PEST Analysis of Indias Banking Sector

PEST psychoanalysis of Indias beaching SectorHISTORY OF BANKING SECTORThe stolon patois in India was found in 1786.from 1786 till immediately ,the journey of Indian briming emergeline rotter be segregated into three distint patterns .Early arrange from 1786 to 1969 of Indian rims communization of Indian Banks and up to 1991 prior to Indian banking field Reforms.New phase of Bankig st wandergy afterwards banking firmament reforms.STEPS TAKEN BY THE presidencyThe following ar the steps interpreted by the Goernment of India to work Banking Institutions in the Country1949 Enactment of Banking Regulation numeral1955 Nationalisation of utter Bank of India.1959 Nationalisation of SBI subsidiaries.1961 amends c everyplace extended to deposits1969 Nationalisation of 14 major banks.1971 Creation of credit guarantee corPoration1975 Creation of regional agrarian banks.1980 Nationalisation of seven banks with deposits over 200The commercial theatrical role of banks is not limited to banking, and includesissue of banknotesprocessing of payments by air of telegraphic transfer, EFTPOS, internetbanking or separate meansIssuing bank drafts and bank chequesAccepting coin on full call depositlending notes by way of overdraft, installment loan or oppositewiseproviding docudrama and standby letters of credit (trade pay),guarantees,performance bonds, securities underwriting commitments and former(a) forms of off- balance grassvas exposuressafe keeping of documents and other items in safe deposit boxes cash win overActing as a pecuniary supermarket for the sale, distri unlession or brokerage, with or without advice, of redress, unit trusts and similar financialproductsROLE OF BANKSCapital formationM unmatchedtizationInnovationsfinance for priority vault of heavensProvision for medium and long frontier finance flash money policyNeed for a sound banking formationFUNCTIONS OF A BANKAccepting Deposits from public/others ( deposit).Lending money t o public ( loan).Transferring money from one place to another (remittances).Credit Creation.Acting as trustees. retention valuable in safe custody investment decisions and analysis. governing byplay, opposite type of lending and transactionTYPES OF BANKINGCentral bankCommercial bankIndustrial bankAgricultural bankForeign Exchange bankIndigenous bankRural bankCo-operative bankANKING CHANNEL ramificationATMMailTelephoneOnlineMobilevideoBANKING SECTOR REFORMSIn 1991, the RBI had proposed to from the committee chaired by M. Narasimham, former RBI regulator in order to review the Financial System viz. aspects relating to the Structure, Organisations and Functioning of the financial form. TheNarasimham Committee report, submitted to the finance minister, Manmohan Singh, on the banking celestial sphere reforms highlighted the weaknesses in the Indian banking clay and suggested reform measures based on the Basle norms..The main recommendations of the Committee were.Reduction of statuto ry Liquidity balance (SLR) to 25 per cent over a flow of five courses.Progressive reduction in interchange Reserve Ratio (CRR). Phasing out of directed credit programmes and redefinition of the priority sectorDeregulation of vex rates so as to reflect acclivitous market conditions impartation transp arncy to bank balance sheets and making to a greater extent disclosuresSetting up of surplus rule to speed up the process of recovery of loan.Restructuring of the banking arranging, theme bank to inter guinea pig bank approximately and themeised some other bank. abolishment of branch licensingLiberalising the policy with regard to allowing opposed banks to rotate offices in India rationalisation of foreign operations of Indian banksGiving destitutedom to individual banks to p arnt officersInspection by supervisory authorities based essentially on the internal audit and inspection reportsEnding duality of retard over banking frame by Banking Division and RBIPEST ANALYSIS(P )OLITICAL/ juristic ENVIROMENT semipolitical relation and RBI policies affect the banking sector. Some sequences looking into the political gain of a particular party, the Government decl ars some measures to their benefits want waiver of short agricultural loans, to attract the farmers votes. By doing so the profits of the bank get in affected. Various banks in the conjunctive sector argon open and bunk by the politicians. They exploit these banks for their benefits. Sometimes the political sympathies appoints discordant chairmen of the banks. Various policies atomic number 18 framed by the RBI looking at the present feature of the country for better control over the banks.(E)CONOMICAL ENVIROMENTBanking is as old as au hencetic history and the modern commercial banking are traceable to antiquated times. In India, banking has existed in one form or the other from time to time. The present era in banking whitethorn be taken to clear commenced with establishment of bank of Bengal in 1809 under the presidency charter and with government engagement 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 periodic policy and accordingly the unhomogeneous measures and rates are implemented which has an force on the banking sector. Also the Union budget affects the banking sector to boost the saving by big(a) original concessions or facilities. If in the Budget nest egg are encouraged, then more deposits will be attracted towards the banks and in knock over they feces lend more money to the agricultural sector and industrial sector, in that locationfore,booming the parsimony If the FDI limits are relaxed, then more FDI are brought in India by dint of banking channels.(S)OCIAL ENVIROMENTBefore communization of the banks, their control was in the hands of the snobbish parties and nevertheless super business houses and the effluent sections of th e nine were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the genial ontogenesis in the banking sector it was necessity for speedy economical progress, consistent with social justice, in republican political system, which is free from domination of law, and in which opportunities are open to all. Accordingly, keeping in mind twain the national and social objectives,bankers were guiden solicitude to financial aid economically weaker section of the society and overly provide need-based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loans to farmers, working women, professionals, and traders.They also provide education loan to the students and ho utilize loans, consumer loans, etc.Banks having big clients or big companies have to provide services like individualised banking to their clients because these customers do not believe in running about(predicate) and w aiting in queues for getting their work done. The bankers also have to provide these customers with special provisions and at times with benefits like food and parties. But the banks do not mind incurring these costs because of the kind of business these clients work for the bank. Banks have changed the culture of kind-hearted demeanor in India and have process flavor much easier for the people.(T)ECHNOLOGICAL ENVIROMENTTechnology environment plays a very authorised role in banks internal control.The latest developments in technology like computer and telecom have promoted the bankers to change the concept of branch banking to allplace banking. The use of ATM and Internet banking has allowed anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency noteing machines adverts 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 2 most popular tease 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 by dint of 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 computer memory transfers, etc. Through ECS we can receive the dividends and interest instanter to our account avoiding the delay or chance of loosing the post. Today banks are also using SMS and Internet as major tool of promotions and giving great public utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognised by the bank to provide you with the unavoidable information. All these technological changes have forced the bankers adopt customer-based approach instead of product -based approach.INTRODUCTION OF finance SECTORA financial system, which is inherently strong, functionally diverse and displays expertness and tractability, is overcritical to our national objectives of creating a market-driven,productive and competitive economy. The financial system in India includes of financial institutions, financial markets, financial instruments and services. The Indian financial system is characterised by its cardinal major segments an organised sector and a traditional sector that is also known as informal credit market. Financial mediation in the organised sector is conducted by a large topic of financial institutions which are business organisations providing financial services to the community. Financial institutions whose activities may be either specialised or may overlap are further classified as banking and non-banking entities. The Reserve Bank of India (RBI) as the main regulator of credit is the apex institution in the financial system. sepa rate important financial institutions are the commercial banks (in the public and private sector), cooperative banks, regional rural banks and development banks. Non-bank financial institutions include finance and leasing companies and other institutions like LIC, GIC, UTI, Mutual silver, Provident Funds, Post Office Banks etc.REFORMS OF financial SECTORThe quantum of resources required to be mobilised, as the economy grows in complexity and generates new demands, places the financial sector in a vital countersink for promoting efficiency and momentum. It intermediates in the flow of funds from those who want to save a part of their income to those who want to invest in productive as throttles. The efficiency of intermediation depends on the width, depth and diversity of the financial system. Till about two decades ago, a large part of household savings was either invested directly in physical assets or put in bank deposits and bitty savings schemes of the Government. Since th e late eighties however, equity markets started playing an important role. early(a) markets such(prenominal) as the medium to long-term debt market and short term money market remained relatively segmented and underdeveloped. In The past decades, the Government and its subsidiary institutions and agencies had an overwhelming and all encompassing role with great system of controls, rules, regulations and procedures, which directly or indirectly affected the development of these markets. The financial system comprising of a network of institutions, instruments and markets suffered from lack of flexibility in intermediary demeanour and segmentation of various markets and sets of financial intermediaries. Well developed markets should be inter-connected to ease the demandsupply imbalances in one market overflowing into related markets thereby suppress shocks and disturbances. The inter connection also ensures that interest rates and returns in any market reflect the broad demand su pply conditions in the general market of savings. But such adjustment of interest rates is hold up when the intermediaries lack flexibility. On account of the historical role of the Government in controlling and directing a large part of the financial activity, such adjustments were slow and the problem needed to be addressed urgently if the financial sector had to keep pace with the reforms in the real sector. World replete(p) experience confirms that the countries with well-developed and market-oriented financial systems have grown faster and more steady than those with weaker and closely regulated systems. The financial sector in general and banking system in particular in many of the developing countries have been plagued by various systemic problems which necessitated drastic structural changes as also a orientation of approach in order to develop a more actionual and well functioning financial system. The Indian financial system has been no exception in this respect and the problems encountered in the way of efficient functioning necessitated the financial sector reforms.Recognising the critical nature of the financial sector prompted the Government to set up two Committees on the Financial System (Narasimham Committees) in 1991 and 1998 to examine all aspects relating to the structure, organisation, functions and procedures of the financial system. The deliberations of the Committees were guided by the demands that would be placed on the financial system by the economic reforms public lecture place in the real sectors of the economy and by the need to let out greater competition through autonomy and private sector participation in the financial sector. Despite the fact that the bulk of the banks were and are in all probability to remain in the public sector, and therefore with virtually zero danger of failure, the health and financial credibility of the banking sector was an issue of paramount grandeur to the Committees. The Committees propos ed reforms in the financial sector to bring about operational flexibility and functional autonomy, for overall efficiency, productivity and profitability. In the banking sector, in particular, the measures have been taken aimed at restoring viability of the banking system, bringing about an internationally accepted level of news report and disclosure standards and introducing capital adequacy norms in a phased expressive style. Most of the measures suggested by the Committees have been accepted by the Government. Interest rates have been deregulated over a period of time, branch-licensing procedures have been liberalised and Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) have been reduced. The entry barriers for foreign banks and new private sector banks have been lowered as part of the medium term strategy to im strengthen the financial and operational health of the banking system by introducing an element of competition into it. A Board for Financial Supervision ha s been set up within the Reserve Bank of India and it has introduced a new system of offsite surveillance even while revamping the system of on-site surveillance. The financial sector reforms have been pursued vigorously and the results of the first set of reforms have brought about improved efficiency and transparency in the financial sector. It is well recognized that reforms in the financial sector are an ongoing process to follow the challenges thrown up on account of the integration of financial markets, both within the country and worldwide.Future direction of reformsIf the financial sector reforms are viewed in a broad perspective, it would be evident that the first phase of reforms focussed on modification of the policy framework, improvement in financial health of the entities and creation of a competitive environment. The second phase of reforms aim the three interrelated issues viz.Strengthening the foundations of the banking systemStreamlining procedures, upgrading tec hnology and human resource developmentStructural changes in the system. These would cover aspects of banking policy, and focus on institutional, supervisory and legislative dimensions. Although significant steps have been taken in reforming the financial sector, some areas require greater focus. One area of take relates to the ability of the financial sector in its present structure to make available investible resources to the potential investors in the forms and tenors that will be required by them in the coming years, that is, as equity, long term debt and medium and short-run debt. If this does not happen, there could simultaneously exist surplus demand and excess supply in different segments of the financial markets. In such a situation the segment facing the highest level of excess demand would prove to the binding constraint to investment activity and effectively determine the unfeigned level of investment in the economy. Such problems could be resolved through movement of funds between various types of financial institutions and instruments and also by portfolio reallocation by the savers in response to differential movements in the returns in the alternative financial instruments. In this context, it is very important to identify the emerging structure of investment demand, particularly from the private sector, in order to reorient the functioning of the financial sector accordingly, so that investment in areas of national importance flows smoothly. A major area that needs to be focused in the context of the countrys development policy is investment in infrastructure. finance of infrastructure projects is a specialized activity and would widen to be of critical importance in the future day. A sound and efficient infrastructure is a sine qua non for sustainable economic development. A deficient infrastructure can be a major impediment in a countrys economic growth particularly when the economy is on the upswing. A growing economy needs support ing infrastructure at all levels, be it nice and reasonably priced power, efficient communication and transportation facilities or a thrive energy sector. Such infrastructure development has a multiplier effect on economic growth, which cannot be overlooked.Financial InstitutionsCredit Rating information Service of India Limited(CRISIL) enthronement Information and Credit Rating Agency of India (ICRA India) redress regulative and maturement(IRDA)Board for Industrial and Financial Reonstruction(BIFR)Export Import Bank of IndiaNational Bank for Agricultural and Rural Development(NABARD)Small Industries DevelopmentBank of India(SIDBI)National admit Bank(NHB)PEST ANALYSIS OF FINANCE SECTORPolitical FactorsFinancial stablenessMonetary Policy ChangesForeign Direct Investment TrendsCall for global CooperationEconomic FactorsFinancial work and Gross Domestic Product festering Unemployment in Financial SectorVolatile Exchange Rates go under in Inflation RatesTax Contri besidesion of F inancial ServicesSocial FactorGeographic Distribution of Financial Services role Trends in Financial Services SectorChanging vitalitystyles ExpectationsCredit drudge Delaying RetirementsTechnological FactorsGrowth in eCommerce, despite Economic CrisisBanks to Invest in ITINTRODUCTION OF INSURANCE SECTOR amends is basically seek watchfulness guile. The losses to assets resulting Form natural calamities like fire, flood, earthquake, accident etc. are met out of the common pool postd by large number of persons who are exposed to Similar risks. This contribution of many is used to pay the losses suffered by unfortunate some. However the basic principle is that losses should issue forth as a result of natural calamities or unexpected events which are beyond the human control. Secondly insured person should not make any gains out of redress. Insurance in India can be traced okay to the Vedas.For instance, yogakshema,the name of Life Insurance Corporation of Indias corporate h eadquarters, is derived from the Rig Veda. The term suggests that a form of community damages was prevalent well-nigh gravitational constant BC and practiced by the Aryans. Burial societies of the kind found in ancient Rome were formed in the Buddhist period to help families build houses, protect widows and children. Bombay Mutual Assurance Society, the first Indian smell assurance society, was formed in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in the 1870-90s. It was during the swadeshi movement in the early twentieth century that damages witnessed a big boom in India with several(prenominal) more companies being set up. As these companies grew, the government began to exercise control on them.The Insurance Act was passed in 1912, followed by a expatiate and amended Insurance Act of 1938 that looked into investments, expenditure and management of these companies funds. By the mid-1950s, there were around 170 amends companies and 80 prov ident fund societies in the countrys life insurance scene. However, in the absence of regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government decided nationalizes the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies. For years thereafter, insurance remained a monopoly of the public sector.INSURANCE IN INDIAopening up of the insurance sector to private players that the sector was at long last opened up to private players in 2001. The Insurance restrictive Development Authority, an autonomous insurance regulator set up in 2000, has extensive powers to oversee the insurance business and regulate in a manner that will safeguard the interests of the insured. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.Milestone of indian life insurance industry-The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are1912 The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.1928 The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.1938 Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.1956 245 Indian and foreign underwriters and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a cap ital contribution of Rs. 5 crore from the Government of India. The functions of Insurance can be devided into three partsPrimaryFunctionsSecondaryFunctionsOther FunctionsThe primeval functions of insurance include the followingProvide Protection- The primary function of insurance is to provide tax shelter against future risk, accidents and uncertainty. Insurance cannot check the chance of the risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others. Collective position of risk- Insurance is a device to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is compensable. Assessment of risk- Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also. Provide Certainty- Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain. The secondary functions of insurance include the following Prevention of Losses- Insurance cautions individuals and businessmen to adopt adapted device to prevent unfortunate consequences of risk by observing golosh instructions installation of automatic sparkler or alarm systems, etc. Prevention of losses cause lesser payment to the assured by the insurer and this will encourage for more savings by way of premium. Reduced rate of premiums stimulate for more business and better protection to the insured. Small capital to cover larger risks Insurance relieves the businessmen from warrantor investments, by paying small amount of premium against larger risks and uncertainty. Contributes towards the development of larger industries- Insurance provides development o pportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.The other functions of insurance include the followingMeans of savings and investment- Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insureds For the purpose of availing income-tax exemptions also, people invest in insurance. Source of earning foreign convince- Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways. Risk Free trade- Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.Characteristics of Insuranceshare-out of riskCo-operative deviceEvaluation of riskPayment on happenin g of special eventThe amount of payment depends on the nature of losses incurredOPENING OF INSURANCE SECTOR INSURANCE INDIAThe Union Govt. of India decided to open the insurance sector to make it more dynamic and customer friendly. aim of Liberalization of InsuranceThe main objective for the opening up the insurance sector to the private insures as under.To provide better coverage to the India citizens.To increase the flow of long term financial resources to finance the growth of infrastructure.Insurance Industry in the year 2000-2001 had 16 new entrants, namely Life Insurers.Insurance Regulatory and Development Authority (IRDA) ActThe Insurance Regulatory and Development Authority Act was introduced to end the monopoly of State-owned companies and to invest in the Insurance.Regulatory Authority power to control the insurance sector.Reforms of Insurance sector in IndiaIn 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to eval uate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suited for the requirements of the economy keeping in mind the structural changes currently current and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms In 1994, the committee submitted the report and some of the key recommendations includedAbout the various player of life insurance sectorSince being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered than after remaining companies are registered. present we have described the private life insurance companies registered i n which year wise.PEST ANALYSIS OF INSURANCE SECTORPOLITICAL FACTORSWithin India political ambitions and rise of communalism, fissiparoustendencies are on the rise and may well continue for quite some time to time.Therefore, it expected that the insurance companies might direct offering politicalrisk coverage also. The only area where Indian insurers consider giving cover is with regard to customs duty change under certain conditions.Certain type of political risk at the international level has austere implications for exporters. The term political risk has a wider connotation than commonly silent or assumed. It covers events arising not just from politics, but risks in thecourse of international transactions. In this connection, it may be noted that export credit insurance has evolved out of uncertainties relating to international trade,particularly due to problems arising out of foreign legal jurisdiction, political changesand currency exchange difficulties faced by many develo ping countries.Prohibition for InvestmentManner and conditions For investmentInsurance business in rural / social sectorAll insurers are required to undertake such percentage of their insurance business, including insurance for crops, in the rural social sector as specified by the IRDA. They should discharge their obligations to providing life insurance policies to persons residing in the rural sector, workers in the unorganized sector or to economically vulnerable classes of society and other categories of persons as specified by the IRDA.4. Capital requirement The paid up equity of an insurance company applying for adaptation to carry on life insurance business should be Rs 100 Crores.5. Renewal of registration An insurer, who has been granted a certificate of registration, should have the registration renewed every year with each year ending on March 31 after the commencement ceremony of the IRDA Act. The application for renewal should be accompanied by a fee as determined by IRDA regulations, not exceeding one forth of one percent of the total gross premium income in India in the preceding year or Rs 5 Crores or whichever is less, but not less than Rs 50000 for each class of business as per divide 3A.6. Requirements as to CapitalThe minimum paid up equity capital, excluding required deposits with the RBI and any preliminary expenses in the formation of the country, requirement of an insurer would be Rs 100 crore to carry on life insurance business and Rs 200 crore toexclusively do reinsurance business as per Section7. Investment of funds outside IndiaInsurers outside India as per Section 27-C cannot invest the funds of policyholders.8. Insurance business in Rural SectorAfter the commencement of the IRDA Act, 1999, every insurer would have to undertake such percentage of life insurance business in the rural sector as may be specified by the IRDA in this behalf. It is mandatory for the new co