BANKING INDUSTRY

1] Introduction to the industry & Company

Modern banking in India originated in the last decade of the 18th century. Among the
first banks were the Bank of Hindustan, which was established in 1770 and liquidated in
1829–32; and the General Bank of India, established in 1786 but failed in 1791. The
largest and the oldest bank which is still in existence is the State Bank of India (S.B.I). It
originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was
renamed as the Bank of Bengal. This was one of the three banks founded by a presidency
government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in
1843. The three banks were merged in 1921 to form the Imperial Bank of India, which
upon India's independence, became the State Bank of India in 1955. For many years the
presidency banks had acted as quasi-central banks, as did their successors, until the
Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under
the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate
banks. In 1969 the Indian government nationalized 14 major private banks; one of the big
banks was Bank of India. In 1980, 6 more private banks were nationalized. These
nationalized banks are the majority of lenders in the Indian economy. They dominate the
banking sector because of their large size and widespread networks. The Indian banking
sector is broadly classified into scheduled and non-scheduled banks. The scheduled banks
are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The
scheduled banks are further classified into: nationalized banks; State Bank of India and its
associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector
banks. The SBI has merged its Associate banks into itself to create the largest Bank in
India on 01 April 2017. With this merger SBI has a global ranking of 236 on Fortune 500
index. The term commercial banks refer to both scheduled and non-scheduled
commercial banks regulated under the Banking Regulation Act, 1949. Generally, the
supply, product range and reach of banking in India is fairly mature-even though reach in
rural India and to the poor still remains a challenge. The government has developed
initiatives to address this through the State Bank of India expanding its branch network
and through the National Bank for Agriculture and Rural Development (NABARD) with
facilities like microfinance.

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SBI Bank

State Bank of India (SBI) is an Indian multinational, public sector banking and financial
services statutory body headquartered in Mumbai, Maharashtra. A nationalized bank, it is
the largest in India with a 23% market share by assets and a 25% share of the total loan
and deposits market. The bank descends from the Bank of Calcutta, founded in 1806 via
the Imperial Bank of India, making it the oldest commercial bank in the Indian
subcontinent. The Bank of Madras merged into the other two presidency banks in British
India, the Bank of Calcutta and the Bank of Bombay, to form the Imperial Bank of India,
which in turn became the State Bank of India in 1955. The Government of India took
control of the Imperial Bank of India in 1955, with Reserve Bank of India (India's central
bank) taking a 60% stake, renaming it State Bank of India. The functions of the State Bank
of India are largely divided into two main categories. These are ordinary banking functions
and central banking functions. Both these categories are broadly divided into many
subcategories.

Central Banking Functions-

SBI acts as an agent to the RBI, where there are no branches RBI available. Accordingly,
there are many functions which are rendered by the SBI. These are:
 Maintaining the currency
 Government’s bank
 Bank’s banker
 Acts as a clearinghouse

RBI is reporting for maintaining its own currency. But the offices of RBI are only available in
big cities. But the branches of SBI are available everywhere in the country. The network of
SBI works in rural as well as urban areas.

In such places, RBI maintains its currency with SBI. The currency is withdrawn from these
branches whenever required by RBI.
General Banking Functions-
There are many functions that SBI beyond the above-mentioned services. These services
are rendered by SBI under section 33A. These are:
 It accepts the deposits from the people in the form of savings, fixed,
current, and recurring deposit accounts.
 Based on the security of stocks, securities, SBI gives advances and loans to
the public.
 SBI gives the facility of drawings, accepting, and buying and selling the bills
of exchange.
 It also issues and circulates the letters of credit.
 SBI also invests in funds or any special kind of security.

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 The bank also acts as a trustee, executor, or otherwise, based on the

circumstances.
 It is also entrusted with selling and purchasing of either movable or
immovable properties that come in the bank.
 SBI also functions for selling and buying of gold and silver.
 For the general public, it helps in the opening of public provident fund
accounts.
 It underwrites any issue related to the securities or the debentures that
are authorized.
 It provides the facility of shipping finance as well as various factoring
services.
 There are many leading bank schemes in which SBI participates.

HDFC Bank

HDFC Bank Limited is an Indian banking and financial services company headquartered in
Mumbai, Maharashtra. It has a base of 1,04,154 permanent employees as of 30 June
2019. HDFC Bank is India’s largest private sector bank by assets. It is the largest bank in
India by market capitalization as of March 2020. A subsidiary of the Housing Development
Finance Corporation, HDFC Bank was incorporated in 1994, with its registered office in
Mumbai, Maharashtra, India. Its first corporate office and a full-service branch at Sandoz
House, Worli were inaugurated by the then Union Finance Minister, Manmohan Singh.

As of 30 June 2019, the Bank's distribution network was at 5500 branches across 2,764
cities. The bank also installed 430,000 POS terminals and issued 23570,000 debit cards
and 12 million credit cards in FY 2017.
HDFC Bank caters to a wide range of banking services covering commercial and
investment banking on the wholesale side and transactional / branch banking on the
retail side. The bank has three key business segments:
 Wholesale Banking
The Bank's target market is primarily large, blue-chip manufacturing companies in the
Indian corporate sector and to a lesser extent, small & mid-sized corporates and agri-
based businesses. For these customers, the Bank provides a wide range of commercial
and transactional banking services, including working capital finance, trade services,
transactional services, cash management, etc.
 Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the

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liberalization of the financial markets in India, corporates need more sophisticated risk
management information, advice and product structures.
 Retail Banking
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and
delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking.

2] Industry’s & Company’s dominant economic traits

SBI Economic traits:

The Macro environment factors such as – inflation rate, savings rate, interest rate, foreign
exchange rate and economic cycle determine the aggregate demand and aggregate
investment in an economy. While micro environment factors such as competition norms
impact the competitive advantage of the firm. SBI can use country’s economic factor such
as growth rate, inflation & industry’s economic indicators such as Money Center Banks
industry growth rate, consumer spending etc. to forecast the growth trajectory of not
only that sector but also that of the organization.
 Type of economic system in countries of operation – what type of economic system
there is and how stable it is.
 Government intervention in the free market and related Financial
 Exchange rates & stability of host country currency.
 Efficiency of financial markets – Does State Bank Financial Corporation needs to raise
capital in local market?
 Infrastructure quality in Money Center Banks industry
 Comparative advantages of host country and Financial sector in the particular country.
 Skill level of workforce in Money Center Banks industry.
 Education level in the economy
 Labor costs and productivity in the economy
 Business cycle stage (e.g. prosperity, recession, recovery)
 Economic growth rate
 Discretionary income
 Unemployment rate
 Inflation rate
 Interest rates

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HDFC Economic traits:

Economic factors are all those that pertain to the economy of the country that it
belongs to, such as changes in the inflation rate, the foreign exchange rate, the interest
rate, the gross domestic product, and the current stage of the economic cycle. These
factors, and their resulting impact on aggregate demand, aggregate investment and the
business climate, in general, have the potential to make a company highly profitable, or
extremely likely to incur a loss. The economic factors that may be sensitive to, and in
turn should consider before investing may include the following:

o The economic system that is currently operational in the sector in question-

whether it is a monopoly, an oligopoly, or something similar to a perfect competition
economic system.
o The rate of GDP growth in the country will affect how fast is expected to grow in
the near future.
o The interest rates in the country would affect how much individuals are willing to
borrow and invest. Higher rates would result in greater investments.
o However efficiently the financial markets operate also impact how well can raise
capital at a fair price, keeping in mind the demand and supply.
o The exchange rate of the country operates in would impact the profitability of
HDFC, particularly if it engages in international trade. The stability of the currency is also
important- an unstable currency discourages international investors.
o A high level of unemployment in the country would mean there is a greater
supply of jobs than demand, meaning people would be willing to work for a lower wage.

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3] What competitive forces are at work in the industry and

how strong are the industry and company right now?

The competitive forces at work in the industry are:

 Threat of New Entrants:
The average person can’t come along and start up a bank, but there are services, such
as internet bill payment, on which entrepreneurs can capitalize. Banks are fearful of
being squeezed out of the payments business, because it is a good source of fee-based
revenue. Another trend that poses a threat is companies offering other financial
services. What would it take for an insurance company to start offering mortgage and
loan services? Not much. Also, when analyzing a regional bank, remember that the
possibility of a megabank entering into the market poses a real threat. In Indian banking
industry, the main threats are foreign players and Non-Banking Finance Companies.
 Power of Suppliers:
The suppliers of capital might not pose a big threat, but the threat of suppliers luring
away human capital does. In Indian Banking industry, RBI acts as a regulator which pose
a big threat for banks as a supplier of money.
 Power of Buyers:
The individual doesn’t pose much of a threat to the banking industry, butane major
factor affecting the power of buyers is relatively high switching costs. If a person has a
mortgage, car loan, credit card, checking account and mutual funds with one particular
bank, it can be extremely tough for that person to switch to another bank. In an
attempt to lure in customers, banks try to lower the price of switching, but many people
would still rather stick with their current bank. On the other hand, large corporate
clients have banks wrapped around their little fingers. Financial institutions – by offering

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better exchange rates, more services, and exposure to foreign capital markets – work
extremely hard to get high-margin corporate clients.
 Availability of Substitutes:
As you can probably imagine, there are plenty of substitutes in the banking industry.
Banks offer a suite of services over and above taking deposits and lending money, but
whether it is insurance, mutual funds or fixed income securities, chances are there is a
non-banking financial services company that can offer similar services. On the lending
side of the business, banks are seeing competition rise from unconventional companies.
All offer preferred financing to customers who buy big ticket items. If car companies are
offering 0% financing, why would anyone want to get a car loan from the bank and pay
5-10% interest?

 Competitive Rivalry:
The banking industry is highly competitive. The financial services industry has been
around for hundreds of years, and just about everyone who needs banking services
already has them. Because of this, banks must attempt to lure clients away from
competitor banks. They do this by offering lower financing, preferred rates and
investment services. The banking sector is in a race to see who can offer both the best
and fastest services, but this also causes banks to experience a lower ROA. They then
have an incentive to take on high-risk projects. In the long run, we’re likely to see more
consolidation in the banking industry. Larger banks would prefer to take over or merge
with another bank rather than spend the money to market and advertise to people.

SBI
SBI is one of the oldest in the country and has had a steady inflow of customers from all
revenue sources. They have also had good ties with stakeholders, which have generated
goodwill among customers. The bank has around 198 offices in 37 countries; 301
correspondents in 72 countries, 278,000 staff, 420 million customers and around 24,000
branches and 59,000 ATMs, making it the owner of one of the largest banking networks in the
world.
Being one of the most famous nationalised banks, the bank has many special privileges,
including a special act for itself. State Bank of India has a wide range of services, including
investment banking , online banking, stockbroking, rural banking and lending, among others.
SBI is one of the first government interventions in the banking sector and has always been a top
priority since then. The bank is also a participant in the government's e-government project.

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HDFC
HDFC Bank is India's second largest private banking sector with 2,201 branches and 7,110
ATMs. It is headquartered in 1,174 cities in India and has more than 800 locations to service its
customers via Telephone Banking. The bank has a high level of customer satisfaction relative to
other private banks. The ATM bank card is compatible with all Visa / Master, Visa Electron /
Maestro, Plus / cirus and American Express domestic and international cards. This is one reason
why HDFC cards are the most preferred card for shopping and online purchases. It has a
number of awards and recognition, has won 'Best Bank' awards from various financial credit
institutions such as Dun and Bradstreet, Financial Express, Euromoney Excellence Awards,
Finance Asia Country Awards, etc.

Banking industry

The banking sector in India is adequately capitalised and well regulated. The financial
and economic standards of the nation are much superior to any other country in the
world. Credit, market and liquidity risk studies show that Indian banks are generally
resilient and have well withstood the global downturn. The Indian banking industry has
recently witnessed the introduction of creative banking models such as payment and
small finance banks. RBI's new steps may go a long way towards helping to restructure
the domestic banking industry. The digital payment system in India has developed most
among the 25 countries with India's Immediate Payment Service (IMPS) being the only
system at Level 5 in the Faster Payments Innovation Index (FPII). In 2019, banking and
financial services witnessed 32 M&A (merger and acquisition) activities worth US4 1.72
billion. In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100
million in green bonds through private placement. In August 2019, the Government
announced major mergers of public sector banks, which included United Bank of India
and Oriental Bank of Commerce to be merged with Punjab National Bank, Allahabad
Bank to be amalgamated with Indian Bank and Andhra Bank and Corporation Bank to be
consolidated with Union Bank of India.

Enhanced spending on infrastructure, speedy implementation of projects and

continuation of reforms are expected to provide further impetus to growth in the
banking sector. All these factors suggest that India’s banking sector is poised for a
robust growth as rapidly growing businesses will turn to banks for their credit needs.

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4] What are the forces of change in the industry that

might impact the industry experience going forward?

SBI BANK

PEST Analysis:

Political:

• As per union budget 2019-20, the Government proposed fully automated GST refund
module and an electronic invoice system that will eliminate the need for a separate e-
way bill.
• Under the budget 2019-20, Government proposed 70,000 Crore to public sector
banks.
• Government smoothly carried out consolidation, reducing the number of Public
Sector Banks by eight.
• As per September 2018, the Government of India made Pradhan Mantri Jan Dhan
Yojana (PMJDY) scheme an open – ended scheme and added more initiatives.
• The Government of India planned to inject Rs 42,000 crore (US$ 5.99 billion) in public
sector banks by March.

Economical:

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• During the quarter, the bank reduced its provisions by 4.88 per cent Quarter-to-
Quarter and 32.32 per cent Yearly-to-Yearly to Rs 3,346.16 crore, which has boosted the
bottom line.
• There is a marginal decline in the margin subsequently but they are robust even at the
current levels 3.8 to 3.9 percent.
• The economy has been decelerating corporate growth has been under tremendous
pressure, and the corporates have been in a liquidity crisis. Therefore, banks cannot be
immune from the broader economic trends.
• Economical fluctuation reflects a lucrative effect to the banking sectors of financial
system.
• Priorities are striving to increase the annual GDP growth 8.5% to 9% in next 7 years
which could be prove vulnerable to SBI in terms of investment in infrastructure,
technology and operation.

Social:

• The demographics of the population, meaning their respective ages and genders,
vastly impact whether or not a certain product may be marketed to them.
• The class distribution among the population is of paramount importance: would be
unable to promote a premium product to the general public if the majority of the
population was a lower class; rather, they would have to rely on very niche marketing.
• To some extent, the differences in educational background between the marketers
and the target market may make it difficult to relate to and draw in the target market
effectively. should be very careful not to lose the connection to the target market's
interests and priorities.
• Irrespective of the gender bias bank has shown no discrimination in terms of cast,
religion, marital status, gender and they have primarily been and will be focusing on the
demography of the population.
• They are promoting in the rural side of India for women to be independent and have
their own financial stability.
• India’s demise rate is mitigating from 25.5% to 1950-55 to 8.5% now and will reach to
its lowest rate 7.9% into 2020-25. It mentions statistics indicates the transitions of
customer target to the younger customer India will be entitled as the youngest nation
during 2010-2025.

Technological:

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• Recent technological developments and breakthroughs made by competitors. If

encounters a new technology that is gaining popularity in the industry in question, it is
important to monitor the level of popularity and how quickly it is growing and
disrupting its competitors’ revenues. This would translate to the level of urgency
required to adequately respond to the innovation, either by matching the technology or
finding an innovative alternative.
• The impact of the technology on the costs that most companies in the industry are
subject to have the potential to increase or reduce the resulting profits greatly. If these
profits are great in number, they may be reinvested into the research and development
department, where future technological innovations would further raise the level of
profits, and so on, ensuring sustainable profits over a long period of time.
• The technological advancement in the banking industry is mainly for the ease of the
customers and approachable wherever and whenever.

HDFC
PEST Analysis:

Political:

• The government policies are unstable and they keep changing the benefits of
agricultural roles for their advantage favoring the farmers and getting their votes and
thus HDFC Bank can face loss due to that.
• HDFC bank operates in foreign regional banks in more than dozen companies and
expose itself t different types of political environment and political system risk.
• They analyze the following factor before entering or investing in a certain market i.e.
risk of military invasion, legal framework for contract enforcement, Intellectual Property
protection, taxation and tax rate incentives.
• They will find it difficult for trade regulation and tariff related to financial.

Economical:

• Economic Policies has an effect on business and functioning of HDFC Bank as

Government formulates the Economic Policies.
• The physical or monetary policies are changed, it can affect HDFC in a negative or a
positive way.

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• The microenvironment factors such as inflation rate, savings rate, interest rate,
foreign exchange rate and economic cycle determine the aggregate demand and
aggregate investment in the economy.
• Economic factors that HDFC Ltd. should consider while conducting PEST Analysis are
discretionary incomes, education level in the economy, type of economic systems in
countries of operation and does it have stability.
• Economic growth rate

Social:

• Throughout India HDFC Bank has its branches even in the very report places.
• But factors like education level, acceptances of such business and perception
belonging to different areas affecting HDFC revenues in different regions.
• Shared belief and attitude of the population play a great role in how markers at HDFC
Bank Ltd. Will understand the customers of a given market and how they design the
marketing message for foreign regional banks industries consumers.
• Social Factors that leadership of HDFC Bank Ltd. should analyze for PEST Analysis are:
1) Demographics and skill level of the population.
2) Class Structure
3) Hierarchy Structure and power structure in the system
4) Education Level
5) Culture
6) Attitudes
7) Leisure Interests

Technology:

• Banks are all about technology and HDFC strives continuously to deliver the customer
with the convenience incorporating latest technological trends.
• Credit and Debit cards are producing cashless society and bringing convenience and
security to people.
• Using technology in all their services including online banking, ATM transfers, SMS
Banking, HDFC is gaining more customer base and is eventually gaining more profits and
growing their business with time.
• It does not only analysis technological from the vision of the industry but also the
speed at which technology disrupts the industry.

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5] Companies in the industry which are in the

strongest/weakest competitive position

The companies in the strongest competitive position are as follows:

1.SBI
Strengths Of SBI

 A network of the bank: The bank around 198 offices in 37 countries; 301
correspondents in 72 countries, 278,000 employees, 420 million customers, and around
24,000 branches and 59,000 ATMs making it the owner of one of the
largest banking networks in the world.
 Goodwill: The bank is one of the oldest in the region and has been having a steady
inflow of customers from all income brackets. They have also had good relationships with
stakeholders which have created a goodwill amongst customers.
 Special privileges: Being one of the most popular nationalized banks, the bank has a lot
of special privileges including a special act for itself.

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 Strong backing from the government: SBI is one of the first initiatives in the
government in the banking sector and since then has always been its top priority. The
bank is also a partner in the e-governance project of the government.
 A wide variety of services: The State Bank of India has a wide variety of services like
investment banking, online banking, stockbroking, rural banking and loans amongst
others.
 Strong brand: The bank has a very strong image amongst customers, visibility and there
have been numerous instances of strong word of mouth advertising about the bank.

Weakness of SBI

 Days inventory is high compare to the competitors – making the company raise more
capital to invest in the channel. This can impact the long term growth of State Bank of
India
 Not very good at product demand forecasting leading to higher rate of missed
opportunities compare to its competitors. One of the reason why the days inventory is
high compare to its competitors is that State Bank of India is not very good at demand
forecasting thus end up keeping higher inventory both in-house and in channel.
 Financial planning is not done properly and efficiently The current asset ratio and
liquid asset ratios suggest that the company can use the cash more efficiently than what
it is doing at present.
 The profitability ratio and Net Contribution is below the industry average.
 Investment in Research and Development is below the fastest growing players in the
industry. Even though State Bank of India is spending above the industry average on
Research and Development, it has not been able to compete with the leading players in
the industry in terms of innovation. It has come across as a mature firm looking forward
to bring out products based on tested features in the market.
 Limited success outside core business – Even though State Bank of India is one of the
leading organizations in its industry it has faced challenges in moving to other product
segments with its present culture.

2.HDFC

Strengths of HDFC

 HDFC bank is the second largest private banking sector in India having 2,201 branches
and 7,110 ATM’s
 HDFC bank is located in 1,174 cities in India and has more than 800 locations to serve
customers through Telephone banking

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 The bank’s ATM card is compatible with all domestic and international Visa/Master card,
Visa Electron/ Maestro, Plus/circus and American Express. This is one reason for HDFC
cards to be the most preferred card for shopping and online transactions
 HDFC bank has the high degree of customer satisfaction when compared to other
private banks
 The attrition rate in HDFC is low and it is one of the best places to work in private
banking sector
 HDFC has lots of awards and recognition, it has received ‘Best Bank’ award from various
financial rating institutions like Dun and Bradstreet, Financial express, Euromoney awards
for excellence, Finance Asia country awards etc.
 HDFC has good financial advisors in terms of guiding customers towards right
investments 

Weakness Of HDFC

 HDFC bank doesn’t have strong presence in Rural areas, where as ICICI bank its direct
competitor is expanding in rural market
 HDFC cannot enjoy first mover advantage in rural areas. Rural people are hard core
loyas in terms of banking services.
 HDFC lacks in aggressive marketing strategies like ICICI
 The bank focuses mostly on high end clients
 Some of the bank’s product categories lack in performance and doesn’t have reach in
the market
 The share prices of HDFC are often fluctuating causing uncertainty for the investors

3.ICICI

Strengths of ICICI

 ICICI is the second largest bank in terms of total assets and market share
 Total assets of ICICI is Rs. 4062.34 Billion and recorded a maximum profit after tax of Rs.
51.51 billion and located in 19 countries
 One of the major strength of ICICI bank according to financial analysts is its strong and
transparent balance sheet
 ICICI bank has first mover advantage in many of the banking and financial services. ICICI
bank is the first bank in India to introduce complete mobile banking solutions and 
jewellery card
 The bank has PAN India presence of around 2,567 branches and 8003 ATM’s

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 ICICI bank is the first bank in India to attach life style benefits to banking services for
exclusive purchases and tie-ups with best brands in the industry such as Nakshatra, Asmi,
D’damas etc.
 ICICI bank has the longest working hours and additional services offering at ATM’s which
attracts customers
 Marketing and advertising strategies of ICICI have good reach compared to other banks
in India

Weakness of ICICI

 Customer support of ICICI section is not performing well in terms of resolving complaints
 There are lot of consumer complaints filed against ICICI
 The ICICI bank has the most stringent policies in terms of recovering the debts and
loans, and credit payments. They employ third party agency to handle recovery
management
 There are also complaints of customer assault and abuse while recovering and the credit
payment reminders are sent even before the deadlines which annoys the customers
 The bank service charges are comparatively higher
 The employees of ICICI are bank in maximum stress because of the aggressive policies of
the management to win ahead in the race. This may result in less productivity in future
years

Companies which are in weakest competitive position are as follows:

1.Yes Bank

Strengths Of YES BANK

 Largest Private Sector Bank – Yes Bank is India’s fourth largest private sector bank. It is
recognized the top and fastest growing bank in India Banking League Tables by the
prestigious media houses and Global Advisory Firms.
 Diversified Business – Yes Bank has its business operations in many areas like
Commercial Banking, Corporate, and Institutional Banking, Investment Banking,
Corporate Finance, Financial Marketing, and Retail Banking.
 A Large Number of Customers – Yes Bank handles a large number of customers in an
effective way.
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 Management – Yes Bank has top management who are very experienced and take any
business decisions effectively for the proper functioning of the business goals.
 High-End Technology – Yes Bank makes use of high-end technology for its smooth
functioning banking and financial activities.
 Fund Raising – Yes Bank has the ability to raise funds as they have deals with foreign
shareholding.
 Human Capital – Yes Bank has the efficient human capital to carry out its end to end
activities.
 Accessibility – Yes Bank account holders can access their banking activities any time and
from anywhere. It provides more efficiency and better convenience.
 Listings – Yes Bank has been listed in the National Stock Exchange of India, Bombay
Stock Exchange, and London Stock Exchange.
 Awards and Recognition – Yes Bank has been popular and is a proud achiever of many
awards like ‘India’s Fastest Growing Bank of the Year’ given by Bloomberg UTV Financial
Leadership Awards during the year 2011 and the ‘Bank of the Year India’ by The Banker
London during the year 2015.

Weakness YES BANK

 Security over Digital Media – Since the banking and monetary exchanges of Yes Bank
occurs using advanced media, there is a high danger of security in their business tasks.
The acknowledgment level of individuals to include cash through computerized mode
isn’t supported by many.
 Utilization of Digital in Rural Area –In the majority of the provincial territories, the use
of advanced media isn’t solid for banking and monetary reason.
 Heterogeneous Client –Yes Bank is ineffectively arranged to address the heterogeneous
customer prerequisites.
 Change in Laws and Regulations –Whenever there is an adjustment in law and
guidelines forced by the administration, it can influence the business tasks of the bank.

2.IDBI BANK

Strengths of IDBI

 The main strength of banks is to assist their core banking activities with state-of-the-art
technologies.
 Currently there are 3,702 ATMs, 1892 branches, one of which is in Dubai abroad, 58 e-
lounges and 1,407 centres.
 IDBI has a workforce of 18000.
 In comparison to the previous year the bank has grown by 60 percent.
 By opening the’ G-sec portal’ IDBI has the first mover advantage.
 The IDBI is one of India’s largest commercial banks with an emphasis on industrial
infrastructure and growth and its products portfolio includes 14 specific classifications

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and some subcategories each. This platform allows institutional investors to invest in
government securities.
 The headquarters ‘ position in Mumbai reflects the rise in the capital market
infrastructure, IT, asset management and life insurance of the bank’s subsidies.

Weakness of IDBI

 Rural market is less penetrated by IDBI.

 IDBI has much less branches and ATM networks than other major players.
 IDBI focuses mainly on commercial banking services while the main revenues lie in
individual banking services.
 The customer service desk does not work efficiently and there is a variety of customer
issues unresolved.
 IDBI bank receives a lot of consumer complaints concerning servicing costs.
 And Bank is not following aggressive promotional strategy.

6] Who’s likely to make the competitive moves next? Why?

SBI is more likely to make the next competitive move because due to the pandemic
their stocks have been fallen to a greater extend due to which they have decided the
market rate of interest which they did recently in the housing loans and their size makes
them suitable for landing large projects. They are balancing various portfolios being SME
portfolio, personal finance portfolio or even now the housing finance portfolio. They are
systematically growing each and every portfolio in the lending side and that is giving
them confidence.

7] What key factors will determine success or failure?

Identify their strengths and Weakness
The factors that determine success of banks are :

I. Market Position
The analysis provides a thorough evaluation of the bank's market shares and sizes in
key business lines or sectors, as well as its potential prospects, the bank's current
products, potential products, market growth and other real advantages arising from
the bank's market place either on the national market, the regional market or in any

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particular segment / sector. The weakness of the bank's market position is also
considered by comparing its competitive advantages with those of its peers.

II. Infrastructure And Quality Of Service

This involves comprehensive evaluations of the bank's distribution network, such as
branches, ATMs and IT capacities, to support its day-to-day banking service in an
attempt to provide better and more integrated goods and to offer better services to
its customers. The quality of service of the bank is also carefully evaluated, as it is
considered to be an essential factor for the retail bank to attract customers and
support sustainable growth of the bank, especially in the context of intense market
competition.

III. Diversification
This includes an in-depth evaluation of the bank's business network / base with
respect to geographic / location spread, business lines, goods, sales structures,
financing and lending base clients, credit risk, as well as the economic diversity of
the banking industry, etc.

IV. Capitalization
This involves diligent evaluation of the bank's capital structure, the bank's capital
position in relation to the requirements of the Central Bank, the amount of capital
adequacy ratio, the dividend payout ratio, the internal rate of capital growth, the
capacity to access external sources of capital, capital relative to assets, as well as the
management philosophy and strategy to maximise its capital.

V. Assets Quality
This includes intensive assessments on the bank's non performing loans broken down by
category, the bank's credit portfolio by economic sector, size, and currency, concentration
on credit risks, settlements on problem loans, and the bank's loan loss reserve policy and
adequacy. In addition, thorough analysis is also conducted on the qualitative aspects on
assets quality such as whether the bank fully identifies and discloses its problematic loans,
the bank's write off policy and whether the bank implements it rightly, and other credit
judgment that can provide clues about the bank's credit culture, policy, and procedures and
the effects into its asset quality.

VI. Profitability
The analysis includes thorough assessments on the bank's net interest income and margin,
non interest income, quality of earnings, ability to price risks into various products,
operating profits, and net income. The bank's cost structure, cost to income ratio, and
management strategy to control operational expenses and improve fee based income are
also diligently assessed.

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Reason why banks fail :

The most common cause of bank failure occurs when the value of the bank's assets
falls below the market value of the bank's liabilities, which are the bank's
commitments to creditors and depositors. This could happen because the bank is
losing so much of its investment. It's not always possible to foresee when a bank is
going to fail.

SBI Bank Strengths:

SBI is the largest bank in India in terms of market share, revenue and assets.
As per recent data the bank has more than 13,000 outlets and 25,000 ATM centers. The
bank has its presence in 32 countries engaging currency trade all over the world. The bank
has a merged with State Bank of Saurashtra, State bank of Indore and the bank is planning
to go further acquisition in the current FY2012. SBI has the first mover advantage in
commercial banking service.
SBI has recently changed its vision and mission statements showing a sign of inclination
towards new age banking services.

SBI Bank Weakness:

Lack of proper technology driven services when compared to private banks.
Employees show reluctance to solve issues quickly due to higher job security and
customers’ waiting period is long when compared to private banks. The banks spend a huge
amount on its rented buildings. SBI has the largest number of employees in banking sector,
hence the bank spends a considerable amount of its income in employee’s salary
compensation. In spite of modernization, the bank still carries the perception of traditional
bank to new age customers. SBI fails to attract salary accounts of corporate and many `
government sector employee’s salary accounts are also shifted to private bank
for ease of operations unlike before.

HDFC Strengths:

o HDFC bank is the second largest private banking sector in India having 2,201
branches and 7,110 ATM’s
o HDFC bank is located in 1,174 cities in India and has more than 800 locations to
serve customers through Telephone banking

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o The bank’s ATM card is compatible with all domestic and international
Visa/Master card, Visa Electron/ Maestro, Plus/cirus and American Express. This is one
reason for HDFC cards to be the most preferred card for shopping and online
transactions
o HDFC bank has the high degree of customer satisfaction when compared to
other private banks
o The attrition rate in HDFC is low and it is one of the best places to work in private
banking sector
o HDFC has lots of awards and recognition, it has received ‘Best Bank’ award from
various financial rating institutions like Dun and Bradstreet, Financial express,
Euromoney awards for excellence, Finance Asia country awards etc.
o HDFC has good financial advisors in terms of guiding customers towards right
investments.

HDFC Weakness:

 HDFC bank doesn’t have strong presence in Rural areas, where as ICICI bank its direct
competitor is expanding in rural market
 HDFC cannot enjoy first mover advantage in rural areas. Rural people are hard core loyal
in terms of banking services.
 HDFC lacks in aggressive marketing strategies like ICICI
 The bank focuses mostly on high end clients
 Some of the bank’s product categories lack in performance and doesn’t have reach in
the market
 The share prices of HDFC are often fluctuating causing uncertainty for the investors.

8] How attractive is the industry/company in terms of its

prospects for above average profitability?

SBI PROSPECTS OF PROFITABILITY:

The final step of industry and competitive analysis is to use the answers to the previous
questions to draw conclusions about the relative attractiveness or unattractiveness of the
industry, both near-term and long-term. Company strategists are obligated to assess the
industry outlook carefully, deciding whether industry and competitive conditions present

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an attractive business opportunity for the company or whether the company’s growth and
profit prospects are gloomy. The important factors on which to base such conclusions
include: The industry’s growth potential.
Whether competition currently permits adequate profitability and whether competitive
forces will become stronger or weaker. Whether industry profitability will be favorably or
unfavorably affected by the prevailing driving forces. The company’s competitive position in
the industry and whether its position is likely to grow stronger or weaken (Being a well-
entrenched leader or strongly positioned contender in an otherwise lackluster industry can
still produce good profitability; however, having to fight an uphill battle against much
stronger rivals can make an otherwise attractive industry unattractive.) The company’s
potential to capitalize on the vulnerabilities of weaker rivals (perhaps converting an
unattractive industry situation into a potentially rewarding company opportunity). Whether
the company is able to defend against or counteract the factors that make the industry
unattractive. The degrees of risk and uncertainty in the industry’s future. The severity of
problems confronting the industry as a whole. Whether continued participation in this
industry adds importantly to the firm’s ability to be successful in other industries in which it
may have business interests. As a general proposition, if an industry ~ overall profit
prospects are above average, the industry can be considered attractive; if its profit
prospects are below average, it is unattractive.

HDFC BANK PROSPECTS OF PROFITABILITY:

Despite its huge base, HDFC has been able to maintain its industry-beating growth
momentum and reported a 14% year-on-year (y-o-y) growth in its loan book for the last
quarter of 2015-16. Individual loan book, which contributes around 70% of the bank’s
entire loan book, has done better with 16% y-o-y growth. HDFC’s individual loan origination
(processing of loan applications) has grown by an annualised 20% in the past five years,
compared to the industry growth rate of around 15%.
With a 100% provision coverage ratio, HDFC can boast that it has the best asset quality
parameters in the industry. Its gross nonperforming assets also were stable during 2015-16
at Rs 1,833 crore or .07% of its loan book. HDFC made an additional provision of Rs 450
crore in the last quarter, utilising part of the exceptional gains made from the sale of stake
in its life insurance business.
And, with this, the total provision available for contingencies has gone up to Rs 2,695 crore
—1.03% of its loan book—and this should provide comfort in the coming years. HDFC is,
deservedly, trading at a premium compared to peers. Besides its steady standalone
performance, the company is also a treasure mine because of its holdings in several
performing subsidiaries— HDFC Bank, HDFC Mutual Fund, HDFC Standard Life Insurance,
HDFC Ergo General Insurance.

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The company has monetised its 9% stake in the life insurance business and booked a profit
of Rs 1,513 crore, helping it show a 40% y-o-y net profit growth in last quarter. Any
confirmed news about further monetisation of the insurance businesses through IPO route
will be a key trigger for this counter.
The company has monetised its 9% stake in the life insurance business and booked a profit
of Rs 1,513 crore, helping it show a 40% y-o-y net profit growth in last quarter. Any
confirmed news about further monetisation of the insurance businesses through IPO route
will be a key trigger for this counter.

9] MICHAEL PORTER’S five forces MODEL on Banking

industry

Threat of New Entrants:

Despite the regulatory and capital requirements of starting a new bank, an average of
215 new banks opened per year between 1977 and 2002 according to the FDIC. With so
many new banks joining the market every year, the threat of new entrants is expected

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to be extremely high. However, the overall number of total banks decreased by around
253 per year due to mergers and bank failures. The key explanation for this is, what is
assumed to be, the greatest barrier of entry for the banking industry, confidence. Since
the industry deals with other people's capital, and new banks find it difficult to get
started with financial details. Because of the nature of the industry, people are more
likely to put their trust in the big name, well-known, global banks that they consider to
be trustworthy. The banking sector has undergone a restructuring in which major banks
aim to meet all financial needs of customers under their roof. This consolidation further
strengthens the position of confidence as a barrier to entry for new banks seeking to
compete with major banks, as customers are more likely to allow one bank to retain all
their accounts and serve their financial needs. At the end of the day, barriers to entry
are relatively low for the banking industry. Although it is almost difficult for new banks
to join the trust-providing market and to have a full range of services as a major bank, it
is reasonably easy to set up a smaller bank operating on the regional level

Power of Suppliers:
Capital is the primary resource of any bank and there are four major capital suppliers in
the industry: 1. Customer deposits, please. 2. Mortgage and loans. 3. Mortgage-backed
securities. 4. Loans from other financial companies.
By using these four major suppliers, the bank can be confident that it has the necessary
resources to meet the borrowing needs of its customers while retaining adequate
capital to meet the withdrawal expectations. The power of the suppliers is largely based
on the market, their power is often considered to fluctuate between medium to high.

Power of Buyers:
The individual does not pose much of a threat to the banking industry, but relatively
high switching costs are a major factor influencing the power of the purchaser. If an
individual has a bank that offers services to their banking needs, mortgages, insurance,
checks, etc., it can be a big challenge for that individual to turn to another bank. To try
to persuade customers to move to their bank, they will also lower the switching price,
but most people do choose to stick to their current bank. The Internet has massively
increased the influence of customers in the banking sector. The Internet has significantly
improved ease and decreased the cost to customers of comparing the opening / holding
accounts prices as well as the rates provided by the various banks. ING Direct launched
high-yield savings accounts to get the buyers' attention, then went a step further and
made it very convenient for consumers to move their money from their current bank to
ING. ING was successful in their attempt because they managed to make switching costs
very low in terms of time and capital.

Availability of Substitutes:
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Some of the greatest substitution risks to the banking industry are not from competing
institutions, but from non-financial rivals. The industry does not face any real danger of
alternatives as far as deposits or withdrawals are concerned, but insurance, mutual
funds and fixed income securities are some of the many banking services that non-
banking firms often provide. There is also a danger of alternative payment mechanisms
and loans to the industry are relatively high. For example, big name electronics,
jewelers, car dealers, and more appear to provide preferred financing for "big ticket"
products. Sometimes, these non-banking firms give lower interest rates on payments
than would otherwise make the borrower borrowing from a conventional bank loan.

Competitive Rivalry:
The banking sector is known to be highly competitive. The financial services business has
been around for hundreds of years, and it's all about everyone who wants banking
services. Because of this, banks must strive to draw clients away from rival banks. They
do this by providing lower funding, better prices, investment facilities and greater
convenience than their rivals. Banking rivalry is always a race to decide which bank can
deliver both the best and the fastest services, but has led banks to experience a lower
ROA (Return on Assets). Given the existence of the industry, further consolidation in the
banking sector is more likely to occur. Large banks tend to choose to acquire or merge
with banks rather than to invest money on marketing and advertisement.

10] Key take away

For any financial institute to succeed and survive:

 One of the biggest challenges whilst working in an abstract field is to go in

without a watertight approach. Strategy and methodology helps to align the
team, support across the organization, and remain focused, through the ever
changing and challenging environment, e.g. the current pandemic
 The success for any team in any industry and specifically financial sector is in
the ability to identify and attract a diverse, young team that has an appetite for
action. This includes people from inside as well as outside of the industry,

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product development shops, startups, and premier consulting organizations.

Their collective energy, when available to rest of the organization, leads to
alchemy.
 Key pillar of any innovation approach is Business First approach; the work
should be aligned very closely to business and t is kept front and center. This
increases ownership across the organization and in all the initiatives.
 Since we are part of the Information Revolution, all our actions and outcomes
will be measured. We should be able to identify certain KPIs across the
innovation lifecycle that allow us to intervene, learn, and improve. This way you
foresee the point of failure and implement mitigation plan and learn from it. If
these are not in place, the innovation practices have high chances of failure.
 Transition to new Evolutionary Innovation Model. Here, the focus should be
greater decentralization of innovation across the organization. Initiatives like
Internal Collaboration, and Digital Innovation workshops will make spontaneous
innovation to happen across various businesses.
 The industry is betting big on moving from an organization only approach to an
ecosystem approach. We believe that the more products and innovations that
we can align, the better the outcomes in the future. Part of this approach will
see us collaborating with some of the largest tech companies in the world for
conversational banking, home banking, and a fully paperless Banking.

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