2.

1 Banking Industry- Overview:

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. The Banking industry comprises of segments that provide financial assistance and advisory services to its customers by means of varied functions such as commercial banking, wholesale banking, personal banking, internet banking, mobile banking, credit unions, investment banking and the like. The commercial banking structure in India consists of: Scheduled Commercial Banks & Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, and order or otherwise." The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in for the latest technologies so as to meet the threat of competition and retain customer base. The evolution of IT services outsourcing in the Indian banks has presently moved on to the level of Facilities Management (FM). Banks now looking at business process management (BPM) to increase returns on investment, improve customer relationship management (CRM)

and employee productivity. For, these entities sustaining long-term customer relationship management (CRM) has become a challenge with almost everyone in the market with similar products.

2.2 Classification of the Industry

Public Sector Banks: Almost 80% of the business is still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges. The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constraint of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines. Private Sector Banks: The RBI has given licenses to new private sector banks as part of the liberalization process. The RBI has also been granting licenses to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. Foreign banks: Foreign banks have been operating in India for decades with a few of them having operations in India for over a century. The number of foreign bank branches in India has increased significantly in recent years since RBI issued a number of licenses - well beyond the commitments made to the World Trade Organisation. The presence of foreign banks in India has benefited the financial system by enhancing competition, resulting in higher efficiency. There has also been transfer of technology and specialized skills which has had some "demonstration effect" as Indian banks too have upgraded their skills, improved their scale of operations and diversified into other activities. At a time when access to foreign currency funds was a constraint for the Indian companies, the presence of foreign banks in India enabled large Indian companies to access foreign currency resources from the overseas branches of these banks. Also with the presence of foreign banks, as borrowers in the money market and their operation in the foreign exchange market has resulted in the creation and deepening of the inter-bank money market. Now, it is the challenge for the supervisors to maximize the advantages and minimize the disadvantages of the foreign banks' local presence.

2.3 Industry Segments:

Commercial Banking Wholesale banking Investment Banking Internet banking Mobile banking Rural banking Micro Finance Industrial Finance

2.4 Key Drivers of sustainability in the banking industry:

Lender's liability Lender's liability is associated with the financial risks banks face when granting or extending loans. Banks and other lenders rely on financial statements of companies when deciding whether to grant or extend credit. Under current reporting requirements, potential environmental liabilities can easily remain undiscovered unless a lender develops its own procedure to assess the environmental risks. Therefore, some banks can end up spending the money on clean-ups of sites contaminated through their clients' activities.

Borrower's ability to meet financial obligations The borrower's obligation to clean up contaminated sites might impair his or her ability to repay a loan. The contamination might also reduce the value of the collateral. Prudent lenders are following the environmental trends and changes in regulatory framework to assess the possible implications of these changes on their clients' overall financial position.

Growing environmental concerns The last few decades have been marked by numerous changes in the regulatory framework relating to environmental protection. Recent scientific discoveries of environmental and health risks associated with pollution have contributed to an increase in public demand for environmental quality. These growing concerns have contributed to a major shift in public

perception of corporate roles in society. Influenced by these trends, some banks have begun looking closely into their own environmental and social performance. In many cases this effort has resulted in adoption of energy and resource efficiency programs within the institutions themselves.

Business opportunities The traditional approach of the banking sector to sustainability is often regarded as reactive and defensive. However, several international banks have recently adopted innovative, proactive strategies to capture the opportunities associated with sustainability. They have developed new products such as ethical funds or loans specifically designed for environmental businesses to capture new market opportunities associated with sustainability.

Risk and reward The ability to gauge the risks and take appropriate position will be the key to successful banking in the emerging scenario. Risk-takers will survive, effective risk mangers will prosper and riskaverse are likely to perish, the report asserts. As audit and supervision shifts to a risk-based approach rather than transaction oriented, the risk awareness levels of line functionaries also will have to increase.

2.5 Major Players in the Indian Banking Industry:

2.6 Porters 5 Force Model: