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Gap Analysis of Services offered in Retail Banking

“ANALYZING THE GAP BETWEEN MANAGEMENT


PERCEPTION AND CUSTOMER PERCEPTION WITH
RESPECT TO THE SERVICES OFFERED IN RETAIL
BANKING”

A grand Project report submitted in Partial Fulfillment of award of MBA Degree


Gap Analysis of Services offered in Retail Banking

CONTENTS

1. Banking Industry – Introduction

2. Introduction to Retail Banking

3. Banks’ Profile

4. Research Methodology

5. Analysis

6. Suggestions

7. Future of Retail Banking

8. Bibliography
Gap Analysis of Services offered in Retail Banking

EXECUTIVE SUMMARY

The report “Analyzing the Gap between Management Perception and Customer
Perception With Respect To the Services Offered In Retail Banking” aims to assimilate
data about the various aspects of Retail banking services, to analyze the perceptions of
the management and the customers regarding the services offered in Retail banking and
to find out whether any gaps do exist between the services offered and the customer
expectations. We have taken 6 Banks which represent the Nationalized, Private and
Multinational Banks of the Banking Industry in India-
- SBI
- Corporation Bank
- HDFC Bank
- ICICI Bank
- Citibank
- Standard Chartered Bank

The criteria for selecting these banks were their deposit base. We have limited our
Service Category to the core services in Retail Banking and a few specialized services.
The report is a mixture of Secondary and Primary data, with Questionnaires being
our major instrument to collect primary data.
Major topics we have attempted to cover in this project are to: -

- Explore the services and products offered by the banks to individual customers.
- Understand the perception of the management with respect to services offered by
banks.

- Understand the perception of the customers with respect to services offered by


banks.
Gap Analysis of Services offered in Retail Banking

- Analyze whether there is a gap between the customer and management


perceptions about the services offered by the banks.
- Conclude and enumerate the recommendations that might help to reduce the gaps
that exist and foster the relationship of the customer more with the bank.
According to the survey we came to the conclusion that
The new game requires new strategies with an accent on innovation for organizational
transformation and to achieve world-class competitiveness through improved efficiency
and reduced operational cost.
An organisation-centric agenda, policy, programme and operationalising accelerating
interventions need to strengthen core competencies of Indian banks; while exploring
seeding options for future growth.
Thrust on innovation is important particularly in the present context of consolidation and
convergence both within and across segments of the financial system.
Gap Analysis of Services offered in Retail Banking

INTRODUCTION

Service with a smile: Today’s finicky banking customers will settle for nothing less. The
customer has come to realize somewhat belatedly that he is the king. The customer’s
choice of one entity over another as his principal bank is determined by considerations of
service quality rather than any other factor. He wants competitive loan rates but at the
same time also wants his loan or credit card application processed in double quick time.
He insists that he be promptly informed of changes in deposit rates and service charges
and he bristles with ‘customary rage’ if his bank is slow to redress any grievance he may
have. He cherishes the convenience of impersonal net banking but during his occasional
visits to the branch he also wants the comfort of personalized human interactions and
facilities that make his banking experience pleasurable. In short he wants financial house
that will more than just clear his cheque and updates his passbook: he wants a bank that
cares and provides great services.
So do banks meet these heightened expectations? Is there a gap that exists between the
management perception and the customer perception with reference to the services
offered in Retail Banking? To find out answers to these questions we undertook a survey
of six banks selecting two banks from each of the following:

- Private Banks
- Nationalized Banks
- Multinational Banks
Gap Analysis of Services offered in Retail Banking

A lot of surveys have been done in the past by many agencies to understand the aspect
of customer satisfaction and to find out the customer friendly banks. Our research
adds the dimension of the ‘Gap Analysis’ between The Management and the customer
perceptions regarding the services being offered.

INDUSTRY PROFILE

The Banking Regulation Act 1949 defines banking as accepting the purpose of lending or
investment, of deposits of money from the public, repayable on demand or otherwise and
wthdrawable by cheque, draft, order otherwise. The essential function of a bank is to
provide services related to the storing of value and the extending credit. The evolution of
banking dates back to the earliest writing, and continues in the present where a bank is a
financial institution that provides banking and other financial services. Currently the term
bank is generally understood an institution that holds a banking license. Banking licenses
are granted by financial supervision authorities and provide rights to conduct the most
fundamental banking services such as accepting deposits and making loans. There are
also financial institutions that provide certain banking services without meeting the legal
definition of a bank, a so called non-bank. Banks are a subset of the financial services
industry.

The word bank is derived from the Italian “banca” which is derived from German and
means bench. The terms bankrupt and "broke" are similarly derived from banca rotta,
which refers to an out of business bank, having its bench physically broken. Money
lenders in Northern Italy originally did business in open areas, or big open rooms, with
each lender working from his own bench or table.
Gap Analysis of Services offered in Retail Banking

Typically, a bank generates profits from transaction fees on financial services or the
interest spread on resources it holds in trust for clients while paying them interest on the
asset.

SERVICES TYPICALLY OFFERED BY BANKS

Although the type of services offered by a bank depends upon the type of bank and the
country, services provided usually include:

 Directly take deposits from the general public and issue checking and savings
accounts

 Lend out money to companies and individuals

 Cash checks

 Facilitate money transactions such as wire transfers and cashiers checks

 Issue credit cards, ATM, and debit cards

 online banking

 Storage of valuables, particularly in a safe deposit box


Gap Analysis of Services offered in Retail Banking

TYPES OF BANKS

There are several different types of banks including:

 Central banks usually control monetary policy and may be the lender of last
resort in the event of a crisis. They are often charged with controlling the
money supply, including printing paper money. Examples of central banks are
the European Central Bank and the US Federal Reserve Bank.

 Investment banks underwrite stock and bond issues and advice on mergers.
Examples of investment banks are Goldman Sachs of the USA or Nomura
Securities of Japan.

 Merchant banks were traditionally banks which engaged in trade financing. The
modern definition, however, refers to banks which provide capital to firms in
the form of shares rather than loans. Unlike Venture capital firms, they tend not
to invest in new companies.

 Private Banks manage the assets of the very rich. An example of a private bank
is the Union Bank of Switzerland.

 Savings banks write mortgages exclusively.

 Offshore banks are banks located in jurisdictions with low taxation and
regulation, such as Switzerland or the Channel Islands. Many offshore banks
are essentially private banks.

 Commercial banks primarily lend to businesses (corporate banking)

 Retail banks primarily lend to individuals. An example of a retail bank is


Washington Mutual of the USA.

 Universal banks engage in several of these activities. For example, Citigroup, a


large American bank, is involved in commercial and retail lending; it owns a
merchant bank (Citicorp Merchant Bank Limited) and an investment bank
(Salomon Smith Barney); it operates a private bank (Citigroup Private Bank);
Gap Analysis of Services offered in Retail Banking

finally, its subsidiaries in tax-havens offer offshore banking services to


customers in other countries.

SOME CHARACTERISTICS ASSOCIATED WITH BANKS IN GENERAL:

BANKS ARE PRONE TO CRISIS

The traditional bank has an inherent tendency to crisis. This is because the bank borrows
short term and lends leveraged long term. The sum of deposits and the bank's capital will
never equal more than a modest percentage of the loans the bank has outstanding.

Even if liquidity is not a concern, if there is no run on the bank, banks can simply choose
a bad portfolio of loans, and lose more money than they have. The US Savings and Loan
Crisis in the late 1980s and early 1990s is such an incident.

ROLE IN THE MONEY SUPPLY

A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or
issuing financial instruments in the money market or a securities market. The bank then
lends out most of these funds to borrowers.

However, it would not be prudent for a bank to lend out all of its balance sheet. It must
keep a certain proportion of its funds in reserve so that it can repay depositors who
withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a
central bank. This behavior is called fractional-reserve banking and it is a central issue of
monetary policy. Some governments (or their central banks) restrict the proportion of a
bank's balance sheet that can be lent out, and use this as a tool for controlling the money
supply. Even where the reserve ratio is not controlled by the government, a minimum
figure will still be set by regulatory authorities as part of banking supervision.
Gap Analysis of Services offered in Retail Banking

REGULATION

The combination of the instability of banks as well as their important facilitating role in
the economy led to banking being thoroughly regulated. The amount of capital a bank is
required to hold is a function of the amount and quality of its assets. Major Banks are
subject to the Basel Capital Accord promulgated by the Bank for International
Settlements. In addition, banks are usually required to purchase deposit insurance to
make sure smaller investors are not wiped out in the event of a bank failure.

Another reason banks are thoroughly regulated is that ultimately, no government can
allow the banking system to fail. There is almost always a lender of last resort—in the
event of a liquidity crisis (where short term obligations exceed short term assets) some
element of government will step in to lend banks enough money to avoid bankruptcy.

HOW BANKS ARE VIEWED

Banks have a long history of being characterized as heartless, rapacious creditors,


hounding honest folk down on their luck for the last dime.

In United States history, the National Bank was a major political issue during the
presidency of Andrew Jackson. Jackson fought against the bank as a symbol of greed and
profit-mongering, antithetical to the democratic ideals of the United States.

PROFITABILITY

Large banks in the United States are some of the most profitable corporations, especially
relative to the small market shares they have. This amount is even higher if one counts
the credit divisions of companies like Ford, which are responsible for a large proportion
of those company's profits. For example, the largest bank, Citigroup, which for the past 3
years has made more profit then any other company in the world, has only a 5 percent
Gap Analysis of Services offered in Retail Banking

market share. Now if Citigroup were to be as dominant in its industry as a Home Depot,
Starbucks, or Wal Mart in their respective industries, with a 30 percent market share, it
would make more money than the top ten non-banking US industries combined.

In the past 10 years in the United States, banks have taken many measures to ensure that
they remain profitable while responding to ever-changing market conditions. First, this
includes the Gramm-Leach-Bliley Act, which allows banks again to merge with
investment and insurance houses. Merging banking, investment, and insurance functions
allows traditional banks to respond to increasing consumer demands for "one stop
shopping" by enabling the crossing selling of products (which, the banks hope, will also
increase profitability). Second, they have moved toward risk based pricing on loans,
which mean charging higher interest rates for those people who they deem more risky to
default on loans. This dramatically helps to offset the losses from bad loans, lowers the
price of loans to those who have better credit histories, and extends credit products to
high risk customers who would have been denied credit under the previous system. Third,
they have sought to increase the methods of payment processing available to the general
public and business clients. These products include debit cards, pre-paid cards, smart-
cards, and credit cards. These products make it easier for consumers to conveniently
make transactions and smooth their consumption over time (in some countries with
under-developed financial systems, it is still common to deal strictly in cash, including
carrying suitcases filled with cash to purchase a home). However, with convenience there
is also increased risk that consumers will mis-manage their financial resources and
accumulate excessive debt. Banks make money from card products through interest
payments and fees charged to consumers and companies that accept the cards. The banks'
main obstacles to increasing profits are existing regulatory burdens, new government
regulation, and increasing competition from non-traditional financial institutions.

TOP TEN BANKS IN THE WORLD RANKED BY PROFIT IN 2003


1. Citigroup — 20 billion

2. Bank of America — 15 billion


Gap Analysis of Services offered in Retail Banking

3. HSBC — 10 billion

4. Royal Bank of Scotland — 8 billion

5. Wells Fargo — 7 billion

6. JP Morgan Chase — 7 billion

7. UBS AG — 6 billion

8. Wachovia — 5 billion

9. Morgan Stanley — 5 billion

10. Merrill Lynch — 4 billion

INDIAN BANKING SECTOR


Banking in India has its origin as early as the Vedic period. It is believed that the
transition from money lending to banking must have occurred even before Manu, the
great Hindu Jurist, who has devoted a section of his work to deposits and advances and
laid down rules relating to rates of interest. During the Mogul period, the indigenous
bankers played a very important role in lending money and financing foreign trade and
commerce. During the days of the East India Company, it was the turn of the agency
houses to carry on the banking business. The General Bank of India was the first Joint
Stock Bank to be established in the year 1786. The others which followed were the Bank
of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued
till 1906 while the other two failed in the meantime. In the first half of the 19th century
the East India Company established three banks; the Bank of Bengal in 1809, the Bank
of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as
Presidency Banks, were independent units and functioned well. These three banks were
amalgamated in 1920 and a new bank, the Imperial Bank of India was established on
27th January 1921. With the passing of the State Bank of India Act in 1955 the
undertaking of the Imperial Bank of India was taken over by the newly constituted State
Bank of India. The Reserve Bank which is the Central Bank was created in 1935 by
passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a
Gap Analysis of Services offered in Retail Banking

number of banks with Indian management were established in the country namely,
Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the
Bank of Baroda Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of
the country were nationalized and in 15th April 1980 six more commercial private sector
banks were also taken over by the government.

Today the commercial banking system in India may be distinguished into:

Public Sector Banks

a. State Bank of India and its associate banks called the State Bank group

b. 20 nationalized banks

c. Regional Rural Banks mainly sponsored by Public Sector Banks

Private Sector Banks

a. Old generation private banks

b. New generation private banks

c. Foreign banks in India

d. Scheduled Co-operative Banks

e. Non-scheduled Banks

Co-Operative Sector
The co-operative banking sector has been developed in the country to the suppliment the
Gap Analysis of Services offered in Retail Banking

village money lender. The co-operative banking sector in India is divided into 4
components:

1. State Co-operative Banks

2. Central Co-operative Banks

3. Primary Agriculture Credit Societies

4. Land Development Banks

5. Urban Co-operative Banks

6. Primary Agricultural Development Banks

7. Primary Land Development Banks

8. State Land Development Banks

Development Banks

1. Industrial Finance Corporation of India (IFCI)

2. Industrial Development Bank of India (IDBI)

3. Industrial Credit and Investment Corporation of India (ICICI)

4. Industrial Investment Bank of India (IIBI)

5. Small Industries Development Bank of India (SIDBI)

6. SCICI Ltd.

7. National Bank for Agriculture and Rural Development (NABARD)

8. Export Import Bank of India

9. National Housing Bank


Gap Analysis of Services offered in Retail Banking

STATUS OF INDIAN BANKING INDUSTRY


It is useful to note some telling facts about the status of the Indian banking
industry juxtaposed with other countries, recognizing the differences between the
developed and the emerging economies.

First, the structure of the industry: In the world’s top 1000 banks, there are many
more large and medium-sized domestic banks from the developed countries than from the
emerging economies. Illustratively, according to The Banker 2004, out of the top 1000
banks globally, over 200 are located in USA, just above 100 in Japan, over 80 in
Germany, over 40 in Spain and around 40 in the UK. Even China has as many as 16
banks within the top 1000, out of which, as many as 14 are in the top 500. India, on the
other hand, had 20 banks within the top 1000 out of which only 6 were within the top 500
banks. This is perhaps reflective of differences in size of economies and of the financial
sectors.

Second, the share of bank assets in the aggregate financial sector assets: In most
emerging markets, banking sector assets comprise well over 80 per cent of total financial
sector assets, whereas these figures are much lower in the developed economies.
Furthermore, deposits as a share of total bank liabilities have declined since 1990 in
Gap Analysis of Services offered in Retail Banking

many developed countries, while in developing countries public deposits continue to be


dominant in banks. In India, the share of banking assets in total financial sector assets is
around 75 per cent, as of end-March 2004. There is, no doubt, merit in recognizing the
importance of diversification in the institutional and instrument-specific aspects of
financial intermediation in the interests of wider choice, competition and stability.
However, the dominant role of banks in financial intermediation in emerging economies
and particularly in India will continue in the medium-term; and the banks will continue to
be “special” for a long time. In this regard, it is useful to emphasize the dominance of
banks in the developing countries in promoting non-bank financial intermediaries and
services including in development of debt-markets. Even where role of banks is
apparently diminishing in emerging markets, substantively, they continue to play a
leading role in non-banking financing activities, including the development of financial
markets.

Third, internationalization of banking operations : The foreign controlled


banking assets, as a proportion of total domestic banking assets, increased significantly in
several European countries (Austria, Ireland, Spain, Germany and Nordic countries), but
increases have been fairly small in some others (UK and Switzerland). Amongst the
emerging economies, while there was marked increase of foreign-controlled ownership in
several Latin American economies, the increase has, at best, been modest in the Asian
economies. Available evidence seems to indicate some correlation between the extent of
liberalization of capital account in the emerging markets and the share of assets
controlled by foreign banks. As per the evidence available, the foreign banks in India,
which are present in the form of branches, seem to enjoy greater freedom in their
operations, including retail banking, in the country on par with domestic banks, as
compared with most of the other developing countries. Furthermore, the profitability of
their operations in India is considerably higher than that of the domestically-owned banks
and, in fact, is higher than the foreign banks’ operations in most other developing
countries. India continues to grant branch licenses more liberally than the commitments
made to the WTO.
Gap Analysis of Services offered in Retail Banking

Fourth, the share of state-owned banks in total banking sector assets: Emerging
economies, with predominantly Government-owned banks, tend to have much higher
state-ownership of banks compared to their developed counterparts. While many
emerging countries chose to privatize their public sector banking industry after a process
of absorption of the overhang problems by the Government, we have encouraged state-
run banks to diversify ownership by inducting private share capital through public
offerings rather than by strategic sales and still absorb the overhang problems. The
process has helped reduce the burden on the Government, enhance transparency,
encourage market discipline and improve efficiency as reflected in stock market
valuation, promote efficient new private sector banks, while drastically reducing the share
of the wholly government owned public sector banks in a rapidly growing industry. Our
successful reform of public sector banks is a good example of a dynamic mix of public
and private ownership in banks.

A noteworthy feature of banking reforms in India is the growth of newly licensed


private sector banks, some of which have attained globally best standards in terms of
technology, services and sophistication. In many respects related to performance, these
domestically promoted banks have surpassed branches of foreign banks in India, and
could be a role model for other banks.

BANKING SYSTEM
Introduction
The Reserve Bank of India (RBI) is India's central bank. Though the banking industry is
currently dominated by public sector banks, numerous private and foreign banks exist.
India's government-owned banks dominate the market. Their performance has been
mixed, with a few being consistently profitable. Several public sector banks are being
restructured, and in some the government either already has or will reduce its ownership.

Private and foreign banks


Gap Analysis of Services offered in Retail Banking

The RBI has granted operating approval to a few privately owned domestic banks; of
these many commenced banking business. Foreign banks operate more than 150 branches
in India. The entry of foreign banks is based on reciprocity, economic and political
bilateral relations. An inter-departmental committee approves applications for entry and
expansion.

Capital adequacy norm


Foreign banks were required to achieve an 8 percent capital adequacy norm by March
1993, while Indian banks with overseas branches had until March 1995 to meet that
target. All other banks had to do so by March 1996. The banking sector is to be used as a
model for opening up of India's insurance sector to private domestic and foreign
participants, while keeping the national insurance companies in operation.

Banking
India has an extensive banking network, in both urban and rural areas. All large Indian
banks are nationalized, and all Indian financial institutions are in the public sector.

RBI banking
The Reserve Bank of India is the central banking institution. It is the sole authority for
issuing bank notes and the supervisory body for banking operations in India. It supervises
and administers exchange control and banking regulations, and administers the
government's monetary policy. It is also responsible for granting licenses for new bank
branches. 25 foreign banks operate in India with full banking licenses. Several licenses
for private banks have been approved. Despite fairly broad banking coverage nationwide,
the financial system remains inaccessible to the poorest people in India.

Indian banking system


The banking system has three tiers. These are the scheduled commercial banks; the
regional rural banks which operate in rural areas not covered by the scheduled banks; and
the cooperative and special purpose rural banks.
Gap Analysis of Services offered in Retail Banking

Scheduled and non scheduled banks


There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200
regional rural banks; more than 350 central cooperative banks, 20 land development
banks; and a number of primary agricultural credit societies. In terms of business, the
public sector banks, namely the State Bank of India and the nationalized banks, dominate
the banking sector.

Local financing
All sources of local financing are available to foreign-participation companies
incorporated in India, regardless of the extent of foreign participation. Under foreign
exchange regulations, foreigners and non-residents, including foreign companies, require
the permission of the Reserve Bank of India to borrow from a person or company
resident in India.

Regulations on foreign banks


Foreign banks in India are subject to the same regulations as scheduled banks. They are
permitted to accept deposits and provide credit in accordance with the banking laws and

RBI regulations. Currently about 25 foreign banks are licensed to operate in India.
Foreign bank branches in India finance trade through their global networks.

RBI restrictions
The Reserve Bank of India lays down restrictions on bank lending and other activities
with large companies. These restrictions, popularly known as "consortium guidelines"
seem to have outlived their usefulness, because they hinder the availability of credit to
the non-food sector and at the same time do not foster competition between banks.

Indian vs. foreign banks


Most Indian banks are well behind foreign banks in the areas of customer funds transfer
and clearing systems. They are hugely over-staffed and are unlikely to be able to compete
with the new private banks that are now entering the market. While these new banks and
Gap Analysis of Services offered in Retail Banking

foreign banks still face restrictions in their activities, they are well-capitalized, use
modern equipment and attract high-caliber employees.

Government and RBI regulations

All commercial banks face stiff restrictions on the use of both their assets and liabilities.
Forty percent of loans must be directed to "priority sectors" and the high liquidity ratio
and cash reserve requirements severely limit the availability of deposits for lending. The
RBI requires that domestic Indian banks make 40 percent of their loans at confessional
rates to priority sectors' selected by the government. These sectors consist largely of
agriculture, exporters, and small businesses. Since July 1993, foreign banks have been
required to make 32 percent of their loans to these priority sector. Within the target of 32
percent, two sub-targets for loans to the small scale sector (minimum of 10 percent) and
exports (minimum of 12 percent) have been fixed.
Foreign banks, however, are not required to open branches in rural areas, or to make
loans to the agricultural sector. Commercial banks lent $ 8 billion in the Indian financial
year (IFY, April-March) 1997/98, up sharply from $ 4.4 billion in the previous year.

The deployment of gross loans was as follows:

1997-98 (April-January) percent


Gross Bank Loans 100
Food Procurement 15.5
Priority Sector 31.6
Industrial Loans 29.4
Loans to Trade 0.07
Other Loans 23.43
Source: Government of India Economic Survey

Need to Ponder
Debates on India's slowdown focus on the manufacturing sector which is dangerously
misleading: one of the biggest areas of worry about India's economic slowdown is being
Gap Analysis of Services offered in Retail Banking

ignored - the systemic flaw of India's banking sector. Stories about the real health of
Indian banks get less publicised because banks are still overwhelmingly owned,
controlled and directed by the government, i.e., the ministry of finance (MoF). Banks
have no effective mouthpiece either.

Grey future
One more reason being the opacity of the Reserve Bank of India. This does not mean a
forecast of doom for the Indian banking sector the kind that has washed out south east
Asia. And also not because Indian banks are healthy. We still have no clue about the real
non-performing assets of financial institutions and banks. Many banks are now listed.
That puts additional responsibility of sharing information. It is now clear that it was the
financial sector that caused the sensational meltdown of some Asian nations. India is not
Thailand, Indonesia and Korea. Borrowed investment in property in India is low and
property prices have already fallen, letting out steam gently. Our micro-meltdown has
already been happening.

Conclusion
Still, there are several other worries about the banking sector, mainly confusion over
ownership and control. Sometime soon India will be forced to apply the norms of
developed countries and many banks (including some of the biggest) will show very poor
return ratios and dozens of banks will be bankrupt. When that happens the two popular
reasons to defend bad banks will disappear. These are: one, to save face in the remote
hope of that fortunes will `revive' and two, some banks are too big to be allowed to fail,
fearing social upheaval.
Gap Analysis of Services offered in Retail Banking

CHALLENGES THE INDIAN BANKS FACE


India is one of the fastest growing economies in the world. Evidence from across the
world suggests that a sound and evolved banking system is required for sustained
economic development. India has a better banking system in place vis a vis other
developing countries, but there are several issues that need to be ironed out.

The challenges that the banking sector in India faces are-

INTEREST RATE RISK:


Interest rate risk can be defined as exposure of bank's net interest income to adverse
movements in interest rates. A bank's balance sheet consists mainly of rupee assets and
liabilities. Any movement in domestic interest rate is the main source of interest rate risk.
Over the last few years the treasury departments of banks have been responsible for a
substantial part of profits made by banks. Between July 1997 and Oct 2003, as interest
rates fell, the yield on 10-year government bonds (a barometer for domestic interest rates)
fell, from 13 per cent to 4.9 per cent. With yields falling the banks made huge profits on
their bond portfolios.
Gap Analysis of Services offered in Retail Banking

Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as
the debt market starts factoring a possible interest rate hike), the banks will have to set
aside funds to mark to market their investment.
This will make it difficult to show huge profits from treasury operations. This concern
becomes much stronger because a substantial percentage of bank deposits remain
invested in government bonds.
Banking in the recent years had been reduced to a trading operation in government
securities. Recent months have shown a rise in the bond yields has led to the profit from
treasury operations falling. The latest quarterly reports of banks clearly show several
banks making losses on their treasury operations. If the rise in yields continues the banks
might end up posting huge losses on their trading books. Given these facts, banks will
have to look at alternative sources of investment.

INTEREST RATES AND NON-PERFORMING ASSETS:


The best indicator of the health of the banking industry in a country is its level of NPAs.
Given this fact, Indian banks seem to be better placed than they were in the past. A few
banks have even managed to reduce their net NPAs to less than one percent (before the
merger of Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA
bank). But as the bond yields start to rise the chances are the net NPAs will also start to
go up. This will happen because the banks have been making huge provisions against the
money they made on their bond portfolios in a scenario where bond yields were falling.

Reduced NPAs generally gives the impression that banks have strengthened their credit
appraisal processes over the years. This does not seem to be the case. With increasing
bond yields, treasury income will come down and if the banks wish to make large
provisions, the money will have to come from their interest income, and this in turn, shall
bring down the profitability of banks.

COMPETITION IN RETAIL BANKING:


The entry of new generation private sector banks has changed the entire scenario. Earlier
the household savings went into banks and the banks then lent out money to corporates.
Gap Analysis of Services offered in Retail Banking

Now they need to sell banking. The retail segment, which was earlier ignored, is now the
most important of the lot, with the banks jumping over one another to give out loans. The
consumer has never been so lucky with so many banks offering so many products to
choose from. With supply far exceeding demand it has been a race to the bottom, with the
banks undercutting one another. A lot of foreign banks have already burnt their fingers in
the retail game and have now decided to get out of a few retail segments completely.
The nimble footed new generation private sector banks have taken a lead on this front
and the public sector banks are trying to play catch up. The PSBs have been losing
business to the private sector banks in this segment. PSBs need to figure out the means to
generate profitable business from this segment in the days to come.

THE URGE TO MERGE:


In the recent past there has been a lot of talk about Indian Banks lacking in scale and size.
The State Bank of India is the only bank from India to make it to the list of Top 100
banks, globally. Most of the PSBs are either looking to pick up a smaller bank or waiting
to be picked up by a larger bank.
The central government also seems to be game about the issue and is seen to be
encouraging PSBs to merge or acquire other banks. Global evidence seems to suggest
that even though there is great enthusiasm when companies merge or get acquired,
majority of the mergers/acquisitions do not really work.

So in the zeal to merge with or acquire another bank the PSBs should not let their
common sense take a back seat. Before a merger is carried out cultural issues should be
looked into. A bank based primarily out of North India might want to acquire a bank
based primarily out of South India to increase its geographical presence but their cultures
might be very different. So the integration process might become very difficult.
Technological compatibility is another issue that needs to be looked into in details before
any merger or acquisition is carried out.
Gap Analysis of Services offered in Retail Banking

The banks must not just merge because everybody around them is merging. As Keynes
wrote,”Worldly wisdom teaches us that it's better for reputation to fail conventionally
than succeed unconventionally". Banks should avoid falling into this trap.

IMPACT OF BASEL-II NORMS:


Banking is a commodity business. The margins on the products that banks offer to its
customers are extremely thin vis a vis other businesses. As a result, for banks to earn an
adequate return of equity and compete for capital along with other industries, they need
to be highly leveraged. The primary function of the bank's capital is to absorb any losses
a bank suffers (which can be written off against bank's capital). Norms set in the Swiss
town of Basel determine the ground rules for the way banks around the world account for
loans they give out. These rules were formulated by the Bank for International
Settlements in 1988.

Essentially, these rules tell the banks how much capital the banks should have to cover up
for the risk that their loans might go bad. The rules set in 1988 led the banks to
differentiate among the customers it lent out money to. Different weight age was given to
various forms of assets, with zero percentage weightings being given to cash, deposits
with the central bank/govt etc, and 100 per cent weighting to claims on private sector,
fixed assets, real estate etc. The summation of these assets gave us the risk-weighted
assets. Against these risk weighted assets the banks had to maintain a (Tier I + Tier II)
capital of 9 per cent i.e. every Rs100 of risk assets had to be backed by Rs 9 of Tier I +
Tier II capital. To put it simply the banks had to maintain a capital adequacy ratio of 9 per
cent.

The problem with these rules is that they do not distinguish within a category i.e. all
lending to private sector is assigned a 100 per cent risk weighting, be it a company with
the best credit rating or company which is in the doldrums and has a very low credit
rating. This is not an efficient use of capital. The company with the best credit rating is
more likely to repay the loan Vis a Vis the company with a low credit rating. So the bank
should be setting aside a far lesser amount of capital against the risk of a company with
the best credit rating defaulting Vis a Vis the company with a low credit rating. With the
Gap Analysis of Services offered in Retail Banking

BASEL-II norms the bank can decide on the amount of capital to set aside depending on
the credit rating of the company.

Credit risk is not the only type of risk that banks face. These days the operational risks
that banks face are huge. The various risks that come under operational risk are
competition risk, technology risk, casualty risk, crime risk etc. The original BASEL rules
did not take into account the operational risks. As per the BASEL-II norms, banks will
have to set aside 15 per cent of net income to protect themselves against operational risks.

So to be ready for the new BASEL rules the banks will have to set aside more capital
because the new rules could lead to capital adequacy ratios of the banks falling. How the
banks plan to go about meeting these requirements is something that remains to be seen.
A few banks are planning initial public offerings to have enough capital on their books to
meet these new norms.

IN CLOSING:
Over the last few years, the falling interest rates, gave banks very little incentive to lend
to projects, as the return did not compensate them for the risk involved. This led to the
banks getting into the retail segment big time. It also led to a lot of banks playing it safe
and putting in most of the deposits they collected into government bonds. Now with the
bond party over and the bond yields starting to go up, the banks will have to concentrate
on their core function of lending.

The banking sector in India needs to tackle these challenges successfully to keep growing
and strengthen the Indian financial system.

Furthermore, the interference of the central government with the functioning of PSBs
should stop. A fresh autonomy package for public sector banks is in offing. The package
seeks to provide a high degree of freedom to PSBs on operational matters. This seems to
be the right way to go for PSBs.
Gap Analysis of Services offered in Retail Banking

The growth of the banking sector will be one of the most important inputs that shall go
into making sure that India progresses and becomes a global economic super power.

CHALLENGES AHEAD
Following highlights some thoughts on certain areas which have a key bearing on the
ability of Indian banks to remain competitive and enhance soundness. Needless to state,
these are more in the nature of random thoughts, rather than any structured thinking, and
are meant to invite discussion.

First, cost management. Cost containment is a key to sustainability of bank


profits as well as their long-term viability. To highlight this point, we take recourse to
some figures. In 2003, operating costs of banks as a proportion of total average assets1[1]
in the UK were 2.12 per cent, for those in Switzerland they were 2.03 per cent, and less
than 2 per cent in major European economies like Sweden, Austria, Germany and France.
In India, however, in 2003, operating costs as proportion of total assets of scheduled
commercial banks stood at 2.24 per cent. The tasks ahead are thus clear and within reach.

Second, recovery management. This is a key to the stability of the banking


sector. There should be no hesitation in stating that Indian banks have done a remarkable
job in containment of non-performing loans (NPL) considering the overhang issues and

1
Gap Analysis of Services offered in Retail Banking

overall difficult environment. Let me add that for 2004, the net NPL ratio for the Indian
scheduled commercial banks at 2.9 per cent is ample testimony to the impressive efforts
being made by our banking system. In fact, recovery management is also linked to the
banks’ interest margins. We must recognize that cost and recovery management supported
by enabling legal framework hold the key to future health and competitiveness of the
Indian banks. No doubt, improving recovery-management in India is an area requiring
expeditious and effective actions in legal, institutional and judicial processes.

Third, technological intensity of banking: This is one area where perhaps India
needs to do significant ‘catching up’, notwithstanding the rapid strides made over the last.

Some available figures indicate that in late 1999, the percentage of customers using
online banking was less than 1 per cent in India, compared with anywhere between 6-30
per cent in developed economies like US, UK, Germany, Finland and Sweden. Even in
Latin America, these figures are much higher than for India. While admittedly the
numbers for India are likely to be much higher at present than these figures suggest, so
would be the case for these other economies as well. The issue, therefore, remains what
has been the extent of ‘catching up’ by India on this score? In fact, this seems somewhat
intriguing: India happens to be a world leader in information technology, but its usage by
our banking system is somewhat muted. It is wise for Indian banks to exploit this globally
state-of-art expertise, domestically available, to their fullest advantage.

Fourth, risk management. Banking in modern economies is all about risk


management. The successful negotiation and implementation of Basel II Accord is likely
to lead to an even sharper focus on the risk measurement and risk management at the
institutional level. Thankfully, the Basel Committee has, through its various publications,
provided useful guidelines on managing the various facets of risk. The institution of
Gap Analysis of Services offered in Retail Banking

sound risk management practices would be an important pillar for staying ahead of the
competition. Banks can, on their part, formulate ‘early warning indicators’ suited to their
own requirements, business profile and risk appetite in order to better monitor and
manage risks.

Fifth, governance. The recent irregularities involving accounting firms in the US


have amply demonstrated the importance of good corporate governance practices. The
quality of corporate governance in the banks becomes critical as competition intensifies,
banks strive to retain their client base, and regulators move out of controls and micro-
regulation. As already mentioned, banks are special in emerging markets since they take a
leading role in development of other financial intermediaries and of financial markets,
apart from having a large recourse to public deposits. No doubt, there is nothing like an
‘optimal’ level of governance for one to be satisfied with. The objective should be to
continuously strive for excellence. The RBI has, on its part, made significant efforts to
improve governance practices in banks, drawing upon international best practices. It is
heartening to note that corporate governance presently finds explicit mention in the
annual reports of several banks. The improved corporate governance practice would also
provide an opportunity to accord greater freedom to the banks’ boards and move away
from micro regulation to macro management. Banks in India are custodians of
depositors’ monies, monies of the millions of depositors who are seeking safe avenues for
their hard earned savings, and hence, banks must accept and perform an effective
fiduciary role. In this light, improvement in policy-framework, regulatory regime,
market-perceptions, and indeed, popular sentiments relating to governance in banks need
to be on the top of the agenda – to serve our society’s needs and realities while being in
harmony with the global perspective.
Gap Analysis of Services offered in Retail Banking

RETAIL BANKING

Retail banking is typical mass-market banking where individual customers use local
branches of larger commercial banks. Services offered include: savings and checking
accounts, mortgages, personal loans, debit cards, credit cards, and so forth. This is very
different from wholesale banking.

RETAIL BANKING IN INDIA:

India is poised to become the world's fourth largest economy in the span of two decades.
Economic prosperity is providing many in this populous nation with real purchasing
power; it simply is an opportunity that cannot be overlooked by global banks. Despite its
appeal, India remains a developing economy. Thus, global banks seeking a presence or
expansion in India must craft a business strategy that considers the country's attendant
challenges: long-established competitors; rudimentary infrastructure; dynamic political
environment; restrictive regulations; and developing country operational risks.

These challenges should be weighed against the potential gains from entering the
marketplace, as well as the likely cost of doing nothing. Extensive research conducted by
the IBM Institute for Business Value pinpointed four of the most promising product areas
for global banks entering the Indian market: housing loans, automobile loans, small and
Gap Analysis of Services offered in Retail Banking

medium enterprise (SME) banking and personal financial services. However, recognizing
the growth opportunities is only the beginning. Global banks targeting India as a source
of new growth will have to do much more than just "show up" - success will lie in the
details of execution.

With one of the most under penetrated retail lending markets in Asia-Pacific, India offers
great potential. India's mortgage debt in 2002 totaled only 2 percent of gross domestic
product (GDP), compared to 7 percent of Thailand's GDP, 8 percent of GDP in China and
much higher proportions in other parts of the region: Malaysia (28 percent), South Korea
(30 percent) and Hong Kong (52 percent). While India remains characterized by extreme
wealth and poverty, a middle class is beginning to emerge, with absolute demand for
products and services on the rise. To seize this opportunity, new market entrants must
exploit specific market niches and leverage best-in-class capabilities while addressing the
unique challenges of the Indian banking environment.

During the last decade, India has emerged as one of the biggest and fastest growing
economies in the world. The strengthening economy in India has been fueled by the
convergence of several key influences: liberalization policies of the government, growth
of key economic sectors, development of an English-speaking, well-educated work force
and the emergence of a middle class population.
More liberal economic policies: Opening the marketplace
India's debt crisis in the early 1990s forced the government to radically reform its
economic policies. The resulting liberalization program opened the market for foreign
investment, fostered domestic competition and spawned an era of privatization. In the 10
years after 1992, India's economy grew at an average rate of 6.8 percent . During April to
June 2004, the economy continued to show its strength and grew by 7.4 percent.
Foreign direct investment (FDI) grew more than twenty-fold, from just under US$0.13
billion in 1992 to almost US$2.86 billion in 2003. Meanwhile, privatization accelerated
between 2000 and 2002, when 13 state-owned companies were sold, while the Indian
government recently raised another US$3.41 billion by selling off stakes in six state-
Gap Analysis of Services offered in Retail Banking

owned firms. Since foreign investment and access to external markets remain critical to
the growth of the country - and specifically, it’s banking system - reform-minded
institutional and foreign investors are monitoring the early words and actions of the new
administration that took control in May 2004, uncertain whether its predecessor's
liberalization program will continue.

Booming businesses: Services, agriculture and manufacturing


Domestic industries have prospered from the development of India's capital markets and
the increased foreign trade and investment across sectors. The rapidly expanding services
sector (including telecommunications and information technology), has benefited from
government spending and explosive demand for IT and IT-enabled services (ITES), such
as call centers and back-office administration. Agriculture and core industries (such as
steel, cement and automobiles) are expected to remain strong over time because of
affordable consumer credit and the robust economy. In addition, infrastructure spending
is expected to be very strong - fueled by big-ticket projects involving national highway
systems, establishment of privatized airports, and the modernization of ports and
telecommunication networks. An estimated US$440 billion is expected to be spent in
public and private projects over the next five years.

A growing labor force: English-speaking with IT savvy


Global investors are attracted to India because of the growing number of well-educated,
English-speaking workers who are comfortable working in information technology.
India's IT work force will be augmented by a booming population of engineering
students. The number of engineering students admitted at the university level rose in
2004 to 341,649 from 310,590 in 2003. Furthermore, India's labor pool also serves as an
expanding customer base for retail bank products and services.
Gap Analysis of Services offered in Retail Banking

The emerging middle class: Managing "new money"


The development of India's economy is boosting overall consumer purchasing power. The
percentage of middle to high income Indian households is expected to continue rising.
The younger, more educated population not only wields increasing purchasing power, but
it is more comfortable than previous generations with acquiring personal debt

A view of India's banking industry


India's banking industry is one of the major beneficiaries of the country's ascendant
economic power. Improving consumer purchasing power, coupled with more liberal
attitudes toward personal debt, is fueling India's explosive banking segment. Global
banks should be encouraged further by the relatively under penetrated status of the
country's various retail lending segments. The retail market for mortgages, credit cards,
automobile loans and other consumer loans is expected to jump from its 1999 total of
US$9.7 billion to US$36.7 billion in 2004 (see Figure 3). Even with this strong
performance, significant opportunities for continued retail lending growth remain as retail
lending figures lag India's regional peers.
Unlike most rapidly-expanding, emerging markets, India's banking sector has exhibited
financial stability and a trend toward improved governance under the management of its
central bank, the Reserve Bank of India (RBI). One challenge the RBI had to contend
with was the legacy of policy-directed, corporate lending by the state-owned banks that
had produced high levels of non-performing assets (NPAs). Through structural reform,
remedial legislative actions, and favorable returns from the fixed income Treasury
Markets, Indian banks have cut gross NPA levels from 15.7 percent in 1997 to 8.8 percent
in 2003. Fortunately, new entrants to the market are not subjected to the same mandatory
lending requirements as domestic banks and can therefore "cherry-pick" the most
desirable clients, allowing them to lower their own risk of NPAs through more rigorous
risk management strategies.
Gap Analysis of Services offered in Retail Banking

Global banks in India: Gaining a foothold


The competitive environment in India presents both challenges and opportunities to
global banks seeking market entry. Entrenched domestic competitors and restrictive
equity ownership ceilings imposed by the government create obstacles for banks
establishing a foothold in India. Primary challenges include tough competition and
government ceilings on foreign equity ownership. Opportunities exist because global
banks often have technological advantages, well-honed, efficient processes and appealing
products and services.
For the most part, global banks must execute on an organic growth strategy to expand
their footprint in India. Merger and acquisition activity in the banking sector remains
limited by government regulation. This is difficult news for global banks that have relied
on acquisitions as a market entry or expansion strategy. Unless the government shifts its
posture on foreign equity ownership, global banks will have to rely on organic growth to
expand their presence in India.

Crafting an India-specific retail banking strategy


As global banks have experienced in the past, successfully competing in India requires
substantially more consideration than merely choosing the right market to target. It
warrants a well-crafted strategy that addresses the numerous risks and challenges specific
to India's developing economy. The confluence of rapid economic development, elevated
consumer purchasing power levels and an underserved retail banking population position
India as a potential growth region for the 21st Century. However, India's banking history
has also seen global banks failing to establish a profitable operation in the country.
Success will truly lie in the details of execution.
Gap Analysis of Services offered in Retail Banking

REASONS FOR THE CHANGE OVER FROM CORPORATE BANKING TO


RETAIL BANKING:
• The financial sector reforms undertaken by the Government since the year 1991
have accelerated the process of disintermediation which has encouraged blue chip
corporate to access cheaper funds to meet their working capital requirements
directly from investors in India and abroad through capital market instruments
and external Commercial Borrowings route thus by-passing Banks in the process.
The deregulation of markets and interest rates has lead to cut throat competition
among Banks for corporate loans making them to lend even at PLR or sub PLR
and offer other valued services at comparatively cheaper rates to big and high
value corporates. In the process, most of the banks have experienced substantial
reduction in interest spreads and drain on their profitability.
• The introduction of stringent Asset Classification, Income Recognition and
provisioning norms has resulted in growing menace of NPAs in corporate loans
which has affected the asset quality, profitability and capital adequacy of banks
adversely. The risks involved in corporate loans are very high as corporates have
to keep all their eggs in one basket. The risks involved in retail Banking advances
are comparatively less and well diversified as loan amounts are relatively small
ranging from Rs. 5000 to Rs. 100 lac and repayable normally in short period of 3-
Gap Analysis of Services offered in Retail Banking

5 years except housing loans (where repayment period is long up to 15 years in


some cases) and from fixed source of income like salaries.
• Whereas corporate loans give average return of just 0.5 to 1.5 percent only, the
retail advances offer attractive interest spread of 3to 4 percent, because retail
borrowers are less interest rate sensitive than the Corporates. Another reason for
large interest spreads on retail advances is that the retail customers are too
fragmented to bargain effectively.
• While corporate loans are subject to ups and downs in trade frequently, retail
loans are comparatively independent of recession and continue to deliver even
during the sluggish phase of economy.
• Retail Banking gives a lot of stability and public image to banks as compared to
corporate banking.
• The housing loans, which form the major chunk of retail lending and where NPAs
are the least, carry risk weight of just 50% for capital adequacy purposes. This is
likely to come down further as new Basel Capital Accord or (Basel II) norms are
put in place from the year 2006. This offers added incentive to banks for lending
to this retail segment as against corporate lending where capital consumption is
higher.
• The greater amount of consumerism in the country with upswing in income levels
of burgeoning middle class, which has propensity to consume to raise their
standard of living, is enlarging the retail markets. This market is growing 2 50
percent per year and boosting the demand for credit from households. The
potential is huge as present penetration level is just over 2 percent in the country.
Given the easy liquidity scenario in the country the growth rate in this sector is
likely to go up manifold in the years come. This offers great potential for banks to
enlarge their loan books.
• The Indian mindset is also changing and consumers prefer to improve their
quality of life even if it means borrowing for facilities like housing, consumer
goods vehicles and vacationing etc. Borrowing and lending is no longer
considered a taboo. The peer pressure and demonstration effect is further pushing
up demand for housing loans, consumer products and automobiles. The profiles of
Gap Analysis of Services offered in Retail Banking

customers are fast changing from conservative dodos to fashionable peacocks. All
these developments give big push to Retail Banking activities.
• Retail Banking clients are generally loyal and tend not to change from one Bank
to another very often.
• Large numbers of Retail clients facilitate marketing, mass selling and ability to
categorize/select clients using scoring system and data mining. Banks can cut
costs and achieve economies of scale and improve their bottom-line by robust
growth in retail business volume.
• Through product innovations and competitive pricing strategies Banks can foster
business relationship with customers to retain the existing clients and attract new
ones.
• Innovative products like asset securitization can open new vistas in sustaining
optimal capital adequacy and asset liability management for banks.
• Retail Banking offers opportunities to banks to cross sell other retail products like
credit card, insurance, mutual fund products and demat facilities etc. to depositors
and investors.
Gap Analysis of Services offered in Retail Banking

RETAIL BANKING PRODUCTS AND SERVICES


Contrary to plain vanilla mass Banking products that the Banks offered in the pre reform
era, which the customer had either to take or leave, banks, since last couple of years are
offering well researched, tech savvy, borrower friendly, attractive, value added, make
your own Sunday type customized products at most competitive rates through a host of
most modern delivery channels viz., ATM, internet, telebanking to enhance the comfort
of diverse type of customers. Wide range of products that the bank snow offer, cover both
the deposits and advances. The core banking products of deposits i.e. Saving bank,
recurring deposits and short term deposits and advances i.e. short or medium term loans
are packaged with several value additions in different permutations and combinations and
attractive brand names. They are released in the market with adequate publicity and ad.,
support banks products cater to various segments of customers like salaried persons,
traders, business men, professionals, technocrats, pensioners, housewives, children,
labourers, artisans and craftsmen etc. Banks keep on constantly reviewing their products
and services portfolio to cater to the ever escalating expectations of customers.

Retail Lending products


Major retail lending products offered by banks are the following:
- Housing loans
- Loan for consumer goods
- Personal loans for marriage, honeymoon, medical treatment and holidaying etc.
Gap Analysis of Services offered in Retail Banking

- Education loans
- Auto loans
- Gold loans
- Event loans
- Festival loans
- Insurance products
- Loan against rent receivables
- Loan against pension receivables to senior citizens
- Debit and credit cards
- Global and international cards
- Loan to doctors to set up their own clinics or for purchase of medical equipments
- Loan for women empowerment
- Loan for purchase of acoustic enclosures for diesel Gen. sets etc.

Retail banking products for depositors:


This is in various segments of customers like ; children, salaried persons, senior
citizens, professionals, technocrats, businessmen, retail traders and farmers etc. and it
includes:
- Flexi Deposit Accounts
- Savings Bank Accounts
- Recurring Bank Accounts
- Short Term deposits
- Deferred Pension Linked Deposit Schemes

Today pure deposit type products are giving way to multi- benefit, multi access generes
of banking products. Most of the innovation is taking place in savings bank accounts to
make the meager return of 3.55p.a. that they earn more attractive. Most of the banks now
offer sweep in and sweep out accounts, called 2-in-1 accounts or value added savings
bank accounts. This account is a combination of savings bank and term deposit accounts
and offers twin benefit of liquidity of a savings bank account and higher interest earning
of term deposit accounts.
Gap Analysis of Services offered in Retail Banking

Add-ons and Freebies


To make their products an services more attractive so as to woo maximum number of
customers, the banks are vying with each other with whole lot off frills, goodies, freebies,
and add-ons. A few of these add-ons. A few of these add-ons and freebies are as under:
- Free collection of specified number of outstation instruments.
- Instant credit of outstanding cheques upto Rs. 15000/-
- Concession in exchange on demand drafts and pay-orders and commission on
bills of exchange
- Issuance of free personalized cheque books
- Free accident insurance covers
- Free doorsteps opening of accounts
- Free issuance of ATM, Debit, Credit and Add-on Cards
- Free investment advisory services
- Grant of redeemable reward points on use of credit cards
- Free internet banking, phone banking and anywhere banking facilities
- Issuance of discount coupons for purchase of various products like computer
accessories, music CDs, cassettes, books, toys, garments etc.
- Issuance of free PVR, trade fair tickets etc.
- Concession in rate of interest on Group advances
- Exemption in upfront fees.

These concessions, freebies and add-ons are based on the True relationship Value (TRV)
of the customers and is calculated by the return on various products and services of the
banks availed by them. These concessions and freebies are usually offered for purchase
of consumer goods but now they have become an integral part of Retail banking products
and services also.

New delivery channels for retail banking Products and Services:


The advent of new delivery channels viz. ATM, Internet and Telebanking have
revolutionalised the retail banking activities. These channels enable Banks to deliver
Retail banking products and services in an efficient and cost effective manner. Now-a-
Gap Analysis of Services offered in Retail Banking

days the banks are under great pressure to attract new and retain old customers, as
margins are turning wafer thin. In these circumstances reducing administrative and
transaction costs has become crucial. Banks are making special offerings to customers
through these channels retail banking has been immensely benefited with the revolution
in IT and communication technology. The automation of the banking processes is
facilitating extension of their reach and rationalization of their costs as well. They are the
engine for growth of retail banking business of Banks. The networking of branches has
extended the scope of banking to anywhere and anytime 24x 7 days a week banking. It
has enabled customers to be the customer of a bank rather than the customers of a
particular branch only. Customers can transact Retail Banking transactions at any of the
networked branches without any extra cost. As a matter of fact the Retail Banking per se
has taken off because of the advent of multiple banking channels. These channels have
enabled banks to go on a massive customer acquisition mode since transaction volumes
spread over multiple channels lessen the load on the brick and mortar bank branches.
Gap Analysis of Services offered in Retail Banking

SOME ASPECTS OF RETAIL BANKING


Impact of Retail Banking:
• The major impact of retail Banking is that, the customers have become the
Emperors – the fulcrum of all Banking activities, both on the asset side and the
liabilities front. The hitherto sellers market has transformed into buyers market
the customers have multiple of choices before them now for cherry picking
products and services, which suit their lifestyles and tastes and financial
requirements as well. Banks now go to their customers more often than the
customers go to their banks.
• The Non-Banking finance companies which have hitherto been thriving on retail
business due to high risk and high returns thereon have been dislodged from their
profit munching citadel
• Retail Banking is transforming banks into one stop financial super markets.
• The share of retail loans is fast increasing in the loan books of banks.
• Banks can foster lasting business relationship with customers and retain the
existing customers and attract new ones. There is a rise in their service as well.
• Banks can cut costs and achieve economies of scale and improve their revenues
and profits by robust growth in retail business. Reduction in costs offers a win
win situation both for banks and the customers.
• It has affected the interface of banking system through different delivery
mechanism
Gap Analysis of Services offered in Retail Banking

• It is not that banks are sharing the same pie of retail business, the pie itself is
growing exponentially. Retail Banking has fuelled a considerable quantum of
purchasing power through a slew of retail products.
• Banks can diversify risks in their credit portfolio and contain the menace of
NPAs. Retail banking allows bank to cross sell other products and services as it is
far more easier to sell other products to the same customer rather than search for
absolutely new ones. Cross selling is one of the best avenues for relationship

• Banking and retention of customers. Banks can thus increase their business
volume and improve their bottom-line substantially.
• Re-engineering of business with sophisticated technology based products will
lead to business creation, reduction in transaction costs and enhancement in
efficiency of operations.

Problems faced in Retail Banking:


• Retail Banking has all it’s attendant risks. It is highly sensitive .Banks got to move
cautiously. It is easy to enter, but difficult to get out. A systematic and a calculated
approach is the pre-requisite for success in the long run.
• Retail Banking is being introduced with the concept of serving customer with
better and innovative products with the latest technology and easy availability. It
becomes so popular and widely acceptable that more and more customers had
started to use it. Now it becomes a mass product. Customer database have
tremendously increased and it becomes difficult to manage them.
• To match the customer inflows and current customers requirement as well as
service standards banks have to set up more branches, distribution channels and
new trained staff as well as improvement in back office operations also in very
near future. This itself a time bounded problem and banks have to do it as early as
possible.
• Today’s competitive market customer has more than one options for his retail
banking needs. Every bank is providing more or less similar kind of products. So
Gap Analysis of Services offered in Retail Banking

an unsatisfied customer can easily switch over to the another competitor’s bank.
So banks need to be very careful in handling the customers. They have to
continually improve their service standards.
• Retail Banking is so wide accepted by the customer as well as very aggressively
promoted by the bankers that if the bankers do not take adequate care in
distributing and recovering advances, there are chances of increasing in NPAs in
coming feature. And that would be an alarming situation.
Gap Analysis of Services offered in Retail Banking

CORE SERVICES FACILITATING SUPPORTING


SERVICES SERVICES
Payment services • Cash • Making payments
• Foreign currency at doorsteps
requirements • Internet banking
• Travelers cheques • Telephone banking
• DD/Bankers cheque
• TT
• EFT

Current a/c & savings a/c • ATM Card • Credit cards


• Standing instruction • Debit cards
from customers for • Services to senior
making payments citizens
• Inter branch/inter • Telephone banking
banks transfer of • Internet banking
funds • Conversion of
• Safety vault excess balance to
time deposit
Loan product: consumer • Current a/c • Delivery of time at
loans, personal loans, • Savings a/c promised time
housing loans, educational • Time deposit a/c period
loans • Interest rate option:
fixed/floating
• Flexibility in
prepayment of loan
• Counseling on real
estate markets
• Legal services for
documentation
• ECS for payment of
loan installments
Insurance products : life • Current a/c • Additional
insurance Pension schemes • Savings a/c insurance facility
• Time deposits for family members
• Safety vaults • Counseling on post
retirement savings
Gap Analysis of Services offered in Retail Banking

BANKING PRODUCTS PORTFOLIO

A. Deposits:

There are many products in retail banking like F.D., Savings A/c, Current A/c,
Recurring A/c, NRI A/c, Corporate Salary A/c, Free Demat A/c, Kid’s A/c, Senior
Citizen Scheme, Cheque Facilities, Overdraft Facilities, Free Demand Draft
Facilities, Locker Facilities, Cash Credit Facilities, etc. They are listed and explained
as follows:

1. Fixed Deposit:
The deposit with the bank for a period, which is specified at the time of
making the deposit is known as fixed deposit. Such deposits are also known as
F.D or term deposit .A F.D is repayable on the expiry of a specified period. The
rate of interest and other terms and conditions on which the banks accepted F.D
were regulated by the R.B.I. in section 21 and 35A of the Banking Regulation Act
1949.
Each bank has prescribed their own rate of interest and has also permitted
higher rates on deposits above a specified amount. R.B.I has also permitted the
banks to formulate F.D. schemes specially meant for senior citizen with higher
interest than normal.

2. Savings A/c:
Saving bank A/c is meant for the people who wish to save a part of their
current income to meet their future needs and they can also earn in interest on their
savings. The rate of interest payable on by the banks on deposits maintained in savings
account is prescribed by R.B.I. The bank should not poen a saving account in the name
of :
1. Govt. Department.
2. Municipal Corporation
3. Panchayat Samities
4. State housing Boards
5. Water and Sewerage Boards

Now a days the fixed deposit is also linked with saving account. Whenever
there is excess of balance in saving a/c it will automatically transfer into Fixed
deposit and if there is shortfall of funds in savings a/c , by issuing cheque the
money is transferred from fixed deposit to saving a/c. Different banks give
different name to this product.
Gap Analysis of Services offered in Retail Banking

3. Current A/c:
A current A/c is an active and running account, which may be operated upon
any number of times during a working day. There is no restriction on the number and
the amount of withdrawals from a current account. Current account suit the
requirements of a big businessmen, joint stock companies, institutions, public
authorities and public corporation etc.

4. Recurring Deposit:
A variant of the saving bank a/c is the recurring deposit or cumulative deposit
a/c introduced by banks in recent years. Here, a depositor is required to deposit an
amount chosen by him. The rate of interest on the recurring deposit account is higher
than as compared to the interest on the saving a/c. Banks open such accounts for
periods ranging from 1 to 10 years. TDS is not applicable to this type of deposit. The
recurring deposit account can be opened by any number of persons, more than one
person jointly or severally, by a guardian in the name of a minor and even by a minor.

5. NRI Account:
NRI accounts are maintained by banks in rupees as well as in foreign
currency. Four types of Rupee account can be open in the names of NRI.
1.Non Resident Rupee Ordinary Account (NRO)
2.Non Resident External Account (NRE)
3.Non Resident ( Non Repatriable Deposit Scheme ) ( NRNR)
4.Non Resident ( special)Rupee Account Scheme ( NRSR)

Apart from this, foreign currency account is the account in foreign currency. The
account can be open normally in US dollar , Pound Sterling , Euro. The accounts of
NRIs are Indian millenium deposit, Resident foreign currency, housing finance scheme
for NRI investment schemes.

6. Corporate Salary Account:


Corporate Salary a/c is a new product by certain private sector
banks, foreign banks and recently by some public sector banks also. Under this
account salary is deposited in the account of the employees by debiting the
account of employer. The only thing required is the account number of the
employees and the amount to be paid them as salary. In certain cases the minimum
balance required is zero. All other facilities available in savings a/c is also
available in corporate salary a/c.
Gap Analysis of Services offered in Retail Banking

7. Demat Account:
Dematerialization is a process by which physical share certificates / securities
are taking back by the company or registrar and destroyed ultimately. An equivalent
number of shares are credited electronically to customers depository account. Just like
saving/current account with a bank one can open a securities account with the depository
through a depository participant (DP).

8. Kid’s Account: ( Minor Account )


Children are invited as customer by certain banks. Under this, Account is
opened in the name of kids by parents or guardians. The features of kid’s account are
free personalized cheque book which can be used as a gift cheque , internet banking ,
investment services etc.

9. Senior Citizenship Scheme :


Senior citizens can open an account and on that account they can get interest
rate somewhat more than the normal rate of interest. This is due to some social
responsibilities of banks towards aged persons whose earning are mainly on the interest
rate.

B. Loans and Advances:

The main business of the banking company is lending of funds to the


constituents, mainly traders, business and industrial enterprises. The major portion of a
bank’s funds is employed by way of loans and advances, which is the most profitable
employment of its funds.
There are three main principles of bank lending that have been followed by the
commercial banks and they are safety , liquidity, and profitability.

Banks grant loans for different periods like short term, medium term, long term
and also for different purpose.
Gap Analysis of Services offered in Retail Banking

1. Personal Loans:
This is one of the major loans provided by the banks to the individuals. There
the borrower can use for his/her personal purpose. This may be related to his/her
business purpose. The amount of loan is depended on the income of the borrower and
his/her capacity to repay the loan.

2. Housing Loans:
NHB is the wholly own subsidiary of the RBI which control and regulate
whole industry as per the guidance and information , home loan’s rates is going to be
cheaper so that infrastructure sector gets motivation for development home loans rate is
decline up to 7.5% EMI at declining rate so that it becomes cheaper. The purpose of
loan to purchase, extension , renovation, and land development.

3. Education Loans:
Loans are given for education in country as well as abroad.

4. Vehicle Loans:
Loans are given for purchase of scooter, auto-rickshaw, car, bikes etc.. The
market size of auto finance is RS 7500 cr. Low interest rates, increasing income levels
of people are the factors for growth in this sector. Even for second hand car finance is
available.

5.Professional Loans:
Loans are given to doctor, C.A, Architect, Engineer or Management Consultant.
Here the loan repayment is normally done in the form of equated monthly.

6. Consumer Durable Loans:


Under this,loans are given for acquisition of T.V,Cellphones,A.C,Washing
Machines,Fridge and other items.

7.Loans against Shares and Securities:


Finance against shares are given by banks for different uses. Now a days finance
against shares are given mostly in demat shares. A margin of 50% is normally accepted
by the bank on market value. For these loans the documents required are normally DP
notes, letter of continuing security, pledge form, power of attorney. This loan can be used
for business or personal purpose.
Gap Analysis of Services offered in Retail Banking

Services Provided By the Banks-

1. Credit Cards:
A credit card is an instrument, which provides immediate credit facilities to its holder
to avail a variety of goods and services at the merchant outlets. It is made of plastic
and hence popularly called as Plastic Money.

Such cards are issued by bank to persons with minimum income ranging between RS
50000 and RS 100000 per annum. And are accepted by a variety of business
establishments which are notified by the card issuing bank.

Some banks insist on the cardholder being their customers while others do not.

Few banks do not charge any fee for issuing credit cards while others impose an
initial enrollment fee and annual fee also.

If the amount is not paid within the time duration the bank charges a flat interest of
2.5%

Leading Indian Banks such as : SBI, BOB, Canara Bank, ICICI, HDFC and a few
foreign banks like CITIBANK, Standard Chartered etc are the important issuers of
credit card in India.

2. DEBIT CARDS:
It is a new product introduced in India by Citibank a few years ago in association with
MasterCard.

A debit card facilitates purchases or payments by the cardholder .

It debits money from the a/c of the cardholder during a transaction. This implies that
the cardholder can spend only if his account permits.

3. NET BANKING:
This facilitates the customers to do all their banking operations from their home by
using the internet facility.

With Net Banking one can carry out all banking and shopping transactions safely and
with total confidentiality.

With Net Banking one can easily perform various functions:


Gap Analysis of Services offered in Retail Banking

1. Check Account Balance


2. Download Account Statement
3. Request for a stop payment of a cheque.
4. Request for a new cheque book.
5. Make a FD/TDS enquiry.
6. Access DEMAT a/c
7. Transfer funds.
8. Facilitate bill Payments.
9. Open a FD
10. Pay Credit Card dues instantly.

4. Mobile Banking:
To avail the mobile banking, one needs to have a savings, current and FD a/c and
mobile connection.
Using mobile banking facility one can –

1. Check Balance
2. Check last three transactions.
3. Request for a statement
4. Request for a cheque book.
5. Enquire on a cheque status.
6. Instruct stock cheque payment.
7. View FD details.
8. Transfer funds.
9. Pay Utility Bills.

5. Phone Banking:
It helps to conduct a wide range of banking transactions from the comfort of one’s
home or office.
Using phone banking facility one can

1. Check Balance
2. Check last three transactions.
3. Request for a cheque book.
4. Transfer funds.
5. Enquire on a cheque status, and much more.

6. Anywhere Banking:
One can operate his roaming current a/c at one centre at any other designated of a
particular across any other centre.

One can deposit or withdraw cash from any branch of a particular bank all over the
country up to a prescribed limit.
Gap Analysis of Services offered in Retail Banking

One can also transfer funds.

7.Automated Teller Machines ( ATM) :


ATMs features user-friendly graphic screens with easy to follow instructions. The
ATMs interact with customers in their local language for increased convenience.

ATMs are generally located in commercial areas, residential localities, major petrol
pumps, airports, near railway stations and other places, which are conveniently accessible
to customers.

ICICI Bank’s ATM network is one of the largest and most widespread ATM network in
India.

Following are the features available on ATMs which can be accessed from anywhere at
anytime :

1. Cash Withdrawal
2. Cash Deposit
3. Balance Enquiry
4. Mini A/c Statements
5. Cheque Book Request
6. Transaction at various merchant establishments.

9. Smart Card:
The smart card, a latest additional to the world of banking and information
technology has emerged as the largest volume driven end-product in the world due to
its data portability, security and convenience. Smart Card is similar in size to today’s
plastic payment card, it has a memory chip embedded in it. The chip stores electronic
data and programmes that are protected by advanced security features. When coupled
with a reader, the smart card has the processing power to serve many different
applications. As an access-control device, smart cards make personal and business
data available only to appropriate users.
To ensure the confidentiality of all banking service, smart cards have
mechanisms offering a high degree of security. These mechanisms are based on
private and public key cryptography combined with a digital certificate, one of the
most advanced security techniques currently available. Infact , it is possible to
connect to the web banking service without a smart card.

Banking on Retail
Gap Analysis of Services offered in Retail Banking

With a jump in the Indian economy from a manufacturing sector, that never really took
off, to a nascent service sector, Banking as a whole is undergoing a change. A larger
option for the consumer is getting translated into a larger demand for financial products
and customization of services is fast becoming the norm than a competitive advantage.
With the Retail banking sector expected to grow at a rate of 30% [Chanda Kochhar, ED,
ICICI Bank] players are focusing more and more on the Retail and are waking up to the
potential of this sector of banking. At the same time, the banking sector as a whole is
seeing structural changes in regulatory frameworks and securitization and stringent NPA
norms expected to be in place by 2004 means the faster one adapts to these changing
dynamics, the faster is one expected to gain the advantage.
The reasons behind the euphemism regarding the Retail-focus of the Indian banks and
how much of it is worth the attention that it is attracting are the question here..

Potential for Retail in India: Is sky the limit?


The Indian players are bullish on the Retail business and this is not totally unfounded.
There are two main reasons behind this. Firstly, it is now undeniable that the face of the
Indian consumer is changing. This is reflected in a change in the urban household income
pattern. The direct fallout of such a change will be the consumption patterns and hence
the banking habits of Indians, which will now be skewed towards Retail products. At the
same time, India compares pretty poorly with the other economies of the world that are
now becoming comparable in terms of spending patterns with the opening up of our
economy. For instance, while the total outstanding Retail loans in Taiwan is around 41%
of GDP, the figure in India stands at less than 5%. The comparison with the West is even
more staggering. Another comparison that is natural when comparing Retail sectors is the
use of credit cards. Here also, the potential lies in the fact that of all the consumer
expenditure in India in 2001, less than 1% was through plastic, the corresponding US
figure standing at 18%.

But how competitive are the players?


The fact that the statistics reveal a huge potential also brings with it a threat that is true
for any sector of a country that is opening up. Just how competitive are our banks? Is the
threat of getting drubbed by foreign competition real? To analyze this, one needs to get
Gap Analysis of Services offered in Retail Banking

into the shoes of the foreign banks. In other words, how do they see us? Are we good
takeover targets?
Going by international standards, a large portion of the Indian population is simply not
“bankable” – taking profitability into consideration. On the other hand, the financial
services market is highly over-leveraged in India. Competition is fierce, particularly from
local private banks such as HDFC and ICICI, in the business of home, car and consumer
loans. There, precisely lie the pitfalls of such explosive growth. All banks are targeting
the fluffiest segment i.e. the upwardly mobile urban salaried class. Although the players
are spreading their operations into segments like self- employed and the semi-urban rich,
it is an open secret that the big city Indian yuppies form the most profitable segment.
Over-dependence on this segment is bound to bring in inflexibility in the business.

What about the foreign giants?


The foreign banks have identified this problem but there are certain systematic risks
involved in operating in the Retail market for them. These include regulatory restrictions
that prevent them from expanding their branch network. So these banks often take the
Direct Selling Agent (DSA) route whereby low-end jobs like sourcing or transaction
processing are outsourced to small regional layers. So now on, when you see a loan mela
or a road show showcasing the retail bouquet of an elite MNC giant, you know that a
significant commission earned out of any such booking gets ploughed back to our own
economy. Perhaps, one of the biggest impediments in foreign players leveraging the
Indian markets is the absence of positive credit bureaus. In the west the risk profile can
be easily mapped to things like SSNs and this information can be publicly traded.
PAN is a step in this direction but lot more work need to be done. What has been a
positive step towards this is a negative file sharing started by a consortium of 11 banks.
However, as a McKinsey study points out actual write-offs on NPAs show a strong
negative correlation with sharing of positive information. On top of this, the spend-now-
pay-later “credit culture” in India is just not picking up. A swift legal procedure against
consumers creating bad debt is virtually non-existent. Finally, the vast geographical and
cultural diversity of the country makes credit policy formulation a tough job and it simply
Gap Analysis of Services offered in Retail Banking

cannot be dictated from a Wall Street or a Singapore boardroom! All these add up to the
unattractiveness of the Indian retail market to the foreign players.

So over the past few years, in spite of the entry of MNCs in many industries, Retail
Banking has seen a flurry of panicky exits. Fewer than 40 remain in India and their share
of total bank assets currently 7.2% is falling. Those that remain might be thought to be
likely buyers of Indian banks. Yet Citibank, HSBC and Standard Chartered—all in India
for more than a century, and with relatively large retail networks—seem to have no
pressing need to acquire a local bank. Established foreign banks have preferred to take
over customers or businesses from other foreign banks that want to leave. Thus HSBC, in
recent years, has acquired customers from France's BNP, Germany's Deutsche Bank and
Japan's Bank of Tokyo-Mitsubishi. ABN Amro took over Bank of America's retail
business.
So all for the keeping then?
This will perhaps be the most wrongful inference that can be drawn from the
above. We just cannot afford to look inwards and repeat the mistakes that were the side
effects of the Nationalization of the Banking System. A growing market can never be an
alibi for lack of innovation. Indian banks have shown little or no interest in innovative
tailor-made products. They have often tried to copy process designs that have been tested,
albeit successfully, in the West. Each economic culture has its own traits and one who
successfully adapts those to the business is the eventual winner. A case in point is the
successful implementation of micro-credit networks in Bangladesh. Positioning a bank as
a tech-savvy financial vendor in a country where Internet penetration is an abysmal
1.65% can only add to the over-leveraging as pointed out earlier. The focus of the sector
should remain in macroeconomic wealth creation and not increasing the per capita
indebtedness that will do little but add to the NPA burden. Retail Banking in India has to
be developed in the Indian way, notwithstanding the long queues in front of the teller
counters in the Public sector banks.
Gap Analysis of Services offered in Retail Banking

Company Profile

HDFC BANK
The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in-principle' approval from the Reserve Bank of India (RBI) to set up a
bank in the private sector, as part of the RBI's liberalization of the Indian Banking
Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank
Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations
as a Scheduled Commercial Bank in January 1995.

Promoter
HDFC is India's premier housing finance company and enjoys an impeccable track record
in India as well as in international markets. Since its inception in 1977, the Corporation
has maintained a consistent and healthy growth in its operations to remain a market
leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling
units. HDFC has developed significant expertise in retail mortgage loans to different
market segments and also has a large corporate client base for its housing related credit
facilities. With its experience in the financial markets, a strong market reputation, large
shareholder base and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment.

Management
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr.
Capoor was a Deputy Governor of the Reserve Bank of India.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25
years, and before joining HDFC Bank in 1994 was heading Citibank's operations in
Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of


Gap Analysis of Services offered in Retail Banking

experience in public policy, administration, industry and commercial banking. Senior


executives representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting and
retaining the best talent in the industry, the bank believes that its people are a significant
competitive strength.

ICICI BANK

ICICI Bank is India's second-largest bank with total assets of about Rs.132, 780 crore at
September 30, 2004 and profit after tax of Rs. 873 crore in the half year ended
September 30, 2004 (Rs. 1,637 crore in fiscal 2004). ICICI Bank has a network of about
470 branches and extension counters and over 1,800 ATMs. ICICI Bank offers a wide
range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised subsidiaries and
affiliates in the areas of investment banking, life and non-life insurance, venture capital
and asset management. ICICI Bank set up its international banking group in fiscal 2002
to cater to the cross-border needs of clients and leverage on its domestic banking
strengths to offer products internationally. ICICI Bank currently has subsidiaries in the
United Kingdom and Canada, branches in Singapore and Bahrain and representative
offices in the United States, China, United Arab Emirates and Bangladesh.

ICICI Bank's equity shares are listed in India on the Stock Exchange, Mumbai and the
National Stock Exchange of India Limited and its American Depositary Receipts
(ADRs) are listed on the New York Stock Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank
was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity
offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's
acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and
Gap Analysis of Services offered in Retail Banking

secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002.
ICICI was formed in 1955 at the initiative of the World Bank, the Government of India
and representatives of Indian industry. The principal objective was to create a
development financial institution for providing medium-term and long-term project
financing to Indian businesses. In the 1990s, ICICI transformed its business from a
development financial institution offering only project finance to a diversified financial
services group offering a wide variety of products and services, both directly and
through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become
the first Indian company and the first bank or financial institution from non-Japan Asia
to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the


emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of ICICI and ICICI Bank formed the view that the
merger of ICICI with ICICI Bank would be the optimal strategic alternative for both
entities, and would create the optimal legal structure for the ICICI group's universal
banking strategy. The merger would enhance value for ICICI shareholders through the
merged entity's access to low-cost deposits, greater opportunities for earning fee-based
income and the ability to participate in the payments system and provide transaction-
banking services. The merger would enhance value for ICICI Bank shareholders
through a large capital base and scale of operations, seamless access to ICICI's strong
corporate relationships built up over five decades, entry into new business segments,
higher market share in various business segments, particularly fee-based services, and
access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards
of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its
wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited
and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at
Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the
Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's
financing and banking operations, both wholesale and retail, have been integrated in a
single entity.
Gap Analysis of Services offered in Retail Banking

Board Members

Mr. N. Vaghul, Chairman

Mr. Uday M. Chitale

Mr. P.C. Ghosh

Mr. S.B. Mathur

Mr. L. N. Mittal

Mr. Anupam Puri

Mr. Vinod Rai

Mr. Somesh R. Sathe

Mr. P.M. Sinha

Mr. M.K. Sharma

Prof. Marti G. Subrahmanyam

Mr. V. Prem Watsa

Mr. K.V. Kamath, Managing Director & Chief Executive Officer

Ms. Lalita D. Gupte, Joint Managing Director

Ms. Kalpana Morparia, Deputy Managing Director

Ms. Chanda Kochhar, Executive Director

Dr. Nachiket Mor, Executive Director


Gap Analysis of Services offered in Retail Banking

STATE BANK OF INDIA

BOARD OF DIRECTORS

Shri A.K.Purwar,

Managing Directors
Shri K.Ashok Kini
Shri T.S. Bhattacharya

Directors
Shri K P Jhunjhunwala
Shri P.R.Khanna
Shri Suman Kumar Bery
Dr I.G.Patel
Shri Ajay.G. Piramal
Shri Ananta Chandra Kalita
Shri Shantha Raju
Shri N.S.Sisodia
Smt. Shyamala Gopinath
Shri Arun Singh
Shri Rajiv Pandey
Shri Piyush Goyal

Corporation Bank

Established in the year 1906, Corporation Bank is an organization based on the


traditional Indian values of service to the community. Corp Bank is regarded as one of
the well-run banks in the comity of Public Sector Banks in the country. The Bank has a
unique history of 98 years of successful Banking and has stood the test of time by
growing steadily, offering vast, varied and versatile services with a personal touch.
Today, its good customer service, pre-eminent track record in House Keeping,
adherence to Prudential Accounting norms, consistent profitability and adoption of
modern technology for betterment of customer service have earned the Bank a place of
pride in the Banking Community. The Bank has been richly endowed with a relatively
young, dynamic and efficient manpower, which is the key factor of the Bank’s success.
The Bank is a Public Sector Unit with 57.17% of Share Capital held by the Government
Gap Analysis of Services offered in Retail Banking

of India. The Bank came out with its Initial Public Offer (IPO) in October 1997 and
37.87% of Share Capital is presently held by the Public and Financial Institutions.

Corporation Bank is the first Public Sector Bank to publish the results under US GAAP.
The Bank has been publishing the results under the US GAAP since 1998-99. The net
profit of the Bank and its subsidiaries under US GAAP for the year 2002-03 stood at Rs.
382.12 crore against consolidated net profit of Rs. 415.99 crore .
As on 31.03.04, the Bank has a highly dedicated team of 10,176 fulltime employees
who have made the encouraging performance of the Bank possible by extending
exemplary services to its customers. The Bank will continue its endeavours in the
development of human capital so as to provide unmatched services to its clientele.

Standard Chartered

Leading the way in Asia, Africa and the Middle East

Standard Chartered employs 30,000 people in over 500 locations in more than 50
countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United
Kingdom and the Americas. It is one of the world's most international banks, with a
management team comprising 70 nationalities.
Standard Chartered is listed on both the London Stock Exchange and the Stock
Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market
capitalisation.
It serves both Consumer and Wholesale Banking customers. Consumer Banking
provides credit cards, personal loans, mortgages, deposit taking and wealth management
services to individuals and small to medium sized enterprises. Wholesale Banking
provides corporate and institutional clients with services in trade finance, cash
management, lending, custody, foreign exchange, debt capital markets and corporate
finance.
Standard Chartered is well-established in growth markets and aims to be the right
partner for its customers. The Bank combines deep local knowledge with global
capability.
The Bank is trusted across its network for its standard of governance and its
commitment to making a difference in the communities in which it operates.
Gap Analysis of Services offered in Retail Banking

Executive Directors

Bryan Sanderson CBE

Mervyn Davies CBE


Mike DeNoma
Chris Keljik
Richard Meddings
Kai Nargolwala
Peter Sands
Gap Analysis of Services offered in Retail Banking

What is Customer Service?


Customer Service is the service provided in support of a company’s core products.
Customer Service most often includes answering questions, taking orders, dealing with
billing issues, handling complaints, and perhaps scheduling maintenance or repairs.
Customer Service can occur on site , or it can occur over the phone or via the internet.
Many companies operate customer service call centers, often staffed around the clock.
Typically there is no charge for customer service. Quality customer service is essential to
building customer relationships. It should not, however, be confused with the services
provided for sale by a company. Services tend to be more intangible than manufactured
products. There is a growing market for services and increasing dominance of services in
economies worldwide.

There are generally two types of customer expectations. The highest can be termed as
desired service : the level of service the customer hopes to receive. The threshold level of
acceptable service which the customers will accept is adequate service.

Yet there is hard evidence that consumers perceive lower quality of service overall and
are less satisfied.
Possible reasons might be:

• With more companies offering tiered service based on the calculated profitability of
different market segments, many customers are in fact getting less service than they
have in past.

• Increasing use by companies of self-service and technology-based service is


perceived as less service because no human interaction or human personalization is
provided.

• Technology-based services ( Automated Voice Systems, Internet-Based Services,


Technology Kiosks) are hard to implement, and there are many failures and poorly
designed systems in place.

• Customer expectations are higher because of the excellent service they receive from
some companies. Thus they expect the same from all and are frequently disappointed.

• Organizations have cut costs to the extent that they are too lean and are too
understaffed to provide quality service.

• The intensely competitive job market results in less skilled people working in
frontline service jobs ;talented workers soon get promoted or leave for
better opportunities.

• Many companies give lip service to customer focus and service quality; but they fail
to provide the training , compensation, and support needed to actually deliver quality
service.
Gap Analysis of Services offered in Retail Banking

• Delivering consistent, high-quality service is not easy, yet many companies promise
it.

The gaps model positions the key concepts, strategies, and decisions in services
marketing in a manner that begins with the customer and builds the organization’s tasks
around what is needed to close the gap between customer expectations and perceptions.
The central focus of the gaps model is the customer gap, the difference between
customer expectations and perceptions. Firms need to close this gap- between what
customers expect and receive – in order to satisfy their customers and build long term
relationships with them. To close this all important customer gap, the model suggests that
four gaps- the provider gaps- need to be closed.

The following four provider gaps, shown below are the underlying causes behind the
customer gap:

Gap 1: Not knowing what customers expect.


Gap 2: Not selecting the right service designs and standards.
Gap 3: Not delivering to service standards.
Gap 4: Not matching performance to promises.

RESEARCH DESIGN
Gap Analysis of Services offered in Retail Banking

Objectives of the study:


There has been an honest attempt to –

- Explore the services and products offered by the banks to individual customers.
- Identify key factors and strategies employed by individual banks to increase their
market share in retail banking.
- Understand the perception of the customers and the management with respect to
services offered by banks.
- Generate additional information to analyze the gap between the customer and
management perceptions about the services offered by banks.
- Conclude and enumerate the innovations required to reduce the gap and increase
the customer base of banks.

Scope of the Study:


Scope of the study is to understand the various services and the products offered by the
banks to the individual customers and to find out the gaps in the services being offered
and the customer expectations. An effort is also made to suggest the banks as to where the
gaps exist and what needs to be done to close the gaps. The study was done taking six
banks into consideration. They are ICICI Bank, HDFC Bank, Citibank, Standard
Chartered, SBI, Corporation Bank.
The survey was restricted to the bank customers in Ahmedabad and Gandhinagar.

Methodology:
Gap Analysis of Services offered in Retail Banking

The report “Analyzing the Gap between Management Perception and Customer
Perception With Respect To the Services Offered In Retail Banking” aims to assimilate
data about the various aspects of Retail banking services, to analyze the perceptions of
the management and the customers regarding the services offered in Retail banking and
to find out whether any gaps do exist between the services offered and the customer
expectations. We have taken 6 Banks which represent the Nationalized, Private and
Multinational Banks of the Banking Industry in India-
- SBI
- Corporation Bank
- HDFC Bank
- ICICI Bank
- Citibank
- Standard Chartered Bank

The criteria for selecting these banks were their deposit base. We have limited our
Service Category to the core services in Retail Banking and a few specialized services.
The report is a mixture of Secondary and Primary data, with Questionnaires being
our major instrument to collect primary data.
Major topics we have attempted to cover in this project are to: -
- Explore the services and products offered by the banks to individual customers.
- Understand the perception of the management with respect to services offered by
banks.
- Understand the perception of the customers with respect to services offered by
banks.
- Analyze whether there is a gap between the customer and management
perceptions about the services offered by the banks.
- Conclude and enumerate the recommendations that might help to reduce the gaps
that exist and foster the relationship of the customer more with the bank.
Gap Analysis of Services offered in Retail Banking

Data collection Method:


Secondary Data:-
In order to have a proper understanding of the sector of Retail Banking an in depth study
was done from the various books, magazines, articles written on the subject. A lot of data
has also been collected from these and also from websites on the topic as also from the
websites of the six banks.

Primary Data:
The primary data was collected by means of a survey. Questionnaires were prepared and
customers of the six banks were approached to fill up these questionnaires. The filled up
information was later analyzed to obtain the required information.

Sampling Plan:
Sampling was one of the methods of data and information collection. Two types of
samples were used . One was the management to gain an understanding about their
perceptions of the services they provide. Other was the customers of these banks to gain
an idea about as to how they rate the services they obtain.
The sample size of the customers was 10 each from each of the six banks ie.60
customers. The management sample size was restricted to 1 each, namely the Branch
Manager from the six banks which is 6 managers.

Data Collection Source:


The study required the understanding of the concept of Retail Banking and of the various
products associated with it. The method used was that of secondary research and primary
research. Under secondary research a detailed study was done from the various books,
journals, magazines written on the subject of banking ad retail banking to obtain the
required information and to have a precise idea of the services of retail banking.
Gap Analysis of Services offered in Retail Banking

Field Work:
The branch managers of each of the six banks were approached and questions were put to
them as per the questionnaire, and the answers duly filled up. Appropriate probing was
done where ever necessary.
For the customers ‘cold calling’ was the approach employed. The customers coming to
the banks were approached and as per their convenience and acceptance the questions
were put to them and the answers given by them duly filled up. Here too probing was
employed where deemed necessary.

Limitations:
• The sample size was restricted with in the area Ahmedabad, Gandhinagar.
• Further it was a convenience sampling.
• There were time and cost limitations.
• The six banks selected have been considered as representatives of the banking sector.
Also the opinions have been generalized to the public.
• This project has been done for academic purpose – and not done as a professional
researcher for the company.
Gap Analysis of Services offered in Retail Banking

Analysis
Q1 How do you rate the courtesy levels of your bank’s Personnel/Staff?
Rate Excellent VeryGood Good Average Poor
Percentage 34 50 16 0 0

Courtesy Levels of Bank


Employees(as per Mgmt)
Percentage

60 50
50 Excellent
40 34 Very Good
30 Good
20 16
Average
10 0 0 Poor
0
d
nt

e
o

or
g
ll e

ra
G

o
o
e

P
ve
G
xc

ry

A
E

e
V

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 7 60 34 0 0

Courtesy Levels of Bank


Employees(as per Cust.)

70 60
Percentage

60 Excellent
50 Very Good
40 34
Good
30
20 Average
6
10 0 0 Poor
0
d
nt

e
d
oo

r
g

oo
le

oo

ra
el

P
G

ve
xc

y
er

A
E

Rating

Q2. Rate as to how well informed/knowledgeable you feel the bank staff is in
Gap Analysis of Services offered in Retail Banking

answering/solving your questions/queries?


Rate Excellent VeryGood Good Average Poor
Percentage 0 66 34 0 0

Knowledge Possessed by Bank


Employees(as per Mgmt.)

70 66
Percentage

60 Excellent
50 Very Good
40 34
Good
30
20 Average
10 0 0 0 Poor
0
d
nt

e
o

or
g
le

ra

o
el

P
G

ve
xc

ry

A
E

e
V

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 20 34 36 10 0

Knowledge Possessed by Bank


Employees(as per Cust.)

36
Percentage

40 34
35 Excellent
30 Very Good
25 20
20 Good
15 10
10 Average
5 0 Poor
0
d
nt

e
o

or
g
ll e

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating
Gap Analysis of Services offered in Retail Banking

Q3. Rate the aspect as to how fast the personnel are in responding/attending
to you?
Rate Excellent VeryGood Good Average Poor
Percentage 50 34 16 0 0

Fast/Speedy Response of Bank


Employees(as per Mgmt.)

60 50
Percentage

50 Excellent
40 34 Very Good
30 Good
20 16
Average
10 0 0 Poor
0
d
nt

e
d

r
oo

oo
le

oo

ra
el

P
G

ve
xc

y
er

A
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 6 56 24 14 0

Fast/Speedy Response of Bank


Employees(as per Cust.)

60 56
Percentage

50 Excellent
40 Very Good
30 24 Good
20 14 Average
10 6
0 Poor
0
d
nt

e
d

r
oo

oo
le

oo

ra
el

P
G

ve
xc

y
er

A
E

Rating
Gap Analysis of Services offered in Retail Banking

Q4. a. How do you rate your bank with regards to the “Transaction time”
taken for cash withdrawal/deposits?
Rate Excellent VeryGood Good Average Poor
Percentage 50 50 0 0 0

Transaction Time for Cash


Withdrawal/Deposits (as per Mgmt.)
60 50 50
Percentage

50 Excellent
40 Very Good
30 Good
20 Average
10 0 0 0 Poor
0
d
nt

e
d

r
oo

oo
le

oo

ra
el

P
G

ve
xc

y
er

A
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 16 54 24 6 6

Transaction Time for Cash


Withdrawal/Deposits (as per Cust.)
60 54
Percentage

50 Excellent
40 Very Good
30 24 Good
20 16
Average
10 6
0 Poor
0
d
nt

e
d

r
oo

oo
lle

oo

ra
G
e

P
G

ve
xc

y
er

A
E

Rating
Gap Analysis of Services offered in Retail Banking

4.b.Rate the bank with regards to the transaction time taken to issue
DD/Cheque/Statements?
Rate Excellent VeryGood Good Average Poor
Percentage 50 34 16 0 0

Transaction Time for DD/Cheque (as


per Mgmt.)
60
Percentage

50
50 Excellent
40 34 Very Good
30 Good
20 16
Average
10 0 0 Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 14 50 16 16 4

Transaction Time for DD/Cheque (as


per Cust.)
60
Percentage

50
50 Excellent
40 Very Good
30 Good
20 14 16 16
Average
10 4
Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating
Gap Analysis of Services offered in Retail Banking

Q 5. Rate how hasslefree it was/is for you to open an account with the bank
Rate Excellent VeryGood Good Average Poor
Percentage 34 50 16 0 0

Hasslefree Account opening(as per


Mgmt.)

60
Percentage

50
50 Excellent
40 34 Very Good
30 Good
20 16
Average
10 0 0 Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 15 50 15 10 10

Hasslefree Account Opening (as per


Cust.)
Percentage

60 50
50 Excellent
40 Very Good
30 Good
20 15 15
10 10 Average
10
Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating
Gap Analysis of Services offered in Retail Banking

Q6.How do you rate your bank’s product or service innovation in the past
two years?
Rate Excellent VeryGood Good Average Poor
Percentage 50 50 0 0 0

Product /Service Innovation By Bank


(as per Mgmt.)
Percentage

60 50 50
50 Excellent
40 Very Good
30 Good
20 Average
10 0 0 0 Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 6 50 32 12 0

Product /Service Innovation By Bank


(as per Cust.)
60
Percentage

50
50 Excellent
40 32 Very Good
30 Good
20 12 Average
10 6
0 Poor
0
d
nt

e
o

or
g
lle

ra

o
G

o
e

P
ve
G
xc

ry

A
E

e
V

Rating
Gap Analysis of Services offered in Retail Banking

Q 7. How do you rate your bank regarding its promptness in keeping you
informed of deposit rates /service charges?
Rate Excellent VeryGood Good Average Poor
Percentage 33 34 33 0 0

Promptness in informing about


Deposit/Serv ice Charges By Bank
(as per Mgmt.)
Percentage

40
33 34 33
35
30 Excellent
25 Very Good
20 Good
15 Average
10 Poor
5 0 0
d
t

0
e
n

g
e

d
o

r
o
ra
o
ll

o
e

P
c

ry

v
x

A
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 4 20 26 40 10

Promptness in informing about


Deposit/Serv ice Charges By Bank
(as per Cust.)
45
Percentage

40
40
35 Excellent
30 26 Very Good
25 20 Good
20
15 Average
10
10 Poor
4
5
d

0
t

e
n

g
lle

r
o
o

ra
G

o
e

P
c

G
ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q8. How do you rate your banks grievance redressal system?


Rate Excellent VeryGood Good Average Poor
Percentage 17 83 0 0 0

Griev ance Redressal system By Bank


(as per Mgmt.)
90 83
Percentage

80
70 Excellent
60 Very Good
50
Good
40
30 Average
17 Poor
20
10 0 0 0
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 3 23 46 24 4

Griev ance Redressal system By Bank


(as per Cust.)
50 46
Percentage

45
40
Excellent
35
30 Very Good
23 24
25 Good
20 Average
15
10 Poor
3 4
5
d

0
t

e
n

g
e

r
o
ra
o
ll

o
e

P
c

G
ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Rate Excellent VeryGood Good Average Poor


Percentage 5 26 40 25 4

Entertainment of Griev ences By Bank


(as per Cust.)
45
Percentage

40
40
35 Excellent
30 26 25 Very Good
25
Good
20
15 Average
10 5 Poor
4
5
d

0
t

e
n

g
d
e

r
o
ra
o
ll

o
e

P
c

G
ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q 10. How do you rate your bank/ branch facility in terms of the comfort
facilities it offers-
Rate Excellent VeryGood Good Average Poor
Percentage 50 34 16 0 0

Infrastructure of the Bank (as per


Mgmt.)
60
Percentage

50
50
Excellent
40 34 Very Good
30 Good
20 16 Average
Poor
10
0 0
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
c

G
ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 4 53 20 20 3

Infrastructure of the Bank (as per


Cust.)
60 53
Percentage

50
Excellent
40 Very Good
30 Good
20 20
20 Average
Poor
10 4 3
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q11. How do you rate the quality of ATM services provided by the bank?

Rate Excellent VeryGood Good Average Poor


Percentage 50 50 0 0 0

Quality of ATM Serv ices (as per


Mgmt.)
60
Percentage

50 50
50
Excellent
40 Very Good
30 Good
20 Average
Poor
10
0 0 0
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 24 36 16 20 4

Quality of ATM Serv ices (as per


Cust.)
40 36
Percentage

35
30 Excellent
24
25 Very Good
20
20 16 Good
15 Average
10 Poor
4
5
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q12 .a.How do you rate the Debit card services offered by your bank?

Rate Excellent VeryGood Good Average Poor


Percentage 66 34 0 0 0

Debit Card Services (as per Mgmt.)

70 66
Percentage

60
50 Excellent
Very Good
40 34
Good
30
Average
20
Poor
10
0 0 0
0
d
t

e
n

r
lle

o
o

ra
G

o
o
e

P
G
c

ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 11 46 36 7 0

Debit Card Services (as per Cust.)

50 46
45
Percentage

40 36
Excellent
35
30 Very Good
25 Good
20 Average
15 11
10 7 Poor
5 0
0
d
t

e
n

r
g
lle

o
o

ra
G

o
o
e

P
e
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q12.b. How do you rate the Credit card services offered by your bank?
Rate Excellent VeryGood Good Average Poor
Percentage 0 66 17 17 0

Credit Card Services (as per Mgmt.)

70 66
Percentage

60
50 Excellent
Very Good
40
Good
30
17 17 Average
20
Poor
10
0 0
0
d
t

e
n

r
lle

o
o

ra
G

o
o
e

P
G
c

ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 0 66 17 17 0

Credit Card Services (as per Cust.)

70 66
Percentage

60
50 Excellent
Very Good
40
Good
30
Average
20 17 17
Poor
10
0 0
0
d
t

e
n

r
lle

o
o

ra
G

o
o
e

P
e
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q 13.a. Rate your bank as to how fast you feel it is in processing and
disbursing loans.
Rate Excellent VeryGood Good Average Poor
Percentage 50 34 16 0 0

Fastness in Processing and


Disbursing Loans (as per Mgmt.)
60
Percentage

50
50
Excellent
40 34 Very Good
30 Good
20 16 Average
Poor
10
0 0
0
d
t

e
n

g
lle

r
o

o
o

ra
G

o
e

P
c

G
ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 6 46 36 7 5

Fastness in Processing and


Disbursing Loans (as per Cust.)
50 46
Percentage

45
40 36 Excellent
35
30 Very Good
25 Good
20 Average
15
10 6 7 Poor
5
5
0
d
t

e
n

r
lle

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q13b. Rate the interest rates currently being offered -

Rate Excellent VeryGood Good Average Poor


Percentage 17 67 0 16 0

Rating of Interest Rates offered(as


per Mgmt.)
80
Percentage

67
70
60 Excellent
50 Very Good
40 Good
30 Average
17 16
20 Poor
10 0 0
0
d
t

e
n

r
lle

o
o

ra
G

o
e

P
G
c

ry

v
x

A
e
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 3 56 41 0 0

Rating of Interest Rates offered(as


per Cust.)
60 56
Percentage

50
41 Excellent
40 Very Good
30 Good
20 Average
Poor
10 3
0 0
0
d
t

e
n

r
g
lle

o
o

ra
G

o
o
e

P
e
G
c

ry

v
x

A
e
E

Rating
Gap Analysis of Services offered in Retail Banking

Q14. a. Do you use the phone/net banking facility offered by your bank?

yes no
6 0

Phone/Net Banking Whether being


used (Mgmt.)

10
Number

yes
5
no
0
yes no
Response

yes no
46 54

Phone/Net Banking Whether being


used (Cust.)

55
Number

50 yes
45 no
40
yes no
Response
Gap Analysis of Services offered in Retail Banking

Q14.b. Rate the quality of the phone/net banking facility offered by your
bank.
Rate Excellent VeryGood Good Average Poor
Percentage 33 33 17 17 0

Quality of Phone/Net Banking


Facilities (Mgmt.)
Percentage

35
30 Excellent
25 VeryGood
20
Good
15
10 Average
5 Poor
0
d
t

e
n

r
ll e

o
o

ra
G

o
o
e

P
G
ry
c

v
x

A
E

Rating

Rate Excellent VeryGood Good Average Poor


Percentage 0 71 21 8 0

Quality of Phone/Net Banking


Facilities (Cust.)

80
Percentage

70
60 Excellent
50 VeryGood
40 Good
30 Average
20 Poor
10
d

0
t

e
n

g
d
e

r
o

o
ra
o
ll

o
e

e
ry

P
c

v
x

A
E

Rating
Gap Analysis of Services offered in Retail Banking

Strategies for Increasing Retail Banking Business –

1. In the view to increase the business, bankers should undertake the risk
assessment for the customers and continuously study their behavior for timely
fulfillment of their needs.

2. Technology should be upgraded continuously as well as it should be customer


oriented.

3. Public Sector Banks need to be more professional in their approach. They


should also be more customer oriented.

4. Proper and continuous training should be provided to the staff.

5. The main concern for the bank should be to build up a IT Savvy Customer
Base. Due to various reasons, the principal being Security, people have a
mental block in using this technology which is otherwise very convenient and
customer friendly.

6. The banks would also have to gear up to use the international standards in
areas like Demat of Securities, electronic settlement system for funds and
securities.

7. Banks must work out strategic plans to computerize their rural and semi-urban
branch operations.

8. The inter branch and inter bank funds transfer mechanisms should be more
effective.

9. The public sector banks have to adapt themselves to the growing demands of
the industry.
Gap Analysis of Services offered in Retail Banking

Future of Retail Banking

The Banker asked European banks what they consider the future of retail banking to be.
The results, put together with the help of Henrion Ludlow Schmidt and Enalyzer,
highlight the sector’s strengths and fears as it heads into the 21st century.

What will the retail bank of the future look like, how it will operate and how will it
change from the bank of today?

The Banker surveyed the top 300 banks in western Europe plus the top 100 banks in
central and eastern Europe based on our rankings and asked bankers for their views. With
the help of Henrion Ludlow Schmidt, one of Europe’s leading independent brand
consultancies, and Enalyzer, which markets cutting edge eResearch solutions, we
received detailed online responses from 58 banks across 26 countries.
In brief, consumers are going to expect more in terms of accessibility, personalisation and
product/service innovation and the successful retail bank of the future will be brand-led
with all its activities – from recruitment to marketing, from strategy to implementation –
guided by a constantly reviewed and differentiated brand vision. Such a bank will also
make use of a greater degree of advanced technology, including online transactions, but
will not shift to a virtual model – it will have to retain a real feel.
The key findings from the responses of the 58 banks are divided into topic areas as
follows, and calibrated replies can be noted in the charts related to the 56 individual
questions asked in six key question blocks.

Technology

The provision of online banking facilities and converging technologies will dominate the
retail bank of the future to provide product information, give financial advice and to
allow customers to access and manage their accounts online. Ninety-three percent of
respondents see an increase in online transactions.
Internet banking will be the norm in five years’ time – 86% selected online as one of the
top three methods used to contact banks – allowing 24-hour availability.
ATMs are regarded as one of the main future methods of contact with the customer
(62%), which is interesting given reciprocity agreements diminishing branded experience
and the discussion about the cashless society.
Banks will need to develop powerful technology solutions, driven by customer demand.
Bankers still expect personal callers at their branches (56%).
Mobile phone contacts are not expected to be that significant (30%) but there is the
question of what impact 3G technology will make in the future.

Branding

Brand reputation and building stronger brands is of crucial significance to bankers


planning the future of retail banking in Europe. Ninety-six percent think it is extremely
Gap Analysis of Services offered in Retail Banking

important or important to build up brand reputation and personality to create stronger


customer loyalty.
The majority thinks that the market will be dominated by strong brands (89%) but there is
less support for the creation of ‘new’ brands (64% disagree or strongly disagree with
this).
A strong brand is seen as extremely important to attracting customers, differentiating
players from their competitors and gaining trust.
Transparency seems to be an important factor for building a strong brand (96%).
Opinions drift more apart on the subject of a shift to ‘virtual’ banks (40% strongly agree
or agree whereas 60% disagree or strongly disagree).
Seventy-one percent strongly agree or agree over the importance of the development of
cross-border networks whereas only 64% see cross-border consolidation coming.
Building up brand reputation and personality is regarded as much more important (96%)
than building global networks (60%).
Bankers think brand reputation and personality create stronger loyalty than physical
presence on the high street (83%).
More than one third believes that a strong brand does not protect the retail banking
business from the effects of economic slowdown and recession.
Motivated staff (100%) and internal communications (95%) are considered to be the most
powerful drivers to build a strong brand.

Products and services


The majority of the participants find personalised/individual products and services of
high quality and innovation crucially important for supporting customers’ needs and
aspirations.
Competence in financial advice is regarded as extremely important or important by 96%.
The product offer should be clear (86%) and the breadth of offer is also considered key
(70%).
The most important ancillary products and services are 24-hour service (57%), pensions
(57%), portfolio management (54%), financial consultation (54%) and insurance products
(52%), whereas less than 10% consider stockbroking, communication products or legal
products as important.
Low fees and service charges do not seem to be very significant. They are seen as
extremely important or important by only 58%.
However, the majority of respondents think that reducing interchange fees for card
transactions are less important.
Opinion is divided over the “one-stop-shop” – offering all products under a single
umbrella.

Bank management and development

All respondents see the vital contribution of people, in terms of attitudes and knowledge.
Bankers acknowledge that it will be their staff who secure their survival in the next five
years.
Staff need to be skilled, helpful and motivated.
Having a company culture, a clear vision and values are important for the majority.
Gap Analysis of Services offered in Retail Banking

Among the most influential tasks/ functions in the organisation for shaping the retail bank
of the future, the majority clearly regards customer relationship management (89%) as
most important, followed by marketing and communications as well as IT and
organisation (both 59%). Sales and quality management are also expected to become
more influential (52% and 51%). More than two-thirds think the influence of knowledge
management will stay the same.
More than one-third (38%) believe acquisitions will play a less significant role in the
future.
Ethics and transparency are being recognised as significant business drivers.
The implementation of performance standards could help to improve financial
performance (82%).
Local branches are still considered as extremely important or important by 70%.
Banks are likely to stay banks – free of coffee shops and gimmicks.
One-stop-shop and more relaxed ambience in branches are regarded as less important.
One respondent commented that the development of retail banking would depend highly
on tax regulations.

Communications and marketing

Like branding, the importance of communications and marketing cannot be denied.


Ninety-four percent expect marketing to be of growing importance in shaping the retail
bank of the future.
Furthermore, pro-active marketing is regarded as very important to retain and foster the
customer relationship (87%).
The bankers questioned see a strong importance of internal communications (see also
Branding).

Market and customers

Banks are becoming more customer focused.


The majority agree that a stronger focus should be put on the private client sector
(extremely important or important for 83%) as well as on banking for small businesses
(89%).
Relationships with customers will change considerably – although personal contact will
still be important.
The highest overall agreement is over the growing importance of customer relationship
management, including attraction of customers but also building up customer loyalty.
Seventy percent of bankers expect their customers to become less loyal and to transfer
between banks more frequently.
Seventy-seven percent believe ethical management of funds will increasingly influence
customer choice.
Almost all believe that it is extremely important or important to differentiate from
competitors.
The analysis of this data could be greatly extended given the wide range of questions and
responses shown. And while the results of this survey came from 26 European countries,
Gap Analysis of Services offered in Retail Banking

led by Spain with seven responses, the analysis in many instances provides critical food
for thought for retail banks around the world.

Business models that focus on core competence suggest that the retail bank of the future
might:

• build core financial products that are highly specialised but sold to retail instructions;

• commission financial products from specialised ‘manufacturers’ to be re-


branded/white-labelled and combined with own products;

• specialise in financial retail, only sourcing appropriate products and packaging as


needed, either on demand or through long-term supplier contracts;

• do everything, build, package, brand and sell own financial products and services.
Gap Analysis of Services offered in Retail Banking

Bibliography

1. Books and Magazines:

Services Marketing – By Valarie Zeithaml and Mary Jo Bitner


Banking and Finance
Business Today
Outlook Money

2. Newspapers:

Business Standard
Economic Times
Times of India

3. Brochures and Catalogues Provided By:

State Bank Of India


Corporation Bank
HDFC Bank
ICICI Bank
Standard Chartered
Citibank

4. Internet Web-Sites:

Google.com
Indiainfoline.com