Literature Review of Banks

The operating efficiency has an affect on the bank size. Pilloff and Rhoades (2002) said a positive relationship exist between the profitability and bank size. Sufian (2009); Molyneux and Seth (1998); Ramlall (2009) also found an affirmative relation of bank size and examine the dependence of bank size upon economies of scale because smaller banks were less profitable than larger banks.Whereas Koasmidou, (2008); Spathis,Koasmidou & Doumpos, (2002) found empirically a negative relation exist between bank size and profitability.Bank size and financial ratios such as efficiency / profitability ratios, liquidity ratios, capital / leverage ratios and asset quality ratios are effective tool to classify the public and private banks and these ratios are also suggested by SBP statistical bulletin to evaluate the financial performance of banks. Financial measures such as return on assets (ROA), interest margins (IM), and capital adequacy (CA) has positive relation with customer service quality (Elizabeth & Elliot 2004). Raza, Farhan, & Akram, (2011) classified the investment banks in his study using return on total assets (ROA) and return on owners equity (ROE). Effectiveness and efficiency are the independent factors (Tarawneh, 2006); (Raza, Farhan, & Akram, 2011). There is no boundless that efficient bank also has effectiveness always. Kaushik Mukerjee (2006) in his paper CRM in Banking-Focus on ICICI Banks initiatives had focused on CRM in Banking and its applications in ICICI Bank. The CRM in ICICI is being used for targeting customers, sales, and consistent interface with customers, etc. ICICI Bank has managed to focus better on customers by undertaking a serious approach that has enabled it to manage its operations effectively. It included better targeting of customers; higher share of wallet; more effective channel strategies; database marketing, etc. The bank is able to evaluate customer usage pattern through CRM data warehouse. New products are developed through extensive customer profiling. Through CRM, ICICI is able to manage its data centrally.

(1997) Studied the liberalization initiated before the deregulation efficiency that impact of the limited Of the 1990s on the performance of various categories of data en-elopement analysis.(We explain Their study banks, using this approach covered 70 banks in the period constructed one grand Frontier for the entire period in a later section.)

1986-91.They and measured the technical efficiency of the banks under study. The authors used advances, investments and deposits as outputs and interest that public expense and operating expense as inputs. They found sector banks had the highest efficiency among the three categories, with lower efficiencies. However, foreign and private public sector banks started efficiency after 1987; foreign banks showed having much showing a decline in private banks showed no sharp rise in accord with the general perception change and efficiency. The main results that in the nationalized era, public sector banks were successful in achieving deposit and loan expansion. It should be noted, however, frontier for the entire period implies that the use of one grand is not separately accounted for. In a study that covers a more recent pares performance among public that technical change period, Das (1999)comsector banks for three years in the post-reform period:1992,1995 and 1998.He finds a certain convergence in performance. He also notes that while there is a welcome increase in emphasis on non-interest income, banks have tended to show risk-averse behavior by opting for riskfree investments over risky loans. Sarker and Das (1997) compare performance at public, private and foreign banks for 1994-95 by using measures of profitability, productivity and financial management. They find public sector banks comparing poorly with the other two categories. However, they caution that no firm inference can be derived from a com- prison done for a single year. Das (1997) analyses overall efficiency technical, allocate and scale at PSBs. During 1990-96, the study found a decline in overall efficiency. This occurred because there was a decline in technical efficiency, both pure and scale, which was not offset by an improvement in allocate efficiency. The study, however, points out that the deterioration in technical efficiency was mainly on account of four nationalized banks. Sarkar et al (1998) compared performance across the three categories of banks - public, private and foreign - in India, using two measures of profitability, return on assets and operating profit ratio, and four efficiency measures, namely, net interest margin, operating profit to staff expense, operating cost ratio and staff expense ratio (all ratios except operating profit to staff expense having average total assets in the denominator). The authors attempted these comparisons after controlling for a variety of non-ownership factors that might have an impact on performance: asset size, the proportion of investment in government securities, the proportion of directed credit, the proportion of rural and semi- urban branches, and the proportion of non-interest income to total income. They found that, in the comparison between private banks and PSBs,

there was only a weak ownership effect. Traded private banks were superior to PSBs with respect to profitability mea- sures but not with respect to efficiency measures. Non-traded private banks did not significantly differ from PSBs in respect of either profitability or efficiency. There was, however, a strong ownership effect between foreign banks and private banks, with the former outperforming the latter with respect to all indicators. The authors conclude that private enterprises may not be unambiguously superior to public enter-prises in a developing economy. They describe the particular ordering of performance that they found - foreign, traded private, On-traded private and public to the link between performance and the market for corporate control. The stronger the link, they suggest, the better the performance. We believe, however, that this study suffers from an important shortcoming. It is confined to just two years after financial sector reform, 1993-94 and 1994-95. In one of these, 1993-94, the performance of PSBs was affected by the introduction of new prudential and accounting norms. Any comparison using the performance parameters for these two years is unlikely to fully reflect differences in managerial performance. It is more appropriate to attempt comparisons in the period subsequent to 1995- 96, as indeed RBI (2002) and Ram Mohan (2002) have done in their analyses. This paper too addresses this shortcoming by considering longer period. Ram Mohan (2002) finds a trend towards convergence in performance between public and private sector banks, using financial measures of performance, in the period 1994-95 to 1999-2000. Ram Mohan (2003) finds this conclusion validated by a comparison of the returns to public and private sector bank stocks in the 1990s. Customer relationship management in financial services industry is a cyclical process which starts with definition of customer actions (Panda T, 2003). Panda T described customer expectations are difficult to manage but are often the cause of dissonance which results in loss of existing customer base. So understanding of customer expectations with regard to service delivery levels and product quality is essential for establishing a long term symbolic value relationship. The challenge before the banks is not only to obtain updated information for each customer, but also to use the information to determine the best time to offer the most relevant products (Lau K, et al , 2003). It is also important to understand that if customers bring in profits for the bank, it becomes imperative for the bank to provide excellent services to those customers, otherwise they switch to other banks (Ray B, 2007). CRM can be viewed as a

process geared towards increasing the value of customers over their lifetime as customers (Furness P, 2001). Furness P highlighted that the essential part of CRM process is the application of decision analytics to understand and predict customer behavior. Berry (1983) defines customer relationship management as attracting, maintaining and enhancing customer relationships in multi service organizations. CRM, which is becoming a topic of increasing importance in marketing, is concerned with using information technology in implementing relationship marketing strategies ( Ryals L, et al, 2001). Customer service is the primary end of any bank. A customer always wants something and expects that the bank should come up to the level to fulfill those needs. Again, the more you provide, still more the consumer needs. Service quality is about meeting customers needs and requirements, and how well the service level delivered matches customer expectations. Service quality in banking implies consistently anticipating and satisfying the needs and expectations of customers (Howcroft, 1991). Berry and Parasuraman (1991) also hold the view that high quality service gives credibility to the field sales force and advertising, stimulates favourable word-of-mouth communications, enhances customers perception of value, and boosts the morale and loyalty of employees and customers alike. In todays competition in Indian banking industry, customers have to make a choice among various service providers by making a trade-off between relationships and economies, trust and products, or service and efficiency (Sachdev et al, 2004). Hallowell Roger (1996) conducted a research on customer satisfaction, loyalty, and profitability and found that as compared to public sector, private sector bank customers level of satisfaction is comparatively higher. It appears that what consumers are saying is that they expect good products and services from their bank and that what is important to them is to have courteous and professional employees.

It appears that what consumer are saying is that they expect good products and services from their bank and that what is important to them is to have courteous and professional employees whom they can trust to explain them: and correct problems when they happen.

In the product arena, by far the most important issues surround the checking amount. Of important to customer is not only the account itself, but the format of the monthly statement which they receive. They expect more from their accounts and want this increased functionality presented in understandable way. Also, consumers are more sensitive to the pricing of this product, as the gap between the importance of checking account and customers satisfaction is comparatively high.

While banks have had the checking product pretty much themselves in the past, the emergence of internet based banks, and the creep of the non banks into into the checking business should be alarm bell for the banks who improve customer satisfaction. Other alarm bells emerging from the study are such attributes as: rates on savings/CDs; fees and services charges ATMs and hours of operations. These are the banks among the attributes where bank score the lowest or where the gap between importance and satisfaction is highest. Additional charts tables showing this detail may be seen on the site. Loyalty measures the satisfaction of the consumer. But it goes beyond and also indicates the action ability of the loyalty. The ABC financial client satisfaction index measures loyalty in three areas Deposit services.Loans..and investments. This is done by asking client whether they would consider the bank for their next services in these three areas. Of course result will vary by both bank and customer, but it is interesting to note that on a overall industry basis, clients are more likely to consider their bank for their next deposit account then for either for their next loan of their next investment. And in the case of investments the score in much lower (3.33 on a 5.00 scale). Or viewed differently, while 75% consider their bank for next deposit account, only 45% consider it for their next investment. In a way, there is some probability that the loyalty score also measures the degree of competition in that particular product market place. The key with this measures is that it be improving overtime.

It has observed by such experts in customer satisfaction as JD power and associates that consumer expectations are growing faster than industries can meet them. And the explosive growth of the internet is shifting the power of information to the customer. Since customer expectation are growing and are influenced by experience with others. The ABC financial client satisfaction index measures a customers overall satisfaction with his/her bank as compared to other financial providers they use, and with other companies in general. The ideas here are for a banks overall satisfaction scores to keep up with or exceed, those in other areas. POWER JD and ASSOCIATES, 1999. Fredrick Reichheld(1996) expended the loyalty business model beyond customers and employees. He looked at the benefits of the obtaining loyalty of suppliers, employees, bankers, customers, distributers, shareholders, and the board of directors. The final link in the model is the effect of customer loyalty on profitability. The fundamentals assumptions of all the loyalty models is that keeping existing customers is less expensive then acquiring new once. It is claimed by Reichheld and Sasser(1990) that a 5% improvement in can cause an increase profitability between 25% and 85% depending upon the industry. However, Carrol and Reichheld(1992) dispute these calculations , claiming that they result from faulty crosssectional analysis. Schlesinger and Heskett, 1991.