Description
It explains about Industry Trends of banking industry, PEST Analysis of banking Industry, Competitor Analysis of HDFC bank, SWOT analysis, Company Description, General Information about the HDFC bank it's Finance performance, SWOT analysis and Various Strategies employed. It also includes porter's five force model for Indian Banking sector.
COMPANY ANALYSIS
INTRODUCTION
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank is one of the Big Four banks of India, along with: State Bank of India, ICICI Bank and Punjab National Bank.
Mission statement: HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People.
PRODUCT VERTICALS
HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: 1. Wholesale Banking Services The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. 2. Retail Banking Services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2010, the bank had a total card base (debit and credit cards) of over 14 million. The Bank is also one of the leading players in the “merchant acquiring” business with over 90,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
3. Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.
MANAGEMENT TEAM
Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th July 2010. Mr. Vasudev has been a Director of the Bank since October 2006. A retired IAS officer, Mr. Vasudev has had an illustrious career in the civil services and has held several key positions in India and overseas, including Finance Secretary, Government of India, Executive Director, World Bank and Government nominee on the Boards of many companies in the financial sector. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.
SWOT ANALYSIS
S T R E N G T H S
• 2nd largest private sector bank • Approx 2500 branches and 7500 ATMs across country • Employee friendly organization-lower attreition rates as compared to other competitors. • Customer friendly approach • Sound financial advisors for investment clients • Adoption of latest technology for bank softwares and net banking facilities • Low minimum balance in savings account • Located in 1,174 cities in India and present in more than 800 locations to serve customers through telephone banking
W E A K N E S S E S
• Low presence in rural areas as compared to most of its top competitors. • lack of aggressive marketing strategies in comparison to other banks. • Heavy focus on mid and high level clients. • Not all the verticlas of the bank are performing successfully • Unstable share prices
O P P O R T U N I T I E S
• Scope in rural market • Steady customer oriented approach to drive business in future • Corporate accounts, especially of the growing SME sector • Operations abroad - scope in countries like bangladesh, UAE and Sri Lanka • Greater scope for acquisitions and strategic alliances due to strong financial position • Improvement in bad debt recovery strategies
T H R E A T S
• Increasing percentage of Non-performing assets of the company • major competition threat from banks like ICICI, HSBC, AXIS and SBI • Increasing number of NBFCs and new age banks • Attractive interest rates provided by PSU banks in comparison to private banks • Shifting consumer base from private players to PSU due to modernization of PSUs • RBI has opened up to 74% for foreign banks to invest in Indian market
PEST ANALYSIS Political factors: ? ? Government regulations: Banks as a financial body are always restricted with policies and rules. The RBI closely governs the banks and other financial institutions and budgets made by the government affects the banking activities and also its business to a certain extent. Government?s support to the PSU banks has an impact on the performance of other private players. RBI is going to allow foreign banks to invest upto 74% into the Indian market.
? ?
Economic factors: ? ? ? ? Every year, the changes in monetary policy affect the workings of the bank. The decisions on the monetary policy impact the interest rates at which banks lend money. In the last 2 years RBI has modified its monetary rates 13 times to curb inflation and other financial risks related. Banking sector has played a major role in the increasing GDP of the country, thereby providing its support to strengthen the economy. Robust economic policies by the regulatory body helped Indian banks survive the severe meltdown of 2009.
Social factors: ? ? The life style of Indians consumers is rapidly changing and the buying power has also grown by leaps and bounds The rural market is expanding rapidly too. The concept of banking has slowly begun to sink in the minds of the rural population and is making an impact on the lives of the rural population and also on the banks operating in rural areas. Illiteracy is still an issue that India is fighting with and therefore not many can read and understand the terms of banks, thereby making them keep distance from banks.
?
Technological factors: ? ? ? Banks have a wide network of ATMs lately. Automated voice responsive machines help bank tackle small queries of customers. Improved net banking and Mobile facility provided by banks has helped many customers save time, money and also unnecessary hassles.
PORTER’S FIVE FORCE MODEL FOR INDIAN BANKING SECTOR
Availability of Substitutes: HIGH
Supplier Power: LOW
Competittve Rivalry: High
Buyer Power: HIGH
Threat of New Entrants: HIGH
?
Power of Buyers: Customer?s bargaining power is high because banks provide homogeneous kind of services and customers can get all the information very easily. So, the switching cost is low for the customer.
?
Power of Suppliers: In this industry, the supplier?s bargaining power is low because banks have to meet numerous regulatory criteria set by the RBI.
?
Competitive Rivalry: Competition in this sector is very high because of large number of public, private, foreign and cooperative banks. Availability of Substitutes: There is a high threat from substitutes such as Mutual funds, Treasury bills, government securities and other NBFCs.
?
?
Threat of New Entrant: Banking regulations require the approval of the regulator RBI before setting up a new bank. So, the threat of new entrants is relatively low.
COMPETITION ANALYSIS HDFC BANK VS ICICI BANK
Parameter Revenue Profit Total assets Employees Branches ATM International presence Significant M&A
ICICI Bank 13.9 bn $ 1.4 bn $ 120 bn $ 79978 2630 8003 19 countries Merger with Madura in 2001 DD call and collect facility
Attractive offering
HDFC Bank 5.9 bn $ 923 mn $ 66 bn $ 55752 2544 9709 5 countries Acquisition of Century Bank of Punjab in 2008 Concessional rates on savings account for women customers 10000 500 3.5% on savings account payable every half year 9.25% 9.50% SME Lending branches, ATM, Internet banking, Mobile banking, zero balance accounts for students and minors
Minimum balance in Metro cities Minimum balance in Semi-urban Rate applicable on savings account FD Rates-15 lacs capGeneral FD Rates-15 lacs capsenior citizens Enterprise stronghold Distribution
10000 5000 3.5% on savings account payable every quarter 8.50% 9.25% enterprise banking accounts branches, ATM, Internet banking, Mobile banking, special campus accounts for students
Student offers
FINANCIAL RESULT SUMMARY
Below is the brief of the financial statement of HDFC bank for the quarter ended, March 31, 2012 Profit & Loss Account The Bank?s total income for the quarter ended March 31, 2012, was 8,880.0 crores an increase of 32.1% over 6,724.3 crores, for the quarter ended March 31, 2011. Net revenues (net interest income plus other income) was at 4,880.3 crores for the quarter ended March 31, 2012 as against 4,095.2 crores for the corresponding quarter of the previous year. Net interest income (interest earned less interest expended) for the quarter ended March 31, 2012 grew by 19.3% to 3,388.3 crores as against 2,839.5 crores for the quarter ended March 31, 2011. This was driven by loan growth of 22.2% and a core net interest margin for the quarter of 4.2%. Other income (non-interest revenue) for the quarter ended March 31, 2012 was 1,492.0 crores up 18.8% over that in the corresponding quarter ended March 31, 2011. The main contributor to other income for the quarter was fees & commissions of 1,237.3 crores, up by 23.7% over 1,000.6 crores in the corresponding quarter ended March 31, 2011. The two other components of other income were foreign exchange & derivatives revenue of 325.2 crores (245.4 crores for the corresponding quarter of the previous year) and loss on revaluation / sale of investments of 71.5 crores (profit of 8.6 crores for the quarter ended March 31, 2011). Operating expenses for the quarter were 2,467.1 crores, an increase of 23.5% over 1,998.4 crores during the corresponding quarter of the previous year. The bank?s branch distribution network expanded by 558 branches in 403 new cities during the year resulting in a core costto-income ratio for the quarter at 49.8% as against 48.9% for the corresponding quarter ended March 31, 2011. Provisions and contingencies were 298.3 crores (including specific loan loss and floating provisions of 291.7 crores) for the quarter ended March 31, 2012 as against 431.3 crores (including specific loan loss and floating provisions of 330.1 crores) for the corresponding quarter ended March 31, 2011. After providing 661.8 crores for taxation, the Bank earned a Net Profit of 1,453.1 crores, an increase of 30.4% over the quarter ended March 31, 2011. Profit & Loss Account: Year ended March 31, 2012 For the year ended March 31, 2012, the Bank earned total income of 32,530.0 crores Net revenues for the year ended March 31, 2012 were 17,540.5 crores, up by 17.9% over 14,878.3 crores for the year ended March 31, 2011. The Bank?s net profit for year ended March 31, 2012 was 5,167.1 crores, up 31.6%, over the year ended March 31, 2011. Consolidated net profit for the Bank increased by 31.4% to 5,247.0 crores for the year ended March 31, 2012. Balance Sheet: As of March 31, 2012 The Bank?s total balance sheet size increased by 21.8% from 277,353 crores as of March 31, 2011 to 337,909 crores as of March 31, 2012. Total net advances as of March 31, 2012 were
195,420 crores, an increase of 22.2% over March 31, 2011. Total deposits were at 246,706 crores, an increase of 18.3% over March 31, 2011. Adjusted for one off current account deposits at the ended March 31, 2011, core total deposit growth for the year was 20.6%. Savings account deposits grew 16.6% over the previous year to reach 73,998 crores, and with current account deposits at 45,408 crores, the CASA ratio was at 48.4% of total deposits as at March 31, 2012. Source: HDFC bank financial press release 2012
RECENT TRENDS IN THE BANKING SECTOR
Recently, the RBI took a few important steps to make the Indian Banking industry more robust and healthy. This includes de-regulation of savings rate, guidelines for new banking licenses and implementation of Basel Norm III. Since March 2002, Bankex (Index tracking the performance of leading banking sector stocks) has grown at a compounded annual rate of about 31%. After a very successful decade, a new era seems to have started for the Indian Banking Industry. According to a Mckinsey report, the Indian banking sector is heading towards being a high-performing sector.
Image courtesy: StockShastra According to an IBA-FICCI-BCG report titled „Being five star in productivity – road map for excellence in Indian banking?, India?s gross domestic product (GDP) growth will make the Indian banking industry the third largest in the world by 2025. According to the report, the domestic banking industry is set for an exponential growth in coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025 from the current asset size of USD 1,350 billion (2010)”. So, before going in its future, let?s have a glance at its historical performance. If we look at 5 years historical performance of different types of players in the banking industry, public sector bank has grown its deposits, advances and business per employee by the highest rate – 21.7%, 23% and 21.1% respectively. As far as net interest income is concerned, private banks are ahead in the race by reporting 24.2% growth, followed by pubic banks (21.4%) and then by foreign banks (14.8%). Though the growth in the business per employee and profit per employee has been the highest for public sector banks, in absolute terms, foreign banks have the highest business per employee as well as profit per employee.
ECONOMIC DRIVERS FOR THE GROWTH OF INDIAN BANKING SECTOR
High growth of Indian Economy: The growth of the banking industry is closely linked with the growth of the overall economy. India is one of the fastest growing economies in the world and is set to remain on that path for many years to come. This will be backed by the stellar growth in infrastructure, industry, services and agriculture. This is expected to boost the corporate credit growth in the economy and provide opportunities to banks to lend to fulfil these requirements in the future.
Rising per capita income: The rising per capita income will drive the growth of retail credit. Indians have a conservative outlook towards credit except for housing and other necessities. However, with an increase in disposable income and increased exposure to a range of products, consumers have shown a higher willingness to take credit, particularly, young customers. A study of the customer profiles of different types of banks, reveals that foreign and private banks share of younger customers is over 60% whereas public banks have only 32% customers under the age of 40. Private Banks also have a much higher share of the more profitable mass affluent segment.
New channel – Mobile banking is expected to become the second largest channel for banking after ATMs: New channels used to offer banking services will drive the growth of banking industry exponentially in the future by increasing productivity and acquiring new customers. During the last decade, banking through ATMs and internet has shown a tremendous growth, which is still in the growth phase. After ATMs, mobile banking is expected to give another push to this industry growth in a big way, with the help of new 3G and smart phone technology (mobile usage has grown tremendously over the years). This can be looked at as branchless banking and so will also reduce costs as there is no need for physical infrastructure and human resources. This will help in acquiring new customers, mainly who live in rural areas (though this will take time due to technology and infrastructure issues). The IBA-FICCI-BCG report predicts that mobile banking would become the second largest channel of banking after ATMs.
Financial Inclusion Program: Currently, in India, 41% of the adult population don?t have bank accounts, which indicates a large untapped market for banking players. Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the growth potential in rural markets by volume growth for banks. Financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The RBI has also taken many initiatives such as Financial Literacy Program, promoting effective use of development communication and using Information and Communication Technology (ICT) to spread general banking concepts to people in the under-
banked areas. All these initiatives of promoting rural banking are taken with the help of mobile banking, self help groups, microfinance institutions, etc. Financial Inclusion, on the one side, helps corporate in fulfilling their social responsibilities and on the other side it is fueling growth in other industries and so as a whole economy.
FUTURE OUTLOOK
Currently, there are many challenges before Indian Banks such as improving capital adequacy requirement, managing non-performing assets, enhancing branch sales & services, improving organisation design; using innovative technology through new channels and working on lean operations. Apart from this, frequent changes in policy rates to maintain economic stability, various regulatory requirements, etc. are additional key concerns. Despite these concerns, it is expected that the Indian banking industry will grow through leaps and bounds looking at the huge growth potential of Indian economy. High population base of India, mobile banking – offering banking operations through mobile phones, financial inclusion, rising disposable income, etc. will drive the growth Indian banking industry in the long-term. The Indian economy will require additional banks and expansion of existing banks to meet its credit needs.
References: Icicibank.com Hdfcbank.com Mckinsey.com Stockshastra.moneyworks4me.com Bseindia.com Nseindia.com Reuters.com Economictimes.indiatimes.com
doc_598283128.docx
It explains about Industry Trends of banking industry, PEST Analysis of banking Industry, Competitor Analysis of HDFC bank, SWOT analysis, Company Description, General Information about the HDFC bank it's Finance performance, SWOT analysis and Various Strategies employed. It also includes porter's five force model for Indian Banking sector.
COMPANY ANALYSIS
INTRODUCTION
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank is one of the Big Four banks of India, along with: State Bank of India, ICICI Bank and Punjab National Bank.
Mission statement: HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People.
PRODUCT VERTICALS
HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: 1. Wholesale Banking Services The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. 2. Retail Banking Services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2010, the bank had a total card base (debit and credit cards) of over 14 million. The Bank is also one of the leading players in the “merchant acquiring” business with over 90,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
3. Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.
MANAGEMENT TEAM
Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th July 2010. Mr. Vasudev has been a Director of the Bank since October 2006. A retired IAS officer, Mr. Vasudev has had an illustrious career in the civil services and has held several key positions in India and overseas, including Finance Secretary, Government of India, Executive Director, World Bank and Government nominee on the Boards of many companies in the financial sector. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.
SWOT ANALYSIS
S T R E N G T H S
• 2nd largest private sector bank • Approx 2500 branches and 7500 ATMs across country • Employee friendly organization-lower attreition rates as compared to other competitors. • Customer friendly approach • Sound financial advisors for investment clients • Adoption of latest technology for bank softwares and net banking facilities • Low minimum balance in savings account • Located in 1,174 cities in India and present in more than 800 locations to serve customers through telephone banking
W E A K N E S S E S
• Low presence in rural areas as compared to most of its top competitors. • lack of aggressive marketing strategies in comparison to other banks. • Heavy focus on mid and high level clients. • Not all the verticlas of the bank are performing successfully • Unstable share prices
O P P O R T U N I T I E S
• Scope in rural market • Steady customer oriented approach to drive business in future • Corporate accounts, especially of the growing SME sector • Operations abroad - scope in countries like bangladesh, UAE and Sri Lanka • Greater scope for acquisitions and strategic alliances due to strong financial position • Improvement in bad debt recovery strategies
T H R E A T S
• Increasing percentage of Non-performing assets of the company • major competition threat from banks like ICICI, HSBC, AXIS and SBI • Increasing number of NBFCs and new age banks • Attractive interest rates provided by PSU banks in comparison to private banks • Shifting consumer base from private players to PSU due to modernization of PSUs • RBI has opened up to 74% for foreign banks to invest in Indian market
PEST ANALYSIS Political factors: ? ? Government regulations: Banks as a financial body are always restricted with policies and rules. The RBI closely governs the banks and other financial institutions and budgets made by the government affects the banking activities and also its business to a certain extent. Government?s support to the PSU banks has an impact on the performance of other private players. RBI is going to allow foreign banks to invest upto 74% into the Indian market.
? ?
Economic factors: ? ? ? ? Every year, the changes in monetary policy affect the workings of the bank. The decisions on the monetary policy impact the interest rates at which banks lend money. In the last 2 years RBI has modified its monetary rates 13 times to curb inflation and other financial risks related. Banking sector has played a major role in the increasing GDP of the country, thereby providing its support to strengthen the economy. Robust economic policies by the regulatory body helped Indian banks survive the severe meltdown of 2009.
Social factors: ? ? The life style of Indians consumers is rapidly changing and the buying power has also grown by leaps and bounds The rural market is expanding rapidly too. The concept of banking has slowly begun to sink in the minds of the rural population and is making an impact on the lives of the rural population and also on the banks operating in rural areas. Illiteracy is still an issue that India is fighting with and therefore not many can read and understand the terms of banks, thereby making them keep distance from banks.
?
Technological factors: ? ? ? Banks have a wide network of ATMs lately. Automated voice responsive machines help bank tackle small queries of customers. Improved net banking and Mobile facility provided by banks has helped many customers save time, money and also unnecessary hassles.
PORTER’S FIVE FORCE MODEL FOR INDIAN BANKING SECTOR
Availability of Substitutes: HIGH
Supplier Power: LOW
Competittve Rivalry: High
Buyer Power: HIGH
Threat of New Entrants: HIGH
?
Power of Buyers: Customer?s bargaining power is high because banks provide homogeneous kind of services and customers can get all the information very easily. So, the switching cost is low for the customer.
?
Power of Suppliers: In this industry, the supplier?s bargaining power is low because banks have to meet numerous regulatory criteria set by the RBI.
?
Competitive Rivalry: Competition in this sector is very high because of large number of public, private, foreign and cooperative banks. Availability of Substitutes: There is a high threat from substitutes such as Mutual funds, Treasury bills, government securities and other NBFCs.
?
?
Threat of New Entrant: Banking regulations require the approval of the regulator RBI before setting up a new bank. So, the threat of new entrants is relatively low.
COMPETITION ANALYSIS HDFC BANK VS ICICI BANK
Parameter Revenue Profit Total assets Employees Branches ATM International presence Significant M&A
ICICI Bank 13.9 bn $ 1.4 bn $ 120 bn $ 79978 2630 8003 19 countries Merger with Madura in 2001 DD call and collect facility
Attractive offering
HDFC Bank 5.9 bn $ 923 mn $ 66 bn $ 55752 2544 9709 5 countries Acquisition of Century Bank of Punjab in 2008 Concessional rates on savings account for women customers 10000 500 3.5% on savings account payable every half year 9.25% 9.50% SME Lending branches, ATM, Internet banking, Mobile banking, zero balance accounts for students and minors
Minimum balance in Metro cities Minimum balance in Semi-urban Rate applicable on savings account FD Rates-15 lacs capGeneral FD Rates-15 lacs capsenior citizens Enterprise stronghold Distribution
10000 5000 3.5% on savings account payable every quarter 8.50% 9.25% enterprise banking accounts branches, ATM, Internet banking, Mobile banking, special campus accounts for students
Student offers
FINANCIAL RESULT SUMMARY
Below is the brief of the financial statement of HDFC bank for the quarter ended, March 31, 2012 Profit & Loss Account The Bank?s total income for the quarter ended March 31, 2012, was 8,880.0 crores an increase of 32.1% over 6,724.3 crores, for the quarter ended March 31, 2011. Net revenues (net interest income plus other income) was at 4,880.3 crores for the quarter ended March 31, 2012 as against 4,095.2 crores for the corresponding quarter of the previous year. Net interest income (interest earned less interest expended) for the quarter ended March 31, 2012 grew by 19.3% to 3,388.3 crores as against 2,839.5 crores for the quarter ended March 31, 2011. This was driven by loan growth of 22.2% and a core net interest margin for the quarter of 4.2%. Other income (non-interest revenue) for the quarter ended March 31, 2012 was 1,492.0 crores up 18.8% over that in the corresponding quarter ended March 31, 2011. The main contributor to other income for the quarter was fees & commissions of 1,237.3 crores, up by 23.7% over 1,000.6 crores in the corresponding quarter ended March 31, 2011. The two other components of other income were foreign exchange & derivatives revenue of 325.2 crores (245.4 crores for the corresponding quarter of the previous year) and loss on revaluation / sale of investments of 71.5 crores (profit of 8.6 crores for the quarter ended March 31, 2011). Operating expenses for the quarter were 2,467.1 crores, an increase of 23.5% over 1,998.4 crores during the corresponding quarter of the previous year. The bank?s branch distribution network expanded by 558 branches in 403 new cities during the year resulting in a core costto-income ratio for the quarter at 49.8% as against 48.9% for the corresponding quarter ended March 31, 2011. Provisions and contingencies were 298.3 crores (including specific loan loss and floating provisions of 291.7 crores) for the quarter ended March 31, 2012 as against 431.3 crores (including specific loan loss and floating provisions of 330.1 crores) for the corresponding quarter ended March 31, 2011. After providing 661.8 crores for taxation, the Bank earned a Net Profit of 1,453.1 crores, an increase of 30.4% over the quarter ended March 31, 2011. Profit & Loss Account: Year ended March 31, 2012 For the year ended March 31, 2012, the Bank earned total income of 32,530.0 crores Net revenues for the year ended March 31, 2012 were 17,540.5 crores, up by 17.9% over 14,878.3 crores for the year ended March 31, 2011. The Bank?s net profit for year ended March 31, 2012 was 5,167.1 crores, up 31.6%, over the year ended March 31, 2011. Consolidated net profit for the Bank increased by 31.4% to 5,247.0 crores for the year ended March 31, 2012. Balance Sheet: As of March 31, 2012 The Bank?s total balance sheet size increased by 21.8% from 277,353 crores as of March 31, 2011 to 337,909 crores as of March 31, 2012. Total net advances as of March 31, 2012 were
195,420 crores, an increase of 22.2% over March 31, 2011. Total deposits were at 246,706 crores, an increase of 18.3% over March 31, 2011. Adjusted for one off current account deposits at the ended March 31, 2011, core total deposit growth for the year was 20.6%. Savings account deposits grew 16.6% over the previous year to reach 73,998 crores, and with current account deposits at 45,408 crores, the CASA ratio was at 48.4% of total deposits as at March 31, 2012. Source: HDFC bank financial press release 2012
RECENT TRENDS IN THE BANKING SECTOR
Recently, the RBI took a few important steps to make the Indian Banking industry more robust and healthy. This includes de-regulation of savings rate, guidelines for new banking licenses and implementation of Basel Norm III. Since March 2002, Bankex (Index tracking the performance of leading banking sector stocks) has grown at a compounded annual rate of about 31%. After a very successful decade, a new era seems to have started for the Indian Banking Industry. According to a Mckinsey report, the Indian banking sector is heading towards being a high-performing sector.
Image courtesy: StockShastra According to an IBA-FICCI-BCG report titled „Being five star in productivity – road map for excellence in Indian banking?, India?s gross domestic product (GDP) growth will make the Indian banking industry the third largest in the world by 2025. According to the report, the domestic banking industry is set for an exponential growth in coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025 from the current asset size of USD 1,350 billion (2010)”. So, before going in its future, let?s have a glance at its historical performance. If we look at 5 years historical performance of different types of players in the banking industry, public sector bank has grown its deposits, advances and business per employee by the highest rate – 21.7%, 23% and 21.1% respectively. As far as net interest income is concerned, private banks are ahead in the race by reporting 24.2% growth, followed by pubic banks (21.4%) and then by foreign banks (14.8%). Though the growth in the business per employee and profit per employee has been the highest for public sector banks, in absolute terms, foreign banks have the highest business per employee as well as profit per employee.
ECONOMIC DRIVERS FOR THE GROWTH OF INDIAN BANKING SECTOR
High growth of Indian Economy: The growth of the banking industry is closely linked with the growth of the overall economy. India is one of the fastest growing economies in the world and is set to remain on that path for many years to come. This will be backed by the stellar growth in infrastructure, industry, services and agriculture. This is expected to boost the corporate credit growth in the economy and provide opportunities to banks to lend to fulfil these requirements in the future.
Rising per capita income: The rising per capita income will drive the growth of retail credit. Indians have a conservative outlook towards credit except for housing and other necessities. However, with an increase in disposable income and increased exposure to a range of products, consumers have shown a higher willingness to take credit, particularly, young customers. A study of the customer profiles of different types of banks, reveals that foreign and private banks share of younger customers is over 60% whereas public banks have only 32% customers under the age of 40. Private Banks also have a much higher share of the more profitable mass affluent segment.
New channel – Mobile banking is expected to become the second largest channel for banking after ATMs: New channels used to offer banking services will drive the growth of banking industry exponentially in the future by increasing productivity and acquiring new customers. During the last decade, banking through ATMs and internet has shown a tremendous growth, which is still in the growth phase. After ATMs, mobile banking is expected to give another push to this industry growth in a big way, with the help of new 3G and smart phone technology (mobile usage has grown tremendously over the years). This can be looked at as branchless banking and so will also reduce costs as there is no need for physical infrastructure and human resources. This will help in acquiring new customers, mainly who live in rural areas (though this will take time due to technology and infrastructure issues). The IBA-FICCI-BCG report predicts that mobile banking would become the second largest channel of banking after ATMs.
Financial Inclusion Program: Currently, in India, 41% of the adult population don?t have bank accounts, which indicates a large untapped market for banking players. Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the growth potential in rural markets by volume growth for banks. Financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. The RBI has also taken many initiatives such as Financial Literacy Program, promoting effective use of development communication and using Information and Communication Technology (ICT) to spread general banking concepts to people in the under-
banked areas. All these initiatives of promoting rural banking are taken with the help of mobile banking, self help groups, microfinance institutions, etc. Financial Inclusion, on the one side, helps corporate in fulfilling their social responsibilities and on the other side it is fueling growth in other industries and so as a whole economy.
FUTURE OUTLOOK
Currently, there are many challenges before Indian Banks such as improving capital adequacy requirement, managing non-performing assets, enhancing branch sales & services, improving organisation design; using innovative technology through new channels and working on lean operations. Apart from this, frequent changes in policy rates to maintain economic stability, various regulatory requirements, etc. are additional key concerns. Despite these concerns, it is expected that the Indian banking industry will grow through leaps and bounds looking at the huge growth potential of Indian economy. High population base of India, mobile banking – offering banking operations through mobile phones, financial inclusion, rising disposable income, etc. will drive the growth Indian banking industry in the long-term. The Indian economy will require additional banks and expansion of existing banks to meet its credit needs.
References: Icicibank.com Hdfcbank.com Mckinsey.com Stockshastra.moneyworks4me.com Bseindia.com Nseindia.com Reuters.com Economictimes.indiatimes.com
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