Industry Analysis - Banking

SIBM Bangalore
EMBA Semester 1

By,
Sushmita
Mahima
Raju
Raghav
Kumaran
Debapriya
Contents
Introduction to Banking ............................................................................................................................... 3
Banking Structure in India............................................................................................................................ 3
History & Evolution of Banking .................................................................................................................... 4
Features & nature of Banking ...................................................................................................................... 4
Some players in Indian banking industry .................................................................................................... 5
Recent Changes & improvements in banking sector .................................................................................. 5
Growth Drivers of Indian Banking Sector .................................................................................................... 6
SWOT Analysis of Indian Banking Industry ................................................................................................. 6
PEST Analysis of Indian Banking Industry .................................................................................................. 10
Competitors in the industry - Porter’s five forces Model ......................................................................... 12
Challenges facing the industry and the steps taken ................................................................................. 15
Recent Developments in the Industry ....................................................................................................... 16
Industry Dynamics ...................................................................................................................................... 18
Innovation in Sales – Branches & More..................................................................................................... 18
Future Outlook ........................................................................................................................................... 19
Conclusion .................................................................................................................................................. 19
References .................................................................................................................................................. 20
Introduction to Banking
Finance is the life blood of trade, commerce and industry and the banking sector acts as the backbone of
modern business. Development of any country mainly depends upon the banking system.

Oxford Dictionary defines a bank as “an establishment for custody of money, which it pays out on
customer's order” and defines banking as “the business conducted or services offered by a bank”.

Bank is an institution which deals in money and credit. It accepts deposits from the public and grants loans
and advances to those who are in need of funds for various purposes. A banking system also referred as
a system provided by the bank which offers cash management services for customers, reporting the
transactions of their accounts and portfolios, throughout the day.

Banking Structure in India

History & Evolution of Banking
The term bank is either derived from an Italian word banca or from a French word banque both mean a
Bench or money exchange table. In olden days, European money lenders or money changers used to
display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of
lending or exchanging.

Features & nature of Banking

Banks safeguard money and valuables and provide loans, credit, and payment services such as checking
accounts, money orders, and checks. Banks also may offer investment and insurance products

The essential features of banking activities are as follows:

 Accepting deposits from public;
 Lending or investment of such deposits;
 Promoting and mobilizing savings of the public
  Providing funds to trade and industry by way of discounting bills, overdraft, cash credit facility,
and transfer of funds from one place to another
 Providing agency services to customers, such as collection of bills, payment of insurance premium,
purchase and sale of securities, etc
 General services, such as issue of travellers’ cheques, credit cards, locker facility, etc
 Control the supply of money and credit
 Avoid focus of financial powers in the hands of a few individuals/ institutions
 Set equal norms and conditions (i.e. rate of interest, period of lending etc) to all types of
customers

Some players in Indian banking industry

Canara Bank, HSBC Bank, ICICI Bank, Bank of Baroda, State Bank of India, Axis Bank, Yes Bank, IDBI Bank,
Kotak Mahindra, HDFC Bank, Syndicate Bank, Punjab National Bank, Corporation Bank, Indian Bank,
Bank of India, Karnataka Bank, Vijaya Bank etc.

Recent Changes & improvements in banking sector

Source: http://www.ibef.org/industry/banking-india.aspx
Growth Drivers of Indian Banking Sector

Economic and Demographic Drivers

 Favorable demographics and rising income levels
 Strong GDP growth (CAGR of 7.0 per cent expected over 2012–17) to facilitate banking sector
expansion
 The sector will benefit from structural economic stability and continued credibility of Monetary
Policy

Policy support
 Extension of interest subsidy to low cost home buyers
 Simplification of KYC norms, introduction of no-frills accounts and Kisan Credit Cards to increase
rural banking penetration
 RBI is considering giving more licenses to private sector players to increase banking penetration

Infrastructure financing
 India currently spends 6 per cent of GDP on infrastructure; Planning Commission expects this
fraction to grow going ahead
 Banking sector is expected to finance part of the USD1 trillion infrastructure investments in the
12th Five Year Plan, opening a huge opportunity for the sector

Technological innovation
 Technological innovation will not only help to improve products and services but also to reach
out to the masses in cost effective way
 Use of alternate channels like ATM, internet and mobile hold significant potential in India

Housing and personal finance have been key drivers. Rapid urbanization, decreasing household size and
easier availability of home loans has been driving demand for housing Credit to housing sector increased
at a CAGR (Compound Annual Growth Rate) of 7.8 per cent during FY08–13. As of November 2013,
credit to housing sector was at USD94.0 billion compared to USD90.5 billion corresponding to prior
period. Demand in the low- and mid-income segments exceeds supply three- to four-fold. This has
propelled demand for housing loans in the last few years. Growth in disposable income has been
encouraging households to raise their standard of living and boost demand for personal credit. Credit
under the personal finance segment (excluding housing) rose at a CAGR of 5.9 per cent during FY08–13.
Unlike some other emerging markets, credit-induced consumption is still less in India.

SWOT Analysis of Indian Banking Industry

The accelerating shift in economic power from the developed to emerging economies is dramatically
changing the banking industry across the world. The Indian banking scene has witnessed progressive
deregulation, institution of prudential norm and an emulation of international supervisory best practices.
The supervisory processes have also concomitantly evolved and have acquired a certain level of
robustness and sophistication in the banking industry.

Strengths of Indian Banks

In the short-term, most developed economies experienced a significant economic slowdown or
recession in 2008-9, reducing significantly the growth of domestic banking assets. Emerging economies
such as India by contrast tended to maintain relatively high growth rates, although some temporary
economic slowdown was experienced in certain cases.

 High standard regulatory environment. The policy makers, which comprise the Reserve Bank of
India (RBI), Ministry of Finance and related over financial sector regulatory entities, have made
several notable efforts to improve regulation in the sector
 Bank lending has been a significant driver of GDP growth and employment
 Presence of more number of Smaller banks that would likely to be impacted adversely
 Approximately 53000 networks of branches spread all over the country provides easy access to
entire spectrum of customers.
 Diversification in their operations Banks offer an entire gamut of services including insurance,
investment banking, asset management, private equity, foreign exchange, payment of utility bills
to customers, mobile and internet banking.
 Large manpower with relevant banking skills to manage the operations
 Technological up gradation changing the way the banking is done. Anywhere banking and
anytime banking has become a reality and thus making service faster, error free and
competitive.
 Banks have gained financial strengths in terms of Productivity and Profitability

Weakness of Indian Banks

Indian commercial banks, particularly PSBs have been witnessing the following challenges which have
become bottlenecks in achieving competitive edge over their rivals

 Low operating size

  High operating costs
 Inadequate deposit mobilization efforts
 High level of nonperforming assets
 Financial exclusion
 Complex and non-responsive organizational structures
 Credit to non-productive sectors like commercial estate
 Poor customer service
 Underutilized capacity particularly in rural areas
 Unsatisfactory work culture
 Feudalistic attitude of thee staff
 Ethnocentric and action flippant management
 Absence of organizational focus on the employees leading to their demotivation
 Inadequate access to global financial system
 The cost of banking intermediation in India is higher and bank penetration is far lower than in
other markets
 Inadequate risk management skills particularly to cope with market risks and per Basel II norms
 Structural weaknesses such as a fragmented industry structure, restrictions on capital
availability and deployment, lack of institutional support infrastructure, restrictive labour laws,
weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks
(SCBs)
 The inability of bank managements (with some notable exceptions) to improve capital
allocation, increase the productivity of their service platforms and improve the performance
ethic in their organizations could seriously affect future performance

Opportunities for Indian banks

Increase the profitability by accessing international financial market for procuring funds cheaply and
deploy funds prudently.

 The emerging economies

 Banking sectors are expected to outgrow those in the developed economies
 As per the PWC projection in Banking, by 2050 the leading E7 emerging economies could have
domestic banking assets and profits that exceed those in the G7 by around 50%.

* G7 countries: US, Japan, Germany, UK , France, Italy, Canada

* E7 countries: China, India, Brazil, Russia, Mexico, Indonesia, Turkey
* Other developed economies: Australia, Republic of Korea, Spain
* Newly emerging economies: Argentina, Vietnam, Nigeria, Saudi Arabia, South Africa

Projections of domestic banking assets in the E7 and G7

  India has particularly strong long-term growth potential and PWC projections suggest it could
become the third largest domestic banking sector by 2050 after China and the US, but ahead of
Japan, the UK and Germany. Brazil could also rise strongly up the global banking league table over
this period.

Dates at which E7 economies overtake G7 in terms of the size of their domestic banking assets

To acquire any company, non-bank finance company, housing finance or other businesses to increase
their balance sheet size and go into areas where there is lot of potentials.

The emerging economies market exchange rates are expected to appreciate over time in real terms due
to relative stronger productivity growth (the so-called Balassa- Samuelson effect). This provides a boost
to growth in all of the emerging economies when measured in real.

Threats
Competition among banks for highly rated corporates needing lower amount of capital may exert pressure
on already thinning interest spread. Further, huge implementation cost may also impact profitability for
smaller banks.

The biggest challenge is the re-structuring of the assets of some of the banks as it would be a tedious
process, since most of the banks have poor asset quality leading to significant

Proportion of NPA - This also may lead to Mergers & Acquisitions, which itself would be loss of capital to
entire system

Huge surplus manpower, Absence of good work culture, antiquated labour laws, inflexible and inefficient
labour and existence of strong labour union.

High level of Non-Performing assets (NPA). 6 percent of the advances are still blocked up which is about
58000 Crore. Therefore problem of non-recognition of interest income and loan loss provisioning exists.
The house hold savings comprising financial assets are moving away from bank deposits to more
sophisticated form of financial assets such as mutual funds, stocks and derivatives.

 Asset liability mismatch

 Demanding customers are ready to jump from one bank to another when they are not satisfied
with the service provided. This causes major threat particularly to PSUs
 Competition from new players.
 Competition at global level in terms of product innovation and product mix.
 Keep pace with the fast growing technology.
 The current business environment demands

PEST Analysis of Indian Banking Industry

It is very important to consider the environment or factors effecting the industry, In fact, environmental
analysis should be continuous and feed all aspects of planning

Internal environment: Staffs or (Internal customers), office technology, wages and finance etc.

Micro environment: Our external customers, agents and distributors, suppliers, and competitors

Macro environment: Political (and legal) forces, Economic forces, sociocultural forces and Technological
forces, these are known as PEST Factors
Political Factors
The political arena has a huge influence upon the regulation of business and the spending power of
consumer and savings

To what degree a government intervenes in the economy, Ex-tax policy, labour Law, environmental law,
trade restrictions, tariffs and political stability

 How Stable is political environment

 Will government policy influence the laws that regulate the business
 Government policy on economy
 Focus on Regulations of government
 Budget and Budget measures
 Foreign Direct Investment limits

Economic Factors
The economic factors also has a huge influence upon the regulation of business and the spending power
of consumer and savings, Every year RBI declares its 6 months policies and accordingly the various
measures and rates are implemented which has an impact on the banking sector

 Interest Rates
 Inflation Rate
 Level of Inflation and Gross Domestic Product
 Long term prospects for the economy
 RBI Policies

Sociocultural Factors
It includes cultural aspects and health consciousness, population growth rate, age distribution, career
attitudes and emphasis on safety

 Change in Lifestyle
 Traditional Mahajan Pratha
 Populations
 Literacy Rates

Technical Factors
Technology has very important role in bank’s internal control mechanism as well as service offered by
them, though the use of technology aspects such as R&D Activity, automation, technology incentives
and the rate of technological changes

 ATM ( Automatic Teller Machines)

 Automatic voice recorder
 Credit card facility
 IT Services and mobile banking
Competitors in the industry - Porter’s five forces Model

The model of pure competition implies that risk-adjusted rates of return should be constant across firms
and industries. However, numerous economic studies have affirmed that different industries can sustain
different levels of profitability; part of this difference is explained by industry structure.

Michael Porter provided a framework that models an industry as being influenced by five forces. The
strategic business manager seeking to develop an edge over rival firms can use this model to better
understand the industry context in which the firm operates.

Threat of New Entrants

Despite the regulatory and capital requirements of starting a new bank, between 1977 and 2002 an
average of 215 new banks opened each year according to the FDIC. With so many new banks entering
the market each year the threat of new entrants should be extremely high. However, due to mergers
and bank failures the average number of total banks decreases by roughly 253 a year. A core reason for
this is what is arguably, the biggest barrier of entry for the banking industry, trust.
Because the industry deals with other people's money and financial information new banks find it
difficult to start up. Due to the nature of the industry people are more willing to place their trust in big
name, well known, major banks who they consider to be trustworthy.

The banking industry has undergone a consolidation in which major banks seek to serve all of
customer’s financial needs under their roof. This consolidation furthers the role of trust as a barrier to
entry for new banks looking to compete with major banks, as consumer are more likely to allow one
bank to hold all their accounts and service their financial needs.

Ultimately the barriers to entry are relatively low for the banking industry. While it is nearly impossible
for new banks to enter the industry offering the trust and full range of services as a major bank, it is
fairly easy to open up a smaller bank operating on the regional level.
Different factors affecting the threat of new entry barriers:

 Government Licensing and RBI regulations

 Skills manpower
 High Initial investment
 Protected intellectual property
 The entry of foreign banks

Any average person can't come along and start up a bank, but there are services, such as internet bill
payment, on which entrepreneurs can capitalize. Banks are fearful of being squeezed out of the
payments business, because it is a good source of fee-based revenue. Another trend that poses a threat
is companies offering other financial services. What would it take for an insurance company to start
offering mortgage and loan services? Not much. Also, when analyzing a regional bank, we need to
remember that the possibility of a mega bank entering into the market poses a real threat.

Power of Suppliers
Capital is the primary resource on any bank and there are four major suppliers (various other suppliers
[like fees] contribute to a lesser degree) of capital in the industry.

 Customer deposits
 Mortgages loans
 Mortgage securities
 Loans from other financial institutions

By utilizing these four major suppliers, the bank can be sure that they have the necessary resources
required to service their customers' borrowing needs while maintaining enough capital to meet
withdrawal expectations.
The power of the suppliers is largely based on the market, their power is often considered to fluctuate
between medium to high.

Also With the different factors affecting bargaining power

 Rise in investment avenues

 Providers of funds
 Interest rates
 Valuations
 The economic out look
 Role of RBI
 Offshore operation

The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human
capital does. If a talented individual is working in a smaller regional bank, there is the chance that
person will be enticed away by bigger banks, investment firms, etc.

Power of Buyers
The individual doesn't pose much of a threat to the banking industry, but one major factor affecting the
power of buyers is relatively high switching costs. If a person has one bank that services their banking
needs, mortgage, savings, checking, etc., it can be a huge hassle for that person to switch to another
bank.

To try and convince customers to switch to their bank they will often times lower the price of switching,
though most people still prefer to stick with their current bank.

 The individual Customers

 High switching costs
 The customers Loyalty
 The Technology

The internet has greatly increased the power of the consumer in the banking industry. The internet has
greatly increased the ease and reduced the cost for consumers to compare the prices of
opening/holding accounts as well as the rates offered at various banks.
ING Direct introduced high yield savings accounts to catch the buyers' attention, and then they went a
step further and made it very easy for customers to transfer their money from their current bank to ING.
ING was successful in their attempt because they managed to make switching costs very low in terms of
time and capital.

Availability of Substitutes
As we can probably imagine, there are plenty of substitutes in the banking industry. Banks offer a suite
of services over and above taking deposits and lending money, but whether it is insurance, mutual funds
or fixed income securities, chances are there is a non-banking financial services company that can offer
similar services. On the lending side of the business, banks are seeing competition rise from
unconventional companies. Some of the banking industry's largest threats of substitution are not from
rival banks but from non-financial competitors. The industry does not suffer any real threat of
substitutes as far as deposits or withdrawals; however insurances, mutual funds, and fixed income
securities are some of the many banking services that are also offered by non-banking companies. There
is also the threat of payment method substitutes and loans are relatively high for the industry. For
example, big name electronics, jewelers, car dealers, and more tend to offer preferred financing on "big
ticket" items. Often times these non-banking companies offer a lower interest rates on payments then
the consumer would otherwise get from a traditional bank loan.

Different Factors affecting threats of substitutes:

 Close customer relationships

 Conservative Customers
 Risk taking customers attitude
 Switching costs

SKODA Auto India offer preferred financing to customers who buy its cars. (SKODA Finance Private
Limited 100% finance with attractive interest rates) If car companies are offering attractive financing,
why would anyone want to get a car loan from the bank and pay 7-10% interest?
Competitive Rivalry
The banking industry is considered highly competitive. The financial services industry has been around
for hundreds of years and just about everyone who needs banking services already has them. Because of
this, banks must attempt to lure clients away from competitor banks. They do this by offering lower
financing, higher rates, investment services, and greater conveniences than their rivals. The banking
competition is often a race to determine which bank can offer both the best and fastest services, but has
caused banks to experience a lower ROA (Return on Assets). Given the nature of the industry it is more
likely to see further consolidation in the banking industry. Major Banks tend to prefer to acquire or
merge with other banks than to spend money marketing and advertising.

GENERIC STRATEGIES TO COUNTER THE FIVE FORCES

Strategy can be formulated on three levels

 Corporate Level
 Business unit level
 Functional or departmental level

The business unit level is the primary context of industry rivalry. Michael Porter identified three generic
strategies (cost leadership, differentiation, and focus) that can be implemented at the business unit level
to create a competitive advantage.

Challenges facing the industry and the steps taken

Indian Consumer
The Indian consumer now seeks to fulfil his lifestyle aspirations at a younger age with an optimal
combination of equity and debt to finance consumption and asset creation. This is leading to a growing
demand for competitive, sophisticated retail banking services. This consumer does not live just in India‘s
top ten cities. He is present across cities, towns, and villages as improving communications increases
awareness even in small locations.

Demand Supply mismatch

The demand supply mismatch shows the limitations on the banks’ ability to supply products and services.
A large proportion of the population in India is concentrated in rural areas and denied access to formalized
credit markets and payments systems. Informal credit drives these people to use the services of
unorganized credit markets which charge interest at rates in the range of 35-60%.

Many initiatives are being taken by the RBI and other banks in the country, notably public sector banks,
to increase supply of financial services to the unbanked areas. Introduction of ‘no frills’ account (2005)
and utilizing services of NGOs and other civil organizations for providing financial services (2006) are some
steps in that direction. The ability of banks to supply products and services is clearly reflected in the
population being served by them per branch, or their physical presence geographically.
Intense Competition
The RBI and Government of India kept banking industry open for the participants of private sector banks
and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as
subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private
banks, foreign banks, nonbanking finance companies, etc. The foreign banks and new private sector banks
have spearhead the hi-tech revolution. For survival and growth in highly competitive environment banks
have to follow the prompt and efficient customer service, which calls for appropriate customer centric
policies and customer friendly procedures.

Maintain asset quality

The secured advances made by banks have shown a mild decline in FY09. The unsecured advances of
banks particularly of credit card receivables have increased substantially. In FY09, the quality of assets of
banks has come under scrutiny, as the rising interest rates started putting pressure on the repayment by
borrowers in the H1 FY09. While the interest rates began to soften in the latter part of the fiscal, the risk
of default persisted mainly due to slowdown in economic activity. Thus a major challenge in the current
economic scenario for the Indian banks is to maintain the gains made with respect to asset quality over
the past few years.

Technology adoption
The primary issue involved with the adoption and rapid integration of technological processes within
banks still related to human resources- the availability of technically skilled resources is scarce.
Technology is not among the core competencies of financial institutions, which necessitates outsourcing.
Banks in India are different from banks in many other countries, in ways that they have a very large branch
network and varied needs specific to regions and customers. Most off the shelf solutions are not exactly
in conformity to the needs of the banks, which makes room for large customizations.

Regulatory Perspective
Sound KYC policies and procedures not only contribute to a bank's overall safety and soundness, they also
protect the integrity of the banking system by reducing the likelihood of banks becoming vehicles for
money laundering, terrorist financing and other unlawful activities.

There are three components here. ‘Knowing their customers’ is not enough for banks, they should also
know the ‘business’ of their customers; (KYBC) and if the banks know the business of their customers, the
banks must understand and assess the risks associated with each of their customers’ businesses (KYCBR).

Recent Developments in the Industry

Deregulation of savings rates for banks in India

In a move that enables banks to decide the interest rates they offer on savings accounts, the RBI has
deregulated the savings bank deposit interest rates from an earlier norm of 4 per cent per annum to aid
product and price innovation in the long run. This is expected to push up the interest rates in the short
term, and especially on deposits of a high amount due to intense competition. Higher interest rates imply
higher costs for banks, and are expected to affect their profitability. On the other hand, costs are expected
to rise for large scale borrowers as a hike in interest rates might be accompanied with a projected rise in
loan rates.

Provision Coverage Ratio (PCR) of 70 per cent mandatory for banks

The mandatory directive to maintain a PCR of 70 per cent benefits all commercial banks. The current PCR
can be used to minimize NPAs during economic downturn.

Basel III guidelines

The RBI has planned the implementation of the Basel III norms, which would require a capital infusion of
approximately US$ 60 billion over the next five years. These norms would require the systemically
important banks to maintain a higher level of capital, at a time when the credit demand in the economy
is rising. This might hamper the banking industry’s short term growth. However, Dr. Subbarao, the
Governor of the Reserve Bank of India in 2012, commented that Basel III would make Indian banks
stronger in the long run, thereby enabling them to invest in the real sectors of the economy.

Relaxation of branch authorization policy for tier II cities

Under the relaxation of Branch Authorization Policy, the domestic banks do not need the RBI approval to
set up service offices, central processing centers and administrative offices in the tier II cities, with a
population ranging between 50,000 to 99,999. Further, a similar relaxation to expand into tier III to tier VI
cities already exists. The policy will spread the organized banking to the remote areas of the country, and
aid financial inclusion.

Relaxation of mobile payment guidelines

With the increasing popularity of mobile banking, the RBI removed the cap of Rs. 50,000 (US$ 942.7) for
transactions through mobile phones. This relaxation allowed banks to assess the involved risk, and place
their own limits while granting customers with mobile banking facilities. In a statement, the RBI
commented that the Interbank Mobile Payment Service (IMPS), which was developed and operated by
the National Payment Corporation of India (NPCI), also enabled real time fund transfer among different
banks.

Issue of financial guidelines for new bank licenses

The RBI, deviating from its traditional policy of granting licenses to only a few private institutions, is now
issuing new bank licenses to all entities that satisfy the eligibility criteria. This move is expected to
encourage healthy competition and promote financial inclusion in the banking industry.

Subsidiary route for foreign banks

The RBI is encouraging foreign players entering the Indian banking industry to conduct business through
wholly owned subsidiaries. Further, it is promoting existing important foreign players to incorporate
themselves as wholly owned subsidiaries of foreign parent companies. This move is expected to benefit
foreign players by allowing them to expand their consumer base to semi urban areas.
Industry Dynamics

Dynamic 1: The Industry’s Scarcest Resource has Become Satisfied Customers

The current climate of lower growth and higher uncertainty has put banking revenues and margins under
greater pressure. Consumers have become more demanding and more financially sophisticated. Finding
them in a buyer’s market, they not only are more vocal in expressing dissatisfaction with their financial
relationships but also feel empowered by favorable regulatory developments. Holding on to these
customers is an increasingly critical driver of revenue and profit for financial institutions—and losing them
to competitors is becoming more and more costly. It is becoming clear that strategies based on customer
acquisition—which have been highly useful during a period when low interest rates encouraged people
to borrow—must now take greater account of retention. Indeed, customers, many of whose levels of debt
have risen sharply, are confident enough to move to other institutions that hold out the promise of better
service.

Dynamic 2: Value Creation Is Switching from “Stocks” to “Flows”

As increasingly demanding and sophisticated consumers seek out better deals, they tend to hold products
for shorter periods of time than they used to. Our research shows, for example, that banks in some regions
must now sell three to four times as many mortgages in order to attain an annual profit similar to that of
15 years ago. Some markets have seen credit card spending triple since 1995. The emphasis, reinforced
by Basel III, is on providing capital against operational risk, not just against credit risk, as with stocks of
consumer debt. Fees, of course, are harder to capture than interest income since they are subject to
greater transparency and scrutiny by both consumers and regulators. In an environment based on flows,
banks also need IT systems that can efficiently handle a heavier level of traffic in accounts.

Dynamic 3: Value Is Moving from the “Back End” to the “Front End” of the Bank
As more institutions sell not only proprietary offerings but also those manufactured by others, the
architecture of the financial services industry is becoming increasingly open in areas such as savings and
investments, life insurance, general insurance, mortgages, and even credit cards. For these products,
which represent a significant proportion of the retail-banking range, value and emphasis are shifting
toward the activities that are closest to the customer: sales and distribution. This is a tough challenge
because banks are competing not only against one another but also against IFAs and specialist brokers
whose primary activity is distribution. In addition, banks need to find ways to cut back-office costs as most
of the value moves to the front end. The greatest source of advantage for most banks is their customer
franchise, and they will need to find ways to deepen share of wallet, retain customers, and provide levels
of service commensurate with the value that each customer brings.

Innovation in Sales – Branches & More

 Life-assistance-banking - In this scenario, customer interaction is based on individual consulting.

At the show case, a biometric and a Radio Frequency Identification (RFID) based customer
recognition supports the new role of a “navigator”, who addresses incoming customers based
on Customer Relationship Management (CRM) information. The branch design and integrated
 technologies encourage a consultancy approach that reflects a long-term customer relationship
providing support over a lifetime, even beyond banking.
 Community-banking - The branch is a communication and experience space that pro-vides
customers with additional occasions for interaction (e.g. “after-work-banking” at a bank café
and supplementary services by partners). Self-service areas are connected to the workplace of a
“service assistant”. Areas of “communication” and areas of “privacy” are combined in an open
space concept. Customers and non-customers are invited to visit the branch.
 Convenience-banking - The idea of “financial shopping” requires easy access to standardized
financial services. The informed customer can do business at self-service terminals or by
approaching a “service assistant”.
 High-tech-banking - The branch is part of a multimedia-based communication and interaction
concept. New media and enhanced information services support personal communication in
and outside the branch.

Future Outlook

An outlook on the future banking markets as perceived by the bank managers:

 Changing Banking Markets - Establishment of a European financial market, growth of niche
players and cooperation across borders (agile and flexible).
 Competition by Service Quality and Speed - Besides price competition, other critical success
factors such as service quality, added value and speed will gain increasing significance.
 Industrialized Processes and Structures - Redefinition of value chains in extended models of co-
operation, assessment of structural changes in banks including new roles.
 New Services within Industrialized Value Chains - An industrialized value chain enables agile
and flexible service composition to address changing and new markets.
 Customer Management 2.0 - Banks invest in customer contact and emotional selling, with-out
losing the benefits of bank automation and of new communication technologies like Web 2.0
and virtual sales.
 Security and Service Quality - Biometric solutions are a standard part of security concepts and
are used to support customer convenience.
 Management Skills and Personnel Development - New bank profiles require different
management skills. Better informed customers ask for well-educated banking people.

Conclusion

After independence, Indian Banking sector grew consistently. After the nationalization of banks, the
branches of public sector banks in India rose to approximately 800% in deposits and advances took a
huge jump by 11,000%.
According to IBM’s strategic research unit, the Institute of Business Value recently released a study
called Banking 2015 defining the future of Banking. Worldwide, total financial services revenue is
predicted to experience compound annual growth of 7.1% between 2000 and 2015, from $2 trillion to
$5.6 trillion. In India region, IBM predicts a growth rate of 7.6%.

According to ICICI Bank CEO and MD Chanda Kochhar, “The Indian Banking sector can grow at least
twice the GDP growth rate”.

Based on above analysis, we can say that Indian Banking sector has a bright future with double rate of
growth of Indian Economy.

References
- Basel Committee on Banking Supervision, (1999), Enhancing Corporate Governance for Banking
Organizations, September BIS.
- Kamesam Vepa, (2002), "Corporate Governance", RBI Bulletin, January Volume LVI No.1.
- Reddy, Y.V. (2002), "Indian Banking – Paradigm Shift in Public Policy", BIS Review No.3, Bank for
International Settlements, Basel
- Reserve Bank of India (2009), Report of the Advisory Group on Corporate Governance
- Reserve Bank of India: //www.rbi.org.in
- //www.marketwatch.com/story/indian-banking-industry-market-trends-and-outlook-for-2014-
and-beyond-2014-04-17
- //www.ibef.org/industry/banking-india.aspx
- //www.iba.org.in
- //rbidocs.rbi.org.in/rdocs/Publications