A GENERAL MANAGEMENT PROJECT ON

‘REPORT ON SERVICE QUALITY IN BANKING SECTOR’

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF THE

DEGREE OF

MASTER OF MANAGEMENT STUDIES (MMS)

(Under university of Mumbai)

Submitted by

Harshal Mevada

Specialization: Finance
Roll No: 20201021

Under the guidance of

Prof. Manish Gupta

ACADEMIC YEAR 2020-22

DURGADEVI SARAF INSTITUTE OF MANGMENT STUDIES

 CERTIFICATE

This is to certify that the project work titled “Service Quality in Banking Sector”
is successfully completed by Mr. Harshal Mevada during the IV semester, in
partial fulfillment of the Master’s Degree in Management Studies recognized by
the University of Mumbai for the academic year 2021-2022.

This project work is original and not submitted earlier for the award of any degree/
diploma or associate ship of any other University/ Institution.

Name:
Date:
 DECLARATION

I hereby declare that this Project Report submitted by me to Durgadevi Saraf

Institute of Management Studies , is a Bonafide work undertaken by me and it is
not submitted to any other university or institution for the award of any degree
diploma/ certificate or published any time before.

Name: Harshal Mevada

Roll No. : 20201021

Signature of the candidate

 ACKNOWLEDGEMENT
I would like to thank Durgadevi Saraf Institute of Management Studies
for giving me an opportunity to learn and pursue my Summer Internship and
understand about (Finance) and Research aspects.

I am also thankful to Dr. C Babu (Director, Durgadevi Institute of Managemet )

and my institution, for giving me an opportunity to undergo this learning
experience

Special thanks to Prof. Manish Gupta for his valuable guidance in completing
this project and helping me to understand this project better and supporting me
with his expertise on the same to make my project worth for my own benefit and
for the overall benefit of the objective of the summer project.

Last but not the least; I take pride in thanking my family, siblings, and friends for
their much-valued support.

Date:

Signature
Harshal Mevada
MMS
Finance
20201021
 TABLE OF CONTENTS
CHAPTER TOPIC PAGE
NO.

1 INTRODUCTION 1

2 METHODOLOGY 9

3 REVIEW OF LITERATURE 11

4 CONCEPTUAL RELEVANCE 14

5 DATA AYALYSIS AND INTERPRETATION 48

6 RECOMMENDATION 55

7 CONCLUSION 56

8 BIBLIOGRAPHY & REFRENCES 57

Executive Summary .
In this modern era of global competition, factors such as customer expectation and customer
satisfaction vitally contributes towards the success of any industry and the Indian banking
industry is not an exception. The role of customers is The existing Indian banking landscape
customers play a vital role. It is the responsibility of banks to satisfy the customers in order to
retain them for their very survival and success. Customer's expectations, customer satisfaction,
and service quality are highly related. The banks should be able to minimize and eliminate the
gap between perceived service quality of customers and the actual service provided. The study
also attempted to ascertain the dimensions of service quality in banks. The present work finds out
that tangibility and assurance as the foremost dimensions of service quality with their key
influence on the customers. But, both the parameters of responsiveness and empathy show a
lower level of satisfaction among the customers. It is suggested to the banking sector that apart
from ensuring the trust of customers, it should improve their operations in providing highly
advanced technological services to the customers with easy access and instant delivery features.
Thus, by providing enhanced quality in the banking services, the banks would be able to create a
whole gamut of satisfied customers which would ultimately lead to further the efficiency and
performance in the banking landscape. Banking sector, one of the core sectors of service
economy is fiercely competitive. Post liberalization the competition has only increased. Service
quality measure is based on modified version of SERVQUAL as proposed by which involve five
dimensions of service quality namely Reliability, Responsiveness, Empathy, Assurance and
Tangibles. The purpose of this study is to review the literature survey on service quality in
banking sector. The customers expect a high level of service quality factors, which influences the
performance of bank.
INTRODUCTION
The services sector is the most important sector, which contributes largely to the national
economy. In India, the banking service is an important component of services sector. The share
of banking and insurance sector within the services industry has burgeoned. It has been so due to
the increased significance of financial services in post-reforms era. In the recent year the
presence of a number of private sector and foreign banks has made the Indian Market more
competitive. Increasing competition has forced the banks to think of better ways and means of
generating revenues from different sources, other than conventional borrowing and lending
services. The onset of competition from the private players and initiation of banking reforms
since early 1990s have led to an increased emphasis on efficient customer service. Moreover, in
the tough competitive arena in which these banks operate today, maintaining the quality of
service is a prerequisite for survival. Therefore, measurement of service quality has increasingly
created an interest among the banks and scholars alike. Indian banks have realized that along
with organic growth there is a need to grow inorganically as well, in order to be competitive with
other players in the market. In this scenario, banking has been the focus of attention for the
banking industry. Gronross, a service marketing expert, proposed that a service firm, in order to
simultaneously attain success, must develop its service quality. Firstly, it must define how the
consumers perceive service quality and secondly, determine in what way service quality is
influenced. Consumers all over the world have become more quality conscious; hence there has
been an increased customer demand for higher quality service. Service operations worldwide are
affected by this new wave of quality awareness and emphasis. Therefore servicebased companies
like the banks are compelled to provide excellent services to their customers in order to have
sustainable competitive advantage, especially in the current trend.
Quality in services is an elusive concept and as such there is no generic definition of service
quality. Service quality is considered as “a measure of how well the service is delivered and
matches customers’ estimations” or “providing the customer with what he wants, when he wants
it, and at acceptable cost within the operating constraints of business” or “providing a better
service than what the customers expects”. Thus service quality is defined as the conformance of
services to the customers’ specifications and estimations. The quality of service therefore
depends on the ability of the server to meet the estimations of the customer. On the other hand
perceived service quality may be defined as the evaluation by the customers towards the overall
excellence or uniqueness of the service rendered.
India has a diversified financial sector undergoing rapid expansion, both in terms of strong
growth of existing financial services firms and new entities entering the market. The sector
comprises commercial banks, insurance companies, non-banking financial companies, co-
operatives, pension funds, mutual funds and other smaller financial entities. The banking
regulator has allowed new entities such as payment banks to be created recently, thereby adding
to the type of entities operating in the sector. However, financial sector in India is predominantly
a banking sector with commercial banks accounting for more than 64% of the total assets held by
the financial system.

The Government of India has introduced several reforms to liberalise, regulate and enhance this
industry. The Government and Reserve Bank of India (RBI) have taken various measures to
facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These
measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guideline to
banks regarding collateral requirements and setting up a Micro Units Development and
Refinance Agency (MUDRA). With a combined push by Government and private sector, India is
undoubtedly one of the world's most vibrant capital markets. In 2017, a new portal named
'Udyami Mitra' was launched by Small Industries Development Bank of India (SIDBI) with an
aim to improve credit availability to MSMEs in the country. India has scored a perfect 10 in
protecting shareholders' rights on the back of reforms implemented by Securities and Exchange
Board of India (SEBI).
Components of Service Quality
Service quality can be analysed from two angles:
i) External service quality (ESQ) and
ii) Internal service quality (ISQ)
External Service Quality (ESQ): External service quality, which refers to the quality of service
delivered to the customers, has gained importance in the light of increasing customers’
estimations, and changing customer preferences. External service quality offered to customers is
generally referred to as service quality. Providing high quality services enhances customer
retention rates, helps to attract new customers through positive word of mouth advertising,
increases productivity, leads to higher market share, financial performance and profitability.
Different researchers have identified different dimensions to measure External service quality.
Sasser (1978) measured it with the help of security, consistency, attitudes, completeness,
conditions, availability and training. Garnin (1984) measured the ESQ with the help of
performance, features, reliability, conformance, durability, serviceability, aesthetics and prestige.
Driver and Johnson (2001) estimated the ESQ with different dimensions namely alternativeness,
care, courtesy, flexibility, friendliness, reliability, competence, integrity, access, availability and
functionality.
Internal Service Quality (ISQ): In services organisations, personnel come in contact with the
customers in the process of production and consumption of services. The inseparable nature of
services emphasizes the point that the human factor forms an important element in service
industries. In service businesses, the service personnel reflect the organisational realities. It is
through the interaction with the staff that the customers form an opinion of the organisation. It
becomes essential for the service marketers to motivate the employees to serve the customer
better. The main prerequisite for motivating the employees to deliver quality service to
customers is delivering quality service to internal customers (employees). Internal service quality
is defined as the feeling that employees have towards their job, colleagues and the company. It is
referred to the quality of work life among the employees. The Internal service quality had been
measured by the employees’ attitude on pay, benefits, opportunities, job security, pride in the
work, openness, fairness and friendliness in the organisation.
Concept of Service Quality
Lewis and Booms (1983) had suggested that service quality results from a comparison of what
customers expect from a service-provider with the provider’s actual performance. According to
them, “service quality is a measure of how well the service level delivered matches customer
expectations. Delivering quality service means conforming to customers expectations on a
consistent basis.”
Managing Service Quality
Gronross, a service marketing expert, proposed that a service firm, in order to simultaneously
attain success, must develop its service quality. Firstly, it must define how the consumers
perceive service quality and secondly, determine in what way service quality is influenced. He
also suggested that the functional quality is an important dimension of perceived service than the
technical quality. Therefore, the essence of effectiveness in managing services lies in improving
the functional quality of a firm’s service by managing the buyer-seller interaction as compared to
traditional marketing activities.

INDIAN BANKING INDUSTRY

The origin of the Indian banking industry may be traced to the establishment of the Bank of
Bengal in Calcutta in 1786. Since then, the industry has witnessed substantial growth and radical
changes. The growth of the banking industry in India is witnessed in terms of two broad phases:
Pre-Independence (1786-1947), and Post-Independence (1947 till date). The postindependence
phase may be further divided into three sub-phases: i) Pre-Nationalisation Period (1947-1969),
ii) Post-Nationalisation Period (1969-1991) and iii) Post-Liberalization period (1991 to till date).
The Indian banking sector has emerged as one of the strongest drivers of India’s economic
growth. The Indian banking industry (US$ 1.22 trillion) has made outstanding advancement in
last few years, even during the times when the rest of the world was struggling with financial
meltdown. India's economic development and financial sector liberalization have led to a
transformation of the Indian banking sector over the past two decades.
Today Indian Banking is at the crossroads of an invisible revolution. The sector has undergone
significant developments and investments in the recent past. Most of banks provide various
services such as Mobile banking, SMS Banking, Net banking and ATMs to their clients. Indian
banks, the dominant financial intermediaries in India, have made high-quality progress over the
last five years, as is evident from several factors, including annual credit growth, profitability,
and trend in gross non-performing assets (NPAs). While annual rate of credit growth clocked
23% during the last five years, profitability (average Return on Net Worth) was maintained at
around 15% during the same period, while gross NPAs fell from 3.3% as on March 31, 2006 to
2.3% as on March 31, 2011. The Indian banking sector is a mixture of public, private and foreign
ownerships. The below table highlights top 10 banks which contributed 58% share of the total
credit as on March 31, 2011. The State bank of India has recorded highest market share. The Net
Interest Margin of HDFC Banks is 4.2% which is highest among others.
Although some form of banking, mainly of the money-lending type, has been in existence in
India since ancient times, it was only over a century ago that proper banking began. The first
bank in India, though conservative, was established in 1786. From 1786 till today, the journey of
Indian Banking System can be segregated into three distinct phases. They are as mentioned
below:
• Early phase from 1786 to 1969 of Indian Banks
• Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms
• New phase of Indian Banking System with the advent of Indian Financial & Banking Sector
Reforms after 1991
The banking industry has moved gradually from a regulated environment to a deregulated market
economy. The market developments kindled by liberalization and globalization have resulted in
changes in the intermediation role of banks. The pace of transformation has been more
significant in recent times with technology acting as a catalyst. While the banking system has
done fairly well in adjusting to the new market dynamics, greater challenges lie ahead.
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign
banks, 56 regional rural banks, 1,485 urban cooperative banks and 96,000 rural cooperative
banks in addition to cooperative credit institutions. As of August 2020, total number of ATMs in
India increased to 209,110 and is expected to reach 407,000 by 2021.
According to Reserve Bank of India (RBI), India’s foreign exchange reserve reached US$
560.53 billion as on October 23, 2020. According to the Reserve Bank of India (RBI), bank
credit and deposits stood at Rs. 103.43 lakh crore (US$ 1.39 trillion) and Rs. 143.02 lakh crore
(US$ 1.92 trillion), respectively, in the fortnight ending October 9, 2020.
Credit to non-food industries stood at Rs. 102.80 lakh crore (US$ 1.38 trillion) as of October 9,
2020.
Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.
Total assets across the banking sector (including public, private sector and foreign banks)
increased to US$ 2.52 trillion in FY20.
Indian banks are increasingly focusing on adopting integrated approach to risk management. The
NPAs (Non-Performing Assets) of commercial banks has recorded a recovery of Rs. 400,000
crore (US$ 57.23 billion) in FY19, which is highest in the last four years.
As per Union Budget 2019-20, investment-driven growth required access to low cost capital, and
this would require investment of Rs. 20 lakh crore (US$ 286.16 billion) every year.
RBI has decided to set up Public Credit Registry (PCR), an extensive database of credit
information, accessible to all stakeholders. The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2017 Bill has been passed and is expected to strengthen the banking sector. Total
equity funding of microfinance sector grew 42% y-o-y to Rs. 14,206 crore (US$ 2.03 billion) in
2018-19.
Bank accounts opened under the Government’s flagship financial inclusion drive Pradhan Mantri
Jan Dhan Yojana (PMJDY) reached 40.05 crore and deposits in Jan Dhan bank accounts stood at
more than Rs. 1.30 lakh crore (US$ 18.44 billion).
Rising income is expected to enhance the need for banking services in rural areas, and therefore,
drive the growth of the sector.
The digital payments revolution will trigger massive changes in the way credit is disbursed in
India. Debit cards have radically replaced credit cards as the preferred payment mode in India
after demonetisation. Payments on Unified Payments Interface (UPI) hit an all-time high of 1.49
billion in terms of volume with transactions worth nearly Rs. 2.90 lakh crore (US$ 41.22 billion)
in July 2020.
Scope of the Study
Scopes for the study depicted as follows:
1. Service quality provided in banking sector in India.
2. Background and prospective of banking sector in India.

Objectives of the Study

The following are the main objectives of this study:
1. To measure and analyze the quality of services provided in banking sector in India.
2. To measure the customer satisfaction in banking sector.

Importance of the Study

1. The importance of this study arises from its endeavors to trace the relationship between moral
values and social acts among youths within the indian society, where Indian moral values
are the main components of general norms; moreover, they are the principal controller of such
society's social acts to stand the negative aspects of technology and temptations of modern life.
2. The importance of this study is also shown in emphasizing the correlation between Indian
moral values and social acts that embody them in daily social actions in different
interactional situations.

Research Methodology
Methodology is the way to consistently solve the analysis drawback. This job had been
completed by following systematic and ordered steps. Firstly, the analysis drawback was
developed. Secondly, an in depth survey had been taken place to assemble relevant and needed
literature. Thirdly, a search style had been determined. within the fourth stage as sampling
technique had been chosen that is termed non chance judgment sampling. Sixthly, each the first
and secondary information were collected. At the ultimate stage, collected knowledge were
analyzed and organized as per the study demands.
The study has been initiated to explore the service quality provided in the banking sector.
Therefore the study is an explorative analysis. To finish the study each primary and secondary
information has been used.
Primary data
The primary data has been collected from original sources by an investigation. The primary data
are those which are collected a fresh and for the first time and are original in character.
To collect primary information preferred and convenient questionnaire technique was used. A
set of form has been designed on the idea of multiple selection questions and a number of
question got the dichotomous format.

Sampling Technique
To gather primary information from a sample size has been determined from a population by
selecting a sampling technique named judgment sampling technique which is non- probability
sampling.

Sample Unit
The sample unit consist of customers of SBI and ICICI banks in Mumbai. The respondents are
students, employees, collegues.

Sample Size
Sample of 40 people was taken into study, and their data was collected.

Tools of the Study

1. The Questionnaire form.
2. The questionnaire consists of Closed end questions.

Secondary Data
On the opposite hand, the secondary information are those that have already been collected
by some other person that are collected through the statistical method. Secondary sources of
knowledge contains all printed and reportable materials together with books, journals,
articles etc.
Secondary information sources are
 Collection of secondary from Annual report.
 Secondary information even have been collected from the various publications such as
jgate plus, researchgate, journal,etc.
 Internet was one amongst the necessary sources for secondary information assortment.

Limitation of the Study

 1. The study allows only the students, collegues, workers of banks from both private and
public sectors which limit the generalizability of the findings.
2. The study also ignores clients from banks which locating in rural areas of the country.
3. Since data were collected from clients/workers of both private and public banks; a
comparative study would be interesting to measure service quality and customer
satisfaction.
4. Limitation of the time period.

Review of Literature

The study of service quality of banking services and satisfaction level of bank customer has to
start with a review of earlier works conducted and theories developed in this area to give a
formal design to the present task. The reviews on the banking sector and the services involved
with are elaborated along with the literature studies of service quality and customer satisfaction
dimensions as follows:

Khan, Nisar Ahmed et al. (2005) conducted a study to examine the performance of scheduled
commercial banks in general and public sector banks in particular during the post reform period.
It also analyzed the performance of three categories of banks viz., public, private and foreign
banks by comparing their capital adequacy, asset quality, profitability and participation in rural
areas. It revealed that profitability and efficiency of these banks have improved considerably
during the period, but the participation in rural areas in terms of number of offices, growth of
credit, growth of deposits etc., have significantly declined during the reform period.

Krishnaveni, R. et al. (2008) analyzed the existing Indian banking scenario in the light of
liberalization and globalization reforms in the country. They also studied the perceptions of the
corporate customers regarding the service quality of their bankers. The study found that there is a
wide gap between the strategies followed by the Indian banks when compared to the foreign
banks. The situation is same in the case of customer perceptions of service quality.

Gopalakrishnan, V (2009) has inquired the challenges of Indian financial services market. This
study revealed that the entry of new foreign banks and private sector banks with their advanced
knowledge base of automation in the banking operations and aggressive marketing strategies has
pushed public sector banks to a tight corner. He wants the public sector banks, to survive and
succeed by identifying their marketing areas, develop adequate resources, and convert these
resources into healthy and efficient services and distribute them effectively satisfying the
manifold tastes of customers.

Prabha, Divya et al. (2016), in their study analyzed the service quality perceptions of the
corporate customers in Coimbatore regarding the services provided by their banks. For the study
they considered both product and service based sectors and SERVQUAL scale based
questionnaire for the survey. By this study it has been revealed that even though customers are
more satisfied with the competence and customer orientation dimensions of service quality, still
banks need to focus upon the aspects of communication, modernization and quickness of service.

Bhat, Mushtaq A. (2016) studied service quality perceptions of Indian banks in comparison
with that of foreign banks. SERVQUAL instrument developed by Parasuraman et al. in the year
1988 and its five dimensions such as reliability, responsiveness, empathy, assurance and
tangibility were used for collecting primary data. A major finding of the study was that Indian
banks fall much below the perceptions of their customers on all dimensions of service quality.
Foreign banks are exceeding the perceptions of their customers on tangibility and reliability
dimensions of service quality.

Krishna Chithanya, V. (2018) studied the meaning, nature and scope of financial activities in
India and its features and to frame marketing strategy to attain service quality and to suggest
effective channel of distribution. By this study, service quality is the difference between the
perceptions of actual service quality and expectation of customers and the customer courtesy,
credibility and security. It proposed a two way channel for distributing financial services such as,
remote - T.V, Phone, PC etc., and face- to-face traveling, visiting offices etc.

Bauer, Hans H. et al. (2019) empirically examined characteristics of a website that transform
into an extensive e-banking portals and to analyze different facets of the quality of services
delivered through e-banking portals in order to process a service quality measurement model.
The measurement model constructed in this study was based on different dimensions such as
security and trust, basic service quality, cross-buying service quality, added value, transaction
support and responsiveness. Here, the identified dimensions were classified on the basis of its
nature as core services, additional services and problem solving services.
Aashish Shashikant Jani (2012) identify relative important factors affecting the areas of
strength and weaknesses of public and private sector banks in terms of different technologies
offered to customers and future growth of e-channels in retail banking. Parameters like money
transactions, efficiency, financial services, reliability and motivation were used to find the above.
The empirical data from 100 respondents of customers of bank were selected using a survey
questionnaire and hypothesis were framed and tools like Mean, Standard Deviation, Coefficient
of Variation, Correlation Analysis and Z test were used. The result reveals that use of technology
inferred a positive perception of customers of public sector and private sector banks.

Dharma lingam et al., (2012) examined to identify and evaluate the gap existing between
expected andperceived services and the areas that need to be improved to deliver superior quality
of service in selected new private sector banks. Service quality dimensions like tangible,
reliability, responsiveness,assurance, empathy, access, security and price and product variety
were considered for customer service quality expectations and perception. 8 hypotheses were
taken for the study and a sample of 780respondents were selected and paired t-test measurement
results indicates that customer’s highest expectations are in the security and accessibility
dimensions and customer’s lowest expectations in responsiveness dimensions, largest service
gap exists in reliability and price and product variety and smallest service gap exists in empathy
and tangible dimensions.

Mohammad Hosein Moshref Javadi et al., (2012) in their study to evaluate the quality of
private banks services provided to the customers and to measure the customer’s satisfaction.
SERVQUAL six dimensions scale to be measured are tangible, reliability, responsiveness,
assurance, empathy and accessibility the ability to access private banks easily and conveniently.
A pilot survey was conducted forthe questionnaire and reliability and validity test satisfies and
the final questionnaire was distributed to the 390 convenience respondent. Six hypotheses were
framed for the above and tools like mean and test were analyse and the result indicates that
assurance, reliability seems to be most important dimensions and accessibility and tangibility are
the most serious problem and private bank have to improve actions in mentioned dimensions.

Ravichandran et al (2010) studied the influence of service quality on customer satisfaction by

applying Servqual Model. The article examined the influence of perceived service quality on
customers atisfaction. They concluded that increase in service quality of the banks can satisfy
and develop customer satisfaction which ultimately retains valued customers.

Khurana (2010) in her research paper investigates the level of customer satisfaction with the
service quality of private banks. In the study a structured survey was conducted in Hissar district,
India, with a sample of 250 respondents who had at least one savings account in a private sector
bank. The questionnaire was based on SERVQUAL model This study examined the service
quality gap by comparingcustomers' expectations and actual perceptions. This study also focused
on customers' satisfactionstowards the various service provided by private sector banks. The
results of the study indicated that theoverall service quality provided by the private banks was
below customers' expectations.

Veerabhadrappa, H. Jayanna, S (2013) in their paper attempted to identify, evaluate and

prioritize theservice quality dimensions of private sector banks. The SERVPERF scale developed
by Cronin and Taylor(1992, 1994) is used to measure the service quality. The service quality
dimensions are then derived from factor analysis. TOPSIS (technique for order preference by
similarity to ideal solution) is used to rank or prioritize the service quality dimensions.

Reforms in the Banking Sector

Reforms in the banking sector were introduced on the basis of the recommendations of different
committees:
(i) The first Narasimhan Committee 1991
(ii) The Verma Committee 1996
(iii) The Khan Committee 1997 and
(iv) The Second Narasimhan Committee 1998
The First Phase of Reforms:
The banking sector reforms are directed toward improving the policy framework, financial health
and the institutional framework:
(a) Change in Policy Framework: Improvement in policy framework has been undertaken by
reducing the Cash Reserve Ratio (CRR) to the initial standard and phasing out Statutory
Liquidity Ratio (SLR), deregulation of interest rates, widening the scope of lending to priority
sectors and by linking the lending rates to the size of advances.
(b) Improving Financial Health: Attempts to improve the financial soundness of the banking
sector have been made by prescribing prudential norms. Moreover, steps have been taken to re-
duct the proportion of Non-Performing Assets (NPAs).
The Second Phase of Reforms:
The first phase of the bank sector reforms is completed. The second generation reforms which
are underway concentrate on strengthening the very foundation of the banking system in three
ways: by reforming the structure of the bank industry, technological upgradation, and humaning
resource development.
Prudential Regulation: There are two types of banking regulations—economic and prudential. In
the pre-reform era (before July 1991) the Reserve Bank of India (RBI) regulated banks by
imposing constraints on interest rates, tightening entry norms and directed lending to ensure
judicious end use of bank credit. However, such economic regulation of banks hampered their
productivity and efficiency. Hence, the RBI switched over to prudential regulation which calls
for imposing minimum limit on the capital level(s) of banks.
The objective is to maintain the wealth of banks in particular and to ensure the soundness of the
financial system in general. It allows much greater scope for the free play of market forces than
what is permitted by economic regulations alone. On the basis of recommendations of the
Committee on Banking Sector Reforms, April 1998 (the second Narasimhan Committee) the
RBI issued prudential norms. The major objective of setting such norms was to ensure financial
safety, soundness and solvency of banks. These norms are directed toward ensuring that banks
carry on their operations as prudent entities, are free from undue risk-taking, and do not violate
banking regulations in pursuit of profit.

Banking Sector in India

The banking system in India is significantly different from that of other Asian nations because of
the country’s unique geographic, soc ial and economic characteristics. India has a large
population and landsize, a diverse culture, and extreme disparities in income which are marked
among its regions. There arehigh levels of illiteracy among a large percentage of its population,
but at the same time, the country hasa large reservoir of managerial and technologically
advanced talent. Between about 30-35% of thepopulation resides in metro and urban cities and
the rest is spread in several semi-urban and rural centres. The country’s economic policy
framework combines socialistic and capitalistic features with aheavy bias towards public sector
investment. India has followed the path of growth-led exports rather than the ‘export - led
growth’ of other Asian economies, with emphasis on self -reliance through import substitution.
These features are reflected in the structure, size, and diversity of the country’s banking and
financial sector.
The banking system has had to serve the goals of economic policies enunciated inthe successive
five-year development plans, particularly concerning equitable income distribution,balanced
regional economic growth, and the reduction and elimination of private sector monopolies
intrade and industry. In order to serve as an instrument of state policy, the banking industry
wassubjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a
result,banking remained internationally isolated (few Indian banks had presence abroad in
internationalfinancial centres) because of preoccupation with domestic priorities, especially
massive branchexpansion and attracting more people to the system. Moreover, the sector has
been assigned the role ofproviding support to other economic sectors such as agriculture, small-
scale industries exports, andbanking activities in the developed commercial centres (i.e., metro,
urban, and a limited number ofsemi-urban centres).
The banking system’s international isolation was also due to strict branch licensing controls on
foreign banks already operating in the country as well as entry restrictions facing newforeign
banks. A criterion of reciprocity is required for any Indian bank to open an office abroad.
Thesefeatures have left the Indian banking sector with weaknesses and strengths. A big challenge
facingIndian banks is how to attain operational efficiency suitable for modern financial
intermediation, underthe current ownership structure. On the other hand, it has been relatively
easy for the public sectorbanks to recapitalize, given the increases in Non-Performing Assets
(NPAs), as their government-dominated ownership structure has reduced the conflicts of interest
that private banks would face.

Current Banking Scenario of India

A bank is a financial institution which accepts deposits from the general public and extends loans
to the households, the firms, and the government. The Indian banking sector is the lifeline of the
nation and its people. It is a vital component of the economy of the country. The banking sector
is considered to be the backbone of the modern economy. The efficiency and growth of a nation
depend on the strength and efficiency of its financial institutions. The banking sector of India is
the hope and aspiration of millions of people in the country. But to achieve this success the
banking sector had to pass many hurdles. The cooperative banks in connivance with the Indian
banking sector is now providing need-based finance especially for the development of the
agricultural sector which is the backbone of Indian economy.
It has been seen that the growth of the Indian banking sector has been more qualitative rather
than quantitative. Further, the credits take-off has been surging ahead over the past few decades
aided by strong economic growth, rising disposable incomes, increasing consumerism and easier
access to credit. The Indian banking sector has also witnessed an increase in demand for both
corporate and retail loans particularly the services, real estate, consumer durables and agriculture
allied sectors have led to the growth of credit. The Indian banking sector is recently now
focusing on adopting an integrated approach to risk management. The Indian banking sector has
already embraced the international banking supervision accord. The Reserve Bank of India has
decided to set up the public credit registry (PCR), an extensive database of credit information
which is accessible to all stakeholders. The current scenario of the Indian banking sector is also
witnessing a surge in the deposits made under Pradhan Mantri Jan Dhan Yojana. Efforts are also
being made to raise the income level so as to enhance the banking sector in the rural areas
Indian banks are increasingly focusing on adopting integrated approach to risk management.
Banks have already embraced the international banking supervision accord of Basel II, and
majority of the banks already meet capital requirements of Basel III. The increasingly
dynamic business scenario and financial sophistication has increased the need for customized
exotic financial products. Banks are developing innovative financial products and advanced
risk management methods to capture market share.

Access to the banking system has improved over the years due to persistent effort from the
Government to promote banking technology and promote expansion in unbanked and
metropolitan regions. The Ministry of Finance launched the Jan Dhan Yojana in 2014, a
financial inclusion program to expand affordable access to financial services such as bank
accounts, credit, insurance and pensions in all parts of India.

Digital influence in the Indian banking sector has also grown due to rising digital footprint.
Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) have
been implemented by Indian Banks for fund transactions. The market regulator has included
both these payments systems to the existing list of methods that a company can use for
payment of dividends or other cash benefits to their shareholders and investors.

The Reserve Bank of India (RBI) has taken several steps to enable mobile payments, which
forms an important part of mobile banking. The National Payments Corporation of India has
developed the Unified Payments Interface (UPI), an instant real-time payment system that
works by instantly transferring funds between two bank accounts on a mobile platform.
Classification of Banks in India
Banks are classified into classified into four categories –
 Commercial Banks
 Small Finance Banks
 Payments Banks
 Co-operative Banks
Commercial Banks can be further classified into public sector banks, private sector banks,
foreign banks and Regional Rural Banks (RRB). On the other hand, cooperative banks are
classified into urban and rural. Apart from these, a fairly new addition to the structure is
payments bank.
Commercial Banks are regulated under the Banking Regulation Act, 1949 and their business
model is designed to make profit. Their primary function is to accept deposits and grant loans to
the general public, corporate and government. Commercial banks can be divided into-

Public Sector Banks Private Sector Banks

Foreign Banks Regional Rural Banks

Public sector Banks

These are the nationalised banks and account for more than 75 per cent of the total banking
business in the country. Majority of stakes in these banks are held by the government. In terms of
volume, SBI is the largest public sector bank in India and after its merger with its 5 associate
banks (as on 1st April 2017) it has got a position among the top 50 banks of the world.There are a
total of 20 nationalised banks in the country.
Private Sector Banks
These include banks in which major stake or equity is held by private shareholders. All the
banking rules and regulations laid down by the RBI will be applicable on private sector banks as
well.
Foreign Banks
A foreign bank is one that has its headquarters in a foreign country but operates in India as a
private entity. These banks are under the obligation to follow the regulations of its home country
as well as the country in which they are operating.
Regional Rural Banks
These are also scheduled commercial banks but they are established with the main objective of
providing credit to weaker sections of the society like agricultural labourers, marginal farmers
and small enterprises. They usually operate at regional levels in different states of India and may
have branches in selected urban areas as well. Other important functions carried out by RRBs
include-
 Providing banking and financial services to rural and semi-urban areas.
 Government operations like disbursement of wages of MGNREGA workers, distribution
of pensions, etc.
 Para-Banking facilities like debit cards, credit cards and locker facilities.
Small Finance Banks
This is a niche banking segment in the country and is aimed to provide financial inclusion to
sections of the society that are not served by other banks. The main customers of small finance
banks include micro industries, small and marginal farmers, unorganized sector entities and
small business units. These are licensed under Section 22 of the Banking Regulation Act, 1949
and are governed by the provisions of RBI Act, 1934 and FEMA.
Payment Banks
This is a relatively new model of bank in the Indian Banking industry. It was conceptualised by
the RBI and is allowed to accept a restricted deposit. The amount is currently limited to Rs. 1
Lakh per customer. They also offer services like ATM cards, debit cards, net-banking and
mobile-banking.
Co-Operative Banks
Co-operative banks are registered under the Cooperative Societies Act, 1912 and they are run by
an elected managing committee. These work on no-profit no-loss basis and mainly serve
entrepreneurs, small businesses, industries and self-employment in urban areas. In rural areas,
they mainly finance agriculture-based activities like farming, livestock and hatcheries.
Urban Co-operative Banks
Urban Co-operative Banks refer to the primary cooperative banks located in urban and semi-
urban areas. These banks essentially lent to small borrowers and businesses centered around
communities, localities work place groups.
According to the RBI, on 31st March, 2003 there were 2,104 Urban Co-operative Banks of
which 56 were scheduled banks. About 79% of these are located in five states, – Andhra
Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu.

State Cooperative Bank

A State Cooperative Bank is a federation of the central cooperative bank which acts as custodian
of the cooperative banking structure in the State.
Banks can also be classified on the basis of Scheduled and Non-Scheduled Banks. It is essential
for every individual to check if they are holding their savings or deposit account with a
Scheduled Bank or Non-Scheduled Bank. Scheduled Banks are also covered under the depositor
insurance program of Deposit Insurance and Credit Guarantee Corporation (DICGC), which is
beneficial for all the account holders holding a savings and fixed / recurring deposit account.
Under DICGC, bank deposits of up to Rs 1 lakh, including the fixed, savings, current and
recurring deposits, per depositor per bank in the event of bank failure are insured.

Scheduled banks
Scheduled banks are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934. To
qualify as a scheduled bank, the bank should conform to the following conditions:
 A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule bank
category
 A bank requires to satisfy the central bank that its affairs are not carried out in a way that
causes harm to the interest of the depositors
 A bank should be a corporation rather than a sole-proprietorship or partnership firm
Non-scheduled banks
Non-scheduled banks refer to the local area banks which are not listed in the Second Schedule of
Reserve Bank of India. Non-Scheduled Banks are also required to maintain the cash reserve
requirement, not with the RBI, but with them.

Financial Structure of Indian Commercial Banks

The structure of Indian commercial banks is grouped into State Bank Group, Nationalised banks,
Private sector banks, Foreign banks and Regional Rural banks. The number of banks, deposits,
loans and advances; capital, reserves, total assets, borrowings and investment in the above said
groups during 2003.The total number of commercial banks in India was 289 during 2003. There
were 19 Nationalised banks, 8 State Bank Groups, 30 private sector banks, 36 foreign banks and
196 Regional Rural Banks. The Nationalised banks mobilised a maximum deposits of Rs.
6,88,361 crores whereas the loans and advances disbursed was 3,60,142 crores. The capital
mobilised by the Nationalised banks was a maximum of 13140 crores whereas the reserves were
Rs.29,310 crores. The total assets in all Nationalised banks were worth of Rs.7,91,281 crores.
The borrowings and investment of Nationalised banks were 10,383 crores and 3,22,302 crores
respectively.

Market Share of Different Groups of Banks

The market share of the different groups of banks regarding various aspects of banking during
2002-2003 is presented. Regarding the number of banks, the regional rural banks constitute a
market share of 67.82 per cent followed by foreign banks with the market share of 12.46 per cent
to the total. By deposits and loans and advances, the Nationalised banks constitute 49.02 and
47.25 per cent to the total respectively. It is followed by the State Bank Groups with 27.85 per
cent and 24.82 per cent respectively. Regarding capital, reserves and total assets, the
Nationalised banks dominate with the market share of 54.97, 37.27 and 44.89 per cent to the total
respectively. By borrowings, the market share of private sector banks is identified as a maximum
of 48.10 per cent. In the case of total investment, total income, total expenditure, operating
profits, provision and contingencies; and net profit, the market share of Nationalised banks is
identified as a maximum of 45.63, 44.64, 44.69, 44.66, 44.98 and 44.22 respectively. It is
followed by the State Bank Groups with the market share of 31.62, 27.41, 27.60, 27.13, 28.23
and 25.63 per cent respectively.

Market Size
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign
banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks
in addition to cooperative credit institutions. As of September 2020, the total number of ATMs in
India increased to 210,049 and is further expected to increase to 407,000 by 2021.
Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.
During FY16-FY20, bank credit grew at a CAGR of 3.57%. As of FY20, total credit extended
surged to US$ 1,698.97 billion.
During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion by
FY20. Credit to non-food industries stood at Rs. 103.46 trillion (US$ 1.40 trillion) as of
November 20, 2020.

Investments/Developments
Key investments and developments in India’s banking industry include:
 On November 6, 2020, WhatsApp started UPI payments service in India on receiving the
National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a
graded manner.
 In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife
Programme’, a holistic healthcare solution that makes healthy living accessible and
affordable on Apollo’s digital platform.
 In 2019, banking and financial services witnessed 32 M&A (merger and acquisition)
activities worth US$ 1.72 billion.
 In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million
in green bonds through private placement.
 In February 2020, the Cabinet Committee on Economic Affairs gave its approval for
continuation of the process of recapitalization of Regional Rural Banks (RRBs) by
providing minimum regulatory capital to RRBs for another year beyond 2019-20 - till
2020-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted
Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.
 In October 2019, Department of Post launched the mobile banking facility for all post
office savings account holders of CBS (core banking solutions) post office.
  Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs. 1.06 lakh crore
(US$ 15.17 billion.
 In October 2019, Government e-Marketplace (GeM) signed a memorandum of
understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and
transparent payment system for an array of services.
 In August 2019, the Government announced major mergers of public sector banks, which
included United Bank of India and Oriental Bank of Commerce to be merged with Punjab
National Bank, Allahabad Bank to be amalgamated with Indian Bank and Andhra Bank
and Corporation Bank to be consolidated with Union Bank of India.
 The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs.
400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs.
156,746 crore (US$ 22.42 billion) in FY19.
 Allahabad Bank’s board approved the merger with Indian bank for the consolidation of
10 state-run banks into the large-scale lenders.
 The total equity funding of microfinance sector grew at 42 y-o-y to Rs. 14,206 crore
(US$ 2.03 billion) in 2018-19.

Government Initiatives
 As per Union Budget 2019-20, the Government proposed fully automated GST refund
module and an electronic invoice system that will eliminate the need for a separate e-way
bill.
 Under the Budget 2019-20, Government proposed Rs. 70,000 crore (US$ 10.2 billion) to
the public sector banks.
 Government smoothly carried out consolidation, reducing the number of Public Sector
Banks by eight.
 As of September 2018, the Government of India made Pradhan Mantri Jan Dhan Yojana
(PMJDY) scheme an open-ended scheme and added more incentives.
 The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in public
sector banks by March.

Achievements
Following are the achievements of the Government:
 In November 2020, Unified Payments Interface (UPI) recorded 2.21 billion transactions
worth Rs. 3.90 lakh crore (US$ 53.06 billion).
  According to the RBI, India’s foreign exchange reserve reached US$ 574.82 billion as of
November 27, 2020.
 To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been
sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural
Development (NABARD).

Road Ahead
 Enhanced spending on infrastructure, speedy implementation of projects and continuation
of reforms are expected to provide further impetus to growth in the banking sector. All
these factors suggest that India’s banking sector is poised for a robust growth as rapidly
growing businesses will turn to banks for their credit needs.
 Also, the advancement in technology has brought mobile and internet banking services to
the fore. The banking sector is laying greater emphasis on providing improved services to
their clients and upgrading their technology infrastructure to enhance customer’s overall
experience as well as give banks a competitive edge.
 India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1
trillion by FY23 driven by the five-fold increase in the digital disbursements.

Internet Banking
Internet Banking, also known as net-banking or online banking, is an electronic payment system
that enables the customer of a bank or a financial institution to make financial or non-financial
transactions online via the internet. This service gives online access to almost every banking
service, traditionally available through a local branch including fund transfers, deposits, and
online bill payments to the customers.
Internet banking can be accessed by any individual who has registered for online banking at the
bank, having an active bank account or any financial institution. After registering for online
banking facilities, a customer need not visit the bank every time he/she wants to avail a banking
service. It is not just convenient but also a secure method of banking. Net banking portals are
secured by unique User/Customer IDs and passwords.
Types of Fund Transfers using Internet Banking
As we have already discussed, there are three types of fund transfers which can be made using
net-banking. Let us understand more-
NEFT
National Electronic Fund Transfer (NEFT) is a payment system which allows one-to-one fund
transfer.
 Using NEFT, individuals and corporates can transfer funds electronically from any bank
branch to any individual or corporate with an account with any other bank branch in the
country
 NEFT service is available 24×7 on internet banking. But, it is a time-restricted service at
the bank branch
 Usually, NEFT transfer is successfully completed within 30 minutes. Nonetheless, the
time can even stretch to 2-3 hours or might be completed in just 10 minute
RTGS
Real-Time Gross Settlement (RTGS) is a continuous settlement of funds individually on an order
by order basis.
 This payment system ensures that the receiver’s account gets credited with the funds
almost immediately and not after a certain duration, as is the case with other payment
modes like NEFT
 RTGS transactions are tracked by the RBI, thereby successful transfers are irreversible.
This method is majorly used for large value transfers
 The minimum amount to be remitted through RTGS is 2 lakh. There is no cap on the
maximum amount for transfer via RTGS
 Like NEFT, RTGS is also available online 24×7

IMPS
Immediate Payment System (IMPS) is another payment method that transfers funds in real-time.
 IMPS is used to transfer funds instantly within banks across India via mobile, internet
and ATM, which is not only safe but also economical both in financial and non-financial
perspectives
 IMPS is an inexpensive mode of fund transfer. Other fund transfer mediums such as
NEFT and RTGS charge significantly higher than IMPS
 It does not require details like account number, IFSC code, etc. Funds can be transferred
via IMPS just with the mobile number of the beneficiary.
Core Banking System
Core Banking solutions are vital to the day-to-day functioning of any bank. It is an integral part
of the banking technology which aims to serve their clients and customer with the best services.
In simple words, core banking solutions are account-management back-end and front-end
processes.
Core is short for “Centralized Online Real-time Exchange.” As the name suggests, it is a
centralized system or a network created by a bank and its branches. This allows the customers of
the bank to access, manage and perform basic transactions from any branch of the bank they hold
an account in. Thus, core banking software allows the banks to create a centralized data center.
Traditionally, Core Banking is closely associated with the retail banking sector of the
commercial banking system. However, due to the rise in the number of corporate clients, banks
have realized the convenience core banking services could bring to corporate banking solutions.
Therefore, banks are now committed to widening the scope of core banking system beyond retail
banking. Some of the basic core banking solutions include deposit accounts, loans, payments and
more. With the help of core banking software, these services are made available to the bank’s
customers through ATMs, internet banking, mobile banking, and brick and mortar bank
branches. Core banking system uses Information Communication Technology as a platform for
its various applications to simplify banking procedures and processes.

Electronic Clearing Service (ECS)

ECS is an electronic mode of funds transfer from one bank account to another. It can be used by
institutions for making payments such as distribution of dividend interest, salary, pension, among
others. It can also be used to pay bills and other charges such as telephone, electricity, water or
for making equated monthly installments payments on loans as well as SIP investments. ECS can
be used for both credit and debit purposes.
How do you avail of an ECS scheme?
You need to inform your bank and provide a mandate that authorises the institution, who can
then debit or credit the payments through the bank. The mandate contains details of your bank
branch and account particulars. It is the responsibility of the institution to communicate the
details of the amount being credited or debited to their account, indicating the date of credit and
other relative particulars of the payment. You will know the money has been debited from your
account through mobile alerts or messages from the bank.The ECS user can set the maximum
amount one can debit from the account, specify the purpose of debit, as well as set a validity
period for every mandate given.

SWOT Analysis of the Banking Industry

The banking industry is one of the oldest industries still around today. It’s come along way from
the old bartering and exchange system. And yet, it still has a long way to go. Even though most
banks now offer online services so you can use do most of what you need from home, this
industry is still lagging behind. It’s not meeting consumer demands or using updated IT
infrastructure.
There are many positives associated with the banking industry though, as this SWOT analysis of
the banking industry will explain. Here I’ll discuss the strengths, weaknesses, opportunities, and
threats related to the banking industry, now and in the future.
Strengths
What strengths does the banking industry offer to consumers?
One of the oldest industries.
So long as humans have been alive, there’s been forms of banking. Initially, it was a bartering
and exchange system, but now it’s much more than that. Banking teaches us the value of money,
gives us access to loans to reach our dreams, and provides a host of other services related to
credit cards, savings, and bonds.
A leader in economic growth.
It’s because of banking that we’ve seen such economic growth at home and worldwide. Supply
and demand have fostered this growth and also improved financial trade, financial stability, and
financial security. It’s also one factor behind increased employment and the reduction of
worldwide poverty.
Financial support after a crisis.
After experiencing a loss or natural calamity, the banking industry helps customers get back on
their feet. Insurance, investment, and loan options are to thank for this.
Digital banking convenience.
It’s now easier than ever to do banking online. You can deposit your check, pay your bills, and
apply for a credit card without stepping foot into your bank’s branch. However, for more “in-
depth” services, you’ll likely still need to make an appointment with a financial advisor. Some
things are better handled in-person than electronically.
Banks have plenty of competition. That’s why many are making their customers’ lives easier by
offering specific services like free credit score checks. The focus is about improving regulatory
compliance and asset quality.

Weaknesses
The weaknesses of the banking industry include the following:
Lack of worldwide coordination.
Because the banking industry handles finances, it’s a vulnerable industry. It also relies heavily on
the coordination of the economy, but this is a problem on a global scale. Europe holds more than
50% of the global market. Should it face a recession, the rest of the world (and banks) could
suffer by proxy. Fluctuating currencies and exchange rates can also be trouble for banks.
Old technology leads to vulnerabilities.
Many banks still use outdated IT infrastructure to host online services. For instance, some
banking websites don’t use case sensitive passwords or allow customers to put special characters
in passwords. This makes passwords extremely weak and easy for hackers to brute-force into
your accounts.
Considering it holds your life savings, most customers expect their banks to follow updated
policies, regulations, and infrastructure to keep their information protected. And yet, it’s taking
the banking industry too long to keep up with technological advancements. Because of that,
many banks suffer from digital vulnerabilities and potential security bugs.
No access to rural areas.
Rural regions don’t have access to banking services. Part of this is because of conflicts between
government objectives and banking objectives. Another reason for the lack of access is because
providing services to rural areas can be more trouble than it’s worth financially.

Opportunities
The banking industries have many opportunities within the industry and for consumers:
Move into rural regions.
As mentioned in the weaknesses section, the banking industry hasn’t approached rural areas yet.
It’s an opportunity to get more customers, but achieving such a move isn’t a small feat. It may
take dozens of years before this approach is successful.
Offer more or lose customers.
Banks should keep up with consumer demands and demographic changes. Having a banking app
isn’t enough — consumers (especially millennials) crave more options. Providing what people
want will require heavy research from banks. It will also require segmenting customers to create
custom-service options. For instance, what students opening their first account needs will differ
greatly from homeowners or business owners.

If banks fail to address the demands and desires of customers, they’ll lose them. After all, there’s
always another bank they can easily go to.

Threats
Just like any other industry, the banking industry also has its fair share of threats:
The biggest threat of all: recessions.
The biggest threat to any industry handling money is a recession. It’s the most critical threat that
can make or break a business. If small and big businesses fall, it’ll have a direct consequence on
the banking industry.
Data breaches.
With banks offering more online options, it also increases the risk for data breaches. People give
other websites like invoicing companies (like PayPal) access to their bank to receive and transfer
money. If these companies have a breach, it gives hackers access to personal bank accounts.
Although there is nothing banks can do for breaches on other websites they can make sure their
own is heavily protected against hackers.
So much competition.
Banks have a ton of competition; not just with other banks, but with other alternative finance
companies. This includes mutual fund companies and insurance companies. Millennials are
especially receptive to getting financial services from fintech companies rather than traditional
banks.
Unlike banks, Fintech companies are proving to be more accommodating to millennials needs
(for instance, offering digital services, online banking, and building a relationship with the user).
The banking industry needs to change its approach if it wants to keep the younger generation as
customers.

Pestle Analysis for the Banking Industry

The banking industry affects all countries. But it’s subservient to many factors, particularly to the
government and the economy. Banks are unable to behave independently and must provide
services based on specific laws that affect their growth and offerings.

This PESTLE analysis highlights key factors affecting the banking industry.

Political factors

Government laws affect the state of the banking sector. The government can intervene in the
matters of banking whenever, leaving the industry susceptible to political influence. This
includes corruption amongst political parties, or specific legislative laws such as labor
laws, trade restrictions, tariffs, and political stability.

Economic factors

The banking industry and the economy are tied. How income flows, whether the economy is
prospering or barely surviving during times of recession, affects how much capital banks can
access. Spending habits, and the reasons behind them, affect when customers borrow or spend
funds at banks.
Additionally, when inflation skyrockets, the bank experiences the backlash. Inflation affects
currency and its value and causes instability. Foreign investors think twice before providing their
funds when a particular country’s currency value is high.

Sociocultural factors

Cultural influences, such as buying behaviors and necessities, affect how people see and use
banking options. People turn to banks for advice and assistance for loans related to business,
home, and academics. Consumers seek knowledge from bank tellers regarding saving accounts,
bank related credit cards, investments, and more. Consumers desire a seamless banking
experience. And technology is developing to allow consumers to buy products easier, without
requiring assistance directly from banks.

Technological factors

Technology is changing how consumers handle their funds. Many banks offer a mobile app to
witness accounts, transfer funds, and pay bills on smartphones. Smartphones can scan cheques,
and the bank can process it from their end, at their location. This change helps to save paper and
the need to drive directly to the branch to handle these affairs.

Debit cards are also changing. Chips have been implemented, requiring users to insert their card
into debit machines rather than swiping them. Other countries, such as Canada, have
implemented a “tap” option — tapping the debit card onto the device, requiring no pin, for a
transaction to complete. These changes make it easier on the user to make purchases without
required intrusion from banks.

Even banks themselves are utilizing technology within the workplace. Telecommunicating
through virtual meetings is being embraced. It replaces the need for in-person meetings.

Legal factors

The banking industry follows strict laws regarding privacy, consumer laws, and trade structures
to confirm frameworks within the industry. Such structures are required for customers in the
allocated country and for international users.

Environmental

With the use of technology — particularly with mobile banking apps — the use for paper is
being reduced. Additionally, the need to drive directly to a branch to handle affairs is minimized
as well.
Many issues are taken care of through mobile apps and online banking services. Consumers can
apply for credit cards online, buy cheques online, and have many of their banking questions
answered online or by phone. Thus, reducing individual environmental footprints.
Recent Trends in the Banking Industry
The Banking industry and financial institutions are vital sectors of any economy. Development
of these two sections of the economy can impact the growth of the country in an incredible way.
In the era of “Digital India”, the banking and financial services in India have undergone a
massive evolution and the phenomenon continues. The change can be attributed to various
components like new regulatory policies and customer expectations. However, the one element
that has affected banking and financial services the most is technological advancement.
Digitization
With the rapid growth of digital technology, it became imperative for banking and financial
services in India to keep up with the changes and innovate digital solutions for the tech-savvy
customers. Besides the financial institutions, insurance, healthcare, retail, trade, and commerce
are some of the major industries that are experiencing the enormous digital shift. To stay
competitive, it is necessary for the banking and financial industry to take the leap on the digital
bandwagon.
In India, it all began not earlier than the 1980s when the banking sector introduced the use of
information technology to perform basic functions likes customer service, book-keeping, and
auditing. Soon, Core Banking Solutions were adopted to enhance customer experience.
However, the transformation began in the 1990s during the time of liberalization, when the
Indian economy exposed itself to the global market. The banking sector opened itself for private
and international banks which is the prime reason for technological changes in the banking
sector. Today, banks and financial institutions have benefitted in many ways by adopting newer
technologies. The shift from conventional to convenience banking is incredible.
Modern trends in banking system make it easier, simpler, paperless, signatureless and branchless
with various features like IMPS (Immediate Payment Service), RTGS (Real Time Gross
Settlement), NEFT (National Electronic Funds Transfer), Online Banking, and Telebanking.
Digitization has created the comfort of “anywhere and anytime banking.” It has resulted in the
reduced cost of various banking procedures, improved revenue generation, and reduced human
error. Along with increased customer satisfaction, it has enabled the customers creating
personalized solutions for their investment plans and improve the overall banking experience.
Mobile Banking
Mobile banking is one of the most dominant current trends in banking systems. As per the
definition, it is the use of a smartphone to perform various banking procedures like checking
account balance, fund transfer, and bill payments, without the need of visiting the branch. This
trend has taken over the traditional banking systems. In the coming years, mobile banking is
expected to become even more efficient and effortless to keep up with the customer demands.
Mobile banking future trends hint at the acquisition of IoT and Voice-Enabled Payment Services
to become the reality of tomorrow. These voice-enabled services can be found in smart
televisions, smart cars, smart homes, and smart everything. Top industry leaders are
collaborating to adopt IoT-connected networks to create mobile banking technologies that
require users’ voice to operate.

UPI
UPI or Unified Payments Interface has changed the way payments are made. It is a real-time
payment system that enables instant inter-bank transactions with the use of a mobile platform. In
India, this payment system is considered the future of retail banking. It is one of the fastest and
most secure payment gateways that is developed by National Payments Corporation of India and
regulated by the Reserve Bank of India. The year 2016 saw the launch of this revolutionary
transactions system. This system makes funds transfer available 24 hours, 365 days unlike other
internet banking systems. There are approximately 39 apps and more than 50 banks supporting
the transaction system. In the post-demonetization India, this system played a significant role. In
the future, with the help of UPI, banking is expected to become more “open.
Block Chain
Blockchain is the new kid on the block and the latest buzzword. The technology that works on
the principles of computer science, data structures and cryptography and is the core component
of cryptocurrency, is said to be the future of banking and financial services globally. Blockchain
uses technology to create blocks to process, verify and record transactions, without the ability to
modify it.
NITI Aayog is creating IndiaChain, India’s largest blockchain network, which is expected to
revolutionize several industries, reduce the chances of fraud, enhance transparency, speed up the
transaction process, lower human intervention and create an unhackable database. Several
aspects of banking and financial services like payments, clearance and settlement systems, stock
exchanges and share markets, trade finance, and lending are predicted to be impacted. With its
strenuous design, blockchain technology is a force to be reckoned with.
Artificial Intelligence Robots
Several private and nationalized banks in India have started to adopt chatbots or Artificial
intelligence robots for assistance in customer support services. For now, the use of this
technology is at a nascent stage and evolution of these chatbots is not too far away. Usage of
chatbots is among the many emerging trends in the Indian banking sector that is expected to
grow.
More chatbots with the higher level of intelligence are forecasted to be adopted by the banks and
financial institutions for improved customer interaction personalized solutions. The technology
will alleviate the chances of human error and create accurate solutions for the customers. Also, it
can recognize fraudulent behavior, collate surveys and feedback and assist in financial decisions.
Rise of Fintech Companies
Previously, banks considered Fintech companies a disrupting force. However, with the changing
trends in the financial services sector in India, fintech companies have become an important part
of the sector. The industry has emerged as a significant part of the ecosystem. With the use of
financial technology, these companies aim to surpass the traditional methods of finance. In the
past few decades, massive investment has been made in these companies and it has emerged into
a multi-billion-dollar industry globally.

Fintech companies and fintech apps have changed the way financial solutions are provided to the
customers. Besides easy access to financial services, fintech companies have led to a massive
improvement in services, customer experience, and reduced the price paid. In India, the dynamic
transformation has been brought upon by several important elements like fintech startups,
established financial institutions, initiatives like “Start-Up India” by Government of India,
incubators, investors, and accelerators. According to a report by National Association of
Software and Services Companies (NASSCOM), the fintech services market is expected to grow
by 1.7 times into an $8 billion market by 2020.
Digital only Banks
It is a recent trend in the Indian financial system and cannot be ignored. With the entire banking
and financial services industry jumping to digital channels, digital-only banks have emerged to
create paperless and branchless banking systems. This is a new breed of banking institutions that
are overtaking the traditional models rapidly. These banks provide banking facilities only
through various IT platforms that can be accessed on mobile, computers, and tablets. It provides
most of the basic services in the most simplified manner and gives access to real-time data. The
growing popularity of these banks is said to be a real threat to traditional banks.
ICICI Pockets is India’s first digital-only bank. These banks are attractive to the customers
because of their cost-effective operating models. At the same time, though virtually, they provide
high-speed banking services at very low transaction fees. In today’s fast lane life, these banks
suit the customer needs because they alleviate the need of visiting the bank and standing in a
queue.
Cloud Banking
Cloud technology has taken the world by storm. It seems the technology will soon find its way in
the banking and financial services sector in India. Cloud computing will improve and organize
banking and financial activities. Use of cloud-based technology means improved flexibility and
scalability, increased efficiency, easier integration of newer technologies and applications, faster
services and solutions, and improved data security. In addition, the banks will not have to invest
in expensive hardware and software as updating the information is easier on cloud-based models.
Biometrics
Essentially for security reasons, a Biometric Authentication system is changing the national
identity policies and the impact is expected to be widespread. Banking and financial services are
just one of the many other industries that will be experiencing the impact. With a combination of
encryption technology and OTPs, biometric authentication is forecasted to create a highly-secure
database protecting it from leaks and hackers attempts. Financial services in India are exploring
the potential of this powerful technology to ensure sophisticated security to customers’ account
and capital.

Wearables
With smartwatch technology, the banking and financial services technology is aiming to create
wearables for retail banking customers and provide more control and easy access to the data.
Wearables have changed the way we perform daily activities. Therefore, this technology is
anticipated to be the future retail banking trend by providing major banking services with just a
click on a user-friendly interface on their wearable device.

These are some of the recent trends in the banking and financial sector of India and all these new
technologies are predicted to reshape the industry of business and money. The future is going to
bring upon a revolution of sorts with historical changes in traditional models.
The massive shift in the landscape has few challenges. Nonetheless, the customers are open to
banking innovations and the government is showing great support with schemes like “Jan Dhan
Yojana,” which aims at proving a bank account to every citizen.
Meanwhile, the competition from the foreign and private sector banks have strained the
government regulators, nationalized banks and financial institutions to adopt new technology in
order to stay relevant in the race.
Challenges & Opportunities
The banking industry is undergoing a radical shift, one driven by new competition from
FinTechs, changing business models, mounting regulation and compliance pressures, and
disruptive technologies. The emergence of FinTech/non-bank startups is changing the
competitive landscape in financial services, forcing traditional institutions to rethink the way
they do business. As data breaches become prevalent and privacy concerns intensify,
regulatory and compliance requirements become more restrictive as a result. And, if all of that
wasn’t enough, customer demands are evolving as consumers seek round-the-clock
personalized service.

The Indian banking sector continues to face some structural challenges. We have a relatively
large number of banks, some of which are sub-optimal in size and scale of operations. On the
regulatory front, alignment with global developments in banking supervision is a focus area for
both regulators and banks. The new international capital norms require a high level of
sophistication in risk management, information systems, and technology which would pose a
challenge for many participants in the Indian banking sector. The deep and often painful process
of restructuring in the Indian economy and Indian industry has resulted in asset quality issues for
the banking sector; while significant progress is being made in this area, a great deal of work
towards resolution of these legacy issues still needs to be done. The Indian banking sector is thus
at an exciting point in its evolution. The opportunities are immense – to enter new businesses and
new markets, to develop new ways of working, to improve efficiency, and to deliver higher
levels of customer service. The process of change and restructuring that must be undergone to
capitalize on these opportunities poses a challenge for many banks.

The Indian banking sector is faced with multiple and concurrent challenges such as increased
competition, rising customer expectations, and diminishing customer loyalty. The banking
industry is also changing at a phenomenal speed. While at the one end, we have millions of
savers and investors who still do not use a bank, another segment continues to bank with a
physical branch and at the other end of the spectrum, the customers are becoming familiar with
ATMs, e-banking, and cashless economy. This shows the immense potential for market
expansion. The exponential growth for the industry comes from being able to handle as wide a
range of this spectrum as possible. In this complex and fast changing environment, the only
sustainable competitive advantage is to give the customer an optimum blend of technology and
traditional service.

As banks develop their strategies for giving customers access to their accounts through various
advanced services like e banking, mobile banking and net banking, they should also regard this
emerging platform as a potential catalyst for generating operational efficiencies and as a vehicle
for new revenue sources. Banking industry‘s opportunities includes

 A growing economy
 Banking deregulation
 Increased client borrowing
 An increase in the number of banks
 An increase in the money supply
 Low government-set credit rates and Larger customer checking account balances.

Developing countries like India, has a huge number of people who don‘t have access to banking
services due to scattered and fragmented locations. But if we talk about those people who are
availing banking services, their expectations are raising as the level of services are increasing
due to the emergence of Information Technology and immense competition between the services
and products provided by different banks. Since, foreign banks are playing in Indian market, the
number of services of offered has increased and banks have laid emphasis on meeting the
customer expectations. India's banking sector has made rapid strides in reforming and aligning
itself to the new competitive business environment. The major challenges faced by banks today
are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks
are groaning with burden of NPA‘s. It is rightly felt that these contaminated debts, if not
recovered, will eat into the very vitals of the banks.

Indian Consumer

The biggest opportunity for the Indian banking system today is the Indian consumer.
Demographic shifts in terms of income levels and cultural shifts in terms of lifestyle aspirations
are changing the profile of the Indian consumer. This is and will be a key driver of economic
growth going forward. The Indian consumer now seeks to fulfil his lifestyle aspirations at a
younger age with an optimal combination of equity and debt to finance consumption and asset
creation. This is leading to a growing demand for competitive, sophisticated retail banking
services. The consumer represents a market for a wide range of products and services – he needs
a mortgage to finance his house; an auto loan for his car; a credit card for on-going purchases; a
bank account; a long-term investment plan to finance his child‘s higher education; a pension plan
for his retirement; a life insurance policy – the possibilities are endless. And, this consumer does
not live just in India‘s top ten cities. He is present across cities, towns, and villages as improving
communications increases awareness even in small towns and rural areas. Consumer goods
companies are already tapping this potential – it is for the banks to make the most of the
opportunity to deliver solutions to this market.

Revolution of Information Technology

Technology is the key to servicing all customer segments – offering convenience to the retail
customer and operating efficiencies to corporate and government clients. The increasing
sophistication, flexibility, and complexity of product and servicing offerings makes the effective
use of technology critical for managing the risks associated with the business. Developing or
acquiring the right technology, deploying it optimally, and then leveraging it to the maximum
extent is essential to achieve and maintain high service and efficiency standards while remaining
cost-effective and delivering sustainable returns to shareholders. Early adopters of technology
acquire significant competitive advantage. Managing technology is, therefore, a key challenge
for the Indian banking sector. Wide disparities exist between various banks as far as technology
capabilities are concerned; the sector as a whole needs to make significant progress on this front.

Banks may have to go for mobile banking services for a cluster of villages. Alternatively,
technological institutions have to come out with low-cost, self-service solutions/ ATMs. The
government and the RBI should actively support such research efforts. Here, it is worthwhile to
mention that the adaptability of the Indian rural population to high-tech devices is one of the
fastest in the world. A wider dissemination of information on technologies and products to the
Indian banking industry by the research institutions could benefit the banking institutions. This
cross-pollination of ideas would mutually enrich the banking and the technology development
processes.

Industrial Development

The developments in Indian industry and government and the integration of India with the global
markets also offer innumerable opportunities to the banking sector. Companies and governments
are increasingly seeking high-quality banking services to improve their own operating efficiency.
Companies seek to offer better customer service and maximize shareholder returns and
governments seek to improve the quality of public services. The internationalization of India
offers banks the opportunity to service cross-border needs of Indian companies and India-linked
needs of multinationals.

Knowledged Society

Building knowledge-driven, learning organizations is important in the current scenario of rapidly

evolving operating environments. Knowledge and assimilation of new ideas and trends are
essential to keep the organization ahead on the curve. This is true for banking as it is for all other
sectors. Banks must continuously seek to be aware of cutting edge practices in banking
internationally and institutionalize this learning across the organization. This will prepare them
for the future as Indian markets become more sophisticated and integrated into the global
financial markets. Another critical area for the Indian banking sector is people. The ability to
attract and retain talent is a key success factor for a people-oriented business like banking. Banks
have to build organizations that are process driven yet innovative, stable yet flexible, and
responsive to change.

Intense Competition

The RBI and Government of India kept banking industry open for the participants of private
sector banks and foreign banks. The foreign banks were also permitted to set up shop on India
either as branches or as subsidiaries. Due to this lowered entry barriers many new players have
entered the market such as private banks, foreign banks, nonbanking finance companies, etc. The
foreign banks and new private sector banks have spearhead the hi-tech revolution. For survival
and growth in highly competitive environment banks have to follow the prompt and efficient
customer service, which calls for appropriate customer centric policies and customer friendly
procedures.

Employees’ Retention

The banking industry has transformed rapidly in the last ten years, shifting from transactional
and customer service-oriented to an increasingly aggressive environment, where competition for
revenue is on top priority. Long-time banking employees are becoming disenchanted with the
industry and are often resistant to perform up to new expectations. The diminishing employee
morale results in decreased revenue. Due to the intrinsically close ties between staff and clients,
losing those employees completely can mean the loss of valuable customer relationships.

Financial inclusion

Financial inclusion has become a necessity in today‘s business environment. Whatever is

produced by business houses that have to be under the check from various perspectives like
environmental concerns, corporate governance, social and ethical issues. Apart from it to bridge
the gap between rich and poor, the poor people of the country should be given proper attention to
improve their economic condition. In India, RBI has initiated several measures to achieve greater
financial inclusion, such as facilitating no-frills accounts and GCCs for small deposits and credit.

Rural Market

Banking in India is generally fairly mature in terms of supply, product range and reach, even
though reach in rural India still remains a challenge for the private sector and foreign banks. In
terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong
and transparent balance sheets relative to other banks in comparable economies in its region.
Consequently, we have seen some examples of inorganic growth strategy adopted by some
nationalized and private sector banks to face upcoming challenges in banking industry of India.
For example recently, ICICI Bank Ltd. merged the Bank of Rajasthan Ltd. in order to increase its
reach in rural market and market share significantly. State Bank of India (SBI), the largest public
sector bank in India has also adopted the same strategy to retain its position. It is in the process
of acquiring its associates. Recently, SBI has merged State Bank of Indore in 2010.

High Transaction Costs

A major concern before the banking industry is the high transaction cost of carrying non-
performing assets in their books. The growth led to strains in the operational efficiency of banks
and the accumulation of non-performing assets (NPA‘s) in their loan portfolios.

Social and Ethical Aspects

There are some banks, which proactively undertake the responsibility to bear the social and
ethical aspects of banking. This is a challenge for commercial banks to consider these aspects in
their working. Apart from profit maximization, commercial banks are supposed to support those
organizations, which have some social concerns.

Timely Technological up gradation

Already electronic transfers, clearings, settlements have reduced translation times. To face
competition it is necessary for banks to absorb the technology and upgrade their services.

Global banking

The impact of globalization becomes challenges for the domestic enterprises as they are bound to
compete with global players. If we look at the Indian Banking Industry, then we find that there
are 36 foreign banks operating in India, which becomes a major challenge for Nationalized and
private sector banks.

Introduction to SBI & ICICI

State Bank of India
State Bank of India (SBI) state-owned commercial bank and financial services company,
nationalized by the Indian government in 1955. SBI maintains thousands of branches
throughout India and offices in dozens of countries throughout the world.
The bank’s headquarters are in Mumbai.
The oldest commercial bank in India, SBI originated in 1806 as the Bank of Calcutta. Three
years later the bank was issued a royal charter and renamed the Bank of Bengal. Along with the
Bank of Bombay (founded 1840) and the Bank of Madras (founded 1843), it was one of three so-
called presidency banks, each of which was jointly owned by the provincial government and
private subscribers. In 1921 the presidency banks were merged to form the Imperial Bank of
India (IBI), which then became the largest commercial enterprise in the country. In 1955 the
government of India and the country’s central bank, the Reserve Bank of India (founded 1935),
assumed joint ownership of IBI, which was renamed the State Bank of India. Four years later, by
the State Bank of India (Subsidiary Banks) Act, banks earlier operated by individual princely
states became subsidiaries of SBI. The Reserve Bank’s share of SBI was transferred to the
government in 2007. Since nationalization, SBI has served the needs of Indian economic
development through rural-development initiatives and microcredit programs and by financing
major agricultural and industrial projects and raising loans for the government.

SBI is governed by a board of directors headed by a chairman. The chairman and managing
directors of the bank are appointed by the government.

Objectives and Functions of State Bank of India

The main objectives and functions of the State Bank of India are given below:
Objectives
The State Bank of India has been established to operate on the normal commercial principles,
with the only difference that, unlike other commercial banks in the country, it takes into
consideration and responds in a progressively liberal manner the financial requirements of
cooperative institutions and small scale industries, particularly in the rural areas of the country.
The main objectives of the State Bank are:
(i) To act in accordance with the broad economic policies of the government.
(ii) To encourage and mobilize savings by opening branches in rural and semi-urban areas and to
promote rural credit.
(iii) To establish government partnership in the provision of cooperative credit.
(iv) To extend financial help for the establishment of licensed warehouses and cooperative
marketing societies.
(v) To provide financial help to the small scale and cottage industries.
(vi) To provide remittance facilities to the banking institutions.
The State Bank of India acts as an agent of the Reserve Bank in all those places where the latter
does not have its branches.

As an agent of the Reserve Bank, the State Bank performs the following functions:
(i) It acts as the government’s bank, i.e., it collects money and makes payments on behalf of the
government and manages public debt.
(ii) It acts as the bankers’ bank. It receives deposits from and gives loans to commercial banks. It
also acts as the clearing house for the commercial banks, rediscounts the bills of exchange of the
commercial banks and provides remittance facilities to the commercial banks.
Prohibited Functions
The State Bank of India has been prohibited from doing certain businesses by the State Bank of
India Act:
(i) The State Bank cannot grant loans against stocks and shares for a period more than six
months.
(ii) It can purchase no immovable property other than its own offices.
(iii) It can neither rediscount nor offer loans against the security of exchange bills whose
maturity period exceeds six months.
(iv) It cannot rediscount bills which do not carry at least two good signatures.
(v) It can neither discount bills nor grant credit to individuals or firms above the sanctioned limit.

Industrial Credit and Investment Corporation of India (ICICI)

The creation of Industrial Credit and Investment Corporation of India (ICICI) is another
milestone in the growth of the Indian Capital Market. It was incorporated in the year 1955, as a
company registered under the Companies Act. The ICICI was incorporated to finance small scale
and medium industries in the private sector.
The IFCI and SFCs confined themselves to lending activity and kept away from underwriting
and investing in business though they were authorized to subscribe for the shares and
debentures of the companies and to undertake underwriting business. Therefore, a large number
of up and coming enterprises faced continuous problems in raising funds in the capital market.
Besides, they were not in a position to secure the desired amount of loan assistance from the
financial institutions due to their thin equity base. To encourage industrial development in the
private sector, a considerable provision of underwriting facility was considered necessary to
accelerate the phase of the industrialization. To fill these gaps, the ICICI was established.

Objectives

The major objective of the ICICI was to meet the needs of the industry for permanent and long
term funds in the private sector. In general, the major objectives of the Corporation are:

1. To assist in creation, growth and modernization of business enterprises in the non-public

sector.

2. To encourage and promote the involvement of internal and external capital sources, in such
enterprises.

3. To motivate pvt ownership of industrial investment and to promote and assist in the expansion
of markets.
4. To provide equipment finance.

5. To provide finance for rehabilitation of industrial units.

Functions

In order to accomplish the above objectives, the Corporation performs the following functions:

1. Providing finance in the form of long-term or medium term loans or equity participation.

2. Sponsoring and underwriting new issues of shares and other securities,

3. Guaranteeing loans from other private investment sources.

4. Making funds available for reinvestment by revolving investment as rapidly as possible.

5. Providing project advisory services i.e. offering advice –

i. to private sector companies in the pre-investment stages on Government policies

and procedures, feasibility studies and joint venture search, and
ii. to Central and State Governments on specific policy related issues.
.

Role of ICICI

The Corporation started a Merchant Banking Division in 1973 for advising its clients on a
selective basis, on raising finances in suitable forms and on restructuring of finances in the
existing companies. It also advises clients on amalgamation proposals. Assistance is provided in
preparing proposals for submission to financial institutions and banks and for negotiations with
them for loans, underwriting etc. This Division acts as Managers to the issue of capital.
Assistance is also provided for completion of formalities connected with the public issue and of
legal formalities for raising loans.

In 1982, the ICICI gave a new dimension to its merchant banking division by offering to provide
counseling for industrial investment in India to non-resident Indians and persons of Indian origin
living abroad. This is likely to prove not only the least expensive route for technological up
gradation but also a source of foreign currency funds by way of risk capital.

It has set up Venture Capital Funds for the promotion of green field companies and risk capital
investment and joined the other financial institutions in setting up SHCIL, CRISIL and OTC
Exchange of India Ltd. It has recently set up its own bank and a mutual fund like the UTI.

The Corporation’s vision has been extending far beyond its immediate function of funding
industrial projects. It has been looking at all sectors of the economy and wherever a need was
perceived, has designed either a new concept or a new instrument, or even a new institution to
cater to it. In this regard, its development activities have encompassed such diverse areas as
technology, financing, project promotion, rural development, human resources development and
publications.

It has set up ICICI Brokerage Services Limited in March 1995. It is a 100% subsidiary of I-SEC.
It commenced its securities brokerage activities in 1996. It is registered with the National Stock
Exchange of India Limited and The Mumbai Stock Exchange.

ICICI set up ICICI Credit Corporation in 1997, which later renamed as ICICI Personal Financial
Services Limited in 1999. It is offering a comprehensive range of goods and services to retail
customers.

ICICI Capital Services Ltd. was originally set up as SCICI securities Ltd. as a wholly owned
subsidiary of erstwhile SCICI Ltd. in 1994. Its object is providing stock broking services to the
institutional clients and undertaking activities such as underwriting, primary market placements
and distribution, industry and company research etc. It became a wholly owned subsidiary of
ICICI with effect from April 1, 1996.

ICICI has established ICICI bank for performing commercial banking functions in 1994. The
bank offers a wide variety of domestic and international banking services.

Service Quality
Service quality and its dimensions
Quality in service is an elusive concept because of the intangibles nature of the service offering
and the definition of quality may vary from person to person and from situation to situation.
Even though a universally accepted definition of quality does not exit till now, most writers on
service quality supports a customer’s-centered definition with the reservation that customer
expectations are not necessarily consistent or predictable. It is now a fact that consumers of all
products and services tend to become more demanding due to the current marketplace which is
becoming more competitive. As a result, there is a continuous increase in customer expectations
and customers’ successive demands within the improvement of the quality of service
(Parasuraman et. al., 1988). Thus, banks as service organizations should always be able to meet
the needs and demands of those sophisticated customers effectively and efficiently in order to
retain them. Service quality is a significant indicator to differentiate an organization among the
rest of the competitors.
Five dimensions of service quality
A. Tangibility: It means the things which are physically observed by the customers in the bank
branch including large ATM network, personnel, physical facilities, materials and appearance.
Able and skilled personnel, the quality of banking products and services, brochures and cards
may represent tangibles. These qualities provide concrete cues for customers to evaluate the
capability of the service provider.
B. Reliability: Reliability refers to the trust in company’s ability of performing service in a
proper way, such as acting according to promises and declarations. A reliable service means the
banker is able to provide internet connection that is working at desired level throughout the day
without significant failures; banker should not misuse the cardholder information and there
should be frequent update of new technologies.
C. Responsiveness: It refers to service provider’s willingness to help customers and provide
prompt service. It can be measured by the amount of time needed to deal with customers’
reported problems and the response duration once the customer filed a service request.
D. Assurance: Assurance is related to the knowledge and courtesy of employees and their ability
to inspire trust and confidence. Banker may demonstrate assurance to customers by behaving
courteously and by providing essential knowledge to guide customer’s problems.
E. Empathy: It refers to the caring, individualized attention the service provider gives to its
customers. Furthermore, customers in the bank may come from different social background and
hence the banker could emphasize personalized attention on customers and understand specific
needs of customers based on their requirements.
Service gaps
Customers compare the service they “experience” with what they “expect” and when it
does not match the expectation a gap arise.

Customer gaps
The customer gap is the difference between customer expectations and perceptions. This
gap arises when the management does not correctly perceive what the customers want.
Customer expectations are standards or reference points that customers bring into the service
experience, whereas customer perceptions are subjective assessment of actual service
experiences. Closing the gap between what customers expect and what they perceive is critical to
delivering quality service; it forms the basis for the gaps model.
Analysis and Interpretation
In line with the first objective of the study, which is to identify the relationship between
demographical factors and opinion towards the expected service quality of the customers of SBI
and ICICI Bank.
1. Gender among the customers
Since the Gender among the customers has its own impact on the level of estimation and
perception on the service quality of banks, it is included as one of the profile variables. The
nature of estimation and perception on the bank's services may completely differ from male to
female. The Gender among the customers is illustrated in Table 1
Table 1: Gender among the customers
SEX SBI ICICI TOTAL
Male 28 24 52
Female 12 16 28
TOTAL 40 40 80
 Gender among the customers
30

25

20

15

10

0
MALE FEMALE

SBI ICICI

In total, 65 percent of the total customers are males whereas the remaining 35 percent of the total
customers are females. The dominant sex of the customers in both the SBI and ICICI bank is
male. In SBI, it constitutes 50 per cent to the total in which the male customers is 35 percent and
the female customers is 15 percent whereas in ICICI, it constituted 50 percent to the total in
which the percentage of male is 30 percent and the percentage of female is 20 percent.

2. Ages among the Customers

The age of the customers represents his/her experience in banking and it also determines their
estimations and perceptions of various aspects in banking. In general, the aged customers may
have more experience and they may expect more service from the banks. At the same time, the
youngsters may be in experienced but they may be aware of the innovative services offered by
the banks. Hence, the age of the customers is one of the important profiles of the customers. In
the recent study, the age of the customers is confined to less than 25 years, 25 to 40 years, 40 to
55 years and above 55 years. The age among the customers is presented in Table 2
Table 2: Ages among the Customers
AGE SBI ICICI TOTAL
Less than 25 years 11 9 20
25-40 years 18 23 41
40-55 years 4 5 9
Above 55 years 7 3 10
TOTAL 40 40 80
 AGE ( IN YEARS)
25

20

15

10

0
Less than 25 Yrs 25-40Yrs 40-55Yrs Above 55 Yrs

SBI ICICI

The first two major age groups among the customers in the present study are less than 25 years
and 25-40 years, constitute 25 and 51.25 per cent to the total. The most important age group in
State Bank of India and ICICI bank are 25 to 40 years, less than 25 years and 40 to 55 years
respectively. The number of customers aged above 55 years constitutes only 8.75, and
3.75percent to the respective total in SBI and ICICI bank.

3. Level of Education among the Customers

The level of education provides more awareness of banking to the customers and exposure on the
present Banking experience in years. The educated customers may have more awareness and
exposure on these aspects in general. Hence, the comparative analysis may have its impact on
perception of the services offered by the banks. So, the level of education is included as one of
the profile variables in the present study. It is confined to Primary, intermediate, graduation and
post graduation.
Table 3 Level of Education among the Customers
EDUCATION SBI ICICI TOTAL
Primary 3 2 5
Intermediate 7 10 17
Graduate 18 22 40
Post Graduate 12 6 18
TOTAL 40 40 80
 Level of education among customers
The
25

20

15

10

0
Primary Intermediate Graduate Post Graduate

SBI ICICI
important level of education among the customers is graduation and post graduation, which
constitute 50 and 22.5 percent to the total respectively where as intermediate and primary level
constitutes only 6.25 and 21.25 percent. In State Bank of India, the Graduate and Post graduate
level constitute 22.5 and 15 percent where as Primary and Intermediate constitute 3.75 and 8.75
percent. In ICICI bank Graduate and post Graduate level constitute 27.5 and 7.5 percent and in
Primary and intermediate level it constitute 27.5 and 7.5 percent.
4. Occupation among the Customers
The occupation of the customers may determine the level of estimation and perception on the
services quality of the banks. Hence it is included as one of the profile variables. The level of
estimation may vary from fixed income groups to business groups. It also varies from
professionals to ordinary people. The level of expectation and perception may be also
influenced by diverse occupations. In the present study, the occupation among the customers
is grouped into Govt. employee, private employee, businessman and professional. The
occupation among the customers is shown in Table 4.
Table 4: Occupation among the Customers
OCCUPATION SBI ICICI TOTAL
Govt.Employee 12 8 20
Private Employee 8 17 25
Businessman 15 11 26
Professional 5 4 9
TOTAL 40 40 80
 Occupation among customers

18
16
14
12
10
8
6
4
2
0
Govt.Employee Private Employee Businessman Professional

SBI ICICI

A maximum of 32.50 percent of the customers, belong to business group. It is followed by

private employee and Government employees, which constitute 31.25and 25 percent
respectively. In State Bank of India, the first two important occupations are Government
employee and Businessman which constitute 15 and 18.75 percent to its total respectively
whereas in the ICICI, these two are Private Employees and Businessman which constitute
21.25and 13.75 percent to the total respectively.
5. Monthly Income among the Customers
The monthly income represents the personal income of the customers per month. Since the
monthly income of the customers is one of the important factors determining the standard of
living of the customers, it is included as one of the profile variables. The standard of living
may have its own impact on the awareness, and perception on the service quality offered by
banks. The higher income people may generally expect more service quality from the banks
compared to its counterparts. In the present study, the monthly income among the customers
is confined to below Rs.10000, Rs.10001 - 20000, Rs.20001 - Rs.30000 and above Rs.30000.
the distribution of customers on the basis of their monthly income is illustrated in Table
Table 5: Monthly Income among the Customers
INCOME SBI ICICI TOTAL
Below 10000 66 8 14
10001-20000 9 17 26
20001-30000 15 11 26
Above 30000 10 4 14
TOTAL 40 40 80
 Income of the customers
18
16
14
12
10
8
6
4
2
0
Below 10000 10001-20000 20001-30000 Above 30000

SBI ICICI

The important monthly income among the customers is Rs.10,001 to 20,000 and 20001-
30000.In SBI the most important group is 20001 to 30000 and Above 30000. In the case of
ICICI bank, the important categories of monthly income are Rs.10001 to 20000 and 20001-
30000, which constitute 21.25 and 13.75 percent to the total respectively. The number of
customers who earned above Rs.30000 constitutes 17.5 percent to the total.

6. Type of Account of Customers

In the present study, the type of account number among the customers is confined to savings
A/c, Current A/c, Fixed Deposit and Recurring Deposit. The type of account number among
the customers is given in table and graph 6
Table 6: Type of Account of customers
TYPE OF SBI ICICI TOTAL
ACCOUNT
Saving Account 14 12 26
Current Account 17 21 38
Fixed Deposits 7 6 13
Recurring Deposits 2 1 3
TOTAL 40 40 80
 Type of Account

25

20

15

10

0
Saving Account Current Account Fixed Deposits Recurring Deposits

SBI ICICI

A maximum of 47.50 percent of the customers, are current account holders. It is followed by
savings account holders and FD account holders, which constitute 32.50 and 16.25 percent
respectively. In State Bank of India, 17.50 percent of the respondents are savings account
holders and 21.25 percent of the respondents are current account holders followed by fixed
deposit and Recurring Deposits which constitute 8.75 and 2.25 percent. In ICICI bank, the
savings account, current account, Fixed Deposit and Recurring Deposit account holders
constitute 15, 26.25, 7.5 and 1.24 percent to the total respectively.

In line with the Second objective of the study, the main areas of questioning and analysis
concerned perceptions of service quality and its dimensions: tangibility, reliability,
responsiveness, assurance and empathy. As stated, perceptions were measured on a five point
strongly agree to strongly disagree scale.
7. Perceptions of Customers about banks Tangibility
The perceptions of the banks--SBI and ICICI with their respective customers on tangibles.
The data reveals that banks such as ICICI (21.98) are exceeding the perceptions of their
customers when compared to SBI. While SBI with a mean of 17.64 falls short below the
perceptions of their customers on this dimension of service quality when compared to ICICI.
The element wise analysis of tangibility shows serious short fall of perceptions among banks
like SBI on up to date modern equipment, infrastructure in a bank, neat in appearance,
Parking facilities and Seat Space as perceived by their respective customers. While SBI have
outperformed ICICI regarding Dress code of employees.
8. Perceptions of Customers about banks Reailibility
 The analysis of reliability dimension of service quality shows significant differences in the
perceptions of SBI with their respective customers. SBI (14.37) shows that they fall below
the expectations of their customers in delivering quality services, whereas ICICI (15.81) is
exceeding the perceptions of their customers in this dimension. The element wise analysis of
reliability shows that SBI is far below the perceptions of their respective customers as far as
keeping promise, Interest in solving problem, and providing service at promised time are
concerned.
9. Perceptions of Customers about banks Responsiveness
There are significant perceptual differences on the responsiveness dimension of service
quality with their customers. SBI (12.91) shows that the bank is far below the perceptions of
their customers on the said dimension when compared with ICICI (17.45). The element wise
analysis of this dimension shows that SBI is falling below the perceptions of their customers
on communicating to the customer regarding performance of service, employees providing
prompt services and willingness to help customers.
10. Perceptions of Customers about banks Assurance
The perceptual difference between ICICI (13.83) and SBI (13.28) customers is low as is
evident from the mean. The respondents of SBI and ICICI have given almost equal rating on
assurance dimension to both the banks. The element wise analysis shows that ICICI is
exceeding the perceptions of their customers as far as trust worthiness and courteous with
customers. While SBI is exceeding ICICI in feeling safe in transacting with the bank and
having adequate knowledge in answering questions to the customers.

RECOMMENDATIONS
1. Banks will have to adopt comprehensive values and standard in capital adequacy, income
recognition and provisioning norms.
2. Risk management setup in Banks will need to be strengthened. Benchmark standards could be
evolved.
3. Payment and settlement system will have to be strengthened to ensure transfer of funds on real
time basis eliminating risks associated with transactions and settlement process.
4. Regulatory set-up will have to be strengthened, in line with the requirements of a market-led
integrated financial system.
5. Banks will have to adopt best global practices, systems and procedures.
6. Banks may have to evaluate on an ongoing basis, internally, the need to effect structural
changes in the organization. This will include capital restructuring through mergers / acquisitions
and other measures in the best business interests.
7. There should be constant and continual up gradation of technology in the Banks, benefiting
both the customer and the bank.
8. The skills of bank staff should be upgraded continuously through training. In this regard, the
banks may have to relook at the existing training modules and effect necessary changes,
wherever required.
9. Banks will have to set up Research and Market Intelligence units within the organization, to
remain innovative, to ensure customer satisfaction and to keep abreast of market developments.
10. Industry level initiatives will have to be taken, may be at IBA level, to speed up reform
measures in legal and regulatory environment.

CONCLUSION:-

This study has been conducted to describe relationship between service quality and customer
satisfaction towards the commercial banking industry in India. The finding clearly shows that
service product is better predictor of customer satisfaction than service delivery and service
environment. Hence, we can say that public sector banks need to focus on service product to win
customer satisfaction. On the other hand, we can say Customer satisfaction will be better if they
recognize that there is a favorable service product. Relationship quality has a significant
influence on behavioral intention, that means customer satisfaction and trust established will
enhance word-of-mouth and repeated patronage. Service delivery and service environment both
are not significant predictors of satisfaction, towards their service. The organization should focus
on service product. The development of new product should be according to the customer need.
A regular service should be given to the customer through the department website, Brochures
and other by conducting regular survey. The result can be used by the department to come up
with a new excellent product such as quality of printing or documentation for delighting their
customer. Delivering customer satisfaction is easier said than done. Customer’s needs and
demands are always changing. Firms should monitor customer requirements and be flexible in
developing products and delivering services. Banking sector should understand that most
customers do not understand financial language and hence if the customer satisfaction have to be
achieved, continuous communication must take place with its customers in a language that
customers understand. Banks should commit resources for the delivery of exceptional customer
service. After all it is what customers are looking for.
BIBLIOGRAPHY & REFRENCES
http://iibf.org.in
https://www.sbi.co.in
https://www.icicibank.com
https://www.researchgate.net
JOURNALS

Akhil Goyel & Dr. Sudhinder Singh, Indian Journal of Applied Research.
Government of India, 1998, Report of the Committee on Banking Sector Reforms.
Kotler, P. and Armstrong, G., 2018. Principle of Marketing. 12th edition, New Jersey,
U.S.A.,Pearson Education, Inc.
Satendra Thakur, A. P Singh, International Journal of Management Research and Review, Aug -
2016/ Volume – 1/Issue- 1 / Article No -3/ Research Article
Parasuraman, A., Zeithaml, V., Berry, L.1985. A conceptual model of service quality and its
implications for future research. Journal of Marketing. 49: 41