Indian Banking - Introduction

The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions.The Reserve Bank o India acts a centralized body monitoring any discrepancies and shortcoming in the system. !ince the nationalization o banks in "#$#, the public sector banks or the nationalized banks have ac%uired a place o prominence and has since then seen tremendous progress. The need to become highly customer ocused has orced the slow&moving public sector banks to adopt a ast track approach. The unleashing o products and services through the net has galvanized players at all levels o the banking and inancial institutions market grid to look anew at their e'isting port olio o ering. (onservative banking practices allowed Indian banks to be insulated partially rom the )sian currency crisis.Indian banks are now %uoting al higher valuation when compared to banks in other )sian countries (viz. *ong +ong, !ingapore, ,hilippines etc.) that have ma-or problems linked to huge .on ,er orming )ssets (.,)s) and payment de aults. (o&operative banks are nimble ooted in approach and armed with e icient branch networks ocus primarily on the /high revenue0 niche retail segments. The Indian banking has inally worked up to the competitive dynamics o the /new0 Indian market and is addressing the relevant issues to take on the multi arious challenges o globalization. Banks that employ IT solutions are perceived to be / uturistic0 and proactive players capable o meeting the multi arious re%uirements o the large customers base. ,rivate banks have been ast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging rontier o marketing with the conventional physical world tenets being -ust as applicable like in any other marketing medium. The Indian banking has come rom a long way rom being a sleepy business institution to a highly proactive and dynamic entity. This trans ormation has been largely brought about by the large dose o liberalization and economic re orms that allowed banks to e'plore new business opportunities rather than generating revenues rom conventional streams (i.e. borrowing and lending). The banking in India is highly ragmented with 12 banking units contributing to almost 324 o deposits and $24 o advances. Indian nationalized banks (banks owned by the government) continue to be the ma-or lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank o India act as a centralized body monitoring any discrepancies and shortcoming in the system. It is the oremost monitoring body in the Indian inancial sector. The nationalized banks (i.e. government&owned banks) continue to dominate the Indian banking arena. Industry estimates indicate that out o 567 commercial banks operating in India, 551 banks are in the public sector and 3" are in the private sector. The private sector bank grid also includes 57 oreign banks that have started their operations here. 8nder the ambit o the nationalized banks come the specialized banking institutions. These co&operatives, rural banks ocus on areas o agriculture, rural development etc.,

unlike commercial banks these co&operative banks do not lend on the basis o a prime lending rate. They also have various ta' sops because o their holding pattern and lending structure and hence have lower overheads. This enables them to give a marginally higher percentage on savings deposits. 9any o these cooperative banks diversi ied into specialized areas (catering to the vast retail audience) like car inance, housing loans, truck inance etc. in order to keep pace with their public sector and private counterparts, the co&operative banks too have invested heavily in in ormation technology to o er high&end computerized banking services to its clients.

Types of Banks

1998-99 !tate Bank o India and )ssociates .ationalized Banks ;omestic ,rivate !ector Banks .ew ;omestic ,rivate !ector Banks <oreign Banks 2: "# 53 2# 5#

(omplementing the roles o the nationalized and private banks are the specialized inancial institutions or .on Banking <inancial Institutions (.B<(s). =ith their ocused port olio o products and services, these .on Banking <inancial Institutions act as an important catalyst in contributing to the overall growth o the inancial services sector. .B<(s o er loans or working capital re%uirements, acilitate mergers and ac%uisitions, I,> inance, etc. apart rom inancial consultancy services. Trends are now changing as banks (both public and private) have now started ocussing on .B<( domains like long and medium&term inance, working cap re%uirements. I,> inancing to etc. to meet the multi arious needs o the business community. COMMERCIAL FINANCING

The commercial inancing model in Indian banking can be broadly categorized into pro-ect inance and working capital inance. These two segments orm the pivot around which banks operate. Projec F!nance Banks o er long term and short terms loans to business houses, corporations to set up their pro-ects. These loans are disbursed a ter the approval rom the banks0 core credit validating committee. In India, there are "" national level land 7$ state level inancial and investment institutions that cater to long term unding re%uirements o the industry. The pro-ect inance segment is highly competitive with various players o ering innovative schemes to entice corporate. "ork!n# cap! a$ In order to meet the diverse needs and re%uirements o the business community, banks o er working capital unds to corporate. =orking capital inance is specialized line o business and is largely dominated by the commercial banks. The Indian banking saw dramatic changes in the last decade or so ever since the advent o liberalization and India0s integration with the world economy. These economic re orms and the entry o private players saw nationalized banks revamp their service and product port olio to incorporate new, innovative customer&centric schemes. The Indian banking inally woke up to the surging demands o the ever& discerning Indian consumer. The need to become highly customer ocused (generated by high competitive levels) orced the slow&moving public sector banks to adopt a ast track approach. Taking a lea out o the private sector banks, the public sector banks too went or ma-or image changes (including corporate brand building e'ercises) and customer riendly schemes. These customer riendly programs included revamping o the product and service port olio by introducing new product ? service schemes (like credit cards, hassle& ree housing loan schemes, educational loans and le'i&deposit schemes) integration o the branch network by using advance networking technology and customer personalization programs (through )T9s and anytime banking etc.). 9any banks have started capitalizing on the recent stock market surge by adding (Initial ,ublic > ering) I,> inancing options and schemes in their product mi'. I,> inance has received a positive response rom the investors and is becoming popular amongst the business community. The ob-ective o all these strategies was very clear @ to bridge the service ? product gap that was inherent in the banking system. To cater to the increasing customer demands and the surge in business volumes, many public sector banks have ploughed back unds to invest heavily in technology upgrades and systems like A).s, =).s, B!)Ts etc. 9arketing and brand building programs were also given a new thrust in the new liberalized banking scenario. ,romotional budgets were hiked to cater to the new and large discerning target audience. Banks were now keen on marketing their products and service though various mediums to reach their core customers. ;irect marketing, Internet marketing, hoarding, press ads, television sponsorships, image makeovers

etc. became an integral part o a bank0s marketing mi'. To meet the personalized needs o the customer and in order to di erentiate its services, banks repositioned themselves in specialized ields, like housing loans, car inance, educational loans etc. to optimally service the customer. ,ermission marketing became the new strategy that banks began to propound i.e. eeding the customer (with his or her consent) with product and service in ormation and thereby enticing him towards the bank0s product @ service port olio. NE" GENERATION BAN%ING The liberalize policy o Covernment o India permitted entry to private sector in the banking, the industry has witnessed the entry o nine new generation private banks. The ma-or di erentiating parameter that distinguishes these banks rom all the other banks in the Indian banking is the level o service that is o ered to the customer. Beri y the ocus has always been centered around the customer @ understanding his needs, preempting him and conse%uently delighting him with various con iguration o bene its and a wide port olio o products and services. These banks have generally been established by promoters o repute or by /high value0 domestic inancial institutions. The popularity o these banks can be gauged by the act that in a short span o time, these banks have gained considerable customer con idence and conse%uently have shown impressive growth rates. Today, the private banks corner almost our per cent share o the total share o deposits. 9ost o the banks in this category are concentrated in the high&growth urban areas in metros (that account or appro'imately 624 o the total banking business ). =ith e iciency being the ma-or ocus, these banks have leveraged on their strengths and competencies viz. 9anagement, operational e iciency and le'ibility, superior product positioning and higher employee productivity skills. The private banks with their ocused business and service port olio have a reputation o being niche players in the industry. ) strategy that has allowed these banks to concentrate on ew reliable high net worth companies and individuals rather than cater to the mass market. These well&chalked out integrates strategy plans have allowed most o these banks to deliver superlative levels o personalized services. =ith the Reserve Bank o India allowing these banks to operate 624 o their businesses in urban areas, this statutory re%uirement has translated into lower deposit mobilization costs and higher margins relative to public sector banks.