PESTLE analysis of 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 always, the most dominant segment of the
financial sector. Indian banks continue to build on their strengths under the
regulator's 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 credit
growth, and decline in non-performing assets (NPAs)
 Growth in the sector has been favoured by factors including low defaulter
ratio, strong economic growth, central bank’s regular intervention and pre-emptive
adjustment of monetary policy.
 The policy makers for the banking sector, 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

3. WHAT IS PESTEL ANALYSIS

4.  To what degree a government intervenes in the economy. Ex-tax
policy, labour law, environmental law, trade
restrictions, tariffs, and political stability
 Some of the major political factors affecting the Banking
industry 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 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 with help of
banking 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 various
measures and rates are implemented which has an impact on the banking
sector.
•The Economic measures affects the banking sector to boost the economy by
giving certain concessions or facilities. If in the savings are encouraged, then
more deposits will be attracted towards the banks and inturn 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

9. Key July Sept Oct
Every year RBI declares its 6 monthly
Rate 26th 16th 25th
policies and accordingly the various
s
measures and rates are implemented which
has an impact on the banking CRR 6.oo 6.00 6.00
sector.
In past 24 months RBI has changed its Repo 8.00 8.25 8.50
key monetary rates 13 times to curb rate
inflation 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 is
directly related to the growth of the economy.
GOI is trying to push the economy by framing favorable FDI policies , NRI
Investment plans which directly affect the GDP.
These plans directly affect banking industry as money comes through banks and
bank earns interest on that.

11. Interest Rates:
RBI controls interest rates, which RBI monitors regularly
Recently RBI reduced bank rate to stimulate growth of banking industry
Inflation 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 various
steps like lowering interest rates to increase the demand in banking sector
Savings and Investments:
Gross domestic saving is 28% of total income in India
Latest step taken by RBI to deregulate savings rates is a step to increase
Bank savings

12. It includes cultural aspects and health consciousness, population growth rate, age
distribution, career attitudes and emphasis on safety. This could be classified
into:
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. But after emergence of banks attitude of people was
changed 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 the
private sector banks. Banks would open their branches after looking into the
population demographics of the area.
Newer branches are coming to serve the increasing population. This incentive to banks
comes on the back of the continuing need to open more branches in these States in
order to ensure more uniform spatial distribution
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

14. Technology plays a very important role in bank’s internal control mechanisms as well
as services offered by them. Through the use of technology new products and service
are introduced. It include technological aspects such
as R&D activity, automation, technology incentives and the rate of technological
change. Some of the technological changes which brought radical changes in banking
industry 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 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.
• 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 secured
service

16. Indian economy has registered a high growth for last three years 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 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 would
further 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 of
India (RBI) "to regulate, control, and inspect the banks in India.
The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common 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 on
almost all parameters - profitability, cost to income ratio, non-performing asset (NPA)
levels, valuations, net interest margins, fee income - the industry is on the right side of
average among comparable economies.
• Transition from class banking to mass banking and increased customer focus is
drastically changing the landscape of Indian banking. Expansion of retail banking has a
lot 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 the
Indian banking industry is about half of international average
• Consolidation in the banking industry has remained crucial to ensuring technological
progress, excess retention capacity, emerging opportunities and deregulation of various
functional and product