ARTHNEETI

Deadline: 3rd February 2018

All the Best!

 CASE STUDY: The Banking Impasse

The Indian banking industry has seen its share of fluctuations in the recent years. With time, the
digital means of transactions have emerged, empowering the banks that have been quick in
adopting new technology.

However, there also have been significant challenges in the current economic scenario. It is a
common knowledge that in new and global India, the banks with strong financials can survive
on their own.

Let there be four banks in the India. S1, S2, S3 and W1.

The policies of the first three banks S1, S2 and S3 have ensured strong financials. However, the
fourth bank W1 has been feeling stress. Due to its weak financial position, the management has
been considering various options including merger of the weak bank W1 with any one of the
three banks S1, S2, or S3.

Your team has been hired by the bank management to suggest the right merger path for W1,
(assuming all banks are ready to merge with W1). For your assistance, you have been provided
the SWOT analysis and the key financials of all the banks.

You are required to carefully analyse the SWOT and the Financials and come up with the plan to
be implemented by W1 to tackle the crisis. Based on your analysis, you need to submit a
presentation (Please refer to the rules sheet for the format of the presentation.), containing the
following pointers:

A. Which bank should W1 merge with and why?

B. What factors did you consider for the suggested Merger?
C. Proposal for Merger and Logic(s) for choosing the strong bank
D. If “Merger” is not an option for the bank, which alternate ‘out of the box’ strategy would you
suggest for the weaker bank and why?
E. Conclusion
 SWOT and Key Financials: S1
Key Financials-
S. Parameter Q2’17 Q2’ 18 Growth (YOY)
No.
1. Total Business (Rs. Crore) 968615 1046474 8.0
2. Total Deposits (Rs. Crore) 574884 636208 10.7
3. Total Advances (Rs. Crore) 393731 410266 4.2
4. Operating Profit (Rs. Crore) 2732 3279 20.0
5. Net Profit (Rs. Crore) 549 561 2.0
6. NII (Rs. Crore) 3880 4015 3.5
7 CASA (Rs. Crore) 216224 256855 18.8
8. Gross NPA (% of gross advances) 13.63 13.31 -32 bps
9. Net NPA (% of net advances) 9.10 8.44 -66 bps
SWOT-
Strengths Weaknesses
• Recognised Brand Built Over 123 Years of Operations  Low Retail Credit portfolio vis-à-vis
• 2nd largest among public sector banks in terms of private peers.
business and total assets.  The Bank lacks an adequate network
• Focus on Portfolio Quality of branches in the South and western
• One of the highest CASA share region of the country at a point of
• Pan-India presence with wide distribution network time when the new business
• Improving Operating Performance opportunities tend to be emerging
• Focus on Operational Efficiency via. PARIVARTAN there.
• Focus on Resolution of large stressed assets
• Shore up capital; Readiness of participating in capital
market
• Systematically selling of Non Core Assets
• Control on RWAs; Credit growth higher than RWA
growth
• Around 65% of Retail Loans are collateralized
Opportunities Threats
• Digitalization - Thrust on Digitalization combined • Slow economic growth.
with customer centricity to tap Gen Y & Gen Z • Small Finance Banks and Payments Banks -
customers. Intense competition ahead.
• Large untapped MSME segment particularly in Tier 2-
3 cities.
• Regulators efforts for resolution of Stressed Assets -
Insolvency and Bankruptcy Code, Ordinance for NPA
Resolution etc.
• Business Tie ups- Small Finance & Payment Banks -
opportunity to tap Business through tie-ups.
• GOI initiatives-Baharmala, Sagarmala, Housing for
All project, MUDRA etc., to improve credit .
 SWOT and Key Financials: S2
Key Financials-
S. No. Parameter Q2’17 Q2’ 18 Growth (YOY)

1. Total Business (Rs. Crore) 921681 970574 5.30%

2. Total Deposits (Rs. Crore) 567531 583212 2.76%
3. Total Advances (Rs. Crore) 354150 387302 9.36%
4. Operating Profit (Rs. Crore) 2690 3042 13.09%
5. Net Profit (Rs. Crore) 552 355 -35.69%
6. NII (Rs. Crore) 3426 3720 8.58%
7 CASA (Rs. Crore) 156760 194935 24.35%
8. Gross NPA (% of gross advances) 11.35 11.16 -19 bps
9. Net NPA (% of net advances) 5.46 5.17 -29 bps
SWOT-
Strengths Weaknesses
• Well distributed branch network with 34% coverage in Rural, • Rising NPAs in absolute terms.
28% in Semi-urban, 21% Metro and 17% • Declining Net Profit of the Bank
• Complete Banking products portfolio–Complete portfolio of • Marginal Growth of 5.30% in Business
Banking services and financial products, many of which are of the Bank
availed by their customers. • Total Deposits of the Bank also grew
• Strong CASA growth of 24.35%. marginally by 2.36% in Sep’17
• Deep Financial Inclusion Coverage –28.90 million accounts,
with total deposits of Rs.8,063 crore and average balance of
Rs.2,790.
• Subsidiaries and JVs cover the entire Financial Spectrum-
Insurance, Asset Management, Capital Markets

Opportunities Threats
• Branch Expansion in Rural areas • Emergence of New players like Small
• Increasing adoption of technology: Online cash transactions Finance Banks and Payments Banks.
are gaining popularity, especially after the move of
demonetization and launch of platforms like BHIM app.
• The increasing use of E-transactions allows it to improve the
return on technology spend.
 SWOT and Key Financials: S3

Key Financials-
S. Parameter Sept’16 Sept’17 Growth (YOY)
No.
1. Total Business (Rs. Crore) 868590 908218 4.6
2. Total Deposits (Rs. Crore) 505280 543716 7.6
3. Net Advances (Rs. Crore) 363310 364502 0.3
4. Operating Profit (Rs. Crore) 2493 2233 -10.4
5. Net Profit (Rs. Crore) 127 179 40.9
6. NII (Rs. Crore) 2720 2908 6.9
7 CASA (Rs. Crore) 134789 162770 20.8
8. Gross NPA (% of gross advances) 13.45 12.62 -83 bps
9. Net NPA (% of net advances) 7.56 6.47 -109 bps
SWOT-
Strengths Weaknesses
• Pan India presence with over 3400 branches. • Lacks insurance, brokerage and
• The share of Retail, Agriculture and MSME (RAM) investment-banking services. The bank
advances in domestic credit improved to 52% in totally depends on its wholesale
Sept’17 from 49% in Sept’16. banking operations, retail banking
• GNPAs declined gradually to Rs 49,307 crore in operations and treasury operations.
the Sept’17 from Rs 51,019 crore in the June’17. • Less expenditure on marketing and
• Net profit went up by 40.9% in Sept’17. advertisement.
• CASA grew by 20.8%.
Opportunities Threats
 Banking growth driven by new products and • Emergence of New players like Small
services that include opportunities in credit Finance Banks and Payments Banks
cards, consumer finance and wealth • High NPAs.
management on the retail side, and in fee- • Declining brand equity.
based income and investment banking on the • Challenging economic environment.
wholesale banking side.
 Given the demographic shifts resulting from
changes in age profile and household income,
consumers will increasingly demand
enhanced institutional capabilities and service
levels from banks.
 Vast export marked to explore.
 SWOT and Key Financials: W1
Key Financials-
S. Parameter Q2’17 Q2’18 Growth (YOY)
No.
1. Total Business (Rs. Crore) 367580 364212 -0.92%
2. Total Deposits (Rs. Crore) 208058 211548 1.68%
3. Total Advances (Rs. Crore) 159522 152664 -4.30%
4. Operating Profit (Rs. Crore) 1064 1039 -2.39%
5. Net Profit (Rs. Crore) -765 -1223 59.78%
6. NII (Rs. Crore) 1286 1520 18.20%
7 CASA (Rs. Crore) 64354 75321 17.04%
8. Gross NPA (% of gross advances) 21.77% 22.73% 96 bps
9. Net NPA (% of net advances) 14.30% 13.88% -42 bps
SWOT-
Strengths Weaknesses
1. 80 years in the service of banking 1. Less penetration in India
2. Strong domestic presence of 3347 branches and 2. Few no. of branches across the country as
3446 ATMs compared to other brands
3. 57% of Branches catering to the needs of Rural 3. Low visibility in advertising and branding
and Semi Urban centres enhancing deeper
Financial Inclusion.
4. A strong Brand name in South India especially in
Tamil Nadu
5. Trust of 35 million active customers.
6. Overseas Presence with 8 branches and 1
Representative Office
7. Sustained Growth in Low cost CASA deposits
8. Improved performance in Retail, Agri and MSME
Segments
9. Digital initiatives and strong technology support
Opportunities Threats
1. Mobile Banking, Internet banking 1. Economic crisis and fluctuating
2.Expansion into rural areas and retail banking markets
3.Doing aggressive marketing in order to improve 2. Highly competitive environment.
brand value 3. Stringent Banking Norms laid by RBI