1 A PROJECT REPORT ON “A STUDY OF BANKING AND INSURANCE SECTOR IN INDIA” Submitted to: Vidhisha Vyas Submitted by: Group-9 Marketing DherajDahal Sundara Rama Rao CV Rajinder Singh Bhatti Yatish K Ankit Singh ALLIANCE ASCENT COLLEGE
1
A PROJECT REPORT
ON
“A STUDY OF
BANKING AND INSURANCE
SECTOR IN INDIA”
Submitted to:
Vidhisha Vyas
Submitted by:
Group-9 Marketing
DherajDahal
Sundara Rama Rao CV
Rajinder Singh Bhatti
Yatish K
Ankit Singh
ALLIANCE ASCENT COLLEGE
2
An Industry Analysis Report
ON
“A STUDY ON BANKING AND INSURANCE SECTOR IN INDIA”
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF DEGREE
ON
MASTER OF BUSINESS ADMINISTRATION
2013-2015
SUBMITTED BY: GROUP-9 MARKETING
UNDER THE GUIDANCE OF
PROF. VIDHISHA VYAS
DEPARTMENT OF MANAGEMENT
3
DECLARATION
This is to declare that the report entitled “A study on Banking and Insurance Sector in India” is prepared for the partial fulfillment of the course Research Methodology in Semester II of MBA by Group-9 of Marketing, Batch August 2013-2015.Under the supervision of Prof. Vidhisha Vyas
The group confirms that this report truly represents our own work. This work is not a replication of work done previously by any other person. We also confirm that the contents of the report and views contained therein have been discussed and deliberated with our professor.
Name Registration No Signature
Dheraj Dahal 13010221006
Rajinder Singh Bhatti 13010221089
Sundar Rama Rao 13010221053
Ankit Singh 13010221048
Yatish K 13010221039
4
CERTIFICATE
This is to certify that Group-9 of Marketing, Batch August 2013-2015 has completed the report entitled “A study on Banking and Insurance sector in India” under my guidance for the partial fulfillment of the course Research Methodology in Semester II of MBA.
Name of the Faculty: Vidhisha Vyas
Signature
Date:
5
ACKNOWLEDGEMENT
We hereby acknowledge our sincere gratitude to our program director Prof. Jacob Alexander for giving the opportunity to undertake this project work. And we would like to express our sincere gratitude for supporting us throughout the project.
We take this opportunity to express our profound gratitude and deep regard to our guide Prof. Vidhisha Vyas for her exemplary guidance, monitoring and constant encouragement throughout the project.
And lastly but not the least, we would like to thank our parents and friends for their encouragement and support that enabled us to successfully complete the project.
DATE:
PLACE: BANGALORE
GROUP-9 Marketing
DHERAJ DAHAL (13010221006)
SUNDARA RAMA RAO(13010221053)
RAJINDER SINGH BHATTI(13010221089)
ANKIT SINGH(13010221048)
YATISH K(13010221039)
6
Table content
Chapter No. Title Page No.
1. Executive Summary 7
2. Introduction1.1 Scope1.2 Objective1.3 Methodology
10-1111-1213
3. Literature review 2.0 About industry2.1 Insurance sector improvement in India 2.2 Global scenario
14-1516-2121-23
4. Industry analysis2.1 Banking2.2 Top five life insurance company2.3 Analysis and Interpretation2.4 Market share2.5 Demography bias2.6 Herfindahl2.7 Pest analysis 2.8 Merger and acquisition2.9 Comparison of Indian banking industry
3232-3435-393940-4545-4849-5151-56
5. CONCLUSION 57
6. REFERENCES 58-61
7
Executive summary
The financial system of a country plays a role in promoting economic growth not only by
channeling savings into investments but also by improving efficiency of resources
The banking industry plays a major role in representing the financial system in India. It works as
an intermediary between individuals, financial institutions and other stakeholders who directly or
indirectly get affected by the industry In 2012-13 banks have started focusing on lending to more
profitable segments such as retail and small and medium (SMEs), improving risk management
policies and effective monitoring. In the near the future, the Indian banking industry is expected
to see consolidation in the wake of future economic growth, timely changes in banking
regulations and increase in competition from foreign banks
The growth story of banking during the last decade has been spectacular and beyond the
consistent double digit growth. The trends were strong regulatory framework, use of multiple
channels and technology; customer oriented banking services and a growing economy
Although the past couple of years have witnessed a slowdown in the face of high domestic
inflation, depreciation of the rupee and the after-math of the crisis in US and Europe, the sector
still perform better in our country vs. in many other developing countries in terms of growth,
profitability, capital adequacy and asset quality etc.
2014 promises to be a decent year for India. Even though a series of challenges like the overall
slowdown in the economy impacting credit growth, deteriorating asset quality and rising NPAs,
accompanying financial inclusion and Basel III implementation are all lingering issues, the
sector is well cushioned with factors like a positive demographic dividend, increasing investment
in infrastructure, innovation in technology and most importantly constructive regulatory policies
The most enthusing growing insurance marketplaces in the globe are India. The present premium
volume of USD 18 billion has the probable to rise to USD 90 billion encompassed by the
subsequent decade. Particularly, existence insurance that presently creates up 80% of premiums
is extensively tipped to lead the growth. The main drivers are sound commercial fundamentals, a
rising middle-income class, an enhancing manipulating framework and rising chance
responsiveness.
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CHAPTER-1
INTRODUCTION
9
OVERVIEW
BANKING
In 1921 the banking sector was a closed market. Banking sector revolutionizes the State-owned
imperial Bank of India that was the only existing bank during 1921. In 1935, Reserve Bank of
India was recognized as the Central Bank of India.
After establishment of RBI as the central bank of country, quasi central banking role of imperial
Bank came to an end. But from 1936 – 1955, Imperial Bank prolonged its network to 480
branches. Therefore, in order to increase the penetration in the rural environment, Imperial Bank
was converted and was named as State Bank of India (SBI).
During the period of 1956 – 2000, 14 large commercial banks were nationalized in 1969 and also
6 more banks were nationalized in 1980. After some time, ICICI, one of the private players
intensified the competition. There was also Gradual technology up gradation in the PSU Banks.
Finally, after 2000 and on, the number of banks that were increased in public sector banks were
27, private sector banks were increased by 22 and there was also an increase in the foreign banks
by 36 banks. The development in the technology also enhanced the great success in introducing
mobile and internet banking, that was really appreciated by the users and users were happy using
it as is very easy to access and saves time. Growing FDI i.e. Foreign Direct Investment also came
into picture in the Indian Banking Sector scenario.
INSURANCE
The evolution of the Indian Insurance Sector before 1956- the life insurance sector was made up
of 154 domestic life insurer, 16 foreign life insurer and 75 provident companies. And in the next
two decades i.e. from 1956-72 all life insurance companies were nationalized to form LIC in
1956 to increase penetration and protect policy holders from mismanagement, the general
insurance business was nationalized to form GIC in 1972. From 1993-99 when the new
economic policy was adopted, A Malhotra committee was set up to bring in reforms, the
Malhotra committee recommended opening of the insurance sector to the private players. IRDA,
LIC and GIC Acts were set up in 1999, making IRDA the statutory regulatory body for insurance
and ending the monopoly of LIC and GIC. Later from 2000 onwards post liberation, the
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insurance industry recorded significant growth; the number of private players increased to 44 in
2012. In today’s world the customers are aware about the benefit of insurance and its importance
for a secure future .The future of the Indian insurance sector is continuously elevating. The
sector which was strong at US$ 72 billion in 2012 has the potential to grow to US$ 280 billion
by 2020. This growth is expected by India’s favorable regulatory environment which guarantees
stability and fair play.
These economic condition and fair policy has given rise to an insurance market which
encourages foreign investors to tap into the sector’s massive potential. The health of the
insurance sector reflects a country’s economy. This sector not only generates long-term funds for
infrastructure development, but also increases a country’s risk-taking capacity. India’s economic
growth since the turn of the century is viewed as a significant development in the global
economy. This view is helped in no small part by a booming insurance industry.
1.1 SCOPE OF THE STUDY
We have chosen Banking and Insurance as out topic for Research and Development with an
interest as Banking and Insurance are the fundamental arms of the financial sector. They are the
foundation of financial sector in an economy. Financial being the blood line of an economy,
determines the potential investment that could take place in an economy in near future.
Therefore, the growth in the Banking and Insurance is primary and essential for any economy to
be on the part of growth.
Banking comprises of two main apparatus which is lending and borrowing. Banks rely less on
their own capital while compared to the total volume of the financial transactions performed.
Despite the fact that banks do maintain a reserve, they primarily use the funds obtained by the
deposits that their customers put together. The reserves are basically maintained as a precaution
and provision against losses such as failed loans.
Since Banking and Insurance are the two central and significant processes of the financial system
in an economy of a country. India is a developing country and henceforth, Banking and
Insurance will enhance its roles and responsibilities in wide range. Though, the functions of each
11
other that is Banking and Insurance is in a different way from one another in many ways. While,
banking sector is a constant and is dependable institution which is uniform for many specific
segments whereas, insurance sector is based on a variety of subjective variables that makes it a
different kind of experience for different individuals.
1.2 OBJECTIVES OF THE STUDY
BANKING
To find the market share and nature of the competition of Indian banking industry,
Determine the demographic of buyer and the market segmentation of Indian banking sector,
Describe the policy framework (pest analysis) of Indian banking industry,
What is the business diversification of Indian banking industry?
Identify the merger and acquisition in the banking industry,
To know the international exposure of Indian banking industry,
To know the marketing initiatives under Indian banking sector,
Elaborate the future outlook of Indian banking industry.
INSURANCE
To measure the market share and nature of competition of this industry,
To examine the demographics of buyer and market segmentation of industry,
To conduct the pest analysis of insurance sector,
To conduct the business diversification of the major player,
To measure the major merger and acquisition,
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To understand international exposure of this sector,
To predict the future outlook and prospects for this sector
1.3 METHODOLOGY
To test the research forecast, methodology of comparing the pre and post performances of banks
after Merger and Acquisitions has been accepted, by using following financial parameters such
as Gross profit, Net profit Operating profit margin, Return on equity, Return capital employed,
and Debt equity ratio. Researcher has taken two cases of Merger and Acquisitions randomly as
sample one from public sector bank and the other from private sector bank in order to evaluate
the impact of M&As. The pre-merger (3years prior) and post-merger (after 3 years) of the
financial ratios are being compared. The observation of each case in the sample is considered as
an independent variable. Before merger two different banks carried out operating business
activities in the market and after the merger the bidder bank carrying business of both the banks.
Keeping in view the purpose & objectives of the study independent t- test is being employed
under this study. The year of merger was considered as a base year and denoted as 0 and it is
excluded from the evaluation. For the pre (3 years before) merger the combined ratios of both
banks are considered and for the post-merger (after 3 years) the ratios of acquiring bank were
used.
13
CHAPTER-2
LITERATURE REVIEW
14
2.0 ABOUT THE INDUSTRY
Banking comprises of two main apparatus which is lending and borrowing. Banks rely less on
their own capital while compared to the total volume of the financial transactions performed.
Despite the fact that banks do maintain a reserve, they primarily use the funds obtained by the
deposits that their customers put together. The reserves are basically maintained as a precaution
and provision against losses such as failed loans.
The insurance industry afterward being opened to the globe marketplace i.e. permitting the FDI
capping to 26% (which is concerning to be increased to 49%) has shown remarkable
development in the industry. The main reason behind this is the rise in contest, introduction of
assorted produce (plans and policies) and additionally due to supplementary factors like
governmental, commercial, and communal and the technical factors. The insurers have projected
their strategies established on the demographical factors like period, relations conditions say for
example in India the combined relations sophistication was after prevalent but nowadays it is the
period of atomic families. In combined families if there is a demise of a bread victor the rest of
the associates seized care of the reliant ones, so there were not far necessities for the insurance in
the picture nowadays it is not so. Additionally nowadays in the city spans the price of living has
soared elevated that additionally includes the health prices, so the insurers have commenced
segmenting their clients accordingly.
The PEST scrutiny additionally displays that, the power rising the taxation for the services
endowed, definitely has an encounter, it is additionally clear that the development in the each
capita income of the state has modified the minds of the customers in discerning insurance
additionally as an investment rather chance coverage. The serial blasts in Hyderabad presently
has crafted a sense of awareness in the minds of the people, that has created them discern
insurance as a vital aspect.
Many firms recognizing the expansive and hostile chance for development and development in
this particular industry has commenced including business. Bajaj that was primarily into
automobile industry, ICICI that was proceeding in the financing sector has commenced including
15
company in insurance sector. It is to be noted that ICICI locations early amid the confidential
contestants possessing a marketplace allocate of 5.88%.
Amalgamation – the procedure in that two company firms link jointly and forms a completely
new firm. The IRDA has projected precise regulations according to that the firms interested to
comprise company in India in this sector can do so merely by joining alongside each of the
Indian stable, that too alongside a allocate capital of merely 26%(as of now), and in a due
sequence of ten years if the allocate capital of the external contestant has increased extra than
26% the IRDA has additionally projected a little regulations for the divesting of the excess
allocate capital.
2.1 Insurance Sector Improvements in India:
In 1993, Malhotra Committee, manipulated by preceding Finance Secretary and RBI
Governor R. N. Malhotra, was industrialized to assess the Indian insurance industry and counsel
its upcoming direction.
The Malhotra group was set up alongside the goal of complementing the improvements
commenced in the commercial sector.
The improvements were aimed at “creating a extra effectual and competitive commercial
arrangement suitable for the necessities of the economy keeping in mind the structural
adjustments presently underway and knowing that insurance is an vital portion of the finished
commercial arrangement whereas it was vital to address the demand for comparable reforms.”
In 1994, the group presented the report and a little of the key recommendations included.
Structure:
•Government stake in the insurance Firms to be held down to 50%
•Government ought to seize above the holdings of GIC and its subsidiaries so that these
subsidiaries can deed as autonomous corporations
•All the insurance firms ought to be given larger freedom to operate.
Competition:
•Private Firms alongside a minimum paid up capital of Rs.1bn ought to be allowed to go in the
industry.
16
•No Firm ought to deal in both Attendance and Finished Insurance across a solitary entity.
•Foreign firms could be allowed to go in the industry in collaboration alongside the internal
companies.
•Postal Attendance Insurance ought to be allowed to work in the rural market.
•Only one State Level Attendance Insurance Firm ought to be allowed to work in every single
state.
Regulatory Body:
•The Insurance Deed ought to be changed.
•An Insurance Manipulating body ought to be set up.
•Controller of Insurance (Currently a portion from the Finance Ministry) ought to be created
independent.
Investment:
•Mandatory Investments of LIC Attendance Fund in power assurances to be decreased from 75%
to 50%.
•GIC and its subsidiaries are not to grasp extra than 5% in each company.
Customer Service:
•LIC ought to wage attention on delays in payments beyond 30 days.
•Insurance firms have to be inspired to set up constituent related pension plans.
•Computerization of procedures and notifying of knowledge to be grasped out in the insurance
industry.
The group emphasized that in order to enhance the client services and rise the coverage of the
insurance industry ought to be opened up to competition.
But at the alike period, the group contacted the demand to exercise alert as each wreck on the
portion of new contestants might run the area assurance in the industry.
Hence, it was selected to permit contest in a manipulated method by stipulating the minimum
capital necessity of Rs.100 crores. The group contacted the demand to furnish larger autonomy to
insurance firms in order to enhance their presentation and enable them to deed as autonomous
17
firms alongside commercial motives. For this patriotic, it had counselled setting up an
autonomous manipulating body.
Insurance Regulatory and Development Authority (IRDA):
Reforms in the Insurance sector were commenced alongside the method of the IRDA Bill in
Parliament in December 1999. The IRDA as a statutory body in April 2000 has fastidiously stuck
to its design of entrapping regulations and registering the confidential sector insurance
companies.
The supplementary decisions grabbed simultaneously to furnish the upholding arrangements to
the insurance sector and in particular the attendance insurance firms were the rise of the IRDA’s
online skill for subject and renewal of licenses to agents.
The approval of institutions for imparting training to agents has additionally safeguarded that the
insurance firms ought to have a trained workforce of insurance agents in locale to vend their
produce, that are anticipated to be provided by main consecutive year.
Since being set up as an self-governing statutory body the IRDA has locale in a framework of
globally compatible regulations. In the confidential sector 12 attendance insurance and 6 finished
insurance firms have been registered.
Duties, Domination and Intentions of IRDA:
Section 14 of IRDA Act, 1999 lays down the obligations, asserts and intentions of IRDA.
1. Subject to the skills of this Deed and every single supplementary regulation for the era being
in domination, the Domination shall have the obligation to domination, advance and safeguard
orderly progress of the insurance firm and re-insurance business.
2. Lacking bias to the generality of the skills encompassed in sub section.
The assets and intentions of the Domination shall include.
a. Subject to the applicant a certificate of registration, reinstate, adjust, remove, adjourn or annul
such registration;
b. Protection of the hobbies of the strategy holders in matters pondering allocating of strategy,
nomination by strategy holders, insurable attention, span of insurance claim, present worth of
strategy and supplementary words and conditions of contracts of insurance;.
18
c. Enumerating requisite qualifications, plan of conduct and functional training for intermediary
or insurance intermediaries and agents.
d. Enumerating the plan of conduct for surveyors and conquest assessors.
e. Advancing efficiency in the conduct of insurance business.
f. Advancing and affecting expert associations connected alongside the insurance and re-
insurance business.
g. Levying fees and supplementary benefits for grasping out the aims of this Act.
h. Calling for data from, acceding examination of, managing enquiries and investigations
encompassing audit of the insurers, intermediaries, insurance intermediaries and supplementary
associations connected alongside the insurance business;
i. Domination and regulation of the rates, gains, words and conditions that might be gave by
insurers in respect of finished insurance firm not so manipulated and manipulated by the Tariff
Advisory Cluster below assisting 64U of the Insurance Act, 1938 (4 of 1938);
j. Enumerating the form and manner in that book of reports shall be upheld and statement of
reports shall be rendered by insurers and supplementary insurance intermediaries;
k. Influencing investment of funds by insurance companies;
l. Adjudication of arguments amid insurers and intermediaries or insurance intermediaries;
m. Overseeing the working of the Tariff Advisory Committee;
n. Enumerating the percentage of premium income of the insurer to finance schemes for
advancing and affecting expert associations denoted to in clause (f);
o. Enumerating the percentage of attendance insurance firm and finished insurance firm to be
undertaken by the insurer in the rural or communal sector; and
p. Retaining such supplementary asserts as might be prescribed.
Insurance Regulatory and Development (IRDA) Act:
The Insurance Manipulating and progress power deed was provided to finish the monopoly of
State-owned firms and to invest in the Insurance Influencing Domination manipulation to
manipulation the insurance sector.
These assert inter aria are:
• Imposition of prudential norms such as solvency margins, capital adequacy;
• Necessities and investment guidelines for insurance companies;
19
• Grant of licenses to new firms, and cancellation, suspension and removal of licenses given to
insurance companies;
• Regulation of fund investment by insurance companies;
• Maintenance of solvency margins;
• Adjudication of arguments amid insurers and intermediaries; and
• Tariff fixing.
As every single the assisting 4 of IRDA Act' 1999, Insurance Manipulating and progress power
(IRDA, that was constituted by an deed of parliament) enumerate the constitution of Domination
the Domination is a ten associate team encompassing of
a. A Chairman;
b. Five whole-time members;
c. Four part-time members,
(All appointed by the Domination of India)
Regulatory Issues:
The IRDA Bill lies down that the Indian promoter has to dilute the stake in the confidential
insurance firms from 74 every single cent to 26 every single cent in ten years. The bill stipulates
tough solvency margins -- Rs 500 million for attendance insurance firms, Rs 500 million or a
sum equivalent to 20 every single cent of net premium income for finished insurance and $1
billion for reinsurance business.
The insurer has to prop different reports associating to fund of stockholders and policyholders.
The funds of policyholders must to be retained inside the state but does not cover repatriation of
profits and dividends. Insurance firms below the new management will have to have exposure to
rural and communal sectors. External investment in insurance, the bill states, is critical to
financing groundwork and better insurance cover.
The key to accomplishment in onset up the insurance sector in India is regulation. An example of
how poor regulation can obliterate a marketplace is the area fund industry. A combination of
improper marketing exercise has arisen in a conquest of financier belief in that industry.
Incidentally, the insurance industry in India itself has gone across the comparable phase.
One of the reasons for nationalization of the insurance industry (LIC in 1956 and GIC in 1973)
was the mismanagement and malpractice of erstwhile confidential players. But if the statements
20
of IRA bureaucrats are whatever to go by, the new regulations are anticipated to be on the right
track. IRA, has by nowadays endowed the timetable for the adjustments afterward the Bill is
passed. The IRA has by nowadays indicated that it will have tough norms for new participants.
This is the most irresistible reason why confidential sector (and foreign) firms, that will scope the
insurance rehearse in the societal and client attention, are urgently demanded in this vital sector
of the economy.
With the nation's groundwork in a state of imminent downfall, India couldn't have afforded to be
lumbered alongside sub-optimally providing monopoly insurance firms and subsequently the
method of the Insurance Influencing & Progress Domination Bill on December 2, 1999 heralds
an era of prudent optimism whereas stakes are elevated for all parties concerned. For the Govt. of
India, External Direct Investment (FDI) has to allocate in as anticipated; for external insurers,
investments have to onset yielding returns and for the inner insurance industry - their
marketplace penetration must to stay intact. On the fringe, the client is pondering whether all the
hype crafted on liberalization will honestly benefit him.
2.2 GLOBAL SCENARIO ON BANKING AND INSURANCE:
The Banking and Insurance are two significant terms that create vital impact on the global
perspective of an economy. The global economy grew at a passive pace in 2012 signifying that
the recovery from the contact of the global financial catastrophe has not fully set in. Besides the
global macroeconomic setting,
Section 2 analyses the recital of the global banking system by means of foremost indicators of
banking activity and soundness for select advanced and emerging economies. Implementing
regulatory reforms at the global level will require banks to further develop their asset value and
excellence. It will be very important at least for some too big to fail banks to rationalize their
business unite as regulations and convention may require them to call hedge their interior
commercial banking services from investment activities.
The efficiency and cost of the various distribution strategies used by companies are important
and noteworthy to their success and accomplishment in the insurance business. This
predominantly holds factual for the retail business.
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Indian Banking will be world’s 3rd largest by 2025
It is found that by 2025 Indian banking industry will be the 3rd world’s largest in the asset size
after china and US. Indian banking industry is now the 14th largest in the world. Now the asset
size of the Indian banking industry is $1,350 billion and by 2025 it says that it will touch $28,500
billion. At the end of financial year 2009 $2850 billion was the revenue of domestic banking
industry and it is likely to increase nearly $4000 billion by the financial year 2015. The growth
of the Indian banking industry is mainly in the hands of retail banking and then by the wholesale
banking. The retail banking alone contributes about $15 billion of $43 billion banking revenue as
on the financial year 2009 and it is likely to grow more than double which is up to $39 billion by
the financial year 2015 and the wholesale banking contributes almost $12 billion as on the
financial year 2009 and it is likely to grow up to $30 billion by the financial year 2015. In
financial year 2009, the rural banking just contributed $9 billion in revenues; it will be chipping
in $ 24 billion by the turn of financial year 2015, clocking a massive 19 per cent annual growth
annually. The next growth area will be SME sector, which gave $ 7 billion in financial year 2009
and will touch $ 18 billion by financial year 2015, when the overall revenue of the domestic
banking sector will scale to $ 111 billion. So all together it shows the expected growth of Indian
banking industry and if all this happens how much will be the contribution by this industry
towards the country’s GDP.
22
CHAPTER-3
INDUSTRY ANALYSIS
23
3.1 BANKING
Banking comprises of two main apparatus which is lending and borrowing. Banks rely less on
their own capital while compared to the total volume of the financial transactions performed.
Despite the fact that banks do maintain a reserve, they primarily use the funds obtained by the
deposits that their customers put together. The reserves are basically maintained as a precaution
and provision against losses such as failed loans.
Company Profiles
STATE BANK OF INDIA (SBI):
The SBI is dynamically involved since 1973 in non-profit activity called Community Services
Banking. All SBI branches and administrative offices all over the country support and put in
large number of welfare activities and social causes. SBI business is far beyond than banking as
they touch the lives of populace anywhere in many ways. Their commitment to nation-building
is absolute & complete.
The beginning of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the
bank inward its license and was re-designed as the Bank of Bengal (2 January 1809). An
exclusive institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July
1843) followed the Bank of Bengal. These three banks lingered at the apex of contemporary
banking in India till their merger and amalgamation as the Imperial Bank of India on 27 January
1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernize India's economy. Their
evolution was, however, shaped by ideas culled from similar developments in Europe and
England, and was influenced by changes occurring in the structure of both the local trading
environment and those in the relations of the Indian economy to the economy of Europe and the
global economic framework.
24
Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow the
Bank of Bengal to issue notes, which would be accepted for payment of public revenues within a
restricted geographical area. This right of note issue was very valuable not only for the Bank of
Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the
capital of the banks, a capital on which the proprietors did not have to pay any interest. The
concept of deposit banking was also an innovation because the practice of accepting money for
safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous
bankers had not spread as a general habit in most parts of India. But, for a long time, and
especially up to the time that the three presidency banks had a right of note issue, bank notes and
government balances made up the bulk of the investible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed the
affairs of each bank, were mostly proprietary directors representing the large European managing
agency houses in India. The rest were government nominees, invariably civil servants, one of
whom was elected as the president of the board.
Business:
The business of the banks was initially confined to discounting of bills of exchange or other
negotiable private securities, keeping cash accounts and receiving deposits and issuing and
circulating cash notes. Loans were restricted to Rs. One lakhs and the period of accommodation
confined to three months only. The security for such loans was public securities, commonly
called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and
no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium,
indigo, salt woolens, cotton, cotton piece goods, mule twist and silk goods were also granted but
such finance by way of cash credits gained momentum only from the third decade of the
nineteenth century. All commodities, including tea, sugar and jute, which began to be financed
later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by
25
the borrower in favors of the guarantor, which was in turn endorsed to the bank. Lending against
shares of the banks or on the mortgage of houses, land or other real property was, however,
forbidden.
Indians were the principal borrowers against deposit of Company's paper, while the business of
discounts on private as well as salary bills was almost the exclusive monopoly of individuals
Europeans and their partnership firms. But the main function of the three banks, as far as the
government was concerned, was to help the latter raise loans from time to time and also provide
a degree of stability to the prices of government securities.
Company Profiles
ICICI BANK LTD.:
ICICI Bank is India's largest private sector bank with total assets of Rs. 5,367.95 billion (US$ 99
billion) at March 31, 2013 and profit after tax Rs. 83.25 billion (US$ 1,533 million) for the year
ended March 31, 2013. The Bank has a network of 3,620 branches and 11,292 ATMs in India,
and has a presence in 19 countries, including India.
ICICI Bank offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its specialized subsidiaries in the
areas of investment banking, life and non-life insurance, venture capital and asset management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
United States, Singapore, Bahrain, 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. Our UK subsidiary has established branches in
Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).
26
Vision and Mission:
For over five decades, the ICICI Group has partnered India in its economic growth and
development. Promoting inclusive growth has been a priority area for the Group from both a
social and business perspective. The ICICI Group strives to make a difference to its customers,
to the society and to the nation’s development directly through its products and services, as well
as through development initiatives and community outreach.
ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI Group in
early 2008 to carry forward and build upon its legacy of promoting inclusive growth. ICICI
Foundation works within public systems and specialized grassroots organizations to support
developmental work in four identified focus areas. We are committed to investing in long-term
efforts to support inclusive growth through effective interventions.
Vision:
To be a leading institution for the promotion of inclusive growth in India by contributing to the
key enablers required for widespread participation in economic opportunities in the country.
Mission:
ICICI promises to promote inclusive growth in India through focused initiatives in the identified
areas including primary healthcare, elementary education, skill development & sustainable
livelihoods and financial inclusion.
History:
ICICI Bank’s Social Initiatives Group (SIG), a non-profit group set up within ICICI Bank in
2000, pioneered our work on primary health, elementary education and access to finance. In
January 2008, ICICI Group established ICICI Foundation for Inclusive Growth, which carries
forward this legacy.
27
Company Profiles
PUNJAB NATIONAL BANK:
VISION:
"To be a Leading Global Bank with Pan India footprints and become a household brand in the
Indo-Gangetic Plains providing entire range of financial products and services all under one
roof".
MISSION:
"Banking for the unbanked".
PROFILE:
With more than 119 years of strong existence and over 6000 branches including 5 overseas
branches, 6460 ATMs, 5047 Business Correspondents and 2165 Ultra Small Branches, Punjab
National Bank is serving more than 82 million esteemed customers. PNB, being one of the
largest nationalized banks, has continued to provide prudent and trustworthy banking services to
its customers. The Bank enjoys strong fundamentals, large franchise value and good brand
image. To meet the growing aspirations of the people and compete in these tough conditions, the
Bank offers wide range of products and services.
Awards and Recognitions:
Owing to its performance during the year 2012-13, Bank earned many laurels and accolades in
recognition to its service towards doing good to society and on its overall performance. Recently,
PNB was awarded with “IDRBT Banking Technology Excellence Award under customer
Management and Intelligence Initiatives’. Bank also bagged “Golden Peacock Business
Excellence Award” 2013 by Institute of Directors. Bank has been recognized as ‘Best Public
Sector Bank' by CNBC TV 18. The Bank has also been recognized as Most Socially Responsive
Bank consecutively for second year by Business World and PwC. Further, The Sunday FINWIZ
2012 declared Bank the Best Banker in Agriculture Credit (Large).The Bank was also conferred
with National Award for Excellent Performance in Lending under PMEGP Scheme of KVIC in
North Zone by Ministry for MSME, GOI. Apart from this, Bank was also bestowed with the IBA
28
Banking Technology Awards 2012 under the categories of “Best Use of Business Intelligence”
and “Best Risk Management and Security Initiatives”.
Globally, 'The Banker' Magazine, London has ranked PNB at 170th position amongst World's
Top 1000 Banks in 2013, up from 175th position in 2012. Forbes Magazine has placed PNB at
668th place amongst 2000 global giants. The Bank has also been ranked at 26 amongst FE 500
India's Finest Companies.
Financial Inclusion:
Apart from financial performance, the Bank has been able to achieve new landmarks in
operational performance. Recently the Bank crossed the landmark of 6000 branches with the
opening of a branch in unbanked rural area of Alangudi in Tamil Nadu. This is testimony to the
fact that the Bank has been a frontrunner in the industry so far as the initiatives for Financial
Inclusion is concerned. Bank has extensively used technology to reach out to those which have
remained away from formal banking set up. Further, the Bank is actively participating in the
Direct Benefit Transfer (DBT) Program of the Government leading to seamless transfer of cash
benefits into the accounts of beneficiaries.
29
Company Profiles
CANARA BANK:
A Brief Profile of the Bank
Widely known for customer centricity, Canara Bank was founded by Shri. Ammembal Subba
Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore, then a small port town
in Karnataka. The Bank has gone through the various phases of its growth trajectory over
hundred years of its existence. Growth of Canara Bank was phenomenal, especially after
nationalization in the year 1969, attaining the status of a national level player in terms of
geographical reach and clientele segments. Eighties was characterized by business diversification
for the Bank. In June 2006, the Bank completed a century of operation in the Indian banking
industry. The eventful journey of the Bank has been characterized by several memorable
milestones. Today, Canara Bank occupies a premier position in the comity of Indian banks. With
an unbroken record of profits since its inception, Canara Bank has several firsts to its credit.
"A good bank is not only the financial heart of the community, but also one with an obligation of
helping in every possible manner to improve the economic conditions of the common people" -
A. Subba Rao Pai.
Founding Principles:
To remove Superstition and ignorance.
To spread education among all to sub-serve the first principle.
To inculcate the habit of thrift and savings.
To transform the financial institution not only as the financial heart of the community but
the social heart as well.
To assist the needy.
To work with sense of service and dedication.
To develop a concern for fellow human being and sensitivity to the surroundings with a
view to make changes/remove hardships and sufferings.
30
Sound founding principles, enlightened leadership, unique work culture and remarkable
adaptability to changing banking environment have enabled
banking institution of global standards.
Company Profiles
BANK OF BARODA:
Bank of Baroda (BoB) is an Indian state
headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It offers a range of
banking products and financial services to corporate and retail customers through its branches
and through its specialized subsidiaries and affiliates in the areas of retail banking, investment
banking, credit cards, and asset management. During the FY 2012
was 8,021 billion, making it the second largest bank in India aft
addition to its headquarters in its home state of Gujarat, it has a corporate headquarters in the
Bandra in Mumbai.
BoB has total assets in excess of
network of 4283 branches (out of which 4172 branches
2000 ATMs. The bank was founded by the
The bank, along with 13 other major commercial banks of India, was nationalized on 19 July
1969, by the Government of India
undertaking (PSU).
Bank of Baroda is one of the Big Four banks
Bank and Punjab National Bank.
Sound founding principles, enlightened leadership, unique work culture and remarkable
king environment have enabled Canara Bank to be a frontline
banking institution of global standards.
) is an Indian state-owned banking and financial services company
headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It offers a range of
banking products and financial services to corporate and retail customers through its branches
through its specialized subsidiaries and affiliates in the areas of retail banking, investment
banking, credit cards, and asset management. During the FY 2012-13, its total global business
billion, making it the second largest bank in India after State Bank of India. In
addition to its headquarters in its home state of Gujarat, it has a corporate headquarters in the
BoB has total assets in excess of 3.58 trillion (short scale), 3,583 billion (long scale), a
network of 4283 branches (out of which 4172 branches [6] are in India) and offices, and over
2000 ATMs. The bank was founded by the Maharaja of Baroda, Sayajirao Gaekwad III.
The bank, along with 13 other major commercial banks of India, was nationalized on 19 July
Government of India and has been designated as a profit-making public sector
Big Four banks of India, along with State Bank of India, ICICI
Bank and Punjab National Bank.
Sound founding principles, enlightened leadership, unique work culture and remarkable
Canara Bank to be a frontline
owned banking and financial services company
headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It offers a range of
banking products and financial services to corporate and retail customers through its branches
through its specialized subsidiaries and affiliates in the areas of retail banking, investment
13, its total global business
er State Bank of India. In
addition to its headquarters in its home state of Gujarat, it has a corporate headquarters in the
3,583 billion (long scale), a
are in India) and offices, and over
, Sayajirao Gaekwad III.
The bank, along with 13 other major commercial banks of India, was nationalized on 19 July
making public sector
of India, along with State Bank of India, ICICI
31
3.2 Insurance Companies in India
Insurance is a booming sector in India. While many private institutions have been quick to see
the vast potential of the Indian market, there is still much scope for global companies to
capitalize on the demand in the market. However, the largest life insurance company (LIC) in
India is still owned by the government.
The floodgates were opened by the government in 1999 when the Indian government first
allowed private companies to solicit insurance, with FDI up to 26 percent. Since then, a lot of
private companies have prudently invested in both life and general insurance sectors in India.
While private insurance companies provide cheap life insurance policies to people, they still
have to mature in terms of reliability and good will.
1. Life Insurance Corporation of India (LIC):
This remains the largest insurance company in India and is owned by the government. In 2008,
LIC accounted for 64 percent market share. Although it is still the market leader, the company
has to battle against the innovative strategies and better sales force of private enterprises.
Corporate Office – Mumbai, Maharashtra | Employees - 115900+
Business – Financial services | Establishment – 1956
Website – www.licindia.in
Details – Best Insurance Company in India dominating the market since then it established in
market. In other word, it is the synonyms of Insurance in India, most important they have best
settlement ratio.
2. Bajaj Allianz general Insurance: This private company has been rising steadily in terms of
market capture. It now sells the second most number of insurance policies in India after LIC and
has been growing at a fast pace since 2006.
32
Corporate Office – Pune | Employees – 1000+
Business – Insurance | Establishment – 2001
Website -www.bajajallianz.com
Details – It is a private Insurance company offers many insurance plan & policies including
ULIP, pension plans and term Insurance.
3. ICICI Prudential Life Insurance: This life insurance companies has attracted a loyal
customer base with great customer support and a wide range of cheap policies to choose from.
Corporate Office – United Kingdom | Employees – 15000+ |
Business – Life Insurance | Establishment – 2000 |
Website -www.iciciprulife.com
Details – ICICI prudential is a joint venture between ICICI and prudential Plc, United Kingdom.
ICICI Prudential offers wide range of Insurance Products including health, wealth, life insurance,
medical insurance and retrial solutions.
4. Birla Sun Life Insurance: It offers a variety of insurance policies for the customers to choose
from, provides them with attractive deals and offers great customer service and support. There is
no reason why people shouldn’t prefer this one.
Corporate Office – | Employees – 133000+
Business – Financial services | Establishment – 2000
Details - It is financial and Insurance Company, a Joint venture of Aditya Birla and Sun life
Insurance. Company offers life insurance products including health, wealth and retrial plans.
5. SBI Life: Though a little slow on the marketing propaganda, SBI Life has been consistently
growing in the Indian life insurance market because of good service and a great brand image.
33
Corporate Office – Mumbai, Maharashtra | Employees – 7300+
Business – Insurance | Establishment – 2001
Website -www.sbilife.co.in
Details -State bank of India life insurance is a joint venture between BNP Paribas Cardiff
holding 74:26 ratios. It has great hold in Indian market as far as concern of Finance and banking
sector, best in insurance sector after LIC.
3.3 ANALYSIS AND INTERPRETATIONS
FACTS AND FIGURES OF VARIOUS BANKS
STATE BANK OF INDIA
Type Public
Industry Banking, financial services
Founded 1 July 1956
Headquarters Mumbai, Maharashtra, India
Area served Worldwide
Key people Arundhati Bhattacharya(Chairman)
Products Credit cards, consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, and wealth management
Revenue Increase INR 200,560 Crores (US$ 36.9 billion) (2012)
Profit Increase INR 17,916 Crores (US$ 3.3 billion) (2012)
Total assets Increase INR 15, 66,261 Crores (US$ 392.5 billion) (2012)
34
Total equity Increase INR 98,884 Crores (US$ 23.0 billion) (2012)
Owner(s) Government of India
Employees 295,696 (2012)
ICICI BANK
Type Private
Industry Banking, Financial services
Founded 1954
Headquarters Mumbai, India
Area served Worldwide
Key people K.V. Kamath (Chairman) Ms.Chanda Kochhar (MD & CEO)
Products Credit cards, Consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, and wealth management
Revenue Increase US$ 13.52 billion (2012)
CANARA BANK
Type Public company (BSE: 532483, NSE: CANBK)
Industry Banking, Financial services
Founded Canara Bank Hindu Permanent Fund (1906)
Canara Bank Ltd (1910)
35
Canara Bank (1969)
Headquarters Bangalore, Karnataka, India
Key people Rajiv Kishore Dubey (CMD)
Products Investment Banking
Consumer Banking
Commercial Banking
Retail Banking
Private Banking
Asset Management
Pensions
Mortgages
Credit Cards
Revenue INR339 billion (US$5.5 billion) (2012)
Net income INR33.41 billion (US$540 million) (2012)
Total assets INR3.794 trillion (US$62 billion) (2012)
Employees 44,090 (2012)
36
PUNJAB NATIONAL BANK
Type Public
Traded as BSE: 532461
NSE: PNB
Industry Banking, Financial services
Founded 1895
Founder(s) Lala Lajpat Rai
Headquarters New Delhi, India
Key people K R Kamath (Chairman & MD)
Products Credit cards, consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, private equity, wealth management
Revenue Increase INR 474 billion (US$ 8.7 billion) (2013)
Net income Decrease INR 49.54 billion (US$ 906 million) (2013)
Total assets Increase INR 4.97 trillion (US$ 90.9 billion) (2013)
Owner(s) Government of India
Employees 62,392 (March 2013)
37
BANK OF BARODA
Type Public company
Traded as BSE: 532134
Industry Banking, Financial services
Founded 20 July 1908
Founder(s) Maharaja Sayajirao Gaekwad
Headquarters Vadodara (Baroda), India
Area served Worldwide
Key people S S Mundra (Chairman & MD)
Products Credit cards, consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, private equity, wealth management
Revenue Increase INR346 billion (US$5.6 billion) (2012)
Net income Increase INR52.48 billion (US$860 million) (2012)
Total assets Increase INR4.574 trillion (US$75 billion) (2012)
38
3.4 Market share of 2013:
3.5 Demographics of buyers- market segmentation:
Product wise segmentation
Saving account
Salary account
Current account
Fixed account
Mutual funds
Loans
Credit card
Saving account:
Bank’s like ICICI, HDFC, Axis will have saving account with minimum
balance for saving account for common man is 10,000Rs so here this private bank are targeting
to the people who have high income so banks will attract them by giving some offers Eg: Free
Sales
SBI 19.8%
ICICI 14.7%
PNB 11.6%
BOB 9.4%
Canara 7.2%
others 37.3%
39
check book ,free debit card and interest rate of 7% given by (kotak mahindra bank) e.t.c, many of
the public sector bank will have minimum balance savings account between 0 to 1000Rs so that
they can attract lower middle class and middle class people
Salary account:
Every bank will be having this account facility, this account is mainly give for
employees who get there salary, Banks will attract this customers Eg: By giving zero balance
account, ‘n’ number of transaction from other bank ATM, free check book e.t.c
Current account:
Mostly every bank will have this kind of account this account is mainly targeted to
the customers who do business they attract customers giving like E.g free check books, free
transition of money, No demand draft charges, with some interest rate e.t.c
Fixed account:
This one of the most important account for a bank to generate revenue this kind of
account is mostly to attract customers mainly aged above 50 years who thinks so save their
money without any risk with standard rate of interest Eg like 11% given by “SBI”
Mutual funds:
Mutual funds are the other important factor to generate revenue in this product is
for attracting he customer who is willing to invest rather than saving them but this is but risky to
invest in mutual funds but return may be high
Loans:
Loans are the most important product that generates revenue to the bank is will be come
assets to the company so that company also get money by using special purpose vehicle (SPV)
there is different interest for different loans Some example are :
40
Personal loan
Agriculture loan- which is given to farmers with less interest ( mostly given in
public banks )
Education loan- which is given to the customers willing to study with minimum
interest.
The insurance sector that is completely industrialized is believed as a boon to the economy.
Pursuing are the gains of it like bestowing long-term funds for groundwork progress and
strengths the risk-taking skill of a country.
3.6 Asia-Pacific market value:
India holds 7.9% of the Asia-Pacific existence insurance marketplace value.
Japan holds 56% of the Asia-Pacific market.
Fig 4(India’s Asia-Pacific market value)
41
Source: irda.gov.inu
09
Category % Share
Japan 56.1%
China 15.2%
India 7.8%
South Korea 7.6%
Rest of Asia-Pacific 13.0%
Total 100%
3.7 Herfindahl – Hirschman Index of market share:
BANKING SECTOR:
We are taking market share of SBI, ICICI, PNB, HDFC and Bank of Baroda. HHI measures the
size of the firms and indicates the amount of competition among various banking firms.
Market Players Market Share (Market Share)^2
SBI 21.52% 463.11
ICICI 17.83% 317.91
CANARA 15.43% 238.08
PNB 7.31% 53.44
BOB 6.15% 37.82
Hence the Herfindahl – Hirschman Index is: ∑(Market Share)^2 = 1110.36
42
As Herfindahl – Hirschman Index is lower; it indicates competitive market in banking sector.
INSURANCE SECTOR:
We are taking market share of LIC, ICICI PRUDENTIAL, SBI LIFE, HDFC STANDARD,
BAJAJ ALLIANZ, MAX LIFE, BIRLA SUN LIFE and rest other companies. HHI measures the
size of the firms and indicates the amount of competition among various insurance firms.HHI
index is summation of squares of market share of Insurance companies in Indian market.
Market Players Market Share (Market Share) ^2
LIC 71.0% 5041
ICICL PRUDENTIAL 4.9% 24.01
SBI LIFE 4.6% 21.16
HDFC STANDARD 3.6% 12.96
BAJAJ ALLIANZ 2.6% 6.76
Hence the Herfindahl – Hirschman Index is : ∑(Market Share)^2 = 5105.89
SBI
ICICI
PNB
BOB
OTHERS
43
Source: http://www.ibef.org/industry/insurance-sector-india.aspx
As Herfindahl – Hirschman Index is higher, it indicates monopolistic competition market in
insurance sector
LIC
ICICI PRUDENTIAL
SBI LIFE
BAJAJ ALLIANZ
OTHERS
44
3.8 PEST ANALYSIS
POLITICAL FACTORS ECONO ECONOMIC FACTORS
MONETORY POLICY AFFECT IN TERMS OF SAVINGS
REGULATORY FRAMEWORK AFFECT IN TERMS OF CAPITAL
BUDGET PRODUCTION OF GOODS AND SERVICES
INTEREST RATE CHANGES CHANNELS PERTAINING TO BANKING
SOCIAL FACTORS TECHNOLOGICAL FACTORS
INCREASE IN POPULATION INTERNET BANKING
CHANGE IN LIFESTYLE IT services and mobile banking
EASY WAY OF LENDING MONEY CREDIT CARDS
BANKING FACILTIES IN RURAL AREAS IMPROVEMENT IN EFFICIENCY
POLITICAL FACTORS
The major political factors are regulation of government, budgetary measures and FDI. The
policy framework pertaining to regulations of the government are fortunately robust.The Indian
banking Industry is more or less dependent on the monetary policy which is decided by the RBI.
Strict regulations with respect to capital and liquidity may affect the business of banks. Banks
45
need to adjust their interest rates accordingly, which may or may not favor them. Banks are
forced to lend as per the guidelines of RBI, that includes credit growth in every sector. Measures
which are announced by the government at the beginning of every financial year also lay down
guidelines to banks to lend or accept deposits .The government can also increase credit in
particular sectors such as increase in farm credit, increase in infrastructure credit etc. At times
the government gives debt waivers to certain sections of the society that need to be adhered to by
banks as well.
Economic Factors:
Economic factors of the country also effect the Banking Industry both favorably or unfavorably.
When the economy is in good shape in terms of high per capita income, good agriculture harvest
and normal inflation, banks have an edge as people are left with more money to deposit them
with banks. This helps in more capital formation as more deposits can be realized.
Also In the times of economic boom, more and more FDI is brought into India through banking
channels that actually improves business for banks and the economy in general.
Economic prosperity encourages lending business for the banks but in times of recession banks
face tough times to recover their money, issue fresh credit and NIMs are lower too.
Cash Reserve Ratio: 4%
Repo Rate: 7.75%
Reverse Repo rate: 6.75%
Statutory Liquidity Rate : 23%
46
SOCIAL FACTORS:
The Indian banking system has been progressing rapidly. There are still several untapped rural
markets, despite the large number of banks in India.
Many farmers still take loans from the moneylenders at a very high interest rate and small-scale
industries continue to remain important for banks.
However changes could be expected in the near future for the unorganized sector.
The growing population of India is a great opportunity for Indian banks as a lot of people in the
country want to open a bank account and develop good savings habits. Changing lifestyle of
urban population wants easy ways of financing to meet their desires.
TECHNOLOGICAL FACTORS:
Indian banking has been consistently working towards the development of technological changes
and its usage in its operations.By applying the improved technologies banks are expected to
reduce costs, time and provide higher customer satisfaction.
Internet banking or banking via the phone can be considered a remarkable development in the
banking industry Mobile banking enables customers to check their account balance, transfer
funds 24x7, bill payments, booking of bus/flight tickets, recharge prepaid mobile and do a lot
more effortlessly and securely.
Banking through cell phone benefits the banks too. It cuts down on the cost of in-person banking
and helps reduce headcount at branches.Technological developments facilitate flow of
information and data faster leading to faster appraisal and decision-making as well.
The success of online banking led to mobile banking is the next revolutionary step which has
attracted huge attention from all over the country.Mobile banking can perform the basic banking
functions such as money transfer, credit card payment, bill payment, account updates and other
transactions.
47
The banking industry average is about 3 lakh transactions per day through mobile banking and
most big banks have seen 100% growth in mobile banking with more services likely to be
introduced in the near future.
The leading banks in the space are ICICI Bank, HDFC and SBI. Some of the key players that
will join the race in the future include Axis Bank, Syndicate Bank, Canara Bank and Bank of
Baroda.
Many customer segments are clearly getting comfortable with using mobile banking. It is true of
the Generation-Y group (18-32-year olds) who are three times more likely to adopt mobile
banking than older users.
On a whole the growth in mobile banking that has taken place in the country till date, though at a
rapid pace, is yet to reach the critical mass that will enable it to deliver on its promise of taking
banking, including payment services, at a cheaper, secure and seamless manner to the existing
and potential customers.
3.8 RECENT MERGERS AND ACQUISITION NEWS IN INDIA:
The Indian banking Industry may see a few mergers and acquisitions (M&A) deals this year,
ahead of the banking regulator releasing the licensing norms for new banks that are expected to
open for business in the next two years.
At least three new generation private sector banks- HDFC Bank Ltd, Kotak Mahindra Bank Ltd
and Indusland Bank Ltd have set their eyes on acquisitions.
Kotak Mahindra Bank has already created a war chest for acquisitions by selling 4.5% stake in
the bank for $296 million (around Rs. 1,400 crore today) to Sumitomo Mitsui Financial Group
Inc. Its vice chairman and managing director Uday Kotak has previously said that he is “sniffing
around “for acquisitions.
ICICI Bank Ltd, India’s largest private sector lender, is in the process of acquiring Bank of
Rajasthan Ltd for its 463 branches. ICICI Bank had earlier acquired Bank of Madura Ltd and
48
Sangli Bank Ltd, again for their branches, and their presence in southern and western India,
respectively.
Yes Bank Ltd is in talks to buy the local retail and commercial operations of Royal Bank of
Scotland Group (RBS). A plan by RBS, majority owned by the UK government, to sell the
Indian businesses to HSBC Holdings fell through in November last year, more than two years
after the two banks started negotiations. Yes Bank, India’s No. 4 private sector lender with assets
of nearly $11 billion, is likely to start due diligence on the RBS unit soon. RBS has been
shrinking its Indian business since the original deal with HSBC was struck in 2010 and it now
has assets of just 190 million pounds. The unit has 31 branches, 4,00,000 customers and made
revenue of 42 million pounds in the first nine months of last year, RBS said in a statement last
November.
List of Merger and Acquisitions in Indian Banking Industry since post Liberalization regime
S. No Name of the transferor bank
Name of the transferee
bank Date of merger
1 Bank of Bihar Ltd. State Bank of India November 8, 1969
2 National Bank of Lahore Ltd. State Bank of India February 20, 1970
3 Miraj State Bank Ltd. Union Bank of India July 29, 1985
4 Lakshmi Commercial Bank Ltd. Canara Bank August 24, 1985
5 Bank of Cochin Ltd. State Bank of India August 26, 1985
6 Hindustan Commercial Bank Ltd. Punjab National Bank December 19, 1986
7 Traders Bank Ltd. Bank of Baroda May 13, 1988
8 United Industrial Bank Ltd. Allahabad Bank October 31, 1989
9 Bank of Tamilnadu Ltd. Indian Overseas Bank February 20, 1990
10 Bank of Thanjavur Ltd. Indian Bank February 20, 1990
11 Parur Central Bank Ltd. Bank of India February 20, 1990
12 Purbanchal Bank Ltd. Central Bank of India August 29, 1990
49
13 New Bank of India Punjab National Bank September 4, 1993
14 Bank of karad Ltd Bank of India 1993-1994
15 Kashi Nath Seth Bank Ltd. State Bank of India January 1, 1996
16 Bari Doab Bank Ltd Oriental Bank of Commerce April 8, 1997
17 Punjab Co-operative Bank Ltd. Oriental Bank of Commerce April 8, 1997
18 Bareilly Corporation Bank Ltd Bank of Baroda June 3, 1999
19 Sikkim Bank Ltd Union Bank of India December 22, 1999
20 Times Bank Ltd. HDFC Bank Ltd February 26, 2000
21 Bank of Madura Ltd. ICICI Bank Ltd. March 10, 2001
22 ICICI Ltd ICICI Bank Ltd May 3, 2002
23 Benares State Bank Ltd Bank of Baroda June 20, 2002
24 Nedungadi Bank Ltd. Punjab National Bank February 1, 2003
25
South Gujarat Local Area Bank
Ltd. Bank of Baroda June 25, 2004
26 Global Trust Bank Ltd. Oriental Bank of Commerce August 14, 2004
27 IDBI Bank Ltd. IDBI Ltd April 2, 2005
28 Bank of Punjab Ltd. Centurion Bank Ltd October 1, 2005
29 Ganesh Bank of Kurundwad Ltd Federal Bank Ltd September 2, 2006
30 United Western Bank Ltd. IDBI Ltd. October 3, 2006
31 Bharat Overseas Bank Ltd. Indian Overseas Bank March 31, 2007
32 Sangli Bank Ltd. ICICI Bank Ltd. April 19, 2007
33 Lord Krishna Bank Ltd.
Centurion Bank of Punjab
Ltd. August 29, 2007
34 Centurion Bank of Punjab Ltd. HDFC Bank Ltd. May 23, 2008
35 The Bank of Rajasthan ICICI Bank Ltd August 13, 2010
50
3.8 COMPARISON OF INDIAN WITH UNITED STATES BANKING INDUSTRY
When we compare Indian banking industry with the US banking industry, first we should know
about the US Banking Industry. When we study about the US banking industry first thing to
understand is that the US banking industry is charted, regulated and supervised at both state and
federal level. US banking specialty is that it is filled with very large number of very small banks.
They don’t have big banks instead they have large number of small banks. Their main aim is to
reach out to people than to making it big and big. The owner ships of the US banks are not like
our Indian banks. It is very much restricted. They had limitations on industrial investments and
industrial companies had only limited interest in the ownership of the banks. They were not
giving much preference to the industrial companies to start up banks in US. But in last few years
the banking reforms have changed a lot and they have made it little more simple and that
increased the scope of banking activities in US.
Same like the Indian banking industry even they have Credit cards Deposit taking,
Foreign exchange, Loan making, and Payments-related services. When compared to the US
banking industry Indian banks are more liberal and compared to US it is much easier in India to
start up a bank. In US they have lots of restrictions and regulations to start up a bank and lots of
formalities too. India too have lots of formalities but compared to US India is little easier in those
areas. When it comes to the technological aspect US banking industry is much ahead of Indian
banking industry because they adopted latest technologies much faster and implement it in the
industry. The capital position of US banks has improved and is shown below
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3.9 COMPARISON OF INDIAN AND THE UNITED KINGDOM BANKING INDUSTRY
UK banking industry started in the 17th century and it has reached a long way by this time. The
UK banking is another best banking system in the world. For past few years UK banking system
was facing many financial and economic crises. It affected the banking industry of UK in a bad
way. But in the year 2012 it was a comeback for the UK banking industry because they entered
in to the year 2013 with quite strong financial and economic backgrounds now their main aim of
UK banking industry is to maintain the economic and financial stability. The banking sector of
United Kingdom is quite unique in its size, breadth and diversity. United Kingdom banking
industry is one banking industry which is healthy and well regulated in the world.
It has a long way to go in the growth line and if it has to take place few things like access to
capital, finance and support in going and expanding in the global market is must for the United
Kingdom banking industry. United Kingdom domestic retail and commercial banking should
look that the development of the industry is stable, it is in profit and it also has a sustainable
business model in the future. But since 2007 United Kingdom banking industry is showing a
commendable growth.
When the Indian banking industry is compared with the United kingdom banking industry it is
very clear that Indian banking industry is much ahead in the stability and when united kingdom
banking industry is trying hard to maintain their stability Indian banking industry is looking
forward to the future and planning to introduce latest technologies. The prediction states that
Indian banking industry will be the 3rd largest banking industry in the world after US and China
by 2025 itself shows that the Indian banking industry in much ahead than the United kingdom
banking industry. The united kingdom banking industry following the US and Japan is the world
gargets in terms of efficiency dynamism and return on capital. It services over 95% of the
population with about 3.5% of UK’s total workforce. They have over a million workers. When
India is looking much forward in the banking industry, it is only a marginally better year for
United Kingdom. Since the United Kingdom economic development is slow the banking
industry of United Kingdom will have to face a really challenging time. The United Kingdom
52
banking industry is expecting that their CAGR will increase another 1.8% in the next five years
to total £130.2 billion. When we compare the growth of Indian banking industry and the United
Kingdom’s banking industry we will understand that the Indian banking inducting is developed
and expanding where the United Kingdom is still developing. The growth of United Kingdom
banking industry is shown below
Source: www.ey.com
3.9 COMPARISON OF INDIAN BANKING INDUSTRY WITH THE CHINA BANKING
INDUSTRY
As we all know that the china banking industry is one of the biggest banking industries after US
in the world. When we compare the banking industry of china and India we should look in to lots
of things because by comparing with china we can learn also where India is going behind and
where china is ahead. So to understand let us go in detail to the china banking industry.
China banking industry is one banking industry which is growing in a very fast pace. They have
a very strong back up in the banking sector. In China banking industry there are five banks which
plays a major role they are Industrial and Commercial Bank of China (ICBC), the Bank of China
(BOC), China Construction Bank (CCB), the Agricultural Bank of China (ABC) and the Bank of
Communications (BOCOM). These five banks achieved a combined net profit of 781 billion
Yuan last year. According to the research’s done the banking growth of china is slowing due to
53
the broader economy and the liberalisation of interest rate narrowed the banks interest margin.
According to the China’s outsource market is very huge as it is shown below.
When we compare the china banking industry with the Indian banking industry it shows that the
Indian banking industry has more stability in the banking industry than china because china is
also a country that struggle to get a stable position in their banking sector.
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3.10 RESULTS AND DISCUSSIONS
a) Results
The result advise that the performance of the PNB after acquired the Nedungadi Bank has been
improved in terms of Net Profit Margin with t-value -8.683 which leads to the decision that the
difference is statistically important therefore, the H1 (Alternative Hypothesis) is accepted which
say that there is significance difference between the pre and post-merger net profit margin. The
appearance of the Punjab National Bank in terms of Return on Capital Employed has been
better-quality after the merger with t-value -5.671 which is significant therefore , the H1
(Alternative Hypothesis) is accepted. The bank performance is improved after merger in relation
to the Return on Equity with t- value -8.934 which leads to the assumption that the difference is
statistically significant therefore the H1 (Alternative Hypothesis) is accepted. In the Debt Equity
Ratio, the performance of bank after the merger seems improvement with t-value -3.196 which
shows significant statistically therefore H1 (Alternative Hypothesis) is accepted, whichleads to
the conclusion that there is a significance difference between pre and post-merger Debt Equity
Ratio. All the Alternative Hypothesis is accepted in case of the Punjab National Bank and the
Nedungadi Bank, so the assumption suggest that the merger of banks has been beneficial to the
Equity share holders and increases the overall bank performance in terms of profitability.
Similarly in the case of the Centurion Bank of Punjab and the HDFC Bank, the Net Profit
Margin doesn’t shows any change after the merger with t-value 0.610 which is statistically
insignificant therefore H0 (Null Hypothesis) is accepted which leads to the conclusion that there
is no difference between pre and post-merger net profitability. The Return on Capital Employed
also shows no change after the merger with t- value -2.182 which is statistically insignificant
therefore H0 (Null Hypothesis) is accepted which also leads to the conclusion that there is no
significance difference between pre and post-merger Return on Capital Employed. The Return
on Equity shows improvement after the merger with t- value -4.711 which is statistically
significant therefore H1 (Alternative Hypothesis) is accepted , which leads to the conclusion that
there is significance difference between pre and post-merger Return on Equity. The performance
of bank also improved in terms of Debt Equity Ratio with t-value -5.667 which is statistically
significant therefore H1 (Alternative Hypothesis) is accepted , which leads to the conclusion that
there is significance difference between pre and post merger Debt Equity Ratio. The results
55
suggest that the performance of banks has been improved in terms of Return on Equity and Debt
Equity Ratio and no change have been seen in Net Profit Margin and Return on Capital
Employed. It may be possible the performance of bank in terms of net profitability will increase
in longer run.
b) Discussions
After the merger we will see that in various financial parameter of the bank performance have
improved in both cases and some parameter have shown no change but it may be possible that
improved performance of merged Bank will show in later years the profit are not visible because
we compared only three years financial ratios, it may be possible that profit will be seen in
future. There are various motives, which attract the bank for merger but it is not necessary to
achieved all objectives after merger, the size of the bank will increase but no guarantee to
increase net profitability after merger.
The success of merger is dependent upon synergy gains created after the merger and overall
performance of bank, the financial performance of the Punjab National Bank have been
improved after the merger and was affected positively, the reaction comes out in terms of Net
Profit Margin ,Return on Capital Employed, Return on Equity and Debt Equity Ratio. But in the
case of the Centurion Bank of Punjab with the HDFC Bank, the financial ratios were not
positively affected by merger and show no relation between pre and post-merger performance
and may require due time for showing profitability. Finally the Indian Banking Sector has used
Merger and Acquisitions as a tool to expand and global recognition. Sick bank survived after
merger, enhanced branch network, rural reach, increase market share and improve infrastructure
all achieved through Merger and Acquisitions. For the level of high competition this strategy is
also appearing as a mode of survival in the present market.
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CHAPTER-4
CONCLUSION
57
CONCLUSION AND RECOMMENDATION
Merger and Acquisition is the useful tool for growth and expansion in the Indian banking sector.
It is helpful for existence of weak banks by merging into larger bank. This study shows the
impact of M&As in the Indian banking sector and researcher took two cases for the study as
sample and examine that merger led to a profitable situation or not. For this a comparison
between pre and post-merger performance in terms of gross profit, net profit, operating profit,
return on capital engaged, return on equity, and debt equity ratio. The combined performance of
both bank (three years before) merger and the performance of acquiring bank (after three years)
merger have compared. In case I the merger of Nedungadi bank and PNB net profitability, and
debt equity ratio and case II the return on equity, debt equity ratio gross profit margin have
shown the improvement after the merger for the purpose and objective of the study investigator
apply independent t-test for analyzing the pre and post-merger performance of the banks. And
results suggest that after the merger the effectiveness and performance of banks have improved.
The most important is that to generate higher net profits after the merger in order to justify the
decision of merger undertaken by the management to the shareholders.
Researcher proposes, for future study in this area could be the study of impact of merger only on
acquiring banks by comparing pre and post-merger performance and take more banks to a larger
sample concerning a longer time period for the study which would have given better result
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CHAPTER-5
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