Term Paper

On
Banking, Insurance, Service
and Financial Sectors (BISF)
{PEST analysis}
(With reference to course, Business ENVIROMENT
(MGT 518)

Submitted to: Submitted by:

Mr. PANKAJ JAIN RAJIV GUPTA
ROLL NO: B34
SEC: RR1902
REG NO: 10901946
ACKNOWLEGEMENT

First of all we would like to thank the Lovely Professional University

and take the opportunity to do this project as a part of the M.B.A.
Many people have influenced the shape and content of this project,
and many supported me through it. I express my sincere gratitude
MR PANKAJ JAIN for assigning me a project on BANKING,
INSURANCE, SERVICES AND FINANCIAL sector which is an
interesting and exhaustive subject. He has been an inspirational
and role model for this topic. Her guidance and active support has
made it possible to complete the assignment.

We would also like to thank my friends who have helped and

encouraged me throughout the working of this project.

Last but not the least I would like to thank the Almighty for always
helping me

RAJIV GUPTA
 Index
Introduction to PEST Analysis

Banking Sector

Definition of Banking

Banking “An Executive Summary”

Types of banks

SWOT Analysis of Banking Sector

PEST Analysis of Banking Sector

Insurance Sector

Introduction to Insurance

Indian Insurance Market: History

Insurance market- Present

PEST Analysis of Insurance Sector

Service Sector

Introduction to Service Sector

SWOT Analysis of Service Sector

PEST Analysis of Service Sector

 Financial Sector

Introduction to Indian Financial Sector

PEST Analysis of Indian Financial Sector
PEST Analysis
PEST Analysis is a simple, useful and widely-used tool that helps you
understand the "big picture" of your Political, Economic, Socio-Cultural and
Technological, environment. As such, it is used by business leaders worldwide
to build their vision of the future.

PEST analysis is concerned with the environmental influences on a business.

Identifying PEST influences is a useful way of summarizing the external
environment in which a business operates. However, it must be followed up by
consideration of how a business should respond to these influences.

It is important for these reasons:

 First, by making effective use of PEST Analysis, you ensure that what
you are doing is aligned positively with the powerful forces of change
that are affecting our world. By taking advantage of change, you are
much more likely to be successful than if your activities oppose it;
 Second, good use of PEST Analysis helps you avoid taking action that is
doomed to failure from the outset, for reasons beyond your control; and
 Third, PEST is useful when you start operating in a new country or
region. Use of PEST helps you break free of unconscious assumptions,
and helps you quickly adapt to the realities of the new environment.

The table below lists some possible factors that could indicate important
environmental influences for a business under the PEST headings:
Political / Legal Economic Social Technological
- Environmental regulation - Economic growth- Income distribution- Government spending on
and protection (overall; by industry(change in distribution ofresearch
sector) disposable income;
- Taxation (corporate; - Monetary policy- Demographics (age- Government and industry
consumer) (interest rates) structure of the population;focus on technological
gender; family size andeffort
composition; changing
nature of occupations)
- International trade - Government spending- Labor / social mobility - New discoveries and
regulation (overall level; specific development
spending priorities)
- Consumer protection - Policy towards- Lifestyle changes (e.g.- Speed of technology
unemployment Home working, singletransfer
(minimum wage,households)
unemployment benefits,
grants)
- Employment law - Taxation (impact on- Attitudes to work and- Rates of technological
consumer disposableleisure obsolescence
income, incentives to
invest in capital
equipment, corporation
tax rates)

- Government organization / - Exchange rates (effects- Education - Energy use and costs
attitude on demand by overseas
customers; effect on
cost of imported
components)
- Competition regulation - Inflation (effect on- Fashions and fads - Changes in material
costs and selling prices) sciences

- Stage of the business- Health & welfare - Impact of changes in

cycle (effect on short- Information technology
term business
performance)

- Economic "mood" -- Living conditions- Internet!

consumer confidence (housing, amenities,
pollution)

INTRODUCTION TO BANKING
Definition:
A bank is an institution, usually incorporated with power to issue promissory
notes intended to circulate as money (known as bank notes); or to receive the
money of others on general deposit to form a joint fund that shall be used by the
institutions, for its own benefit, for one or more of the purpose of making
temporary loans and discounts; of dealing in notes, foreign and domestic bill of
exchange, coin, bullion, credits, and the remission of money: or with both these
powers, and with the privileges, in addition to these basic powers of receiving
special deposits and making collections for the holders of negotiable paper, if
the institution sees fit to engage in such business.

BANKING
AN EXECUTIVE SUMMARY
The rise of retail lending in emerging economies like India has been of recent
origin. Asia Pacific’s vast population, combined with high savings rates,
explosive economic growth, and underdeveloped retail banking services,
provide the most significant growth opportunities for banks. Banks will have to
serve the retail banking segment effectively in order to utilize the growth
opportunity.
Banking strategies are presently undergoing various transformations, as the
overall scenario has changed over the last couple of years. Till the recent past,
most of the banks had adopted fierce cost cutting measures to sustain their
competitiveness. This strategy however has become obsolete in the new light of
immense growth opportunities for banking industry. Most bankers are now
confident about their high performance in terms of organic growth and in
realizing high returns. Nowadays, the growth strategies of banks revolve around
customer satisfaction. Improved customer relationship management can only
lead to fulfillment of long-term, as well as, short-term objectives of the bankers.
This requires, efficient and accurate customer database management and
development of well-trained sales force to develop and sustain long-term
profitable customer relationship.
The banking system in India is significantly different from that of the other
Asian nations, because of the country’s unique geographic, social, and
economic characteristics. Though the sector opened up quite late in India
compared to other developed nations, like the US and the UK, the profitability
of Indian banking sector is at par with that of the developed countries and at
times even better on some parameters. For instance, return on equity and assets
of the Indian banks are on par with Asian banks, and higher when compared to
that of the US and the UK.
Banks in India are mainly classified into Scheduled Banks and Non-Scheduled
Banks. Scheduled Banks are the ones, which are included in the second
schedule of the RBI Act 1934 and they comply with the minimum statutory
requirements. Non-Scheduled Banks are joint stock banks, which are not
included in the second Schedule of the RBI Act 134, on account of the failure to
comply with the minimum requirements for being scheduled.

TYPES OF BANKS IN INDIA

The major types of banks in India are: 

Public sector banks in India

All government owned banks fall in this variety. Besides the Reserve Bank
of India, the State Bank of India and its associate banks and about 20 nationalized
banks, all comprises of the public sector banks. Many of the regional rural banks
that are funded by the government banks can also be clubbed in this genre. 

Private sector banks in India

A new wave in the banking industry came about with the private sector
banks in India. With policies on liberalization being generously taken up, these
private banks were established in the country that also contributed heavily towards
the growth of the economy and also offering numerous services to its customers.
Some of the most popular banks in this genre are: Axis Bank, Bank of Rajasthan,
Catholic Syrian Bank, Federal Bank, HDFC Bank, ICICI Bank, ING Vysya Bank,
Kotak Mahindra Bank and SBI Commercial and International Bank. The Foreign
Banks in India like HSBC, Citibank, and Standard Chartered bank etc can also be
clubbed here. 

Cooperative banks in India

With the aim to specifically cater to the rural population, the cooperative banks in
India were set up through the country. Issues like agricultural credit and the likes
are taken care of by these banks.
SWOT ANALYSIS OF BANKING SECTOR:
STRENGTH
 Indian banks have compared favorably on growth, asset quality and
profitability with other regional banks over the last few years. The
banking index has grown at a compounded annual rate of over 51 per cent
since April 2001 as compared to a 27 per cent growth in the market index
for the same period.
 Policy makers have made some notable changes in policy and regulation
to help strengthen the sector. These changes include strengthening
prudential norms, enhancing the payments system and integrating
regulations between commercial and co-operative banks.
 Bank lending has been a significant driver of GDP growth and
employment.
 Extensive reach: the vast networking & growing number of branches &
ATMs. Indian banking system has reached even to the remote corners of
the country.
 The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalization of 14 major private banks of India.
 In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets relative to
other banks in comparable economies in its region.
 India has 88 scheduled commercial banks (SCBs) - 27 public sector
banks (that is with the Government of India holding a stake)after merger
of New Bank of India in Punjab National Bank in 1993, 29 private banks
(these do not have government stake; they may be publicly listed and
traded on stock exchanges) and 31 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs. According to a
report by ICRA Limited, a rating agency, the public sector banks hold
over 75 percent of total assets of the banking industry, with the private
and foreign banks holding 18.2% and 6.5% respectively.
 Foreign banks will have the opportunity to own up to 74 per cent of
Indian private sector banks and 20 per cent of government owned banks.
WEAKNESS
 PSBs need to fundamentally strengthen institutional skill levels especially
in sales and marketing, service operations, risk management and the
overall organizational performance ethic & strengthen human capital.
 Old private sector banks also have the need to fundamentally strengthen
skill levels.
 The cost of intermediation remains high and bank penetration is limited
to only a few customer segments and geographies.
 Structural weaknesses such as a fragmented industry structure,
restrictions on capital availability and deployment, lack of institutional
support infrastructure, restrictive labor laws, weak corporate governance
and ineffective regulations beyond Scheduled Commercial Banks (SCBs),
unless industry utilities and service bureaus.
 Refusal to dilute stake in PSU banks: The government has refused to
dilute its stake in PSU banks below 51% thus choking the headroom
available to these banks for raining equity capital.
 Impediments in sectoral reforms: Opposition from Left and resultant
cautious approach from the North Block in terms of approving merger of
PSU banks may hamper their growth prospects in the medium term.

OPPORTUNITY
 The market is seeing discontinuous growth driven by new products and
services that include opportunities in credit cards, consumer finance and
wealth management on the retail side, and in fee-based income and
investment banking on the wholesale banking side. These require new
skills in sales & marketing, credit and operations.
 Banks will no longer enjoy windfall treasury gains that the decade-long
secular decline in interest rates provided. This will expose the weaker
banks.
 With increased interest in India, competition from foreign banks will only
intensify.
 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.
 New private banks could reach the next level of their growth in the Indian
banking sector by continuing to innovate and develop differentiated
business models to profitably serve segments like the rural/low income
and affluent/HNI segments; actively adopting acquisitions as a means to
grow and reaching the next level of performance in their service
platforms. Attracting, developing and retaining more leadership capacity
 Foreign banks committed to making a play in India will need to adopt
alternative approaches to win the “race for the customer” and build a
value-creating customer franchise in advance of regulations potentially
opening up post 2009. At the same time, they should stay in the game for
potential acquisition opportunities as and when they appear in the near
term. Maintaining a fundamentally long-term value-creation mindset.
 Reach in rural India for the private sector and foreign banks.
 With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are
expected to be strong.
 The Reserve Bank of India (RBI) has approved a proposal from the
government to amend the Banking Regulation Act to permit banks to
trade in commodities and commodity derivatives.
 Liberalization of ECB norms: The government also liberalized the ECB
norms to permit financial sector entities engaged in infrastructure funding
to raise ECBs. This enabled banks and financial institutions, which were
earlier not permitted to raise such funds, explore this route for raising
cheaper funds in the overseas markets.
 Hybrid capital: In an attempt to relieve banks of their capital crunch, the
RBI has allowed them to raise perpetual bonds and other hybrid capital
securities to shore up their capital. If the new instruments find takers, it
would help PSU banks, left with little headroom for raising equity.
Significantly, FII and NRI investment limits in these securities have been
fixed at 49%, compared to 20% foreign equity holding allowed in PSU
banks.
THREATS
 Threat of stability of the system: failure of some weak banks has often
threatened the stability of the system.
 Rise in inflation figures which would lead to increase in interest rates.
 Increase in the number of foreign players would pose a threat to the PSB
as well as the private players.

PEST ANALYSIS OF BANKING SECTOR

POLITICAL FACTORS
1- Regulatory framework
2- deregulation of the market
3- monetary policy
4- check clearing for the 21st century act
5- fair and accurate credit transactions act of 2003

POLITICAL ENVIRONMENT
Government and RBI policies affect the banking sector. Sometimes looking into
the political advantage of a particular party, the Government declares some
measures to their benefits like waiver of short-term agricultural loans, to attract
the farmer’s votes. By doing so the profits of the bank gets affected. Various
banks in the cooperative sector are open and run by the politicians. They exploit
these banks for their benefits. Sometimes the government appoints various
chairmen of the banks.
Various policies are framed by the RBI looking at the present situation of the
country for better control over the banks.

ECONOMIC FACTOR
1. The economic role of banks
2. Changes in interest rates
3. Complex nature of banking operations
4. Consolidation of the industry
ECONOMIC ENVIRONMENT
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has existed in one form or the other
from time to time. The present era in banking may be taken to have commenced
with establishment of bank of Bengal in 1809 under the government charter and
with government participation in share capital. Allahabad bank was started in
the year 1865 and Punjab national bank in 1895, and thus, others followed
Every year RBI declares its 6 monthly policy and accordingly the various
measures and rates are implemented which has an impact on the banking sector.
Also the Union budget affects the banking sector to boost the economy by
giving certain concessions or facilities. If in the Budget savings are encouraged,
then more deposits will be attracted towards the banks and in turn 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.

SOCIAL FACTOR
1- Employment
2- Demographics
3- Working conditions
4- Payment system charges

SOCIAL ENVIRONMENT
Before nationalization of the banks, their control was in the hands of the private
parties and only big business houses and the effluent sections of the society
were getting benefits of banking in India. In 1969 government nationalized 14
banks. To adopt the social development in the banking sector it was necessary
for speedy economic progress, consistent with social justice, in democratic
political system, which is free from domination of law, and in which
opportunities are open to all.
Accordingly, keeping in mind both the national and social objectives, bankers
were given direction to help economically weaker section of the society and
also provide need-based finance to all the sectors of the economy with flexible
and liberal attitude. Now the banks provide various types of loans to farmers,
working women, professionals, and traders. They also provide education loan to
the students and housing loans, consumer loans, etc. Banks having big clients or
big companies have to provide services like personalized banking to their
clients because these customers do not believe in running about and waiting in
queues for getting their work done. The bankers also have to provide these
customers with special provisions and at times with benefits like food and
parties. But the banks do not mind incurring these costs because of the kind of
business these clients bring for the bank. Banks have changed the culture of
human life in India and have made life much easier for the people.

TECHNOLOGICAL FACTOR
1- Growing dependence on technology
2- Growth in use of ATMs
3- Broker surveillance
4- Banking Software like pegasis

TECHNOLOGICAL ENVIRONMENT
Technology plays a very important role in bank’s internal control mechanisms
as well as services offered by them. It has in fact given new dimensions to the
banks as well as services that they cater to and the banks are enthusiastically
adopting new technological innovations for devising new products and services.
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. Credit card facility has encouraged
an era of cashless society.
Today MasterCard and Visa card are the two most popular cards used world
over. 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.
Through ECS we can receive the dividends and interest directly to our account
avoiding the delay or chance of losing the post. 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. The messages are then recognized by the bank to provide you with
the required information. All these technological changes have forced the
bankers to adopt customer-based approach instead of product-based approach.
 INDIAN INSURANCE SECTOR

INTRODUCTION
The Insurance sector in India governed by Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and General Insurance Business
(Nationalisation) Act, 1972, Insurance Regulatory and Development Authority
(IRDA) Act, 1999 and other related Acts. With such a large population and the
untapped market area of this population Insurance happens to be a very big
opportunity in India. Today it stands as a business growing at the rate of 15-20
per cent annually. Together with banking services, it adds about 7 per cent to
the country’s GDP .In spite of all this growth the statistics of the penetration of
the insurance in the country is very poor. Nearly 80% of Indian populations are
without Life insurance cover and the Health insurance. This is an indicator that
growth potential for the insurance sector is immense in India. It was due to this
immense growth that the regulations were introduced in the insurance sector
and in continuation “Malhotra Committee” was constituted by the government
in 1993 to examine the various aspects of the industry. The key element of the
reform process was Participation of overseas insurance companies with 26%
capital. Creating a more efficient and competitive financial system suitable for
the requirements of the economy was the main idea behind this reform.
 
Since then the insurance industry has gone through many sea changes .The
competition LIC started facing from these companies were threatening to the
existence of LIC .since the liberalization of the industry the insurance industry
has never looked back and today stand as the one of the most competitive and
exploring industry in India. The entry of the private players and the increased
use of the new distribution are in the limelight today. The use of new
distribution techniques and the IT tools has increased the scope of the industry
in the longer run.

Indian Insurance Market – History

Insurance has a long history in India. Life Insurance in its current form was
introduced in 1818 when Oriental Life Insurance Company began its operations
in India. General Insurance was however a comparatively late entrant in 1850
when Triton Insurance company set up its base in Kolkata. History of Insurance
in India can be broadly bifurcated into three eras: a) Pre Nationalization b)
Nationalization and c) Post Nationalization. Life Insurance was the first to be
nationalized in 1956. Life Insurance Corporation of India was formed by
consolidating the operations of various insurance companies. General Insurance
followed suit and was nationalized in 1973. General Insurance Corporation of
India was set up as the controlling body with New India, United India, National
and Oriental as its subsidiaries. The process of opening up the insurance sector
was initiated against the background of Economic Reform process which
commenced from 1991. For this purpose Malhotra Committee was formed
during this year who submitted their report in 1994 and Insurance Regulatory
Development Act (IRDA) was passed in 1999. Resultantly Indian Insurance
was opened for private companies and Private Insurance Company effectively
started operations from 2001.

Insurance Market- Present:

The insurance sector was opened up for private participation four years ago. For
years now, the private players are active in the liberalized environment. The
insurance market have witnessed dynamic changes which includes presence of a
fairly large number of insurers both life and non-life segment. Most of the
private insurance companies have formed joint venture partnering well
recognized foreign players across the globe.

There are now 29 insurance companies operating in the Indian market – 14

private life insurers, nine private non-life insurers and six public sector
companies. With many more joint ventures in the offing, the insurance industry
in India today stands at a crossroads as competition intensifies and companies
prepare survival strategies in a de tariffed scenario.

There is pressure from both within the country and outside on the Government
to increase the foreign direct investment (FDI) limit from the current 26% to
49%, which would help JV partners to bring in funds for expansion.

There are opportunities in the pensions sector where regulations are being
framed. Less than 10 % of Indians above the age of 60 receive pensions. The
IRDA has issued the first license for a standalone health company in the country
as many more players wait to enter. The health insurance sector has tremendous
growth potential, and as it matures and new players enter, product innovation
and enhancement will increase. The deepening of the health database over time
will also allow players to develop and price products for larger segments of
society.

State Insurers Continue To Dominate There may be room for many more
players in a large underinsured market like India with a population of over one
billion. But the reality is that the intense competition in the last five years has
made it difficult for new entrants to keep pace with the leaders and thereby
failing to make any impact in the market.

Also as the private sector controls over 26.18% of the life insurance market and
over 26.53% of the non-life market, the public sector companies still call the
shots.

The country’s largest life insurer, Life Insurance Corporation of India (LIC),
had a share of 74.82% in new business premium income in November 2005.

Similarly, the four public-sector non-life insurers – New India Assurance,

National Insurance, Oriental Insurance and United India Insurance – had a
combined market share of 73.47% as of October 2005. ICICI Prudential Life
Insurance Company continues to lead the private sector with a 7.26% market
share in terms of fresh premium, whereas ICICI Lombard General Insurance
Company is the leader among the private non-life players with a 8.11% market
share. ICICI Lombard has focused on growing the market for general insurance
products and increasing penetration within existing customers through product
innovation and distribution.

Reaching Out To Customers No doubt, the customer profile in the insurance

industry is changing with the introduction of large number of divergent
intermediaries such as brokers, corporate agents, and banc assurance.

The industry now deals with customers who know what they want and when,
and are more demanding in terms of better service and speedier responses. With
the industry all set to move to a de tariffed regime by 2007, there will be
considerable improvement in customer service levels, product innovation and
newer standards of underwriting.

Intense Competition In a de-tariffed environment, competition will manifest

itself in prices, products, underwriting criteria, innovative sales methods and
creditworthiness. Insurance companies will vie with each other to capture
market share through better pricing and client segmentation.

The battle has so far been fought in the big urban cities, but in the next few
years, increased competition will drive insurers to rural and semi-urban markets.

Global Standards While the world is eyeing India for growth and expansion,
Indian companies are becoming increasingly world class. Take the case of LIC,
which has set its sight on becoming a major global player following a Rs280-
crore investment from the Indian government. The company now operates in
Mauritius, Fiji, the UK, Sri Lanka, and Nepal and will soon start operations in
Saudi Arabia. It also plans to venture into the African and Asia-Pacific regions
in 2006.

The year 2005 was a testing phase for the general insurance industry with a
series of catastrophes hitting the Indian sub-continent.

However, with robust reinsurance programmes in place, insurers have

successfully managed to tide over the crisis without any adverse impact on their
balance sheets.

With life insurance premiums being just 2.5% of GDP and general insurance
premiums being 0.65% of GDP, the opportunities in the Indian market place is
immense. The next five years will be challenging but those that can build scale
and market share will survive and prosper.

PEST ANALYSIS OF INSURANCE SECTOR

POLITICAL FACTORS
Within India political ambitions and rise of communalism, fissiparous
tendencies are on the rise and may well continue for quite some time to time.
Therefore, it expected that the insurance companies might consider offering
political risk coverage also. The only area where Indian insurers consider giving
cover is with regard to customs duty change under certain conditions. Certain
type of political risk at the international level has serious implications for
exporters. The term ‘political risk’ has a wider connotation than commonly
understood or assumed. It covers events rising not just from politics, but risks in
the course of international transactions. In this connection, it may be noted that
export credit insurance has evolved out of uncertainties relating to international
trade, particularly due to problems arising out of foreign legal jurisdiction,
political changes and currency exchange difficulties faced by many developing
countries.

Prohibition for Investment: -

The funds of policyholders are prohibited from being directly / indirectly

invested outside India as per section 27 – C.

Manner and conditions of investment Subject to the above provisions contained

in Section 27 -/ 27- A / 27 B, the IRDA may,
• In the interest of the policyholders, specify the time, manner and other
conditions of investment by insurer.

• Give specific directions applicable to all insurers for the time, manner and
other conditions subject to which the policyholder’s funds should be invested in
the infrastructure and social sectors.

After taking into account the nature of business and to protect the interest of the
policyholders, it issued directions to insurer relating to time, manner and other
conditions of the investments provided the latter are given a reasonable
opportunity of being heard.

Insurance business in rural / social sector: -

All insurers are required to undertake such percentage of their insurance

business, including insurance for crops, in the rural social sector as specified by
the IRDA. They should discharge their obligations to providing life insurance
policies to persons residing in the rural sector, workers in the unorganized
sector or to economically vulnerable classes of society and other categories of
persons as specified by the IRDA.

Capital requirement: -

The paid up equity of an insurance company applying for registration to carry

on life insurance business should be Rs 100 Crores.

ECONOMICAL FACTORS
Interest rate at bank and interest rate of P.F variation very much affect to life
insurance industry, because people always attract by higher return. Therefore,
they do not prefer lower return policy. Unemployment also affects insurance
industry, because the unemployment people will not have earning, so saving
also affect to life insurance sector Life insurance industry will directly affected
by Earthquake, Monsoon, and Natural calamity. Because of these events turns
into lots of death, so the life insurance companies have to pay claim against
policy. Infant mortality rate and maternity mortality rate are also affecting to
life insurance. Typical Indian want luxurious product against low income, so
that they prefer installment or annuity (EMI), so that they may not have extra
saving to invest in life insurance.
Increased Economical Activity:

Although economic activity has slowed down since 1996, sooner or later there
will be an upswing. The increase in the growth rate in various sectors
accompanied by the growth in trade in the context of fulfilling of commitments
to the WTO will signal a growth in the demand for insurance covers of new
types. For example, aviation insurance cover will be on an increasing scale in
view of the need for more frequent air travel for men and for transporting
materials. This would necessitate substantial property, liability and personal
insurance. As far as cover against business interruption is concerned, the pace
of business and of change today is so fast that even the most careful assessment
of exposure time, and the most liberal coverage cannot protect the insured
adequate in the event of a loss be on the increase and insurance companies
cannot afford to ignore the vast potential in this business.

SOCIAL FACTORS
The basic social factors that affect the life insurance sector are as under: -

 Population
 Life style
 Educational level
 Level of earning

These are the major social factors, which affect the life insurance sector. We
will discuss all of them in brief

Population:

Growth in the population is a major factor pushing up the demand. It is also

going to exert a special influence on the life insurance market in other ways.
Apart from exerting pressure on demand for goods and services, and through
that, ill effects of uncontrolled growth of population also could spur the growth
of demand. For example, overcrowding in public places of entertainment, public
support, or too many vehicles on the road can result in hazards like stampedes
and pollution, which require covers and still are not sold on a large scale today.
Thus the positive as well as the negative aspects of population growth are going
to spur demand.

Life style:

The peculiar lifestyle of a country or an age also influences the insurance

business. Change therein produces different demands for life insurance. For e.g.
All over the world, family size is shrinking and the fact that in decades to come,
both presents are more frequently likely to work outside the home will mean
that there could be a greater possibility of property loss. Similarly, a larger
number of vehicles

LEVEL OF EDUCATION

LEVEL OF EARNING

TECNOLOGICAL FACTOR
Internet as an intermediary in the current Indian market customer is not aware
about the intrinsic value of insurance. He thinks of insurance only in the mount
of March as a tax saving measure. The security provide by an insurance cover is
rarely thought about. In such a scenario Internet can be an effective medium for
educating the consumers about insurance. It serves as a single window for
disseminating product, process and procedural information to the consumers.
Product development and target marketing through the Internet: with increase in
the number of insurance companies there will be a need for market
segmentation and subsequently product designed for each of them. In such a
scenario Internet can be a effective channel for pushing product specific
information to a particular market segment. Consumer feedback about a
particular product as well as suggestions for different types or covers can also
be generated through the Internet. Retail marketing is a commonly expected
concept and the providers of the retail products and service will try out for
larger market and market share. There would be cut through competition and
the real benefit would be to the customers in terms of better products,
distribution, pricing, post transaction service and technology. Technology will
perhaps be the single largest driver of the retail thrust. The entire strategy will
evolve around the absolute ability of the organization. The customer will
demand for greater convenience of excess to the product/ service and all at low
cost of delivery. Therefore the use of technology and specifically the Internet
with realigned strategies would be one of the key factors to success. Constraints
of locations, timing and accessibility would not be a hurdle for either customers
or businesses.
 INDIAN SERVICE SECTOR

INTRODUCTION
In an increasingly globalised world, significant complexity and uncertainty is
getting attached to the unprecedented economic crisis. The Indian economy has
also been impacted by the recessionary trends, with a slowdown in GDP growth
to seven per cent. The focus and exponential growth in the domestic market has
partially offset this fall and insulated the country, resulting in net overall
momentum. IT-BPO industry in India has today become a growth engine for the
economy, contributing substantially to increases in the GDP, urban employment
and exports, to achieve the vision of a “young and resilient” India. During the
year, the sector maintained its double digit growth rate and was a net hirer. This
growth has been fuelled by increasing diversification in the geographic base
and industry verticals, and adaptation in the service offerings portfolio.
While the effects of the economic crisis are expected to linger in the near term
future, the Indian IT-BPO industry has displayed resilience and tenacity in
countering the unpredictable conditions and reiterating the viability of India’s
fundamental value proposition. Consequently, India has retained its leadership
position in the global sourcing market.
The Indian IT-BPO industry is estimated to achieve revenues of USD 71.7
billion in FY2009, with the IT software and services industry accounting for
USD 60 billion of revenues. During this period, direct employment is expected
to reach nearly 2.23 million, an addition of 226,000 employees, while indirect
job creation is estimated to touch 8 million. As a proportion of national GDP,
the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 5.8
per cent in FY2009. Software and services exports (including BPO) are
expected to account for over 99 per cent of total exports, employing over 1.76
million employees.
While the current mood is that of “cautious optimism,” the industry is expected
to witness sustainable growth over a two-year horizon, going past its USD 60
billion export target in FY2011. While the industry has significant headroom for
growth, competition is increasing, with a number of countries creating enabling
business environments aimed at replicating India’s success in the IT-BPO
industry. Hence, concentrated efforts are required by all stakeholders to address
the current challenges, to ensure that India realizes its potential, and maintains
its leadership position.
SWOT ANALYSIS OF INDIAN SERVICE SECTOR (With Reference to
INFOSYS)
STRENGTHS
 Leadership in sophisticated solutions that enable clients to optimize the
efficiency of their business
 Proven “Global delivery model”
 Commitment to superior quality and process execution
 Strong Brand and Long-Standing Client Relationships
 Status as an employer of choice
 Ability to scale
 Innovation and leadership

WEAKNESSES

 Excessive dependence on US for revenues – 67 % of revenues from USA

 Excessive dependence on BFSI sector for revenues – 36 % of revenues
from BFSI
 Weak player in domestic market. Only 1 % of revenues from India – low
as compared to peers
 Low R & D spending as compared to global IT companies – only 1.3 %
of total revenues
 Rising wage bill – 42.9 % to 44.8 % of revenues
 Low expertise in high end services like Consultancy and KPO.

OPPORTUNITIES
 Domestic market set to grow by 20%.
 Expanding into new geographies – Europe, Middle East, etc
  Infosys is cash rich (Around US $ 1 Billion) - Acquiring companies to
increase expertise in Consultancy, KPO and package implementation
capabilities
 Opening offices and development centers in cost advantage countries
such as those in Latin America and Eastern Europe.

THREATS
 The economic environment, pricing pressure and rising wages in
India and overseas
 Intense competition in the market for technology services could affect
cost advantages.
 High dependency on a small number of clients, and the loss of any one
of the major clients could significantly impact business.
 Failure to complete fixed-price, fixed-time frame contracts within
budget and on time
 Currency fluctuations
 Termination of Client contracts can typically be terminated without
cause and with little or no notice or penalty.

PEST ANALYSIS OF INDIAN SERVICE SECTOR

(With Reference to INFOSYS)
POLITICAL FACTORS

This is political factors which affect a business which can be government rules
and regulation toward that particular business environment. For Infosys the
Indian political structure is stable, but there are fears of hung parliament due to
a lack of clear majority in parliament creating fear of wrong investing in the
minds of investor thereby reducing capital. Infosys research article (strategic
management 2009) states that U.S government has declared that U.S firm that
outsource IT works outside the U.S will not get tax benefits, this has caused
reduction in U.S BPO contract from the U.S in the last fiscal year thereby
reducing revenue from the U.S. Indian government has decided to contract IT
job to Indian IT companies creating more opportunities for the company and the
industry at large. In software development different a country IS configuration
rules and regulation are considered by Infosys since client demand differs
because of different system requirement. NASSCOM and DELIOTTE study
(impacting economy and society 2007/2008), states that Indian government has
strengthened the IT act, 2000 to provide a sound legal environment for
companies to operate related to security of data in transmission and storage etc
this has served as a positive factor. Infosys has to put Indian relationship with
different countries of business into consideration before investing. Other factors
to be considered are customer protection law, competitive regulations, and
terrorist attacks.

ECONOMIC FACTORS
These includes factors affecting Infosys ranging from rising working pay,
global recession, competition, contract availability and fee. Infosys annual
report (2008/2009) show that the global IT spending has been on the rise.
Domestic IT spending grew by 20% and reached $20 billion in 2009. Currency
fluctuations caused by the devaluation of the dollar has affected the company
during the last global recession. Real estate prices decline resulted in rental
expenditure forcing customer to leave luxuries goods such as electronic and
computers that need software to work. Recession cause low attribute rate due to
job layouts and job cuts. India economic attraction has helped in convincing
investors due to low cost advantage.
With India’s global IT spending yet to decline due to entry of new IS companies
and the cause of the recession. With clients companies faced with reduction of
work force due to job layoffs and unsuitable balance sheet most companies have
decided not to make much expenditure in purchase, but make optimum use of
existing facilities to make profits. Most debtors to Infosys with financial crisis
have been granted more time to pay up causing large debt deficit. Infosys core
business is largely dependent on banking and financial industry. With the
decline in these sectors, the revenue from there is expected to decline, hurting
the bottom line of IT majors. This calls for exploration of new verticals in
Infosys.

SOCIAL FACTORS
These are social factors affecting Infosys which ranges from employee right,
language barriers, race nationality of company or other issues. English language
being widely spoken in India has help in fostering the company’s relationship
and interaction in India and on the global stage. India is one of the few countries
to have an increasing share of working population, since there is great
availability of both skilled and unskilled labor force. Great number of institute
and universities offer IT course creating room for availability of IT professional
at lower cost since there is job competition. India has to produces great numbers
of IT professional each year to meet its demand. Let look at record of IT
graduate from 2006 to date.

India continue to produce IT professionals each year, this has help Infosys
source for IT professionals inwards. Do issues of demography affect Infosys?
Yes it does affect it in different ways; Infosys being an IT provider to
multinational companies are affected through the demand of their clients.
Infosys have to consider the type of services the software is meant for, age
difference of users, life style of the different countries of supply. It should be
noted that there will always be difference in client behaviors which is supported
by the fact that different customers have different taste. Should Infosys be
concern with the issue of global warming? Yes it is affected by many
government laws regarding it like in china, where company with great amount
of carbon emission are charge great amount of tax. Being a major player in the
global IT market Infosys has introduces measure to help in the reduction of
carbon emission by trying to reduce its water consumption, electricity
utilization, carbon emission and partnering with other companies in
troubleshooting this global dilemma (Infosys strategic management 2009).

TECHNOLOGICAL FACTORS
These are factor affecting the company due to advancement of technology or it
effect on the business advancement. With the challenges in the IT sector can
Infosys still keep it mark in the global stage? Yes innovation in lower cost
technologies is presenting both new challenges and opportunities for Infosys.
Technologies like SOA, Web 2.0, High- definition contents, grid computing, etc
these give great room for technological advancement. Is there any cost
advantage in IT distribution? Yes India being the country with the lowest call
rate in the world (1-2 us cent), and the second largest communication network
in the world has helped Infosys in its information distribution. Due to IT
revolution of the ‘90s India is well connected with undersea wire, which has
help in fostering faster and better communications through the internet. With the
country’s telecommunication density at 19.86% and enterprise services, 3G,
WI-max and VPN poised to grow Infosys will be seeing good times soon.

Although Infosys fiscal year for 2009 is scheduled to end in March 2010
(Infosys quarter report 08, 2009). It can be clearly seen from its PEST analysis
that the company stands a very great chance of possibly making greater revenue
than last year. With the last global recession the firm has experienced low
contract level as a result of the recession on it clients. Let see it revenue for the
2008 fiscal year and so far that of 2 quarter of 2009.

INDIAN FINANCIAL SECTOR

Introduction
A financial system, which is inherently strong, functionally diverse and displays
efficiency and flexibility, is critical to our national objectives of creating a
market-driven, productive and competitive economy. A mature system supports
higher levels of investment and promotes growth in the economy with its depth
and coverage. The financial system in India comprises of financial institutions,
financial markets, financial instruments and services. The Indian financial
system is characterised by its two major segments - an organised sector and a
traditional sector that is also known as informal credit market. Financial
intermediation in the organised sector is conducted by a large number of
financial institutions which business organisations are providing financial
services to the community. Financial institutions whose activities may be either
specialised or may overlap are further classified as banking and non-banking
entities. The Reserve Bank of India (RBI) as the main regulator of credit is the
apex institution in the financial system. Other important financial institutions
are the commercial banks (in the public and private sector), cooperative banks,
regional rural banks and development banks. Non-bank financial institutions
include finance and leasing companies and other institutions like LIC, GIC,
UTI, Mutual funds, Provident Funds, Post Office Banks etc.
The banking system is, by far, the most dominant segment of the financial
sector, accounting as it does, for over 80 per cent of the funds flowing through
the financial sector. The aggregate deposits of the scheduled commercial banks
(SCBs) rose from Rs.5,05,599 crore in March 1997 to Rs.11,03,360 crore in
March 2002 representing a rise of 17 per cent. During the same period, the
credit portfolio (food and non-food) of SCBs grew from Rs.2,78,401 crore to
Rs. 5,89,723 crore, i.e. by 16 per cent. The net profits of SCBs witnessed a
noticeable upturn from Rs.6, 403 crore in 2000-01 to Rs.11, 572 crore in 2001-
02. The extent and coverage of the banking system can be gauged from the fact
that the number of branches of SCBs grew from 8045 in 1969 to 66,186 in June
2002. While rural branches constituted 49 per cent of the total in 2002,
semiurban branches accounted for 22 per cent, urban branches accounted for 16
per cent and metropolitan branches accounted for 13 per cent. As regards the
capital market, the resource mobilization from the primary market by non-
government public limited companies has declined in the recent past from the
high levels witnessed between 1992-93 and 1996-97.
Resource mobilization of these companies in the public issues market stood at
Rs. 5,692 crore in 2001-02 registering an increase of 16.4 per cent over the
amount mobilized during the previous year. The public issues market has been
dominated by debt issues both in the private and public sectors in the recent
past. In recent years, private placement has emerged as an important vehicle for
raising resources by banks, financial institutions and public and private sector
companies. Such placements continued to dominate the primary market
although the pace of growth of the private placement market has slackened
during the last two years. Resource mobilization by mutual funds is an
important activity in the capital markets. Although there has been a decline in
the net resource mobilization by mutual funds to the extent of 28 per cent during
2001-02, according to SEBI, outstanding net assets of all mutual funds stood at
Rs.1,00,594 crore as at end-March 2002. The strong potential of the capital
market as an area of resource mobilization needs no emphasis and this segment
of the financial sector would continue to play a significant role in the future.

PEST ANALYSIS OF INDIAN FINANCIAL SECTOR

POLITICAL FACTORS
Government and RBI policies affect the banking sector. Sometimes looking into
the political advantage of a particular party, the Government declares some
measures to their benefits like waiver of short-term agricultural loans, to attract
the farmer’s votes. By doing so the profits of the bank gets affected. Various
banks in the cooperative sector are open and run by the politicians. They exploit
these banks for their benefits. Sometimes the government appoints various
chairmen of the banks.
Various policies are framed by the RBI looking at the present situation of the
country for better control over the banks.

ECONOMIC ENVIRONMENT
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has existed in one form or the other
from time to time. The present era in banking may be taken to have commenced
with establishment of bank of Bengal in 1809 under the government charter and
with government participation in share capital. Allahabad bank was started in
the year 1865 and Punjab national bank in 1895, and thus, others followed.
Every year RBI declares its 6 monthly policy and accordingly the various
measures and rates are implemented which has an impact on the banking sector.
Also the Union budget affects the banking sector to boost the economy by
giving certain concessions or facilities. If in the Budget savings are encouraged,
then more deposits will be attracted towards the banks and in turn 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.

SOCIAL ENVIRONMENT
Before nationalization of the banks, their control was in the hands of the private
parties and only big business houses and the effluent sections of the society
were getting benefits of banking in India. In 1969 government nationalized 14
banks. To adopt the social development in the banking sector it was necessary
for speedy economic progress, consistent with social justice, in democratic
political system, which is free from domination of law, and in which
opportunities are open to all.
Accordingly, keeping in mind both the national and social objectives, bankers
were given direction to help economically weaker section of the society and
also provide need-based finance to all the sectors of the economy with flexible
and liberal attitude. Now the banks provide various types of loans to farmers,
working women, professionals, and traders. They also provide education loan to
the students and housing loans, consumer loans, etc. Banks having big clients or
big companies have to provide services like personalized banking to their
clients because these customers do not believe in running about and waiting in
queues for getting their work done. The bankers also have to provide these
customers with special provisions and at times with benefits like food and
parties. But the banks do not mind incurring these costs because of the kind of
business these clients bring for the bank. Banks have changed the culture of
human life in India and have made life much easier for the people.

TECHNOLOGICAL ENVIRONMENT
Technology plays a very important role in bank’s internal control mechanisms
as well as services offered by them. It has in fact given new dimensions to the
banks as well as services that they cater to and the banks are enthusiastically
adopting new technological innovations for devising new products and services.
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 banks’ facilities. Automatic voice recorders now
answer simple queries, currency accounting machines makes the job easier and
self-service counters are now encouraged. Credit card facility has encouraged
an era of cashless society.
Today MasterCard and Visa card are the two most popular cards used world
over. 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.
Through ECS we can receive the dividends and interest directly to our account
avoiding the delay or chance of losing the post. 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. The messages are then recognized by the bank to provide you with
the required information. All these technological changes have forced the
bankers to adopt customer-based approach instead of product-based approach.