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Indian Banking Industry Trends

January, 2015


The banking sector in India is on a growing trend. It has vastly benefitted from the surge in disposable income of individuals in the country. There has also been a noticeable upsurge in transactions through ATMs, and also internet and mobile banking. Consequently, the different banks, viz public, private and foreign banks have invested considerably to increase their banking network and thus, their customer reach.

The banking industry in India has the potential to become the fifth largest banking industry in the world by 2020 and third largest by 2025 according to a KPMG-CII report. Over the next decade, the banking sector is projected to create up to two million new jobs, driven by the efforts of the RBI and the Government of India to integrate financial services into rural areas. Also, the traditional way of operations will slowly give way to modern technology.

Market Size

The Indian banking sector is fragmented, with 46 commercial banks jostling for business with dozens of foreign banks as well as rural and co-operative lenders. State banks control 80 percent of the market, leaving relatively small shares for private rivals.

Banks have opened 7.73 crore accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) till November 19, according to Ms Snehlata Shrivastava, Additional Secretary, Department of Financial Services, Ministry of Finance, Government of India. Of the 77.3 million accounts, public sector banks have opened 62.1 million accounts with a total balance of Rs 4,946.03 crore (US$ 802.64 million), and have distributed RuPay debit cards to around 43 million accounts.

Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent to reach US$ 2.4 trillion by 2017. The total banking assets in India touched US$ 1.8 trillion in FY13 and are anticipated to cross US$ 28.5 trillion in FY25


There have been many investments and developments in the Indian banking sector in the past few months. Some of the recent major are:

Kotak Mahindra Bank became the first bank to get the permission from Reserve Bank of India (RBI) to set up a wholly-owned non-life insurance company.

Kotak Mahindra Bank plans to acquire ING Vysya Bank in an all-stock deal. The deal will make Kotak the fourth-largest private bank in the country in terms of total business. ING shareholders will now get 725 Kotak Bank shares for every 1,000 shares they hold.

Axis Bank Ltd has signed a memorandum of understanding (MoU) with South Korea-based NongHyup Bank to enhance cooperation in treasury, trade and other businesses. The MoU seeks to reinforce trade and economic relationships between South Korea and India, and will promote mutual development through business cooperation

Axis Bank Ltd has raised US$ 500 million by selling five and a half year bonds maturing in 2020 to investors across the globe. The bank will use the money generated from the bond sale to meet the funding requirement of its foreign branches and for general corporate purposes.

ICICI Bank Ltd has raised Yuan 600 million (US$ 96.61 million) by selling bonds to investors in Asia and Europe. This money, will be used to finance Indian companies abroad. This is the third bond sale in three years by ICICI Bank to raise money in Chinese currency

Bharatiya Mahila Bank Ltd (BMB) has launched its internet banking facility by the name BMBSmartBanking, along with its newly designed website. Currently, this women focused bank has branch network of 33 branches and all of them on core banking solutions with onsite ATMs.

The United Economic Forum (UEF) has signed a MoU with the Indian Overseas Bank (IOB) for financing entrepreneurs from backward communities to set up businesses in Tamil Nadu. As part of the agreement, entrepreneurs who have been chosen by the UEF, will get term loan / working capital requirements from the bank.

Government Initiatives

There have been a lot of developments in the Indian banking sector in the

To help Micro Small and Medium Enterprises (MSME), RBI has permitted setting up of an exchange-based trading platform to facilitate financing of bills raised by such small entities to corporate and other buyers, including government departments and PSUs.

The Government of India plans to reduce its stake in public sector banks to 52 per cent. The reduction of stake is expected to fetch the government Rs 89,120 crore (US$ 14.46 billion) on the basis of the share prices as on November 21, 2014.

The Government of India has cleared a proposal by HDFC Bank Ltd, to increase the foreign investment limit in the lender while taking the view that the stake held by its parent Housing Development Finance Corp Ltd (HDFC) amounts to overseas investment. The Foreign Investment Promotion Board (FIPB) has approved HDFC Bank’s proposal to increase foreign investment in the bank to 74 per cent.

The Reserve Bank of India (RBI) has created four verticals, which will be looked after by each of the deputy governors, as part of organisational restructuring move.

To give a boost to ship building in the country, the Export-Import Bank of India (Exim Bank) is planning to set up a dedicated Rs 1,500 crore (US$ 243.37 million) fund with Government support.

Road Ahead

With the advancements in technology, mobile and internet banking services have come to the fore. Banks in India are focusing more and more to provide better services to their clients and have also started upgrading their technology infrastructure, which can help improve customer experience as well as give banks a competitive edge.

Many banks, including the likes of HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market soon. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Exchange Rate Used: INR 1 = US$ 0.0162 as on January 21, 2015

References:Media Reports, Press releases, RBI Documents