CHAPTER:1

INTRODUCTION
 INTRODUCTION:

Indian banking is the lifeline of the nation and its people. Banking has helped in developing
the vital sectors of the economy and usher in a new dawn of progress on the Indian horizon.
The sector has translated the hopes and aspirations of millions of people into reality. But to
do so, it has had to control miles and miles of difficult terrain, suffer the indignities of foreign
rule and the pangs of partition. Today, Indian banks can confidently compete with modern
banks of the world.

th
Before the 20 century, usury, or lending money at a high rate of interest, was widely
prevalent in rural India. Entry of Joint stock banks and development of Cooperative
movement have taken over a good deal of business from the hands of the Indian money
lender, who although still exist, have lost his menacing teeth.

In the Indian Banking System, Cooperative banks exist side by side with commercial banks
and play a supplementary role in providing need-based finance, especially for agricultural
and agriculture-based operations including farming, cattle, milk, hatchery, personal finance
etc. along with some small industries and self-employment driven activities.

Generally, co-operative banks are governed by the respective co-operative acts of state
st
governments. But, since banks began to be regulated by the RBI after 1 March 1966, these
banks are also regulated by the RBI after amendment to the Banking Regulation Act 1949.
The Reserve Bank is responsible for licensing of banks and branches, and it also regulates
credit limits to state co-operative banks on behalf of primary co-operative banks for financing
SSI units.

th
Banking in India originated in the first decade of 18 century with The General Bank of India
coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks
are now defunct. After this, the Indian government established three presidency banks in
India. The first of three was the Bank of Bengal, which obtains charter in 1809, the other two
presidency bank, viz., the Bank of Bombay and the Bank of Madras, were established in 1840
and 1843, respectively. The three presidency banks were subsequently amalgamated into the
Imperial Bank of India (IBI) under the Imperial Bank of India Act, 1920 which is now
known as the State Bank of India
.A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations
in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to
the trade of the British Empire, and due to which banking activity took roots there and
prospered. The first fully Indian owned bank was the Allahabad Bank, which was established
in 1865.

By the 1900s, the market expanded with the establishment of banks such as Punjab National
Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai both of which were
founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935. After Indias independence
in 1947, the Reserve Bank was nationalized and given broader powers.

As the banking institutions expand and become increasingly complex under the impact of
deregulation, innovation and technological upgradation, it is crucial to maintain balance
between efficiency and stability. During the last 30 years since nationalization tremendous
changes have taken place in the financial markets as well as in the banking industry due to
financial sector reforms. The banks have shed their traditional functions and have been
innovating, improving and coming out with new types of services to cater emerging needs of
their

customers. Banks have been given greater freedom to frame their own policies. Rapid
advancement of technology has contributed to significant reduction in transaction costs,
facilitated greater diversification of portfolio and improvements in credit delivery of banks.
Prudential norms, in line with international standards, have been put in place for promoting
and enhancing the efficiency of banks. The process of institution building has been
strengthened with several measures in the areas of debt recovery, asset reconstruction and
securitization, consolidation, convergence, mass banking etc.

Despite this commendable progress, serious problem have emerged reflecting in a decline in
productivity and efficiency, and erosion of the profitability of the banking sector. There has
been deterioration in the quality of loan portfolio which, in turn, has come in the way of
banks income generation and enchancement of their capital funds. Inadequacy of capital has
been accompanied by inadequacy of loan loss provisions resulting into the adverse impact on
the depositors and investors confidence. The Government, therefore, set up Narasimham
Committee to look into the problems and recommend measures to improve the health of the
financial system.
The acceptance of the Narasimham Committee recommendations by the Government has
resulted in transformation of hitherto highly regimented and overbureaucratized banking
system into market driven and extremely competitive one.

The massive and speedy expansion and diversification of banking has not been without its
strains. The banking industry is entering a new phase in which it will be facing increasing
competition from non-banks not only in the domestic market but in the international markets
also. The operational structure of banking in India is expected to undergo a profound change
during the next decade. With the emergence of new private banks, the private bank sector has

become enriched and diversified with focus spread to the wholesale as well as retail banking.
The existing banks have wide branch network and geographic spread, whereas the new
private banks have the clout of massive capital, lean personnel component, the expertise in
developing sophisticated financial products and use of state-of-the-art technology.

Gradual deregulation that is being ushered in while stimulating the competition would also
facilitate forging mutually beneficial relationships, which would ultimately enhance the
quality and content of banking. In the final phase, the banking system in India will give a
good account of itself only with the combined efforts of cooperative banks, regional rural
banks and development banking institutions which are expected to provide an adequate
number of effective retail outlets to meet the emerging socio-economic challenges during the
next two decades. The electronic age has also affected the banking system, leading to very
fast electronic fund transfer. However, the development of electronic banking has also led to
new areas of risk such as data security and integrity requiring new techniques of risk
management.

Cooperative (mutual) banks are an important part of many financial systems. In a number of
countries, they are among the largest financial institutions when considered as a group.
Moreover, the share of cooperative banks has been increasing in recent years; in the sample of
banks in advanced economies and emerging markets analyzed in this paper, the market share
of cooperative banks in terms of total banking sector assets increased from about 9 percent in
mid-1990s to about 14 percent in 2004
NEED FOR THE STUDY:
The growth in the Indian Banking Industry has been more qualitative than quantitative and it is
expected to remain the same in the coming years. Based on the projections made in the "India
Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts
that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets
of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That
will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in
2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during
the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95
and 2002-03. It is expected that there will be large additions to the capital base and reserves on
the liability side.

The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949
can be broadly classified into two major categories, non-scheduled banks and scheduled banks.
Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership,
commercial banks can be further grouped into nationalized banks, the State Bank of India and its
group banks, regional rural banks and private sector banks (the old/ new domestic and foreign).
These banks have over 67,000 branches spread across the country.

The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for
more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with
excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On
the other hand the Private Sector Banks are making tremendous progress. They are leaders in
Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned
they are likely to succeed in the Indian Banking Industry.
OBJECTIVES:

The major objectives of the study are to assess the impact of reform measures on
the efficiency, profitability and overall performance of SBI and ICICI for the period
2000-2001 to 2011-2012. The specific objectives of the study are;

1. To find out some glaring reasons of lower efficiency in SBI and ICICI banks and
suggest ways and means to improve the efficiency of these two banks.
2. To make comparative analysis of the financial performance of SBI and ICICI
3. To suggest future prospect for these two banks.
4. To analyze the financial performance of State Bank of India.
5. To analyse the financial performance of ICICI bank.
6. To compare State Bank of India and ICICI bank on the basis of their financial
performance.
METHODOLOGY :

The Indian banking industry has come a long way from being a sleepy business
institution to a highly proactive and dynamic entity. The liberalization and
economic reforms have largely brought about this transformation. The entry of
private banks has revamped the services and product portfolio of nationalized
banks. With efficiency being the major focus, the private banks are leveraging on
their strengths. To compete with the private banks, the public sector banks are now
going in for major image changes and customer friendly schemes. Increasing
competition and technology driven products are some of the trends which the
banking industry is currently experiencing. The technology oriented banking has
become one of the latest success mantra in market especially to win over the
customers. Due to entry of private banks which are known for technical and
financial innovation their professional management has gained a remarkable
position in banking sector. With entry of private players following changes are
noticed :

The banking sector is increasingly becoming competitive and

getting integrated with global banking.

Customers acquisition is done at a war footing.

Service standards are being benchmarked to global standards.

Competitive advantage is coming from technology and marketing.

Public sector banks have to fight hard on customer relationship

management initiatives because public sector banks can score well on
private banks if they have good chunk of satisfied customers.
Employees satisfaction also leads to success or failure of respective bank
because only a satisfied employee with a bank can satisfy his customers
and make them loyal towards bank.
LIMITATIONS:

Limitations of the study and scope for further research

There are many innovative financial services given by different banks (e.g. Virtual Cards)
which are not considered in the study. The study is done for 16 technology based financial
services which are commonly known and used.

Some banks have also started doorstep services, which are provided using hand held
terminals (using mobile technology or even satellite technology) which are not in the scope
of study.

Scope for further research

Setting up of IDRBT contribution in banking technology & research

Setting up of the Institute for Development and Research in Banking Technology (IDRBT),
Hyderabad in the mid-nineties, as a research and technology center for the banking sector
was a major step to facilitate and support the technological revolution in banking. It was
set up in the year 1994 as an apex level institute for spearheading technology absorption in
the Indian Banking and the financial sector. It focuses on the training, research and
development activities in the field of information technology.

Reaching for the skies banking technology excellence awards

Institution of the excellence awards is a step in the direction of encouraging effective

adoption of technology by banks. Instituted in the year 2001, with the primary objective of
encouraging and recognizing excellence in implementation of Technology for better
customer service, operational efficiency and expansion of banking services to the hitherto
uncovered sections of society, the category of awards has been changing with the change in
 the technology deployment focus from time to time. This year, banks have been divided
into two categories large and small, to enhance the spirit of sporting competition
amongst banks by ensuring a level playing field.

Financial Inclusion Network & Operations Ltd. (FINO) is a financial technology &
operations firm enabling financial institutions serve bottom of pyramid customers.
FINO is headquartered in Mumbai and backed by investors like Intel Capital, HSBC,
ICICI bank, LIC, etc. among others. FINO with its smart card technology is
transforming the lives of millions across India by making basic financial services
available to the previously un-served customers. FINO has a presence in more than 225
districts all over India currently serving more than 12 million customers. FINO actively
works with organizations like various state governments, banks, NBFCs, MFIs, etc. to
bring a positive change in the lives of millions across the country!

FINO is an integrated technology platform and delivery channel, enabling

sourcing and servicing of world's micro customers on a large scale

FINO founded in year 2006, headquartered in Mumbai, India, is the leading deliverer of
integrated technology solutions into the mainstream by making high quality, low cost
in-house technology, accessible for institutions like Banks, Microfinance Institutions,
Government entities, Insurance companies to enable financial inclusion environment for
the micro customers.

FINO's Products and Solutions enable opportunity for businesses to roll out
multiple product strategy for consumption by micro-customers

.
 CHAPTER:2

INDUSTRY PROFILE
 2.1.1 INTRODUCTION TO BANKING SECTOR

A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental
banking services such as accepting deposits and providing loans. There are also non-
banking institutions that provide certain banking services without meeting the legal Banks
are a subset of the financial services industry. A banking system also referred as a system
provided by the bank which offers cash management services for customers, reporting the
transactions of their accounts and portfolios, throughout the day. The banking system in
India, should not only be hassle free but it should be able to meet the new challenges
posed by the technology and any other external and internal factors. For the past three
decades, Indias banking system has several outstanding achievements to its credit. The
Banks are the main participants of the financial system in India.

Before the establishment of banks, the financial activities were handled by money lenders
and individuals. At that time the interest rates were very high. Again there were no
security of public savings and no uniformity regarding loans. So as to overcome such
problems the organized banking sector was established, which was fully regulated by the
government. The organized banking sector works within the financial system to provide
loans, accept deposits and provide other services to their customers.

The Banking sector offers several facilities and opportunities to their customers. All the
banks safeguards the money and valuables and provide loans, credit, and payment
services, such as checking accounts, money orders, and cashiers cheques. The banks also
offer investment and insurance products. As a variety of models for cooperation and
integration among finance industries have emerged, some of the traditional distinctions
between banks, insurance companies, and securities firms have diminished. In spite of
these changes, banks continue to maintain and perform their primary roleaccepting
deposits and lending funds from these deposits.
 2.1.2 HISTORY OF INDIAN BANKING SECTOR

The first bank in India, called The General Bank of India was established in the year
1786. The East India Company established The Bank of Bengal/Calcutta (1809), Bank of
Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan
which was established in 1870. These three individual units (Bank of Calcutta, Bank of
Bombay, and Bank of Madras) were called as Presidency Banks. Allahabad Bank which
was established in 1865, was for the first time completely run by Indians. Punjab National
Bank Ltd. was set up in 1894 with head quarters at Lahore. Between 1906 and 1913,
Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and
Bank of Mysore were set up. In 1921, all presidency banks were amalgamated to form the
Imperial Bank of India which was run by European Shareholders. After that the Reserve
Bank of India was established in April 1935. At the time of first phase the growth of
banking sector was very slow. Between 1913 and 1948 there were approximately 1100
small banks in India. To streamline the functioning and activities of commercial banks,
the Government of India came up with the Banking Companies Act, 1949 which was later
changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of
1965). Reserve Bank of India was vested with extensive powers for the supervision of
banking in India as a Central Banking Authority. After independence, Government has
taken most important steps in regard of Indian Banking Sector reforms. In 1955, the
Imperial Bank of India was nationalized and was given the name "State Bank of India", to
act as the principal agent of RBI and to handle banking transactions all over the country.
It was established under State Bank of India Act, 1955. Seven banks forming subsidiary
of State Bank of India was nationalized in 1960. On 19th July, 1969, major process of
nationalization was carried out. At the same time 14 major Indian commercial banks of
the country were nationalized. In 1980, another six banks were nationalized, and thus
raising the number of nationalized banks to 20. Seven more banks were nationalized with
deposits over 200 Crores. Till the year 1980 approximately 80% of the banking segment
in India was under governments ownership. On the suggestions of Narsimhan
Committee, the Banking Regulation Act was amended in 1993 and thus the

25
gates for the new private sector banks were opened. The following are the major steps
taken by the Government of India to Regulate Banking institutions in the country:-

1949 : Enactment of Banking Regulation Act.

1955 : Nationalisation of State Bank of India.

1959 : Nationalization of SBI subsidiaries.

1961 : Insurance cover extended to deposits.

1969 : Nationalisation of 14 major Banks.

1971 : Creation of credit guarantee corporation.

1975 : Creation of regional rural banks.

1980 : Nationalisation of seven banks with deposits over 200 Crores.

Nationalisation

By the 1960s, the Indian banking industry has become an important tool to facilitate the
development of the Indian economy. At the same time, it has emerged as a large
employer, and a debate has ensured about the possibility to nationalise the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the
Government of India (GOI) in the annual conference of the All India Congress Meeting
the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India,
described the step as a "Masterstroke of political sagacity" Within two weeks of the issue
of the ordinance, the Parliament passed the Banking Companies (Acquisition and
Transfer of Undertaking) Bill, and it received the presidential approval on 9 August,
1969. A second step of nationalisation of 6 more commercial banks followed in 1980. The
stated reason for the nationalisation was to give the government more control of credit
delivery. With the second step of nationalisation, the GOI controlled around 91% of the
banking business in India. Later on, in the year 1993, the government merged New
Bank of India with Punjab National Bank. It was the only merger between nationalised
banks and resulted in the reduction of the number of nationalised banks from 20 to 19.
After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy. The nationalised banks were credited by
some; including Home minister P. Chidambaram, to have helped the Indian economy
withstand the global financial crisis of 2007-2009.

Liberalisation

There are two areas of competitions which banking industry is facing

internationally and nationally. In the early 1990s, the then Narsimha Rao government
embarked on a policy of liberalisation, licensing a small number of private banks. In the
pre-liberalization era, Indian banks could grow in a closed economy but the banking
sector opened up for private competition. It is possible that private banks could become
dominant players even within India. These came to be known as New Generation tech-
savvy banks, and included Global Trust Bank (the first of such new generation banks to
be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier
as UTI Bank), ICICI Bank and HDFC Bank. This move along with the rapid growth in
the economy of India revolutionized the banking sector in India which has seen rapid
growth with strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks. The new policy shook the banking sector in India
completely. Use of ATM cards, Internet Banking, Phone Banking, Mobile Banking are the
new innovative channels of banking which are being widely used as they resu lt in saving
both time and money which are two essential things that everyone is short of and is
running to catch hold of them. Moreover private sector banks are aligning its
infrastructures, marketing quality and technology to build deep commitment in building
consumer and retail banking. The main focus of these banks is on innovative range of
services or products.

.
The Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage volatility
but without any fixed exchange rate-and this has mostly been true. With the growth in the
Indian economy expected to be strong for quite some time-especially in its services
sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong.

2.1.3 CLASSIFICATION OF BANKING INDUSTRY IN INDIA

Indian banking industry has been divided into two parts, organized and unorganized
sectors. The organized sector consists of Reserve Bank of India, Commercial Banks and
Co-operative Banks, and Specialized Financial Institutions (IDBI, ICICI, IFC etc). The
unorganized sector, which is not homogeneous, is largely made up of money lenders and
indigenous bankers.An outline of the Indian Banking structure may be presented as
follows:

1.Reserve bank of India

The reserve bank of India is a central bank and was established in April 1, 1935 in
accordance with the provisions of reserve bank of India act 1934. The central office of
RBI is located at Mumbai since inception. Though originally the reserve bank of India
was privately owned, since nationalization in 1949, RBI is fully owned by the
Government of India. It was inaugurated with share capital of Rs. 5 Crores divided into
shares of Rs. 100 each fully paid up.

RBI is governed by a central board (headed by a governor) appointed by the

central government of India. RBI has 22 regional offices across India. The reserve bank
of India was nationalized in the year 1949. The RBI Act 1934 was commenced on April 1,
1935. The Act, 1934 provides the statutory basis of the functioning of the bank. The bank
was constituted for the need of following:
 To regulate the issues of banknotes.
To maintain reserves with a view to securing monetary stability
To operate the credit and currency system of the country to its advantage.
Functions of

RBI as a central bank of India are explained briefly as follows:

Bank of Issue: The RBI formulates, implements, and monitors the monitory policy. Its
main objective is maintaining price stability and ensuring adequate flow of credit to
productive sector.

Regulator-Supervisor of the financial system: RBI prescribes broad parameters of

banking operations within which the countrys banking and financial system functions.
Their main objective is to maintain public confidence in the system, protect depositors
interest and provide cost effective banking services to the public.

Manager of exchange control: The manager of exchange control department manages

the foreign exchange, according to the foreign exchange management act, 1999. The
managers main objective is to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.

Issuer of currency: A person who works as an issuer, issues and exchanges or destroys
the currency and coins that are not fit for circulation. His main objective is to give the
public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role: The RBI performs the wide range of promotional functions to
support national objectives such as contests, coupons maintaining good public relations
and many more.

Related functions: There are also some of the related functions to the above mentioned
main functions. They are such as, banker to the government, banker to banks etc.

Banker to government performs merchant banking function for the central and the state
governments; also acts as their banker.

Banker to banks maintains banking accounts to all scheduled banks.

Controller of Credit: RBI performs the following tasks:
It holds the cash reserves of all the scheduled banks.
It controls the credit operations of banks through quantitative and qualitative controls.
It controls the banking system through the system of licensing, inspection and
calling for information.

It acts as the lender of the last resort by providing rediscount facilities to

scheduled banks.

Supervisory Functions: In addition to its traditional central banking functions, the

Reserve Bank performs certain non-monetary functions of the nature of supervision of
banks and promotion of sound banking in India

2. Indian Scheduled Commercial Banks

The commercial banking structure in India consists of scheduled commercial banks, and
unscheduled banks.

Scheduled Banks: Scheduled Banks in India constitute those banks which have been
included in the second schedule of RBI act 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42(6a) of the Act.
Scheduled banks in India means the State Bank of India constituted under the State
Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the s State Bank of
India (subsidiary banks) Act, 1959 (38 of 1959), a corresponding new bank constituted
under section 3 of the Banking companies (Acquisition and Transfer of Undertakings)
Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule
to the Reserve bank of India Act, 1934 (2 of 1934), but does not include a co-operative

bank. For the purpose of assessment of performance of banks, the Reserve Bank of India
categories those banks as public sector banks, old private sector banks, new private sector
banks and foreign banks, i.e. private sector, public sector, and foreign banks come under
the umbrella of scheduled commercial banks.
2.1Commercial Banks: Commercial banks may be defined as, any banking organisation
that deals with the deposits and loans of business organisations. Commercial banks issue
bank checks and drafts, as well as accept money on term deposits. Commercial banks

also act as moneylenders, by way of installment loans and overdrafts. Commercial banks
also allow for a variety of deposit accounts, such as checking, savings, and time deposit.
These institutions are run to make a profit and owned by a group of individuals.

2.1.1 Public Sector Banks : The Public sector banks are those where govt holdings are
more than 50% while nationalized banks are those banks which were nationalized in
1969 and 1980. Thus all nationalized banks are public sector banks. Thus in total 27
PSB's are there

Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.

2.1.2 Private Sector Banks: These are banks majority of share capital of the bank is held
by private individuals. These banks are registered as companies with limited liability.

Private banks" can also refer to non-government owned banks in general, in contrast to
government-owned (or nationalized) banks, which were prevalent in communist, socialist
and some social democratic states in the 20th century. Private banks as a form of
organisation should also not be confused with "Private Banks" that offer financial
services to high net worth individuals and others.

Private banks are banks that are not incorporated. A private bank is owned by either an
individual or a general partner(s) with limited partner(s). In any such case, the creditors
can look to both the "entirety of the bank's assets" as well as the entirety of the sole-
proprietor's/general-partners' assets. These are the major players in the banking sector as
well as in expansion of the business activities India. Reserve Bank of India (RBI) came in
picture in 1935 and became the centre of every other bank taking away all the
responsibilities and functions of Imperial bank. The share of the private bank branches
stayed nearly same between 1980 and 2000. Then from early 1990s, RBI's liberalization
policy came in picture and with this the government gave licenses to a few private banks,
which came to be known as new private sector banks.
Examples of private sector banks are: ICICI Bank, Axis bank, HDFC, etc.

2.1.3 Foreign Banks: These banks are registered and have their headquarters in a foreign
country but operate their branches in our country. Now, foreign banks in India are
permitted to set up local subsidiaries. The 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. Foreign banks have
brought latest technology and latest banking practices in India. Government has come up
with a road map for expansion of foreign banks in India.

Examples of foreign banks in India are: HSBC, Citibank, Standard Chartered Bank, JP
MorganChase Bank etc.

2.1.4 Regional Rural Bank: The government of India set up Regional Rural Banks
(RRBs) on October 2, 1975 . The banks provide credit to the weaker sections of the rural
areas, particularly the small and marginal farmers, agricultural laborers, and small
entrepreneurs. Initially, five RRBs were set up on October 2, 1975 which was sponsored
by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank
and United Bank of India. The total authorized capital was fixed at Rs. 1 Crore which has
since been raised to Rs. 5 Crores. There are several concessions enjoyed by the RRBs by
Reserve Bank of India such as lower interest rates and refinancing facilities from
NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on
loans taken from sponsoring banks, managerial and staff assistance from the sponsoring
bank and reimbursement of the expenses on staff training. The RRBs are under the
control of NABARD. NABARD has the responsibility of laying down the policies for the
RRBs, to oversee their operations, provide refinance facilities, to monitor their
performance and to attend their problems.

3. Co-operative Banks: Co-operative banks are small-sized units organized in the co-
operative sector which operate both in urban and non-urban centers. These banks are
traditionally centered around communities, localities and work place groups and they
essentially lend to small borrowers and businesses. A co-operative bank is a financial
entity which belongs to its members, who are at the same time the owners and the
customers of their bank. Co-operative banks are often created by persons belonging to the
same local or professional community or sharing a common interest. Co-operative banks
generally provide their members with a wide range of banking and financial services
(loans, deposits, banking accounts, etc).They provide limited banking products and are
specialists in agriculture-related products.

Cooperative banks are the primary financiers of agricultural activities, some small-scale
industries and self-employed workers. Co-operative banks function on the basis of "no-
profit no-loss".

Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India
located in the city of Vadodara in Gujarat.

Primary credit societies: These are formed in small locality like a small town or a
village. The members using this bank usually know each other and the chances of
committing fraud is minimal.

Central cooperative banks: These banks have their members who belong to the same
district. They function as other commercial banks and provide loans to their members.
They act as a link between the state cooperative banks and the primary credit societies.

State cooperative banks: these banks have a presence in all the states of the country and
have their presence throughout the state

2.1.4 SERVICES PROVIDED BY BANKING ORGANISATIONS

Banking Regulation Act in India, 1949 defines banking as Accepting for the purpose of

lending or investment of deposits of money from the public, repayable on demand and

withdrawable by cheques, drafts, orders etc. as per the above definition a bank essentially

performs the following functions:-

34
3. Accepting Deposits or savings functions from customers or public by providing
bank account, current account, fixed deposit account, recurring accounts etc.

4. The payment transactions like lending money to the public. Bank provides an
effective credit delivery system for loanable transactions.

5. Provide the facility of transferring of money from one place to another place. For
performing this operation, bank issues demand drafts, bankers cheques, money orders
etc. for transferring the money. Bank also provides the facility of Telegraphic transfer or
tele- cash orders for quick transfer of money.

6. A bank performs a trustworthy business for various purposes.

7. A bank also provides the safe custody facility to the money and valuables of the
general public. Bank offers various types of deposit schemes for security of money. For
keeping valuables bank provides locker facility. The lockers are small compartments with
dual locking system built into strong cupboards. These are stored in the banks strong
room and are fully secured.

8. Banks act on behalf of the Govt. to accept its tax and non-tax receipt. Most of the
government disbursements like pension payments and tax refunds also take place through
banks.

There are several types of banks, which differ in the number of services they provide and
the clientele (Customers) they serve. Although some of the differences between these
types of banks have lessened as they have begun to expand the range of products and
services they offer, there are still key distinguishing traits.

These banks are as follows:

Commercial banks, which dominate this industry, offer a full range of services for
individuals, businesses, and governments. These banks come in a wide range of sizes,
from large global banks to regional and community banks.
Global banks are involved in international lending and foreign currency trading, in
addition to the more typical banking services.

Regional banks have numerous branches and automated teller machine (ATM) locations
throughout a multi-state area that provide banking services to individuals. Banks have
become more oriented toward marketing and sales. As a result, employees need to know
about all types of products and services offered by banks.

Community banks are based locally and offer more personal attention, which many
individuals and small businesses prefer. In recent years, online bankswhich provide all
services entirely over the Internethave entered the market, with some success.
However, many traditional banks have also expanded to offer online banking, and some
formerly Internet-only banks are opting to open branches.

Savings banks and savings and loan associations, sometimes called thrift institutions,
are the second largest group of depository institutions. They were first established as
community-based institutions to finance mortgages for people to buy homes and still
cater mostly to the savings and lending needs of individuals.

Credit unions are another kind of depository institution. Most credit unions are formed
by people with a common bond, such as those who work for the same company or belong
to the same labour union or church. Members pool their savings and, when they need
money, they may borrow from the credit union, often at a lower interest rate than that
demanded by other financial institutions.

Federal Reserve banks are Government agencies that perform many financial services
for the Government. Their chief responsibilities are to regulate the banking industry and
to help implement our Nations monetary policy so our economy can run more efficiently
by controlling the Nations money supplythe total quantity of money in the country,
including cash and bank deposits. For example, during slower periods of economic
activity, the Federal Reserve may purchase government securities from commercial
banks, giving them more money to lend, thus expanding the economy. Federal Reserve
banks also perform a variety of services for other banks. For example, they may make
emergency loans to banks that are short of cash, and clear checks that are drawn and paid
out by different banks.

The money banks lend, comes primarily from deposits in checking and savings
accounts, certificates of deposit, money market accounts, and other deposit accounts that
consumers and businesses set up with the bank. These deposits often earn interest for
their owners, and accounts that offer checking, provide owners with an easy method for
making payments safely without using cash. Deposits in many banks are insured by the
Federal Deposit Insurance Corporation, which guarantees that depositors will get their
money back, up to a stated limit, if a bank should fail.

A. Primary Functions of Banks

The primary functions of a bank are also known as banking functions. They are the main
functions of a bank. These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types,
such as :-

2 Saving Deposits

3 Fixed Deposits

4 Current Deposits

5 Recurring Deposits
Saving Deposits

This type of deposits encourages saving habit among the public. The rate of interest is
low. Withdrawals of deposits are allowed subject to certain restrictions. This account is
suitable to salary and wage earners. This account can be opened in single name or in joint
names.

Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is
paid, which varies with the period of deposit. Withdrawals are not allowed before the
expiry of the period. Those who have surplus funds go for fixed deposit.

Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No

interest is paid. In fact, there are service charges. The account holders can get the benefit
of overdraft facility.

Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum of
money is periodically deposited into the bank. Withdrawals are permitted only after the
expiry of certain period. A higher rate of interest is paid.

7. Granting of Loans and Advances :The bank advances loans to the business community

and other members of the public. The rate charged is higher than what it pays

on deposits. The difference in the interest rates (lending rate and the deposit rate) is
its profit.

The types of bank loans and advances are :-

a. Overdraft

b. Cash Credits

c. Loans

d. Discounting of Bill of Exchange

a. Overdraft

This type of advances are given to current account holders. No separate account is
maintained. All entries are made in the current account. A certain amount is sanctioned as
overdraft which can be withdrawn within a certain period of time say three months or so.
Interest is charged on actual amount withdrawn. An overdraft facility is granted against a
collateral security. It is sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit upto a specific limit fixed in advance. It can be given
to current account holders as well as to others who do not have an account with bank.
Separate cash credit account is maintained. Interest is charged on the amount withdrawn
in excess of limit. The cash credit is given against the security of tangible assets and / or
guarantees. The advance is given for a longer period and a larger amount of loan is
sanctioned than that of overdraft.

c. Loans
It is normally for short term say a period of one year or medium term say a period of five
years. Now-a-days, banks do lend money for long term. Repayment of money can be in
the form of installments spread over a period of time or in a lumpsum amount. Interest is
charged on the actual amount sanctioned, whether withdrawn or not. The rate of interest

may be slightly lower than what is charged on overdrafts and cash credits. Loans
are normally secured against tangible assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both
domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary
of the bill by deducting usual discount charges. On maturity, the bill is presented to the
drawee or acceptor of the bill and the amount is collected.

B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking

functions.These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency
functions which includes :-

a. Transfer of Funds

b. Collection of Cheques

c. Periodic Payments

d. Portfolio Management

e. Periodic Collections

f. Other Agency Functions

a. Transfer of Funds
The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques
The bank collects the money of the cheques through clearing section of its customers.
The bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of
electricity bills, rent, etc.

d. Portfolio Management

The banks also undertakes to purchase and sell the shares and debentures on behalf of
the clients and accordingly debits or credits the account. This facility is called portfolio
management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on behalf
of the client.

f. Other Agency Functions

They act as trustees, executors, advisers and administrators on behalf of its clients. They
act as representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as :-

a. Issue of Drafts, Letter of Credits, etc.

b. Locker Facility

c. Underwriting of Shares

d. Dealing in Foreign Exchange

e. Project Reports

f. Social Welfare Programmes

g. Other Utility Functions

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues letter
of credit, especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports
The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy

programmes, public welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects

creditworthiness information about clients of its customers. It provides market
information to its customers, etc. It provides travellers' cheque facility.

2.1.6 WORK STRESS IN BANKING SECTOR

Occupational stress is becoming increasingly globalized and affects all countries, all
professions and all categories of workers, as well as families and society in general
(Ahmad and Ahmad, 1992). Every employee is prone to stress either knowingly or
unknowingly. Banking professionals are no exemption from this. During the past decade,
the banking sector had under gone rapid and striking changes like policy changes,
increased competition due to the entrance of more private sector banks, introduction of
new technologies, etc. Due to these changes, the employees in the banking sector are
experiencing a high level of stress. Bank employees admit that stress is affecting their
jobs, family life and health. Unpredictable economy, pressure to maintain profitability
and increased responsibilities are main causes of stress.

According to a study conducted by Associated Chambers of Commerce and

Industry of India (ASSOCHAM), it has been found that banks are the top 10 high stress
workplace in recent times. Due to globalization and liberalization, the banking sector had
undergone substantial policy changes, in response to the changes that have been taking
place in the social, political, economic and technological environments. In addition to
meeting the increasing demands from the traditional markets, new markets have been
brought into the banking sector, entailing in the process the adoption of new marketing
practices, calling for an entirely new approach and a significant change in the market
attitude.

Entry of new private and foreign banks, non-banking financial institutions, technological
changes, downsizing, appointment of contract labor and VRS are some of the important
challenges that the bank employees are facing increasingly. Due to these rapid and
striking changes, the employees in the banking sector are experiencing a high level of
stress.. Increased competition, growing customer demands, prompt customer service, time
pressure, targets and role conflicts are the main factors of stress to bank employees.

Bankers are under a great deal of stress and due to many antecedents of stress
such as Overload, Role ambiguity, Role conflict, Responsibility for people, Participation,
Lack of feedback, Keeping up with rapid technological change, Being in an innovative
role, Career development, Organisational structure and climate, and Recent episodic
events.
COMPANY PROFILE
 2.2.1 INTRODUCTION TO HDFC BANK

Housing Development Finance Corporation Limited

HDFC Bank Limited is an Indian financial services company based in Mumbai,

Maharashtra that was incorporated in August 1994. HDFC Bank is the fifth or sixth
largest bank in India by assets and the first largest bank by market capitalization as of
November 1, 2012. The bank was promoted by the Housing Development Finance
Corporation, a premier housing finance company (set up in 1977) of India.

HISTORY

HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation

Limited (HDFC), India's largest housing finance company. It was among the first
companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to
set up a bank in the private sector. The Bank started operations as a scheduled
commercial bank in January 1995 under the RBI's liberalisation policies.

Times Bank Limited (owned by Bennett, Coleman & Co./The Times Group) was merged
with HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India.
Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of
Times Bank.

In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more
than 1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and
net advances of about Rs.89,000 crore. The balance sheet size of the combined entity is
more than Rs.1,63,000 crore
MANAGEMENT

Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect
from 6th July 2010. Mr. Vasudev has been a Director of the Bank since October 2006. A
retired IAS officer, Mr. Vasudev has had an illustrious career in the civil services and has
held several key positions in India and overseas, including Finance Secretary,
Government of India, Executive Director, World Bank and Government nominee on the
Boards of many companies in the financial sector.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over
25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in
Malaysia. The Bank's Board of Directors is composed of eminent individuals with a
wealth of experience in public policy, administration, industry and commercial banking.
Senior executives representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting and
retaining the best talent in the industry, the bank believes that its people are a significant
competitive strength.

VISION

To be customer driven best managed enterprise that enjoys market leadership in

providing housing related finance.

MISSION

To provide a package of attractive financial services for housing purposes through a

competent and motivated team of employees using the state of the art technology to
aintain financial stability and growth of the organisation whilst contributing to the
national goal of providing decent housing to all.

BUSINESS FOCUS

HDFC Bank deals with three key business segments. - Wholesale Banking Services,
Retail Banking Services, Treasury. It has entered the banking consortia of over 50
corporates for providing working capital finance, trade services, corporate finance, and
merchant banking. It is also providing sophisticated product structures in areas of foreign
exchange and derivatives, money markets and debt trading And Equity research.

Wholesale banking services

The Bank provides a wide range of commercial and transactional banking services,
including working capital finance, trade services, transactional services, cash
management, etc. The bank is also a leading provider of the above services to its
corporate customers, mutual funds, stock exchange members and banks.

Retail banking services

HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (Visa Electron) and issues the Master Card Maestro debit card as
well. The Bank launched its credit card business in late 2001. the bank had a total card
base (debit and credit cards) of over 13 million.

The Bank is positioned in various net based B2C opportunities including a wide range of
Internet banking services for Fixed Deposits, Loans, Bill Payments, etc. With Finest of
Technology and Best of Man power in Banking Industry HDFC Bank's retail services
have become by and large the best in India and total number of current and savings
account of more than 50%, HDFC BANK has full potential to become India's No.1
Private Sector Bank.
Treasury

Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. These
services are provided through the bank's Treasury team. To comply with statutory reserve
requirements, the bank is required to hold 25% of its deposits in government securities.
The Treasury business is responsible for managing the returns and market risk on this
investment portfolio

Infrastructure and business growth

As on December 2012, HDFC Bank has 2,776 branches and 10,490 ATMs, in 1,399 cities
in India, and all branches of the bank are linked on an online real-time basis. 66,076
employees are working in HDFC. As of December 2012 the bank had balance sheet size
of Rs. 3837 billion. For the fiscal year 2011-12, the bank has reported net profit of
5167.07 crore (US$950 million), up 31.6% from the previous fiscal.

Products: Credit cards, consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, private equity, wealth management.

SWOT ANALYSIS
Strengths

HDFC bank is the second largest private banking sector in India having
2,201 branches and 7,110 ATMs

HDFC bank is located in 1,174 cities in India and has more than 800 locations to
serve customers through Telephone banking

49
 The banks ATM card is compatible with all domestic and international
Visa/Master card, Visa Electron/ Maestro and American Express. This is one
reason for HDFC cards to be the most preferred card for shopping and online
transactions

HDFC bank has the high degree of customer satisfaction when compared to
other private banks
The attrition rate in HDFC is low and it is one of the best places to work in
private banking sector

HDFC has lots of awards and recognition, it has received Best Bank award from
various financial rating institutions like Dun and Bradstreet, Financial express,
Euromoney awards for excellence, Finance Asia country awards etc

HDFC has good financial advisors in terms of guiding customers towards right
investments

Weakness

HDFC bank doesnt have strong presence in Rural areas, where as ICICI bank its
direct competitor is expanding in rural market
HDFC cannot enjoy first mover advantage in rural areas. Rural people are
hard core loyals in terms of banking services.

HDFC lacks in aggressive marketing strategies like ICICI

The bank focuses mostly on high end clients

Some of the banks product categories lack in performance and doesnt have
reach in the market

The share prices of HDFC are often fluctuating causing uncertainty for
the investors
Opportunities

HDFC bank has better asset quality parameters over government banks, hence
the profit growth is likely to increase

The companies in large and SME are growing at very fast pace. HDFC has good
reputation in terms of maintaining corporate salary accounts

HDFC bank has improved its bad debts portfolio and the recovery of bad debts
are high when compared to government banks

HDFC has very good opportunities in abroad

Greater scope for acquisitions and strategic alliances due to strong

financial position
Threats

HDFCs nonperforming assets (NPA) increased from 0.18 % to 0.20%. Though it

is a slight variation its not a good sign for the financial health of the bank

The non banking financial companies and new age banks are increasing in India

The HDFC is not able to expand its market share as ICICI imposes major threat

The government banks are trying to modernize to compete with private banks

RBI has opened up to 74% for foreign banks to invest in Indian market

AWARDS

NASSCOM CNBC-TV18 IT Innovation Award 2013 for Best IT Driven

Innovation in Banking (commercial)

The National Quality Excellence Awards 2013 for Best IT Driven Innovation in
Banking (commercial)
 The National Quality Excellence Awards 2013 for Best Customer Service Result.

Skoch Financial Inclusion Awards 2013 for Organisation of the Year.

CSO Forum Information Technology Award 2012 for Best Organisation for
Information Security Practice.

CNBC TV18's India Best Banks and Financial Institutions Awards 2012 for Best
Private sector Bank.

ICAI Awards 2011 for Excellence in Financial Reporting.

2.2.2 INTRODUCTION TO STATE BANK OF INDIA

State Bank of India (SBI) is a multinational banking and financial services company
based in India. It is a government-owned corporation with its headquarters in Mumbai,
Maharashtra.

HISTORY
th
The roots of the state bank of india lie in the first decade of 19
century, when the bank
nd
of culcutta , later renamed the bank of Bengal, was established on 2 june 1806. The
bank of Bengal was one of the three presidency banks, the other two being the bank of
st
Bombay( incorporated on 15 april 1840) and the bank of madras (incorporated on 1 july
th
1843). The presidency banks were amalgamated on 27 January 1921 and the
reorganized as imperical bank of India.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which
made eight state banks associates of SBI. A process of consolidation began on 13
September 2008, when the State Bank of Saurashtra merged with SBI.

SBI has acquired local banks in rescues. The first was the Bank of Behar, which SBI
acquired in 1969, together with its 28 branches. The next year SBI acquired National
Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI
acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State,
under the patronage of Maharaja Madho Rao Scindia. The new banks first manager was
Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had
120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already
had an extensive network in Kerala

The government of India took over the stake held by the reserve bank of the worlds
biggest corporations for the year 2012.

Associate banks

SBI has five associate banks; all use the State Bank of India logo, which is a blue circle,
and all use the "State Bank of" name, followed by the regional headquarters' name:

State Bank of Bikaner & Jaipur

State Bank of Hyderabad

State Bank of Mysore

State Bank of Patiala

State Bank of Travancore

Non-banking subsidiaries
Apart from its five associate banks, SBI also has the following non-banking subsidiaries:

SBI Capital Markets Ltd

SBI Funds Management Pvt Ltd

SBI Factors & Commercial Services Pvt Ltd

SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)

SBI DFHI Ltd

SBI Life Insurance Company Limited

SBI General Insurance

Major competetors

Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC
Bank, Axis Bank, Punjab National Bank and Bank of Baroda. However in terms of
average market share, SBI is by far the largest player in the market.

MANAGEMENT

As on 14 January 2013, there are fifteen members in the SBI board of directors:-

Chiarman: Pratip Chaudhuri

Managing Director: Hemant G. Contractor, Diwakar Gupta, A. Krishna Kumar,

S. Visvanathan

Director: S. Venkatachalam, D. Sundaram, Parthasarathy Iyengar, Parthasarathy

Iyengar, Thomas Mathew, Rajiv Kumar, Deepak Amin, D. K. Mittal, Harichandra
Bahadur Singh

Officer Employee Director :S.K. Mukherjee

Workmen Employee Director :Jyoti Bhushan Mohapatra

Infrastructure and Business Growth

As of December 2012, it had assets of US$501 billion and 15,003 branches, including
157 foreign offices, making it the largest banking and financial services company in India
by assets. SBI provides a range of banking products through its network of branches in
India and overseas, including products aimed at non-resident Indians (NRIs). SBI has 14
regional hubs and 57 Zonal Offices that are located at important cities throughout the
country. SBI has 27,000+ ATMs and SBI group (including associate banks) has about
45,000 ATMs. SBI had reported a marginal 4.08 per cent increase in net profit at Rs
3,396 crore for the third quarter ended December 31, 2012

Products: Credit cards, consumer banking, corporate banking, finance and insurance,
investment banking, mortgage loans, private banking, wealth management.

SWOT ANALYSIS

Strengths

SBI is the largest bank in India in terms of market share, revenue and assets.

As per recent data the bank has more than 13,000 outlets and 25,000 ATM centers

The bank has its presence in 32 countries engaging currency trade all over
the world

The bank has a merged with State Bank of Saurashtra, State bank of Indore
and the bank is planning to go further acquisition.

SBI has the first mover advantage in commercial banking service

Weakness

Lack of proper technology driven services when compared to private banks

Employees show reluctance to solve issues quickly due to higher job security
and customers waiting period is long when compared to private banks

The banks spends a huge amount on its rented buildings

SBI has the largest number of employees in banking sector, hence the bank spends
a considerable amount of its income in employees salary compensation

In spite of modernization, the bank still carries the perception of traditional bank
to new age customers
 SBI fails to attract salary accounts of corporate and many government sector
employees salary accounts are also shifted to private bank for ease of operations
unlike before
Opportunities

SBIs merger with five more banks namely State Bank of Hyderebad, State bank
of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State
bank of Mysore are in approval stage

Mergers will result in expansion of market share to defend its number one
position

SBI is planning to expand and invest in international operations due to

good inflow of money from Asian Market
Since the bank is yet to modernize few of its banking operations, there is a better
scope of using advanced technologies and software to improve customer relations
Young and talented pool of graduates and B schools are in rise to open new
horizon to so called old government bank

Threats

Reduce in market share to its close competitor ICICI Other private banks like
HDFC, AXIS bank etc

FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI
as people tend to switch to foreign banks for better facilities and technologies in
banking service

Other government banks like PNB, Andhra, Allahabad bank and Indian bank are
showing Customer prefer to switch to private banks and financial service
providers for loans and mortgages, as SBI involves stringent verification
procedures and take long time for processing

AWARDS AND RECOGNITIONS

 Best Online Banking Award, Best Customer Initiative Award & Best Risk
Management Award (Runner Up) by IBA Banking Technology Awards 2010

The Bank of the year 2009, India (won the second year in a row) by The Banker
Magazine
Best Bank Large and Most Socially Responsible Bank by the Business Bank
Awards 2009

Best Bank 2009 by Business India

The Most Trusted Brand 2009 by The Economic Times

Most Preferred Bank & Most preferred Home loan provider by CNBC

Visionaries of Financial Inclusion By FINO

Technology Bank of the Year by IBA Banking Technology Awards

SKOCH Award 2010 for Virtual corporation Category for its e-payment solution

[
The Brand Trust Report: 11th most trusted brand in Hindustan.
 CHAPTER 3

THEORITICAL FRAME WORK

F THE BANKING SECTOR
3.1 PROFILE OF THE STUDY AREA

The Tirunelveli district was formed in 1790 by the East India Company

later came under the direct control of the British Crown Queen Victoria. This had

several distinctive features of ethnological, religious and it was little wonder that

references to this little district were formed in our epics. The name Tirunelveli

had been composed from the three Tamil words, that was, Thiru-Nel-Veli

1
meaning Sacred Paddy Hedge.

For the purpose of effective administration, Tirunelveli district had been

divided into three revenue divisions namely Tirunelveli, Chermadevi and Tenkasi

and these three revenue divisions were sub-divided into eleven taluks comprising

nineteen blocks.
3.2 LOCATION

Tirunelveli district covers an area of 6,823 sq.kms. It is in the south eastern

part of Tamil Nadu and is triangular in shape. It is bounded by the Virudhunagar

district in the north, Kerala in the West, Kanyakumari district and the Gulf of

Mannar in the south, and Thoothukudi district in the east. The district comprises

Tirunelveli, Chernmahadevi and Tenkasi revenue divisions, eleven revenue taluks,

twenty blocks, four hundred and twenty five panchayats and six hundred and

twenty eight revenue villages.

3.3 FINANCIAL INSTITUTIONS

The district has a well-built banking structure catering to the needs of the

farming population. The district is well served by twenty banks with their two

hundred and fifty two branches including co-operative banks and five hundred and

odd non-banking finance companies. Both the public and the private sector banks

play an active role in extending finance to agriculture in line with the national

objectives.

The following table shows the financial institutions in Tirunelveli district

st
as on 31 March 2012.
 able 3.1

FINANCIAL INSTITUTIONS IN TIRUNELVELI DISTRICT

No. of No. of
Sl.No. Banking Sectors
Banks Branches

1. Public Sector Banks 50 127

2. Private Sector Banks 14 27

3. Pandiyan Grama Bank 1 51

4. TCCB Ltd. 1 26

5. Land Development Bank 1 8

6. Urban Co-operative Bank 1 10

7. TIIC 1 1

8. TAICO 1 1

9. REPCO 1 1

Total 71 252

Source: Annual Credit Plan, IOB, Tirunelveli, 2010-11.

 It is ascertained from the above table that there were fifteen public sector

banks with one hundred and twenty seven branches spread across the district,

whereas the private sector banks and other financial institutions account for seven

ian Grama Bank had fifty one branches. The Tirunelveli District Central Co-

operative Bank had twenty six branches and the urban co-operative bank has ten

branches in the district.

Table 3.2

BANKING NETWORK AREA-WISE BRANCHES AS ON 31.03.2012

TIRUNELVELI DISTRICT

Sl. Semi- Panchayat

Banking Sector Rural Urban Total
No. Urban Allotted

1. Public Sector Banks 41 45 40 126 259

2. Private Sector Banks 14 4 9 27 21

3. Regional Rural Bank 34 12 5 51 145

4. Co-operative Banks 7 24 13 44 --

5. Other Financial 1 -- 3 4 --
Institutions

Total 97 85 70 252 425

Source: Annual Credit Plan, IOB, Tirunelveli, 2010-11.

It is inferred from the above table that under the public sector bank

category forty one branches were serving in the rural side, forty five branches

were in the semi-urban area and forty branches were functioning in the urban area.

Two hundred and fifty nine panchayats were allotted to these branches. Among the

private sector banks, four branches were there in semi-urban area and nine in the

urban area. Twenty one panchayats were served by twenty seven branches. The

Regional Rural bank (RRB) has the maximum of thirty four branches in the rural

areas and one hundred and forty five panchayats had been allotted to them.

75
 TABLE 3.3
BLOCK-WISE BRANCHES IN TIRUNELVELI DISTRICT AS ON
31.3.2012

Public Private TAICO

Sl. Name of the Block Sector Sector RRB Co- LDB REPCO Total
No. Banks Banks (PGB) Op. TIIC
1. Alangulam 4 1 2 1 -- -- 8
2. Ambasamudram 8 -- 3 4 1 -- 16
3. Cheranmadevi 7 1 1 4 -- -- 13
4. Kadayam 3 2 1 1 -- -- 7
5. Kalakad 6 -- 2 1 -- -- 9
6. Kadayanallur 4 -- 5 1 -- -- 10
7. Kilapavoor 3 2 3 1 -- -- 9
8. Kuruvikulam 4 -- 4 1 1 -- 10
9. Manur 4 -- 2 -- -- -- 6
10. Melaneelithanallur 5 -- 3 -- -- -- 8
11. Nanguneri 5 -- 4 1 1 -- 11
12. Palayamkottai 11 -- 3 1 -- -- 15
13. Pappakudy 2 -- 2 -- -- -- 4
14. Radhapuram 3 3 4 1 -- -- 11
15. Sankarankoil 6 1 2 1 1 -- 11
16. Shencottai 4 1 2 2 -- -- 9
17. Tenkasi 10 3 1 1 1 -- 16
18. Valliyoor 4 3 2 2 1 -- 12
19. Vasudevanallur 4 1 3 2 1 -- 11
20. Tirunelveli Urban 29 9 2 11 1 4 56
Total 126 27 51 36 8 4 252

Source: Annual Credit Plan, IOB, Tirunelveli, 2010-11.

 It is inferred from the above table that the public sector banks accounted

for one hundred and twenty six branches in twenty blocks. Private sector banks

ranks next with fifty one branches. Tirunelveli block had fifty six branches.

Ambasamudram and Tenkasi blocks had sixteen branches each, while

Palayamkottai block had fifteen branches.

3.4 BANKING SECTOR AN OVERVIEW

Banking is a service oriented industry which is fast moving from a sellers

market into a buyers market. Banks are also adapting their systems, procedures,

policies and thinking to the felt needs of their customers as the depositors or

borrowers. They are also trying hard to meet the perception of customers who

increasingly articulate their needs and grievances. All customers expect bank and

bankers to be polite, courteous, helpful and understanding. They also expect to be

treated as important individuals. Generally they would be satisfied if prompt,

accurate and speedy attention is given to their work and banking problems.

Customers do not like a banker if he is rigid, inflexible and unhelpful in his

1
approach. He is also disliked if he is too rules bound.
Customer service in banks is a significant concept. It is natural for banks to

compete with one another in winning over the customers. In a competitive

environment not only winning new customers but also retaining the existing

customer base assumes greater importance. It is much more profitable and cost-

effective to retain the customers rather than getting new customers. A successful

bank of the future will be the one that excels in customer service, provides the

customers a range of service and products and does continuous exercise in

providing its potential to serve better.

77
 The service standards of Indian banks have improved with the entry of

private banks and introduction of technology driven delivery channels. This has

resulted in continuous rise of expectations of the customers. The product features

and technology are not the only differentiators anymore and the service attitude of

the frontline staff plays a vital role in differentiating banks amongst themselves.

World over, the technology driven key delivery channels such as ATM, net

banking and mobile banking have reduced walk-in customers to the bank

branches. However, in India, it is observed that the customers still find it difficult

to use these technology based channels and they are more comfortable in

transacting banking business traditionally over-the-counters personally to ensure

error-free and risk-free banking service. The ever increasing customers at the bank

branches will pose new challenges in the area of customer service at the front

office. While struggling to provide better and efficient service at the counters, the

staffs are also confronted with various regulatory norms to mitigate risks in

operations. There is a general tendency in frontline to avert any risk. The fear of

errors and monetary risk involved in processing the transaction suppresses

2
service attitude in the front office.

3.5 HISTORY OF INDIAN BANKS

The first banks were The General Bank of India started in 1786 and Bank

of Hindustan started in 1790; both 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 in 1955.

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. Then the Bank of Upper India was established in 1863 survived

2
until 1913.
Foreign banks too started to approach, particularly in Calcutta, in the

1860s. The Comptoire dEscompte de Paris opened a branch in Calcutta in

1860, and another in Bombay in 1862 with branches in Madras and Pondicherry,

then a French colony, followed. HSBC established itself in Bengal in 1869.

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. Around the turn of the 20th Century,

the Indian economy was passing through a relative period of stability. Indians

established small banks, most of which served particular ethnic and religious

communities.

The presidency banks dominated banking in India but there were also

some exchange banks and a number of Indian joint stock banks. All these banks

operated in different segments of the economy. Indian joint stock banks were

generally under capitalized and lacked the experience and maturity to compete

with the presidency and exchange banks. This segmentation let Lord Curzon to
erve, "In respect of banking it seems we are behind the times. We are like some

old fashioned sailing ship, divided by solid wooden bulkheads into separate and

cumbersome compartments."

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 for the Indian community. A

number of banks established then have survived to the present such as Bank of

India, CorporationBank, Indian Bank, Bank of Baroda, Canara Bank and Central

Bank of India. Until the independence of India, it was challenging for Indian

banking.

3.6 POST-INDEPENDENCE

The partition of India in 1947 adversely impacted the economies

of Punjab and West Bengal, paralyzing banking activities for months. India's

independence marked the end of a regime of the Laissez-faire for the Indian

banking. The government of India initiated measures to play an active role in the

economic life of the nation, and the Industrial Policy Resolution adopted by the

government in 1948 envisaged a mixed economy. This resulted into greater

involvement of the state in different segments of the economy including banking

and finance. The major steps to regulate banking included:

 The Reserve Bank of India, Indias central banking authority, was

established in April 1934, but was nationalized on January 1, 1949 under the terms

of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI,

2005b). In 1949, the Banking Regulation Act was enacted which empowered the

Reserve Bank of India (RBI) "to regulate, control, and inspect the

nks in India". The Banking Regulation Act also provided that no new bank or
branch of an existing bank could be opened without a license from the SBI, and no

3
two banks could have common directors.

3.7 NATIONALISATION

Despite the provisions, control and regulations of Reserve Bank of India,

banks in India except State Bank of India , continued to be owned and operated by

private persons. By the 1960s, the Indian banking industry had become an

important tool to facilitate the development of the Indian economy. At the same

time, it had emerged as a large employer, and a debate had ensued about the

nationalization of the banking industry. Indira Gandhi, then Prime Minister of

India, expressed the intention of the government of India in the annual conference

of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank

Nationalization. The meeting received the paper with enthusiasm.

 The Government of India issued an ordinance ('Banking Companies

(Acquisition and Transfer of Undertakings) Ordinance, 1969'))

and nationalized the fourteen largest commercial banks with effect from the

midnight of July 19, 1969. These banks contained 85 percent of bank deposits in

the country. Jayaprakash Narayan, a national leader of India, described the step as

a "masterstroke of political sagacity." Within two weeks of the issue of the

ordinance, the Parliament passed the Banking Companies (Acquisition and

Transfer of Undertaking) Bill, and it received the presidential approval on 9

August 1969.

A second dose of nationalization of 6 more commercial banks followed in

1980. The stated reason for the nationalization was to give the government more

control of credit delivery. With the second dose of nationalization, the

Government of India controlled around 91% of the banking business of India.

Later on, in the year 1993, the government merged New Bank of India with

Punjab National Bank. It was the only merger between nationalized banks and

resulted in the reduction of the number of nationalized banks from 20 to 19. After

this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to

the average growth rate of the Indian economy.

3.8 LIBERALISATION

In the early 1990s, the then Narasimha Rao government embarked on a

policy of liberalization, licensing a small number of private banks. These came to

be known as New Generation tech-savvy banks, and included Global Trust Bank

(the first of such new generation banks to be set up), which later amalgamated

with Oriental Bank of Commerce, Axis Bank (earlier as UTI Bank), ICICI Bank

and HDFC Bank. This move, along with the rapid growth in the economy of India,

revitalized the banking sector in India, which has seen rapid growth with strong

contribution from all the three sectors of banks, namely, government banks,

private banks and foreign banks.

The new policy shook the Banking sector in India completely. Bankers, till
this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at

of functioning. The new wave ushered in a modern outlook and tech-savvy

methods of working for traditional banks. All this led to the retail boom in India.

People not just demanded more from their banks but also received more.

Currently, banking in India is fairly mature in terms of supply, product

range and reach-even though reach in rural India still remains a challenge for the

82
private sector and foreign banks. In March 2006, the Reserve Bank of India

allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private

sector bank) to 10%. This is the first time an investor had been allowed to hold

more than 5% in a private sector bank since the RBI announced norms in 2005

that any stake exceeding 5% in the private sector banks would need to be vetted

by them.

In recent years critics have charged that the non-government owned banks

are too aggressive in their loan recovery efforts in connection with housing,

vehicle and personal loans. There are press reports that the banks' loan recovery

efforts have driven defaulting borrowers to suicide.

3.9 PRELUDE OF SERVICES IN BANKS

While modern banking is just one hundred and fifty years old, India has a

5000-years-old tradition of indigenous banking and money lending, but depositors

had no role or position in them. Before the advent of modern banks, the

indigenous bankers who were popularly known as Seths adequately financed the

requirements of production, trade and commerce. They provide a reliable and

trustworthy hundi system all across the country. Two other ancestors of todays

bankers were the moneylender and the goldsmith. While the indigenous banker

granted loans for trade and industry, the moneylender financed mainly

4
consumption. They had an impeccable credit standing and were highly esteemed,

but they had no depositors and no savings were received from them. These
3.10 ADVENT OF AGENCY HOUSE:

The advent of the East Indian Company which patronized the Agency

Houses and presidency Banks, had shorn off much of the glory of indigenous

bankers. As a result of this the indigenous banker lost their old predominance. The

origin of modern banking in India may be traced back to the establishment of

agency houses whose primary concern was trade. Like indigenous banker the

agency houses confined banking to general trading. In fact they were shopkeepers,

proprietors of breweries, tanneries, distilleries and cotton, flour and saw mills. The

majority of these agency houses were organized by foreigners employed in civil or

military services in India. These agency houses actually gave a start to the idea of

modern banking and they may be regarded as pioneers of modern banking in our

country. They performed three major functions like receiving deposits, advancing

loans and discounting of bills.

3.11 MASS BANKING

After nationalization in 1969 and 1980, banking in India has witnessed a

major metamorphosis from class banking to mass banking. The motto of bank

nationalization was to make banking service reach the masses that can be

5
described as First Bank Revolution.
3.12 SOCIAL BANKING

Social banking policies started in the 1950s culminated in the social

control of banks in 1968 to ensure equitable and purposeful distribution of credit

within the resources available, keeping in view the relative priorities of

development needs. However, it was felt that the social control cannot sustain in

equitable distribution of bank credit and facilitates to main sectors of the economy

finally it led to the nationalization of banks in 1969. It was aimed at mobilizing

deposits and to ensure availability of credit to hitherto neglected areas of the

society. Thus the social banking began with inclusion of neglected sections in

concern with employment generation and economic development of those areas.

Post nationalization saw a rapid expansion of branches in areas and availability of

credit to hitherto neglected sections. Various agencies were set up to direct credit

and other banking facilities. As a part of social banking, the nationalized banks

were entrusted with the task of actively promoting the growth of new and

progressive enterprises with a view to create opportunities in increasing scale in

the neglected and backward sectors in various parts of the country. The social

banking awareness consists of expansion of banking activities particularly in semi-

urban and rural areas. The banking and social lending were more concerned with

the economic parameters such as employment, income generation and so on.

Commercial banks extended their services to a large numbers of customers.

Banks were involved in social upliftment, priority sector lending and extending

6
banking services to unbanked areas and providing variety of services.
3.13 TECHNOLOGY PHASE IN CUSTOMER SERVICES

Extensive spread of bank branches and diversification of banking services

in India over the past one decade present different challenges in the areas of

customer service, speedy disposal of credit proposals, reconciliation of inter-

branch office transactions, productivity/profitability, better control and audit and

management information system required for quick decision making. For meeting

these emerging challenges it is essential to ensure branch level computerization or

up gradation of technology and networking of the branches with their controlling

office and the head office. The objectives of the RBIs response to those

challenges facing the banking industry have been directed towards improvements
and implementing an effective electronic network providing a robust, secure and

7
reliable communication backbone for the banking system.

3.14 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Internet is an excellent example of a worldwide cooperative movement that

is quickly spanning across countries. A few years ago Customers Relationship

Management (CRM) was only for establishing relationship between enterprise and

its customers. Today it is an integral part of the information technology strategy

for banking industry. Most of the CRM developments are taking place in the E-

commerce domain whether B2B (Business to Business) or B2C (Business to

Commerce). So now banks identify this internet banking as their thrust area.
 Customer Relationship Management (CRM) enables to store customer

information in computers and they can be retrieved at the click of a button. These

arrangements are becoming popular among private, public and foreign banks. This

is what makes CRM in banking a challenging proposition. For example, bankers

can make up queries on the fly, searching for the information that lasts them

identify which customers to target with a new product or to find out which bank

branches have high loan default rates. Users can just as easily save their search

queries and use them as templates to gene rate additional query reports from the

save data metrics. At the back end, the system provides analysis that can be tied to

geographic, product, channel and customer dimensions. Bankers might

need to address customers queries at a more personal level to convince them of

the benefits and enable them to use the services to their fullest extent.
7
3.15 QUALITY OF CUSTOMERS SERVICES IN BANKS

The progress of any organization particularly is service. Industry

organization like a bank depends upon the quality of service offered to clients. The

customers judge the employees not from what they say and talk, but by the

sincerity of approach to the customers they adopt in serving them. Catchy slogans

initially but ultimately it is efficient and prompt service that helps banker in

retaining customers patronage. Well-designed customer service must be

accompanied by good delivery. The four elements of good delivery are


Courteous acts

Customer care

Speed

Accuracy.

3.15.1 Courteous Acts

Common courtesies and manners are very important, probably more

important than the banks may consider. Competence means that whoever serves

the customer or whoever supports people that serve customers has to do things and

do them well. It means getting things done rightly at the first time. It means

knowing what should be done and how best it can be done. Courtesy and

8
competence go hand in hand - it is a license to keep customers for life time.

This is an absolutely essential requisite, which should become an

inseparable component of service, service with smile, people say. Extending

courteous service brings the customer close to the organization and in the process
the image of the organization grows in stature. Even when a banker has to say

No to some one he could still be warm and courteous, not hurting the feelings of

the prospective customer.

 The front-line service providers are the most visible part of any service.

The front-line staff should make the customers express their views freely and

frankly and elicit their ideas. They should politely answer customers

queries regarding their deposits/collection of instruments.

3.15.2 Customer care

Customer care is an extension of customer services, but is wider in context.

Customer service implies an immediacy of action, the focal point being a tactical

response to customer requirement. Customer care on the other hand is more

strategic in the planned provision of service in anticipation of customers

requirements. A service or product is of high quality it meets the demands and

expectations of the customers, if the service or product can be matched with the

customers actual needs and expectations. The satisfaction of customer needs

depends on how far the bank optimizes its internal procedures.

3.15.3 Speed

Speed and time measures are very important factors to many customers.

The speed with which the banks offer their services will actually gain a

competitive advantage and allow them to offer a competitive advantage and higher

satisfaction. On account of technological revolution at present products are

offered to take care of the element of speed and time like internet and mobile

banking, debit cards, anywhere banking, ATM and so on.

 A large number of customers want that all services should be provided in

minimum time. Time is money for all customers. Leisurely and lethargic handling

of the customers transaction is a major block in the good delivery of

stomer services. Payments should be made immediately, since service delayed is

service denied. Prompt service is equated with quality of service. It is to be

understood that service time has three components:

Access time

Time required for the client to gain access to the banker and draw his
attention.

Queuing time

This is the time that the customer has to wait after arriving at the bank.

Action time

This is the time required for the banker to provide the service. It is

generally observed that the banker measures only action time and does not

take into account access time and queuing time which are critical to a

customer.

3.15.4 Accuracy

Bank staff should handle customers complaints very accurately.

Complaints are a part of life. A complaint is an expression of dissatisfaction,

created by non-fulfillment of an expectation or feeling of discrimination. Prompt

and sympathetic handling of complaints can turn a disgruntled customer into a

satisfied one. Customer can expect the staff to take personal interest in their

problems, apologize for mistakes and welcome feedback.

3.16 MONITORING CUSTOMER SERVICES

There are various forms for monitoring the quality of customer services at
the bank:

Customer Contest

For providing quality customer service banks conduct customer contests.

Customer contest is a good promotional tool in selling bank products. The

theme of the customer contest may be designed to elicit views on how the
banks customer services can be improved for customers satisfaction and

delight.
Customer Education
It is not enough for the present day banker to know the systems and

procedures in relation to customers transactions. He should be able

to interpret and explain these to the customers whenever necessary. It is to

be appreciated that customer services cannot be merely a subject dealing

with people using logic but dealing with people and their emotions. The

banker educates the customers on the various aspects of banking.

Customers expectation has been growing because of media publicity

given by banks for their various deposit/lending plans / schemes.

Customers sometimes misunderstand a particular scheme of a bank as

reported in newspapers. Customers education can reduce this

information gap, paving the way for better understanding.

 Another area where customers need to be educated is the service charges

and the various lending schemes of the bank particularly the schemes for

financing small business and professionals. The amount of commission

charged after remitting money through post office, money order, is much

higher than the amount of exchange charged by banks for mail transfer /

demand drafts. Small businessmen and professionals have to be

enlightened regarding the formalities required to be complied with or the

documents that are necessary for the speedy disposal of their applications

for financial assistance. Customer education therefore should be viewed

as a fundamental issue in the attempt to improve the quality of

customer services.

Customer Suggestions

Customer suggestions can be elicited at regular intervals. Banks write to

their customers inviting them to offer their suggestions for improving the

banks performance in their service areas. Banks provide forms on

which their customers can check the area in which they are satisfied and

areas in which they feel improvement is called for. The suggestions given

by the customer help the bank to improve its image. The complaints /

suggestions box kept on each branch premises has not evoked any useful

response. Hence writing letter to customers can be tried as a different

method of obtaining feedback.

Customer Meeting and Customer Relation Programme

Customer meets and customer relation programmes may be organized at

regular intervals by banks with a view to getting their views on their

functioning. Such interaction with a cross-section of customers would give

an opportunity to the banker to get live feedback in various areas of

services. Besides, those would help the banker to build and mature a

rapport which would help him get more business and boost the image of

the bank. So the branches should practice relationship banking to ensure

the following for personal rapport.

The branch can build a relationship through sending seasons greetings

to customers on the eve of festivals, birthdays and wedding days.

The manager can participate in customers functions held

at their offices / resid
 CHAPTER 4

DATA ANALYSUS AND INTERPRETATION

 DATA ANALYSIS AND INTERPRETATION

The previous chapter reviewed the growth structure of Retail Banking in India and

found that various products like Home loans, Consumer loan, Educational loan, Retail

deposits, ATMs facilities etc. have been expanding at an appreciable rate in India. It

discussed the working of retail banking in India and provided an insight into the

management of various retail products both in public sector banks and private sector

banks. A clear picture of the performance of public sector banks and private sector

banks in recent years came to fore highlighting that retail banking in private sector

banks grows at a faster rate than in public sector banks.

The present chapter analyses the data and, with the application of statistical

tools, interprets the facts and figures to test the set hypotheses in order to derive

logical inferences. Since the test of hypotheses involves measurement of the customer

perceptions of Service Quality of retail banking in public and private sector banks,

setting the dimensions of service quality to serve as benchmarks for measurement and

test of hypotheses becomes imperative. Accordingly, the present chapter is split into

two parts. Section-I presents a detailed view of the concept of Service Quality and

also lays down the various dimensions of the SERVQUAL Model applied to survey

and garner data about perceptions of customer satisfaction with retail banking services

in banks of both the sectors-public and private. Section-II on the other hand, is

devoted to the collection of data, its analysis and interpretation as well as to critically

test the hypotheses constructed on the service quality dimensions in retail banking in

India and draw conclusions.

Age of the Respondents

Age of the customers is one of the important profile variables of the customers. It

shows their level of experience and maturity. In the banking industry, age plays a

predominant role in their level of satisfaction on the service quality of the banks. In

general the youngsters expect more than the elders who are highly experienced and

emotional. The age of the customers in the present study is confined to below 25

years, 25-35, 35-45, 45-55 and above 55. The distribution of the customers on the

basis of their age is given in Table 5.2

Table 5.2: Age Wise Distribution of Customers

Age (in years) Number of Customers Total

Public Sector Banks Private Sector Banks Number

(PSBs) (Prv. SBs)

Number Percentage Number Percentage

Below 25 134 26.96 0 0

25 35 109 21.93 104 20.93 213

35 45 42 8.45 30 6.04 72

45 55 42 8.45 15 3.02 57

Above 55 13 2.61 8 1.61 21

Total 340 68.4 157 31.6 497

From the above table it is clear that the important age group among the

customers is 25 to 35 years which constitute 21.93 percent in Public Sector Banks and

20.93 percent in Private Sector Banks The age group of below 25 years constitutes the

highest number of 134 customer or 26.96 percent in the Public Sector Banks while in

Private Sector Banks the age group below 25 years constitute the zero. The age group

of 35-45 years constitutes 42 respondents in Public Sector Bank and 30 respondents in

 Chart:5.1. Age distribution of respondents in Public Sector Banks

Age distribution of respondents in Private Sector Banks

above55 below25

5% 0%

45-55

10%

Chart 5.2: Age Distribution of Respondents in Private Sector Banks

The bar diagram below shows the Public vs Private Banks Sample size of age

profile of the respondent

160

140

120

100

public sector
80 banks

Private sector banks

 Chart5.3: Bar Diagram of Age Distribution of Respondent in Public vs Private Sector

Banks

5.17. Gender of the Respondents

Gender of the customers plays an important role in their level of satisfaction on the

service quality of the banks. It is included as one of the important variables. The female

customers are usually seeking more service quality from commercial banks than the male

customers. But male customers give more importance to certain service quality factors

than the female customers. The present study analyses the gender among the customers in

the two groups of banks. The results are shown in Table 5.3.

Table 5.3: Distribution of the customers based on Gender

S. Gender Public Sector Banks Private Sector Banks Total

No.

Number Percentage Number Percentage Number Percentage

1. Male 187 37.63 143 28.77 330 66.40

2. Female 144 28.97 23 4.63 167 33.60

Total 331 65.60 166 33.40 497 100.00

The pie chart shows the percentage of each gender category of respondent in Public

Sector Banks and Private Sector Banks.

Gender profile of respondents in Public Sector Banks

Chart 5.4: Gender Profile of Respondent in Public Sector Banks

Gender Profile of respondents in Private Sector Banks

FEMALE

14%
 Chart 5.4: Gender Profile of Respondent in Private Sector Banks

From the above table it is clear that 66.4 percent of the customers are male out of the total

of 330 customers. Among the customers of Public Sector Banks 187 are male with a

percentage of 37.63 and in Private Sector Banks male customers constitute 143 with

percentage of 28.77. In comparison to male customers female customer are 144 in Public

Sector Banks and 23 in Private Sector Banks, accounting for 28.97% and 4.63%

respectively in the total customers.

The bar diagram below shows the Public vs Private banks Sample size of gender

profile of the respondents.

 Publis Vs Private Sector Banks

200
180

160

140

120

100 MALE

FEMAL

80 E
60

40

20

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

5.5: Bar Diagram of Gender profile of Public vs Private Sector Banks

5.18. Level of Education of the Respondents

The level of education provides more knowledge and exposure on the competitive service

offered by the commercial banks with globalised scenario. Hence the level of education of

the customers is included as one of the profile variable. The highly educated customers

may be more aware of competitive service and expect more from their banks as compared

to uneducated customers. The education level of the customers is confined to Under

Graduate, Graduate, Post Graduate, Ph.D and others (including less than Under

Graduates). The data is computed in Table 5.4.

 Table 5.4: Level of education of the customers

Education Number of Customers Public Sector banks Total

Public Sector Banks Private Sector Banks

(PSBs) (Prv. SBs)

Number Percentage Number Percentage Number Percentage

Undergraduate 41 8.25 02 0.40 43 8.65

Graduate 82 16.50 79 15.90 161 32.40

Postgraduate 119 23.94 69 13.88 188 37.82

Ph.D 26 5.23 01 0.20 27 5.43

Other 63 12.68 15 3.02 78 15.70

Total 331 66.60 166 33.40 497 100.00

The pie chart shows the percentage of each education category of respondent in
Public Sector Banks and Private Sector Banks

Education Profile of Respondents in Public Sector Banks

OTHER
UNDERGADUATE
19%
12%

Chart 5.6: Education Profile of Respondents in Public Sector Banks

Education Profile of Respondents in Private Sector Banks

U.GADUATE GRADUATE
0%
OTHER 1%

1%
 Chart 5.7: Education Profile of Respondents in Private Sector Banks

Table 5.4 explains the distribution of customer on the basis of their level of education. The

dominant level of education among the customers is Graduation and Post Graduation

which constitute 32.4 percent and 37.82 percent to their respective total. The number of

customers who are Undergraduate is 41 or 8.25 percent in Public Sector Banks and 2 or

0.40 percent in Private Sector Banks. The prominent level of education among the

customers is of graduates and Postgraduates which constitute 16.5 percent and 23.94

percent in Public Sector Banks and 15.9and 13.88 percent in Private Sector Banks

respectively. The number of customers with education upto Ph.D. is 26 or 5.23 percent in

Public Sector Banks and 1 or 0.20 percent in Private Sector Banks respectively. The

number of customer with the education level below the undergraduate in others category

is 63 and constitute 12.68 percent in Public Sector Banks and 15 or 3.02 percent in Private

Sector Banks.

The bar diagram below shows the Public vs Private banks Sample size of education

profile of the respondent.

140

120

100

80
60 PUBLIC SECTOR

BANKS
 Dig.5.8: Education Profile of Respondents Public vs Private Sector Banks
5.19. Occupation of the Respondents
The occupation of the customer reveals the nature of work done by the customers.

Occupation of the customers influences their level of satisfaction on the perceived service

quality of Retail Banking. It includes as one of the profile variable. The occupation of the

customers is confined to government service, Private Services, students, professionals and

other jobs. The occupation of the customers is illustrated in Table 5.5

Table 5.5: Occupation Profile of the Customers

Occupation Number of Customers Public Sector banks Total

Public Sector Banks Private Sector Banks

(PSBs) (Prv. SBs)

Number Percentage Number Percentage Number Percentage

Government 85 17.10 20 4.02 105 21.12

services

Private 72 14.49 120 24.14 192 38.63

Services

Students 124 24.95 09 1.82 133 26.77

Profession 16 3.22 06 1.21 22 4.43

Other 34 6.84 11 2.21 45 9.05

Total 331 66.60 166 33.40 497 100.00

The pie chart shows the percentage of each occupation category of respondents in
Public Sector Banks and Private Sector Banks.

Occupation profile of respondents in Public Sector Banks

PROFESSIONAL
OTHERS

5%

10%

GOVT.SERVIC
E

26%

STUDENT PRIVATE

37% SERVICE

22%

Chart 5.9: Occupation Profile of Respondents in Public Sector Banks

 CHAPTER 5
SUMMARY
FINDINGS
SUGGESTIONS
 SUMMARY

The efficiency and productivity of employee may influence the business

and if the funds are used efficiently with the help of higher productivity of
personnel then it will lead to higher profitability. In order to increase per employee
business, Banks should train their personnel accordingly, motivate them, and
make them customer oriented. Second option is to reduce the size of men power
by Voluntary Retirement Scheme (VRS) and Early Retirement scheme (ERS)
and reset to out sourcing of some of the functions of the bank. The competition

for market share is increasing the pressure on profitability and forcing banks to
trim costs, particularly transaction costs and improve overall efficiency. Various
schemes of financial assistance for capital restructuring of the economically weak
public sector banks were also introduced during last decade. The economic
liberalization measures introduced by the Indian government coupled with trends
towards globalization have substantially altered the banking sector and the
profitability of public sector banks has declined to a large extent. So Public
Sector Banks will have to introduce new financial instruments and innovations in
order to remain in business.

The banking system has failed to gain internal strength and the decline in
efficiency, productivity and profitability has resulted in deteriorating the financial
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health of the sector The ability of banks to face competition will depend on
their determined efforts at technological up gradation and improvement in
operational and managerial efficiency, improvement in customer service, internal
control, house- keeping and augmenting productivity and profitability.

In todays competitive era, banks need to have a strategy backed by

management and organization and supported by skilled committed personnel.
Under the competitive environment, the focus is on profitability and trim balance
sheets. Hence, banks will need to increase fee business, concentrating on areas
like guarantees, safe deposit lockers, investment advisory services, drafts and
remittances. The forces of deregulation, technology and growing customer
sophistication are broadly likely to have an impact in India.
 But Indian bankers can eventually expect to face an environment marked
by growing competition, pressure on margins and increased risks. Indian banks
do not show the characteristics of efficient competitors in the banking markets,
the better managed institutions will soon be making significantly progress in this
sector. In the wake of liberalization banks will also have to pay great attention to
strategic management, strategic planning and to greater specialization in the
technical

aspects of lending and credit evaluation. The Indian banks are decades behind
the West and Japan and the newly industrialized in computerization and
mechanization

The man power employed in banks could not cope with this work load due
to ineffective work technology and growing culture of work avoidance. This
resulted in poor customer service, increase in frauds, large number of branches
making losses and showing signs of stagnancy or unsatisfactory performance,
etc. The rapid expansion of bank braches and spectacular increase in banking
operations unaccompanied by proper training of staff and adoption of modern
techniques of banking resulted in deteriorating customer services. Banks
productivity had been reduced due to hike in wages and increasing operational
cost in banks. Interest spread of banks was also under pressure due to
administered rates imposed on the banking system. In order to identify
appropriate competitive strategies, Public Sector Banks will have to make a
careful study of the market and segment customers into various categories
based on their expectations, the extent of competition, customer profitability etc
 FINDINGS:

The present analytical study related to analysis of labour productivity, branch

productivity, capital productivity and profitability of Selected Public Sector and Private
Sector banking for the period of 5 years (2005-06 to 2009-10). Major findings on the
basis of the study are as under
 SUGGESTIONS

There was the lack of awareness about banking rules and regulation not only in
the private sector and cooperative banks but at many of the small branches even
in case of nationalized banks also. This may cause the further delay in the
implementation of the transaction and which is ultimately converted into reduction
of productivity and the business of banks. To remove this hurdle effective training
programme should be arranged for educating the manager cadres or other
employees who are concerned with the banking.
Sometimes productivity can be affected due to higher amount of Labour turnover

towards other sector and these can reduce only through satisfaction of
employees of banks by financial and non-financial motives.

If employees lack the requisite banking culture and fail to project the image of the
bank in a proper way, productivity is bound to suffer. So banks should adopt
means of increasing interest income by granting qualitative advances and

widening their credit portfolio and increased other income.

Commercial banks should be allowed tocompete with financial institutions in extending
term credit in clear manner.

Public Sector Banks should exercise some control over the volume and mix of

credit portfolio within the limits of acquisition and deployment of funds.

Public Sector Banks should concentrate on intensive mobilization of deposits; it can be done
only through improved customer services and by implementing a

various attractive deposit mobilization schemes.

Public Sector Banks should bring operational efficiency and should diversify their activities into non-
traditional banking activities. They should concentrate on non-interest income avenues. Diversification
based on