Private sector banks swot analysis

SWOT Analysis of Private Sector Banks

1. Shikhar Bansal Kumar Sumit Tanmay Tewari Abhishek Chetnani SWOT ANALYSIS OF PRIVATE SECTOR BANKS IN INDIA

2. INTRODUCTION Definition of Bank A bank links together customers that have capital deficits and customer with capital surplus. Private banking Its about personal service and relationship built around you. Sophisticated solutions to complex financial problems. Offering individual advice and tailored solutions

3. PRIVATE SECTOR BANKS-EVOLUTION First half of the 20th century witnessed phenomenal growth of private sector banks. 1951- 566 Private Banks (474 non-scheduled and 92 scheduled) Decline in Private Banks SBI formed in 1955 and bank nationalization one in July 1969 (14 major banks), another in April 1980 (takeover of 6 banks). RBI announced guidelines in January 1993 for establishment of new banks in private sector following the recommendations of Narasimham Committee-I Present Scenario 32 private banks comprising of 24 old banks, which existed prior to 1993-94 and eight new private banks

4. RBI Guidelines Private banks should be established as public limited companies under the Indian Companies Act: 1956 paid-up capital >300 crores The promoters' share shall not be less than 40 per cent. Voting right of a shareholder shall not exceed 10 per cent. Banks are required to observe priority sector lending targets. Eight banks were set-up in private sector and some mergers took place.

5. FOREIGN INVESTMENTS Foreign investments (FOI, FII, NRI), was increased from 49 per cent of the capital to 74 percent . The new private sector banks are allowed to raise capital contribution: FIIs - 20 per cent NRIs - 40 percent Promoter’s stake is currently limited to 49 per cent RBI guidelines 26 per cent of the paid up capital has to be held by residents. Holdings of a single entity is capped at 10 per cent. FIIs are at present permitted to invest up to 10% each in a bank with a cap of 24 per cent for all FIIs put together. This can however be raised to 49 per cent with the approval of the board general body concerned

6. SWOT ANALYSIS of Private Banks STRENGTHS Professional, dedicated and well-trained manpower. Efficiency is maintained at the highest level. The new Private Banks have commenced with strong financials and with a clean slate i.e. without having to pursue NPAs. Almost all these banks have complied with Capital Adequacy requirements and prudential norms. Most of these banks are fully computerized and techno-savvy. WEAKNESSES Both old and new private banks are operating in a limited area confined to a region. Although highly networked, the number of branches is limited. The employee turnover appears to be on higher side. There is dissimilarity between old and new private banks by virtue of their age, functional area, products and services, etc.

7. OPPORTUNITIES High level of autonomy facilitating them for faster decision making. To face stiff competition, they can innovate new products and services and achieve high customer satisfaction. With full computerization, they can offer cost-effective services like ATMs, Electronic Fund Transfer, etc. THREATS Expansion of foreign banks in the post WTO era poses severe competition. Dominant PSBs which are recharged with a high market share will over-shadow the Private Sector Banks. Frequent announcements of takeover / Mergers & Acquisitions by PSBs as well as new Private sector banks disturb the very functioning of old Private Sector Banks. RBI / GOI relaxation of FDI investment norms cause worry among the managements.

8. SWOT ANALYSIS OF ICICI BANK Strengths S econd largest bank in terms of total assets and market share Total assets of ICICI is US$109.0 billion, profit of US$1.5 billion and located in 19 countries Strong and transparent balance sheet latest technology to carry out their banking activities first bank in India to introduce complete mobile banking solutions and  jewelry card Weakness Customer support of ICICI section is not performing well in terms of resolving complaints The bank service charges are comparatively higher Stringent policies in terms of recovering the debts and loans, and credit payments Credit risk concentration increases the default risk of ICICI

9. OPPORTUNITIES AND THREATS Opportunities Banking sector is expected to grow at a rate of 17% in the next three years Rural Financing and loan to smaller enterprises could increase the market share Small and non performing banks can be acquired by ICICI Growth in general insurance sector Threats Ever changing RBI policies RBI allowed foreign banks to invest up to 74% in Indian banking SBI and other private sector banks like HDFC, Axis Bank etc. In rural areas the micro financing groups hold a major share Customer dissatisfaction

10. SWOT ANALYSIS OF KOTAK BANK Strengths Best investment banking and stock broking services Diversified business model across lending, asset management, capital markets and insurance Has negligible exposure to stressed sectors such as Power, Infra, Aviation and Textiles Less NPA’s Weakness Low CASA ratio. 28% of its total deposits and 17% of its total borrowings Weak presence in corporate banking Heavily reliant on the interbank market on the ‘liability’ side of the balance sheet Continued weakness in non-lending business

11. OPPORTUNITIES AND THREATS Opportunities KMB has the opportunity to strengthen its liability franchise by increasing CASA deposits Can increase the market share in Corporate Banking Threats Convergence of regulation for NBFCs in line with Banks could affect profitability of the bank by 6% to 7% Stringent Banking Norms Highly competitive environment

12. SWOT ANALYSIS OF AXIS BANK Strengths Axis bank has been given the rating as one of top three positions in terms of fastest growth in private sector banks . The bank has a network of 1,493 domestic branches and 8,324 ATMs. The banks financial position grows at a rate of 20% every year which is a major positive sign for any bank. The bank has its presence in 971 cities and towns. Weakness The share rates of AXIS bank is constantly fluctuating in higher margins which makes investors in an uncomfortable position most of the time . There are lot of financial product gaps in terms of performance as well as reaching out to the customer. There are many fraudulent activities involved in credit cards as the banks process credit card approval even without verification of original documents.

13. OPPORTUNITIES AND THREATS Opportunities In 2009, Alliance with Motilal Oswal for online trading for 10 million customers. No. of e-transactions increased from 0.7 million to around 2 million Last quarter there were 48 new branches opened across the Nation. The assets in their international operations are growing at a very faster pace with a growth rate of 9%. Threats RBI allowed foreign banks to invest up to 74% in Indian banking Government schemes are most often serviced only by govern banks like SBI ,Indian Banks, Punjab National Bank etc ICICI and HDFC are imposing strong threats in terms of their expansion in customer base by their aggressive marketing strategies

14. CONCLUSION In the post-reforms era, with a promise to maintain perfect competition and level playing field for all types of banks in the Indian Banking scenario, both old and new Private Sector Banks will continue to strive to offer to their customers cost-effective, efficient products and services. Increased usage of Technology, best utilization of the manpower resources coupled with professional management adopting Corporate Governance principles these private banks will continue to give their best and stay in the Indian Financial System. This is possible in view of the “not so dominant” presence of the foreign banks and consolidation of Public Sector Banks envisaged by the Government of India.

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