Scope of the Financial Sector

The financial sector in India has become stronger in terms of capital and the number of
customers. It has become globally competitive and diverse aiming, at higher productivity
and efficiency.

Exposure to worldwide competition and deregulation in Indian financial sector has led to
the emergence of better quality products and services. Reforms have changed the face of
Indian banking and finance.

The banking sector has improved manifolds in terms of capital adequacy, asset
classification, profitability, income recognition, provisioning, exposure limits, investment
fluctuation reserve, risk management, etc.

Retail banking has been undergoing dramatic operational transformation in the recent
years. Mergers and acquisitions, increased competition, and new regulatory requirements
have driven banks to rethink their retail strategies. It has become important for retail
banks to leverage technology to optimize sales and fulfillment processes, manage
distribution channels, and streamline operations to acquire, satisfy, and thereby retain
customers.
Celebrating Indian banking
SANDIPAN DEB

Today, 15 years after economic liberalisation began, we have a vibrant banking sector,
powered by both improved-efficiency public sector banks and growth-hungry private
ones. The number of instruments available, the number of services banks provide-to both
retail and corporate customers, the levels of technology involved, would have been
considered pure science fiction even 10 years ago. As India Inc has gained confidence
and eyed more and more global deals, Indian banking has kept pace, with its advisory
services, financial structuring expertise, negotiating skills; indeed, they have partnered
India Inc in its global journey without missing a beat.
Along with information technology, banking is definitely one sector where we are ahead
of China. China may have bigger banks, but the sector has too many skeletons in its
closets, too many questionable loans on its books. There isn’t even a credible statistic of
how many banks China has: the estimates range from 30,000 to 42,000. Together they
hold $205 billion in non-performing loans, or 13% of all loans, according to the
government’s own optimistic estimate (Private estimates range up to 40%).
This is a volume that celebrates all that is best and admirable in the Indian banking
sector.
India’s Best Banks is a survey that The Financial Express conducts every year with Ernst
& Young as knowledge partner. We like to believe that it is the best and most credible
survey of its kind in the country. This survey eschews all qualitative and perceptual
elements and focuses only on hard data to decide who the champions of the sector are.
Five major criteria are used to compare performance of banks: Growth, Credit Quality,
Strength and Soundness, Profitability and Efficiency/ Productivity. Each criterion is
broken up into six sub-criteria. For instance, the sub-criteria selected-after careful
thought-to measure Efficiency are Business per employee, Profit per employee,
Spread/Total assets, Commission and Fees/Total Assets, Profit per branch, Operating
expenses/Total Assets.
Every year, we also attempt to improve the methodology and rigour, and fine-tune the
process to keep up with the times. For instance, today, with securitisation laws enacted,
asset reconstruction companies established, higher regulatory provisioning policy in
place, credit quality is less of a concern than it was some years ago. So this year, we have
slightly reduced the weight for Credit Quality in the judging.
Along with our analysis of numbers, we present in this volume informed articles and
interviews that should help our readers understand what is happening in the banking
sector. We hope readers will find what we have here, useful.

RNCOS’ “Indian Banking Sector Analysis (2006-2007)”, report provides extensive

research and objective analysis on the growing banking industry, their product quality,
and their services in India. This report helps clients to analyze the leading-edge
opportunities critical to the success of the banking Industry in India. Detailed data and
analysis helps an investor, financial service providers, and global banking players
navigate the evolving market of banks in India.
Indian Banking Sector Analysis (2006-2007)
Publish Date: November 2006 No. of Pages: 100

Key Findings
- The nationalized banks have more branches than any other types of banks in India.
Now
there are about 33,627 Branches in India, as on March 2005.
- Investments of scheduled commercial banks (SCBs) also saw an increase from Rs
8,04,199 crore in March 2005 to Rs 8,43,081 crore in the same month of 2006.
- India's retail-banking assets are expected to grow at the rate of 18% a year over the
next
four years (2006-2010).
- Retail loan to drive the growth of retail banking in future.
- Housing loan account for major chunk of retail loan.
Key Issues and Facts Analyzed
The research report also addresses the issues and facts that are critical to your success:
- What does the competitive market landscape look like for the Indian Banking Industry?
- How the services drive the Banking Sector in India?
- How demographic factors, personalized loans and credit quality programs drive the
market?
- What are the various opportunities and challenges of this industry?
- How the banks vary according to their regional set ups?
- How did the banks deploy their credits across sector?
- Strategies that are being adopted by global players for retail banking.
Key Products Analyzed
Key products like Deposits, Retail credit, Credit Cards, Debit Card, Internet Banking,
ATM facility are also analyzed, supported by the facts like revenue and the market share.
Key Players Analyzed
This section provides an overview, key facts and several number of players like Andhra
Bank, State Bank of Mysore, Allahabad Bank, Vijaya Bank, Punjab National Bank,
HDFC Bank, UTI Bank, ICICI Bank, Kotak Mahindra Bank, Centurion Bank Of Punjab,
Citibank, Standard, HSBC, ABN AMRO and American Express.

`Banking industry cannot escape consolidation'

Our Bureau
"Weaker banks may have no option but to merge with banks having better capital. The
Government maintains that the initiative should come from the banks themselves," the
minister said.
He was speaking at the Annual General Meeting of the Indian Banks' Association, in
Mumbai, on Friday.
Consolidation can help save costs and effect optimal deployment of capital. Banks will
also have to explore different avenues for raising capital to meet norms under Basel-II.
These norms come into force in India from March 31, 2007 onwards. The estimated
capital infusion for banks is Rs 42,000 crore by March 2010. Banks would require low-
cost capital under Tier-I and Tier-II. "The task is cut out for banks and they will have to
speed up their efforts of raising capital," Mr Chidambaram said.

Current scenario
Currently (2007), overall, banking in India is considered as 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. Even in terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent balance
sheets-as compared to other banks in comparable economies in its region. The Reserve
Bank of India is an autonomous body, with minimal pressure from the government. The
stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated
exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector, the demand for banking services-especially retail
banking, mortgages and investment services are expected to be strong. M&As, takeovers,
asset sales and much more action (as it is unravelling in China) will happen on this front
in India.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks
(that is with the Government of India holding a stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
31 foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively.

Economics

Banking in India
From Suchintan Chatterjee

Banking on Retail
With a jump in the Indian economy from a manufacturing sector, that never really took
off, to a nascent service sector, Banking as a whole is undergoing a change. A larger
option for the consumer is getting translated into a larger demand for financial products
and customisation of services is fast becoming the norm than a competitive advantage.
With the Retail banking sector expected to grow at a rate of 30% [Chanda Kochhar, ED,
ICICI Bank] players are focussing more and more on the Retail and are waking up to the
potential of this sector of banking. At the same time, the banking sector as a whole is
seeing structural changes in regulatory frameworks and securitisation and stringent NPA
norms expected to be in place by 2004 means the faster one adapts to these changing
dynamics, the faster is one expected to gain the advantage. In this article, we try to study
the reasons behind the euphemism regarding the Retail-focus of the Indian banks and try
to assess how much of it is worth the attention that it is attracting.
Potential for Retail in India: Is sky the limit?
The Indian players are bullish on the Retail business and this is not totally unfounded.
There are two main reasons behind this. Firstly, it is now undeniable that the face of the
Indian consumer is changing. This is reflected in a change in the urban household income
pattern. The direct fallout of such a change will be the consumption patterns and hence
the banking habits of Indians, which will now be skewed towards Retail products. At the
same time, India compares pretty poorly with the other economies of the world that are
now becoming comparable in terms of spending patterns with the opening up of our
economy. For instance, while the total outstanding Retail loans in Taiwan is around 41%
of GDP, the figure in India stands at less than 5%. The comparison with the West is even
more staggering. Another comparison that is natural when comparing Retail sectors is the
use of credit cards. Here also, the potential lies in the fact that of all the consumer
expenditure in India in 2001, less than 1% was through plastic, the corresponding US
figure standing at 18%.