Barclays Bank in India - Case Study Example

Barclays Bank in India Table of Contents Executive summary 2 Introduction 3 Environmental Analysis 3 1. Industry life cycle 3 1.2. PEST analysis 4 1.3. Porters Five competitive analysis 5 1.4 Industry survival and success factors 6 2. Analysis of the organization’s strategy 6 2.1 Value chain analysis 7 2.2. Evaluation of sustainability 7 .3. Conclusion 7 Annexes 9 References 13 Barclays Bank in India Executive Summary Barclays Bank is one of the foreign investors that have established its presence in the retail banking system in India. As a late comer in the industry, it has to use innovative strategies to capture the market. Barclays Bank became a major player in the retail banking industry in India shortly before the economic crisis wherein credit policy was loose and tempting for consumers. This study details the strategies used by Barclays Bank with the purpose of investigating whether these strategies are sustainable or whether they need further enhancement or policy decisions for improvement. Methods used for analysis are evaluation of environmental analysis of factors affecting Barclays’ operation in India. Using the PEST and Porters 5 forces of competitive analysis, study is able to view external factors that act as barriers for the operation of the bank. Likewise, the study looked at the sustainability factors that are internal to the operations of the bank and is able to infer the strengths and weakness in its operations. Result of analysis could be used as benchmark information for future plans of the bank. Introduction Barclays bank targeted the under-served population of India in its entry to the retail banking system of the country. Barclays believe that the “unbanked” sector is a great potential for marketing its innovative banking products. Since this is a great challenge for Barclays Bank, it is worth investigating if this strategy has been sustainable. In this report, the strategic approaches taken by Barclays Bank to enter the retail banking system of India will be analyzed and criticized. The industry life cycle and the theory of Porters five forces will be used to better understand the industry context in which the bank operates. The value chain and the competitive position of the bank will also be examined in order to arrive at a decision on whether to carry on with the operations or what needs to be developed some more. 1. Analysis of the environment 1.1. Life cycle of the banking industry in India An industry life cycle has been defined as a period of time from the introduction of an industry to its decline and stagnation. Typically, an industry life cycle is described in the illustration below: The industry life cycle is depicted as a period where the industry has a beginning, followed by the growth, maturity and final phase of decline. (Financial Dictionary) Relating this to the industry life cycle of the Indian banking industry, records show that the banking industry in India is already in existence for about 200 years, but it has been subjected to various reforms. Before the nationalization of its banks took place in July 1955, banks in India were held by the private sector that was characterized by weaknesses, lack of capitalization and systemic deficiencies. Banking system at that time ignored the credit requirements of the agricultural and other needy sectors. Growth in the Indian banking system started when the government nationalized the State Bank of India, followed by nationalization of SBI subsidiaries in 1955, 14 major banks in 1969 and nationalization of 7 other banks with deposits over 500 crores in 1980 (India, Finance & Investment Guide). The third wave of changes in India occurred in 1991 when the government allowed entry of new foreign entities to join the banking industry. 1.2 PEST Analysis Political. The bank sector of India is governed by the Reserve Bank of India. It is the sole agency that issues banking licenses, devising guidelines and regulations, specifies lending rates, reserve and liquidity ratios to commercial banks (Banks in India) The banking system in India is undergoing reforms. At present, about 80% of the banking section is governed by the authorities. The Public Sector Banks, which are the mainstays of the bank system of the country, face problems of non-performing assets, lack of up-to-date expertise and dwindling of substantial labor force, while the new entries to the bank market are introducing new banking business models of innovation and service. The new players find it difficult to match the great reach, huge amount and way in to the small depositors of the public sector banks. (Research and Markets) Economics. In 2010, the country has recovered strongly from the worldwide economic predicament because of powerful domestic demand. Growth has exceeded 8% year-on-year in real terms. In 2010, imports were $327 billion while exports trade was $201 billion. Exports value, which is 15% of GDP, returned to its pre-financial crisis. India is challenged by 25% poverty, 10.8% unemployment and lack of ability to get quality higher education (CIA Factbook, 2011). Technological. Technology and superior customer service are the forces used to compete in the banking industry. Banks today use ATMs, phone banking, net banking and mobile banking which are all in observance of international norms. 1.3 Porters Five forces. This study used Porters’ model of competitive analysis to better understand the industry in which the Barclays Bank operates. Power of suppliers. Suppliers are not a threat to the bank’s operations because of availability of global supply and importation. Power of buyers. The un-banked sector of India is estimated to be over 184 million people in India (Barclays Bank in India). Barclays Bank sees this sector as a potential for credit growth because it is a large untapped business market. Threat of entry of new competitors. Since new players find it difficult to match the power of government banks, private banks turn to mergers and acquisitions to have a competitive advantage in the market (“Are banks mergers…”,2008) private Firms Rivalry. As of 2008, there are 28 government banks, 29 private sector banks and 30 foreign banks, aside from regional rural banks and cooperative banks. The incumbent plan of the government to divest of its ownership in government banks opens the opportunity for takeover, and acquisitions of willing Indian partners. It has to deal with competition of banks that are already settled ahead of them in India such as HSBC, ING, ABN AMRO (Barclays Bank in India). See annex 1 for detailed listing. 1.4 Industry survival and success factors Survival New overseas banks should carry on with the acquisition and mergers to maintain competitive advantage in operations. They will have to continue offering broad choices of products and services that should include retail banking, portfolio management, corporate lending, project financing, investment banking and foreign exchange trading. Success. Barclays is already operating in the investment market of India for over 30 years, but is a late comer when it comes to retail banking services that was offered only in May 2007. However, within 16 months of operation in India, it has opened five branches with a customer base of around 600,000 and became one of the fastest growing foreign banks in India (Barclays Bank in India…”) 2. Analysis of the organization’s strategy. 2.1 Value chain analysis. This type of study takes into consideration the activities that take place in the business. Barclays Bank is a major financial services company that has a significant retail and commercial operations in 50 countries throughout Europe, the US, the Middle East, Latin America, Australia, Asia and Africa. The bank boasts of its 300 years of banking experience that continues to provide standard retail services such as current accounts, savings and investments, mortgages and other loans, insurance, credit cards and on line banking. 2.2. Evaluation of sustainability. Profitability of Barclays Bank is not a question as in 2010, its net profits rose by 36%, to 3.56 billion pounds from 2.63 billion pounds in 2009. Management has been efficient as charges to bad loans and other impairments went down by 30 percent, amounting to 5.67 billion pounds. Barclay’s capital, its investment branch also reported a 94 percent increase in a pretax profit of 4.78 billion pounds. Confidence of stockholders is gained as report of bidding shares are up by 2.7 percent, and the general market view of “buy” is strengthened (Barr, 201l). 3. Conclusion In terms of life cycle, the banking industry in India is still under the period of growth because foreign participation has just barely started. Although banking system has been in place for many years, the previous one was weak and has to be reformed. So it is heretofore called the birth. All foreign banks are in the period of growth as they are now competing in the retail banking of India. Competitors of Barclays Banks have been ahead in positioning their company in India. So in order to compete, Barclays has to be innovative in its approach to encourage clients to go to their bank. Barclays was ahead in its competitors in introducing smart budget cards for the middle and lower income urban consumers. This is differentiated from competitors in that the system allows customers to decide how much they could afford to pay each month. They enticed borrowers to get a seven-year personal loans up to a maximum of $33,000, that comes with lesser monthly settlement, to be paid over a period of 7 years instead of the market average of 4 to 5 years. Barclays designed the Premier League Card and Barclaycard Gold credit card program for high end urban customers that give the choice of billing date, minimum amount due and the credit limit. For the un-bank sectors, the Kudumb saving account of Barclays allowed a single savings account to a family with four members, and an extension to non-members of the family like driver or maid. Only in Barclays can one find a no frills account that has an average quarterly balance of as low as $7 only.( Barclays Bank in India: Innovative Retail Banking Growth Strategy) Barclays had used three marketing strategies in targeting clients. First is the introduction of Barclays as a unique brand to catch attention of consumers. Next, marketing strategy was built on the heritage of the company to build the trust and the third, is the communication that tells about the product and its advantages across other banks. Barclays employed technology in banking services to reduce operating cost such as internet and mobile banking. Barclay said that it is driving to a “sachet banking” that based on its own study, showed customers are keen on banking innovations such as doorstep banking, internet and mobile banking; and has a tendency to veer away from branch banking. In 2008, barely a year after the bank offered the new banking strategy; the economy was hit by the economic crisis. Barclay recalls that before that, they had to gain the market fast so they offered “credit indiscriminately” to almost everyone, even below market rates. At the time of the crisis, the bank had to reduce credit card limits, and had to go into other intermediary services like insurance plans, mutual funds and other linked services. The bank also had to retrench employees at the rate of 25 per week. Clearly, the economy did not support the initial strategies of Barclays. Today, India has been reported as an emerging economy in terms of development. Crucial to this are the new strategies needed to capture the market at this point. The strategy used in 2007 was not fully successful because of the economic crisis. But now that the economy has rebound, strategy should be crafted on target consumers’ buying power. According to CIA Factbook, although a large percentage of India’s work force is found in agriculture, but the service sector has now become its major source of economic growth. India is now considered a major exporter of information technology services and software workers in the world. Barclays should put the service sector in their consideration for future marketing strategy as this is one of the striving factor of its recent economic development. In the light of the above findings, there is a need for a further study on appropriate strategy to be applied by the bank to its target market, taking into consideration its past experience with the unbanked sector of India. Annex 1. Top banks in India ABN-AMRO Bank Abu Dhabi Commercial Bank American Express Bank Andhra Bank Allahabad Bank Axis Bank (Earlier UTI Bank) Bank of Baroda Bank of India Bank of Maharastra Bank of Punjab Bank of Rajasthan Bank of Ceylon BNP Paribas Bank Canara Bank Catholic Syrian Bank Central Bank of India Centurion Bank China Trust Commercial Bank Citi Bank City Union Bank Corporation Bank Dena Bank Deutsche Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank HSBC ICICI Bank IDBI Bank Indian Bank Indian Overseas Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank JPMorgan Chase Bank Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Scotia Bank South Indian Bank Standard Chartered Bank State Bank of India (SBI) State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra State Bank of Travancore Syndicate Bank Taib Bank UCO Bank Union Bank of India United Bank of India United Western Bank Vijaya Bank Kotak Mahindra Bank Yes Bank Source: India Finance & Investment Guide http://finance.indiamart.com/investment_in_india/banks_in_india.htm Annex 2 Barclays Annual Report 2009 Consolidated Income Statement For the year ended 31st December Notes 2009 £m 2008 £m 2007 £m Continuing operations       Interest income a 21,236 28,010 25,296 Interest expense a (9,567) (16,595) (15,707) Net interest income   11,669 11,415 9,589 Fee and commission income b 9,946 7,573 6,745 Fee and commission expense b (1,528) (1,082) (970) Net fee and commission income   8,418 6,491 5,775 Net trading income c 6,994 1,270 3,754 Net investment income c 283 680 1,216 Principal transactions   7,277 1,950 4,970 Net premiums from insurance contracts 5 1,172 1,090 1,011 Other income f 1,389 444 222 Total income   29,925 21,390 21,567 Net claims and benefits incurred on insurance contracts 5 (831) (237) (492) Total income net of insurance claims   29,094 21,153 21,075 Impairment charges and other credit provisions 7 (8,071) (5,419) (2,795) Net income   21,023 15,734 18,280 Staff costs 8 (9,948) (7,204) (7,611) Administration and general expenses d (5,558) (5,301) (3,854) Depreciation of property, plant and equipment 23 (759) (606) (453) Amortisation of intangible assets 22 (447) (276) (178) Operating expenses   (16,712) (13,387) (12,096) Share of post-tax results of associates and joint ventures 20 34 14 42 Profit on disposal of subsidiaries, associates and joint ventures   188 327 28 Gains on acquisitions 40 26 2,406 – Profit before tax   4,559 5,094 6,254 Tax e (1,047) (449) (1,699) Profit after tax from continuing operations   3,512 4,645 4,555 Discontinued operations       Profit after tax for the year from discontinued operations, including gain on disposal   6,777 604 571 Net profit for the year   10,289 5,249 5,126 Profit attributable to equity holders of the Parent from:         Continuing operations   3,228 4,259 4,218 Discontinued operations   6,765 587 531 Total   9,993 4,846 4,749 Profit attributable to non-controlling interests   296 403 377     10,289 5,249 5,126 Source: Barclay’s Annual Report 2009, http://www.barclaysannualreport.com/ar2009/index.asp?pageid=126 References “Are bank mergers in India entering a new era?? 06 March 2008. Article published in India Knowledge@Wharton. Viewed 30 March 2011 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4268 Banks in India. India Finance and Investment guide. http://www.mapsofindia.org/finance/banks-in-india/index.html Barclays Bank in India: Innovative Retail Banking Growth Strategy. Viewed 30 March 2011 http://www.docstoc.com/docs/68513735/Barclays-Bank-in-India-Innovative-Retail-Banking-Growth-Strategy-Case Barr, Robert. 15 Feb. 2011. The Associated Press. Barclays 2010 profit up as bad loan charges decrease; total bonuses paid out to shrink http://ca.finance.yahoo.com/news/Barclays-2010-profit-bad-loan-capress-356603757.html?x=0 CIA. The World Factbook 11 March 2011. Southeast Asia: India . Viewed 30 March 2011 India, Finance & Investment Guide 2011. Nationalization of Banks in India. Viewed 30 March 201 Indian Banking Industry. Jan. 2001. Research and Markets Viewed 30 March 2011. Industry Life Cycle. Definition. Viewed 30 March 2011 Read More