
 The EU27 provides the biggest regional grouping in the listing with 279 banks,
and their proportions of all the key indicators are growing.
 Two Chinese banks are now within striking distance of the six ruling titans of
the Top 1000 listing.
 The Top 25 banks by Tier 1 capital in the listing have 42.8% of aggregate
assets and 40.8% of aggregate profit

E7 Economies
 China, India, Brazil, Russia, Mexico, Indonesia and Turkey forms the E7
economies.
 By 2050,it is estimated that the E7 economies could be larger than the current
G7 by
between 25% and 75%, depending on the measure used.
  Over time, the banking sector is going to grow significantly faster than GDP in
these emerging economies as they develop.
 Total domestic credit in the E7 economies is likely to overtake total domestic
credit
in the G7 economies within the next 40 years;
 Total domestic credit in China is likely to overtake the UK and Germany by
2010, Japan by around 2020 and the US by 2045;
 India is likely to emerge as the third largest domestic banking market in the
world by 2040 and could grow faster than China in the long run;
 Brazil, Indonesia, Mexico, Russia and Turkey all have the potential to develop
banking sectors of comparable scale to major European economies such as
France and Italy before 2050;
 Many E7 economies already have relatively profitable banking sectors, and our
estimates suggest that total profits from domestic banking in the E7 will be
around half those in the G7 by 2025 and larger than in the G7 before 2050;

India
 The nationalized banks have more branches than any other types of banks in
India. Now there are about 33,627 Branches in India, as on March 2005.
 Investments of scheduled commercial banks (SCBs) also saw an increase from
Rs 8,04,199 crore in March 2005 to Rs 8,43,081 crore in the same month of
2006.
 India's retail-banking assets are expected to grow at the rate of 18% a year
over the next four years (2006-2010).
 Retail loan to drive the growth of retail banking in future.
 Housing loan account for major chunk of retail loan.

Growth:
 The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crore.
 That will form about 65 per cent of GDP at current market prices as compared
to 67 per cent in 2002-03.
 Banks assets are expected to grow at an annual composite rate of growth of
13.4 per cent during the rest of the decade against 16.7 per cent between
1994-95 and 2002-03.
 On the liability side, there is likely to be large additions to capital base and
reserves. As the reliance on borrowed funds increases, the pace of deposit
growth may slow down.
 On the asset side, the pace of growth in both advances and investments is
forecast to weaken.

UAE

Growth and Outlook

In broad terms, the UAE’s banks are well managed, and effectively supervised. The
sector is also enjoying strong growth in assets and profitability.
  Led by robust growth in deposits and credit, the overall size of banks’ balance
sheets increased by 40 percent to $166 billion in 2005. While profits more than
doubled to $5.1 billion.
 The stock of nonperforming loans rose by 2.4 percent in 2005, but reflecting
strong credit growth, the ratio of NPLs to total loans declined to 8.3 percent
from 12.5 percent in 2004. Including other provisions, the NPL ratio was under
2 percent.
 While most of the major players appear well provisioned against various risks,
the level of exposure of some of the smaller institutions to the real estate and
equity markets warrants ongoing assessment.
 Over the past five years most banks have strengthened their balance sheets,
and many of them have earned ratings upgrades. The increasing focus on retail
banking, including Islamic banking, should help to deepen franchises.
 Improvements to risk management practices will depend partly on the
adoption of Basel II recommendations for capital adequacy and risk
categorization.

Key Challenges

 Lack of a functioning Credit Bureau

 Compliance and Regulatory
 Talent Pool/ Employee Retention / Client Engagement
 Service Standards
 Consumer Rights / Protection/ Disclosures
 Too much Generalization, Too little Specialization
 Short Term Gains Over Long Term Wins

Major Commercial banks

Global India Singapore UAE

 Citigroup  State Bank of  Bank of Singapore  Abu Dhabi
 UBS India Limited Commercial
 Industrial  Bank of  DBS Bank Limited Bank
and Baroda  Oversea-Chinese  National Bank of
commercial  Canara Bank Banking Abu Dhabi
bank of  Corporation Corporation Limited  National Bank of
China Bank  United Overseas Dubai
 Mitsubishi  Indian Bank Bank Limited  Abu Dhabi
UFJ Financial  Indian  ABN AMRO Investment
Group Overseas Bank  Citibank Singapore Authority
 Banco do  UTI Bank  Hongkong and  Emirates Bank
Brasil  HDFC Bank Shanghai Banking International
 Bank Leumi  ICICI Bank Corporation  MashreqBank
le-Israel  IDBI Bank  Standard Chartered  First Gulf Bank
 Standard  Kotak Bank  Habib Bank
Bank Group Mahindra Bank  United Bank
 Sber bank  Bank of India  RAKBank
 Banca March  Commercial
 National Bank of Dubai
bank of
Pakistan
References

http://www.thebanker.com/news/fullstory.php/aid/5050/TOP_1OOO__World_Banks_O7
.html
Presentation by Rahul Maharsihi in our college guest lecture on june 28 2007
http://www.techweb.com/wire/26802347
http://www.researchandmarkets.com/reportinfo.asp?report_id=338110
http://www.thehindubusinessline.com/2004/01/23/stories/2004012300110900.htm
http://www.pwc.com/extweb/pwcpublications.nsf/docid/0055C76FD87E959A852572
F7005E1E7D