banking system

Executive summary The study focuses on customers’ perception about the services provided by commercial banks in a developing economy – India. It compares and contrasts the four groups of banks in India with respect to the types of services provided by the commercial banks. It seems to be significant variation with respect to the level of services offered by the four groups of banks. It identifies the factors that discriminate the four groups of banks. The customers in developing economies seem to keep the “technological factors” of services such as core service and systematization of the service delivery as the yardstick in differentiating efficient and inefficient services while the “human factors” seem to play a lesser role in discriminating the four groups of banks.

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Chapter 11.1 Introduction

There seems to be no unanimity amongst the economists about the origin of the word “BANK” . According to some economists, the word “Bank” has been derived from the German word “BANC” which means a joint stock firm. While other says that it has been derived from the Italian word “BANCO” which means a heap or mound. As a matter of fact, at the time of establishment of bank of Venice in 1157, the Germans were influencial and hence, perhaps the word “Banc” or “Banco” was used by Italians to donate the accumulation of securities or money with a joint stock firm which later on with the passage of time came to be known as “Bank”.

There is still another group of people who believe that the word “bank” has been derived from the Greek word “BANQUE” which means a bench. In the olden days Jews entered into money transactions sitting on benches in a market place. When a banker was not in a position to meet his obligations, the bank on which he was carrying on the money business was broken into pieces and he was taken as Bankrupt. Thus, both the words Bank or Bankrupt are said to have their origin from the word “Banque”.

However, the first view of the origin of the word “Bank” from the word banc or Banco seems to be more convincing since it was used in the establishment of the Bank of Venice which is supposed to be the most ancient bank. As a matter of fact, it was originally not a bank in the modern sense but simply an office for the transfer of pubic debt.

1.2 Indian Banking System:

The first bank in India, called The General Bank of India was established in the year 1786. The East India Company established The Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan which was established in 1870. These three individual units (Bank of Calcutta, Bank of Bombay, and Bank of Madras) were called as Presidency Banks. Allahabad Bank which was established in 1865, was for the first time completely run by Indians. Punjab National Bank Ltd. was set up in 1894 with head quarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India which was run by European Shareholders. After that the Reserve Bank of India was established in April 1935. At the time of first phase the growth of banking sector was very slow. Between 1913 and 1948 there were approximately 1100 small banks in India. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as a Central Banking Authority.

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After independence, Government has taken most important steps in regard of Indian Banking Sector reforms. In 1955, the Imperial Bank of India was nationalized and was given the name "State Bank of India", to act as the principal agent of RBI and to handle banking transactions all over the country. It was established under State Bank of India Act, 1955. Seven banks forming subsidiary of State Bank of India was nationalized in 1960. On 19th July, 1969, major process of nationalization was carried out. At the same time 14 major Indian commercial banks of the country were nationalized. In 1980, another six banks were nationalized, and thus raising the number of nationalized banks to 20. Seven more banks were nationalized with deposits over 200 Crores. Till the year 1980 approximately 80% of the banking segment in India was under government’s ownership. On the suggestions of Narsimhan Committee, the Banking Regulation Act was amended in 1993 and thus the gates for the new private sector banks were opened. The following are the major steps taken by the Government of India to Regulate Banking institutions in the country:-

Year Major steps taken by the Government of India to Regulate Banking institutions

1949 Enactment of Banking Regulation Act.

1955 Nationalization of State Bank of India.

1959 Nationalization of SBI subsidiaries.

1961 Nationalization of SBI subsidiaries.

1969 Nationalization of 14 major Banks

1971 Creation of credit guarantee corporation.

1975 Creation of regional rural banks.

1980 Nationalization of seven banks with deposits over 200 Crores.

Source: RBI

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1.3Banking Sector in Post- Liberalization Era

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move along with the rapid growth in the economy of India revolutionized the banking sector in India which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 49% with some restrictions.

The new policy shook the banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for the traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. In 2007, banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets as compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. 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. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be voted by them. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

1.4 Profiles of selected Banks

Researchers have selected four commercial banks viz. ICICI Bank , HDFC Bank , OBC Bank, PNB Bank for their present study. These banks are selected on the basis of convenience sampling due to paucity of resources and all the researchers are residing in rural area.

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1. ICICI Bank

ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,774 branches and about 10,021 ATMs in India, and has a presence in 19 countries, including India.

ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

Present ScenarioICICI Bank has its equity shares listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited. Overseas, its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As of December 31, 2008, ICICI is India's second-largest bank, boasting an asset value of Rs. 4158 crore and profit after tax Rs. 1956 crore, for the nine months, that ended on December 31, 2012.

Branches & ATMsICICI Bank has a wide network both in Indian and abroad. In India alone, the bank has 1,420 branches and about 4,644 ATMs. Talking about foreign countries, ICICI Bank has made its presence felt in 18 countries - United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank proudly holds its subsidiaries in the United Kingdom, Russia and Canada out of which, the UK subsidiary has established branches in Belgium and Germany.

Personal Banking

Deposits

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Loans Cards Investments Insurance Demat Services Wealth Management

NRI Banking Money Transfer Bank Accounts Investments Property Solutions Insurance Loans

Business Banking Corporate Net Banking Cash Management Trade Services FX Online SME Services Online Taxes Custodial Services

2. Housing Development Finance Corporation Limited (HDFC) Bank

Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India.

AmalgamationIn 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crore, while the Advances were Rs. 89,000 crore and Balance Sheet size was Rs. 1,63,000 crore.

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Tech-SavvyHDFC Bank has always prided itself on a highly automated environment, be it in terms of information technology or communication systems. All the braches of the bank boast of online connectivity with the other, ensuring speedy funds transfer for the clients. At the same time, the bank's branch network and Automated Teller Machines (ATMs) allow multi-branch access to retail clients. The bank makes use of its up-to-date technology, along with market position and expertise, to create a competitive advantage and build market share.

Capital StructureAt present, HDFC Bank boasts of an authorized capital of Rs 550 crore (Rs5.5 billion), of this the paid-up amount is Rs 424.6 crore (Rs.4.2 billion). In terms of equity share, the HDFC Group holds 19.4%. Foreign Institutional Investors (FIIs) have around 28% of the equity and about 17.6% is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 570,000 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB'.

Personal Banking Savings Accounts Salary Accounts Current Accounts Fixed Deposits Demat Account Safe Deposit Lockers Loans Credit Cards Debit Cards Prepaid Cards Investments & Insurance Forex Services Payment Services Net Banking Insta Alerts Mobile Banking Insta Query ATM Phone Banking

NRI Banking

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Rupee Savings Accounts Rupee Current Accounts Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning Indians Quick remit (North America, UK, Europe, Southeast Asia) India Link (Middle East, Africa) Cheque Lock Box Telegraphic / Wire Transfer Funds Transfer through Cheques / DDs / TCs Mutual Funds Private Banking Portfolio Investment Schemes Loans Payment Services Net Banking Insta Alerts Mobile Banking Insta Query ATM Phone Banking

3. Oriental Bank of Commerce (OBC)

Established on 19th February 1943 in Lahore, Oriental Bank of Commerce (OBC) is one of the public sector banks in India. Its modest beginning is creditable to its founder Late Rai Bahadur Lala Sohan Lal, the first Chairman of the OBC. Within four years of coming into existence, the country partitioned, the Bank shifted its Registered Office from Lahore to Amritsar. The Oriental Bank of Commerce was nationalized on 15th April 1980, and paved its way to count amongst the strongest banks in India.

OBC has a network of 530 branches and 505 ATM's spread throughout India, out of which 490 branches offer centralized banking solutions. With High Capital Adequacy Ratio, Oriental Bank of Commerce is known be a consistent profit-making bank. It offers various services and products, like current/ savings account, general loans, educational loans, agricultural loans, etc, for the benefit of customers. For its effective services, the National Institute of Bank Management (NIBM) rated OBC Bank as "Customer Friendly" Bank.

OBC India Gramin Project:OBC's Gramin Project aims to reduce poverty & to identify the reasons which are responsible for

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the failure or success. OBC is implementing a Gramin Project in Dehradun District (UP) and Hanumangarh District (Rajasthan). This Scheme has a unique feature of disbursing small loans, ranging from Rs. 75 onwards. The OBC has various Agriculture Loan Schemes for farmers, such as, Composite Credit Scheme for Agricultural Leading, Overdraft Facility to Farmers, Advance against Warehouse Receipts to Farmers & Purchase of Land for Agriculture Purposes, Agriculture Clinic & Agriculture Business Centers.

Comprehensive Village Development ProgrammeOn 13 April 1997 at the occasion of Baisakhi, OBC launched another unique scheme, 'The Comprehensive Village Development Programme' in three villages of Punjab. After the success of this scheme in these villages, the Bank extended the programme to more villages. Today, it covers 10 villages in Punjab, 4 in Haryana and 1 in Rajasthan. This programme focuses on providing a comprehensive and integrated package, which offers finance to the villagers.

Special Services For WomenOriental Bank of Commerce has also implemented 14 point action plan for strengthening the credit delivery to women. Under this scheme bank provide various loans to women, such as, Oriented Mahila Vikas Yojana, Scheme for Professional & self Employed Women, Scheme for Beauty Parlor/ Boutiques/ Saloons/Tailoring, Scheme for Financing Working Women, etc.

4. Punjab National Bank (PNB)

Punjab National Bank (PNB) is the second largest government-owned commercial bank in India. Having more than 3.5 crore customer, Punjab National Bank has one of the largest branch networks in India. The bank's assets for financial year 2012 were about 6,79,823 crore.

Following services are provided by PNB bank to its customers.

Savings Fund Account - Total Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi SF Account, PNB Mitra SF Account Current Account - PNB Vaibhav, PNB Gaurav, PNB Smart RoamerFixed Deposit Schemes - Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat Schemes, Multi Benefit Deposit Scheme Credit Schemes - Flexible Housing Loan, Car Finance, Personal Loan, Credit CardsSocial Banking - Mahila Udyam Nidhi Scheme, Krishi Card, PNB Farmers Welfare TrustCorporate Banking - Gold Card scheme for exporters, EXIM financeBusiness Sector - PNB Karigar credit card, PNB Kushal Udhami, PNB Pragati Udhami, PNB Vikas Udhami. Apart from these, the PNB also offers locker facilities, senior citizens schemes, PPF schemes and various E-services.

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Awards and Distinctions Ranked among top 50 companies by the leading financial daily, Economic Times. Ranked as 323rd biggest bank in the world by Bankers Almanac (January 2006), London. Earned 9th place among India's Most Trusted top 50 service brands in Economic Times-

A.C Nielson Survey. Included in the top 1000 banks in the world according to The Banker, London. Golden Peacock Award for Excellence in Corporate Governance - 2005 by Institute of

Directors. FICCI's Rural Development Award for Excellence in Rural Development – 2005

PNB Overseas OfficesPNB has a banking subsidiary in the United Kingdom, as well as branches in Hong Kong and Kabul. It has representative offices in Almaty, Shanghai, and Dubai.

Organization of the study:

The present study has been divided into the six chapters. The first chapter has been entitled as “Introduction”, which in corporates an introduction about the subject and also a brief profile of the selected banks. A comprehensive review of literature undertaken by the researcher has been incorporated in the second chapter. Research Methodology used for the present study has been explained in the third chapter. In the fourth chapter , “Global scenario of the banking sector” has been explained in detail. On the basis of the survey conducted , the researchers has presented the data in tabular and graphical forms in the chapter five. The last chapter incorporates summary and recommendations.

1.5 Limitation of the study:

Following are some limitations or problems that are being faced during the project:

Less time period: As the time period was too less for training. In a short time period, it is very difficult to get the knowledge about each & everything related to the project.

Lack of knowledge: Conducting the research makes it very difficult to perform the task without any problem. As it was the first research project. The lack of experience made the task difficult.

Lack of resources: Due to paucity of money and time , the scope of study was limited to village Mukandpur and city Banga.

Lackadaisical approach of customers: Due to unenthusiastic nature of respondents, the sample size was not large enough.

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Unwilligness attitude: Due to illiteracy and lack of research aptitude, the respondents were reluctant to disclose their views regarding their banking habits.

Chapter 2

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2.1Review of literature

Huseyin et.al (2005) tried to measure the service quality perceptions of Greek Cypriot bank customers and examined the relationship between service quality, customer satisfaction and positive word of mouth in the light of changing bank market dynamics due to EU accession. The study concluded that the expectations of bank customers were not met where the largest gap was obtained in the responsiveness-empathy dimension.

Tsung-Chi Liu and Li-Wei Wu (2007) examined the effects of locational convenience, one-stop shopping convenience, firm reputation, firm expertise, and direct mailings on both customer retention and cross-buying. The mediating roles of satisfaction and trust in the relationships between service attributes, customer retention, and cross-buying are also examined. The results indicated that banks can use different service attributes to influence customer retention and cross-buying. Trust and satisfaction play different mediating roles in the relationships between service attributes, customer retention, and cross-buying.

Ahmad Jamal, Kamal Naser, (2002) is of the view that ,understanding the antecedents to and outcomes of customer satisfaction is a critical issue for both academics and bank marketers. Previous research has identified service quality, expectations, disconfirmation, performance, desires, affect and equity as important antecedents of customer satisfaction. The current paper reports findings from a survey which looked into the impact of service quality dimensions and customer expertise on satisfaction. A sample of 167 respondents took part in this study. Findings indicate that both core and relational dimensions of service quality appear to be linked to customer satisfaction. Findings also indicate that expertise is negatively related to satisfaction. The paper discusses implications for bank managers.

Service quality is a critical issue in the service industry and of particular importance for financial service providers who characteristically offer products that are homogeneous in nature (Stafford et al., 1998). Service business success has been associated with the ability to deliver superior service (Gale, 1990). If we want to manage something, it should be measured first. Without measurement, managers cannot be sure of whether service quality gaps exist or not (Christopher et al., 2006) and, of course, measurement is needed to determine whether goals for improvement are being met after changes have been implemented (Christopher et al.,2006).

In general, it is difficult to measure and quantify service quality. The main purpose of measuring service quality is to ensure whether service is provided as per the expectations of the customers. Zeithaml et al. (1990) suggest that the criteria used by customers in molding their expectations and perceptions fit in five dimensions of service quality: tangibles, reliability, responsiveness, assurance and empathy. According to Parasuraman et al. (1988), service quality has become a great competitor and the most powerful competitive weapon, which many leading service organizations possess.

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In this paper, we present the development of a theoretical framework for measuring the efficiency of banking services taking into account physical and human resources, service quality and performance. Expenditures on quality improvement efforts and the impact of service quality on financial outcomes have long intrigued researchers. Banks have traditionally focused on how to transform their physical resources to generate financial performance, and they inadvertently ignored the mediating intangible factor of service quality. A theoretical framework on the optimization triad of resource, service quality and performance is proposed here, thereby linking the marketing variables to the financial metrics. A measure for the return on quality is developed as the ratio of the potential improvements in financial performance by enhancement of service quality to the observed performance figures. Empirical results obtained from a study of 27 Indian public sector banks and their customers allow us to measure the impact of service quality on financial performance, optimal level of service quality that can be generated using existing resources and the opportunity cost for sub-optimal service delivery. Banks delivering better service are shown to have better transformation of resource to performance using superior service delivery as the medium. Our results confirm the linkage between resource, service quality and performance for services.The Journal of Nepalese Business StudiesInternet banking is becoming is increasingly becoming popular because of convenience and flexibility. The present paper explores the major factors responsible for internet banking based on respondents’ perception on various internet applications. It also provides a framework of the factors which are taken to assess the internet banking perception.

G. Barathi Kamath, (2007) "The intellectual capital performance of the Indian banking sector", Journal of Intellectual Capital, explained about the commercial banks as follows. Purpose – The paper seeks to estimate and analyze the Value Added Intellectual Coefficient (VAIC™) for measuring the value-based performance of the Indian banking sector for a period of five years from 2000 to 2004.

Design/methodology/approach – Annual reports, especially the profit/loss account and balance-sheet of the banks concerned for the relevant years, were used to obtain the data. A review is conducted of the international literature on intellectual capital with specific reference to literature that reviews measurement techniques and tools, and the VAIC™ method is applied in order to analyze the data of Indian banks for the five-year period. The intellectual or human capital (HC) and physical capital (CA) of the Indian banking sector is analysed and their impact on the banks' value-based performance is discussed.

Findings – The study confirms the existence of vast differences in the performance of Indian banks in different segments, and there is also an improvement in the overall performance over the study period. There is an evident bias in favour of the performance of foreign banks compared with domestic banks.

Research limitations/implications – All 98 scheduled commercial banks are studied as per the information provided by the Reserve Bank of India (RBI)/India's Apex bank. Regional rural

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banks (RRBs), a segment of the indian banking sector, are not dealt with in the study since their number is large (more than 200), but they contribute only 3 percent of the market of Indian banks. This paper is a landmark in Indian banking history as it approaches performance measurement with a new dimension.

Practical implications – The paper has strong theoretical foundations, which have a proven record and applications. The methodology adopted has been research tested. Domestic banks in India are provided with a new dimension to understand and evaluate their performance and benchmark it with global standards. The paper also has policy implications, as it reflects the lop-sided growth of a few sections in the Indian banking segment.

Originality/value – The paper represents a pioneering and seminal attempt to understand the implications of the business performance of the Indian banking sector from an intellectual resource perspective.

2.2 Conclusion:

The various studies have discussed varying aspects of banking sector which in totality covers a vast number of issues concerning this sector. It is also evident from the above review of literature that there is a gap in the various studies as no comprehensive study has been undertaken exclusively with regard to “study of customers’ perceptions towards commercial banking services” bearing this idea in mind, the researchers have undertaken the present study.

Chapter 33.1Research Methodology

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This chapter deals with the need, significance, objectives, selection of representative sample and methodology for data collection. Various research tools and technique are used for data analysis and interpretation thereof for the scientific investigation of the problem.

3.2Need and significance of the study:

The Indian Economy has witnessed global developmental experience of expanding services, industry, sectors and contracting agriculture sectors over the last 15 years and the trend still continues. India is also looking for ways of improving competitive conditions in its financial sector to raise efficiency by attracting more foreign financial flows. The banking sector in India is very important for the above stated reasons.

3.3 Objectives of the study:

1. To study the customers’ perceptions towards services provided by the public and the private sector banks.

2. To study the customers’ opinions towards the IT enabled services.

3. To determine the successful ways of attracting and retaining the customers.

4. To study the demographic profile of the banking customers.

5. To identify the determinants of service quality which are very vital to banking industry.

3.4 Universe and Sample of the study

Four banks are selected for the present study of which two are public sector banks viz. Punjab National Bank and Oriental Bank of commerce and other two are private sector banks viz HDFC and ICICI Bank . These banks are selected on the basis of convenience sampling.

3.5 Sample and sampling technique

For the present study, 200 respondents were selected which comprised 50 respondents each from HDFC Bank, ICICI Bank, OBC Bank and PNB Bank. The reason for selecting equal number of respondents from each company was to keep uniformity of sample size and data analysis.

3.6 Research instrument and method of data collection

The study being empirical in nature relied both on primary and secondary data to achieve the objectives. Secondary data was collected from various journals and books. Primary data for the research was collected with the help of self administrated questionnaires that was specially designed to achieve the objective of the study. The respondents of the present study were limited to city Banga and village Mukandpur. The reasons for selecting respondents from these two areas was easy access to the respondents and due to the paucity of resources.

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3.7 Statistical tools used:

The data of present study was analysed by using various statistical tools such as pie-charts , bar graphs, percentages are being used for the study. Descriptive analysis was used to explain the profile of selected commercial banks.

Chapter 44.1Global Scenario and Indian Banking System

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Since the Lehman Brothers declared bankruptcy in 2008, incidences, every now & then, have sustained the concerns over global financial stability. While most emerging market economies (EMEs), including India, have recovered from global financial crisis, advanced countries continue to be plagued with growth figures looking dismal. Euro zone crisis seems to be spreading across the EU countries following ripple effect, political turmoil persists in Middle East & North African (MENA) region, economic stagnation in US augurs no imminent respite from the worsening global situation. Indian banks, however, not only emerged unscathed from the global financial crisis but continued to manage growth with resilience during 2010-11.

Presently, domestic demand stays constrained on account of slower pace of growth & high level of commodity prices but favorable demographics & growth potential of Indian economy are expected to mitigate the dampening effect in the long run. As per Census 2011, about 40 % of households still do not avail banking facilities . Banks with their forward looking strategies, improved customer relationship, diversification of revenue sources etc are expected to continue their impressive performance. 24.3 Development of Banking In India - Historical Perspective: In India, the modern banking system was initiated with the establishment of the Presidency Bank of Bengal in 1806, and the Presidency bank of Madras in 1840.However, the post independence period witnessed the massive growth in the Indian banking sector. Reserve Bank of India, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India Act,1948 . In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India to regularize, control and inspect the banks in India. The Banking Regulation Act also provided the number of new banks or branches of an existing bank would be opened with a license from the Reserve Bank of India.

The RBI acts as banker, both to the central government and state governments. It manages all the banking transactions of the government involving the receipt and payment of money. In addition, RBI remits exchange and performs other banking operations. RBI provides short-term credit to the central government. Such credit helps the government to meet any shortfalls in its receipts over its disbursements. RBI also provides short term credit to state governments as advances.

The issue department of RBI is dedicated to issuing currency. All the currency issued is the monetary liability of RBI that is backed by assets of equal value held by this department. Assets consist of gold, coin, bullion, foreign securities, rupee coins, and the government’s rupee securities.

Before Nationalization of Banks, despite control and regulation by Reserve Bank of India, banks in India except the State Bank of India continued to be owned and 322 operated by private personnel. But by that time the Indian Banking Industry had grown in size and employed a large number of people thus became an important tool for the development of Indian economy. In order to ensure more equitable and purposeful

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distribution of credit on July 19, 1969 the Government of India issued an ordinance and nationalized 14 largest commercial Banks. In April 1980 six more commercial banks were nationalized. With nationalization of these banks the Government of India controlled an overwhelming majority of the banking business in India.

Besides the above developments, financial institutions were established for meeting the specialized needs. These include Industrial Development Bank of India (IDBI), Industrial Credit and Investment Bank of India for meeting the long – term financial needs of the large scale operations. Similarly for meeting the requirements of the Small Scale Industries (SSIs), State Financial Corporation (SFC), Small Industries Development (SIDC) and Small Industries Development Bank of India (SIDBI) have been established. The National Bank for Agriculture and Rural Development (NABARD), Land Development Bank (LDB), Regional Rural Bank (RRB) etc. has been established for taking care of the credit needs in the agriculture sector.

During 1990s India started opening up with changes in the economic policies and introduction of new institutional mechanisms of economic liberalization and financial sector reforms. The government, initially licensed small number of private banks which increased over the years. Now, the next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 74% with some restrictions.

Scheduled Commercial Banks: The banks, which carry on business of banking in India and which are included in the second schedule to the Reserve Bank of India Act, 1934 are known as Scheduled Banks.

These include the State Bank of India, other Indian Banks and Foreign Banks.

(i) State Bank of India: The State Bank of India was formed in July, 1955 after the nationalization of the Imperial Bank of India.

(ii) Other Indian Banks: Indian banks are those who have their registered offices in India. These include Private Sector Banks, Associates of State Bank of India, 19 nationalized and Regional Rural Banks.

(iii) Foreign Banks: Foreign banks are those who have their registered offices outside India.

Changing Face of Indian Banking : From traditional banking practices during the British Rule to reforms period , nationalization to privatization and to the present trend of increasing number of foreign banks, Indian banking sector has undergone significant transformation. The move from old to new business environment has created newer

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demands on Indian bank like enhanced work flow, full customer access to banking transactions through electronic mode etc. In the emerging scenario of fierce competition backed by twin force of deregulation and technology, the degree of competition in the Indian financial Sector has increased to unprecedented level. Hence the operational efficiency of banks has achieved immense significance for their survival in the present scenario. In contrast to earlier 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning, modern outlook and tech-savvy methods of working for traditional banks has been ushered. All this has led to the retail boom in India. People are not just demanding more from their banks but also receiving more. With easy credit facilities the banks are transforming the consuming propensity of Indians with everything from microwave owens to houses on sale at easy monthly installments EMIs. Using information technology, banks have upgraded their systems to provide better customer services. Automatic Teller Machines (ATMs) dispensing any time money are visible in most localities of big cities and consumers are increasingly responding to banking transactions without visiting the banks. Online and mobile banking has brought the banks virtually to their doorsteps. However, all this has exposed the banks to new kinds of risks. The familiarity between bank employees and customers has become increasingly remote. Though the banks distribute various back end and front end operations to minimize risk and use highly secure socket layers SSLs, digital certificates and facilities like virtual key boards to reduce the risks in online transactions, attacks like phishing and pharming have been on the rise.

4.2Reserve Bank of India

Origin of the Reserve Bank of India is explained as follows:

1926: The Royal Commission on Indian Currency and Finance recommended creation of central bank for India

1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people.

1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.

1934: The Bill was passed and received the Governor General’s assent

1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crore (rupees fifty million).

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1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).

1947: The Reserve Bank stopped acting as banker to the Government of Burma.

1948: The Reserve Bank stopped rendering central banking services to Pakistan.

1949: The Government of India nationalized the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948.

Starting as a private shareholders’ bank, the Reserve Bank was nationalized in 1949. It then assumed the responsibility to meet the aspirations of a newly independent country and its people. The Reserve Bank’s nationalization aimed at achieving coordination between the policies of the government and those of the central bank.

4.3 Functions of the Reserve Bank of India

The functions of the Reserve Bank of India today can be categorized as follows:

Monetary policy

Regulation and supervision of the banking and non-banking financial institutions, including credit information companies

Regulation of money, forex and government securities markets as also certain financial derivatives

Debt and cash management for Central and State Governments

Management of foreign exchange reserves

Foreign exchange management—current and capital account management

Banker to banks

Banker to the Central and State Governments

Oversight of the payment and settlement systems

Currency management

Developmental role

Chapter5 Customers’ response towards services of commercial banks

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On the basis of conducted survey on the customers of the given banks, data analysis and interpretation is done as follows:

Table 5.1: Duration of hiring banking services

DurationICICI bank HDFC OBC PNB

Less than 1 year 8% 40 44 16Between 1-2 years 16% 16 16 40Between 2-3 years 28% 8 12 16Between 3-4 years 28% 20 0 4More than 4 years 20% 16 28 24

Source: Primary Data

Figure 5.1: Duration of hiring bank services


In Figure 5.1, X- axis shows the duration (in years) of hiring banking services and Y-axis shows percentage of selected respondents .The above figure and table 5.1 shows that highest percentage of respondents are related to the bank for the time less than one year with the percentage 8%, 40%, 44% and 165 in ICICI, HDFC, OBC and PNB bank respectively.

Figure 5.2 Types of bank accounts available to the customers

Column1 ICICI HDFC OBC PNBCurrent 8 4 20 20

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Saving 92 96 80 76Loan 0 0 0 4Demat 0 0 0 0


Figure:5.2


In above chart , X-axis includes to the type of accounts and Y-axis shows number of respondents (in percentage) correspondent to X-axis. In all four banks,shown in the above table and figure, the highest number of customers have saving account as compare to current account, demat account and loans. 92%, 96%, 80% and 765 of the respondents in the ICICI, HDFC, OBC and PNB bank respectively are accessing saving account in their bank.

Figure 5.3 Services accessed by the customers

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Column1 ICICI HDFC OBC PNBDeposit/Withdrawal 80 92 92 80Loans 4 0 12 8Credit cards 12 8 8 4ATM 92 76 76 80Net banking 24 16 12 24Telebanking 16 4 4 8Money tranfer/draft 0 8 32 20Any other 0 0 0 0


Figure: 5.3


In the above graph, services are taken along X-axis and number of respondents (in percentage)That has an access on the services of banks taken along Y-axis. ATM and Deposit/Withdrawal are most popular services that have an access as shown in the given table and figure 5.3.

Figure 5.4 Satisfaction level of the customers for the interest rates given by the bank

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Column1 ICICI HDFC OBC PNBVery satisfied 12 8 16 8Satisfied 56 48 72 68Neutral 12 20 12 24Unsatisfied 12 24 0 0Very unsatisfied 4 0 0 0No Response 4 0 0 0


Figure: 5.4


In the above chart, customer satisfaction level is taken along X-axis and number of respondents (in percentage) along Y-axis. In the given table and figure, most of the customers of the respective banks are satisfied with the services of a bank with the 56%, 48%, 72% and 68% of satisfaction level in the ICICI, HDFC , OBC and PNB bank respectively.

Figure 5.5 Frequency of using online services

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Column1 ICICI HDFC OBC PNBAlways 4 8 4 4Often 32 12 20 16Seldom 38 16 28 16Never 32 64 48 64

Source: Primary data

Figure: 5.5


In the above chart, responses of the customers are taken along X-axis and number of respondents (in percentage) is taken along Y-axis. In the given table and figure, higher numbers of respondents do not use online services with the percentage 32%, 64%, 48% and 64% in the ICICI, HDFC, OBC and PNB bank respectively and very less number of respondents uses online services always with the percentage 4%, 8%, 4% and 4% in the ICICI, HDFC, OBC and PNB bank respectively.

Figure 5.6 Frequency of visit by the respondents in the banks

Column1 ICICI HDFC OBC PNB

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Once in a week 32 8 4 12Once in 2 weeks 28 16 12 4Once in a month 24 28 48 16After a month 16 44 28 68No response 0 4 8 0


Figure: 5.6


In the above chart, time lag of the customers are taken along X – axis and number of respondents(in percentage) is taken along Y – axis. The above table and figure shows that large number of respondents visit the bank after one month with the percentage 245,28%, 48% and 16% in the ICICI, HDFC, OBC and PNB bank respectively and least number of respondents visit once in a week with the percentage 32%, 8%, 4% and 12% in the bank ICICI, HDFC, OBC and PNB bank respectively. The percentage of respondents with no response

Figure 5.7 Reason for hiring services of this particular bank

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Column1 ICICI HDFC OBC PNBSatisfactory interest rates 16 8 12 4Provides better services 52 24 24 44Good infrastructure facility 4 16 4 0Personal contacts in bank 28 52 36 52No response 0 0 24 4


Figure: 5.7


In the above chart, reasons of preferring banks by the respondents are taken along X – axis and number of respondents (in percentage) is taken along Y – axis. The above table and figure shows that most of the customers prefers the bank because bank provides better services and maintains personal contacts with the customers. 28%, 52%, 36% and 52% of the respondents are using the banking services in the ICICI, HDFC, OBC and PNB Bank respectively.

Figure 5.8 Customer’ opinion regarding the opening an accout was easy or it was difficult.

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Column1 ICICI HDFC OBC PNBYes, to certain extent 16 12 12 20No, it was easy 84 88 88 80


Figure: 5.8


In the above chart, response of the customers that how many feel about the procedure to open an account is difficult is taken along X-axis and number of respondents (in percentage) is taken along Y-axis. According to the given table and figure, large numbers of customers (80%) feel that procedure to open an account in bank is not easy and 20% of respondents feel that it is an easy task.

Figure 5.9 Opinion regarding the fulfillment of the banking needs of the respondents

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Column1 ICICI HDFC OBC PNBYes 80 92 92 84No 20 8 8 16


Figure; 5.9


In the above chart, responses of the respondents are taken along X – axis and number of respondents (in percentage) is taken along Y – axis. According to the given table and figure, large number of people (90%) accept that bank caters all their banking needs and 20% of respondents think that banks not caters their all banking needs.

Figure5.10 Opinion regarding the teller friendly nature of the bank

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Column1 ICICI HDFC OBC PNBYes 72 80 80 88No 28 20 12 12No response 0 0 8 0


Figure: 5.10


In the above chart, responses of the respondents are taken along X-axis and number of respondents (in percentage) is taken along Y-axis. According to the given table and figure, highest number of respondents are agree the friendly nature of the dealer in the bank with the percentage 72%, 80%, 80% and 88% in the ICICI, HDFC, OBC and PNB respectively.

Figure 5.11 Alternative bank services being used by the respondents

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Figure: 5.11


In the above chart, responses of the respondents are taken along X-axis who uses services of alternative banks and number of respondents (in percentage) is taken along Y-axis. According to the given table and figure, 80%, 68% , 76% and 68% of the respondents are using the services of the alternative banks in the ICICI, HDFC, OBC and PNB bank respectively, while 20%, 32%, 24% and 32% of the respondents are not using the services of the alternative bank in the ICICI, HDFC, OBC and PNB bank respectively.

Figure 5.12 Opinion regarding the charges charged by the bank

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Figure: 5.12


In the above chart, responses of the respondents related to the unnecessary charges for not maintaining minimum balance in your account are taken along X-axis and number of respondents(in percentage) is taken along Y-axis. According to the given table and figure, 36%, 48%, 16% and 24% of the respondents in the bank ICICI, HDFC, OBC and PNB respectively are of the view the that the banks charges unnecessary for not maintaining the minimum balance in their accounts, while 64%, 52%, 84% and 76% of the respondents in the bank ICICI, HDFC , OBC and PNB are of the view that the bank don’t charge unnecessary for not maintaining minimum balance in their accounts.

Figure 5.13 Respondents’ views regarding the recommendations of bank to their relatives , friends , associates

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Figure: 5.13


In the above chart, responses of the respondents are taken along X-axis regarding the recommendation of banks to friends, relative and associates and number of respondents (in percentage) is taken along Y-axis. According to the given table and figure, 84%, 60%, 80% and 80% of the respondents in the bank ICICI, HDFC, OBC and PNB are of the view that they will recommend this bank to their relatives, associates, etc. , while 16%, 405, 20% and 20% of the respondents from the bank ICICI, HDFC, OBC and PNB respectively are of the view thet they will not recommend this bank to their relatives , associates etc.

Figure 5.14 Ranking given by the respondents to their bank

Column1 ICICI HDFC OBC PNB

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1(Low) 0 0 0 42 8 24 12 163 32 40 52 484 48 36 24 28

5(High) 12 0 12 4 Source: Primary Data

Figure: 5.14


The above chart shows the percentage of respondents in on X-axis and response of the respondents is shown on Y-axis regarding the rating of the bank according to the services provided to them. According to the given table and figure, highest number of the respondents have chosen the option 3 as their response, while less number of the respondents have chosen the option 1.

Chapter6

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6.1 Conclusion and Recommendations

The Indian Economy has witnessed global developmental experience of expanding services, industry, sectors and contracting agriculture sectors over the last 15 years and the trend still continues. India is also looking for ways of improving competitive conditions in its financial sector to raise efficiency by attracting more foreign financial flows.

The first bank in India, called The General Bank of India was established in the year 1786. The East India Company established The Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan which was established in 1870. These three individual units (Bank of Calcutta, Bank of Bombay, and Bank of Madras) were called as Presidency Banks.

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move along with the rapid growth in the economy of India revolutionized the banking sector in India which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 49% with some restrictions.

The present study has been divided into the six chapters. The first chapter has been entitled as “Introduction”, which in corporates an introduction about the subject and also a brief profile of the selected banks. A comprehensive review of literature undertaken by the researcher has been incorporated in the second chapter. Research Methodology used for the present study has been explained in the third chapter. In the fourth chapter , “Global scenario of the banking sector” has been explained in detail. On the basis of the survey conducted , the researchers has presented the data in tabular and graphical forms in the chapter five. The last chapter incorporates summary and recommendations.

Objectives of the present study:

1. To study the customers’ perceptions towards services provided by the public and the private sector banks.

2. To study the customers’ opinions towards the IT enabled services.

3. To determine the successful ways of attracting and retaining the customers.

35

4. To study the demographic profile of the banking customers.

5. To identify the determinants of service quality which are very vital to banking industry.

Four banks are selected for the present study of which two are public sector banks viz. Punjab National Bank and Oriental Bank of commerce and other two are private sector banks viz HDFC and ICICI Bank . These banks are selected on the basis of convenience sampling. For present study, 200 respondents were selected which comprised 50 respondents each from HDFC Bank, ICICI Bank, OBC Bank and PNB Bank. The reason for selecting equal number of respondents from each company was to keep uniformity of sample size and data analysis.

The study being empirical in nature relied both on primary and secondary data to achieve the objectives. Secondary data was collected from various journals and books. Primary data for the research was collected with the help of self administrated questionnaires that was specially designed to achieve the objective of the study. The respondents of the present study were limited to city Banga and village Mukandpur. The reasons for selecting respondents from these two areas were easy access to the respondents and due to the paucity of resources.

The data of present study was analyzed by using various statistical tools such as pie-charts, bar graphs, percentages are being used for the study. Descriptive analysis was used to explain the profile of selected commercial banks.

Highest percentage of respondents are related to the bank for the time less than one year with the percentage 8%, 40%, 44% and 165 in ICICI, HDFC, OBC and PNB bank respectively.

In all four banks,shown in the above table and figure, the highest number of customers have saving account as compare to current account, demat account and loans. 92%, 96%, 80% and 765 of the respondents in the ICICI, HDFC, OBC and PNB bank respectively are accessing saving account in their bank.ATM and Deposit/Withdrawal are most popular services that have an access as shown in the given table and figure 5.3.Most of the customers of the respective banks are satisfied with the services of a bank with the 56%, 48%, 72% and 68% of satisfaction level in the ICICI, HDFC , OBC and PNB bank respectively. Higher numbers of respondents do not use online services with the percentage 32%, 64%, 48% and 64% in the ICICI, HDFC, OBC and PNB bank respectively and very less number of respondents uses online services always with the percentage 4%, 8%, 4% and 4% in the ICICI, HDFC, OBC and PNB bank respectively.Large number of respondents visit the bank after one month with the percentage 245,28%, 48% and 16% in the ICICI, HDFC, OBC and PNB bank respectively and least number of respondents

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visit once in a week with the percentage 32%, 8%, 4% and 12% in the bank ICICI, HDFC, OBC and PNB bank respectively. The percentage of respondents with no response .Most of the customers prefers the bank because bank provides better services and maintains personal contacts with the customers. 28%, 52%, 36% and 52% of the respondents are using the banking services in the ICICI, HDFC, OBC and PNB Bank respectively.Large numbers of customers (80%) feel that procedure to open an account in bank is not easy and 20% of respondents feel that it is an easy task.Large number of people (90%) accept that bank caters all their banking needs and 20% of respondents think that banks not caters their all banking needs.Highest number of respondents are agree the friendly nature of the dealer in the bank with the percentage 72%, 80%, 80% and 88% in the ICICI, HDFC, OBC and PNB respectively.

80%, 68% , 76% and 68% of the respondents are using the services of the alternative banks in the ICICI, HDFC, OBC and PNB bank respectively, while 20%, 32%, 24% and 32% of the respondents are not using the services of the alternative bank in the ICICI, HDFC, OBC and PNB bank respectively.

36%, 48%, 16% and 24% of the respondents in the bank ICICI, HDFC, OBC and PNB respectively are of the view the that the banks charges unnecessary for not maintaining the minimum balance in their accounts, while 64%, 52%, 84% and 76% of the respondents in the bank ICICI, HDFC , OBC and PNB are of the view that the bank don’t charge unnecessary for not maintaining minimum balance in their accounts.

84%, 60%, 80% and 80% of the respondents in the bank ICICI, HDFC, OBC and PNB are of the view that they will recommend this bank to their relatives, associates, etc. , while 16%, 405, 20% and 20% of the respondents from the bank ICICI, HDFC, OBC and PNB respectively are of the view that they will not recommend this bank to their relatives , associates etc.

Highest numbers of the respondents has chosen the option 3 as their response, while less number of the respondents has chosen the option 1.

6.2 Recommendations:

It is clear that significant progress has been made, since independence, in expanding bank branches and banking habits in the rural areas, through a variety of institutional innovations. An impressive segment of rural economy has been brought into the ambit of formal financial intermediation, mainly through the public sector banking system, and to some extent, through cooperatives and RRBs. The future of banking in rural areas would, however, depend on several factors that have been described, namely, how the current concerns are addressed taking into account the dynamics of transformation in rural economies, the new realities in credit markets, the linkages between formal and informal markets, and the impact of financial as well as technological progress on the systems of financial intermediation. Consequently, public policy will have to address several issues to ensure a sound and efficient banking system in the service

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of rural areas. The more important of such issues relate to the approach, institutions, supply, cost, and related policies.

6.3 References

Huseyin Arasli, Salime Mehtap-Smadi, Salih Turan Katircioglu, (2005) "Customer service quality in the Greek Cypriot banking industry", Managing Service Quality, Vol. 15 Iss: 1, pp.41 – 56

Tsung-Chi Liu and Li-Wei Wu (2007), “Customer retention and cross-buying in the banking industry: An integration of service attributes, satisfaction and trust”,Journal of Financial Services Marketing, Vol. 12, pp. 132–145.

G.S. Sureshchandar, Chandrasekharan Rajendran, R.N. Anantharaman, (2003) "Customer perceptions of service quality in the banking sector of a developing economy: a critical analysis", International Journal of Bank Marketing, Vol. 21 Iss: 5, pp.233 – 242

Ahmad Jamal, Kamal Naser, (2002) "Customer satisfaction and retail banking: an assessment of some of the key antecedents of customer satisfaction in retail banking", International Journal of Bank Marketing, Vol. 20 Iss: 4, pp.146 – 160

A Mukherjee, P Nath and M Pal

Bradford University School of Management, UK, XLRI Jamshedpur, India,Indian Institute of Management, Calcutta, IndiaCorrespondence: A Mukherjee, Bradford University School of Management, Bradford, West Yorkshire BD9 4JL, UK.

The Journal of Nepalese Business Studies Vol. V, No. 1, 2008, December Page: 101-111

G. Barathi Kamath, (2007) "The intellectual capital performance of the Indian banking sector", Journal of Intellectual Capital, Vol. 8 Iss: 1, pp.96 – 123

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