SUMMER PROJECT

PROGRESS REPORT NO. 1

ON

MARKET ANALYSIS OF BANKING INDUSTRY

SUBMITTED TO: SUBMITTED BY:

Name: Dr.Atul Shiva STUDENT NAME: Atul Kumar

Designation: UID: 19MBA1750
Chandigarh University MBA-Batch 2019-21
Location: Gharuan, Mohali

1
Contents
1. Introduction 3
2.Objective of the Study 3
3.market analysis of Banking sector 3
3.1 Market size 3
3.2 Sector composition 4
3.3 Major Investments 4
3.4 Achievements of Banking Sector 5
3.5 Current situation 5-7
3.6 Reimagining transformation of banking sector 7
3.6 Conclusion of Market Analysis 7

4.SWOT Analysis 7-12

4.1Strength 8
4.2 Weakness 8
4.3 Opportunity 9
4.4 Threats 9
4.5 Swot of Next generation banking system 10
4.6 Conclusion of SWOT Analysis 12

2
1.Introduction : Indian Banking Industry

The Apex banking body RBI and the current situation of the banking industry suggest that the
Indian Banking sector/Industry be sufficiently capitalized and well regulated. A lot of ups and
downs in terms of financial growth has been observed in the country, slow economic growth,
dropping GDP rates, and inflation after these many problems. We are far superior to any
other country in the world. Also several research and reports, market studies, Liquidity risk
studies suggest Indian banks are more flexible and adaptive and they can withstand the
national and global downturn.
The Indian banking sector is also growing at a fast pace with
innovative and technological changes& up-gradation like e-payments and the advent of small
finances seems to be constructive for the domestic Banking system.Comparing it to global
banking sector we will see some shocking facts, The global banking system is not only bigger
and more profitable but also more resilient than at any time in the last 10 years (figure 1).
According to The Banker’s Top 1000 World Banks Ranking for 2018, total assets
reached$124 trillion, while return on assets (ROA) stood at 0.9 percent. Similarly, tier 1
capital ratio as a proportion of assets rose to 6.7 percent, significantly higher than in 2008.1
But the recovery since the financial crisis has not been uniform across regions. US banks,
compared to their European counterparts, are ahead on multiple measures. Aggressive policy
interventions and forceful regulations helped propel US banks to health more quickly. And
more recently, favorable GDP growth, tax cuts, and rising rates have further bolstered the
state of the industry.

2.Objective of the Study :

• To know about the banking industry in detail.

• To know all external and internal environment of the Banking industry through
analysing SWOT.
• To Know present performance and situation of the banking sector.
• To predict and forecast the performance of the industry in India.

2.1 Need/ Importance of the Study :

Before the establishment of banks, the financial activities were handled by money lenders and
individuals. At that time interest rates were very high. Again there was no security of public
savings and established, which was fully regulated by the government. The organized
banking sector works within the financial system to provide loans, accept deposits, and
provide other services to their customers. The following function of the bank and its
importance:

• To provide the security of the savings of customers.

• To control the supply of money and credit.
• To encourage public confidence in the working of the financial system, increase
saving speedy and efficiently.

3
 • To avoid the focus of financial powers in the hands of a few individuals and
institutions.
• To set equal norms and conditions( i.e. Rate of interest, Period of lending, etc.) to all
types of customers.

3. Market Analysis of Banking Sector :

The financial performance of banking sector always puts an impact on the performance of the
economy. Hence, the stability of banking sector is vital for the growth of any economy. The
growth of banks mainly depends on its conventional business services like deposits and loans.
In order to grow and gain the faith of shareholders, organizations should try to improve the
long-term financial performance and create wealth for the shareholders. Wealth creation is
considered as imperative. The key to creating wealth is adding value. All financial success,
especially business success, is based on adding value. Adding value is the way that all
fortunes are made.So, Analysis will help us to understand the complexities of the banking
sector.

3.1 Market Size

The Indian banking system consists of 18 public sector banks, 22 private sector banks, 46
foreign banks, 53 regional rural banks, 1,542 urban cooperative banks and 94,384 rural
cooperative banks as of September 2019. During FY07–19, deposits grew at a CAGR of
11.11 per cent and reached US$ 1.86 trillion by FY19. Deposits as of Feb 2020, stood at Rs
132.35 lakh crore (US$ 1,893.77 billion).
The total equity funding of microfinance sector grew at the rate of 42 year-on-year to Rs
14,206 crore (US$ 2.03 billion) in 2018-19. (Source: India Brand Equity Foundation).

(Fig.1 : Market Size of India Banking Sector in terms of assets)

3.2 Sector Composition of Indian Banking Industry

At current taking a look at the Indian banking industry, it comprises three major components:
public sector, private sector, and foreign banks as shown in (Fig 3)with their interest income
growth (in US $ bn) till FY 18.

4
(Fig 2 : Sector Composition of Indian Banking Industry)

3.3 Major Investments/developments

• The total equity funding of the microfinance sector grew at the rate of 42 year-on-year
to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.
• The total value of mergers and acquisitions during 2017 in NBFC diversified financial
services and banking was US$ 2,564 billion, US$ 103 million, and US$ 79 million
respectively @.
• As of September 2018, the Government of India launched India Post Payments Bank
(IPPB) and has opened branches across 650 districts to achieve the objective of
financial inclusion.
• The NPAs (Non-Performing Assets) of commercial banks have recorded a recovery
of Rs 400,000 crore (US$ 57.23 billion) in the last four years including record
recovery of Rs 156,746 crore (US$ 22.42 billion) in FY19.
• Transactions through Unified Payments Interface (UPI) stood at 1.32 billion in
February 2020 worth Rs 2,21,995 crore (US$ 31.76 billion).
• In October 2019, the Department of Post launched the mobile banking facility for all
post office savings account holders of the CBS (core banking solutions) post office
• In February 2020, The Cabinet Committee on Economic Affairs has given its
approval for continuation of the process of recapitalization of Regional Rural Banks
(RRBs) by providing minimum regulatory capital to RRBs for another year beyond
2019-20, that is, up to 2020-21 for those RRBs which are unable to maintain
minimum Capital to Risk-weighted Assets Ratio (CRAR) of 9 percent, as per the
regulatory norms prescribed by the Reserve Bank of India.

3.4 Achievements of Indian Banking Industry:

Following are the achievements of the government:

5
 • As of March 31, 2019, the number of debit and credit cards issued were 925 million
and 47 million, respectively.
• As per RBI, as of February 14, 2020, India recorded foreign exchange reserves of
approximately US$ 476.09 billion
• India ranks among the top seventh economies with a GDP of US$ 2.73 trillion in 2018
and the economy is forecasted to grow at 7.3 percent in 2018.
• To improve infrastructure in villages, 204,000 Point of Sale (PoS) terminals have
been sanctioned from the Financial Inclusion Fund by National Bank for Agriculture
& Rural Development (NABARD).
• The number of total bank accounts opened under Pradhan Mantri Jan Dhan Yojana
(PMJDY) reached 373.4 million accounts were opened (as of August 2019).

3.5 Current Market Situation(Upward Growing Trend)

The current situation of the Indian Banking Industry is positively dynamic and shows overall
positive growth and CAGR is positive in both cases credit off-take and growth in deposits by
customers both cases shows that the purchasing power, as well as earnings, have been
increased which is having a positive impact on the banking business.CAGR of both scenarios
are given below (Fig 4: Key Trends). Economic Survey 2018-19, working age population to grow
by 9.7 million per year during 2021-31 and 4.2 million per year during 2031-41.

(Fig 3: Key Trends of Banking Industry in India)

• The Indian banking system consists of 20 public sector banks, 22 private sector banks,
44 foreign banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384
rural cooperative banks in addition to cooperative government institutions. As of
March 31, 2019, the total number of ATMs in India had increased to 2,21,703 and by
2021 it was expected to grow to 407,000. As of 2017, 80 percent of the adult
population has bank accounts. As of March 31, 2019, the number of debit and credit
cards was 925 million and 47 million, respectively.

6
• The assets of public sector banks stood at Rs 72.59 lakh crore ($ 1,038.76 billion) in
the current fiscal. According to the Union Budget 2019-2020, the allocation coverage
ratio of banks has reached their highest in 7 years. According to the RBI, as of
February 14, 2020, India had recorded foreign exchange reserves of approximately $
476.09 billion.

• By February 2020, deposits totaled Rs 132.35 lakh crore ($ 1,893.77 billion) and
credit to non-food industries reached Rs 100.41 lakh crore ($ 1.45 trillion) by
February 14, 2020.

• Indian banks are increasingly focusing on adopting an integrated approach to risk

management. Commercial banks' NPAs (non-performing assets) have recovered Rs
400,000 crore ($ 57.23 billion) in fiscal year, the highest in four years. The banks
have already accepted Basel II's international banking monitoring agreement, and the
majority of banks have already met Basel III's capital requirements, which expire on
March 31, 2019.

• According to the Union Budget 2019-20, investment-based growth requires low-cost

capital, which requires an investment of Rs 20 lakh crore (US $ 286.16 billion) each
year.

• The Reserve Bank of India (RBI) has decided to set up an extensive database of
Public Credit Registry (PCR) credit information, which will be available to all
stakeholders. The Bankruptcy and Bankruptcy Code (Amendment) Ordinance, 2017
Bill has been passed and is expected to strengthen the banking sector. In June 2019,
the RBI set an average base rate of 9.18% for borrowers of non-banking financial
companies and microfinance companies in the first quarter of July. Total equity funds
in the microfinance sector are projected to rise to a staggering 42-year rate of $ 14,206
crore (US $ 2.03 billion) in 2018-19.

• Under Pradhan Mantri Jan Jhan Dhan Yojana (PMJDY), deposits amounting to Rs
37.34 crore are at 1.06 lakh crore (US $ 15.17 billion). Under the Mudra scheme, the
Government of India owes Rs 6 lakh crore (US $ 93.1 billion) in May 2018 to 120
million beneficiaries. As of November 2019, the total number of subscribers under the
Atal Pension Scheme was 19 million.

• Increasing revenues are expected to increase the need for banking services in rural
areas and therefore the sector is expected to boost growth. As of September 2018, the
Department of Financial Services (DFS), Ministry of Finance and National
Information Center (NIC) has launched Jan Dhan Darshak as part of its financial
inclusion initiative. It is a mobile app that helps people find financial services in India.

• The digital payments revolution will trigger huge changes in the way credit is
distributed in India. After demonetization, debit cards have radically transformed
credit cards into the preferred mode of payment in India. Transactions through the
Unified Payments Interface (UPI) were valued at Rs 1.2 billion in November 2019 at
Rs 1.89 lakh crore (US $ 27.08 billion).

7
 • According to the Union Budget 2019-20, the government is proposing a fully
automated GST refund module and electronic invoice system, which eliminates the
need for a separate e-way bill.

3.6 Reimagining transformation in Banking Sector

(Fig 4 : Source Deloitte Center for Financial Services analysis.)

3.6 Conclusion : Market Sector Analysis

Increased expenditure on Infrastructure and IT, Reforms, and decisions in favor of banks by
RBI, Increasing numbers of Digital gateway users, Widespread of Internet banking all shows
the positive sign and Indian banking Sector is seeking a robust growth.
Also, Rapidly
changing and growing business world will turn to banks for their financial needs, Advanced
services like Mobile banking & App-based banking services are catering a large number of
client base every day these all seems to be a dream come true for the entire banking industry
and happily it is more likely to happen signifies there is enormous growth to witness by The
banking sector in India.

4. SWOT Analysis of The Banking Industry

In our daily life, we have to wake up and run for our living. ‘Money’ earlier meant to be an
instrument of exchange but nowadays is an essence, it is so crucial that every one of us needs
it for survival. So, where ever money will be the need of the banking sector will exist to

8
channelize the flow, the Banking sector intermediates the activities from which we can either
save or deposit and also we can borrow when needed. Also with a huge extent of
modernization due to globalization and inventions taking place whole system of banking has
changed rapidly and it has been evidential that what we used to look at the conventional
banking system has changed into more than that and so it acts as an economic stabilizer and a
supportive bit to the economy and their units (customers).
A flux that is rigorous, volatile, and discontinuous
there are lots of positives and negatives to it similarly it also gives rise to an opportunity to
the industry to grow and empower along with the subsequent threat.

4.1 Strengths (Banking Industry have following Strengths in common )

• One of the oldest Industry : Banking is not only a sector but also evolved to be an
ecosystem . From when human has been alive to as long as they will live banking and
its need will exist . Sometimes in the form of commodity to commodity exchange also
called as barter and in present scenario as a structural unit of Indian Monetary system.
• Financial support after a crisis: We have been grown up seeing different crises
from our inception their always has been a situation of crisis nationally and
internationally and after enormous loss to the human wealth it has been also seen that
the banking sector always comes to the rescue. Seeing the current pandemic situation
too RBI support to various Banks and NBFCs and other financial institutions it is a
classic example of Financial support after a crisis.

• Digital Banking : Globalization, Invention, and Innovation in technology has proven

to be very beneficial for all most all industries but when it comes to banking sector it
has taken the banking industry to another level, Digital banking system has taken the
Indian market like a storm and it is the most advanced feature which is added into the
current banking Industry especially in developing countries like India.

• A leader in Economic Growth: Banking industry act as a regulator and

intermediates the money and its control in the market and also in the hands of
customers so we need to understand that money a crucial element in the growth of any
economy and to control and channelize that money we need a well structured
financial institute and banking is right that. The recent growth and progress in the last
few years have proven that the Banking industry is a leader in Economic Growth.

4.2 Weaknesses

• Lack of Worldwide Coordination: One of the biggest weakness in the banking

industry that is lacks to a greater extent in terms of worldwide coordination as
Banking handles finances which makes it vulnerable industry .We see 50% of global

9
 market is held by Europe ,Similarly fluctuating currencies and exchange rates
encourages miscoordination between the global Banking industry as a whole.

• Lack of IT infrastructure : Another problem can be seen in different developing

countries like India that the nation misses development to basic level on various fronts
likes Education, Healthcare .IT infrastructure is not developed to that extent where
Indian can surpass the competing nation in the Banking Industry.

• Limited access to rural areas : Indian Banking sector also lacks on this front a very
limited connectivity and lack of proximity to the rural areas make those customers are
left in isolation from all the benefits of the banking industry .Currently banking
industry will have to go through a lot to enhance the rural reach and connectivity to
the remotest areas of the country.

• High Level NPAs : An increasing number of NPAs(Non-Performing Assets) every

year is a great hurdle for the Banking Industry to achieve the estimated and expected
level of performance overall in an economy the previous few years have presented
jaw-dropping numbers of NPAs.

4.3 Opportunity

• Move to rural Areas : Expanding the Banking Industry towards the rural areas will
as it is mentioned as one of the weaknesses of this industry. The Banking services
need to expand their business through CBS(Core Banking Services) by establishing
their branches to those areas so the banking sector can reach those areas to seek
potential growth.

• Offer More or Lose Customers : Offer More or Lose Customers: Liberalised RBI
policies to Banks allows them to give as much service as possible to their customers
to attract or to cater large market size towards them and it becomes essential to the
banking industry to reach rural areas to gain the potential customers, Similarly, banks
dealing in the urban areas need to fulfill up to the expectation and demand of the
customers.

• Technological Advancements: The banking industry has always been dependent on

technology. This is evident in the slew of digital services being offered by banks
today. Despite depending on the conventional technologies it becomes important to
keep the systems upgraded as per the modern and most recent current technology will
lead to efficient and effective results on the outcome of the Banking Industry.

• Social Evolution : Human society is evolving both economically and culturally. In

this dynamic landscape, the needs and demands of customers with rising income
levels are bound to change. Banks need to adapt to this changing society. By
providing better services the industry can solidify its place in the future.

10
4.4 Threats

• Recession: Any Industry related to money is always a risk of recession because

money can make or break any business or industry if any of the units of the economy
falls economically indirectly or directly it will leave an impact on the Banking
Industry.

• Data Breaches: Money brings every possible threat to it. In the banking industry,
every piece of data is vital so the security of data is the prior demand of the customers
any security breach will lead to data breach consequently leading to loss of financial
wealth to several customers and a direct impact on the economy.

• Misuses of influence and position: In the near past many of the cases, especially in
India, have been observed the supreme officials of the Bank have misused their power
and position and went out of the way to provide additional benefit to the people
directly or indirectly connected to them.

4.5 SWOT Analysis of Next Generation Banking Industry (Fig.5)

11
4.6 Conclusion of the SWOT

The banking industry is old, which proves its reliability. It’s there when we need to get back
on our feet after a natural (or man-made) disaster. It offers a variety of ways for us to gain
credit, save more money, and easily transfer funds when necessary. But it’s also slow to
technological changes and fails to meet the needs of the younger generation.

The good news is that there are opportunities for where it fails. Banks can update their
infrastructure to remain secure; it can create new offerings to appease millennials. It can also
reach more people by spreading into rural areas. But the industry must first look at its
weaknesses honestly before it can make any headway.

12