HISTORYAND

ORIGIN

Banking in India

• The Indian banking system is financially stable and resilient to the shocks.

• The RBI has the tenth largest gold reserves in the world

• Following the financial crisis, new deposits have gravitated towards public sector banks.

• The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again.

•India's foreign exchange reserves rose to US$ 284.26 billion as on January 8, 2010, according to the RBI's February bulletin.

Major Developments

• The State Bank of India (SBI) has posted a net profit of US$ 1.56 billion for the nine months ended December 2009, up 14.43 per cent from US$ 175.4 million posted in the nine months ended December 2008.

• Amongst the private banks, Axis Bank's net profit surged by 32 per cent to US$ 115.4 million.

• HDFC Bank has posted a 32 per cent rise in its net profit at US$ 175.4 million.

Government Initiatives

• RBI said that banks should link more branches to the National Electronic Clearing Service (NECS).

• The RBI hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5.75 per cent, while keeping repo and reverse repo rates unchanged.

Cont…..

According to the RBI, the stance of monetary policy for the remaining period of 2009-10 will be to:

• Anchor inflation expectations and keep a vigil on inflation trends and respond swiftly through policy adjustments.

• Actively manage liquidity to ensure credit demands of productive sectors are met adequately.

• Maintain an interest rate environment consistent with financial stability and price stability.

Evolutionary Phases

• Indigenous Reign • Direct Intervention of

the State • Liberalization • Transition• Entry of Foreign Banks

Phase I: Indigenous banks• Vedas and the Manusmriti: • Kautalya’s Arthashastra:

Suggested Maximum and Minimum Interest rate

• Kautalya, Yajnyavalkya and Manu recommended 15 per cent interest per annum on capital.

• British rule almost wiped out these tribes by bringing European Banks from urban

• They moved to villages. They survive even today.

How did Sahukar lend?• Borrower is known• Very little documentation• Sahukar usually a bad guy• Exorbitant rates of interests• Compounded Shorter Intervals• Records Tampered• Mostly Mortgaged lending on

Land, Properties, Jewels etc• Most cases poor borrowers

surrendered their properties.

Phase II: Direct Intervention• Government Interventions began

in 1930s• The Reserve Bank which is the

Central Bank was created in 1935 by passing RBI Act 1934.

• The RBI is the sole authority for – Issuing bank notes and – The supervisory body for banking

operations in India . – Supervising exchange control and

banking regulations, and– Administers the government's

monetary policy. – Granting licenses for new bank

branches.

Intervention: Nationalization• In the wake of the Swadeshi

Movement, a number of banks with Indian management were established in the country namely,

– Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd.

• In 1955, Govt. nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas.

• It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions

Intervention: Nationalization• On July 19, 1969, 14 major

banks nationalized and • in 15th April 1980 six more

commercial• 80% of the banking segment

in India under Government ownership in 1990.

• The branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

Effect of Nationalization• The focus of lending• Priority sectors were

agriculture, small-scale industry, retail trade, small business and small transport operators

• Poverty alleviation and employment generation programs.

• The success of green revolution and the increase of aggregate food grain production

Other sides of Nationalization• Borrowings and lending restricted, not on business

line• Deterioration of Banker-customers relationship • Poor Services• Employees Strikes • No Healthy competition among banks• Mounting hidden NPAs

Phase III - Liberalization• Constitution of Narasimham committee

and its report on Banking reforms in 1991.• It covered the areas of interest rate

deregulation & directed credit rules,• Statutory preemptions and entry

deregulation for both domestic and foreign banks.

• Lowering of the CRR and SLR• Interest rate liberalization• Do away with Entry barriers. By March

2004, the new private sector banks and the foreign banks share shared almost 20% of total assets

• Prudential Norms act against NPAs

Market –driven Banking

Phase 1: Decentralization

Phase 2: Liberalization

Phase 3: Privatization

Mono-banking

Phase IV: Transition• Most Indian banks lagging behind

the areas of customer funds transfer and clearing systems.

• Over-staffed and not able to compete with new generation private banks

• While these new banks and foreign banks still face restrictions in their activities.

• New banks are well-capitalized, • Use modern equipment and• Attract high-caliber employees.

Indian banks were given time to • Indian Banks to strengthen their

balance sheets, consolidate and overall become more robust, so that they could compete.

Phase V: Entry of Foreign Banks• Two of domestic banks in India have

turned like Foreign Banks. About 74 per cent of holdings of ICICI and HDFC bank are in the hands of foreigners.

• Phase II of roadmap foreign banks may be permitted to have overall investment of 74 per cent in the private banks of India in April 2009

• New banks to be in India– Royal Bank of Scotland – Switzerland's UBS – US-based GE Capital – Credit Suisse Group – Industrial and Commercial Bank of

China

• Areas of Concentration are Risk Management, customizing the products and Value creation.

At the time, when India got freedom the imperial bank has a capital

• Base capital(including reserves) :- Rs 11.85 cr.

• Deposits :- Rs 275.14 cr.

• Advances :- Rs 72.94 cr.

7 P’s of MARKETING

PRODUCTS

SERVICES AND PRODUCTS OF SBI CAN BE CLASSIFIED INTO :

1. PERSONAL BANKING 2. CORPORATE BANKING 3. AGRICULTURAL BANKING 4. NRI SERVICES 5. GOVERNMENT BUSINESSES

Pricing

• Penetrative pricing aimed at achieving large market share

• Philosophy of profit through volume• Effort to drive out competition• Price leader in retail banking product

Pricing

Duration  Interest Rates (% p.a)SBI

7 days to 14 days   3.50

15 days & upto 45 days 4.75

46 days and upto 179 days

5.25

180 days to less than 1 year

6.25

1 year to less than 3 years

6.75

3 years to less than 5 years

7.00

5 years and  up to 10 years

7.25

People

Understanding the customer better allows to design appropriate products. Being a service industry which involves a high level of people interaction, it is very important to use this resource efficiently in order to satisfy customers. Training, development and strong relationships with intermediaries are the key areas to be kept under consideration. Training the employees, use of IT for efficiency, both at the staff and agent level, is one of the important areas to look into.

Process

The process should be customer friendly in banking industry. The speed and accuracy of payment is of great importance. The processing method should be easy and convenient to the customers

Place

1.State Bank of Bikaner & Jaipur 2.State Bank of Hyderabad 3.State Bank of Indore 4.State Bank of Mysore 5.State Bank of Patiala 6.State Bank of Saurashtra 7.State Bank of Travancore

Associate banks

SBI has branches in these countries:

1.Australia 2.Bahrain 3.Bangladesh 4.Belgium 5.Canada 6.Dubai 7.France 8.Germany 9.Hong Kong 10.Israel 11.Japan

Promotion

• Mass Media Advertising: Most Preferred mode for marketing of Banking Services

• This is the central idea of an ad which has been used to catch the attraction of customer by heart. The theme of a commercial strikes a person in depth and forces him/her to act in the desired manner. Generally advertising appeals are broken into two categories: rational appeals and emotional appeals.

• SBI looks to emotionally attract its customers.• they don’t seem to give selective preference to customers.

Physical Evidence

• Ambience in the branch which projects modernization and sophistication

• Consistency across branches in construction ambience etc.

SWOT ANALYSIS

Strengths

• Brand name• Market leader• Wide distribution network• Government owned• Diversified portfolio

Weakness

• Minor hindrance• Hierarchical management• Lags modernization

Opportunities

• Merger of associates banks with SBI• Opportunities for public sector banks• New branches and ATM’s• Expansion on foreign soil

Threats

• Advent of MNC banks• CRM• Private bank venture into rural• Employee strike

How will SBI cope up with the challenges of new private banks?

• Swift growth and inevitable consolidation in terms of mergers and acquisition.

• New private banks resorted to ATM’s, Net banking and other technological processes.

• Private Banks marketed themselves on ‘’convenience banking’’ by providing different facilities.

• Private Banks took away a lot of the business from SBI.

• New banks also started stealing the officers from public sectors banks and the major victim was SBI.

How do SBI concentrate on its internal customers?• SBI has to give same kind of services or better services to retain their

existing customers.

• Modern facilities for new and existing customers.

• Hire skilled employees and satisfy them by good salary packages.

• Performance appraisal has to be given to the employees working in SBI.

• Introduce new policies, services and schemes which help & satisfy all kinds of customers.

• Use advance technologies to do the work or transactions in less time.

• If possible do some changes in organization structure to increase the efficiency of employees working in SBI.

THANK YOU

Deepak Kumar Jain College