Results and Discussion

Chapter 4 Results and Discussion

RESULTS AND DISCUSSION
The present study was undertaken to compare the performance of private and public
sector banks in India. The comparison was carried out on the basis of financial
performance of the banks, financial inclusiveness and customer satisfaction with
regard to the services provided by the banks. Findings of the study have been
discussed below:
4.1 Financial Performance of Public and Private Sector Banks

Financial performance of banks plays an important role in economic growth of a
country. Good financial performance of banks encourages investment in the economy
whereas the poor performance leads to slowdown and other negative repercussions.
Financial performance of banks can be studied by using various methods like ratio
analysis, CAMEL rankings, liquidity, and profitability and so on. In the present study,
ratio analysis was used to compare the financial performance of public and private
sector banks in India since the year 2006. Results of the various ratios used, have been
enumerated below:
4.1.1 Credit-Deposit Ratio

Credit-Deposit Ratio (C-D ratio) explains the level of credit deployment in relation to
deposits mobilized by the banks. It shows the efficiency with which commercial
banks are tapping savings from the available sources and channelizing the same to
various productive activities of the economy (Kumar and Verma, 2008). According to
the latest figures a C-D ratio of over 75% would indicate pressure on resources as
banks have to set aside funds to maintain a cash reserve ratio (CRR) of 4% and
statutory liquidity ratio (SLR) of 21% (RBI, 2016). However, there is no minimum or
maximum limit for the ratio, very low ratio indicates that banks are not making full
use of their resources, whereas very high ratio is considered as pressure on resources
and may force banks to raise more capital (Nayak, 2012). C-D ratio of public sector
banks in India picked up after nationalization from 60% in 1969 to 68% in 1976 and
after that it continuously declined and reached an all-time low level of 53% as on
September 1999 followed by 52.2% in year 2001 (Kumar, 2013). This constant fall
was attributed to strict credit policy of the RBI and decline in corporate demand for
credit. Looking at the problem of low credit deposit ratio, an expert group was
Faculty of Management Sciences and Liberal Arts 65


constituted under the chairmanship of Y.S.P. Thorat in the year 2005. Group
examined the C-D ratio of banks and recommended that it needs to be monitored at
different levels wherein District Level Consultative Committee (DLCC) may be set
up to monitor the districts having the C-D ratio less than 40%; districts having C-D
ratio between 40% and 60% and districts with C-D ratio of less than 20%. It was also
recommended that the districts with C-D ratio of less than 20% need to be treated
more vigilantly (RBI, 2005). As a result C-D ratio during March end 2006 was found
to be 68% and 73% in case of both public and private sector banks respectively. C-D
ratios for both the public and private sector banks for the last ten years have been
given in Fig. 4.1.1.
Figure 4.1.1 Credit Deposit Ratio

100
90
80
70
Percentage
60
50
40
30
20
10
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 68 72 73 73 73 76 78 78 77 76
Private 73 75 77 78 77 80 82 82 84 86
Source: Indian Bank Association www.iba.org.in & RBI, Report on Trend and Progress of Banking in
India (Various Issues)
Fig. 4.1.1 highlights that the C-D ratio has been higher in private sector banks as
compared to public sector banks. A rise in C-D ratio of public sector banks is clearly
visible since 2006 till 2013 and after that it showed the declining trend. On the
contrary, C-D ratio in case of private sector banks showed continuously an increasing
trend except a minor fluctuation in 2010. The higher credit deposit ratio in private
sector banks can be explained with the fact that dependence of these banks is
relatively lower on deposits as compared to public sector banks. The situation in this
regard is seen to be almost the same during 2012 & 2013 which could be because of
the continued dependence of the banks on the alternative sources for mobilizing
credit. Since 2013, decreasing trend of the ratio observed in public sector banks
reflected the release of pressure from financial resources of banks. Another reason for


the low C-D ratio in public sector banks could be decrease in the ratio of few states of
India like Orissa where the public sector banks (Andhra Bank 45%, Bank of Baroda
47.3%, Syndicate Bank 34.5%, UCO Bank 39.2% and Union Bank of India 50%)
recorded C-D ratio even lower than the stipulated norm of 60% (Indian Express,
2014) and similarly in Goa, where due to ban on mining corporate loans decreased
and which affected the earnings of miners and on the contrary, decrease in deposits
was also witnessed (The Hindu, 2013). Therefore, it is important for such banks to
diversify their portfolio of lending to other sectors like agriculture and small &
medium scale enterprises (SMEs). As mentioned above, efforts to increase CASA can
also be made. The Rising trend of C-D ratio is good in context of earning more profits
but with the growth in credit, Non-Performing Assets (NPAs) simultaneously need to
be controlled. On the other hand, private sector banks continued to show increasing
trend after the marginal decline in 2013. This situation of C-D ratio reveals that a very
high ratio creates pressure on liquidity as it is mandatory for banks to maintain
provision for SLR and CRR as per the mandate of RBI. To overcome the fear of
liquidity crunch, it is important for banks to strengthen their network in financially
backward and excluded regions (Sethi and Bajaj, 2013).
4.1.2 Investment – Deposit Ratio

The Investment-Deposit (I-D) ratio is calculated to know the proportion of deposits
which are being invested in fixed income securities. It is calculated as Investments
(Government Securities and Other Approved Securities)/Total Deposits. The ideal I-D
ratio is supposed to range between 29-30% (Agarwal, 2012).
Narasimham Committee (1991) objected to the system of maintaining high liquid
assets by commercial banks in the form of cash, gold and unencumbered government
securities. During 1991, SLR and CRR were as high as 38.5% and 15% respectively.
Taken together banks needed to maintain 53.5% of their resources with the RBI which
according to the Narasimham Committee was one of the reasons for poor profitability
of banks. The committee recommended the reduction in SLR to 25% and CRR to 3-
5% (Akrani, 2010) as because of credit demand in the market, public sector banks
began liquidating some of their non-SLR investments which do not qualify for the
statutory liquidity ratio. In 2008, entire banking sector saw a huge surge in loan
demand from oil companies and other Public Sector Undertakings (PSUs) due to
which loans grew at a faster pace than deposits. On the other hand, RBI pulled down


the CRR by 350 basis points, releasing more than `1200000 million in the system (ET,
2008). This forced banks to pass on their stock of government bonds to fund the loan
demand due to which in 2008, the investment deposit ratio slipped down to 28.3%
moving towards the mandatory mark of 25% (Pandey, 2008).
Figure 4.1.2 Investment Deposit Ratio

50
45
40
35
Percentage
30
25
20
15
10
5
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 39 33 33 33 33 31 30 31 30 30
Private 42 39 41 42 43 42 45 45 41 41
Source: Indian Bank Association www.iba.org.in (Various Issues)
As exhibited in Fig 4.1.2, I-D ratios in public sector banks have been lower than that
in private sector banks. The ratio in public sector banks showed a decreasing trend
since 2006 with a small increase in 2013 whereas, I-D ratio in case of private sector
banks showed fluctuations during the period under study.
The decline in I-D ratio of public sector banks could be attributed to the rise in C-D
ratio. Further, it was observed that in 2009, I-D ratio of public and private sector
banks increased to 32.52% and 41.63% respectively which implied that private sector
banks were in a better position with respect to earning interest on investments but on
the contrary, higher ratio may also lead to liquidity problems. Hence, it is important
for the banks to have a pool of short term investments which have higher liquidity.
Further, Fig. 4.1.2 reveals that after witnessing the increasing trend till March 2010, I-
D ratio in 2010-11 declined to 30.44% and 42.09% in public and private sector banks
respectively. Only 75% of the total investments were held back to meet the SLR
requirements and to raise funds from money market (RBI, 2011) whereas, rest 25%
available fund was being used to meet the liquidity problem. In addition, it was
witnessed that during the year 2013, both public and private sector banks started
hoarding money in government bonds rather than lending it to business houses which


may be because of lowered market interest rates. On other hand, it was also revealed
that those banks which hold government bonds much beyond the mandated levels,
have strong retail franchise and a lot of surplus funds. Even after viewing the
fluctuating trend from 2009 onwards, the ratio remained higher than the SLR
requirement of 22% during 2015 which implies that both bank groups had enough
funds to invest in government securities. In February 2015, RBI decided to bring
down SLR to 21.50% with the purpose to inject more funds in the market. It further
aimed to bring I-D ratio to 20.50% by January 2017 (ET, 2015) with an intention to
improve liquidity in the market.
4.1.3 Non-Performing Assets Ratio

In banking, Non-Performing Assets (NPA) are the loans which may or may not get
recovered. A high level of NPA increases the prospect of large number of defaults
which affects the profitability of banks and reduces the pace of economic growth.
Some of the biggest NPA crises around the world like American savings and loans
crises in 1980s, the Nordic banking crisis during early 1990s, the banking sector
problems in Japan and Turkey and recently happened subprime crisis of USA had
been one of the reasons for defaults that happened in loans (Zafar et.al. 2013). In
India, tendency of NPA emerged after the nationalization of banks and in lieu of this
various distinguished measures like introduction of Sick Industrial Companies Act
(SICA) -1985, Board for Industrial and Financial Reconstruction (BIFR), Recoveries
of Debt due to Banks and Financial Institutions Act (RDDBFI)-1993 were taken to
recover NPAs but none of the regulations was able to speed up the recovery of bad
loans (Dun and Bradstreet, 2008). Narasimham Committee concluded in its report that
lenient priority sector lending was one of the main reasons for the increase of NPAs
of banks and also highlighted poor credit policy, behest lending and cyclical
economic factors as some of the other reasons for increase in NPAs. In order to speed
up the recovery process committee recommended reducing the period of default from
180 days to 90 days followed by the setting up of Asset Reconstruction Fund (ARF)
by which Government of India, if necessary, can take over the NPAs from Banks at
discount and recover the dues owned by the primary borrowers. Other than this,
various other norms like Lok Adalats, Civil Courts, Debt Recovery Tribunals and
Compromise Settlement were established for better recovery of loans. In addition to
this, in 1999 an expert group committee was constituted under the chairmanship of


T.R. Andhyarujina, senior Supreme Court advocate and former Solicitor General of
India to formulate the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act, which was passed on December
17, 2002. The Act provides for enforcement of the security factor without recourse to
civil suits. From 2002 till 2009 number of cases referred to SARFAESI act increased
from 0.002 million to 0.061 million which contributed towards the recovery of `39820
million from the total recoverable amount of `120670 million (Rajeev and Mahesh,
2010). Further, with a view to provide additional option for NPA management, RBI
issued guidelines on sale/ purchase of NPAs by banks in order to reduce the level of
NPAs (RBI, 2007).
Figure 4.1.3 Non Performing Assets Ratio

3.5
3
2.5
Percentage
2
1.5
1
0.5
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 1.32 1.08 1.3 0.94 1.1 1.09 1.53 2.01 2.56 2.92
Private 1.01 1.16 1.09 1.29 1.03 0.57 0.46 0.52 0.66 0.89
Source: Indian Bank Association www.iba.org.in (Various Issues)
Fig. 4.1.3 clearly depicts that increasing NPA has been a concern for public sector
banks in recent years because the NPA ratio has been continuously and sharply
increasing since 2009. In case of private sector banks, fluctuations could be seen till
2012 and then the ratio kept on increasing. It can be concluded that due to the
economic slowdown and increase in non-priority sector NPAs, increasing trend of net
NPA was observed in public sector banks from 2009 onwards. On the other hand,
declining trend was seen among private sector banks in 2010 when the ratio came
down to the level of 1.03% and further to 0.46% in 2012 which could be attributed to
the decline in NPAs of ICICI Bank from 2.19% to 1.96% during March 2010 and
increase in the provision for contingencies by 20.93% in the year 2011. Whereas, the
delay in implementation of projects and impact of business cycles might have been
some other factors responsible for continuous deterioration of asset quality in public


sector banks. One additional reason could be a decline in amount recovered through
SARFAESI, Debt Recovery Tribunals and Lok Adalats, (appendix 8) which was also
reflected in the increase of Net NPAs to ` 619000 million and ` 281000 million in
Nationalized Banks and SBI group respectively. Moreover, NPAs of priority sector
were consistently higher than NPA ratio of non-priority sector (RBI, 2013) (appendix
7). Since 2013, ratio of private sector banks started increasing and in 2014 the ratio
reached the level of 2.56% and 0.52% in public and private sector banks respectively.
Looking into this adverse situation, Reserve Bank of India issued the guidelines in
2014 to all banks mentioning about setting up of Central Repository of Information on
Large Credits (CRILC) to collect, store and disseminate credit data to lenders. Under
CRILC, banks needed to furnish the information of large borrowers, written off
accounts, current accounts and non-cooperative borrowers (RBI, 2014). Moreover,
under SARFAESI highest recovery of 25.8% was recorded in 2014 (Singh, 2016).
Looking into the adverse situation of NPAs in India and RBI had being issuing
guidelines and making policies to reduce the same, it can be concluded that banks
should also adhere to the instructions and must highlight the problem whenever it
comes to light. In addition, money should be lent only to those who fulfill the criteria
and have repayment capacity. Other than this, Government should work more towards
generating employment and motivate companies to follow the national campaigns like
Make in India so that income and employment both can be generated. It has also been
instructed by the RBI that banks should clean their balance sheets by March 2017
(Ahuja, 2016).
Fig. 4.1.3 also highlights that in recent years, NPA ratio has been higher in public
sector banks as compared to private sector banks which implies that private sector
banks are doing extremely well to control asset deterioration by strictly implementing
strict the credit policy, and through stringent recovery norms and adequate
provisioning. Increasing NPA of priority sector had been a matter of concern for
public as well as private sector banks. The faulty lending process for fulfilling the
targets of loans has also been one of the reasons for increasing level of NPAs,
particularly in case of public sector banks.


4.1.4 Return on Assets
Return on Assets (ROA) ratio helps to measure the operating efficiency of the bank. It
is ideally accepted that higher the ratio, better is the efficiency of banks and shows
how effectively the assets are being used to generate greater amount of income.
Return on Assets is calculated by dividing net profit (after taxes) by the total assets.
ROA ratios for public and private sector banks have been exhibited in Fig. 4.1.4.
Figure 4.1.4 Return on Assets Ratio

1.8
1.6
1.4
Percentage
1.2
1
0.8
0.6
0.4
0.2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 0.88 0.92 1 1.02 0.97 0.96 0.88 0.78 0.5 0.46
Private 1.07 1.02 1.13 1.13 1.28 1.43 1.53 1.63 1.65 1.68
Fig. 4.1.4 indicates the better performance of private sector banks as compared to
public sector banks as the ROA ratio has been higher in private banks throughout the
period under study (2006-2015). Further, in case of public sector banks increase in
ROA was witnessed from 2006 to 2009 and thereafter from 2010 onwards it started
decreasing and reached 0.46% by the end of 2015, whereas in case of private sector
banks after the marginal decline during 2007, it stabilized during 2008 & 2009 and
again started increasing and reached the level of 1.68% by year ending march 2015.
Constant decline in the ratio of public sector banks could be because of the fall in
ROA ratio of State Bank group to 0.97% in 2010, provisioning for housing loans
extended at teaser interest rates (RBI, 2011) and growing NPAs of power and airline
sectors (RBI, 2012). On the other hand, increasing trend of the ratio in private sector
banks can be related with the facts of increase in profitability and reduction in
operating expenses. The lenient attitude of public sector banks towards corporate
lending could also be the reason for deterioration of asset quality. More worrisome
situation is that public sector banks which hold 76% market share are worse than the


rest bank groups (Roy, 2013). Hence, with the rise in volume of stressed assets and
diminishing profitability, ROA in 2015 was found to be 0.46% which is less than the
half of standard norm. Taking inspiration from the recommendations made by the
Nayak Committee (2015) formed to revamp the public sector banks, Finance
Minister, on 14th August 2015 unveiled the Indradhaush framework consisting seven
pronged plan with the central theme of recapitalization. On implementation of this
framework, credit growth is expected to rise from 12% to 15% in future. In this
regard, government of India had estimated the requirement of `1800000 million to
meet the rising credit demand. In the initial stages, it has been planned to infuse
`700000 million in four tranches, whereas rest `1100000 million will be raised by the
public sector banks from the market (Ministry of Finance, 2015). It was also
suggested that to meet the economic growth targets, it is important for the state owned
small banks to get merged into large banks.
4.1.5 Return on Equity

Return on Equity (ROE) measures the efficiency with which banks are able to
generate profits from shareholder’s equity. ROE is calculated as net income divided
by its average return on equity. ROE between 15-20 percent is considered as
desirable.
Figure 4.1.5 Ratio of Return on Equity

20
18
16
14
Percentage
12
10
8
6
4
2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 15.4 16.1 17.1 17.9 17.5 16.9 15.3 13.2 8.5 7.8
Private 13.3 13.7 13.4 11.4 11.9 13.7 15.3 16.5 16.2 15.7
Fig. 4.1.5 indicates that from 2006 onwards public sector banks witnessed the rise in
ROE till 2009 and thereafter the continuous decline in the ratio was found and it


reached the level of 7.8% by 2015, whereas fluctuating trend was observed in ROE of
private sector banks. It was observed that after the crises private sector banks have
strengthened their credit portfolio whereas public sector banks have showed the
increase in NPAs due to which profitability of the banks was affected. During 2008,
overall financial performance of Scheduled Commercial Banks (SCBs) was
underpinned by hardening of lending rates and deposit rates. ROE being one of the
main indicators to measure financial performance also dropped because of the impact
of rise in capital base as banks raised funds from capital market to strengthen their
reserves and surplus (RBI, 2008).
In continuation to this trend, Fig 4.1.5 further reveals that during 2009 ROE increased
to 17.94% and 11.38% in public and private sector banks respectively indicating the
improvement in efficiency with which capital was used by the banks. However, public
sector banks showed decreasing trend from 2009 till 2015 whereas, in case of private
sector banks after showing an increasing trend till 2013, ROE declined to 15.74% in
2015. Deterioration of ROE among public sector banks can be ascribed due to the fall
in ROE of State Bank group from 17.74% in 2009 to 15.92% in year 2010. Moreover,
decline in the profitability and increase in NPAs could also be counted as the factors
affecting ROE. On other hand, Private sector banks being financially stable witnessed
a growth in the ratio. Increase in capital base, net interest margin and profitability of
banks (RBI, 2011) were found to be the reasons supporting financial growth of private
sector banks. In 2013, profits of private sector banks increased from 22718 in 2012 to
28995 (IBA, 2014).
Further, Fig. 4.1.5 also highlights a sharp decline in ROE of the public sector banks
from 13.24% in 2013 to 8.47% in year 2014 due to the decrease in net profit margin
from `505830 million in 2013 to `370070 million in 2014 (IBA, 2014). Higher
provisioning for bad loans and growth of around 12% in interest expenses was the
reason behind the decrease in net profits. A total of `809000 million decrease was
witnessed by all scheduled commercial banks in 2013-14 (RBI, 2014). ROE ratio
analysis reveals that private sector banks have higher productivity in comparison to
public sector banks.


4.1.6 Capital Adequacy
Capital Adequacy Ratio (CAR) which is also known as Capital to Risk (weighted)
Assets Ratio (CRAR) is defined as the ratio of bank’s capital to its risk assets.
Narasimhan Committee in its report (1991) submitted to Government of India
mentioned that banks have to maintain a minimum capital of 8% to create a cushion
for credit risk. As per the Basel-I framework recommended by the Committee, banks
have to maintain enough amount of capital to deal with any losses arising in the
banks. Under these norms, capital was classified into Tier I and Tier II capital. Tier I
capital comprised of disclosed reserves and equity capital meant to deal high losses
whereas Tier II capital included provision for NPAs, revaluation reserves and
disclosed reserves. On March 31st 2007 Basel II norms came into effect with the
purpose to minimize the misuse of Basel I norms. It consisted of three pillar approach
i.e. minimum capital requirements, supervisory oversight and market discipline &
disclosures. Pillar-I gave the flexibility to banks for choosing the standardized
framework, securitization approach and internal ratings based approach to estimate
the capital requirements for credit risk coverage. Pillar II provided banks with a tool
to keep check on their capital adequacy differentiate banks on the basis their capital
profile and risk management systems. Lastly, Pillar III comprised of the standards for
the disclosure of asset quality, financial reporting and risk management of banks
(Gupta and Srinivasan, 2005).
Figure 4.1.6 Capital Adequacy Ratio

18
16
14
Percentage
12
10
8
6
4
2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 12.24 12.26 11.93 12.9 12.7 12.45 12.55 11.84 11.2 10.44
Private 11.71 12.97 15.36 15.1 17.05 15.78 15.34 15.97 14.11 13.31
Source: Indian Bank Association www.iba.org.in; RBI, Report on Trend and Progress of Banking in
India & Business Standard 2014-2015 (Various Issues)


The parallel run of Basel I and Basel II norms was done to meet contingencies of
banks. Fig. 4.1.6 shows that private sector banks had higher capital adequacy ratio as
compared to public sector banks. Further, CRAR in case of public sector banks kept
fluctuating between 11-12%, which shows that public sector banks were maintaining
CRAR as per Basel I and Basel II norms suggested by the RBI. On the other hand, in
case of private sector banks fluctuating trend was witnessed in the ratio from 2006-
2015. By the end of 2015, CRAR of both public and private sector banks dropped to
10.44% and 13.31% respectively. In 2009 CRAR of public sector banks stood at
12.90%, whereas in case of private sector banks it was 15.10%. These figures reveal
that even after the pressure of global financial turmoil and fluctuating trend of CRAR,
2009 onwards both the bank groups were able to maintain the minimum requirement
of 9% CRAR as prescribed by RBI. In year 2010, Government of India infused a
capital of `56910 million for the recapitalization of public sector banks (RBI, 2010) to
stabilize the decreasing trend of CRAR from 2009 to 2011 in this bank group. Basel I
capital wise breakup indicates that Tier I capital was at a higher side with an amount
of `5685000 million which is around 70% of the total capital funds. Hence, banks
were capable to meet any future losses.
The problems in Basel II like liability mismatch, liquidity crunch and higher leverage
led to the introduction of Basel III framework during January 2013. Guidelines were
issued from BCBS (Basel Committee on Banking Supervision) to the banks for
maintaining high quality liquid assets to meet the capital requirement for riskier
assets. Fig. 4.1.6 indicates that CRAR remained above the standard norm of 9% in
both the bank groups but little decline was seen in public sector banks which was the
result of failing capital positions of public sector banks. To overcome these
shortcomings of Basel II norms new liquidity rules, capital conservation buffer and
countercyclical buffer were created in Basel III norms (Shenoy et.al. 2014). It
introduced to create a capital conservation buffer of 2.5% over and above the 8%
prescribed by Basel committee. As a result of decrease in asset quality, declining
trend of CRAR was observed in both bank groups after 2013 and in case of public
sector banks it was expected to reach the lowest level of 9.4% by 2017 (RBI, 2015).
The declining trend of capital adequacy ratio and reaching the minimum requirement
is a great concern for Government of India and it is important to infuse more capital
into the system to recover from losses. Indradhaush reforms implemented by the


Government of India in 2015 could be a step forward to recover from this adverse
situation.
4.1.7 Net Interest Margin

Interest Income is considered as the main source of income for scheduled commercial
banks and the difference between interest income and interest expenses leads to Net
Interest Margin (NIM). Net Interest Margin of both the bank groups have been
presented in Fig. 4.1.7. In 2005 both public and private sector banks reported the net
interest income of 2.9% and 2.3% respectively.
Figure 4.1.7 Ratio of Net Interest Margin

4
3.5
3
Percentage
2.5
2
1.5
1
0.5
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 3.03 2.79 2.35 2.35 2.29 2.77 2.76 2.57 2.45 2.34
Private 2.74 2.54 2.67 2.86 2.9 3.1 3.09 3.22 3.31 3.37
Source: Indian Bank Association www.iba.org.in; RBI, Report on Trend and Progress of Banking in
Fig. 4.1.7 depicts the higher NIM in private sector banks over public sector banks
since 2008. Further, in case of public sector banks, NIM declined till year 2010 and
reached the level of 2.29%, thereafter it increased during 2011 and then continuously
declined till 2015. On the other hand, in case of private sector banks with the marginal
decrease in 2007, the NIM started increasing and reached at 3.37% by 2015. In 2009,
reverse trend was observed that NIM of public sector banks decreased to 2.35% and
NIM of private sector banks increased to 2.86%. Fig. 4.1.7 also reflects that the
considerable increase in NIM happened during 2010-2011 when it jumped to 2.77%
and 3.10% in public and private sector banks respectively. Increased fee income, third
party mutual funds income, commission on letters of credit, income from bank
guarantees and demand drafts were some of the reasons behind this improvement.
Private sector banks showed the highest growth of 25% in their fee based income


(Economic Times, 2011). 2013 onwards decreasing trend was seen in NIM of public
sector banks whereas marginal increase was observed in private sector banks as they
seem to be more inclined towards earning high profits. An increase in other income
by 16% among public sector banks gave little relief to these banks as they were
struggling from slow credit growth.
NIM indicates the amount of income taken by banks which is good from the
profitability point of view, but if we look it from the perspective of efficiency, it is
important for banks to bring down NIM for the improvement in financial
intermediation. Increase in other income and reduction in operating expenses will help
banks to maintain profitability (RBI, 2011). As per RBI (2011), other income of
public and private sector banks grew by 12.8% and 16% respectively which implies
that banks can maintain the balance between efficiency and profitability if they work
towards increasing other income and minimizing operating expenses.
It can be inferred that to maintain the balance between efficiency and profitability,
banks have now started concentrating on increasing non-interest income. ATM
transaction charges and low cost deposits are considered as key factors responsible for
increase in non-interest income. Moreover, banks can also reduce operating cost by
making customers aware about the usage of mobile banking and internet banking,
adoption of technology banking which would be one way out in decreasing the
operating cost of these banks.
4.1.8 Cost of Deposits

Cost of deposit ratio is used to analyze the cost control efficiency of the banks. Lower
the cost, better is the efficiency and profitability of banks whereas higher the ratio,
lower is the productivity of the banks. It is calculated by dividing the actual interest
paid on various deposits by average deposits. As shown in Fig. 4.1.8, Cost of Deposits
has been almost the same in recent years in both the public and private sector banks. It
showed an increasing trend from 2006 to 2009 and thereafter declined till 2011. It
further increased during 2012-2013 and started declining from 2014 onwards and
reached the level of 6.43% and 6.39% in case of public and private sector banks
respectively.


Figure 4.1.8 Ratio of Cost of Deposits
8
7
Percentage 6
5
4
3
2
1
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Years
Public 4.58 4.91 5.97 6.26 5.68 5.12 6.36 6.63 6.47 6.43
Private 4.46 5.37 6.47 6.6 5.36 4.97 6.43 6.72 6.4 6.39
Source: Report on Trend and Progress of Banking in India (Various Issues)
As per the guidelines of RBI, banks with effect from Oct 25, 2011 are free to
determine their saving deposit interest rate keeping in mind the uniformity upto `0.1
million and thereafter it is bank’s discretion to provide differential rate of interest. In
case of term deposits, banks are allowed to fix their own interest rates on domestic
term deposits with respect to its maturity by taking prior permission from Asset
Liability Management Committee (ALCO). Banks are not allowed to discriminate in
interest rate of one deposit and another falling under the same maturity (RBI, 2015).
Almost similar trend was witnessed in both the bank groups. It was found that Current
Account Savings Account (CASA), which is considered as a key factor responsible
for decreasing cost of deposits had dipped down in 2009 as compared to 2008. In case
of public sector banks, only 4% growth in current deposits happened in 2009 as
compared to 35% in 2008. On the other hand, term deposits which have high interest
rates, showed an increase of 23% in public sector banks. In case of private sector
banks, only 0.2% growth was observed in current deposits and 8% on term deposits. It
can be concluded that the performance of public sector banks was better in
comparison to private banks during 2009 but in 2010, CASA deposits increased by
25% among private sector and 19% change was witnessed in public sector banks
(RBI, 2010). Hence, in this year private sector banks showed a lead over the public
sector banks. Such a change reduced the cost of deposits to 5.68% and 5.36% in
public and private sector banks respectively.
Fig. 4.1.8 further depicts a rising trend in cost of deposits in 2012 which could be
attributed to a decrease in current deposits of public sector banks by 7%. On other


hand, cost of deposits of private sector banks was largely affected by the deregulation
of interest rates in October, 2011. The shift of customers to term deposit accounts due
to higher rate of interest could also be interpreted as the reason for increase in cost of
deposits in 2012. The fall in cost of deposits during 2014 & 2015 can be because of
the inclination of banks towards increasing low cost deposits. Public sector banks can
be considered as better performers than private sector banks in terms of managing
cost of deposits.
4.2 Financial Inclusiveness of Public and Private Sector Banks

The concept of financial inclusion is not new in India. Since nationalization, banks
had made various efforts to expand branch banking services in the unbanked areas.
However, the concept of financial inclusion was formally articulated in annual policy
statement (2005) by the then Governor of Reserve Bank of India. There onwards, RBI
and Government of India had made intensive efforts to promote financial inclusion
using various measures like, opening of No-Frills Accounts; development of business
correspondents’ model; technology banking and expansion of bank branches.
Technological developments in financial sector had transformed banking from brick-
and-mortar infrastructure to a system supplemented channel like Automated Teller
Machines (ATM) which now has been developed into delivery point of extensive
range of banking services, especially in off-site locations.
In recent past, financial inclusion has emerged as a tool to bring unbanked and
underprivileged together to become the part of banking system. Hence, the present
study was conducted to compare the private and public sector banks in terms of
efforts made for financial inclusion. As mentioned above, various parameters have
been used to measure financial inclusiveness and the findings are presented below:
4.2.1 ATM Penetration

The history of ATM services has developed over a period of time starting from
proprietary to shared network and finally to integrated multiple ATM networks
(Malhotra, 2010). One of the biggest developments in the history of ATM operations
was the beginning of National Financial Switch (NFS) in 2004 (RBI, 2008). It helped
banks to connect the branches together and made it convenient for customers’ to make
transactions through any ATM. In view of this scenario, number of ATMs per bank
branch was taken as a criterion to measure the financial inclusiveness. The results
have been presented in Table 4.2.1.


Table 4.2.1Number of ATMs per Branch (as on 31st March)
Total % of ATMs
Total ATMs No. of ATMs/
Year Bank Group Branches
(Nos.) Onsite Offsite Branch
(Nos.)
Public 48016 12984 52 48 0.27
2006
Private 6516 7659 43 57 1.18
Public 49666 16329 63 37 0.33
2007
Private 7103 9799 43 57 1.38
Public 52889 21788 59 41 0.41
2008
Private 7975 11967 44 56 1.50
Public 55948 27277 64 36 0.49
2009
Private 8877 15320 46 54 1.73
Public 58825 40680 58 42 0.69
2010
Private 10027 18447 47 53 1.84
Public 62211 49487 60 40 0.80
2011
Private 11602 23651 45 55 2.04
Public 67466 58193 58 42 0.86
2012
Private 13452 36079 37 63 2.68
Public 72661 69652 58 42 0.96
2013
Private 15569 43101 35 65 2.77
Public 80416 110424 60 40 1.37
2014
Private 18034 48467 35 65 2.69
Public 85962 128811 54 46 1.50
2015
Private 19975 51490 37 63 2.58
Onsite - These are ATM machines that are set up in the premises where there is a bank branch so
that both the physical branch and the ATM can be used.
Offsite -These are the machines that are set up on a standalone basis.
Source: RBI, Report on Trend and Progress of Banking in India, (Various Issues).
After the formal acceptance of financial inclusion plan by Indian banks, total number
of bank branches and ATMs showed an increase in 2006 over 2005 in case of both
public and private sector banks. Mixed trend could be observed 2006 onwards in
ATMs per branch. It is clear from table 4.2.1 that in 2006 number of ATMs to bank
branches in public sector banks was found to be 0.27 per branch which implies that,
on an average, there was one ATM over 4 bank branches and in case of private sector
banks the ratio was 1.18. Till the year 2008, almost equal increase in average ATMs


was witnessed among both the bank groups, but public sector banks lagged behind in
installation of offsite ATMs.
By the March-end 2009, study revealed that the ATMs installed by private sector
banks were 1.73 times of the number of bank branches. On other hand, figures also
showed that at the end of year 2009 public sector banks had at least one ATM for
every two bank branches. In order to accomplish financial inclusion goals, RBI in
June 2009 permitted all scheduled commercial banks to set up off-site ATMs at the
places identified by them in unbanked areas, without having needed to take
permission from the Reserve Bank.
Further, the table 4.2.1 depicts that in 2010, average number of ATMs per branch
increased to 0.69 in case of public sector banks and 1.84 in private sector banks. This
considerable change could be attributed to the policy initiative of the Reserve Bank
with regard to installation of off-site ATMs. Moreover, it is a cost effective way to
reach the unbanked regions. The year 2011 witnessed a steady increase in average
number of ATMs per branch as compared to previous year. Out of the total number of
public bank ATMs launched during 2011, 11.9% were in rural areas and 26.8% were
established in semi urban areas. In case of private sector banks this percentage was
5.3% for rural areas and 20.2% for semi urban areas (RBI, 2011). Hence, it could be
stated that ATM penetration of public sector banks had increased in unbanked areas
as compared to private sector banks.
However, 2012 onwards tremendous increase was observed in the per branch spread
of ATMs in both bank groups. Among public sector banks the average number of
ATMs per branch increased from 0.86 in 2012 to 1.50 in 2015 which means that on an
average there were around 3 ATMs on every two bank branches, whereas in private
sector banks it had increased from the average of 2.68 in 2012 to 2.77 in 2013 and
after the marginal fall it got stabilized at 2.58 in 2015. It infers that on an average
more than 2 ATMs are established per bank branch. This applauding performance of
RBI for deeper financial inclusion could be attributed towards the authorization given
to non-bank entities to own and operate White-Label ATMs (WLAs) in India after
obtaining permission from Reserve Bank as laid down in Payment and Settlement
Systems Act, 2007 (RBI, 2012). In last one decade, RBI had taken various steps to
expand the banking facilities in rural and unbanked areas, but on other hand in the


customer satisfaction survey conducted during the study, some discontentment was
reported by the bank customers with respect to non-functionality of ATMs, location
disadvantage and action taken by banks to resolve ATM related complaints. Hence, it
is not just the access to services that matters, but it is imperative that quality of service
should also be maintained.
4.2.2 ATMs per Ten Thousand Savings Accounts

One of the sole purposes of expanding the number of ATMs had been to make the
banking convenient for account holders and reducing the long queues in bank
branches for cash withdrawal and money transfers. It had been observed that banks
are more inclined towards increasing the number of savings account as this is termed
as the way of reducing cost of deposits, but the increase in saving accounts also
creates the need for the installation of more ATMs. Hence, it becomes essential to
study the penetration of ATMs with regard to number of savings account.
Table 4.2.2 ATMs per Ten Thousand Saving Accounts

Savings No. of Savings No. of
Accounts ATMs/10000 Accounts ATMs/10000
Year
(in’0000) Saving Accounts (in’0000) Saving Accounts
Public Sector Banks Private Sector Banks
2006 26162 0.48 3201 2.39
2007 28364 0.58 3454 2.84
2008 32041 0.68 4346 2.75
2009 36600 0.75 4758 3.22
2010 42012 0.97 5100 3.62
2011 47038 1.05 5784 4.09
2012 52103 1.12 7734 4.67
2013 61184 1.14 9356 4.61
2014 73480 1.50 10751 4.51
2015 88389 1.46 12057 4.27
CAGR 14.3 - 16.3 -
Source: RBI, Basic Statistical Returns, Various Issues and Report on Trend and Progress of Banking in
India, (Various Issues).


Table 4.2.2 depicts that in case of public sector banks, from 2006 till 2010, on an
average there was not even a single ATM over 10000 saving accounts, whereas
private sector banks had more than 2 ATMs till 2008 which increased to more than 3
ATMs during 2009 & 2010. Hence, it could be said that private sector banks have
been able to provide better accessibility of ATMs in comparison to public sector
banks. The respective CAGR also proved that private sector banks had a higher
growth rate than public sector banks in terms of ATMs per 10000 saving accounts.
Further, Table 4.2.2 also shows that 2011 onwards, an increase was seen in expansion
of public sector bank ATMs. Figures reveal tremendous rise in number of ATMs after
the permission given by RBI to banks for installation of off-site ATMs and
authorization to non-bank entities for establishing WLAs in rural areas. After 2010,
increase in number of ATMs to per ten thousand savings accounts in rural and semi
urban areas witnessed huge growth as depicted in Fig.4.2.1.
Fig.4.2.1 Population Group Wise ATMs on per Ten Thousand Saving Accounts
7.00
6.00
5.00
Numbers
4.00
Rural
3.00
2.00 Semi-Urban
1.00 Urban
0.00 Metropolitan
Public Private Public Private Public Private
2010 2012 2015
Years/Bank Groups
Source: RBI, Report on Trend and Progress of Banking in India, (Various Issues).
Fig. 4.2.1 exhibits an excellent growth in ATMs per ten thousand saving accounts of
public sector banks in rural and semi-urban areas after 2012 which could be attributed
to the mandate given by RBI to install 10% of the new WLAs in Tier V and Tier VI
centers (RBI, 2012). On the contrary, private sector banks witnessed manifold growth
in rural and semi-urban centers from 2010 to 2015. The figure further highlights that
by 2015, private sector banks had a minimum 3 ATMs per ten thousand saving
accounts at all 4 centers i.e. rural, semi-urban, urban and metropolitan. Moreover,
ATMs installed in rural and unbanked areas can also ensure that the account holders
of PMJDY (Pradhan Mantri Jan Dhan Yojana) can withdraw the subsidies given by


government in their accounts. By working towards the accomplishment of financial
inclusion goal, government of India is determined to have bank account of each
individual by 2018 and ATM within the 15 minutes’ walk for every person. Offering
banking services through ATM is an appreciable initiative of the banks. At the same
time, it is also most important to spread awareness among customers of both rural and
urban areas regarding the usage of services offered through ATMs. Moreover, public
sector banks have to work extensively to accomplish the task of providing access of
ATM services to each individual in coming years.
4.2.3 On-Site and Off-Site ATMs

ATM is a cost effective mode for banks to provide access of financial services to the
unbanked. In India, remarkable growth of ATMs had been viewed during last one
decade. Earlier ATMs were just used as a cash dispensing machine, but now we have
multifunction machines which can also be used for money transfers, train ticket
booking, cheque deposit and mobile recharge. Since 2005-06 when financial inclusion
was formally introduced in India, exponential growth in ATM deployment by banks
has been observed over the last 10 years. The increase in number of on-site and off-
site automated teller machines of public and private sector banks is shown in table
4.2.3.
Table 4.2.3 Percentage Change in ATMs (Onsite and Offsite)

On site Off Site
Public Banks Private Banks Public Banks Private Banks
Year
% % % %
No. Change No. Change No. Change No. Change
2006 6722 3309 6262 4350
2007 10289 35 4258 22 6040 -4 5541 21
2008 12902 20 5315 20 8886 32 6652 17
2009 17379 26 6996 24 9898 10 8324 20
2010 23797 27 8603 19 16883 41 9844 15
2011 29795 20 10648 19 19692 14 13003 24
2012 34012 12 13249 20 24181 19 22830 43
2013 40241 15 15236 13 29411 18 27865 18
2014 65920 39 17199 11 44504 34 31268 11
2015 69902 6 18897 9 58909 24 32593 4
CAGR
29.0 - 22.0 - 29.7 - 28.0 -
(%)
Source: RBI, Report on Trend and Progress of Banking in India, Various Issues; ATM and Card
Statistics


Table 4.2.3 shows that 35% change in the number of on-site and off-site ATMs
installed by public sector banks, whereas private sector banks witnessed slow growth.
In order to increase the usage of ATMs and provide better accessibility to customers,
RBI launched National Financial Switch which made it possible for customers to
withdraw money from ATMs of whichever bank at anytime and anywhere required. It
was found that CAGR of both the bank groups was high in case of off-site ATM
installation. This implies that banks were more inclined towards extending the reach
of banking in unbanked areas. CAGR of public sector banks was 29% in case of on-
site ATM installation, which shows that these banks were also focused on branch
expansion and installing ATM at the branches lacking in this regard. In 2008, 32%
increase was seen in the number of off-site ATMs installed by public sector banks
which could be attributed to the vision of RBI to provide doorstep banking to the
customers who face problems for accessing branch banking. With the continues
increase in offsite ATMs of both the banks groups, it was found that by March-end
2009 percentage of rural ATMs accounted for 28.4% of the total ATMs in country
and which increased to 32.7% by year end 2010, public sector banks were considered
as the major contributor in this league (RBI, 2010). Drastic increase in the number
was found after year 2010 when RBI authorized banks for the installation of offsite
automated teller machines at their preferred location. Moreover, to increase the
deployment of ATMs at unbanked centers, non-bank entities were given permission to
Fig.4.2.2 Population Group Wise Distribution of ATMs (as on March end)
40000
35000
30000
No. of ATMs
25000
20000 Rural
15000 Semi-Urban
10000
5000 Urban
0 Metropolitan
Public Private Public Private Public Private
2010 2012 2015
Years
Source: RBI, Report on Trend and Progress of Banking in India, Various Issues; ATM & Card
Statistics, 2015 (Various Issues).


Install WLAs to have better coverage, but it was prescribed to install 10% of the
number in towns and villages with population of less than 50000. The reflection of
these policy initiatives as shown in Fig.4.2.2 depicts that after the modest increase till
2012, tremendous rise in number of ATMs of public sector banks was witnessed in
rural and semi-urban centers between years 2012 to 2015. Further, it has also been
observed that in year 2015 public sector banks had almost equal proportion of ATMs
at semi-urban & urban centers and the same situation was found when rural centers
were compared with metropolitan centers. Hence it could be interpreted that public
sector banks are working in right direction towards the accomplishment of financial
inclusion goals.
Fig.4.2.3 Region Wise Distribution of ATMs (as on March 2015)
50
40
Percentage
30
20 Public Banks
Private Banks
10
0
CR ER NER NR SR WR
Region
Source: RBI, State wise and Region wise Deployment of ATMs, 2015 (Various Issues).
On other hand private sector banks being ahead in terms of number of ATMs per
branch (Table 4.2.1), had to increase its penetration in tier III and tier IV centers. In
addition to the above mentioned policies the Reserve Bank had advised the banks to
install all new ATMs as talking ATMs with Braille keypads (RBI, 2014).
An extensive growth in the number of ATMs during last one decade had helped banks
to achieve the target of financial inclusion to certain extent, but still nearly 40% of the
population is excluded from the formal banking system. Fig. 4.2.3 exhibits that states
which fall under North-Eastern Region (NER) followed by Eastern Region and
Central Region lag behind the other regions of country in terms of banking
development. It was found that till March-end 2015, total number of ATMs
established in north eastern region accounted to 4287 which was just 3% of the total


number of public sector ATMs installed in this region. While on the other hand this
percentage was only 1% in case of private sector banks. Topographical challenges,
security issues, power failures and connectivity of ATMs were found to be some of
the major reasons for lower financial penetration in these areas. Hence, to overcome
these challenges, spread of mobile banking facilities could be one way out to enhance
financial inclusiveness in these areas. Moreover, role of State Level Bankers
Committee (SLBCs), SHGs, educational institutions, telecom operators is important
to extend the awareness of mobile banking facilities by conducting training
programmes in these financially excluded areas. A mobile banking initiative, EKO
(Joseph and Mazzotta, 2014) introduced by EKO India Financial Services could also
be replicated in the states where ATM penetration is a challenge.
As discussed above, the number of onsite and offsite ATMs increased manifold in
case of both public and private sector banks, but as future financial transactions could
be envisaged through mobile banking, which may decrease the volume of transactions
made from ATMs. Therefore, need of the hour is to upgrade ATMs to the level
wherein banks can offer various financial services through ATMs. In this context the
latest innovation in banking sector is the introduction of interactive teller that enables
customer to do videoconference with bank executives (Alves, Nov, 2014).
4.2.3 Debit Card Penetration

The Reserve Bank of India has been encouraging the use of electronic channels for
accessing banking and payment services. RuPay card issuance under the scheme of
Pradhan Mantri Jan Dhan Yojana (PMJDY) is one of the latest measures taken by
RBI for facilitating demand of electronic payment services and also ensuring safety
and secuirty of transactions.
Number of Transactions per Debit Card
Table 4.2.4 is highlighting the trend of debit card issuance and its usage at ATMs and
Point of Sale (POS). It also dipicts the average number of transactions done through
each card issued. In India, Government has taken several initiatives to bring down
cash transaction and reduce black money by promoting secure and safe non-cash
modes of payment like debit card and credit cards. Table 4.2.4 exhibits that issuance
of debit cards had showed a high growth trend by increasing from 274 million in 2012
to 658 million in 2016. Out of the total number of debit cards issued till March-end


2012, more than three-fourth were issued by public sector banks. The upward trend
continued till year 2015, where 84% of the total debit cards were issued by public
sector banks and the share of private sector banks was found to be 17%.
Table 4.2.4 Number of Transactions per Debit Card

No. of
% of cards % No. of Transactions
Total No.
Transaction Per
Year of Cards Issued
at ATMs at POS Card
Issued
Public Private Public Private Public Private Public Private
2012 274478109 78 22 96 89 4 11 18 26
2013 327851764 79 21 95 85 5 15 16 22
2014 391183518 81 19 94 83 6 17 16 22
2015 550413905 84 16 93 80 7 20 13 20
2016 658780566 83 17 91 75 9 25 13 19
Source: RBI, ATM and Card Statistics, (Various Issues)
This increase in the number of debit cards had helped banks to reach the masses and
enhance financial inclusion drive. It is evident that technology had played a major role
in including the unbanked into the formal banking system, but this success of increase
in number of ATMs and debit cards could only be cherished if customers actually
start using the services offered through these facilities. The above table depicts that
number of transactions per card of both the bank groups had declined in last two
years. It was found that, lack in awareness level for using the technology, need of
accessible acceptance infrastructure and connectivity issues were some of the reasons
for decrease in the usage of debit cards at various facilities. Further it was found that
usage of debit cards was predominantly taking place at ATMs in comparison to (Point
of Sale) POS (RBI, 2016), which had been elucidated in table 4.2.4. In 2012, out of
the total number of debit card transactions of public sector banks, 96% were made at
ATMs whereas only 4% happened at POS. It could be for the reason that public sector
banks market debit cards as ATM cards for withdrawing cash with hardly mentions
that these can be used for other purposes as well (Adhikari, 2014). This lack of
awareness confines customers to use debit cards for selective purposes. On other
hand, the presence of private sector banks at POS terminals was found to be more
than public sector banks, wherein as on march-end 2016 number of POS transactions
increased to 25% in comparison to 11% in 2012. Hence, it is essential that both public


and private sector banks should increase the number of POS terminals and encourage
customers to use plastic money quite often.
Fig.4.2.4 Percentage of Debit Cards Issued on Total Saving Accounts
100 Public Private
80
Percentage
60
40
20
0
2012 2013 2014 2015
Years
Source: RBI, ATM and Card Statistics & Basic Statistical Returns, (Various Issues)
Fig.4.2.4 depicts that banks do not issue debit card on all the savings bank accounts
opened during year round. Till the year end of 2015, in case of public sector banks
only 52% saving account holders had a debit card, whereas this percentage was 75%
in case of private sector banks. Hence, in order to reach the level of 100% financial
inclusion by 2018, it is suggested that banks should firstly issue debit cards to all
saving bank account customers and secondly, develop the strategies to make
customers aware about the uses of debit card and conduct training programmes
wherever necessary.
4.2.4 Saving Accounts

In order to provide basic banking services to the weaker and backward sections of the
society, the Reserve Bank advised all the banks to open no-frills accounts either with
nil or very low minimum balance and charges. Policy initiatives like PMJDY (2015)
had significantly contributed in the rise of number of accounts. In 2012, The Reserve
Bank in order to provide basic banking facilities in more uniform manner asked bank
to convert the existing no-frills accounts into Basic Savings Bank Deposit Account
(BSBDA). As per the regulation customers of BSBDA were allowed maximum four
withdrawals in a month, whereas no limit was set on the number of deposits made
during one month. It was observed that by March-end 2015 the percentage the
percentage change in number of accounts opened by public sector banks was


Table 4.2.5 Percentage of Average Number of Saving Accounts per Branch
Rural Semi-urban Urban Metropolitan
Year
Public Private Public Private Public Private Public Private
2006 56 44 61 39 57 43 50 50
2007 58 42 65 35 57 43 48 52
2008 59 41 65 35 54 46 46 54
2009 61 39 66 34 56 44 48 52
2010 62 38 69 31 57 43 53 47
2011 63 37 71 29 58 42 53 47
2012 65 35 71 29 58 42 43 57
2013 71 29 72 28 57 43 41 59
2014 77 23 73 27 56 44 42 58
2015 77 23 74 26 58 42 45 55
Source: RBI, Basic Statistical Returns, (Various Issues).
almost 2-3 times than the percentage change in number of branches, which implies
that public sector banks had contributed mainly towards the financial inclusion drive.
On other hand, average number of accounts per branch of private sector banks in rural
centers increased from 2609 in 2014 to 2989 in 2015. This increase in the number of
savings bank accounts was broadly because of the launch of Pradhan Mantri Jan Dhan
Yojana (PMJDY) under which comparison to 11% in 2012. 15 million bank accounts
were opened in a single day and latest figures of 2016 reveals that public sector banks
opened 98.7 million in rural centers and 77.7 million urban centers whereas private
sector banks had successfully opened 5.1 million accounts in rural centers and 3.2
million in urban centers. Hence it could be said that as the counting of opening
BSBDAs is still on, therefore average number of saving bank account per branch will
still grow in near future, but banks have to work extensively so that all the accounts
remain operative. It was found that 70% of the Jan Dhan accounts are operative (Nair,
2016) as the benefits like subsidies, wages, scholarships, insurance benefits have
started flowing through these accounts.
4.2.5 Priority Sector Lending

Table 4.2.6 depicts the lending made by public and private sector banks to priority
sector during 2006-2015. The rising trend in the lending was witnessed during this


Table 4.2.6 Priority Sector Advances (Amount in millions)
Public Sector Banks Private Sector Banks

Years Others Others
Small Small
Agriculture Priority Agriculture Priority
Scale Ind. Scale Ind.
Sectors Sectors
2006 1549000 824920 1644730 361850 104470 582430
2050910 1047030 2010230 520560 130630 769250
2007 (32) (27) (22) (44) (25) (32)
2486850 1486510 2116270 577020 460690 594520
2008 (21) (42) (5) (11) (253) (-23)
2994150 1914080 2333270 761020 466560 650910
2009 (20) (29) (10) (32) (1) (9)
3707300 2783980 2154360 897690 645340 616340
2010 (24) (45) (-8) (18) (38) (-5)
4149910 3766250 2369990 921360 878570 688350
2011 (12) (35) (10) (3) (36) (12)
4786000 3966000 2555000 1042000 1105000 717000
2012 (15) (5) (8) (13) (26) (4)
5306000 4784000 2746000 1119000 1417000 738000
2013 (11) (21) (7) (7) (28) (3)
6872000 5874000 3443000 1478000 1868000 1312000
2014 (30) (23) (25) (32) (32) (78)
7562000 6504000 3442000 1818000 2166000 1319000
2015 (10) (11) (0) (23) (16) (1)
CAGR 19.26 25.79 8.55 19.65 40.05 9.51
Source: RBI, Basic Statistical Returns &Report on Trend and Progress of Banking in India, Various
Issues (Various Issues).
period; accept in case of private sector banks when lending made to other priority
sector dropped by 23% during 2008. In 2010, both public and private sector banks
once again showed a negative trend in lending made to other priority sectors (micro
credit, education and housing). CAGR of private sector banks was found to be high in
all sectors as compared to public sector banks. In 2008, private sector banks extended
more than 2.5 times of credit made to small scale industries. The target of 2250000
million fixed by Union Finance Minister for 2007-2008 could be one of the reasons
for this increase (RBI, 2007). The priority sector lending in both the banks groups
accelerated even after the economic slowdown during 2009 (RBI, 2009). In 2010
accept other priority sectors, both agriculture and small scale industries showed a
growth in the lending in comparison to previous year. It was reported that only 2 out
of 22 private sector banks and 3 out of 27 public sector banks could not meet the
overall lending target of 40% (RBI, 2010). After the rising trend witnessed till 2014,
during 2015 the other priority sector lending remained almost stable in comparison to
agriculture and small scale industries. In addition to the priority sector lending done


by public and private sector banks, RBI on 16th Sep 2015 granted approval to 10
applicants for setting up Small Finance Banks (Jain et.al. 2015). The only caution that
banks need to take is the selection of right borrower so that the money lend does not
take shape of NPAs.
4.3 Customer Satisfaction

The Indian Banking industry has gone through enormous changes since
independence. Introduction of new technologies, economic uncertainties, fierce
competition and changing demand of customers created a competitive scenario for
banks. In this competitive banking environment, customer satisfaction is considered
as the most imperative factor for the success of banks. Hence, to attain the high level
of customer satisfaction and to retain the customer base, it is important for banks to
deliver excellent services to its customers. The term service quality can be termed as a
significant determinant of competitiveness for establishing the sustainable and
satisfying relationships with customers. Persuraman et.al, (1992) defined service
quality as the customer’s comparison between service expectation and service
performance. Many researchers attempted to identify the factors determining the level
of customer’s satisfaction with regard to services offered by banks. The present study
attempted to measure the customer’s satisfaction with respect to the services provided
by public and private sector banks. After an extensive review of literature, various
indicators viz. service effectiveness, accessibility, cost, tangibility, bank reliability
and empathy were used to measure the customer satisfaction. These indicators were
further evaluated by recording the customer responses towards various indicators.
Mean and standard deviation were used to study the variation in opinion of the
customers. Further, the association between selected indicators and the socio-
economic variables was also studied to get a clear picture of the customer satisfaction
with regard to banking services. Detailed findings of the customer responses towards
these indicators mean & standard deviation, the results of chi square test have been
presented in this section.


4.3.1 Effectiveness Indicators and Customer Satisfaction
The customer responses towards effectiveness indicators were studied to know the
level of customer satisfaction with respect to the services provided by both public and
private sector banks. Results of the study have been given in the tables below.
Table 4.3.1a Customers’ Responses towards Effectiveness Indicators

Public (%) Private (%)
Effectiveness
Indicators Disagree Neutral Agree Disagree Neutral Agree
Courteous and friendly

3 5 92 2 4 95
employee behavior
Recognition as a valued
4 9 88 4 8 87
customer
Maintenance of
1 9 90 1 7 92
customer confidentiality
Fast and efficient
7 14 79 4 9 86
services
Trained and
knowledgeable bank 5 12 84 4 10 87
personnel
Bank’s reputation 3 9 88 1 11 88
Feeling of security in
1 5 94 4 8 89
bank transactions
Table 4.3.1b Mean and SD of Effectiveness Indicators

Effectiveness Indicators Std. Std.
Mean Mean
Deviation Deviation
Courteous and friendly employee behavior 4.2 0.7 4.2 0.6
Recognition as a valued customer 4.1 0.7 4.0 0.7
Maintenance of customer confidentiality 4.2 0.6 4.2 0.6
Fast and efficient services 4.0 0.9 4.1 0.8

Trained and knowledgeable bank
4.1 0.8 4.1 0.7
personnel
Bank’s reputation 4.1 0.7 4.2 0.7
Feeling of security in bank transactions 4.2 0.6 4.0 0.7
H0 1: There is no significant relationship between socio-economic variables and

effectiveness indicators.


Table 4.3.1c Association between Socio-Economic Variables and Effectiveness
Indicators
(Chi Square Analysis)
Bank Socio-economic Variables

Effectiveness Indicators
Group Age Gen EQ OCC AI Area
Courteous and friendly Public .029* ns ns .027* ns ns
employee behavior Private ns ns ns ns .003* ns
Recognition as a valued Public .029* ns ns ns ns ns
customer Private ns ns ns ns .007* ns
Maintenance of customer Public .011* ns ns .038* ns ns
confidentiality Private ns ns ns ns ns ns
Public ns .035* ns ns ns ns
Fast and efficient services
Private ns ns ns ns .002* ns
Trained and knowledgeable Public ns ns ns ns ns ns
bank personnel Private ns ns .005* ns ns ns
Public ns .049* ns .025* ns ns
Bank’s reputation
Private ns ns ns ns ns ns
Feeling of security in bank Public .011* ns ns .007* ns ns
transactions Private ns ns ns ns .035* ns
Note: Gen-Gender, EQ-Educational Qualification, OCC-Occupation, AI-Annual Income
ns; non-significant, p>0.05, *; significant, p<0.0
Table 4.3.1a shows that the level of customer satisfaction with regard to the services
provided by the private and public sector banks did not vary much across the different
effectiveness indicators. Highest variation was found in case of fast and efficient
services provided by the banks where private sector banks had comparatively better
position and 86% of the respondents agreed to the statement against 79% in case of
public banks. As far as the feeling of security was concerned, percentage of the public
bank’s customers who felt secure while making transactions was higher (94%) as
compared to private bank customers (89%). It implies that private sector banks need
to focus on building trust among its customers whereas; public sector banks are
required to work in the direction of provision of fast and efficient services to their
customers. This discontentment among the customers was due to the impolite
behavior of bank employees. Some of the customers of public sector banks also
suggested establishing help desk in the banks. The results of standard deviation (table,
4.3.1b) showed a spread between 4 to 5 (M±S.D.), which confirms that the majority
of the customers agreed to being satisfied with the services provided by the both
public and private sector banks in terms of effectiveness indicators.


Further table 4.3.1a also depicts that 79% of the customers from public sector banks
and 86% that of private sector banks were of the view that their banks provide fast
and efficient services, whereas 7% and 4% of the customers from public and private
sector banks respectively were dissatisfied with the non-functionality of ATMs and
poor after sale service of banks. It was also found that 14% of the customers from
public sector banks and 9% that of private sector banks neither agreed nor disagreed
towards the competence of banks in providing fast and efficient services. These
customers could either be not aware of the services or were hesitant in using the same.
Further, it was revealed by the analysis that 84% and 87% of the customers from
public and private sector banks respectively were of the opinion that bank staff was
well trained and possessed good knowledge about the services offered by the banks.
Only 5% of the customers from public sector banks and 4% from private sector banks
disagreed on these grounds. The customers of private sector banks had a concern that
employees of bank keep on changing very frequently due to which time and again
they face problems while dealing with new employees.
Similarly, 88% and 87% of the customers from public and private sector banks
respectively, were of the view that they are recognized as a valued customer of their
bank. The standard deviation showed a spread of 3 to 5, which implies that the
opinion of the customers from both public and private sector banks varied from
neutral to highly agree as 9% of the customers from public sector banks and 8% of the
customers from private sector banks had neutral opinion in this regard. On other hand,
90% and 92% of the customers from public and private sector banks respectively
were of the strong opinion that their bank maintains high level of customer
confidentiality. The results of mean and standard deviation (4 to 5; M±S.D) did not
show much variation in the opinion of the customers in this regard.
About bank’s reputation, 88% of the customers believed that their bank have good
reputation in the market, whereas 94% and 89% of the customers from public and
private sector banks respectively opined that they feel safe and secure while
transacting with the bank. The standard deviation showed a spread between 3 to 5 in
case of public sector banks and 4 to 5 in case of private sector banks, which confirms
that the private sector banks have a good reputation in the market, whereas opinion
varied in case of public sector banks.


Further, overall mean and standard deviation scores for all effectiveness indicators
have been presented in the table 4.3.1b and those indicate that in both the bank groups
mean scores of effectiveness indicators have been rated 4 on the five point likert
scale. This implies that the customers of both public and private sector banks were
satisfied with the behavior of bank employees, efficiency in services and the way
bank maintains customer confidentiality. Moreover, in general customers feel secure
while transacting with bank and believe that bank personnel possess good knowledge
about products and services being offered by the bank.
Chi square test was applied to study the association between socio-economic variables
and effectiveness indicators of customer satisfaction in public and private sector
banks and the results have been presented in table 4.3.1c. It was hypothesized that
there is no significant association between the socio-economic variables and the
effectiveness indicators. The results depicted that in case of public sector banks, a
significant relationship was found between the socio-economic variables viz. age and
occupation with behavior of the bank employees. It implies that customers of higher
age group found the behavior of the bank employees courteous and friendly because
the senior citizens were given special attention by the bank employees. Whereas, in
case of private sector banks, income of the respondents and the behavior of the bank
employees was found to be significantly related which indicates that the higher
income group customers were provided better treatment by the private bank
employees. Similarly, higher age group customers of public banks believed that they
were recognized as valuable customers whereas, in case of the private sector banks,
higher income group customers were recognized as valuable customers due to their
regular heavy transactions with the banks.
Table 4.3.1 further highlights that none of the socio-economic variables was found to
have a significant relationship with the bank confidentiality in case of private sector
banks. In case of public sector banks, age and occupation had significant relationship
with bank confidentiality which indicates that higher age group customers believed
that their bank was maintaining the customer confidentiality. Similarly, female
customers of the public sector banks found the services provided by their bank to be
fast and efficient as the association between gender and quality of bank services was
found to be significant. However, in case of private sector banks, opinion varied with
the income meaning thereby, higher income group found the private bank services to


be fast and efficient. As far as the capabilities of the bank staff was concerned,
educational qualification of the respondents was found to be having a significant
relationship in case of private banks which implies that customers with higher
qualification were of the opinion that the private banks had well trained and
knowledgeable staff. No significant relationship between capabilities of the bank staff
with any of the socio-economic variables was found in case of public sector banks.
While comparing the public and private sector banks in terms of reputation, opinions
varied with gender and occupation but only in case of public sector banks. It infers
that public banks had a good reputation among its female customers. When it comes
to the feeling of security in bank transactions, opinion varied with age and occupation
in case of public sector banks and varied with income in case of private sector banks
because the relationship was found to be significant in these variables. It denotes that
the higher income customers of private banks feel secure while making transactions
whereas, in case of public sector banks, higher age group customers feel more secure
making transactions.
No significant relationship was found between effectiveness indicators and the area
(rural, semi-urban and urban).
Hence, it can be concluded that socio-economic variables viz. age, gender and
occupation had a significant association with effectiveness indicators in case of public
sector banks. Educational qualification and annual income of the respondents were
found to be having significant relationship with the effectiveness indicators in case of
private sector banks.
4.3.2 Access Indicators and Customer Satisfaction

The accessibility of banking services was studied through various indicators like
availability of ATMs, user friendly internet & mobile banking facilities, branch
network, adequate customer service etc. The results have been presented in the table
4.3.2a.
The table 4.3.2a indicates that the ATM facility was an issue for both the private and
public sector banks as only 44% of the customers from public sector banks and 55%
of the customers from private sector banks believed that they had better accessibility
to ATMs of their bank, whereas 35% and 29% of the customers of public and private


sector banks respectively disagreed on these grounds. This discontentment among
customers of both the bank groups was felt because of the connectivity issues,
insufficiency of funds in ATMs, lack of security, and non-availability of withdrawal
receipt at ATMs. On the other hand, 21% and 16% of the customers from public and
private sector banks respectively neither agreed nor disagreed and preferred using
branch banking rather than ATMs for cash withdrawals and money transfers as they
were hesitant to use the services and showed safety and security concern in this
regard; and bringing them into fold is important for the banks.
Table No. 4.3.2a Customers’ Responses towards Access Indicators

Access Indicators
Disagree Neutral Agree Disagree Neutral Agree
Availability of
sufficient number of 35 21 44 29 16 55
ATMs
User friendly internet
and mobile banking 18 54 28 14 42 44
facility
Short waiting time at
16 11 73 9 15 76
the counter
Wide bank branch
25 15 59 21 20 59
network
Adequate customer
services & support of 7 14 80 2 18 79
the bank
Table 4.3.2b Mean and Standard Deviation of Access Indicators

Public Private
Access Indicators Std. Std.
Mean Mean
Deviation Deviation
Availability of sufficient number
3.1 1.2 3.3 1.2
of ATMs
User friendly Internet and Mobile
3.1 0.9 3.4 0.9
banking facility
Short waiting time at the counter 3.8 1 3.8 0.9
Wide bank branch network 3.4 1.1 3.4 1

Adequate customer services &
3.9 0.8 3.9 0.6
support of the bank

access indicators.


Table 4.3.2c Association between Socio-economic Variables and Access
indicators
Bank Socio-Economic Variables

Accessibility Indicators
Availability of sufficient Public ns ns ns ns ns ns
number of ATMs Private .000* ns ns ns .003* ns
User friendly Internet and Public ns ns .045* ns ns ns
mobile banking facility Private .000* .005* ns .015* .008* ns
Short waiting time at the Public ns .012* ns ns ns ns
counter Private .001* ns .033* ns ns ns
Wide bank branch Public ns ns ns ns ns ns
network Private .001* ns ns .000* ns ns
Adequate customer Public ns ns ns ns ns ns
services & support of the
bank Private ns ns ns ns ns ns
Table also indicates that majority of the private sector bank customers found the
mobile and internet banking user friendly. Situation was more critical in public sector
banks where only 28% of the customers found the mobile and internet facility user
friendly. Interestingly, it was found that 54% and 42% of the customers from public
and private sector banks respectively neither agreed nor disagreed upon the user
accessibility of internet and mobile banking services. The reasons reported were the
lack of awareness, hesitation to use technology; operating cost and inefficiency of
banks in encouraging the use of such technology. Moreover, lack of required
infrastructure for internet usage in rural and semi-urban areas held back people from
exploring these avenues of banking. 18% of the customers from public sector banks
and 14% from private sector banks who disagreed in this regard were of the view that
the process of using such technology is complicated and customer support services are
not satisfactory.
Hence, it is inferred that banks especially, public sector banks need to make people
aware about the mobile and internet banking and at the same time should ease the
process so that their customers feel confident in using these services. The recently
developed models like EKO and paytm payment banking systems could be replicated
by banks to enhance the use of such technology and both public and private sector
banks need to collectively work with academic institutions, telecom companies, SHGs


and DLCCs to promote the usage of internet and mobile banking services. Results of
standard deviation (table 4.3.2b) showed spread between 2 to 4 (M±S.D) and 2 to 5
(M±S.D) in case of public and private sector banks respectively, which confirms the
varied response of the customers towards the availability of ATMs and user
friendliness of internet and mobile banking facility varied.
It was further highlighted by the results that 73% of the customers of public sector
banks and 76% of the customers from private sector banks were satisfied that waiting
time in the bank has decreased over the years, whereas 16% of the respondents from
public sector banks and 9% of private sector banks disagreed in this regard. Some of
these customers suggested that either the extension counter should be provided or
operating hours should be increased to overcome this situation. On the other hand,
80% and 79% of the respondents from public and private sector banks respectively
were of the view that whenever required their banks provide adequate customer
service and support, whereas 7% of the customers from public sector banks and only
2% of the customers from private sector banks shared discontentment in this regard.
Mean and standard deviation results showed that the responses of the customers
ranged between 3 to 5 (M±S.D), which confirms the variation in opinion. 59% of the
respondents from both the bank groups agreed that network of banks branches are
strong, whereas 25% and 21% of the respondents from public and private sector banks
showed discontent towards this indicator. The customers of semi-urban and rural area
felt that they had to travel from far off places to visit bank branch.
Further, the association between access indicators and socio-economic variables was
analyzed using Chi-square test. Results of the Chi-square analysis presented in Table
4.3.2c with p-values (p<0.05) indicate that in case of private sector banks, association
between some of the socio economic variables viz. age, occupation, annual income
and access indicators of customer satisfaction was found to be significant. Thus, it can
be interpreted that the opinion of the customers towards accessibility differs with age,
occupation and income level of the customers. The customers of higher age and
income group found the availability of private bank ATMs sufficient whereas opinion
of public sector banks did not vary across the socio-economic variables. It could be
because the customers of private sector banks had lesser usage of debit cards at ATMs
and were comparatively more inclined towards the application of internet and mobile
banking facilities. Hence, it may be concluded that customers of public sector banks


are satisfied with the accessibility to ATMs, bank branches, internet & mobile
banking services and adequate customer support services provided by these banks.
When it comes to the internet and mobile banking services, educational qualification
of the public sector bank customers was found to be significantly associated with user
friendly services. It implies that customers with higher qualification only found the
services user friendly. On the contrary, user friendly mobile and internet facilities had
a significant relationship with age, gender, occupation and income level of the
customers of the private sector banks. It clarifies that female customers, customers of
higher age and income group found the services more user friendly whereas salaried
class customers found it less user friendly and self-employed and business class found
the services user friendly. Hence, private sector banks need to ease the process of
mobile and internet banking to satisfy the low income and salaried class customers.
Table 4.3.2 also shows the significant relationship of short waiting duration at the
counter with gender of the public sector customers meaning thereby, females found
the waiting duration short as there were special queues for female customers and the
number of female customers visiting the banks was also lesser. However, in case of
private sector banks, opinion varied with age and educational qualification of the
customers indicating that the higher age and qualification group found the waiting
time short. It was the result of special attention provided to the senior citizens and to
the customers of comparatively higher income group who were frequent visitors to the
banks and had comparatively bigger transactions with the banks. Opinion with regard
to the wide bank branch network varied with age and occupation of the private sector
bank customers indicating that customers of higher age and self-employed or
businessmen believed that private banks had wide bank branch network.
Comparatively smaller customer’s base and usage of alternate channels of banking
made the customers of private sector banks feel satisfied with the available number of
bank branches. No significant relationship between the place of residence of
customers and the access indicators of customer satisfaction was depicted.
4.3.3 Cost Indicators and Customer Satisfaction

While studying the customer satisfaction with regard to services provided by the
public and private sector banks, it was imperative to study the cost effectiveness of


the banking services. The customer responses towards cost indicators have been
presented in the tables 4.3.3a,b,c.
Table No. 4.3.3a Customers’ Responses towards Cost Indicators

Cost Indicators
Transparency in fees
12 15 74 12 19 69
and other charges
Bank’s timely refund
5 20 76 8 31 61
facility
Bank has adequate
Processing Charges 9 16 75 8 24 68
for using the services
Table 4.3.3b Mean and SD of Cost Indicators
Public Private
Cost Indicators Std. Std.
Mean Mean
Deviation Deviation
Transparency in fees and other
3.7 0.9 3.7 0.9
charges
Bank’s timely refund facility 3.9 0.8 3.6 0.8
Adequate Processing Charges

3.8 0.8 3.7 0.8
for using the services

cost indicators.
Table 4.3.3cAssociation between socio-economic variables and cost indicators
Cost Indicators
Transparency in fees and Public ns .006* ns ns ns ns
other charges Private ns ns ns ns .000* ns
Bank’s timely refund Public ns ns .034* ns ns ns
facility Private ns ns ns ns ns ns
Adequate Processing Public ns ns ns ns ns ns
Charges for using the
services Private ns ns ns ns ns ns


The table 4.3.3a describes that public sector banks were more cost effective as
compared to private sector banks as the percentage of customers across all the
indicators of cost effectiveness was comparatively higher in public banks. 12% of the
customers from both the bank groups believed that hidden charges are included in the
services being offered by banks and are not disclosed at the time of opting for the
service. Similarly, 76% of the customers from public sector banks and 61% customers
from private sector banks had experienced that bank offers timely refund facility
during the situations like wrong debit, hold back on money in ATM and levy of extra
service charges by bank.
Further, 75% of the customers in public sector banks and 68% in private sector banks
were of the opinion that their bank levy adequate processing charges for using the
services. On the other hand, 16% and 24% of the customers from public and private
sector banks respectively had neutral opinion in this regard. Mean and standard
deviation results (table 4.3.3b) showed a spread of 3 to 5 (M±S.D) in the results of
public and private sector banks, which implies that the opinion of the customers did
not vary much towards cost effectiveness.
It can be suggested that for enhancing the level of satisfaction among customers, both
the bank groups especially private banks need to be more transparent with customers
while levying fees and charges. Moreover, banks should use better technology for
streamlining the refund system. Overall, mean and standard deviation scores
presented in the table 4.3.3b did not indicate much variation in the opinion towards
cost effectiveness indicators.
Chi-square analysis depicted in table 4.3.3c with p-values (p<0.05) revealed that in
case of public sector banks socio-economic variables viz. gender and educational
qualification were noted to be significantly related to customer satisfaction. Females
were comparatively more satisfied with the transparency in fee and other charges of
the public sector banks whereas, customers with higher qualification were more
satisfied with timely refund facility of the banks. On the contrary, income level had a
significant relationship with the transparency in fee indicator which implies the higher
satisfaction level of the higher income group with transparency in fee provided by the
private sector banks. It was so because the higher income group people in private
sector banks were recognized as valuable customers due to their higher transactions.


Hence, public banks should pay attention towards the comparatively lesser qualified
people whereas; private banks need to value the lower income group customers as
well.
4.3.4 Tangibility and Customer Satisfaction

It was essential to study the level of customer satisfaction with respect to the tangibles
including décor, appearance of the bank staff, availability of modern technology etc.
These tangibles are a must to attract the customers in modern era and banks have been
giving much importance to these indicators these days. The customer responses
towards tangibility indicators have been presented in the tables 4.3.4a,b,c.
Table No. 4.3.4a Percentage of Customers Responses towards Tangibles

Indicators
Tangibles Indicators
Easy access to account
statements and various 14 10 76 6 8 86
information
Clean, pleasant and
5 10 84 0 5 95
attractive décor
Well dressed and neat
4 14 82 1 8 92
appearing employees
Equipped with modern
18 15 68 5 22 73
technology
Table 4.3.4b Mean and SD of Tangibles Indicators
Public Private
Tangibles Indicators Std. Std.
Mean Mean
Deviation Deviation
Easy access to account statements and
3.8 1.1 4 0.8
various information
Clean, pleasant and attractive décor 4 0.8 4.3 0.6
Well dressed and neat appearing
4.1 0.8 4.2 0.6
employees
Equipped with modern technology 3.7 1.1 3.8 0.8


Tangibles indicators.
Table 4.3.4cAssociation between socio-economic variables and tangibles

indicators
Tangibles Indicators
Easy access to account Public ns ns ns ns ns ns
statements and various
information Private .000* ns ns ns .004* ns
Clean, pleasant and attractive Public ns ns ns .029* ns ns
décor Private .011* ns .017* ns ns ns
Well dressed and neat Public ns ns ns .011* ns ns
appearing employees Private .000* .011* .000* ns .035* ns
Equipped with modern Public ns ns ns .046* .001* ns
technology Private .032* ns .000* ns ns ns
Table 4.3.4a specifies that private sector banks had an upper hand in terms of tangible
indicators as the proportion of the private bank customers who agreed on the better
tangible services was higher as compared to the proportion in public bank customers.
76% of the customers in public sector banks and 86 in private sector banks were
satisfied with the information access provided by their bank, whereas 14% and 8% of
the customers from public and private sector banks respectively, disagreed on these
grounds. The customers of public sector banks were of the opinion that account
statements were not mailed on monthly basis and they had to visit bank branch at each
time they required such information. 84% of the respondents from public sector banks
and 95% from private sector banks acknowledged that their bank have clean, pleasant
and good-looking decor. None of the customers from private sector banks disagreed
in this regard, which shows that these banks were outfitted with high class
infrastructure. 82% and 92% of the customers from public and private sector banks
respectively were of the opinion that employees of the banks were well dressed and
proficient in their approach towards the customers. Further,68% of the respondents of
public sector banks and 73% from private sector banks believed that all modern
equipments like pass book printing machine, cheque deposit machine and cash deposit
machine etc. were available in the bank, whereas 18% and 5% of the customers from
public and private sector banks respectively disagreed on these grounds. The standard


deviation (table 4.3.4b) showed a spread of 3 to 5 (M±S.D), which implies that
opinion of the customers of both public and private sector banks did not vary much
with regard to tangible indicators. The customers who were not satisfied by the
tangibles especially in public sector banks, were either not aware about the
availability of such facilities or were hesitant in using the same.
It can be concluded that even though both public and private sector banks are working
at par to improve their infrastructural requirements, but public sector banks need to
work more in these areas as modern technology in these banks is only confined to big
branches. It was also found that as now a day’s most of the banks are outfitted with
modern technology, customers feel hesitant and insecure in using such machines.
The results of chi square analysis (table 4.3.4c) conducted to study the relationship
between socio economic factors and tangible indicators in public and private sector
banks with p-values (p<0.05) indicate that in case of private sector banks significant
relationship existed between socio-economic variables like age, gender and
educational qualification and tangible indicators, which implies that opinion of the
customers towards information access, decor, appearance of employees and
availability of modern technology varies with these variables. On other hand, in case
of public sector banks, no association between socio-economic variables viz. age,
gender and qualification and tangible indicators was found. It implies that higher age
and income group customers of private banks were comparatively more satisfied with
the access to account statement and other information provided by these banks. In
terms of the décor of the banks, satisfaction level varied with age and qualification of
the customers in case of private banks and it varied with occupation in public banks. It
is because the salaried class does not give much importance to the décor of the public
sector banks whereas, well qualified and higher age customers being more judgmental
in terms of private sector banks do. It has also been revealed that in case of both the
bank groups, no significant relationship was found between the area and tangible
indicators of customer satisfaction. As far as the appearance and dressing sense of the
staff was concerned, there was found a significant relationship between this indicator
and the age, gender, qualification and income of the customers because the customers
of private banks were highly demanded. Only occupation was found to be
significantly related to appearance of the public bank staff. In terms of availability of
the modern equipments, significant relationship was found with occupation and


income in public banks meaning thereby, higher income and self-employed customers
were comparatively more satisfied with these modern equipments because the salaried
class and low income group were not very technology savvy. On the contrary, in
private sector banks, age and qualification had significant relationship with this
indicator implying that higher age group and business as well as self-employed
customers were comparatively more satisfied with the modern techniques.
4.3.5 Reliability Indicators and Customer Satisfaction

Reliability was studied in terms of identification and correction of errors in service
delivery also the interest taken by the banks in resolving the issues. The findings have
been presented in 4.3.5a,b,c. Table 4.3.5a shows that private sector banks were
comparatively more reliable as the proportion of customers who agreed was higher
than that in case of public banks. Only 2 &3% of the customers disagreed on
reliability of private banks whereas this proportion was higher (7 & 9%) in public
sector banks.
Table No. 4.3.5a Customers’ Responses towards Reliability Indicators

Reliability Indicators
Identifies and correction
of errors in service 9 14 77 2 18 80
delivery
Sincere interest taken
by staff in solving the 7 12 81 3 13 84
problems
Table 4.3.5b Mean and SD of Reliability Indicators

Public Private
Mean Std. Deviation Mean Std. Deviation
Identifies and correction of errors

3.9 0.8 3.9 0.7
in service delivery
Sincere interest taken by staff in
3.9 0.9 4 0.7
solving the problems

reliability indicators.


Table 4.3.5c Association between socio-economic variables and Reliability
indicators
Identifies and correction of Public .049* ns ns .026* .036* ns
errors in service delivery Private ns ns ns ns ns ns
Sincere interest taken by staff in Public ns ns ns ns ns ns
solving the problems Private .006* ns ns ns ns ns
77% and 80% of the customers from both public and private sector banks respectively
agreed that whenever there is an error in service delivery, bank identifies and corrects
it on time, whereas 9% of the customers from public sector banks and 2% from
private sector banks disagreed in this regard. This shows that private sector banks
were more proficient in service delivery as compared to public sector banks. Hence, it
is suggested that public sector banks have to build some technological mechanism for
such troubleshooting. On the other hand, 14% of the customers from public sector
banks and 18% that of private sector banks were of the opinion that they never came
across any such situation. Further, 81% and 84% of the customers from public and
private sector banks respectively were of the opinion that whenever there is a
problem, bank takes sincere interest in solving it. These findings of the study were
verified using the statistical techniques like mean and standard deviation (table
3.4.5b), which showed a spread of 3 to 5 (M±S.D). It indicates that opinion of the
customer varied from neutral to strongly agree and no variation towards disagreement
was found. The mean scores were found to be consistent in case of both public and
private sector banks.
Further, chi-square test applied to study the relationship between socio-economic
variables and reliability indicators. Results depicted in table 4.3.5c with p-values
(p<0.05) signifies the significant association of socio-economic variables such as age,
occupation and annual income with reliability indicators which implies that opinion of
the customers towards reliability indicators differ with the age, occupational and
income groups. In case of private sector banks, relationship between age and sincerity
of bank employees was found to be statistically significant. Further, socio-economic
variables (gender, educational qualification and area) had no significant association
with reliability indicators, which implies that all the customers irrespective of gender,


qualification and area had the same opinion regarding reliability of the bank services.
Hence, public sector banks need to work sincerely towards troubleshooting the errors
and emissions.
4.3.6 Empathy Indicators and Customer Satisfaction

Empathy dimension deals with the approach of the banks towards its customers in
understanding their specific needs, having convenient operating hours and complaint
handling. The level of satisfaction of the customers towards empathy indicators has
been analyzed in tables 4.3.6a,b,c. Table 4.3.6a shows that both category banks were
doing equally good in terms of empathy indicators with minor variation in operating
hours, understanding the specific needs of the customers and handling of the
complaints.
Table No. 4.3.6a Percentage of Customers Responses towards Empathy

Indicators
Empathy Indicators
Convenient operating
6 9 84 4 7 88
hours
Personal attention paid
8 16 76 9 15 75
to customers
Consideration to
5 10 85 2 16 81
specific needs
Effective complaint
6 13 81 5 17 78
handling
Table 4.3.6b Mean and SD of Empathy Indicators

Public Private
Empathy Indicators
Mean Std. Deviation Mean Std. Deviation
Convenient operating hours 4 0.8 4.2 0.8

Personal attention paid to
3.9 0.9 3.9 0.9
customers
Consideration to specific needs 4 0.7 4 0.7
Effective complaint handling 4 0.8 3.9 0.8

Empathy indicators.


Table 4.3.6cAssociation between socio-economic variables and Empathy
Indicators
Empathy Indicators
Public ns ns ns ns ns ns
Convenient operating hours
Private ns ns ns ns .040* ns
Public ns ns ns .019* ns ns
Personal attention to customers
Private ns .037* .000* ns ns ns
Public ns ns ns .003* ns ns
Consideration of specific needs
Public ns ns ns ns ns ns
Effective complaints handling
84% of the customers from public sector banks and 88% of the customers from
private sector banks were satisfied with the operating hours of banks. Some of the
customers suggested that for much better convenience, banks should keep at least one
cash counter operative during lunch hours on alternate days. Further, 76% and 75% of
the customers from public and private sector banks respectively were of the view that
they get personal attention from employees on their visit to bank. In order to verify
the results of the study statistical tools like mean and standard deviation were applied,
which showed a spread between 3 to 5(M±S.D) signifying no significant variation in
the opinion of customers from public and private sector banks. Some of these
customers were of the opinion that banks gives more attention to its premium
customers and others have to normally follow the long processes framed by banks.
In case of public and private sector banks, 85% and 81% of the customers believed
that whenever required employees of the bank do consider their specific needs.
Further it was also found those 81% of the customers from public sector banks and
78% of the customers from private sector banks believed that bank handles
complaints effectively, whereas 6% of the customers from public sector banks and 5%
from private sector banks disagreed on these grounds. These customers were of the
view that banks take time to resolve complaints related to non-functionality of ATMs
and sometimes many complaints are not even resolved as promised. The results of
standard deviation (table 4.3.6b) did not highlight variation in the opinions of the
customers.


Further, mean and standard deviation scores for all indicators presented in the table
(4.3.6b) indicate that the mean scores of empathy ranges from 3.9 to 4.2 in both the
bank groups. This shows that the customers of both public and private sector banks
are satisfied with the empathetic attitude of banks. It was found that the mean score of
private sector banks (M=4.2) was higher the mean score of public sector banks
(M=4.0), which implies operating hours of the bank are convenient to its customers,
whereas effectiveness in handling complaints of the customers has been rated high in
case of public sector banks (M=4.0).
The results of chi-square given in table 4.3.6c with p-values (p<0.05) indicate that in
case of private sector banks significant relationship have been found between socio-
economic variable viz. age, educational qualification and annual income and empathy
indicators. This implies that according to gender, education and income group wise,
opinion of the customers varied towards the empathy indicators. On a contrary, in
case of public sector banks, no association had been found between socio-economic
variables like gender, qualification and income and empathy indicators, which implies
that the customers of public sector banks seem to be fully satisfied with empathetic
attitude of bank towards its customers. It infers that higher income customers of
private banks found the working hours convenient because they were more inclined
towards the use of mobile and internet banking. Similarly, females and higher
qualification customers were more satisfied with the personal attention provided to
them by the private sector bank staff. On the contrary, self-employed and business
class customers of the public banks were comparatively more satisfied with the
special attention given to them and they also felt that their banks understood their
specific needs better. This again clarifies that the public banks should work on
catering the needs of the salaried class customers.
It has also been revealed that in case of both the bank groups, no significant
relationship had been found between socio economic factors (age and area) and
empathy indicators which implies that area to which the customer belongs, does not
affect the level of satisfaction with regard to banking services.
4.3.7 Future Association with Banks

The customer responses towards future association with the banks have been
summarized in table 4.3.7a,b,c.


Table 4.3.7a Customers Responses towards long term association

Long Term
Association Indicators Disagree Neutral Agree Disagree Neutral Agree
Say positive things
about the bank to other 4 13 83 3 12 85
people
Intend to continue being
a customer of the bank 5 9 86 3 8 90
for a long time to come
Encourage friends and
relatives to use the
8 9 82 7 11 82
service offered by the
bank
Table 4.3.7b Mean and SD of Long Term Association Indicators

Public Private
Long Term Association Indicators Std. Std.
Mean Mean
Deviation Deviation
Say positive things about the bank to
4.1 0.8 4.1 0.7
other people
Intend to continue being a customer of
4.2 0.8 4.2 0.7
the bank for a long time to come
Encourage friends and relatives to use
4.1 1 4 0.9
the service offered by the bank

long term association indicators
Table 4.3.7c Relationship between socio-economic variables and long term
association indicators
Long Term Association Bank Socio-Economic Variables
Indicators Group Age Gen EQ OCC AI Area
Say positive things about the Public ns ns ns ns ns ns
bank to other people Private ns ns ns ns .048* ns
Intend to continue being a Public ns ns ns .024* ns ns
customer of the bank for a long
time to come Private .027* ns .028* ns .001* .036*
Encourage friends and relatives Public .001* ns ns .031* ns ns

to use the service offered by Private .020* ns ns ns ns ns
the bank Private Ns ns ns ns ns ns
**; non-significant, p>0.05, *; significant, p<0.05


Table 4.3.7a shows that the opinion of customers did not show much variation when it
comes to the long term association with their respective category banks as 83% and
85% of the customers from public and private sector banks respectively agreed that
they talk positive about their bank with other people. Proportion of the customers was
also very high who wanted to continue their association with the respective banks in
future. These results of the study were confirmed using statistical tools like mean
(table 4.3.7b), standard deviation (3 to 5; M±S.D) showing no variations in the
opinion of customers.
Chi-square analysis (Table 4.3.7c) indicates the significant relationship between age
and positive opinion of the customers towards the private sector banks which implies
that the higher age group customers speak all good things about their banks because
they were considered as valuable customers by their banks. Age and educational
qualification had significant relationship with the intention of customers to have a
long run association with the private sector banks whereas, in case of public sector
banks, occupation had significant relationship with this indicator. It infers that the
customers belonging to higher age group and higher educational qualification wanted
to continue their association with the private sector banks in future because they were
comparatively satisfied with the mobile and internet banking and other services of the
banks. on the contrary, businessmen were comparatively more interested in
continuing their dealing with the public sector banks. Further, the results highlighted
that the businessmen always wanted to encourage their friends and relatives to use the
services of the public sector banks as the significant relationship between occupation
and this indicator was found. When it comes to age the relationship was found to be
significant both in public and private sector banks which confirms that the higher age
group customers of both the public and private sector banks intended to encourage
their friends and relatives to use the services of their respective banks. It further
indicates that both the public and private sector banks are required to pay much
attention towards the younger age customers whereas public sector banks are required
to focus on the salaried and other category customers. On the contrary, private sector
banks need to pay more attention towards less qualified customers also in the form of
creating awareness among such customers.
Overall analysis of performance of public and private sector banks highlighted that
the three criteria selected for the comparison viz. financial performance, financial


inclusiveness and customer satisfaction towards the banking services are interrelated.
Better performance of banks reflected the higher customer satisfaction towards the
banking services. Customer satisfaction towards services of the public and private
sector banks indicated that private sector banks have been doing well in terms of
effectiveness, reliability and tangibility. On the contrary, public sector banks are
comparatively more cost effective. The higher satisfaction level with regard to the
services of private sector banks could be attributed to the better financial performance
and financial outreach of these category banks. Private sector banks performed better
in terms of non-performing asset management, return on assets, return on equity, net
interest margin, capital adequacy ratio and cost of deposits as discussed section 4.1.
The analysis implied that private sector banks had higher profitability and hence,
could provide better services to the customers as was reflected in higher customer
satisfaction towards the tangibility and reliability indicators of the private sector
banks. Further, the public sector banks are generally under pressure to fulfill the
targets under various financial indicators as fixed by the government from time to
time. Moreover, customers during focus group discussion revealed that lower
profitability of public sector banks could be the reason for comparatively poor
services in terms of accessibility, infrastructure and mobile & internet banking
services etc. Similarly, the results of customer satisfaction were found to be aligned
with the findings on financial inclusiveness. Private sector banks had comparatively
better ATM availability and penetration as discussed in section-4.2.1 & 4.2.2, and
hence the level of customer satisfaction was also reported to be higher towards these
services in private sector banks. On the contrary, public sector banks issued
comparatively lesser number of debit cards on the total saving accounts as given in
section 4.2.3, which could be a reason for the lower level of customer satisfaction
with respect to the accessibility indicators particularly the mobile and internet banking
services offered by the public sector banks.

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Chapter 4 Results and Discussion

4.1 Financial Performance of Public and Private Sector Banks

4.1.1 Credit-Deposit Ratio

Faculty of Management Sciences and Liberal Arts 65

Figure 4.1.1 Credit Deposit Ratio

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4.1.2 Investment – Deposit Ratio

Figure 4.1.2 Investment Deposit Ratio

Source: Indian Bank Association www.iba.org.in (Various Issues)

Faculty of Management Sciences and Liberal Arts 68

4.1.3 Non-Performing Assets Ratio

Figure 4.1.3 Non Performing Assets Ratio

Source: Indian Bank Association www.iba.org.in (Various Issues)

Faculty of Management Sciences and Liberal Arts 70

Faculty of Management Sciences and Liberal Arts 71

Figure 4.1.4 Return on Assets Ratio

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4.1.5 Return on Equity

Figure 4.1.5 Ratio of Return on Equity

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Faculty of Management Sciences and Liberal Arts 74

Figure 4.1.6 Capital Adequacy Ratio

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Faculty of Management Sciences and Liberal Arts 76

4.1.7 Net Interest Margin

Figure 4.1.7 Ratio of Net Interest Margin

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4.1.8 Cost of Deposits

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Source: Report on Trend and Progress of Banking in India (Various Issues)

Faculty of Management Sciences and Liberal Arts 79

4.2 Financial Inclusiveness of Public and Private Sector Banks

4.2.1 ATM Penetration

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Faculty of Management Sciences and Liberal Arts 81

Faculty of Management Sciences and Liberal Arts 82

4.2.2 ATMs per Ten Thousand Savings Accounts

Table 4.2.2 ATMs per Ten Thousand Saving Accounts

Faculty of Management Sciences and Liberal Arts 83

Faculty of Management Sciences and Liberal Arts 84

4.2.3 On-Site and Off-Site ATMs

Table 4.2.3 Percentage Change in ATMs (Onsite and Offsite)

Faculty of Management Sciences and Liberal Arts 85

Fig.4.2.2 Population Group Wise Distribution of ATMs (as on March end)

Faculty of Management Sciences and Liberal Arts 86

Fig.4.2.3 Region Wise Distribution of ATMs (as on March 2015)

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4.2.3 Debit Card Penetration

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Table 4.2.4 Number of Transactions per Debit Card

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Fig.4.2.4 Percentage of Debit Cards Issued on Total Saving Accounts

100 Public Private

4.2.4 Saving Accounts

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4.2.5 Priority Sector Lending

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Public Sector Banks Private Sector Banks

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4.3 Customer Satisfaction

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Table 4.3.1a Customers’ Responses towards Effectiveness Indicators