Submitted to: - Compiled By:-

Anurag Hans Akash Bhargava

Shubhra Behl Anuma Tandon

Deepika Agarwal

Pooja Rathee

Priyanka Khandelwal

Shivani Rani

Shweta Nahar

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Page No.

1) Executive Summary 3

2) Where are we now?

a) Analysis of the Industry and competition 5b) Value chain analysis (Internal analysis) 8

3) Where we want to be?

a) Performance Review 11b) Key issue and opportunities 13

4) How will we get there?

a) Marketing Strategy 13b) Plan of Action 15

5) Did we get there?

a) Controls 16

6) References 17

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“Axis Bank” was the first of the new private banks to have begun operations in 1994, after the “Government of India” allowed new private banks to be established. The bank was promoted jointly by the “Administrator” of the specified undertaking of the “Unit Trust of India (UTI)”, “Life Insurance Corporation of India (LIC)”, “General Insurance Corporation of India” and four other PSU insurance companies.

The topic microfinance though is not new but still isn’t popular within the country. Microfinance is a technique of providing finance to the poorest of the poor people who are scattered in the various geographic areas. To under this concept let us take an example.

There is a group of say 40-50 people who need banking service but cant have it due to geographical distribution. Since they are from rural segment and are unable to go to cities for getting the financial service. For a bank it isn’t possible to open a branch in such a remote area and provide banking service to them. So they gather these people forming a micro group and contact them for banking services. The group is called at a particular pre decided area where the bank provides service to them. Here we can say that microfinance is made of two words where a micro group gathers to get financial services (i.e.micro+finance).

Commercial banks have recently entered this field. In their absence microenterprise lending has developed on an alternative track through a large numbers of nongovernmental organizations (NGOs) and other specialized financial institutions. The scenario was same throughout the world. Development began late in India but was acerbated with NABARD coming into existence in late 1982. Later other MFIs’ such as “Bandhan” and “Centre for Rural Reconstruction through social action” also came into existence. Now micro lending is not just restricted to MFI’s.

With the success story of “Grameen Bank” in Bangladesh which came into existence in late 1983, others banks were also inspired to enter this sector and the growth rate of microfinance was accelerated. India, being an agro based country and with majority of the population falling in the rural segment, the number of customers to be served is high.

Now almost every bank has tie-ups with MFI’s to serve the poor segment. Even Axis Bank is in this sector but the market share is very low. In the commercial bank sector SBI and ICICI are the major players having an extensive network of teaming up with MFI’s and SHG’s. On the contradictory Axis Bank being first private bank to commence business in the country is still not able to compete with these leaders in terms of “Microfinance”. The objective of this plan is to study the market and suggest some ways by which Axis bank is able to challenge these leaders thus gaining share and business in the market and extending its’ network in microfinance sector.

This study methodology includes comprehensive analysis of the industry, competition and internal environment of Axis Bank, and then keeping the strengths and weakness in mind formulating of various strategies that can be implemented to achieve the objective of gaining business.

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In the scope we are just restricted to the microfinance sector of India. We have taken into consideration three banks i.e. ICICI bank, State Bank of India and Axis bank. The study includes the reasons why ICICI and SBI being the leaders in this sector and their success traits are compared to that of Axis bank.

Microfinance is a big industry and before crafting any strategy is essential to analyze the current environment trends. To put this plan into action basically we are concern with analysis of the industry as a whole, analysis of the competition and analysis of the internal environment. Under current situation and trends the first two are covered.

Analysis of Industry

“PEST Analysis”

Political Environment India is a republic country having high density of population and major part of it living in the rural or remote areas. As known for the internal politics of the country in last few years there have been conflicts along the ethnic lines. There has been a regular growing discrepancy between the wealthy and the poor’s. The government is more or less stable. Apart from that there are various regulations on the “Microfinance”. Mainly the regulation of MFI’s is through NABARD and on co-operative banks are by RBI like the loans given to the SHG have high regulated interest rates which mostly are for recovery of operational cost resulting in low profit for the bank on short run.The state and the central government have close control on the banks. Due to many irregularities in the political scenario the trust worthy operations are becoming troublesome. Availability of new licenses is limited by the fact that not many new banks are able to be successful. This has made RBI reluctant to provide new licenses. This has made the entry in the sector difficult.

Economic Environment Taking of the economy, Indian economy is one of the fastest growing economies. Since 1980’s there have been great changes in the Indian economy. The biggest impact was of linearization and globalization opening doors for foreign banks. In the recent report of 2nd quarter of 2009-2010, the Indian GDP rose to 7.9% with service industry forming the highest share in the GDP.Still the micro finance sector is not contributing to GDP on the large basis. In the current scenario MFI still is a new concept for the Indian economy due to unawareness of the customers. Growing at a fast pace micro finance shows signs of enormous contribution to

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the GDP in the near future. The current budget lays emphasis on the microfinance and rural segment ensuring that the government of the country is thinking of the rural market.Providing great growth opportunities and big population to serve micro finance has been an attractive field to work on. Policies of government are helpful in creating awareness among the low income strata group promoting micro finance at both regional and national level.

Social Environment According to census of India, more than 60 percent of the Indian population lives in towns and villages (rural segment). Due to rapid urbanization Indian youth is attracted towards cities leaving behind the people of age group of 35+ in the rural segment. New trends have created much more awareness about the education which is accelerated by the free and compulsory education provided by the government. In spite of such efforts some backward areas like UP and Bihar are still having literacy rate as low as 50% when overall literacy rate of the country is 74%. So the target group is difficult to be educated because of their lack of understanding of the benefits of microfinance. Due to unawareness and lack of understanding the people prefer taking loans from local lenders at interest rate as high as 120% instead of these MFI’s and banks. Wide geographical spread also acts as a hindrance for spreading the knowledge and understanding which is coupled with the problem of approaching the targeted customer.

Technological Environment With such a vast population living in the rural sector, MFI’s and bank dependence on technology has been a big problem. Technology when used effectively can have a transformative effect in unlocking greater efficiencies, more direct outreach to the poor, the innovation of new services and broader financial transparency across the sector. Also to monitor the quality, sustainability, and efficiency of the loan portfolio, to measure its development impact, and properly manage the administration tasks of a MFI, computerized MIS comes in very handy. Innovations such as mobile phone banking, smart cards, biometric IDs, and rural kiosks are expected to help reduce the operating costs of Indian MFIs and banks while improving transaction security.Technology on other hand is capable of reducing cost and risk associated with the transaction increasing the security. It also reduces the time required for the transactions. With private banks such as Standard Chartered entering in microfinance who is real big player on term of global market use of technology is gaining popularity.In India due to social cultural condition the targeted market is reluctant to adopt the new technology so to make people familiar with these emerging trends is a tedious task.

“PORTER’s Five Forces model for the Micro Environment”.

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Threat of New Entrants The entry in the microfinance sector isn’t profitable on a short run basis. In order to be successful and earn profit from this field it is necessary that any player have a dense network with MFI’s and be in the industry for a long term. There isn’t much product differentiation possible in this sector because of the predefined rules and regulation. The only thing that can be one is offering vast range of loans. Since this sector is growing at a very fast pace and with India being an agro based country this sector provides huge opportunities and growth in the near future. Brand identity plays a very important role for the ties ups with the MFI’s. Initial capital requirement is huge and the new entrants face the problem of mobility of capital. Since the network of MFI’s and the customer to be dealt is geographically spread, the bank must have their presence all around. Therefore this industry is not for small or regional banks. For the government interference there are strict rules for operation in this sector like the interest rate can’t be high and no bank can directly enter in this sector without having tie ups with MFI’s. Seeing the scenario if the bank is big having good brand image, huge capital to invest and can retain in the industry for a long time developing the network with the MFI’s, the industry is profitable on a long run regardless the fact that there are strict regulation in this sector. Hence on a scale of five this industry from the point of new entrants can be rated as four if the bank is small or regional and two if the bank is spread country wide.

Bargaining Power of Suppliers As discussed not much of product differentiation in a category is possible because of predefines rules. According to the study it is revealed that there is one bank for every 15000 people in the country. These people are the funds raisers of the bank i.e. the suppliers and as seen there are limited source to invest for them. Switching cost of suppliers is not too high but the time period acts as constraints. If a supplier has invested an amount in the bank in FD there is a time constraints attached to it. Still banks are the most reliable and trust wordy investment centers.Due to the regulation of the government there is not much differentiation available hence the bank competes on the level of service provided i.e. new technology, time required to avail the service, ambience etc. Since it is a service industry delivering of the service becomes important task. From the point of view of the powers that the suppliers have the industry is quite attractive giving an overall rating of two on a scale of five.

Threats of Substitutes Substitutes that are available are NGO’s and other specialized financial institutions. In India the network of microfinance has been established by these alternative tracks. Now the banks have entered this sector seeing potential and are contacting these specialized financial institutions to provide finance. Banks are more trust worthy and hence are

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capturing the market at a very fast pace. Here the brand image and capital available with banks make it more superior on the substitutes available. The policy of bank to tie up with MFI’s has reduced the availability of substitutes. On a scale of five threats of substitutes can be rated as two.

Bargaining Power of Buyers Just like suppliers the customers available are many as compared to the availability of resources for delivery of services. Here brand identity, availability, price to be paid and product differentiation plays a very crucial role. Defining that the customers to be served are MFI’s the bargaining power of customer becomes very high. Hence on a scale of five it is rated as four.

Competitive Rivalry within the Industry

The potential market for microfinance in India appears to be 245.7 million customers and an annual loan demand of Rs.2293.725 billion. Here the competitors considered are ICICI bank and SBI. These banks have strong infrastructure and have been in this field since years. On one hand ICICI have catered 3.5 million customers and have lender credit worth Rs. 25.82 billion by the end of financial year 2008-09, SBI have lent Rs.80.5 billion covering 53,000 villages. On the other hand Axis bank has just supported 1.42789 Lacs customers. ICICI have also gone for initiatives to increase awareness among rural customers for enhancing credit penetration in rural areas. They launched the “Kamdhenu - Cattle Loans Campaign” to reach out to cattle farmers. The campaign received two marketing awards - the Rural Marketing Agencies India (RMAI) Award and the WOW Events &Experiential Marketing Awards. SBI for promoting microfinance have taken various initiatives under “Bonding with Farmers” which includes “SBI ka apna gaon”, “Kisan manch”, “farmer’s club” and “farmer meets”. From the point of view of Axis bank the competition is with well settled players and is quite high .Hence it can be rated as four on five.

Taking the composite score it comes out to be 2.75. From a bank which is spread over the country it is an attractive industry having huge number of potential customer but for a regional bank it is not a project to be undertaken.

Value chain Analysis

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Supporting Activities

Primary Activities

1. Firm infrastructure : Being a private sector bank Axis bank has good infrastructure. It has all the necessary facilities for a better work environment. There are different sections for the smooth working and providing a feel of customer satisfaction. ICICI being the number one private sector bank has a flawless infrastructure with one window system and token system. SBI being a PSU is not very efficient in working timely. To some extent there is biasness in providing services to the customer.

2. Human Resource Management : Axis bank has low attrition rate with high level of employee engagement. Various employee benefit schemes are available for the betterment of employee job satisfaction. In ICICI too high level of job satisfaction was seen. SBI being a PSU provides extra benefits to the employees which are in term of job security and compensation.

3. Technology Development : In terms of technology Axis bank is way ahead of the other two. Axis bank recently received awards for its IT related initiatives. The other two banks also have sound IT department.

4. Inbound Logistic : The money is collected from the investors in different form and is assembled for the further transaction. These forms may be FD, current account, saving

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MARGIN

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound

Logistics

Operations

Outbound

Logistics

Marketing&

Sales

Services

account, different schemes running in the bank, etc. Money in form of return is paid and that differ from scheme to scheme. Due to RBI regulation the interest of all banks is almost the same.

5. Outbound Logistics : Outbound logistic is concerned with the distribution of the investment gathered to the most beneficial scheme. Here resource allocation is important. By resource allocation we mean the bank has to decide where to put the money for maximum benefit. The criteria differ from banks to banks. Some part is invested in firms, some in other SBUs, etc. More or less each bank is rated same in this section too.

6. Marketing and Sales : With so many banks coming into picture marketing has became a major issue. It plays a very important role in distinguishing. Axis bank has been regularly doing promotional activities but ICICI is way ahead of it. SBI being a PSU possess high image in spite of minimal advertising.

7. Services : The service level of the organization can be judged on the basis on customer satisfaction. Overall the service provided is good. If compared ICICI would rank first followed by Axis and then SBI.

8. Margin : Margin is very l low. The amount of interest to be charged is predefined by RBI. Due to high operation cost the margin is not very high but within the industry it is more or less the same. On long term basis the business is highly profitable.

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Resource Based Approach

Internal Area Resource/ Competence Evaluation

Physical Resources Use IT extensively like technology based risk management system, technology for customized solution, technology based solutions.

It is major strength(+4)

Human Resources Highly train technical staff which acts as platform to achieve corporate level strategy

It acts as minor strength(+2)

Financial Resources

Not very strong at financial resources Acts as major weakness(-2)

Intangible Weak corporate Image in the industryDue to UTI Brand

It acts as major weakness(-4)

Human Resource management

Low attrition, high employee engagement Acts as major strength(+4)

Performance Analysis Approach

i. Financial Perspective The bank is an identity holding bank spread over the country. With the passage of time the net profit had increased by 69.5% as compared to the previous year but in terms of rupees (1.815 billion rupees)is much lower that that of ICICI(16.09 billion rupees) and SBI(9.121 billion rupees). So as compared to the industry and key competitors the financial resource of the company is not very strong.

ii. Customer Perspective From the customer perspective the database has grown to .14 million customer but still is way below from the key competitors ICICI (3.5 million customers) and SBI (more than 3 million customers). Hence it can be concluded that the bank has not a large enough database to work on.

iii. Innovation and learning Perspective On the terms of technology and innovation Axis bank is way ahead of others. In the last financial year it has received many awards for it’s innovative use of technology like being the first among Indian banks in submitting centralized R-Return for foreign exchange transactions by the 'B' category branches to RBI, being the first bank in the country to market EMV chip embedded Debit Platinum, Travel Currency and Credit Platinum cards, development of a product for Business Banking for printing cheques at the customer locations after due validations of issuing a cheque series.

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Axis bank is not new to the industry. Having its root in the microfinance sector, the following is the performance review:

i. Product The various customized schemes available are Kisan Power (credit to farmers for meeting cultivation needs), Powertrac (to finance farm equipments and machinery), Commodity Power (loans for warehousing), Contract Farming (to finance farmers who have contract farming arrangements with corporate), Power Gold (loan against security of gold ornaments), Arthia Power (cash credit facility for meeting the commission agents’ working capital req.), rural Godowns, cattle power and horticulture projects.

ii. Place The service is available around the country. Power Gold is a product available in only selected branches of South India. Out of 835 branches only 30 branches are in rural area. The Cash Management Services (CMS) initiatives leveraged the Bank's growing branch network and robust technology to provide a wide range of customized solutions to suit the dynamic requirements of its clients. Place of delivery of service is usually the branch or the MFI institute.

iii. Price The price or the lending rate is predefined by the policy of RBI and NABARD and are usually high due to small loan amount and in order to cover the operating cost. Right now the lending rate is 7%.

iv. Promotion and education For the promotion and education of microfinance, Axis Bank has partnered with reputed MFI’s, lending through SHG and government sponsored schemes, extending loan under differential rate of interest scheme. The code of commitment of micro and small enterprises was adopted during the year 2009 to support the development of this segment. The Bank has taken various initiatives in the area of increasing use of technology in its day-to-day operations. The most notable achievement this year was in the area of financial inclusion, where the Bank was successful in deploying a separate dedicated core banking solution, which has the capability of maintaining liability accounts as well as agricultural lending accounts for microfinance. The current volumes handled in the software are 6.21 Lacs accounts. This has allowed the Bank to substantially reduce transaction costs while complying with regulatory standards. Also runs many educational programs.

v. Process

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The process is simple. A group of SHG or MFI contacts the bank giving details of amount of loan required, number of people to be benefited etc. The loan agreement request is sent to the State government who provides a subsidy of 25% of the amount. 75% of the loan amount is given by the bank to the MFI or SHG. The process takes about 15 to 20 days.

vi. Physical environment The physical environment of Axis bank is pleasant. Proper signages are used for the ease of the customer. The internal environment is in synchronization with the brand by usage of same colors as in the logo. Further for customers ease information is also available in form of brochures. The environment is comfortable in terms of sittings and furnishing, cleanness etc.

vii. People Human Resource is well managed having average age of 29 and includes young recruits and experienced officers. The targeted customers are rural sector people who are contacted through MFI and SHG. Mainly the customer can be regarded as MFI and SHG who bring business to the bank. So the crowd of MFI and SHG is well educated, sound with technology and the proceedings of the bank.

The customers are more or less satisfied. The only problem that is faced is lack of awareness and lack of reach. Since the final customers that have to be served are illiterate they are unable to distinguish in different bank offering and every bank appears to be one and the same. It all depends on MFI that whom they are promoting and whom they are not promoting.

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Internal External

Strength Strong HR and IT Customized schemes High level of service

Weakness Not having good image Lack dense network Market capitalization is low

Opportunity Huge number of un catered

customers Fast growing segment

Increase use of IT for catering the MFI’s and SHG.

Increase range of customized product offering.

Raise funds from existing customer and then tap the UN catered one.

Build network around developed MFI’s.

Increase promotion for reducing the UTI effect

Threats High competition from banks Well established network of

NGO’s and MFI’s Reluctance of people

Build strong brands and focus on network.

Increase differentiation on basis of IT.

Generate awareness about the benefits.

Go for encirclement strategy

Corporate Level

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Corporate LevelTo grow the overall share

in the market

SBU LevelTo Grow market share in

microfinance sector

Functional LevelMarketing and Financial

Strategy

Keeping the situation in mind it is now analyzed that the segment to be catered is a very vast segment which is still untapped to a great extend by any of the players in the industry. Here there is great opportunity for Axis bank to challenge the market leaders and increase the size of catered customers by contacting the not catered segment. Hence the strategic mission should be share growth. Being a challenger it should try to gain share from the well established players and expand the business with in three years.

SBU Level

Among all the four generic strategies which help in winning a sustainable competitive advantage, differentiation strategy suits the best for the Axis Bank. Not much can be done with the product offering but the range or the areas covered can be increased. Apart from that the technology support that the bank is offering is the first in its type. It should maintain this scenario. Dealership or tie ups with the MFI’s must be enhanced in order to cover more and more area. Much emphasis should be paid on the service offered so that it becomes a differentiating factor for the bank.

Functional Level

At the functional level the main focus should be on two areas one being marketing and other being finance. The concept of microfinance is still unknown to many of the targeted customer. The database of the customer to be served is huge. In order to increase market share market penetration and market development strategies can be followed. Under these strategies the bank should focus on the current product, current market and new product, current market. Here the focus should be to create more and more awareness among the existing database, target the part of the segment that still untouched and develop new range of products for the existing database.

The main competitors have developed infrastructure in the area. So the bank should also focus on development of the infrastructure by increasing the number of MFI’s tie ups.

Here Axis bank is a challenger so the different tactics that can be applied by the bank are encirclement, guerrilla attack, and frontal attack.

The bank can go for the encirclement by covering the various ranges of products that can be offered in this segment. Strong network should be established by increasing the number of tie ups with the MFI’s and other institutions.

There is still a big band of MFI’s that don’t have tie ups with any of the banks. These MFI’s can be targeted to increase the range of customer served.

The bank is good on technology, so it should be promoted the same.

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Focus should be on the finance department too as the main weak point with the bank is that it is low on finance as compared to the leaders. So it should try to work on finance by cost cutting and increasing the revenue.

The product is in the growth phase where though many players are in the market but only few have decent market share. So the competitors can be regarded as few in number. Keeping this in mind the following is the plan of action:

Product: Range of product offered should be increased

Place : Open more and more branches in rural sector

Price: Prices are pre regulated so it can’t be modified to a great extend. But in SBU other than microfinance price should be increased in order to gain more and invest more.

Promotion: different promotional schemes should be there and more emphasis should be on education of the customers.

Brand positioning should be laid emphasis on because still there is an image of UTI attached to it.

Enhance the network through tie ups with more and more MFIs and SHG.

Try to raise more funds from present customers and gain new customers.

Ensure brand loyalty for maintenance of present customer.

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The model used for monitor the success of the plan is “The process model of competitive advantage and control variables”

Outcome Operationalization Typical measureCustomer Satisfaction Overall satisfaction level of

customer. Difference between customer expectation and service provided.

Survey, rating by customer.

Customer Loyalty The extent to which customer can switch to substitute.

Survey of loyalty.

Market Share The total segment captured compared with total available

Company’s turnover over the total industry turnover.

Measurement of financial productivity

Sales Growth Percentage increase in sales of two periods.

COGS(Cost of goods sold) to sales

Total cost as expressed as percentage of total revenue.

Gross profit margin Operating profit as a percentage of sales

Net profit margin Compares the revenue to net profit

Return on equity Value addition to firm by increase in revenue and profit.

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www.axisbank.com

www.statebankofindia.com

www.icicibank.com

www.thinkmicrofinance.org

www.indiamicrofinance.com

Marketing Strategy – by Walker Mullins & Boyd Larreche

Crafting And Executing Strategy – by Thompson, Strickland, Gamble and Jain

Annual reports of the respective banks.

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