The first bank of India - The General Bank of India was set up in the year 1786.

In early phase, Indian banks were established as private banks, with mostly pri vate shareholders. In 1865, Allahabad Bank was established exclusively by Indian s for the first time. Reserve Bank of India was set up in 1935. To regulate the functioning and activi ties of commercial banks, the Government of India carried out The Banking Compan ies Act, 1949, which was later changed to Banking Regulation Act 1949 with Reser ve Bank of India empowered over banking sector. In 1955, India government nation alized Imperial Bank of India on a large scale especially in rural and semi-urba n areas and formed State Bank of India. From 1955 to 1969, SBI subsidiaries and 14 major banks in India had been nationalized. In the second phase of Indian Ban king Sector Reform in 1980, seven more banks were nationalized, which have broug ht 80% of the banking segment in India under Government ownership. After the nat ionalization reform, branches of the public sector bank India rose to approximat ely 800% in deposits and advances surged by 11,000%. In 1991, India government e mbarked on the policy of liberalization of banking sector. A small number of ban ks have been licensed and rules on foreign direct investment have been relaxed. The banking industry in any economy provides its financial backbone. This places it on a completely different platform from any other industry, including regula ted utilities. While its criticality for the economy is undisputed, it is this criticality that also makes it vulnerable to failure. This is the reason the banking industry is regulated, albeit in differe nt degrees, in every economy. A fair amount of research, both international and Ind ian has gone into determining the factors that affect bank performance. However, the relationship between performance and stock returns has not received much at tention. With more and more banks in India getting listed in the stock markets, shareholder value creation has assumed importance along with the other tradition al objectives these banks (especially nationalized banks) were set up for. The c hallenge before banks is to create such value by differentiating themselves from competition on the one hand, while working within the regulatory boundaries on the other . The last decade has seen many positive developments in the Indian banking sect or. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector no w compares favorably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is refle cted in their market valuation. However, improved regulations, innovation, growt h and value creation in the sector remain limited to a small part of it. The cos t of banking intermediation in India is higher and bank penetration is far lower than in other markets. India s banking industry must strengthen itself significan tly if it has to support the modern and vibrant economy which India aspires to b e. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success. The fai lure to respond to changing market realities has stunted the development of the financial sector in many developing countries. A weak banking structure has been unable to fuel continued growth, which has harmed the long-term health of their economies MAJOR PLAYERS: The major players in the Indian banking sector are: Reserve Bank of India State Bank of India ICICI Bank AXIS Bank HDFC Bank HSBC Bank

Reserve Bank of India: Referred as the Central Bank of India, RBI is a premier bank of India having abo ut 22 regional offices across the nation and most of the offices are in the capi tals of the Indian states. RBI is fully owned by Government of India and it perf orms myriad range of services from supervising and regulating financial system t o managing exchange control. Established in 1935, RBI remains the most prestigio us entity playing the guardian of all commercial banks of India. State Bank of India: SBI is the oldest bank of Indi- and also India's largest commercial bank. This g overnment owned bank was established in the year 1806.It is also the second larg est bank in the globe. The bank provides a wide array of banking products throug h their effective network not only on India but also overseas. The bank has abou t 16,000 branches and is also accountable for one-fifth of the loans of India. I t has about 8500 ATMs across the nation. ICICI Bank: This is the second largest bank in India with about 1,419 branches and 4,644 ATM s spread countrywide. It is among the top commercial banks of India providing a wide range of banking services through varied delivery channels. Besides offerin g high-end banking facilities like Internet banking, Phone Banking and Mobile Ba nking, ICICI also plays a pivotal role in the domains of investment banking, ven ture capital and asset management and life and non-life insurance. It has its pr esence in 18 countries across the world including UK, Canada and others. AXIS Bank: One of the top private banks in India, it was earlier known as the Unit Trust o f India (UTI) since it was promoted by the same organization. It was first among the new private banks to have started its operations in the year 1994. AXIS has its significant presence in about 4509 districts of India with a wide network o f over 729 branch offices and Extension Counters. HDFC Bank: It is also among the top banks of India offering various banking services for t he customers like Personal Banking, NRI Services, Net Banking, Online Remittance s and others. The year 2008 has been very prosperous for HDFC as it won a host o f awards for being the best retail bank and also the best among other Indian ban ks to adopt Information Technology. With a total income of more than Rs. 5,400 c rores, it demands a significant position in Indian banking industry. HSBC: The first ATM provider of India, HSBC Bank is one of India's top banks with its operational base extending consistently. This commercial bank of India first sta rted to function in 1853. It opens up ample banking services for the customers a part from cash management, financial planning and business banking facility. Porter's 5 Forces Analysis Of Banking Industry 1. Threat of New Entrants. The average person can't come along and start up a ba nk, but there are services, such as internet bill payment, on which entrepreneur s can capitalize. Banks are fearful of being squeezed out of the payments busine ss, because it is a good source of fee-based revenue. Another trend that poses a threat is companies offering other financial services. What would it take for a n insurance company to start offering mortgage and loan services? Not much. Also , when analyzing a regional bank, remember that the possibility of a mega bank e ntering into the market poses a real threat. 1. Power of Suppliers. The suppliers of capital might not pose a big threat, bu t the threat of suppliers luring away human capital does. If a talented individu al is working in a smaller regional bank, there is the chance that person will b e enticed away by bigger banks, investment firms, etc. A producing industry requ ires raw materials - labour, components, and other supplies. This requirement le ads to buyer-supplier relationships between the industry and the firms that prov ide the raw materials used to create products. Suppliers, if powerful, can exert

an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. In a service sector there is n o direct supplier of raw material. However the supply of supporting facilities l ike cheque books, furniture, stationeries, etc can give the same analogy. 2. Power of Buyers. The individual doesn't pose much of a threat to the banking industry, but one major factor affecting the power of buyers is relatively high switching costs. If a person has a mortgage, car loan, credit card, checking acc ount and mutual funds with one particular bank, it can be extremely tough for th at person to switch to another bank. In an attempt to lure in customers, banks t ry to lower the price of switching, but many people would still rather stick wit h their current bank. On the other hand, large corporate clients have banks wrap ped around their little fingers. Financial institutions - by offering better exc hange rates, more services, and exposure to foreign capital markets - work extre mely hard to get high-margin corporate clients. The power of buyers is the impac t that customers have on a buying process of the products from a certain industr y. In general, when buyers power is strong, the relationship to the industry is n ear to what an economist terms a monophony - a market in which there are many su ppliers and one buyer. Under such market conditions, the buyer sets the price. I n reality few pure monopolies exist, but frequently there is some asymmetry betw een a producing industry and buyers. The same case can as well be applied to the service industry, as nowadays there is no pure-manufacturing or pure-service in dustry. The combination is the way forward. The only vital difference is the def inition of the core product . For instance much as we consider banks to be under th e service industry, physical properties like furniture, building, computers, etc are vital to make the service a possibility. 3. Availability of Substitutes. As you can probably imagine, there are plenty o f substitutes in the banking industry. Banks offer a suite of services over and above taking deposits and lending money, but whether it is insurance, mutual fun ds or fixed income securities, chances are there is a non-banking financial serv ices company that can offer similar services. On the lending side of the busines s, banks are seeing competition rise from unconventional companies. Sony General Motors and Microsoft all offer preferred financing to customers who buy big tic ket items. If car companies are offering 0% financing, why would anyone want to get a car loan from the bank and pay 5-10% interest? A close substitute product constrains the ability of firms (banks) in an industry to raise prices. The comp etition engendered by a Threat of Substitute comes from products outside the ind ustry. In the banking sector, there are so many products and at the same time th ere are so many substitute products. For example if someone is looking for a tra veler s cheque and that could not be provided, one might decide to opt for Telegra phic Transfer. 1. Competitive Rivalry. The banking industry is highly competitive. The financi al services industry has been around for hundreds of years and just about everyo ne who needs banking services already has them. Because of this, banks must atte mpt to lure clients away from competitor banks. They do this by offering lower f inancing, preferred rates and investment services. The banking sector is in a ra ce to see who can offer both the best and fastest services, but this also causes banks to experience a lower ROA. They then have an incentive to take on high-ri sk projects. In the long run, we're likely to see more consolidation in the bank ing industry. Larger banks would prefer to take over or merge with another bank rather than spend the money to market and advertise to people. PEST ANALYSIS: PEST analysis of any industry investigates the important factors that affect the industry and influence the companies operating in the sector. PE ST stands for Political, Economic, Social and Technological analysis. The PEST A nalysis is a tool to analyze the forces that drive the industry and how those fa

ctors can influence the industry. POLITICAL FACTORS: Government and RBI policies affect the banking sector. Someti mes looking into the political advantage of a particular party, the Government d eclares some measures to their benefits like waiver of short-term agricultural l oans, to attract the farmer s votes. By doing so the profits of the bank get affec ted. Various banks in the cooperative sector are open and run by the politicians . They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. FOCUS ON REGULATIONS OF GOVERNMENT: Indian Banking is least affected as compare to other developed economy which is attributed to Reserve Bank of India for its robust policy framework, stricter prudential regulations with respect to capital and liquidity. This gives India an advantage in terms of credibility over other countries. Government affects the performance of banking sector most by legisla ture and framing policy .government through its budget affects the banking activ ities securitization act has given more power to banking sector against default ing borrowers. MONETARY POLICY Bank Rate: The Bank Rate has been retained unchanged at 6.0%. Repo Rate. It has been reduced under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.0% to 4.75% with immediate effect. Reverse Repo Rate: It has been reduced under LAF by 25 basis points from 3.5% to 3.25% with immediate effect. RBI has retained the option to conduct overnight o r longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. FDI LIMIT 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 t o 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. Ceili ng 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

BUDGET MEASURES BUDGET PROVISIONS Increase Farm Credit: The FM has further increase the farm credit target for 200 9-10 at Rs 325000 crore compared to Rs 287000 crore targeted in 2008-09. Subvention of 1% to be paid as incentive to farmers: The Budget continued the In terest subvention scheme for short-term crop loans up to Rs 300000 per farmer at the interest rate of 7% per annum. Also additional subvention of 1% to be paid from this year, as incentive to those farmers who repay short-term crop loans on schedule. Also additional allocation of Rs 411 crore over Interim Budget 2009-1 0 was made for the same. Debt Waiver for Farmers: The Union Budget 2009-10 extended the debt waiver schem e by six more months for farmers owing more than 2 hectare of land. The Union Bu dget 2008-09 allowed these farmers 25% rebate on loan if they repay 75% of their overdue within stipulated period of 30th June 2009. Currently this facility has been extended from 30th June, 2009 to 31st December, 2009. Setting up of separate task force for those not covered under the debt waiver sc heme: The government also announced that it will set up a task force to examine the issue of debt taken by a large number of farmers in some regions of Maharash tra from private money lenders who were not covered by the loan waiver scheme an nounced last year. ECONOMIC FACTORS Banking is as old as authentic history and the modern commercial banking are tra ceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced wit h establishment of bank of Bengal in 1809 under the government charter and with

government participation in share capital. Allahabad bank was started in the yea r 1865 and Punjab national bank in 1895, and thus, others followed. Every year R BI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions o r facilities. If in the Budget savings are encouraged, then more deposits will b e attracted towards the banks and in turn they can lend more money to the agricu ltural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels GROWING ECONOMY: Indian economy has registered a growth of more that 9 per cent for last three year and is expected to maintain robust growth rate as compare t o other developed and developing countries. Banking Industry is directly related to the growth of the economy. The contributions of various sectors in the Indian GDP for 2007-2008 are as foll ows: Agriculture-17% Industry-29% ServiceSector-54% 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 th e world. Earlier it was agriculture which mainly contributed to the Indian GDP. The Indian government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI investment have been framed to give a push to the economy and hence the GDP . SOCIO CULTURAL FACTORS: Socio culture factors also affect the business. They sho w in which people behave in country. Socio-cultural factors like taboos, customs , traditions, tastes, preferences, buying and consumption habit of people, their language, beliefs and values affect the business. Banking industry is also oper ates under this social environment and it is also affect by this factor. These f actor are changing continuously people s life style, their behavior, consumption p attern etc. is changing and also creating opportunities and threat for banking i ndustry. There is some socio-culture factors that affect banking in India have b een analyzed below. SHIFT TOWARDS NUCLEAR FAMILY: Attitude of people of India is changing. Now, youn ger generation wants to remain separate from their parents after they get marrie d. Joint families are breaking up. There are many reasons behind that. But banki ng sector is positively affected by this trend. A family needs home consumer dur ables like freeze, washing machine, television, bike, car, etc. So, they demand for these products and borrow from banks. CHANGE IN LIFE STYLE: Life style of India is changing rapidly. They are demandin g high class products. They have become more advanced. People want everything ca r, mobile, etc. What their fore father had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also want to have well furnished ho me, television, mobile, vehicle and this has opened opportunities for banking se cter to tap this change. Every thing is available so it has become easy to purch ase anything if you do not have lump sum. POPULATION: Increase in population is one of the important factors, which affect the private sector banks. Banks would open their branches after looking into th e population demographics of the area. Percentage of deposit in any branches of banks depends upon the population demographic of that area. The population of In dia is about 102.90 is expected to reach about 119.70 cores in 2011. About 70% o f population is below 35years of age. They are in the prime earning stage and th is increase the earning of the banks. Total Deposits mobilized by the Private Se ctor Banks increased from Rs, 2,52,335 crore as on 31st March 2004 to Rs. 3,12,6 45 crore as on 31st March 2005. Deposits showed a subdued growth during 2004-05. Income distributions also affects the operations and overall business of private sector banks. LITERACY RATE: Literacy rate in India is very low compared to developed countrie s. Illiterate people hesitate to transact with banks. So, this impacts negativel

y on banks. But there is positive side of this as well i.e. illiterate people tr ust more on banks to deposit their money; they do not have market information. O pportunities in stocks or mutual funds. So, they look bank as their sole and saf e alternative. Literacy rate of India is around 65% TECHNOLOGICAL FACTORS TECHNOLOGY IN BANKS: Technology plays a very important role in bank s internal con trol mechanisms as well as services offered by them. It has in fact given new di mensions to the banks as well as services that they cater to and the banks are e nthusiastically adopting new technological innovations for devising new products and services. ATM: The latest developments in terms of technology in computer and telecommunic ation have encouraged the bankers to change the concept of branch banking to any where banking. The use of ATM and Internet banking has allowed anytime, anywhere banks facilities. Automatic voice recorders now answer simple queries, currency a ccounting machines makes the job easier and self-service counters are now encour aged. Credit card facility has encouraged an era of cashless society. Today Mast erCard and Visa card are the two most popular cards used world over. The banks h ave 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 telecommunication facilities and computer technology by us ing terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Throu gh ECS we can receive the dividends and interest directly to our account avoidin g the delay or chance of losing the post. IT SERVICES & MOBILE BANKING: Today banks are also using SMS and Internet as maj or tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. All th ese technological changes have forced the bankers to adopt customer-based approa ch instead of product-based approach. Technology advancement has changed the fac e of traditional banking systems. Technology advancement has offer 24X7 banking even giving faster and secured service. CORE BANKING SOLUTIONS It is the buzzword today and every bank is trying to adopt it is the centralize banking platform through which a bank can control its entire operation the ado ption of core banking solution will help bank to roll out new product and servic es. SWOT ANALYSIS OF BANKING INDUSTRY Strengths: The "Strengths" portion of the banking industry s SWOT analysis is a l ist of the internal operational elements where the banking industry is succeedin g or excelling. These elements need to refer to features the industry can contro l and has a direct power to change. For example, the banking industry s strengths can include record-high annual returns, diversified investment portfolio offerin gs, decreases in transaction and trading fees, an increase in the number of ATM machines and increased market share. Weaknesses The "Weaknesses" element of the banking industry s SWOT analysis is a list of the internal operational elements the banking industry needs to improve upon. These elements need to refer to features the industry can control and has a direct pow er to change. For example, the banking industry's weaknesses can include high lo an rates, low bond credit ratings, an increased number of outstanding junk bonds , an increase in loan-sharking activity and an increased number of high-risk inv estment options.

Opportunities The "Opportunities" part of the banking industry s SWOT analysis is a list of the external environmental elements the banking industry can potentially take advant age of in the near future or long-term. These external environmental elements sh ould not reflect the internal components of the industry, but rather the factors or features outside the industry s control. For example, the banking industry s opp ortunities can include a growing economy, banking deregulation, increased client borrowing, an increase in the number of banks, an increase in the money supply, low government-set credit rates and larger customer checking account balances. ThreatsThe "Threats" component of the banking industry s SWOT analysis is a list of the e xternal environmental elements that can potentially harm the banking industry. T hese external environmental elements do not reflect the internal components of t he industry, but the factors or features outside the industry s control. For examp le, the banking industry s threats could include a declining economy, increased ba nking regulations, larger capital gains taxes, new high-risk investment vehicles or higher health care costs. It s important to realize these examples are not Black and white. For example, new high-risk investment vehicles are inherently a l iability because they include increased risk, but depending on the financial sta ke and position, it could be an opportunity or threat.