OBJECTIVES AND SCOPE OF THE PROJECT The banking industry is one of the fastest growing industry in India. It is a mirror image of the economy of the country. With the liberalization of the economy, India has become the playground of major global banking majors. The major objectives of the study are as below: To analyse how political, economical, socio- cultural, technological factors affect this industry by PEST analysis. To find out level of competition in Indian banking industry through using porter’s five force model. To find out driving forces and key success factors of the industry To analyze various threats and opportunities for the industry To focus on current trends and future of the industry. 1
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OBJECTIVES AND SCOPE OF THE PROJECT
The banking industry is one of the fastest growing industry in
India. It is a mirror image of the economy of the country. With the liberalization
of the economy, India has become the playground of major global banking
majors.
The major objectives of the study are as below:
To analyse how political, economical, socio-cultural, technological factors
affect this industry by PEST analysis.
To find out level of competition in Indian banking industry through using
porter’s five force model.
To find out driving forces and key success factors of the industry
To analyze various threats and opportunities for the industry
To focus on current trends and future of the industry.
1
RESEARCH METHODOLOGY
We have done exploratory research and for that purpose we had
used secondary data.
We had collected this secondary data from various published
materials like newspapers, magazines, books etc and from Internet web sites.
From these various information and data we had done qualitative and
quantitative analysis to find out impact of various forces, effect of macro
environmental factors, major trends and future of the industry.
1.1: History of Indian banking
2
A bank is a financial institution that provides banking and other
financial services. By the term bank is generally understood an institution that
holds a Banking Licenses. Banking licenses are granted by financial supervision
authorities and provide rights to conduct the most fundamental banking services
such as accepting deposits and making loans. There are also financial institutions
that provide certain banking services without meeting the legal definition of a
bank, a so-called Non-bank. Banks are a subset of the financial services industry.
The word bank is derived from the Italian banca, which is
derived from German and means bench. The terms bankrupt and "broke" are
similarly derived from banca rotta, which refers to an out of business bank,
having its bench physically broken. Moneylenders in Northern Italy originally
did business in open areas, or big open rooms, with each lender working from
his own bench or table.
Typically, a bank generates profits from transaction fees on
financial services or the interest spread on resources it holds in trust for clients
while paying them interest on the asset. Development of banking industry in
India followed below stated steps.
Banking in India has its origin as early as the Vedic period. It is believed
that the transistion from money lending to banking must have occurred
even before Manu, the great Hindu Jurist, who has devoted a section of his
work to deposits and advances and laid down rules relating to rates of
interest.
Banking in India has an early origin where the indigenous bankers played a
very important role in lending money and financing foreign trade and
commerce. During the days of the East India Company, was the turn of the
agency houses to carry on the banking business. The General Bank of India
was first Joint Stock Bank to be established in the year 1786. The others
which followed were the Bank Hindustan and the Bengal Bank.
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In the first half of the 19th century the East India Company established
three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and
the Bank of Madras in 1843. These three banks also known as Presidency
banks were amalgamated in 1920 and a new bank, the Imperial Bank of
India was established in 1921. With the passing of the State Bank of India
Act in 1955 the undertaking of the Imperial Bank of India was taken by the
newly constituted State Bank of India.
The Reserve Bank of India which is the Central Bank was created in 1935
by passing Reserve Bank of India Act, 1934 which was followed up with
the Banking Regulations in 1949. These acts bestowed Reserve Bank of
India (RBI) with wide ranging powers for licensing, supervision and control
of banks. Considering the proliferation of weak banks, RBI compulsorily
merged many of them with stronger banks in 1969.
The three decades after nationalization saw a phenomenal expansion in the
geographical coverage and financial spread of the banking system in the
country. As certain rigidities and weaknesses were found to have developed
in the system, during the late eighties the Government of India felt that
these had to be addressed to enable the financial system to play its role in
ushering in a more efficient and competitive economy. Accordingly, a high-
level committee was set up on 14 August 1991 to examine all aspects
relating to the structure, organization, functions and procedures of the
financial system. Based on the recommendations of the Committee
(Chairman: Shri M. Narasimham), a comprehensive reform of the banking
system was introduced in 1992-93. The objective of the reform measures
was to ensure that the balance sheets of banks reflected their actual
financial health. One of the important measures related to income
recognition, asset classification and provisioning by banks, on the basis of
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objective criteria was laid down by the Reserve Bank. The introduction of
capital adequacy norms in line with international standards has been
another important measure of the reforms process.
1.Comprises balance of expired loans, compensation and other bonds such
as National Rural Development Bonds and Capital Investment Bonds.
Annuity certificates are excluded.
2. These represent mainly non- negotiable non- interest bearing securities
issued to International Financial Institutions like International Monetary
Fund, International Bank for Reconstruction and Development and Asian
Development Bank.
3. At book value.
4.Comprises accruals under Small Savings Scheme, Provident Funds,
Special Deposits of Non- Government
In the post-nationalization era, no new private sector banks were allowed
to be set up. However, in 1993, in recognition of the need to introduce
greater competition which could lead to higher productivity and efficiency
of the banking system, new private sector banks were allowed to be set up
in the Indian banking system. These new banks had to satisfy among
others, the following minimum requirements:
(i) It should be registered as a public limited company;
(ii) The minimum paid-up capital should be Rs 100 crore;
(iii) The shares should be listed on the stock exchange;
(iv) The headquarters of the bank should be preferably located in a
centre which does not have the headquarters of any other bank; and
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(v) The bank will be subject to prudential norms in respect of banking
operations, accounting and other policies as laid down by the RBI. It
will have to achieve capital adequacy of eight per cent from the very
beginning.
A high level Committee, under the Chairmanship of Shri M. Narasimham,
was constituted by the Government of India in December 1997 to review
the record of implementation of financial system reforms recommended by
the CFS in 1991 and chart the reforms necessary in the years ahead to make
the banking system stronger and better equipped to compete effectively in
international economic environment. The Committee has submitted its
report to the Government in April 1998. Some of the recommendations of
the Committee, on prudential accounting norms, particularly in the areas of
Capital Adequacy Ratio, Classification of Government guaranteed
advances, provisioning requirements on standard advances and more
disclosures in the Balance Sheets of banks have been accepted and
implemented. The other recommendations are under consideration.
The banking industry in India is in a midst of transformation, thanks to the
economic liberalization of the country, which has changed business
environment in the country. During the pre-liberalization period, the
industry was merely focusing on deposit mobilization and branch
expansion. But with liberalization, it found many of its advances under the
non-performing assets (NPA) list. More importantly, the sector has become
very competitive with the entry of many foreign and private sector banks.
The face of banking is changing rapidly. There is no doubt that banking
sector reforms have improved the profitability, productivity and efficiency
of banks, but in the days ahead banks will have to prepare themselves to
face new challenges.
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Indian Banking: Key Developments
1969 Government acquires ownership in major banks
Almost all banking operations in manual mode
Some banks had Unit record Machines of IBM for IBR &
Pay roll
1970- 1980 Unprecedented expansion in geographical coverage, staff,
business & transaction volumes and directed lending to
agriculture, SSI & SB sector
Manual systems struggle to handle exponential rise in
transaction volumes --
Outsourcing of data processing to service bureaux begins
Back office systems only in Multinational (MNC) banks'
offices
1981- 1990 Regulator (read RBI) led IT introduction in Banks
Product level automation on stand alone PCs at branches
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(ALPMs)
In-house EDP infrastructure with Unix boxes, batch
processing in Cobol for MIS.
Mainframes in corporate office
1991-1995 Expansion slows down
Banking sector reforms resulting in progressive de-
regulation of banking, introduction of prudential banking
norms entry of new private sector banks
Total Branch Automation (TBA) in Govt. owned and old
private banks begins
New private banks are set up with CBS/TBA form the start
1996-2000 New delivery channels like ATM, Phone banking and
Internet banking and convenience of any branch banking and
auto sweep products introduced by new private and MNC
banks
Retail banking in focus, proliferation of credit cards
Communication infrastructure improves and becomes cheap.
IDRBT sets up VSAT network for Banks
Govt. owned banks feel the heat and attempt to respond
using intermediary technology, TBA implementation surges
ahead under fiat from Central Vigilance
Commission (CVC), Y2K threat consumes last two years
There is a difference in financing of foreign trade and financing of internal
trade. Generally a person carrying on international trade requires foreign
currencies to meet his obligation. It is here that exchange banks play the role of
financing the dealer for setting transactions involved in foreign trade, there are
specialized banks for exchange business. In India, there is an Export-Import
Bank (EXIM).
(e) Investment or Industrial Banks:
Investment banks provide long-term credit to industries. They raise their funds
by way of share capital, debentures, and long-term deposits from the public.
They also raise funds by the issue of bonds for business operations and
government agencies. Usually they underwrite fresh issue of shares and
debentures of companies. Such banks also buy the entire issue of new
securities of public limited companies and try to get them subscribed at a
higher price by the public.
(f) Land Development Banks:
Land development banks were earlier known as land mortgage banks. In India,
there is limited number of such banks. There are special institutions providing
long-term loans to agricultures and farmers. They provide loans on security of
land and other immovable properties. They supply long-term funds for periods
exceeding six years. Agriculturists and farmers need such funds for making
permanent improvements to land and for buying farming machinery and
equipment.
(g) Savings Banks:
Savings Banks are specialized institutions, which encourage general public to
save something from their earnings. In other words such banks pool the small
savings of middle and lower income sections of society. They are the banks in
the true sense of the term and their main aim is to promote and collect of the
public. Not only the depositors are given interest, but also they are allowed to
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withdraw in times of need. The numbers of withdrawal are, however,
restricted. Separate savings banks are organized in various nations. The
government can also run a savings bank. In India the postal department runs
the postal saving bank all over the country. It is very popular in rural areas
where no branches where no branches of established commercial bank operate.
In urban areas, commercial bank handles savings business
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Table-1:
Structure of the Indian banking industry, March 31, 2004
Sr.
No.
Bank Group No. Of
Banks
Deposits Loans &
Advances
Net Profit
1. Public Sector Banks
Share Percentage
27
7.6 %
10796
76.8 %
5493
72.1 %
123
69.8 %
1. a State Bank Group
Share (per cent)
8
2.2 %
3910
27.8 %
1892
24.8 %
45
25.6 %
1. b Nationalised Banks
Share (per cent)
19
5.3 %
6886
49 %
3604
47.2 %
78
44.2 %
2. Private Sector Banks
Share (per cent)
30
8.4 %
2072
14.8 %
1389
18.2 %
30
16.8 %
2.a Old Private Sector Banks
Share (per cent)
21
5.9 %
914
6.5 %
494
5.3 %
12
7 %
2.b New Private Sector Banks
Share (per cent)
9
2.5 %
1158
8.3 %
895
11.9 %
17
9.8 %
3. Foreign Banks
Share (per cent)
36
10 %
693
4.3 %
522
6.8 %
18
10.4 %
4. Total Pvt Sector Banks
Share (per cent) {2+3}
66
18.5 %
2765
19.7 %
1911
25.1 %
48
27.2 %
5. Total Comm. Banks
Share (per cent) {1+4}
93
26 %
13559
96.6 %
7405
97.1 %
171
97 %
6. Regional Rural Banks
Share (per cent)
264
74 %
483
3.4 %
218
2.9 %
5
3 %
7. Total of Banks
Share (per cent)
357
100 %
14042
100 %
7623
100 %
76
100 %
23
DIFFERENT SERVICES PROVIDED BY BANKS IN INDIA
Account types & other Services
Personal Banking: Other Different Services
Deposit Scheme Gold Banking
___ Current Account NRI Banking
___ Saving Account International banking
___ Term Deposit Corporate Banking
(Other Deposit Scheme as per the cust. convince) SSI Banking
Personal Finance Small Business Finance
___ Housing Loan Development Banking
___ Car Loan Other Services
___ Educational Loan
___ Personal Loan
___ Festival Loan
___ Property Loan
___ Other Loans
(As per banks and its customer base)
Services
ATM Services
Credit Card Services
Internet Banking Services
Phone Banking Services
Locker Services
PPF Services
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Deposit Scheme:
Current Account
Current Account is the accounts which useful to business, a transparent and
efficient banking services support to meet its day-to-day financial requirements.
It offers to serve businesses financial requirements and giving maximum
financial leverage and save time and cost.
Saving Accounts:
Saving bank accounts is for the people who want to save for something in the
future. So its necessity characteristics are safe and accessible anytime, anyplace
to help meet their needs. So banks are those who help them in planning and
saving their future financial requirements. Here, savings are completely liquid,
and earn competitive interest in our safety.
Term Deposit Accounts:
With the help of the term deposit one can earn a higher income on their surplus
cash by investing this money in this type of accounts. Scheduled bank gives
promise of security and trust and help you to earn extra income with your hard
earned money.
Wide Choice in Period of Deposit
Flexibility in period of term deposit from 15 days to 10 years
It gives the benefits of Safety, Liquidity, Transferability and Flexible and
Timely payment of Interest
Personal Finance:
Banks second function is to give finance and through it banks can earn hand
some return and generate the profits for from it. Now day’s banks are giving
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finance on following different ways to satisfy the financial needs of the
customers.
Following are the different ways through the bank give finance to its customers:
-Housing Loan, Car Loan, Personal Loan, Educational Loan, Festival Loan,
Property Loan and etc,
SERVICES:
In the globally competition time service is quite important for the any sector and
having in nature of service sector the services of the banking sector is also most
important part following are the services that providing by the banking sectors
various banks but it differ from the bank to banks.
ATM Services
Credit Card Services
Internet Banking Services
Phone Banking Services
Locker Services
PPF Services
OTHER DIFFERENT SERVICES (CORPORATE)
Large foreign banks, Public and Private sector banks provide
different services to their corporate customers. For carrying out their business
activity and through that services they provide financial support and facility also.
3: CUSTOMER RELATIONSHIP IN BANKING INDUSTRY
(Through new technology and product development)
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Liberalisation and de-regulation process initiated by the Indian
Government in early nineties has completely changed the face of the Indian
banking industry. The entry of new private sector banks with the state-of-the-art
technology and lean structures has forced the old private-sector and public
sector banks to respond to the new challenges with aggressive restructuring
measures. The past five years have seen the public sector banks rapidly
introducing new products and services, computerising and networking key
branches, rationalising manpower and launch a number of initiatives to improve
operating efficiencies. Are they on the right track? Are these strategies to
become leaner and meaner sufficient to gain a competitive advantage to survive
and grow in the long run? This article argues that while all the above measures
are no doubt necessary to survive, they are by no means sufficient. To survive
and thrive in the long run, banks need to pursue strategies that enable them to
develop resources that are inimitable, rare, durable and superior to competitors.
Current development in the banking industry which make it more
attractive and it push this Industry in the market place
Introduction of new products and services:
Many of the public sector banks launched an array of products and services,
especially on the retail front, to match the competition. Some of the new
products include debit cards, credit cards, international cards, special deposits,
sweep-in accounts, and demat accounts and any-where-banking. Some of the
new services include round-the-clock phone banking, Automated Teller
Machines (ATMs), inter-city, inter-branch banking, net-banking and bill
payment services. Many public sector banks have even launched their own asset
management companies to offer mutual fund services to their customers.
Computerisation and networking of branches:27
Banks invested aggressively in computerisation and networking of branches.
The oldest and the biggest bank, SBI, had computerised 3701 branches by
March 2004, constituting nearly 41 per cent of its total branches. Many of these
branches were also networked so that their customers could be offered ‘any-
time, any-where’ banking services. The other public sector banks too embarked
on a similar computerisation drive.
Installation of ATM networks
All banks have made heavy investments in the installation of large networks of
ATMs. As of March 2004, SBI had a network of 1305 ATMs, Canara Bank had
282 ATMs, Corporation Bank had 475 ATMs to match the ATM network of
private sector banks such as HDFC Bank and ICICI Bank. ATMs proved a
tremendous success by reducing the load on branches significantly as, apart
from carrying out routine transactions such as cash withdrawal etc, customers
can avail such services as transfer of funds and payment of utility bills by
visiting any of the ATMs located conveniently.
4: OUTLOOK MONEY SURVEY
CUSTOMER FRIENDLY BANKS WITH DIFFERENT PARAMETER
Service with a smile: today’s finicky banking customer will settle for nothing less. He’s come to realize, somewhat belatedly, that he is king: he demands that banks roll out not just world-class products and services, but a red carpet as well. His choice of one entity over another as his principal bank is determined by considerations of service quality rather than any other factor. He wants competitive loan rates, yes, but he also wants his loan or credit card application processed in double-quick time. He cherishes the convenience of impersonal Net banking, yes, but during his occasional visits to the branch, he also wants the comfort of personalised, human interactions and facilities that make his banking experience pleasurable. In short, he wants a financial house that will more than just clear his cheques and update his passbook: he wants a bank that cares–and for more than just his custom. He wants a customer-friendly bank.
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So, do banks meet these heightened expectations? And
which are India’s most customer-friendly banks?
To find answers to these questions, Outlook Money commissioned
market research agency C fore to carry out a survey of bank customers in five
cities–Delhi, Mumbai, Chennai, Kolkata and Bangalore. The exhaustive survey,
carried out in early August, covered 5,127 customers of 24 short listed banks:
the 10 biggest nationalised banks and the 10 biggest Indian private banks (in
terms of deposit base) and the only four multinational banks that offer retail
banking services. For all the differences in their ownership, these 24 banks are
all competing in the metros for your custom, so it’s only fair to compare them
within a unified cluster; yet, when comparisons within their respective peer sets
throw up interesting patterns, we’ll take note of them.
These, then, are the significant findings of the survey:
India’s most customer-friendly bank is ICICI Bank, which outperforms
even multinational banks on this count (‘Overall Rankings’)
Ranking a close second is Citibank, which also tops the ranking of MNC
banks on the overall score
For an entity that’s not highly visible, seventh-ranked UTI Bank fares
surprisingly well, breaking into the top 10 in all the six parameters on
which the banks were rated
Strikingly, but not surprisingly, no nationalised bank figures in the top 10
banks, ranked on the overall score; the most customer-friendly PSU bank,
Bank of Baroda, kicks in at No. 12; even the two banks (ING Vysya Bank
and The South Indian Bank) that rank a joint 6th in the smaller universe
of private banks score more overall than the top-ranked PSU bank
State Bank of India, by far India’s largest bank, comes in a lowly 16th in
the overall rankings; even among the smaller universe of PSU banks, it
ranks only 5th, despite the fact that the survey methodology assigns some
weightage to size to acknowledge big banks’ problems in servicing a large
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customer base.
It isn’t as if the entire universe of PSU banks is uniformly insensitive to
customers’ expectations on service quality. Bank of Baroda aside, Indian
Overseas Bank, Syndicate Bank and, to a lesser extent, Canara Bank
give some of the pretentious private sector banks a run for their money.
Likewise, all MNCs are not all there in keeping their customers happy:
Standard Chartered not only lags its MNC peers on most counts, it ranks
16th on ‘service quality’ in the overall rankings.
A more rigorous analysis of the banks’ ratings on some of these
parameters throws up interesting findings about how customer-friendly these
banks are.
Service Quality
This is an index of the core of what makes a bank customer-friendly: its overall
service standards, rated for ease of opening an account; how courteous,
accessible and knowledgeable its staff are; transaction time for services; how
innovative the bank is in introducing products and services; how proactively the
bank informs customers of changes in deposit rates or service charges; how
quickly it redresses grievances; how likely it is to retain customers; and how
probable it is that its customers will recommend the bank to others.
On this count, HSBC tops the 24-bank ranking, followed closely
by ABN Amro. In third place here is a dark horse, The South Indian Bank.
HSBC scores fairly well on most of the sub-parameters–except product and
service innovation. ABN Amro tops the MNC banks’ cluster on such customer-
friendly features as ease of opening account, transaction time for services,
product and service innovation (such as its attractive home loan product All
Smiles, which comes at 6.5 per cent fixed rate for the first two years, after which
the then-prevailing floating rate applies), promptness in keeping customers
informed, and its banking hours (10 am to 7 pm; no weekly holiday). The South
Indian Bank’s good showing here is a reflection of its capacity to own up to its
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customers, small though that base is, and service them well. Much the same can
be said of Federal Bank, IndusInd Bank, Karur Vysya Bank and ING Vysya
Bank, all of which break into the Top 10.
Strikingly, ICICI Bank fares poorly on service quality, coming in
joint 12th (along with Bank of Rajasthan). Within its peer set of private banks, it
falters on such sub-parameters as ease of opening account, transaction time for
cash withdrawal, and promptness in keeping customers informed.
No nationalised bank makes it to the Top 10 on service quality,
but given the wide variance within this grouping, it seems unfair to hang all PSU
banks together. IOB and Syndicate Bank, for instance, fare well among peer
PSUs on all the sub-parameters. On the other hand, Union Bank of India, Bank
of India, UCO Bank and SBI run each other close for the bottom rank. SBI is
last in line in respect of customer retention and customer recommendation. In
fact, SBI’s abysmal scores on all service standard sub-parameters weigh down
its overall customer-friendliness ranking.
Branch facilities
Walk into any branch of a multinational or leading Indian private bank, and
you’ll believe you’re in a plush country club. Many other banks, of course, have
miles to go in this sphere, but there’s a growing realisation among them that
offering a pleasant banking ambience–with comfortable seating, air-
conditioning, restroom and drinking water facilities–and easy, uncluttered access
to bank stationery makes for good business.
The rankings here hold no surprise: MNCs HSBC, Citibank, and
ABN Amro take the top three slots, and IndusInd Bank, the first Indian
commercial bank to secure ISO 9002 certification for all its branches, comes in
at No. 4. House-proud PSU banks IOB and Syndicate Bank top the rankings
within their peer set, but fail to make it to the Top 10 overall. SBI scrapes the
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bottom at rank 23.
ATM service
By automating the most common day-to-day banking transactions–cash
withdrawal, cheque deposits and statement generation–ATMs have, in a sense,
liberated customers from time-wasting branch visits and surly staff. But how
often have you faced automated chaos: an ATM that whimsically rejects your
card or runs out of cash? How often have you felt an overwhelming urge to cut
up your ATM card into tiny slivers and post it along with a cheery letter that
says ‘no, thank you’.
Increasingly, however, banks are waking up to the merits of an
expansive, glitch-free ATM network. They’re investing in technology (read
newer machines), so they’ll be fewer card rejects. And they’re entering into tie-
ups with one another to share their ATM network (for a nominal fee, to be paid
by customers); which means you no longer have to bear the agony of having to
stand in overlong queues at your bank’s ATMs and gape at a state-of-the-art SBI
ATM nearby that forever seems empty.
ICICI Bank’s wide network of ATMs (1,790) gives it top
ranking among all 24 banks; likewise, SBI’s ATM penetration (including many
in some of the remotest corners of India–and India’s first ‘floating ATM’, on a
Kerala backwater ferry!) gives it second rank on this parameter. And MNC
banks, which have far fewer ATMs, targeted sharply at their metropolitan
customers, slip to the bottom. But remove the survey’s weightage for ATM
reach, and judge banks only on how glitch-free their ATM service is, and a
vastly different picture emerges.
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Cards Grievance redress
A lost credit card, a debit card billing for a transaction you never made: on
occasions like these, you’re hurriedly working your bank’s helpline numbers–
and want a sympathetic hearing, and a prompt response. These are also the times
when a bank’s grievance redress mechanism is tested. How quickly and well a
bank responds, and whether you’re subject to an elaborate runaround and
paperwork are critical determinants of how customer-friendly it is.
Here too, the methodology assigns weightage to card
penetration. Consequently, ICICI Bank (2.4 million credit cards; 6 million debit
cards) is No. 1, followed by SBI and HDFC Bank–even though within the
universe of private banks HDFC Bank scores rather dismally on grievance
redress. Next in line are Bank of Baroda and Canara Bank, their high rankings
(even higher than Citibank, for instance) a testimony to the mass popularity of
Bobcards and Cancards. But when the weightage is removed, the rankings
change dramatically.
Loans Speed of disbursal
When you’ve identified your dream home and can’t wait to move in, or when
you’re eager to cash in on an early bird discount on new bookings, you want a
lender who cuts through the paperwork and processes your home loan in a trice.
This sub-parameter is a measure of how quickly a bank processes loan
applications and disburses funds.
Here too, assigning weightage for the number of loan accounts,
the rankings hold few surprises: SBI tops, followed by Bank of Baroda, ICICI
Bank and HDFC Bank. Among MNC banks, ABN Amro emerges on top,
matching product innovation in this space with speedy disbursal; among private
Indian banks, HDFC Bank is No. 2, perhaps having learnt a thing or two from
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HDFC, India’s largest home loan provider.
Phone/Net banking
It’s somewhat ironic that a technology-driven service that has made banking far
more ‘impersonal’ should now be seen as a pillar of customer-friendliness. But
with phone/Net banking, geography is well and truly history. True, it hasn’t
acquired a critical mass of adherents: only 4 per cent of our survey respondents
avail of phone/Net banking services, against 80 per cent who avail of over-the-
counter banking services, and 63 per cent who use ATMs. Even so, 21 banks in
our survey–all but Karur Vysya Bank, Bank of Rajasthan and Karnataka Bank–
offer these services: it’s a symptom of the fact that these are no longer
considered ‘premium’ services, but are percolating down and becoming a must-
have, pretty much like what happened to ATMs some years ago.
Predictably, new-age MNC and Indian private banks, whose
young, upwardly mobile customers are typical users of phone/Net banking,
claim this service space for themselves. Among private banks, HDFC Bank
leads its bigger rival ICICI Bank in this space. And among PSU banks, IOB,
Syndicate Bank and Bank of Baroda are streets ahead of the others. IOB even
breaks into the Top 10 across all 24 banks on this parameter, ahead of new-age
banks like ING Vysya Bank and IndusInd Bank.
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5: NEW MARKETING CHANNEL
New marketing channel is creating strong base for the banking
industry and it will help banks to push their products in the market places. New
private sector banks are used DSA level for pushing their products in the market
place so they appoint different team for different territory and those teams are
works for that area and make strong position in marketing of that banks.
Here, in this channel the cost of employee is variable because
generally appointment of team is based on their works. This team is work for
only marketing so it will help the bank in creating the strong position in the
market place also.
Banks are also involved in inventing new marketing and
distribution channels like E-banking, net banking and tele-banking. The next era
would be of all these. Now customers want services to be delivered at their
convenience. The first mover advantages will surely going to work. About 25%
of transactions are projected to be carried on through E-Banking by 2008
6: BANKING INDUSTRTY DOMINANT ECONOMIC FEATURES
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Market size: Banking industry market size is around Rs.14, 04,341 crore
deposits by 357 commercial banks.
Scope of competitive
rivalry:
There are 357 commercial banks in banking sector, which
includes domestic and foreign banks, and finance sector
also provides strong fight to the banking sector companies.
Market life cycle: In India it is in secondary stage and more and more chance
for growth
Market growth rate: The Indian government adopted the policy of liberalization
and it is since then that this sector has shown high annual
growth through various in various services like ATM, Net
Banking, Phone Banking and its growth rate is also
increasing from heavily from last 4-5year.
Number of companies
in industry:
Now a day around 357 commercial banks; among them 27
public sector banks, 30 private sector banks then 36 foreign
banks and remaining are co-operative banks, they
providing their service in this industry.
Customers: Entrepreneurs those who willing to invest in businesses
especially young and mature people and layman, those use
different banking services, are customers of banks.
Ease of entry/exit: Entry in Indian banking sector has become easy. Now
foreign banks are also allowed to carry on their business.
But exit is difficult due to large investment and government
rules & regulation. All players fight desperately to survive.
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Technology/innovation: Technology is main issue in global era and changes are
fast; biggest changes are occurring in products innovation
and new era technology like net-banking mobile banking or
ATM banking. Now a days all banks are concentrating on
technology related innovative products.
Degree of vertical
integration:
Here no question of degree of vertical integration but some
large banks provides different services so in those case the
degree of integration come in to light but it not effect so
much in this industry’s basic service.
Product Characteristics: Homogeneous services by all banks little difference in
services offered.
Economies of scale: Moderate all companies have virtually equal
service cost due to rules and regulation of RBI but scale of
economies exists in new era services and marketing and
other integration work.
Learning and
experience effects:
Quite important factor because it decides various skills and
operational works also.
Capacity Utilization: Service efficiency is highest in private and in foreign banks
its around 70 to 80 percent but in public sector it is quite
low.
7: Porter's Five Forces Model of Competition
The nature of competition in an industry in large part determines
the content of strategy, especially business-level strategy. Based as it is on the
fundamental economics of the industry, the very profit potential of an industry is
determined by competitive interactions. Where these interactions are intense,
profits tend to be whittled away by the activities of competing. Where they are
mild and competitors appear docile, profit potential tends to be high. Yet a full
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understanding of the elements of competition within an industry is easy to
overlook and often difficult to comprehend.
Porter has identified five basic forces that collectively describe
the state of competition in an industry:
1. The intensity of rivalry among competitors
2. The threat of new entrants to the market
3. The amount of bargaining power possessed by the firm's/industry's
suppliers
4. The amount of bargaining power possessed by the firm's/industry's
customers
5. The extent that substitute products present a threat to a
firm's/industry's products
These forces assist in identifying the presence or absence of
potential high returns. The weaker are Porter's five forces, the greater is the
opportunity for firms in an industry to experience superior profitability. More
generally, understanding how these forces affect competition within an industry
allows the strategist to identify the most advantageous strategic position.
The actors within an industry on whom these forces exert
pressure are, respectively, the industry's competing firms themselves, potential
new entrants to the industry's markets, suppliers (vendors), customers, and
makers of substitute products.
Obviously, the starting point for conducting an analysis of the
five forces of competition is to identify all the competitors, potential new
entrants, major suppliers, the demographics of customers, and makers of and
nature of substitute products. Competitors would not only have to be identified,
but various distinguishing data about the industry would also have to be 38
specified. For each competitor this data would include market share, product line