MANAGERIAL ECONOMICS Assignment

Comparison of Labour forces in India and South Africa The Banking Sector and its dynamics

Ambrish Mittal H12005 Ashwini Kumar H12012 Nancy Goyal H12030 Nibha Gupta H12032

Comparison of the labour forces in South Africa and India

South Africa and India are two countries which are considered as economic hubs of the future. These 2 countries are distinguished by their large, fast-growing economies. South Africa is a recent addition in BRICS (association of leading emerging economies). So, it makes sense to compare India and South Africa in terms of their labour forces and the current trends as ties will further solidify now. These nations are on the road to accelerated growth. The countries are ranked 29th (Brazil) and 9th (India) in terms of Nominal GDP. Bilateral trade grew exponentially from USD 3 million in 1992-93 to USD 4 billion in 2005-06, and the two governments have targeted increasing bilateral trade to USD 12 billion in 2010. Both the nations are young with the median age of South Africa at 25 years and that of India at 26.2 years. Thus, both these nations have high scope for growth in future. Certain issues continue to bog down both these countries. Some of them include Higher Unemployment rates (9 and 24.9% for India and South Africa) Corruption at high levels means that the economy is not able to fully gain from the countrys growth and development.

The following table gives an overall comparison in terms of economic and population figures. India South Africa Population 1,210,000,000 48,810,427 GDP(Nominal) 1.63Tn .408Tn Workforce 480,000,000 17,660,000 Here is an analysis and comparison of the way the economy is spread in these two countries, Firstly the revenue in the country is analysed on the basis of the sector. India, though has a majority of the population engaged in agriculture, this sector contributes only to a small chunk of the revenue. South Africa though has its majority of the workforce in the service sector India
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

South Africa
60% 50% 40% 30% 20% 10% 0%

Contribution to GDP Labor Force

Contribution to GDP Labor Force

`www.indexmundi.com http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country http://industrialrelations.naukrihub.com/labor-market.html http://en.wikipedia.org/wiki/South_Africa http://en.wikipedia.org/wiki/India http://www.nationmaster.com/compare/India/South-Africa/Labor

Indian Labour stats Compensation of employees > % of 9.88 % expense Ranked 86th in 2004. Economic activity > Men aged 65 plus 52.67 Ranked 54th. 124% more than South Africa 4% Ranked 73rd. 3 times more than South Africa 55.9 weeks of wages Ranked 58th in 2006. 133% more than South Africa 28.35 % Ranked 167th in 2005.

South African Labour stats 15.59 % Ranked 67th in 2004. 58% more than India 23.47 Ranked 108th. 1% Ranked 102nd. 24 weeks of wages Ranked 120th in 2006.

Female economic activity growth

Firing cost > weeks of wages

force, female > % of total labor force

38.22 % Ranked 132nd in 2005. 35% more than India force, total 435,035,700 19,561,090 Ranked 2nd in 2005. 21 times Ranked 29th in 2005. more than South Africa force, total (per capita) 0.4 per capita 0.4 per capita Ranked 143rd in 2005. Ranked 120th in 2005. 5% more than India Regulation > Employment Conditions 75 36 Ranked 65th. 108% more than South Ranked 118th. Africa Rigidity of employment index 41 41 Ranked 73rd in 2006. Ranked 75th in 2006. Total work time > Males 391 minutes 273 minutes Ranked 20th. 43% more than South Ranked 30th. Africa Unemployment, female > % of female 5.3 % 31.6 % labor force Ranked 61st in 2004. Ranked 2nd in 2004. 5 times more than India Unemployment, male > % of male 4.9 % 23.5 % labor force Ranked 62nd in 2004. Ranked 3rd in 2004. 4 times more than India Unemployment, total > % of total 5 % 27.1 % labor force Ranked 59th in 2004. Ranked 2nd in 2004. 4 times more than India Unemployment, youth total > % of 10.1 % 44.2 % total labor force ages 15-24 Ranked 53rd in 2000. Ranked 2nd in 2000. 3 times more than India Workers' remittances and 1,008,000,000 $ 1,055,000,000 $ compensation of employees, paid > US$ Ranked 31st in 2005. Ranked 30th in 2005. 5% more than India Work time > Market-oriented 61% 51%

The Banking Industry in India

Before the liberalisation of economy, the banking industry was in shackles. Liberalisation has helped banking industry to flourish and improve the economics to a great extent. The Banking Industry was once a simple and reliable business that took deposits from investors at a lower interest rate and loaned it out to borrowers at a higher rate. The entire organised banking system comprises of scheduled and non-scheduled banks. Largely, this segment comprises of the scheduled banks, with the unscheduled ones forming a very small component. Banking needs of the financially excluded population is catered to by other unorganised entities distinct from banks, such as, moneylenders, pawnbrokers and indigenous bankers.

The Supplier force in terms of number

Due to liberalization and globalization, the number of foreign banks is much more than the nationalized banks. This indicates that the level of services provided by the foreign banks is more satisfactory. The business of nationalized banks had gone down drastically but now the State bank of India has also upgraded the services to the international standards.

Structure of Indian Banking Industry No. of Banks

26 32

Nationalized
Old private new private

foreign banks
8 12

The Supplier force in relative size

The major players in the industry are

Value (in crores)

60,405.25

83,951.20

State Bank Of India Punjab National Bank

29,924.68 27,817.08

HDFC Bank ICICI Bank

Net Income (in crores)

140000 120000 100000 80000 60000 40000 20000 0 State Punjab Bank Of National India Bank HDFC Bank ICICI Bank Net Income (in crores)

Profitability Ratios
Return on Sales (Profit Margin) Ratio This ratio measures the profits after taxes on the year's sales. The higher this ratio, the better prepared the business is to handle downtrends brought on by adverse conditions. This ratio is calculated using the following formula:

Net Profit After Taxes Net Sales Return on Assets (ROA) Ratio This ratio shows the after tax earnings of assets and is an indicator of how profitable a company is. Return on assets ratio is the key indicator of the profitability of a company. It matches net profits after taxes with the assets used to earn such profits. A high percentage rate will tell you the company is well run and has a healthy return on assets. This ratio is calculated using the following formula:

Net Profit After Taxes Total Assets Return on Net worth Ratio This ratio measures the ability of a company's management to realize an adequate return on the capital invested by the owners in the company. This ratio is calculated using the following formula:

Net Profit After Taxes Net Worth The profitability ratios for the top four banks in the market are as given below: Prof. ratios Interest Spread Adjusted Cash Margin (%) Net Profit Margin Return on Long Term Fund(%) SBI 5.04 10.59 9.73 96.84 ICICI 4.44 17.45 16.14 52.09 HDFC 5.8 17.59 15.93 76.06 PNB 4.51 12.80 12.09 113.95

Return on Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets

13.94 13.97 1251

10.70 10.70 524

17.26 17.26 127

18.52 18.50 777

The below table shows the profit, employee strength, total income and total asset of the four top banks of the market. Bank Profit (in Rs Cr) SBI ICICI HDFC PNB Industry 11713 11483 11339 4892 Employee strength 292215 81254 1607 56928 Labour Productivity 400835.00 1413222.73 Total Income 120872 41450 Total Asset Capital Productivity 9.05 8.75 9.65 8.87 9.08

1335519 473647 337909 458194

70560049.78 32619 859331.08 18308359 40630

The labor productivity is the ratio of the profit of the firm to the total number of employees of the firm. It is effectively the profit contributed by each employee. It is calculated as follow: Labor Productivity = Profit/Employee Strength The capital productivity is income contributed by each unit of the asset of the firm. It is calculated as the ratio of income and the total asset of the firm: Capital Productivity =Income/Asset

Labour productivity
Bank Labour Productivity (Profit employee) 400835.00 1413222.73 70560049.78 859331.08 18308359 per

SBI ICICI HDFC PNB Industry Avrg

The labour productivity of SBI is lesser than industry average. The reason may be for this may be: 1) SBI is undergoing major expansion process and hence the profit is less.

2) SBI being a government bank is less profit oriented 3) The work culture of PSU is less productive than that of private. This causes Diseconomies of scale. But SBI is still the market leader Also, the labour productivity of HDFC is very high when compared to other banks.

Capital productivity
Bank Return on Assets(Total Income/Total Assets) % 9.05 8.75 9.65 8.87 9.08

SBI ICICI HDFC PNB Industry Avg

The capital productivity of all the banks is very close.

H INDEX
Bank Revenue Generated Crores) 203225 74349 35640 36428 Market (in (%age) 58.12 21.26 10.19 10.42 Share Calculation

SBI ICICI HDFC PNB

0.3377934 0.0451987 0.0103836 0.0108576 0.4042344

The H Index value (0.40) is pretty significant to suggest that banking industry is Monopolistic Competition.

Monopolistic Competition
Prime Minister Indira Gandhi socialized the major banks in 1969. But after that, banking system faced severe crisis lack of profit, consequent erosion of capital. Other issues plaguing the banking system were lack of competition, organizational inefficiency and political interference. This all lead to a state of bankruptcy in the banking sector of India. In 1991, after the introduction of Liberalization, Globalization, Privatization banking sector saw a major revival. There were introduction of more private banks and thus the market revenue increased overall. Also because of their efficiency, they captured more market share and market share of public banks decreased.

Demand Side

Cash reserve Ratio (CRR):: is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system. Reverse Repo rate:: is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest. Repo Rate:: The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. Statutory Liquidity Ratio:: Every financial institute have to maintain a certain amount of liquid assets from their time and demand liabilities with the RBI. These liquid assets can be cash, precious metals, approved securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as Statutory Liquidity Ratio.

Buyer Power:
Interest rates across banks remain at similar levels with very minor differences in the rates offered. As a result the buyer has a wide range of players to choose from and hence higher buyer power. Most choices therefore are made on the basis of the quality of service etc. Banks pay a lot of attention to the service and customer satisfaction. This is because of the realization that their product cannot be differentiated from that of their rivals. Hence it could be a difference in service etc, which results in a growth or fall for the firm. The demand of banking services depends on buying power of the individuals, which depends on the economy of the country and the world. The interest rates influence the banking business which are controlled by RBI directly or indirectly to control the liquidity in the market. The banking industry is cyclical industry as it is dependent on GDP and inflation which are related to recession. Alteration in the rate of interest can be used to control inflation by controlling the supply of money in the following ways:

A high interest rate influences spending patterns and shifts consumers and businesses from borrowing to saving mode. This influences money supply. A rise in interest rates boosts the return on savings in building societies and banks. Low interest rates encourage investments in shares. Thus, the rate of interest can impact the holding of particular assets. A rise in the interest rate in a particular country fuels the inflow of funds. Investors with funds in other countries now see investment in this country as a more profitable option than before.

Substitutes The substitutes of the banking services will include the investment options and borrowing options. Following are the examples of sources of investing the money: Material investment such as real estate etc. Insurance, Stocks and Mutual funds Fixed income securities Investment in Gold Public Provident Fund

In case of borrowing, Financing Companies like Muthoot Finance, LIC Insurance, Obtain loans from private lenders Car companies offer 0% financing, Preferred customers get 0% financing options in companies like Microsoft, Sony, etc. Non-Bank Credit Cards Launch IPOs in case of companies

With increasing options available as substitutes, the size of market occupied by them is increasing. The risk involved in the different options is proportional to the return on the money invested in the options. Banks are the safest option available to the customers who do not have knowledge or the confidence to invest in various other options whereas equities tend to be the riskiest option with the unstable global market scenario these days. But the interest rates given by banks on the money invested is quite low as compared to the returns given by equities which can go as high as 30-40% in a year.

Position of RBI The governor at the Central is responsible for formulating the policies of RBI. RBI was nationalized in the year 1949. The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. This is one sector, where there is a major role for the regulator to play. RBI plays a crucial role in deciding what the rates for lending and borrowing could be. The RBI regulates the monetary policy through repo rates , reverse repo rates and CRR, the interest rates offered by banks thus depends on the monetary interventions of the central bank.The government also has an upper cap on the interest that can be charged and the methods to procure back loan payments etc. This is evident from the similar rates of interest offered/levied by the individual firms. Following are the main functions of the banks: Issuer of currency Banker to the Government Managing Government Securities Banker to Other Banks Controller of Money Supply and Credit Exchange Manager and Controller Publisher of Monetary Data and Other Data Promotional Role of RBI

Refrences
http://business.mapsofindia.com/india-company/top-10-banking-companies.html http://www.economywatch.com/banking/ http://www.dnb.co.in/bfsisectorinindia/BankC2.asp http://stockshastra.moneyworks4me.com/learn/indian-banking-industry-future-prospects-and-sectoroverview/ http://www.economywatch.com/inflation/economy/interest-rates.html