Professional Documents
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➢ Most activities by govt. agencies and non profit orgs involve service.
Service Sector in India:
In alignment with the global trends, Indian service sector has witnessed a
major boom and is one of the major contributors to both employment and
national income in recent times. The activities under the purview of the service
sector are quite diverse. Trading, transportation and communication, financial,
real estate and business services, community, social and personal services
come within the gambit of the service industry. Service sector in India
accounts for more than half of India’s GDP. According to data for the financial
year 2008, the share of services, industry and agriculture in India’s GDP is
53.7% 29.1% and 17.2% respectively.
• Trade
• Hotels and restaurants
• Railways
• Other transport and storage
• Communication (post and telecom)
• Banking
• Insurance
• Dwellings, real estate
• Business services
• Public administrations, defence
• Personal services
• Community services
• Other service
Chapter 2
In the past the banks did not face any attraction in the Indian economy
because of the low level of the economic activities and the little business
prospects. Today we find positive changes in the national business
development policy. Earlier the moneylenders had a strong hold over the rural
population which resulted in exploitation of small and marginal savers. The
private sector
The Indian banking has come from a long way from being a sleepy
business institution to a highly proactive and dynamic entity. This
transformation has been largely brought about by the large dose of
liberalization and economic reforms that allowed banks to explore new
business opportunities rather than generating revenues from conventional
streams (i.e. borrowing and lending). The banking in India is highly
fragmented with 30 banking units contributing to almost 50% of deposits and
60% of advances. Indian nationalized banks (banks owned by the
government) continue to be the major lenders in the economy due to their
sheer size and penetrative networks which assures them high deposit
mobilization. The Indian banking can be broadly categorized into
nationalized, private banks and specialized banking institutions.
The popularity of these banks can be gauged by the fact that in a short
span of time, these banks have gained considerable customer confidence and
consequently have shown impressive growth rates. Today, the private banks
corner almost four per cent share of the total share of deposits. Most of the
banks in this category are concentrated in the high-growth urban areas in
metros (that account for approximately 70% of the total banking business).
With efficiency being the major focus, these banks have leveraged on their
strengths and competencies viz. Management, operational efficiency and
flexibility, superior product positioning and higher employee productivity
skills.
The private banks with their focused business and service portfolio have
a reputation of being niche players in the industry. A strategy that has allowed
these banks to concentrate on few reliable high net worth companies and
individuals rather than cater to the mass market. These well-chalked out
integrates strategy plans have allowed most of these banks to deliver
superlative levels of personalized services. With the Reserve Bank of India
allowing these banks to operate 70% of their businesses in urban areas, this
statutory requirement has translated into lower deposit mobilization costs and
higher margins relative to public sector banks.
The three major changes in the banking sector post liberalization are:
➢ Step to increase the cash outflow through reduction in the statutory
liquidity and cash reserve ratio.
➢ Banks were given greater freedom to leverage the capital markets and
determine their asset portfolios. The banks were allowed to provide
advances against equity provided as collateral and provide bank
guarantees to the broking community
Banking sector in India
Banks are now the most significant players in the Indian financial market.
They are the biggest purveyors of credit, and they
also attract most of the savings from the population.
The Indian banking can be broadly categorized into
nationalized (government owned), private banks
and specialized banking institutions. The Reserve
Bank of India acts a centralized body monitoring
any discrepancies and shortcoming in the system.
The need to become highly customer
focused has forced the slow-moving public sector
banks to adopt a fast track approach. The
unleashing of products and services through the net has galvanized players at
all levels of the banking and financial institutions market grid to look anew at
their existing portfolio offering. Driven by the socialist ideologies and the
welfare state concept, public sector banks have long been the supporters of
agriculture and other priority sectors. They act as crucial channels of the
government in its efforts to ensure equitable economic development.
a wide portfolio of products and services. These banks have generally been
established by promoters of repute or by ‘high value’ domestic financial
institutions. Today, the private banks corner almost 4% share of the total share
of deposits
Chapter 3
TYPES OF BANKS
There are various types of banks which operate in our country to meet the
financial requirements of different categories of people engaged in
agriculture, business, profession, etc. On the basis of functions, the banking
institutions in India may be divided into the following types:
Types of Banks
a) Central Bank (RBI, in India)
b) Development Banks
c) Specialized Banks (EXIM Bank, SIDBI, NABARD)
d) Commercial Banks
(i) Public Sector Banks
(ii) Private Sector Banks
a) Co-operative Banks
(i) Central Co-operative Banks
(ii) State Co-operative Banks
Now let us learn about each of these banks in detail.
a) Central Bank
A bank which is entrusted with the functions of guiding and regulating
the banking system of a country is known as its Central bank. Such a bank
does not deal with the general public. It acts essentially as Government’s
banker; maintain deposit accounts of all other banks and
advances money to other banks, when needed. The Central
Bank provides guidance to other banks whenever they face
any problem. It is therefore known
as the banker’s bank. The Reserve Bank of India is the
central bank of our country.
The Central Bank maintains record of Government revenue and
expenditure under various heads. It also advises the Government on monetary
and credit policies and decides on the interest rates for bank deposits and
bank loans. In addition, foreign exchange rates are also determined by the
central bank. Another important function of the Central Bank is the issuance
of currency notes, regulating their circulation in the country by different
methods. No other bank than the Central Bank can issue currency.
b) Commercial Banks
Commercial Banks are banking institutions that accept deposits and
grant short-term loans and advances to their customers. In addition to giving
short-term loans, commercial banks also give medium-term and long-term
loan to business enterprises. Now-a-days some of the commercial banks are
also providing housing loan on a long-term basis to individuals. There are
also many other functions of commercial banks, which are discussed later in
this lesson.
(i) Public Sector Banks: These are banks where majority stake is held by
the Government of India or Reserve Bank of India. Examples of public sector
banks are: State Bank of India, Corporation Bank, Bank of Baroda and Dena
Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks majority of
share capital of the bank is held by private individuals. These banks are
registered as companies with limited liability. For
example: The Jammu and Kashmir Bank Ltd., Bank of
Rajasthan Ltd, Development Credit Bank Ltd, Lord
Krishna Bank Ltd., Bharat Overseas Bank Ltd, Global
Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their headquarters
in a foreign country but operate their branches in our country. Some of the
foreign banks operating in our country are Hong Kong
and Shanghai Banking Corporation (HSBC), Citibank,
American Express Bank, Standard & Chartered Bank,
Grindlay’s Bank, etc. The number of foreign banks
operating in our country has increased since the
financial sector reforms of 1991.
c) Development Banks
Business often requires medium and long-term capital for purchase of
machinery and equipment, for using latest technology, or for expansion and
modernization. Such financial assistance is provided by Development Banks.
They also undertake other development measures like subscribing to the
shares and debentures issued by companies, in case of under subscription of
the issue by the public. Industrial Finance Corporation of India (IFCI) and
State Financial
Corporations (SFCs) are examples of development banks in India.
d) Co-operative Banks
People who come together to jointly serve their common interest often
form a co-operative society under the Co-operative Societies Act. When a co-
operative society engages itself in banking business it is called a Co-operative
Bank. The society has to obtain a license from the Reserve Bank of India
before
starting banking business. Any co-operative bank as a society is to function
under the overall supervision of the Registrar, Co-operative Societies of the
State. As regards banking business, the society must follow the guidelines set
and issued by the Reserve Bank of India.
(ii) Central Co-operative Banks: These banks operate at the district level
having some of the primary credit societies belonging to the same district as
their members. These banks provide loans to their members (i.e., primary
credit societies) and function as a link between the primary credit societies
and state co-operative banks.
(iii) State Co-operative Banks: These are the apex (highest level) co-
operative banks in all the states of the country. They mobilize funds and help
in its proper channelization among various sectors. The money reaches the
individual borrowers from the state co-operative banks through the central co-
operative banks and the primary credit societies.
e) Specialized Banks
There are some banks, which cater to the requirements and provide
overall support for setting up business in specific areas of activity. EXIM
Bank, SIDBI and NABARD are examples of such banks. They engage
themselves in some specific area or activity and thus, are called specialized
banks.
Chapter 4
MARKET SEGMENTATION
An organization is supposed to cater to the changing needs of
customers; it is only natural that all customers have their own likes and
dislikes. They have some uniqueness, which throws a big imprint on their
lifestyles. This makes the task of understanding a bit difficult. It has the
context that we go through the problem of market segmentation in the
banking service.
IMPORTANCE OF SEGMENTATION
1. Instrumental in exploring opportunities:
We find market segmentation very much effective in exploring the
profitable opportunities. It is well known to us that while segmenting, the
market is divided into different groups and sub-groups and this simplifies the
process of studying and understanding the customers in a right perspective. If
we know about the rural segment, the opportunities are explored to the rural
areas. If we know about the women segment, the opportunities are identified
in that area. If we know about the low- income group, the opportunities are
identified in that group. Thus the segmentation helps the bank professionals
in exploring the profitable opportunities.
2. Instrumental in designing a sound marketing strategy:
We can’t deny that market segmentation makes it easier to formulate a
sound strategy. Since the banking professionals are aware of the changing
needs and requirements of a segment, the marketing resources can be
developed in tune with the needs and requirements of a segment. The
formulation of a package is found significant and the bank professionals can
do it successfully on the basis of market segmentation. The promotional
measures can be satisfied in the face of receiving capacity of a particular
segment. The pricing strategy can be made operational and the sales
promotion measures can be made productive.
ECONOMIC SYSTEM
An important criterion for market segmentation is the economic system
in which we find agricultural sector, industrial sector, services sector,
household sector, and rural sector requiring the weight age while segmenting.
PROFIT
MULTIP
SERVIC MAKING ORG.
BANK
E INSURANCE,
LE
TRANSPORT
SEGME HOTEL,
NTS
NT
TOURISM, PERSONAL
CARE, CONSULTANCY
ELECTRICITY PERSONAL
WELFARE.
INSTITUTIONAL SECTOR
Chapter 5
7 P’s of Banking sector
PRODUCT
Bank services are viewed with not just things that are created with value but
they are seen in terms of satisfaction they deliver.
I. Bank Products
1. DEPOSITS:
Savings, current, fixed etc.
2. ADVANCES:
(a) Fund Oriented:
• Term loan
• Clean loan
• Bill discounting
• Advancing
• Pre-shipment and post-shipment finance
• Secured and unsecured lines of credit.
1. International Banking:
• Letter of credit
• Foreign currency
1. Consultancy:
• Investment counselling
• Project counselling
• Merchant banking
• Tax consultancy
2. Miscellaneous:
• Traveller cheques
• Credit cards
• Remittances
• Collections
• Sale of drafts
• Standing instructions and
• Trusteeship.
PRODUCT LEVELS
Core Benefit:
It is the main or core reason why the customer will buy the service of the
bank. But customers do not buy the core product, they only buy the benefit.
The role of the bank marketer is to convert the core products into a generic
product which satisfies the needs of the customer. E.G. In case of bank core
value is to deposit and withdraw money.
Basic Product:
The core benefit is converted into a basic product. That is the service can used
by the customer in order to fulfil his/her needs. It is basically colour, brand
name, shape, size, quality, branding and packaging. E.G. In bank basic
product is to provide savings a/c, current a/c, deposits, loans, and overdraft
facility.
Expected Product:
Augmented Product:
It is the additional feature that the banks provide which exceeds the
customer’s expectations. E.G When one opens a Suvidha account with
Citibank he gets an ATM card free. The bank marketer must offer a multi
dimensional product or what is called a ‘product package’
Potential Product:
Innovations and product differential is the bases of a Potential Product. If the
banks alter its services according to the requirements of the individual
customers it reaches this level. It is future oriented. E.G. In case of banks the
potential product is what kind of future product they are going to introduce
like low interest rate on home loan or personal loan.
This example evinces some of the charges that the customer has to pay
for the services provided by the bank.
The pricing factor is very important because of the kind of competition
that is prevailing today in the Indian market. However it is very important to
understand that in the banking sector, the main pricing policy is concerned
with the interest rate charged. This interest rate is however regulated by the
RESERVE BANK OF INDIA and THE INDIAN BANKING
ASSOCAITION. Any one particular bank or a group of banks does not
regulate it. The interest rate charged cannot be higher than that decide by the
RBI and the INDIAN BANKING ASSOCIATION.
Thus, in spite of the constraints in the pricing policy due to the RBI directives
there are mainly three types of pricing methods adopted by banks.
They are:
Value pricing:
The most commonly used pricing technique is the going rate pricing. In going
rate pricing, the bank bases its price largely depending on the competitor’s
prices. The banks however have to stay within the RBI directives and
compete. The banks may charge higher or lower than their competitors. After
1991 when the foreign banks entered the Indian market this method of pricing
has gained increasing importance.
Mark up pricing:
This is a pricing technique wherein the cost of the service is determined and
a small margin is added to it and then the final price is offered to the
customers. This type of pricing is not very popular since in the banking sector
it is not very easy to arrive at the cost of the service. Thus most banks use a
combination of mark – up pricing and going rate pricing.
The price should be set in such a manner that the customer is assured
that he is not being cheated or overcharged by the bank and at the same time
the bank is able to reap maximum profits. Such a pricing stand helps the bank
get maximum sales as well as profits since the customer feels that by entering
such a transaction he is winning.
PLACE MIX
Place mix is the location analysis for bank’s branches. There are
number a factors affecting the determination of the location of the branch of
bank. It is very necessary for a bank to be situated at a location where most of
its target population is located.
2. Population Characteristics:
The demography of a place is a very important factor.
This includes:
These factors are very important for a bank as the help them decide the kind
of business the branch will get.
3. Commercial Structure:
The commercial structure refers to the level of commerce i.e. business
activities taking place at a particular location. The higher the level of business
activities taking place in a particular location the more preferable it is for
setting up a bank branch.
4. Industrial Structure:
This is nothing but a combination of the trade area analysis and the
commercial structure. However the industrial structure focuses more on the
kind of industries operating in a particular location. For example, an area like
SEEPZ is marked with a lot of electronic manufacturing units. Thus the
industrial structure determines the kind of financial transactions that could
take place in a particular location.
5. Banking Structure:
The Banking structure refers to the existence of other banks in the area.
Whether there is already an efficient network of other bank branches
operating at that particular area. Thus the overall infrastructure needed for the
working of a bank.
9. Drawing Time:
Drawing time refers to the time period during which a customer can
draw money from the banks. It should be convenient to the customer and
somewhat flexible to accommodate the customer’s needs. No bank has more
than a certain amount with them and in case a customer wants to withdraw an
amount more than that available with the bank, the bank needs to draw that
amount from other banks. Hence, a location must be such that it facilitates
minimum drawing time.
The location of a branch should be such that it is visible and easily noticed by
the customers as well other people.
12. Access:
Promotion is nothing but making the customer more and more aware of
the services and benefits provided by the bank. The banks today can use a lot
of new technology to communicate to their customers. Two of the fastest
growing modern tools of communicating with the customers are:
1. Internet Banking
2. Mobile Banking
A bank may have very attractive schemes and services to offer to their
customers but they are of no use if they are not communicated properly to the
customers. Promotion is to inform and remind the individuals and persuade
them to accept, recommend or use of product, service or idea. However there
some very important points that is to be considered before the promotion
strategy is made. These points are:
Finalizing the Budget
Before the bank decides the kind of promotion that should be done, it is
very important to finalize the budget for it. The formulation of a sound budget
is essential to remove the financial constraints in the process. The budget is
determined on the basis of volume of business of the bank. In addition to this
the intensity of competition also plays a decisive role.
1. Public Relations:
1. Sales Promotion:
3. Telemarketing:
4. Internet:
The use of Internet as a promotional tool is increasing. More and more
banks are using Internet to promote their services. The online banking has
made it even easier for the customers to avail the bank’s services. No longer
do people have to go to their bank branches for small petty matters like
checking their balance etc. All this can be done with the help of a few clicks.
Thus, these were the numerous ways in which a bank can promote its
services and create more awareness amongst the people.
People
People are the employees that are the service providers. In a banking
sector, the service provider plays a very important and determinant role in
rendering the customers a satisfactory and a good service. It is extremely
essential that the service provider understand what his customers expect from
him. In the banking sector, the customer needs to be guided in a lot of
matters, which is possible only with the help of the service provider.
Process Mix
The process mix constitutes the overall procedure involved in using the
services offered by the bank. It is very necessary that the process is very
customer friendly. In other words a process should be such that the customer
is easily able to understand and
easy to follow. Today if
particular banks formalities are
long and the procedure very
complicated the overall process
fails and the customer may not
be inclined towards using that
banks services.
Let’s take for example the process for application for a car loan at HDFC
bank.
The smaller and simpler the procedure, the better the process, and the
customer will be more satisfied.
PHYSICAL EVIDENCE
Physical evidence is the overall layout of the place i.e. how the entire
bank has been designed. Physical evidence refers to all those factors that help
make the process much easier and smoother. For example, in case of a bank,
the physical evidence would be the placement of the customer service
executive’s desk, or the location of the place for depositing cheques. It is very
necessary that the place be designed in such a manner so as to ensure
maximum convenience to the customer and cause no confusion to him.
Let us see an example as to how banks try to make little changes so as to
make the service better for their customers.
Thus, these are the 7 P’s of services. Each of them plays a very important and
a pivotal role in determining the quality of the service provided to the
customer.
Chapter 6
QUALITY DIMENSIONS
Reliability
Assurance
Tangibility
Empathy
Responsiveness
RELIABILITY
It is defined as the ability to perform the promised service dependably
and accurately. In its broadest sense, reliability means that the company
delivers on its promises–promises about delivery, service provision, problem
resolution, and pricing. It is also known as the “No Excuses” service delivery.
Indian Overseas Bank faces stiff competition from many other banks
within its vicinity and some of these banks
are foreign banks. But the existing
customers have faith, loyalty and trust in
this bank. The customers are well aware
that the bank will provide them back the
best and reliable services. For e.g. No
person likes to wait to withdraw his/her
money. In order to correct this problem,
Indian Overseas Bank has ensured that
whoever comes in for cash withdrawal
will receive his/her cash within five to ten minutes.
ASSURANCE
All the five dimensions basically aim at serving the customers to the
best of their ability, giving them quality services and if things are followed as
they are demanded, (i.e., according to the customers demand) then there would
be no problems in facing any type of people. The successful service
organizations set up speeds for service standards
Chapter 7
Technologies & Innovations in Banking
Technologies in Banking
Technology plays a very important role in bank’s internal control
mechanisms as well as services offered by them. It has in fact given new
dimensions to the banks as well as services that they cater to and the banks
are enthusiastically adopting new technological innovations for devising new
products and services.
Today banks are also using SMS and Internet as major tool of
promotions and giving great utility to its customers. For example SMS
functions through simple text messages sent from your mobile. The messages
are then recognized by the bank to provide you with the required information.
Electronic Banking:
With the introduction of computers in Indian banks and with the advent
of ATM’s the banking services are provided across the banks. Customers
need not necessarily visit the bank to do banking transactions when the bank
provides them with tele banking and or remote banking facilities. This type of
banking is called electronic banking and the concept is becoming popular
with individual as well as corporate entities in India.
3. Mobile Banking:
Through inter –banking one can visit the web –site of each bank by
entering his password and known the account balance and even pass his own
credit and debit entries. This means that we can do our banking through our
personal computer settings at home.
Banks may soon allow zero balance
savings accounts through internet
facility only. Customers can now make
balance enquires download statements
and open fixed deposits over the net.
They will soon be able to carry out all their transactions over the net. So
visiting a bank would be needless. Time to come; mobile phones will drive
banking transactions. These mobile phones will drive banking transactions.
These mobile phones will be equipped with smart cards that are embedded
with banking and other information. This mobile phone banking facility is yet
to come but the mechanics of linking the banking with the cell phone is being
sorted out. Teller machines are being installed in the banks for the electronic
banking facility. Banking will be on wheels and mobile by the use of smart
banking.
5. Electromagnetic Cards:
2) Credit card: This is the same as charge card where the transactions are
charged to the account with the total value of transaction debited to the card
holder’s account once in a month. The difference between the credit and
charge card is that in case of the credit card holder is given about 25 to 50
days time to credit his account in case there are insufficient funds in his
account at the time of debit.
3) Debit card: A bank-issued card that allows its users to access their
funds for the purpose of paying for merchandise.
Conclusion: