Banking Industry In India

Presented by: Group 6_Sec B

Banking as a Whole
Types and Functions

Commercial
Banking

Retail
Financial
Services

Investment
Bank

Divisions

Asset
and
wealth
Management

Treasury and
Securities
Services

Card
Services

Functions of Bank
Accepting deposits from Public
Lending money to public
Remittances/Collection Business
Keeping valuables in safe custody
Government business
Acting as trustee
Treasury services
Capital Market activity

History of Banking in India

The reminisce of banking in India can be traced back to the 4th

century BC in the 'Kautilya Arthashastra.

However the real roots of commercial banking in India can be traced

back to the early eighteenth century.

Bank of Hindustan was set up in 1870,it was the earliest Indian Bank.

Later, three presidency banks under Presidency Bank's act 1876 i.e.
Bank of Calcutta, Bank of Bombay and Bank of Madras were set up,
which laid foundation for modern banking in India
In 1921, all presidency banks were amalgamated to form the Imperial
Bank of India.

The first bank which was exclusively set up by Indians was Allahabad Bank, followed by
Punjab National Bank Ltd. set up in 1895 with headquarters at Lahore

The Reserve Bank of India was established on April 1, 1935 to control & regulate these
banks in accordance with the provisions of the Reserve Bank of India Act, 1934.

In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State
Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile
princely states, making them as its 100% subsidiaries.

The plan for nationalization was passed in1968. Thus forming the third turning point in the
history of Indian Banking in India.

The Narasimha Committee report suggested wide ranging reforms for the banking sector in
1992 to introduce internationally accepted banking practices. The amendment of Banking
Regulation Act in 1993 saw the entry of new private sector banks. private sector banks.

Who Regulates the Financial Sector in India?

Ministry of Finance
Controls and assists the financial sector
Every year the finance minister announces the budget
Also acts as the policy maker and regulates the financial sector

Reserve Bank of India

Apex Financial Institution of India, established in April 1935
Advises the central board on various matters
Acts as the investment banker to the Government

Securities and Exchange Board of India

Regulator of securities market in India
Protects the interest of investors in securities
Also regulates the development of securities market

Insurance Regulatory and Development Authority

An agency of the Government, based in Hyderabad
It works on the guidelines of IRDA Act, 1999
Safeguards the interest of the common man

Banking Structure in India

Indian Financial System Share by Asset

Size - 2013

Indian Banking System Share by

Asset Size - 2013

Segment

Market Share of
Financial Assets
(%)

Institutions

Market Share of
Banking Assets
(%)

Banks

63

92.4

Insurance
Companies

19

Scheduled
Commercial Banks
Public Sector Banks

67.2

Non-Banking
Financial Institutions

Private Sector Banks

18.7

Foreign Banks

6.5

Mutual Funds

Provident and
Pension Funds

Regional Rural Bank

2.7

Co-operative Banks

3.4

Local Area Banks

1.5

Banks dominate the Indian Financial System

The Banking System is dominated by Commercial

Banks

Share in the Banking Space

Type of Banks

Number of
Banks

Number of
Branches

%age Share of
Number of Branches

Market Share of
Assets (%)

Public Sector

26

67,466

83.0

72.8

Private Sector

20

13,452

16.6

20.2

Foreign Banks

41

323

0.4

7.0

Total

87

81,241

100.0

100.0

Public sector banks have more presence relative to their share of assets.

Analysis of the previous Data

Within the banking system, public sector banks (PSB) continue to dominate
with 73% of market share of assets and 83% of branches.
Rural and urban co-operatives banks have a relatively small share in the
banking system. However, given their geographic and demographic outreach,
they play a key role in providing access to financial services to low and middle
income households in both rural and urban areas.
Similarly, RRBs play a key role in promoting financial inclusion. The
Government is pursuing branch expansion and capital infusion plans for the
RRBs.

Types of Banks
Central Bank (RBI)

Non Banking Finance

Companies (NBFCs)

Commercial Banks

Public
Sector
E.g.
SBI
PNB
BOB

Private
Sector

Foreign

E.g.
HDFC Bank
UTI Bank
ICICI Bank

E.g.
Citibank
ABN Amro
HSBC

State/Central

Cooperative
Banks

Term Financial
Institutions

Regional
Rural Banks

State Finance
Corporations (SFCs)

Indian Financial
Institutions
E.g.
IFCI
NABARD
SIDBI

Private

Primary Credit
Societies

Business Division

Loans to
individuals (Auto
loan, housing
loan, Education
Loan and other
personal loan) or
small businesses

Retail
Banking

Loans to Mid and

Large corporate
(Working Capital
loans, Project
finance, Term
loans, Lease
Finance)

Wholesale
Banking

Investment in
Equity,
Derivatives,
Commodities,
Mutual funds,
Bonds, Trading
and Forex
operations
Treasury

Operations

Merchant
Banking, Leasing
Business, Hire
purchase,
Syndication
services etc.

Other
Banking
Businesses

Retail Banking

2Wholesale Banking

3 Treasury Banking

Loan Products
Auto Loan
Gold Loan
House Loan
Credit cards
Education Loan
Loan against Securities
Retail Banking
Business
Commercial Banking
Term Loan
Guarantees
Bill Collection
Letter of Credit
Working Capital
Forex & Derivatives
Wholesale Deposits
Product Segment
Equities
Derivatives
Capital Market
Debt Securities
Foreign Exchange

Deposit Products
Deposits
Saving Accounts
Current Accounts
Fixed / Recurring
Corporate Salary A/C

Transaction Banking
Cash Management
Custodian Services
Clearing Bank Services
Tax Collections
Banker to Public Issues
Commodities(Inc Hedging)

Other Products/Services
NRI services
POS Terminals
Private Banking
Demat Services
Mutual Fund Sales
Foreign Exchange
Services
Key Segment
Large Corporate
Emerging Corporate
Financial Institutions
Government/PSUs
Agriculture Commodities

Other Financing
Cash Management
Statutory Reserve
Financial Decisions
Asset Liability Management

Expansion of banks since Nationalization

Year

1969

1991

2007

2013

No of Commercial Banks
(Incl. RRBs and LABs)

73

272

182

173

No of Bank Offices

8,262

60,570

74,563

1,01,261

5,172

46,550

47,179

62,061

Population per office

64,000

14,000

15,000

13,000

Per capita Deposit of

Scheduled Commercial
Banks

88/-

2,368/-

23,382/-

51,106/-

Per capita Credit of SCBs

68/-

1,434/-

17,541/-

39,909/-

(of which Rural and

Semi-urban bank office)

Analysis of Previous Data

Since nationalization of 14 major commercial banks in 1969, followed by
nationalization of another 6 banks in 1980, Indian banking system has
expanded rapidly.
The number of bank offices increased from about 8,000 in 1969 to over
100,000 by 2013.
The average population per branch office has sharply declined from 64,000 in
1969 to 13,000 today.
Both per capita deposit and per capita credit have expanded about 600 times.
Even accounting for inflation, this is significant expansion.

Operation and Performance

of Commercial Banks (KPIs)

BSE Bankex Performance

40000

35000

30000

25000

Value of Index

20000

Sensex
Bankex

15000

10000

5000

Bank Credit Growth Compared with Economic

and Banking aggregates

Growth in Balance Sheet of SCBs

Trends in Income and Expenditure of SCBs

Growth in Gross
Advances across Bank
Groups

Trends in Current and

Savings Account

Trends on Incremental CreditDeposit and Investment

Deposit Ratios

Trends in Outstanding C-D

Ratio, Bank Wise

Gap between Proportion of

Liabilities and Assets in
Various Maturity Buckets

Growth in Balance Sheet

and Off-balance Sheet
Transactions

Trends in Deposit and Lending Rates of SCBs

ROA and ROE of SCBs

Bank Group wise

Growth of Selected Items of

Income and Expenditure

Laws controlling Indian

Banking Sector

Legal frame work

of
Banks

Banking
Regulation
Act,1949

Reserve Bank of
India
Act,1934

Banking Regulations and Laws

Banking in India is governed by
Banking Regulation Act,1949 and
RBI Act,1934

Banking in India is controlled/monitored by RBI

and Govt. of India.
The controls for different banks are different based on
whether the bank is
a) statutory corporation
b) a banking company
c) a cooperative society

The Reserve Bank of India Act, 1934

The Reserve Bank of India Act, 1934 provides the statutory basis of
the functioning of the Bank, which commenced operations on April 1,
1935.
The Bank was constituted to
Regulate the issue of banknotes
Maintain reserves with a view to securing monetary stability
To operate the credit and currency system of the country to its advantage

Amendments have been made from time to time to include the latest
requirements.
(A

provision was inserted by the Information Technology Act,2000 to enable RBI

to make regulations for regulating payment systems of banks and financial
institutions)

Reserve Bank of India Act,1934(RBI Act)-2

RBI Act deals with:
Incorporation, capital management and business of banks
Central banking functions
Financial supervision of banks and financial institutions
Management of forex/reserves
Control functions : bank rate, audit accounts,penalities for
violation

Banking Regulation Act,1949 (BR Act)

The Central Banking Enquiry Committee recommended the need of a separate
legislation to control banks due to mushroom growth of banks with inadequate
capital, dishonest management, speculative business etc..
A bill was Passed in parliament in February 1949 and The Banking Regulation
Act 1949 came to exist from 16th March 1949.
BR Act covers banking companies and cooperative banks, with certain
modifications.
BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
BR Act allows RBI (Sec 22) to issue license for banks

Important Provisions of Act

Definition of Banking.
Form of Business.
Provision of Capital
Management
Maintenance of Liquid Assets.
Licensing of Banks.
Opening of New Banks.

Provision Regarding Loans and

Advances.
Inspection of Banks.
Powers of the Reserve Bank of
India.
Returns to Be Submitted.
Acquisition of Business.
Mergers/Amalgamations.
Winding up of Banking Companies.

Laws related to Banking Sector

Other Acts

Companie
s Act
(1956)

Banking
Companie
s Act

Negotiable
Instrumen
ts Act
(1881)

SARFAESI
act (2002)

Bankers
Books
Evidence
Act (1891)

Regional
Rural Bank
Act (1976)

SBI Act
(1955)

Phase-I

Early phase from 1786 to 1969 of Indian

Banks.

Phase-II

Nationalization of Indian Banks and up to

1991 prior to Indian banking sector
Reforms.

Phase-III

New phase of Indian Banking System

with the arrival of Indian Financial &
Banking Sector Reforms after 1991.

From 1786 till today, the journey of Indian Banking System can be segregated into
three distinct phases. They are as mentioned below :

Different stages of developments

Phase-I
During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948.
There were approximately 1100 banks, mostly small.
To streamline the functioning and activities of commercial banks,
the Government of India came up with
The Banking Companies Act, 1949 Banking Regulation
Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with extensive powers for the supervision
of banking in India as the Central Banking Authority.

Phase-II
There were major reforms in the Indian Banking Sector after
independence.
In 1955, the Govt. nationalized Imperial Bank of India with extensive
banking facilities on a large scale specially in rural and semi-urban areas
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
1949 : Enactment of Banking Regulation Act.
1955 : Nationalization of State Bank of India.
1959 : Nationalization of SBI subsidiaries.
1961 : Insurance cover extended to deposits.
1969 : Nationalization of 14 major banks.
1971 : Creation of credit guarantee corporation.
1975 : Creation of regional rural banks.
1980 : Nationalization of seven banks with deposits over 200 crore.

Phase-III
This phase has introduced many more products and facilities in
the banking sector in its reforms measure.
In 1991, under the chairmanship of M Narasimham, a committee
was setup(Narasimham Committee on Banking Sector Reforms)
which worked for the liberalization of banking practices

Different Banks in India

Classification of Banks
One classification divides banks into the following types :
Saving Banks
Commercial Banks
Industrial Banks
Land mortgage Banks
Indigenous Banks
Central, federal, national bank
Co-operative Banks
Exchange Banks
Cooperative Banks

For the ease of understanding, weve decided to focus on Indias top most
banks which have been classified into Private Banks, Public Banks and
Foreign Banks.
Theprivate-sector banks in Indiarepresent part of theBanking sector
that is made up of both private and public sector banks.
The "private-sectorbanks" are banks where greater parts of stake orequityare
held by the private shareholders and not by government.
The private sector banks are split into two groups by financial regulators in India,
old and new.
The old private sector banks existed prior to the nationalization in 1969 and kept
their independence because they were either too small or specialist to be included
in nationalization.
The new private sector banks are those that have gained their banking license
since the liberalization in the 1990s.

Public Sector Banks(PSBs) are banks where a majority stake (i.e. more
than 50%) is held by a government. The shares of these banks are listed on
stock exchanges. There are a total of 29 PSBs in India

Source

Business week

Private Banks in India

YES BANK
YES BANK was founded by Ashok Kapur and Rana Kapoor, with the duo holding
a collective financial stake of 27.16%.
YES BANK is the only Greenfield license awarded by the RBI in the last 17
years, associated with the finest pedigree investors.
Since its inception in 2004, YES BANK has fructified into a Full Service
Commercial Bank that has steadily built Corporate and Institutional Banking,
Financial Markets, Investment Banking, Corporate Finance, Branch Banking,
Business and Transaction Banking, and Wealth Management business lines
across the country.
Today, YES BANK has a widespread branch network ofover 500 branches
across 350 cities, with 1050+ ATMs and 2 National Operating Centers in
Mumbai and Gurgaon.

ICICI BANK
The second largest bank in India in terms of assets, ICICI was founded in the
year 1955 as Industrial Credit and Investment Corporation of India, a
wholly owned subsidiary.
The bank has subsidiaries in the United Kingdom, Russia, and Canada;
branches in Bahrain, United States, Singapore, Hong Kong, Sri Lanka, Qatar
and Dubai International Finance Centre; and representative offices in United
Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and
Indonesia. The company's UK subsidiary has established branches in Belgium
and Germany.
The current CEO of ICICI is Chanda Kochhar. Shes been credited to have
transformed the bank after she took over as CEO.

HDFC
HDFC Bank began operations in 1995 with a simple mission: to be a"Worldclass Indian Bank".
HDFC Bank is the fifth largest bank in India by assets. It is also the largest
bank bymarket capitalizationas of 1 November 2012. As on Jan 2 2014, the
market cap value of HDFC was around USD 26.88B, as compared toCredit
Suisse Groupwith USD 47.63B.
The bank provides the following services
Personal banking
NRI banking
SME banking
Wholesale banking

AXIS Bank
Axis Bank Limited is the third largest private sector bank in India. It offers
financial services to customer segments covering Large and Mid-Corporates,
MSME, Agriculture and Retail Businesses. Axis Bank has its headquarters in
Mumbai, Maharashtra.
Shikha Sharma is the banks current CEO.
The Most Trusted Brands Survey 2013 rated Axis Bank as the Most Trusted
Private Sector Bank in India.

Public Owned Banks

State Bank of India

SBI is a government-owned corporationwith its headquarters inMumbai,
Maharashtra. As of December 2013, it had assets ofUS$388 billion and 16,000
branches, including 190 foreign offices, making it the largest banking and financial
services company in India by assets.
The roots of the State Bank of India lie in the first decade of 19th century, when
theBank of Calcutta was established on 2 June 1806. The Bank of Bengal was one
of three Presidency banks, the other two being theBank of Bombayand theBank of
Madras. All three Presidency banks were incorporated asjoint stock companies.
The Presidency banks amalgamated on 27 January 1921, and the re-organised
banking entity took as its nameImperial Bank of India. The Imperial Bank of India
remained a joint stock company but without Government participation.
Pursuant to the provisions of the State Bank of India Act of 1955, theReserve Bank
of India, acquired a controlling interest in the Imperial Bank of India. On 1 July 1955,
the Imperial Bank of India became the State Bank of India.

Punjab National Bank

Punjab National Bank is based in New Delhi, India and was founded by Lala
Lajpat Rai.
The Bank was founded on April 12, 1895 in Lahore (Pakistan)

Bank of Baroda
Known as Indias International Bank, Bank of Baroda
started its journey in the year 1908.
Bank of Baroda prides its self in keeping a mission of
becoming a top ranking National Bank of
International Standards committed to augmenting
stakeholders value through concern, care and
competence.
Bank of Baroda started a new brand identity, one that
is more than just cosmetic change. It adopted a new
logo that stands for the Baroda Sun simple yet
powerful.

Syndicate Bank
It is one of the oldest and major commercial banks founded by TMA Pai in the
city of Udupi.
It was known as Canara Industrial and Banking Syndicate Limited.
The bank, along with 13 major commercial banks of India, was nationalised on
19 July 1969, by theGovernment of India.
By 1937, it had secured its membership as a clearing houseatMumbai. The
primary objective of the business was to extend the financial assistance to
local weavers. Initially, the bank collected as low as two annas from the door
steps of the depositors daily through its agents. This type of system wherein
the agents of the bank come doorsteps to collect deposit is still prevailing
inIndiaand is referred to as thePigmy Deposit Scheme

IDBI BANK
The industrial development Bank of India was established on 1 st July 1964,
under an Act of the Parliament as a wholly owned subsidiary of the RBI. On
16th February 1976, the ownership of IDBI was transferred to the government
of India and it was made the principle financial institution for coordinating the
activities of institutions engaged in financing, promoting and developing
industry in the country.
Its Headquartered in India and its current CMD is M.S Raghavan.

Top foreign banks in India

Standard Chartered
Standard Chartered PLCis a Britishmultinationalbanking andfinancial
servicescompany. It is headquartered inLondon.
It operates a network of over 1,700 branches and outlets (including
subsidiaries, associates and joint ventures) across more than 70 countries and
employs around 87,000 people.
SC is India's largest international bank with 99 branches in 42 cities.
It started its operation in the year 1858.
Standard Chartered PLC, SCs UK based parent, became the first foreign
company to list in India through the issuance of Indian Depository Receipts in
June 2010

Citi Bank
Headed by Pramit Jhaveri, Citi bank is a subsidiary of Citigroup, a multinational
financial services corporation headquartered in New York City, United States. It
is headquartered in Mumbai, India
It started its operations in 1902 in Kolkata and today is the largest direct
investor in financial services in India.
As of 2012, Citibank India has been recognized as the 'Best Consumer Internet
Bank in India' by Global Finance four years in a row, and has received the Best
Corporate/Institutional Internet Bank Award for two years in a row.

JP MORGAN CHASE
The firm'sroots in India date back to 1922, when J.P.Morgan & Co. in New York
and Morgan Grenfell, its affiliated partnership in London, took an ownership
interest in the Calcutta merchant banking firm of Andrew Yule & Co. Ltd.
J.P.Morgan had ambitions to start a banking business in India as early as 1902,
and Morgan Grenfell had begun extending credit to Yule & Co. in 1911.
Chase National Bank opened its first representative office in Mumbai in 1945.
Mumbai is one of J.P. Morgan's largest locations outside of the U.S. and serves
as a regional hub.
JP Morgan considers India as one of its most important hubs. . The lines of
business include the Investment Bank, the Global Corporate Bank, Private
Equity,Asset Managementand Treasury and Securities Services.

HSBC INDIA
HSBC's origins in India date back to 1853, when the Mercantile Bank of India was
established in Mumbai. The Bank has since, steadily grown in reach and service
offerings, keeping pace with the evolving banking and financial needs of its customers.
In India, the Bank offers a comprehensive suite of world-class products and services to
its corporate and commercial banking clients as also to a fast growing personal banking
customer base.
The following are some of the entities of HSBC in India
HSBC Securities and Capital Markets (India) Private Limited
HSBC Software Development (India) Private Limited
The Hongkong and Shanghai Banking Corporation Limited
HSBC Asset Management (India) Private Limited
HSBC Global Resourcing / HSBC Electronic Data Processing (India) Private Limited

Deutsche Bank
Deutsche Bank in India is a fully integrated financial services provider to Indian
corporate, institutional and individual clients. DBs services include on-shore
investment banking, institutional equities broking, asset and private wealth
management, retail banking and business processes outsourcing.
Deutsche Bank established its first branch in India in 1980. It has operating branches
in 15 cities.
DB has been recognized with the following awards
2009
2008
2008
2008
2008
2007

Best Sub-Custodian India

Best Bank in India
Best Equity House in India
Best Cash Management Specialist
Best Private Bank in India
Financial Express Award for Growth

The Asset
The Asset
The Asset
The Asset
Asia money
Financial Express

Technological developments
in Indian Banking Industry

 Information technology is one of the most important facilitators for the

transformation of the Indian banking industry in terms of its transactions
processing as well as for various other internal systems and processes.

The technological evolution of the Indian banking industry has been largely
directed by the various committees set up by the RBI and the government of India
to review the implementation of technological change. No major breakthrough in
technology implementation was achieved by the industry till the early 80s.

The early 1980s were instrumental in the introduction of mechanization and

computerization in Indian banks. This was the period when banks as well as the
RBI went very slow on mechanization, carefully avoiding the use of computers to
avoid resistance from employee unions. However, this was the critical period
acting as the icebreaker, which led to the slow and steady move towards large
scale technology adoption.

Computerization
The process of computerization marked the beginning of all technological
initiatives in the banking industry. Computerization of bank branches had started
with installation of simple computers to automate the functioning of branches,
especially at high traffic branches. Thereafter, Total Branch Automation was in
use, which did not involve bank level branch networking, and did not mean much
to the customer.
Networking of branches are now undertaken to ensure better customer service.
Core Banking Solutions (CBS) is the networking of the branches of a bank, so as to
enable the customers to operate their accounts from any bank branch, regardless
of which branch he opened the account with. The networking of branches under
CBS enables centralized data management and aids in the implementation of
internet and mobile banking. Besides, CBS helps in bringing the complete
operations of banks under a single technological platform.
CBS implementation in the Indian banking industry is still underway. The vast
geographical spread of the branches in the country is the primary reason for the
inability of banks to attain complete CBS implementation.

Satellite Banking
Satellite banking is an upcoming technological innovation in the Indian
banking industry, which is expected to help in solving the problem of weak
terrestrial communication links in many parts of the country.
The use of satellites for establishing connectivity between branches will help
banks to reach rural and hilly areas in a better way, and offer better facilities,
particularly in relation to electronic funds transfers. However, this involves
very high costs to the banks

Automatic Teller Machines

ATMs were introduced to the Indian banking industry in the early 1990s
initiated by foreign banks. Most foreign banks and some private sector players
suffered from a serious handicap at that time- lack of a strong branch network.
ATM technology was used as a means to partially overcome this handicap by
reaching out to the customers at a lower initial and transaction costs and
offering hassle free services. Since then, innovations in ATM technology have
come a long way and customer receptiveness has also increased manifold.

Internet Banking
Internet banking in India began taking roots only from the early 2000s.
Internet banking services are offered in three levels. The first level is of a
banks informational website, wherein only queries are handled; the second
level includes Simple Transactional Websites, which enables customers to give
instructions, online applications and balance enquiries. Under Simple
Transactional Websites, no fund based transactions are allowed to be
conducted. Internet banking in India has reached level three, offering Fully
Transactional Websites, which allow for fund transfers and various value added
services.
Internet banking poses high operational, security and legal risks. This has
restrained the development of internet banking in India. The guidelines
governing internet banking operations in India covers a number of
technological, security related and legal issues to be addressed in relation to
internet banking

Phone Banking and Mobile Banking

Phone and mobile banking are a fairly recent phenomenon for the Indian
banking industry. Phone banking channels function through an Interactive
Voice Response System (IVRS) or tele banking executives of the banks.
The transactions are limited to balance enquiries, transaction enquiries, stop
payment instructions on cheques and funds transfers of small amounts (per
transaction limit of Rs 2500, overall cap of Rs 5000 per day per customer).
With the rapidly growing mobile penetration in the country, mobile banking
has the potential to become a mass banking channel, with very minimum
investment required by the banks. However, more security issues need to be
addressed before banking can be conducted more freely via this channel.

Electronic Funds Transfer Systems

The EFT System was operationalised in 1995 covering 15 centers where the Reserve Bank
managed the clearing houses.
Special EFT (SEFT) scheme was introduced with effect from April 1, 2003, in order to increase
the coverage of the scheme and to provide for quicker funds transfers.
A new variant of the EFT called the National EFT (NEFT) was a nation wide retail electronic
funds transfer mechanism between the networked branches of banks. NEFT provided for
integration with the Structured Financial Messaging Solution (SFMS) of the Indian Financial
Network (INFINET). As the NEFT system stabilized over time, the number of settlements in
NEFT was increased from the initial two to six. NEFT now provides six settlement cycles a day
and enables funds transfer to the beneficiaries account on T+0 basis, bringing it closer to real
time settlement.
The commencement of NEFT led to discontinuation of SEFT, and EFT is now available only for
government payments. Using the NEFT infrastructure, a one-way remittance facility from India
to Nepal has also been implemented by the RBI since 15th May 2008.
In order to increase the coverage of NEFT to a wider section of bank customers in semi-urban
and rural areas, an enhancement of the NEFT called the NEFT-X [National EFT (Extended)] is
also proposed for phase wise implementation. This would facilitate non-networked branches of
banks to transfer funds electronically by accessing NEFT-enabled branches for transfer of
funds. NEFT (Extended) would work on a T+1 basis and would ensure wide rural coverage of
the electronic funds transfer system.

Innovation in the Banking Industry

Biometric ATMs
These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose
Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low literacy
population to use banks

M-Pesa
M-pesa is a mobile-phone based money transfer and micro financing service, which allows users with a national ID to
use their money easily with a mobile
Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank

Plastic Money
Plastic money, cash cards, credit/debit cards and polymer notes will boom as the e-commerce space boom in India
and people get used to the idea of carrying less cash
Many cards have a micro chip embedded in them which makes it a transit card also

Virtual Banking
This technology will have a deep impact on the lives of professionals who believe in the life-on-the-go approach
A user can have access to his/her bank accounts at a nominal cost and at a fast speed from anywhere in the world

Analysis of Indian Banking

Industry

Porter Analysis for Banking Industry

PEST Analysis on Banking Industry

Factors Affecting the Industry

Political Factors
Monetary Policy
Regulatory
Framework
Budget & Budget
measures
Change in interest
rates

Social Factors
Increase in
population
Changes in
lifestyle
Easy way of
lending money
Exploring banking
facilities in rural
areas

Economic
Factors
More savings
More Capital
Formation
Increase in GDP
Banking Channels

Technological
Factors
Internet Banking
IT Services &
Mobile Banking
Credit Cards
Improvement in
efficiencies

 New channels in banking services such as internet banking, mobile banking have
increased productivity and help in acquiring new customers
As per a survey conducted by PwC, today banks spend 15% of the total expenditure on
technology today

Technology
Innovation
Financial
Inclusion (FI)

Given that 40% of Indians lack access even to the simplest kind of formal financial
services, the RBI on July 2011, mandated banks to allocate at least 25% of the total
number of branches proposed to be opened in unbanked rural sector
Banks considering FI as a banking opportunity rather than a Regulatory obligation are
likely to see long term profitable growth and a cushion against market volatility

Private
Banking &
Wealth
Management

India not only enjoys a favorable demographic dividend but also has a strong population
of High Net worth Individuals (HNWI)
Given the improved performance of the equity markets in 2013 & increasing afuence
beyond urban and metro areas the number of HNWIs is expected to rise further, HNWIS
will continue to demand better or more sophisticated service

Growth of infrastructure, industry, services and agriculture is expected to grow

corporate credit of the economy
Nearly 35% of the Indian population has a median age of 25.5 years which signifies that
India will gain its demographic dividend

High growth of
Indian
Economy &
Favorable
Demographics

Growth Drivers of the Banking Industry

Opportunities in the Banking Sector

Mortgage to cross Rs 40 lakh crores by 2020
Wealth Management to be a big business
Rapid growth of branches & ATMs
Mobile banking to see huge growth
Infrastructure financing to reach over Rs 20 trillion on commercial banks book
by 2020
New Models to serve the small & Medium Enterprises (SME)

Re-orientation recommendations for Global

Standards
On tap licensing as compared to a block licensing approach to enhance
competition and bring in new ideas and variety into the system and Allowing
banks for niche segments to take care of specialized banking needs through
differentiated licensing.
Creating three or four global sized banks to have a global presence through
consolidation among large public and private sector banks (on a voluntary
basis), keeping in view the need for competition within the domestic banking
sector and avoiding complex structures.
Encouraging investment banks/investment banking activities.
Encouraging inclusion to reach out to the excluded and under-banked regions.
Small banks at the bottom of the tiered structure may be the preferred vehicle
for these objectives to facilitate financial inclusion.
Enhancing the regulatory and supervisory regimes with increased intensity of
supervision for the systemically important banks.
Converting urban co-operative banks which meet the necessary criteria into
commercial banks or local area banks/small banks.

Challenges Faced by Indian Banking Industry

Management of Risks
Increasing NPAs
Introduction of Basel III Norms in April 2013
Licensing Requirements
Market Discipline and Transparency
Human Resource Management
Financial Inclusion
Employees Retention
Customer Retention
Intensifying Competition
Social and Ethical Concerns

The Banking Outlook In 2014

With the Banking laws (Amendment) Bill cleared on 20th December 2012 in
RajyaSabha, it is likely that the RBI may issue 3-4 licenses within the next 12
months

NBFCs like PFC, L&T finance, Shriram group as well as some corporate group
(Reliance, Tata etc.) have applied for the banking licenses

New Entrants in the space may result in price based competition on deposits, loans
and human resources and some M&A among the small private banks
In order to scale up operations rapidly, smaller private banks with larger
distribution networks might be the possible targets of the new banks for e.g.
Federal Bank, Karur Bank, Dhanalaxmi Bank

Thank You