PEST ANALYSIS

PEST analysis of any industry investigates the important factors that affect
the industry and influence the companies operating in the sector. PEST stands
for Political, Economic, Social and Technological analysis. The PEST Analysis is
a tool to analyze the forces that drive the industry and how those factors can
influence the industry.
 ECONOMICAL

• GDP
• MONSOON
• INFLATION
• SAVINGS &
ACCOUNTS
• AGRICULTURE
CREDIT
• INTEREST SOCIOCULTURAL
RATES
POLITICAL • RAISING LIVING • CHANGES IN
STANDRED LIFE STYLE
• GOVERNMENT • DISPOSABLE • LITERACY
POLICY & BUDGECT INCOME RATE
• BUDJECT • DEMOGRAPHIC
MEASURES OF LARGE
• MONATORY POLICY POPULATION
• FDI LIMIT • SHIFT
TOWARDS THE
Organization NUCLEAR
FAMILY

LEGAL TECHNICAL

• RESERVE BANK OF • TECHNOLOGY IN

INDIA ACT BANKS
• BANKING • CORE BANKING
REGULATION ACT SOLUTIONS(CBS)
• ATM
• INTERNATE
• I.T SERVES AND
MOBILE BANKING
 POLITICAL FACTORS

Government and RBI policies affect the banking sector. Sometimes

looking into the political advantage of a particular party, the Government declares
some measures to their benefits like waiver of short-term agricultural loans, to
attract the farmer’s votes. By doing so the profits of the bank get affected.
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.

Various policies are framed by the RBI looking at the present situation of
the country for better control over 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 legislature

and framing policy .government through its budget affects the banking activities
securitization act has given more power to banking sector against defaulting
borrowers.
 MONETARY POLICY

Monetary Policy 2009-2010

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 or longer term repo/reverse repo under the LAF depending on market
conditions and other relevant factors.
Cash Reserve Ratio: CRR has been retained unchanged at 5.0% of NDTL.

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 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
 BUDGET MEASURES

BUDGET PROVISIONS

Increase Farm Credit: The FM has further increase the farm credit target
for 2009-10 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 Interest 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 2009-10 was made for the same.

Debt Waiver for Farmers: The Union Budget 2009-10 extended the debt
waiver scheme by six more months for farmers owing more than 2 hectare of
land. The Union Budget 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 scheme: 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 Maharashtra from private money lenders who were not covered by the
loan waiver scheme announced last year.

OTHER PROVISIONS

• The threshold for non-promoter public shareholding for all listed

companies to be raised in a phased manner.
• To allow scheduled commercial banks setting up off-site ATMs without
prior approval subject to reporting.
 • To provide banking facilities in under-banked/un-banked areas in the next
three years. A sub-committee of State level Bankers Committee (SLBC)
would identify and formulate an action plan for the same.
• The Ministry has also granted Rs 100 crore of grants in aid to ensure
provision of at least one Centre/Point of Sales (POS) for banking services
in each of the un-banked blocks.

BUDGET IMPACT
The Union Budget 2008-09 has focused on farm credit. The agriculture
sector has recorded a growth of about 4% per annum with substantial increase in
plan allocations and capital formation in the sector. The one-time bank loan
waiver of nearly Rs 71000 crore (Rs 710 billion) to cover an estimated 40 million
farmers was one of the major highlights of the last Budget. This Union Budget
has provided further six months extension of 25% rebate on loan for farmers
owing more than 2 hectare of land. With Government bearing this burden, banks
would not be affected much. It will only help banks to clear their most stubborn
NPA accounts on banks book.

Moreover the emphasize on hiking promoter shareholding in Public sector

banks, expanding network with ATM's, opening of banking centre in un-banked
blocks are some of the positive moves for the sector.

On the flipside, the spike in government borrowings is set to adversely

affect the treasury income of banks in general and public sector banks in
particular, through rise in yields on government securities.

OUTLOOK

The Union Budget 2009-10 has not granted much of new grants/stimulus
to the banking sector as a whole. However it has increased the Government
borrowing to Rs 451093 crore (Rs 4510.93 billion) compared to Rs 361782 crore

(Rs 3617.82 billion) targeted in the Interim Budget 2009-10.

 This is likely to push the Bond yields high moving forward. Despite ample
liquidity in the system, the 10 year benchmark yield has zoomed above 7% levels
owing to rise in borrowing target. Hardening of yields is likely to affect treasury
profits of banks in general and Public sector banks in particular.

BUDGET PROPOSALS
1. IIFCL to refinance 60% of loans given by commercial banks for PPP-based
projects in critical sectors. IIFCL and banks together will be able to support
infrastructure projects involving total investment of Rs 1,000 bn.

2. Target for agriculture credit flow set at Rs.3250 bn for the year 2009-10.
Interest subvention scheme at the interest rate of 7% will be continued.
Additional subvention of 1% for the farmers who repay their debt on time.

3. Farm debt waiver scheme extended to 31st December 2009 from 30th June
2009.

4. Interest subvention scheme to exporters extended to 31st March 2010.

5. Special fund of Rs.40 bn out of Rural Infrastructure Development Fund (RIDF)

to provide refinance to banks and State Finance Corporation for incremental
lending to Micro and Small

Enterprises (MSEs).

6. Rs.1 bn to ensure provision of at least one centre/Point of Sales (POS) for

banking services in each of the unbanked blocks.

7. Interest subsidy to poor households for loans up to Rs.1,00,000 from banks.

8. Rs.20 bn earmarked for Rural Housing Fund in National Housing Bank (NHB)

9. Recapitalization of public sector banks and insurance companies.

10. Exemption of income of New Pension System (NPS) trust from income tax
and dividend paid to NPS trust from dividend distribution tax. Sale and purchase
of equity shares and derivatives by NPS trust will be exempt from the securities
transaction tax.
 BUDGET IMPACT: INDUSTRY

1. Long-term refinancing from IIFCL for infrastructure projects will ensure better
asset-liability match for banks.

2. Debt waiver and interest subvention schemes will not have much impact on
banks.

3. Recapitalization will ensure adequate capital for the growth of the public
sector banks and insurance companies.

4. Rural Housing fund will boost the resource base of NHB for their refinance
operation in rural housing sector.

5. Tax break for NPS trust will have positive impact on the same.

ECONOMIC FACTORS

Banking is as old as authentic history and the modern commercial banking

are traceable 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 with establishment of bank of Bengal in 1809 under the government
charter and with government participation in share capital. Allahabad bank was
started in the year 1865 and Punjab national bank in 1895, and thus, others
followed.

Every year RBI 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 or facilities. If in the Budget savings are encouraged,
then more deposits will be attracted towards the banks and in turn they can lend
more money to the agricultural 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 / GDP

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 to 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
follows:
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 the
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.
 MONSOON

The cumulative seasonal rainfall (1st June -30th September 2009) for the
country as a whole is 23 per cent below the Long Period Average (LPA). The
year 2009 is the most deficient year after 1972.
 LOW INTEREST RATES
Reserve Bank of India controls the Interest rate, which is based on several
monetary policies. Recently RBI has reduced the interest rate which stimulates
the growth rate of banking industry. As on September 11, 2009 Bank Rate was
6.00 per cent, the same as on the corresponding date of last year. Call money
rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared
with 5.25/11.00 per cent on the corresponding date of last year.

INFLATION RATES
Inflation represents a rise in general level of prices of goods and services
over a period of time. It leads to an erosion in the purchasing power of money.
Resultantly, each unit of currency buys fewer goods and services
Different fiscal and monetary policies have curbed the Inflation rate from the high
of 12.63 per cent to 3.92 per cent.
To fight against the slowdown of the Economy, Government of India &
Reserve Bank of India took many fiscal as well as monetary actions. Clubbed
with fiscal & monetary actions, decreasing commodity prices, decreasing crude
prices and lowering interest rate, we expect that Indian Economy could again
register a robust growth rate in the year 2009-10. Inflation stands at 3.92 per cent
on 7th February 2009 against a high of 12.63 per cent on 9th August 2008.

SAVINGS AND ACCOUNTS

As stated earlier, India continues to remain one of the high savings
economies among the emerging market economies. Gross Domestic Savings
(GDS) of the Indian economy constitutes savings of public, private corporate and
household sectors. In the recent period the high growth performance of the
Indian economy is driven by rise in savings
 AGRICULTURE CREDIT

Agriculture has been the mainstay of our economy with 60% of our
population deriving their sustenance from it. In the recent past, the sector has
recorded a growth of about 4% per annum with substantial increase in plan
allocations and capital formation in the sector. Agriculture credit flow was Rs
2,87,000 crore in 2008-09. The target for agriculture credit flow for the year
2009-10 is being set at Rs.3,25,000 crore. To achieve this, I propose to continue
the interest subvention scheme for short term crop loans to farmers for loans
upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this year, the
government shall pay an additional subvention of 1% as an incentive to those
farmers who repay their short term crop loans on schedule. Thus, the interest
rate for these farmers will come down to 6% per annum. For this, I am making an
additional Budget provision of Rs 411 crore over Interim BE.

DEBT RELIEF FOR FARMERS

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 of the last Budget. Under the
Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having more
than two hectares of land were given time upto 30th June, 2009 to pay 75% of
their overdues. Due to the late arrival of monsoon, I propose to extend this period
by six months upto 31st December, 2009 .
 SOCIO CULTUREAL FACTORS
Socio culture factors also affect the business. They show 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 operates under this social
environment and it is also affect by this factor.

These factor are changing continuously people’s life style, their behavior,
consumption pattern etc. is changing and also creating opportunities and threat
for banking industry. There are some socio-culture factors that affect banking in
India have been analyzed below.

TRADITIONAL MAHAJAN PRATHA

Before the birth of the banks, people of India were used to borrow money
local moneylenders, shahukars, shroffs. They were used to charge higher
interest and also mortgage land and house. Farmers were exploited by these
shahukars. But farmers need money. So, they did not have any choice other than
going to shahukar and borrowing money from them in spite of exploitation by
these people. But after emergence of banks attitude of people was changed.
Traditional mahajan pratha still exist in India specially in rural areas. This affects
the banking sector. Rural people afraid to go to bank to borrow money instead
they prefer to borrow from shahukar whith whom they have relationships from the
time of their fore fathers. Banking infrastructure is also week in some interior
areas of India. So, this is reason it still exist.

SHIFT TOWARDS NUCLEAR FAMILY

Attitude of people of India is changing. Now, younger generation wants to

remain separate from their parents after they get married. Joint families are
breaking up. There are many reasons behind that. But banking sector is
positively affected by this trend. A family need home consumer durables like
freeze, washing machine, television, bike, car, etc.. so, they demand for these
products and borrow from banks. Recently there is boost in housing finance and
vehicle loans. As they do not have money they go for installments. So, banks
satisfy nuclear families wants.

CHANGE IN LIFE STYLE

Life style of India is changing rapidly. They are demanding high class
products. They have become more advanced. People want everything car,
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
home, television, mobile, vehicle and this has opened opportunities for banking
secter to tap this change. Every thing is available so it has become easy to
purchase anything if you do not have lump sum.

POPULATION

Increase in population is one of he important factor, which affect the

private sector banks. Banks would open their branches after looking into the
population demographics of the area. Percentage of deposit in any branches of
banks depends upon the population demographic of that area. The population of
India is about 102.90 is expected to reach about 119.70 cores in 2011. About
70% of population is below 35years of age. They are in the prime earning stage
and this increase the earning of the banks. Total Deposits mobilized by the
Private Sector Banks increased from Rs, 2,52,335 crore as on 31 st March 2004 to
Rs. 3,12,645 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 countries.
Illiterate people hesitate to transact with banks. So, this impacts negatively on
banks. But there is positive side of this as well i.e. illiterate people trust more on
banks to deposit their money, they do not have market information. Opportunities
in stocks or mutual funds. So, they look bank as their sole and safe alternative.
Literacy rate of India is around 65%

LITERACY RATE IN INDIA

year persons male female

1951 18.3 27.2 8.9

1961 28.3 40.4 15.3
1971 34.5 46.0 22.0
1981 41.4 53.4 28.5
1991 52.2 64.1 39.3
2001 65.4 75.8 52.1
 TECHNOLOGICAL FACTORS

TECHNOLOGY IN BANKS
Technology plays a very important role in bank’s internal control
mechanisms as well as services offered by them. It has in fact given new
dimensions to the banks as well as services that they cater to and the banks are
enthusiastically adopting new technological innovations for devising new
products and services.
ATM
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.

Credit card facility has encouraged an era of cashless society. Today

MasterCard and Visa card are the two most popular cards used world over. 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 telecommunication facilities and computer
technology by using terminals installed at customers home and they can make
the balance inquiry, get the statement of accounts, give instructions for fund
transfers, etc. Through ECS we can receive the dividends and interest directly to
our account avoiding the delay or chance of loosing the post.
IT SERVICES & MOBILE BANKING

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. The messages are then recognized
by the bank to provide you with the required information.

All these technological changes have forced the bankers to adopt

customer-based approach instead of product-based approach

Technology advancement has changed the face 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 adoption of core banking solution will help bank to roll out new product and
services.