BCG Matrix on Cadbury

Chapter-1
BOSTON CONSULTING GROUP
1.1 Introduction
In the early 1970s the Boston Consulting Group (BCG) developed a model for
managing a portfolio of different strategic business units (SBUs) or major
product lines. The BCG Growth-Share Matrix is a four-cell (2 by 2) matrix used
to perform business portfolio analysis as a step in the strategic planning process.
The BCG Growth-Share Matrix positions the various SBUs/product lines based
on Market Growth Rate and Market Share relative to the most important
competitor.
The Boston Consulting Group (BCG) Matrix is a simple tool to assess a
companys position in terms of its product range. It helps a company think
about its products and services and make decisions about which it should keep,
which it should let go and which it should invest in further.
The BCG matrix provides a framework to compare many SBUs/product lines at
a glance and for allocating resources between the different SBUs or product
lines.
SBUs/Product Lines with a relative high market share in a high growth
market are designated as Stars.
SBUs/Product Lines with a relative high market share in a low growth
market are designed as Cash Cows
SBUs/Product Lines with a relative low market share in a high growth
market are designated as Question Marks or Problem Children.
SBUs/Product Lines with a relative low market share in a low growth market
are designated as Dogs.

BCG Matrix on Cadbury

A different strategic and investment approach is taken for each of the four
different categories.
Cash Cows typically have large market shares in mature, slow growing
markets. Cash cows require little investment and generate cash that can be
used to invest in other SBUs/product lines.
Stars are SBUs/product lines that have a large market share in a fast growing
market. Because the market is growing rapidly, stars frequently require
ongoing investment to maintain their market leadership. As marginal
competitors withdraw and the market matures and slows down, successful
stars become cash cows and generate significant cash.
Question Marks operate in high growth markets, but suffer from low market
share. The strategic options involve investing resources to grow market share
or withdrawing. Investing to grow market does not guarantee these SBUs or
product lines will become stars and hence the term Question Mark.
Dogs. A dog suffers from having low market share in a market that is mature
and slow growing. Investment will usually have little benefit and therefore,
liquidation and withdrawal is usually the best strategy for those
SBUs/product lines classified as Dogs.
Question Marks
Question marks are products that grow rapidly and as a result consume large
amounts of cash, but because they have low market shares they dont generate
much cash. The result is a large net cash consumption. A question mark has the
potential to gain market share and become a star, and eventually a cash cow
when the market growth slows. If it doesnt become a market leader it will
become a dog when market growth declines. Question marks need to be
analysed carefully to determine if they are worth the investment required to
grow market share.

BCG Matrix on Cadbury

These are products or businesses, that compete in high growth markets but
where the market share is relatively low. A new product launched into a high
growth market and with an existing market leader would normally be
considered as a question mark. Because of the high growth environment, they
can be a cash sink.
Strategic options for question marks include..
Market penetration
Market development
Product development
Which are all intensive strategies or divestment.
Stars
Stars generate large sums of cash because of their strong relative market share,
but also consume large amounts of cash because of their high growth rate. So
the cash being spent and brought in approximately nets out. If a star can
maintain its large market share it will become a cash cow when the market
growth rate declines.
Successful question marks become stars. i.e. market leaders in high growth
industries. However, investment is normally still required to maintain growth
and to defend the leadership position. Stars are frequently only marginally
profitable but as they reach a more mature status in their life cycle and growth
slows, returns become more attractive. The stars provide the basis for long term
growth and profitability.
Strategic options for stars include..
Integration forward, backward and horizontal
Market penetration
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BCG Matrix on Cadbury

Market development
Product development
Joint ventures

Dogs
Dogs have a low market share and a low growth rate and neither generate nor
consume a large amount of cash. However, dogs are cash traps because of the
money tied up in a business that has little potential. Such businesses are
candidates for divestiture.
These describe businesses that have low market shares in slow growth markets.
They may well have been Cash Cows. Often they enjoy misguided loyalty from
management although some Dogs can be revitalised. Profitability is, at best,
marginal.
Strategic options would include..
Retrenchment (if it is believed that it could be revitalised)
Liquidation
Divestment (if you can find someone to buy!)
Successful products may well move from question mark though star to Cash
Cow and finally to Dog. Less successful products that never gain market
position will move straight from question mark to Dog.
The BCG is simple and useful technique for strategic analysis. It is convenient
for multi-product or multi-divisional companies. It focuses on cash flow and is
useful for investment and marketing decisions.

BCG Matrix on Cadbury

One should not however, ignore the limitations of the technique.
Definition (qualitative and quantitative) of the market is sometimes
difficult.
It assumes that market share and profitability are directly related.
The use of high and low to form four categories is too simplistic.
Growth rate is only one aspect of industry attractiveness and high growth
markets are not always the most profitable.
It considers the product or business in relation to the largest player only.
It ignores the impact of small competitors whose market share is rising
fast.
Market share is only one aspect of overall competitive position.
It ignores interdependence and synergy.

Cash Cows
As leaders in a mature market, cash cows exhibit a return on assets that is
greater than the market growth rate so they generate more cash than they
consume. These units should be milked extracting the profits and investing as
little as possible. They provide the cash required to turn question marks into
market leaders.
These are characterised by high relative market share in low growth industries.
As the market matures the need for investment reduces. Cash Cows are the most
profitable products in the portfolio. The situation is frequently boosted by
economies of scale that may be present with market leaders. Cash Cows may be
used to fund the businesses in the other three quadrants.
It is desirable to maintain the strong position as long as possible and strategic
options include..
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BCG Matrix on Cadbury

Product development
Concentric diversification
If the position weakens as a result of loss of market share or market contraction
then options would include..
Retrenchment (or even divestment)

According to this technique business or product are classified as low or high

performers depending upon their market growth rate and relative market share.
This technique is particularly useful for multi-divisional or multiproduct
companies. The divisions or products compromise the organisations business
portfolio. The composition of the portfolio can be critical to the growth and
success of the company.
The BCG matrix considers two variables, namely.
MARKET GROWTH RATE
RELATIVE MARKET SHARE

To understand the Boston Matrix we need to understand market share and

market growth interrelate.

Market share
Market Share is the percentage of the business unit sales to the total
market that is being services by your company measured either in
revenue terms or unit volume terms. In indicate the business unit strength

BCG Matrix on Cadbury

MS

Business Unit Sales This Year

Total Market Size

MS= Market Share

Relative market share

Is the percentage of the business unit sales to the highest competitors
sales measured either in revenue terms or unit volume terms it indicate
the business unit strength
RMS =

(business unit sale this year)

leading competitor sales this year

RMS= Relative Market Share

Market Growth Rate
Market growth is used as a measure of a markets attractiveness
Market experiencing high growth are ones where the total market share
available is expanding and threes plenty of opportunity for everyone to make
money.
MGR=

(total market sales this year) (total market sales this year)
total market sales last year

BCG Matrix on Cadbury

Chapter-2
Portfolio Analysis

2.1 Use of the BCG matrix in products

The BCG matrix is used for evaluation of a companys product porfolio, it can
also be used to assess key business units such as divisions or individual
companies of a large corporation. Both market share and growth rate are
essential in the assessment of a products value. A products market share and
the rate of its growth vary in time. The producer must therefore manage the
goods lifecycle, the provider must manage the services lifecycle. BCG matrix
analysis results help the organization to identify the strategic plan of the entire
product portfolio so that each of the quadrants contains the products of the
organization. The products in the quadrants must be balanced so that products
defined as cash cows allow for the funding of other products. However, with the
product life cycle, it is necessary to have a future potential in the form of stars
and question marks in the portfolio. On the basis of its specific strategy,
situation and reasons of the position of the products in the quadrants, the
organization must decide on its product strategy. It is appropriate to add to the
model a third dimension of profitability of a product or a service which can be
either high or low. The square thus becomes a three-dimensional cube. Within
the cube, the quadrants which correspond to high profitability are most
significant. It is also necessary to consider whether there are reasonable
prospects of high profitability of products or services in the future.
BCG matrix is in practice used very often and it is one of the most practical and
most comprehensible analytical techniques for an organization. It is crucial for
the determination of the correct product strategy of every business.

BCG Matrix on Cadbury

Product portfolio:- the range of product a company has in development or
available for consumer at any time. Managing product portfolio is important
for cash portfolio.

Strategic business unit definition : Single independent operation of a company has its own competitors.
One manager responsible for the performance.

Product life cycle

Show the stages that product go through from development to withdrawal
from the market.
Each product may have a different life cycle.
Contributes to strategic marketing planning.
Helps to identify when a product needs support redesign withdrawal.
Helps in forecasting and managing cash flow.

Stages in Product life cycle

Development
Introduction/launch
Growth
Maturity
Decline
Withdrawal

BCG Matrix on Cadbury

Product life cycle and BCG matrix

Why BCG Matrix?

To access
Profiles of product and business
The cash demand of product
The development cycle of products
Resource allocation and divestment decisions

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BCG Matrix on Cadbury

Stares
These are promising products for the company, they even can be considered as
leaders of the industry. The strategy is to boost these products by appropriate
investments to monitor the growth and maintain a position of strength. These
products require a large amount of cash but also contribute to the company's
profitability. They are becoming progressively cash cows with market
saturation.
High Growth, High Market Share stares are leaders in business by having
heavy high market share in a growing market share they also require
heavy investment to maintain its large market share its leads to large
amount of cash consumption and cash generations
Attempts should be made to hold the market share otherwise the star will
become a CASH COW.

Strategy recommendations
Investment
Further Growth
maintain market position
Cash flow
Self sustaining : fund there own growth
require funds from other SBU (Cash Cows)
Assure the future of the company
Grow into the cash cows

Question Marks
They do not generate profits unless the company decides to invest resources to
maintain and even increase the market share (become potential stars). They

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have a high demand for liquidity and the company must ask the question: Invest
or give up the product?
High Growth, Low Market Share
Question marks are essentially new products where buyers have yet to
discover them. Most businesses start of as question marks in growing
markets but have low market share
Question marks have high demand and low returns due to low market
share. Investment should be high for question marks
They will absorb great amounts of cash if the market share remains
unchanged
Question marks have potential to become stares and eventually cash cow
but can become also a dog

Strategy recommendations
Investment
increase market share
selectively develop into Stares
Cash Flow
Require Funds From Other SBUs ( cash cows)
Unrealized future opportunities
The marketing strategy is to get markets to adopt this products
These product need to increase their market share quickly or they
becomes a dog.
The best way to handle question marks is to either invest heavily in them
to gain market share or to sell them

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BCG Matrix on Cadbury

Cash Cow
These are products or services which are mature and which generate interesting
profits and cash, but need to be replaced because the future growth will be
lower. They must therefore be profitable because they can finance other
activities in progress (including stars and question marks .
Low growth, High Market Share
They are foundations of the company and often the stares of yesterday.
They generate more cash then required.
They extract the profit by investing as littlie cash as possible
They are located in an industry that is mature, not growing or declining

Strategy recommendations
Investment
maintain market share
maintain capacity
Cash Flow
positive cash flow
provides funding to support Stares and ?.
No potential for profit growth

Dogs
These products are positioned in a declining market and highly competitive and
that the company wants to get rid of soon as they become to expensive to
maintain. The company must minimize the dogs . The company must decide
whether it still injects liquidity, otherwise it will eliminate the dogs in the
near future.
Low Growth, Low Market Share

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BCG Matrix on Cadbury

Dogs are the cash trap
Dogs do not have potential to bring in much cash
Number of dogs in the company should be minimized
Business is situated at declining stage

Strategy recommendations

Investment
diversified strategy
reduce capacity to free up resources

Cash Flow
Goal or positive cash flow
negative cash flow
No real growth opportunities

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Chapter-3
Implications and Benefits of BCG Matrix
The BCG matrix provides a framework for allocating resources among different
business units and allows one to compare many business units at a glance.
However, the approach has received some negative criticism for the following
reasons:

The link between market share and profitability is questionable since

increasing market share can be very expensive.

The approach may overemphasize high growth, since it ignores the

potential of declining markets.

The model considers market growth rate to be a given. In practice the

firm may be able to grow the market.

Oversimplifies complex decisions

BCG MATRIX users only two dimensions Market Share and Market
Growth

Only considered current business no dynamics

Does not recognize possible synergies between SBUs

High market share does not mean profits all that time

Business with low market share can be profitable too.

BCG matrix is simple and easy to understand.

It helps you to quickly and simply screen the opportunities open to you
and helps you think about how you can make most of them.

Good measurability of market share and growth

Provides information about efficient resources allocation with in the

organization

Generator for strategic option

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BCG Matrix on Cadbury

It is used to identify how corporate cash resources can best be used to

maximize a companies futures growth and profitability.

Recommendations
Based on the BCG analysis, company has to decide what objective, strategy,
and budget should be assigned to each SBU. Several general investment
strategies may be recommended. The following strategies are possible:

1. Growth (Build)
For some Question Marks a company may use a growth strategy financed by
Cash Cows The part of the Cash Cows' revenues would strengthen the positions
of Question Marks that have the potential to become Stars. In that case, a
company increases its market share substantially.

2. Maintain position (Hold)

The strong positions of the Stars and the Cash Cows should be maintained.
Also, if the Dogs have a sound size, they may be an important part of a
company's activities. In that case, a maintenance strategy appears also to be
promising.

3. Harvest or milk
The main aim of this strategy is to rise short-term cash flow despite the longterm consequences. Harvesting implies a decision of getting out of a business
by executing a program of constant cost cutting. Companies use this strategy

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when they expect to reduce their cost at faster rate than potential fall in sales.
This strategy is suitable for weak Cash Cows, Question Marks and Dogs. The
recommendation for the Dogs is to milk them and remove them from the
market.

4. Liquidation (Terminate, Divest)

If a company runs a weak business, it should consider weather to harvest or
divest its business units. The decision of liquidation gives a company the
opportunity to reinvest its resources in a more prosperous business. This
strategy is appropriate for the Dogs and the rest of the Question Marks, which
are not financed by the Cash Cows.

Limitations of matrix
Characteristic of each SBU will be different in long term.
In BCG matrix, Individuality of product is given less preference,
consideration is given to Strategic Business unit.
There is an assumption that higher rates of profit are directly related to high
rates of market share.
It neglects the effects of synergies between business units.
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a market.
Sometimes Dogs can earn even more cash as Cash Cows.
The problems of getting data on the market share and market growth.
There is no clear definition of what constitutes a market.
A high market share does not necessarily lead to profitability all the time.

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The model uses only two dimensions market share and growth rate. This
may tempt management to emphasize a particular product, or todivest
prematurely.
A business with a low market share can be profitable too.
The model neglects small competitors that have fast growing market shares.
The BCG Matrix produces a framework for allocating resources among
different business units and makes it possible to compare many business units at
a glance. But BCG Matrix is not free from limitations, such as1. BCG matrix classifies businesses as low and high, but generally businesses
can be medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs
also involved with high market share.
4. Growth rate and relative market share are not the only indicators of
profitability. This model ignores and overlooks other indicators of
profitability.
5. At times, dogs may help other businesses in gaining competitive advantage.
They can earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

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Chapter 4
REPORT ON CADBURY

History of Cadbury:
Cadbury's as we know it today started from humble beginnings in Bull Street,
Birmingham. A shop was opened by John Cadbury in 1824. It did not start as a
confectionery shop but sold tea and coffee and home made drinking chocolate
or cocoa which he made himself for his customers.
John Cadbury moved into the manufacturing of drinking chocolate and cocoa.
By the early 1840's Cadbury operated from a factory in Bridge Street and went
into partnership with his brother Benjamin. 'Cadbury Brothers of Birmingham'
Cadbury's received a Royal Warrant in 1854 as manufacturers of chocolate for
Queen Victoria.
Cadbury's moved on to become a limited company and after the death of
Richard Cadbury the sons of the two brothers joined the firm headed by George
Cadbury. This was very much a family business in every sense of the word.
In 1969 the Cadbury Group merged with Schweppes. Cadbury Schweppes Plc is
a leader in confectionery and soft drinks both in the UK and abroad. With
factories all over the world and a host of well known brand names it has become
a household name in many countries

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4.1 BANKING SECTOR IN LIBERALIZED PERIOD

The year 1991 marked a decisive changing point in India's economic policy
since Independence in 1947.Following the 1991 balance of payments crisis,
structural reforms were initiated that fundamentally changed the prevailing
economic policy in which the state was supposed to take the "commanding
heights" of the economy. After decades of far reaching government involvement
in the business world, known as the "mixed economy" approach, the private
sector started to play a more prominent role. The enacted reforms not only
affected the real sector of the economy, but
the banking sector as well. Characteristics of banking in India before 1991 were
a significant degree of state ownership and far reaching regulations concerning
among others the allocation of credit and the setting of interest rates. The blue
print for banking sector reforms was the 1991 report of the Narasimham
Committee. Reform steps taken since then include a deregulation of interest
rates, an easing of directed credit rules under the priority sector lending
arrangements, a reduction of statutory pre-emptions, and a lowering of entry
barriers for both domestic and foreign players.
The regulations in India are commonly characterized as "financial repression".
The financial liberalization literature assumes that the removal of repressionist
policies will allow the banking sector to better perform its functions of
mobilizing savings and allocating capital what ultimately results in higher
growth rates .If India wants to achieve its ambitious growth targets of 7-8% per
year as lined out in the Common Minimum Programme of the current
government,a successful management of the systemic changes in the banking
sector is a necessary precondition. While the transition process in the banking
sector has certainly not yet come to an end, sufficient time has passed for an
interim review. The objective of this paper therefore is to evaluate the progress
made in liberalizing the banking sector so far and to test if the reforms have
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allowed the banking sector to better perform its functions. The paper proceeds
as follows: section 2 gives a brief overview over the role of the banking sector
in an economy and possible coordination mechanisms. A discussion of different
repressive policies and their effect on the functioning of the banking sector
follows in section 3. Section 4 gives a short historical overview
over developments in the Indian banking sector and over the reforms since
1991.

4.2 ROLE AND MANAGEMENT OF THE BANKING SECTOR

A banking sector performs three primary functions in an economy: the
operation of the payment system, the mobilization of savings and the allocation
of savings to investment projects. By allocating capital to the highest value use
while limiting the risks and costs involved, the banking sector can exert a
positive influence on the overall economy, and is thus of broad macroeconomic
importance since the general importance of a banking sector for an economy is
widely accepted, the questions arise under which coordination mechanism
state or market it best performs its functions, and, if necessary, how to manage
the transition to this coordination mechanism. Currently, there are opposing
views concerning the most preferable coordination mechanism. According to
the development and political view of state involvement in banking, a
government is through either direct ownership of banks or restrictions on the
operations of banks better suited than market forces alone to ensure that the
banking sector performs its functions. The argument is essentially that the
government can ensure a better economic outcome by for example channelling
savings to strategic projects that would otherwise not receive funding or by
creating a branch infrastructure in rural areas that would not be build by profit
maximizing private banks. The active involvement of government thus ensures
a better functioning of the banking sector, which in turn has a growth enhancing

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effect. The proponents of financial liberalization take an opposite stance. In
their view, repressive policies such as artificially low real interest rates, directed
credit programs and excessive statutory pre-emptions that are imposed on banks
have negative effects on both the volume and the productivity of investments.
Removing these repressionist policies and giving more importance to market
forces will, in the view of the proponents of financial liberalization, increase
financial development and eventually lead to higher economic growth. A
majority of empirical studies support the conclusion of the financial
liberalization hypothesis. The policy recommendations arising from these
studies are evident: abolishment of repressionist policies and privatization of
state-owned banks.

4.3 DEVELOPMENT OF THE INDIAN BANKING

SECTOR
Development from Independence until 1991
At the time of Independence in 1947, the banking system in India was fairly
well developed with over 600 commercial banks operating in the country.
However, soon after Independence, the view that the banks from the colonial
heritage were biased in favour of working-capital loans for trade and large firms
and against extending credit to small-scale enterprises, agriculture and
commoners, gained prominence. To ensure better coverage of the banking needs
of larger parts of the economy and the rural constituencies, the Government of
India (GOI) created the State Bank of India (SBI) in 1955. Despite the progress
in the 1950s and 1960s, it was felt that the creation of the SBI was not far
reaching enough since the banking needs of small scale industries and the
agricultural sector were still not covered sufficiently. This was partly due to the
still existing close ties commercial and industry houses maintained with the

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established commercial banks, which gave them an advantage in obtaining
credit. Additionally, there was a perception that banks should play a more
prominent role in India's development strategy by mobilizing resources for
sectors that were seen as crucial for economic expansion. As a consequence, in
1967 the policy of social control over banks was announced. Its aim was to
cause changes in the management and distribution of credit by commercial
banks.
Following the Nationalization Act of 1969, the 14 largest public banks were
nationalized which raised the Public Sector Banks' (PSB) share of deposits from
31% to 86%. The two main objectives of the nationalizations were rapid branch
expansion and the channelling of credit in line with the priorities of the fiveyear plans. To achieve these goals, the newly nationalized banks received
quantitative targets for the expansion of their branch network and for the
percentage of credit they had to extend to certain sectors and groups in
theeconomy, the so-called priority sectors, which initially stood at 33.3%.Six
more banks were nationalized in 1980, which raised the public sector's share of
deposits to 92%. The second wave of nationalizations occurred because control
over the banking system became increasingly more important as a means to
ensure priority sector lending, reach the poor through a widening branch
network and to fund rising public deficits. In addition to the nationalization of
banks, the priority sector lending targets were raised to 40. However, the
policies that were supposed to promote a more equal distribution of funds, also
led to inefficiencies in the Indian banking system. To alleviate the negative
effects, a first wave of liberalization started in the second half of the 1980s. The
main policy changes were the introduction of Treasury Bills, the creation of
money markets, and a partial deregulation of interest rates. Besides the
establishment of priority sector credits and the nationalization of banks, the
government took further control over banks' funds by raising the statutory

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liquidity ratio (SLR) and the cash reserve ratio (CRR). From a level of 2% for
the CRR and 25% for the SLR in 1960, both witnessed a steep increase
until 1991 to 15% and 38.5% respectively. In summary, India's banking system
was at least until an integral part of the government's spending policies.
Through the directed credit rules and the statutory pre-emptions it was a captive
source of funds for the fiscal deficit and key industries. Through the CRR and
the SLR more than 50% of savings had either to be deposited with the RBI or
used to buy government securities. Of the remaining savings, 40% had to be
directed to priority sectors that were defined by the government. Besides these
restrictions on the use of funds, the government had also control over the price
of the funds, i.e. the interest rates on savings and loans.This was about to
change at the beginning of the 1990s when a balance-of payments crisis was a
trigger for far-reaching reforms.

Developments after 1991

Like the overall economy, the Indian banking sector had severe structural
problems by the end of the 1980s. Joshi and Little characterize the banking
sector by 1991 as unprofitable, inefficient, and financially unsound. By
international standards, Indian banks were even despite a rapid growth of
deposits extremely unprofitable. In the second half of the 1980s, the average
return on assets was about 0.15%. The return on equity was considerably higher
at 9.5%, but merely reflected the low capitalization of banks. While in India
capital and reserves stood at about 1.5% of assets, other Asian countries reached
about 4-6%. These figures do not take the differences in income recognition and
loss provisioning standards into account, which would further deteriorate the
relative performance of Indian banks.
The 1991 report of the Narasimham Committee served as the basis for the initial
banking sector reforms. In the following years, reforms covered the areas of
interest rate deregulation, directed credit rules, statutory pre-emptions and entry

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deregulation for both domestic and foreign banks. The objective of banking
sector reforms was in line with the overall goals of the 1991 economic reforms
of opening the economy, giving a greater role to markets in setting prices and
allocating resources, and increasing the role of the private sector.

4.4 The most important reforms follows:

Statutory pre-emptions
The degree of financial repression in the Indian banking sector was significantly
reduced with the lowering of the CRR and SLR, which were regardedas one of
the main causes of the low profitability and high interest rate spreads in the
banking system. During the 1960s and 1970s the CRR was around 5%, but until
1991 it increased to its maximum legal limit of 15%. From its peak in 1991, it
has declined gradually to a low of 4.5% in June 2003. In October 2004 it was
slightly increased to 5% to counter inflationary pressures, but the RBI remains
committed to decrease the CRR to its statutory minimum of 3%. The SLR has
seen a similar development. The peak rate of the SLR stood at 38.5% in
February 1992, just short of the upper legal limit of 40%. Since then, it has been
gradually lowered to the statutory minimum of 25% in October 1997. The
reduction of the CRR and SLR resulted in increased flexibility for banks in
determining both the volume and terms of lending.

Priority sector lending

Besides the high level of statutory pre-emptions, the priority sector advances
were identified as one of the major reasons for the below average
profitability of Indian banks. The Narasimham Committee therefore
recommendeda reduction from 40% to 10%. However, this recommendation has
not been implemented and the targets of 40% of net bank credit for domestic
banks and 32% for foreign banks have remained the same. While the nominal
targets have remained unchanged, the effective burden of priority sector
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BCG Matrix on Cadbury

advances has been reduced by expanding the definition of priority sector
lending to include for example information technology companies.

Interest rate liberalization

Prior to the reforms, interest rates were a tool of cross-subsidization between
different sectors of the economy. To achieve this objective, the interest rate
structure had grown increasingly complex with both lending and deposit rates
set by the RBI. The deregulation of interest rates was a major component of the
banking sector reforms that aimed at promoting financial savings and growth of
the organized financial system.
The lending rate for loans in excess of Rs200,000 that account for over 90% of
total advances was abolished in October 1994. Banks were at the same time
required to announce a prime lending rate (PLR) which according to RBI
guidelines had to take the cost of funds and transaction costs into account. For
the remaining advances up to Rs200,000 interest rates can be set freely as long
as they do not exceed the PLR.
On the deposit side, there has been a complete liberalization for the rates of
all term deposits, which account for 70% of total deposits. The deposit rate
liberalization started in 1992 by first setting an overall maximum rate for term
deposits. From October 1995, interest rates for term deposits with a maturity of
two years were liberalized. The minimum maturity was subsequently lowered
from two years to 15 days in 1998. The term deposit rates were fully liberalized
in 1997. As of 2004, the RBI is only setting the savings and the non-resident
Indian deposit rate. For all other deposits above 15 days, banks are free to set
their own interest rates

Entry barriers
Before the start of the 1991 reforms, there was little effective competition in the
Indian banking system for at least two reasons. First, the detailed prescriptions

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BCG Matrix on Cadbury

of the RBI concerning for example the setting of interest rates left the banks
with limited degrees of freedom to differentiate themselves in the marketplace.
Second, India had strict entry restrictions for new banks, which effectively
shielded the incumbents from competition. Through the lowering of entry
barriers, competition has significantly increased since the beginning of the
1990s. Seven new private banks entered the market between 1994 and 2000. In
addition, over 20 foreign banks started operations in India since 1994. By
March 2004, the new private sector banks and the foreign banks had a combined
share of almost 20% of total assets.
Deregulating entry requirements and setting up new bank operations has
benefited the Indian banking system from improved technology, specialized
skills, better risk management practices and greater portfolio diversification.

Prudential norms
The report of the Narasimham Committee was the basis for the strengthening of
prudential norms and the supervisory framework. Starting with the guidelines
on income recognition, asset classification, provisioning and capital adequacy
the RBI issued in 1992/93, there have been continuous efforts to enhance the
transparency and accountability of the banking sector. The improvements of the
prudential and supervisory framework were accompanied by a paradigm shift
from micro-regulation of the banking sector to a strategy of macro-management.
The Basle Accord capital standards were adopted in April 1992. The 8% capital
adequacy ratio had to be met by foreign banks operating in India by the end of
March 1993, Indian banks with a foreign presence had to reach the 8% by the
end of March 1994 while purely domestically operating banks had until the end
of March 1996 to implement the requirement. Significant changes were also
made concerning non-performing assets (NPA) since banks can no longer treat
the putative 'income' from them as income. Additionally, the rules guiding their

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BCG Matrix on Cadbury

recognition were tightened. Even though these changes mark a significant
improvement, the accounting norms for recognizing NPAs are less stringent
than in developed countries where a loan is considered nonperforming after one
quarter of outstanding interest payments compared to two quarters in India.

Public Sector Banks

At the end of the 1980s, operational and allocative inefficiencies caused by
the distorted market mechanism led to a deterioration of Public Sector Banks'
profitability. Enhancing the profitability of PSBs became necessary to ensure
the stability of the financial system. The restructuring measures for PSBs were
threefold and included recapitalization, debt recovery and partial privatization.
Despite the suggestion of the Narasimham Committee to rationalize PSBs, the
Government of India decided against liquidation, which would have involved
significant losses accruing to either the government or depositors. It opted
instead to maintain and improve operations to allow banks to create a good
starting basis before a possible privatization. Due to directed lending practices
and poor risk management skills, India's banks had accrued a significant level of
NPAs. Prior to any privatization, the balance sheets of PSBs had to be cleaned
up through capital injections. In the fiscal years 1991/92 and 1992/93 alone, the
GOI provided almost Rs40 billion to clean up the balance sheets of PSBs.
Between 1993 and 1999 another Rs120 billion were injected in the nationalized
banks. In total, the recapitalization amounted to 2% of GDP. In 1993, the SBI
Act of 1955 was amended to promote partial private shareholding. The SBI
became the first PSB to raise equity in the capital markets. After the 1994
amendment of the Banking Regulation Act, PSBs were allowed to offer up to
49% of their equity to the public. This lead to the further partial privatization of
eleven PSBs. Despite those partial privatizations, the government is committed
to keep their public character by maintaining strong administrative control such
as the ability to appoint key personnel and influence corporate strategy. After an

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BCG Matrix on Cadbury

overview of the developments in the Indian banking sector overthe last years,
the next section tries to measure the changing degree of finance until 1991 to
15% and 38.5% respectively.

4.5 CHALLENGES FACED BY INDIAN BANKING

INDUSTRY
Developing countries like India, still has a huge number of people who do not
have access to banking services due to scattered and fragmented locations. But
if we talk about those people who are availing banking services, their
expectations are raising as the level of services are increasing due to the
emergence of Information Technology and competition. Since, foreign banks
are playing in Indian market, the number of services offered has increased and
banks have laid emphasis on meeting the customer expectations. Now, the
existing situation has created various challenges and opportunity for Indian
Commercial Banks. In order to encounter the general scenario of banking
industry we need to understand the challenges and opportunities lying with
banking industry of India.
Rural Market
Banking in India is generally fairly mature in terms of supply, product
range and reach, even though reach in rural India still remains a challenge
for the private sector and foreign banks. In terms of quality of assets
and capital adequacy, Indian banks are considered to have clean, strong
and transparent balance sheets relative to other banks in comparable
economies in its region.Consequently, we have seen some examples of
inorganic growth strategy adopted by some nationalized and private
sector banks to face upcoming challenges in banking industry of India.
For example recently, ICICI Bank Ltd. merged the Bank of Rajasthan Ltd.
in order to increase its reach in rural market and market share significantly.
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BCG Matrix on Cadbury

State Bank of India (SBI), the largest public sector bank in India has also
adopted the same strategy to retain its position. It is in the process of
acquiring its associates. Recently, SBI has merged State Bank of Indore in
2010
Management of Risks
The growing competition increases the competitiveness among banks.
But,existing global banking scenario is seriously posing threats for Indian
banking industry. We have already witnessed the bankruptcy of some foreign
banks.

Growth of Banking
Banks' ownership structure does not seem to matter as much as increased
competition in TFP growth. Foreign banks appear to have acted as
technological innovators when competition increased, which added to the
competitive pressure in the banking market. Finally, our results also indicate
an increase in risk-taking behaviour, along with the whole deregulation
process. It was found that small and local banks face difficulty in bearing the
impact of global economy therefore, they need support and it is one of the
reasons for merger. Some private banks used mergers as a strategic tool for
expanding their horizons. There is huge potential in rural markets of India,
which is not yet explored by the major banks. Therefore ICICI Bank Ltd.
has used mergers as their expansion strategy in rural market. They are
successful in making their presence in rural India. It strengthens their
network across geographical boundary, improves customer base and market
share.
Market Discipline and Transparency
Transparency and disclosure norms as part of internationally accepted
corporate governance practices are assuming greater importance in the

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BCG Matrix on Cadbury

emerging environment. Banks are expected to be more responsive and
accountable to the investors. Banks have to disclose in their balance sheets
a plethora of information on the maturity profiles of assets and liabilities,
lending to sensitive sectors, movements in NPAs, capital, provisions,
shareholdings of the government, value of investment in India and abroad,
operating and profitability indicators, the total investments made in the
equity share, units of mutual funds, bonds, debentures, aggregate advances
against shares and so on.

Human Resource Management

Significant correlations were found between work climate, human resource
practices, and business performance. The results showed that the
correlations between climate and performance cannot be explained by
their

common dependence on HRM factors, and that the data are

consistent with a mediation model in which the effects of HRM

practices on business performance are partially mediated by work
climate. The relationship between human resource management and
establishment performance of employees on the manufacturing sector. The
HRM environment could vary across branches. Site visits provided
specific

examples

of

managerial

practices

that

affected

branch

performance. An analysis of responses to the banks employee attitude

survey that controls for unobserved branch and manager characteristics
shows

positive

relationship between

branch

performance

and

employees satisfaction with the quality of performance evaluation,

feedback, and recognition at the branchthe incentives dimension of a
high-performance work system. In some fixed effects specifications,
satisfaction with the quality of communications at the branch was also
important.

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BCG Matrix on Cadbury

Global Banking
It is practically and fundamentally impossible for any nation to exclude
itself from world economy. Therefore, for sustainable development, one
has to adopt integration process in the form of liberalization and
globalization as India spread the red carpet for foreign firms in 1991.
The impact of

globalization becomes challenges for the domestic

enterprises as they are bound to compete with global players. If we look at

the Indian Banking Industry, then we find that there are 36 foreign banks
operating in India, which becomes a major challenge for Nationalized and
private sector banks. These foreign banks are large in size, technically
advanced and having presence in global market, which gives more and better
options and services to Indian traders.

Financial Inclusion
Financial

inclusion

has

become

necessity

in

todays

business

environment. Whatever is produced by business houses, that has to be

under the check

from

various

perspectives

like

environmental

concerns, corporate governance, social and ethical issues. Apart from it to

bridge the gap between rich and poor, the poor people of the country
should be given proper attention to improve their economic condition.
Employees Retention
The banking industry has transformed rapidly in the last ten years, shifting
from transactional and customer service-oriented to an increasingly
aggressive environment, where competition for revenue is on top priority.
Long-time banking employees are becoming disenchanted with the industry
and are often resistant to perform

up

to

new

expectations.

The

diminishing employee morale results in decreased revenue. Due to the

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BCG Matrix on Cadbury

intrinsically close ties between staff and clients, losing those employees
completely can mean the loss of valuable customer relationships. The
retail banking industry is concerned about employee retention from all
levels: from tellers to executives to customer service representatives
because competition is always moving in to hire them away. The
competition to retain key employees is intense. Top-level executives and
HR departments spend large amounts of time, effort, and money trying to
figure out how to keep their people from leaving.

Chapter-5
FINDINGS, SUGGESSTIONS AND CONCLUSIONS
5.1 Findings
Majority of bankers are of the opinion that business environment is highly
competitive. Nearly half of the bankers say the competition is faced from
public, private, cooperative and foreign banks. Majority of bankers find very
difficult to survive, grow, stabilize and excel in banking business. For doing
banking business effectively the strategies adopted are use of advance
technology, changes in working process and improving bank performance. Out
of resources used in banking business the manpower is most important and
money is ranked second. Nearly three-fourth of banks agreed that the major
advantages of higher performance to banks are quality and quantity
improvement,

high

productivity,

employees

satisfaction

and

higher

profitability. More than half of bankers said that management of banks is

highly interested to manage performance of employees consistently. More than

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BCG Matrix on Cadbury

half of bankers said that the major functions performed by performance
management are setting goals and performance standards, communication,
coaching feedback, performance appraisal and development planning for future.

5.2 Suggestions
The present business environment for banking is highly volatile and uncertain.
It is highly competitive and every bank is finding difficult to service grow,
stabilize and excel in banking business. Further, for better performance
management must keep watch on the emerging trends in business environment.
The proper and timely strategies are to be adopted to improve efficiency of the
whole organization Competition is faced from public, private, foreign and
cooperative banks. They have adopted the strategy for effective workings are
use of advance technology and changes in working procedure. No doubt
performance has been improved but manpower is not maintained and utilized
properly. For improvement in human resources, special focus should be given
on selection, training, motivate career opportunities or employees etc.

5.3 Conclusion
We are in the era of globalization and the business environment is very
turbulent. It is changing drastically. In present environment nothing is
permanent except changes. Changes are likely to take place but with different
pace at different time. External environmental factors like social, cultural,
economic, legal, government policies, technology and competition are
uncontrollable. Due to these, it has become very difficult to carry out the
business activities effectively and efficiently. It is an uphill task to stabilize,
grow and excel in the business performance. In this situation, the need for
higher level of knowledge and skills are needed. Every organization whether big
or small, is using manpower, machine, money and materials. To carry out its
tasks these are needed and without these the tasks cannot be completed. In

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BCG Matrix on Cadbury

present scenario under liberalization, privatization and globalization the
companies are facing stiff competition. It has become very difficult to survive,
grow, stabilize and excel in the business. The companies performing better and
before others are taking the lead in business. To do so the skilled and motivated
employees are strongly needed. They can give more output per person. Their
performance can be measured with the help of labour productivity concept. The
labour efficiency can be measured with the help of productivity concept.

BIBLIOGRAPHY

TITLE

AUTHOR

PUBLISHER
Lalvani Publishing House

Indian banking System

T.A.Vaswani

Banking System

Beckhart B.H

The Role of the central Rasminsky Louis

banks today

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BCG Matrix on Cadbury

Reserve Banks Publication
(i) Function and working of the RBI
(ii) Annual report of the bank

News papers

Magazine

Hindustan times

Indian banks Association

Times of India

The Banker

Business Times

The Banks Mag

WEBLIOGRAPHY

Websites

Purpose

www.rbi.com

Reserve Bank of India Government

Agency

http://www.iibf.org.in/

Indian Institute of Banking and

Finance

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BCG Matrix on Cadbury

https://www.nabard.org/

The Banking Regulation Act-1949

http://www.bankingindiaupdate.com Banking in India

http://en.wikipedia.org

All Indian Banking Information

www.slashdocs.com

Pdf and Ppt on banking sector and

Word Document

Search Engines
www.google.com
www.yahoo.com
www.Ask.com

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