CUSTOMER PREFERENCE TOWARD PRIVATE Vs.

PUBLIC SECTOR BANKS DURING THE CURRENT TIME OF RECESSION

INTRODUCTION
Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a governmentowned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. The most significant achievement of the financial sector reforms has been the marked improvement in the financial health of commercial banks in terms of capital adequacy, profitability and asset quality as also greater attention to risk management. Further, deregulation has opened up new opportunities for banks to increase revenues into investment banking, insurance, credit cards, depository services, mortgage financing, securitization etc. At the same time, liberalization has brought greater competition among banks, both domestic and foreign, as well as competition from mutual funds, Non-Banking Financial Corporations, post office etc.

The various Public Sector Banks in India are:

Indian Bank Bank of India Union Bank Syndicate Bank Sate Bank of Saurashtra State Bank of Travancore Bank of Maharashtra Vijaya BankState Bank of IndiaState Bank of Mysore State Bank of Indore Corporation Bank Oriental BankUTI Bank

UCO Bank Indian Overseas Bank Punjab National Bank Dena Bank State Bank of Hyderabad State Bank of Bikaner & Jaipur Allahabad Bank Andhra Bank Canara Bank Bank of Baroda Punjab & Sind Bank IDBI Bank ICICI Bank United Bank

The various Private Sector Banks in India are: South Indian Bank

IndusInd Bank HDFC Bank Jammu & Kashmir Bank Nedungadi Bank Development Credit Bank Ratnakar Bank Mandavi Bank Centurian Bank Bank of Punjab ING-Vysya Bank United Western Bank

Federal Bank City Union Bank Catholic Syrian Bank Saraswat Bank DhanLakshmi Bank Kotak Bank Cosmos Bank Lakshmi Vilas Bank Bank of Rajasthan Kalyan Bank Karur Vysya Bank

HISTORY OF BANKING IN INDIA

For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India's growth process. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks (Phase 1) Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. (Phase II) New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. (Phase III)

PHASE I: The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.

PHASE II: Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

YEAR
1949

STEPS TAKEN BY THE GOVERNMENT

Enactment of Banking Regulation Act.

1955
1959 1961 1969 1971

Nationalisation of State Bank of India.

Nationalisation of SBI subsidiaries. Insurance cover extended to deposits. Nationalisation of 14 major banks. Creation of credit guarantee corporation.

1975
1980

Creation of regional rural banks.

Nationalisation of seven banks with deposits over 200 crore.

PHASE III: This phase has 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 liberalisation 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. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

OBJECTIVES OF THE STUDY

The objectives of this research are as follows:

To know about the customer preference toward Public Sector Banks Vs. Private Sector banks during the current time of recession in our Indian economy. To know about the services availed by people from their bank(s). To know if the recession has affected the banking sector in India and if yes, then to what extent. To know the overall performance of Private Sector Banks vs. Public Sector Banks. To know that performance of which amongst public sector banks vs. private sector banks is better.

RESEARCH DESIGN

According to Clifford Woody, research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis. This research is an exploratory research based on a survey of the concerning literature. A sample survey was conducting with the help of Scheduling Method of collecting data i.e. personally the enumerator visited and got the questionnaires filled from the respondents. The enumerator in this method helps the respondents in recording their answers to various questions in the said schedules. In this research this method was used while collecting data from people from domestic help class and small shopkeepers.

RESEARCH PROBLEM
The main problem this research is based on is how recession is affecting the Public Sector Banks as compared to the Private Sector Banks in India.

SCOPE OF THE STUDY

The scope of this study is to provide an insight into the current situation of recession in our Indian economy and how it is affecting the banking sector of India. I future it will help the people who read this report as to how are banking sector can be improved so as to make banking sector in India more better in terms of its performance and current standing in the market.

SOURCES OF DATA
There are two types of data viz. primary and secondary. The primary data are those which are collected afresh and for the first time, and thus happen to be original in character. The secondary data, on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical process. For this research report, primary data was collected and there was no bias on the part of the enumerator while selecting the sample.

METHOD OF DATA COLLECTION

Scheduling Method was undertaken to collect the data from the respondents. In scheduling method of collecting the data, the enumerator along with schedules (here questionnaires) goes to the respondents, put to them the questions from the proforma. In certain situations, schedules maybe handed over to the respondents and enumerators may help them in recording their answers. Enumerators explain the aims and objectives of the investigation and also remove the difficulties which any respondent may feel in understanding the implications of a particular question or the definition or concept of difficult terms.

SAMPLE SIZE
For this research, a sample size of 100 respondents were taken.

SAMPLE AREA
The sample area was Chandigarh and involved respondent from Sector 8, Sector 9 and Sector 44.

STATISTICAL TOOLS USED

The various statistical tool used were median, standard deviation, mean (average), data distribution tables, graphs and pie charts.

LIMITATIONS OF THE STUDY

Following were the limitations of the study:

Time was limited. The sample size of 100 is very small and more than that could not be possible. The study was only based on the survey of respondents in CHANDIGARH and no other area could be undertaken for the survey due to lack of transport and time. This research ignores the foreign and non banking financial institutions in our economy.

OVERALL DISTRIBUTION OF DATA

On the basis of occupation:

No. of respondents

18%

25%

Service Business Housewives

Lecturers/Teachers 20% 10% 5% 22% Students Others

On the basis of Income Class:

No. of respondents

4% 7%

10% 0-10000

10000-20000 54% 25%

20000-30000 Above 40000

30000-40000

On the basis of Age Group:

On the basis of AGE GROUP

12%

22% 18-25 25-32 32-37 37-42 42-60 28% Senior Citizens(60+)

16%

10% 12%

Q1 Are you aware of the term RECESSION?

On the basis of Occupation:OCCUPATIO N

Service Businessmen Lecturers/Teach ers

YES
25 10 5

NO
0 0 0

TOTAL
25 10 5

Housewives
Students Others TOTAL

18
19 6 83

4
1 12 17

22
20 18 100

On the basis of Occupation

25 20 15 No. of Respondents 10 5 0 YES RESPONSE NO Service Busincess Lecturers/Teachers Housewives Students Others

On the basis of Income Group:INCOME CLASS YES (Rs.) NO TOTAL

0-10000 10000-20000
20000-30000 30000-40000 Above 40000 TOTAL

38 24
7 4 10 83

16 1
0 0 0 17

54 25
7 4 10 100

On the basis of Income Group

100 80 60 No. of Respondents 40 20 0 YES Responses NO Above 40000 30000-40000 20000-30000 10000-20000 0-10000

On the basis of Age Group:AGE GROUP 18-25 25-32 32-37 37-42 42-60 Senior Citizens(60+) TOTAL YES 20 25 8 9 14 7 83 NO 2 3 4 1 2 5 17 TOTAL 22 28 12 10 16 12 100

No. of Respondents

30 25 20 15 10 5 0
18 -2 5 25 -3 2 32 -3 7 37 -4 2 Se nio r 42 -6 0 Ci tiz en s( 60 +)

On the basis of Age Group

AGE GROUP

NO

YES

ANALYSIS AND INTERPRETATION

We can see from the above tables that:

On the basis of Occupation: All are aware of the term recession that is 83 out 100 respondents. The few people who dont know about recession are from the class of housewives, students, Others (domestic help and shopkeepers).
On the basis of Income Group: People who are not aware about the term recession are from the income class of 0-10000(mostly) and from 10000-20000 On the basis of Age Group: People who are not aware of the term recession are from all the age groups but majority from 32-37 and Senior citizens. (People who were not aware of the term recession were first explained about the term recession.)

Q2.) In which bank(s) do you have your account?

OCCUPATION
Service Businessmen

PUBLIC BANKS
18 12

PRIVATE BANKS TOTAL

11 18 9 3 29 30 16 24

Lecturers/Teacher 7 s Housewives 21

Students
Others

17
18

5
3

22
21

TOTAL

93

49

142

On the basis of Occupation

25
No. of Respondents

Service Business Lecturers/Teachers Housew ives

20 15 10 5 0 PUBLIC BANKS PRIVATE BANKS Types of Banks

Students Others(Domestic Help and shopkeepers)

On the basis of Age Groups:

AGE GROUPS
18-25 25-32 32-37 37-42 42-60 Senior Citizens (60+)

PUBLIC BANKS
10 19 5 18 20 21

PRIVATE BANKS TOTAL

19 11 11 6 2 0 29 30 16 24 22 21

TOTAL

93

49

142

On the basis of Age Group

No. of Respondents

25 20 15 10 5 0
18 -2 5 25 -3 2 32 -3 7 37 -4 2 tiz en s( 60 +) 42 -6 0

PUBLIC BANKS PRIVATE BANKS

Age Groups

Se nio r

Ci

On the basis of Income Class:

INCOME(Rs.)
0-10000 10000-20000 20000-30000 30000-40000 Above 40000

PUBLIC BANKS
33 29 20 10 1

PRIVATE BANKS TOTAL

12 9 2 8 18 45 38 22 18 19

TOTAL

93

49

142

On the Basis of Income

No. of Respondents

Above 40000 30000-40000 20000-30000 10000-20000 0-10000

PUBLIC BANKS

PRIVATE BANKS

Types of Banks

ANALYSIS AND INTERPRETATION

On the basis of occupation: Public banks are preferred by service class, housewives, students and others (domestic help and shopkeepers). On the other hand, private banks are opted by businessmen and lecturers/teachers. On the basis of Income Group: Public banks are preferred by people in age groups of Rs. 010000, Rs. 10000-20000, very minute difference in the Rs. 30000-40000 income class and private banks are preferred by people in income class of Rs. 40000 and above. On the basis of age Groups: Public banks are preferred by people in age groups of 25-32, 3742, 42-60 and senior citizens; whereas private banks are preferred by people in age groups of 18-25, 32-37.

Q3.) What influences the choice of your bank?

On the basis of Occupation:

On the basis of Occupation

25
No. of Respondents

Service Business Lecturers/Teachers Housew ives

20 15 10 5 0 PUBLIC BANKS PRIVATE BANKS Types of Banks

Students Others(Domestic Help and shopkeepers)

On the basis of INCOME CLASS:

On the basis of INCOME CLASS:

On the Basis of Income

No. of Respondents

Above 40000 30000-40000 20000-30000 10000-20000 0-10000

PUBLIC BANKS

PRIVATE BANKS

Types of Banks

On the basis of AGE GROUPS:

On the basis of Age Group

No. of Respondents

25 20 15 10 5 0
18 -2 5 25 -3 2 32 -3 7 37 -4 2 tiz en s( 60 +) 42 -6 0

PUBLIC BANKS PRIVATE BANKS

Age Groups

Se nio r

Ci

ANALYSIS AND INTERPRETATION:

From the above tables:

On the basis of Occupation: Majority of people in all the classes keep in mind SECURITY as a factor while choosing their bank. The second rank goes to SERVICES, third to FAMILY & FRIENDS, fourth to REPUTATION OF THE BANKS and last to ADVERTISEMENT AND MEDIA. On the basis of Income Class: 1st Rank to SECURITY, Second to SERVICES, third to FAMILY AND FRIENDS, fourth to ADVERTISEMENT AND MEDIA, last to REPUTATION. On the basis of Age Group: 1st rank to SECURITY, second to SERVICES, third to REPUTATION, fourth to FAMILY AND FRIENDS and last to ADVERTISEMENT and MEDIA.

Q4.)Before Recession You trusted: PUBLIC BANKS or PRIVATE BANKS

BEFORE RECESSION PREFERENCE of BANKS

Private Banks 37% Public Banks 63%

Public Banks Private Banks

ANALYSIS AND INTERPRETATION:

Before recession people trusted public Banks more and those who trusted Private Banks were mostly businessmen and in the income class of Rs. 40000 and above.

Q5.) In the present situation of our economy, is there a change in your preference?

DURING RECESSION(Preference of Banks)

NO. OF RESPONDE NTS, 64 NO. OF RESPONDE NTS, 36

70 60 50 40 30 20 10 0 Yes

NO. OF RESPONDENTS

No

ANALYSIS AND INTERPRETATION:

Those who said yes were mostly who had their accounts in private banks before recession. Those who said no were those who already had their accounts in public banks before recession.

Q6.) What services do you avail from your bank?

SERVICES

Easy Credit Loans Facility 13% 11% Mobile Banking 12% ATM 38%

Loans ATM Online Banking Mobile Banking Easy Credit Facility

Online Banking 26%

ANALYSIS AND INTERPRETATION

Mostly the people are availing services of banks in the form of ATM at first rank, Online banking at second, Loans at third, Mobile Banking at fourth and easy credit facility ranked last.

Q7.) Are the services provided by your bank :

RATING OF SERVICES
60 50 40 30 20 10 0 NO. OF RESPONDENTS 8 3 2 EXCELLENT 33 VERY GOOD SATISFACTORY POOR VERY POOR

54

ANALYSIS AND INTERPRETATION

The overall rating of services of banks by the respondents is SATISFACTORY by 54% people, 33% rank the services as VERY GOOD. Those who rated SATISFACTORY were those who had their accounts in public banks but did not prefer to shift due to security of public banks during the current time of recession. Those who rated EXCELLENT and VERY GOOD were people who had their accounts in private banks and mostly the business men.

Q8.) If you have accounts in both Public and Private Banks then services of which amongst them appeal to you the most?

CHOICE OF BANKS

100% 80% 60% 40% 20% 0% NO. OF RESPONDENTS Public Banks , 46 Private Banks, 54 Private Banks Public Banks

ANALYSIS AND INTERPRETATION

Though public banks are preferred by people as per earlier tables, according to this table we can see that services of private banks are liked by people. The only thing is that Private sector banks are not backed up by the Government and hence not secure.

Q9.) If in future, our economy prospers, will it change you preference towards your bank?

FUTURE PREFERENCE

Yes 41% No 59%

Yes No

ANALYSIS AND INTERPRETATION

Those who said NO to this question were mostly people who had their accounts in public banks. Those who said yes were mostly people who had their accounts in private banks

Q10.) How has the recession affected the Banking Sector?

AFFECT OF RECESSION on BANKING SECTOR

100 80 60 40 20 0 28 0 Public Banks 72 72 NOT AFFECTED BADLY VERY BADLY Private Banks 1 27

TYPES OF BANKS

ANALYSIS AND INTERPRETATION

We can see from the above table that private sector banks are more affected according to the respondents than the public sector banks.

FINDINGS
Following were the findings of the study:

Before Recession, customer trusted on Public Banks rather Private banks (these were held by businessmen and people having income of Rs.40000 and above. Service class people, Students, Senior citizens, Housewives, domestic help and shopkeepers prefer public banks whereas lecturers and businessmen prefer private banks. During the current time of recession, those who have their accounts in private banks are shifting to public banks and those who have their accounts in public banks are not shifting towards private banks.

In future public bank account holders are likely to shift to private banks, given the good economic conditions. Services of Private banks are more better but are low preferred because of lack of security of private banks.

Public Sector is not affected by recession whereas

private sector is badly affected.

CHALLENGES AHEAD
(i) Improving profitability: The most direct result of the above changes is increasing competition and narrowing of spreads and its impact on the profitability of banks. The challenge for banks is how to manage with thinning margins while at the same time working to improve productivity which remains low in relation to global standards. This is particularly important because with dilution in banks equity, analysts and shareholders now closely track their performance. Thus, with falling spreads, rising provision for NPAs and falling interest rates, greater attention will need to be paid to reducing transaction costs. This will require tremendous efforts in the area of technology and for banks to build capabilities to handle much bigger volumes. (ii) Reinforcing technology: Technology has thus become a strategic and integral part of banking, driving banks to acquire and implement world class systems that enable them to provide products and services in large volumes at a competitive cost with better risk management practices. The pressure to undertake extensive computerisation is very real as banks that adopt the latest in technology have an edge over others. Customers have become very demanding and banks have to deliver customised products through multiple channels, allowing customers access to the bank round the clock.

(iii) Risk management: The deregulated environment brings in its wake risks along with profitable opportunities, and technology plays a crucial role in managing these risks. In addition to being exposed to credit risk, market risk and operational risk, the business of banks would be susceptible to country risk, which will be heightened as controls on the movement of capital are eased. In this context, banks are upgrading their credit assessment and risk management skills and retraining staff, developing a cadre of specialists and introducing technology driven management information systems.

CONCLUSION
The face of banking is changing rapidly. Competition is going to be tough and with financial liberalisation under the WTO, banks in India will have to benchmark themselves against the best in the world. For a strong and resilient banking and financial system, therefore, banks need to go beyond peripheral issues and tackle significant issues like improvements in profitability, efficiency and technology, while achieving economies of scale through consolidation and exploring available costeffective solutions. These are some of the issues that need to be addressed if banks are to succeed, not just survive, in the changing milieu.