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Service Sector is the lifeline

for the social economic growth of a
country. It is today the largest and
fastest growing sector globally
contributing more to the global
output and employing more people
than any other sector.
The real reason for the
growth of the service sector is due
to the increase in urbanization,
privatization and more demand for
intermediate and final consumer
services. Availability of quality
services is vital for the well being of
the economy.

In advanced economies the growth in the primary and secondary sectors

are directly dependent on the growth of services like banking, insurance, trade,
commerce, entertainment etc.

The service sector is going through almost revolutionary change, it

dramatically affects the way in which we live and work. New services are
continually being launched to satisfy consumers existing needs and to meet the
Needs that they do not even know they had. Ten years ago people did not
anticipate the need for email, online banking, web hosting, online reservation
and many other new services, but today many of us feel we cannot survive
without them. Similar transformations are happening in Business to business
marketing. Service organisations vary widely in size. At one end are the huge
international corporations operating in industries such as tourism, airlines,
banking, telecommunication etc whereas on the other end of the scale is a vast
array of locally owned and operated small businesses including parlours ,
hotels , laundry n numerous business to business services.

How important is the service sector in an economy?

➢ In most countries services add more economic value than agriculture,

materials and manufacturing combined.

➢ In developed economies employment is dominated by service jobs and

most new job growth comes from services.

➢ Jobs range from high paid professionals and technicians to minimum

wage positions.

➢ Service organisations can be any size, from huge global corporations to

local small businesses.

➢ 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.

The various sectors that combine together to constitute service industry in

India are stated as under:

• 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


A bank is an institution that deals with money and credit. Different
people understand meaning of a bank in different ways. For a common man,
bank is a storehouse where money is stored, for a businessman it is a financial
institution and for a day to day customer it is an institution where he can
deposit his savings. Banks play an important role in the economy of any
country as they hold the savings of the public. Provide means of payment for
goods and services and provide necessary finance for development of business
and change. Thus bank is a link in the flow of funds from the savers to the
users hence they should render efficient customer service in order to retain the
present customers and also to attract the potential customer.

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

banks failed in serving the society. This resulted in the nationalisation of 14

commercial banks in 1969.
There was a basic change in the banking concept with a beginning in the
nationalisation of big commercial banks. The involvement of public sector
banks, transformed the Indian economy.

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. Since the nationalization of banks in 1969, the
public sector banks or the nationalized banks have acquired a place of
prominence and has since then seen tremendous progress. 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.
Conservative banking practices allowed Indian banks to be insulated partially
from the Asian currency crisis. Indian banks are now quoting a higher
valuation when compared to banks in other Asian countries (viz. Hong Kong,
Singapore, Philippines etc.) that have major problems linked to huge Non
Performing Assets (NPAs) and payment defaults. Co-operative banks are
nimble footed in approach and armed with efficient branch networks focus
primarily on the ‘high revenue’ niche retail segments.

The Indian banking has finally worked up to the competitive dynamics

of the ‘new’ Indian market and is addressing the relevant issues to take on the

multifarious challenges of globalization. Banks that employ IT solutions are

perceived to be ‘futuristic’ and proactive players capable of meeting the
multifarious requirements of the large customer’s base. Private Banks have
been fast on the uptake and are reorienting their strategies using the internet as
a medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as applicable
like in any other marketing medium.

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 Reserve Bank of India acts as a centralized body monitoring any

discrepancies and shortcoming in the system. It is the foremost monitoring
body in the Indian financial sector. The nationalized banks (i.e. government-
owned banks) continue to dominate the

banking arena. Industry estimates indicate

that out of 274 commercial banks operating
in India, 223 banks are in the public sector
and 51 are in the private sector. The private
sector bank grid also includes 24 foreign banks that have started their
operations here.

The liberalize policy of Government of India permitted entry to private

sector in the banking, the industry has witnessed the entry of nine new
generation private banks. The major differentiating parameter that
distinguishes these banks from all the other banks in the Indian banking is the
level of service that is offered to the customer. Their focus has always centred
around the customer – understanding his needs, pre-empting him and
consequently delighting him with various configurations of benefits and a wide
portfolio of products and services. These banks have generally been
established by promoters of repute or by ‘high value’ domestic financial

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

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.

➢ Nationalized banks including SBI were allowed to sell stakes to private

sector and private investors were allowed to enter the banking domain.
Foreign banks were given greater access to the domestic market, both
subsidiaries and branches, provided the foreign banks maintained a
minimum assigned capital and would be governed by the same rules
regulations governing domestic banks.

➢ 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.

The liberalize policy of Government of India permitted entry to private

sector in the banking, the industry has witnessed the entry of nine new
generation private banks. The major differentiating parameter that
distinguishes these banks from all the other banks in the Indian banking is
the level of service that is offered to the customer. Their focus has always
centred around the customer – understanding his needs, pre-empting him
and consequently delighting him with various configurations of benefits and

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
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.

Types of Commercial banks: Commercial banks are of three types i.e.,

Public sector banks, Private sector banks and Foreign banks.

(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
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.

Types of Co-operative Banks

There are three types of co-operative banks operating in our country. They
are primary credit societies, central co-operative banks and state co-operative
banks. These banks are organized at three levels, village or town level, district
level and state level.
(i) Primary Credit Societies: These are formed at the village or town
level with borrower and non-borrower members residing in one locality. The
operations of each society are restricted to a small area so that the members
know each other and are able to watch over the activities of all members to
prevent frauds.

(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

(i) Export Import Bank of India (EXIM Bank):

If you want to set up a business for exporting products abroad or
importing products from foreign countries for sale in our country, EXIM bank
can provide you the required support and assistance.
The bank grants loans to exporters and importers and
also provides information about the international
market. It gives guidance about the opportunities for export or import, the
risks involved in it and the competition to be faced, etc.

(ii) Small Industries Development Bank of India (SIDBI):

If you want to establish a small-scale business unit or industry, loan on
easy terms can be available through SIDBI. It
also finances modernization of small-scale
industrial units, use of new technology and
activities. The aim and focus of SIDBI is to promote, finance and develop
small-scale industries.

(iii) National Bank for Agricultural and Rural Development


It is a central or apex institution for financing agricultural and rural sectors. If

a person is engaged in agriculture or other activities like handloom weaving,
fishing, etc. NABARD can provide credit, both short-term and long-term,
through regional rural banks. It provides financial assistance, especially, to
co-operative credit, in the field of agriculture, small-scale industries, cottage
and village industries handicrafts and allied economic activities in rural areas.

Chapter 4
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.

The study of the needs of customers invites a plethora of problems

since in addition to other aspects; the regional considerations also influence
the hierarchy of needs. To be more specific in the banking services, the
banking organizations are supposed to satisfy different types of customers
living in different segments. The segmentation of market makes the task of
bank professionals easier. If the market segmentation is done in a right
fashion, the task of satisfying the customers is simplified considerably. The
modern marketing theories advocate the formulation of marketing policies
and strategies for each segment, which an organization plans to solicit.

The marketing segmentation is based in the principle of divide and

rule. If we divide the market into different segments, the size of market is
made small and the process of study is found convenient. We find market
segmentation division and subdivision of a market based on considerations.
The bank professionals have to segment the market in such a way that the
expectations of all potential customers are studied in a right perspective and
the marketing resources are developed to fulfil the same. The marketing
efforts can be made more proactive if the process and bases of segmentation
are right.

It is essential that the bank professionals assign due weightage to the

difference that we find in the market behaviour due to geographical, age, sex,
nationality, educational background, income classes, occupation, social and
other considerations. If they overlook or underestimate key bases while
segmenting, the study results can’t be proactive to the formulation of creative
marketing decisions. This makes it essential that the bank professionals are
well aware of the criteria for market segmentation. The agriculture sector,
industrial sector, services sector, household sector are found important in the
very context. The gender segment is found important no doubt but we can’t
underestimate institutional and professional segments. Since the banking
organizations serve different sectors and segments, the segmentation should
be done carefully.

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.

3. Helpful to the policy planners:

In addition, the policy makers also find segmentation since they are well
aware of the emerging trends in the business environment. They get detailed
information about the changing needs and requirements of a segment. The
planning is an ongoing process. The banking professionals transmit necessary
information to the policy planners, which simplifies the process of making a
sound policy.

4. Enriching the market resources:

In addition to other aspects, we find segmentation instrumental in
enriching the marketing potentials. If we know about the preference, needs,
requirements, attitudes, lifestyles it is found easier for us to develop the
marketing resources accordingly. This in a natural way makes it convenient to
develop marketing resources. The process of innovation can be activated. The
services, the promotional measures, the pricing tool and the process of
offering can be made more competitive. The development of world-class
resources thus makes it convenient to influence the impulse of
prospects. The bank professionals find it easier to get the
positive results for their productive marketing efforts.


Segmentation in a right fashion makes the way for profitable

marketing. This helps policy planners in formulating and innovating the
policies and at the same time also simplifies the task of banking professionals
while formulating and innovating the strategic decision. The following
criterion makes the segmentation right.

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.


In the agricultural sector, there are four categories since the needs of all
categories can’t be identical.

The mechanization of agriculture, the improved or scientific system of

cultivation, the help of nature, the magnitude of risk, the availability of
infrastructural facilities influence the level of expectations vis-à-vis the needs
and requirements. The banking organizations are supposed to know and
understand the changing requirements of different categories of farmers.


The banking organizations are supposed to have an in-depth knowledge

of the changing needs and requirements of the industrial sector. The large –
sized, small- sized co-operative and tiny industries use the services of the
banks. The expectation of all the categories can’t be uniform.

The banking organizations are supposed to have an in-depth knowledge

of the changing needs and requirements of the industrial segment. The
emerging trends in competition, the pressure of inflation, the use of
technologies, and the business regulations are some of the important aspects
influencing the hierarchy of needs.


It is an important sector to the economy where the banking

organizations get profitable business. The two categories of organizations
such as profit-making and non- profit making are found important in the very






The banking organizations need to identify the changing needs and

requirements of the services sector with the frequent use of IT and with the
mounting pressure of inflation and competition, we find a change in the
hierarchy of needs.
This also constitutes an important sector where different income groups
have different needs and requirements.


The high income group, middle income group,

subsistence level group and marginal income group have
different hierarchy of needs which influence the level of
their expectations.


In the gender segment we find males and females

having different needs and requirements. Some of the
women are housewives and therefore they have different
needs and requirements whereas some of them are working
ladies having different needs and requirements.
In the profession segment, we find different
categories of professions and therefore we find a change in
their needs and requirements. The technocrats, bureaucrats,
corporate executives, intellects, white-collar and blue collar
employees have different needs and requirements and
therefore the banking organizations should know
their expectations.


In this sector we find different categories of organizations. Some of the

organizations are known as charitable organizations, some of them are
cultural/ social organizations, some of them are industrial and many of them
are profit making and many are philanthropic and many of them are related to
trade and commerce. It is natural that the needs and requirements vis-à-vis the
level of expectations can’t be identical in all cases. To satisfy and to increase
the market share it is imperative that the banking organizations are familiar
with changing needs and requirements. The emerging trends in the social
transformation process determine the hierarchy of needs.

Chapter 5
7 P’s of Banking sector


A product can be defined as a bundle of utilities consisting of various product

features accompanying services.

Bank services are viewed with not just things that are created with value but
they are seen in terms of satisfaction they deliver.

E.g. A bank account is seen in terms of customer satisfaction such as safety,

convenience of paying dues keeping records status, transferring funds, etc.

I. Bank Products

Savings, current, fixed etc.

(a) Fund Oriented:
• Term loan
• Clean loan
• Bill discounting
• Advancing
• Pre-shipment and post-shipment finance
• Secured and unsecured lines of credit.

(b) Non-Fund Oriented:

• Guarantees
• Letter 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.


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
Expected Product:

It refers to the set of attributes and conditions expected by the customers

when they purchase the service. E.G. If the customer expects the loan to be
given within a day and if he gets it in a day, the bank has met the expectations
of the customer.

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.

Core Basic Expected Augmented Potential Product

Product Product Product Product
The basic Safety of Timely Goods Mobile and
necessity to deposits service waiting internet Banking
use banking rooms
services in
order to
finance more
Loanable Long Extensive New Schemes
funds etc. banking ATM tailored for
hours network specific customers

Low interest Promotional

rates Discounts

Thus it can be seen how a particular product passes through different

levels. In today’s competitive scenario most banks try offering services at the
Augmented and Potential level.

The price mix in the banking

sector is nothing but the interest
rates charged by the different
banks. In today’s competitive
scenario where customer is the
king, the banks have to charge
them interest at a rate in accordance
with the RBI directives. Banks also compete in terms of annual fees for
services like credit cards, DMAT etc. Another important aspect of the bank’s
pricing policy today is the interest charged on the Home Loans and Car
Loans. With India’s economy progressing, there are more and more buyers
seeking these loans but at a very competitive interest rate.

Let’s understand this with an example. A particular buyer approaches a bank

for a car loan for a period of 3 years. He is charged Rs. 20,000 as interest.
However, if a sale representative of another bank comes to know of this deal,
he will try to attract the customer by giving him a better deal i.e. a loan at a
lower rate on interest. In this way, it is the customer that ultimately benefits.
Here is an example of some of the prices charged by ICICI bank for their

ATM Card Issue Free – 2 ATM cards issued free if it joint


Add – on Card RS. 100 – Beyond 2 cards

Duplicate Card Rs. 100

Other General Charges:

Current Account Savings Account

Transaction Charges NIL NIL

Charges for issue of Cheques NIL NIL


Issue of duplicate statement Rs. 25 per page Rs. 25 per page

Account closure Rs.100 Rs.100

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
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
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:

Banks having unique or different products or schemes mainly do this type of

pricing. They usually charge a combination of high and low prices depending
on the customer loyalty as well as the products. This type of pricing strategy
is usually coupled with promotion programmes.

Going Rate 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 most favourable pricing strategy should ensure maximum

satisfaction to both the bank as well as the customers.

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 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.

Some of the important factors affecting the location analysis of a bank


1. The Trade area

2.Population characteristics
3.Commercial structure
4.Industrial structure
5.Banking structure
6.Proximity to other convenient
7.Real estate rates
8.Proximity to public
9.Drawing time
10.Location of competition
It is not necessary that all the above conditions have to be satisfied while
selecting the location but it should try and satisfy as many of them as

1. The Trade Area:

The trade area is a very important factor determining the place where a
bank branch should be set up. For e.g. a particular location maybe a huge
trading place for textiles, diamonds or for that case even the stock market.
Such locations are ideal for setting up of bank branches

2. Population Characteristics:
The demography of a place is a very important factor.

This includes:

➢ The income level of the population

➢ The average age
➢ The average male female population
➢ The caste, religion, culture and customs
➢ The average spending and saving habit of the people.

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.

6. Proximity of other convenient outlets:

This refers to the other branches of the same bank as well other
commercial, entertainment and industrial outlets.

7. Real Estate Rates:

This is mainly dealing with the cost factor involved in opening up a
bank branch at a particular location. The real estate rate is a very strong factor
influencing the location decision for a bank branch.

8. Proximity to public transportation:

The location should be proximate to public transportation facilities. This
means it should have bus stops close by as well as it should be proximate to
railway stations so as to make it convenient for the common man.

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.

10. Location of Competition:

The existence of other banks also means competition. If the level of

competition is very high in a particular location, it is necessary that a bank
does a lot of market research before opening a branch so as to estimate the
kind of business it would get.
11. Visibility:

The location of a branch should be such that it is visible and easily noticed by
the customers as well other people.

12. Access:

The bank branch should be very easily accessible to the customers. If

this is not the case, the customer might switch to some other bank, which is
more convenient to him and very easily accessible. The location should be
such that it is very convenient for the customer to reach.
Promotion Mix

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

This can be better explained with the example of ICICI bank.

SMS services:
SMS functions through simple text messages sent from your cellular
phone. These messages are recognized by ICICI bank to provide you with the
required information.
For example, when you enter ‘IBAL’ your cellular phone screen will display
the current balance in your primary account. Thus with the help of SMS a
wide range of query based transactions can be performed without even
making a call.

ICICI was the first organization in India to provide Wireless Application

Protocol (WAP) based services. Mobile commerce using WAP technology,
allows secure online access of the web using mobile devices. With WAP one
can directly access the ICICI WAP server, check one’s account details and
use other value added services. Thus different methods are used by different
banks to promote its services.

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.

Selecting a suitable vehicle

Another very important task is to select a suitable vehicle for driving the
message. There are a number of devices to advertise such as broadcast media,
telecast media and the print media. The selecting of the mode of advertising is
strongly influenced by the kind of budget decided. Usually for promoting
banks the most effective and economical form of advertising has been the
print media.

Making possible creativity

Making possible creativity is nothing but the kind of slogans, punch
lines etc. that are supporting the message. They should be very creative but
yet simple to be understood by the common man. It should appeal to the
customers. It should be distinct from that of the competitors and should be
successful in informing and sensing the customers.
Testing the Effectiveness
It should be borne in mind that the advertisement is first tested for its
effectiveness. This should be done with the help of various techniques like
testing effectiveness on a sample group. This helps determine the success of
the advertisement and in case of any problem the advertisement can be altered
and remedied.

Instrumentality of Branch Managers

At a micro level, it is the responsibility of the branch managers to
promote and drive the message to the people in the local area. They should
organize small programs in order to attract people and crate awareness in the
local area about the new schemes of the bank.

Different Ways of Promotion

1. Public Relations:

In today’s competitive scenario developing strong public relations is

very important for any bank to be successful. Most banks today have a
separate Public Relations department. However primarily it is considered as a
responsibility of the various bank managers to develop a steady and strong
relationship with their present customers as well as potential customers. This
can be done by a constant follow up, small programmes etc.
2. Personal Selling:

Personal selling is found to be one of the most effective and popular

forms of promoting bank business. The main reason for this is that banking is
a service in which trust plays a very important role. In personal selling, a
bank representative goes to the customers and explains the scheme to the
customers. Also he gives the customers any kind consultation he might need.
He provides the customers all the information sought by him. The
representative tries to persuade the customers to go for the scheme provided
by the bank by telling him all the benefits. Here are some of the important
features of personal selling

➢ It is a direct relation between the buyers and the seller

➢ It is oral presentation in conversation
➢ It is personal and social behaviour
➢ It is found to be more effective in service oriented organizations
➢ It is based on the professional excellence or expertise of an individual

1. Sales Promotion:

Sales promotions are basically giving the customers some additional

benefits, maybe at times just some small gifts, in order to promote the
schemes. The more innovative the sales promotions the more positive are the
results. Some of the most popular sales promotions techniques are gifts,
contests, fairs and shows, discounts and commission, entertainment and
travelling plans for bankers, additional allowance, low interest financing etc.
It is very important that the sales promotions benefits are designed in such a
manner that they are better than those of the competitors.
2. Word – of – mouth Promotion:

This form of promotion is not only very effective in banking services

but in any kind of service. However it is more important in banking for the
only reason that this is a service where trust plays a very important role. If a
particular bank’s services are recommended by friends, relatives, or other
well wishers the person is more influenced and inclined towards that bank. It
is very important to note that the internal employees of the bank play a very
important role in word – of – mouth promotion technique. This is because
they can start the process by recommending the bank to their friends and
relatives and after that it is like a chain, which spreads like a wild fire.

3. Telemarketing:

In recent times telemarketing has gained increasing importance as an

effective tool for promotion. Telemarketing is a process of making use of
sophisticated communication network for promoting the banks. This includes
promoting through television, telephone, and radio. Nowadays, cell phones
are used extensively for the same. This is the most popular form of
promotion. Banks today have started using ‘SMS’ and many other services
supported by cell phones to provide benefits to their customers and thus have
tried to increase their sales. In today’s competitive and modern scenario it
very important that banks makes use of telemarketing techniques very
efficiently to have desirable results.

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 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.

The position in the eyes of the customer will be perceived by

appearance, attitude and behaviour of the customer contact employees. Not
only does the customer contact employee influence the customer’s perception
but also the customer base of the organization does so.

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

Now this mainly involves 3 things.

1. Producing of proper documents

2. Filling up of application form
3. Paying for the initial down payment.
Here the process may fail in the following cases:

1. If the customer is asked to produce a number of forms out of which

some may not be necessary at all. Thus it is very necessary that the customer
be asked for the minimum but most necessary document and not the other
unnecessary documents.
2. In case of application form, the application form must be in a language
best understood by the customers and it should not be very lengthy or
demanding a lot of unnecessary information.
3. Finally the payment of initial amount. The customer should be given
options as to how he would like to pay by cheques or by credit card. Once
again the amount should be very competitive not very high above the regular
rates prevailing in the markets.

The smaller and simpler the procedure, the better the process, and the
customer will be more satisfied.

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.

The Hong Kong Shanghai Banking Corporation (HSBC) had decided in

introducing a common uniform for all the employees in all its branches all
over India. The plan is possibly in line with the aggressive retail banking
adopted by HSBC. A common uniform is nothing like a revolutionary change
but however this little change makes it very easy for the customer to identify
with his service provider and makes the entire process very easy for him. The
more the bank does to make the service easier the better it is for the customer.

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

Chapter 6


There are many reasons why a customer should be given QUALITY

SERVICES. The most of them are:
1) Industry being so competitive that a customer should be given the best
services as they have many competitors (the company) and if even a single
customer is lost in today’s world then it very difficult to win back the
2) Most of the customers do not complain as they just opt out and do get
satisfied with better services elsewhere.

When it comes to services, there are 10 quality dimensions. Each of the

dimensions is of utmost importance since human element is involved and it
relates to services. But Zeithaml, Bitner and Parsuraman have developed a
new and concise model by clubbing some points. This model consists of the
following dimensions:






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 is defined as employee’s knowledge and courtesy and the ability of

the firm and its employees to inspire trust and confidence. It includes the
ability, knowledge, genuineness, and honesty to provide the best services to
the customer from the frontline staff. In this dimension the front line staffs is
more important rather than the owner.

At Indian Overseas Bank, every customer who comes is treated with

utmost care and any problem that takes place is solved with great enthusiasm.
It assures the customers coming up to the bank that the money they invest is
secure; the interest rate that is being provided to them is at par or sometimes
even higher as compared to other banks. Also, it assures the customers that the
money they have invested will be returned to them as and when required with
proper interest. It tries to empower their customer, contact people and regularly
train them in skills to build trust and loyalty between employees and the

Tangibles are defined

as the appearances of
physical facilities,
equipments, personnel and
communication materials.
All of these provide physical
representations or images of
the service that customers,
particularly new customers,
will use to evaluate quality.

At Indian Overseas Bank, the entire premise is air-conditioned. They

have computerized systems in place and therefore quick, accurate and efficient
service can be provided to the customers. The tables and chairs are
conveniently located for the customers. The personnel always have a cheerful
and helping veneer and are always ready to help out the customers. The entire
place is done up in bright colours and thus the customer can immediately feel
the warmth and the radiance of the place.

Empathy is defined as the caring,

individualized attention the firm provides its
customers. The essence of empathy is
conveying, through personalized or
customized service, the customers are
unique and unique special.

The empathy shown by the employees of

the Indian Overseas Bank is good as they
are always polite humble and helpful. There
was a case where once a customer
misplaced Rs. 1,00,000 within the premises
of the bank. He panicked but the bank personnel put him at rest and assured
him that they would locate the same for him. Since he was a regular customer,
they knew him very well and took the situation under control. They quickly
located the cash and thus, the customer was placated. The bank personnel went
out of their way to help this customer and thus understood his predicament.
This bank regularly holds seminars and training workshops so that they can
understand the consumer better and thus serve him better.

Responsiveness is the willingness

to help the customer and provide him
with immediate and fast service.

The Indian Overseas Bank is

prompt at providing its customers with
the information and services that they
seek. It is extremely prompt when it
comes to resolving the complaints of the
customers. The customers, in their
feedback form, mentioned this as one of the most important factor that has
prompted them to continue with this bank.

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.

The latest developments in terms of technology in computer and

telecommunication have encouraged the bankers to change the concept of
branch banking to anywhere banking. The use of ATM and Internet banking
has allowed ‘anytime, anywhere banking facilities. Automatic voice recorders
now answer simple queries, currency accounting machines makes the job
easier and self-service counters are now encouraged. Credit card facility has
encouraged an era of cashless society. Today MasterCard and Visa card are
the two most popular cards used world over. The banks have now started
issuing smartcards or debit cards to be used for making payments. These are
also called as electronic purse. Some of the banks have also started home
banking through telecommunication facilities and computer technology by
using terminals installed at customers home and they can make the balance
inquiry, get the statement of accounts, give instructions for fund transfers, etc.
Through ECS we can receive the dividends and interest directly to our
account avoiding the delay or chance of losing the post.

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.

All these technological changes have forced the bankers to adopt

customer-based approach instead of product-based approach.

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.

1. Automated Teller Machines (ATMs):

ATM’s have eliminated the time limitations of customer service and

offer a host of banking services including deposits, withdrawals, requisitions,
instructions and transactions. ATM’s traditional and primary use is to
dispense cash upon insertion of a plastic card and its unique PIN or personal

identification number. It is issued to

Current and Saving account holders of a
bank who hold a certain minimum balance.
When the card is inserted into the ATM,
the machine sensing equipment identifies
the account holder and asks for his or her
identification PIN number. This number is not even known to the bank staff
and is unique and secret to the individual
2. Internet Banking:

Banks have over a long time been using electronic and

telecommunication network for delivering a wide range of value added
products and services. The delivery channels include dial-up connection,
private network, public network etc and the devices include telephone
personal computers including the ATM etc. With the popularity of PC’s and
easy access to the internet and World Wide Web banks increasingly use
internet as a channel for receiving instructions and delivering their products
and services to their customers. This form of
banking is often referred to as internet banking,
although the range of products and services
offered by different banks, vary widely both in
their content and sophistication.

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

4. Note and coin counting machines:

To reduce the need of manual counting, note and counting machines
are available which counts a bundle of notes placed on it. Loose notes are
inserted into the machine. The machine then counts the notes at top speed,
while simultaneously indicating the number counted
on a digital display. Every time the number reaches
100, the machine stops, subject to it being fixed at
100 and allows for the bundle to be taken out. This
machine does relieve the drudgery involved in
counting. However, one limitation of this machine is that the notes have to be
in fairly good condition for the machine to able to count properly. However,
the machine requires all the notes to be in the same denomination.

5. Electromagnetic Cards:

In the modern days of commerce credit cards have acquired a fairly

prominent and pervasive role. With the increasing use of credit cards the
society is moving towards cashless transactions. In India however the use of
credit cards is restricted to small value and mostly personal transactions. The
two international credit card giants viz, Visa international and Master Card
international are poised to make deeper inroad in untapped Indian market.

Types of electromagnetic cards:

1) Charge card: In such cards transactions are accumulated over a period
of time generally a month and the total amount is charged i.e. debited to the
account. In charge card the amount becomes payable immediately on the
debit to the account.

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.

4) Smart card: There are two types of smart cards

intelligent memory chip and micro processor cards.
The memory smart cards have been around for several
years they are being used in paying phones, identification, access control,
voting and other applications. Processer smart cards are the most advanced
and are ideally suited for banking and financial application where re use of
the card is allowed.

5) Member card: This is used by members of a club or a chain of hotels.

E.g. the Taj Card is a card issued by the Management of the Taj group of
Hotels to be used by patrons of their hotels .Similarly there are many other
types of cards where the usage is exclusive to the members of the group.


With the development of modern communication facilities, electronic

payment systems are becoming popular. These are teller machines available
for bank customers within the bank as well as outside the bank premises.
ATM’s which are being located even at public places, are able to provide the
customers minimal banking services including cash payments round the
clock. Shared ATM’s are also introduced in India where the services are
provided across the banks. Customers need not necessarily visit the bank to
do banking transactions when their banker provides them tele-banking or
remote banking facilities.

We have also seen that the various electronic and electro-mechanical

aids that help the modern banker to efficiently render innovative and novel
customer service. Equipments like note and coin counting machines help the
banker to take care of the tedium in his task, reduce drudgery and at the same
time efficiently discharge his functions. These technological aids not only
take care of some of the physical routine tasks but also contribute
substantially to efficient housekeeping functions and also render services that
are in tune with the customer needs and satisfaction.