hdfc bank.doc
TRANSCRIPT
A PROJECT REPORT ON
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF
Master of Business Administration
Under the Guidance of Submitted byMr. R. K. Mishra BALMUKAND SHARMA Lecturer Reg. No. 204033071284 MIITM, Aligarh
MASTER’S INSTITUTE OF I.T. & MANAGEMENT ALIGARH, U.P.
5
(VINAYAKA MISSIONS UNIVERSITY)SALEM, TAMILNADU, INDIA
2009
6
29 July, 2009
Mr. R. K. MishraLecturerMIITM, Aligarh
This is to certify that the present Dissertation report titled.
“H.D.F.C. Bank” is an original outcome of study undertaken by
Mr. BALMUKAND SHARMA, MBA (2009) and has been
conducted under my guidance and supervision.
The present dissertation is the result of his own research
work and to the best of my knowledge, no part of it has been
submitted in part or full to this University or any other University
for any Degree/Diploma or for any other purpose.
Mr. R.K. Mishra
(Supervisor)
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Dedicated To
My Parents &
Teachers with love
8
DECLARATION
I hereby declare that this report is result of my intensive study of
H.D.F.C. Bank. All the facts, figures and findings in this report are
genuine, authentic & purely academic interest only for the case study
of H.D.F.C. Bank.
BALMUKAND SHARMA
9
CONTENTS
Sr. No. Subject Covered Page No.
1 Banking Structure in India 06-25
2 Indian Banking Industries 26-45
3 Upcoming Foreign Bank in India 46-51
4 HDFC BANK 52-53
5 Company Profile 54-56
6 Technology used 57-60
7 Product and Customer segments 61-66
8 Business Strategy 67-68
9 Inside Hdfc Bank 69-74
10 Rupee Earned – Rupee Spent 75-76
11 Recent Development 77-84
12 SWOT Analysis 85-91
13 Project on Plastic Money 92-98
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BANKING STRUCTURE IN INDIA
India has a well developed banking system. Most of the banks in
India were founded by Indian entrepreneurs and visionaries in the
pre-independence era to provide financial assistance to traders,
agriculturists and budding Indian industrialists. The origin of banking
in India can be traced back to the last decades of the 18th century.
The General Bank of India and the Bank of Hindustan, which started
in 1786 were the first banks in India. Both the banks are now defunct.
The oldest bank in existence in India at the moment is the State Bank
of India. The State Bank of India came into existence in 1806. At that
time it was known as the Bank of Calcutta. SBI is presently the
largest commercial bank in the country.
The role of central banking in India is looked by the Reserve Bank of
India, which in 1935 formally took over these responsibilities from the
then Imperial Bank of India. Reserve Bank was nationalized in 1947
and was given broader powers. In 1969, 14 largest commercial banks
were nationalized followed by six next largest in 1980. But with
adoption of economic liberalization in 1991, private banking was
again allowed.
11
The commercial banking structure in India consists of: Scheduled
Commercial Banks and Unscheduled Banks. Scheduled commercial
Banks constitute those banks, which have been included in the
Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI
includes only those banks in this schedule, which satisfy the criteria
laid down vide section 42 (6) (a) of the Act.
Indian banks can be broadly classified into public sector banks (those
banks in which the Government of India holds a stake), private banks
(government doe not have a stake in these banks; they may be
publicly listed and traded on stock exchanges) and foreign banks.
Bank Fixed Deposits
Bank Fixed Deposits are also known as Term Deposits. In a Fixed
Deposit Account, a certain sum of money is deposited in the bank for
a specified time period with a fixed rate of interest. The rate of
interest for Bank Fixed Deposits depends on the maturity period. It is
higher in case of longer maturity period. There is great flexibility in
maturity period and it ranges from 15days to 5 years.
Current Account
Current Account is primarily meant for businessmen, firms,
companies, public enterprises etc. that have numerous daily banking
transactions. Current Accounts are cheque operated accounts meant
neither for the purpose of earning interest nor for the purpose of
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savings but only for convenience of business hence they are non-
interest bearing accounts.
Demat Account
Demat refers to a dematerialised account. Demat account is just like
a bank account where actual money is replaced by shares. Just as a
bank account is required if we want to save money or make cheque
payments, we need to open a demat account in order to buy or sell
shares.
Recurring Bank Deposits
Under a Recurring Deposit account (RD account), a specific amount
is invested in bank on monthly basis for a fixed rate of return. The
deposit has a fixed tenure, at the end of which the principal sum as
well as the interest earned during that period is returned to the
investor.
Reserve Bank of India
The Reserve Bank of India was established on April 1, 1935 in
accordance with the provisions of the Reserve Bank of India Act,
1934. Though initially RBI was privately owned, it was nationalized in
1949. Its central office is in Mumbai where the Governor of RBI sits.
Savings Bank Account
Savings Bank Accounts are meant to promote the habit of saving
among the citizens while allowing them to use their funds when
required. The main advantage of Savings Bank Account is its high
liquidity and safety.
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Senior Citizen Saving Scheme 2004
The Senior Citizen Saving Scheme 2004 had been introduced by the
Government of India for the benefit of senior citizens who have
crossed the age of 60 years. However, under some circumstances
the people above 55 years of age are also eligible to enjoy the
benefits of this scheme.
Foreign Banks in India
Foreign banks have brought latest technology and latest banking
practices in India. They have helped made Indian Banking system
more competitive and efficient. Government has come up with a road
map for expansion of foreign banks in India.
Nationalised Banks
Nationalised banks dominate the banking system in India. The history
of nationalised banks in India dates back to mid-20th century, when
Imperial Bank of India was nationalised (under the SBI Act of 1955)
and re-christened as State Bank of India (SBI) in July 1955.
Private Banks in India
Initially all the banks in India were private banks, which were founded
in the pre-independence era to cater to the banking needs of the
people. In 1921, three major banks i.e. Banks of Bengal, Bank of
Bombay, and Bank of Madras, merged to form Imperial Bank of India.
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Banking in India originated in the last decades of the 18th century. The
oldest bank in existence in India is the State Bank of India, a government-
owned bank that traces its origins back to June 1806 and that is the largest
commercial bank in the country. Central banking is the responsibility of the
Reserve Bank of India, which in 1935 formally took over these
responsibilities from the then Imperial Bank of India, relegating it to
commercial banking functions. After India's independence in 1947, the
Reserve Bank was nationalized and given broader powers. In 1969 the
government nationalized the 14 largest commercial banks; the government
nationalized the six next largest in 1980.
Currently, India has 88 scheduled commercial banks (SCBs) - 27 public
sector banks (that is with the Government of India holding a stake), 31
private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 38 foreign banks. They have a
combined network of over 53,000 branches and 17,000 ATMs. According to
a report by ICRA Limited, a rating agency, the public sector banks hold over
75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.
Early history
Banking in India originated in the last decades of the 18th century.
The first banks were The General Bank of India which started in
1786, and the Bank of Hindustan, both of which are now defunct. The
oldest bank in existence in India is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three
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presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters
from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The
three banks merged in 1925 to form the Imperial Bank of India, which,
upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but
it failed in 1848 as a consequence of the economic crisis of 1848-49.
The Allahabad Bank, established in 1865 and still functioning today,
is the oldest Joint Stock bank in India. It was not the first though. That
honor belongs to the Bank of Upper India, which was established in
1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to
Lancashire from the Confederate States, promoters opened banks to
finance trading in Indian cotton. With large exposure to speculative
ventures, most of the banks opened in India during that period failed.
The depositors lost money and lost interest in keeping deposits with
banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of
the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the
1860s. The Comptoire d'Escompte de Paris opened a branch in
Calcutta in 1860, and another in Bombay in 1862; branches in
Madras and Pondichery, then a French colony, followed. HSBC
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established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and
so became a banking center.
The Bank of Bengal, which later became the State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial
Bank, established in 1881 in Faizabad. It failed in 1958. The next was
the Punjab National Bank, established in Lahore in 1895, which has
survived to the present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had
elapsed since the Indian Mutiny, and the social, industrial and other
infrastructure had improved. Indians had established small banks,
most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also
some exchange banks and a number of Indian joint stock banks. All
these banks operated in different segments of the economy. The
exchange banks, mostly owned by Europeans, concentrated on
financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord
Curzon to observe, "In respect of banking it seems we are behind the
times. We are like some old fashioned sailing ship, divided by solid
wooden bulkheads into separate and cumbersome compartments."
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The period between 1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swadeshi movement
inspired local businessmen and political figures to found banks of and
for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank,
Indian Bank, Bank of Baroda, Canara Bank and Central Bank of
India.
The fervour of Swadeshi movement lead to establishing of many
private banks in Dakshina Kannada and Udupi district which were
unified earlier and known by the name South Canara ( South Kanara
) district. Four nationalised banks started in this district and also a
leading private sector bank. Hence undivided Dakshina Kannada
district is known as "Cradle of Indian Banking".
From World War I to Independence
The period during the First World War (1914-1918) through the end of
the Second World War (1939-1945), and two years thereafter until
the independence of India were challenging for Indian banking. The
years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect
boost due to war-related economic activities. At least 94 banks in
India failed between 1913 and 1918 as indicated in the following
table:
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YearsNumber of banksthat failed
Authorised capital(Rs. Lakhs)
Paid-up Capital(Rs. Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Post-independence
The partition of India in 1947 adversely impacted the economies of
Punjab and West Bengal, paralyzing banking activities for months.
India's independence marked the end of a regime of the Laissez-faire
for the Indian banking. The Government of India initiated measures to
play an active role in the economic life of the nation, and the
Industrial Policy Resolution adopted by the government in 1948
envisaged a mixed economy. This resulted into greater involvement
of the state in different segments of the economy including banking
and finance. The major steps to regulate banking included:
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In 1948, the Reserve Bank of India, India's central banking
authority, was nationalized, and it became an institution owned
by the Government of India.
In 1949, the Banking Regulation Act was enacted which
empowered the Reserve Bank of India (RBI) "to regulate,
control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or
branch of an existing bank could be opened without a license
from the RBI, and no two banks could have common directors.
However, despite these provisions, control and regulations, banks in
India except the State Bank of India, continued to be owned and
operated by private persons. This changed with the nationalization of
major banks in India on 19 July, 1969.
Nationalization
By the 1960s, the Indian banking industry has become an important
tool to facilitate the development of the Indian economy. At the same
time, it has emerged as a large employer, and a debate has ensued
about the possibility to nationalize the banking industry. Indira
Gandhi, the-then Prime Minister of India expressed the intention of
the GOI in the annual conference of the All India Congress Meeting in
a paper entitled "Stray thoughts on Bank Nationalization." The paper
was received with positive enthusiasm. Thereafter, her move was
swift and sudden, and the GOI issued an ordinance and nationalized
the 14 largest commercial banks with effect from the midnight of July
19, 1969. Jayaprakash Narayan, a national leader of India, described
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the step as a "masterstroke of political sagacity." Within two weeks of
the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertaking) Bill, and it
received the presidential approval on 9 August, 1969.
A second dose of nationalization of 6 more commercial banks
followed in 1980. The stated reason for the nationalization was to
give the government more control of credit delivery. With the second
dose of nationalization, the GOI controlled around 91% of the banking
business of India. Later on, in the year 1993, the government merged
New Bank of India with Punjab National Bank. It was the only merger
between nationalized banks and resulted in the reduction of the
number of nationalised banks from 20 to 19. After this, until the
1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.
The nationalised banks were credited by some, including Home
minister P. Chidambaram, to have helped the Indian economy
withstand the global financial crisis of 2007-2009.
Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on
a policy of liberalization, licensing a small number of private banks.
These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to
be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India,
21
revitalized the banking sector in India, which has seen rapid growth
with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the
proposed relaxation in the norms for Foreign Direct Investment,
where all Foreign Investors in banks may be given voting rights which
could exceed the present cap of 10%,at present it has gone up to
49% with some restrictions.
The new policy shook the Banking sector in India completely.
Bankers, till this time, were used to the 4-6-4 method (Borrow at
4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered
in a modern outlook and tech-savvy methods of working for traditional
banks.All this led to the retail boom in India. People not just
demanded more from their banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of
supply, product range and reach-even though reach in rural India still
remains a challenge for the private sector and foreign banks. In terms
of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets
relative to other banks in comparable economies in its region. The
Reserve Bank of India is an autonomous body, with minimal pressure
from the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed exchange rate-and
this has mostly been true.
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With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment
services are expected to be strong. One may also expect M&As,
takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to
10%. This is the first time an investor has been allowed to hold more
than 5% in a private sector bank since the RBI announced norms in
2005 that any stake exceeding 5% in the private sector banks would
need to be vetted by them.
In recent years critics have charged that the non-government owned
banks are too aggressive in their loan recovery efforts in connection
with housing, vehicle and personal loans. There are press reports
that the banks' loan recovery efforts have driven defaulting borrowers
to suicide.
RECENT HISTORY OF INDIAN BANKING
Indian banking system, over the years has gone through various
phases after establishment of Reserve Bank of India in 1935 during
the British rule, to function as Central Bank of the country. Earlier to
creation of RBI, the central bank functions were being looked after by
the Imperial Bank of India. With the 5-year plan having acquired an
important place after the independence, the Govt. felt that the private
banks may not extend the kind of cooperation in providing credit
23
support, the economy may need. In 1954 the All India Rural Credit
Survey Committee submitted its report recommending creation of a
strong, integrated, State-sponsored, State-partnered commercial
banking institution with an effective machinery of branches spread all
over the country. The recommendations of this committee led to
establishment of first Public Sector Bank in the name of State Bank of
India on July 01, 1955 by acquiring the substantial part of share
capital by RBI, of the then Imperial Bank of India. Similarly during
1956-59, as a result of re-organisation of princely States, the
associate banks came into fold of public sector banking.
Another evaluation of the banking in India was undertaken during
1966 as the private banks were still not extending the required
support in the form of credit disbursal, more particularly to the
unorganised sector. Each leading industrial house in the country at
that time was closely associated with the promotion and control of
one or more banking companies. The bulk of the deposits collected,
were being deployed in organized sectors of industry and trade, while
the farmers, small entrepreneurs, transporters , professionals and
self-employed had to depend on money lenders who used to exploit
them by charging higher interest rates. In February 1966, a Scheme
of Social Control was set-up whose main function was to periodically
assess the demand for bank credit from various sectors of the
economy to determine the priorities for grant of loans and advances
so as to ensure optimum and efficient utilization of resources. The
scheme however, did not provide any remedy. Though a no. of
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branches were opened in rural area but the lending activities of the
private banks were not oriented towards meeting the credit
requirements of the priority/weaker sectors.
On July 19, 1969, the Govt. promulgated Banking Companies
(Acquisition and Transfer of Undertakings) Ordinance 1969 to acquire
14 bigger commercial bank with paid up capital of Rs.28.50 cr,
deposits of Rs.2629 cr, loans of Rs.1813 cr and with 4134 branches
accounting for 80% of advances. Subsequently in 1980, 6 more
banks were nationalized which brought 91% of the deposits and 84%
of the advances in Public Sector Banking. During December 1969,
RBI introduced the Lead Bank Scheme on the recommendations of
FK Nariman Committee.
Meanwhile, during 1962 Deposit Insurance Corporation was
established to provide insurance cover to the depositors.
In the post-nationalization period, there was substantial increase in
the no. of branches opened in rural/semi-urban centres bringing down
the population per bank branch to 12000 appx. During 1976, RRBs
were established (on the recommendations of M. Narasimham
Committee report) under the sponsorship and support of public sector
banks as the 3rd component of multi-agency credit system for
agriculture and rural development. The Service Area Approach was
introduced during 1989.
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While the 1970s and 1980s saw the high growth rate of branch
banking net-work, the consolidation phase started in late 80s and
more particularly during early 90s, with the submission of report by
the Narasimham Committee on Reforms in Financial Services Sector
during 1991.
In these five decades since independence, banking in India has
evolved through four distinct phases:
Foundation phase can be considered to cover 1950s and 1960s till
the nationalization of banks in 1969. The focus during this period was
to lay the foundation for a sound banking system in the country. As a
result the phase witnessed the development of necessary legislative
framework for facilitating re-organization and consolidation of the
banking system, for meeting the requirement of Indian economy. A
major development was transformation of Imperial Bank of India into
State Bank of India in 1955 and nationalization of 14 major private
banks during 1969.
Expansion phase
It had begun in mid-60s but gained momentum after nationalization of
banks and continued till 1984. A determined effort was made to make
banking facilities available to the masses. Branch network of the
banks was widened at a very fast pace covering the rural and semi-
urban population, which had no access to banking hitherto. Most
importantly, credit flows were guided towards the priority sectors.
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However this weakened the lines of supervision and affected the
quality of assets of banks and pressurized their profitability and
brought competitive efficiency of the system at a low ebb.
Consolidation phase:
The phase started in 1985 when a series of policy initiatives were
taken by RBI which saw marked slowdown in the branch expansion.
Attention was paid to improving house-keeping, customer service,
credit management, staff productivity and profitability of banks.
Measures were also taken to reduce the structural constraints that
obstructed the growth of money market.
Reforms phase
The macro-economic crisis faced by the country in 1991 paved the
way for extensive financial sector reforms which brought deregulation
of interest rates, more competition, technological changes, prudential
guidelines on asset classification and income recognition, capital
adequacy, autonomy packages etc.
BANK NATIONALISATION & PUBLIC SECTOR BANKING
Organized banking in India is more than two centuries old. Till 1935
all the banks were in private sector and were set up by individuals
and/or industrial houses which collected deposits from individuals and
used them for their own purposes. In the absence of any regulatory
framework, these private owners of banks were at liberty to use the
27
funds in any manner, they deemed appropriate and resultantly, the
bank failures were frequent.
Move towards State ownership of banks started with the
nationalization of RBI and passing of Banking Companies Act 1949.
On the recommendations of All India Rural Credit Survey Committee,
SBI Act was enacted in 1955 and Imperial Bank of India was
transferred to SBI. Similarly, the conversion of 8 State-owned banks
(State Bank of Bikaner and State Bank of Jaipur were two separate
banks earlier and merged) into subsidiaries (now associates) of SBI
during 1959 took place. During 1968 the scheme of ‘social control’
was introduced, which was closely followed by nationalization of 14
major banks in 1969 and another six in 1980.
Keeping in view the objectives of nationalization, PSBs undertook
expansion of reach and services. Resultantly the number of branches
increased 7 fold (from 8321 to more than 60000 out of which 58% in
rural areas) and no. of people served per branch office came down
from 65000 in 1969 to 10000. Much of this expansion has taken place
in rural and semi-urban areas. The expansion is significant in terms of
geographical distribution. States neglected by private banks before
1969 have a vast network of public sector banks. The PSBs including
RRBs, acount for 93% of bank offices and 87% of banking system
deposits.
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Scheduled Banks in India
(A) Scheduled Commercial Banks
Public sector
Banks
Private sector
Banks
Foreign
Banks in
India
Regional Rural
Bank
(28) (27) (29) (102)
Nationalized
Bank
Other Public
Sector Banks
(IDBI)
SBI and its
Associates
Old Private
Banks
New
Private
Banks
(B) Scheduled Cooperative Banks
Scheduled Urban Cooperative
Banks (55)
Scheduled State Cooperative
Banks (31)
Here we more concerned about private sector banks and competition
29
among them. Today, there are 27 private sector banks in the banking sector: 19 old private sector banks and 8 new private sector banks.
These new banks have brought in state-of-the-art technology and
Aggressively marketed their products. The Public sector banks are
Facing a stiff competition from the new private sector banks.
The banks which have been setup in the 1990s under the guidelines
of the Narasimham Committee are referred to as NEW PRIVATE
SECTOR BANKS.
New Private Sector Banks
Superior Financial Services
Designed Innovative Products
Tapped new markets
Accessed Low cost NRI funds
Greater efficiency
30
INDIAN BANKING INDUSTRIES
The growth in the Indian Banking Industry has been more qualitative
than quantitative and it is expected to remain the same in the coming
years. Based on the projections made in the "India Vision 2020"
prepared by the Planning Commission and the Draft 10th Plan, the
report forecasts that the pace of expansion in the balance-sheets of
banks is likely to decelerate. The total assets of all scheduled
commercial banks by end-March 2010 is estimated at Rs 40,90,000
crores. That will comprise about 65 per cent of GDP at current market
prices as compared to 67 per cent in 2002-03. Bank assets are
expected to grow at an annual composite rate of 13.4 per cent during
the rest of the decade as against the growth rate of 16.7 per cent that
existed between 1994-95 and 2002-03. It is expected that there will
be large additions to the capital base and reserves on the liability
side.
The Indian Banking Industry can be categorized into non-scheduled
banks and scheduled banks. Scheduled banks constitute of
commercial banks and co-operative banks. There are about 67,000
branches of Scheduled banks spread across India. As far as the
present scenario is concerned the Banking Industry in India is going
through a transitional phase.
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The Public Sector Banks(PSBs), which are the base of the Banking
sector in India account for more than 78 per cent of the total banking
industry assets. Unfortunately they are burdened with excessive Non
Performing assets (NPAs), massive manpower and lack of modern
technology. On the other hand the Private Sector Banks are making
tremendous progress. They are leaders in Internet banking, mobile
banking, phone banking, ATMs. As far as foreign banks are
concerned they are likely to succeed in the Indian Banking Industry.
In the Indian Banking Industry some of the Private Sector Banks
operating are IDBI Bank, ING Vyasa Bank, SBI Commercial and
International Bank Ltd, Bank of Rajasthan Ltd. and banks from the
Public Sector include Punjab National bank, Vijaya Bank, UCO Bank,
Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank,
ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of
the foreign banks operating in the Indian Banking Industry.
Pharmaceutical Industry
Standard Chartered Bank
The Indian Banking industry, which is governed by the Banking
Regulation Act of India, 1949 can be broadly classified into two
major categories, non-scheduled banks and scheduled banks.
Scheduled banks comprise commercial banks and the co-
operative banks. In terms of ownership, commercial banks can be
further grouped into nationalized banks, the State Bank of India
and its group banks, regional rural banks and private sector banks
32
(the old/ new domestic and foreign). These banks have over
67,000 branches spread across the country.
The first phase of financial reforms resulted in the nationalization
of 14 major banks in 1969 and resulted in a shift from Class
banking to Mass banking. This in turn resulted in a significant
growth in the geographical coverage of banks. Every bank had to
earmark a minimum percentage of their loan portfolio to sectors
identified as “priority sectors”. The manufacturing sector also grew
during the 1970s in protected environs and the banking sector was
a critical source. The next wave of reforms saw the nationalization
of 6 more commercial banks in 1980. Since then the number of
scheduled commercial banks increased four-fold and the number
of bank branches increased eight-fold.
After the second phase of financial sector reforms and
liberalization of the sector in the early nineties, the Public Sector
Banks (PSB) s found it extremely difficult to compete with the new
private sector banks and the foreign banks. The new private sector
banks first made their appearance after the guidelines permitting
them were issued in January 1993. Eight new private sector banks
are presently in operation. These banks due to their late start have
access to state-of-the-art technology, which in turn helps them to
save on manpower costs and provide better services.
During the year 2000, the State Bank Of India (SBI) and its 7
associates accounted for a 25 percent share in deposits and 28.1
percent share in credit. The 20 nationalized banks accounted for
33
53.2 percent of the deposits and 47.5 percent of credit during the
same period. The share of foreign banks (numbering 42), regional
rural banks and other scheduled commercial banks accounted for
5.7 percent, 3.9 percent and 12.2 percent respectively in deposits
and 8.41 percent, 3.14 percent and 12.85 percent respectively in
credit during the year 2000.
Current Scenario
The industry is currently in a transition phase. On the one hand,
the PSBs, which are the mainstay of the Indian Banking system
are in the process of shedding their flab in terms of excessive
manpower, excessive non Performing Assets (Npas) and
excessive governmental equity, while on the other hand the private
sector banks are consolidating themselves through mergers and
acquisitions.
PSBs, which currently account for more than 78 percent of total
banking industry assets are saddled with NPAs (a mind-boggling
Rs 830 billion in 2000), falling revenues from traditional sources,
lack of modern technology and a massive workforce while the new
private sector banks are forging ahead and rewriting the traditional
banking business model by way of their sheer innovation and
service. The PSBs are of course currently working out challenging
strategies even as 20 percent of their massive employee strength
has dwindled in the wake of the successful Voluntary Retirement
Schemes (VRS) schemes.
34
The private players however cannot match the PSB’s great reach,
great size and access to low cost deposits. Therefore one of the
means for them to combat the PSBs has been through the merger
and acquisition (M& A) route. Over the last two years, the industry
has witnessed several such instances. For instance, Hdfc Bank’s
merger with Times Bank Icici Bank’s acquisition of ITC Classic,
Anagram Finance and Bank of Madura. Centurion Bank, Indusind
Bank, Bank of Punjab, Vysya Bank are said to be on the lookout.
The UTI bank- Global Trust Bank merger however opened a
pandora’s box and brought about the realization that all was not
well in the functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone
banking, anywhere banking, mobile banking, debit cards,
Automatic Teller Machines (ATMs) and combined various other
services and integrated them into the mainstream banking arena,
while the PSBs are still grappling with disgruntled employees in
the aftermath of successful VRS schemes. Also, following India’s
commitment to the W To agreement in respect of the services
sector, foreign banks, including both new and the existing ones,
have been permitted to open up to 12 branches a year with effect
from 1998-99 as against the earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 percent to 33
percent in November 2000 has also opened up a new opportunity
for the takeover of even the PSBs. The FDI rules being more
rationalized in Q1FY02 may also pave the way for foreign banks
taking the M& A route to acquire willing Indian partners.
35
Meanwhile the economic and corporate sector slowdown has led
to an increasing number of banks focusing on the retail segment.
Many of them are also entering the new vistas of Insurance. Banks
with their phenomenal reach and a regular interface with the retail
investor are the best placed to enter into the insurance sector.
Banks in India have been allowed to provide fee-based insurance
services without risk participation, invest in an insurance company
for providing infrastructure and services support and set up of a
separate joint-venture insurance company with risk participation.
Aggregate Performance of the Banking Industry
Aggregate deposits of scheduled commercial banks increased at a
compounded annual average growth rate (Cagr) of 17.8 percent
during 1969-99, while bank credit expanded at a Cagr of 16.3
percent per annum. Banks’ investments in government and other
approved securities recorded a Cagr of 18.8 percent per annum
during the same period.
In FY01 the economic slowdown resulted in a Gross Domestic
Product (GDP) growth of only 6.0 percent as against the previous
year’s 6.4 percent. The WPI Index (a measure of inflation)
increased by 7.1 percent as against 3.3 percent in FY00. Similarly,
money supply (M3) grew by around 16.2 percent as against 14.6
percent a year ago.
The growth in aggregate deposits of the scheduled commercial
banks at 15.4 percent in FY01 percent was lower than that of 19.3
36
percent in the previous year, while the growth in credit by SCBs
slowed down to 15.6 percent in FY01 against 23 percent a year
ago.
The industrial slowdown also affected the earnings of listed banks.
The net profits of 20 listed banks dropped by 34.43 percent in the
quarter ended March 2001. Net profits grew by 40.75 percent in
the first quarter of 2000-2001, but dropped to 4.56 percent in the
fourth quarter of 2000-2001.
On the Capital Adequacy Ratio (CAR) front while most banks
managed to fulfill the norms, it was a feat achieved with its own
share of difficulties. The CAR, which at present is 9.0 percent, is
likely to be hiked to 12.0 percent by the year 2004 based on the
Basle Committee recommendations. Any bank that wishes to grow
its assets needs to also shore up its capital at the same time so
that its capital as a percentage of the risk-weighted assets is
maintained at the stipulated rate. While the IPO route was a much-
fancied one in the early ‘90s, the current scenario doesn’t look too
attractive for bank majors.
Consequently, banks have been forced to explore other avenues
to shore up their capital base. While some are wooing foreign
partners to add to the capital others are employing the M& A route.
Many are also going in for right issues at prices considerably lower
than the market prices to woo the investors.
37
Interest Rate Scene
The two years, post the East Asian crises in 1997-98 saw a climb
in the global interest rates. It was only in the later half of FY01 that
the US Fed cut interest rates. India has however remained more or
less insulated. The past 2 years in our country was characterized
by a mounting intention of the Reserve Bank Of India (RBI) to
steadily reduce interest rates resulting in a narrowing differential
between global and domestic rates.
The RBI has been affecting bank rate and CRR cuts at regular
intervals to improve liquidity and reduce rates. The only exception
was in July 2000 when the RBI increased the Cash Reserve Ratio
(CRR) to stem the fall in the rupee against the dollar. The steady
fall in the interest rates resulted in squeezed margins for the banks
in general.
Governmental Policy
After the first phase and second phase of financial reforms, in the
1980s commercial banks began to function in a highly regulated
environment, with administered interest rate structure, quantitative
restrictions on credit flows, high reserve requirements and
reservation of a significant proportion of lendable resources for the
priority and the government sectors. The restrictive regulatory
norms led to the credit rationing for the private sector and the
interest rate controls led to the unproductive use of credit and low
38
levels of investment and growth. The resultant ‘financial
repression’ led to decline in
productivity and efficiency and erosion of profitability of the
banking sector in general.
This was when the need to develop a sound commercial banking
system was felt. This was worked out mainly with the help of the
recommendations of the Committee on the Financial System
(Chairman: Shri M. Narasimham), 1991. The resultant financial
sector reforms called for interest rate flexibility for banks, reduction
in reserve requirements, and a number of structural measures.
Interest rates have thus been steadily deregulated in the past few
years with banks being free to fix their Prime Lending Rates(PLRs)
and deposit rates for most banking products. Credit market
reforms included introduction of new instruments of credit,
changes in the credit delivery system and integration of functional
roles of diverse players, such as, banks, financial institutions and
non-banking financial companies (Nbfcs). Domestic Private Sector
Banks were allowed to be set up, PSBs were allowed to access
the markets to shore up their Cars.
Implications Of Some Recent Policy Measures
The allowing of PSBs to shed manpower and dilution of equity are
moves that will lend greater autonomy to the industry. In order to
lend more depth to the capital markets the RBI had in November
2000 also changed the capital market exposure norms from 5
percent of bank’s incremental deposits of the previous year to 5
39
percent of the bank’s total domestic credit in the previous year. But
this move did not have the desired effect, as in, while most banks
kept away almost completely from the capital markets, a few
private sector banks went overboard and exceeded limits and
indulged in dubious stock market deals. The chances of seeing
banks making a comeback to the stock markets are therefore quite
unlikely in the near future.
The move to increase Foreign Direct Investment FDI limits to 49
percent from 20 percent during the first quarter of this fiscal came
as a welcome announcement to foreign players wanting to get a
foot hold in the Indian Markets by investing in willing Indian
partners who are starved of networth to meet CAR norms. Ceiling
for FII investment in companies was also increased from 24.0
percent to 49.0 percent and have been included within the ambit of
FDI investment.
The abolishment of interest tax of 2.0 percent in budget 2001-02
will help banks pass on the benefit to the borrowers on new loans
leading to reduced costs and easier lending rates. Banks will also
benefit on the existing loans wherever the interest tax cost element
has already been built into the terms of the loan. The reduction of
interest rates on various small savings schemes from 11 percent
to 9.5 percent in Budget 2001-02 was a much awaited move for
the banking industry and in keeping with the reducing interest rate
scenario, however the small investor is not very happy with the
move.
40
Some of the not so good measures however like reducing the limit
for tax deducted at source (TDS) on interest income from deposits
to Rs 2,500 from the earlier level of Rs 10,000, in Budget 2001-02,
had met with disapproval from the banking fraternity who feared
that the move would prove counterproductive and lead to
increased fragmentation of deposits, increased volumes and
transaction costs. The limit was thankfully partially restored to Rs
5000 at the time of passing the Finance Bill in the Parliament.
April 2001-Credit Policy Implications
The rationalization of export credit norms in will bestow greater
operational flexibility on banks, and also reduce the borrowing
costs for exporters. Thus this move could trigger exports growth in
the future. Banks can also hope to earn increased revenue with
the interest paid by RBI on CRR balances being increased from
4.0 percent to 6.0 percent.
The stock market scam brought out the unholy nexus between the
Cooperative banks and stockbrokers. In order to usher in greater
prudence in their operations, the RBI has barred Urban
Cooperative Banks from financing the stock market operations and
is also in the process of setting up of a new apex supervisory body
for them. Meanwhile the foreign banks have a bone to pick with
the RBI. The RBI had announced that forex loans are not to be
calculated as a part of Tier-1 Capital for drawing up exposure
limits to companies effective 1 April 2002. This will force foreign
banks either to infuse fresh capital to maintain the capital
41
adequacy ratio (CAR) or pare their asset base. Further, the RBI
has also sought to keep foreign competition away from the
nascent net banking segment in India by allowing only Indian
banks with a local physical presence, to offer Internet banking.
Crystal Gazing
On the macro economic front, GDP is expected to grow by 6.0 to
6.5 percent while the projected expansion in broad money (M3) for
2001-02 is about 14.5 percent. Credit and deposits are both
expected to grow by 15-16 percent in FY02. India's foreign
exchange reserves should reach US$50.0 billion in FY02 and the
Indian rupee should hold steady.
The interest rates are likely to remain stable this fiscal based on an
expected downward trend in inflation rate, sluggish pace of non-oil
imports and likelihood of declining global interest rates. The
domestic banking industry is forecasted to witness a higher degree
of mergers and acquisitions in the future. Banks are likely to opt for
the universal banking approach with a stronger retail approach.
Technology and superior customer service will continue to be the
imperatives for success in this industry.
Public Sector banks that imbibe new concepts in banking, turn
tech savvy, leaner and meaner post VRS and obtain more
autonomy by keeping governmental stake to the minimum can
succeed in effectively taking on the private sector banks by virtue
of their sheer size. Weaker PSU banks are unlikely to survive in
42
the long run. Consequently, they are likely to be either acquired by
stronger players or will be forced to look out for other strategies to
infuse greater capital and optimize their
operations.
Foreign banks are likely to succeed in their niche markets and be
the innovators in terms of technology introduction in the domestic
scenario. The outlook for the private sector banks indeed looks to
be more promising vis-à-vis other banks. While their focused
operations, lower but more productive employee force etc will
stand them good, possible acquisitions of PSU banks will definitely
give them the much needed scale of operations and access to
lower cost of funds. These banks will continue to be the early
technology adopters in the industry, thus increasing their
efficiencies. Also, they have been amongst the first movers in the
lucrative insurance segment. Already, banks such as Icici Bank
and Hdfc Bank have forged alliances with Prudential Life and
Standard Life respectively. This is one segment that is likely to
witness a greater deal of action in the future. In the near term, the
low interest rate scenario is likely to affect the spreads of majors.
This is likely to result in a greater focus on better asset-liability
management procedures. Consequently, only banks that strive
hard to increase their share of fee-based revenues are likely to do
better in the future.
43
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Improved performance of the banking industry in India has helped the
economy to bounce back to a positive growth level. According to the
Reserve Bank of India (RBI), the banking sector in India is sound,
adequately capitalised and well-regulated. Indian financial and
economic conditions are much better than in many other countries of
44
the world. Credit, market and liquidity risk studies show that Indian
banks are generally resilient and have withstood the global downturn
well.
According to RBI's 'Quarterly Statistics on Deposits and Credit of
Scheduled Commercial Banks: March 2009', nationalised banks, as a
group, accounted for 49.5 per cent of the aggregate deposits, while
State Bank of India and its Associates accounted for 24.1 per cent.
The shares of other scheduled commercial banks, foreign banks and
regional rural banks in aggregate deposits were 18.2 per cent, 5.2 per
cent and 3.0 per cent, respectively. Nationalized banks held the
highest share of 50.5 per cent in the total bank credit followed by
State Bank of India and its associates at 23.1 per cent and other
scheduled commercial banks at 18.2 per cent. Foreign banks and
regional rural banks had slightly lower share in the total bank credit at
5.9 per cent and 2.3 per cent, respectively.
According to the RBI in March 2009, number of all Scheduled
Commercial Banks (SCBs) was 171 of which, 86 were Regional Rural
Banks and the number of Non-Scheduled Commercial Banks
including Local Area Banks stood at 5. Taking into account all banks
in India, there are overall 56,640 branches or offices, 893,356
employees and 27,088 ATMs. Public sector banks made up a large
chunk of the infrastructure, with 87.7 per cent of all offices, 82 per
cent of staff and 60.3 per cent of all automated teller machines
(ATMs).
45
Also, growth of aggregate deposits of all Scheduled Commercial
Banks (SCBs) including Regional Rural Banks (RRBs) up to March
27, 2009 stood at 19.8 per cent while overall nationalized banks was
at 24.7 per cent, foreign banks at 7.8 per cent and private sector
banks about 8.0 per cent.
According to the RBI, gross bank credit offered by all Scheduled
Commercial Banks (SCBs) including Regional Rural Banks (RRBs)
grew by 17.3 per cent up to March 2009. Public sector banks' credit
grew by 20.4 per cent, foreign banks' credit by 4 per cent and private
sector banks about 10.9 per cent.
Deposits with scheduled commercial banks (SCBs) surged by US$
13.41 billion in the fortnight ended July 3, as against an accumulation
of US$ 1.29 billion in the previous fortnight. In the said fortnight, time
and demand deposits jumped by US$ 8.92 billion and US$ 4.49
billion, respectively. Credit offtake from the SCBs was up by US$ 5.8
billion. Corporates, MSMEs, agriculture, and the retail sector have
been borrowing strongly, according to major bankers in the country.
The government's huge borrowing programme, investments by
banks, predominantly in government securities, were higher at US$ 9
billion in the July 3 ended fortnight as against an investment of US$ 4
billion in the preceding fortnight.
Non-resident Indians (NRIs) have cumulatively placed US$ 1.167
billion as deposits with banks in the April-May 2009-10 period as
against US$ 452 million in the corresponding period last year. NRIs
46
are finding it remunerative to park their money with Indian banks,
which are offering higher interest rates. In the April-May 2009 period,
NRIs deposited almost US$ 543 million in Foreign Currency Non-
Resident (Banks) deposits. In the corresponding period last year,
they had pulled out US$ 291 million from the FCNR (B) deposits.
The new borrowing level for April-September 2009 has been set at
US$ 62.85 billion—nearly 25 per cent more than the March 2009
projection of US$ 50.66 billion—jointly by the Finance Ministry and
the Reserve Bank of India (RBI).
During 2008-09, non-food bank credit (year-on-year basis) stood at
17.5 per cent by March 2009.
India's foreign exchange reserves were US$ 252.0 billion as at end-
March 2009 which increased to US$ 253.0 billion by April 10, 2009.
The country's largest bank – the State Bank of India's (SBI) branch
network, increased by 470 to over 11,900 branches. Based on
March-end 2009 figures, SBI's deposits increased by US$ 6 billion to
US$ 152.32 billion and advances by US$ 4.57 billion to US$ 120
billion.
Boosted by gains from gilts, corporate debt and equity, Axis Bank and
HDFC Bank have posted healthy net profit growth of 70 per cent and
30 per cent respectively, for the quarter ended June 30, 2009.
Public sector banks too are now being approached by more
customers owing to low interest rates and better-managed and
47
transparent operations. An analysis by Crisil Research reveals that
the increasing customer preference for public sector banks is evident
by the rise in their market share by more than 10 per cent over the
last one year. The share of the PSBs has in fact risen to 40 per cent
of the total vehicle finance portfolio as against 25-30 per cent earlier.
Private banks have retained their share at 50 per cent.
ICICI Bank has organised road shows in Asia, Europe and the US,
jointly with the Union Ministry of Road Transport and Highways to
attract investments for highways and roads. To begin with, the bank
organised a meeting between potential investors and the Union
Minister of Road Transport and Highways, Mr Kamal Nath.
HDFC Bank has signed an agreement with Guruvayoor Devaswom
for offering e-collection through HDFC Bank Payment Gateway.
Government Initiatives
In its platinum jubilee year, the RBI, the central bank of the country, in
a notification issued on June 25, 2009, said that banks should link
more branches to the National Electronic Clearing Service (NECS).
Ideally, all core-banking-enabled branches should be part of NECS.
NECS was introduced in September 2008 for centralised processing
of repetitive and bulk payment instructions. Currently, a little over
26,000 branches of 114 banks are enabled to participate in NECS.
The reduction in the Reserve Bank's policy rates and easy liquidity
conditions in the market have helped all public sector banks, most
private sector banks and some foreign banks reduce their deposit
48
and lending rates. Term deposit rates between October 2008-April
18, 2009 have been reduced by a range of 125-250 basis points by
public sector banks, 75-200 basis points by private sector banks and
100-200 basis points by five major foreign banks. The reduction in the
range of BPLRs was 125-225 basis points by public sector banks,
followed by 100-125 basis points by private sector banks and 100
basis points by five major foreign banks.
Since mid-September 2008 till date, the Reserve Bank has cut the
repo rate by 400 basis points to 5 per cent and the reverse repo rate
by 250 basis points to 3.5 per cent. The CRR was also reduced by
400 basis points of NDTL of banks and stood at 5 per cent.
Apart from the bank rate cuts announced in the stimulus packages,
cash withdrawals from bank will not attract tax from April 1, 2009
following abolition of the banking cash transaction tax (BCTT) in the
Union Budget 2008-09. Also, inter-ATM usage transaction became
free of charges effective April 1, 2009.
Exchange rate used: 1 USD = 47.57 INR (as on June 2009).
The Indian banking market is growing at an astonishing rate, with
Assets expected to reach US$1 trillion by 2010. An expanding
economy, middle class, and technological innovations are all
contributing to this growth.
The country’s middle class accounts for over 320 million people.
In correlation with the growth of the economy, rising income levels,
49
increased standard of living, and affordability of banking products
are promising factors for continued expansion.
The Indian banking Industry is in the middle of an IT revolution,
Focusing on the expansion of retail and rural banking.
Players are becoming increasingly customer - centric in their
approach, which has resulted in innovative methods of offering new
banking products and services. Banks are now realizing the
importance of being a big player and are beginning to focus their
attention on mergers and acquisitions to take advantage of
economies of scale and/or comply with Basel II regulation.
“Indian banking industry assets are expected to reach US$1 trillion by
2010 and are poised to receive a greater infusion of foreign capital,”
says Prathima Rajan, analyst in Celent's banking group and author of
the report. “The banking industry should focus on having a small
number of large players that can compete globally rather than having
a large number of fragmented players."
50
UPCOMING FOREIGN BANKS IN INDIA
Foreign Banks In India
Foreign Banks in India always brought an explanation about the
prompt services to customers. After the set up foreign banks in India,
the banking sector in India also become competitive and accurative.
New rules announced by the Reserve Bank of India for the foreign
banks in India in this budget has put up great hopes among foreign
banks which allows them to grow unfettered. Now foreign banks in
India are permitted to set up local subsidiaries. The policy conveys
that forign banks in India may not acquire Indian ones (except for
weak banks identified by the RBI, on its terms) and their Indian
subsidiaries will not be able to open branches freely. Please see the
list of Foreign banks in India till date.
51
List of Foreign Banks in India
ABN-AMRO Bank
Abu Dhabi Commercial Bank
Bank of Ceylon
BNP Paribas Bank
Citi Bank
China Trust Commercial Bank
Deutsche Bank
HSBC
JPMorgan Chase Bank
Standard Chartered Bank
Scotia Bank
Taib Bank
By the year 2009, the list of foreign banks in India is going to become
more quantitative as number of foreign banks are still waiting with
baggage to start business in India.
Foreign banks have brought latest technology and latest banking
practices in India. They have helped made Indian Banking system
more competitive and efficient. Government has come up with a road
map for expansion of foreign banks in India.
The road map has two phases. During the first phase between March
2005 and March 2009, foreign banks may establish a presence by
way of setting up a wholly owned subsidiary (WOS) or conversion of
existing branches into a WOS. The second phase will commence in
April 2009 after a review of the experience gained after due
52
consultation with all the stake holders in the banking sector. The
review would examine issues concerning extension of national
treatment to WOS, dilution of stake and permitting
mergers/acquisitions of any private sector banks in India by a foreign
bank.
Major foreign banks in India are:
ABN-AMRO Bank
The history of ABN Amro Bank dates back to the year 1924, when
King Williem – I issued a Royal Decree declaring the establishment of
the Nederlandsche Handel-Maatschappij (Netherlands Trading
Society, NTS). The NTS had been established with an aim to
promote the trade between the Netherlands and the Dutch East
Indies.
Abu Dhabi Commercial Bank Ltd.
Abu Dhabi Commercial Bank (ADCB) is one of the most prominent
nationalized banks of the United Arab Emirates (UAE). Three
different banks viz. the Khalij Commercial Bank, the Emirates
Commercial Bank and the Federal Commercial Bank merged in the
month of July 1985, leading to the incorporation of the Abu Dhabi
Commercial Bank.
53
American Express Bank Ltd
With its headquarters located in New York, U.S., American Express
company is a global financial services provider, also known as
“AmEx” in short. American Express had been established in the year
1850, and is well known all around the world for its dedicated Credit
Card, Traveler’s Cheque and Charge Card services.
BNP Paribas
BNP Paribas is one of the oldest banks in the continent of Europe,
and the largest bank in the Eurozone (consortium of countries having
adopted Euro as their primary currency), as reported by The Banker
magazine. The bank is present in 87 countries with a 162,700-strong
workforce offering its services to the bank.
Citibank
Citibank is one of the largest banks in the U.S., and is a part of the
financial services company Citigroup. Citibank had been founded in
the year 1812. Initially its name was City Bank of New York, which
was later changed to First National City Bank of New York.
DBS Bank Ltd
DBS Bank is a Singapore-based bank, and is known to be one of the
largest banks to exist in South East Asian region by asset value. The
government of Singapore established the DBS Bank in the year 1968,
and it was primarily aimed at providing development oriented financial
services.
54
Deutsche Bank
Deutsche Bank, headquartered at Frankfurt in Germany, ranks
among the global leaders in corporate banking and securities,
transaction banking, asset management, and private wealth
management. It is one the world's leading international financial
service providers with roughly EURO 2.2 trillion in assets and
approximately 80,000 employees.
HSBC Ltd
HSBC Bank is a subsidiary of HSBC Holdings plc, a London based
banking giant which, according to the Forbes magazine, is the largest
banking group in the world, and the 6th largest company in the world
as of April 2009.
Standard Chartered Bank
Standard Chartered Bank is a London based bank, currently
operational within over 70 nations with more than 1,700 branches and
73,000 strong workforce as of April 2009. Although the bank is
located in Britain, still a huge chunk of its revenues originate from the
continents of Asia, Africa and Middle East.
Barclays Bank
Barclays GRCB India is led by Samir Bhatia as its Managing Director.
In a short period of just two and a half years, Barclays GRCB India
has placed itself amongst the most respected foreign banks in the
country that is serving more than 830,000 clients.
55
By 2009 few more names is going to be added in the list of foreign
banks in India. This is as an aftermath of the sudden interest shown
by Reserve Bank of India paving roadmap for foreign banks in India
greater freedom in India. Among them is the world's best private bank
by EuroMoney magazine, Switzerland's UBS.
The following are the list of foreign banks going to set
up business in India :-
Royal Bank of Scotland
Switzerland's UBS US-based GE Capital
Credit Suisse Group
Industrial and Commercial Bank of China
56
WE UNDERSTAND YOUR WORLD
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector, as
part of the RBI's liberalization of the Indian Banking Industry in 1994.
The bank was incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai, India. HDFC Bank
commenced operations as a Scheduled Commercial Bank in January
1995.
HDFC is India's premier housing finance company and enjoys an
impeccable track record in India as well as in international markets.
Since its inception in 1977, the Corporation has maintained a
consistent and healthy growth in its operations to remain the market
leader in mortgages. Its outstanding loan portfolio covers well over a
million dwelling units. HDFC has developed significant expertise in
retail mortgage loans to different market segments and also has a
57
large corporate client base for its housing related credit facilities.
With its experience in the financial markets, a strong market
reputation, large shareholder base and unique consumer franchise,
HDFC was ideally positioned to promote a bank in the Indian
environment.
HDFC Bank began operations in 1995 with a simple mission : to be a
“ World Class Indian Bank.” We realized that only a single minded
focus on product quality and service excellence would help us get
there. Today, we are proud to say that we are well on our way
towards that goal.
58
COMPANY PROFILE
STRONG NATIONAL NETWORK
HDFC
BANK
March 2006 March 2007 March 2008
Citied 228 316 327
59
Branches 535 684 761
ATMs 1323 1605 1977
As of March 31, 2008, the Bank’s distribution network was at 761
Branches and 1977 ATMs in 327 cities as against 684 branches
and 1,605 ATMs in 320 cities as of March 31, 2007.
Against the regulatory approvals for new branches in hand, the
Bank expects to further expand the branch network by around 150
branches by June 30, 2008. During the year, the Bank stepped up
retail customer acquisition with deposit accounts increasing from
6.2 million to 8.7 million and total cards issued (debit and credit
cards) increasing from 7 million to 9.2 million.
Whilst credit growth in the banking system slowed down to about
22% for the year ended 2007-08, the Bank’s net advances grew
by 35.1% with retail advances growing by 38.6% and wholesale
advances growing by 30%, implying a higher market share in both
segments.
The transactional banking business also registered healthy growth
With cash management volumes increased by around 80% and
60
trade services volumes by around 40% over the previous year.
Portfolio quality as of March 31, 2008 remained healthy with gross
nonperforming assets at 1.3% and net non-performing assets at
0.4% of total customer assets. The Bank’s provisioning policies for
specific loan loss provisions remained higher than regulatory
requirements.
61
TECHNOLOGY USED IN HDFC BANK
In the era of globalization each and every sector faced the stiff
competition from their rivals. And world also converted into the flat
from the globe. After the policy of liberalization and RBI initiatives to
take the step for the private sector banks, more and more changes
are taking the part into it. And there are create competition between
the private sector banks and public sector bank.
Private sector banks are today used the latest technology for the
different transaction of day to day banking life. As we know that
Information Technology plays the vital role in the each and every
industries and gives the optimum return from the limited resources.
Banks are service industries and today IT gives the innovative
Technology application to Banking industries. HDFC BANK is the
leader in the industries and today IT and HDFC BANK together
combined they reached the sky. New technology changed the mind of
62
the customers and changed the queue concept from the history
banking transaction. Today there are different channels are available
for the banking transactions.
We can see that the how technology gives the best results in the
below diagram. There are drastically changes seen in the use of
Internet banking, in a year 2001 (2%) and in the year 2008 ( 25%).
These type of technology gives the freedom to retail customers.
Centralized Processing Units Derived Economies of
Scale
Electronic Straight Through
Processing
Reduced Transaction Cost
Data Warehousing , CRM Improve cost efficiency,
Cross sell
Innovative Technology
Application
Provide new or superior
products
HDFC BANK is the very consistent player in the New private sector
banks. New private sector banks to withstand the competition from
public sector banks came up with innovative products and superior
63
service.
2001
64
65
2005
( % customer initiated Transaction by Channel )
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HDFC BANK PRODUCT AND CUSTOMER SEGMENTS
PERSONAL BANKING
Loan Product Deposit Product Investment & Insurance
Auto Loan
Loan Against
Security
Loan Against
Property
Personal loan
Credit card
2-wheeler loan
Commercial
vehicles finance
Home loans
Retail business
banking
Saving a/c
Current a/c
Fixed deposit
Demat a/c
Safe Deposit
Lockers
Mutual Fund
Bonds
Knowledge Centre
Insurance
General and Health
Insurance
Equity and
Derivatives
Mudra Gold Bar
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Tractor loan
Working Capital
Finance
Construction
Equipment
Finance
Health Care
Finance
Education Loan
Gold Loan
Cards Payment Services Access To Bank
Credit Card
Debit Card
Prepaid Card
----------------------------
Forex Services
----------------------------
Product &
Services
Trade Services
Forex service
NetSafe
Merchant
Prepaid Refill
Billpay
Visa Billpay
InstaPay
DirectPay
VisaMoney
Transfer
e–Monies
Electronic Funds
Transfer
NetBanking
OneView
InstaAlert
MobileBanking
ATM
Phone Banking
Email Statements
Branch Network
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Branch Locater
RBI Guidelines
Online Payment
of Direct Tax
WHOLESALE BANKING
Corporate Small and Medium
Enterprises
Financial Institutions
and Trusts
Funded
Services
Non Funded
Services
Value Added
Services
Internet
Banking
Funded Services
Non Funded
Services
Specialized
Services
Value added
services
Internet Banking
BANKS
Clearing Sub-
Membership
RTGS –
submembership
Fund Transfer
ATM Tie-ups
Corporate Salary a/c
Tax Collection
Financial Institutions
Mutual Funds
Stock Brokers
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Insurance Companies
Commodities
Business
Trusts
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BUSINESS MIX
Total Deposits Gross Advances Net Revenue
Retail Wholesale
HDFC Bank is a consistent player in the private sector
bank and have a well balanced product and business
mix in the Indian as well as overseas markets.
Customer segments (retail & wholesale) account for
84% of Net revenues ( FY 2008)
Higher retail revenues partly offset by higher operating
and credit costs.
Equally well positioned to grow both segments.
.
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NRI SERVICES
Accounts & Deposits Remittances
Rupee Saving a/c Rupee Current a/c Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning
Indians
North America UK Europe South East Asia Middle East Africa Others
Quick remitIndiaLinkCheque LockBoxTelegraphic/ Wire TransferFunds Transfer Cheques/DDs/TCs
Investment & Insurances Loans
Mutual Funds Insurance Private Banking Portfolio Investment
Scheme
Home Loans Loans Against Securities Loans Against Deposits Gold Credit Card
Payment Services Access To Bank
NetSafe BillPay InstaPay DirectPay Visa Money Online Donation
NetBanking OneView InstaAlert ATM PhoneBanking Email Statements Branch Network
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BUSINESS STRETEGY
HDFC BANK mission is to be "a World Class Indian Bank",
benchmarking themselves against international standards and best
practices in terms of product offerings, technology, service levels,
risk management and audit & compliance. The objective is to build
sound customer franchises across distinct businesses so as to be a
preferred provider of banking services for target retail and wholesale
customer segments, and to achieve a healthy growth in profitability,
consistent with the Bank's risk appetite. Bank is committed to do this
while ensuring the highest levels of ethical standards, professional
integrity, corporate governance and regulatory compliance. Continue
to develop new product and technology is the main business strategy
of the bank. Maintain good relation with the customers is the main
and prime objective of the bank.
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HDFC BANK business strategy emphasizes the following:
Increase market share in India’s expanding banking and
Financial Services Industry by following a disciplined growth
strategy focusing on quality and not on quantity and delivering
high quality customer service.
Leverage our technology platform and open scaleable systems
to deliver more products to more customers and to control
operating costs.
Maintain current high standards for asset quality through
disciplined credit risk management.
Develop innovative products and services that attract the
targeted customers and address inefficiencies in the Indian
financial sector.
Continue to develop products and services that reduce bank’s
cost of funds.
Focus on high earnings growth with low volatility.
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INSIDE HDFC BANK
FIVE “S” , PART OF KAIZEN
WORK PLACE TRANSFORMATION
Focus on effective work place organization
Believe in
“ Small changes lead to large improvement ”
Every successful organization have their own strategy to win the
race in the competitive market. They use some technique and
methodology for smooth running of business. HDFC BANK also
acquired the Japanese technique for smooth running of work and
effective work place organization.
Five ‘S’ Part of Kaizen is the technique which is used in the bank
For easy and systematic work place and eliminating unnecessary
things from the work place.
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BENEFIT OF FIVE “S”
It can be started immediately. Every one has to participate. Five “ S” is an entirely people driven initiatives. Brings in concept of ownership. All wastage are made visible.
FIVE ‘S’ Means :-
S-1 SORT SEIRIS-2 SYSTEMATIZE SEITONS-3 SPIC-N-SPAN SEIROS-4 STANDARDIZE SEIKETSUS-5 SUSTAIN SHITSUKE
(1) SORT :-
It focus on eliminating unnecessary items from the work place.
It is excellent way to free up valuable floor space.
It segregate items as per “require and wanted”.
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Frequently Required
Less FrequentlyRequiredRemove
everything from workplace
Junk
Wanted but not Required Junk
(2) SYSTEMATIZE :-
Systematize is focus on efficient and effective Storage method.
That means it identify, organize and arrange retrieval.
It largely focus on good labeling and identification practices.
Objective :- “A place for everything and everything in its place”.
(3) SPIC- n - SPAN :-
Spic-n-Span focuses on regular clearing and self
inspection. It brings in the sense of ownership.
(4) STANDERDIZE :-
It focus on simplification and standardization. It involve standard
rules and policies. It establish checklist to facilitates autonomous
maintenance of workplace. It assign responsibility for doing
various jobs and decide on Five S frequency.
(5) SUSTAIN:-
It focuses on defining a new status and standard of organized work place. Sustain means regular training to maintain
standards developed under S-4. It brings in self- discipline and commitment towards workplace organization.
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LABELLING ON FILE
FILE NUMBER
SUBJECT
FROM DATE
TO DATE
OWNER
BOX LABEL
For Example
1 / 3 / A / 6
1 – Work Station (1)
3 – Drawer (3)
A - Shelf (A)
6 – File Number ( 6)
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COLOUR CODING OF FILES
DEPARTMENT
Welcome Desk
Personal Banker
Teller
Relationship Manager
Branch Manager
Demat
Others
In the HDFC BANK each department has their different color coding
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apply on the different file. Due to this everyone aware about their
particular color file which is coding on it and they save their valuable
time. It is a part of Kaizen and also included in the system of the Five
‘S’. Logic behind it that , the color coding are always differentiate the
things from the similar one.
HUMAN RESOURCES
The Bank’s staffing needs continued to increase during the year
particularly in the retail banking businesses in line with the business
growth. Total number of employees increased from 14878 as of
March31,2006 to 21477 as of March 31, 2007. The Bank continues to
focus on training its employees on a continuing basis, both on the job
and through training programs conducted by internal and external
faculty.
The Bank has consistently believed that broader employee ownership
of its shares has a positive impact on its performance and employee
motivation. The Bank’s employee stock option scheme so far covers
around 9000 employees.
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RUPEE EARNED - RUPEE SPENT
It is more important for every organization to know about from where
and where to spent money. And balanced between these two things
rupee earned and rupee spent are required for smooth running of
business and financial soundness. This type of watch can control
and eliminate the unnecessary spending of business. In this diagram
it include both things from where Bank earned Rupee and where to
spent.
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HDFC BANK earned from the ‘Interest from Advances’ 51.14 % ,
‘Interest from Investment’ 27.12 %, bank earned commission
exchange and brokerage of 15.25 %. These are the major earning
sources of the bank. Bank also earned from the Forex and
Derivatives and some other Interest Income.
Bank spent 39.75 % on Interest Expense, 30.27 % on Operating
Expense and 14.58 % on Provision. Bank also spent Dividend and
Tax on dividend, Loss on Investment , Tax.
As we discuss above that balancing is must between these two for
every organization especially in the era of globalization where there
are stiff competition among various market players.
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RECENT DEVELOPMENT
The Reserve Bank of India has approved the scheme of
amalgamation of Centurion Bank of Punjab Ltd. with HDFC Bank
Ltd. with effect from May 23, 2008.
All the branches of Centurion Bank of Punjab will function as
branches of HDFC Bank with effect from May 23, 2008. With RBI’s
approval, all requisite statutory and regulatory approvals for the
merger have been obtained.
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The combined entity would have a nationwide network of 1167
branches; a strong deposit base of around Rs.1,22,000 crores and
net advances of around Rs.89,000 crores. The balance sheet size of
the combined entity would be over Rs.1,63,000 crores.
Merger with Centurion Bank of Punjab Limited
On March 27, 2008, the shareholders of the Bank accorded their
consent to a scheme of amalgamation of Centurion Bank of Punjab
Limited with HDFC Bank Limited. The shareholders of the Bank
approved the issuance of one equity share of Rs.10/- each of HDFC
Bank Limited for every 29 equity shares of Re. 1/- each held in
Centurion Bank of Punjab Limited. This is subject to receipt of
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Approvals from the Reserve Bank of India, stock exchanges and
Other requisite statutory and regulatory authorities. The shareholders
Also accorded their consent to issue equity shares and/or warrants
convertible into equity shares at the rate of Rs.1,530.13 each to
HDFC Limited and/or other promoter group companies on preferential basis, subject to final regulatory approvals in this regard. The
Shareholders of the Bank have also approved an increase in the
authorized capital from Rs.450 crores to Rs.550 crores.
Promoted in 1995 by Housing Development Finance Corporation
(HDFC), India's leading housing finance company, HDFC Bank is one
of India's premier banks providing a wide range of financial products
and services to its over 11 million customers across hundreds of
Indian cities using multiple distribution channels including a pan-India
network of branches, ATMs, phone banking, net banking and mobile
banking. Within a relatively short span of time, the bank has emerged
as a leading player in retail banking, wholesale banking, and treasury
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operations, its three principal business segments.
The bank's competitive strength clearly lies in the use of technology
and the ability to deliver world-class service with rapid response time.
Over the last 13 years, the bank has successfully gained market
share in its target customer franchises while maintaining healthy
profitability and asset quality.
As on March 31, 2008, the Bank had a network of 761 branches and
1,977 ATMs in 327 cities. For the year ended March 31, 2008, the
Bank reported a net profit of INR 15.90 billion (Rs.1590.2crore),
up 39.3%, over the corresponding year ended March 31, 2007.
As of March 31, 2008 total deposits were INR 1007.69 billion,
(Rs.100,769 crore) up 47.5% over the corresponding year ended
March 31, 2007. Total balance sheet size too grew by 46.0% to INR
1,331.77 billion (133177 crore). Leading Indian and international
Publications have recognized the bank for its performance and
quality.
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Centurion Bank of Punjab is one of the leading new generation
private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full
range of financial products and services for investing, lending and
advice on financial planning. The bank offers its customers an array
of wealth management products such as mutual funds, life and
general insurance and has established a leadership 'position'.
The bank is also a strong player in foreign exchange services,
personal loans, mortgages and agricultural loans.
Additionally the bank offers a full suite of NRI banking products to
Overseas Indians. On 29th August 2007, Centurion Bank of Punjab
merged with Lord Krishna Bank (LKB), post obtaining all requisite
statutory and regulatory approvals. This merger has further
strengthened the geographical reach of the Bank in major towns and
cities across the country, especially in the State of Kerala, in addition
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to its existing dominance in the northern part of the country.
Centurion Bank of Punjab now operates on a strong nationwide
franchise of 404 branches and 452 ATMs in 190 locations across the
country, supported by employee base of over 7,500 employees.
In addition to being listed on the major Indian stock exchanges,
the Bank’s shares are also listed on the Luxembourg Stock
Exchange.
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ACHIEVEMENT IN 2007
Business Today-
Monitor Group
survey
One of India's "Most Innovative
Companies"
Financial Express-
Ernst & Young
Award
Best Bank Award in the Private Sector
category
Global HR
Excellence Awards
- Asia Pacific HRM
Congress:
'Employer Brand of the Year 2007 -2008'
Award - First Runner up, & many more
Business Today 'Best Bank' Award
Dun & Bradstreet –
American Express
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Corporate Best
Bank Award 2007 'Corporate Best Bank' Award
The Bombay Stock
Exchange and
Nasscom
Foundation's
Business for Social
Responsibility
Awards 2007
' Best Corporate Social Responsibility
Practice' Award
Outlook Money &
NDTV Profit
Best Bank Award in the Private sector category.
The Asian Banker
Excellence in
Retail Financial
Services Awards
Best Retail Bank in India
Asian Banker HDFC BANK Managing Director Aditya Puri wins
the Leadership Achievement Award for
India
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SWOT ANALYSIS
STRENGTH
Right strategy for the
right products.
Superior customer
service vs. competitors.
Great Brand Image
Products have required
accreditations.
High degree of customer
satisfaction.
Good place to work
Lower response time
with efficient and
effective service.
Dedicated workforce aiming at making a
WEAKNESSES
Some gaps in range for
certain sectors.
Customer service staff need
training.
Processes and systems, etc
Management cover
insufficient.
Sectoral growth is constrained by low unemployment levels and competition for staff
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long-term career in the field.
Opportunities
Profit margins will be good.
Could extend to overseas
broadly.
New specialist applications.
Could seek better customer
deals.
Fast-track career
development opportunities
on an industry-wide basis.
An applied research centre to create opportunities for developing techniques to provide added-value services.
Threats
Legislation could impact.
Great risk involved
Very high competition
prevailing in the industry.
Vulnerable to reactive
attack by major competitors
Lack of infrastructure in
rural areas could constrain
investment.
High volume/low cost market is intensely competitive.
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COMPETITIVE SWOT ANALYSIS WITH ICICI BANK
STRENGTHS WEAKNESSES
OPPORTUNITIES
S – O Strategies
Strength: Large Capital base.
Opportunity: Market Expansion.
Strategy: Deep Penetration into Rural Market.
W – O Strategies
Weakness: Workforce
Responsiveness.
Opportunity: Outsourcing of Non – Core Business.
Strategy: Outsource Customer Care & other E-Helps.
THREATS
S – T Strategies
Strength: Low operating costs
Threat: Increased Competition from others Pvt. Banks.
Strategy: Steps to Ensure Loyalty by old Customers.
W – T Strategies
Weakness: Not Equal to International Standards.
Threat: Entry of many Foreign Banks.
Strategy: Consider additional benefits
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Detailed Analysis:
i. Strength - Opportunity Analysis.
Strength:
It is well know that ICICI Bank has the largest Authorised Capital
Base in the Banking System in India i.e. having a total capacity to
raise Rs. 19,000,000,000 (Non – Premium Value).
Opportunity:
Seeing the present financial & economic development of Indian
Economy and also the tremendous growth of the Indian
Companies including the acquisition spree followed by them,
it clearly states the expanding market for finance requirements
and also the growth in surplus disposal income of Indian citizens
has given a huge rise in savings deposits – from the above point it
is clear that there is a huge market expansion possible in banking
sector in India.
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Strategy:
From the analysis of Strength & Opportunity the simple and
straight possible strategy for ICICI Bank could be - to penetrate
into the rural sector of India for expanding its market share as well
as leading all other Pvt. Banks from a great gap.
ii. Strength - Threat Analysis.
Strength:
ICICI Bank is not only known for large capital but also for having a
low operations cost though having huge number of branches and
services provided.
Threat:
After showing a significant growth overall, India is able to attract
many international financial & banking institutes, which are known
for their state of art working and keeping low operation costs.
Strategy:
To ensure that ICICI Bank keeps going on with low operation cost
& have continuous business it should simply promote itself well &
95
provide quality service so as to ensure customer loyalty, therefore
guaranteeing continuous business.
iii. Weakness - Opportunity Analysis.
Weakness:
It is well known that workforce responsiveness in banking sector is
Very low in Indian banking sector, though ICICI Bank has better
responsible staff but it still lacks behind its counterparts like HSBC,
HDFC BANK, CITI BANK, YES BANK etc.
Opportunity:
In the present world, India is preferred one of the best places for
out – sourcing of business process works and many more.
Strategy:
As international companies are reaping huge benefits after out-
sourcing there customer care & BPO’s, this same strategy should
be implemented by ICICI Bank so as to have proper customer
service without hindering customer expectations.
96
iv. Weakness - Threat Analysis.
Weakness:
Though having a international presence, ICICI Bank has not been
able to keep up the international standards in providing customer
service as well as banking works.
Threat:
In recent times, India has witnessed entry of many international
banks like CITI Bank, YES Bank etc which posses an external
entrant threat to ICICI Bank – as this Banks are known for their art
of working and maintain high standards of customer service.
Strategy:
After having new entrants threat, ICICI Bank should come up with
More additional benefits to its customer or may be even reduce
some fees for any additional works of customers.
97
PROJECT ON PLASTIC MONEY
PLASTIC MONEYPLASTIC MONEY
I give the project on Plastic Money to bank. The objective behind this
98
project is to increase the rich customers list in a bank. Plastic Money
title itself says the use of Credit Card and Debit Card in day to day
transaction of the business. I prepared the presentation on it and
submitted to bank and Bank already started work on this project.
Idea behind this project is to sale the bulk product. Target customer
Of this project are two parties one is Wholesaler and second is
Retailer. Due to this idea bank also sell their swipe machine to
wholesaler and create brand image in the market.
The idea behind this, bank give the credit card swipe machine to
wholesalers and retailers use the credit card of the bank. Bank gives
the 50 days credit to their credit card holders. So here retailers can
get benefit of long credit period and on the other side wholesalers can
get the benefit of same day payment. As a result bank got the wide
list of customers of wholesalers and retailers.
99
POWERPOINT PRESENTATION ON PLATIC MONEY
100
IDEAIDEA
We sale our product to wholesalers and Retailers We sale our product to wholesalers and Retailers and create group transactions.and create group transactions.
Credit CardCredit Cardand and Debit CardDebit Cardas a medium of as a medium of transaction.transaction.
Both the parties get benefit from it .Both the parties get benefit from it .
Bank got the new customers as a result.Bank got the new customers as a result.
Idea behind it, to convenience both the parties and create the group
transaction between them so bank can got the maximum benefit from
it. Each wholesaler has more than 15 to 20 retailers, so by this way
bank sell the bulk products.
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How it worksHow it works
Meet to Meet to wholesalerswholesalersfirstfirst Collect details of their Collect details of their RetailersRetailers Convince both the parties and showing them a Convince both the parties and showing them a
benefitsbenefitsfrom it.from it. Force to open a bank account in Force to open a bank account in HDFC BankHDFC Bank
to both the parties. to both the parties.
This power point slide shows the how idea works behind this project. Meet the wholesaler first and get the details about their retailers and
convince both parties and shows the benefit of using this type of
transaction by plastic money.
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Benefit to BankBenefit to Bank
BulkBulkproduct selling product selling
Because wholesalers and retailers are in a Because wholesalers and retailers are in a groupgroup
Indirect way to Indirect way to marketingmarketing
Bank always find those customers which are more involve in the
banking transaction. These type of group transaction between the
wholesalers and retailers maintain the well account in a bank.
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Marketing Strategy Marketing Strategy
It's show time and it's about one thingIt's show time and it's about one thing----communicating the benefits of your product or communicating the benefits of your product or service in such a way that prospects or service in such a way that prospects or customers customers wantwantyour solution to their your solution to their problem... problem...
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