BANKING SECTOR

INTRODUCTION:

A Financial System is an important tool for a country that wants to develop

economically.The reason is that it helps in the creation of wealth by way of
investments.the rapid transformation in the banking industry over the last
decade has made the industry stronger,cleaner,transparent, efficient, faster,
disciplined and a lot more competitive. The banking industry in India has a huge
canvass of history ,which covers the traditional banking praticies from the time
of Britishers to the reforms period,nationalization to privatization of banksand
now increasing numbers of foreign banks in India.

In India the Reserve bank is the central banking institution. The RBI
regulates and operates the banking system in India. It supervises and
administers exchange control and banking regulations and administers the
government monetory policy. The banking system in India works according to
the guidelines issued by the RBI.

The banking sector is the backbone of the modern economy. The banks
play an important role in mobilisation of deposits and disbursement of credit to
various sectors of the economy.A bank is a financial institution whose purpose
is to receive deposits and lend money to individuals and business, disburse
payments, invest funds in securities for returns ,and safeguard money. It
services savings and current accounts provide credit to borrowers in the form of
loans and through credit cards, and act as trustees of its clients.

The use of the technology has brought a revolution in the working style
of the banks and it has pervaded each and every aspect of human life in a drastic
manner.Advent of anytime ,anywhere banking has become possible mobile
phones, Digital cameras,etcand appliances becoming east to use and that too, in
affordable prices. Together with that, the entry of plastic money has opened new
avenues for cashless transactions considered safer and more convenient .A
country’s financial system works in a set of financial markets, financial services
and financial institutions.

HISTORY:
The first banks were Bank of Hindustan and The general Bank of India,
established 1786.The largest bank, and the oldest still in existence,is the
Statebank of india,which is originated in the bank of Calcutta in june
1806,which almost immediately became the Bank of Bengal. This was one of
the three presidency banks,the other two being the Bank of Bombay and Bank
of Madras,all three of which were established under charters from the British
East India Company.

The three banks merged in 1921 to form Imperial Bank of india, which
upon India’s Independence,became the state Bank of India in 1955. For many
years the presidency banks acted as a quasi-central banks,as did their
successors,until the Reserve Bank of India,which was renamed as State Bank of
India. In 1959,SBI took over control of eight private banks floated in the
erstwhile princely states and making them as its 100% subsidiaries.

In 1969 the Indian government nationalized all the major banks that it did
not already own and these have remained under government ownership. They
are run under a structure known as profit-making public sector(PSU)

STRUCTURE OF BANKING SECTOR

All banks which are included in the second schedule to the RBI ACT 1934 are
scheduled Banks. These banks comprise Scheduled Commercial Banks and
Scheduled cooperative banks.

RESERVE BANK OF INDIA:

The country had no central bank prior to the establishment of the RBI. The RBI
is India. It is called the Reserve Bank’ as it keeps the reserves of all commercial
banks.the supreme monetary and banking authority in the country and controls
the banking system

SCHEDULED AND NON SCHEDULED BANKS:

Schedule bank is a bank that is listed under the second schedule of

the RBI ACT 1934.In A Bank A scheduled bank is a bank that is listed
under the second schedule in order to be included under this schedule of the
RBI Act, banks have to fulfill certain conditions such as having a paid up
capital and reserves of at least 0.5 million and satisfying the Reserve the RBI
Act, 1934. In order that its affairs are not being conducted in a prejudicial to the
interests of its depositors.

variety Scheduled banks are further classified in to

 Commercial banks

 Cooperative banks

Non schedule banks are those which are not included in the second schedule of
the RBI ACT,1934.

COMMERCIAL BANKS:

Commercial banks may be defined as, any banking organizations that deals with
the deposits and loans of business organisation.

 Commercial banks issue bank cheques and drafts,as well as accept

money on term deposits.
 These banks act as a money lenders, by way of instalment loans and
overdrafts.
 These banks allow for a of deposit accounts such as savings and time
deposits.
 These institutions are run to make a profit and owned by a group of
individuals.

Scheduled commercial banks:

Scheduled commercial banks account for a major portion of the business of
the scheduled banks.SCBs in India are categorized in to five groups based on
their ownership and nature of operations.

 State bank of India

 Nationalised banks/PUBs
 Private banks
 Foreign banks

TYPES :

PUBLIC SECTOR BANKS:

These are banks majority of share capital of the bank is held by the
government of india.

Examples : 1.SBI

2.Canara bank

3. Bank of india etc.,

PRIVATE SECTOR BANKS:

These are banks majority of share capital of the bank is held by the private
individuals.

These banks are registerd as companies with limited liability.

Examples: 1. ICICI Bank

2. Axis Bank

3.Hdfc Bank etc.,

FOREIGN BANKS:

These banks are registerd and have their headquartersin a foreign country but
operate their branches in our country.

Examples: 1. HSBC

2. Citi bank

3. standard chartered bank, etc.,

 REGIONAL RURAL BANKS:

These banks are established under the provisions of an ordinance

promulgated on the 26th September 1975 and the rbi act,1976.

Objective :

The main objective to ensure sufficient institutional credit for agriculture and
other rural sectors.

COOPERATIVE BANKS:

1. Cooperative bank is a financial entity which belongs to its members, who are
at the same time the owners and the customers of their bank.

2.Cooperative banks are often created by persons belonging to the same local or
professional community or sharing a common interest.

3.Cooperative banks function on the basis of “no profit no-loss”.

TYPES OF BUSINESS OF BANKS:

 RETAIL BANKING
 WHOLESALE BANKING
 TREASURY OPERATIONS
 OTHER BANKING ACTIVITIES

ICICI BANK

IINTRODUCTION:

ICICI bank was established by the Industrial Credit and Investment Corporation
of India, an Indian financial institution,as awholly owned subsidiary in 1994.

The bank was founded as the industrial credit and investment corporation of
India bank,before it changed its name to the abbreviated ICICI BANK.

HISTORY:
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.

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.

VISION STATEMENT:
To be the leading provider of financial services in india and a
major global bank.

MISION STATEMENT:

We will leverage our people, technology,speed and financial

capital to:

 Be the banker of first choice for our customers by deliverying high

quality,world-class products and services.
 Expand the frontiers of our business globally.
 Play a proactive role in the full realisation of India’s potential.
 Maintain a healthy financial profile and diversify our earnings across
business and geographies.
 Maintain high standards of governance and ethics.
 Contribute positively to the various countries and markets in which we
operate.
 Create value for our stakeholders.

CORE VALUES:

The success of the company will be fonded in its unflitching commitment to 5-

core values . They are:

 Customer first: keep customers at the center of everything we do.

 HUMILITY: openness to learn and change
 Passion : demonstrate infectious energy to win and excel.
 Integrity: do the right thing.
 Boundaryless: Treat organization agenda as paramount.

EXTENAL ENVIRONMENTAL ANALYSIS:

IN BANKING INDUSTRY:

The banking industry affects all countries. But it’s subservient to many factors,
particularly to the government and the economy. Banks are unable to behave
independently and must provideservices based on specific laws that affect their
growth and offerings.

The key factors affecting the banking industry are:

POLITICAL FACTORS: The banking sector looks all powerful- but it’s
susceptible to a bigger giant:the government.

Government laws affect the state of the banking sector.the government

can intervene in the matters of banking whenever, leaving the industry
susceptible to political influence. This includes corruption amongst political
parties,or specific legislative laws such as labor laws,trade
restrictions,tariffs,and political stability.

ECONOMIC FACTORS:These factors are easily influenced.

1. The banking industry and the economy are tied. How income flows,
whether the economy is prospering or barely surviving during times of
recissionaffects how much capital banks can access.
2. Spending habits and the reason behind them,affect when customers
borrow or spend funds at banks.

INFLATION:

When inflation skyrockets,the bank experiences the backlash.

AFFECTS:1. IT affects currency and its value and causes instability.

2.Foreign investors think twice before providing their funds when a

particular country’s currency value is high.

 Exchange rate also affects banks globally.

SOCIOCULTURAL FACTORS:

Cultural influences such as buying behaviours and necessities,affect how people

see and use banking options.

 For advice and assistance for loans related to business, home and
academics.
 Consumers seek knowledge from bank tellers regarding saving
accounts, bank related credit cards, investments.
  Technology is developing to allow consumers to buy products
easier,without requiring assistance directly from banks.

TECHNOLOGICAL FACTORS:

Technology is changing how consumers handle their funds.

 Many banks offer a mobile app to witness accounts,transfer funds, and

pay bills on smart phones.
 Debit cards are also changing .
 Chips have been implemented, requiring users to insert their card in to
debt machines rather than swiping them.

These changes make it easier on the user to make purchases without required
intrusion from banks.

LEGAL FACTORS:

The banking industry follow strict laws regarding privacy, consumerlaws,

and trade structures to confirm frame works within the industry. Such structures
are required for customers in the allocated country and for international users.

ENVIRONMENTAL:

 With the use of technology particularly with the mobile banking

apps-the use for PAPER is being reduced.
 The need to drive directly to a branch to handle affairs is
minimized
 Consumers can apply for credit cards online,buy cheques online
etc.,

IN ICICI BANK:

ICICI bank limited pestel analysis is a strategic tool to analyze the macro
environment of the organization.

 Changes in the factors can have direct impact on not only ICICI bank
limited but also can impact other players in the money center banks.
 The macro environment factors can impact the PORTER FIVE forces
that shape strategy and competitive landscape.
  They can impact individual firms competitive advantage or overall
profitability levels of the financial industry.

POLITICAL FACTORS:

Political factors play a significant role in determining the factors that can impact
ICICI bank limited along term profitability in a certain country or market.

The achieve success in such a dynamic money center banks industry across
various countries is to diversify the system risk of political environment.

The following factors are:

 Political stability
 Risk of military invasion
 Level of corruption
 Bureaucracy and interference in money center banks industry by
government.
 Trade regulations & tarrifs related to financial
 Anti-trust laws
 Pricing regulations and taxation etc.,

ECONOMIC FACTORS:

The macro environment factors such as inflation rates such as- inflation rate,
savings rate, interest rate, foreign exchange rate and economic cycle determine
the aggregate demand and aggregate investment in an economy.

The factors are:

 Government intervention in the free market and related financial.

 Exchange rates and stability of host country currency.
 Efficiency of financial markets.
 Economic growth rate.
 Discretionary income.
 Unemployment rate.
 Inflation rate.
 Exchange rate.
SOCIAL FACTORS:

Society’s culture and way of doing things impact the culture of an

organization in an environment.

Shared beliefs and attitudes of the population play a great role in how marketers
at ICICI bank limited will understand the customers of a given market and how
they design to their customers.

The social factors are:

 Demographics and skill level of the population.

 Class structure, hierarchy and power structure in the society.
 Culture.
 Entrepreneurial spirit and broader nature of the society.
 Attitude.

TECHNOLOGICAL FACTORS:

Technology is fast disrupting various industries across the board.

A firm should not only do technological analysis of the industry but also the
speed at which technology disrupts that industry.

Technological analysis involves understanding the following factors:

 Recent technological development by ICICI bank limited competitiors.

 Technology’s impact on product offering.
 Impact on cost structure in money center banks industry.
 Impact on value chain structure in financial sector.
 Rate of technology diffusion.

ENVIRONMENTAL FACTORS:

Different markets have different norms or environmental standards which can

impact the profitability of an organisation in those markets.

Some of the environmental factors are:

 Weather.
 Climate change
 Laws regulating environmental pollution.
  Recycling.
 Attitudes toward “green”or ecological products.
 Endangered species.
 Attitudes toward and support for renewable energy.

LEGAL FACTORS:

In number of countries, the legal framework and institutions are not robust
enough to protect the intellectual property rights of an organisation. A firm
should carefully evaluate before entering such markets.

Some of the legal factors are:

 Anti –trust law in money center banks industry and overall in india.
 Discrimination in law.
 Copy rights , patents, intellectual property law.
 Employment law.
 Data protection law.
BANKING INDUSTRY ANALYSIS: (PORTER FIVE FORCES)

The finance and banking industry has immensely changed its elements for the
last one decade. Many banks have joined the business both neighbourhood and
outside. This sector attracts lots of attention in most countries because it touches
on people’s financial needs, one of the most basic needs, and many customers
are not entirely satisfied with the service (quality, waiting lists, etc.). Might say
financial sector has a strategic problem, both at the national level and at the
organizational level. These problems seem to exist irrespective of the system in
use in a country. In most European countries governments have an indirect (to
reduce tax, reregulation of mortgage, etc.) controlling influence in economic
growth.

PORTER FIVE FORCES ARE:

THREAT OF NEW ENTRANTS:

In spite of the administrative and capital necessities of beginning another

bank,in 1977 and 2002 a number of 215 new banks opened every year as
indicated by the FDIC. With such a large number of new banks entering the
market every year the danger of new contestants ought to be a great degree
high. It may because of mergers and bank errors the number of banks reduces
by about 253 a year.
 The bank industry has experienced a combination in which significant
banks try to serve the greater part of a clients budgetary needs under their
rooftop. This solidification promotes the part of trust as an obstruction to
entrance for new banks hoping to contend with big banks.

POWER OF SUPPLIERS:

Capital is essential asset on any bank and there are four main providers of
capital in the business.

 Customer deposit.
 Advance and loan.
 Mortgage- backed securities.
 Advances from other monetary organizations.

POWER OF BUYER:

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

The internet has greatly increased the power of the consumer in the banking
industry. The internet has greatly increased the ease and reduced the cost for
consumers to compare the prices of opening/holding accounts as well as the
rates offered at various banks.

AVALIABILITY OF SUBSTITUTES:

Several banking industry’s biggest dangers of substitution are not from

opponent banks but rather from non- monetary challengers.

The business does not endure any genuine danger of substitutes similar to
credits or with drawls, however insurances, joined finances, and salary
securities are facilities of the many banks that are additionally offered by non-
banking organizations.

Competitive rivalry:

Rivalry refers to the degree to which firms respond to competitive moves of the
other firms in the industry (Hill & Jones, 2009). Rivalry among existing firms
may manifest itself in a number of ways- price competition, new products,
increased levels of customer service, warranties and guarantees, advertising,
better networks of wholesale distributors, and so on Barnat, 2014.)

There is very high competition is banking industry. This industry is into

existence since hundreds of years and is servicing people since then. Due to this
reason, banks need to try to inveigle customers from their rival banks. This is
done through lower rates of interest on loans, higher rates on deposits, better
convenient after sale services and other investment related services.

ANALYSIS OF ETOP:

IN BANKING INDUSTRY:

The banking industry is one of the most dynamic industry because of the
amount of money and transactions involved.

Everyone needs loans and everyone wants to save money and increase it with
interest as well.

STRENGHTS:

 Source of employment & GDP growth

 Banking is as old as Human race : Banking industry is the driving force to
 Hedge from risk
 Connecting People
 Changing from mere savings & loan facilitators.

WEAKNESS:

 High NPA’s: Rise in Retail & corporate NPA’s (Non-performing assets) is

the single major issue this sector is going through worldwide.
 Structural weaknesses such as a fragmented industry structure, restrictions
on capital availability and deployment.
 Vulnerable to risk
 Lack of coordination.

OPPORTUNITIES:

Expansion: Penetrating to the rural markets & bringing the rural masses under
the purview of organized banking will be the objective of the Banks in decades
to come.

 Changing socio-cultural factors and the demographic factors.

  Rise in private sector banking: Banking Industry across the world is highly
regulated &lead by PSU’s with their respective central banks.

THREATS:

 Recession: It is one of the major threats to the financial system of the

nation. Traumatic shock of Economic crises & collapse of the several
businesses can affect the banks and vice-versa.

 Stability of the system: Failure of some weak banks has often threatened
the stability of the system.
 Competition: Competition from NBFC’s (Non-banking financial
companies) like insurance companies & mutual fund companies can affect
the business of Banks.

IN ICICI BANK:

STRENGTHS:

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 jewelry card
 The bank has PAN India presence of around 2,567 branches and 8003
ATM’s
 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
Weaknesses in the SWOT analysis of ICICI Bank

 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.

OPPORTUNITIES:

1.Banking sector is expected to grow at a rate of 17% in the next three years.

2. The concept of saving in banks and investing in financial products is

increasing in rural areas as more than 62% percentage of India’s population is
still in rural areas.

3. As per 2010 data in TOI, the total number b-schools in India are more than
1500. This can ensure regular supply of trained human power in financial
products and banking services

4. Within next four years ICICI bank is planning to open 1500 new branches

5. Small and non performing banks can be acquired by ICICI because of its
financial strength

6. ICICI bank is expected to have 20% credit growth in the coming years.

7. ICICI bank has the minimum amount of non performing assets.

THREATS:

 RBI allowed foreign banks to invest up to 74% in Indian banking.

 Government sector banks are in urge of modernizing the capacities to
ensure the customers switching to new age banks are minimized.
 HDFC is the major competitor for ICICI, and other upcoming banks
like AXIS , HSBC impose a major threat.
 In rural areas the micro financing groups hold a major share.
Though customer acquisition is high on one side, the unsatisfied customers are
increasing and make them to switch to other banks.

BCG MATRIX:

The BCG matrix is a strategic management tool that was created by the Boston
Consulting Group, which helps in analysing the position of a strategic business
unit and the potential it has to offer. The matrix consists of 4 classifications that
are based on two dimensions.

The BCG matrix for ICICI bank limited will help decide on the strategies that
can be implemented for its strategic business units.

BCG MATRIX OF ICICI BANK LIMITED:

The BCG matrix for ICICI Bank limited will help ICICI Bank Limited in
implementing the business level strategies for its business units. The analysis
will first identify where the strategic business units of ICICI Bank Limited fall
within the BCG matrix for ICICI Bank Limited.

STARS:

 The financial services SBU is a star in BCG Matrix in ICICI Bank. It

operates in a market that shows potential in the future.
 The number 1 brand SBU is a star in ICICI Bank Ltd, and this is also the
product that generates the greatest sales among its product portfolio. The
potential within this market is also high as consumers are demanding this
and similar types of products.
 ICICI Bank Ltd. Has 20% market share in this category. The overall
category is expected to grow at 5%in the next 5 years , which shows that
the market growth rate is expected to remain high.

CASH COWS:

 The supplier management service strategic business unit is a cash cow in

ICICI Bank. This has been in operation for over decades and has earned
ICICI Bank is a significant amount in revenue.
 The International food SBU is a cash cow in ICICI Bank. This business
unit has a high market share of 30% within its category, but people are
now inclined less towards international food.
QUESTION MARKS:

 The local foods SBU is a question mark in the BCG matrix for ICICI
Bank.
 The confectionary SBU is a question mark in ICCIC Bank. The
confectionary market is attractive market that is growing over the years.
However, ICICI Bank has low market share in this attractive market.

DOGS:

 The plastic bags SBU is a dog in the BCG matrix of ICICI Bank Ltd.
 The artificially flavoured products SBU is a dog in the BCG matrix for
ICICI Bank Ltd.