banking preferences

8/13/2019 banking preferences

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Concept of a Bank:

What is a bank?

A bankis afinancial institution and afinancial intermediary that acceptsdeposits and

channels those deposits intolending activities, either directly by loaning or indirectly

throughcapital markets.A bank links together customers that have capital deficits

and customers with capital surpluses.

Functions

Commercial banks perform many functions. They satisfy the financial needs of the sectors

such as agriculture, industry, trade, communication, so they play very significant role in a

process of economic social needs. The functions performed by banks, since recently, are be-

coming customer-centred and are widening their functions. Generally, the functions of com-

mercial banks are divided into two categories: primary functions and the secondary functions.

The following chart simplifies the functions of commercial banks.

Commercial banks perform various primary functions, some of them are given below:

Commercial banks accept various types of deposits from public especially from its cli-

ents, including saving account deposits, recurring account deposits, and fixed deposits.

These deposits are payable after a certain time period

Commercial banks provide loans and advances of various forms, includinganoverdraftfacility, cash credit, bill discounting, money at call etc. They also give de-

mand and demand and term loans to all types of clients against proper security.

Credit creation is most significant function of commercial banks. While sanctioning a

loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit

account from which the borrower can withdraw. In other words, while sanctioning a loan,

they automatically create deposits, known as a credit creation from commercial banks.

Along with primary functions, commercial banks perform several secondary functions, in-

cluding many agency functions or general utility functions. The secondary functions of com-mercial banks can be divided into agency functions and utility functions.

The agency functions are the following:

To collect and clear cheque, dividends and interest warrant.

To make payments of rent, insurance premium, etc.

To deal in foreign exchange transactions.

To purchase and sell securities.

To act as trustee, attorney, correspondent and executor.

To accept tax proceeds and tax returns.
http://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_institution


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The utility functions are the following:

To provide safety locker facility to customers.

To provide money transfer facility.

To issue traveller's cheque.

To act as referees.

To accept various bills for payment: phone bills, gas bills, water bills, etc.

To provide merchant banking facility.

To provide various cards: credit cards, debit cards, smart cards, etc.

Channels

Banks offer many different channels to access their banking and other services:

Automated Teller Machines

Abranch is a retail location

Call center

Mail: most banks accept cheque deposits via mail and use mail to communicate

to their customers, e.g. by sending out statements

Mobile banking is a method of using one's mobile phone to conduct banking

transactions

Online banking is a term used for performing multiple transactions, payments

etc. over the Internet Relationship Managers,mostly for private banking or business banking, often

visiting customers at their homes or businesses

Telephone banking is a service which allows its customers to conduct transac-

tions over the telephone withautomated attendant or when requested

withtelephone operator

Video banking is a term used for performing banking transactions or professional

banking consultations via a remote video and audio connection. Video banking

can be performed via purpose built banking transaction machines (similar to an

Automated teller machine), or via avideo conference enabled bank branch clari-fication

DSA is a Direct Selling Agent, who works for the bank based on a contract. Its

main job is to increase the customer base for the bank.
http://en.wikipedia.org/wiki/Automated_Teller_Machinehttp://en.wikipedia.org/wiki/Branch_(banking)http://en.wikipedia.org/wiki/Call_centerhttp://en.wikipedia.org/wiki/Mobile_bankinghttp://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Customer_relationship_managementhttp://en.wikipedia.org/wiki/Telephone_bankinghttp://en.wikipedia.org/wiki/Automated_attendanthttp://en.wikipedia.org/wiki/Switchboard_operatorhttp://en.wikipedia.org/wiki/Video_bankinghttp://en.wikipedia.org/wiki/Video_conferencehttp://en.wikipedia.org/wiki/Direct_Selling_Associationhttp://en.wikipedia.org/wiki/Direct_Selling_Associationhttp://en.wikipedia.org/wiki/Video_conferencehttp://en.wikipedia.org/wiki/Video_bankinghttp://en.wikipedia.org/wiki/Switchboard_operatorhttp://en.wikipedia.org/wiki/Automated_attendanthttp://en.wikipedia.org/wiki/Telephone_bankinghttp://en.wikipedia.org/wiki/Customer_relationship_managementhttp://en.wikipedia.org/wiki/Online_bankinghttp://en.wikipedia.org/wiki/Mobile_bankinghttp://en.wikipedia.org/wiki/Call_centerhttp://en.wikipedia.org/wiki/Branch_(banking)http://en.wikipedia.org/wiki/Automated_Teller_Machine


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Indian Banking Industry: The Indian banking system is characterized by a

large number of banks with mixed ownership. The commercial banking

segment comprises 27 public sector banks in which the

Government has majority ownership, 40 private sector banks,

and 33 foreign banks. Total bank assets constituted a littleover 70 percent of GDP in 2003-04. Public sector banks had

75 percent of the assets of the banking system in 2003-04,

while private and foreign banks held 25 percent. In 1991, by

comparison, public sector banks share of the total assets of

the banking system was a little over 90 percent.

The Reserve Bank of India was nationalized on January 1,

1949 under the terms of the Reserve Bank of India (Transfer

to Public Ownership) Act, 1948. In 1949, the Banking Regulation

Act was enacted which empowered the Reserve Bankof India (RBI) to regulate, control, and inspect the banks in

India. The Banking Regulation Act also provided that no

new bank or branch of an existing bank could be opened

without a license from the RBI, and no two banks could have

Common directors. By the 1960s, the Indian banking industry

had become an important tool to facilitate the speed of development

of the Indian economy. The Government of India

issued an ordinance and nationalized the 14 largest commercial

banks with effect from the midnight of July 19, 1969. A

second dose of nationalization of 6 more commercial banks

followed in 1980. The stated reason for the nationalization

was to give the government more control of credit delivery.

With the second dose of nationalization, the Government of

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

Later on, in the year 1993, the government merged New

Bank of India with Punja.

A brief review of Reforms of Indian Banking of them is as

follows:-

Reddy and Yuvaraja (2001) The adoption of international capitaladequacy and accounting standards, deregulation of interest

rates and entry of private and foreign banks underline

that the speed of the financial sector reforms and sequencing

of the reforms should take into account the realities of the

Indian economy..

Rao (2002) concluded that the Indian banking system has

transformed itself from banking to the international banking.

Regulations are forcing the banks to adopt better operational

strategies and upgrade their skills. The system requires a combination

of new technologies, well-guarded risk and credit appraisal,

treasury management, product diversification, internal


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control, external regulation as well as skilled human resources

to achieve the heights of the international excellence to play

its role critically in meeting the global challenges.

Reddy and Reddy (2003) are of the view that the new challenges

faced by the banks are forcing to attempt all newthings with the same old rigid structure and system. What

required is more managerial and administrative freedom to

the management with commensurate and result oriented accountabili-

ties.

SERVICES IN INDIAN BANKING SECTOR FOR THEIR CUS-

TOMERS-.

Real Time Gross Settlement (RTGS)-

Real Time Gross Settlement system, introduced in India since

March 2004, is as system through which electronics instructionscan be given by banks to transfer funds from their account

to the account of another bank

Electronic Funds Transfer (EFT)-

Electronic Funds Transfer (EFT) is a system whereby anyone

who wants to make payment to another person/company

etc. can approach his bank and make cash payment or give

instructions/authorization to transfer funds directly from his

own account to the bank account of the receiver/beneficiary.

Electronic Payment Services

Nowadays we are hearing about e-governance, e-mail, ecommerce,

e-tail etc. In the same manner, India, as harbinger

to the introduction of e-cheque, the Negotiable Instruments

Act has already been amended to include; Truncated cheque

and E-cheque instruments

Electronic Clearing Service (ECS)-

Electronic Clearing Service is a retail payment system that

can be used to make bulk payments/receipts of a similar nature

especially where each individual payment is of a repetitive

nature and of relatively smaller amount.Automatic Teller Machine (ATM)-

It is a devise that allows customer who has an ATM card to perform

routine banking transactions without interacting with a human

teller. In addition to cash withdrawal, ATMs can be used

for payment of utility bills, funds transfer between accounts,

deposit of cheques and cash into accounts, balance enquiry etc.

Tele Banking Services-

Tele Banking facilitates the customer to do entire non-cash

related banking on telephone. Under this devise Automatic

Voice Recorder is used for simpler queries and transactions.

For complicated queries and transactions, manned phone


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terminals are used.

Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of

business documents like purchase order, invoices, shipping

notices, receiving advices etc. in a standard, computer processed,universally accepted format between trading partners.

EDI can also be used to transmit financial information

and payments in electronic form.

THE MAJOR EFFORTS AND ATTRACTIONS OF CONFORMIST

INDIAN BANKING INDUSTRY

(A) How can banks rebuild customer confidence- Encourage customer self service: - Banks needs to improve

the way they provide information and advice to

interest and convince self-directed customers, including

financial planning tools, ranges of product and pricing

bundles.

Personalized banking. Customers who report a more tailored

experience are often most willing to provide their

banks with more frequent updates.

Better value and service. Customers are demanding

more control of their relationships and will look around

for the most attractive fees and rates for the level of service

provided.

(B)Banks are competing for the attention and loyalty of increasingly

demanding customers.

The proportion of customers planning to change banks has

increased since 2011, with 50% of customers globally citing

high fees and charges as the primary reason. But customers

appear to want more than a better dealthey want the

flexibility to shape the relationship, contacting their bankwhenever and however they choose. They may prefer online

channels for simple transactions, but demand high-quality,

personalized services for more complex transactions.

Banking customers in more mature economies, such as

the US and Latin America, tend to bank with one or two

banks, primarily to ensure they receive the best products

and services at the most attractive prices.

Customers in emerging economies, such as China, India

and Japan tend to bank with multiple providers mainly

due to concerns over potential bank failures.

(Note-Customers with one bank have fallen from 41% to


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31%, while those with three or more have increased from

21% to 32% since 2011.)

(C)How can banks offer more personalized services to customers?

Make pricing and service promises transparent. Pricing is

critical to customer satisfaction, but most customers haveno idea how much they pay each year.

Offer tiered levels of customer experience. Customers

should have the option to buy into certain products and

services, and the ability to earn upgrades through loyalty

Move from multi-channel to omni-channel distribution.

Banks need to look beyond multi-channel distribution

towards an omni-channel approach, which uses customer

data gathered from branches, website visits, social

media and elsewhere.(Note-Worldwide, the proportion of customers planning

to change banks has increased from 7% to 12%

since 2011).

(D)How can banks provide a better customer experience?

Make low-cost digital channels customers preferred

choice. Banks should encourage customers to use digital

channels whenever possible by using price incentives.

Prioritize investment on critical customer interactions.

Banks should focus operational improvements on

customers most valued interactions, optimizing the resulting

impact on attrition, dormancy and loyalty.

Use innovative technology to deliver the retail bank of

the future. The use of technology is crucial to delivering a

lower cost, more reliable, more flexible but still personal

customer experience.INTERNET SERVICES- Banking in

India

Jadhav Anil (2004) described various channels of e-banking

services such as ATM, Telephone banking (Tele-banking),

Mobile banking, Internet banking and its features.The focus is also given on e-banking opportunities, challenges

and security aspects while performing the banking

transactions on the internet. Comparison of public, private,

foreign and co-operative banks and barriers to the growth of

e-banking in India are also discussed. .

Researcher also describes the advantages of internet banking,

The advantages of internet banking are:-

To save the time

To increase customer loyalty.

To attract new customers.

Development of internet education


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To improve customer access.

To reduce customer attrition.

The Financial Services is the backbone of service sector. This is important notonly for the banking sector but for the Indian economy as a whole. This is so

because banking is a catalyst

and life of modern trade and commerce. It is an integral part of all the busi-

nesses and social

activities. This rapid transformation of services in the banking system has led

to the evolution of

a highly competitive and complex market where there is a continuous refine-

ment of services.

Hence the increased role of banking in Indias economic development on the

one hand and the

changes in the business climate on the other has put increased pressure on

them. These

changes are compelling the banks to reorganize themselves in order to copewith the present

conditions.

With the current change in the functional orientation of banks, the purpose ofbanking is

redefined. Now, the Financial Institutions are trying to provide all the servicesat the customers

doorstep. The customer has become the focal point either to develop or main-

tain stability in the

business. Every engagement with the customer is an opportunity to either de-velop or destroy a

customers faith in the Bank.The expectations of the customers have also in-creased many


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folds. Intense competition among the banks has redefined the concept of the

entire banking

system. The banks are looking for new ways not only to attract but also to re-

tain the customers

and gain competitive advantage over their competitors. The banks like otherbusiness

organizations are deploying innovative sales techniques and advanced market-

ing tools to gain

supremacy.The main driver of this change is changing customer needs and

expectations.

Customers in urban India no longer want to wait in long queues and spendhours in banking

transactions. This change in customer attitude has gone hand in hand with the

development of

ATMs, phone and net banking along with availability of service right at the

customer's doorstep.

With the emergence of universal banking, banks aim to provide all banking

product and service

offering under one roof and their endeavor is to be customer centric. With the

emergence of

economic reforms in world in general and in India in particular, private bankshave come up in a

big way with prime emphasis on technical and customer focused issues.


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Appendix Table IV.1 : Indian Banking Sector at a Glance

(Amount in ` billion)

Sr. No Items Amount Outstanding Percentage variation

(as at end-March)


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2012 2013 2011-12 2012-13

1 Balance Sheet Operations

1.1 Total Liabilities/assets 83,209 95,733 15.8 15.1

1.2 Deposits 64,535 74,295 14.9 15.1

1.3 Borrowings 8,438 10,105 24.9 19.8

1.4 Loans and advances 50,736 58,797 18.1 15.9

1.5 Investments 22,339 26,133 16.1 17.0

1.6

Off-balance sheet exposure (as percentage of on-

balance sheet liabilities) 175.4 138.5 - -

1.7 Total consolidated international claims 2,809 3,312 14.0 17.9

2 Profitability

2.1 Net profit 817 912 16.1 11.6

2.2 Return on Asset (RoA) (Per cent) 1.08 1.03 - -

2.3 Return on Equity (RoE) (Per cent) 14.60 13.84 - -

2.4 Net Interest Margin (NIM) (Per cent) 2.9 2.8 - -

3 Capital Adequacy

3.1

Capital to risk weighted asset ratio (CRAR) (under

Basel I) 12.9 12.8 - -

3.2

Capital to risk weighted asset ratio (CRAR) (under

Basel II) 14.2 13.9 - -

3.3 Tier I capital (as percentage of total capital) 72.8 74.1 - -

3.4 CRAR (tier I) (Basel I) (Per cent) 9.4 9.5 - -

3.5 CRAR (tier I) (Basel II) (Per cent) 10.4 10.3 - -

4 Asset Quality

4.1 Gross NPAs 1,429 1,940 46.0 35.8

4.2 Net NPAs 652 986 56.4 51.2

4.3

Gross NPA ratio (Gross NPAs as percentage of

gross advances) 3.1 3.6 - -

4.4

Net NPA ratio (Net NPAs as percentage of net ad-

vances) 1.3 1.7 - -

4.5 Provision Coverage Ratio (Per cent)** 51.9 51.0 - -

4.6 Slippage ratio (Per cent) 2.5 2.7 - -

5 Sectoral Deployment of Bank Credit

5.1 Gross bank credit 43,793 49,642 16.8 13.4

5.2 Agriculture 5,477 5,899 13.3 7.7

5.3 Industry 19,408 22,302 20.3 14.9

5.4 Services 10,188 11,486 14.4 12.7

5.5 Personal loans 7,900 9,009 12.9 14.0

6 Technological Development

6.1 Total number of credit cards (in million) 18 20 -2.2 10.5


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6.2 Total number of debit cards (in million) 278 331 22.1 19.0

6.3 Number of ATMs 95,686 114,014 28.4 19.2

7 Customer Services*

7.1 Total number of complaints received* 72,889 70,541 -4.9 -3.2

7.2 Total number of complaints addressed* 72,885 69,704 1.2 -4.4

7.3 Percentage of complaints addressed 99.99 98.81 - -

8 Financial Inclusion

8.1 Credit-deposit ratio (Per cent) 78.6 79.1 - -

8.2 Number of new bank branches opened 7,401 6,897 - -

8.3

Number of villages covered under Financial Inclu-

sion Plan (FIP) 181,373 268,454 56.4 48.0

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