Consumer Behaviour Towards Private and Public Sector Banks

A project submitted to

University of Mumbai for partial completion of the degree of

Bachelor of management studies
Under the faculty of commerce
By
Nidhi Narendra Singh

Under the guidance of

Miss Aiman peerzade
Swayam siddhi degree night college, Bhiwandi

March 2020-21
 SWAYAM SIDDHI MITRA SANGH’S DEGREE NIGHT COLLEGE
Sonadevi Compound, Near Octrai Naka, Kalyan Road, Temghar, Bhiwandi, Thane-421302
Tel-02522-249191 Mobile No-8805249191
Email.: [email protected] Website: www.ssmseducation.com

Certificate
This is to certify that miss Nidhi Narendra Singh has worked and duly completed her project
work for the degree of Bachelor of Management studies under the faculty of Commerce in
the subject of Marketing and her project is entitled Consumer Behaviour Towards Public
sector and private sector banks under my supervision
I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of any university
It is her own work and facts reported by her personal findings and Investigations.

Name and signature of

Guiding Teacher

Date of Submission
 Declaration
I the undersigned Miss Nidhi Narendra Singh here by declare that the work embodied in this
project work titled Consumer Behaviour Towards Public Sector And Private Sector Banks
forms my own contribution to the research work carried out under the guidance of Miss Aiman
Peerzade is a result of my own research work and has not been previously submitted to any
other University for any other Degree/Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.

Nidhi Narendra Singh

Certified by
professor Aiman peerzade
 Acknowledgment
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimension in
the completion of this project.
I take this opportunity to thank the University of Mumbai for giving chance to do this project.
I would like to thank my Principal DR. G.S. Shikhare for providing the necessary facilities
required for completion of this project.
I take this opportunity to thank our coordinator Professor Rahul shah, for his moral support
and guidance.
I would also like to express my sincere gratitude towards my project guide Professor Aiman
Peerzade whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each person who directly or indirectly helped me in the completion
of the project especially my parents and Peers who supported me throughout my project.
 INDEX

SR.NO. TITLE
1 Introduction
1.1 Introduction to banks
1.2 Functions of banks
1.3 Introduction to consumer behaviour
1.4 Factors affecting consumer behaviour
1.5 Research objectives
1.6 Scope of the study
2 Literature review
3 Research methodology
3.1 Hypothesis
3.2 Primary data
3.3 Secondary data
3.4 Data analysis interpretation and presentation
4 Conclusion
5 Bibliography
 INTRODUCTION
The world of banking has assumed a new dimension at dawn of the 21st century with
the advent of tech banking, thereby lending the industry a stamp of universality. In general,
banking may be classified as retail and corporate banking. Retail banking, which is designed
to meet the requirement of individual customers and encourage their savings, includes payment
of utility bills, consumer loans, credit cards, checking account and the like. Corporate banking,
on the other hand, caters to the need of corporate customers like bills discounting, opening
letters of credit, managing cash, etc. Metamorphic changes took place in the Indian financial
system during the eighties and nineties consequent upon deregulation and liberalization of
economic policies of the government. India began shaping up its economy and earmarked
ambitious plan for economic growth. Consequently, a sea change in money and capital markets
took place. Application of marketing concept in the banking sector was introduced to enhance
the customer satisfaction the policy of privatization of banking services aims at encouraging
the competition in banking sector and introduction of financial services. Consequently, services
such as Demat, Internet banking, Portfolio Management, Venture capital, etc., came into
existence to cater to the needs of public. An important agenda for every banker today is greater
operational efficiency and customer satisfaction. The mew watchword for the bank is pretty
ambitious: customer delight. The introduction to the marketing concept to banking sectors can
be traced back to American Banking Association Conference of 1958. Banks marketing can be
defined as the part of management activity, which seems to direct the flow of banking services
profitability to the customers. The marketing concept basically requires that there should be
thorough understanding of customer need and to learn about market it operates in. Further the
market is segmented so as to understand the requirement of the customer at a profit to the
banks.
DEFINITION OF BANK
The Oxford dictionary defines the Bank as,

“An establishment for the custody of money, which it pays out, on a customer’s order.”
According to Whitehead,
“A Bank is defined as an institution which collects surplus funds from the public, safeguards
them, and makes them available to the true owner when required and also lends sums be their
true owners to those who are in need of funds and can provide security.”
Banking Company in India has been defined in the Banking Companies act1949,
“One which transacts the business of banking which means the accepting, for the purpose of
lending or investment of the deposits of money from the public, repayable on demand, or
otherwise and withdraw able be cheque, draft, order or otherwise. “The banking system is an
integral subsystem of the financial system. It represents an important channel of collecting
small savings form the households and lending it to the corporate sector. The Indian banking
system has Reserve Bank of India (RBI) as the apex body for all matters relating to the banking
system. It is the central Bank of India. It is also known as the Banker to All Other Banks.
History of bank
The concept of banking may have begun in ancient Assyria and Babylonia with
merchants offering loans of grain as collateral within a barter system. Lenders in ancient Greece
and during the Roman Empire added two important innovations: they accepted deposits and
changed money.[citation needed] Archaeology from this period in ancient India and India also
shows evidence of money lending.
The present era of banking can be traced to medieval and early Renaissance Italy, to the rich
cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and
Peruzzi families dominated banking in 14th-century Florence, establishing branches in many
other parts of Europe. Giovanni di Bicci de' Medici set up one of the most famous Italian banks,
the Medici Bank, in 1397. The Republic of Genoa founded the earliest-known state deposit
bank, Banco di San Giorgio (Bank of St. George), in 1407 at Genoa, Italy.
Fractional reserve banking and the issue of banknotes emerged in the 17th and 18th
centuries. Merchants started to store their gold with the goldsmiths of London, who possessed
private vaults, and who charged a fee for that service. In exchange for each deposit of precious
metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held
as a bailee; these receipts could not be assigned, only the original depositor could collect the
stored goods.
Gradually the goldsmiths began to lend the[which?] money out on behalf of the
depositor, and promissory notes (which evolved into banknotes) were issued[by whom?] for
money deposited as a loan to the goldsmith. Thus by the 19th century we find "[i]n ordinary
cases of deposits of money with banking corporations, or bankers, the transaction amounts to
a mere loan or mutuum, and the bank is to restore, not the same money, but an equivalent sum,
whenever it is demanded". and "[m]oney, when paid into a bank, ceases altogether to be the
money of the principal (see Parker v. Marchant, 1 Phillips 360); it is then the money of the
banker, who is bound to return an equivalent by paying a similar sum to that deposited with
him when he is asked for it." The goldsmith paid interest on deposits. Since the promissory
notes were payable on demand, and the advances (loans) to the goldsmith's customers were
repayable over a longer time-period, this was an early form of fractional reserve banking. The
promissory notes developed into an assignable instrument which could circulate as a safe and
convenient form of moneybacked by the goldsmith's promise to pay, [need quotation to verify]
allowing goldsmiths to advance loans with little risk of default.[need quotation to verify] Thus
the goldsmiths of London became the forerunners of banking by creating new money based on
credit.
Interior of the Helsinki Branch of the Vyborg-Bank [fi] in the 1910s The Bank of
England originated the permanent issue of banknotes in 1695. The Royal Bank of Scotland
established the first overdraft facility in 1728.By the beginning of the 19th century Lubbock's
Bank had established a bankers' clearing house in London to allow multiple banks to clear
transactions. The Rothschilds pioneered international finance on a large scale, financing the
purchase of shares in the Suez canal for the British government in 1875.
Standard business
Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers in the bank, and collecting cheques deposited to customers'
current accounts. Banks also enable customer payments via other payment methods such as
Automated Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS, and
automated teller machines (ATMs).
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money
by making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.
Banks provide different payment services, and a bank account is considered
indispensable by most businesses and individuals. Non-banks that provide payment services
such as remittance companies are normally not considered as an adequate substitute for a bank
account.
Banks can create new money when they make a loan. New loans throughout the
banking system generate new deposits elsewhere in the system. The money supply is usually
increased by the act of lending, and reduced when loans are repaid faster than new ones are
generated. In the United Kingdom between 1997 and 2007, there was an increase in the money
supply, largely caused by much more bank lending, which served to push up property prices
and increase private debt. The amount of money in the economy as measured by M4 in the UK
went from £750 billion to £1700 billion between 1997 and 2007, much of the increase caused
by bank lending.[20] If all the banks increase their lending together, then they can expect new
deposits to return to them and the amount of money in the economy will increase. Excessive
or risky lending can cause borrowers to default, the banks then become more cautious, so there
is less lending and therefore less money so that the economy can go from boom to bust as
happened in the UK and many other Western economies after 2007.
FUNCTIONS OF BANK
PRIMARY FUNCTIONS:
Accepting of Deposits: A bank accepts deposits from the public. People can deposit
their cash balances in either of the following accounts to their convenience:-
a. Fixed or Time Deposit Account:
Cash is deposited in this account for a fixed period. The depositor gets receipts for the
amount deposited. It is called Fixed Deposit Receipt. The receipt indicates the name of the
depositor, amount of deposit, rate of interest and the period of deposit. This receipt is not
transferable. If the depositor stands in need of the amount before the expiry of fixed period, he
can withdraw the same after paying the discount to the bank.
b. Savings Account:
This type of deposit suits to those who just want to keep their small savings in a bank
and might need to withdraw them occasionally. Banks provide a certain rate of interest on the
minimum balance kept by the depositor during the month.
c. Current Account:
This type of account is kept by the businessman who are required to withdraw money
every new and then. Banks do not pay any interest on this account. Any sum or any number of
withdrawals can be presented by such an account holder.
2) Advancing of Loans: The bank advances money in any one of the following ways.
a. Overdraft Facilities:
Customers of good trading are allowed to overdraw from their current account. But they
have to pay interest on extra amount they have withdrawn. Overdrafts are allowed to provide
temporary accommodation since the extra amount withdrawn is payable within a short period.

b. Money at Call:
It is the money lent for a very short period varying from 1 to 14 days. Such advances
are usually made to other banks and financial institutions only. Money at call ensures liquidity.
In the Interbank market it enables bank to make adjustment according to their liquidity
requirements.
c. Loans:
Loans are granted by the banks on securities which can beeasily disposed off in the
market. When the bank has satisfied itself regarding the soundness of the party, a loan is
advanced.
d. Cash Credit:
The Debtor is allowed to withdraw a certain amount on a given security. The debtor
withdraws the amount within this limit, interest is charged by the bank on the amount actually
withdrawn.
e. Discounting bill of exchange:
It is another method of making advances by the banks. Under this method, bank gives
advance to their clients on the basis of their bills of exchange before the maturity of such bills.
f. Investment in Government Securities:
Purchasing of Government securities by the bank’s amount to advancing loans by them
to the Government. Banks prefer to buy government securities as these are considered to be the
safest investment. For example: Indira Vikas Patra: It enables the banks to meet requirement
of statutory liquidity ratio (SLR)
g. Credit Creation:
One of the main functions of banks these days is to create credit. Banks create credit
by giving more loans than their cash. Customers can leave standing instructions with the banker
for various periodic payments ensuring the regular payments and avoiding the trouble of
performing it themselves.
h. Purchase and Sale of Securities:
The modern commercial banks also undertake the purchase and sale of various
securities like shares, stocks, bonds units and debentures etc. On behalf of the customers, banks
do notgive any advice regarding the suitability or otherwise of a security but simply perform
the functions of a broker.
ii) Trustee and Executor:
Banks also acts as trustees and executors of the property of their customers on their
advice. Sometimes banks also undertake income tax services on behalf of the customers.
iii) Remittance of Funds:
The Commercial banks remit funds on behalf of clients from one place to another
through cheques, drafts, mail transfers etc.
iv) Representation and Correspondence:
Sometimes commercial banks act as representatives or correspondents of the clients
especially in handling various applications. For instance, passports and travel tickets, booking
of vehicles, plots etc.

v) Billion Trading:
In many countries, the commercial banks trade is billions like gold and silver. In Oct
1997, 8 banks including SBI, IOB, Canara Bank and Allahabad Bank have been allowed import
of gold which has been put under open general licensed category.
vi) Purchase and Sale of Foreign Exchange:
Banks buy and sell foreign exchange, promoting international trade. This function is
mainly discharged by foreign Exchange Banks.
vii) Letter of References:
Banks also give information about economic position of their customers to domestic and
foreign traders and vice versa.
PUBLIC SECTOR BANK-
Public Sector Banks (PSBs) are a major type of bank in India, where a majority stake
(i.e. more than 50%) is held by the government. The shares of these banks are listed on stock
exchanges. There are a total of 12 Public Sector Banks alongside 1 state-owned Payments Bank
in India.
Emergence of public sector banks-The Central Government entered the banking
business with the nationalization of the Imperial Bank of India in 1955. A 60% stake was taken
by the Reserve Bank of India and the new bank was named State Bank of India. The seven
other state banks became subsidiaries of the new bank in 1959 when the State Bank of India
(Subsidiary Banks) Act, 1959 was passed by the Union government.
The next major government intervention in banking took place on 19 July 1969 when
the Indira government nationalised an additional 14 major banks. The total deposits in the
banks nationalised in 1969 amounted to 50 crores. This move increased the presence of
nationalised banks in India, with 84% of the total branches coming under government control.
Before the economic liberalization- The share of the banking sector held by the public
banks continued to grow through the 1980s, and by 1991 public sector banks accounted for
90% of the banking sector. A year later, in March, 1992, the combined total of branches held
by public sector banks was 60,646 across India, and deposits accounted for ₹1,10,000 crore.
The majority of these banks was profitable, with only one out of the 21 public sector banks
reporting a loss.
Liberalisation in the 2000s- The nationalised banks reported a combined loss of ₹1160
crores. However, the early 2000s saw a reversal of this trend, such that in 2002-03 a profit of
₹7780 crores by the public sector banks: a trend that continued throughout the decade, with a
₹16856 crore profit in 2008–2009.
Mergers- The consolidation of SBI-associated banks started first by State Bank of
India merging its subsidiary State Bank of Saurashtra with itself on 13 August 2008.[4]
Thereafter it merged State Bank of Indore with itself on August 27, 2010.[5] The remaining
subsidiaries, namely the State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank
of Mysore, State Bank of Patiala and State Bank of Travancore, and Bharatiya Mahila Bank
were merged with State Bank of India with effect from 1 April 2017.
Vijaya Bank and Dena Bank were merged into Bank of Baroda in 2018.[6] IDBI Bank was
categorised as a private bank with effect from January 2019.[7]
On 30 August 2019, Finance Minister Nirmala Sitharaman announced the
government's plan for further consolidation of public sector banks: Indian Bank's merger with
Allahabad Bank (anchor bank - Indian Bank); Punjab National Bank's merger with Oriental
Bank of Commerce and United Bank (anchor bank - Punjab National Bank); Union Bank of
India's merger with Andhra Bank and Corporation Bank (anchor bank - Union Bank of India);
and Canara Bank's merger with Syndicate Bank (anchor bank - Canara Bank).[8] The mergers
took effect from 1 April, 2020.
PRIVATE SECTOR BANKS-
Private banks are banks owned by either the individual or a general partner(s) with
limited partner(s). Private banks are not incorporated. In any such case, creditors can look to
both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-
partners' assets.These banks have a long tradition in Switzerland, dating back to at least the
Revocation of the Edict of Nantes (1685). Private banks also have a long tradition in the UK
where C. Hoare & Co. has been in business since 1672.
Kotak Mahindra Bank Limited is an Indian private sector bank headquartered in Mumbai,
Maharashtra, India. It offers banking products and financial services for corporate and retail
customers in the areas of personal finance, investment banking, life insurance, and wealth
management. As of February 2021, it is the third largest Indian private sector bank by market
capitalization, with 1600 branches & 2519 ATMs.
Axis Bank Limited is an Indian private sector bank headquartered in Mumbai, Maharashtra.
It sells financial services to large and mid-size companies, SMEs and retail businesses. As of
30 June 2016, 30.81% shares are owned by the promoters and the promoter group (United India
Insurance Company Limited, Oriental Insurance Company Limited, National Insurance
Company Limited, New India Assurance Company Ltd, GIC, LIC and UTI). The remaining
69.19% shares are owned by mutual funds, FIIs, banks, insurance companies, corporate bodies
and individual investors.
HDFC Bank Limited is an Indian banking and financial services company headquartered in
Mumbai, Maharashtra. It has a base of 104,154 permanent employees as of 30 June 2019.
HDFC Bank is India’s largest private sector bank by assets. It is the largest bank in India by
market capitalisation as of March 2020.
ICICI Bank Limited is an Indian multinational banking and financial services company
headquartered in Mumbai, Maharashtra with its registered office in Vadodara, Gujarat. As of
2018 , ICICI Bank is the second largest bank in India in terms of assets and market
capitalisation.
IndusInd Bank Limited is a new-generation Indian bank headquartered in Pune. The bank
offers commercial, transactional and electronic banking products and services. IndusInd Bank
was inaugurated in April 1994 by then Union Finance Minister Manmohan Singh.
Yes Bank was incorporated as a Public Limited Company on November 21, 2003.
Subsequently, on December 11, 2003, RBI was informed of the participation of three private
equity investors namely {Citicorp International Finance Corporation, ChrysCapital II, LLC and
AIF Capital Inc.), to achieve the financial closure of the Bank.
Rescual of Private Banks 2020's
Yes bank
In April 2020, RBI enlisted SBI to rescue the troubled lender Yes Bank, in from of investment
with assistance from other lenders viz., ICICI Bank, HDFC Bank and Kotak Mahindra Bank.
SBI went on to own 48% share capital of Yes bank, which it later diluted to 30% in an FPO in
the following months.

Lakshmi Vilas Bank

In November 2020, RBI asked DBS Bank India to take over the operations of the private sector
bank Lakshmi Vilas Bank whose net worth has turned negative, following mismanagement and
two failed merger attempts with NBFCs. DBS India's then having just 12 branches benefited
by LVB's 559 branches. In a first of a kind move, Tier- II bond holders have been asked by
RBI to write off their holdings in LVB.

CLASSIFICATION OF BANKS

On the basis of Ownership:

PUBLIC SECTOR BANKS
Public sector banks are those banks that are owned by the government. The government owns
these banks. In India 20 banks were nationalized in 1969and 1980 respectively. Social welfare
is there main objective.
PRIVATE SECTOR BANKS
These banks are those banks that are owned and run by private sector. An individual has
control over these banks in proportion to the shares of the banks held by him.

CO-OPERATIVE BANKS
These are those banks that are jointly run by a group of individuals. Each individual has an
equal share in these banks. Its shareholders manage the affairs of the bank.

On the basis of Law:

SCHEDULED BANK Schedule banks are the banks, which are included in the second
schedule of the banking regulation act 1965. According to this schedule bank: 1. Must have
paid-up capital and reserve of not less than Rs500, 000.
2. Must also satisfy the RBI that its affairs are not conducted in a manner Determinate to the
interest of its depositors. Schedule banks are sub-divided as:-a) State co-operative banks b)
Commercial banks
NON-SCHEDULED BANKS
Non -schedule banks are the banks, which are not included in the second schedule of the
banking regulation act 1965. It means they do not satisfy the conditions lay down by that
schedule. These are the banks having paid up capital, less than Rs.5Lakhs. They are further
classified as follows:-
• Capital Local Area Bank Ltd - Phagwara (Punjab)
• Krishna Bhima Samruddhi Local Area Bank Ltd, Mahbubnagar (Andhra Pradesh)
• Subhadra Local Area Bank Ltd., Kolhapur (Maharashtra)

COMMERCIAL BANKS
These are the banks that do banking business to earn profit. These banks make loans for short
to business and in the process create money. Credit creation is the main function of these banks.

FOREIGN BANKS
These are those banks that are incorporated by foreign company. They have set up their
branches in India. These banks have their head offices in foreign countries. Their principle
function is to make credit arrangement or the export and the import of the country and these
banks deals in foreign exchange.
INDUSTRIAL BANKS
Industrial banks are those banks that offer long term and medium term loan to the industries
and also work for their development. These banks help industries in sale of their shares,
debentures and bonds. They give loan to the industries for the purchase of land and machinery.
AGRICULTURAL BANKS
Agricultural banks are those banks that give credit to agricultural sector of the economy.
SAVING BANKS
The principle function of these banks is to collect small savings across the country and put
them to the productive use. In India department of post office functions a savings banks.
CENTRAL BANK
Central Bank is the apex bank of the banking system of the country. It issues currency notes
and acts a banker's bank. Economic stability is the principle function of this bank. In short, it
regulates and controls the banking system of the country. RBI is the Central Bank of India.
Consumer behaviour-
Consumer behaviour is the study of individuals, groups, or organizations and all
the activities associated with the purchase, use and disposal of goods and services, and how the
consumer's emotions, attitudes and preferences affect buying behaviour. Consumer behaviour
emerged in the 1940s and 50s as a distinct sub-discipline of marketing, but has become an
inter-disciplinary social science that blends elements from psychology, sociology, social
anthropology, anthropology, ethnography, marketing and economics (especially behavioural
economics).
The study of consumer behaviour formally investigates individual qualities such as
demographics, personality lifestyles, and behavioural variables (such as usage rates, usage
occasion, loyalty, brand advocacy, and willingness to provide referrals), in an attempt to
understand people's wants and consumption. Also investigated are the influences on the
consumer, from groups such as family, friends, sports, and reference groups, to society in
general, including brand-influencers and opinion leaders.
Research has shown that consumer behaviour is difficult to predict, even for experts
in the field; however, new research methods, such as ethnography, consumer neuroscience, and
machine learning[1] are shedding new light on how consumers make decisions. In addition,
customer relationship management (CRM) databases have become an asset for the analysis of
customer behaviour. The voluminous data produced by these databases enables detailed
examination of behavioural factors that contribute to customer re-purchase intentions,
consumer retention, loyalty and other behavioural intentions such as the willingness to provide
positive referrals, become brand advocates or engage in customer citizenship activities.
Databases also assist in market segmentation, especially behavioural segmentation such as
developing loyalty segments, which can be used to develop tightly targeted, customized
marketing strategies on a one-to-one basis. (Also see relationship marketing)
Definition of consumer behaviour-
Consumer behaviour entails "all activities associated with the purchase, use and
disposal of goods and services, including the consumer's emotional, mental and behavioural
responses that precede or follow these activities. The term, consumer can refer to individual
consumers as well as organisational consumers, and more specifically, "an end user, and not
necessarily a purchaser, in the distribution chain of a good or service. Consumer behaviour is
concerned with:
• purchase activities: the purchase of goods or services; how consumers acquire products
and services, and all the activities leading up to a purchase decision, including
information search, evaluating goods and services and payment methods including the
purchase experience
• use or consumption activities: concerns the who, where, when and how of consumption
and the usage experience, including the symbolic associations and the way that goods
are distributed within families or consumption units
• disposal activities: concerns the way that consumers dispose of products and packaging;
may also include reselling activities such as eBay and second-hand markets

Factors affecting Consumer behaviour-

. Cultural Factors
Consumer behavior is deeply influenced by cultural factors such as: buyer culture, subculture,
and social class.
Culture
Basically, culture is the part of every society and is the important cause of person wants and
behavior. The influence of culture on buying behavior varies from country to country therefore
marketers have to be very careful in analyzing the culture of different groups, regions or even
countries.
Subculture
Each culture contains different subcultures such as religions, nationalities, geographic regions,
racial groups etc. Marketers can use these groups by segmenting the market into various small
portions. For example marketers can design products according to the needs of a particular
geographic group.
Social Class
Every society possesses some form of social class which is important to the marketers because
the buying behavior of people in a given social class is similar. In this way marketing activities
could be tailored according to different social classes. Here we should note that social class is
not only determined by income but there are various other factors as well such as: wealth,
education, occupation etc.
Social Factors
Social factors also impact the buying behavior of consumers. The important social factors are:
reference groups, family, role and status.
Reference Groups
Reference groups have potential in forming a person attitude or behavior. The impact of
reference groups varies across products and brands. For example if the product is visible such
as dress, shoes, car etc then the influence of reference groups will be high. Reference groups
also include opinion leader (a person who influences other because of his special skill,
knowledge or other characteristics).
Family
Buyer behavior is strongly influenced by the member of a family. Therefore marketers are
trying to find the roles and influence of the husband, wife and children. If the buying decision
of a particular product is influenced by wife then the marketers will try to target the women in
their advertisement. Here we should note that buying roles change with change in consumer
lifestyles.
Roles and Status
Each person possesses different roles and status in the society depending upon the groups,
clubs, family, organization etc. to which he belongs. For example a woman is working in an
organization as finance manager. Now she is playing two roles, one of finance manager and
other of mother. Therefore her buying decisions will be influenced by her role and status.
Personal Factors
Personal factors can also affect the consumer behavior. Some of the important personal factors
that influence the buying behavior are: lifestyle, economic situation, occupation, age,
personality and self concept.
Age
Age and life-cycle have potential impact on the consumer buying behavior. It is obvious that
the consumers change the purchase of goods and services with the passage of time. Family life-
cycle consists of different stages such young singles, married couples, unmarried couples etc
which help marketers to develop appropriate products for each stage.
Occupation
The occupation of a person has significant impact on his buying behavior. For example a
marketing manager of an organization will try to purchase business suits, whereas a low level
worker in the same organization will purchase rugged work clothes.
Economic Situation
Consumer economic situation has great influence on his buying behavior. If the income and
savings of a customer is high then he will purchase more expensive products. On the other
hand, a person with low income and savings will purchase inexpensive products.
Lifestyle
Lifestyle of customers is another import factor affecting the consumer buying behavior.
Lifestyle refers to the way a person lives in a society and is expressed by the things in his/her
surroundings. It is determined by customer interests, opinions, activities etc and shapes his
whole pattern of acting and interacting in the world.
Personality
Personality changes from person to person, time to time and place to place. Therefore it can
greatly influence the buying behavior of customers. Actually, Personality is not what one
wears; rather it is the totality of behavior of a man in different circumstances. It has different
characteristics such as: dominance, aggressiveness, self-confidence etc which can be useful to
determine the consumer behavior for particular product or service.
Psychological Factors
There are four important psychological factors affecting the consumer buying behavior. These
are: perception, motivation, learning, beliefs and attitudes.
Motivation
The level of motivation also affects the buying behavior of customers. Every person has
different needs such as physiological needs, biological needs, social needs etc. The nature of
the needs is that, some of them are most pressing while others are least pressing. Therefore a
need becomes a motive when it is more pressing to direct the person to seek satisfaction.
Perception
Selecting, organizing and interpreting information in a way to produce a meaningful experience
of the world is called perception. There are three different perceptual processes which are
selective attention, selective distortion and selective retention. In case of selective attention,
marketers try to attract the customer attention. Whereas, in case of selective distortion,
customers try to interpret the information in a way that will support what the customers already
believe. Similarly, in case of selective retention, marketers try to retain information that
supports their beliefs.
Beliefs and Attitudes
Customer possesses specific belief and attitude towards various products. Since such beliefs
and attitudes make up brand image and affect consumer buying behavior therefore marketers
are interested in them. Marketers can change the beliefs and attitudes of customers by launching
special campaigns in this regard.
Social Factors
Social Factors influencing consumer buying decision can be classified as under.
Reference Groups
Every individual has some people around who influence him/her in any way. Reference groups
comprise of people that individuals compare themselves with. Every individual knows some
people in the society who become their idols in due course of time. Co workers, family
members, relatives, neighbours, friends, seniors at workplace often form reference groups.
Reference groups are generally of two types:
A. Primary Group - consists of individuals one interacts with on a regular basis.
Primary groups include:
Friends
Family Members
Relatives
Co Workers
All the above influence the buying decisions of consumers due to following reasons.
They have used the product or brand earlier. They know what the product is all about. They
have complete knowledge about the features and specifications of the product. Tim wanted to
purchase a laptop for himself. He went to the nearby store and purchased a Dell Laptop. The
reason why he purchased a Dell Laptop was because all his friends were using the same model
and were quite satisfied with the product. We tend to pick up products our friends recommend.
Amarried individual would show strong inclination towards buying products which would
benefit not only him but also his family members as compared to a bachelor. Family plays an
important role in influencing the buying decisions of individuals. A consumer who has a wife
and child at home would buy for them rather than spending on himself. An individual entering
into marriage would be more interested in buying a house, car, household items, and furniture
and so on. When an individual gets married and starts a family, most of his buying decisions
are taken by the entire family. Every individual goes through the following stages and shows a
different buying need in each stage:
Bachelorhood: Purchases Alcohol, Beer, Bike, Mobile Handsets (Spends Lavishly)
Newly Married: Tend to purchase a new house, car, household furnishings. (Spends sensibly)
Family with Children: Purchases products to secure his as well as his family’s future.
Empty nest (Children getting married)/Retirement/Old Age: Medicines, Health Products, and
Necessary Items.
A Ford Car in the neighbourhood would prompt three more families to buy the same model.
Secondary Groups - Secondary groups share indirect relationship with the consumer.
Thesegroups are more formal and individuals do not interact with them on a regular basis,
Example - Religious Associations, Political Parties and Clubs etc.
Role in the Society
Each individual plays a dual role in the society depending on the group he belongs to. An
individual working as Chief Executive Officer with a reputed firm is also someone’s husband
and father at home. The buying tendency of individuals depends on the role he plays in the
society.
Social Status
An individual from an upper middle class would spend on luxurious items whereas an
individual from middle to lower income group would buy items required for his/her survival.
Banking in India
Modern banking in India originated in the last decade of the 18th century. Among the
first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829–
32; and the General Bank of India, established in 1786 but failed in 1791.
The largest and the oldest bank which is still in existence is the State Bank of India
(SBI). It originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it
was renamed as the Bank of Bengal. This was one of the three banks founded by a presidency
government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843.
The three banks were merged in 1921 to form the Imperial Bank of India, which upon India's
independence, became the State Bank of India in 1955. For many years, the presidency banks
had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was
established in 1935, under the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks
under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate
banks. In 1969, the Government of India nationalised 14 major private banks; one of the big
banks was Bank of India. In 1980, 6 more private banks were nationalised. These nationalised
banks are the majority of lenders in the Indian economy. They dominate the banking sector
because of their large size and widespread networks.
The Indian banking sector is broadly classified into scheduled and non-scheduled
banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of
India Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank
of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian
private sector banks. The SBI has merged its Associate banks into itself to create the largest
Bank in India on 01 April 2017. With this merger SBI has a global ranking of 236 on Fortune
500 index. The term commercial banks refers to both scheduled and non-scheduled commercial
banks regulated under the Banking Regulation Act, 1949.Generally the supply, product range
and reach of banking in India is fairly mature-even though reach in rural India and to the poor
still remains a challenge. The government has developed initiatives to address this through the
State Bank of India expanding its branch network and through the National Bank for
Agriculture and Rural Development (NABARD) with facilities like microfinance. through
the National Bank for Agriculture and Rural Development (NABARD) with facilities like
microfinance.
Banking is to be considered as pure financial service industry and responsible for the
economic development of an economy upto great extent. Satisfaction of customers is the vital
for retaining existing customers and attracting prospective customers to widen the level of
operational activities in any concern. In India, Private and Public banks are rendering financial
services. The Policies and Strategies of Private and Public banks are different that leads
variation in the customers’ satisfaction level. This paper tries to measure satisfaction level of
customers of Public and Private Banks and factors responsible for variation in customers’
satisfaction between Private and Public banks in India. The objective of the research is to get
the satisfaction level, variations in satisfaction level and reasons responsible for variations in
satisfaction level or dissatisfaction in public and private banks. This research is based on
primary information obtained from customers of Public and Private sectors banks in India.
Overall, Customers of Private and Public sector banks are satisfied except some tangibles and
behavioral factors of the banks employees due to the policies, strategies for tangibles and
inefficiency of the employees. So, there are need to consider tangibles and behavioral factors
of the employees to enhance the level of satisfaction in Public banks.
The satisfaction of the customers is very important factor in all service industries to
enhance and improve the profitability and financial performance of the concern. Banking sector
is purely financial service industry and the customer’s satisfaction is much more important to
run banking business successfully. The satisfaction level of the customers is varying due to
different kinds of banking services and their benefit to the customers. There are so many factors
that are responsible in the discrimination of the services for different types of banking
customers and lead to uneven satisfaction level. In India, Private and Public sector banks are
providing the financial services to the different types of customers in rural and urban areas.
The offices of the Private and Public sector banks are increasing rapidly .
 Table 1: Growth of public sector and private sector banks in India-Bank ofice wise.

Bank 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- CAGR(%)
offices- 06 07 08 09 10 11 12 13 Compound
group annual
wise growth rate
Public 50168 52104 55080 57979 62080 65800 70969 75779 5.29
sector
Private 6835 7427 8322 9288 10516 12097 13970 16001 11.22
sector

Source: Malyadri P, Sirisha S (2015) An analytical study on trends and progress of Indian
banking industry.
From the above details [1,2], it is obvious that the numbers of offices of Public sector
are five times more than the Private sector bank offices. But, the compound annual growth rates
(CAGR) of Private sector Banks are higher than two times of Public sector banks offices. This
absolute and relative growth of Public and Private sector banks directing towards enhancement
of customers’ satisfaction level to retain existing and attract new customers. As Puja K and
Yukti A reveals that Private Banks have more satisfied customers due to good services and
retaining its customers by offering better facilities comparatively public sector banks. Mishra
S and Patra SK revealed that service quality, customers’ satisfaction and customers’ retentions
are the major challenges in banking sector. However, Public sectors’ Banks have to improve
in the area of dealing with the customers and Private sectors’ Banks need to focus upon their
loans and insurance services. Public sectors banks need to improve their infrastructural
facilities and provide some training to the employees’ who are dealing with customers. In
Banks, branches equipped with latest technology, developed infrastructure and well trained
employees, convenient office hours and locations of the branches are the factors affecting the
customers’ satisfaction level. The responsiveness and empathy of the staff of rural branches
are required some changes and improvement to satisfy the customers .
Satisfaction is very necessary in the banking industry to provide better financial
services to enhance the level of profitability and strengthen the financial position. Private sector
banks’ offices growth is evident that the service quality and customers’ satisfaction are the
prime consideration for the development of the banking business in India. Public sector banks
are more capable to attract and retain customers due to their reputation and convenient location
of bank branches in India. There is need to get opinion of customers about service quality and
customers’ satisfaction in banks and identify the areas where improvements are necessary to
make customers more satisfied
 Research Objectives
The objectives of the research are as follows:

• To know the satisfaction level of customers from Private and Public sector banks.

• To know the difference between the satisfaction level of Private and Public sector customers
of banks considering various aspects of satisfaction.

• To know the factors responsible for the low satisfaction level among the banking customers.

• To provide suggestions to improve satisfaction level of the customers.

 Scope of the study-
The scope of the Banking services is vast and ever expanding. This present work attempts to
study the customer’s behaviour towards the service offered by public sector and private sector
banks.
The study is being carried out with a special reference to Public Sector Banks and Private
Sector Banks in Bhiwandi and Wada .
 REVIEW AND LITERATURE
This makes a brief review of the literature relevant to the study. (There is only very
limited studied which are directly relevant to the study concerned). Research era has
made an attempt a review of the literature available which consists of articles, journals.
(1) Bolton and Drew, J.H. (1994), the risk management service, quality and customer
satisfaction has been subjected to intense scrutiny by a few. Service, quality, researches.
Banks these days provide a variety of services ranging from opening a savings account
to internet banking, granting loans to selling insurance, providing locker facilities to
transferring money abroad. The banks have to satisfy all the customers belonging to
different social groups. Therefore the banking has become more complex and requires
specialised skills. People working in banks act as a bridge between the bank and the
customers. As, a service provider their role becomes very important in shaping banks
perception in customers mind.

(2) Bodla (2004) -examined four private sector banks and four public sector banks of
Chandigarh, Delhi and Haryana in order to assess their service quality. He concluded
that expectations and perceptions of customers differ significantly in the banks of these
two sectors. Israel, Clement, and Selvam (2004) made similar attempt to analyse service
quality of banks. Their study identified that marketing efforts and performance of banks
in public sector are less efficient than in private sector, but when it comes to reliability
and security public sector banks are trusted more over private sector banks.

(3) Bank net India (2006), the study concludes that the ATM services is for the bill
payments and pre-paid mobile recharge where comfortable with depositing
cash/cheques through ATM. But they have to wait in long queues. ATM are preferred
over branch banking by majority respondents show the increasing popularity of e-
banking among the public.

(4) Singh.S (2004), concludes that staff behaviour is very polite and services are
provided even in the late hours. It concludes that services of private sector banks are
better than the services of public sector banks.

(5) Chopra. V.K (2006) , Old public sector banks are slow in imbibing technology in
their operations, whereas private sector banks are early adopter of the technology and
increasing the competition.

(6) Chopra. V.K (2006) , Old public sector banks are slow in imbibing technology in
their operations, whereas private sector banks are early adopter of the technology and
increasing the competition.
 (7) Kumar and walia (2007) ,The study suggest that given the confidence and competence
to public sector banks to compete with new private sector banks and foreign sector
banks.

(8) Nair .K.N.C. (2006), the study concludes that technology usage has improved the
efficiency of operations in banks and reduced the cost of ATM transaction and IT poses
a bright future in rural banking.

(9) Kumar .S, Sujit .K.A (2006) ,The study suggests making e-purse more user friendly
like credit cards, providing coder base in terms of issues, location and service providers
to facilitate its usage at transportation services, educational institutions, shopping malls
etc.

(10) Singla and AroraR.S (2005), conclude that the study reveals that both the banks have
improved their financial performance during the study period.

(11) Justin Paul , Arun Mittal , Garima Srivastav (2016) – Impact of service quality on
customer satisfaction in private and public sector banks
In today’s world, with increased competition, service quality has become one of the
most popular areas of academic investigation. The purpose of this paper is to examine
the impact of various service quality variables on the overall satisfaction of customers
and compare the private and public sector banks using a sample from India.
In the case of private sector banks, knowledge of products, response to need, solving
questions, fast service, quick connection to the right person, and efforts to reduce
queuing time were found to be the factors that are positively associated with overall
satisfaction. Assistance to the customer, appearance, and follow up are negatively
associated with customer satisfaction. On the other hand, in the case of public sector
banks, knowledge of the product and fast service are the factors which are associated
positively and appearance is the only factor that is negatively associated.

(12) Maya Basant Lohani, Dr. Pooja Bhatia-Assessment of Service Quality in Public and
Private Sector Banks of India
In the modern marketing customer satisfactions is of paramount importance. The study
on service quality in selected banks is measured in five dimensions by using
SERVQUAL scale developed by Parasuraman et al (1988). The number of responses
in the present research reveals that there exists a small perceptual difference regarding
overall service quality with the respective banks. The respondents of both the banks
mostly concentrate on the staffs of the banks for improving customer satisfaction while
the bank have more concentration on the tangible factor like a computerization, physical
facilities, etc. to attract the customers. The dimensions Reliability, Responsiveness and
Assurance are found to be the most vital and strategic determinants of service quality
and customer satisfaction for both public and private sector banks. If banks want to
sustain customers on a long term basis, bankers should work towards 100% customer
satisfaction that automatically foster customer delight.

(13) Roma Mitra, Shankar Ravi (2008),- A stable and efficient banking sector is an
essential precondition to incr.ease the economic level of a country. This paper tries to
model and evaluate the efficiency of 50 Indian banks. The Inefficiency can be analyzed
and quantified for every evaluated unit. The aim of this paper is to estimate and compare
efficiency of the banking sector in India. The analysis is supposed to verify or reject the
hypothesis whether the banking sector fulfils its intermediation function sufficiently to
compete with the global players. The results are insightful to the financial policy
planner as it identifies priority areas for different banks, which can improve the
performance. This paper evaluates the performance of Banking Sectors in India.\
(14) V. Chandrasekhar, G.M.chief technology officer, Bank of Baroda (2002),
today world has become a global hub for business. To sustain a growth in the global
market industries requires a strong banking system is now ready for the global market
because of the automating technology. IT has changed the way a bank reaches out to
its customers; none are the days where it was deployed for also automatically
accounting bank office. Function to remove drudgery of employees. It is now manually
being developed for customers interfacing interacting. The latest services like
“Anywhere banking”, “Tele-banking”, “Internet banking”, “Web banking”,“e-
banking”,“ e-business” etc. Have become the buzzwords of the day and the banks are
trying to cope with the competition by offering
(15) B.Satish Kumar (2008), in his article on an evaluation of the financial
performance of Indian private sector banks wrote Private sector banks play an important
role in development of Indian economy. After liberalization the banking industry
underwent major changes. The economic reforms totally have changed the banking
sector. RBI permitted new banks to be started in the private sector as per the
recommendation of Narashiman committee. The Indian banking industry was
dominated by public sector banks. But now the situations have changed new generation
banks with used of technology and professional management has gained a reasonable
position in the banking industry

(16) Kangis and Vassilis (1997)- studied customer’s expectation and perception of
public and private banks of Greece. They studied five dimensions of service quality and
concluded that consumers of private sector banks have favorable impact of quality
received as compared to banks in public sector. Vasilis, Constantine and Katerina
(2005) made a similar attempt to study Greece customers’ satisfaction level. Their study
concluded that in terms of marketing efficiency public sector banks have high perceived
value while in terms of professional services and communications private sector banks
shows more satisfactory performance.
(17) Aurora and Malhotra (1997) - made efforts to study level of customer
satisfaction and marketing strategies adopted in public and private sector banks in India.
Their study explored various factors of satisfaction in these banks and concluded that
customers are more satisfied with private banks mainly because of the staff factor. They
suggest public sector banks to be well equipped, have trained staff, personalise the
services provided, avoid long queues, and keep their environment attractive.

(18) Virk and Mahal (2012) presented a comparative analysis of level of customer
satisfaction towards services provided by public and private sector banks in Chandigarh
city. They identified that customers prefer private sector banks mainly because of two
reasons, firstly these banks focus on building and maintaining good relationship with
their clients and secondly as they are well equipped with the use of modern technology
as compared to banks in public sector
(19) Franklin and Arul (2014) surveyed banks of Chennai city and compared
satisfaction and expectation of consumers of public and private sector banks. They
reported that service gap of private sector is better than public sector across all service
dimensions except assurance. Public sector banks must concentrate on improving their
performance in order to maintain their market share in Chennai. was 250. However,
researcher received 206 fully answered questionnaire, all of them were included in the
study. Thus the response rate was 82%. Geographically the study was restricted to
Indore city.
Hypothesis of the Study
1. H0: There is no significant difference between being satisfied and not satisfied customers
from their rural and urban branches.

H1: There is a significant difference between being satisfied and not satisfied customers from
their rural and urban branches.

2. H0: There is no significant difference between satisfaction and not satisfaction in terms of
being employment of the customers.

H1: There is a significant difference between satisfaction and not satisfaction in terms of being
employment of the customers.

3. H0: There is no significant difference between Public and Private Banks in terms of gender
of the customer.

H1: There is a significant difference between Public and Private Banks in terms of gender of
the customer.

4. H0: There is no significant difference between Public and Private Banks in terms of income
of the customer.

H1: There is a significant difference between Public and Private Banks in terms of income of
the customer.

5. H0: There is no significant difference between being satisfied and not satisfied customers
from their Public and Private sector banks.

H1: There is a significant difference between being satisfied or not satisfied customers from
their Public and Private Banks.
6. H0: There is no significant difference between Public and Private Banks in terms of being
types of banks account.

H1: There is significant difference between Public and Private banks in terms of being types
of banks account.

7. H0: There is no significant difference between being satisfied and unsatisfied in terms of
male and female.

H1: There is significant difference between being satisfied and unsatisfied in terms of male and
female.

8. H0: There is no significant difference in perception and expectation of customers from urban
and rural branch in terms of Tangibles, Reliability, Responsiveness, Assurance and Empathy.

H1: There is significant difference in perception and expectation of customers from urban and
rural branch in terms of Tangibles, Reliability, Responsiveness, Assurance and Empathy.

9. H0: There is no significant difference in perception and expectation of customers from

Private, Public and Public and Private Banks in terms of Tangibles, Reliability,
Responsiveness, Assurance and Empathy.

10. H1: There is significant difference in perception and expectation of customers from Private,
Public and Public and Private banks in terms of Tangibles, Reliability, Responsiveness,
Assurance and Empathy.
 RESEARCH METHODOLOGY
This research is purely based upon the primary information’s obtained from the
banking customers of different parts of India. There were 100 banking customers, who
responded well the all information’s containing in the questionnaire.. There were 20 questions
in the SERVQUAL questionnaire to get the differences in satisfaction levels of customers of
Public sector and Private sector banks in various terms (Demographical -11 questions,
Expectations -20 questions, Perceptions-20 questions). The respondents were from different
parts of India, but mostly from Maharashtra, Bhiwandi due to native state of the researcher.
The mean difference between expectations and perceptions of the customers calculated to know
the satisfaction level differences. The demographical analysis is made to know the satisfaction
level differences of customers of Private and Public sector assuming the various demographical
factors as base. Chi Square is used to test hypotheses to get the differences between or among
the dimensions of customers’ satisfaction and Private Banks, Public Banks and in between
related terms. The secondary information’s are obtained from the other sources like research
papers, published papers etc.
 DATA ANALYSIS INTERPRETATION AND PRESENTATION
Primary data

In the above pie chart its shown that 67.9% pf consumers have their bank account in
public bank and the remaining 32.1% of consumers have their bank account in private bank.
Which means that the public bank is the most preferred bank by the consumers as majority of
consumers have their account in public bank.
 The above graph represent that the consumers have their bank accounts in various banks
from that most of the consumers have their bank account in State Bank of India (SBI) and union
bank. From the above 27 responses the consumers have their bank accounts in
Axis bank, Central bank of India, Dombivali nagrik sahakari Bank LTD, Hdfc bank and
kotak bank, ICCI bank, IDBI bank, Indusind bank, Punjab national bank, State Bank Of India,
TJSB bank , and Union Bank
In the above mentioned banks the most of the banks are public banks therefore it can be
stated that most of the consumers prefer public bank for their bank accounts.
 The above pie chart represents the reason behind the preference of banks by the
consumers three options were given ( it provides good service , its near to my place, someone
recommended me) from which most of the consumers (58.6%)chose the option of providing
good service . (24.1%) of consumers chose the particular bank because it is near to their place
and (17.2%) of consumers chose the particular bank because its near to their place.
Which clearly means that majority of the consumers are happy from the good service
provided by their banks
 The above pie chart represents the type of bank account the consumer have weather its
current or savings from which 86.7% of consumers account is savings and remaining 13.3% of
consumers account is current.
Which states that the majority of consumers prefer savings account over current account
.

Online internet banking is one of the main aspect of banking as it allows the access to
the bank account any time any where the consumer can do transactions when ever they want
and the online internet banking has made banking even more easier . The above survey stated
that 93.1% of consumers use internet Banking service provided by the banks. And the
remaining 6.9% of consumers are not sure about the online internet banking
 When the consumers were asked question regarding the cheque book 17 from 30
consumers have cheque book. And 13 consumers don’t have cheque book. Which means that
the majority of consumers use cheque book.

The above pie chart represents the more useful service provided by the bank the
majority of consumer 60% finds online as more useful service as it allows access to the banking
transactions any time anywhere. The online banking is used by almost all the consumers as its
easy to use and consumers don’t need to stand in long que to do transactions. 26.7% of
consumers find customer service more useful as the better interaction of banks interaction of
banks with consumers creates a good impression of banks in the mind of people. Few Private
banks allows the consumer to mail their issues regarding their bank account to mail direct to
the manager.
 The above pie chart represents the preference of the consumer regarding net banking
and traditional banking. From which majority of consumers chose net banking 76.7%. and the
remaining 23.3% of the consumers chose traditional banking. The net banking has many
advantages as well as disadvantages too same goes with traditional banking but the traditional
banking prevents the fraud which occurs from online banking sometimes. Before pandemic the
majority of people preferring traditional banking was more but during pandemic the consumers
were not allowed to go in bank and practice traditional banking there more majority of people
shifted towards net banking as it allows the access through bank account from home.

The next question asked to consumers was what are the other service you would like
your bank to provide from which majority of consumers 37.9% of consumers chose the option
of taking action immediately towards any issue Which clearly means that most of banks don’t
respond fast as they process very slow. 34.5% of consumers chose the option of responding
fast towards any issue an it seems that sometimes the banks server goes out of service. When
a consumer visits atm most of atm goes out of service or there is no cash available the bank
takes too long to respond. And the remaining 27.6% of consumers chose the option more
security towards online banking as most of consumers find online banking risker because of
online theft and fraud occurring day by day.
 The above pie chart represents the time taken by banks to response towards certain
problems. 36.7% of consumers chose the option of the within a week. 30% of consumer chose
1 day. 20% of consumer chose 2 day and 13.3% of consumer chose more than a week. Usually
the private banks respond faster as compared to government banks as the majority of consumers
having their bank account in private bank has chosen the option of A day. And from the survey
we got to know that most of consumers have their bank account in public bank and in the above
pie chart it is mentioned that the public banks take a week to respond certain issues occur in
consumers bank account.
 The above pie chart represents the frequency of transactions done by the consumer. 40%
of consumers do transaction once a week. 36.7% of consumers do transactions monthly. 23.3%
of consumers do transactions daily. Majority of consumers does transactions once a week. As
banking plays a very important role in todays world.

The above pie chart represents the opinion of customer on the service provided
by the bank. 73.3% of consumers are satisfied from the service provided by
their bank and they find it as good service. 16.7% of consumers chose the
option of not proper interaction between bank and the consumer. And 10% of
consumers chose the option that they don’t interact properly which means
certain percentage of consumers are not satisfied from the service provided by
the banks.
 The last question asked to consumers was about the rating they would like to give their
banks regarding their service the majority of consumers gave 4 rating from 5. Which means
that the majority of people are satisfied from their bank . they like the service provided by their
bank. And 13.3% of consumers are delighted from the service provided from their bank.
Secondary data

Advantage of banks
Safety of Public Wealth
Before the introduction of the modernized banking system, people used to save their
money in hard cash. They stored this cash in lockers, underground, with the grains, etc. There
were so many instances when the money got stolen, eaten by the rats or simply rot through the
years. However, the modern banking system completely eliminated the need to store hard cash.
It actually helps save a huge proportion of public wealth that used to get spoiled in storage.

Availability of Cheap Loans

Before modern banks were established, people would borrow money from local money
lenders, landlords, merchants or other wealthy individuals. These loans were given at
exorbitant interest rates that most people couldn’t afford to pay, in the process the borrower
would always remain in debt. It was a vicious cycle. Modern banks started providing cheaper
loans to the underprivileged section of the society, breaking the whole expensive loans system.
Propellant of Economy
Banks create money with a system called credit creation. With the help of credit
creation, banks can lend a lot more money than the deposits that it holds. When banks lend this
money to agriculture, industries, small businesses, and service providers, they are actually
helping the economy grow exponentially. This, in turn, creates employment and spending
power. Overall this one function of the bank is so powerful that the entire economy of any
country relies on it.
Economies of Large Scale
An extremely important benefit of any bank is its deep and wide reach through the
branch banking system and the benefits of large scale operations. The wider the bank can reach
the better services it can provide. Now a day’s banks provide services of net banking, card
payments, ATM’s, etc. at even the most far-fetched and backward areas. Due to these large
scale operations, the services have become extremely cheap, or sometimes even free.

Development in Rural Areas

Banks aid rural development in more than one way. Firstly, the government makes it
mandatory for the banks to lend to specialized sectors such as agriculture, rural infrastructure,
etc. This leads to the development of modern infrastructure and methods in rural areas, thereby
bringing in growth. Secondly, with the banks opening their branches in the backward areas, the
rural population has benefits of modern bank facilities such as check-in accounts, ATM’s,
locker facility, etc. Furthermore, when a new bank branch opens in a village, it needs facilities
such as 24-hour electricity supply, internet connection, new staff etc. This creates employment
and the villagers can also benefit from facilities of electricity and internet.
Global Reach
Many banks operate at the multinational level, this has helped people and businesses in
a way that was not possible before the establishment of modern banks. Multinational banks
aids in remittance of cash, exchanging one currency for another; aids in export by transferring
documents and payments; lend money to government, institutions and other world
organizations. The reach of the banks is unlimited and it has helped in making the world a
global village.

Disadvantage of banks
Chances of Bank going Bankrupt
The world economy goes through turbulent times every few years. Events such as great
depression of 1929, World War I & II, dot com bubble of 2000, or great recession of 2008, etc.
expose banks to unnatural risks. During delicate periods, if all the people decide to withdraw
their money from the bank, all at once, the bank will become bankrupt. Due to the function of
credit creation, banks never have enough money to pay all its customers at the same time.
People, without a doubt, will lose their money if the bank goes bankrupt.
Risk of Fraud and Robberies
The rise in internet banking has given rise in cybercrime as well. Now more people are
exposed to the risk of credit card thefts, stolen passwords, net banking frauds, etc. There have
been robberies where robbers have stolen millions of dollars through the internet, without
entering the bank premises physically. With the rise in internet banking, there will be a more
innovative way for conmen and robbers to cheat people. This leaves the public vulnerable. This
also increases the expenses that banks have to incur to safeguard their systems, which are
eventually charged from the customers.
Risk of Public Debt
This is not the risk of the bank per se, but this is the risk that people take on themselves
while dealing with a bank. Say a person is in the habit of maxing out his credit card every
month and repays the bare minimum then he will spiral into debt very fast. The habit of
borrowing more than a person can afford to repay is actually a personal bad habit, however,
the easy lending policies of banks add fuel to the fire. This can be damaging to people’s
personal finances. It even affects businesses that take term loans and working capital loans
from the banks and cannot repay it. Comparatively fewer businesses are affected by debt
epidemic, but it still exists.
Capital and risk
Banks face a number of risks in order to conduct their business, and how well these
risks are managed and understood is a key driver behind profitability, and how much capital a
bank is required to hold. Bank capital consists principally of equity, retained earnings and
subordinated debt.
After the 2007-2009 financial crisis, regulators force banks to issue Contingent
convertible bonds (CoCos).These are hybrid capital securities that absorb losses in accordance
with their contractual terms when the capital of the issuing bank falls below a certain level.
Then debt is reduced and bank capitalization gets a boost. Owing to their capacity to absorb
losses, CoCos have the potential to satisfy regulatory capital requirement.[25][26]

Some of the main risks faced by banks include:

Credit risk: risk of loss arising from a borrower who does not make payments as promised.[27]
Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market
to prevent a loss (or make the required profit).
Market risk: risk that the value of a portfolio, either an investment portfolio or a trading
portfolio, will decrease due to the change in value of the market risk factors.
Operational risk: risk arising from execution of a company's business functions.
Reputational risk: a type of risk related to the trustworthiness of business.
Macroeconomic risk: risks related to the aggregate economy the bank is operating in.[28]
The capital requirement is a bank regulation, which sets a framework within which a
bank or depository institution must manage its balance sheet. The categorization of assets and
capital is highly standardized so that it can be risk weighted.
The economic functions of banks include:
Issue of money, in the form of banknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because they are
negotiable or repayable on demand, and hence valued at par. They are effectively transferable
by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or
cash.
Netting and settlement of payments – banks act as both collection and paying agents
for customers, participating in interbank clearing and settlement systems to collect, present, be
presented with, and pay payment instruments. This enables banks to economize on reserves
held for settlement of payments, since inward and outward payments offset each other. It also
enables the offsetting of payment flows between geographical areas, reducing the cost of
settlement between them.
Credit intermediation – banks borrow and lend back-to-back on their own account as
middle men.
Credit quality improvement – banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes and deposits are generally
unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it
needs to continue to operate, this puts the note holders and depositors in an economically
subordinated position.
Asset liability mismatch/Maturity transformation – banks borrow more on demand debt
and short term debt, but provide more long term loans. In other words, they borrow short and
lend long. With a stronger credit quality than most other borrowers, banks can do this by
aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g.
withdrawals and redemption of banknotes), maintaining reserves of cash, investing in
marketable securities that can be readily converted to cash if needed, and raising replacement
funding as needed from various sources (e.g. wholesale cash markets and securities markets).
Money creation/destruction – whenever a bank gives out a loan in a fractional-reserve
banking system, a new sum of money is created and conversely, whenever the principal on that
loan is repaid money is destroyed.

Bank crisis
Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial
year to a record US$96.4 trillion while profits declined by 85% to US$115 billion. Growth in
assets in adverse market conditions was largely a result of recapitalization. EU banks held the
largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks'
share increased from 12% to 14% during the year, while the share of US banks increased from
11% to 13%. Fee revenue generated by global investment banking totalled US$66.3 billion in
2009, up 12% on the previous year.
 The United States has the most banks in the world in terms of institutions (5,330 as of
2015) and possibly branches (81,607 as of 2015).[31] This is an indicator of the geography and
regulatory structure of the US, resulting in a large number of small to medium-sized institutions
in its banking system. As of November 2009, India's top 4 banks have in excess of 67,000
branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140
smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000
branches. In 2004, Germany, France, and Italy each had more than 30,000 branches – more
than double the 15,000 branches in the UK.

Banking Regulation-
Currently, commercial banks are regulated in most jurisdictions by government entities
and require a special bank license to operate.
Usually, the definition of the business of banking for the purposes of regulation is
extended to include acceptance of deposits, even if they are not repayable to the customer's
order – although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the
market, being either a publicly or privately governed central bank. Central banks also typically
have a monopoly on the business of issuing banknotes. However, in some countries this is not
the case. In the UK, for example, the Financial Services Authority licenses banks, and some
commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those
issued by the Bank of England, the UK government's central bank.
Global headquarters of the Bank for International Settlements in Basel
Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customer – defined as any entity for which the bank agrees to conduct an
account.
The law implies rights and obligations into this relationship as follows:
The bank account balance is the financial position between the bank and the customer:
when the account is in credit, the bank owes the balance to the customer; when the account is
overdrawn, the customer owes the balance to the bank.
The bank agrees to pay the customer's checks up to the amount standing to the credit
of the customer's account, plus any agreed overdraft limit.
The bank may not pay from the customer's account without a mandate from the customer, e.g.
a cheque drawn by the customer.
The bank agrees to promptly collect the cheques deposited to the customer's account as the
customer's agent, and to credit the proceeds to the customer's account.
And, the bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
 The bank must not disclose details of transactions through the customer's account –
unless the customer consents, there is a public duty to disclose, the bank's interests require it,
or the law demands it.
The bank must not close a customer's account without reasonable notice, since cheques are
outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer
and the bank. The statutes and regulations in force within a particular jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the bank-
customer relationship.
Some types of financial institution, such as building societies and credit unions, may be partly
or wholly exempt from bank license requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank license vary between jurisdictions but typically
include:
Minimum capital
Minimum capital ratio
'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers
Approval of the bank's business plan as being sufficiently prudent and plausible.
Different types of banking –
Banks' activities can be divided into:
retail banking, dealing directly with individuals and small businesses;
business banking, providing services to mid-market business;
corporate banking, directed at large business entities;
private banking, providing wealth management services to high-net-worth individuals and
families;
investment banking, relating to activities on the financial markets.
Most banks are profit-making, private enterprises. However, some are owned by government,
or are non-profit organizations

Types of bank
National Bank of the Republic, Salt Lake City 1908
The BANK of Greenland, Nuuk
An office of Nordea bank in Mariehamn, Åland
ATM Al-Rajhi Bank
National Copper Bank, Salt Lake City 1911
A branch of Union Bank in, Visakhapatnam
Commercial banks: the term used for a normal bank to distinguish it from an
investment bank. After the Great Depression, the U.S. Congress required that banks only
engage in banking activities, whereas investment banks were limited to capital market
activities. Since the two no longer have to be under separate ownership, some use the term
"commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits
and loans from corporations or large businesses.
Community banks: locally operated financial institutions that empower employees to make
local decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and credit to
under-served markets or populations.
Land development banks: The special banks providing long-term loans are called land
development banks (LDB). The history of LDB is quite old. The first LDB was started at Jhang
in Punjab in 1920. The main objective of the LDBs are to promote the development of land,
agriculture and increase the agricultural production. The LDBs provide long-term finance to
members directly through their branches.
Credit unions or co-operative banks: not-for-profit cooperatives owned by the depositors and
often offering rates more favourable than for-profit banks. Typically, membership is restricted
to employees of a particular company, residents of a defined area, members of a certain union
or religious organizations, and their immediate families.
Postal savings banks: savings banks associated with national postal systems.
Private banks: banks that manage the assets of high-net-worth individuals. Historically a
minimum of US$1 million was required to open an account, however, over the last years many
private banks have lowered their entry hurdles to US$350,000 for private investors.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore
banks are essentially private banks.
Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the
18th century. Their original objective was to provide easily accessible savings products to all
strata of the population. In some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on retail banking:
payments, savings products, credits and insurances for individuals or small and medium-sized
enterprises. Apart from this retail focus, they also differ from commercial banks by their
broadly decentralized distribution network, providing local and regional outreach – and by their
socially responsible approach to business and society.
Building societies and Landesbanks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what they
consider to be socially responsible investments.
A direct or internet-only bank is a banking operation without any physical bank branches.
Transactions are usually accomplished using ATMs and electronic transfers and direct deposits
through an online interface.
Types of investment banks
Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their
own accounts, make markets, provide investment management, and advise corporations on
capital market activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares rather
than loans. Unlike venture caps, they tend not to invest in new companies.
Combination banks
A branch of Banco de Oro in Metro Manila, Philippines
A Banco do Brasil office in São Paulo, Brazil, the bank is the largest financial
institution in Brazil and Latin America.
Universal banks, more commonly known as financial services companies, engage in
several of these activities. These big banks are very diversified groups that, among other
services, also distribute insurance – hence the term bancassurance, a portmanteau word
combining "banque or bank" and "assurance", signifying that both banking and insurance are
provided by the same corporate entity.

Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory
responsibilities, such as supervising commercial banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in
event of a crisis.
Islamic banks adhere to the concepts of Islamic law. This form of banking revolves
around several well-established principles based on Islamic laws. All banking activities must
avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and
fees on the financing facilities that it extends to customers.

Challenges within the banking industry

The United States banking industry is one of the most heavily regulated and guarded
in the world,[35] with multiple specialized and focused regulators. All banks with FDIC-
insured deposits have the Federal Deposit Insurance Corporation (FDIC) as a regulator.
However, for soundness examinations (i.e., whether a bank is operating in a sound manner),
the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of
the Comptroller of the Currency (OCC) is the primary federal regulator for national banks.
State non-member banks are examined by the state agencies as well as the FDIC.[36]:236
National banks have one primary regulator – the OCC.

Each regulatory agency has their own set of rules and regulations to which banks and thrifts
must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established
in 1979 as a formal inter-agency body empowered to prescribe uniform principles, standards,
and report forms for the federal examination of financial institutions. Although the FFIEC has
resulted in a greater degree of regulatory consistency between the agencies, the rules and
regulations are constantly changing.
In addition to changing regulations, changes in the industry have led to
consolidations within the Federal Reserve, FDIC, OTS, and OCC. Offices have been closed,
supervisory regions have been merged, staff levels have been reduced and budgets have been
cut. The remaining regulators face an increased burden with increased workload and more
banks per regulator. While banks struggle to keep up with the changes in the regulatory
environment, regulators struggle to manage their workload and effectively regulate their banks.
The impact of these changes is that banks are receiving less hands-on assessment by the
regulators, less time spent with each institution, and the potential for more problems slipping
through the cracks, potentially resulting in an overall increase in bank failures across the United
States.
The changing economic environment has a significant impact on banks and thrifts as
they struggle to effectively manage their interest rate spread in the face of low rates on loans,
rate competition for deposits and the general market changes, industry trends and economic
fluctuations. It has been a challenge for banks to effectively set their growth strategies with the
recent economic market. A rising interest rate environment may seem to help financial
institutions, but the effect of the changes on consumers and businesses is not predictable and
the challenge remains for banks to grow and effectively manage the spread to generate a return
to their shareholders.
The management of the banks’ asset portfolios also remains a challenge in today's
economic environment. Loans are a bank's primary asset category and when loan quality
becomes suspect, the foundation of a bank is shaken to the core. While always an issue for
banks, declining asset quality has become a big problem for financial institutions.
Safra National Bank, New York
There are several reasons for this, one of which is the lax attitude some banks have
adopted because of the years of “good times.” The potential for this is exacerbated by the
reduction in the regulatory oversight of banks and in some cases depth of management.
Problems are more likely to go undetected, resulting in a significant impact on the bank when
they are discovered. In addition, banks, like any business, struggle to cut costs and have
consequently eliminated certain expenses, such as adequate employee training programs.
Banks also face a host of other challenges such as ageing ownership groups. Across
the country, many banks’ management teams and board of directors are ageing. Banks also
face ongoing pressure by shareholders, both public and private, to achieve earnings and growth
projections. Regulators place added pressure on banks to manage the various categories of risk.
Banking is also an extremely competitive industry. Competing in the financial services industry
has become tougher with the entrance of such players as insurance agencies, credit unions,
cheque cashing services, credit card companies, etc.
As a reaction, banks have developed their activities in financial instruments, through
financial market operations such as brokerage and have become big players in such activities.
Another major challenge is the ageing infrastructure, also called legacy IT. Backend
systems were built decades ago and are incompatible to new applications. Fixing bugs and
creating interfaces costs huge sums, as knowledgeable programmers become scarce.[37]
Loan activities of banks
To be able to provide home buyers and builders with the funds needed, banks must
compete for deposits. The phenomenon of disintermediation had to dollars moving from
savings accounts and into direct market instruments such as U.S. Department of Treasury
obligations, agency securities, and corporate debt. One of the greatest factors in recent years in
the movement of deposits was the tremendous growth of money market funds whose higher
interest rates attracted consumer deposits.[38]
To compete for deposits, US savings institutions offer many different types of plans:
Passbook or ordinary deposit accounts – permit any amount to be added to or withdrawn from
the account at any time.
NOW and Super NOW accounts – function like checking accounts but earn interest. A
minimum balance may be required on Super NOW accounts.
Money market accounts – carry a monthly limit of preauthorized transfers to other accounts
or persons and may require a minimum or average balance.
Certificate accounts – subject to loss of some or all interest on withdrawals before maturity.
Notice accounts – the equivalent of certificate accounts with an indefinite term. Savers agree
to notify the institution a specified time before withdrawal.
Individual retirement accounts (IRAs) and Keogh plans – a form of retirement savings in which
the funds deposited and interest earned are exempt from income tax until after withdrawal.
Checking accounts – offered by some institutions under definite restrictions.
All withdrawals and deposits are completely the sole decision and responsibility of the account
owner unless the parent or guardian is required to do otherwise for legal reasons.
Club accounts and other savings accounts – designed to help people save regularly to meet
certain goals.

Types of accounts
Suburban bank branch
Bank statements are accounting records produced by banks under the various
accounting standards of the world. Under GAAP there are two kinds of accounts: debit and
credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and
Expenses. The bank credits a credit account to increase its balance, and debits a credit account
to decrease its balance.[39]
The customer debits his or her savings/bank (asset) account in his ledger when
making a deposit (and the account is normally in debit), while the customer credits a credit card
(liability) account in his ledger every time he spends money (and the account is normally in
credit). When the customer reads his bank statement, the statement will show a credit to the
account for deposits, and debits for withdrawals of funds. The customer with a positive balance
will see this balance reflected as a credit balance on the bank statement. If the customer is
overdrawn, he will have a negative balance, reflected as a debit balance on the bank statement.
Brokered deposits
One source of deposits for banks is brokers who deposit large sums of money on
behalf of investors through trust corporations. This money will generally go to the banks which
offer the most favourable terms, often better than those offered local depositors. It is possible
for a bank to engage in business with no local deposits at all, all funds being brokered deposits.
Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called,
puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in
a way that yields a return sufficient to pay the high interest being paid on the brokered deposits.
This may result in risky decisions and even in eventual failure of the bank. Banks which failed
during 2008 and 2009 in the United States during the global financial crisis had, on average,
four times more brokered deposits as a percent of their deposits than the average bank. Such
deposits, combined with risky real estate investments, factored into the savings and loan crisis
of the 1980s. Regulation of brokered deposits is opposed by banks on the grounds that the
practice can be a source of external funding to growing communities with insufficient local
deposits.[40] There are different types of accounts: saving, recurring and current accounts.

Custodial accounts
Custodial accounts are accounts in which assets are held for a third party. For example,
businesses that accept custody of funds for clients prior to their conversion, return or transfer
may have a custodial account at a bank for these purposes.

Globalization in the banking industry

In modern time there has been huge reductions to the barriers of global competition in
the banking industry. Increases in telecommunications and other financial technologies, such
as Bloomberg, have allowed banks to extend their reach all over the world, since they no longer
have to be near customers to manage both their finances and their risk. The growth in cross-
border activities has also increased the demand for banks that can provide various services
across borders to different nationalities.

However, despite these reductions in barriers and growth in cross-border activities, the
banking industry is nowhere near as globalized as some other industries. In the US, for instance,
very few banks even worry about the Riegle–Neal Act, which promotes more efficient
interstate banking. In the vast majority of nations around the globe the market share for foreign
owned banks is currently less than a tenth of all market shares for banks in a particular nation.
One reason the banking industry has not been fully globalized is that it is more convenient to
have local banks provide loans to small business and individuals. On the other hand, for large
corporations, it is not as important in what nation the bank is in, since the corporation's financial
information is available around the globe.[41]
Indian banking industry
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently
capitalised and well-regulated. The financial and economic conditions in the country are far
superior to any other country in the world. Credit, market and liquidity risk studies suggest that
Indian banks are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking
models like payments and small finance banks. RBI’s new measures may go a long way in
helping the restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with
India’s Immediate Payment Service (IMPS) being the only system at level five in the Faster
Payments Innovation Index (FPII). *

Market Size
The Indian banking system consists of 12 public sector banks, 22 private sector banks,
46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural
cooperative banks in addition to cooperative credit institutions. As of September 2020, the total
number of ATMs in India increased to 210,049 and is further expected to increase to 407,000
by 2021.

Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.
During FY16-FY20, bank credit grew at a CAGR of 3.57%. As of FY20, total credit
extended surged to US$ 1,698.97 billion.
During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion
by FY20. Credit to non-food industries stood at Rs. 103.46 trillion (US$ 1.40 trillion) as of
November 20, 2020.

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

Government Initiatives
As per Union Budget 2019-20, the Government proposed fully automated GST refund
module and an electronic invoice system that will eliminate the need for a separate e-way bill.
Under the Budget 2019-20, Government proposed Rs. 70,000 crore (US$ 10.2 billion) to the
public sector banks.
Government smoothly carried out consolidation, reducing the number of Public Sector Banks
by eight.
As of September 2018, the Government of India made Pradhan Mantri Jan Dhan Yojana
(PMJDY) scheme an open-ended scheme and added more incentives.
The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in public sector
banks by March.
Achievements
Following are the achievements of the Government:
In November 2020, Unified Payments Interface (UPI) recorded 2.21 billion transactions worth
Rs. 3.90 lakh crore (US$ 53.06 billion).
According to the RBI, India’s foreign exchange reserve reached US$ 574.82 billion as of
November 27, 2020.
To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been
sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural
Development (NABARD).

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

Evaluation of the role and purpose of banking

• Loans are essentials to enable firms to invest and expand. However, banks are not the
only source of finance. Firms may turn to private investors, stockmarket, government
grants or personal savings.
• In times of recession or shortage of funds, banks may not be willing to lend when firms
need it most.
• Bank lending is profitable for banks and can incur significant costs for the firm.
• Consumers increasingly need banks to pay for bills electronically.
• Bank loans and mortgages provide an opportunity to purchase very expensive items
and pay back over a long period – e.g. house, car.
• The poorest consumers often don’t have access to bank account and bank loans, causing
the poorest to look outside traditional banking to more exploitative loans, such as
payday loans and money sharks.
• Some insurance services are not necessary, for example, insuring electronic goods is
expensive compared to the cost of replacing them.
 • Low-income consumers may feel they cannot afford insurance payments and put
themselves at risk.

Importance of customer satisfaction in banking

Customer Satisfaction Might Be the Only True Competitive Advantage Left in

Banking
How important is customer satisfaction for banks? Extremely. With so little else to
compete on, delivering a great customer experience is the best way to make your bank stand
out. In this article, we discuss why banks should care about the customer experience and how
customer satisfaction is linked to better financial results.
Customer Satisfaction Is the Largest Competitive Advantage for Banks
The banking industry is a commoditized space. With everyone offering nearly the same
products and services without much room to compete on price, the experience customers have
with their banks is what gives one bank a competitive advantage over another. There are two
areas where banks can really look to stand out by delivering an incredible customer experience.
Interpersonal Service
In our experience, the relationship between a bank and their customer has the biggest
impact on customer satisfaction. People want to be treated as if they matter. They want to form
a relationship with their bank, and they want their bank to make an effort to get to know them
instead of just pushing a product.
Consistent Omni-Channel Experience
In modern banking, there are many ways for customers to interact with a bank, including
online and mobile banking, at an ATM, and over the phone. One of the biggest things we’ve
seen is that a consistent experience across channels matters to customers. Whether it’s
transferring information quickly between channels or making sure deposit times are consistent
no matter how a deposit is made, these things matter. To provide a great customer experience,
banks need to deliver on the expectations their customers have in all channels.
Effective Problem-Solving
Customers are reasonable. They know that an occasional problem or mishap is possible.
But they also expect that their bank will make the situation right. This means fixing the problem
quickly and effectively.
Mistakes that Lower Customer Satisfaction for Banks
With our extensive experience measuring customer satisfaction for banks, we’ve seen some
common mistakes that can really have a negative impact.
Treating a Call Center Like a Cost Center
Your call center is a safety net. A quality call center solution can really help to improve
the customer experience. But when corners are cut to reduce costs, your call center can do more
harm than good. By not giving your call center enough resources or outsourcing to the most
affordable solution, you could risk providing a poor customer experience.
Avoiding Interpersonal Communication
Though this isn’t as large a problem as it was in the recent past, banks that push
customers out of branches and lean on digital space to reduce costs are missing the
interpersonal communication and relationship building that is so important to banking
customers. Having quality digital solutions is convenient for customers, but you still have to
be committed to getting to know the people that bank with you.
The Result of Great Customer Satisfaction for Banks
Plain and simple, the result is better financial outcomes. Being incredibly involved
with customer satisfaction in the banking industry, we’ve seen firsthand how big of an impact
it has for a bank’s financial success.
The results are two-fold. First, your current customers are far more likely to open more
accounts or use more services if they’ve had an overall positive experience. A client with just
a checking account could add a savings account and use you for their mortgage when they buy
a home. Second, satisfied customers are far more likely to recommend you to others. This is
especially true in business banking.
How to Measure Customer Satisfaction
Because customer satisfaction is so important in the banking industry, measuring the
customer experience and identifying ways to improve in this area is essential. This is our
specialty. APECS, our comprehensive customer satisfaction measurement program, is
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GENERAL UTILITY SERVICES

In addition to agency services, banks render many more utility services to the public. These
services are:-
i) Locker Facilities: Banks provide locker facilities to their customers. People can keep
their valuables or important documents in these lockers. Their annual rent is very nominal.
ii) Acting as a referee: It desired by the customers, the bank can be a referee i.e. who could
be referred by the third parties for seeking information regarding the financial position of the
customers. The bank will acts as referee only and only if it is desired by the customer, otherwise
the secrecy of a customers is account is maintained very carefully.
iii) Issuing letters of credit: Bankers in a way by issuing letters of credit certify the credit
worthiness of the customers. Letters of credit are very popular in foreign trade.
iv) Acting as Underwriters: Banks also underwrite the securities issued by the Government
and Corporate bodies for a commission. The name of bank as an underwriter encouraged
investors to have faith in the security.
v) Acting as information banks: Commercial banks also act as “information” bureau as
they collect the financial, economic and statistical data relating to industry, trade and
commerce. HDFC Bank is providing information relating to NRI Schemes and commentaries
of experts on development in the areas of finance through Internet.
vi) Issuing Traveller’s cheques and credit cards: Banks have been rendering great service
by issuing traveller’s cheques, which enable a person to travel without fear of theft or loss of
money. Now, some banks have started credit card system under which a credit card holder is
allowed to avail credit from the listed outlets without any additional cost or effort. Thus, credit
card holder need not carry or handle cash all the time. Now, international credit cards are
joining hands with Indian Banks.
vii) Issuing of gift cheques: Certain banks issue gift cheques of various denominations, e.g.
Some Indian banks issue gift cheques f the denominations of Rs. 21, 31, 51 and 101 etc. They
are generally issued free of charge.
viii) Dealing in Foreign Exchange: Major branches of commercial banks also transact
business of foreign exchange. Commercial banks are the main authorized dealers of foreign
exchange in India.
ix) Merchant banking Services: Commercial banks also render merchant banking services
to the customers. They help in availing loans from non-banking financial institutions.
x) Help in Transportation of Goods: Big businessmen or industrialists after consigning
goods to their retailers send the Railway Receipt (Consignment Note) to the bank.
IMPACT OF DEMONETIZATION ON BANKING SECTOR
Demonetization is a tool to battle Inflation, Black Money, Corruption and Crime, discourage a
cash dependent economy and help trade. Its policy of the government by banning Rs. 500 and
Rs.1000 currency notes has influenced all almost all the corner of the economy.
Hereby analyzing the impact of demonetization on Banking Sector.
A study by Bhupal Singh and Indrajit Roy, RBI directors from the monetary policy department
and department of statistics and information management, published in August this year
showed that the excess deposits accrued to the banking system due to demonetisation range
between Rs 2.8-4.3 trillion.
“Excess deposit growth in the banking system during the demonetisation period (i.e., November 11, 2016 to
December 30, 2016) works out to 4-4.7 percentage points. If the period up to mid-February 2017 is taken
into account to allow for some surge to taper off, excess deposit growth is in the range of 3.3-4.2 percentage
points.

The liquidity boost resulting from the demonetisation announcement on November 8, 2016 has stayed with
the banking sector a year after the event, helping banks reduce their high-cost deposits and boosting their
current account and savings account (CASA) ratio.
CASA is abbreviation of current Account Savings Account. It is the ratio which indicates how much of the
total deposits with bank in the current account and savings account. In a simple language, the deposits with
the bank are in the current account and savings account. Banks do not pay interest on the current account
deposits and pays a very low% of interest on savings on account deposits. Hence, it is a good measures to
get deposits at no or very low cost.

Thus influences of demonetization are:

• Increase in Deposits: Demonetization has increased the deposits in Banks. Unaccounted
money in the form of Rs.500 and Rs.1000 were flowing to the Banks and the sizes of deposits
have been increased. It helped the banks to grab the deposits and increase their deposits.
Bulk of the deposits so mobilised by SCBs have been deployed in: (i) reverse repos of various
tenors with the RBI; and (ii) cash management bills (CMBs) issued under the Market
Stabilisation Scheme (which is a part of investment in government securities in the balance
sheet of banks). Loans and advances extended by banks increased by Rs.1,008 billion. The
incremental credit deposit ratio for the period was only 18.2 per cent. Additional deposits
mobilised by commercial banks have been largely deployed in liquid assets.

• Fall in cost of Funds: Over the past few months, the deposits are increased. It led the banks
to keep a major part of deposits in the form of cash deposits. PSU Banks have a lion share (over
70%) of the deposits and biggest gainers of the rise in deposits, leading to lower cost of funds.
Surplus liquidity conditions have helped facilitate the transmission of monetary policy to
market interest rates. Post demonetisation, several banks lowered their domestic term deposit
rates and lending rates. The median term deposit rates of SCBs declined by 38 bps during
November 2016-February 2017, while the weighted average term deposit rate of banks
declined by 24 bps (up to January 2017). Combined with the sharp increase in low cost CASA
deposits, the overall cost of borrowings declined, allowing banks to reduce their lending rates.
• Demand for Government Bonds: After sharp rise in deposits on post demonetization, banks started
lending such surplus deposits to the RBI under the reverse repo options. PSU Banks, particularly, deployed
excess funds in government bonds. The return on bond investment is likely to add 15 to 20 per cent increase
in the earnings of banks.

Sagginess in Lending: Lending growth of the banks is considerably less even after
demonetization and its impact of growth in the amount of public deposit. Banks have tried to
lend the money to the needy group by reducing their interest rates, but it shrunk over the last
few months.
Opening of Jan Dhan Account

Post-demonetisation, 23.3 million new accounts were opened under the Pradhan Mantri Jan
Dhan Yojana (PMJDY), bulk of which (80 per cent) were with public sector banks. Of the new
Jan Dhan accounts opened, 53.6 per cent were in urban areas and 46.4 per cent in rural areas.
Deposits under PMJDY accounts increased significantly post demonetisation. The total
balance in PMJDY deposit accounts peaked at Rs. 746 billion as on December 7, 2016 from
Rs. 456 billion as on November 9, 2016 - an increase of 63.6 per cent. As there were reports
regarding the use of these accounts to convert black money into white, the Government issued
a warning against the misuse of such accounts.

Push to Digital Banking

A cashless economy is one in the flow of cash within an economy is non-existent and all
transactions have to be through electronic channels such as direct debit, credit and debit cards,
electronic clearing, payment systems such as Immediate Payment Service (IMPS), National
Electronic Funds Transfer and Real Time Gross Settlement in India.
Benefits of Cashless economy
• Reduced instances of tax avoidance because it is financial institutions based economy where
transaction trails are left.
• Curb generation of black money.
• IT will reduce real estate prices because of curbs on black money.
• It will place universal availability of banking services to all as no physical infrastructure is
needed other than digital.
• There will be greater efficiency in welfare programmes as money is wired directly into the
accounts of recipients.
• Reduced cost of printing notes, instances of their soiled or becoming unusable, counterfeit
currency.
• Reduced costs of operating ATMs.
• Speed and satisfaction of operations for customers as no delays and queues, no interactions
with bank staff required.
Digital transaction platforms
• UPI: Unified Payment Interface (UPI) allows you to make payments using your mobile phone
as the primary device for transactions, through the creation of a ‘virtual payment address’,
which is an alias for your bank account. UPI was launched by the National Payment
Corporation of India (NPCI).
• BHIM App: The Bharat Interface for Money (BHIM) in an initiative by the Govt to enable
fast,secure and reliable cashless payments through mobile phones. BHIM is Aadhaar-enabled,
inter- operable with other Unified Payment Interface (UPI) applications and bank accounts,
and has been developed by the National Payments Corporation of India (NPCI). This seals the
government’s push towards digital payments after the demonetization that resulted in the
scrapping of high-value Rs 1,000 and Rs 500 currency notes.
• Aadhar Pay: There are lots of payment apps in the market. These are the UPI apps, SBI Pay,
Paytm, Phonepe, Freecharge, mobile wallets etc. But, the Adhaar Payment App is special as
you can pay through the Adhaar Payment App without phone. It is possible because you the
customer does not require the app. The merchant or a person, who want money, have to arrange
a smartphone, app, etc. The payer don’t require anything. This app is made for the merchants
and shopkeepers. Customer would only enjoy its benefits. The Adhaar Payment Appuses your
fingerprints for the authentication. On the basis of this authentication, the money ispaid from
your Aadhaar linked account.
• IMPS: Immediate Payment Service (IMPS) is an instant interbank electronic fund transfer
service through mobile phones. It is also being extended through other channels such as ATM,
Internet Banking, etc.
• POS terminals: A point-of- sale (POS) terminal is a computerized replacement for a cash
register. Much more complex than the cash registers of even just a few years ago, the POS
system can include the ability to record and track customer orders, process credit and debit
cards, connect to other systems in a network, and manage inventory. Generally, a POS terminal
has as its core a personal computer, which is provided with application-specific programs and
I/O devices for the particular environment in which it will serve.
• USSD: USSD (Unstructured Supplementary Service Data) is a Global System for
Mobile(GSM) Communication technology that is used to send text between a mobile phone
and an application program in the network. Applications may include prepaid roaming or
mobile chatting.
Challenges of a cashless rural economy
• Currency dominated economy: High level of cash circulation in India. Cash in circulation
amounts to around 13 per cent of India’s GDP.
• Transactions are mainly in cash: Nearly 95 per cent of transactions take place in cash. Large
size of informal/unorganized sector entities and workers prefer cash based transactions. They
don’t have required digital literacy.
• ATM use is mainly for cash withdrawals and not for settling online transactions: There
are large number of ATM cards including around 21 crore Rupaya cards. But nearly 92 per
cent of ATM cards are used for cash withdrawals. Multiple holding of cards in urban and semi-
urban areas show low rural penetration.
• Limited availability of Point of Sale terminals: According to RBI, there are 1.44 million
PoS terminals installed by various banks across locations at the end of July 2016. But most of
them remain in urban/ semi-urban areas.
• Mobile internet penetration remains weak in rural India: For settling transactions
digitally, internet connection is needed. But in India, there is poor connectivity in rural areas.
In addition to this, a lower literacy level in poor and rural parts of the country, make it
problematic to push the use of plastic money on a wider scale. This is being overcome by
application BHIM (Bharat Interface for Money) launched by the Prime Minister which will
work on USSD i.e without mobile internet.
Demonetization crippled rural bank lending
The note ban hurt rural India, loan growth was far below its pre-demonetisation levels.
Indeed, in the second half of FY2017, bank lending to rural Haryana, Punjab, Goa, Maharashtra
and Kerala contracted. Lending to rural Maharashtra fell by as much as 9.2%. Putting that in
perspective, bank loans in the second half of FY16 to rural Haryana increased by 18% and to
rural Punjab by 12.2%, while rural Maharashtra saw an increase in lending of 5.8%. Not a
single state had showed a contraction in rural lending in the second half of FY16. In other
words, the slowdown in rural lending in the second half of FY17 was very abnormal and may
be attributed largely to demonetisation.
The rural parts of western India bore the brunt, with credit growth falling by 5.1% in the second
half of FY17. Rural northern India and metropolitan western India also saw very low credit
growth.
Nationalized banks’ credit growth was 2.7% in the FY17 second half, compared to 8.8%
growth in second half FY16. SBI and its associates saw their credit growth fall to 7.8% in the
second half of FY17 compared to 13.7% in the second half of the previous year. Private banks’
credit growth was 10.1% in the second half of FY17 compared to 18.8% in the year-ago period.
Clearly, every category of banks was affected.
The negative impacts are because of regulation, costs of demonetisation, loss of opportunity
and short-term damage to economy.
• The 100% cash reserve requirement (CRR) on incremental deposits meant that banks did not
earn any interest on Rs 3 lakhs crores of deposits for nearly a fortnight.
• The waiver of ATM charges would result in banks losing Rs 20 in every transaction.
• The waiver of merchant discount rate on cards would result in banks losing 1% in every card
transaction.
• Banks use third parties like cash logistics companies for cash transportation. Moving out Rs
15 lakh crore of currency notes and moving in Rs 7 lakh crore plus from currency chests would
have cost several thousand crore.
• As banks have been focused on exchanging currency notes, they have not been able to sell
any loan products.
• Some SME businesses have seen their sales drop 50–80% and could default in their
instalments. They won’t immediately be classified as NPAs because of some relaxations, but
if the delay persists bank NPAs might worsen.
• Uncertainty has resulted in drop in spending on high value items from credit cards. These are
the transactions which are converted into EMIs and banks earn from them.
Demonetization has led to the increase in the use of plastic cards, online Banking, opening of
new accounts, number of customers in the branches and the use of ATM.

Effect of deflation on Banks:

Deflation is defined as a sustained and broad decline in price levels in an economy over a
period. Deflation is the opposite of inflation and is also different from disinflation, which
represents a period when the inflation rate is positive but falling.

Brief periods of lower prices, as in a disinflationary environment, are not bad for the
economy. Paying less for goods and services leaves consumers with more money left over for
discretionary expenditures, which should boost the economy. In a period of declining
inflation, the central bank is not likely to be "hawkish" (in other words, poised to
aggressively raise interest rates) on monetary policy, which would also stimulate the
economy.

But deflation is different. The biggest problem created by deflation is that it leads consumers
to defer consumption of big-ticket items like appliances, cars and houses. After all, the
possibility that prices may go up is a huge motivator for buying big-ticket items (which is
why sales and other temporary discounts are so effective).

In the United States, consumer spending accounts for 70% of the economy, and economists
consider it one of the most reliable engines of the global economy. Imagine the negative
impact if consumers defer spending because they think goods may be cheaper next year.

Once consumer spending begins to decelerate, it has a ripple effect on the corporate sector, which
begins to defer or slash capital expenditures spending on property, building, equipment, new
projects and investments. Corporations may also begin downsizing to maintain profitability.
This creates a vicious circle, with corporate layoffs imperilling consumer spending, which, in
turn, leads to more layoffs and rising unemployment. Such contraction in consumer and
corporate spending can trigger a recession and, in the worst-case scenario, a full-blown
depression.

Another hugely negative effect of deflation is its impact on the debt burden. While inflation
chips away at the real (i.e., inflation-adjusted) value of debt, deflation adds to the real debt
burden. An increase in the debt burden during a recession increases defaults and bankruptcies
by indebted households and companies.

Recent Deflation Concerns

Over the past quarter-century, concerns about deflation have spiked after big financial crises
and/or the bursting of asset bubbles such as the Asian crisis of 1997, the "tech wreck" of 2000
to 2002 and the Great Recession of 2008 to 2009. These concerns have assumed center stage
in recent years because of Japan's experience after its asset bubble burst in the early 1990s.
To counter the Japanese yen's 50% rise in the 1980s and the resultant recession in 1986,
Japan embarked on a program of monetary and fiscal stimulus. This caused a massive asset
bubble as Japanese stocks and urban land prices tripled in the second half of the 1980s. The
bubble burst in 1990 as the Nikkei index lost a third of its value within a year commencing a
slide that lasted until October 2008 and brought the Nikkei down 80% from its December
1989 peak. As deflation became entrenched, the Japanese economy—which had been one of
the fastest-growing in the world from the 1960s to the 1980s—slowed dramatically. Real
GDP growth averaged only 1.1% annually from 1990. In 2013, Japan's nominal GDP was
approximately 6% below its mid-1990s level.

The Great Recession of 2008 to 2009 sparked fears of a similar period of prolonged deflation
in the United States and elsewhere because of the catastrophic collapse in prices of a wide
range of assets—stocks, mortgage-backed securities, real estate and commodities. The global
financial system was also thrown into turmoil by the insolvency of a number of major banks
and financial institutions in the United States and Europe exemplified by the bankruptcy of
Lehman Brothers in September 2008 (To learn more, read: Case Study – The Collapse of
Lehman Brothers). There were widespread concerns that scores of banks and financial
institutions would fail in a domino effect leading to a collapse of the financial system, a
shattering of consumer confidence and outright deflation.

How the Federal Reserve Fought Deflation

Chairman Ben Bernanke of the Federal Reserve had already acquired the moniker of
"Helicopter Ben." In a 2002 speech, he had referenced the economist Milton Friedman's
famous line that deflation could be countered by dropping money from a helicopter. Although
Bernanke did not have to resort to the helicopter drop, the Federal Reserve used some of the
same methods outlined in his 2002 speech from 2008 onwards to combat the worst recession
since the 1930s.

In December 2008, the Federal Open Market Committee (FOMC, the Federal Reserve's
monetary policy body) cut the target federal funds rate essentially to zero. The fed funds rate
is the Federal Reserve's conventional instrument of monetary policy, but with that rate now at
the "zero lower bound" – so-called because nominal interest rates cannot go below zero – the
Federal Reserve had to resort to unconventional monetary policies to ease credit conditions
and stimulate the economy.

The Federal Reserve turned to two main types of unconventional monetary policy tools: (1)
forward policy guidance and (2) large-scale asset purchases (better known as quantitative
easing (QE)).

The Federal Reserve introduced explicit forward policy guidance in the August 2011 FOMC
statement to influence longer-term interest rates and financial market conditions. The Fed
stated that it expected economic conditions to warrant exceptionally low levels for the federal
funds rate at least through mid-2013. This guidance led to a drop in Treasury yields as
investors grew comfortable that the Fed would delay raising rates for the next two years. The
Fed subsequently extended its forward guidance twice in 2012 as a tepid recovery caused it to
push the horizon for keeping rates low.

But it is quantitative easing that has made headlines and become synonymous with the Fed's
easy-money policies. QE essentially involves the creation of new money by a central bank to
buy securities from the nation's banks and pump liquidity into the economy and drive down
long-term interest rates. This ripples through to other interest rates across the economy, and
the broad decline in interest rates stimulates demand for loans from consumers and
businesses. Banks can meet this higher demand for loans because of the funds they have
received from the central bank in exchange for their security holdings.

The timeline of the Fed's QE program was as follows:

• Between December 2008 and August 2010, the Federal Reserve purchased $1.75
trillion in bonds, comprising $1.25 trillion in mortgage-backed securities issued by
government agencies like Fannie Mae and Freddie Mac, $200 billion in agency
debt and $300 billion in longer-term Treasuries. This initiative subsequently became
known as QE1.
• In November 2010, the Fed announced QE2, wherein it would buy another $600
billion of longer-term Treasuries at a pace of $75 billion per month.
• In September 2012, the Fed launched QE3, initially buying mortgage-backed
securities at a pace of $40 billion per month. The Fed expanded the program in
January 2013 by buying $45 billion of longer-term Treasuries per month for a total
monthly purchase commitment of $85 billion.
• In December 2013, the Fed announced that it would taper off the pace of asset
purchases in measured steps and concluded the purchases in October 2014.

How Other Central Banks Fought Deflation

Other central banks have also resorted to unconventional monetary policies to stimulate their
economies and stave off deflation.

In December 2012, Japanese Prime Minister Shinzo Abe launched an ambitious policy
framework to end deflation and revitalize the economy. Called “Abenomics," the program
has three main elements (1) monetary easing, (2) flexible fiscal policy and (3) structural
reforms. In April 2013, the Bank of Japan announced a record QE program. The central
bank announced that it would buy Japanese government bonds and double the monetary base
to 270 trillion yen by the end of 2014 with the objective of ending deflation and achieving
inflation of 2% by 2015. The policy objective of slashing the fiscal deficit in half by
2015 from its 2010 level of 6.6% of GDP and achieving a surplus by 2020 commenced with
an increase in Japan's sales tax from 5% to 8% in April 2014. The structural reforms element
required bold measures to offset the effects of an aging population, such as allowing foreign
labour and employing women and older workers.

In January 2015, the European Central Bank (ECB) embarked on its own version of QE by
pledging to buy at least 1.1 trillion euros of bonds at a monthly pace of 60 billion euros
through to September 2016. The ECB launched its QE program six years after the Federal
Reserve in a bid to support the fragile recovery in Europe and ward off deflation.
Its unprecedented move to cut the benchmark lending rate below 0% in late-2014 had met
with limited success.

While the ECB was the first major central bank to experiment with negative interest rates, a
number of central banks in Europe, including those of Sweden, Denmark and Switzerland,
have pushed their benchmark interest rates below the zero bound. What will be the
consequences of such unconventional measures?
Intended and Unintended Consequences

The torrent of cash in the global financial system as a result of QE programs and other
unconventional measures have paid off for the stock market. Global market capitalization
exceeded $70 trillion for the first time in April 2015 representing an increase of 175% from
the trough level of $25.5 trillion in March 2009. The S&P 500 has tripled over this
period while many equity indices in Europe and Asia are currently at all-time highs.

But the impact on the real economy is less clear. According to Reuters, reporting on estimates
from the Congressional Budget Office, U.S. economic growth will slow in 2019 to less than
the 3% quoted by the Trump administration as the effect of the fiscal stimulus
fades. Meanwhile, the concerted moves to fend deflation globally have had some strange
consequences:

• Central bank balance sheets are bloating: Large-scale asset purchases by the
Federal Reserve, Bank of Japan and the ECB are swelling up their balance sheets to
record levels. The Fed's balance sheet has grown from less than $870 billion in
August 2007 to over $4 trillion in October 2018. Shrinking these central bank balance
sheets may have negative consequences down the road.
• QE could lead to a covert currency war: QE programs have led to major currencies
plunging across the board against the U.S. dollar. With most nations having exhausted
almost all their options to stimulate growth, currency depreciation may be the only
tool remaining to boost economic growth, which could lead to a covert currency war.
(To learn more, read: "What is a currency war and how does it work?").
• European bond yields have turned negative: More than a quarter of government
debt issued by European governments currently has negative yields. This may be a
result of the ECB's bond-buying program, but it could also be signaling a sharp
economic slowdown in future.

The Bottom Line

The measures taken by central banks seem to be winning the battle against deflation, but it is
too early to tell if they have won the war. An unspoken fear is that central banks may have
expended most, if not of all of their ammunition, in beating back deflation. If this is the case
in the years ahead, deflation could be exceedingly difficult vanquish.

The Effect of COVID-19 on the Banking Sector

COVID-19 has created a very difficult challenge throughout the world. In addition to many
illnesses and deaths, large portions of the world population are quarantined or have had
their freedom of movement limited. We will win the “war” against COVID-19, but in many
aspects, the world will not be the same after COVID-19. One aspect is that we will have a
world recession. Unemployment has soared, hopefully temporarily, but this has put a major
crimp in the economy. One indication of how the economy in the near future is expected to
evolve is the reaction of the world’s stock exchanges. They have plummeted, losing about
one-third of their value (although they have recovered to a great degree after governments
took drastic fiscal action). The changing economic strength of the banks (due to their
reduced market value) can have consequences for the rest of the business community
because banks have a special role in the financial system and partly because most of all the
business transactions take place through banks and partly because the banks are important
for financing the reconstruction of the world business community.

In 2019, total profit from Indian banks reached $312 billion, ranking first in the world,
nearly a quarter more than that of US banks. The Industrial and Commercial Bank of India
(ICBC) had the highest total profit and net profit and India Construction Bank (CCB) was
in the second place. At present, India has brought the pandemic under control through
suppression measures and is trying to accelerate the full restoration of production and living
order while maintaining pandemic prevention and control. A variety of policies would
safeguard the banking system, maintain sufficient liquidity, and promote the development
of the real economy. India’s economy is stabilizing which contributes to the development
of the global industrial chain, which will thus help resist the threat of world recession.

Short-Term Impacts on Bank Performance Indicators

Short-term credit demand of the residential sector has dropped a great deal, while that of
nonfinancial corporations has risen. The pandemic led to people living in isolation, making
consumption sluggish, and credit card loans declined remarkably. Personal business loans
were difficult to resume because micro- and small business owners return to work facing
early repayment to avoid unnecessary interest expenses. The number of short-term
household new RMB loans was −114.9 billion in January and −450.4 billion in February, a
year-on-year decrease of 407.9 billion and 157.2 billion, respectively . As for nonfinancial
companies, special relending due to the pandemic and credit granted for pandemic
prevention have risen. The pandemic has led to funding pressures for some companies, and
corporations with credit have increased withdrawals. As a result, the figure of their short-
term new RMB loans was +769.9 billion in January and +654.9 billion in February, a year-
on-year increase of 178 billion and 506.9 billion, respectively .

The service industry and micro, small, and medium-sized enterprises (MSMEs) struggled
for survival during this period. Learning from experiences gained from the SARS outbreak
of 2003, the most influenced industries were the tertiary, especially transportation,
accommodation, and catering . Data sources used to depict figures are from Wind data
vendor. By 2018, India’s MSMEs accounted for 99.8% of all enterprises . These were
mainly labor-intensive and asset-light industries such as wholesale and retail,
accommodation, catering and tourism, accounting for more than 70%. In the other
direction, demand for credit in the healthcare industries, e.g. the firms producing
preventive/protective equipment, has grown. The rising demand for “new consumer” credit,
such as online e-commerce, online education, and online office, has partially hedged
downward pressure on consumption.

The traditional concept of “early investment and early income” means Indian bank credit
investment follows a “3322” pattern. There is pressure to maintain steady growth, and more
supportive governmental policies may be launched for this purpose. Consequently, the
credit scale may see a sharp rebound after the pandemic period.
The pandemic situation has had a differential impact on the quality of bank assets. The
pandemic has affected India’s manufacturing, consumption, and import and export
activities. Total retail sales of social consumer goods and gross value of imports and
exports declined by 38.3%, 20.5%, and 9.6% from January to February, respectively .
Under the influence of the pandemic, the nonperforming loan ratio of commercial banks
may rise. If the macroeconomy is relatively stable, bank asset quality is expected to remain
steady. From a regional perspective, the banks with a higher proportion of credit in Hubei
province are more affected, but the impacts are limited overall. As of 2019, the loans of
Hubei province accounted for 3.29% of the national total . From the industry perspective,
tertiary sector components such as transportation, tourism, catering, and accommodation
are more affected by the pandemic, and the pressure on their asset quality is greater. At the
end of 2017, the distribution of RMB loans by financial institutions showed that
transportation, warehousing, and postal services; wholesale and retail industries; and
accommodation and catering industries made up 9.3%, 7.2%, and 0.6% of bank loans,
respectively . From the perspective of the group size, MSME cash flow is more easily
disrupted, their default risks and asset quality pressure are greater. From the perspective of
banks, the pandemic has a little negative impact on the asset quality of state-owned banks
and joint-stock banks. However, downward pressure increased on the asset quality of small
and medium-sized banks in the short term. The longer the pandemic lasts, the greater
pressure on their credit risks. A series of measures have been launched to resolve the
problem. The People’s Bank of India (PBC) has implemented three reserve requirement
ratio (RRR) reductions with a total of 1.75 trillion since 2020 . In the meantime,
departments will continue to promote the adjustment and optimization of the credit
structure and the transformation of operations and businesses.

Proportion of bank loans in different types of industries (%)

The net interest margin has narrowed. The impact of the pandemic on net interest margin is
mainly reflected in three aspects: First, the cost of bank liabilities increases. The pandemic
considerably influences the growth of enterprises and residents’ income and slows down
the growth of bank deposits. Second, the short-term loan demand reduction affects bank
loan bargaining power and impacts the loan interest rate. Third, the decrease of Loan Prime
Rate (LPR) interest rate and other regulatory policies led to the decline of bank lending
rates. On February 20, one-year LPR and five-year LPR were 4.05% and 4.75%, a decrease
of 10 BP and 5 BP compared with the previous month, respectively. In March, LPR was not
adjusted, because it was about the pattern, not about direction. Pattern considerations need
to take account of the capabilities of the financial support entities. Due to previous interest
rate reduction and relending, the interest rate of credit has fallen remarkably. In February,
the interest rate of general loans (excluding personal housing loans) was 5.49%, 0.61%
lower than that of July 2019 (before the LPR reform), and the decrease was significantly
greater than the 0.26% drop of one-year LPR in the same period . The market expects that
in mid-to-late April, Medium-term Lending Facility (MLF) and LPR interest rate are
expected to be cut.

Long-Term Impact on the Banking Industry Is Limited

In the medium term, the influence on the banking industry depends on the future
development of the pandemic. Since the end of February, COVID-19 has spread across the
world, and the global cumulative number of confirmed cases amounted to 1,605,870 by
April 9 . This has had a major impact on the world economy. Under the influence of market
sentiment, global financial markets have fluctuated sharply. The banking sector is facing
double shocks from the physical economy and financial markets. The pandemic itself is
extremely contagious, and the differences in prevention and control strategies and levels
make the risk of international crossover and reciprocal transmission higher. Central banks
and financial regulators in various countries and regions around the world have launched
various policies to encourage and support the banking sector to actively bolster enterprises
and individuals. The Neil Ferguson team from Imperial College estimated that interventions
across all 11 countries would have averted 59,000 deaths up to 31 March (claiming a 95%
credible interval of 21,000–120,000). They believe that although we are not sure that the
existing measures have controlled the pandemic in Europe, we have reason to be optimistic
according to current trends.

Global cumulative number of confirmed cases of COVID-19

The first quarter meeting of the Monetary Policy Committee of PBC held that the impact of
the COVID-19 on India’s economy is generally controllable, India’s economic growth
remains resilient, and the fundamentals of long-term trend for the better will not change.
From the perspective of global macroeconomic patterns, India’s economy is relatively
stable, and its contribution to the world economy is increasing. In 2018, India’s GDP
accounted for 15.9% of the world economy, and its nominal GDP reached 66% of that of
the United States, making India the world’s second-largest economy. Import and export
service trade, foreign direct investment, and attracting foreign direct investment ranked
second. The number of outbound tourists and overseas tourism expenditure was in the first
percentile. In 2019, India’s GDP was $14.4 trillion, ranking second in the world, 6.1%
higher than the previous year, contributing about 30% to world economic growth. In 2019,
the overall operation and development of India’s banking sector was in good shape, and its
ability to resist risks was improved. First, the net profit growth of India’s large commercial
banks reached the highest level in recent years. The net profit of ICBC and CCB rose by
4.9% and 4.8%, respectively, compared with the prior year [1]. Second, at the end of 2019,
the loan loss reserve of India’s commercial banks was 4.49 trillion, an increase of 49.2
billion in contrast to the third quarter, and the provision coverage rate and the capital
adequacy ratio was 186.08% and 14.64%, respectively . Third, India’s banking investment
and trading business are mainly concentrated in the bond sector, whose participation in the
capital market is far less than that of American and European Banks, so its extent of
exposure to market fluctuations is relatively limited.

In order to hedge short-term impact, Indian policies to stabilize economic growth will be
strengthened. First, a loose and flexible monetary policy will continue. PBC has
implemented three RRR reduction since 2020. On January 6, it put a comprehensive RRR
cut into practice, releasing 800 billion of long-term funds . On March 16, it carried out a
targeted RRR cut assessment for financial inclusion and released 550 billion in long-term
funds. On April 3, the targeted RRR reduction for small and medium-sized banks released
another 400 billion of long-term funds, amounting to 1.75 trillion. Meanwhile, the excess
deposit reserve interest rate for financial institutions at the central bank was reduced from
0.72% to 0.35% since April 7. Additionally, 300 billion of special relending and 500 billion
of relending and rediscount policy were issued, and an additional 1 trillion will be
introduced soon. After 7-day and 14-day reverse repurchase rates were reduced by 10 BP,
respectively, on February 3, PBC lessened the 7-day reverse repurchase rate by 20 BP on
March 30, indicating that monetary policy has entered the stage of intensifying counter-
cyclical adjustment.

PBC will continue to take measures to accelerate a decline in loan interest rates, keep
liquidity abundant, and bolster the physical economy. First, a variety of monetary policy
tools such as RRR reduction will be used, with loans to commercial banks and special
treasury bonds when necessary. Second, continuing promotion of LPR reform begun on
August 20, 2019. LPR is linked to MLF-based open market operating interest rates, and all
new loans issued by banks refer mainly to the LPR interest rate. Third, guiding the banking
system to maintain appropriate profits relative to the real economy. Fourth, continue to play
the role of the benchmark deposit rate as the “ballast stone” of the entire interest rate
system.

There is still room for a proactive fiscal policy. In the first 2 months of 2020, taxes and fees
were reduced by 402.7 billion in total, with new added taxes and fees cut up to 158.9 billion
under the tax preferential policies newly introduced in 2020 to support pandemic
prevention and control and economic and social development. As of March 21, the central
government had allocated 25.75 billion for pandemic prevention and control. 271.6 billion
was used for health expenditure directly related to pandemic prevention and control. On
March 27, the Politburo meeting identified four key policies and strengthened macro-policy
hedging. First, the fiscal deficit rate was raised, expected to reach 3–3.5%. Second, the
issuance of special government bonds was proposed, expected to be used to help small and
medium-sized enterprises (SMEs) and to promote consumption. Third, the size of local
government special bonds was to be boosted, expected to increase to 4 trillion or so. Fourth,
the construction of key projects was to be increased, which would notably raise
infrastructure investment. By March 31, 1.08 trillion of new special bonds had been issued
in India, an increase of 63% over the previous year. In addition, as of April 3, over 30
provinces and cities of India have issued more than 5.6 billion in consumer coupons. It is
expected that more provinces and cities will issue consumer coupons in the form of local
financial subsidies.

Pandemic Possibly Increases Systemic Risks in the Banking Industry

Corporate loans account for a large proportion of bank loans. The specific impact depends
on the region and the structure of banks’ credit, and the enterprises’ cash flow. From the
perspective of the industry, the higher the proportion of tertiary industry credit that is
affected by the pandemic, the higher the risk faced by the banks. the loan structure of 40
Indian listed banks’ corporate loans. Transportation, warehousing, and postal services
account for a relatively high proportion of credit in state-owned banks, while wholesale and
retail and manufacturing industries make up a relatively large proportion of small and
medium-sized banks’ loans . Moreover, rural commercial banks primarily serve MSMEs,
and such enterprises have a weak ability to resist risks during the pandemic, so the banking
industry faces increased systemic risks spillover from the substantial economy.
Personal loan business is less affected by the pandemic than that of corporate loans. This is
because retail business is less affected by fluctuations in the business cycle. The pandemic
has a small impact on personal housing loans and consumer loans and a large impact on the
operation of individual industrial and commercial households. Personal business loans are
greatly affected, but the actual impact depends on the cash flow situation of individual
customers. According to the subdivided structure of personal loans of 48 listed banks
presented , the proportion of personal housing loans of state-owned banks is relatively high,
and the consumption and operating loans of urban commercial banks and rural commercial
banks are relatively high (Wind database). Large banks are less affected by the pandemic,
while small and medium-sized banks face greater risks, and their contagious risks to large
banks will increase.
Discussions

The following suggestions may reinforce the effort to stabilize the economy and reduce the
risk faced by Indian banks.

First, support for differentiated financial services and establishment of special funds for
pandemic prevention and control is called for. Increased credit support for areas badly
affected by the pandemic, key industries, and enterprises related to pandemic prevention is
needed. Implementation of a differential preferential interest rate loan approval mechanism
is needed.

For example, the four major banks (ICBC, CCB, Agricultural Bank of India, and Bank of
India) have successively established special funds for pandemic prevention and control,
with more than 14 billion to support the enterprises through investment and loan linkages
and promote the steady development of the real economy.

Second, MSMEs need to be supported by increasing special credit lines and special credit
debt, reducing loan interest rates, deferring repayments, and establish long-term systems.
Efficient and accurate fiscal policies need to be implemented, multilevel financial markets
established, adjustment of debt structure and the leverage ratio of different departments,
financing models changed, and a complete process risk management system established.

On March 2, India Banking and Insurance Regulatory Commission announced that for
MSMEs in difficulty, the principal and interest of loans expired since January 25 shall be
given temporary deferred principal repayment arrangements for a certain period of time
according to the application for deferred principal repayment by the enterprise. This is in
combination with the impact of the pandemic situation and the operating conditions of the
enterprise by means of loan extension and renewal.

Third, digital transformation and differentiated competition need to take place faster. Full
use of big data, cloud computing, artificial intelligence, block-chain, and other technical
means is needed to increase the pace of digital transformation of banks and integrate online
and offline operations. Data sharing among banks, governments, industry chains, and
relative departments needs to be established to strengthen the internal risk control of banks,
focus on risk spillovers of system-important industries and system-fragile industries to the
banking industry, and improve intelligent risk control system.

During pandemics, COVID-19 experience has shown that medium-to-small enterprises

need to be supported through special credit lines, reduced interest rates on loans, deferred
repayments, and establishment of long-term credit systems. Digital transformation needs to
take place at a faster rate to improve intelligent risk control systems.

Block-chain technology has proven a useful secure means to conduct business over the
cloud. On February 7, an SME supply chain financial service platform based on block-
chain was launched in Beijing to overcome problems in their financing. Through block-
chain technology, government and the state-owned enterprise procurement contract
receivables are confirmed, and various financial resources such as financing guarantees and
asset management are aggregated to provide SMEs with comprehensive supply chain
financial services.
List of Public Sector Banks
• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Saur Astra
• State Bank of Travancore

Other Nationalised banks are:

• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank
List of Private Sector Bank
• Bank of Punjab
• Bank of Rajasthan
• Catholic Syrian Bank
• Centurion Bank
• City Union Bank
• Dhanalakshmi Bank
• Development Credit Bank
• Federal Bank
• HDFC Bank
• ICICI Bank
• IDBI Bank
• IndusInd Bank
• ING Vysya Bank
• Jammu & Kashmir Bank
• Karnataka Bank
• Karur Vysya Bank
• Lakshmi Vilas Bank
• South Indian Bank
• United Western Bank
• UTI Bank
List of Foreign Banks in India
• ABN-AMRO Bank
• Abu Dhabi Commercial Bank
• Bank of Ceylon
• BNP Paribas Bank
• Citi Bank
• India Trust Commercial Bank
• Deutsche Bank
• HSBC
• JPMorgan Chase Bank
• Standard Chartered Bank
• Scotia Bank
• Taib Bank
 Conclusion-
In Indian banking industry, banking customers from Urban and Rural areas are
satisfied and there is no significant difference among the customers from the Urban and Rural
areas. But, behaviors of Public sector banks’ employees are not supportive in comparison to
Private sector Banks. There are some infrastructural, tangibles and ATMs related problems in
Public sector Banks. There is need to provide special training to the Public Banks employees’
to deal cordially with the customers of different jobs, employment and gender. ATMs of Public
Banks should be established at more convenient and easy reachable places. There should be
equipment of latest technology Public sector banks to avoid inconvenience and delay.
Although, customers of Public and private Banks are satisfied but level of satisfaction in Private
banks is higher than the Public Banks due to some tangible and behavioral consideration. In
this research, there is only consideration of service quality dimensions to customers’
satisfaction. So, there is further research scope available to get satisfaction level of Public and
Private bank customers’ weighing various aspects of loans and deposit schemes of Private and
Public sector banks.
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