Impact of PESTEL analysis on banking industry of India

PESTLE - Analysis

Public-sector banks control nearly 80 percent of the market, thereby leaving comparatively much smaller shares for its private peers.

The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and well-regulated.

Political Factors This year, the Government of

India has adopted new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position

Some of the major political factors affecting the Banking industry are :

• Focus on regulation of government • Budget and budget measures • Foreign Direct Investment limits 

Indian banking sector is least affected as compared to other developed countries thanks to robust policy framework of RBI

Economical Factors Every year RBI declares its 6 monthly policies

and consequently the varied measures and rates are enforced that has a bearing on the banking sector.

If the FDI limits are relaxed, then a lot of FDI are brought in India through banking channels.

The Indian economy is on the brink of a major transformation, with several policy initiatives set to be implemented shortly.

Positive business sentiments, improved consumer confidence and more controlled inflation are likely to prop-up the country’s the economic growth

Socio-cultural Factors It is wise to look at the socio-

cultural factors that may affect your venture into the banking sector.

Determine cultural attitude of the market towards money-related issues.

Look at how savings are approached and how effective are the available loans.

Determine the market’s attitudes towards foreign services and products.

Technological Factors  The advancements in technology have brought the mobile and

internet banking services to the fore. The banking sector is laying greater emphasis on providing

improved services to the customer’s overall experience as well as give banks a competitive edge.

Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market shortly.

The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Environmental Factors The banking industry has moved

gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks.

To survive in an increasingly competitive environment, bank need to come up with various facilities like Internet banking, mobile banking etc.

The asset quality of banks is one of the most important indicators of their financial health. It also reflects the efficacy of banks’ credit risk management and the recovery environment

Legal Factors There are two major factors determining

the legal aspects of the Banking Industry by RBI:

Banking Regulation Act (1949) 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.

Intervention by RBI 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

Vaibhav Belwariar