Set- 1 Q.1 What are the financial risks that banks face and how do banks manage them?

Ans. Management of Risks in Banks Risk Management is a discipline at the core of every financial institution and encompasses all the activities that affect its risk profile. It comprises identification, measurement, monitoring and controlling risks to ensure that: The individuals who take or manage risks clearly understand it. The Banks risk exposure is within the limits established by Banks Risk Management Committee. Risk taking Decisions are in line with the business strategy and objectives set by the Risk Management Committee. The expected payoffs compensate for the risks taken. Risk taking decisions are explicit and clear. Sufficient capital as a buffer is available to take risk. The acceptance and management of financial risk is intrinsic to the business of retail banking and banks roles as financial intermediaries. Risk management as generally perceived does not mean minimizing risk; rather the goal of risk management is to optimize risk-reward trade-off. Despite the fact that banks are in the business of taking risk, it should be recognized that an institution need not engage in business in a manner that needlessly imposes risk upon it nor it should absorb risk that can be transferred to other participants. Rather it should accept those risks that are uniquely part of the array of banks services. Expanding business arenas, deregulation and globalization of financial activities emergence of new financial products and increased level of competition has necessitated a need for an effective and structured risk management in financial institutions. A banks ability to measure, monitor, and steer risks comprehensively is becoming a decisive parameter for its strategic positioning. The risk management framework and sophistication of the process, and internal controls, used to manage risks, depends on the nature, size and complexity of institutions activities. Nevertheless, there are some basic principles that apply to all financial institutions irrespective of their size and complexity of business and are reflective of the strength of an individual bank's risk management practices. A risk management framework encompasses the scope of risks to be managed, the process/systems and procedures to manage risk and the roles and responsibilities of individuals involved in risk management. The framework should be comprehensive enough to capture all risks a bank is exposed to and have flexibility to accommodate any change in business activities. An effective risk management framework includes: Well defined risk management policies and procedures covering risk identification, acceptance, measurement, monitoring, reporting and control. A well constituted organizational structure defining roles and responsibilities of individuals involved in risk taking as well as managing it very clearly. Banks, besides risk management functions for a range of risk categories may institute a setup that supervises overall risk management at the bank. Such a setup could be in the form

of a separate department or banks Risk Management Committee (RMC) could perform such function. The structure should be such that ensures effective monitoring and control over risks being taken. The individuals responsible for review function (Risk review, internal audit, compliance etc.) should be independent from risk taking units and report directly to board or senior management who are also not involved in risk taking. There should be an effective management information system that ensures flow of information from operational level to top management and a system to address any exceptions observed. There should be an explicit procedure concerning measures to be taken to address such deviations. The framework should have a mechanism to guarantee an ongoing review of systems, policies and procedures for risk management and procedure to adopt changes. In every bank there are people who are dedicated to risk management activities, such as risk review, internal audit etc. It must not be construed that risk management is something to be performed by a few individuals or a department. Business lines are equally responsible for the risks they are taking. Because line personnel, more than anyone else, understand the risks of the business, such a lack of accountability can lead to serious risks. Q.2 What is the role of co operative banks and why were they introduced in the Indian Financial system. Ans. Cooperative banks In India the co-operative bank has a history of almost hundred years. The Cooperative banks are a significant constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The co-operative movement originated in the West, but the significance that such banks have assumed in India is rarely comparable anywhere else in the world. Their role in rural financing continues to be significant even today, and their business in the urban areas also has increased amazingly in recent years mainly because of to the quick increase in the number of co-operative banks. However, the co-operative banks in rural areas chiefly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities. The co-operative banks in urban areas in general finance different categories of people for selfemployment, industries, small scale units, home finance, consumer finance, personal finance, etc. Some of the co-operative banks are quite forward looking and have developed adequate core competencies to challenge state and private sector banks. As per the National Federation of Urban Cooperative Bank & Credit Societies Ltd. (NAFCUB) the total deposits & lendings of Co-operative Banks is much more than Old Private Sector Banks and also the New Private Sector Banks. This exponential growth of Co-operative Banks is assigned chiefly to their much better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele. Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative

banks are also regulated by the Reserve Bank of India (RBI). They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. There are two main categories of the co-operative banks. Short term lending oriented co-operative banks within this category there are three sub categories of banks viz State co-operative banks, District co-operative banks and Primary Agricultural co-operative societies. Long term lending oriented co-operative banks within the second category there are land development banks at three levels state level, district level and village level. 7 Features of cooperative banks Co-operative Banks are organized and managed on the principal of co-operation, self-help, and mutual help. They function with the rule of one member, one vote. Function on no profit, no loss basis. Co-operative banks, as a principle, do not pursue the goal of profit maximization. Co-operative bank performs all the major banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Co-operative Banks provide limited banking products and are functionally specialists in agriculture related products. However, co-operative banks now provide housing loans also. Urban Co-operative Banks (UCBs) provide working capital loans and term loans as well. The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing loans upto Rs. 1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs. 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures as well. Cooperative bank do banking business chiefly in the agriculture and rural sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas as well. Over the years the urban and non-agricultural business of these banks has grown quite much. The co-operative banks show a shift from rural to urban, while the commercial banks, from urban to rural. Co-operative banks are perhaps the first government sponsored, government supported, and government-subsidized financial agency in India. They get financial and other help from the Reserve Bank of India, National Bank for Agriculture and Rural Development (NABARD), central government and state governments. They constitute the most favoured banking sector with risk of nationalization. For commercial banks, the Reserve Bank of India is lender of last resort, but for co-operative banks it is the lender of first resort which provides financial resources in the form of contribution to the initial capital (through state government), working capital, refinance. Co-operative Banks belong to the money market as well as to the capital market. Primary agricultural credit societies provide short term and medium term loans. Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs also provide both short term and long term loans. Co-operative banks are financial intermediaries only partially. The sources of their funds (resources) are: Central and state government, The Reserve Bank of India and NABARD,

Other co-operative institutions, Ownership funds and, Deposits or debenture issues. It is interesting to note that intra-sectoral flows of funds are much greater in cooperative banking than in commercial banking. Inter-bank deposits, borrowings, and credit from a significant part of assets and liabilities of co-operative banks. This means that intra-sectoral competition is absent and intra-sectoral integration is high for co-operative bank. Some co-operative banks are scheduled banks, while others are non-scheduled banks. For instance, SCBs and some UCBs are scheduled banks but other cooperative banks are non-scheduled banks. At present, 28 SCBs and 11 UCBs with Demand and Time Liabilities over Rs. 50 crore each included in the Second Schedule of the Reserve Bank of India Act. Co-operative Banks also like other scheduled and non-scheduled banks are subject to Credit Reserve Ratio (CRR) and Statutory Liquidity Requirements (SLR). However, their requirements are less than commercial banks. Since 1966 the lending and deposit rate of commercial banks have been directly regulated by the Reserve Bank of India. Although the Reserve Bank of India had power to regulate the rate of co-operative banks, but this have been exercised only after 1979. In respect of non-agricultural advances they were free to charge any rates at their discretion. Although the main aim of the co-operative bank is to provide cheaper credit to their members and not to maximize profits, they may access the money market to improve their income so as to remain viable. Q.3 Distinguish between credit cards, debit cards, charge cards and smart cards. Ans. Credit Cards A credit card is a way of payment by using the plastic cards which are issued by the banks to its customers for their payment. Credit cards are different than the debit cards. It is because using the facility of credit finance it does not remove or decrease the balance of the amount of account holder from his account. It is issued after a credit card application has been made to the issuer. The issuer then lends money to the credit card holder generally on different rates of interest. And if a consumer is using credit cards then it means he can reconcile his balance at the cost of charging interest and it would make his payment period longer than before. A consumer can also used credit card online facilities to get benefit from his credit card. This online credit card facility is easy to use and it is faster than the actual procedures of cash transactions. A customer can use credit card on different outlets and he can also make purchase online by using his credit card in a case he does not have liquid cash. Visa Credit Cards & Master Credit Cards are used all over the world. Different credit card companies and credit banks also maintain a system of credit check to get their credit in times. So a consumer will not be able to deceive them by using their credit cards. This credit check is maintained regularly and if a credit card holder is not able to pay his payments in the assigned time of payment then he will be given a grace period and in a case he would not be able to pay his

credit, his credit card would be blocked. And he will not be able to make any further purchases from his credit card. Debit Cards Debit cards allow for direct withdrawal of funds from a customers bank account. The spending limit is determined by the users bank upon available balance in the account of user. It is a special plastic card connected with electromagnetic identification that one can use to pay for things purchased directly from his bank account. Under the system, card holders account is immediately debited against purchase or services through the computer network. Hence, under debit card the cardholder must have adequate balance in his account. This system is intended to replace cheque system of payment and to eliminate the need of carrying cash for shopping etc. Charge Cards A small plastic card provided by an organization with which one may buy goods from various shops, etc. The full amount owed must then be paid on demand. In credit cards, the card holders get credit or loan for payment of periodical bills when sufficient balance is available in their accounts. In a charge card such credit facility is not available. The periodical bill amount is paid off by charging it to customers account. A fee is also payable by the card holder to the card issuing institution. Smart Cards With the use of credit cards, we may avail of credit facility on our purchase of goods/services from approved sales outlets. A smart card however, enables the cardholder to perform various other banking functions apart from credit purchases. For examples, with smart cards, we can draw cash from ATMs, we can verify entries in our accounts, seek information pertaining to our accounts, etc. This is possible because the card has an integrated circuit with microprocessor chip embedded in the card for identification purposes. The card can also perform calculations and maintain records. Q.4 What are the ways of positioning a banking product, explain through an example. Ans. Positioning Positioning is a concept that has evolved to help a bank dealing in retail to understand their own standing relative to their competitor, as perceived by their customers. It can help a retail bank that is involved in strategic planning to have a good understanding of how one retailers offer is regarded compared to others, and the basis upon which the offer is measured by consumers. The following elements of a retail offer are important in how customers judge one retailers offer over another: price; product assortment; convenient to use/visit; service quality. 1 Product positioning

A generalist approach to product management is to provide a solution to as many consumers needs as possible. It takes the view that by identifying needs that most often arise, and are most easily met and providing non-complex solutions to such needs, a large enough proportion of consumer needs will be met to make such a product offering viable. On the other hand to the general retailer, there are some retailers who offer a product assortment that is restricted to a much smaller number of product categories, but they provide the customer with much more choice within those categories. This choice might be apparent in terms of product variation, pricing level or brand choice. 2 Price positioning Although product range is probably the most important factor in a retailers market positioning strategy, the general price level of the merchandise must be a close second. Retailers can use price together with related factors like product quality, customer service quality and selling environments in order to make a very clear statement about where they belong in the market, and how they compare to competitors. Some retailers charge premium prices, for which customers get added value in the shopping process or experience, others keep their prices low, with minimal service add-on and basic banking environments. Some retailers use subbranding and category definition to pitch different product ranges at different customer groups, according to their ability to pay. Pricing therefore is an extremely valuable and effective tool to use in the creation of a viable positioning strategy.

Q.5 What is the significance of ecommerce and what are the types of e commerce initiatives. Ans. E-Commerce As till now studying this book you might have understand the significance of Information technology. It is considered as the key driver for the changes taking place around the world. Internet Banking (IB) is the latest and most innovative service offered by the banks. The transformation from the traditional banking to ebanking has been a 'leap' change. The evolution of e-banking started from the use of Automatic Teller Machines and telephone banking (tele-banking), direct bill payment, electronic fund transfer and the revolutionary online banking. The cutting edge for business today is e-commerce. Most people think e-commerce means online shopping. But online shopping is only a small part of the picture. The term also refers to online stock, bond transactions, buying and downloading software without ever going to a store. In addition, e-commerce includes business to business connections that make purchasing easier for big corporations. E-commerce is generally described as a method of buying and selling products and services electronically. The main vehicle of e-commerce remains the Internet and the World Wide Web, but uses of e-mail, fax and telephone orders are also prevalent. And for this all online transactions banks provide services to their customers like electronic money transfer, credit and debit cards etc. Electronic commerce is the application communication and information sharing technology among trading partners to the pursuit of business objectives. Ecommerce can be defined as modern business methodologies that address the

needs of the organization, merchants and consumers to cut costs while improving the quality of goods and services and speed of service delivery. E-commerce is associated with the buying and selling of information, products, and services via computer networks. A key element of e-commerce is information processing. The effects of e-commerce are already appearing in all areas of business, from customer service to new product design. It facilitates new types of information based business processes for reaching and interacting with customers online advertising and marketing, online order taking and online customer service etc. It can also reduce costs in managing orders and interacting with a wide range of suppliers and trading and trading partners, areas that typically add significant overheads to the cost of products and services. So, as we could see India doesnt intend to stay behind other countries concerning all the spheres of technological progress and processes of Internet and e-commerce development either. 1 Uses of e-commerce The uses of e-commerce are: Lower purchasing costs Reduction in quantity of inventory More efficient and effective customer service Lower sales/marketing costs New sales opportunities 2 Different types of e-commerce 1. B2C (Business-to-Consumer): In this type, businesses directly sell to the end consumer and are also referred as E-tailing or as 'Virtual Storefronts' on the web sites. It offers scope for 24-hour direct retail shopping and global reach providing customer information and ordering. 2. B2B (Business-to-Business): This medium includes buying and selling of products and service between business organizations through the net. 3. C2C (Consumer-to-Consumer): It includes business where consumer themselves deal with other consumer for buying and selling goods and products which may include rare, special category or second hand goods. The most important of such sites are the auction sites, which let anyone to list anything for sale so that everyone visiting that site can bid for it.

Q.6 Discuss the sales strategy followed by ICICI Bank. Ans. You or parents certainly will be getting calls from tele marketers of the banks telling about their new offers and facilities. But few years back a person himself had to walk into the bank building to enquire about the products and has to sit in queue for his turn. So its is apparent that the Retail banks now-a-days are raising their game across the board and across the globe. Retail banks are developing and adapting their distribution channels to meet the needs of increasingly demanding

customers; branches are more attractive and better designed; websites are more secure; and call centres offer quicker solutions to customers problems. However, there is still an enormous amount of work to do. Despite efficiency programmes, most banks have not notably reduced their cost-to-income ratios. While costs have fallen, so have revenues, thanks largely to growing competitive pressures and narrowing margins. Clear opportunities for expansion exist, but many banks are failing to adequately capitalise on the enormous potential of the key growth channels online and mobile sales forces because the performance of these channels does not yet meet customer needs and expectations. Moreover, banks need to pay greater attention to channel integration, where this is relevant to consumers, as few banks manage to achieve this today. For this purpose banks need a good sales team. The sales team of a bank should be highly efficient and should possess knowledge of the banking products and the customers needs as well. They should interact with people and should satisfy the customer in a persuasive manner to buy the products or services of the banks concerned. The members of the sales team should be capable of talking well with the customers on telephone, should be punctual, and must have the knowledge of the community he is dealing with.

Set- 2 Q.1 How do you differentiate between retail banking, private banking and priority banking. Ans. Differences between Retail Banking, Private Banking and Priority Banking Retail banking aims to be the one-stop shop for as many financial services as possible on behalf of retail clients. Some retail banks have even made a push into investment services such as wealth management, brokerage accounts, private banking and retirement planning. While some of these ancillary services are outsourced to third parties (often for regulatory reasons), they often intertwine with core retail banking accounts like checking and savings to allow for easier transfers and maintenance. In addition to providing exclusive investment-related advice, private banking goes beyond managing investments to address a client's entire financial situation. Services include: protecting and growing assets in the present, providing specialized financing solutions, planning retirement and passing wealth on to future generations. While an individual may be able to conduct some private banking with Rs. 500,000 or less in investable assets, some exclusive private banks only accept clients with at least Rs. 500,00,000 worth of investable assets. The rationale is that such high levels of wealth allow these individuals to participate in alternative investments such as hedge funds and real estate. Furthermore, this level of wealth often prevents liquidity problems. Priority banking is relatively new in the Indian context. In this form of banking, the bank identifies its priority customers (often customers with deposits above 1 lakhhowever this is different for each individual bank) and some special benefits are provided to these first class customers by the bank. For example, they do not have to wait in the queue for transactions. They are assigned client relationship managers to take care of all their banking needs. These customers can use banks premises for holding meetings, can access the Internet free of cost and several other benefits are also provided. The basic purpose of this form of banking is to make the experience of banking hassle-free and less time consuming.

Q.2 What is the rationale behind setting up Regional Rural Banks. Ans. Regional Rural Banks Regional Rural Banks were created in the 1970s exclusively to serve the credit needs of rural India, and specifically those individuals, social groups and regions most excluded by the formal system of credit. For all their weaknesses, these banks passed an important international test. A cross-country study of rural credit institutions threw up the important finding that, in the period 1988-1992, of all the institutions studied; Regional Rural Banks in India incurred the lowest costs of administration, 8.1 per cent of the total portfolio. The progress of RRBs in the initial stage was quite rapid. For instance, the Sixth Five-year plan (1980-85) had envisaged the setting up of 170 RRBs covering 270 districts by the end of march 1985.The target was exceeded. There are now 196 RRBs in 23 states of the country

with 14,200 branches. These banks had disbursed over Rs. 3,500 crore in credit and mobilized over Rs. 4,100 crore in deposits. An important feature of banking reforms has been to alter the equation between different sectors of banking, in this case, to make the norms governing Regional Rural Banks indistinguishable from those governing commercial banks, thus undermining their capacity to serve the special needs of the rural economy and the rural poor. Table 2.2 shows the performance of Regional Rural banks in fourteen years. Table 2.2: Evolution of Regional Rural Banks: Select Indicators (Rs. Crore) Paramete 19 198 199 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 r 80 5 0 No. RRBs Capital of 85 188 196 196 196 196 196 196 196 196 196 196 196

21 46

91

166 358 705 1,11 1,38 1,95 2,04 2,14 2,14 2,22 8 0 9 9 3 1 1

Deposits

22 1,3 4,0 11,1 14,1 17,9 22,1 27,0 32,2 38,2 44,5 49,5 56,2 2 15 23 41 71 76 91 59 26 94 39 82 95 1,34 2,87 3,89 5,28 6,68 7,76 8,80 9,47 17,1 21,2 8 9 1 0 0 0 0 1 38 86

Investme 20 164 60 nts

Advances 26 1,4 3,3 5,98 7,05 7,90 9,02 10,5 12,4 15,0 17,7 20,9 25,0 2 05 84 7 7 8 1 59 27 50 10 34 38 Total Assets Interest Earned Other income Total Income Interest 42 2,3 6,0 14,8 18,9 24,3 29,4 35,8 42,2 49,5 56,8 62,5 70,1 6 20 81 86 69 76 68 20 36 96 02 00 95 NA NA 480 1,15 1,42 2,03 2,62 3,28 3,93 4,61 5,19 5,39 5,53 8 1 3 4 1 8 9 1 1 5 NA NA 113 72 89 103 136 151 207 240 370 430 697

NA NA 593 1,23 1,51 2,13 2,76 3,43 4,14 4,85 5,56 5,82 6,23 0 1 6 0 2 5 9 1 1 1 NA NA 326 851 1,06 1,46 1,77 2,13 2,56 2,96 3,32 3,44 3,36

expended

Operating NA NA 254 657 726 804 845 982 1,05 1,16 1,45 1,66 1,82 expenses 6 5 9 7 5 Provision NA NA NA 120 171 673 72 s and contingen cies 99 96 128 163 132 289

NA NA 581 1,50 1,79 2,26 2,61 3,11 3,62 4,13 4,78 5,10 5,18 Total expenses 9 1 5 7 3 1 0 7 7 7 Operating NA NA 12 Profit -279 -280 -129 143 319 524 729 774 714 1,04 4

Note: Total expenses are excluding provisions and contingencies. Source: Reserve Bank of India. Liberalization has had the effect of crippling Regional Rural Banks, rendering them incapable of fulfilling their original mandate. Though, the total demand for the credit has ever been on rise, but the number of players is ever increasing. Q.3 What are the types of disputes considered by the ombudsman. Write about the ombudsman scheme followed by any particular bank by visiting the website of the bank. Ans. Banking Ombudsman Scheme, 2006 The Banking Ombudsman Scheme, 2002 (which has been brought into force w.e.f 14th June, 2002), offers you recourse for resolution of your complaints, by the Banking Ombudsman, against your bank, in respect of such services of the bank which are stipulated under the Scheme; and resolution of claim of the bank against you, by the Banking Ombudsman (as an arbitrator), provided that the value of the claim in such dispute does not exceed Rs. 10 Lakh; without affecting your right to go to court, in case you are not satisfied with the Award of the Banking Ombudsman, under the Scheme. 1 Jurisdiction Under the Scheme, the Banking Ombudsman assumes jurisdiction on receipt of complaints against a bank alleging deficiency in banking service for consideration and resolution of such complaints. As an arbitrator, the Banking Ombudsman assumes jurisdiction on receipt of reference of a dispute (between a bank and its constituents or between a bank and another bank) with mutual consent of both the parties, for arbitration. 2 Types of disputes considered by ombudsman

Banking Ombudsman is competent to receive and consider complaints of following nature: Non-payment/inordinate delay in the payment or collection of cheques, drafts, bills, etc; Non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof; Non-issue of drafts to customers and others; Non-adherence to prescribed working hours by branches; Failure to honour guarantee/letter of credit commitments by banks; Claims in respect of unauthorized or fraudulent withdrawals from deposit accounts, or fraudulent encashment of a cheque or a bank draft, etc; Complaints pertaining to the operations in any savings, current or any other account maintained with a bank, such as delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits; Complaints from exporters in India such as delays in receipt of export proceeds, handling of export bills, collection of bills, etc. provided the said complaints pertain to the bank's operations in India; Complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters; Complaints pertaining to refusal of open deposit accounts without any valid reason for refusal and any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking service. 3 Ombudsman an arbitrator Banking Ombudsman functions as an arbitrator in respect of any dispute (between a bank and its constituents or between a bank and another bank) referred to him for arbitration with mutual consent of both the parties provided that the value of the claim in such dispute does not exceed Rupees Ten Lakhs. After assuming charge as an arbitrator in any dispute, if the Banking Ombudsman feels at any stage that he is unable to perform his function independently without having any personal interest, then he shall decline to continue as an arbitrator.

Q.4 Discuss customer segmentation done by ICICI Bank based on the products offered. Ans. Segmentation Segmentation has always been a key part of marketing. Sorting customers into appropriate segments allows business and marketing types to filter ideas, glean intelligence, set prices, and decide what to offer and what to toss. Segmentation also allows successful companies to produce just the right thing to address the needs of

different slices of the market. However, the retail banks adopts two types of segmentation for their product management. 1 Market segmentation Market segmentation is the segmentation of markets into homogenous groups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in that way that differences between buyers within each segment are as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix. There are a huge number of variables that could be used for market segmentation in theory. They comprise easy to determine demographic factors as well as variables on user behaviour or customer preferences. In addition, there are differences between private customers and businesses. The following table shows the most important traditional variables for segmentation.

The product managers of retail banking products have to choose those variables that are relevant for segmenting the market for a particular product. The basic rule is to focus on a limited number of important variables. To segment the market into too many small, slightly distinct segments would require splitting up the marketing budget into too many ineffective chunks. 2 Customer segmentation Customer Segmentation is the subdivision of a market into discrete customer groups that share similar characteristics. Customer Segmentation can be a powerful means to identify unmet customer needs. Banks that identify underserved segments can then outperform the competition by developing uniquely appealing products and services. Customer Segmentation is most effective when a bank tailors offerings to

segments that are the most profitable and serves them with distinct competitive advantages. This prioritization can help companies develop marketing campaigns and pricing strategies to extract maximum value from both high and low-profit customers. A bank can use Customer Segmentation as the principal basis for allocating resources to product development, marketing, service and delivery programs. Methodology: Customer Segmentation requires managers to: Divide the market into meaningful and measurable segments according to customers' needs, their past behaviours or their demographic profiles; Determine the profit potential of each segment by analyzing the revenue and cost impacts of serving each segment; Target segments according to their profit potential and the company's ability to serve them in a proprietary way; Invest resources to tailor product, service, marketing and distribution programs to match the needs of each target segment; Measure performance of each segment and adjust the segmentation approach over time as market conditions change decision making throughout the organization. Common uses: Banks can use Customer Segmentation to: Prioritize new product development efforts; Develop customized marketing programs; Choose specific product features; Establish appropriate service options; Design an optimal distribution strategy; Determine appropriate product pricing.

Q.5 What do you understand by mobile banking and how does it benefit the depositor. Ans. Mobile banking Mobile banking is a service that allows you to do banking transactions on your mobile phone without making a call, using the SMS facility. Mobile Banking works on the 'Text Messaging Facility' also called the SMS (Short Messaging Service) that is available on mobile phones. This facility allows you to send a short text message from your mobile phone instead of making a phone call. All you need to do is type out a short text message on your mobile phone and send it out to a number given to you by your bank. The response is sent to you as an SMS message, all in the matter of a few seconds. This message travels from your mobile phone to the SMS Centre of the Cellular Service Provider, and from there it travels to the Bank's systems. The information is

retrieved and sent back to your mobile phone via the SMS Centre, all in a matter of a few seconds. The following can be done on the mobile banking: Balance inquiry of all accounts linked to your Customer Identification Number Checking the last three transactions in your primary account for mobile banking Placing a stop payment on a cheque Requesting a cheque book Requesting an account statement Cheque status inquiry Bill presentment Fixed deposit inquiry A help menu, which gives you the transaction codes for the various transactions IPIN registration request