INTRODUCTION TO SERVICE SECTOR

Service

Sector is the lifeline

for the social economic growth of a

country. It is today the largest and
fastest

growing

sector

globally

contributing more to the global

output and employing more people
than any other sector.
The real reason for the growth
of the service sector is due to the
increase

in

urbanization,

privatization and more demand for

intermediate and final consumer
services.

Availability

of

quality

services is vital for the well being of

the economy.
In advanced economies the growth in the primary and secondary sectors
are directly dependent on the growth of services like banking, insurance, trade,
commerce, entertainment etc.
The service sector is going through almost revolutionary change, it
dramatically affects the way in which we live and work. New services are
continually being launched to satisfy consumers existing needs and to meet the

Needs that they do not even know they had. Ten years ago people did not
anticipate the need for email, online banking, web hosting, online reservation
and many other new services, but today many of us feel we cannot survive
without them. Similar transformations are happening in Business to business
marketing. Service organisations vary widely in size. At one end are the huge
international corporations operating in industries such as

tourism, airlines,

banking, telecommunication etc whereas on the other end of the scale is a vast
array of locally owned and operated small businesses including parlours , hotels
, laundry n numerous business to business services.

How important is the service sector in an economy?

In most countries services add more economic value than agriculture, raw
materials and manufacturing combined.
In developed economies employment is dominated by service jobs and
most new job growth comes from services.
Jobs range from high paid professionals and technicians to minimum
wage positions.
Service organisations can be any size, from huge global corporations to
local small businesses.
Most activities by govt. agencies and non profit orgs involve service.

Service Sector in India:

In alignment with the global trends, Indian service sector has witnessed a major
boom and is one of the major contributors to both employment and national
income in recent times. The activities under the purview of the service sector are
quite diverse. Trading, transportation and communication, financial, real estate
and business services, community, social and personal services come within the
gambit of the service industry. Service sector in India accounts for more than
half of Indias GDP. According to data for the financial year 2008, the share of
services, industry and agriculture in Indias GDP is 53.7% 29.1% and 17.2%
respectively.
The various sectors that combine together to constitute service industry in
India are stated as under:

Trade
Hotels and restaurants
Railways
Other transport and storage
Communication (post and telecom)
Banking
Insurance
Dwellings, real estate
Business services
Public administrations, defence
Personal services
Community services
Other service

Chapter 2
INTRODUCTION TO BANKING SECTOR
3

A bank is an institution that deals with money and credit. Different people
understand meaning of a bank in different ways. For a common man, bank is a
storehouse where money is stored, for a businessman it is a financial institution
and for a day to day customer it is an institution where he can deposit his
savings. Banks play an important role in the economy of any country as they
hold the savings of the public. Provide means of payment for goods and services
and provide necessary finance for development of business and change. Thus
bank is a link in the flow of funds from the savers to the users hence they should
render efficient customer service in order to retain the present customers and
also to attract the potential customer.
In the past the banks did not face any attraction in the Indian economy
because of the low level of the economic activities and the little business
prospects. Today we find positive changes in the national business development
policy. Earlier the moneylenders had a strong hold over the rural population
which resulted in exploitation of small and marginal savers. The private sector

banks failed in serving the society. This resulted in the nationalisation of 14

commercial banks in 1969.

There was a basic change in the banking concept with a beginning in the
nationalisation of big commercial banks. The involvement of public sector
banks, transformed the Indian economy.
The Indian banking can be broadly categorized into nationalized
(government owned), private banks and specialized banking institutions. The
Reserve Bank of India acts a centralized body monitoring any discrepancies and
shortcoming in the system. Since the nationalization of banks in 1969, the
public sector banks or the nationalized banks have acquired a place of
prominence and has since then seen tremendous progress. The need to become
highly customer focused has forced the slow-moving public sector banks to
adopt a fast track approach. The unleashing of products and services through the
net has galvanized players at all levels of the banking and financial institutions
market grid to look anew at their existing portfolio offering. Conservative
banking practices allowed Indian banks to be insulated partially from the Asian
currency crisis. Indian banks are now quoting a higher valuation when
compared to banks in other Asian countries (viz. Hong Kong, Singapore,
Philippines etc.) that have major problems linked to huge Non Performing
Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in
approach and armed with efficient branch networks focus primarily on the high
revenue niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of
the new Indian market and is addressing the relevant issues to take on the

multifarious challenges of globalization. Banks that employ IT solutions are

perceived to be futuristic and proactive players capable of meeting the

multifarious requirements of the large customers base. Private Banks have been
fast on the uptake and are reorienting their strategies using the internet as a
medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as applicable
like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy
business institution to a highly proactive and dynamic entity.

This

transformation has been largely brought about by the large dose of liberalization
and economic reforms that allowed banks to explore new business opportunities
rather than generating revenues from conventional streams (i.e. borrowing and
lending). The banking in India is highly fragmented with 30 banking units
contributing to almost 50% of deposits and 60% of advances.

Indian

nationalized banks (banks owned by the government) continue to be the major

lenders in the economy due to their sheer size and penetrative networks which
assures them high deposit mobilization. The Indian banking can be broadly
categorized into nationalized, private banks and specialized banking institutions.
The Reserve Bank of India acts as a centralized body monitoring any
discrepancies and shortcoming in the system. It is the foremost monitoring
body in the Indian financial sector.

The

nationalized banks (i.e. government-owned

banks) continue to dominate the Indian

banking arena. Industry estimates indicate

that out of 274 commercial banks operating
in India, 223 banks are in the public sector
and 51 are in the private sector. The private sector bank grid also includes 24
foreign banks that have started their operations here.
6

The liberalize policy of Government of India permitted entry to private

sector in the banking, the industry has witnessed the entry of nine new
generation private banks. The major differentiating parameter that distinguishes
these banks from all the other banks in the Indian banking is the level of service
that is offered to the customer. Their focus has always centred around the
customer understanding his needs, pre-empting him and consequently
delighting him with various configurations of benefits and a wide portfolio of
products and services.

These banks have generally been established by

promoters of repute or by high value domestic financial institutions.

The popularity of these banks can be gauged by the fact that in a short
span of time, these banks have gained considerable customer confidence and
consequently have shown impressive growth rates. Today, the private banks
corner almost four per cent share of the total share of deposits. Most of the
banks in this category are concentrated in the high-growth urban areas in metros
(that account for approximately 70% of the total banking business).

With

efficiency being the major focus, these banks have leveraged on their strengths
and competencies viz. Management, operational efficiency and flexibility,
superior product positioning and higher employee productivity skills.
The private banks with their focused business and service portfolio have a
reputation of being niche players in the industry. A strategy that has allowed
these banks to concentrate on few reliable high net worth companies and

individuals rather than cater to the mass market.

These well-chalked out

integrates strategy plans have allowed most of these banks to deliver superlative
levels of personalized services. With the Reserve Bank of India allowing these
banks to operate 70% of their businesses in urban areas, this statutory

requirement has translated into lower deposit mobilization costs and higher
margins relative to public sector banks.
The three major changes in the banking sector post
liberalization are:

Step to increase the cash outflow through reduction in

the statutory
liquidity and cash reserve ratio.

Nationalized banks including SBI were allowed to sell

stakes to private
sector and private investors were allowed to
enter the banking domain.
Foreign banks were given greater access to the domestic market, both as
subsidiaries and branches, provided the foreign banks maintained a
minimum assigned capital and would be governed by the same rules and
regulations governing domestic banks.

Banks were given greater freedom to leverage the capital markets and
determine their asset portfolios. The banks were allowed to provide
advances against equity provided as collateral and provide bank
guarantees to the broking community

Banking sector in India

Banks are now the most significant players in the Indian financial market. They
are the biggest purveyors of credit, and they also attract most of the savings
from the population. The Indian banking can be broadly categorized into
nationalized (government owned), private banks and specialized banking
institutions. The Reserve Bank of India acts a centralized body monitoring any
discrepancies and shortcoming in the system.
The need to become highly customer focused has forced the slowmoving public sector banks to adopt a fast track approach. The unleashing of
products and services through the net has galvanized players at all levels of the
banking and financial institutions market grid to look anew at their existing
portfolio offering. Driven by the socialist ideologies and the welfare state
concept, public sector banks have long been the supporters of agriculture and
other priority sectors. They act as crucial channels of the government in its
efforts to ensure equitable economic development.
The liberalize policy of Government of India permitted entry to private
sector in the banking, the industry has witnessed the entry of nine new
generation private banks.

The major differentiating parameter that

distinguishes these banks from all the other banks in the Indian banking is
the level of service that is offered to the customer. Their focus has always
centred around the customer understanding his needs, pre-empting him and
consequently delighting him with various configurations of benefits and
a wide portfolio of products and services. These banks have generally been
established by promoters of repute or by high value domestic financial
institutions. Today, the private banks corner almost 4% share of the total share
of deposits

Chapter 3
TYPES OF BANKS
There are various types of banks which operate in our country to meet the
financial requirements of different categories of people engaged in agriculture,

10

business, profession, etc. On the basis of functions, the banking institutions in

India may be divided into the following types:
Types of Banks
a)
b)
c)
d)
(i)
(ii)

Central Bank (RBI, in India)

Development Banks
Specialized Banks (EXIM Bank, SIDBI, NABARD)
Commercial Banks
Public Sector Banks
Private Sector Banks

e) Co-operative Banks
(i)
(ii)

Central Co-operative Banks

State Co-operative Banks
Now let us learn about each of these banks in detail.
a) Central Bank
A bank which is entrusted with the functions of guiding and regulating the
banking system of a country is known as its Central bank. Such a bank does not
deal with the general public. It acts essentially as Governments banker;
maintain deposit accounts of all other banks and
advances money to other banks, when needed. The Central Bank provides
guidance to other banks whenever they face any problem. It is therefore known
as the bankers bank. The Reserve Bank of India is the central bank of our
country.
The Central Bank maintains record of Government
revenue and expenditure under various heads. It also advises
the Government on monetary and credit policies and decides
on the interest rates for bank deposits and bank loans. In
addition, foreign exchange rates are also determined by the central bank.

11

Another important function of the Central Bank is the issuance of currency

notes, regulating their circulation in the country by different methods. No other
bank than the Central Bank can issue currency.
b) Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant
short-term loans and advances to their customers. In addition to giving shortterm loans, commercial banks also give medium-term and long-term loan to
business enterprises. Now-a-days some of the commercial banks are also
providing housing loan on a long-term basis to individuals. There are also many
other functions of commercial banks, which are discussed later in this lesson.
Types of Commercial banks: Commercial banks are of three types i.e., Public
sector banks, Private sector banks and Foreign banks.

(i)

Public Sector Banks: These are banks where majority stake is held by the
Government of India or Reserve Bank of India. Examples of public sector banks
are: State Bank of India, Corporation Bank, Bank of Baroda and Dena Bank,
etc.

(ii)

Private Sectors Banks: In case of private sector banks

majority of share capital of the bank is held by private individuals. These banks
are registered as companies with limited liability. For example: The Jammu and
Kashmir Bank Ltd., Bank of Rajasthan Ltd, Development Credit Bank Ltd, Lord
12

Krishna Bank Ltd., Bharat Overseas Bank Ltd, Global Trust Bank, Vysya Bank,
etc.

(iii)

Foreign Banks: These banks are registered and have their

headquarters in a foreign country but operate their
branches in our country. Some of the foreign banks
operating in our country are Hong Kong and Shanghai
Banking Corporation (HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grindlays Bank, etc. The number of foreign banks operating in
our country has increased since the financial sector reforms
of 1991.

c) Development Banks
Business often requires medium and long-term
capital for purchase of machinery and equipment, for using latest technology, or
for expansion and modernization. Such financial assistance is provided by
Development Banks. They also undertake other development measures like
subscribing to the shares and debentures issued by companies, in case of under
subscription of the issue by the public. Industrial Finance Corporation of India
(IFCI) and State Financial
Corporations (SFCs) are examples of development banks in India.

d) Co-operative Banks

13

People who come together to jointly serve their common interest often
form a co-operative society under the Co-operative Societies Act. When a cooperative society engages itself in banking business it is called a Co-operative
Bank. The society has to obtain a license from the Reserve Bank of India before
starting banking business. Any co-operative bank as a society is to function
under the overall supervision of the Registrar, Co-operative Societies of the
State. As regards banking business, the society must follow the guidelines set
and issued by the Reserve Bank of India.
Types of Co-operative Banks
There are three types of co-operative banks operating in our country. They
are primary credit societies, central co-operative banks and state co-operative
banks. These banks are organized at three levels, village or town level, district
level and state level.
(i)

Primary Credit Societies: These are formed at the village or town level with
borrower and non-borrower members residing in one locality. The operations of
each society are restricted to a small area so that the members know each other
and are able to watch over the activities of all members to prevent frauds.

(ii)

Central Co-operative Banks: These banks operate at the district level having
some of the primary credit societies belonging to the same district as their
members. These banks provide loans to their members (i.e., primary credit
societies) and function as a link between the primary credit societies and state
co-operative banks.

14

(iii)

State Co-operative Banks: These are the apex (highest level) co-operative
banks in all the states of the country. They mobilize funds and help in its proper
channelization among various sectors. The money reaches the individual
borrowers from the state co-operative banks through the central co-operative
banks and the primary credit societies.

e) Specialized Banks
There are some banks, which cater to the requirements and provide
overall support for setting up business in specific areas of activity. EXIM Bank,
SIDBI and NABARD are examples of such banks. They engage themselves in
some specific area or activity and thus, are called specialized banks.

(i) Export Import Bank of India (EXIM Bank):

If you want to set up a business for exporting products abroad or
importing products from foreign countries for sale in our
country, EXIM bank can provide you the required support
and assistance. The bank grants loans to exporters and
importers and also provides information about the
international market. It gives guidance about the opportunities for export or
import, the risks involved in it and the competition to be faced, etc.

(ii) Small Industries Development Bank of India (SIDBI):

If you want to establish a small-scale
business unit or industry, loan on easy terms can
be available through SIDBI. It also finances
modernization of small-scale industrial units, use of new technology and market

15

activities. The aim and focus of SIDBI is to promote, finance and develop smallscale industries.

(iii)

National Bank for Agricultural and Rural Development (NABARD):

It is a
or

central

apex

institution for financing agricultural and rural sectors. If a person is engaged in

agriculture or other activities like handloom weaving, fishing, etc. NABARD
can provide credit, both short-term and long-term, through regional rural banks.
It provides financial assistance, especially, to co-operative credit, in the field of
agriculture, small-scale industries, cottage and village industries handicrafts and
allied economic activities in rural areas.

16

Chapter 4
MARKET SEGMENTATION
An organization is supposed to cater to the changing needs of customers;
it is only natural that all customers have their own likes and dislikes. They have
some uniqueness, which throws a big imprint on their lifestyles. This makes the
task of understanding a bit difficult. It has the context that we go through the
problem of market segmentation in the banking service.
The study of the needs of customers invites a plethora of problems since
in addition to other aspects; the regional considerations also influence the
hierarchy of needs. To be more specific in the banking services, the banking
organizations are supposed to satisfy different types of customers living in
different segments. The segmentation of market makes the task of bank
professionals easier. If the market segmentation is done in a right fashion, the
task of satisfying the customers is simplified considerably. The modern
marketing theories advocate the formulation of marketing policies and strategies
for each segment, which an organization plans to solicit.
The marketing segmentation is based in the principle of divide and rule.
If we divide the market into different segments, the size of market is made small
and the process of study is found convenient. We find market segmentation
division and subdivision of a market based on considerations. The bank
professionals have to segment the market in such a way that the expectations of
all potential customers are studied in a right perspective and the marketing
resources are developed to fulfil the same. The marketing efforts can be made
more proactive if the process and bases of segmentation are right.
It is essential that the bank professionals assign due weightage to the

17

difference that we find in the market behaviour due to geographical, age, sex,
nationality, educational background, income classes, occupation, social and
other considerations. If they overlook or underestimate key bases while
segmenting, the study results cant be proactive to the formulation of creative
marketing decisions. This makes it essential that the bank professionals are well
aware of the criteria for market segmentation. The agriculture sector, industrial
sector, services sector, household sector are found important in the very context.
The gender segment is found important no doubt but we cant underestimate
institutional and professional segments. Since the banking organizations serve
different sectors and segments, the segmentation should be done carefully.

IMPORTANCE OF SEGMENTATION
1. Instrumental in exploring opportunities:
We find market segmentation very much effective in exploring the
profitable opportunities. It is well known to us that while segmenting, the
market is divided into different groups and sub-groups and this simplifies the
process of studying and understanding the customers in a right perspective. If
we know about the rural segment, the opportunities are explored to the rural
areas. If we know about the women segment, the opportunities are identified in
that area. If we know about the low- income group, the opportunities are
identified in that group. Thus the segmentation helps the bank professionals in
exploring the profitable opportunities.

18

2. Instrumental in designing a sound marketing strategy:

We cant deny that market segmentation makes it easier to formulate a
sound strategy. Since the banking professionals are aware of the changing needs
and requirements of a segment, the marketing resources can be developed in
tune with the needs and requirements of a segment. The formulation of a
package is found significant and the bank professionals can do it successfully on
the basis of market segmentation. The promotional measures can be satisfied in
the face of receiving capacity of a particular segment. The pricing strategy can
be made operational and the sales promotion measures can be made productive.

3. Helpful to the policy planners:

In addition, the policy makers also find segmentation since they are well
aware of the emerging trends in the business environment. They get detailed
information about the changing needs and requirements of a segment. The
planning is an ongoing process. The banking professionals transmit necessary
information to the policy planners, which simplifies the process of making a
sound policy.

4. Enriching the market resources:

In addition to other aspects, we find segmentation instrumental in
enriching the marketing potentials. If we know about the preference, needs,
requirements, attitudes, lifestyles it is found easier for us to develop the
marketing resources accordingly. This in a natural way makes it convenient to
develop marketing resources. The process of innovation can be activated. The
services, the promotional measures, the pricing tool and the process of offering
can be made more competitive. The development of world-class marketing

19

resources thus makes it convenient to influence the impulse of prospects. The

bank professionals find it easier to get the positive results for their productive
marketing efforts.

CRITERIA FOR SEGMENTATION

Segmentation in a right fashion makes the way for profitable marketing.
This helps policy planners in formulating and innovating the policies and at the
same time also simplifies the task of banking professionals while formulating
and innovating the strategic decision. The following criterion makes the
segmentation right.

ECONOMIC SYSTEM
An important criterion for market segmentation is the economic system in
which we find agricultural sector, industrial sector, services sector, household
sector, and rural sector requiring the weight age while segmenting.

20

A). AGRICULTURAL SECTOR:

In the agricultural sector, there are four categories since the needs of all
categories cant be identical.

The mechanization of agriculture, the improved or scientific system of

cultivation, the help of nature, the magnitude of risk, the availability of
infrastructural facilities influence the level of expectations vis--vis the needs
and requirements. The banking organizations are supposed to know and
understand the changing requirements of different categories of farmers.

B). INDUSTRIAL SECTOR:

The banking organizations are supposed to have an in-depth knowledge
of the changing needs and requirements of the industrial sector. The large
sized, small- sized co-operative and tiny industries use the services of the banks.
The expectation of all the categories cant be uniform.
The banking organizations are supposed to have an in-depth knowledge
of the changing needs and requirements of the industrial segment. The emerging
trends in competition, the pressure of inflation, the use of sophisticated

21

technologies, and the business regulations are some of the important aspects
influencing the hierarchy of needs.

C). SERVICES

SECTOR:

It is an important sector to the economy where the banking organizations

get profitable business. The two categories of organizations such as profitmaking and non- profit making are found important in the very context.

PROFIT MAKING ORG.

BANK INSURANCE, TRANSPORT HOTEL, TOURISM, PERSON
NON PROFIT MAKING ORG.
EDUCATION, HHHOSPITAL,
RELIGIOUS
POLITICAL AND SOCIAL
WELFARE.

22

SERVICE SEGMENT

The banking organizations need to identify the changing needs and requirements
of the services sector with the frequent use of IT and with the mounting pressure
of inflation and competition, we find a change in the hierarchy of needs.

HOUSEHOLD SEGMENT
This also constitutes an important sector where different
income groups have different needs and requirements.
A). HOUSEHOLD SEGMENT
The high income group, middle income group, subsistence level group
and marginal income group have different hierarchy of needs which influence
the level of their expectations.

B). GENDER SEGMENT:

In the gender segment we find males and females
having different needs and requirements. Some of the women are housewives
and therefore they have different needs and requirements whereas some of them
are working ladies having different needs and requirements.

23

PROFESSION SEGMENT:
In the profession segment, we find different categories
of professions and therefore we find a change in their needs
and requirements. The technocrats, bureaucrats, corporate
executives, intellects, white-collar and blue collar employees have different
needs and requirements and

therefore

organizations

their expectations.

should

know

INSTITUTIONAL

the

banking

SECTOR

In this sector we find different categories of organizations. Some of the

organizations are known as charitable organizations, some of them are cultural/
social organizations, some of them are industrial and many of them are profit
making and many are philanthropic and many of them are related to trade and
commerce. It is natural that the needs and requirements vis--vis the level of
expectations cant be identical in all cases. To satisfy and to increase the market

24

share it is imperative that the banking organizations are familiar with changing
needs and requirements. The emerging trends in the social transformation
process determine the hierarchy of needs.

Chapter 5
7 Ps of Banking sector
PRODUCT

A product can be defined as a bundle of utilities consisting of various product

features accompanying services.
Bank services are viewed with not just things that are created with value but
they are seen in terms of satisfaction they deliver.
E.g. A bank account is seen in terms of customer satisfaction such as safety,
convenience of paying dues keeping records status, transferring funds, etc.

I.

Bank Products

25

1.

DEPOSITS:
Savings, current, fixed etc.

2.

ADVANCES:
(a) Fund Oriented:

Term loan

Clean loan

Bill discounting

Advancing

Pre-shipment and post-shipment finance

Secured and unsecured lines of credit.

(b) Non-Fund Oriented:

Guarantees
Letter of credit.

3.

International Banking:

Letter of credit
Foreign currency

26

4.

Consultancy:
Investment counselling

Project counselling
Merchant banking
Tax consultancy

5.

Miscellaneous:

Traveller cheques
Credit cards
Remittances
Collections
Sale of drafts
Standing instructions and
Trusteeship.

PRODUCT LEVELS

Core Benefit:

27

It is the main or core reason why the customer will buy the service of the bank.
But customers do not buy the core product, they only buy the benefit. The role
of the bank marketer is to convert the core products into a generic product
which satisfies the needs of the customer. E.G. In case of bank core value is to
deposit and withdraw money.
Basic Product:
The core benefit is converted into a basic product. That is the service can used
by the customer in order to fulfil his/her needs. It is basically colour, brand
name, shape, size, quality, branding and packaging. E.G. In bank basic product
is to provide savings a/c, current a/c, deposits, loans, and overdraft facility.

Expected Product:
It refers to the set of attributes and conditions expected by the customers when
they purchase the service. E.G. If the customer expects the loan to be given
within a day and if he gets it in a day, the bank has met the expectations of the
customer.
Augmented Product:
It is the additional feature that the banks provide which exceeds the customers
expectations. E.G When one opens a Suvidha account with Citibank he gets an
ATM card free. The bank marketer must offer a multi dimensional product or
what is called a product package
Potential Product:

28

Innovations and product differential is the bases of a Potential Product. If the

banks alter its services according to the requirements of the individual
customers it reaches this level. It is future oriented. E.G. In case of banks the
potential product is what kind of future product they are going to introduce like
low interest rate on home loan or personal loan.

Core
Product
The basic
necessity to
use banking
services in
order to
handle
finance
more
efficiently

Basic
Product
Safety of
deposits

Expected
Product
Timely
service

Augmented
Product
Goods
waiting
rooms

Potential
Product
Mobile and
internet Banking

Loanable
funds etc.

Long
banking
hours

Extensive
ATM
network

New Schemes
tailored for
specific
customers

Low interest Promotional

rates
Discounts

29

Thus it can be seen how a particular product passes through different

levels. In todays competitive scenario most banks try offering services at the
Augmented and Potential level.

PRICE MIX
The price mix in the banking sector is nothing but the interest rates
charged by the different banks. In todays competitive scenario where customer
is the king, the banks have to charge them interest at a rate in accordance with
the RBI directives. Banks also compete in terms of annual fees for services like
credit cards, DMAT etc. Another important aspect of the banks pricing policy
today is the interest charged on the Home Loans and Car Loans. With Indias
economy progressing, there are more and more buyers seeking these loans but at
a very competitive interest rate.

30

Lets understand this with an example. A particular buyer approaches a bank for
a car loan for a period of 3 years. He is charged Rs. 20,000 as interest. However,
if a sale representative of another bank comes to know of this deal, he will try to
attract the customer by giving him a better deal i.e. a loan at a lower rate on
interest. In this way, it is the customer that ultimately benefits.

Here is an example of some of the prices charged by ICICI bank for their
services:

ATM Card Issue

Free 2 ATM cards issued free if it joint

account

Add on Card

RS. 100 Beyond 2 cards

Duplicate Card

Rs. 100

Other General Charges:

Current Account

Savings Account

Transaction Charges

NIL

NIL

Charges for issue of Cheques

book

NIL

NIL

Issue of duplicate statement

Rs. 25 per page

Rs. 25 per page

Account closure

Rs.100

Rs.100

31

This example evinces some of the charges that the customer has to pay for
the services provided by the bank.

The pricing factor is very important because of the kind of competition

that is prevailing today in the Indian market. However it is very important to
understand that in the banking sector, the main pricing policy is concerned with
the interest rate charged. This interest rate is however regulated by the
RESERVE

BANK

OF

INDIA

and

THE

INDIAN

BANKING

ASSOCAITION. Any one particular bank or a group of banks does not regulate
it. The interest rate charged cannot be higher than that decide by the RBI and the
INDIAN BANKING ASSOCIATION.
Thus, in spite of the constraints in the pricing policy due to the RBI directives
there are mainly three types of pricing methods adopted by banks.
They are:
Value pricing:
Banks having unique or different products or schemes mainly do this type of
pricing. They usually charge a combination of high and low prices depending on

32

the customer loyalty as well as the products. This type of pricing strategy is
usually coupled with promotion programmes.

Going Rate pricing:

The most commonly used pricing technique is the going rate pricing. In going
rate pricing, the bank bases its price largely depending on the competitors
prices. The banks however have to stay within the RBI directives and compete.
The banks may charge higher or lower than their competitors. After 1991 when
the foreign banks entered the Indian market this method of pricing has gained
increasing importance.

Mark up pricing:
This is a pricing technique wherein the cost of the service is determined and a
small margin is added to it and then the final price is offered to the customers.
This type of pricing is not very popular since in the banking sector it is not very
easy to arrive at the cost of the service. Thus most banks use a combination of
mark up pricing and going rate pricing.

THE MOST FAVORABLE PRICING STRATEGY

The most favourable pricing strategy should ensure maximum
satisfaction to both the bank as well as the customers.
The price should be set in such a manner that the customer is assured that
he is not being cheated or overcharged by the bank and at the same time the
bank is able to reap maximum profits. Such a pricing stand helps the bank get

33

maximum sales as well as profits since the customer feels that by entering such
a transaction he is winning.

PLACE MIX
Place mix is the location analysis for
banks branches. There are number a factors
affecting the determination of the location
of the branch of bank. It is very necessary
for a bank to be situated at a location where
most of its target population is located.

Some of the important factors affecting

the location analysis of a bank are:
1.

The Trade area

34

2.

Population characteristics

3.

Commercial structure

4.

Industrial structure

5.

Banking structure

6.

Proximity to other convenient

Outlets

7.

Real estate rates

8.

Proximity to public
Transportation

9.

Drawing time

10.

Location of competition

11.

Visibility

12.

Access

It is not necessary that all the above conditions have to be satisfied while
selecting the location but it should try and satisfy as many of them as possible.

1.

The Trade Area:

The trade area is a very important factor determining the place where a
bank branch should be set up. For e.g. a particular location maybe a huge
trading place for textiles, diamonds or for that case even the stock market. Such
locations are ideal for setting up of bank branches

35

2.

Population Characteristics:
The demography of a place is a very important factor.
This includes:

The income level of the population

The average age
The average male female population
The caste, religion, culture and customs
The average spending and saving habit of the people.

These factors are very important for a bank as the help them decide the kind of
business the branch will get.

3.

Commercial Structure:
The commercial structure refers to the level of commerce i.e. business
activities taking place at a particular location. The higher the level of business
activities taking place in a particular location the more preferable it is for setting
up a bank branch.

36

4.

Industrial Structure:
This is nothing but a combination of the trade area analysis and the
commercial structure. However the industrial structure focuses more on the kind
of industries operating in a particular location. For example, an area like SEEPZ
is marked with a lot of electronic manufacturing units. Thus the industrial
structure determines the kind of financial transactions that could take place in a
particular location.

5.

Banking Structure:
The Banking structure refers to the existence of other banks in the area.
Whether there is already an efficient network of other bank branches operating
at that particular area. Thus the overall infrastructure needed for the working of
a bank.

6.

Proximity of other convenient outlets:

This refers to the other branches of the same bank as well other
commercial, entertainment and industrial outlets.

7.

Real Estate Rates:

37

This is mainly dealing with the cost factor involved in opening up a bank
branch at a particular location. The real estate rate is a very strong factor
influencing the location decision for a bank branch.

8.

Proximity to public transportation:

The location should be proximate to public transportation facilities. This
means it should have bus stops close by as well as it should be proximate to
railway stations so as to make it convenient for the common man.

9.

Drawing Time:
Drawing time refers to the time period during which a customer can draw
money from the banks. It should be convenient to the customer and somewhat
flexible to accommodate the customers needs. No bank has more than a certain
amount with them and in case a customer wants to withdraw an amount more
than that available with the bank, the bank needs to draw that amount from other
banks. Hence, a location must be such that it facilitates minimum drawing time.

10. Location of Competition:

The existence of other banks also means competition. If the level of
competition is very high in a particular location, it is necessary that a bank does
a lot of market research before opening a branch so as to estimate the kind of
business it would get.

38

11. Visibility:
The location of a branch should be such that it is visible and easily noticed by
the customers as well other people.

12. Access:
The bank branch should be very easily accessible to the customers. If this
is not the case, the customer might switch to some other bank, which is more
convenient to him and very easily accessible. The location should be such that it
is very convenient for the customer to reach.

39

Promotion Mix

Promotion is nothing but making the customer more and more aware of
the services and benefits provided by the bank. The banks today can use a lot of
new technology to communicate to their customers. Two of the fastest growing
modern tools of communicating with the customers are:

1.

Internet Banking

2.

Mobile Banking

40

This can be better explained with the example of ICICI bank.

SMS services:
SMS functions through simple text messages sent from your cellular
phone. These messages are recognized by ICICI bank to provide you with the
required information.
For example, when you enter IBAL your cellular phone screen will display
the current balance in your primary account. Thus with the help of SMS a wide
range of query based transactions can be performed without even making a call.
ICICI was the first organization in India to provide Wireless Application
Protocol (WAP) based services. Mobile commerce using WAP technology,
allows secure online access of the web using mobile devices. With WAP one can
directly access the ICICI WAP server, check ones account details and use other
value added services. Thus different methods are used by different banks to
promote its services.
A bank may have very attractive schemes and services to offer to their
customers but they are of no use if they are not communicated properly to the
customers. Promotion is to inform and remind the individuals and persuade
them to accept, recommend or use of product, service or idea. However there
some very important points that is to be considered before the promotion
strategy is made. These points are:

41

Finalizing the Budget

Before the bank decides the kind of promotion that should be done, it is
very important to finalize the budget for it. The formulation of a sound budget is
essential to remove the financial constraints in the process. The budget is
determined on the basis of volume of business of the bank. In addition to this
the intensity of competition also plays a decisive role.

Selecting a suitable vehicle

Another very important task is to select a suitable vehicle for driving the
message. There are a number of devices to advertise such as broadcast media,
telecast media and the print media. The selecting of the mode of advertising is
strongly influenced by the kind of budget decided. Usually for promoting banks
the most effective and economical form of advertising has been the print media.

Making possible creativity

Making possible creativity is nothing but the kind of slogans, punch lines
etc. that are supporting the message. They should be very creative but yet simple
to be understood by the common man. It should appeal to the customers. It
should be distinct from that of the competitors and should be successful in
informing and sensing the customers.

42

Testing the Effectiveness

It should be borne in mind that the advertisement is first tested for its
effectiveness. This should be done with the help of various techniques like
testing effectiveness on a sample group. This helps determine the success of the
advertisement and in case of any problem the advertisement can be altered and
remedied.

Instrumentality of Branch Managers

At a micro level, it is the responsibility of the branch managers to
promote and drive the message to the people in the local area. They should
organize small programs in order to attract people and crate awareness in the
local area about the new schemes of the bank.

Different Ways of Promotion

1.

Public Relations:
In todays competitive scenario developing strong public relations is very
important for any bank to be successful. Most banks today have a separate
Public Relations department. However primarily it is considered as a
responsibility of the various bank managers to develop a steady and strong
relationship with their present customers as well as potential customers. This
can be done by a constant follow up, small programmes etc.

43

2.

Personal Selling:
Personal selling is found to be one of the most effective and popular
forms of promoting bank business. The main reason for this is that banking is a
service in which trust plays a very important role. In personal selling, a bank
representative goes to the customers and explains the scheme to the customers.
Also he gives the customers any kind consultation he might need. He provides
the customers all the information sought by him. The representative tries to
persuade the customers to go for the scheme provided by the bank by telling
him all the benefits. Here are some of the important features of personal selling

It is a direct relation between the buyers and the seller

It is oral presentation in conversation

It is personal and social behaviour

It is found to be more effective in service oriented organizations

It is based on the professional excellence or expertise of an individual

3.

Sales Promotion:
Sales promotions are basically giving the customers some additional
benefits, maybe at times just some small gifts, in order to promote the schemes.
The more innovative the sales promotions the more positive are the results.
Some of the most popular sales promotions techniques are gifts, contests, fairs
and shows, discounts and commission, entertainment and travelling plans for

44

bankers, additional allowance, low interest financing etc. It is very important

that the sales promotions benefits are designed in such a manner that they are
better than those of the competitors.

4.

Word of mouth Promotion:

This form of promotion is not only very effective in banking services but
in any kind of service. However it is more important in banking for the only
reason that this is a service where trust plays a very important role. If a
particular banks services are recommended by friends, relatives, or other well
wishers the person is more influenced and inclined towards that bank. It is very
important to note that the internal employees of the bank play a very important
role in word of mouth promotion technique. This is because they can start
the process by recommending the bank to their friends and relatives and after
that it is like a chain, which spreads like a wild fire.

5.

Telemarketing:
In recent times telemarketing has gained increasing importance as an
effective tool for promotion. Telemarketing is a process of making use of
sophisticated communication network for promoting the banks. This includes
promoting through television, telephone, and radio. Nowadays, cell phones are
used extensively for the same. This is the most popular form of promotion.
Banks today have started using SMS and many other services supported by
cell phones to provide benefits to their customers and thus have tried to increase
45

their sales. In todays competitive and modern scenario it very important that
banks makes use of telemarketing techniques very efficiently to have desirable
results.

6.

Internet:
The use of Internet as a promotional tool is increasing. More and more
banks are using Internet to promote their services. The online banking has made
it even easier for the customers to avail the banks services. No longer do people
have to go to their bank branches for small petty matters like checking their
balance etc. All this can be done with the help of a few clicks.

Thus, these were the numerous ways in which a bank can promote its
services and create more awareness amongst the people.

46

People

People are the employees that are the service providers. In a banking
sector, the service provider plays a very important and determinant role in
rendering the customers a satisfactory and a good service. It is extremely
essential that the service provider understand what his customers expect from
him. In the banking sector, the customer needs to be guided in a lot of matters,
which is possible only with the help of the service provider.
The position in the eyes of the customer will be perceived by appearance,
attitude and behaviour of the customer contact employees. Not only does the

47

customer contact employee influence the customers perception but also the
customer base of the organization does so.

Process Mix

The

process

mix

constitutes the overall procedure

involved in using the services
offered by the bank. It is very
necessary that the process is
very customer friendly. In other
words a process should be such
that the customer is easily able
to understand and easy to follow.
Today if particular banks formalities are long and the procedure very
complicated the overall process fails and the customer may not be inclined
towards using that banks services.

48

Lets take for example the process for application for a car loan at HDFC
bank.
Now this mainly involves 3 things.
1.

Producing of proper documents

2.

Filling up of application form

3.

Paying for the initial down payment.

Here the process may fail in the following cases:

1.

If the customer is asked to produce a number of forms out of which some

may not be necessary at all. Thus it is very necessary that the customer be asked
for the minimum but most necessary document and not the other unnecessary
documents.

2.

In case of application form, the application form must be in a language

best understood by the customers and it should not be very lengthy or
demanding a lot of unnecessary information.

3.

Finally the payment of initial amount. The customer should be given

options as to how he would like to pay by cheques or by credit card. Once again
the amount should be very competitive not very high above the regular rates
prevailing in the markets.

49

The smaller and simpler the procedure, the better the process, and the customer
will be more satisfied.

PHYSICAL EVIDENCE
Physical evidence is the overall layout of the place i.e. how the entire
bank has been designed. Physical evidence refers to all those factors that help
make the process much easier and smoother. For example, in case of a bank, the
physical evidence would be the placement of the customer service executives
desk, or the location of the place for depositing cheques. It is very necessary that
the place be designed in such a manner so as to ensure maximum convenience
to the customer and cause no confusion to him.
Let us see an example as to how banks try to make little changes so as to make
the service better for their customers.

The Hong Kong Shanghai Banking Corporation (HSBC) had decided in

introducing a common uniform for all the employees in all its branches all over
India. The plan is possibly in line with the aggressive retail banking adopted by
HSBC. A common uniform is nothing like a revolutionary change but however
this little change makes it very easy for the customer to identify with his service
provider and makes the entire process very easy for him. The more the bank
does to make the service easier the better it is for the customer.

50

Thus, these are the 7 Ps of services. Each of them plays a very important and a
pivotal role in determining the quality of the service provided to the customer.

Chapter 6
QUALITY DIMENSIONS

There are many reasons why a customer should be given QUALITY

SERVICES. The most of them are:
1) Industry being so competitive that a customer should be given the best
services as they have many competitors (the company) and if even a single
customer is lost in todays world then it very difficult to win back the
customer.
2) Most of the customers do not complain as they just opt out and do get
satisfied with better services elsewhere.
When it comes to services, there are 10 quality dimensions. Each of the
dimensions is of utmost importance since human element is involved and it
relates to services. But Zeithaml, Bitner and Parsuraman have developed a new
and concise model by clubbing some points. This model consists of the
following dimensions:
Reliability

51

Assurance
Tangibility
Empathy
Responsiveness

RELIABILITY

It is defined as the ability to perform

promised

service

dependably

the

and

accurately. In its broadest sense, reliability

means that the company delivers on its
promisespromises about delivery, service
provision, problem resolution, and pricing. It is also known as the No Excuses
service delivery.
Indian Overseas Bank faces stiff competition from many other banks
within its vicinity and some of these banks are foreign banks. But the existing
customers have faith, loyalty and trust in this bank. The customers are well
aware that the bank will provide them back the best and reliable services. For
e.g. No person likes to wait to withdraw his/her money. In order to correct this
problem, Indian Overseas Bank has ensured that whoever comes in for cash
withdrawal will receive his/her cash within five to ten minutes.

52

ASSURANCE

Assurance is defined as employees knowledge and courtesy and the

ability of the firm and its employees to inspire trust and confidence. It includes
the ability, knowledge, genuineness, and honesty to provide the best services to
the customer from the frontline staff. In this dimension the front line staffs is
more important rather than the owner.

53

At Indian Overseas Bank, every customer who comes is treated with

utmost care and any problem that takes place is solved with great enthusiasm. It
assures the customers coming up to the bank that the money they invest is
secure; the interest rate that is being provided to them is at par or sometimes
even higher as compared to
other banks. Also, it assures the
customers that the
money they have invested will
be returned to them as and when
required with proper interest. It
tries to empower their customer,
contact people and regularly
train them in skills to build trust
and loyalty between employees and the customers.

TANGIBLITY

Tangibles are defined as the appearances of physical facilities,

equipments, personnel and communication materials. All of these provide
physical representations or images of the service that customers, particularly
new customers, will use to evaluate quality.
At Indian Overseas Bank, the entire premise is air-conditioned. They have
computerized systems in place and therefore quick, accurate and efficient
service can be provided to the customers. The tables and chairs are conveniently

54

located for the customers. The personnel always have a cheerful and helping
veneer and are always ready to help out the customers. The entire place is done
up in bright colours and thus the customer can immediately feel the warmth and
the radiance of the place.

EMPATHY

Empathy is defined as the caring, individualized attention the firm provides

its customers. The essence of empathy is conveying, through personalized or
customized service, the customers are unique and unique special.
The empathy shown by the employees of the Indian Overseas Bank is good
as they are always polite humble and helpful. There was a case where once a
customer misplaced Rs. 1,00,000 within the premises of the bank. He panicked
but the bank personnel put him at rest and assured him that they would locate
the same for him. Since he was a regular customer, they knew him very well and
took the situation under control. They quickly located the cash and thus, the
customer was placated. The bank personnel went out of their way to help this
customer and thus understood his predicament. This bank regularly holds

55

seminars and training workshops so that they can understand the consumer
better and thus serve him better.

RESPONSIVENESS

Responsiveness is the willingness to help the customer and provide him

with immediate and fast service.
The Indian Overseas Bank is prompt at providing its customers with the
information and services that they seek. It is extremely prompt when it comes to
resolving the complaints of the customers. The customers, in their feedback
form, mentioned this as one of the most important factor that has prompted them
to continue with this bank.
All the five dimensions basically aim at serving the customers to the best
of their ability, giving them quality services and if things are followed as they
are demanded, (i.e., according to the customers demand) then there would be no
problems in facing any type of people. The successful service organizations set
up speeds for service standards

56

Chapter 7
Technologies & Innovations in Banking

Technologies in Banking
Technology plays a very important role in banks internal control
mechanisms as well as services offered by them. It has in fact given new
dimensions to the banks as well as services that they cater to and the banks are
enthusiastically adopting new technological innovations for devising new
products and services.
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the concept of
branch banking to anywhere banking. The use of ATM and Internet banking has
allowed anytime, anywhere banking facilities. Automatic voice recorders now
answer simple queries, currency accounting machines makes the job easier and
self-service counters are now encouraged. Credit card facility has encouraged an
era of cashless society. Today MasterCard and Visa card are the two most
popular cards used world over. The banks have now started issuing smartcards
or debit cards to be used for making payments. These are also called as
electronic purse. Some of the banks have also started home banking through
telecommunication facilities and computer technology by using terminals
installed at customers home and they can make the balance inquiry, get the

57

statement of accounts, give instructions for fund transfers , etc. Through ECS we
can receive the dividends and interest directly to our account avoiding the delay
or chance of losing the post.

Today banks are also using SMS and Internet as major tool of promotions
and giving great utility to its customers. For example SMS functions through
simple text messages sent from your mobile. The messages are then recognized
by the bank to provide you with the required information.
All these technological changes have forced the bankers to adopt
customer-based approach instead of product-based approach.

Electronic Banking:
With the introduction of computers in Indian banks and with the advent of
ATMs the banking services are provided across the banks. Customers need not
necessarily visit the bank to do banking transactions when the bank provides
them with tele banking and or remote banking facilities. This type of banking is
called electronic banking and the concept is becoming popular with individual
as well as corporate entities in India.
1.

Automated Teller Machines (ATMs):

ATMs have eliminated the time limitations of
customer service and offer a host of banking
services

including

deposits,

withdrawals,

requisitions, instructions and transactions. ATMs traditional and primary use is

to dispense cash upon insertion of a plastic card and its unique PIN or personal

58

identification number. It is issued to Current and Saving account holders of a

bank who hold a certain minimum balance. When the card is inserted into the
ATM, the machine sensing equipment identifies the account holder and asks for
his or her identification PIN number. This number is not even known to the bank
staff and is unique and secret to the individual

2. Internet Banking:
Banks have over a long time been using electronic
and telecommunication network for delivering a
wide range of value added products and services.
The delivery channels include dial-up connection,
private network, public network etc and the devices include telephone personal
computers including the ATM etc. With the popularity of PCs and easy access
to the internet and World Wide Web banks increasingly use internet as a channel
for receiving instructions and delivering their products and services to their
customers. This form of banking is often referred to as internet banking,
although the range of products and services offered by different banks, vary
widely both in their content and sophistication.

59

3. Mobile Banking:
Through inter banking one can
visit the web site of each bank by
entering his password and known the
account balance and even pass his own
credit and debit entries. This means that
we can do our banking through our personal computer settings at home. Banks
may soon allow zero balance savings accounts through internet facility only.
Customers can now make balance enquires download statements and open fixed
deposits over the net. They will soon be able to carry out all their transactions
over the net. So visiting a bank would be needless. Time to come; mobile
phones will drive banking transactions. These mobile phones will drive banking
transactions. These mobile phones will be equipped with smart cards that are
embedded with banking and other information. This mobile phone banking
facility is yet to come but the mechanics of linking the banking with the cell
phone is being sorted out. Teller machines are being installed in the banks for
the electronic banking facility. Banking will be on wheels and mobile by the use
of smart banking.

60

4.

Note and coin counting machines:

To reduce the need of manual counting, note and
counting machines are available which counts a bundle
of notes placed on it. Loose notes are inserted into the
machine. The machine then counts the notes at top speed, while simultaneously
indicating the number counted on a digital display. Every time the number
reaches 100, the machine stops, subject to it being fixed at 100 and allows for
the bundle to be taken out. This machine does relieve the drudgery involved in
counting. However, one limitation of this machine is that the notes have to be in
fairly good condition for the machine to able to count properly. However, the
machine requires all the notes to be in the same denomination.

5. Electromagnetic Cards:
In the modern days of commerce credit cards have acquired a fairly
prominent and pervasive role. With the increasing use of credit cards the society
is moving towards cashless transactions. In India however the use of credit cards
is restricted to small value and mostly personal transactions. The two
international credit card giants viz, Visa international and Master Card
international are poised to make deeper inroad in untapped Indian market.

61

Types of electromagnetic cards:

1) Charge card: In such cards transactions are accumulated over a period of time
generally a month and the total amount is charged i.e. debited to the account. In
charge card the amount becomes payable immediately on the debit to the
account.
2) Credit card: This is the same as charge card where the transactions are charged
to the account with the total value of transaction debited to the card holders
account once in a month. The difference between the credit and charge card is
that in case of the credit card holder is given about 25

to

50 days time to credit his account in case there are

insufficient funds in his account at the time of debit.
3) Debit card: A bank-issued card that allows its users to
access their funds for the purpose of paying for merchandise.

4) Smart card: There are two types of smart cards intelligent memory chip and
micro processor cards. The memory smart cards have been around for several
years they are being used in paying phones, identification, access control, voting
and other applications. Processer smart cards are the most advanced and are
ideally suited for banking and financial application where re use of the card is
allowed.

62

5) Member card: This is used by members of a club or a chain of hotels. E.g. the
Taj Card is a card issued by the Management of the Taj group of Hotels to be
used by patrons of their hotels .Similarly there are many other types of cards
where the usage is exclusive to the members of the group.

Conclusion:
With the development of modern communication facilities, electronic
payment systems are becoming popular. These are teller machines available for
bank customers within the bank as well as outside the bank premises. ATMs
which are being located even at public places, are able to provide the customers
minimal banking services including cash payments round the clock. Shared
ATMs are also introduced in India where the services are provided across the
banks. Customers need not necessarily visit the bank to do banking transactions
when their banker provides them tele-banking or remote banking facilities.
We have also seen that the various electronic and electro-mechanical aids
that help the modern banker to efficiently render innovative and novel customer
service. Equipments like note and coin counting machines help the banker to
take care of the tedium in his task, reduce drudgery and at the same time
efficiently discharge his functions. These technological aids not only take care
of some of the physical routine tasks but also contribute substantially to efficient
housekeeping functions and also render services that are in tune with the
customer needs and satisfaction.

63