Appendix-1

Customer Satisfaction Survey Questionnaire

Part One: Demographic Profile
(This survey has been carried out purely for academic purpose, we request you to be
as frank as possible .The information provided by you will be kept confidential.)
Please Mark (√ ) your response to the following:
a. Name of respondent: Mrs/Ms/Mr______________________________________
b. Name of Bank:____________________________________________________
c. Branch:__________________________________________________________
d. Type of Account:_________________________________________________

1. Age (Years)

(a) 25 and below [ ]

(b) 26-35 [ ]

(c) 36-45 [ ]

(d) Above 45 [ ]

2. Gender

(a) Male [ ]

(b) Female [ ]

3. Marital status

(a) Married [ ]

(b) Unmarried [ ]

(c) Other [ ]

4. Educational Qualification

(a) Graduate [ ]

(b) Postgraduate [ ]

(c) Others [ ]

5. Employment status

(a) Self-Employment [ ]

(b) Wage Employment [ ]

(c) Professional [ ]

(d) Student [ ]

(e) Others [ ]
6. Monthly Income

(a) Below 10,000 [ ]

(b) 10,000-15,000 [ ]

(c) 15001-20,000 [ ]

(d) Above 20,000 [ ]

Part Two: Customer Opinion

(This survey has been carried out purely for academic purpose, we request you to be
as frank as possible .The information provided will be kept confidential. Kindly rate
the following with regard to the service provided by your bank)
Note: 5-Very Satisfied, 4-Satisfied, 3-Neither satisfied nor Dissatisfied ,
2-Dissatisfied and 1-Very Dissatisfied .
1. Customer Support/Guidance (advisory services, clarification of customers doubt)

5 4 3 2 1

2. The Politeness & Hospitality

5 4 3 2 1

3. Handling of customer Grievances

5 4 3 2 1

4. Method of imposing service charges ,fines and penalties

5 4 3 2 1

5. Speed , Promptness and accuracy in transaction

5 4 3 2 1

6. Confidentiality of account and transaction

5 4 3 2 1

7. Safety of Investment

5 4 3 2 1

8. Variety of Services offered

5 4 3 2 1

9. Goodwill and Reputation of the bank

5 4 3 2 1

10. The Infrastructure facilities like parking, cafeteria ,ATM etc

5 4 3 2 1
11. Ambience and Décor (interior)

5 4 3 2 1

12. Mobile banking, e--banking and other latest technologies

5 4 3 2 1

13. Communication and providing prompt information

5 4 3 2 1

14. Timings of the bank

5 4 3 2 1

15. Convenience in operating account

5 4 3 2 1

Appendix 2
Direction: Tick only one option [ HA= Highly Agree, A= Agree, NA= Not Agree]
Product Knowledge:

Q.1 I have the knowledge about the products/services offered by my bank like……………
S.No. Products / Services HA A NA
1 Monthly Interest Scheme
2 Annuity & Retirement Scheme
3 Insurance linked Saving Bank Account
4 Housing Deposit Scheme
5 Automatic Extension Deposit
6 Loan Schemes
7 Safe Deposit Locker Service

Q.2 I have the knowledge about the innovative products/services offered by my bank
like……………
S.No. Products / Services HA A NA
1 ATMs
2 Electronic Fund Transfer (EFT)
3 Electronic Bill Payment (EBP)
4 e-Cheque
5 Internet Banking
6 Tele-banking
7 Mobile Banking
8 Debit Cards
9 Credit Card
10 Demat Account
11 Netcash
12 e-invest
Q.3 I am aware about charges taken by my bank like…………………………………
S.No. Products / Services HA A NA
1 ATMs Charges
2 Electronic Fund Transfer (EFT) Charges
3 Electronic Bill Payment (EBP) Charges
4 Demat Charges
5 Internet banking Charges
6 Tele-banking Charges
7 Debit Cards Service Charges
8 Credit Card
9 Account Handling Charges

About Convenience:
Q.4 I have selected my bank because I have knowledge about the bank like……………………
S.No. Products / Services HA A NA
1 Nearer to my home/office
2 Convenient in operations
3 Comfortable bank layout
4 Good physical facilities
5 Number of ATM‟s available
6 Tele/online/mobile banking available
7 Number of branches in different area of city
8 Convenient banking hours

Process awareness:
Q.8 I have selected my bank because of………………………….

S.No. Products / Services HA A NA

1 Speedy delivery
2 Reduced paperwork
3 Standardize procedures
4 Customization of services
5 Simplicity

**********

Thanks for your kind cooperation.

 ABBREVIATIONS USED

Abbreviation Full Form

ACH Automated Clearing House
ACSI American Customer Satisfaction Index
ATM Automated Teller Machine
BPLR’s Benchmark Prime Lending Rates
CAAP Capital Adequacy Assessment Process
CAG Corporate Accounts Group
CFMS Centralised Funds Management System
CRAR Capital to Risk Weighted Asset Ratio
CRM Customer Relationship Management
CRR Cash Reserve Ratio
CV Coefficient of Variation
EBP Electronic Bill Payment
ECB European Central Bank
e-Cheque Electronic Cheques
ECS Electronic Clearing Services
EFT Electronic Fund Transfer
FB’s Foreign Banks
FDI Foreign Direct Investments
FII Foreign Institutional Investors
HDFC Housing Development Financial Corporation
HLCCFCM High Level co-ordination Committee on Financial
& Capital Markets
HUFs Hindu Undivided Families
INFINET Interconnection of Clearing Houses through Indian
Financial
IRB Internal Rating Based
KCSI Kanji Customer Satisfaction Index
LAF Liquid Adjustment Facility
M&A Mergers and Acquisitions
MIS Monthly Interest Schemes
NDTL Net Demand & Time Liability
NRI Non Resident Indian
POS Point of Sale
PSB’s Public Sector Banks
RBI Reserve Bank of India
RTGS Real Time Gross Settlement
SBI State Bank of India
SCB’s Schedules Commercial Banks
SD Standard Deviation
SFMS Structured Financial Messaging System
SLR Statutory Liquidity Ratio
SME’s Small and Medium Scale Entrepreneur
TAC Technical Advancement Committee
UTI Unit Trust of India
WTO World Trade Organisation
New Competition And Emerging Changes In Indian Banks: An Analysis Of
Comparative Performance Of Different Bank Groups

* Prof.Dr.H.C.Sainy ,Director Academics ,LNCT ,Indore

**Mrs Meghna Tiwari, Research Scholar, DAVV,Indore

ABSTRACT The bank system is facing challenges with stiff competition and advancement of
technology. It becomes imperative for service providers to meet or exceed the target
customers’ satisfaction with quality of services expected by them. Hence, the present
research attempted to study customers’ perception of quality of services, both transactions
based and IT enabled in terms of its constituent factors in public sector, private sector and
foreign banks. Also through the present study, we would gauge the extent of IT adoption in
public sector, private sector and foreign banks in this e-age. The present investigation was
planned with the objective to assess the extent of use of services especially the IT enabled
services in these banks and to analyze the constituent factors affecting customer satisfaction
with the quality of services. The present study was conducted in public sector, private
sector and foreign banks of Indore and Bhopal. While selecting the branch, care was taken
to see that branch should provide at least five IT enabled services. This step was followed to
have Intra Bank comparison. The study shows that the customers of nationalized banks were
not satisfied with the employee behavior and infrastructure, while respondents of private
and foreign banks were not satisfied with high charges, accessibility and communication.

1. INTRODUCTION

Banks play a role of considerable economic significance as intermediaries in mobilizing

public savings and channelizing the flow of funds for productive purposes, keeping on the
process of the economic growth of the country. Realizing the importance of the role of the
banks in economic development, Government of India/Reserve Bank of India took several
major initiatives after the country attained in- dependence to gear the banking system to
serve the national objective.

This was perceived as essential for implementation of project for rural development and
upliftment of economically weaker sections and also spreading the banking habit even in
the remote areas of the country. An efficient financial sector is an engine for economic
growth. It converts the fuel of savings into kinetic energy for the economy. The banking
industry which is at the core of the financial sector must take the lead. The reform process
started in the 90’s has given the industry a great opportunity. Not only must the sector
become more efficient it must also identify sectors having growth opportunities and
devise strategies to move savings into these sectors.

1.1. Current Scenario

Currently, overall banking in India is considered as fairly mature in terms of supply,

product range and reach even though reach in rural India still remains a challenge for the
private sector and foreign banks. Well- computerized foreign banks are beginning to
compete seriously with the nationalized banks. They aim at a profitable and wealthy part of
the market and, in contrast to the nationalized banks, do not recognize any social
responsibilities to small account holders or to a rural and semi urban clientele. Almost 80%
of the businesses are still controlled by Public Sector Banks (PSBs). PSBs are still
dominating the commercial banking system.
The bank system is facing the challenges with stiff competition and advancement of
technology, the services provided by banks have become more easy and convenient. The
competitive character has been promoted by facilitating the entry of foreign banks. The
country is flooded with foreign banks and their ATM stations. Efforts are being put to give
a satisfactory service to customers. Phone banking and net banking are introduced. The
en- tire system has become more convenient and swift. Time is given more importance
than money.

1.2 Banking Services

With years, banks are adding services to their customers. The Indian banking industry is
passing through a phase of customers market. The customers have more choices in
choosing their banks. A competition has been established within the banks operating in
India.The new age IT (Information Technology) is bringing about sweeping changes in the
banking industry, forcing them to re-engineer many of their basic processes and systems.
Few of the technology-driven electronic banking services being offered are viz.
Automated Teller Machines ATM, Electronic Clearing Service (ECS), Electronic Funds
Transfer (EFT), telebanking,internet banking etc. New technological capabilities could be
effectively used to create value and to better manage customer relationship.

1.3 Banking Technology

Financial reforms had its impact on Indian banks and financial institutions. In the fast
changing financial environment, fierce com- petition and changes in the regulatory
policies created uncertainty and risk for the Indian banking industry. Realizing this fact,
academi- cians and practitioners highlighted in their stu- dies that information source in
banks is of ca- pital importance and they look at information technology as strategic
response to changing fi- nancial environment/challenges (Ammayya 1996).
The Rangarajan Committee Report (1989) was the first path breaking step in this
direction, which highlighted that computeri- zation must be looked upon as a means to
im- prove customer service and efficiency and that the banks’ workforce should realize
that me- chanization would lead to growth and emp- loyment expansion (Bide 1997).
Subsequently, Narasimham Committee (1992), while high- lighting the problems faced
by Indian public sector banks, and, as an antidote to the identi- fied lacunae, also stressed
the need for greater measure of computerization in banks.

To meet the challenges posed by the entry of foreign banks, Indian banks will have to
invest heavily in tech nology to meet competition, reduce cost, improve customer service,
improve productivity and offer new products/services.Technology in service organizations
is important for success. Some scholars have studied technology in service organizations
from different perspectives. Harsh (1993) studied beneficial aspects of technology and
identified five major benefits of technology to a service organization. First, the
equipment could be employed in place of work force. Such substitution of equipment
and machines for labour reduces cost of operation and increases efficiency. Second,
introduction of technology may help to achieve standardization in the quality of service.
Third, higher service levels could be achieved by such blending of technology. Fourth,
service organizations can maintain close links with their customers by hooking up in the
computer net works such technologies permit one firm to link itself with the information
system of the other and, thereby, be in touch. Finally, technology may be useful in
directing employees’ behaviour and enhancing status and motivation.
Ammayya (1996), along with Godse (1997),while appreciating the introduction of informa-
tion technology in banks, stressed on trainingneeds of people who play crucial role in
turning the hardware and software and networking tools into a powerful combination to aid
the bank in improving the service quality and performance. Salma (1998) studied
technological reforms inthe banking sector. The emphasis on technology as the key factor
for improving performanceand increasing productivity in banks has been well
exemplified by her through illustrations.
Most Indian banks, mainly private ones, are hastening to interconnect their
countrywide branches (Aishah 1997). Keeping on the lines of promoting speed, SBI
has introduced Electronic Fund Transfer Systems (EFTS) in thirty branches in sixteen
cities in two sche- mes, State Bank Instant Remittance (SBIR) and State Bank Rapid
Remittance (SBRR) when remittances are made the same and the next day respectively
(Shanker 1995).Many authors, while studying customer ser- vice and bank marketing,
have observed that the need for computerization/bank automation has arisen because
customers expect their cheques to be encashed within a reasonable time, prompt realization
of clearing cheques, a quick transfer of funds and timely receipt of correct statements of
their accounts etc (Chidambaram and Alamelu 1996). All this can be possible if banks are
automated.

1.4 Customers’ Satisfaction

A customer can be defined as a user or potential user of banking services. A customer

would include an account holder, or his representative, or a person carrying out casual
business transactions with a bank, or a person who, on his own initiative, may come within
the banking fold (Talwar Committee Report 1976). The efficiency of a banking sector
depends upon how best it can deliver services to Its target customers. In order to
survive in this competitive environment and provide continual customer satisfaction, the
providers of banking services are now required to continually improve the quality of
services. The globalization of Indian economy has truly called for much more disciplined
approach on the part of Indian bank- ing sector to improve the overall quality of
customer services through smart use, absorption and adoption of flexible and
appropriate information technology. It is seen that 5% increase in customer retention
can increase profitability by 35% in banking business, 50% in insurance and
brokerage, and 125% in the consumer credit card market. Therefore, banks are now
stressing on retaining customers and increasing market share (Chothani et al. 2004).
A favorable climate for excellent service manifests itself in employee behavior, for
example, being attentive to customers, speaking favorably about the organization and its
services. With frequent employee-customer contact, customers are more often exposed to
such positive behaviors, which in turn, affect customer satisfaction.
Evolution of technology in banks is taking place at an enormous pace and it is only
question of time before banks commit themselves on full-scale technology up gradation,
aiding their growth and adding their competitive features. The computer and the
communication age is opening up a flood of new opportunities that are redefining the
very concept of traditional banking. It is for the individual banks to reinvest
themselves and reconfigure their business processes and practices in tune with the
growing customer expectations in an ever increasing competitive environment. There is
no way, a bank can remain lukewarm to new technology products and yet hope to grow
because it is a choice of survival or extinction.
In such a competitive environment, financial institutions are forced to examine their
performance because their survival in the dynamic economies of the coming years
will be dependent upon their overall efficiencies. In response, banking firms have been
 trying to adopt and to adjust themselves to improve their efficiencies in the changing
social and economic environment. The efficiency of a banking sector depends upon
how best it can deliver services to its target customers or how far the expectations of
customers are met. Any service to be provided to the customers can be differentiated by
the service provider from the rest of the service providers if it posses some unique selling
proposition. The customers compare the perceived service with the expected service. The
customer perceives the service quality to be high if it is perfect on his expectation.
This perception leads to customer satisfaction with the related service. In the present
time, customer satisfaction is an interesting and dynamic concept. It is a concept, which
varies from time to time. What is considered as “good” customer services today may be
termed “bad “tomorrow. IT strategies therefore, need to be in proper consonance with
bank’s marketing strategies. Customers are now demanding an individualistic and are no
longer willing to accept delay in transactions. A customer centric view has replaced the
earlier product centric view.Therefore, it becomes imperative for service providers to
meet or exceed the target customers’ satisfaction with quality of services expected by
them. Hence, the present research will attempt to study customers’ perception of quality of
services, both transaction based and IT enabled in terms of its constituent factors in public
sector, private sector and foreign banks. Also, the present study attempts to identify la-
cunae, if any, that exists which might hamper good customer service and in turn, affects
customer satisfaction. Also through the present study, we would gauge the extent of IT
adoption in public sector, private sector and foreign banks in this e-age.

1.5 Objectives of the Study

Following objectives are planned in the present investigation:
- To assess various aspects of services pro- vided by the public sector, private sector and
foreign banks.
- To assess the extent of use of services especially the IT enabled services in these
banks.
- To determine and compare the extent of customer ’s satisfaction with quality of
banking services on the basis of different constituent factors.

2. RESEARCH METHODOLOGY

Research methodology deals with a systematic and scientific methods that can be adopted
to solve research problems. Methodology is a crucial step in any research because it
directly influences the whole research and its findings. The present study will be carried
out to gain an insight into the customer satisfaction level with the quality of services
provided by public sector, private sector and foreign banks.

2.1 Research Questions

What are the major factors affecting customers’ satisfaction with the quality of services?
What is the level of customer satisfaction with the quality of services provided by public
sec- tor, private sector and foreign banks? Do customers switch over to the IT adoption in
public sector banks and to which extent?

2.2 Research Design

Descriptive research design was chosen to find out various services provided by public
sector, private sector and foreign banks, the extent of adoption of IT enabled services
among customers provided by bank.The present study was conducted in public sector,
private sector and foreign banks of Indore and Bhopal. Firstly, a list of top 20 banks in
India was made. A scrutiny of this list of all the three categories that is, public sector,
private sector and foreign banks was done. Thereafter, 10 per cent of total number of banks
was selected in each category having the maximum number of branches. Hence, three
banks (State Bank of India, Punjab National Bank and Canara Bank) among public sector
banks, two banks (ICICI and Centurion Bank of Punjab) among private sector banks and
one bank (Standard Chartered) among foreign banks were selected for the study.This step
was followed to have Inter Bank comparison. The study was proposed to be conducted
in five zones (East, West, North, South, and Central) of Indore and Bhopal. One branch
of the above banks in any zone of Indore and Bhopal was selected randomly. While
selecting the branch, care was taken to see that branch should provide at least5 IT
enabled services. After identification of branches, the researcher visited banks. It was
planned to select 10 customers randomly from each bank making a total of 60 customers
as sample by making personal visit to the respective branches of banks.

2.4 Selection of Tools for Data Collection

Selection of appropriate instrument or technique is an important criterion in research

methodology. The tools would comprise of the following:

A. Interview Schedule for Customers

An Interview schedule was used for collecting base line data of customers, extent to which
they adopt IT enabled banking services provided by public sector, private sector and
foreign banks. The interview schedule was based on following subheadings-
• Different aspects of banking services used by customers
• Extent of using IT enabled services
• Customer satisfaction with quality of services
• Suggestions of customers for improving banking services.

3. RESULT AND DISCUSSION

3.1 Different Banking Services Availed by Customers

All the respondents in each bank were availing facility of cheque deposit and cheque
clearing. Only one respondent (10 per cent) had taken loan in SBI. About 30 per cent
respondents were using the facility of issuance of demand draft, while 20 per cent each
availed other facilities like locker, mail transfer and term deposit (Table 1).
Table 1: Distribution of bank customers by availing different services of bank
Services SBI PNB Canara ICIC Centurio SC
(n=10) (n=10) Bank I n BOP
(n=10) (n=1 (n=10) (n=10)
0)
n % n % n % n % n % n%
Lockers 2 2 4 4 2 2 - -1 1 - -
Travellers - - - - - 0- - -- - 0 - -
Cheques
Loan 1 1 2 2 2 2 5 5 1 1 1 1
Mail transfer 2 2 1 1 - 0- - 0- - - 0 - - 0
Cash credit - - 1 1 - - - -- - - -
facilit
Gift cheques - - - - - - - -- - - -
Cheque deposit 10 10 10 10 10 100 10 1 10 00 10 10
0 0 0 0
 Cheque clearing 10 10 10 10 10 100 10 1 10 10 10
Issuance of 3 3 2 2 4 40 - 0- - - - -
demand draft
Term deposit 2 2 3 3 - - - - - - - -
Cheque clearing - - - - - - - - - - - -
status
enquiry
Stop payment facility of - - - - - - - - - - -
-
cheque

Besides cheque deposit and cheque clearing services, 40 per cent respondents of PNB were
availing locker facilities. The other facility, that is, term deposit was availed by 30 per cent
respondents. Almost 20 per cent respondents were availing loan and issuance of demand
draft facility. A few respondents (10 percent) were benefited by mail transfer and cash credit
facility. All the respondents in Canara bank were de- positing and clearing cheque. About
40 per cent respondents in Canara bank were made issuance of demand draft. The other
facilities loan and locker were availing by 20 per cent each respondent.
All the respondents in ICICI deposited and cleared cheque, while half of the respondents
had taken loan from the bank. No other facility is being availed by any respondent of
ICICI bank. All the respondents in Centurion BOP de- posited and cleared cheque. About
10 per cent each respondents were availing locker and loan facility.

All the respondents in Standard Chartered were depositing and clearing cheque, while only
10 per cent respondents were availing loan facility from this bank. No other facility was
availed by any of the respondent.It can be concluded from the study thatcheque
deposition and cheque clearance are the most popular banking services among the
customers of all three types of banks. ICICI was found to be the largest money lender bank
among all the banks. Easy lending of loan and customer friendly approach might be
attributed as one of the reason for this finding. The customers of ICICI and Standard
Chartered bank perceive the charges of bank very high on different services. It may be
one of the reasons of not availing some other services provided by these banks such as
locker, issuance of demand draft, traveler cheque etc. Due to more attractive offers
and easy procedure of giving loan, ICICI bank was the largest bank under study in
providing loan to the customers.

3.2 Different Sources of Information about Any New Service/Scheme Introduced by

Bank

The investigator tried to probe whether the bank informed the customers about any new
scheme/service launched by the bank. It is evident from Figure 1 that nationalized banks
did not inform customers about any new service introduced by the bank. On the other
hand, private and foreign banks informed their customers for any new service introduced
by the bank.
The analysis of data shows that only 20 per cent and 10 per cent respondents of SBI and
PNB respectively answered positively to be informed by the bank about any new
service or scheme. No respondent answered positive to be informed by the Canara bank
on introducing any new service or scheme. About 40 per cent respondents were informed
by the Centurion BOP on introducing new service/scheme. On the other hand, ICICI and
Standard Chartered bank informed majority of the respondents, that is, 60 per cent and 70
per cent respectively about new service/scheme introduced by the bank.The reason behind
not informing customers about new service/scheme would be poor communication and
customer service of nationalized banks. On the basis of above analysis, ICICI bank and
Standard Chartered bank have good communication with their customers.

3.3 Information about Availing Loan by Customers

The results presented in Table 2 revealed that only one respondent in SBI had taken study
loan and only 20 per cent each of the respondents of PNB and Canara bank had taken
loan. The highest number of the respondents, that is, half of the total respondents had taken
loan from the ICICI bank. Only 10 per cent respondents each from the Centurion BOP
and Standard Char tered had taken loan from their bank. Thus, the findings are pointed to
the fact that the highest number of respondents availed loan from ICICI bank. Easy and
feasible approach of the bank to provide loans to its customers might be one of the reasons
of above results. Providing proper information about loan facility to the customers might
also be its reason.

3.4 Customers’ Opinion on Charges Levied by the Bank for Different Services
The investigator tried to know customers’ point of view on charges levied by the bank for
different services. The results of the present investigation as given in Table 3 highlights
the fact that customers of nationalized banks found the charges normal levied by the bank
for dif ferent services. On the other hand, private and foreign banks customers found the
above charges high.The reason of the above results would be the difference of charges in
different types of banks. The charges levied by the bank on different ser- vices are higher in
private or foreign banks as compared to nationalized bank.

Table 3: Distribution of bank customers by their opinion on charges levied by the

bank for different services
Services SBI PNB Canar ICICI Centuri SC(n=1
(n=10) (n=10 Bank (n=10) BOP
) (n=10) (n=10)
n % n % n % n % n % n %
High charges 1 1 1 1 2 2 8 8 3 3 6 6
Normal 9 0
9 9 09 8 08 2 02 7 07 4 04
charges 0 0 0 0 0 0
Total 10 10 10 10 10 10 10 10 10 10 10 10
0 0 0 0 0 0
3.5 Different IT Enabled Services Used by Customers
Sesha Sai (1999) suggests that to overcome growing customer dissatisfaction banks should
adopt two-fold strategy. Firstly, the creation of a wide range of services, suitable and
beneficial to the customers and secondly, prompt and efficient delivery of these services by
the front line staff. To ensure quick delivery of these services, banks have to introduce
revolutionary techno- logical changes like Electronic Fund Transfer (ETF), Electronic
Clearing Service(ECS), Net Working the Service Branches, Automatic Teller Machines
(ATM), modern and up-dated communication facilities.
An attempt was made to scrutinize different IT enabled services used by customers. Analy-
sis of results reveals that no customer was us- ing two services, that is, online tax accounting
system and Real Time Gross Settlement System (RTGS). ATM was the most common IT
enabled service among customers of every bank. Customers of nationalized banks were
using comparatively fewer IT enabled services as compared to private and foreign banks
(Table 4).
About half of the respondents were using ATM in SBI bank, while 30 per cent respon-
dents were availing centralized banking and only 10 per cent were having credit card and
debit card. In PNB, ATM and centralized banking each was using by 30 percent respondents,
while a few of all the respondents, that is, 10 per cent each using credit card and debit card
and ECS. Majority of the respondents were using ATM, while 20 per cent respondents were
availing Electronic Clearing Services.

Suggestions given by the customers for improving the bank services

Banks Suggestions

SBI Infrastructure should be improved Ambience should be improved Employee behavior

should be improved Work should be completed easily

PNB Employees behavior should be improved

Infrastructure should be improved
Proper guidance should be given to the customers
Interest rate should be increased
Working hours should be increased
Different forms for transaction should be displayed properly

Canara Accessibility should be increased Working hours should be increased

More facilities should be provided by the bank

ICICI Charges should be reduced Accessibility should be increased Communication with

customers should be increased
Statements of transactions should be issued to the customers timely

Centurion Proper guidance should be given to the customers Information about new services
should be given to the customers

SC Charges should be reduced Accessibility should be increased

Communication with customers should be increased
4. CONCLUSION

Various traditional and IT enabled banking services used by customers are studied in the
present paper. In addition, customer satisfaction was also measured with various dimensions.
It is observed that cheque deposit and cheque clearance were the most common banking
services used by the customers of all six banks. While the charges levied by the bank on
different services were perceived higher by the customers in private and foreign banks in
comparison to nationalized banks. A small number of respondents were using IT enabled
services other than ATM. Security, lack of facility, improper awareness and so on were found
to be the rea- sons for not using IT enabled services. The customers of nationalized banks
were not satisfied with the employee behavior and infrastructure, while respondents of
private and foreign banks were not satisfied with high charges, accessibility and
communication. The study shows that only a few respondents made complain to their
respective banks. Hence, the study throws light on different aspects and drawback of services
of the nationalized, private and foreign banks. Training on stress management and public
dealing should be imparted to the employees of nationalized banks. Nationalized banks need
to improve their infrastructure and ambience to compete with private and foreign banks in
India. Branches of private and foreign banks should be increased for easy accessibility.

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Cronin, J. and Taylor, S.A. (1992). Measuring service quality: a reexamination and extension,
Journal of Marketing, 56 (July), pp. 55-68.
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The Journal of Marketing, Vol. 58, No. 1 (Jan., 1994), pp. 125-131
 “The Changing Consumer Preferences & Indian Banking Sector:An Empirical Study
between PSBs,Indian Private banks & Foreign Banks in India.”

* Prof.Dr.H.C.Sainy ,Director Academics ,LNCT ,Indore

**Mrs Meghna Tiwari, Research Scholar, DAVV,Indore
meghnamanishtiwari@gmail.com

Abstract

The Indian Banking industry has undergone radical changes due to liberalization & globalisat ion
measures undertaken since 1991.Today Indian Banking Industry is one of the large Industry in
the world. There has been a great surge in efficient customer services. A highly satisfied and
delighted customer is a very vital non financial asset for the banks in the emerging era. The
curtsy, accuracy and speed are like a crown factor for a bank .Based on the responses of 120
customers of Public Sector banks, Indian private banks and Foreign Banks. (Each one from this
group.) operating in Indore district of Madhya Pradesh. It may be inferred that there is significant
difference among three bank group with regard to the time customer have to spend to transact a
business .Mostly E-banks (Foreign banks) are more efficient in regard to time factor. this is very
important factor of shifting of potential customer in E-Banks .the survey was conducted in
Indore district of MP in the month of Nov, 2010.Chi Square test is used to check the level of
significance difference among various group.

Introduction
The liberalization, privatization and globalization has ushered the customer relationship
management in banks. The process of globalization and our move towards global standards
changed the perception of customer services and the banking endeavor to serve the customer
better, resulted in innovative banking services & product. Banks are looking for more and more
interaction with the customer to build customer relationship management. But to deliver an
improved and in depth understanding of customer needs, and fully integrated customer customer
relationship is required along with complete transparency. In the emerging market scenario, for
survival and growth it is critical for a bank to align its vision, mission, goals and objectives with
customer’s satisfaction. The marketing technique of banks affects the performance of banks.
(Kotler,p.,2005,p.93).

In order to survive, Commercial banks have to seek business by aggressively marketing their
products. Product Differentiation is often employed as a major technique to survive in
competitive market. Since the product differentiation on the interest front and service charges is
ruled out for Indian banks. It appears that banks have to bank their hopes on the improvement of
customer services.
 *Sr Facuty LNCT,INdore

Customer satisfaction has been an important theoretical and practical issue for most marketing
researchers since 1970s.in order to mobilize more deposits and attract customers to use the
service of particular banks., a particular bank has to differentiate its customer services from other
banks & to offer better customer services to survive the competitive market. Customer services
in banks means satisfying the need of customer at the right time and right manner.

The excellent and managing customer relationship is the future of any business or everybody’s
business. Customer focusing is not be viewed as just a business strategy but should become a
corporate mission (Shankar,A.G.,2004,p.5).Once a good service is extended to a customer, a
loyal customer will work as a ambassador to the bank and facilitate growth of
business(Bhaskar,P.V.,2004,p.9)

The level of customer service and satisfaction is determined by branch location and design,
variety of services ,rates and charges, systems and procedures , delegations ,competitive
efficiency , complaint redressal and very importantly staff skills , attitude and responses
(Singh.S.2004,p.30)

The customer care has been enjoying the attention of the govt., the RBI and the banks
themselves .Various committees have gone into the problem in great detail and made
recommendations, many of which have been implemented. Despite so many measures initiated at
various levels to improve the standard of customer services, the level of satisfaction perceived by
various segment of customer has been low. It is in this context the customer service has to be
analyzed and appropriate strategies drawn up, not only to attract new customer but also to retain
the existing one. This study focuses on the ‘speed’ aspect of customer service by assessing
customer’s experiences with regards to the time taken to transact business with the different bank
groups.

Literature Review
Anubhav Anand(2010), had worked out on factors affecting customer satisfaction and their
relative importance in retail banking .His Study focused on factors that are responsible for
satisfaction of customer and also enables assessment of influencing power of these factors. A
major contribution of the study has been provision of an approach for the management of banks
to identify the factors of customer satisfaction.

Dhade & Mittal(2008), had worked out on the preferences ,satisfaction level and chances of
shifting of customer of public sector and new private sector banks .This study focused on the
primary opinion of customers of these banks.

There are a number of studies that refer to the importance of clients/ customers' perceptions of
quality (Takeuchi and Quelch, 1983). These result from comparisons by expectations of service
with actual performance (Gronroos, 1982 and Berry, et al, 1985). Berry (1980) along with
Booms and Bitner (1981) argued that due to intangible nature of services, customers use
elements associated with the physical environment when evaluating service quality. Managing
the evidence and using the environmental psychology are often seen as important marketing

tools. Levitt (1981) proposed that customers use appearances to make judgments about realities.
The less tangible a product is the more powerful shall be the effect of packaging while judging
that product.

Gronroos (1982) had identified two service quality dimensions, viz., functional quality and
technical quality. Functional quality represents the perception of the manner in which the
services are delivered. Technical quality or outcome quality on the other hand, represents the
outcome of the service act or what the customer receives in the end (Brady and Cronin, 2001).
Parasuraman, et al. (1985) suggested that the criteria used by consumers mould their
expectations and perceptions of delivered service quality fit into ten dimensions: tangibility,
reliability, responsiveness, communication, credibility, security, competence, courtesy,
understanding/knowing the customer and access. Subsequent researches, by Parasuraman, et al.
(1988) have condensed these into five dimensions of service quality. The Penta-dimentional
model has now become the standard way of measuring service quality in banking sector.
1. Tangibility includes physical facilities, equipment, and appearance of personnel
2. Reliability includes ability to perform the promised service accurately and with reliability.
3. Responsiveness includes willingness to help customers and provide prompt Service
4. Assurance includes knowledge and courtesy of employees and their ability to convey trust and
confidence
5. Empathy includes caring and individualized attention the company provides to its customers.

Parasuraman, et al. (1988) developed a 22-item scale, referred to as SERVQUAL Scale, which is
widely used as a generic instrument for measuring service quality. The basis for identifying the
five components was factor analysis of the 22-item scale developed from focus groups and from
the specific industry applications undertaken by the authors (Parasuraman, et al., 1985, 1988; and
Zeithaml, et al., 1990). Though, the veracity of conceptualizing the SERVQUAL scale has been
questioned by Carman (1990), the validity of the 22 individual performance scale items that
make up the SERVQUAL scale appears to be well supported both by the procedures used to
develop the items and by their subsequent use as reported in the literature (Brown and Swartz,
1989; Zeithaml, et al., 1990; Lewis, 1991; Young, et al., 1994; Berry and Parasuraman, 1997).

Objectives of the study

(1).To compare the “Customer Services” only regarding ‘Time’ in Public Sector Banks, Indian
Private Banks and Foreign Banks.

(2).To suggests the measures to improve the customer service regarding ‘Time’ in banks.

Hypothesis
Null Hypothesis Ho There is no difference among PSBs, Indian private Banks and Foreign
Banks with regard to time customer have to spend to transact a business .

Alternative Hypothesis H1 There is significant difference among PSBs, Indian private Banks
and Foreign Banks with regard to time customer have to spend to transact a business.

Methodology
PSBs, Indian Private Banks and Foreign Banks operating in Indore forms the universe of the
study. The present study covers bank branches for those bank groups working in Indore District
only. As it was felt that it would be useful to attempt a comparative study among PSBs, Indian
Private banks and Foreign Banks.(one public, one private and one foreign bank.).

About 120 customers, 40 from each bank group have been contacted at random for collecting the
data needed for the study. The required data have been collected from the respondents by means
of questionnaires, which measured speed in rendering the services of three dimensions.

(1).Time taken by the customer to withdraw cash.

(2).Time taken to deposit cash.

(3).Time taken to get a new cheque book.

Profile of the sample

Socio Economic Profile of Customer Group

Number %
Bank Type 40 33.33
1. G-I 40 33.33
2. G-II 40 33.33
3. G-III

Present Age
1. Upto 25 30 25
2. 26-35 48 40
3. 36-45 24 20
4. 45-55 12 10
5. Above 55 6 5
Occupation
1. Service 36 30.
2. Business 24 20
3. Industry 18 15
4. Agriculture 6 5
5. Professional 24 20
6. Others 12 10

Education
1.Matriculate 12 10
2. Graduate 42 35
3. Post Grad. 42 35
4. Professional 24 20

Total 120 100.00

Results & Discussion

Table (1) Time taken to withdraw cash

Banks/Time Less than 10 10-30 min. >30 min. No Response

Taken minutes

PSBs 6 9 20 5 40

Indian 10 20 8 2 40
Pvt.Banks

Foreign 22 11 7 ---- 40
Banks

38 40 35 7 120

V=(r-1)(c-1)=6

Chi Square Value at 1% significance level=28.18

Table Value=12.6
It is evident from Table (1) that in particular IT oriented banks between 10-30 minutes are
required to withdraw the cash. 50% of PSBs, 22.5% Indian private and 27.5% of Foreign Banks
customers respond in favour of this statement.55% of customer of Foreign banks observed that
less than 10 minutes wait is required o their counterpart. This shows operational efficiency in
comparison to the counterpart.

The table value is less than calculated value so the null hypothesis is rejected. Chi Square test
shows significant difference in experience at 1 % significant level. Alternative Hypothesis is
accepted that there is significant difference among PSBs, Indian Private Banks and Foreign
Banks.

Table (2) Time taken to deposit cash

Banks/Time Less than 10 10-30 min. >30 min. No Response

Taken minutes

PSBs 16 21 3 --- 40

Indian 17 20 2 1 40
Pvt.Banks

Foreign 15 20 4 1 40
Banks

48 61 9 2 120

V=(r-1)(c-1)=6

Chi Square Value at 1% significance level=6.94(Not Significant)

Time taken by the banks to receive cash from the customer ,who have come to deposit it is
presented in Table(2).This Table shows that in case of PSBs 52.5% customers reported 10-30
minutes duration to deposit the money. Overall ,irrespective of bank group 50.83% customers are
in favour of 10-30 minutes to deposit money.

Chi Square Test reveals not a significant difference in all banks in case of time spent by the
customer to deposit cash.

Table (3) Time taken to get new cheque book

Banks/Time Less than 10 10-30 min. >30 min. No Response

Taken minutes
PSBs 9 20 9 2 40

Indian 13 16 9 2 40
Pvt.Banks

Foreign 10 18 11 1 40
Banks

32 54 29 5 120

V=(r-1)(c-1)=6

Chi Square Value at 1% significance level=

Table Value=12.6

Table (3) shows the time taken to get a new cheque book from their banks. Among PSBs 50%
are in favour of 10-30 minutes whereas Indian Private Banks & Foreign Banks are at 40% and
45%. Chi Squire Test confirms this difference to be statistically significant.

Conclusion
In the highly competitive environment & IT era with a little or no difference in the product
offerings it is the speed of rendering services that set apart on bank form the other. Prompt
service is playing an important role in selection of banks by the customer. Time is the major
factor which affects the reputation of banks. Foreign Banks are providing quick services and
therefore becoming more popular.

Hence it is very essential that the entire banks group should put in place the right kind of system,
further cut down on service time and render instantaneous services to the

customer. Foreign Banks overall scoring the highest position on parameter “Speed” whereas
Indian Private Banks & PSBs are following them.

The emerging competition and information technology has enhanced the expectation of bank
customers. Many banks are unable to meet the expectations of the customers and gap between
the expectation and what is available is resulting in a widening gap. The new competition has
raised many new dimensions like awareness regarding the new technology , high cost in e-
banking , consumer’s confidence in e-channels, changing consumer preferences, lack of IT
experts and IT related infrastructure for the Indian Banking Industry .These issues must be
tackled carefully and wisely to compete in the global market.
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 Customer Relationship Management In Indian Banks

* Prof.Dr.H.C.Sainy ,Director Academics ,LNCT ,Indore

**Mrs Meghna Tiwari, Research Scholar, DAVV,Indore

1. Background

Relationship Marketing is the process of building long term mutually beneficial relationship with
the customers. The Financial Institutions in the developed countries are using this marketing tool
very effectively by taking full advantage of Information and Communication Technologies.

The Indian Banking Industry which was operating in a bureaucratic style prior to 1991 had to
undergo large scale transformation with the opening up of the economy. The Sector has been
facing unprecedented challenges with the wave of liberalization, privatization and globalization of
Indian Economy. Banks in India are under intense pressure in today’s volatile market place.
Steep competition, globalization, growing customer demand and exposure to higher credit
risks are forcing the banks to find new ways of improving profitability. On the other
hand, cost-cutting measures have forced banks to manage operations with few Customers
Relationship Managers and Product Specialists. Industry consolidation also poses fresh challenges
to this sector.

Even today, most of the banks in India rely on the legacy of Customer Information System. In such
a scenario, it is difficult to have a complete customer view across divisions. They face
unprecedented challenges to sustain their growth path for survival. The challenges include
customer retention, reducing transaction costs, risk management and Regulation Compliance.

The result was a huge proliferation in customer’s choice. The strategic tool that was chosen for
aiding this process was Information Technology and most of the banks went through
adoption of various stages and forms of IT over the years and the process is still continuing.
The rapid growth in Information Technology and its potential to serve the customers in a new
way awakened the marketers and enabled them to transform these challenges into opportunities.
Under these circumstances, customer satisfaction became an important aspect of the business.
The search for new strategies began to meet not only the high expectations of customers but the
need to retain them. The competitive world witnessed many banks participating in the race to
optimize their profits. It increased the pressure to perform leading to adoption of advanced
technology and better skilled work force. Therefore, business model changed from bank-centric
approach to customer-centric approach. The customer became not only an essential but the most
important part of the business.

The Service Sector has emerged as a key sector in Indian Economy. The contribution from this
sector to our Gross Domestic Product (GDP) is approximately 55%, as per the current year’s
Budget Report (2008-09).The continuous growth of GDP at 8% and above has become
possible due to the good performance of this sector.In the post - reforms era, there has been a
sea change in the financial sector. In such a scenario, the services have grown rapidly and the
customer has been more often a purchaser of services rather than a product.

The Financial Services is the backbone of service sector. This is important not only for the
banking sector but of the Indian economy as a whole.This is so because banking is a catalyst
and life of modern trade and commerce. It is an integral part of all the businesses and social
activities. This rapid transformation of services in the banking system has led to the evolution of a
highly competitive and complex market where there is a continuous refinement of services.Hence
the increased role of banking in India’s economic development on the one hand and the
changes in the business climate on the other has put increased pressure on them. These changes are
compelling the banks to reorganise themselves in order to cope with the present conditions.

Now, the Financial Institutions are trying to provide all the services at the customer’s doorstep.
The customer has become the focal point either to develop or maintain stability in the business.
Every engagement with the customer is an opportunity to either develop or destroy a customer’s
faith in the Bank. The expectations of the customers have also increased many fold. Intense
competition among the banks has redefined the concept of the entire banking system. The banks
are looking for new ways not only to attract but also to retain the customers and gain competitive
advantage over their competitors.
The bank like other business organizations are deploying innovative sales techniques and advanced
marketing tools to gain supremacy.

2. Evolution of CRM

One of the important marketing tools in the developed countries is Relationship Marketing. The
CRM is a comprehensive approach for creating, maintaining and expanding relationship with the
customers. It has emerged as one of the most widely prescribed solutions for diminishing market
share and sluggish growth of many industries in general and banking and financial sector in
particular. CRM is a simple philosophy, which places the customer at the heart of the business
processes, activities and cultures for improving customer satisfaction and maximizing profits. In
one of the encompassing definitions, CRM is described as “the establishment, development,
maintenance, and optimization of long term, mutually-valuable relationship between the
customers and the organizations.It is a comprehensive approach for creating, maintaining and
expanding relationship with the customers.

The concept of CRM is very important to the business sector. The essence of the business has
been described by Mr. Peter Drucker, the Management Guru as, “the purpose of the business is to
attract and retain a good customer”.Good Customer Service is the best brand ambassador for
any bank. The entire business process consists of highly integrated efforts to discover, create,
arouse and satisfy customer’s needs. The modern business has realized it and is making all out
efforts to become ‘customer-centric’ across the globe. Hence, CRM is not a once-for-all affair
but a continuous process. It is the way of carrying out business covering all the aspects of the
modern business. It is an integral approach of dealing with customers by deploying the advanced
information technology.

CRM is the Information Technology face of the business process that aims to establish enduring
and mutually-beneficial relationships with customers in order to drive customer retention, value
and profitability.It is meant for a common and equal good of the two stakeholders-businesses
and their customers. It calls for capturing pertinent data about the prospective and current
customers in respect of their buying pattern, shopping behavior and usage habits. It represents the
current philosophy that the businesses should be customer- oriented. CRM is a tool for delivering a
variety of marketing dreams such as:

To target and serve customers on an individual basis.It permits one to one marketing as
opposed to mass marketing.
 It is to dis-intermediarize channels of the wasteful barriers and distortions.
It helps in reducing marketing cost progressively.

3. Need for Study

The important factors that establish the need for CRM in the Banking Industry are detailed
below:-

Intense Competition

There is intense competition among the Private Sector Banks, Public Sector Banks and Foreign
Banks and they are all taking steps to attract and retain the customers. New technologies, research
facilities, globalization of services, the flood of new products and the concept of all the
facilities under one roof to provide better customer service leading to customer delight.

Well Informed Customers

The Customers in Banking Industry today are well informed. With the introduction of new
technology, the world has become like a small village. Thus, if a Bank wants to have more
customers, it should develop a good relationship with its present customers and try to
maintain the same in the future also.

Decline in Brand Loyalty

In the present scenario, brand loyalty is on decline.The customers are switching over frequently
to avail the better facilities from other banks. Newer and superior products and services are being
introduced continuously in the market.Thus, the banks have to upgrade their products, improve
customer service and create bonds of trusts through proper care of customer needs and regular
communications. With the help of CRM, strong customer loyalty and a good image for the
organisation can be developed.

Improved Customer Retention

In the intensely competitive banking industry, retention of existing customers is vital, which
can be achieved through the process of CRM.
 4. Requirements of an effective CRM Structure

An effective CRM system consists of the following:

(i). Personal Customer Needs

Personal contact
A knowledgeable and reliable banker.
Relevant Information.
Customized and timely solutions
Value for money.

(ii). Business Customer Needs

A professional partnership approach.

High levels of information.
Customized and highly responsive service.
Quality Customer Information.

5. Benefits of CRM

Benefits of CRM can be categorized into three groups namely: Benefits for customers,
benefits for employees and benefits for banks.

(i) Benefits for Customers

There is a more coordinated and professional approach to customer contact.
With up-to-date customer information, Banks can offer more personalized services.
Customers feel empowered if they have greater access to products and services. For
example 24 Hours banking.
Targeted product and service offerings can be timed to coincide with customer events
and requirements e.g., Education Loans and Tourism Loans.

(ii) Benefits for Employees

Employees are empowered with the information to deliver high quality service and meet
customer expectations.
Employees have more time to serve customers.
Employees have higher satisfaction ratings.

5
(iii) Benefits for Banks

Managers are empowered with information that can help them manage customer
relationships and make better decisions.
Optimum use of resources.
Customer satisfaction and increased loyalty.
Improved customer acquisition and cross-selling.
It helps in capitalizing on short windows of opportunities in the market.

6. Introduction of Innovative Services through CRM

Banks have made several innovations for sustenance by using the CRM System such as:

The introduction of ATMs.

Biometric ATMs.
Single Window Service.
Teller System.
Internet Banking
Introduction of Plastic Money: Credit Card, Debit Card, Smart Card.
Mobile and E-Mail Alerts
Electronic Cash
Introduction of two in one Accounts.
Introduction of new loan schemes as per the customer’s needs viz. Education Loans, Marriage
Loans, Housing Loans, Personal Loans, Vehicle Loans, Furniture Loans, Renovation Loans and
Tourism Loans.

7. Review of Literature

The literature on Customer Relationship Management in the context of the Banking Industry of
developed countries points towards the wide use of all financial services under one roof leading to
relationship banking and CRM concept.

Brain and Company, USA in a specific study on CRM found that a customer becomes more
profitable in the long run. Though the initial acquisition cost exceeds gross margin but the
subsequent retention costs are much lower which help in increasing the profits.

The Research findings of Technical Assistance Research Project state that 95% of customers do
not complain and give opportunity to competitors.On the other hand, a dissatisfied customer
tells around 14 people about service failure, whereas the same customer tells only around six others
when he receives excellent service.
Bateman & Snell (2007) observed that CRM is a business process which results in optimized
profitability and revenue generation, while achieving customer satisfaction. Often also known
as relationship marketing by marketing academicians, CRM is an information technology assisted
process that establishes a collaborative environment for businesses to analyze the buying behaviour
and product/service requirements of an individual or group of existing as well as potential
customers.

Pisharodi, Angur and Shainesh (2003) in a study of success of CRM found that a process- oriented
strategic approach to connect the operational, informational and the organizational components of
CRM are critical for the success of CRM application.

Reinartz & Kumar (2002) pointed out that Managers need to be careful in differentiating customer
loyalty and customer profitability. Enterprises ought to understand the fact that managing
customers for loyalty is different from managing them for profits.

As per the Research Note by Gartner Group (2001), more than 75% of enterprises engaged in
CRM initiatives are incapable of putting together a comprehensive view of their customers.
Further, it noted that market leadership would be attained by enterprises that achieve maximum
value and customer satisfaction within each customer segment being served by them.

Parvatiyar and Sheth (2001) observed that CRM is a comprehensive strategy and process of
acquiring, retaining and partnering with selective customers to create superior value for the
company with the customers.

Day (2000) pointed out that the enterprise has to develop some key marketing competencies
for the smooth implementation of CRM. A relationship orientation is the first such thing.
Relationship orientation should permeate the mindset, values and norms of the
organization.Further, the enterprise needs to continue to increase its knowledge of the
customers and ensure that it flows all over the organization.Finally there is a need for
alignment and integration of processes.

Ernst & Young (1999) observed that enterprises investing on CRM solutions predominantly focus
on technology.The challenge lies in combining people, processes and technologies while
implementing CRM Solutions.

Davids (1999) observed that choice of relevant technology and implementation are keys to
successful customer relationship plans. The failure rate of CRM projects has been estimated to be
high.
Groff et al (1998) observed that CRM facilitates better handling of the obstacles of interweaving
customer relationship strategy at all levels.It demands a holistic approach and process
orientation.

Reichheld & Sasser (1990) found that advancements in information technology, data warehousing
and data mining capabilities enable enterprises to manage individualized relationships with key
customers.The benefits come by way of lower costs of customer retention, improved
profitability and lower defection rates.

8. Objective of the Study

The main objectives of the study are:

1. To analyze the extent of the implementation of CRM in Indian Banks.

2. To study and compare CRM implementation between the Public and Private Sector
Indian Banks.
3. To analyze the perceptions of the customers regarding the impact of CRM on service quality.
4. To evaluate the impact of CRM on customer retention.

9. Research Methodology

The study focuses on the CRM practices in Indian Public and Private Sector Banks. For the
purpose of analysis, the various dimensions of CRM have been formulated on the basis of the
study carried out by N.O. Ndubsi and Chankok.Wah (2005) and further validated by J.G. Barnes in
his book “Secrets of Customer Relationship Management”.

The scale has been subjected to validation by using Cronbach Alpha test. The test gives the score
of 0.89, leading to the inference that the scale is significantly reliable. Likert’s 5 – point scale is
used for the collection of data and for its suitability to establish the range and variation in the
perceptions (Below 4: Poor; 4 to 5.5: Average; 5.6 to 7: Good; 7.1 to 8.5: Very Good:8.6 to
10:Excellent)

10 aspects of service quality: reliability, responsiveness, competence, access, courtesy,

communication, credibility, security, understanding or knowing the customer and tangibles. It
measures the gap between customer expectations and experience. Scale dimensions developed by
Zeithamal, Parsuraman and Berry (1988) have been used in the study to ascertain the perceptions
of the customers regarding the service quality. The Scale 1 to 5 have been developed, where 1
stands for strongly agree and 5 for strongly disagree.
We have used 1 to 13 - item scale developed by Parasuraman, Berry and Zeithaml in 1996 in the
Research paper entitled “Behavioral consequences of service quality”for measuring customer
retention. Likert’s scale has been used to analyze the responses received from the customers of the
different banks under study.

We have considered five Public Sector Banks and five Private Sector banks for this study
(Appendix-1). These banks have been chosen because they have a good market share and latest
technology.

The representative sample has been collected from the 10 Banks situated in Delhi city (the capital
city of India). Though we have distributed 200 questionnaires among the customers of ten banks
covered for the study but we have received only 150 responses from the customers of (15 each) the
above mentioned banks.

9. Hypothesis
Hypothesis 1
Null Hypothesis: There is no difference in the CRM implementation between the Public and
Private Sector Indian Banks.

Alternate Hypothesis: There is difference in the CRM implementation between the Public and
Private Sector Indian Banks.

Hypothesis 2

Null Hypothesis: There is no impact on customer retention between the Public and
Private Sector Indian Banks.

Alternate Hypothesis: There is impact on customer retention between the Public and
Private Sector Indian Banks.

10. Analysis and Interpretation

(i) Extent of CRM Implementation in Indian Banks

The first objective of this study is aimed at understanding the extent to which the CRM is
implemented by the Public and Private Sector banks (Table 1 gives the list of 5 Public and Private
sector Banks).For this purpose, the customer’s perceptions about the CRM have been measured.
The five dimensions on which CRM has been perceived by the customer are value, trust,
commitment, communication and conflict handling.
Table 2 depicts the customer’s perceptions of the implementation of CRM in the banks. As it
depicts, the overall mean score of CRM implementation has been calculated at 5.01. This shows
that CRM implementation is average i.e. satisfactory.Further, the Private Sector Banks have
been perceived to be having higher mean values of CRM than the Public Sector Banks.

While analyzing the Public Sector Banks, it has been observed that SBI is taking initiatives on
the technological front and is perceived to be better when compared to the other Public Sector
Banks considered in this study.However, on comparing the average grand mean with the bank
means, it has been concluded that all the Private Sector Banks have scored above average when
compared to the Public Sector Banks. It shows that Private Sector Banks are using Customer
Relationship Management technique aggressively to enhance their base.

(ii) Comparison of CRM Implementation in Public and Private Sector Banks

The second objective of this study is to compare the CRM implementation between the
Public and Private Sector Banks (Refer Tables 3 and 4). For this purpose, Student’s t-test has
been used.The t-test reveals that there is no difference in CRM implementation between the
Public and Private Sector Indian banks as the calculated t-value (-1.57) is less than the table value
of 1.994 leading to the rejection of Null Hypothesis and acceptance of the Alternate Hypothesis of
Hypothesis 1.

(iii) Perceptions of customers regarding the Impact of CRM on Service Quality

We have also studied the customers’ perceptions regarding the impact of CRM on service quality.
The service quality perceptions are based on the five-dimension model, as explained in the
Research Methodology. For the purpose of this study, CRM has been considered as the
independent and service quality as the dependent variable. The relationship between the two
has been studied with the help of regression analysis.The results reveal the strength of the
relationship between CRM and service quality. The analysis reveals that 41% of the total variance

in service quality is explained by CRM as suggested by the R2 value.

This indicates that service quality is a complex variable and is a function of many more underlying
variables.Also, the beta values of CRM (0.64) are significant at 5% level of significance as
suggested by the t value. This suggests that there is a positive relationship between CRM and
Service Quality.From the analysis, it can be inferred that CRM has a moderate influence on
service quality and appropriate steps have to be taken on this front.
(iv) CRM and Customer Retention

The fourth objective of the study is to analyze the impact of CRM on customer retention. The
analysis of results obtained reveals the strength of the relationship between CRM and Customer
Retention. We have observed that 46% of the total variance in customer retention is explained by

CRM as suggested by the R2 value. The beta values of CRM (0.65) are also significant at 5%
level of significance as suggested by the t value. This further suggests that there is a positive
relationship between CRM and Customer Retention. This leads to the rejection of the Null
Hypothesis and acceptance of alternate Hypothesis of Hypothesis that CRM has impact on
customer retention.

11. Conclusion

Indian Banks have recorded a phenomenal growth in the past decade with the initiation of
Economic Reforms. The banks, both Public and Private, have transformed themselves into profit-
oriented business organizations besides playing a developmental role in the economy. In an
attempt to be more profitable, the banks have become competitive and more customer –
oriented. This new orientation has compelled them to take a more pragmatic approach for
conducting the business. The CRM is one such tool which helps in meeting the customer’s
expectations according to their changing needs.

While analyzing the CRM Implementation in both the sectors, it was found that the Private Sector
Banks have been able to implement the CRM practices more effectively when compared to
their Public Sector counterparts. This indicates that strategically speaking, the Private Sector
Banks have been more innovative in understanding their customers and in building good relations
with them.

This fact has further been corroborated by the findings of the service quality level being provided
by these banks. These suggest that in case of the Private Sector Banks, all the five dimensions
of service quality have scored higher values when compared to the Public Sector Banks. It also
points towards the same fact that these banks have been able to enhance the service quality
levels for their customers making them more customer- oriented.

Further, we have observed by analyzing the service quality dimensions that responsiveness and
empathy of both the Public as well as the Private Sector Banks, scored the least. However, a micro
analysis reveals that the Public Sector Banks have highest scores in terms of reliability and
assurance whereas the Private Sector Banks have fared better in terms of
tangibility, reliability and assurance. This indicates that the banks are in a dire need to make
proper strategies to improve their working. This will make the banks more efficient in serving the
customers and in maintaining the long term relations with them.

The analysis of the results received on customer retention suggests that the banks (whether Public
or Private) are equally affected by the kind of CRM initiatives they undertake to retain the
customers.The banks are now under tremendous pressure to retain the older customers
because of the competition in the Banking Sector. This would not only ensure better customer
relations but also loyalty among them, which is very critical and important in today’s competitive
world.

Banks have started acknowledging the importance of the customers in developing their business.
They have recognized that it is essential to protect and grow its customer base and ultimately its
profitability. The banks can do this by building a strong relationship with the customers. To meet
the customer needs and to beat the competition, they must deliver superior quality service. The
CRM approach adopted by banks focuses on maximizing the value for the customer and the bank.
The key drivers to customer loyalty are:

(a) Positive Staff Attitude.

(b) Honesty, Integrity and Reliability.
(c) Productive advice and delivery of the promised service. (d) Consistent delivery of superior
quality service.
(e) Simplicity and easiness of doing business. (f) A fair and efficient complaints resolution.

12. Limitations of Research

(a) The Research was conducted in Delhi. A more diverse sample across different cities might
show that there is a difference in customer attitude towards CRM approach.
(b) Another limitation is the sampling technique. Convenience Sampling was used in this study
whereas the Random Probability Sampling is expected to give better results.
Table 1: List of the Sample Banks
S.No. Public Sector Banks Private Sector Banks

1 State Bank of India ICICI Bank

2 Punjab National Bank HDFC Bank

3 Syndicate Bank Axis Bank

4 Oriental Bank of Commerce Kotak Mahindra Bank

5 Corporation Bank J & K Bank

Table 2: CRM Implementation in Banks

S. No. Name of Bank Mean

1. State Bank of India 6.83

2. Punjab National Bank 6.38

3. Syndicate Bank 5.23

4. Oriental Bank of Commerce 5.92

5. Corporation Bank 5.72

6. ICICI Bank 7.42

7. HDFC Bank 7.24

8. Axis Bank Ltd. 6.25

9. Kotak Mahindra Bank 6.90

10. J & K Bank Ltd. 4.93

Grand Mean 5.01

Table 3: CRM Implementation in Public Sector Banks

S. No. Name of Bank Mean

1. State Bank of India 6.83

2. Punjab National Bank 6.38

3. Syndicate Bank 5.23

4. Oriental Bank of Commerce 5.92

5. Corporation Bank 5.72

Grand Mean 6.01

Table 4: CRM implementation in Private Sector Banks

1. ICICI Bank 7.42

2. HDFC Bank 7.24

3. Axis Bank Ltd. 6.25

4. Kotak Mahindra Bank 6.90

5. J & K Bank Ltd. 4.93

Grand Mean 6.55

14
Table 5: Service Quality Analysis in Banks

Dimensions Private Sector Banks Public Sector Banks

Tangibility 6.43 6.82

Reliability 6.24 6.90

Responsiveness 6.50 6.72

Assurance 6.48 6.24

Empathy 6.49 6.55

Mean 6.43 6.65

Overall Service Quality

Dimensions Score

Tangibility 6.62

Reliability 6.57

Responsiveness 6.57

Assurance 6.36

Empathy 6.52

Mean 6.53
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new competition” Journal of Economics and Behavioral Studies Vol. 2, No. 1, pp. 32-40.

Anand, S (2008), Customer Relationship Management in Indian Banks, Journal of

Professional Banker, Dec. 2008 pp 66-70.
Bholanath Dutta, CRM in Financial Services Marketing, Journal of Marketing Mastermind,
Sept 2008.

Davids M (1999), How to Avoid the 10 Biggest Mistakes in CRM, Journal of Business
Strategy, Nov-Dec 1999, pp22-26.
Day GS (2000), Managing Market Relationship, Journal of the Academy of Marketing
Science Vol. 28 (1), pp – 24-30.
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Management update, November, 2005.
Kimberly, C et al (2005), CRM Marketing Strategies and Technologies Mature, Management
update, November, 2005.
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Customer Relationship Management – Emerging Concepts, Tools and Applications, Tata
McGraw Hill, New Delhi, pp. 3-25.

Pisharodi R et al (2003), Relationship Strategy, Effectiveness and Responsiveness in

Services Marketing, Journal of Relationship Marketing, Vol 2, No. 1, 2003 pp. 3-22.
Rajiv Joshi, Customer Relationship Management : Free and Open Source CRM Software for
SMEs, Journal of Marketing Mastermind, Dec. 2008.
Sarangapani, A (2008), Customer Relationship Management in Banking Sector, Journal of
Professional Banker May 2008 pp 39-47.

Shainesh G and Sheth JN (2006), Customer Relationship Management – A Strategic

Perspective, Macmillan India, New Delhi, pp 16-29.
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and Enhancing Relationships, in Handbook on Relationship Marketing, Saga Publications, pp
526-563.

William, B (2005), Best Practices for CRM Deployment, The Forrester, December, 2005.

Websites:

www.dmnews.com/Datamonitor-suggests-orcle-SAP-likely-to-remain-atop-CRM
market/article/98266. www.opensourcestrategic.com/ofbiz/index.php. www.atosorigin.com/en-
us/Services/Solutions/Systems_Integration/Solutions/CRM/.
www.crm – review.com/software 2. Php.
 Foreign Banks in India :A More Profit less cost deal for Indian Banking Sector ?

* Prof.Dr.H.C.Sainy ,Director Academics ,LNCT ,Indore

**Mrs Meghna Tiwari, Research Scholar, DAVV,Indore
meghnamanishtiwari@gmail.com

This paper analysis the financial performance of foreign banks in comparison with other bank
groups in India. The study assumes importance in the context of the presence of foreign banks in
India. The results of the study indicate that access to low cost funds, diversification of income,
adequate other income to fully finance the operating expenses are the important factors leading
to the higher profitability of foreign banks as compared to other bank groups in India. However,
with regard to the foreign banks policy, a holistic view may be taken by considering factors such
as global financial inter-linkages, financial performance of parent banks as also the pursuit of
social objectives by these banks.

Introduction

Scheduled Commercial Banks (SCBs), with their wide geographical coverage and large volume
of banking business, is the most important segment of the Indian financial system. After the
implementation of the first Narasimham Committee (1991) recommendations, which enabled the
entry of new private sector banks and allowed for more liberal entry of foreign banks, SCBs
have become a heterogeneous group of institutions in terms of their ownership and risk taking
appetite. Presently, with a credit-deposit ratio of 73.9 per cent , SCBs play an important role in
the financial intermediation of the economy. Public sector banks (PSBs) are the biggest segment
of SCBs comprising about 72 per cent of total assets of SCBs followed by private sector banks
(PrSBs) (20 per cent) and foreign banks (FBs) (8 per cent). After the liberalisation policies
adopted in India since 1991, in terms of interest rate liberalisation, reduction in reserve
requirements, entry deregulation, credit policies and prudential supervision, these banks acquired
considerable commercial freedom to pose themselves as profit making entities in the whole
industry. As per the data available , PSBs account for 65.2 per cent of the total net profits of
SCBs followed by PrSBs (20.6 per cent) and FBs (14.2 per cent).

The positive dividends on account of higher profitability in the banking sector are many: First, it
would enable banks to attract more resources (equity capital) from the market, Second, it would
equip banks to absorb the risk of non-performing assets and third, it would facilitate the
implementation of aggressive written off policy for non-performing loans (Chaudhuri, 2002).
Healthy profits are also desired for the development activities of banks such as branch expansion
in the rural areas and the fulfillment of priority sector advances (Mittal and Aruna, 2007). Thus,
a profitable banking system is a necessary condition for a pro-development financial
intermediation.

In India, the profitability of various bank groups as well as banks considerably varies and foreign
banks operating in the country report higher profitability than others, viz., public sector banks
and private sector banks. It may be noted that FBs with 8 per cent of the total assets of SCBs,
generated 14.2 per cent of the total net profits of SCBs .
An analysis of financial performance of FBs assumes added importance in the context of the
preparation of entry for FBs by the Reserve Bank. The Reserve Bank released the roadmap for
the presence of FBs in February 2005. The roadmap had two phases. However, after the
completion of the first phase, the Reserve Bank continued with the existing policies with regard
to FBs because the global financial system was experiencing turbulence. In this background, this
paper is an attempt to analyze the financial performance of FBs as compared to other banks in
detail by examining the data in 2000s on the banking sector of India.

The paper is organized in the following sections. Followed by introduction the previous studies
on profitability of Indian banks are discussed in Section II. Conceptual framework in presented
in Section III. Section IV analyses the profitability of FBs vis-à-vis other bank groups in India
during the recent years based on financial ratios. Section V Conclusions.

Section II
Review of Literature

There have been many attempts in the past to analyse the profitability of banks in general and
also to compare the performances of different bank groups. Most of these studies tried to study
the performance of banks during the post-liberalisation period. During the pre-liberalisation
period, the Indian banking sector was characterised by state ownership and administered interest
rates. Thus, the performance of banks during this period was dependent to a great extent on
policies undertaken in the banking sector. One of the earlier studies (Verghese, 1983) found that
changes in the interest rate were the most important factor determining profitability of banks
during the post-nationalisation but pre-deregulation period. The trend has changed after the
adoption of the liberalisation policies. Banks have gained considerable commercial freedom
within the broad regulatory framework.

There is a difference of opinion among previous studies with regard to the performance of banks
during the post liberalisation period. A study that covers the time period from 1991-92 to 1999-
2000 (Ram Mohan, 2002) revealed that the performance of PSBs improved during the post-
liberalisation period both in absolute and relative terms. The study analysed the performance of
PSBs by taking a number of indicators, viz., net profits, net interest margin, intermediation cost
and non-performing assets. However, another study (Chaudhuri, 2002) pointed out that during
the period from 1997-98 to 2000-01, the PSBs witnessed a decline in their Profitability, mainly
owing to the thinning down of net interest margin.

Similarly, with regard to the performance of FBs in comparison with other bank groups, some of
the studies have come to the conclusion that there is convergence in the performances of
different bank groups in India. Some other studies concluded that public and private sector banks
continue to be more efficient than foreign banks. To illustrate, Mittal and Aruna (2007)
compared the profitability of various bank groups using ratio analysis during the period 1999-00
to 2003-04. The study found that FBs were the most profitable bank group in India followed by
PrSBs and PSBs. The study also noted that the profitability of the PSBs have witnessed
improvement over the last five years. A study by Das (1999) also opined that there is
convergence in the performances of different bank groups in India. The Report on the Committee
on Financial Sector Assessment (CFSA) noted that ‘the relatively higher productivity ratios of
new PrSBs and FBs in terms of business per employee could be due to increased mechanisation,
lower staff strength and increased outsourcing activities as compared to PSBs. PSBs have a
legacy of labour-intensive work procedures and greater penetration in rural areas, which also
result in comparatively low business per employee’ (RBI, 2011).

Another study by Sensarma (2006), however, opined that foreign banks are less cost efficient as
compared with other bank groups in India. This study compared the performances of different
bank groups for the period from 1986 to 2000.

A study by Reddy (2002) pointed out that reduction in employee strength through voluntary
retirement schemes and reduction in non-performing assets mainly through write-off schemes
were the two major developments in the banking sector of India during the post liberalisation
period which had a positive impact on the Profitability of banks.

Section III
Profitability – The Analytical Framework

This section documents the analytical framework in which the profitability of banking
institutions is determined.

The net interest income, other income, operating expenses and provisioning are the factors which
get into the direct calculation of net profits.

NP = (NII + OI) – (OE +Pr)

Where NP – Net profits, NII – Net Interest Income, OI – Other Income, OE – Operating
Expenses, Pr – Provisioning.

The net interest income is the difference between interest income and interest expenses. The
interest income is dependent on the return on funds and the interest expenses depend upon the
cost of funds. While the cost of funds indicates the efficiency of resource mobilisation by a bank,
the return on funds indicate how profitably the bank has deployed its funds. Thus, the capability
to raise low cost resources and the ability to design profitable asset creating strategy are the keys
to increase the net interest income of a bank.

Apart from interest income, banks also have income from other sources such as commission,
exchange and brokerage, profit on sale of investments, and profit on exchange transactions.
Those banks which make conscious efforts to increase income from other sources would register
higher net profits than others. On the expenditure side, apart from interest expenses, i.e., interest
paid on deposits and borrowings, another major expenditure category is the operating expenses.
The operating expenses mainly consists of payments to and provisions for employees, rent, taxes,
printing and stationary, advertisement and publicity, law charges and insurance, among others.
Savings in these expenses through austerity measures would increase net profits of banks.
Provisioning including those for non-performing assets, standard assets, depreciation on
investment and floating provisions, is another major item which has a bearing on net profits of
banks. Banks are required to keep aside a portion of their operating profit as provisions. Thus, as
NPA increases or the value of investment decreases due to adverse market movements, banks
have to increase the amount kept aside as provision which will reduce their net profits. Thus,
quality of loans and investment strategies will have a strong bearing on profitability of banks.
Further, it is observed that some of the sectors in the economy are more prone to NPAs.
Accordingly, if a bank has more exposures to such sectors, it is likely to impact the profitability
of those banks adversely.

Section IV
Profitability of Foreign Banks and Other Bank Groups:
An Analysis of Financial Ratios

Net profit to total assets ratio (return on assets (ROA)) across the bank groups showed that the
ratio hovered around 1 per cent for SCBs during the period 2005-06 to 2009-10. While PSBs and
PrSBs witnessed a ratio of 0.9 per cent and 1.1 per cent, respectively at end-March 2010, FBs
reported a higher ratio of 1.7 per cent during the same year. It may be noted that the net profit to
total assets ratio of FBs hovered around 1.6 per cent and were considerably higher than other
bank groups during the period 2005-06 to 2009-10

On the income side, the interest income was the major component of the total income of SCBs
comprising more than 80 per cent of the total income. The bank group wise data depicted that in
case of FBs the percentage of interest income in total income declined during the recent years.
This is in contrast to the trend observed in case of other bank groups. As at end-March 2010,
while SCBs as a whole raised 83.8 per cent of their total income through interest, FBs raised
only 67.1 per cent of their total income through interest.

The net interest income (NII) (difference between interest income and interest expenses) as a
ratio to total assets is observed to be higher for foreign banks than the other bank groups, though
the interest income as a per cent of total income was witnessing a declining trend in case of
them. At end-March 2010, FBs as a group registered a NII to total asset ratio of 3.9 per cent as
compared with the ratio of 2.4 per cent for SCBs as a whole. The higher NII for FBs indicated
that either they were able to access sufficiently low cost funds or were able to deploy funds with
higher returns or both.

Table 01 Interest Income as % of Total Income

Years FBs PSBs New Pr SCBS Old Pr SCBs
2005-06 74.4 83.5 76 79.0
2006-07 69.6 86.3 78.5 89.5
2007-08 71.8 87.4 78 88
2008-09 69.8 86.7 79.2 87
2009-2010 67.1 86.6 81.4 87.1
 Table 02 Return on Funds %
Years FBs PSBs New Pr SCBS Old Pr SCBs
2005-06 8.4 8.2 7.7 8.5
2006-07 7.3 6.9 7.3 8
2007-08 8.2 7.5 7.4 8
2008-09 8.7 8 8.7 8.5
2009-2010 9.9 8.2 9.5 9.1

*Sources The Reports on Trends & Progress on Banking in India ,Various Issues.
Statistical Tables relating to Banks of India
Table 03 Cost of Funds %
Years FBs PSBs New Pr SCBS Old Pr SCBs
2005-06 3.1 4.2 3 4.6
2006-07 3.2 4.2 3.5 4.6
2007-08 3.5 4.2 4.5 4.5
2008-09 3.9 4.4 5.5 4.8
2009-2010 4.2 5.3 6 5.7
Table 4 Details of Sources of Funds of SCBs at end March 2010
Years 2010 FBs PSBs Pr SCBS
Cost of Deposit 4.3 5.6 6.3
Cost of 3.9 4 4.4
Borrowing
Share of Deposit 75.3 95.2 88.6
in Total funds
Share of 24.7 4.8 11.4
Borrowing in
Total Funds
**Cost of Deposit =Interest Paid on deposits /Total Deposit

Cost of Borrowing=Interest paid on borrowing/Total borrowing.

Table 05 Other Incomes as % of Operating Expenses

Years FBs PSBs New Pr SCBS Old Pr SCBs
2004 94.6 73.5 130.7 109.9
2005 103.1 86.2 102.8 102.3
2006 87.5 82.5 84.4 47.9
2007 91.8 53 76.8 39.5
2008 90.9 54.8 87 52.8
2009 102.3 70.3 87 57.5
2010 121.1 76.4 85 70.8
An analysis of return on funds indicated that the return on funds for FBs was higher than other
bank groups. As at end-March 2010, FBs registered a return on funds at 9.9 per cent as compared
with the ratio of 8.5 per cent registered by SCBs. However, it is important to note that new
PrSBs as well as old PrSBs did have higher return on funds which was close to FBs .

This pointed to differences in cost of funds faced by different bank groups. Trends in cost of
funds faced by the different bank groups indicated that the cost of funds was considerably lower
for FBs as compared with other bank groups. While the cost of funds was 4.2 per cent for FBs at
end-March 2010, it was 5.5 per cent for SCBs as a whole.Notably, new PrSBs as well as old
PrSBs registered considerably higher cost of funds at end-March 2010 .

The decomposition of cost of funds of SCBs indicated that FBs had the lowest cost of deposits of
4.3 per cent as at end-March 2010 as compared with the cost of deposits of SCBs at 5.7 per cent
during the same year. It may be noted that PrSBs registered the highest cost of deposits of 6.3 per
cent at end-March 2010. However, deposits were costlier than borrowings for all bank groups
including FBs. In this context, it is interesting to note that the dependence of FBs on costly
funds, viz., deposits was relatively less. In contrast, deposits were the major source of funds for
other SCBs. Thus, it is clear that the lower dependence on deposits as well as access to low cost
deposits enabled FBs to register higher profits than other bank groups in India .

Apart from net interest income, other income was the second source of income for banks. As at
end-March 2010, the other income constituted 32.9 per cent of the total income of FBs, whereas
for SCBs as a whole, it constituted only 16.2 per cent. Old PrSBs recorded the lowest other
income to total income ratio of 12.9 per cent followed by PSBs (13.4 per cent) and new PrSBs
(18.6 per cent) during the same year. Thus, it is clear that the dependence of FBs on other
income was relatively high in comparison with other bank groups in India. Or in other words,
this indicated that FBs had diversified their sources of income during the recent years. One factor
which enabled FBs to diversify their income was the higher foreign exchange transactions
undertaken by them. It is interesting to note that FBs raised considerable amount of income
through net profit on exchange transaction (12.9 per cent of the total income) and net profit on
sale of investments (3.2 per cent of the total income) at end-March 2010. In this context, it may
also be noted that as at end-March 2010 out of the total income raised through net profit on
exchange transaction by all SCBs, FBs accounted for 50.2 per cent

On the expenditure side, the operating expenses to total assets ratio of FBs was 2.8 per cent as at
end-March 2010. In contrast, the ratio was lower for both PSBs and PrSBs at 1.5 per cent and 2.1
per cent, respectively during the same year. It is interesting to note that FBs incurred relatively
higher expenditure than other bank groups for managing their assets. The possible reason for
these high operating expenses of FBs as documented in literature is that these banks generally
spend more for technology up-gradation, and also for advertisement and publicity. Though this
spending may impinge upon their profits in the short run, it may yield a high dividend in the long
run (Mittal and Aruna, 2007). Another study by Sensarma (2006) also opined that higher
operating expenses of FBs reflect higher expenditure incurred by them on costly real estate,
salaries and expenditure for technology up-gradation. The higher operating expenses of FBs led
some of the earlier studies to conclude that FBs were not cost efficient as compared with other
bank groups in India (ibid.).
Wage bills as a per cent of total assets was the highest in the case of FBs at 1.1 per cent as
compared with 0.8 per cent for PrSBs and 0.9 per cent for PSBs as at end-March 2010. However,
as a percentage of total operating expenses, the wage bills constituted only 39.7 per cent in case
of FBs as at end-March 2010. In contrast, for SCBs as a whole, as at end-March 2010, wage bills
constituted 53.4 per cent of the total operating expenses. The relatively lower percentage of wage
bills in the total operating expenses of FBs may be due to the relatively higher operating
expenses incurred by these banks .

A detailed analysis of the operating expenses of FBs indicated that though wage bills as a per
cent of operating expenses was low, wage bills was the biggest item of expenditure in the total
operating expenses of FBs. Further, it is interesting to note that FBs spent almost 9 per cent of
the total operating expenses on advertisement and publicity.

FBs, however, were able to finance the entire operating expenses through other income. This is
in contrast to the trend observed in case of other bank groups. At end-March 2010, for SCBs as a
whole, the other income was sufficient to finance only 84.0 per cent of the operating expenses,
whereas in the case of FBs, other income was more than the operating expenses (121.1per cent).
Old PrSBs financed only 70.8 per cent of the operating expenses through other income at end-
March 2010 followed by PrSBs (76.4 per cent) and new PrSBs (85.0 per cent) .

Provisioning are made by banks against loan assets including standard assets and non-performing
assets. These provisioning are made out of operating profits and thus, get reflected in the
calculation of net profits. SCBs as a whole kept aside 7.6 per cent of their income as
provisioning for NPAs as at end-March 2010. FBs made provisioning of 7.7 per cent of their
total income against NPAs. It is important to note that the PSBs kept aside the lowest portion
(7.1 per cent) of their income as provisioning.

Section VI
Concluding Observations

The present study probed the question: why FBs are more profitable than other bank groups in
India? The analysis in the study indicates that the access to low cost funds by FBs is the most
important factor which is making a differences to the profitability of FBs vis-à-vis other bank
groups in India. The cost of deposits for FBs is the lowest among the bank groups in India.
However, the deposits were costlier in comparison with borrowings for all the bank groups
including FBs. In this context, it is important to note that the dependence of FBs on deposits is
relatively lower than the other bank groups. Another major factor determining the profitability of
FBs is diversification of income achieved by them. The other income to total income ratio is
higher for FBs than other bank groups. FBs raised almost 9 per cent of their total income through
net profit on exchange transactions. As a result, FBs are able to meet their entire operating
expenses through their other income The operating expenses and other income are other
important factors determining profitability in the banking sector. In terms of fund management
and other income, FBs were well ahead of domestically owned banks in India, thus, providing a
cue about the higher profitability of FBs in comparison with domestically owned banks.
However, profitability is only one factor which is important while preparing the background the
presence of FBs in India. The roadmap may take a holistic view by considering aspects such as
soundness of FBs, financial performance of their parent banks, global financial inter-linkages
and also their contribution in achieving social objectives of banking in India.

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RamMohan, T.T.2002.’Deregulation and Performance of Public Sector Banks’, February

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Reddy-IIM-AHM.PDF
Sensarma, R. 2006. ‘Are Foreign Banks always the best? Comparison of State-Owned, Private
and Foreign Banks in India’, Economic Modelling, April 7, 717-735.

The Reserve Bank of India, ‘Statistical Tables Relating to Banks in India’, Various years.

The Reserve Bank of India. 2010. ‘The Report of the Committee on Financial Sector
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