PROJECT REPORT

ON
Banking Sector Reforms

Submitted to:
Dr. Sanjay Wadhwa

in last decade in India

Submitted By:
Ashish Chopra
B.Com. (Hons.) IInd Year
PREFACE

This report has been prepared to have a received of what I have done & learned about
Marketing in Banking Industry.
This report contains a basic introduction of Banking industry & Marketing Management I
hope that this report provides sufficient information regarding my work on the project.
I would consider my efforts to be fruitful if it proves useful to somebody at latest stages.

Ashish Chopra
B.Com. (Hons.) IInd Year

ACKNOWLEDGEMENT
This project would not have been possible without the guidance, help and
cooperation of a number of people. I extend my gratitude to all those people who
helped me in some or other way to complete my project.

I would like to take this opportunity to thank my project guide, Dr. Sanjay Wadhwa
for their guidance and motivation without whom the successful completion of this
project would not have been possible. Therefore constant support has given me an
overall learning experience.

I wish to express my heart felt gratitude to all friends who have been associated with
this study in many small and big ways.
Ashish Chopra
B.Com. (Hons.) IInd Year
DECLARATION

I Ashish Chopra hereby declared that the project report entitled Banking Sector
Reforms in last decade in India under guidance of Dr. Sanjay Wadhwa submitted
in partial fulfillment of the requirement of the award of the degree of B.Com.
(Hons.) IInd year in my original work.

Ashish Chopra
B.Com. (Hons.) IInd Year

CONTENTS
Acknowledgment
Declaration

1. INTRODUCTION
1.1 History of banking sector
1.2 Emerging trends in banking sector
1.3 Customer satisfaction
1.4 Rural banking
1.5 Foreign banks in India
1.6 Nationalization of banking sector
1.7 Upcoming foreign banks in India

2. INTRODUCTION TO THE TOPIC

3. LITERATURE REVIEW
4. NEED FOR RESEARCH
4.1 Need for measuring Customer satisfaction
4.2 Expectations and customer satisfaction
4.3 Factors Affecting customers towards particular Banks

5. RESEARCH METHODOLOGY
5.1 Objectives of research
5.2 Research design
5.3 Sources of data
5.4 Research instrument.

6. PUBLIC SECTOR BANKS AND PRIVATE SECTOR BANKS

6.1 Public sector banks
6.2 Private sector banks
6.3 Difference between public sector banks and private sector banks
6.4 Difference between public sector banks and private sector banks in terms of
Customer satisfaction.
6.5 Reasons of dissatisfaction in public sector banks.
6.6

Recommendations for public sector banks.

7. STRATEGIES OF BANKS TO SATISFY THEIR CUSTOMERS

7.1 Relationship marketing (CRM) in banking sector

7.2 Ten ways to help you improve your customer service
7.3 Service quality development
7.4 Improving customer satisfaction
7.5 Dimensions of service quality in the Indian retail Banking Environment
7.6 Marketing strategies
7.7 Measuring Customer satisfaction in the Indian Banking sector

8. IMPACT OF ATM ON CUSTOMER SATISFACTION

9. ANALYSIS &

INTERPRETATION
10. CONCLUSION & SUMMARY
11. LIMITATIONS
References
Questionnaire
1. INTRODUCTION

The Purpose of this study to investigates relationship dimensions and studies the
differences in perception of customers with respect to services provided by five Indian
banks. The relationship dimensions which lead to customer satisfaction have been
identified. This study reports on the different satisfaction levels of customers of private
and public sector banks with respect to the services provided by their banks

1.1 HISTORY OF THE BANKING SECTOR

Banking in India originated in the last decades of the 18th century. The first banks were
The General Bank of India which started in 1786, and the Bank of Hindustan, both of
which are now defunct. The oldest bank in existence in India is the State Bank of India,
which originated in the Bank of Calcutta in June 1806, which almost immediately
became the Bank of Bengal. This was one of the three presidency banks, the other two
being the Bank of Bombay and the Bank of Madras, all three of which were established
under charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks merged in
1921 to form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as
a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in
1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the
first though. That honor belongs to the Bank of Upper India, which was established in
1863, and which survived until 1913, when it failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Simla.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in
1862; branches in Madras and Pondichery, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in India,
mainly due to the trade of the British Empire, and so became a banking center.
The Bank of Bengal, which later became the State Bank of India.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established
in Lahore in 1895, which has survived to the present and is now one of the largest banks
in India.
The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.
The favour of Swadeshi movement lead to establishing of many private banks in
Dakshina Kannada and Udupi district which were unified earlier and known by the name
South Canara ( South Kanara ) district. Four nationalized banks started in this district
and also a leading private sector bank. Hence undivided Dakshina Kannada district is
known as "Cradle of Indian Banking".
The State Bank of India (SBI) is the oldest and largest bank in the country. Its origins
go back to the first decade of the 19th century, when the Bank of Calcutta was established
on 2 June 1806. The bank got its present name after an Act of Parliament in May 1955
and the State Bank of India was constituted on 1 July 1955. Today, SBI has a phenomenal
9,559 branches and its ATM network is spread across 6,473 of its own locations& total
8,000ATMs including of those of its associate banks.
State Bank of India is a successor to Imperial Bank of India, which was established in
1921.The bank, came into being on 1.7.1955 through the State Bank of India Act, 1955.

States of India joined the State Bank Group, as subsidiaries under the State Bank of India
(Subsidiaries Banks) Act, 1959.

1.2 EMERGING TRENDS IN BANKING SECTOR

The liberalization process initiated by the government about a decade ago has changed
the landscape of several sectors of the Indian economy. The financial sector like other
sectors is also going through major changes as a consequence of economic reforms. The
consumption-led boom in India has fuelled robust demand for financial products
especially in the banking domain. Emerging competition has generated new expectations
from existing and new customers. There is an urgent need to introduce new and more
attractive customer-friendly products and services. The banking sector presently is at an
inflexion point. Existing products need to be delivered in an innovative and cost-effective
manner by taking full advantage of emerging technologies. Technology has swiftly
become a business driver rather than a business enabler. This sector has seen phenomenal
growth in terms of technology infusion and adoption in the recent past such as: Internet
and Mobile Banking, CRM, etc. With increasing competition and tightening of prudential
norms by the Reserve Bank, the players in the banking industry, both Indian and global
are taking turns towards mergers and acquisitions. Only banks having adequate
infrastructure, technology, economies of scale and well connected network of branches
will be able to survive and meet the challenges of ever increasing competition and
customer expectations. The book is divided into two sections. Section-I extensively
covers the trends, issues and challenges related to the technology i.e. ATMs, e-banking,
data warehousing and data mining, CRM solutions, etc. Section-II covers other

contemporary issues in the banking sector such as Basel II, financial inclusion, service
quality, risk management, banc assurance, retail banking, universal banking etc. The book
shall serve as a rich reference resource for decision makers in the banking industry,
researchers, academicians and students.

The traditional distinctions between banking and other financial services like insurance
on one side; and between commercial banking, developmental banking and investment
banking are getting blurred. The emergence of universal banking and banc assurance are
clearly pointers. This global convergence of financial services may gather further
momentum in the years to come. The banking and insurance sector reforms have
encouraged private sector players to make forays into the business in collaboration with
major international companies.

This new scenario will witness financially sound and experienced players transforming
the industry with best practices in product development, operational efficiency, marketing
capability, service focus, and tech savy orientation. Thus there is a need for intensive,
futuristic and career oriented programs in these two areas: Banking and Insurance. These
developments in Banking and Insurance industry call for competent and professionally
trained managers",

Increasing competition, thinner spreads and introduction of new technology driven

products are some of the trends that the Indian banking system is experiencing. "Recent

trends in Indian banking have reflected the efforts of the major players to adapt to a
rapidly liberalizing and globalizing environment.

While the impact of these changes is possibly a subject of debate, there is one group
which is not complaining the customers, the beneficiaries of the process of
liberalization," observed Amitabh Guha, State Bank of Travancore.

Further, the technology oriented banking has become one of the latest mantras of success
in the market, especially to win over the customers.
To this, says SBI Chairman AK Purwar, "Indian banks need to fuel the market by
bringing new products at par with the international standards, extending ATM facility to
rural areas and vibrant networking countrywide to compete with the new generation and
the MNC banks in India"

As T.S. Anantharaman, Financial Analyst, mentioned, "The savings and investments

scenario in our country has undergone total change in the past decade, since the country
embarked on a course of liberalization and globalization of its economy

With the increasing sophistication of our economy, the variety and type of investments
options available to us today have multiplied. Also, with the economy getting more and
more integrated with the world economy, rapid changes in the options, instruments, rate
of return etc. have become the order of the day." Such a change is visible in respect of
shares, mutual funds, fixed income, bank deposits, life insurance, pension plans etc. since

10

change and innovation is involved in this process, and one can legitimately expect an
exciting and lucrative career scenario in the banking, finance and insurance sector.

1.3 CUSTOMER SATISFACTION

Customer satisfaction, a business term, is a measure of how products and services
supplied by a company meet or surpass customer expectation. It is seen as a key
performance indicator within business and is part of the four perspectives of a Balanced
Scorecard.
In a competitive marketplace where businesses compete for customers, customer
satisfaction is seen as a key differentiator and increasingly has become a key element of
business strategy.
Organizations need to retain existing customers while targeting non-customers;
Measuring customer satisfaction provides an indication of how successful the
organization is at providing products and/or services to the marketplace.
Customer satisfaction is an abstract concept and the actual manifestation of the state of
satisfaction will vary from person to person and product/service to product/service. The
state of satisfaction depends on a number of both psychological and physical variables
which correlate with satisfaction behaviors such as return and recommend rate. The level
of satisfaction can also vary depending on other factors the customer, such as other
products against which the customer can compare the organization's products.

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Satisfaction with banking services is an area of growing interest to researchers and

managers. The commercial banking industry like many other financial service industries
is facing rapidly changing market. New technologies, economic uncertainties, fierce
competition and more demanding customers and the changing climate have presented an
unprecedented set of challenges. Intangible assets, particularly brands and customers, are
critical to any organization and in todays competitive environment relationship
marketing is critical to banking corporate success.

Banking is a customer oriented services industry. As we know that customer is the king
therefore customer is the main focus and customer service is the differentiating factor.
Banks have also started realizing that business depends on client service and the
satisfaction of the customer and this is compelling them to improve customer service and
build relationship with customers. With the current change in the functional orientation of
banks, the purpose of banking being redefined. The main driver of this change is
changing customer needs and expectations. Customers look for a relationship with bank
when they receive benefits from its services.

The banking industry like many other financial service industries is facing a rapidly
changing market, new technologies, economic uncertainties, fierce competition and more
demanding customers and the changing climate has presented an unprecedented set of
challenges .
The banking industry in India has undergone dramatic change post independence. Banks
have also starts realizing that business depends on client service and the satisfaction of

12

the customer and this is compelling them to improve customer service and build
relationship with customers.
With the current changes in the functional orientation of banks, the purpose of banking is
being redefined. The main driver of this change is changing customer needs and
expectations. Customers In urban India no longer want to wait in long queues and spend
hours in banking transactions. This change in customer attitude has gone hand in hand
with the developments of ATMs, phone and net banking along with availability of service
right at the customer doorstep. Further the world class banking experience provided by
private and multinational banks with their ever evolving products and services has raised
the bar of customer expectations. With the emergence of universal banking, banks aim to
provide all banking products and service offering under one roof and their Endeavour is
to be customer centric. The Indian banking industry is also embracing technology rapidly.
Big players among the private and public sector banks are reengineering and automating
their core banking processes.
1.4 RURAL BANKING
Rural banking in India started since the establishment of banking sector in India. Rural
Banks in those days mainly focused upon the agro sector. The Haryana State Cooperative
Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in
the economy of Haryana State and has been providing aids and financing farmers, rural
artisans, agricultural laborers, entrepreneurs, etc. in the state and giving service to its
depositors. National Bank for Agriculture and Rural Development (NABARD) is a
development bank in the sector of Regional Rural Banks in India. It provides and

13

regulates credit and gives service for the promotion and development of rural sectors
mainly agriculture, small scale industries, cottage and village industries, handicrafts.

1.5 FOREIGN BANKS IN INDIA

Foreign Banks in India always brought an explanation about the prompt services to
customers. After the set up foreign banks in India, the banking sector in India also
become competitive and accusative. New policies are introduced by RBI for themThe
policy conveys that foreign banks in India may not acquire Indian ones (except for weak
banks identified by the RBI, on its terms) and their Indian subsidiaries will not be able to
open branches freely, Main competitors for banking sector. Post offices, Mutual fund,
Share market, Insurance, Money lenders, Family and friends, Present scenario banking
industry has been undergoing a rapid transformation, Banks today are market driven and
market responsive. With the entry of new players and multiple channels, customers (both
corporate and retail) have become more discerning and less "loyal" to banks. This makes
it imperative that banks provide best possible products and services to ensure customer
satisfaction. They have been managing a world of information about customers - their
profiles, location, needs, requirements, cash positions, etc. Furthermore, banks have very
strong in-house research and market intelligence units in order to face the future
challenges of competition, especially customer retention.

They are focusing on region-specific campaigns rather than national media campaigns as
effective strategy for a diverse country like India. Customer-centricity also implies
increasing investment in technology. Apart from the Mobile Banking, including of SMS

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Banking, Net Banking and ATMs are the major steps taken by the banks in India towards
modernization. Services given by banks D-mat account, Lockers, Cash management
Insurance product, Mutual fund product, Loans, ECS (Electronic clearance system)
Taxes.
1.6 NATIONALIZATION OF BANKING SECTORThe nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then
prime minister. It nationalized 14 banks then. These banks were mostly owned by
businessmen and even managed by them. Central Bank of India, Bank of Maharashtra,
Dena Bank Punjab National Bank Syndicate Bank, Canara Bank Indian Bank Indian
Overseas Bank, bank of Baroda, Union Bank, Allahabad Bank United Bank of India
UCO Bank.
After that Banks have introduced many more products and facilities in the banking sector
in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee
was set up by his name which worked for the liberalization of banking practices. The
country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and Net banking is introduced.
The entire system became more convenient and swift. Time is given more importance
than money.
1.7 UPCOMING FOREIGN BANKS IN INDIA
By 2009 few more names is going to be added in the list of foreign banks in India. This
is as an aftermath of the sudden interest shown by

Reserve Bank of India paving

roadmap for foreign banks in India greater freedom in India. Among them is the world's

15

best private bank by Euro Money magazine, Switzerland's UBS. The following are the
list of foreign banks going to set up business in India:Royal Bank of Scotland
Switzerland's UBS
US-based GE Capital
Credit Suisse Group
Industrial and Commercial Bank of China

2. INTRODUCTION TO THE TOPIC

The Indian banking industry is measured as a flourishing and the secure in the banking
world. The countrys economy growth rate by over 9 percent since last several years and
that has made it regarded as the next economic power in the world. The paper deals with
the banking sector reforms and it has been discussed that Indias banking industry is a
mixture of public, private and foreign ownerships. The major dominance of commercial
banks can be easily found in Indian banking, although the co-operative and regional rural
banks have little business segment. Further the paper has discussed an evaluation of
banking sector reforms and economic growth of the country since from the globalization
and its effects on Indian economy. Competition among financial intermediaries gradually
helped the interest rates to decline. Deregulation added to it. The real interest rate was

16

maintained. The borrowers did not pay high price while depositors had incentives to save.
It was something between the nominal rate of interest and the expected rate of
inflation. Finally the paper deals with conclusion and inflation rates from the different
years and regulation of economy and finance of the country through government policies
and banking sector reforms.
Key Words: Banking Sector, Reforms, Economy, Inflation, Growth
Introduction:
The efficient, dynamic and effective banking sector plays a decisive role in accelerating
the rate of economic growth in any economy. In the wake of contemporary economic
changes in the world economy and other domestic crises like adverse balance of
payments problem, increasing fiscal deficits our country too embarked upon economic
reforms (Ahulwalia M. S; 1993). The Government of India introduced economic and
financial sector reforms in 1991 and banking sector reforms were part and parcel of
financial sector reforms. These were initiated in 1991 to make Indian banking sector
more efficient, strong and dynamic.
The recommendations of the Narishiman Commission-I in 1991 provided the blue print
for the first generation reforms of the financial sector, the period 1992-97 witnessed the
laying of the foundations for reforms in the banking system. This period saw the
implementation of prudential norms (relating to capital adequacy, income recognition,
asset classification and provisioning, exposure norms etc). The structural changes
accomplished during the period provided foundation of further reforms. Against such
backdrop, the Report of the Narishiman Committee- II in 1998 provided the road map of
the second generation reforms processes. Y.V. Reddy noted that the first generation

17

reforms were undertaken early in the reform cycle, and the reforms in the financial sector
were initiated in a well structured, sequenced and phased manner with cautious and
proper sequencing, mutually reinforcing measures; complimentarily between forms in
banking sector and changes in fiscal, external and monetary policies, developing financial
infrastructure and developing markets. By way of visible impact, one finds the presence
of a diversified banking system. Another important aspect is that apart from the growth of
banks and commercial banks there are various other financial intermediaries including
mutual funds. NBFCs, primary dealers housing financing companies etc., the roles played
by the commercial banks in promoting these institutions are equally significant. Other
important developments are:
Financial regulation through statutory pre-emotions (Bank rate, deposit rate, Credit
Reserve Ration, Statutory Liquidity ratio) has been lowered while stepping up prudential
regulations at the same time.
Interest rates have been deregulated, allowing banks the freedom to determine deposits
and lending rates.
Steps have been initiated to strengthen public sector banks, through increasing their
autonomy recapitalization from the fiscal, several banks capital base has been written off
and some have even returned capital to govt. Allowing new private sector banks and
more liberal entry of foreign banks has infused competition.
A set of prudential measures have been stipulated to impart greater strength to the
banking system and also, ensure their safety and soundness with the objective of moving
towards international practices.

18

Measures have also been taken to broaden the ownership base of PSB; consequently, the
private sector holding has gone up, ranging from 23% to 43%.
The banking sector has also witnessed greater levels of transparency and standards of
disclosure.
As the banking system has liberalized and become increasingly market oriented, the
financial markets have been concurrently developed ; while the conduct of monetary
policy has been tailored to take into account the realities of the changing environment
(switching to indirect instruments)
In the post liberalization-era, Reserve Bank of India (RBI) has initiated quite a few
measures to ensure safety and consistency of the banking system in the country and at the
same point in time to support banks to play an effective role in accelerating the economic
growth process. One of the major objectives of Indian banking sector reforms was to
encourage operational self-sufficiency, flexibility and competition in the system and to
increase the banking standards in India to the international best practices (Reddy Y. V.;
2002). Although the Indian banks have contributed much in the Indian economy, certain
weaknesses, i.e. turn down in efficiency and erosion in profitability had developed in the
system, observance in view these conditions, the Committee on Financial System (CFS)
was lay down (Amit Kumar Dwivedi; D. Kumara Charyulu; 2011).
Indias Pre-reform period
Since 1991, India has been engaged in banking sector reforms aimed at increasing the
profitability and efficiency of the then 27 public-sector banks that controlled about 90 per
cent of all deposits, assets and credit. The reforms were initiated in the middle of a
current account crisis that occurred in early 1991. The crisis was caused by poor

19

macroeconomic performance, characterized by a public deficit of 10 per cent of GDP, a

current account deficit of 3 per cent of GDP, an inflation rate of 10 per cent, and growing
domestic and foreign debt, and was triggered by a temporary oil price boom following
the Iraqi invasion of Kuwait in 1990.
Indias financial sector had long been characterized as highly regulated and financially
repressed. The prevalence of reserve requirements, interest rate controls, and allocation of
financial resources to priority sectors increased the degree of financial repression and
adversely affected the countrys financial resource mobilization and allocation. After
Independence in 1947, the government took the view that loans extended by colonial
banks were biased toward working capital for trade and large firms (Joshi and Little
1996). Moreover, it was perceived that banks should be utilized to assist Indias planned
development strategy by mobilizing financial resources to strategically important sectors.
Banking Sector Reforms
As the real sector reforms began in 1992, the need was felt to restructure the Indian
banking industry. The reform measures necessitated the deregulation of the financial
sector, particularly the banking sector. The initiation of the financial sector reforms
brought about a paradigm shift in the banking industry. In 1991, the RBI had proposed to
form the committee chaired by M. Narasimham, former RBI Governor in order to review
the Financial System viz. aspects relating to the Structure, Organisations and Functioning
of the financial system. The Narasimham Committee report, submitted to the then
finance minister, Manmohan Singh, on the banking sector reforms highlighted the
weaknesses in the Indian banking system and suggested reform measures based on the

20

Basle norms. The guidelines that were issued subsequently laid the foundation for the
reformation of Indian banking sector.
The main recommendations of the Committee were: -

Banking Sector Reforms

Reduction of Statutory Liquidity Ratio (SLR) to 25 per cent over a period of five

years

Progressive reduction in Cash Reserve Ratio (CRR)

Phasing out of directed credit programmes and redefinition of the priority sector

Stipulation of minimum capital adequacy ratio of 4 per cent to risk weighted assets

Adoption of uniform accounting practices in regard to income recognition, asset

classification and provisioning against bad and doubtful debts

Imparting transparency to bank balance sheets and making more disclosures

Setting up of special tribunals to speed up the process of recovery of loans

Setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion

of their bad and doubtful advances at a discount

Restructuring of the banking system, so as to have 3 or 4 large banks, which could

become international in character, 8 to 10 national banks and local banks confined to

specific regions. Rural banks, including RRBs, confined to rural areas

Abolition of branch licensing

Liberalising the policy with regard to allowing foreign banks to open offices in India

Rationalisation of foreign operations of Indian banks

Giving freedom to individual banks to recruit officers

21

Inspection by supervisory authorities based essentially on the internal audit and

inspection reports

Ending duality of control over banking system by Banking Division and RBI

A separate authority for supervision of banks and financial institutions which would

be a semi-autonomous body under RBI

Revised procedure for selection of Chief Executives and Directors of Boards of

public sector banks

Obtaining resources from the market on competitive terms by DFIs

Speedy liberalisation of capital market

Economic Reforms of the Banking Sector in India

Indian banking sector has undergone major changes and reforms during economic
reforms. Though it was a part of overall economic reforms, it has changed the very
functioning of Indian banks. This reform has not only influenced the productivity and
efficiency of many of the Indian Banks, but has left everlasting footprints on the working
of the banking sector in India. Let us get acquainted with some of the important reforms
in the banking sector in India below with a graph.

22

1. Reduced CRR and SLR: The Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio (SLR) are gradually reduced during the economic reforms period in India. By Law
in India the CRR remains between 3-15% of the Net Demand and Time Liabilities. It is
reduced from the earlier high level of 15% plus incremental CRR of 10% to current 4%
level. Similarly, the SLR Is also reduced from early 38.5% to current minimum of 25%
level. This has left more loanable funds with commercial banks, solving the liquidity
problem.
2. Deregulation of Interest Rate: During the economics reforms period, interest rates of
commercial banks were deregulated. Banks now enjoy freedom of fixing the lower and
upper limit of interest on deposits. Interest rate slabs are reduced from Rs.20 Lakhs to
23

just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full decontrolled.
These measures have resulted in more freedom to commercial banks in interest rate
regime.
3. Fixing prudential Norms: In order to induce professionalism in its operations, the
RBI fixed prudential norms for commercial banks. It includes recognition of income
sources. Classification of assets, provisions for bad debts, maintaining international
standards in accounting practices, etc. It helped banks in reducing and restructuring Nonperforming assets (NPAs).
4. Introduction of CRAR: Capital to Risk Weighted Asset Ratio (CRAR) was
introduced in 1992. It resulted in an improvement in the capital position of commercial
banks, all most all the banks in India has reached the Capital Adequacy Ratio (CAR)
above the statutory level of 9%.
5. Operational Autonomy: During the reforms period commercial banks enjoyed the
operational freedom. If a bank satisfies the CAR then it gets freedom in opening new
branches, upgrading the extension counters, closing down existing branches and they get
liberal lending norms.
6. Banking Diversification: The Indian banking sector was well diversified, during the
economic reforms period. Many of the banks have stared new services and new products.
Some of them have established subsidiaries in merchant banking, mutual funds,
insurance, venture capital, etc which has led to diversified sources of income of them.
7. New Generation Banks: During the reforms period many new generation banks have
successfully emerged on the financial horizon. Banks such as ICICI Bank, HDFC Bank,

24

UTI Bank have given a big challenge to the public sector banks leading to a greater
degree of competition.
8. Improved Profitability and Efficiency: During the reform period, the productivity
and efficiency of many commercial banks has improved. It has happened due to the
reduced Non-performing loans, increased use of technology, more computerization and
some other relevant measures adopted by the government.
Differential Rate Interest:
The differential Rate of Interest (DRI) is a leading programme launched by the
Government in April 1972 which makes it obligatory upon all the Public Sector Banks in
India to lend I percent total leading of the preceding year to the The poorest among the
poor at an interest rates of 4 percent paranom the total leading in 2005 06 was Rs. 351
crores, period 1969-2000 gives the following: from 1969-1980, the ratio of deposits in
nationalized banks to deposits in private banks was approximately 5 to 1; from 1980 to
1993, the ratio was approximately 11-1; post liberalization, the ratio has been falling, and
in 2000 stood at about 7.5 to 1.47 Thus, under the accounting that is most favorable to
public sector banks, they squeak by as less costly to the government than private sector
banks (the ratio of money spent bailing out public vs. private banks would be 62 3 to 1,
less than the deposits ratio). However, using the estimate of 540 billion rupees total cost
gives a 12-1 ratio, which would imply that the public sector banks lost a greater portion
of their deposits to bad loans.
The Future of Banking Reform
Prior to the economic reforms, the financial sector of India was on the crossroads. To
improve the performance of the Indian commercial banks, first phase of banking sector

25

reforms were introduced in 1991 and after its success; government gave much importance
to the second phase of the reforms in 1998. Uppal (2011) analyzes the ongoing banking
sector reforms and their efficacy with the help of some ratios and concludes the efficacy
of all the bank groups have increased but new private sector and foreign banks have edge
over our public sector bank. The efficient, dynamic and effective banking sector plays a
decisive role in accelerating the rate of economic growth in any economy. In the wake of
contemporary economic changes in the world economy and other domestic crises like
adverse balance of payments problem, increasing fiscal deficits etc., our country too
embarked upon economic reforms. The govt. of India introduced economic and financial
sector reforms in 1991 and banking sector reforms were part and parcel of financial
sector reforms. These were initiated in 1991 to make Indian banking sector more
efficient, strong and dynamic.
Rationale of Banking Sector Reforms
To cope up with the changing economic environment, banking sector needs some dose to
improve its performance. Since 1991, the banking sector was faced with the problems
such as tight control of RBI, eroded productivity and efficiency of public sector banks,
continuous losses by public sector banks year after year, increasing NPAs, deteriorated
portfolio quality, poor customer service, obsolete work technology and unable to meet
competitive environment. Therefore, Narasimham Committee was appointed in 1991 and
it submitted its report in November 1991, with detailed measures to improve the adverse
situation of the banking industry (Uppal; 2011. p. 69). The main motive of the reforms
was to improve the operational efficiency of the banks to further enhance their
productivity and profitability.

26

First Phase of Banking Sector Reforms

The first phase of banking sector reforms essentially focused on the following:
1.) Reduction in SLR & CRR
2.) Deregulation of interest rates
3.) Transparent guidelines or norms for entry and exit of private sector banks
4.) Public sector banks allowed for direct access to capital markets
5.) Branch licensing policy has been liberalized
6.) Setting up of Debt Recovery Tribunals
7.) Asset classification and provisioning
8.) Income recognition
9.) Asset Reconstruction Fund (ARF)

Second Phase of Banking Sector Reforms

In spite of the optimistic views about the growth of banking industry in terms of branch
expansion, deposit mobilization etc, several distortions such as increasing NPAs and
obsolete technology crept into the system, mainly due to the global changes occurring in
the world economy. In this context, the government of India appointed second
Narasimham Committee under the chairmanship of Mr. M. Narasimham to review the
first phase of banking reforms and chart a programme for further reforms necessary to
strengthen Indias financial system so as to make it internationally competitive. Uppal
(2011. p. 70) the committee reviewed the performance of the banks in light of first phase
of banking sector reforms and submitted its report with some more focus and new

27

recommendations. There were no new recommendations in the second Narasimham

Committee except the followings:
- Merger of strong units of banks
- Adaptation of the narrow banking concept to rehabilitate weak banks.
As the process of second banking sector reforms is going on since 1999, one may say that
there is an improvement in the performance of banks. However, there have been many
changes and challenges now due to the entry of our banks into the global market.
Third banking sector reforms and fresh outlook
Rethinking for financial sector reforms have to be accorded, restructuring of the public
sector banks in particular, to strengthen the Indian financial system and make it able to
meet the challenges of globalization. The on-going reform process and the agenda for
third reforms will focus mainly to make the banking sector reforms viable and efficient so
that it could contribute to enhance the competitiveness of the real economy and face the
challenges of an increasingly integrated global financial architecture.
When we take this evidence together, where does it leave us? There are obvious problems
with the Indian banking sector, ranging from under-lending to unsecured lending, which
we have discussed at some length. There is now a greater awareness of these problems in
the Indian government and a willingness to do something about them. One policy option
that is being discussed is privatization. The evidence from Cole, discussed above,
suggests that privatization would lead to an infusion of dynamism in to the banking
sector: private banks have been growing faster than comparable public banks in terms of
credit, deposits and number of branches, including rural branches, though it should be
noted that in our empirical analysis, the comparison group of private banks were the

28

relatively small old private banks.48 It is not clear that we can extrapolate from this to
what we could expect when the State Bank of India, which is more than an order of
magnitude greater in size than the largest old private sector banks. The new private
banks are bigger and in some ways would have been a better group to compare with.
However while this group is also growing very fast, they have been favored by regulators
in some specific ways, which, combined with their relatively short track record, makes
the comparison difficult. Privatization will also free the loan officers from the fear of the
CVC and make them somewhat more willing to lend aggressively where the prospects
are good, though, as will be discussed later, better regulation of public banks may also
achieve similar goals.
Historically, a crucial difference between public and private sector banks has been their
willingness to lend to the priority sector. The recent broadening of the definition of
priority sector has mechanically increased the share of credit from both public and private
sector banks that qualify as priority sector. The share of priority sector lending from
public sector banks was 42.5 percent in 2003, up from 36.6 percent in 1995. Private
sector lending has shown a similar increase from its 1995 level of 30 percent. In 2003 it
may have surpassed for the first time ever public sector banks, with a share of net bank
credit to the priority sector at 44.4 percent to the priority sector.
Still, there are substantial differences between the public and private sector banks. Most
notable is the consistent failure of private sector banks to meet the agricultural lending
sub-target, though they also lend substantially less in rural areas. Our evidence suggests
that privatization will make it harder for the government to get the private banks to
comply with what it wants them to do. However it is not clear that this reflects the greater

29

sensitivity of the public banks to this particular social goal. It could also be that credit to
agriculture, being particularly politically salient, is the one place where the nationalized
banks are subject to political pressures to make imprudent loans.
Comes from the risk of bank failure. In the past there have been cases where the owner of
the private bank stripped its assets, and declared that it cannot honor its deposit liabilities.
The government is, understandably, reluctant to let banks fail, since one of the
achievements of the last forty years has been to persuade people that their money is safe
in the banks. Therefore, it has tended to take over the failed bank, with the resultant
pressure on the fiscal deficit. Of course, this is in part a result of poor regulationthe
regulator should be able to spot a private bank that is stripping its assets. Better enforced
prudential regulations would considerably strengthen the case for privatization.
On the other hand, public banks have also been failingthe problem seems to be part
corruption and part inertia/laziness on the part of the lenders. As we saw above, the cost
of bailing out the public banks may well be larger (appropriately scaled) than the total
losses incurred from every bank failure since 1969. Once again the fact that the new
private banks pose a problem: So far none of them have defaulted, but they are also new,
and as a result, have not yet had to deal with the slow decline of once successful
companies, which is one of the main sources of the accumulation of bad debt on the
books of the public banks. On balance, we feel the evidence argues, albeit quite
tentatively, for privatizing the nationalized banks, combined with tighter prudential
regulations. On the other hand we see no obvious case for abandoning the social aspect
of banking. Indeed there is a natural complementarity between reinforcing the priority
sector regulations (for example, by insisting that private banks lend more to agriculture)

30

and privatization, since with a privatized banking sector it is less likely that the directed
loans will get redirected based on political expediency.
However there is no reason to expect miracles from the privatized banks. For a variety of
reasons including financial stability, the natural tendency of banks, public or private, the
world over, is towards consolidation and the formation of fewer, bigger banks. As banks
become larger, they almost inevitably become more bureaucratic, because most lending
decisions in big banks, by the very fact of the bank being big, must be taken by people
who have no direct financial stake in the loan. Being bureaucratic means limiting the
amount of discretion the loan officers can exercise and using rules, rather human
judgment wherever possible, much as is currently done in Indian nationalized banks.
Berger et al. have argued in the context of the US that this leads bigger banks to shy away
from lending to the smaller firms.50 Our presumption is that this process of consolidation
and an increased focus on lending to corporate and other larger firms is what will happen
in India, with or without privatization, though in the short run, the entry of a number of
newly privatized banks should increase competition for clients, which ought to help the
smaller firms.
In the end the key to banking reform may lie in the internal bureaucratic reform of banks,
both private and public. In part this is already happening as many of the newer private
banks (like HDFC, ICICI) try to reach beyond their traditional clients in the housing,
consumer finance and blue-chip sectors. This will require a set of smaller step reforms,
designed to affect the incentives of bankers in private and public banks. A first step would
be to make lending rules more responsive to current profits and projections of future
profits. This may be a way to both target better and guard against potential NPAs, largely

31

because poor profitability seems to be a good predictor of future default. It is clear

however that choosing the right way to include profits in the lending decision will not be
easy. On one side there is the danger that unprofitable companies default. On the other
side, there is the danger of pushing a company into default by cutting its access to credit
exactly when it needs it the most, i.e. right after a shock to demand or costs has pushed it
into the red. Perhaps one way to balance these objectives would be to create three
categories of firms: (1) Profitable to highly profitable firms. Within this category lending
should respond to profitability, with more profitable firms getting a higher limit, even if
they look similar on the other measures. (2) Marginally profitable to loss-making firms
that used to be highly profitable in the recent past but have been hit by a temporary shock
(e.g. an increase in the price of cotton because of crop failures, etc.). For these firms the
existing rules for lending might work well. (3) Marginally profitable to loss-making firms
that have been that way for a long time or have just been hit by a permanent shock (e.g.,
the removal of tariffs protecting firms producing in an industry in which the Chinese have
a huge cost advantage). For these firms, there should be an attempt to discontinue
lending, based on some clearly worked out exit strategy (it is important that the
borrowers be offered enough of the pie that they feel that they will be better off by exiting
without defaulting on the loans). Of course it is not always going to be easy to
distinguish permanent shocks from the temporary. In particular, what should we make of
the firm that claims that it has put in place strategies that help it survive the shock of
Chinese competition, but that they will only work in a couple of years? The best rule may
be to use the information in profits and costs over several years, and the experience of the
industry as a whole.

32

CONCLUSION
It could be noted that there has been no banking crisis at the same time, efficiency of
banking system as a whole, measured by declining spread has improved. This is not say
that they have no challenges. There are emerging challenges, which appear in the forms
of consolidation; recapitalization, prudential regulation weak banks, and non-performing
assets, legal framework etc needs urgent attention. The paper concludes that, from a
regulatory perspective, the recent developments in the financial sector have led to an
appreciation of the limitations of the present segmental approach to financial regulation
and favors adopting a consolidated supervisory approach to financial regulation and
supervision, irrespective of its structural design.
In the post-era of IT Act, global environment is continuously changing and providong
new direction, dimensions and immense opportunities for the banking industry. Keeping
in mind all the changes, RBI should appoint another committee to evaluate the on-going
banking sector reforms and suggest third phase of the banking sector reforms in the light
of above said recommendations. Need of the hour is to provide some effective measures
to guard the banks against financial fragilities and vulnerability in an environment of
growing financial integration, competition and global challenges. The challenge for the
banks is to harmonize and coordinate with banks in other countries to reduce the scope
for contagion and maintain financial stability. It is not possible to play the role of the
Oracle of Delphi when a vast nation like India is involved. However, a few trends are
evident, and the coming decade should be as interesting as the last one.

33

LITERATURE REVIEWCustomer satisfaction is an important theoretical as well as practical issue for most
marketers and consumer researchers (10). Customer satisfaction can be considered the
essence of success in todays highly competitive world of business. Thus the significance
of customer satisfaction and customer retention in strategy development for a market
oriented and customer focused firm can not be overstated. Consequently, customer
satisfaction is increasingly becoming a corporate goal as more and more companies strive
for quality in their product and services (11). Customer satisfaction is the feeling or
attitude of a customer towards a product or services after it has been used and is generally
described as a full meeting of ones expectations (12). Customer satisfaction is a major
outcome of marketing activity whereby it serves as a link between the various stages of
consumer buying behavior. For instance, if customers are satisfied with particular service
offering after its use, then they are likely to engage in repeat purchase and try line
extensions (13).A study conducted by Levesque and McDougall (14) confirmed and
reinforced the idea that unsatisfactory customer service leads to a drop in customer

34

satisfaction and willingness to recommend the service to a friend. This would in turn lead
to an increase in the rate of switching by customers.
There can be potentially many antecedents of customer satisfaction as the dimensions
underlying satisfaction judgment are global rather than specific (15). However, some
argue that customers develop norms for product performance based on general product
experiences, and these, rather than expectations from a brands performance, determine
the confirmation /disconfirmation process (16). More recent work has argued that in
addition to the cognitive components, satisfaction judgments are also dependent upon
affective components as both coexist and make independent contributions to the
satisfaction judgments (17).
Researchers have established some of the key antecedents of customer satisfaction in
retail banking with respect to customer satisfaction in the competitive world of business
as well as the key antecedents to the formation of overall customer satisfaction (18). The
bottom line is that organizations will always be attentive to maximizing profits and their
success will be determined by how they manage customer relationships. Marketing has
taken some initial steps to place the customer at the center of its efforts, such as
information sharing in customer service channels, sales force automation and target
market segmentation. Customer profitability management requires a multi-level
marketing return on investment analysis covering a series of marketing activities that can
be integrated and optimized for a customer or customer segment (19).
Customer satisfaction, a business term, is a measure of how products and services
supplied by a company meet or surpass customer expectation. It is seen as a key

35

performance indicator within business and is part of the four perspectives of a Balanced
Scorecard.
In a competitive marketplace where businesses compete for customers, customer
satisfaction is seen as a key differentiator and increasingly has become a key element of
business strategy.
There is a substantial body of empirical literature that establishes the benefits of customer
satisfaction for firms.
Organizations need to retain existing customers while targeting non-customer. Measuring
customer satisfaction provides an indication of how successful the organization is at
providing products and/or services to the marketplace.
Customer satisfaction is an abstract concept and the actual manifestation of the state of
satisfaction will vary from person to person and product/service to product/service. The
state of satisfaction depends on a number of both psychological and physical variables
which correlate with satisfaction behaviors such as return and recommend rate. The level
of satisfaction can also vary depending on other factors the customer, such as other
products against which the customer can compare the organization's products.
Work done by Parasuraman, Zeithaml and Berry (Leonard L) between 1985 and 1988
delivered SERVQUAL which provides the basis for the measurement of customer
satisfaction with a service by using the gap between the customer's expectation of
performance and their perceived experience of performance. This provides the researcher
with a satisfaction "gap" which is semi-quantitative in nature. Cronin and Taylor

36

extended the disconfirmation theory by combining the "gap" described by Parasuraman,

Zeithaml and Berry as two different measures (perception and expectation) into a single
measurement of performance relative to expectation.
The usual measures of customer satisfaction involve a survey with a set of statements
using a Likert Technique or scale. The customer is asked to evaluate each statement in
terms of their perception and expectation of performance of the service being measured.
Because the concept of customer satisfaction is new to many companies, it's important to
be clear on exactly what's meant by the term.
Customer satisfaction is the state of mind that customers have about a company when
their expectations have been met or exceeded over the lifetime of the product or service.
The achievement of customer satisfaction leads to company loyalty and product
repurchase. There are some important implications of this definition:
Because customer satisfaction is a subjective, no quantitative state, measurement won't
be exact and will require sampling and statistical analysis.
Customer satisfaction measurement must be undertaken with an understanding of the
gap between customer expectations and attribute performance perceptions.
There should be some connection between customer satisfaction measurement and
bottom-line results.
"Satisfaction" itself can refer to a number of different facts of the relationship with a
customer. For example, it can refer to any or all of the following:

37

Satisfaction with the quality of a particular product or service

Satisfaction with an ongoing business relationship
Satisfaction with the price-performance ratio of a product or service
Satisfaction because a product/service met or exceeded the customer's expectations
Each industry could add to this list according to the nature of the business and the
specific relationship with the customer. Customer satisfaction measurement variables will
differ depending on what type of satisfaction is being researched. For example,
manufacturers typically desire on-time delivery and adherence to specifications, so
measures of satisfaction taken by suppliers should include these critical variables.
Clearly defining and understanding customer satisfaction can help any company identify
opportunities for product and service innovation and serve as the basis for performance
appraisal and reward systems. It can also serve as the basis for a customer satisfaction
surveying program that can ensure that quality improvement efforts are properly focused
on issues that are most important to the customer.

3. NEED FOR RESEARCH

While relationships have been extensively studied in marketing channels ,industrial
settings, and some consumer setting in western cultural contexts such as Europe ,US, the

38

UK ,and even Australia ,few studies have examined the paradigm in an eastern cultural
context such as India. The maturing of services marketing, the increased recognition of
potential benefits for customer and technological developments are the main factors
driving the developments of relationship marketing33.the presence of these factors in the
Indian banking sector motivated this research. With banks losing 8% of their clients every
year 34.relationship marketing strategy to satisfy customers and improve their
profitability has moved to the forefront.
For centuries banks have played an important role in financial system of the country. The
vital role continues even today although the form of banking has changed today with
changing need of the economy and individuals.
The Banking system in India has three tiers. There are scheduled commercial banks; the
regional rural banks; and the cooperative banks. The scheduled commercial banks
constitute those banks which are included in the second schedule of RBI Act 1934.In the
organized segment; banking system occupies an important place in nations economy. It
plays a pivotal role in the economic development of a country and forms the core of the
money market in an advanced country. The commercial banks in India comprise of both
Public sector as well as private sector banks. There are total 28 Public sector and 27
private sector banks are functioning in the country presently. Banks have to deal with
many customers everyday and render various types of services to its customer. Its a well
known fact that no business can exist without customers.

3.1 The Need to Measure Customer Satisfaction:

39

Satisfied customers are central to optimal performance and financial returns. In many
places in the world, business organizations have been elevating the role of the customer
to that of a key stakeholder over the past twenty years. Customers are viewed as a group
whose satisfaction with the enterprise must be incorporated in strategic planning efforts.
Forward-looking companies are finding value in directly measuring and tracking
customer satisfaction (CS) as an important strategic success indicator. Evidence is
mounting that placing a high priority on CS is critical to improved organizational
performance in a global marketplace. With better understanding of customers'
perceptions, companies can determine the actions required to meet the customers' needs.
They can identify their own strengths and weaknesses, where they stand in comparison to
their competitors, chart out path future progress and improvement. Customer satisfaction
measurement helps to promote an increased focus on customer outcomes and stimulate
improvements in the work practices and processes used within the company.
Customer satisfaction is quite a complex issue and there is a lot of debate and confusion
about what exactly is required and how to go about it. This article is an attempt to review
the necessary requirements, and discuss the steps that need to be taken in order to
measure and track customer satisfaction.

3.2 Expectations and Customer Satisfaction:

Expectations have a central role in influencing satisfaction with services, and these in
turn are determined by a very wide range of factors lower expectations will result in
higher satisfaction ratings for any given level of service quality. This would seem

40

sensible; for example, poor previous experience with the service or other similar services
is likely to result in it being easier to pleasantly surprise customers. However, there are
clearly circumstances where negative preconceptions of a service provider will lead to
lower expectations, but will also make it harder to achieve high satisfaction ratings - and
where positive preconceptions and high expectations make positive ratings more likely.
3.3 Factors affecting customers towards particular bank

Relationship marketing; financial performance;

electronic commerce; e-commerce; online banking; electronic banking;;
internet banking; information technology; privacy;

business research; customer research; business innovation;

4. RESEARCH METHODOLOGY

41

4.1 OBJECTIVE OF THE RESEARCH

The main objective of this study are To identify customer satisfaction variables which lead to building relationship
with customers in the Indian banking sector
To study the difference in perception of the customers of the bank towards various
services provided by bank.
To analyze the satisfaction level of customers with respect to the various service
provided by the banks

To identify the strategies of banks to satisfy their customers.

4.2 RESEARCH DESIGN: Exploratory design

This study is exploratory in nature. It provides a description of contemporary satisfaction

parameter in the Indian banking sector. Exploratory research provides insights into and
comprehension of an issue or situation. Exploratory research helps to determine the best
research design, data collection method and selection of subjects.

4.3 SOURCES OF DATAThere are many sources of data collection, such as secondary data collection and Primary
data collection.

Primary data--

42

There are various ways to undertake the gathering of primary data, including conducting
surveys to create market data or using other research instruments such as questionnaire.
Sample size- 100
Sample techniques- Convenience sampling
Secondary data
This involves information that already exists somewhere, such as in studies already
undertaken on this area as well as published books, articles in journals, articles on the
internet and other sources.

Relationship marketing dimensions were identified by conducting a customer satisfaction

survey of five banks in India. The research process involved the following steps.
First, a literature review was undertaken to identify what parameters to consider in
research. It outlines the previous research with respect to customer satisfaction in the
banking industry.
Second, in-depth interview were held with customers to establish the evaluation criteria
and factors which results in customer satisfaction.
Third, a questionnaire was constructed and piloted.
Last, the population and sampling procedure were established and methods of data
collection and analysis determined.
The present research is exploratory in nature and aims to develop hypothesis which can
be tested later. It provides description of contemporary satisfaction parameters in the
banking industry. It is not explanatory as it does not test any casual relationships.

43

4.4 RESEARCH INSTRUMENT

The questionnaire was designed from the literature review as well as from the results of
in-depth interviews. It included sixteen variables which determined the satisfaction of the
customers of the five banks chosen for the study. Two of these banks were national banks
namely ,state Bank of India(SBI) and Punjab National Bank(PNB) and three were Private
sector Banks namely, Housing Development Finance corporation(HDFC),Industrial
Credit and Investment Corporation of India(ICICI),and Industrial Development Bank of
India(IDBI). SBI and PNB were chosen because they have the largest network of
branches in India. ICICI, HDFC and IDBI were the first private banks to introduce
intelligent banking in India. These banks have a strong retail presence and offer a
comprehensive range of information to the customer. They have taken initiatives to
satisfy customers and provide value added services.
Data from 100 customers were collected. The five banks were contacted individually to
obtain the contact addresses of the customers and the questionnaire was administered to
customers who had been with the bank for three years. The questionnaire is divided in to
five sections. The second part of questionnaire dealt with respondent satisfaction with
respect to services and the third part dealt with variables which involve transactions.
Customer satisfaction was recorded on a 7 point semantic differential scale ranging from
extremely good/satisfied to extremely bad/dissatisfied. The other parts of the
questionnaire recorded information about customers experience with their respective
banks, their banking habits and demographic information.
Demographic profile of the customers

44

Table 4.4(a) Demographics

1. Gender
Male
Female

69.9%
30.1%

Graph 4.4(a)
INTERPRETATION-There are 69.9% male and 30.1% female respondent in my study.

Table 4.4(b) - Marital status

Married
Unmarried
Other

50.8%
48.5%
0.7%

45

Graph 4.4(b)

INTERPRETATION- There are 50.8% married and 48.5% unmarried respondent in my

study.

Table 4.4(c)-Monthly Family income

Less than Rs10000
Rs10000-20000
Rs20000-30000
Rs30000-40000
More than 40000

19.6%
28.6%
27.0%
16.2%
8.5%

46

Graph 4.4(c)

INTERPRETATION- There are 19.6% ,28.6%,27.0%,16.2%,8.5% respondent whose

monthly family income is less than Rs10000,Rs10000-20000,Rs20000-30000,Rs3000040000,more than 40000 respectively in my study.
.
Table 4.4(d)-Age
Below 25 years
25-35 years
35-45 years
45-55 years
Above 55 years

32.8%
27.0%
23.8%
11.9%
4.5%

47

Graph 4.4(d)

INTERPRETATION- There is 32.8%, 27.0%, 23.8%,11.9%,4.5% respondent whose age

are below 25 years,25-35 years,35-45 years,45-55 years and above 55 years respectively.

Table 4.4(e)-Education
Secondary
Higher secondary
Undergraduate
Graduate
Post Graduate

1.3%
2.7%
3.4%
40.9%
51.7%

48

Graph 4.4(e)

INTERPRETATION- There is 1.3%,2.7%,3.4%,40.9% and 51.7% respondent whose

education are secondary, higher secondary, Undergraduate ,Graduate, Post graduate
respectively in my study.

Table 4.4(f)-Occupation

Home maker
Service
Self employed
Retired
Students

4.9%
45.6%
25.2%
1.6%
22.7%

49

Graph 4.4(f)

INTERPRETATION- There are 4.9%, 45.6%, 25.2%, 1.6%, 22.7% respondent whose
occupation is Home maker, service self employed, retired and student respectively in my
study.

50

5. PUBLIC SECTOR AND PRIVATE SECTOR BANKS

5.1 PUBLIC SECTOR BANKS

Among the Public Sector Banks in India, United Bank of India is one of the 14 major
banks which were nationalized on July 19, 1969. Its predecessor, in the Public Sector
Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four
banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918),
Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932).This Public Sector Bank
India has implemented 14 point action plan for strengthening of credit delivery to women
and has designated 5 branches as specialized branches for women entrepreneurs.

5.2 PRIVATE SECTOR BANKS-

The first Private bank in India to be set up in Private Sector Banks in India was IndusInd
Bank. It is one of the fastest growing Banks in India. IDBI ranks the tenth largest
development bank in the world as Private Banks in India and has promoted world class
institutions in India. The first Private Bank in India to receive an in principle approval

51

from the Reserve Bank of India was Housing Development Finance Corporation Limited,
to set up a bank in the private sector banks in India as part of the RBI's liberalization of
the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited
with registered office in Mumbai and commenced operations as Scheduled Commercial
Bank in January 1995.Co operative banks in India.

5.3 Difference between private sector and public sector banks

A private sector is an economy is made up of all businesses and firms owned by ordinary
members of the general public. It also consist of all the private households in which
people live..,whereas, public sector is an economy is owned and controlled by a
government . It consist of government businesses and firms ,and goods and services
provided

by

the

government,

such

as

the

national

health

service,

state

education,jobs,roads,public parks and law and order.

5.4 Comparison of private sector banks with public sector banks in

terms of

customer satisfaction-

The objective of this study is to compare the public sector banks and private sector banks
in terms of customer satisfaction and to find out the various reasons of customer
dissatisfaction in these banks.

52

The scope of the study is confined in comparing the Public sector and private sector
banks in terms of customer satisfaction. The study will be undertaken on the basis of
sample survey.
FINDINGS
Customer satisfaction level is higher in Private sector banks as compared with the Public
Sector Banks.

5.5 REASONS OF DISSATISFACTION IN PUBLIC SECTOR BANKS

Behavior and attitude of the staff in public sector banks is the first reason of Customer
dissatisfaction.
Time taken to process the transaction is the second reason of customer
dissatisfaction.
Many of the services are not provided by the Public sector banks when compared with
the Private sector banks e.g. ATM Banking is not provided by Union Bank of India.
Internet Banking and Mobile banking is also not provided by many of the Public sector
banks.

5.6 RECOMMENDATIONS

The staff should be adequately trained to deal with the customer on one to one
basis.

Many public sector banks need to revive their infrastructure to have pace with the
competing environment.

53

Many of the services needs improvement in public sector banks e.g. ATM
facilities.

Staff should be adequately trained to encourage face to face dealing.

Staff should be friendly and approachable.

Clearly defined customer policy should be adopted by the banks.

Customers needs should be anticipated in advance so that they can be helped out
in a better way.

Honor your promises.

6. Strategies of banks to satisfy their customers-

54

A main strategy of banks to satisfy their customer is CRM.

6.1 CRM in banking sector-CRM: A Competitive Tool for Indian Banking SectorIn todays competitive environment relationship marketing is critical to banking corporate
success. Banking is a customer oriented services industry and Indian banks have started
realizing that business depends on client service and the satisfaction of the customer. This
is compelling them to improve customer service and build relationships with customers.
This study, conducted among five Indian banks, aimed at identifying customer
satisfaction variables which lead to relationship building, and developing a conceptual
framework of relationship marketing practices in Indian banks by capturing the
perspectives of customers with respect to their satisfaction with various services. It also
sought to identify whether demographics have a role to play in customer satisfaction. A
questionnaire designed from a literature review and in-depth interviews were utilized to
arrive at the 16 variables which determined the satisfaction of 555 customers of the five
banks..
The three relationship dimensions, namely, traditional services, multi channel banking
and internal marketing, which lead to customer satisfaction, were identified through
factor analysis. A repeated measure of ANOVA was run on the relationship dimensions to
assess significant difference in the level of satisfaction of the customer. A perceptual map
was created using the factor scores of each of the five banks which helped identify how
each bank was positioned in the customers minds.

55

Reporting on the different satisfaction levels of the customers, the findings suggest that
while private banks have been able to attract the younger customers with higher
educational levels, who are comfortable with multi channel banking, the customers of the
national bank are older and more satisfied with the traditional facilities. The results from
this study could provide managerial lessons on assessment of strengths and improvement
of services and in evolving a research strategy that will benefit the management of banks
6.2 Ten Ways to Help You Improve Your Customer ServiceBy: Catherine Franz
1. Stay in contact with customers on a regular basis. Just as it is bad news to send
out too many emails to customers, it is just as bad to not stay in contact with
them. Customers don't want to feel abandoned. So don't. Here are three things to
help you stay in touch: Offer them your ezine subscription. Ask customers if they
want to be updated by e-mail. Follow-up after each sale to see if they are satisfied
with their purchase. Send an e-mail out a few days after their purchase, another in
a week or two, and then another in a month.
2. Create a customer focus group by inviting 10 to 20 loyal customers to meet
regularly. Alternatively, send out a monthly survey to this group asking for ideas
and input on how to improve your customer service. Give them a reward. Pay
them; give them a gift certificate, or send them free product.
3. Have a web site that is easy to navigate. Add a frequently asked question's "FAQ"
page and explain anything that might confuse your customers or visitors. Follow-

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up with an electronic survey with questions on how to increase your site's userfriendliness.
4. Resolve customer complaints quickly and completely. Answer all e-mail and
phone calls within a few hours. This will show your customers you really care
about them.
5. Don't make your customers or visitors hunt for your contact information. Make it
easy for them to contact you. Offer as many contact methods as possible.
Hyperlink all your e-mail addresses so they don't have to find or type it. Offer a
toll free number.
It isn't what you perceive as valuable but what customers see from their eyes. Yet,
sometimes, you just can't please some folks. If that occurs, do you best and then let it go.
You don't want them for clients anyway. About the Author: Catherine Franz, a Certified
Professional Marketing & Writing Coach, specializes in product development, Internet
writing and marketing, nonfiction, and training.
6.3 Service Quality Development Before 1983, the definition of quality was defined primarily based on the concept of
quality control with corresponding standards focused completely on achieving quality.
Juran (1974) defined quality as "suitable use". Moreover, Crosby (1979) defined quality
as "consistent with needs", and assumed the existence of correspondence between quality
and operational standards. Cornell (1984) considered that the service industry required a
broader definition of quality than that used by the manufacturing industry; Zimmerman

57

(1985) took the quality control concept of the manufacturing industry and applied it to
service quality. Zimmerman considered the components of service quality, including:
practicality, replication of manufacturing ability, immediacy, ultimate user satisfaction,
and corresponding standards. Based on the concept of PZB (1985) and Zeithaml (1988),
consumers see the process of service quality formation as employing both interior and
exterior attributes of low-level production quality or service quality, passing through an
internal united comparison, and proceeding to establish a higher level of perceived
service quality.
In this paper, the main contention of the author is to highlight the customer satisfaction
through service quality provided by the banks-SBI from the public sector banking and
ICICI from the private sector banking. Another contention is to demonstrate the
performance of the two banks SBI & ICICI in terms of customer satisfaction.
The paper is organized in to six sections: Section- 1: starts with a brief profile of the
banking industry, especially the SBI and ICICI. Section- 2: covers Research
Methodology comprising objectives, Hypothesis, research design and scope of the study
including nature of data collection. Section-3: lays out the measurement of customer
satisfaction with service quality and review of literature. Section-4: puts forward the core
strategies to address service quality gaps. Section-5: deals with Analysis and
Interpretation in line with the objective of the study. Section-6: briefly summarizes the
conclusion and policy implementation of the study.
Profile of the Banking Industry-SBI and ICICI

58

State Bank of India

State Bank of India (SBI) is the largest bank in India. It is measured by the number of
branch offices and employees as the largest bank in the world. Established in 1806 as
Bank of Bengal, it remains the oldest commercial bank in the Indian Subcontinent and
also the most successful one providing various domestic, international and NRI products
and services, through its network of 13,908 branches, including 4,731 associate banks'
branches in India and overseas. It also provides financial services, such as life insurance,
merchant banking, mutual funds, credit card, factoring, security trading and primary
dealership in the money market. With an asset base of $126 billion and its reach, it is a
regional banking behemoth. The bank was nationalized in 1955 with the Reserve Bank of
India having a 60 percent stake. It has laid emphasis on reducing the huge manpower
through Golden handshake schemes and computerizing its operations.
It also has non-banking subsidiaries and joint ventures, such as SBI Capital Markets Ltd.,
SBI DFHI Ltd., SBI Funds Management Pvt Ltd., SBI Factors & Commercial Services
Pvt Ltd. and SBI Life Insurance Company Ltd. Effective from April 20, 2005; it acquired
a 51 percent stake in Indian Ocean International Bank Ltd.
This study examines whether there are economic benefits to be gained from improving
service quality in the Taiwanese banking industry. Service quality is perceived quality;
and different from objective or actual quality; being a judgment usually made within a
customer evoked set. Service quality resembles an attitude in many ways, and service
quality is distinct from customer satisfaction. Traditional financial ratios are not
appropriate for measuring the economic benefits of service quality improvement. The

59

main single factor influence on business unit performance is goods and service quality.
The author develops a framework for this paper based on service quality and profitability
theoretical background. Relationships are also established among service quality,
customer satisfaction, and profitability. The main conclusion of this study is that the
performance scale developed in the SERVPERF model and customer satisfaction in the
profitability model are confirmed in the Taiwanese banking industry. The author finds
that perception quality is an antecedent of attitude, service quality is an antecedent of
customer satisfaction, customer satisfaction directly affects purchase intention, and
customer satisfaction is an antecedent of profitability. Finally, the author finds gap
between customers and service providers and thus demonstrates that Profitability is
positively affected by service quality improvement.
Previously, service quality was not been explicitly linked to profit. Zeithaml (2000) has
found evidence about the influences of service quality on profits. Rust, Zahorik, and
Keiningham (1995) provided a model of service quality improvement and profitability
and the submodels, which together constitute the ROQ approach. The service profit chain
of Heskett et al. (1997) stipulates that "direct and strong" relationships exist among
service quality, customer satisfaction and profitability. As documented above, this study
will develop a framework that combines service quality, customer satisfaction, and
profitability into a chain of effects
6.4 IMPROVING CUSTOMER SATISFACTIONPublished standards exist to help organizations develop their current levels of customer
satisfaction. The International Customer Service Institute (TICSI) has released The

60

International Customer Service Standard (TICSS). TICSS enables organizations to focus

their attention on delivering excellence in the management of customer service, whilst at
the same time providing recognition of success through a 3rd Party registration scheme.
TICSS focuses an organizations attention on delivering increased customer satisfaction
by helping the organization through a Service Quality Model.
TICSS Service Quality Model uses the 5 P's - Policy, Processes, People, Premises,
Product/Services, as well as performance measurement. The implementation of a
customer service standard should lead to higher levels of customer satisfaction, which in
turn influences customer retention and customer loyalty.
6.5 THE DIMENSIONS OF SERVICE QUALITY: A STUDY OF THE INDIAN
RETAIL BANKING ENVIRONMENT-

Regulatory, structural and technological factors are significantly changing the banking
environment throughout the world. One factor that is spurring the growth of the service
economy in India is the liberalization that has been ushered in by the government in the
banking sector.
The financial sector reform in India was designed to infuse greater competitive vitality
in the system. To achieve this objective, the Narasimhan Committee was formed. The
Narasimhan Committee report suggested wide ranging reforms for the Indian banking
sector in 1992 to introduce internationally accepted banking practices and enable Indian
banks (which were hitherto resisting liberalization and opening of their markets) to
achieve service excellence. The Narasimhan Committee, recommended the

61

liberalization of entry norms and suggested that new banks be permitted in the private
sector provided they conformed to the minimum start up capital and other requirements.
The committee recommended too, a liberal policy towards allowing foreign banks to
open offices in India. Since the reforms started, the interest rate structure has been
deregulated to a great extent and banks have been given a great degree of freedom in
determining their rate structure for deposits and advances, as well as their product range.
Banking has also become more competitive in respect of the location of points of sale,
that is, the branch network. The end result is that market power is getting shifted from
banks to their customers. With the lowering of entry barriers and blurring product lines of
banks and non-banks, the oligopolistic nature of Indian banking is fast changing and
giving way to a relatively freer market place. The freedom of choice which bank
customers did not have earlier because of standardized products and regimented interest
rates has been given to the customers as a result of the changes taking place
(Subramanian &Velayudham, 1997).
In other words, financial liberalization has led to intense competitive pressures and retail
banks are consequently directing their strategies towards increasing customer satisfaction
and loyalty through improved service quality. Retail banks are pursuing this strategy, in
part, because of the difficulty in differentiating based on the service offering. Typically,
customers perceive very little difference in the banking products offered by retail banks
as any new offering is quickly matched by competitors.
However, much of the research on service quality has been in the developed countries
(Herbig & Genestre, 1996), even though services are among the fastest growing sectors
in emerging countries (Malhotra et al., 1993). In fact, the bulk of the research on service

62

quality in banks has been in the context of US and European banking institutions. At this
juncture, it is important to also study banking institutions based in developing economies
like India, which has recently liberalized its banking sector. As banks in such countries as
India mature, lessons may be learned from their experiences by banks in developed
economies as well as in other developing countries, as banking becomes more and more
globally integrated. In fact, there exists a significant gap in the service marketing
literature on how consumers evaluate service quality in contexts and cultures very
different from the developed countries, even though research has begun to explore this
area (Bolton and Myers, 2003).
In light of this paucity of research on service quality issues in developing countries like
India, it has become very important that banks in India determine the service quality
factors, which are pertinent to the customers selection process, as with increased
competition, with the advent of international banking, the trend towards larger bank
holding companies, and innovations in the marketplace, customers are now having
greater difficulty in selecting one institution from another. In order to provide excellent
service quality, identifying the underlying dimensions of the service quality construct is
the first step in the definition and hence provision of quality service and hence should be
a central concern for retail bank managers as well as service management academics and
practitioners.
This paper endeavors to fill the gap in the service quality literature by exploring the
dimensions of customer perceived service quality in the context of the Indian retail
banking industry. A set of service quality parameters, drawn from customers perceptions
about service quality as well as the bank marketing and service quality literature have

63

been drawn up. These parameters have been used in the context of four of the largest
banks in India to identify the underlying dimensions of service quality. Finally, the paper
has drawn upon the findings of the service quality dimensions to contend the initiatives
that banks managers can take to enhance employees skills and attitudes and instill a
customer-service culture.

The Dimensions of Service Quality

Underpinning our understanding of service quality is an array of factors or determinants.
A number of researchers have provided lists of quality determinants, but the best known
determinants emanate from Parasuraman and colleagues from the USA, who found five
dimensions of service quality, namely, tangibles, reliability, responsiveness, assurance
and empathy and used these as the basis for their service quality measurement instrument,
SERVQUAL (Parasuraman et al., 1988; Zeithaml et al., 1990).
The result was the development of the SERVQUAL instrument, based on the gap model.
The central idea in this model is that service quality is a function of the difference scores
or gaps between expectations and perceptions. An important advantage of the
SERVQUAL instrument is that it has been proven valid and reliable across a large range
of service contexts. However, while the SERVQUAL instrument has been widely used, it
has been subjected to certain criticisms as well. The contention that service quality
consists of five basic dimensions (Parasuraman et al., 1988) is according to some
researchers questionable and they have suggested that SERVQUALs dimensions are
contextual and not universally applicable (Ekinci & Riley, 1999; Brown et al., 1993;

64

Cronin & Taylor, 1992; Teas, 1993; Bouman & Vander Wiele, 1992; Gagliano &
Hathcote, 1994, Kang and James, 2004; Lee, 2005; Fowdar, 2007). Instead, the number
and composition of the service quality dimensions are probably dependant on the service
setting (Brown et al., 1993; Carman, 1990). It has been suggested that for some services
the SERVQUAL instrument needs considerable adaptation (Dabholkar et al., 1996) and
that items used to measure service quality should reflect the specific service setting under
investigation, and that it is necessary in this regard to modify some of the items and add
or delete items as required (Carman, 1990). Moreover, research suggests that culture may
play a fundamental role in determining how consumers perceive what constitutes service
quality.
In a nutshell, there are still issues and varying opinions about the dimensionality of
service quality and the universality of the five dimensions, (Rust and Oliver, 1994). These
are of interest to and significant for users of SERVQUAL and for all those who wish to
understand better the concept of service quality.
Hence there is still a need for fundamental research into the dimensionality of service
quality bearing in mind the contextual circumstances, the specific industry and the
specific service setting.

6.6 MARKETING STRATEGIES

Financing rapid industrial growthWith the Indian economy growing at a blistering pace
on the back of strong industrial and services growth, the Indian companies are looking to
build up capacity to meet future demand.Banks play a pivotal role in financing this

65

industrial growth. Technological innovations & challengesBanks are aggressively

adopting the latest technology in order to improve product offerings, customer service,
and operational efficiency and risk management systems.

Financial inclusion & Rural MicrofinanceIn the quest for new markets and customer
segments, as well as with the RBI directives in this area, banks are looking at the rural
and unbanked segments in a new light as a huge business opportunity.

Convergence to a single solution providerWith pressures on the spreads and the

competition in the urban markets increasing rapidly, banks need to develop new ways to
sustain profitability.Banks led to a plethora of new products, hence becoming a one stop
shop for all financial solutions.

Roadmap by RBI for foreign banksThe RBI has laid out a two phased roadmap for
giving greater freedom to the foreign banks in India.This has spurred the entry of
several other foreign banks in India, along with acting as a signal to the domestic players
to pull up their socks to face the new competitors.
Growth in retail lendingThe under banked Indian population as well as the high margin
on retail products makes this a very attractive market for the banks.The all-inclusive
nature of this growth in terms of sectors covers all consumer segments as well as product
segments.
Demand for derivatives & other risk management productsThe increasingly dynamic
business scenario and financial sophistication also increase the need for customized

66

exotic financial products.The complex and peculiar nature of risks faced by the
companies are passed onto the banks.Innovative financial tools and advanced risk
management methods are required by the banks to capitalize on this business opportunity.

6.7 MEASURING CUSTOMER SATISFACTION IN THE INDIAN BANKING

SECTOR -

Banking operations are becoming increasingly customer dictated. The demand for
banking super malls' offering one-stop integrated financial services is well on the rise.
The ability of banks to offer clients access to several markets for different classes of
financial instruments has become a valuable competitive edge. Convergence in the
industry to cater to the changing demographic expectations is now more than evident.
Banc assurance and other forms of cross selling and strategic alliances will soon alter the
business dynamics of banks and fuel the process of consolidation for increased scope of
business and revenue. The thrust on farm sector, health sector and services offers several
investment linkages. In short, the domestic economy is an increasing pie which offers
extensive economies of scale that only large banks will be in a position to tap. With the
phenomenal increase in the country's population and the increased demand for key
differentiators for each bank's future success. Thus it is imperative for banks to get useful
feedback on their actual response time and customer service quality aspects of retail
banking, which in turn will help them take positive steps to maintain a competitive edge.

67

The working of the customer's mind is a mystery which is difficult to solve and
understanding the nuances of what customer satisfaction is, a challenging task. This
exercise in the context of the banking industry will give us an insight into the parameters
of customer satisfaction and their measurement. This vital information will help us to
build satisfaction amongst the customers and customer loyalty in the long run which is an
integral part of any business. The customer's requirements must be translated and
quantified into measurable targets. This provides an easy way to monitor improvements,
and deciding upon the attributes that need to be concentrated on in order to improve
customer satisfaction. We can recognize where we need to make changes to create
improvements and determine if these changes, after implemented, have led to increased
customer satisfaction. "If you cannot measure it, you cannot improve it." - Lord William
Thomson Kelvin (1824-1907).

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7. IMPACT OF ATM ON CUSTOMER SATISFACTION This presents the impact of ATM on customer satisfaction. This is a comparative study of
three major banks i.e. State Bank of India, ICICI bank and HDFC bank. This paper has
been divided into two sections. First section presents the introduction of ATM, brief
history of three Banks compiled through the literature available in the field. It also
includes the review of the various services provided by the three banks under study.
Second section presents the result obtained on the basis of the data collected for the three
banks. A sample of 360 respondents equally representing each bank has been taken
through questionnaire. Data has also been collected through interview also. Then various
statistical tools have been used accordingly to compile the result.
KEY WORDS: ATM, Customer satisfaction, Fees, Problems, ATM services, Banks.
ATM means neither avoids traveling with money nor any time money, but
certainly implies both. Slim ATM cards are fast replacing confounding withdrawal forms
as a convenient way of getting your money from banks. In a way, they are rewriting the
rules of financial transaction. A smart person no longer needs to carry a wallet-full of
paper money on his person. All he needs to do is fish out an ATM (automated teller
machine) card, insert it in the slot, punch in a few details and go home with hard cash.
Automated teller machines (ATMs) were the first well-known machines to provide
electronic access to customers. With advent of Automatic Teller Machines (ATM), banks
are able to serve customers outside the banking hall. ATM is designed to perform the
69

most important function of bank. It is operated by plastic card with its special features.
The plastic card is replacing cheque, personal attendance of the customer, banking hours
restrictions and paper based verification. ATMs have made hard cash just seconds away
all throughout the day at every corner of the globe. ATMs allow you to do a number of
banking functions such as withdrawing cash from ones account, making balance
inquiries and transferring money from one account to another using a plastic, magneticstrip card and personal identification number issued by the financial institution.

The Indian ATM industry has seen explosive growth in recent times. ATMs represent
the single largest investment in the electronic channel services for the Banks. In India,
HSBC set the trend and set up the first ATM machine here in 1987. Since then, they have
become a common sight in many of our metros. Automated Teller Machines (ATMs)
have gained prominence as a delivery channel for banking transactions in India. Banks
have been deploying ATMs to increase their reach. While ATMs facilitate a variety of
banking transactions for customers, their main utility has been for cash withdrawal and
balance enquiry. As at the end of October 2007, the number of ATMs deployed in India
was 31,078. According to some estimates the total cash movement through ATMs across
India was around Rs. 70,000 crore in FY 06. Clearly, industry watchers forecast a bright
future for ATMs in India. While the ATM is a great service for customers, for the banks it
means immense savings on the cost of operations. While a typical cash transaction
carried out in a banks branch premise would cost Rs 40 that in an ATM will only cost
Rs18translating into a cost saving of Rs 22 per transaction.
ATM Networks

70

The ATMs of a bank are connected to the accounting platform of the bank through ATM
switches. Inter-bank ATM networks are created by setting up apex level switches to
communicate between the ATM switches of different banks. The inter-bank ATM
networks facilitate the use of ATM cards of one bank at the ATM(s) of other banks for
basic services like cash withdrawal and balance enquiry. Banks owning the ATMs charge
a fee for providing the ATM facility to the customers of other banks. The ATM deploying
bank from the card issuing banks recovers this fee referred to as interchange fee.
However the interchange fee is not fixed across banks and depends on the terms of
bilateral / multilateral arrangements. Banks with larger ATM network treat interchange
fee as an important stream of revenue. (Sultan Singh, Ms. Komal, (Ph.D.)

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8. ANALYSIS & INTERPRETATIONIt takes continuous effort to maintain high customer satisfaction levels (by Kevin
Cacioppo)
As markets shrink, companies are scrambling to boost customer satisfaction and keep
their current customers rather than devoting additional resources to chase potential new
customers. The claim that it costs five to eight times as much to get new customers than
to hold on to old ones is key to understanding the drive toward benchmarking and
tracking customer satisfaction.
Measuring customer satisfaction is a relatively new concept to many companies that
have been focused exclusively on income statements and balance sheets. Companies now
recognize that the new global economy has changed things forever. Increased
competition, crowded markets with little product differentiation and years of continual
sales growth followed by two decades of flattened sales curves have indicated to today's
sharp competitors that their focus must change.
Competitors that are prospering in the new global economy recognize that measuring
customer satisfaction is key. Only by doing so can they hold on to the customers they
have and understand how to better attract new customers. The competitors who will be
successful recognize that customer satisfaction is a critical strategic weapon that can
bring increased market share and increased profits.
The problem companies face, however, is exactly how to do all of this and do it well.
They need to understand how to quantify measure and track customer satisfaction.

72

Without a clear and accurate sense of what needs to be measured and how to collect,
analyze and use the data as a strategic weapon to drive the business, no firm can be
effective in this new business climate. Plans constructed using customer satisfaction
research results can be designed to target customers and processes that are most able to
extend profits.
Too many companies rely on outdated and unreliable measures of customer satisfaction.
They watch sales volume. They listen to sales reps describing their customers' states of
mind. They track and count the frequency of complaints. And they watch aging accounts
receivable reports, recognizing that unhappy customers pay as late as possible--if at all.
While these approaches are not completely without value, they are no substitute for a
valid, well-designed customer satisfaction surveying program.
It's no surprise to find that market leaders differ from the rest of the industry in that
they're designed to hear the voice of the customer and achieve customer satisfaction. In
these companies:
Marketing and sales employees are primarily responsible for designing (with customer
input) customer satisfaction surveying programs, questionnaires and focus groups.
Top management and marketing divisions champion the programs.
Corporate evaluations include not only their own customer satisfaction ratings but also
those of their competitors.
Satisfaction results are made available to all employees.

73

Customers are informed about changes brought about as the direct result of listening to
their needs.
Internal and external quality measures are often tied together.
Customer satisfaction is incorporated into the strategic focus of the company via the
mission statement.
Stakeholder compensation is tied directly to the customer satisfaction surveying
program.
A concentrated effort is made to relate the customer satisfaction measurement results
to internal process metrics.
To be successful, companies need a customer satisfaction surveying system that meets the
following criteria:
The system must be relatively easy to design and understand.
It must be credible enough that employee performance and compensation can be
attached to the final results.
It must generate actionable reports for management.
Increasing competition (whether for-profit or nonprofit) is forcing businesses to pay
much more attention to satisfying customers. (It may help the reader to notice the role of
customer satisfaction in the overall context of product or service development and

74

management. See Product/Service Management. Also notice the Related Info (including
customer service) in the library.)
Retail banking has undergone rapid changes with the introduction of new technology
based channels and its interesting to note how people have adapted to different ways of
deriving their banking needs. This study uses psychographics to study the banking
channel adaptation and the trends in the retail banking scenario in Karnataka, India. It has
been found that people clearly want convenience and security in their choice of banking
channels.
Technological advances has witnessed the application of technology in increasing the
number of banking channels namely ATM, Internet Banking, Tele Banking and
branch banking.
In retail banking scenario, it is also implicit that many banks are competing for the same
customer segment and the combined resources being spent in terms of channel
development and other efforts may exceed the profitability of the segment targeted at, by
the banks put together. It has been observed that one of the challenges being faced by
retail banking sectors have been in the usage of proper segmentation techniques based on
the customer psychographics with respect to the banking channels. For e.g. who would be
willing to use Telebanking and what may be the underlying reason to do so? Inspite of
introduction of internet banking why would a youth still visit the nearest branch for his
banking needs? The answers to these questions would result in the mindset and lifestyle
of banking consumers which would help the bank to effectively target the consumers
based on their channel preference, strengthen the weak aspects of channels in demand
and augment the service provided by the channels thereby retaining the customer and

75

ultimately enhancement of profits. Customer segmentation takes place at demographic

level and at psychographic level.
Psychographics in essence tries to study and profile people based on their attitudes,
Interests, lifestyles and values.
In India psychographic profiling of consumers is still in its stage of infancy. Many
corporates are conducting such studies, but most of results are not available for the
academic community.
Furthermore, the psychographic variables of consumers are always changing and it
becomes even more imperative for a continuous longitudinal study to keep track of
changes and incorporate them in the art of marketing.
Further, the entry of multinational banks that are armed with techniques to profile the
customers based on psychographic attitudes are posing a tough competition for the Indian
banks.
Some of the advertisements from a large Nationalized public sector act more or less like
reminders to customers about their large and widespread networks, many products in
their portfolio that are clearly a pure quantitative translation of banks strength rather than
the real competitive advantage that can be derived out of strategic marketing techniques
based on effective segmentation.
Hence it is imperative that psychographic study be conducted on banking customers in
India for strategic marketing purposes.
The conceptual relationship between effective profiling and Strategic marketing can be
best described in the diagram.

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The total number of respondents in this research was 100. of them 30 were customers of
HDFC bank ,13 from IDBI, 17 from ICICI ,20 from PNB and 20 from SBI .the customer
of the five banks were divided into savings (65) and current (35) accounts. The overall
experience of customers ranged from good to satisfactory while opening an account in
any of the five banks. The mean for experience while account opening was 2.5 in the
scale 1 to 7. Most of the customers operated their account on their own. A majority
referred the bank to others and made their purchase paying by cash.
The customers of PNB and SBI were above 35 years age; those of ICICI and IDBI were
in age group of 25-35 years. HDFC customers were below 25 years. The customers of
ICICI, IDBI and HDFC were graduates and post graduates whereas those of PNB and
SBI were mainly graduates.
Customer looked for information about the bank from sources such as the television, the
newspaper, magazines, hoardings, the bank and others. The overall mean value for the
customers hunt for information shows thats/he gained information through hoardings
and the radio. HDFC customers gained information through advertisements on hoardings;
IDBI, PNB and SBI bank customer gained information from advertisement on the radio,
and ICICI customers gained information through relatives and friends.
The satisfaction of the customers with the services provided by the banks was judged on
the following 16 variables; service scale; parking place ;attitudes of the bank staff;
dissemination of information; promptness in query handling ;networking of the bank
(branches);ATM facility; debit card ;credit card ;demand draft facility; fixed deposit
schemes ; money transfer; locker facility ;D-mat facility ;tele banking .and net banking.

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Table 8(a)-Customer satisfaction level in SBI

Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

25%
50%
25%

Graph 8(a)

INTERPRETATION- There are 25%, 50% and 25% respondent who is Dissatisfied,
satisfied and mixed respectively in SBI.

Table 8(b)-Customer satisfaction level in PNB

Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

35%
40%
25%

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Graph 8(b)
INTERPRETATION- There are 35%, 40%, 25% customers who is Dissatisfied, Satisfied
and mixed respectively from the service of Punjab National Bank.

Table 8(c)-Customer Satisfaction level in IDBI

Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

30.7%
69.2%
0%

Graph 8(c)
INTERPRETATION- There are 30.7%, 69.2% and 0% Customers of IDBI who is
Dissatisfied, Satisfied and mixed respectively by the service of the bank.

Table 8(d)-Customer Satisfaction level in ICICI

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Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

5.8%
76.4%
17.6%

Graph 8(d)
INTERPRETATION- There are 5.8%, 76.4% and 17.6% customers of ICICI bank who is
Dissatisfied, Satisfied and mixed respectively by the service provided by the bank. We
can say that the customer satisfaction in the ICICI bank is much.

Table 8(e)-Customer Satisfaction level in HDFC

Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

16.6%
63.3%
20.0%

Graph 8(e)

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INTERPRETATION- There are 16.6%, 63.3%, and 20.0% customers from HDFC bank
who is Dissatisfied, Satisfied and mixed respectively by the service of the bank.

Table 8(f)-All over Customer satisfaction level in Indian Banking sector.

Satisfaction levels
Dissatisfied
Satisfied
Mixed

Number of customer in percentage

23.0%
59.0%
18.0%

Graph 8(f)
INTERPRETATION- There is all over 23.0%, 59.0% and 18.0% customers from the
Indian banks who are dissatisfied, satisfied and mixed respectively by the service of
banks.
The above interpretation shows that the customer satisfaction level in Private sector
banks is much compared to Public sector banks.

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9. CONCLUSION & SUMMARYThe Banking sector in India is undergoing major changes due to competition and the
advent of technology. The customer is looking for better quality and services which can
provide him/her with satisfaction. This study reveals the different levels of satisfaction
that customer had with their banks and helps identify the factors (or relationship
dimensions) responsible for satisfying the customer. This would help in enhancing the
relationship between the two, and thus aid decision makers in banks to identify the major
factors that determine satisfaction. Many service firms, including retail banks have been
measuring customer satisfaction and quality to determine how well they are meeting
customer needs. This study derives its basic findings and is also in line with empirical
findings with respect to customer satisfaction by other researchers.
Looking at the demographics of the customer and satisfaction with the services,64
percent customers of IDBI ,ICICI and HDFC are in age group of 25-35 years ,are post
graduates and their satisfaction is highest with multi channel banking.71 percent of the
customers of SBI are above 35 years, are graduates and their satisfaction is highest with
traditional facilities. These findings propose that the private banks namely ICICI, IDBI,
and HDFC have been able to attract the younger customers, with higher educational
levels, who are comfortable with the usage of multi channel banking. On the other hand
the customer of national bank, SBI are older in age and are satisfied with the traditional
facilities.SBI with the largest network of branches in India, has given competition to the

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private banks and has retained its older customers by satisfying them with the traditional
facilities.
Perceptual mapping has been extensively used in marketing for various applications
where a manager wants to know the cognitive dimensions that consumers use to evaluate
products and services. Perceptual mapping can also assess the relative positions of
various products and services. This study has created a perceptual map using factors
scores of each of five banks under study. These maps will help identify how each bank is
positioned in the customers mind. We can see from exhibit 6 that customers find most
satisfaction with the traditional facilities of state bank of India and least satisfaction with
HDFC bank. Customers have maximum satisfaction with multi channel banking facilities
of ICICI bank and least satisfaction with Punjab national bank. Internal marketing
provides maximum satisfaction to customers of ICICI bank and least to those of state
bank of India. Though SBI has a largest network of branches its focus on customer
satisfaction with respect to any time anywhere could do with improvement.
Perceptual mapping is an important marketing research tool used in many areas of
marketing. Strategies based on perceptual maps have led to increased profits, better
market control and more stable growth. a ranking score sheet of the customer perception
based on perceptual mapping .the result from this study could provide managerial lessons
on assessment of strengths, improvement of services and in evolving a research strategy
that will benefit the management of banks.
Another finding from this study emerges with regard to information seeking. While most
of the customers of the other banks in the study acquired information about the banks

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through the radio or hoardings. The customers of ICICI Bank got information from their
friends and relatives. This implies that the bank is able to satisfy its customer who acts as
a referral market for the bank. This helps the bank to acquire new customers at low cost.
Thus banks must be actively involved in acquiring, satisfying and retaining customers.
Also the results suggest that satisfaction of the customer is different across the five banks
under the study.
Traditional facilitiesDebit card
Credit card
Demand draft facility

Multi channel Banking

Tele banking

Internal Marketing
Service scale

Net banking

Parking space

D-mat

Attitude of bank staff

Fixed deposits
Money transfer

Dissemination of information
Query Handling

Locker facility
ATM
Networking
Table 9(a)-Ranking score sheet of customer perception-

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Service

State

Punjab

IDBI

ICICI

HDFC

Dimension bank of National

India
Traditional 1

Bank

facilities
Multi
channel
banking
Internal
marketing

SBI

PNB

IDBI

ICICI

HDFC

Graph 9(a)

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INTERPRETATION- This is the graph showing Traditional facilities, Multi channel

banking and internal marketing in five Indian banks SBI, PNB, IDBI, ICICI and HDFC.
According to traditional facilities SBI is in number one position and HDFC comes in
number five position. And IDBI, ICICI and PNB come under the second, third and fourth
position respectively.
In terms of Multi channel banking ICICI is in first position and PNB is in Number five
position. And IDBI, HDFC and SBI come second, third and fourth position respectively.
In terms of Internal marketing ICICI is in first position and SBI comes under the fifth
position. And HDFC, PNB, IDBI comes under the position of second, third and fourth
respectively.

SBI

PNB

IDBI

ICICI

HDFC

INTERPRETATION- According to traditional facilities SBI is in number one position

and HDFC comes in number five position. And IDBI, ICICI and PNB come under the
second, third and fourth position respectively.

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SBI

PNB

IDBI

ICICI

HDFC

INTERPRETATION- In terms of internal marketing ICICI is in first position and SBI

comes under the fifth position. And HDFC, PNB, IDBI comes under the position of
second, third and fourth respectively.

SBI

PNB

IDBI

ICICI

HDFC

INTERPRETATION- In terms of Multi channel banking ICICI is in first position and

PNB is in Number five position. And IDBI, HDFC and SBI come second, third and
fourth position respectively.
Our findings imply that bank should take care of the needs of customers when
introducing various services to them. Customers of ICICI, IDBI, HDFC, PNB, and SBI
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are either in services or are self employed. Many customers of SBI and PNB are retired.
Thus banks could envisage a strategy to serve customers with different occupations and
educational backgrounds. Bank must advance their customer-centric strategies by
providing satisfaction through their services which will lead to better relationship
building and profits for the banks. The satisfaction of the customer with the services of
Indian banks is linked with the performance of the banks .thus it is important for banks to
look into satisfaction of the customer as relationship marketing strategy.

10. LIMITATIONS
There are certain limitations of this study.

Sample size is small so there may be possible that the desired level of accuracy
not exist.

This study is conducted only in small area so there may be chance of Inaccuracy
of the result.

In selecting the Sample, there are chances of sampling errors.

Sometimes some respondent do not give right answers, thats why variations may
be possible.

This study is applicable in Delhi only not in whole India.

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CONCLUSION
It could be noted that there has been no banking crisis at the same time, efficiency
of banking system as a whole, measured by declining spread has improved. This is not
say that they have no challenges. There are emerging challenges, which appear in the
forms of consolidation; recapitalization, prudential regulation weak banks, and nonperforming assets, legal framework etc needs urgent attention. The paper concludes that,
from a regulatory perspective, the recent developments in the financial sector have led to
an appreciation of the limitations of the present segmental approach to financial
regulation and favors adopting a consolidated supervisory approach to financial
regulation and supervision, irrespective of its structural design.
In the post-era of IT Act, global environment is continuously changing and
providong new direction, dimensions and immense opportunities for the banking
industry. Keeping in mind all the changes, RBI should appoint another committee to
evaluate the on-going banking sector reforms and suggest third phase of the banking
sector reforms in the light of above said recommendations. Need of the hour is to provide
some effective measures to guard the banks against financial fragilities and vulnerability
in an environment of growing financial integration, competition and global

89

challenges. The challenge for the banks is to harmonize and coordinate with banks in
other countries to reduce the scope for contagion and maintain financial stability. It is not
possible to play the role of the Oracle of Delphi when a vast nation like India is involved.
However, a few trends are evident, and the coming decade should be as interesting as the
last one.

REFERENCESLovelock, Christopher, 2001, services marketing; people, Technology, strategy, 4 th

edition, prentice Hall.
Lev, B, 2001, Intangible management, measurement and reporting Washington DC;
Brookings Institute press.
C R Kothari Research methodology
P N Varshney Banking law and Practice
Customer satisfaction in Indian banking: a case study of Yamuna Nagar District in
Haryana. Political Economy Journal of India, Jan-June, 2008 by Raj Kumar.
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Customer Satisfaction Key Growth to Banks: An article from The Hindu Article on
customer relationship management in banking sector by Dr.FB Singh. Article on
Measuring Customer Satisfaction in the Banking Industry by Dr. Manoj Kumar Das.
Gitman, Lawrence J.; Carl D. McDaniel (2005). The Future of Business: The
Essentials. Mason, Ohio: South-Western. ISBN 0324320280.
John, Joby (2003). Fundamentals of Customer-Focused Management: Competing
Through Service. Westport, Conn.: Praeger. ISBN 9781567205640.
Berry, Leonard L.; A. Parasuraman (1991). Marketing Services: Competing Through
Quality. New York: Free Press. ISBN 9780029030790.
Taylor and Baker (1994) An Assessment of the relationship between service quality and
customer satisfaction in the formation of consumer Purchase intentions. Journal of
Retailing 70(2) PP. 163-178.4.Bitner, M.J. and A.R. Hubbert 1994 Encounter
satisfaction versus overall satisfaction versus quality. In R.T. Rust and R.L Oilver (eds)
Service quality: New Directions in Theory and practice London: sage publication.

Cronin, J.Joseph, Jr., and S.A. Taylor. 1992 Measuring Service quality; a re-examination
and extension. Journal of Marketing 56pp 55-68.6.MC Dougall, Levesque (1994) A
revised review of service quality dimensions: An empirical investigation Journal of
professional services marketing 11(1).

Internet websites:

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www.google.com
http://en.wikipedia.org/wiki/Customer_satisfaction
Categories: Business terms | Consumer behavior.
www.scribd.com

QUESTIONNAIRE
Name of Customer _____________ Mobile No.___________
Name of the bank and type of account___________________
Please answer the questions and tick at the place that matches your opinion.
Mobile/Tele Banking.
How would you describe your views about Customer Service Representatives? Please
tick in
The appropriate column.
(1: Very Dissatisfied/2: Dissatisfied/3: Satisfied/4: Very satisfied/5: Highly Satisfied),
specify the Reason if not using the service
12345
Call answering time
Flawless/correct operations.

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Understanding and replying queries correctly

Communication skills/positive approach
General assessment about the service
Branch Banking
How would you describe your views about Branch Banking? Please tick in the
appropriate column.
(1: Very Dissatisfied/2: Dissatisfied/3: Satisfied/4: Very satisfied/5: Highly Satisfied)
12345
Behavior of the staff
Time taken to process the transaction
Working Hours
General assessment about the services provided by the branch
Internet Banking
How would you describe your views about Internet Banking services? Please tick in the
appropriate column.
(1: Very Dissatisfied/2: Dissatisfied/3: Satisfied/4: Very satisfied/5: Highly Satisfied),
specify the reason if not using the service.
12345
Page setup/Menu flow
Ease of use/navigation
Speed of page loading
Variety of transactions
General assessment about the service

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ATM Banking
How would you describe your views about ATM Banking services? Please tick in the
appropriate column.
(1: Very Dissatisfied/2: Dissatisfied/3: Satisfied/4: Very satisfied/5: Highly Satisfied.
Reason if not using the service
12345
ATM network distribution
Continuous service
Variety of transactions
Easy of screen use
General assessment about the service
The overall experience of customer ranged from good to satisfactory while opening
an account in any of five banks
Scale 1-7
Demographic profile of the customers
Demographics
1. Gender
Male
Female
2. Marital status
Married
Unmarried
Other

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3. Monthly Family income

Less than Rs10000
Rs10000-20000
Rs20000-30000
Rs30000-40000
More than 40000
4. Age
Below 25 years
25-35 years
35-45 years
45-55 years
Above 55 years
5. Education
Secondary
Higher secondary
Undergraduate
Graduate
Post Graduate
6. Occupation
Home maker
Service
Self employed
Retired

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Students

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