Chapter - Three
Literature Review
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LITERATURE REVIEW
I. RELEVANCE OF CUSTOMER SATISFACTION IN INDIAN
BANKING INDUSTRY
In the view that Customer Satisfaction is indispensible in the banking
organizations, many government and non-government agencies as well
as academicians and practitioners undertook various studies.
Uppal R K and Poonam Rani (2012), in their study titled “Customer
Perception towards Better Banking Services in India - An Empirical
Study”, analyzed customer perception about CRM, reliability, accuracy,
security and transparency among the customers of public sector banks,
Indian private sector banks and foreign banks in Amritsar, Punjab. They
have found that most of the customers are satisfied with the different
banking services and that customer satisfaction can be improved by
ensuring more speed in rendering transactions and giving prompt services.
Ananth & Dr. A. Arulraj, February, (2011) conducted study on “Banking
Services Quality in Nagapattinam District, Tamil Nadu”, Indian Journal
of Marketing, Vol. 41, Issue No. 2, Page No. 3. This study reveals that at
every level of dealing with the customers, the bank management needs to
educate employees for banking activities and processes.
Pandit C Bilamge (2011) in his study “A Comparative Study of
Customer Perception towards Services rendered by Public Sector
Banks and Private Sector Banks” studied the issues relating to customer
services in the ICICI Bank and SBI. The study reveals that the ICICI Bank
is far ahead of the SBI in providing quality services to their customers.
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Puja Khatri and Yukti Ahuja (2010) through their research work, “A
Comparative Study of Customer Satisfaction in Indian Public Sector
and Private Sector Banks”, compares the public sector banks and private
sector banks in terms of customer satisfaction. The study showed that
private banks seem to have satisfied their customers better than public
sector banks by providing better facilities.
Anubhav Anand (2010), had worked out on “Factors affecting Customer
Satisfaction and their relative importance in Retail Banking”. His
Study focused on factors that are responsible for satisfaction of customer
and also enables assessment of influencing power of these factors. A major
contribution of the study has been provision of an approach for the
management of banks to identify the factors of customer satisfaction.
A, Kumaresan & I. Chitrakala & K. Gowtham, April (2010) conducted
study on “Credit Card Holders Expectations and Preferences Towards
Selected Banks in Coimbatore City, Tamil Nadu”, Indian Journal of
Marketing, Vol. 40, Issue No. 4, Page No. 40. This study reveals that
effective measures should be taken to make the consumers more aware
about the pros and cons of the credit cards among the users.
Ashok Kumar M. & Rajesh R., September (2009) conducted study on
“Whether Today‘s Customers are Satisfied? -A study with Banks”,
Indian Journal of Marketing, Vol. 39, Issue No. 9, Page No. 56. This study
reveals that both Public and Private sector banks lack one or the other
aspects so that there is no significant difference between overall
satisfactions of the banks.
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Mittal Anurag (2009) in his study, “Relationship Marketing
Effectiveness in Indian Banking”, compares the relationship market
orientation and customer satisfaction in the Retail Banking activities of
selected 5 public sector banks and 5 private sector banks in the State of
Delhi. Customers of both the group of banks were of the opinion that there
is wider difference in the application of customer relationship marketing in
the banks under study. The relationship marketing approach is not
effectively administered in public sector banks and so, customer
satisfaction level is low.
Nikhil Chandra Shil & Bhagban Das, August (2008) conducted study on
“Customer Satisfaction with regard to Banking: An Application of
QFD”, Management Research, Vol.7, No.8. The study reveals that
Customers nowadays are very choosy about the way they spend their
money. Quality is the first and foremost preference. Therefore, it is of
utmost importance for every organization to understand, respect, and
satisfy their customer‘s needs and feelings continuously.
Reserve Bank of India (2008) Department of Statistics and Information
Management, Chennai Regional Office, Local Board (Southern Region)
conducted a study to evaluate the satisfaction level of customers on various
services rendered by banks covering 2800 customers from 1496 bank
branches selected, using systematic sampling method. The study evaluates
the staff attitude to customers, infrastructural facilities, complaint handling
and redressal mechanism, interest rates and fees, loans and credit card
facilities. It was proved that, for complaint handling and redressal
mechanism, quick and fast services and loan facilities, the private sector
banks are better than the public sector banks. A majority of the respondents
are highly dissatisfied with the infrastructure facilities, interest rates for
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credit cards, service charges and fee levied by banks, especially private
sector banks.
Dhade & Mittal (2008), had worked out on the preferences ,satisfaction
level and chances of shifting of customer of public sector and new private
sector banks .This study focused on the primary opinion of customers of
these banks. There are a number of studies that refer to the importance of
clients/ customers' perceptions of quality (Takeuchi and Quelch, 1983).
These result from comparisons by expectations of service with actual
performance (Gronroos, 1982 and Berry, et al, 1985). Berry (1980) along
with Booms and Bitner (1981) argued that due to intangible nature of
services, customers use elements associated with the physical environment
when evaluating service quality. Managing the evidence and using the
environmental psychology are often seen as important marketing tools.
Mittal (2008) has studied the effect of IT- based services and customer
satisfaction in banking industry and has found that the IT-enabled services
delivered by banks have a positive impact on customer satisfaction.
Educated and young customers are much more satisfied with technology-
based services than others. Speed in the service delivery due to technology
adoption is the most important factor influencing customer satisfaction.
Shobhana, V.K. & Shanthi, G. (2008) assess the operational efficiency of
foreign banks in India using the data for the period 1996-97 to 2004-05.
Analysis of clearance is used to find that there is no significant relationship
between operational efficiency and variables such as size of assets, branch
network and staff strength, 31 foreign banks were selected for the study. It
is concluded that state bank of Mauritius achieved the highest productivity
whereas the operational efficiency of common international bank was the
lowest.
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Identification of customer segment is also vital for service development
and delivery in banks. For example, Jham and Khan (2008) implied that
Indian banks should take care of the needs of customers when introducing
various services to them. Their study revealed that customers of banks such
as ICICI, IDBI, HDFC, PNB and SBI were either in service or self
employed. Many customers of SBI and PNB were found to be retired from
their respective profession. Thus they recommended that banks should
envisage a strategy to serve customers with different occupations &
educational backgrounds. Banks must also advance their customer-centric
strategies by providing satisfaction through services leading to better
relationship building and earning profits for the banks.
Rajani Sofat & Preeti Hiro, September (2007) conducted a comparative
study on “Creativity and Innovations in Retail Banking- A comparative
Analysis of financial product offered by ICICI & HDFC Bank”, Indian
Journal of Marketing, Issue No. 9, Page No. 24. Results suggests that now
challenge for banking sector in the current scenario is to design and
innovate the financial product which are convenient to use & continuously
meet financial goals of the customers.
Dr. K.S.Jaiswal & Nitu Singh, January (2007) conducted a study on
“Retail Banking: Indian Scenario”, Indian Journal of Marketing, Issue
No.1, Page No. 32. Results suggest that changing face of Indian consumers
in term of number of households & their income class, building an affluent
middle class are factors of opportunity & retention of customers, indebtness
& information technology are challenges for retail banking in India.
Prof. Rajeshri Nathwani, (2007) conducted the study on “Customer
Preference & Managerial Effectiveness of Nationalized & Private
Sector Banks”, Indian Journal of Marketing. Results suggest that
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customers of nationalized banks are either neutral or satisfied with the
specified parameters concerned with their operations while the customers
of private banks more satisfied with their banks. Banking can be yet more
enjoyable & effective based on total quality management, bench marking.
Prof. A.S. Mohanrani & Dr. C. Mahavi, Feb (2007) conducted an
empirical study on, Product related characteristics, Promotion and
Marketing Mix are key tools in determining Purchase Behaviour and
Purchase Decision by Teenagers, Indian Journal of Marketing, Issue No. 2,
Page No. 3. Results suggest that teenagers are influenced by updated
information of the product and hence they go for information search,
collect information from different dealers on various aspects like price,
technology etc. They are also influenced by peer compulsion of sales talk
of the dealers. Teenager‘s employees two strategies-Emotionally
convincing & logically convincing to convincer their parents. Logical
teenagers give importance to sales promotion factors like offers & schemes,
while emotional teenagers gives importance to aesthetic appearance, color,
brand value, popularity & social image on selecting the products.
Dr. Sumathy Venkatesan & Dr. K. Prabhakar, Raj Kumar, March (2007)
conducted study on “Retail Banking Scene in India- A Holistic
Approach-Management Trends”, Journal of department of Business
Management, Issue No. 1, Vol. 4, Page No. 58. Results suggest that the
society is made up of individuals and the environment surrounding him. As
development take place in the society, the needs of people grow faster than
ever. The various structural changes taking place in the society could get a
catalytic favour in case proper financial product of service is made
available to all the individuals. In this changes scenario, retail segment is
considered more relevant if one looks from the angles of control
management of risks & maximum profit.
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Dr. R.L. Godara & Dr. S.L. Gupta, Jan-June (2007) conducted the study
about, “Awareness, Expectation and Acceptances levels of the
Customers with respect to the Use and Effectiveness of the New
Techniques in Banking in India”, Management Journal of Delhi
Productivity Council, Vol. 11, Page No. 38. Result of the study reveals that
the hectic lifestyle of the people where time is a scarce resource is the main
factor which is compelling customers to use new techniques in banking.
Thus in spite of being a relatively new introduction, it is quite surprising to
find from the survey, the kind of popularity that new technology gadgets
have achieved.
Dr. R.K. Uppal, April-Sept (2007) conducted study on “Retail Banking in
India: An emerging Issues and Future Outlook”, Management Trends,
Vol. 4, Page No. 2. The study reveals that to remain competitive in the
financial services landscape banks are required to expand their product
lines, add new delivery channels, develop more effective marketing system
& techniques & enhance service quality levels.
Dr. H.C. Purohit & Avinash D. Parthardikar, March (2007) conducted
study on “Service Quality Measurement and Consumer Perception
about the Services of Banking Institutions”, Indian Journal of Marketing,
Vol. 47, Issue No. 3, Page No. 12. This study reveals that the perception of
the consumers on different nationalized banks may differ due to the
behaviour of the individual employees or officers otherwise all the services
were rated as good by the respondents; except for loaning interest rate and
mortgage facilities.
Aggarwal, A.K., Singh, D. & Chaturvedi, N. (2007-08) analyzed the
performance of the banking sector and considered as a proxy for the
economy as a whole, due to banks wide spectrum of exposures. The paper
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argues that to survive and thrive in the long run, banks need to pursuer
strategies that Enable them to develop resources that are inimitable, rare,
durable and superior to competitors, while consolidation and convergence
are no doubt necessary to survive, they are by no means sufficient. The
most important point is that mergers and acquisitions in the banking sector
must be market led rather than prompted by government or regulator. We
are sure that our banking institutions, as in the post, shall rise to the
occasion and show the required flexibility to absorb and adopt. The
institutional changes to consolidate their position in the world market.
Kamakodi, N. (2007) examines how computerization has influenced the
banking habits and preference of Indian customers and which factors
influence these preferences. Changing of residence, salary account and
non-availability of the technology based services were given as the three
main reasons for changing the bank.
In an attempt to study the service gap, Dash and Kumar (2007) revealed
that customer’s expectations exceeded their perceptions, with regards to
various dimensions of service quality. They further claimed that perception
of either positive or negative service quality was related to the customer’s
future behavioral intentions. Therefore, if a positive quality gap exists, the
customers would tend to comment positively about the service. On the
contrary, a negative quality gap would result in customers complaining,
switching to other service providers, commenting negatively about the
provider or just decreasing the usage of the service. Hence it is
recommended that the banks should continuously monitor the service
quality levels so as to avoid erosion of service quality and migration or
switching by customers to another bank.
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Aswasti (2007) has studied about the service quality, customer satisfaction,
and behavioral intentions in the service sector and establishes that there is
association between the perceived service quality and the extent of
satisfaction derived from services. Service quality has a positive impact on
customer satisfaction; it influences the future purchase behavior and the
loyalty intentions of customers.
Vigg Silky, Mathur Garima and Holani Umesh (2007) in their study
“Customer Satisfaction in Retail Services: A Comparative Study of
Public and Private Sector Banks”, analyzed the major factors that are
contributing towards customer satisfaction in banking services and
compares customer satisfaction of public and private sector banks. The
study reveals that innovative services, network access, behavior of staff,
and brand image are some of the factors responsible for customer
satisfaction and there is no significant difference in the customer
satisfaction in between public sector and private sector banks.
Most of the studies by Vyas & Dhade (2006), Raman & Srinivas (2005),
compared the performance of Public, Private & Foreign Banks by using
measures of profitability, productivity and financial management. They do
poorly on all measures from Private and Foreign banks .Better performance
from Commercial banks is possible only if it incorporates profits as one of
the responsibility.
Lauren Bielski ( 2006) conducted the study on “Talk is cheap -Retail
banking ”, ABA Banking Journal, March, the Banking Industry tends to
have trouble with customers service in four key areas defining desirable
service levels for their brand and culture, measuring those service levels in
a way that provides illuminating information consistently, holding all
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organisation members strictly accountable for results and committing the
necessary resources to make sure that vision leads to follow-through.
TARP (2006) conducted the study on “Key Service Findings in e-Care
Banking”, Journal, March, in a recent survey of consumers using online
banking and other e-commerce sites, the following key findings relevant to
banking service issues emerged only 52% were completely satisfied, up to
38% of banking customers had to pick up the phone or visit branches
concerning their issue, one quarter of all banking e-mailers had to pick up
the phone after all to get it resolved. 30% reported that it took longer than
two days to receive some form of resolution and only a quarter received a
reply within twelve hours and on an up note: 8.8% received some sort of
immediate response either offering an answer, more information or setting
expectations for future reply.
Margaret Kane (2006) conducted the study on “Why Most Cross-Selling
Efforts Flop (Bank Marketing) and Seven Ways to Turn
Disappointment into Success”, ABA Banking Journal, Feb., here are
some tactics that we impact these areas and further your success keep the
message simple, develop clear matrices, tie cross-selling in to the
compensation programs, implement consistent front line sales process,
simplify product lines, package products and bring customers ―onboard
within the first ninety days.
Srivastava, R.M. (2006) concluded that in post nationalization period
witnessed an unprecedented expansion of the banking industry in India.
However accompanied inefficiency and poor financial health to overcome
this problem and improve the efficiency of banks, various tectonic
measures were taken since1991. This has resulted in improvement in
productivity, profitability and strengthening of financial position of the
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banks so much that they are out shining those of advanced notions
.However banks have still to go a long way to sustain their Competitive
success. Indian Commercial Banks also need to enhance their system and
procedure to international standards and also simultaneously fortify their
financial position.
Singla & Arora (2005) studied the comparative performance of Canara
Bank and Indian Bank that both the banks have improved their financial
performance during the study period where Canara Bank has an upper hand
in growth of deposit, advances and average working funds. In case of
productivity it is rising in both the banks but remained much higher in
Canara Bank.
Arora, U. & Verma, R. (2005) studied the performance evolution of
public sector banks in the post reforms period on the basis of four
parameters that are financial parameters, operational parameters,
profitability parameters and productivity parameters and during this period
the performance of public sector banks is quite satisfactory.
Christian Homburg, Nicole Koschate and Wayne D. Hayer (2005)
conducted the study on “Do Satisfied Customers Really Pay More? A
Study Of Relationship Between Customer Satisfaction And Willingness
To Pay”, Journal Of Marketing, Vol. 69, Page No. 2, April, two
experimental studies a lab experiment and a study involving a real usage
experience over time reveal the existence of a strong, positive impact of
customer satisfaction on willingness to pay, and they provide support for a
non linear, functional structure based on disappointment theory (i.e. an
inverse S-shaped form).
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In another study Regasamy & Kumar (2005), the comparative analysis on
the services among three major banking segments revealed that the foreign
banks have topped the list in terms of delivering qualitative customer
service. The study also revealed that the private sector banks compete
successfully with foreign banks and make efforts to provide better banking
services in tune with the changing global competitive scenario.
Aggarwal, M. (2005) highlights the performance of three sectors of banks
(i.e. public, private and foreign) in the pre liberalization period and the
post- liberalization periods in terms of growth rate of their interest income
as a %age working funds, non-interest income as a %age working funds,
operational expenses as a %age operational income, cost of deposits,
spread as a %age working funds, operational productivity etc. The data
were collected for the period of 21 years starting from 1980 to 2001 the
study of paper reveals that the operational productivity of all the sectors is
better in post liberalization period.
Bedi (2005) has studied about the relationship between quality and
customer satisfaction in selected banks in Chandigarh and has empirically
established that the perceived service quality towards customers has a
positive and significant impact on customer satisfaction.
Jitendra Kumar Das ( 2005 ) conducted the study on “Customerisation:
Getting To The Customer”, ICFAI Journal Of Marketing Management,
Vol. IV, Page No. 1, Feb., in this chapter, an approach has been proposed
to customaries a company to better address customer‘s needs and thus to
stay ahead of competitors.
Suresh Garimella (2005) concluded the study on “Trends in Marketing”,
ICFAI Journal Of Marketing Management, Vol. IV, Page No. 2, May, the
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author here attempts to portray some of the trends that may drive the
discipline of marketing in the era to come.
Harish Kumar (2004) conducted the study on “A Comment on Customer
Satisfaction Measurement in Banking Services-Business Perspectives”,
Vol. 6, Page No. 1, Jan-June, The private banks, specially the foreign ones
have been giving the nationalised banks a run for their money. Banks like
ICICI, UTI, HDFC, IDBI And Kotak Mahindra Bank have made
spectacular growth both in terms of volume of business generated and
customer services by launching various innovative banking products which
were hitherto unheard in Indian economy at least. Entry and / or expansion
of such foreign banks as City Bank, American Bank, Standard Chartered
Bank, HSBC Bank Etc. have all along been leading the way both in terms
of innovative approach to tap potential customer base and introduction of
imaginative products and services in the Indian market.
Chandan, Jean Louis and Boris Bartikowski (2004) conducted the study on,
“An Ordinal Satisfaction Scale Allowing to Classify Respondents as
Satisfied, Indifferent or Dissatisfied”, International Journal of Research
and Marketing, Vol. 19, the authors identify semantic descriptions of the
boundaries of the indifference zone pertaining to a satisfaction
measurement scale. They analyzed expressions of dissatisfaction,
indifference and satisfaction and proposed and ordinal measurement scale
of consumer satisfaction.
Hamburg C., Koschate N. (2004) conducted the study on “How Do
Consumers React To Price Increases?”International Journal of Research
and Marketing, Vol. 26(4), and this paper explore the role of perceived
fairness and consumer satisfaction on the repurchase intention after a price
increase. The findings of two experimental studies reveal that perceived
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fairness has a positive impact on the repurchase intention and that
satisfaction moderates this relationship.
Raj Kumar Venkateran And V. Kumar (2004) conducted the study on “A
Customer Life Time Value Frame Work For Customer Selection And
Resource Allocation Strategy”, Journal Of Marketing, Vol. 68, Page No.
4, October, the analysis suggests that there is potential for improved profits
when managers design resource allocation rules that maximise CLV.
Managers can use the authors frame work to allocate marketing resources
efficiently across customers and channels of communication.
Robert Lensink and Niels Hermes (2004) conducted the study on “The
Short Term Effects of Foreign Bank Entry or Domestic Bank
Behaviour; Does Economic Development Matter?”, Journal Of Banking
And Finance, Vol. 28, Issue No. 3, March, this paper investigation shows
that at lower levels of economic development foreign bank entry is
generally associated with higher costs and margins for domestic banks. At
higher levels of economic developments the effects appear to be less clear,
foreign bank entries associated with a fall of costs, profits and margins of
domestic banks or is not associated with changes in these domestic bank
variables.
Ronald T. Rust, Catherine N. Lemon, Valarie A. Zeithaman (2004)
conducted the study On “Return on Marketing: Using Customer Equity
to Focus on Marketing Strategy”, Journal Of Marketing, Vol. 68, Page
No. 1, January, their frame work enables what if evaluation of marketing
ROI, which can include such criteria as return on quality, return on
advertising, return on loyalty program and even return on corporate citizen
ship given a particular shift in customer perceptions.
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Zillur Rehman ( 2005 ) conducted the study on “Service Quality: Gaps
In The Indian Banking Industry” , ICFAI Journal Of Marketing
Management, Vol.-IV, No.-1, Feb., this study deals with the measurement
of service quality of banks in India. It investigates the discrepancy between
customers‘ expectations and perceptions towards the quality of services.
The study was conducted using the SERVQUAL instrument. The results
indicate that the sample population has perceptual problems with their
banking service experiences.
Robert A.W. Kole & BAS Hillebrand (2003) conducted the study on
“What Makes Product Development Market Oriented? Towards A
Conceptual Frame Work”, International Journal of Innovation
Management, Vol. 7, Page No. 2, June, author presents a conceptual frame
work detailing the elements of market oriented product development and
the relationship between these elements.
Toya Kerko, Chizuru Nishio (2003) conducted the study on “Analysis of
Customer Retention Model in Retail Financing Services”, International
Journal of Research and Marketing, Vol.12 (1-2), the Authors develop a
model of the relationship between transaction account and financial
investments based on theories of consumer behaviour towards perceived
service quality, satisfaction and loyalty. They identified three key factors:
product quality, interaction quality and organisation quality, which affect
customer satisfaction and loyalty formation in the Japanese retail financial
market.
B. Janki, (2002), analyzed in his article that how technology is effecting
employee’s productivity. There is no doubt, in India particularly PSBs will
need to use technology to improve operating efficiency and customer
services. Harnessing employee technology synergy is crucial for unleashing
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productivity and reaching out to the huge base of retail customers, who are
also dispersed in rural and semi-urban areas.
Sureshchandar et al., (2002). Service quality and customer satisfaction do
exhibit independence and are indeed different constructs from the
customer’s point of view. A small step in unearthing and understanding the
constructs of service quality and customer satisfaction and their
implications on competitive fruition has been put forward in a study on
banking services.
Kittiwat Uchupalanan (2000) conducted the study on “Competition and
IT Based innovation in banking services”, International Journal of
Innovation Management, Vol. 4, Page No. 4, Special Issue, December, this
article examines the dynamic relationships between competitive strategy
and information technology based products and process innovations in
financial services. The study draws on detailed case studies of five IT based
innovations inter branch online service, automated teller machine service,
credit card service and electronic fund transfer at point of sale service.
Hess, L R (1999) has investigated how satisfaction with a service
employee affects customer’s overall satisfaction with a service
organization, following an employee- initiated service failures. The study
shows that the customer’s past service experience with an organization
directly impact customer’s overall satisfaction with the organization
Bhattacharya, (1997) has found public sector banks with the highest
efficiency among the three categories of bank groups as foreign and private
sector banks have much lower efficiencies. However PSBs started showing
a decline in efficiency after 1987, private banks witnessed no change and
foreign banks disclosed sharp rise in efficiency.
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Spreng & Mackoy (1996), In a study addressing the relationship between
service quality and satisfaction, suggested that perceived service quality
was an antecedent to satisfaction. Although the direction of the quality/
satisfaction relationship (i.e. quality leads to satisfaction) is fairly well
understood for services, the question of whether or not (and how) this
relationship varies depending on particular settings and/or situations is not.
Sameer Goel (1995) conducted the study on “Indian Banking:
Management Responses”, International Journal of Development Banking,
important points made by the author are discussed- some of the main
analytical and numeric tools available to assess bank performance,
comment on the statistical and mathematical theories, need of well-
integrated management information and internal control systems, detailed
look at product development costing and marketing strategies and there is
need for adopting flexible and transparent policies in personal functions.
James L. Walker (1995) conducted the study on “Service Encounter
Satisfaction: Conceptualized”, Journal of Services Marketing, Vol. 9,
Page No. 1, he conducted the study on this model affords one a better
understanding of the process of service satisfaction. By identifying and
separating the peripheral and core dimensions of services, by explicitly
considering the evaluation process over time, by implementing the concept
of active and passive expectations within a service encounter, and by
incorporating a consumers zone of indifference, a more realistic decision
process for consumer evaluations of services comes forth.
Richard A. Spreng, Gilbert D. Harrell, Robert D. Meckoy (1995)
conducted the study on “Service Recovery: Impact on Satisfaction and
Intentions”, Journal Of Service Marketing, Vol. 9, Page No. 1, empirical
evidence, observed across a variety of service industries, indicates that
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customers who have experienced problems with service suppliers are often
dissatisfied with the ways in which the problems are resolved.
Spreng & Mackoy (1995), The Customer Satisfaction paradigm posits that
confirmed standards lead to moderate satisfaction; positively disconfirmed
(exceeded) standards lead to high satisfaction, and negatively disconfirmed
(underachieved) standards lead to dissatisfaction. The subject of continued
(and considerable) debate in the marketing literature, the distinction and
association between service quality and customer satisfaction remains at
the forefront of many academic- and practitioner-oriented research
endeavors.
Garg, M. (1994) studied that Indian scheduled commercial banks have
achieved remarkable progress in last two decades under study, particularly
in branch expansion in rural areas, deposits mobilization and credit
deployment to priority sector and small borrowers but their profits have not
kept pace their growth and hence, their share in profits have come down,
whereas foreign banks with a much smaller geographical spread and
resources base, earn almost as much by way of profits as the 20
Nationalized Banks put together. There is a lot of difference in the pattern
of advances and investments and even lending rates of Indian and foreign
banks.
Penny Lent (1992) conducted the study on “Banks Put Employees in
Customer’s Shoes”, ABA Banking Journal, March, to ensure that
employees roll out a red carpet every time a customer walks in, training
programs works at building empathy with the customer.
Mark Arend (1991) conducted the study on “High-Tech Branches
Streamline Customer Service”, ABA Banking Journal, July, looking for
ways to differentiate their services and lower costs, banks are automating
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the delivery of information at the branches with customer-friendly
technology. It was observed that technology can enhance customer service
through 24-hour banking and the customer is not at a disadvantage.
Daniel Hall (1989) conducted the study on “Turning Quality Service
Talk Into Action ” ,ABA Banking, June, improvement in behaviour to
fulfil its commitment to quality service prior to developing its program,
first security only provided sales training to officers that called on
businesses. Role-playing is an excellent instructional method.
Parasuraman, et al. (1988) developed a 22-item scale, referred to as
SERVQUAL Scale, which is widely used as a generic instrument for
measuring service quality. The basis for identifying the five components
was factor analysis of the 22-item scale developed from focus groups and
from the specific industry applications undertaken by the authors
(Parasuraman, et al., 1985, 1988; and Zeithaml, et al., 1990). Though, the
veracity of conceptualizing the SERVQUAL scale has been questioned by
Carman (1990), the validity of the 22 individual performance scale items
that make up the SERVQUAL scale appears to be well supported both by
the procedures used to develop the items and by their subsequent use as
reported in the literature (Brown and Swartz, 1989; Zeithaml, et al., 1990;
Lewis, 1991; Young, et al., 1994; Berry and Parasuraman, 1997).
K.G.K. Subba Rao (1988) conducted the study on “Indicators of Banking
Development State Wise Analysis”, RBI Occasional papers, Vol. 9, Page
No. 1, March, main findings of study are there has been substantial
reduction in coefficient of variation among the states, in the post-
nationalization period.
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Barry Biederman (1986) conducted the study on, “Is Relationship
Banking Really What You Offer ?”, ABA Banking Journal, August,
banks that are able to pull together all the elements I have talked about will
be well on the road to relationship banking. It‘s questionable that celebrity
spokesman do anything to enhance a bank‘s customer relationships.
Parasuraman, et al. (1985) suggested that the criteria used by consumers
mould their expectations and perceptions of delivered service quality fit
into ten dimensions: tangibility, reliability, responsiveness, communication,
credibility, security, competence, courtesy, understanding/knowing the
customer and access.
Gronroos (1982) had identified two service quality dimensions, viz.,
functional quality and technical quality. Functional quality represents the
perception of the manner in which the services are delivered. Technical
quality or outcome quality on the other hand, represents the outcome of the
service act or what the customer receives in the end (Brady and Cronin,
2001).
Levitt (1981) proposed that customers use appearances to make judgments
about realities. The less tangible a product is the more powerful shall be the
effect of packaging while judging that product.
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II. LITERATURE REVIEW CONCERNING PERFORMANCE
EFFICIENCY OF INDIAN BANKS IN POST LIBERALISATION ERA
There are numerous empirical studies conducted on the issue of
profitability of commercial banks in India as well as abroad. Present
review deals with the empirical studies in Indian context on profitability
of banking sector. Present section deals with some of the notable studies
in this field.
Luther (1976) chaired the committee appointed by Reserve Bank of India
to study the productivity, efficiency and profitability of commercial banks.
The committee analyzed the various issues related to the planning,
budgeting and marketing in commercial banks.
Amandeep (1991) attempted to estimate profit and profitability of Indian
Nationalized banks and to study the impact of priority sector lending, credit
policies, geographical expansion, industrial sickness, competition, deposit
composition, establishment expenses, ancillary income, spread and burden
on bank profitability. For this purpose, trend analysis, ratio analysis and
regression analysis were used. Swamy (2001) studied the comparative
performance of different bank groups since 1995-96 to 1999-2000. An
attempt was made by researcher to identify factors which could have led to
changes in the position of individual banks in terms of their share in the
overall banking industry. He analyzed the share of rural branches , average
branch size, trends in bank’s profitability, share of public sector assets,
share of wages in expenditure, provision and contingencies, net non
performance assets in net advances, spread, has been calculated.
He concluded that in many respects nationalized public sectors banks much
better than private banks, even they are better than foreign banks.
102
Milind Sathya (2005) examined the effect of privatization of banks on
performance and efficiency. The data taken was for five years (1998-2002)
and it was analyzed by using difference of means test. The banking sector
in India includes domestic banks (privately owned, partially privatized
banks, fully PSB’s) as well as foreign banks, and objective of this study is
to study the impact of privatization on the banking firms. It was concluded
that partially privatized banks have performed better as compared to fully
PSB’s in respect of financial performance and efficiency. Partially
privatized banks have continued to show improved performance and
efficiency in the year after privatization
Ved Pal & Malik (2007) in their empirical paper examined the difference
in financial characteristics of public, private and foreign sector banks based
on factors such as profitability, liquidity, risk and efficiency. Sample of 74
Indian commercial banks consisting of 24 public sector, 24 private sector
and 23 foreign banks was taken for the period of 2000- 2005. Multinomial
regression analysis was used and results revealed that foreign banks proved
to be high performer in generating business with a given level of resources
and they are better equipped with managerial practices and in terms of
skills and technology. Foreign banks were more consistent with market
system as reflected in terms of net interest margin. The public banks
emerged as the next best performer after foreign banks. There were giving
a higher return on equity in comparison to foreign and private banks. It was
high performer in economizing their expenses which was reflected from
expense rate and efficiency ratio. The private sector banks emerged with a
better utilization of resources as compared to PSB’s.
103
Most of the studies were concerned of commercial banks as a whole and
were covering very limited number of years. PSB’s maintained its
dominance in the banking system. Keeping into consideration the research
gaps an endeavor is made in the present study to examine the performance
of PSB’s by calculating various ratios and their Compound Annual Growth
Rates (CAGRs) and Coefficient of Variation (CV).
Aggarwal, M. (2005) highlights the performance of three sectors of banks
(i.e. public, private and foreign) in the pre liberalization period and the
post- liberalization periods in terms of growth rate of their interest income
as a %age working funds, non-interest income as a %age working funds,
operational expenses as a %age operational income, cost of deposits,
spread as a %age working funds, operational productivity etc. The data
were collected for the period of 21 years starting from 1980 to 2001 the
study of paper reveals that the operational productivity of all the sectors is
better in post liberalization period.
Aggarwal, A.K., Singh, D. & Chaturvedi, N. (2007-08) analyzed the
performance of the banking sector and considered as a proxy for the
economy as a whole, due to banks wide spectrum of exposures. The paper
argues that to survive and thrive in the long run, banks need to pursuer
strategies that enable them to develop resources that are inimitable, rare,
durable and superior to competitors, while consolidation and convergence
are no doubt necessary to survive, they are by no means sufficient. The
most important point is that mergers and acquisitions in the banking sector
must be market led rather than prompted by government or regulator. We
are sure that our banking institutions, as in the post, shall rise to the
occasion and show the required flexibility to absorb and adopt. The
institutional changes to consolidate their position in the world market.
104
Arora, U. & Verma, R. (2005) studied the performance evolution of
public sector banks in the post reforms period on the basis of four
parameters that are financial parameters, operational parameters,
profitability parameters and productivity parameters and during this period
the performance of public sector banks is quite satisfactory. Bhattacharya,
(1997) has found public sector banks with the highest efficiency among the
three categories of bank groups as foreign and private sector banks have
much lower efficiencies. However PSBs started showing a decline in
efficiency after 1987, private banks witnessed no change and foreign banks
disclosed sharp rise in efficiency.
B. Janki, (2002), analyzed in his article that how technology is effecting
employee’s productivity. There is no doubt, in India particularly PSBs will
need to use technology to improve operating efficiency and customer
services. Harnessing employee technology synergy is crucial for unleashing
productivity and reaching out to the huge base of retail customers, who are
also dispersed in rural and semi-urban areas. Banks can use technology to
address customer needs and improve their interaction with customer
keeping in touch through telephone and Internet. The focus on technology
will increase like never before to add value to customer service, develop
new products, strengthen risk management, and asset liability management
and improve profitability. However technology is only an enabling tool and
whether banks actually what they want to achieve will be determined by
the drive and motivation of their work force and response of the staff.
Garg, M. (1994) studied that Indian scheduled commercial banks have
achieved remarkable progress in last two decades under study, particularly
in branch expansion in rural areas, deposits mobilization and credit
deployment to priority sector and small borrowers but their profits have not
kept pace their growth and hence, their share in profits have come down,
105
whereas foreign banks with a much smaller geographical spread and
resources base, earn almost as much by way of profits as the 20
nationalized banks put together. There is a lot of difference in the pattern of
advances and investments and even lending rates of Indian and foreign
banks.
Kamakodi, N. (2007) examines how computerization has influenced the
banking habits and preference of Indian customers and which factors
influence these preferences. Changing of residence, salary account and
non-availability of the technology based services were given as the three
main reasons for changing the bank.
Narayanasami, T.S. (2005) stated that rural lending is relatively less risky
and more profitable for all classes of commercial banks. Credit plays a
catalytic role at the right time in accelerating economic development.
Economic reforms have brought about irreversible changes in several
sectors of the economy. Indian banking is also in a better position with
respect to technology, capital adequacy and credit management, risk
bearing capacity, international competitiveness and contribution to the
national economy.
Ram, T.T (2002) said that business is being completely reinvented because
transaction costs are much lower on the Internet than in traditional
channels. The banks are rapidly shifting their business functions &
customers relationships on to the Web.
Satyamurty (1994) clarified the concepts of profits, profitability &
productivity applicable to the banking industry organized by the bank
managements that the pressure on the profitability is more due to the
factors beyond their control.
106
Shobhana, V.K. & Shanthi, G. (2008) assess the operational efficiency of
foreign banks in India using the data for the period 1996-97 to 2004-05.
Analysis of clearance is used to find that there is no significant relationship
between operational efficiency and variables such as size of assets, branch
network and staff strength, 31 foreign banks were selected for the study. It
is concluded that state bank of Mauritius achieved the highest productivity
whereas the operational efficiency of common international bank was the
lowest.
Srivastava, R.M. (2006) concluded that in post nationalization period
witnessed an unprecedented expansion of banking industry in India.
However accompanied inefficiency and poor financial health to overcome
this problem and improve the efficiency of banks, various tectonic
measures were taken since 1991. This has resulted in improvement in
productivity, profitability and strengthening of financial position of the
banks so much that they are outshining those of advanced notions
.However banks have still o go a long way to sustain their Competitive
success. Indian Commercial Banks also need to enhance their system and
procedure to international standards and also simultaneously fortify their
financial position.
Singh, I. & Kumar, P. (2006) analyzed that deposits is a major
determinant of spread followed by borrowings and labour. The study again
concluded that average technical and allocative efficiency are the highest in
foreign banks while of PSBs is although lower than FBs but much better
than private sector banks.
Singla & Arora (2005) studied the comparative performance of Canara
Bank and Indian Bank that both the banks have improved their financial
performance during the study period where Canara Bank has an upper hand
107
in growth of deposit, advances and average working funds. In case of
productivity it is rising in both the banks but remained much higher in
Canara Bank.
T. Padamasai (2000) studied that productivity and profitability of five big
banks increased throughout the post-reforms period in terms of selected
ratios of each parameter, but on account of efficiency, the performance of
the top five banks is very dismissal as inefficiency has increased during the
study period. He suggested that if the government sells its share in the
profit making banks, it would be able to bail out the weak banks.
108
RESEARCH GAP
The banking sectors open the door for many players with the forces of
globalisation and technology revolution in 21st Century. So, it has become
compulsory for all category banks to make hard marketing efforts to tap the
opportunity prevailing in the market and to survive in the time of cut throat
competition through attract, retain and satisfy their customers. From the
review of literature, the researcher concludes that very few studies have
been conducted about the comparative performance in the post-
liberalization era. The present study is devoted to find out the performance
shifting in 2010-13.
Above listed all review literature gives insight for related market and
customer research with various findings. The gap has been found in some
of the areas. Comparison of effective marketing efforts of Indian banks and
Foreign banks through analysing customer awareness and related
knowledge is still not came in focus of any researcher.
81
LITERATURE REVIEW
I. RELEVANCE OF CUSTOMER SATISFACTION IN INDIAN
BANKING INDUSTRY
In the view that Customer Satisfaction is indispensible in the banking
organizations, many government and non-government agencies as well
as academicians and practitioners undertook various studies.
Uppal R K and Poonam Rani (2012), in their study titled “Customer
Perception towards Better Banking Services in India - An Empirical
Study”, analyzed customer perception about CRM, reliability, accuracy,
security and transparency among the customers of public sector banks,
Indian private sector banks and foreign banks in Amritsar, Punjab. They
have found that most of the customers are satisfied with the different
banking services and that customer satisfaction can be improved by
ensuring more speed in rendering transactions and giving prompt services.
Ananth & Dr. A. Arulraj, February, (2011) conducted study on “Banking
Services Quality in Nagapattinam District, Tamil Nadu”, Indian Journal
of Marketing, Vol. 41, Issue No. 2, Page No. 3. This study reveals that at
every level of dealing with the customers, the bank management needs to
educate employees for banking activities and processes.
Pandit C Bilamge (2011) in his study “A Comparative Study of
Customer Perception towards Services rendered by Public Sector
Banks and Private Sector Banks” studied the issues relating to customer
services in the ICICI Bank and SBI. The study reveals that the ICICI Bank
is far ahead of the SBI in providing quality services to their customers.
82
Puja Khatri and Yukti Ahuja (2010) through their research work, “A
Comparative Study of Customer Satisfaction in Indian Public Sector
and Private Sector Banks”, compares the public sector banks and private
sector banks in terms of customer satisfaction. The study showed that
private banks seem to have satisfied their customers better than public
sector banks by providing better facilities.
Anubhav Anand (2010), had worked out on “Factors affecting Customer
Satisfaction and their relative importance in Retail Banking”. His
Study focused on factors that are responsible for satisfaction of customer
and also enables assessment of influencing power of these factors. A major
contribution of the study has been provision of an approach for the
management of banks to identify the factors of customer satisfaction.
A, Kumaresan & I. Chitrakala & K. Gowtham, April (2010) conducted
study on “Credit Card Holders Expectations and Preferences Towards
Selected Banks in Coimbatore City, Tamil Nadu”, Indian Journal of
Marketing, Vol. 40, Issue No. 4, Page No. 40. This study reveals that
effective measures should be taken to make the consumers more aware
about the pros and cons of the credit cards among the users.
Ashok Kumar M. & Rajesh R., September (2009) conducted study on
“Whether Today‘s Customers are Satisfied? -A study with Banks”,
Indian Journal of Marketing, Vol. 39, Issue No. 9, Page No. 56. This study
reveals that both Public and Private sector banks lack one or the other
aspects so that there is no significant difference between overall
satisfactions of the banks.
83
Mittal Anurag (2009) in his study, “Relationship Marketing
Effectiveness in Indian Banking”, compares the relationship market
orientation and customer satisfaction in the Retail Banking activities of
selected 5 public sector banks and 5 private sector banks in the State of
Delhi. Customers of both the group of banks were of the opinion that there
is wider difference in the application of customer relationship marketing in
the banks under study. The relationship marketing approach is not
effectively administered in public sector banks and so, customer
satisfaction level is low.
Nikhil Chandra Shil & Bhagban Das, August (2008) conducted study on
“Customer Satisfaction with regard to Banking: An Application of
QFD”, Management Research, Vol.7, No.8. The study reveals that
Customers nowadays are very choosy about the way they spend their
money. Quality is the first and foremost preference. Therefore, it is of
utmost importance for every organization to understand, respect, and
satisfy their customer‘s needs and feelings continuously.
Reserve Bank of India (2008) Department of Statistics and Information
Management, Chennai Regional Office, Local Board (Southern Region)
conducted a study to evaluate the satisfaction level of customers on various
services rendered by banks covering 2800 customers from 1496 bank
branches selected, using systematic sampling method. The study evaluates
the staff attitude to customers, infrastructural facilities, complaint handling
and redressal mechanism, interest rates and fees, loans and credit card
facilities. It was proved that, for complaint handling and redressal
mechanism, quick and fast services and loan facilities, the private sector
banks are better than the public sector banks. A majority of the respondents
are highly dissatisfied with the infrastructure facilities, interest rates for
84
credit cards, service charges and fee levied by banks, especially private
sector banks.
Dhade & Mittal (2008), had worked out on the preferences ,satisfaction
level and chances of shifting of customer of public sector and new private
sector banks .This study focused on the primary opinion of customers of
these banks. There are a number of studies that refer to the importance of
clients/ customers' perceptions of quality (Takeuchi and Quelch, 1983).
These result from comparisons by expectations of service with actual
performance (Gronroos, 1982 and Berry, et al, 1985). Berry (1980) along
with Booms and Bitner (1981) argued that due to intangible nature of
services, customers use elements associated with the physical environment
when evaluating service quality. Managing the evidence and using the
environmental psychology are often seen as important marketing tools.
Mittal (2008) has studied the effect of IT- based services and customer
satisfaction in banking industry and has found that the IT-enabled services
delivered by banks have a positive impact on customer satisfaction.
Educated and young customers are much more satisfied with technology-
based services than others. Speed in the service delivery due to technology
adoption is the most important factor influencing customer satisfaction.
Shobhana, V.K. & Shanthi, G. (2008) assess the operational efficiency of
foreign banks in India using the data for the period 1996-97 to 2004-05.
Analysis of clearance is used to find that there is no significant relationship
between operational efficiency and variables such as size of assets, branch
network and staff strength, 31 foreign banks were selected for the study. It
is concluded that state bank of Mauritius achieved the highest productivity
whereas the operational efficiency of common international bank was the
lowest.
85
Identification of customer segment is also vital for service development
and delivery in banks. For example, Jham and Khan (2008) implied that
Indian banks should take care of the needs of customers when introducing
various services to them. Their study revealed that customers of banks such
as ICICI, IDBI, HDFC, PNB and SBI were either in service or self
employed. Many customers of SBI and PNB were found to be retired from
their respective profession. Thus they recommended that banks should
envisage a strategy to serve customers with different occupations &
educational backgrounds. Banks must also advance their customer-centric
strategies by providing satisfaction through services leading to better
relationship building and earning profits for the banks.
Rajani Sofat & Preeti Hiro, September (2007) conducted a comparative
study on “Creativity and Innovations in Retail Banking- A comparative
Analysis of financial product offered by ICICI & HDFC Bank”, Indian
Journal of Marketing, Issue No. 9, Page No. 24. Results suggests that now
challenge for banking sector in the current scenario is to design and
innovate the financial product which are convenient to use & continuously
meet financial goals of the customers.
Dr. K.S.Jaiswal & Nitu Singh, January (2007) conducted a study on
“Retail Banking: Indian Scenario”, Indian Journal of Marketing, Issue
No.1, Page No. 32. Results suggest that changing face of Indian consumers
in term of number of households & their income class, building an affluent
middle class are factors of opportunity & retention of customers, indebtness
& information technology are challenges for retail banking in India.
Prof. Rajeshri Nathwani, (2007) conducted the study on “Customer
Preference & Managerial Effectiveness of Nationalized & Private
Sector Banks”, Indian Journal of Marketing. Results suggest that
86
customers of nationalized banks are either neutral or satisfied with the
specified parameters concerned with their operations while the customers
of private banks more satisfied with their banks. Banking can be yet more
enjoyable & effective based on total quality management, bench marking.
Prof. A.S. Mohanrani & Dr. C. Mahavi, Feb (2007) conducted an
empirical study on, Product related characteristics, Promotion and
Marketing Mix are key tools in determining Purchase Behaviour and
Purchase Decision by Teenagers, Indian Journal of Marketing, Issue No. 2,
Page No. 3. Results suggest that teenagers are influenced by updated
information of the product and hence they go for information search,
collect information from different dealers on various aspects like price,
technology etc. They are also influenced by peer compulsion of sales talk
of the dealers. Teenager‘s employees two strategies-Emotionally
convincing & logically convincing to convincer their parents. Logical
teenagers give importance to sales promotion factors like offers & schemes,
while emotional teenagers gives importance to aesthetic appearance, color,
brand value, popularity & social image on selecting the products.
Dr. Sumathy Venkatesan & Dr. K. Prabhakar, Raj Kumar, March (2007)
conducted study on “Retail Banking Scene in India- A Holistic
Approach-Management Trends”, Journal of department of Business
Management, Issue No. 1, Vol. 4, Page No. 58. Results suggest that the
society is made up of individuals and the environment surrounding him. As
development take place in the society, the needs of people grow faster than
ever. The various structural changes taking place in the society could get a
catalytic favour in case proper financial product of service is made
available to all the individuals. In this changes scenario, retail segment is
considered more relevant if one looks from the angles of control
management of risks & maximum profit.
87
Dr. R.L. Godara & Dr. S.L. Gupta, Jan-June (2007) conducted the study
about, “Awareness, Expectation and Acceptances levels of the
Customers with respect to the Use and Effectiveness of the New
Techniques in Banking in India”, Management Journal of Delhi
Productivity Council, Vol. 11, Page No. 38. Result of the study reveals that
the hectic lifestyle of the people where time is a scarce resource is the main
factor which is compelling customers to use new techniques in banking.
Thus in spite of being a relatively new introduction, it is quite surprising to
find from the survey, the kind of popularity that new technology gadgets
have achieved.
Dr. R.K. Uppal, April-Sept (2007) conducted study on “Retail Banking in
India: An emerging Issues and Future Outlook”, Management Trends,
Vol. 4, Page No. 2. The study reveals that to remain competitive in the
financial services landscape banks are required to expand their product
lines, add new delivery channels, develop more effective marketing system
& techniques & enhance service quality levels.
Dr. H.C. Purohit & Avinash D. Parthardikar, March (2007) conducted
study on “Service Quality Measurement and Consumer Perception
about the Services of Banking Institutions”, Indian Journal of Marketing,
Vol. 47, Issue No. 3, Page No. 12. This study reveals that the perception of
the consumers on different nationalized banks may differ due to the
behaviour of the individual employees or officers otherwise all the services
were rated as good by the respondents; except for loaning interest rate and
mortgage facilities.
Aggarwal, A.K., Singh, D. & Chaturvedi, N. (2007-08) analyzed the
performance of the banking sector and considered as a proxy for the
economy as a whole, due to banks wide spectrum of exposures. The paper
88
argues that to survive and thrive in the long run, banks need to pursuer
strategies that Enable them to develop resources that are inimitable, rare,
durable and superior to competitors, while consolidation and convergence
are no doubt necessary to survive, they are by no means sufficient. The
most important point is that mergers and acquisitions in the banking sector
must be market led rather than prompted by government or regulator. We
are sure that our banking institutions, as in the post, shall rise to the
occasion and show the required flexibility to absorb and adopt. The
institutional changes to consolidate their position in the world market.
Kamakodi, N. (2007) examines how computerization has influenced the
banking habits and preference of Indian customers and which factors
influence these preferences. Changing of residence, salary account and
non-availability of the technology based services were given as the three
main reasons for changing the bank.
In an attempt to study the service gap, Dash and Kumar (2007) revealed
that customer’s expectations exceeded their perceptions, with regards to
various dimensions of service quality. They further claimed that perception
of either positive or negative service quality was related to the customer’s
future behavioral intentions. Therefore, if a positive quality gap exists, the
customers would tend to comment positively about the service. On the
contrary, a negative quality gap would result in customers complaining,
switching to other service providers, commenting negatively about the
provider or just decreasing the usage of the service. Hence it is
recommended that the banks should continuously monitor the service
quality levels so as to avoid erosion of service quality and migration or
switching by customers to another bank.
89
Aswasti (2007) has studied about the service quality, customer satisfaction,
and behavioral intentions in the service sector and establishes that there is
association between the perceived service quality and the extent of
satisfaction derived from services. Service quality has a positive impact on
customer satisfaction; it influences the future purchase behavior and the
loyalty intentions of customers.
Vigg Silky, Mathur Garima and Holani Umesh (2007) in their study
“Customer Satisfaction in Retail Services: A Comparative Study of
Public and Private Sector Banks”, analyzed the major factors that are
contributing towards customer satisfaction in banking services and
compares customer satisfaction of public and private sector banks. The
study reveals that innovative services, network access, behavior of staff,
and brand image are some of the factors responsible for customer
satisfaction and there is no significant difference in the customer
satisfaction in between public sector and private sector banks.
Most of the studies by Vyas & Dhade (2006), Raman & Srinivas (2005),
compared the performance of Public, Private & Foreign Banks by using
measures of profitability, productivity and financial management. They do
poorly on all measures from Private and Foreign banks .Better performance
from Commercial banks is possible only if it incorporates profits as one of
the responsibility.
Lauren Bielski ( 2006) conducted the study on “Talk is cheap -Retail
banking ”, ABA Banking Journal, March, the Banking Industry tends to
have trouble with customers service in four key areas defining desirable
service levels for their brand and culture, measuring those service levels in
a way that provides illuminating information consistently, holding all
90
organisation members strictly accountable for results and committing the
necessary resources to make sure that vision leads to follow-through.
TARP (2006) conducted the study on “Key Service Findings in e-Care
Banking”, Journal, March, in a recent survey of consumers using online
banking and other e-commerce sites, the following key findings relevant to
banking service issues emerged only 52% were completely satisfied, up to
38% of banking customers had to pick up the phone or visit branches
concerning their issue, one quarter of all banking e-mailers had to pick up
the phone after all to get it resolved. 30% reported that it took longer than
two days to receive some form of resolution and only a quarter received a
reply within twelve hours and on an up note: 8.8% received some sort of
immediate response either offering an answer, more information or setting
expectations for future reply.
Margaret Kane (2006) conducted the study on “Why Most Cross-Selling
Efforts Flop (Bank Marketing) and Seven Ways to Turn
Disappointment into Success”, ABA Banking Journal, Feb., here are
some tactics that we impact these areas and further your success keep the
message simple, develop clear matrices, tie cross-selling in to the
compensation programs, implement consistent front line sales process,
simplify product lines, package products and bring customers ―onboard
within the first ninety days.
Srivastava, R.M. (2006) concluded that in post nationalization period
witnessed an unprecedented expansion of the banking industry in India.
However accompanied inefficiency and poor financial health to overcome
this problem and improve the efficiency of banks, various tectonic
measures were taken since1991. This has resulted in improvement in
productivity, profitability and strengthening of financial position of the
91
banks so much that they are out shining those of advanced notions
.However banks have still to go a long way to sustain their Competitive
success. Indian Commercial Banks also need to enhance their system and
procedure to international standards and also simultaneously fortify their
financial position.
Singla & Arora (2005) studied the comparative performance of Canara
Bank and Indian Bank that both the banks have improved their financial
performance during the study period where Canara Bank has an upper hand
in growth of deposit, advances and average working funds. In case of
productivity it is rising in both the banks but remained much higher in
Canara Bank.
Arora, U. & Verma, R. (2005) studied the performance evolution of
public sector banks in the post reforms period on the basis of four
parameters that are financial parameters, operational parameters,
profitability parameters and productivity parameters and during this period
the performance of public sector banks is quite satisfactory.
Christian Homburg, Nicole Koschate and Wayne D. Hayer (2005)
conducted the study on “Do Satisfied Customers Really Pay More? A
Study Of Relationship Between Customer Satisfaction And Willingness
To Pay”, Journal Of Marketing, Vol. 69, Page No. 2, April, two
experimental studies a lab experiment and a study involving a real usage
experience over time reveal the existence of a strong, positive impact of
customer satisfaction on willingness to pay, and they provide support for a
non linear, functional structure based on disappointment theory (i.e. an
inverse S-shaped form).
92
In another study Regasamy & Kumar (2005), the comparative analysis on
the services among three major banking segments revealed that the foreign
banks have topped the list in terms of delivering qualitative customer
service. The study also revealed that the private sector banks compete
successfully with foreign banks and make efforts to provide better banking
services in tune with the changing global competitive scenario.
Aggarwal, M. (2005) highlights the performance of three sectors of banks
(i.e. public, private and foreign) in the pre liberalization period and the
post- liberalization periods in terms of growth rate of their interest income
as a %age working funds, non-interest income as a %age working funds,
operational expenses as a %age operational income, cost of deposits,
spread as a %age working funds, operational productivity etc. The data
were collected for the period of 21 years starting from 1980 to 2001 the
study of paper reveals that the operational productivity of all the sectors is
better in post liberalization period.
Bedi (2005) has studied about the relationship between quality and
customer satisfaction in selected banks in Chandigarh and has empirically
established that the perceived service quality towards customers has a
positive and significant impact on customer satisfaction.
Jitendra Kumar Das ( 2005 ) conducted the study on “Customerisation:
Getting To The Customer”, ICFAI Journal Of Marketing Management,
Vol. IV, Page No. 1, Feb., in this chapter, an approach has been proposed
to customaries a company to better address customer‘s needs and thus to
stay ahead of competitors.
Suresh Garimella (2005) concluded the study on “Trends in Marketing”,
ICFAI Journal Of Marketing Management, Vol. IV, Page No. 2, May, the
93
author here attempts to portray some of the trends that may drive the
discipline of marketing in the era to come.
Harish Kumar (2004) conducted the study on “A Comment on Customer
Satisfaction Measurement in Banking Services-Business Perspectives”,
Vol. 6, Page No. 1, Jan-June, The private banks, specially the foreign ones
have been giving the nationalised banks a run for their money. Banks like
ICICI, UTI, HDFC, IDBI And Kotak Mahindra Bank have made
spectacular growth both in terms of volume of business generated and
customer services by launching various innovative banking products which
were hitherto unheard in Indian economy at least. Entry and / or expansion
of such foreign banks as City Bank, American Bank, Standard Chartered
Bank, HSBC Bank Etc. have all along been leading the way both in terms
of innovative approach to tap potential customer base and introduction of
imaginative products and services in the Indian market.
Chandan, Jean Louis and Boris Bartikowski (2004) conducted the study on,
“An Ordinal Satisfaction Scale Allowing to Classify Respondents as
Satisfied, Indifferent or Dissatisfied”, International Journal of Research
and Marketing, Vol. 19, the authors identify semantic descriptions of the
boundaries of the indifference zone pertaining to a satisfaction
measurement scale. They analyzed expressions of dissatisfaction,
indifference and satisfaction and proposed and ordinal measurement scale
of consumer satisfaction.
Hamburg C., Koschate N. (2004) conducted the study on “How Do
Consumers React To Price Increases?”International Journal of Research
and Marketing, Vol. 26(4), and this paper explore the role of perceived
fairness and consumer satisfaction on the repurchase intention after a price
increase. The findings of two experimental studies reveal that perceived
94
fairness has a positive impact on the repurchase intention and that
satisfaction moderates this relationship.
Raj Kumar Venkateran And V. Kumar (2004) conducted the study on “A
Customer Life Time Value Frame Work For Customer Selection And
Resource Allocation Strategy”, Journal Of Marketing, Vol. 68, Page No.
4, October, the analysis suggests that there is potential for improved profits
when managers design resource allocation rules that maximise CLV.
Managers can use the authors frame work to allocate marketing resources
efficiently across customers and channels of communication.
Robert Lensink and Niels Hermes (2004) conducted the study on “The
Short Term Effects of Foreign Bank Entry or Domestic Bank
Behaviour; Does Economic Development Matter?”, Journal Of Banking
And Finance, Vol. 28, Issue No. 3, March, this paper investigation shows
that at lower levels of economic development foreign bank entry is
generally associated with higher costs and margins for domestic banks. At
higher levels of economic developments the effects appear to be less clear,
foreign bank entries associated with a fall of costs, profits and margins of
domestic banks or is not associated with changes in these domestic bank
variables.
Ronald T. Rust, Catherine N. Lemon, Valarie A. Zeithaman (2004)
conducted the study On “Return on Marketing: Using Customer Equity
to Focus on Marketing Strategy”, Journal Of Marketing, Vol. 68, Page
No. 1, January, their frame work enables what if evaluation of marketing
ROI, which can include such criteria as return on quality, return on
advertising, return on loyalty program and even return on corporate citizen
ship given a particular shift in customer perceptions.
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Zillur Rehman ( 2005 ) conducted the study on “Service Quality: Gaps
In The Indian Banking Industry” , ICFAI Journal Of Marketing
Management, Vol.-IV, No.-1, Feb., this study deals with the measurement
of service quality of banks in India. It investigates the discrepancy between
customers‘ expectations and perceptions towards the quality of services.
The study was conducted using the SERVQUAL instrument. The results
indicate that the sample population has perceptual problems with their
banking service experiences.
Robert A.W. Kole & BAS Hillebrand (2003) conducted the study on
“What Makes Product Development Market Oriented? Towards A
Conceptual Frame Work”, International Journal of Innovation
Management, Vol. 7, Page No. 2, June, author presents a conceptual frame
work detailing the elements of market oriented product development and
the relationship between these elements.
Toya Kerko, Chizuru Nishio (2003) conducted the study on “Analysis of
Customer Retention Model in Retail Financing Services”, International
Journal of Research and Marketing, Vol.12 (1-2), the Authors develop a
model of the relationship between transaction account and financial
investments based on theories of consumer behaviour towards perceived
service quality, satisfaction and loyalty. They identified three key factors:
product quality, interaction quality and organisation quality, which affect
customer satisfaction and loyalty formation in the Japanese retail financial
market.
B. Janki, (2002), analyzed in his article that how technology is effecting
employee’s productivity. There is no doubt, in India particularly PSBs will
need to use technology to improve operating efficiency and customer
services. Harnessing employee technology synergy is crucial for unleashing
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productivity and reaching out to the huge base of retail customers, who are
also dispersed in rural and semi-urban areas.
Sureshchandar et al., (2002). Service quality and customer satisfaction do
exhibit independence and are indeed different constructs from the
customer’s point of view. A small step in unearthing and understanding the
constructs of service quality and customer satisfaction and their
implications on competitive fruition has been put forward in a study on
banking services.
Kittiwat Uchupalanan (2000) conducted the study on “Competition and
IT Based innovation in banking services”, International Journal of
Innovation Management, Vol. 4, Page No. 4, Special Issue, December, this
article examines the dynamic relationships between competitive strategy
and information technology based products and process innovations in
financial services. The study draws on detailed case studies of five IT based
innovations inter branch online service, automated teller machine service,
credit card service and electronic fund transfer at point of sale service.
Hess, L R (1999) has investigated how satisfaction with a service
employee affects customer’s overall satisfaction with a service
organization, following an employee- initiated service failures. The study
shows that the customer’s past service experience with an organization
directly impact customer’s overall satisfaction with the organization
Bhattacharya, (1997) has found public sector banks with the highest
efficiency among the three categories of bank groups as foreign and private
sector banks have much lower efficiencies. However PSBs started showing
a decline in efficiency after 1987, private banks witnessed no change and
foreign banks disclosed sharp rise in efficiency.
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Spreng & Mackoy (1996), In a study addressing the relationship between
service quality and satisfaction, suggested that perceived service quality
was an antecedent to satisfaction. Although the direction of the quality/
satisfaction relationship (i.e. quality leads to satisfaction) is fairly well
understood for services, the question of whether or not (and how) this
relationship varies depending on particular settings and/or situations is not.
Sameer Goel (1995) conducted the study on “Indian Banking:
Management Responses”, International Journal of Development Banking,
important points made by the author are discussed- some of the main
analytical and numeric tools available to assess bank performance,
comment on the statistical and mathematical theories, need of well-
integrated management information and internal control systems, detailed
look at product development costing and marketing strategies and there is
need for adopting flexible and transparent policies in personal functions.
James L. Walker (1995) conducted the study on “Service Encounter
Satisfaction: Conceptualized”, Journal of Services Marketing, Vol. 9,
Page No. 1, he conducted the study on this model affords one a better
understanding of the process of service satisfaction. By identifying and
separating the peripheral and core dimensions of services, by explicitly
considering the evaluation process over time, by implementing the concept
of active and passive expectations within a service encounter, and by
incorporating a consumers zone of indifference, a more realistic decision
process for consumer evaluations of services comes forth.
Richard A. Spreng, Gilbert D. Harrell, Robert D. Meckoy (1995)
conducted the study on “Service Recovery: Impact on Satisfaction and
Intentions”, Journal Of Service Marketing, Vol. 9, Page No. 1, empirical
evidence, observed across a variety of service industries, indicates that
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customers who have experienced problems with service suppliers are often
dissatisfied with the ways in which the problems are resolved.
Spreng & Mackoy (1995), The Customer Satisfaction paradigm posits that
confirmed standards lead to moderate satisfaction; positively disconfirmed
(exceeded) standards lead to high satisfaction, and negatively disconfirmed
(underachieved) standards lead to dissatisfaction. The subject of continued
(and considerable) debate in the marketing literature, the distinction and
association between service quality and customer satisfaction remains at
the forefront of many academic- and practitioner-oriented research
endeavors.
Garg, M. (1994) studied that Indian scheduled commercial banks have
achieved remarkable progress in last two decades under study, particularly
in branch expansion in rural areas, deposits mobilization and credit
deployment to priority sector and small borrowers but their profits have not
kept pace their growth and hence, their share in profits have come down,
whereas foreign banks with a much smaller geographical spread and
resources base, earn almost as much by way of profits as the 20
Nationalized Banks put together. There is a lot of difference in the pattern
of advances and investments and even lending rates of Indian and foreign
banks.
Penny Lent (1992) conducted the study on “Banks Put Employees in
Customer’s Shoes”, ABA Banking Journal, March, to ensure that
employees roll out a red carpet every time a customer walks in, training
programs works at building empathy with the customer.
Mark Arend (1991) conducted the study on “High-Tech Branches
Streamline Customer Service”, ABA Banking Journal, July, looking for
ways to differentiate their services and lower costs, banks are automating
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the delivery of information at the branches with customer-friendly
technology. It was observed that technology can enhance customer service
through 24-hour banking and the customer is not at a disadvantage.
Daniel Hall (1989) conducted the study on “Turning Quality Service
Talk Into Action ” ,ABA Banking, June, improvement in behaviour to
fulfil its commitment to quality service prior to developing its program,
first security only provided sales training to officers that called on
businesses. Role-playing is an excellent instructional method.
Parasuraman, et al. (1988) developed a 22-item scale, referred to as
SERVQUAL Scale, which is widely used as a generic instrument for
measuring service quality. The basis for identifying the five components
was factor analysis of the 22-item scale developed from focus groups and
from the specific industry applications undertaken by the authors
(Parasuraman, et al., 1985, 1988; and Zeithaml, et al., 1990). Though, the
veracity of conceptualizing the SERVQUAL scale has been questioned by
Carman (1990), the validity of the 22 individual performance scale items
that make up the SERVQUAL scale appears to be well supported both by
the procedures used to develop the items and by their subsequent use as
reported in the literature (Brown and Swartz, 1989; Zeithaml, et al., 1990;
Lewis, 1991; Young, et al., 1994; Berry and Parasuraman, 1997).
K.G.K. Subba Rao (1988) conducted the study on “Indicators of Banking
Development State Wise Analysis”, RBI Occasional papers, Vol. 9, Page
No. 1, March, main findings of study are there has been substantial
reduction in coefficient of variation among the states, in the post-
nationalization period.
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Barry Biederman (1986) conducted the study on, “Is Relationship
Banking Really What You Offer ?”, ABA Banking Journal, August,
banks that are able to pull together all the elements I have talked about will
be well on the road to relationship banking. It‘s questionable that celebrity
spokesman do anything to enhance a bank‘s customer relationships.
Parasuraman, et al. (1985) suggested that the criteria used by consumers
mould their expectations and perceptions of delivered service quality fit
into ten dimensions: tangibility, reliability, responsiveness, communication,
credibility, security, competence, courtesy, understanding/knowing the
customer and access.
Gronroos (1982) had identified two service quality dimensions, viz.,
functional quality and technical quality. Functional quality represents the
perception of the manner in which the services are delivered. Technical
quality or outcome quality on the other hand, represents the outcome of the
service act or what the customer receives in the end (Brady and Cronin,
2001).
Levitt (1981) proposed that customers use appearances to make judgments
about realities. The less tangible a product is the more powerful shall be the
effect of packaging while judging that product.
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II. LITERATURE REVIEW CONCERNING PERFORMANCE
EFFICIENCY OF INDIAN BANKS IN POST LIBERALISATION ERA
There are numerous empirical studies conducted on the issue of
profitability of commercial banks in India as well as abroad. Present
review deals with the empirical studies in Indian context on profitability
of banking sector. Present section deals with some of the notable studies
in this field.
Luther (1976) chaired the committee appointed by Reserve Bank of India
to study the productivity, efficiency and profitability of commercial banks.
The committee analyzed the various issues related to the planning,
budgeting and marketing in commercial banks.
Amandeep (1991) attempted to estimate profit and profitability of Indian
Nationalized banks and to study the impact of priority sector lending, credit
policies, geographical expansion, industrial sickness, competition, deposit
composition, establishment expenses, ancillary income, spread and burden
on bank profitability. For this purpose, trend analysis, ratio analysis and
regression analysis were used. Swamy (2001) studied the comparative
performance of different bank groups since 1995-96 to 1999-2000. An
attempt was made by researcher to identify factors which could have led to
changes in the position of individual banks in terms of their share in the
overall banking industry. He analyzed the share of rural branches , average
branch size, trends in bank’s profitability, share of public sector assets,
share of wages in expenditure, provision and contingencies, net non
performance assets in net advances, spread, has been calculated.
He concluded that in many respects nationalized public sectors banks much
better than private banks, even they are better than foreign banks.
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Milind Sathya (2005) examined the effect of privatization of banks on
performance and efficiency. The data taken was for five years (1998-2002)
and it was analyzed by using difference of means test. The banking sector
in India includes domestic banks (privately owned, partially privatized
banks, fully PSB’s) as well as foreign banks, and objective of this study is
to study the impact of privatization on the banking firms. It was concluded
that partially privatized banks have performed better as compared to fully
PSB’s in respect of financial performance and efficiency. Partially
privatized banks have continued to show improved performance and
efficiency in the year after privatization
Ved Pal & Malik (2007) in their empirical paper examined the difference
in financial characteristics of public, private and foreign sector banks based
on factors such as profitability, liquidity, risk and efficiency. Sample of 74
Indian commercial banks consisting of 24 public sector, 24 private sector
and 23 foreign banks was taken for the period of 2000- 2005. Multinomial
regression analysis was used and results revealed that foreign banks proved
to be high performer in generating business with a given level of resources
and they are better equipped with managerial practices and in terms of
skills and technology. Foreign banks were more consistent with market
system as reflected in terms of net interest margin. The public banks
emerged as the next best performer after foreign banks. There were giving
a higher return on equity in comparison to foreign and private banks. It was
high performer in economizing their expenses which was reflected from
expense rate and efficiency ratio. The private sector banks emerged with a
better utilization of resources as compared to PSB’s.
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Most of the studies were concerned of commercial banks as a whole and
were covering very limited number of years. PSB’s maintained its
dominance in the banking system. Keeping into consideration the research
gaps an endeavor is made in the present study to examine the performance
of PSB’s by calculating various ratios and their Compound Annual Growth
Rates (CAGRs) and Coefficient of Variation (CV).
Aggarwal, M. (2005) highlights the performance of three sectors of banks
(i.e. public, private and foreign) in the pre liberalization period and the
post- liberalization periods in terms of growth rate of their interest income
as a %age working funds, non-interest income as a %age working funds,
operational expenses as a %age operational income, cost of deposits,
spread as a %age working funds, operational productivity etc. The data
were collected for the period of 21 years starting from 1980 to 2001 the
study of paper reveals that the operational productivity of all the sectors is
better in post liberalization period.
Aggarwal, A.K., Singh, D. & Chaturvedi, N. (2007-08) analyzed the
performance of the banking sector and considered as a proxy for the
economy as a whole, due to banks wide spectrum of exposures. The paper
argues that to survive and thrive in the long run, banks need to pursuer
strategies that enable them to develop resources that are inimitable, rare,
durable and superior to competitors, while consolidation and convergence
are no doubt necessary to survive, they are by no means sufficient. The
most important point is that mergers and acquisitions in the banking sector
must be market led rather than prompted by government or regulator. We
are sure that our banking institutions, as in the post, shall rise to the
occasion and show the required flexibility to absorb and adopt. The
institutional changes to consolidate their position in the world market.
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Arora, U. & Verma, R. (2005) studied the performance evolution of
public sector banks in the post reforms period on the basis of four
parameters that are financial parameters, operational parameters,
profitability parameters and productivity parameters and during this period
the performance of public sector banks is quite satisfactory. Bhattacharya,
(1997) has found public sector banks with the highest efficiency among the
three categories of bank groups as foreign and private sector banks have
much lower efficiencies. However PSBs started showing a decline in
efficiency after 1987, private banks witnessed no change and foreign banks
disclosed sharp rise in efficiency.
B. Janki, (2002), analyzed in his article that how technology is effecting
employee’s productivity. There is no doubt, in India particularly PSBs will
need to use technology to improve operating efficiency and customer
services. Harnessing employee technology synergy is crucial for unleashing
productivity and reaching out to the huge base of retail customers, who are
also dispersed in rural and semi-urban areas. Banks can use technology to
address customer needs and improve their interaction with customer
keeping in touch through telephone and Internet. The focus on technology
will increase like never before to add value to customer service, develop
new products, strengthen risk management, and asset liability management
and improve profitability. However technology is only an enabling tool and
whether banks actually what they want to achieve will be determined by
the drive and motivation of their work force and response of the staff.
Garg, M. (1994) studied that Indian scheduled commercial banks have
achieved remarkable progress in last two decades under study, particularly
in branch expansion in rural areas, deposits mobilization and credit
deployment to priority sector and small borrowers but their profits have not
kept pace their growth and hence, their share in profits have come down,
105
whereas foreign banks with a much smaller geographical spread and
resources base, earn almost as much by way of profits as the 20
nationalized banks put together. There is a lot of difference in the pattern of
advances and investments and even lending rates of Indian and foreign
banks.
Kamakodi, N. (2007) examines how computerization has influenced the
banking habits and preference of Indian customers and which factors
influence these preferences. Changing of residence, salary account and
non-availability of the technology based services were given as the three
main reasons for changing the bank.
Narayanasami, T.S. (2005) stated that rural lending is relatively less risky
and more profitable for all classes of commercial banks. Credit plays a
catalytic role at the right time in accelerating economic development.
Economic reforms have brought about irreversible changes in several
sectors of the economy. Indian banking is also in a better position with
respect to technology, capital adequacy and credit management, risk
bearing capacity, international competitiveness and contribution to the
national economy.
Ram, T.T (2002) said that business is being completely reinvented because
transaction costs are much lower on the Internet than in traditional
channels. The banks are rapidly shifting their business functions &
customers relationships on to the Web.
Satyamurty (1994) clarified the concepts of profits, profitability &
productivity applicable to the banking industry organized by the bank
managements that the pressure on the profitability is more due to the
factors beyond their control.
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Shobhana, V.K. & Shanthi, G. (2008) assess the operational efficiency of
foreign banks in India using the data for the period 1996-97 to 2004-05.
Analysis of clearance is used to find that there is no significant relationship
between operational efficiency and variables such as size of assets, branch
network and staff strength, 31 foreign banks were selected for the study. It
is concluded that state bank of Mauritius achieved the highest productivity
whereas the operational efficiency of common international bank was the
lowest.
Srivastava, R.M. (2006) concluded that in post nationalization period
witnessed an unprecedented expansion of banking industry in India.
However accompanied inefficiency and poor financial health to overcome
this problem and improve the efficiency of banks, various tectonic
measures were taken since 1991. This has resulted in improvement in
productivity, profitability and strengthening of financial position of the
banks so much that they are outshining those of advanced notions
.However banks have still o go a long way to sustain their Competitive
success. Indian Commercial Banks also need to enhance their system and
procedure to international standards and also simultaneously fortify their
financial position.
Singh, I. & Kumar, P. (2006) analyzed that deposits is a major
determinant of spread followed by borrowings and labour. The study again
concluded that average technical and allocative efficiency are the highest in
foreign banks while of PSBs is although lower than FBs but much better
than private sector banks.
Singla & Arora (2005) studied the comparative performance of Canara
Bank and Indian Bank that both the banks have improved their financial
performance during the study period where Canara Bank has an upper hand
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in growth of deposit, advances and average working funds. In case of
productivity it is rising in both the banks but remained much higher in
Canara Bank.
T. Padamasai (2000) studied that productivity and profitability of five big
banks increased throughout the post-reforms period in terms of selected
ratios of each parameter, but on account of efficiency, the performance of
the top five banks is very dismissal as inefficiency has increased during the
study period. He suggested that if the government sells its share in the
profit making banks, it would be able to bail out the weak banks.