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Transcript of "Pestel analysis : Banking sector"

1. PESTEL ANALYSIS- BANKING SECTOR ABHINAV SAINI AKANKSHYA BISHWAL


BIPIN KUMAR GAURAV SHARMA PANKIT MAHENDRU RISHIKA MAHESHWARI
2. The banking system remains, as alway s, the most dominant segment of
thefinancial sector. Indian banks continue to build on their strengths under
theregulators watchful eye and hence, have emerged stronger. The banking
sector in India has made significant progress in the last five years the growth is
well reflected through parameters including profitability, annual creditgrowth,
and decline in non-performing assets (NPAs) Growth in the sector has been
favoured by factors including low defaulterratio, strong economic growth, central
banks regular intervention and pre-emptiveadjustment of monetary policy. The
policy makers for the banking sector, which comprise the Reserve Bank ofIndia
(RBI), Ministry of Finance and related government and financial sectorregulatory
entities, have made several notable efforts to improve regulation in thesector
3. WHAT IS PESTEL ANALYSIS
4. To what degree a government intervenes in the economy. Ex-taxpolicy,
labour law, environmental law, traderestrictions, tariffs, and political stability
Some of the major political factors affecting the Bankingindustry are : Focus on
regulation of government Budget and budget measures Foreign Direct
Investment limits
5. Indian banking sector is least affected as compared to other developed
countries- thanks to robust policy framework of RBI. Government affects the
performance of banking sector most by legislature and framing policy
government through its budget affects the banking activities securitization act
has given more power to banking sector against defaulting borrowers. Stricter
prudential regulations with respect to capital and liquidity gives India an
advantage in terms of credibility over other countries. To support capitalisation,
the government has infused Rs 23,200 crore (US$ 5.2 billion) into state-owned
banks during the last three fiscals
6. The move to increase Foreign Direct Investment FDI limits to 49 percent
from 20 percent during the first quarter of this fiscal came as a welcome
announcement to foreign players wanting to get a foot hold in the Indian Markets
by investing in willing Indian partners who are starved of net worth to meet CAR
norms. Ceiling for FII investment in companies was also increased from 24.0
percent to 49.0 percent and have been included within the ambit of FDI
investment Increase Farm Credit Subvention of 1% to be paid as incentive to
farmers Debt Waiver for Farmers Setting up of separate task force for those
not covered under the debt waiver scheme
7. Agriculture has been the mainstay of our economy with 60% of our
populationderiving their sustenance from it.In the recent past, the sector has
recorded a growth of about 4% per annum withsubstantial increase in plan
allocations and capital formation in the sector with help ofbanking

assistance.The one-time bank loan waiver of nearly Rs 71,000 crore to cover an


estimated 40 million farmers was one of the major highlights
8. Every year RBI declares its 6 monthly policies and accordingly the
variousmeasures and rates are implemented which has an impact on the
bankingsector.The Economic measures affects the banking sector to boost the
economy by giving certain concessions or facilities. If in the savings are
encouraged, thenmore deposits will be attracted towards the banks and inturn
they can lendmore money to the agricultural sector and industrialsector,
therefore, booming the economy.If the FDI limits are relaxed, then more FDI are
brought in India through banking channels
9. Key July Sept OctEvery year RBI declares its 6 monthly Rate 26th 16th
25thpolicies and accordingly the various smeasures and rates are implemented
whichhas an impact on the banking CRR 6.oo 6.00 6.00sector.In past 24 months
RBI has changed its Repo 8.00 8.25 8.50key monetary rates 13 times to curb
rateinflation and other economic risks. Rever 7.00 7.25 7.50 se repo rate SLR 24
24 24
10. Indian economy has registered robust growth in past years and Banking
sector isdirectly related to the growth of the economy.GOI is trying to push the
economy by framing favorable FDI policies , NRIInvestment plans which directly
affect the GDP.These plans directly affect banking industry as money comes
through banks andbank earns interest on that.
11. Interest Rates:RBI controls interest rates, which RBI monitors
regularlyRecently RBI reduced bank rate to stimulate growth of banking
industryInflation Rate:India is facing huge troubles due to inflation as it is 10%
now.To curb the inflation and slowdown of economy RBI has taken varioussteps
like lowering interest rates to increase the demand in banking sectorSavings and
Investments: Gross domestic saving is 28% of total income in IndiaLatest step
taken by RBI to deregulate savings rates is a step to increaseBank savings
12. It includes cultural aspects and health consciousness, population growth rate,
agedistribution, career attitudes and emphasis on safety. This could be
classifiedinto:Before the birth of the banks, people of India were used to borrow
money localmoneylenders, shahukars, shroffs. They were used to charge higher
interest andalso mortgage land and house. But after emergence of banks
attitude of people waschanged and they have started lending from the banks Life
style of India is changing rapidly. They are demanding high class products. They
have become more advanced. People needs and wants are increasing day by
day. And this has this has opened opportunities for banking sector to tap this
change. This has made things available easily to everyone.
13. Increase in population is one of he important factor, which affect theprivate
sector banks. Banks would open their branches after looking into thepopulation
demographics of the area.Newer branches are coming to serve the increasing
population. This incentive to bankscomes on the back of the continuing need to
open more branches in these States inorder to ensure more uniform spatial

distributionLiteracy rate in India is very low compared to developed


countries.Illiterate people hesitate to transact with banks. So, this impacts
negatively onbanks. But there is positive side of this as well i.e. illiterate people
trust more onbanks to deposit their money, they do not have market
information.Opportunities in stocks or mutual funds
14. Technology plays a very important role in banks internal control mechanisms
as wellas services offered by them. Through the use of technology new products
and serviceare introduced. It include technological aspects suchas R&D activity,
automation, technology incentives and the rate of technologicalchange. Some of
the technological changes which brought radical changes in bankingindustry are
described below : The latest developments in terms of technology in computer
and telecommunication have encouraged the bankers to change the concept of
branch banking to anywhere banking. The use of ATM and Internet banking has
allowed anytime, anywhere banking facilities Automatic voice recorders now
answer simple queries, currency accounting machines makes the job easier and
self-service counters are now encouraged.
15. Credit card facility has encouraged an era of cashless society. The banks
have now started issuing smartcards or debit cards to be used for making
payments. These are also called as electronic purse. Some of the banks have
also started home banking through telecommunicationfacilities and computer
technology by using terminals installed at customers homeand they can make
the balance inquiry, get the statement of accounts, giveinstructions for fund
transfers, etc. Today banks are also using SMS and Internet as major tool of
promotions and giving great utility to its customers. For example SMS functions
through simple text messages sent from your mobile Technology advancement
has changed the face of traditional banking systems. Technology advancement
has offer 24X7 banking even giving faster and securedservice
16. Indian economy has registered a high growth for last three years and is
expected tomaintain robust growth rate as compare to other developed and
developingcountries. Banking Industry is directly related to the growth of the
economy.The growth rate of different industries were:Agriculture : 18.5%Industry
: 26.3%Services : 55.2% It is great news that today the service sector is
contributing more than half of the Indian GDP. It takes India one step closer to
the developed economies of the world. Earlier it was agriculture which mainly
contributed to the Indian GDP. This increases the avenues of investment by the
industrial sector . This wouldfurther increase the borrowings by the industries
leading to the banking Industry In regards with the service sector , as the
income of the people will increase, lending and savings will increase leading to
increased business for the banks .
17. There are two major factors determining the legal aspects of the Banking
Industry :In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank ofIndia (RBI) "to regulate, control, and inspect the banks in
India.The Banking Regulation Act also provided that no new bank or branch of an
existingbank could be opened without a license from the RBI, and no two banks

could havecommon directors The Reserve Bank of India (RBI) will intervene to
smooth sharp movements in the rupee and prevent a downward spiral in its
value, but will balance this with the need to retain reserves in the event of
prolonged turbulence
18. The impressive performance of Indian banks as compared to other large
economies onalmost all parameters - profitability, cost to income ratio, nonperforming asset (NPA)levels, valuations, net interest margins, fee income - the
industry is on the right side ofaverage among comparable economies. Transition
from class banking to mass banking and increased customer focus isdrastically
changing the landscape of Indian banking. Expansion of retail banking has alot of
potential as retail assets New channels (like ATM and mobile phones) allow
transactions at a fractional cost.The study exposes a possibility for the next
decade. Investment in technology in theIndian banking industry is about half of
international average Consolidation in the banking industry has remained
crucial to ensuring technologicalprogress, excess retention capacity, emerging
opportunities and deregulation of variousfunctional and product