Banking Industry Analysis and Study of Top Two Players

Industry Analysis of Banking and comprehensive study of top two player

ACKNOWLEDGEMENTS

It is my proud privilege to release the feelings of my gratitude to several
persons who helped me directly or indirectly to conduct this research project work. I express my
heart full indebtness and owe a deep sense of gratitude to my teacher and my faculty guide Mr
Narendra Manral, Mr Nimish Saxena, Shri Ramswaroop Memorial Group of Professional
Colleges, for their sincere guidance and inspiration in completing this project.

I am extremely thankful to the Prof BB Tiwari, Prof Pankaj Dhingra, Mr Nadeem
Qazilbash, and Mr Shayaan Zaidi and all faculties members of PGDM of Shri Ramswaroop
Memorial Group of Professional Colleges for their coordination and cooperation and for there
kind guidance and encouragement.

I also thank all my friends who have more or less contributed to the preparation
of this project report. I will be always indebted to them.

The study has indeed helped me to explore more knowledgeable avenues related to
my topic and I am sure it will help me in my future.

Mohammad Azam
PGDM 2nd year
PGDM 10007

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SHRI RAMSWAROOP MEMORIAL GROUP OF PROFESSIONAL COLLEGES


INTRODUCTION

Banking Industry in India

The Indian banking industry started taking shape after India‟s independence in 1947. Though the
Indian banking industry can be traced as far back as 1806 with the establishment of Bank of
Bengal, the industry was in a state of turmoil.
Under the British influence, Calcutta witnessed a surge in trading activities, giving rise to a
number of banking establishments during the period. Several banks, set up in order to finance
trading, went out of business. For instance, Union bank, formed by Indian merchants, failed due
to economic recession during 1848-49 resulting in depositors losing money. Such events resulted
in shifting the reigns of the industry into the hands of Europeans till the early twentieth century.

From 1906 to1911, several banks were set up based on the principles of the Swadesi movement.
The movement inspired Indian businessmen and politicians to set up banks for the Indian
community and many new banks were launched to promote trade and finance in communal
groups. Some of the prominent ones among these are Bank of India, Corporation Bank, Bank of
Baroda, Indian bank, Canara Bank, and Central bank of India.
Bank of Bengal, along with its sister banks, Bank of Bombay and Bank of Madras, set up by
British East India Company, merged in 1921 to give birth to Imperial bank of India, now known
as State bank of India.
During 1914-1945, India went through several ups and downs politically and economically and
the effects were felt in the banking sector too. The World Wars disrupted banking activities of
the nation and almost 94 banks failed during this period. After 1947, however, banking activities
flourished.

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After the partition of India, the government toook drastic steps to regulate the banking industry.
For example, in 1948, additional powers and authority were vested in the Reserve bank of India
to monitor the functioning of the entire banking system. The passing the Banking regulation act
in 1949, empowered RBI to further regulate, inspect, and control Indian banks.
The nationalization and liberalization of banks 1969 and 1991 respectively also boosted the
development of the Indian banking sector. Nationalization resulted in 91% of government
holding in the banking industry and liberalization paved the path for private players to participate
in the industry. As a result, banks like Oriental bank of Commerce, HDFC bank, ICICI bank, and
AXIS bank came into being. Foreign banks too were permitted to set up their offices in India.
The rationalization of FDI norms in 2002 also allowed foreign players to acquire stakes in Indian
banks.
These banks implemented innovative forms of banking like ATMs, mobile banking, phone
banking, internet banking, and debit/credit cards. The private players constantly improved
services in order to retain customers and win the severe competition which had become a feature
of the Indian banking industry.

Currently, private banks are going through a series of mergers and acquisitions and public sector
banks are shrinking in the form of manpower, equity, and non-performing assets.
The public sector banks have been grappling with attrition which surfaced after the Voluntary
Retirement Scheme was announced. The dilution of equity from 51% to 33% has opened up
opportunities for takeovers.
The Indian banking system, however, proved resilient to shocks arising out of the global
financial recession. In terms of quality of assets, the Indian banking players have come out clean
with strong and transparent balance sheets compared to their counterparts in other nations.
Following the financial crisis, new deposits made their way towards public sector banks.
According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial
Banks: September 2009', nationalized banks, as a group, accounted for 50.5% of the aggregate
deposits, while State Bank of India (SBI) and its associates accounted for 23.8%. The share of
other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits
were 17.8%, 5.6%, and 3%, respectively.

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Ever since US declared recovery from the global financial crisis, the confidence of non-resident
Indians (NRIs) in the Indian economy has revived again. NRI fund inflows increased since April
2009 and touched US$ 45.5 billion on July 2009, as per the RBI's February bulletin. Most of this
has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External
Rupee Accounts. India's foreign exchange reserves rose to US$ 284.26 billion as on January 8,
2010, according to the RBI's February bulletin.

The report also found that scheduled commercial banks served 34,709 banked centers. Of these
centers, 28,095 were single office centers and 64 centers had 100 or more bank offices.
The expansion plans are self evident from the example of SBI, which is adding 23 new branches
abroad, bringing its foreign-branch network number to 160 by March 2010. This will cement its
leading position as the bank with the largest global presence among local peers.

Currently, the Indian banking framework is comprised of 88 scheduled commercial banks
(SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29
private banks (these do not have government stake, they may be publicly listed and traded on
stock exchanges) and 31 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.

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). NECS was introduced in September 2008 for centralized
processing of repetitive and bulk payment instructions. Currently, a little over 26,000 branches of
114 banks are enabled to participate in NECS.

Banking in India originated in the first decade of 18th century with The General Bank of India
coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are
now defunct. The oldest bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like
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Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was
the most active trading port, mainly due to the trade of the British Empire, and due to which
banking activity took roots there and prospered. The first fully Indian owned bank was the
Allahabad Bank, which was established in 1865.

By the 1900s, the market expanded with the establishment of banks such as Punjab National
Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded
under private ownership. The Reserve Bank of India formally took on the responsibility of
regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve
Bank was nationalized and given broader powers.

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OBJECTIVE OF THE PROJECT

The Objectives of the project are as follows:

Analyze the industry environment by applying various strategic tools like
PESTANALYSIS and SWOT ANALYSIS.

To find the recent happening in this industry and relate it to draw suitable inferences.

Bring out TOP 2 Banks of Indian Banking Industry on the basis of relevant parameters.

Analyze the financial statement of both the companies and discover the various region
where one overcomes the other and try to find reasons for that.

Analyze the Brand lines and try to explore the segmentation, targeting and positioning
policies of these TOP 2 players.

Evaluate the current scenario of the industry as well as estimating the chances of entry of
new players by the help of PORTER FIVE FORCE ANALYSIS.

Study the management, working style and other organizational parameters of the TOP 2
players.

Conduct a comparative analysis between these TOP 2 players.

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S.W.O.T ANALYSIS OF INDIAN BANKING INDUSTRY

STRENGTH

 Bank lending has been a significant driver of GDP growth and employment(The growth
of services, including banking and insurance, improved to 9.9 per cent in 2010-11 from
9.2 per cent in the previous fiscal. articles.economictimes.indiatimes.com)

 The vast networking & growing number of branches & ATMs. Indian banking system
has reached even to the remote corners of the country.

 Policy makers have made some notable changes in policy and regulation to help
Strengthen the sector. These changes include strengthening prudential norms,
Enhancing the payments system and integrating regulations between commercial and
Co -operative 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 pr ivate and foreign
banks holding 18.2% and 6.5% respectively.

 In terms of quality of assets and capital adequacy, I ndian banks are considered to
have clean, strong and transparent balance sheets relative to other banks in
comparable economies in its region.

 Currently, India has 81 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 22 private banks (these do not

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have government stake; they may be publicly listed and traded on stock exchanges) and
32 foreign banks.

WEAKNESS

 PSBs need to fundamentally strengthen institutional skill levels especially in sales and
marketing, service operations, risk management and the overall organizational
Performance ethic & strengthen human capital.

 Bank penetration is limited to only a few customer segments and geographies

 Structural weaknesses such as a fragmented industry structure, restrictions on capital
availability and deployment, lack of institutional support infrastructure, restrictive
about laws, weak corporate governance and ineffective regulations beyond
Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.

 Impediments in sectoral reforms: Opposition from Left and resultant cautious
approach from the North Block in terms of approving merger of PSU banks may
hamper their growth prospects in the medium term.

OPPORTUNITY

 Given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.

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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

 Reach in rural India for the private sector and foreign banks.

 A multi-media campaign, “Swabhimaan”, has been launched to inform, educate and
motivate people to open bank accounts.

 The market is seeing discontinuous growth driven by new products and services that
include opportunities in credit cards, consumer finance and wealth management on
the retail side, and in fee- based income and investment banking on the wholesale
banking side. These require new skills in sales & marketing, credit and operations.

 Foreign banks committed to making a play in I ndia will need to adopt alternative
approaches to win the “race for the customer” and build a value- creating customer
franchise in advance of regulations potentially opening up post 2009. At the same
time, they should stay in the game for potential acquisition opportunities as and when
they appear in the near term. Maintaining a fundamentally long-term value-creation
mindset.

THREATS

 Rise in inflation figures which would lead to increase in interest rates.
 Increase in the number of foreign players would pose a threat to the PSB as well as the
private players

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PEST ANALYSIS OF INDIAN BANKING INDUSTRY

PEST analysis of any industry investigates the important factors that affect the industry
and influence the companies operating in the sector. PEST stands for Political, Economic,
Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that
drive the industry y and how those factors can influence the industry.

POLITICAL FACTORS:

Government and RBI policies affect the banking sector. Sometimes looking into the
political advantage of a particular party, the Government declares some measures to their
benefits like waiver of short-term agricultural loans, to attract the farmer‟s votes. By
doing so the profits of the bank get affected. Various banks in the cooperative sector are
open and run by the politicians. They exploit these banks for their benefits. Sometimes

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the government appoints various chairmen of the banks. Various policies are framed by
the RBI looking at the present situation of the country for better control over the banks.

BUDGET MEASURES:

Agriculture Credit
To get the best from their land, farmers need access to affordable credit. Banks have been
consistently meeting the targets set for agriculture credit flow in the past few years. For the year
2011-12, The target raised of credit flow to the farmers from `3,75,000 crore this year to
`4,75,000 crore in 2011-12. Banks have been asked to step up direct lending for agriculture and
credit to small and marginal farmers. (Budget 2011-2012 Speech of Pranab Mukherjee
Minister of Finance February 28, 2011)

FDI LIMIT

In the private banking sector of India, FDI is allowed up to a maximum limit of 74 % of the paid-
up capital of the bank.

Benefits of FDI in Banking Sector in India-
Transfer of technology from overseas countries to the domestic market.
Ensure better and improved risk management in the banking sector.

ECONOMIC FACTORS :

Banking is as old as authentic history and the modern commercial banking are traceable to
ancient times. In India, banking has existed in one form or the other from time to time. The
present era in banking may be taken to have commenced with establishment of bank of Bengal in
1809 under the government charter and with government participation in share capital.
Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others

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followed. Every year RBI declares its 6 monthly policy and accordingly the various measures
and rates are implemented which has an impact on the banking sector. Also the Union budget
affects the banking sector to boost the economy by giving certain concessions or facilities. If in
the Budget savings are encouraged, then more deposits will be attracted towards the banks and in
turn they can lend more money to the agricultural sector and industrial sector, therefore, booming
the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking
channels.

GROWING ECONOMY / GDP:

Indian economy has registered a growth of more that 8.5 per cent for last three year and is
expected to maintain robust growth rate as compare to other developed and developing countries.
Banking Industry is directly related to the growth of the economy. The contributions of various
sectors in the Indian GDP for 2010-2011 are as follows: Agriculture: 17% Industry: 29% Service
Sector: 54% It is great news that today the service sector is contributing more than half of the
Indian GDP. It takes India one step closer to the developed economies of the world. Earlier it
was agriculture which mainly contributed to the Indian GDP. The Indian government is still
looking up to improve the GDP of the country and so several steps have been taken to boost the
economy. Policies of FDI, SEZs and NRI investment have been framed to give a push to the
economy and hence the GDP.

MONETARY POLICY :

Monetary Policy 20010-2011
Cash Reserve Ratio (CRR) 6.00% (w.e.f. 24/04/2010)
Increased from 5.00% to 5.50% wef 13/02/2010; and then again to 5.75% wef 27/02/2010; and
now to 6.00% wef 24/04/2010
Statutory Liquidity Ratio (SLR) 24%(w.e.f. 18/12/2010)
Decreased from 25% which was continuing since 07/11/2009

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Repo Rate 8.50% (w.e.f.25/10/2011) Increased from 8.25% which was continuing since
16/09/2011
Reverse Repo Rate 7.50% (w.e.f. 25/10/2011) Increased from 7.25% which was continuing
since 16/09/2011.

INFLATION RATES:

Inflation represents a rise in general level of prices of goods and services over a period of
time. It leads to an erosion in the purchasing power of money. Resultantly, each unit of
currency buys fewer goods and services Different fiscal and monetary policies have
curbed. The inflation rate in India was last reported at 9.36 percent in nov of 2011

SOCIO CULTUREAL FACTORS:

Socio culture factors also affect the business. They show in which people behave in country.
Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and
consumption habit of people, their language, beliefs and values affect the business. Banking
industry is also operates under this social environment and it is also affect by this factor. These
factor are changing continuously people‟s life style, their behavior, consumption pattern etc. is
changing and also creating opportunities and threat for banking industry. There are some socio-
culture factors that affect banking inIndia have been analyzed below.



SHIFT TOWARDS NUCLEAR FAMILY:

Attitude of people of India is changing. Now, younger generation wants to remain separate from
their parents after they get married. Joint families are breaking up. There are many reasons
behind that. But banking sector is positively affected by this trend. A family need home
consumer durables likefreeze, washing machine, television, bike, car, etc.. so, they demand for
these products and borrow from banks. Recently there is boost in housing finance and vehicle

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loans. As they do not have money they go for installments. So, banks satisfy nuclear families
wants.

CHANGE IN LIFE STYLE:

Life style of India is changing rapidly. They are demanding high class products. They have
become more advanced. People want everything car, mobile, etc.. what their fore father had
dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also want to
have well furnished home, television, mobile, vehicle and this has opened opportunities for
banking secter to tap this change. Every thing is available so it has become easy to purchase
anything if you do not have lump sum.

POPULATION :

Increase in population is one of he important factor, which affect the private sector banks. Banks
would open their branches after looking into thepopulation demographics of the area. Percentage
of deposit in any branches of banks depends upon the population demographic of that area. The
population of India is about 121 cores is expected to reach about 140 cores in 2018. About 70%
of population is below 35years of age. They are in the prime earning stage and this increase the
earning of the banks. Total Deposits mobilized by the Private Sector Banks increased from Rs,
2,52,335 crore as on 31st March 2009 to Rs. 3,12,645 crore as on 31st March 20010.

LITERACY RATE:

Literacy rate in India is very low compared to developed countries. Illiterate people hesitate to
transact with banks. So, this impacts negatively on banks. But there is positive side of this as
well i.e. illiterate people trust more on banks to deposit their money, they do not have market
information. Opportunities in stocks or mutual funds. So, they look bank as their sole and safe
alternative.
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TECHNOLOGICAL FACTORS:

TECHNOLOGY IN BANKS
Technology plays a very important role in bank‟s internal controlmechanisms as well as services
offered by them. It has in fact given new dimensions to the banks as well as services that they
cater to and the banks are enthusiastically adopting new technological innovations for devising
new products and services.

ATM
The latest developments in terms of technology in computer and telecommunication have
encouraged the bankers to change the concept of branch banking to anywhere banking. The use
of ATM and Internet banking has allowed „anytime, anywhere banking‟ facilities. Automatic
voice recorders now answer simple queries, currency accounting machines makes the job easier
and self-service counters are now encouraged. Credit card facility has encouraged an era of
cashless society. Today MasterCard and Visa card are the two most popular cards used world
over. The banks have now started issuing smartcards or debit cards to be used for making
payments. These are also called as electronic purse. Some of the banks have also started home
banking through telecommunication facilities and computer technology by using terminals
installed at customers home and they can make the balance inquiry, get the statement of
accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends
and interest directly to our account avoiding the delay or chance of loosing the post.

IT SERVICES & MOBILE BANKING
Today banks are also using SMS and Internet as major tool of promotions and giving great utility
to its customers. For example SMS functions through simple text messages sent from your
mobile. The messages are then recognized by the bank to provide you with the required
information. All these technological changes have forced the bankers to adopt customer-based

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approach instead of product-based approach Technology advancement has changed the face of
traditional banking systems. Technology advancement has offer 24X7 banking even giving faster
and secured service.

CORE BANKING SOLUTIONS:
It is the buzzword today and every bank is trying to adopt it is the centralize banking platform
through which a bank can control its entire operation the adoption of core banking solution will
help bank to roll out new product and services.

PORTER’S FIVE FORCES MODEL OF COMPETITION

The nature of competition in the industry in large part determines the content of strategy,
especially business level strategy .based it is on the fundamental economics of the industry, the
very profit potential of an industry is determine by competition interaction. Where these
interactions are intense, profit tends to be whittled away by the activities of competing.

Porter‟s model is based on the insight that a corporate strategy should meet the opportunities and
threats in the organizations external environment. Especially, competitive strategy should base
on and understanding of industry structures and the way they change. Porter has identified five
competitive forces that shape every industry and every market. These forces determine the
intensity of competition and hence the profitability and attractiveness of an industry. The
objective of corporate strategy should be to modify these competitive forces in a way that
improves the position of the organization. Porter‟s model supports analysis of the driving forces
in an industry. Based on the information derived from the Five Forces Analysis, management can
decide how to influence or to exploit particular characteristics of their industry.

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Bargaining power of
suppliers is very low

Nature of suppliers
Few alternatives
RBI rules and
regulations
Suppliers are not
concentrated
forward integration

Threat of competitors
Threat of
Barriers to entry
Large no of banks substitute
Product High market growth
differentiation rate Non banking
very difficult Low switching costs financial sector
Licensing Undifferentiated increasing
requirement services rapidly
High fixed cost Deposits in
High exit barriers posts
Stock Market

Bargaining power of
consumer very high

Large no. of
alternatives
Low switching costs
Undifferentiated
services
Full information about
the market

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Rivalry among Competing Firms
Rivalry among competitors is very fierce in Indian Banking Industry.
The services banks offer is more of homogeneous which makes the Company to offer the same
service at a lower rate and eat their competitor market‟s share. Market Players use all sorts of
aggressive selling strategies and activities from intensive advertisement campaigns to
promotional stuff. Even consumer switch from one bank to another, if there is a wide spread in
the interest. Hence the intensity of rivalry is very high. The no of factors has contributed to
increase rivalry those are.
1. A large no of banks
There is so many banks and non financial institution fighting for same pie , which has
intensified competition?

2. High market growth rate
India is seen as one of the biggest market place and growth rate in Indian banking
industry is also very high. This has ignited the competition.

3. Homogegeous product and services
The services banks offer is more of homogeneous which makes the company to offer
the same service at a lower rate and eat their competitor market‟s share.

4. Low switching cost
Costumers switching cost is very low, they can easily switch from one bank to another
bank and very little loyalty exist .

5. Undifferanciated services
Almost every bank provides similar services. Every bank tries to copy each other services
and technology which increase level of competition.

6. High fixed cost

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7. High exit barriers
High exit barriers humiliate banks to earn profit and retain customers by providing world
class services.

8. Low government regulations

There are low regulations exist to start a new business due lpg policy adopted by India.

BARGAINING POWER OF SUPPLIERS

Banking industry is governed by Reserve Bank of India. Reserve Bank of India is the
authority to take monetary action which leads to direct impact on circulation of money in the
Economy. The rules and regulation lay down by RBI.
Suppliers of banks are depositors .these are those people who have excess money and
prefer regular income and safety. In banking industry suppliers have low bargaining power.

1. Nature of suppliers
Suppliers of banks are those people who prefer low risk and those who need regular income and
safety as well. Banks best place for them to deposits theirs surplus money.

2. Few alternatives

3. Rbi rules and regulations

Banks are subject to rbi rules and regulations .bank have to behave in a way that rbi wants. So rbi
takes all decisions related to interest rates . this reduce bargaining power of suppliers .
4. Suppliers not concentrated

Banking industry suppliers sure not concentrated. There are numerous with negligible
portion of offer .so this reduce their bargaining power .

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BARGAINING POWER OF CONSUMERS

In today world, Customer is the King. Banks offers different services According to
clients need and requirement. They offer loans at Prime Lending Rate (PLR) to their trust worthy
clients and higher rate to others clients.
Customers of banks are those who take loans and uses services of banks. Customers have
high bargaining power. These are

1. Large no of alternatives
Customers have large no of alternatives, there are so many banks, which fight for same
pie. There are many non financial institutions like icici, hdfc, and ifci, etc. which has also jump
into these business .there are foreign banks , privet banks, co-operative banks and development
banks together with specialized financial companies that provides finance to customers .these all
increase preference for customers.

2. Low switching cost
Cost of switching from one bank to another is low. Banks are also providing zero balance
account and another types of facilities. They are free to select any banks service. Switching cost
are becoming lower with internet banking gaining momentum and a result customers loyalties
are harder to retain.

3. Undiffenciated service
Bank provide merely similar service there are no much diffracted in service provides by
different banks so, bargaining power of customers increase. They can not be charged for
differentiation.

4. Full information about the market
Customers have full information about the market due to globalization and digitalization
Consumers have become advance and sophisticated .they are aware with each market condition
so banks have to be more competive and customer friendly to serve them.
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For good creditworthy borrowers bargaining power is high due to the availability of large
number of bank

POTENTIAL ENTRY OF NEW COMPETITORS

Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in
Banking Industry. We expect merger and acquisition in the banking industry in near future.
Hence, the industry is less porn of new competitor.
Barriers to an entry in banking industry no longer exist. So lots of privet and foreign
banks are entering in the market. Competitors can come from an industry to „disinter
mediate„bank product differentiation is very difficult for banks and exit is difficult. So every
bank strives to survive in highly competitive market so we see intense competitive can mergers
and acquisitions. Government policies are supportive to start new bank. There is less statutory
requirement needed to start a new venture? Every bank to tries to achieve economics of scale
through use of technology and selecting and training manpower .
There are public sector banks, private sector and foreign banks along with non banking
finance companies competing in similar business segments.

POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS

Every day there is one or the other new product in financial sector.
Banks are not limited to tradition banking which just offers deposit and lending. In addition,
today banks offers loans for all products, derivatives, ForEx, Insurance, Mutual Fund, Demit
account to name a few. The wide range of choices and needs give a sufficient room for new
product development and product enhancement.
Substitute products or services are those, which are different but satisfy the same set of
customers. In private banking industry following are the substitutes:

1. NBFC: Non-banking financial Institutions play an important role in giving financial
assistance. Mobilization of financial resources outside the traditional banking system

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has witnessed a tremendous growth in recent years in the India. NBFC is a close
substitute of banking in respect of raising funds. Borrower can easily raise funds from
NBFC because it requires less formal procedure for getting funds compare to private
banks.

2. Post Office Products: Post office is also providing some service like fixed deposit
facility, saving account, recurring account etc. The interest rate of saving account is
higher than private banks. It is fully secured by the government so people who do not
want to take risk for them post office saving is good substitute.

3. Government Bond: Govt. Bond also attracts savings from the general public. It is less
risky and more secured as compare to savings in private banks.

4. Mutual Funds: Mutual funds are also now proving as good substitutes for banks. They
assure for providing high return with less time in comparison of banks. The
administrative expenses are also very low as compared to banks. Investment in Mutual
funds is more flexible than investment in banks.

5. Stock Market: People who are ready to bear risk and wants a high return on their
investment, stock market is a good substitute for them. Day by day investors are
moving towards stock market as interest rate in banks are decreasing. So now stock
market has proved as a big competitor for baking sector.

6. Debentures: Debentures is also proved as a good substitute of bank‟s fixed deposit as
return on debenture is fixed and high. There are different types of debentures, which
attract various classes of investors.

7. Other Investment Alternatives: Now common people‟s attraction is shifting from
banks to other various alternatives such as gold, precious metals, land, small savings .

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TOP TWO PLAYERS IN BANKING INDUSTRY

 State Bank of India

 ICICI bank

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SELECTION CRITERIA

 CASA or Deposits
 Investment
 Advances

comparision chart

1200000

1000000
202017
800000 181206
Axis Title

600000
804116
400000 120893 631914

200000 285790

0
Deposits Investments Advances
ICICI 202017 120893 181206
SBI 804116 285790 631914

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STATE BANK OF INDIA
(SBI)

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History of SBI

The evolution of State Bank of India can be traced back to the first decade of the 19th century. It
began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was
redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever joint-
stock bank of the British India, established under the sponsorship of the Government of Bengal.
Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras
(established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the
modern banking scenario in India, until when they were amalgamated to form the Imperial Bank
of India, on 27 January 1921.

An important turning point in the history of State Bank of India is the launch of the first Five
Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in
general and the rural sector of the country, in particular. Until the Plan, the commercial banks of
the country, including the Imperial Bank of India, confined their services to the urban sector.
Moreover, they were not equipped to respond to the growing needs of the economic revival
taking shape in the rural areas of the country. Therefore, in order to serve the economy as a
whole and rural sector in particular, the All India Rural Credit Survey Committee recommended
the formation of a state-partnered and state-sponsored bank.

The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of
India, and integrating with it, the former state-owned or state-associate banks. Subsequently, an
Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI)
was established on 1 July 1955. This resulted in making the State Bank of India more powerful,
because as much as a quarter of the resources of the Indian banking system were controlled
directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in
1959. The Act enabled the State Bank of India to make the eight former State-associated banks
as its subsidiaries.
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The State Bank of India emerged as a pacesetter, with its operations carried out by the 480
offices comprising branches, sub offices and three Local Head Offices, inherited from the
Imperial Bank. Instead of serving as mere repositories of the community's savings and lending to
creditworthy parties, the State Bank of India catered to the needs of the customers, by banking
purposefully. The bank served the heterogeneous financial needs of the planned economic
development.

Branches
The corporate center of SBI is located in Mumbai. In order to cater to different functions, there
are several other establishments in and outside Mumbai, apart from the corporate center. The
bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major
cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater
to its customers throughout India.

ATM Services
SBI provides easy access to money to its customers through more than 8500 ATMs in India. The
Bank also facilitates the free transaction of money at the ATMs of State Bank Group, which
includes the ATMs of State Bank of India as well as the Associate Banks – State Bank of
Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also transact
money through SBI Commercial and International Bank Ltd by using the State Bank ATM-cum-
Debit (Cash Plus) card.

Subsidiaries
The State Bank Group includes a network of eight banking subsidiaries and several non-banking
subsidiaries. Through the establishments, it offers various services including merchant banking
services, fund management, factoring services, primary dealership in government securities,
credit cards and insurance.

The eight banking subsidiaries are:
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State Bank of Bikaner and Jaipur (SBBJ)
State Bank of Hyderabad (SBH)
State Bank of India (SBI)
State Bank of Indore (SBIR)
State Bank of Mysore (SBM)
State Bank of Patiala (SBP)
State Bank of Saurashtra (SBS)
State Bank of Travancore (SBT)

SEGMENTATION ,TARGETING,POSITION OF SBI

SEGMENTATION STRATEGY:
Demographics variables
Location
Metros & divisional cities
Occupation
Business person
Salaried class (both govt. & private)
Age
Senior citizens
Major
Minor

TARGETING STRATEGY:

Corporate banking market: This market targets the industries & fulfills their financial needs.

Capital market : This segment is targeted on the long term needs of the individual as well as of
industries.

28 | P a g e


Retail banking market : this segment is for retail investors & provide them short term financial
credit for their personal, house hold needs.

POSITIONING STRATEGY:
SBI has positioned itself as a bank which gives higher standard of services through product
innovation for the diverse need of individual & corporate clients
Taglines: With you - all the way and Pure Banking. Nothing Else

DIFFERENT PRODUCTS OF SBI:

DEPOSIT LOANS

 Savings Account  Home Loans
 Current Account  Loan Against Property
 Fixed Deposits  Personal Loans
 Demat Account  Car Loan
 Life Plus Senior Citizens Savings  Loans against Securities
Account  Two Wheeler
 Security Deposits  Retail Asset
 Recurring Deposits  Farmer Finance
 Tax-Saver Fixed Deposit  Business Installment
 Salary Account Loans
 Advantage Woman
Savings Account
 Rural Savings Account
 No frill account

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Industrial Credit and
Investment Corporation of
India(ICICI)

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History Of ICICI

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46%
through a public offering of shares in India in fiscal 1998, an equity offering in the form of
ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in
an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional
investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World
Bank, the Government of India and representatives of Indian industry. The principal objective
was to create a development financial institution for providing medium-term and long-term
project financing to Indian businesses.

In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group offering a wide variety of products
and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank.
In 1999, ICICI become the first Indian company and the first bank or financial institution from
non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging
competitive scenario in the Indian banking industry, and the move towards universal banking,
the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI
Bank would be the optimal strategic alternative for both entities, and would create the optimal
legal structure for the ICICI group's universal banking strategy. The merger would enhance value
for ICICI shareholders through the merged entity's access to low-cost deposits, greater
opportunities for earning fee-based income and the ability to participate in the payments system
and provide transaction-banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations, seamless access to ICICI's
strong corporate relationships built up over five decades, entry into new business segments,
higher market share in various business segments, particularly fee-based services, and access to
the vast talent pool of ICICI and its subsidiaries.

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In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI
and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services
Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at
Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve
Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking
operations, both wholesale and retail, have been integrated in a single entity.

SEGMENTATION ,TARGETING,POSITION OF ICICI

SEGMENTATION STRATEGY:

Occupation
Different products for different occupational segment identified
Income
Geographical
Concentrated on Tier 1 & Tier 2 Cities trying to extend reach
Age
Senior citizens
Major
Minor

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TARGETING STRATEGY:
Tailors its marketing campaigns to meet the needs of its target prospects.

POSITIONING STRATEGY:

Core proposition – ‘Hum hain na’ – trust, credibility, total financial solution provider
(brought about through its cross selling effort)

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DIFFERENT PRODUCTS OF ICICI:
SAVINGS ACCOUNT
SAVINGS ACCOUNT
SAVINGS MAX ACCOUNT
PENSIONS SAVINGS BANK ACCOUNT
SALARY ACCOUNT
CURRENT ACCOUNT
PLUS CURRENT ACCOUNT
TRADE CURRENT ACCOUNT
PREMIUM CURRENT ACCOUNT

FIXED DEPOSIT ACCOUNT
REGULAR FD ACCOUNT
FIVE YEAR TAX SAVING FD ACCOUNT
DEMAT ACCOUNT
LOANS
 Home Loan
 Personal Loan
 Car Loan
 Two Wheeler Loan
 Commercial Vehicle Loan
 Loan Against Securities
 Loan Against Gold
 Farm Equipment Loan
 Construction Equipment Loan
 Office Equipment Loan
 Medical Equipment Loan
 Rural Educational Institute Finance
 Customer Durable Loans
34 | P a g e


FINANCIAL RATIO ANALYSIS

Financial ratio analysis of both banks is as follows:

P/E ratio: A valuation ratio of a company's current share price compared to its per-share
earnings.

Calculated as:
Market Value per Share
Earnings per Share (EPS)

EPS: The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.

Calculated as:
PAT

Number of Shareholders
DEBT EQUITY RATIO:
A measure of a company's financial leverage calculated by dividing its
total liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.
Total liabilities

Shareholder’s equity

Debt equity ratio basically tells about the composition of the capital structure that
how much is the ratio of equity to debt

A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt

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CURRENT RATIO: A liquidity ratio that measures a company's ability to pay short-term
obligations.

The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The higher the current ratio, the more capable the company is of paying its
obligations.

BOOK VALUE: A company's common stock equity as it appears on a balance sheet, equal to
total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how
much the company would have left over in assets if it went out of business immediately.

The book value is calculated by the formula:

Internal liability

Number of shares

DIVIDEND YIELD: A financial ratio that shows how much a company pays out in dividends
each year relative to its share price.In the absence of any capital gains, the dividend yield is the
return on investment for a stock. Dividend yield is calculated as follows:

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RATIO ANALYSIS OF BOTH COMPANIES

Ratio SBI ICICI BANK

P/E ratio 17.01 17.27

EPS 49.68
116.07

Dividend yield 1.55% 1.63%

Book Value 478.08
1,023.40

Current Ratio 0.11
0.04

Debt equity ratio 4.10
14.37

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BIBLIOGRAPHY

 http://www.moneycontrol.com

 http://www.nirmalbang.com

 articles.economictimes.indiatimes.com)

 business.mapsofindia.com

 www.allbankingsolutions.com/DATA.htm

 www.rbi.org.in/

 www.statebankofindia.com/

 www.icicibank.com/

 Budget 2011-2012 Speech of Pranab Mukherjee Minister of Finance February 28,
2011

 www.business-standard.com

38 | P a g e

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