Service Quality of Public Sector Banks to SME Customers: An Empirical Study in the Indian context

*Popli, G.S. ** Rao, D.N. 1. Introduction

The Indian Banking Industry which was operating in a bureaucratic style prior to 1991 had to undergo large scale transformation with the opening of the economy. The sector has

been facing unprecedented challenges with the wave of liberalization, privatization and globalization of Indian economy. Banks in India are under intense pressure to perform in todays volatile market place. Steep competition, globalization, growing customer demand and exposure to higher credit risks are forcing the banks to find new ways of providing better customer service so as to improve profitability. On the other hand, cost cutting

measures have forced banks to manage operations with few Customers Relationship Managers and product specialists. Industry consolidation also poses fresh challenges to this sector. Given the prevailing trends of buyers market, the market players cannot afford to take the customers for granted. When the competition has resulted in the thinning of

margins, enhancement of profits can be possible only through multiplying the volume of business. And, the volume of business, in turn, can be increased only if the banks are able to attract and retain the customers. But the quantum of customer assets in banks balance sheets is declining day by day. A large number of customers are shying away from banks; therefore there is an urgent need to bring the customers back to the banking fold.

__________________________________________________________________
*Popli, G.S. is currently working as Deputy Chief Manager (Financial Analyst), with Oriental Bank of Commerce, New Delhi. ** Rao, D.N. is currently working as Director, Centre for Management Education, All India Management Association, New Delhi.

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However, in this new scenario, the advancement of Information Technology has provided major support to the financial systems. Communication technology has been facilitating the gathering and transferring of information across the globe and helping to understand and apply the better systems and procedures of one country into other countrys functioning. The awareness of the customers about the market place is also increasing. These trends compel one to believe that the banks will have to concentrate on customer service not only for expansion and maximization of profits but also for their survival. With a delayed entry into the process of globalization compared to peers, Indian Banking is at the cross roads. On the one hand, it has to service the age-old traditional customers and on the other has also to develop products for meeting the emerging demands of the present and prospective new customers. During the post-nationalization period, class banking stand transformed into mass banking. Now, with the thrust on profit-maximization, the shift is in favor of class-banking. The environments in which banks operate today are divergent. In metro centers, every

activity is technology driven, whereas, there are remote branches situated in hilly areas, where even daylong electric supply is not assured. The customer service requirements at these centers are also totally different. The awareness level of customers at different

centers is also varied. One set of customers in rural areas feel that the bank is obliging them by giving service, while the other group in metros considers such service at lowest possible cost is more or less their fundamental right. Customers in rural areas are more interested in getting the service they require and are unaware of the profits the bank makes through these services. Alternatively, the urban customers not only insist on best service at the lowest cost, but also as prospective shareholders of the bank, expect from the officials to show excellent growth and profits also. Following the advent of disinvestment

programmes of Public Sector Banks, there is pressure from shareholders on banks to excel in profits as well as in customer service.

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2. Background
The Small and Medium Sector occupies an important place in the economy of a country. The SMEs Sector plays a key role as a growth engine for the national economy, employment generation and greater prosperity for the nation. They represent over 80% of Industrial Enterprises and have been instrumental in building a solid industrial base in India. Their contribution to the economy is huge and hence they are entitled to their rightful share of attention from financial institutions. It has a share of 40% in the industrial production and produces about 8000 products. 35% of the total manufactured exports of the country are directly accounted for by this sector. In terms of employment generation, this sector is next only to agriculture employing approximately 29 Million people. Since 1994, the number of SME units has increased by about 40% touching to 12 Million Enterprises in the country. As a result of this, the

production output has increased by 150 per cent, employment by over 30% and exports by around 140 per cent. The annual growth rate of SMEs Sector exceeds the growth of the entire industrial sector. The sector therefore, presents an opportunity to the nation to harness local competitive advantages for achieving global dominance. As such this sector and SME Customers require the immediate and prompt attention of the authorities at the helm of the affairs at each level.

3. Committees for improvement of Customer Service in banks

The consequence of nationalization of banks saw tremendous quantitative explosion and thoroughly altered the input-output relationship set up in banks. The customer service in banks probably reached its lowest level by the mid-1970 and the early 1980s. The organized effort to tackle the issue and initiation of corrective measures took the form of Talwar Committee, which submitted its report in 1977. The committee went into various aspects of customer service in banks and came with 176 recommendations, the majority of

which were accepted and implemented in right earnest under the close monitoring of the Finance Ministry and RBI. However, given the dynamic context and rising customer expectations, the level of public satisfaction with bank services again suffered a downturn, leading to the constitution of yet another committee in 1990. This committee, more popularly known as Goiporia Committee

carried out extensive studies and interviews and came up with 97 recommendations. These recommendations too found ready acceptance. There can be no denial of the fact that both these committees have contributed significantly by focusing the attention on various aspects of customer service but failed to bring about perceptible improvement in the quality of service mainly due to the facts that the recommendations were formed without considering the inadequacies of internal and external infrastructure and support system. Further the committee had not suggested any punitive measures for not implementing the

recommendations. The Narsimham Committee (1991), which covered the whole gamut of the Indian Banking Sector, had also emphasized the need to improve service to the customers.

Simultaneously, besides the pressure of having to work efficiently, the banks are being subjected to pressures in such matters as prudential norms and transparency. Other

important developments with respect to customers include the Customer Protection Act, which interalia; covers the bank services and the establishment of Banking Ombudsman Scheme.

4. WTO and its Impact on Indian SMEs

So far SMEs have survived under protected environment. With the introduction of W.T.O. and its conditionality many of the support structures would vanish and SMEs would have to struggle on their own. The new WTO regime, that is going to affect every economic activity,

will have an enormous affect on the SMEs Sector in India, which comprises multidimensional target groups varying from small, tiny units to highly qualified technocrats.

There will be far reaching, ramifications of the scope, objectives and principles of WTO agreements, as already illustrated earlier on the conduct of business in the member countries of WTO. So far, the Indian Small Enterprise Sector has survived due to the protected environment in the form of product reservation, market reservation, price preference, priority sector lending, fiscal exemptions, concessions, etc.

With the emergence of WTO and its conditionality, which considers protection as discriminatory or a barrier to trade, many of the existing support systems for protection and promotion of the Small Scale Sector will have to be dismantled. As a result, the small- scale sector will have to compete on its own to find a place for itself in the domestic as well as international market. The small scale sector has to upgrade its technology and modernize, adopt modern marketing, management practices and improve the quality of its products in order to be efficient and competitive. In the absence of these changes, its survival may be at peril. Most of the small scale units are unaware to the challenges thrown by the WTO agreements and negotiations because of the lack of understanding about these agreements and negotiations.

Since the WTO regime, as it unfolds itself in totality, would have far reaching implications for the SME Sector, it is imperative for the Government to review its policies concerning the sector with a view to not only making them compatible with the WTO regime, but also preparing them completely to respond to the emerging environment as an opportunity rather than a threat.

5. Dimensions of Financial Demand from SMEs in the Post WTO Regime

Since quantifying the demand for capital from small industry is an extremely difficult task in view of its heterogeneity, the dimensions are discussed in the form of identifying areas/motives requiring finance and their relative importance. Broadly, credit demand from the SME Sector in the present scenario is: (a) Demand for Working Capital, and (b) Demand for Investment While the growth of working capital demand is directly related to the growth of small industry sector, what is of more significance in the liberation period is investment demand. Investment demand can be subdivided into several categories: (i) Replacement of obsolete machinery or Technological Up-gradation and Modernization. (ii) Expansion of the Unit by adding Plant and Machinery to produce more. (iii) Quality Improvement. (iv) New Ventures/Diversification (v) Labor Saving Devices. (vi) Research and Development to constantly upgrade the competitiveness of the unit. (vii) Environment related investments (industry specific).

The Investment Demand for finance from Small Industry will increase enormously in the coming decade. A substantial part of the demand will emanate from the factory sector,

particularly because of technology up-gradation and modernization, expansion and quality improvement. But equally significant will be the transformation demand of the unorganized sector workshops and household industrial and their subsequent entry into the factory

sector. Though R & D is not yet significant, the competitive pressure and the urge to grow will prompt many small factories to go for setting up their own R & D facilities. In the

process of all these, some of the Small Industry Units will grow into Medium/Large Scale Units.

6. Rationale of the Study

Small and Medium Enterprises have been unable to achieve the competitiveness that would allow them to drive the manufacturing sector and overall economic growth, employment and poverty reduction. Essentially this is because of their lack of awareness of the market and resources, as well as the problems that SMEs face in assessing adequate financing and business development services. Bankers are reluctant to lend to SME Units because of the high transactions costs and perceived risks of lending in the face of insufficient credit information, inadequate credit appraisal and risk management skills, poor repayment records and low market credibility of SMEs. Moreover, Industrial liberalization and post WTO regime has made enhancement of competitiveness crucial for the development of Small and Medium Industries. In majority countries, the policies and strategies towards industrialization have been reformulated with a special focus on SMEs. The policy framework for the development of SMEs has been

undergoing fast change in tune with the changing economic scenario in India like ASEAN Countries. The focus of this study is on the development of an appropriate financial infrastructure and to provide sufficient finance without much hassles and delay to SME customers, which in turn would contribute to the overall development of a competitive Small and Medium Enterprises Sector in India.

7. Objectives of the Study

The main objectives of the study are: To analyze the customer satisfaction status of SME Customers. To find out the financial requirements of SME Units in the pro WTO regime. To study and compare the quality of service with Private Sector Indian Banks and Foreign Banks. To find out the reasons for Industrial Sickness in SME Sector.

8. Research Methodology
The research carried out under the topic is of analytical nature. The primary data is

collected through a pre-tested structure structured questionnaire for SME customers. We have covered 100 SME Customers/experienced Bankers/Officials from Small Industry Development Bank of India/Policy Makers in Ministry of SME Sector of Delhi Govt. and Govt. of India. Random Sampling was adopted. The responses were analyzed with the help of various statistical techniques, such as mean, percentage, t-test and ANOVA to obtain results regarding the quality of customer service.

9. Review of Literature
Jong Wook Ha, Soon-Gwon Choi and Sungwoo Jung (2007) analyzed the Korean firms on When, how and where do SMEs start global business. This paper investigates whether

traditional internationalization theory, especially Uppsala Internationalization Process (UIP) perspective, can be applicable to analyze new international phenomena of small and medium sized enterprises, such as International New Venture (INV). They recommend the development of a new concept to explain and analyze new internationalization phenomena, such as INV, Born-global, as 'Condensed Internationalization.'

Kozan, Oksoy and Ozsoy (2006), in a study of Turkish Entrepreneurs found that business management training and financing are significantly related to an SME owners expansion plans. To be specific Turkish entrepreneurs need market information, technical assistance, information resources and training in finance and marketing to accumulate the resources necessary for expansion. Wheeler (2006), had studied on the urge to work by Micro entrepreneurs in West Africa. He found that they were motivated by a desire to satisfy basic physiological needs food and shelter. The Government should ensure provision of basic infrastructure and conducive environment for the survival and growth of the SME Sector in the country. Ratnam and Sengupta (2005) said that the banks are facing many hurdles in the new era of deregulation and ever increasing competition. To fight these problems efficiently, banks

should focus on customer satisfaction, which can be achieved through providing customized products, innovative ways of delivery etc. EIM (2005) in his study on technology upgradation observed that growing enthusiasm for internationalization by new technology based firms has led to a general perception that all Small and Medium Enterprises, irrespective of industrial activity, can enter foreign market through Foreign Direct Investment. Shankar (2004) concluded that focus on customer is not to be viewed as just a business strategy but should become the corporate mission. The challenge for banks is in the areas of people changing their beliefs and attitudes, technology and competition. Santi (2004) concluded that for delivering quality service, it is imperative to have customer orientation as a culture in the bank. Customer orientation builds long term relationships resulting in customer satisfaction and cash flows to the banks.

Mukherjee et al (2003), presented the development of a theoretical framework for measuring the efficiency of banking services, taking into account physical and human resources, service quality and performance. Expenditures on quality improvement efforts and the impact of service quality on financial outcomes have long intrigues researchers. A study by RBI on complaints received against commercial banks located in the jurisdiction of the concerned Regional Offices of RBI was carried out for the period January 1, 2003 to June 25, 2005. The complaints have been categorized into seven broad categories,

including deposit account related activities of Direct Selling Agents, harassment of recovery of loans and general/others. Although in absolute terms, the number of complaints received against Public Sector Banks were the highest (9006), the average complaints per branch for Public Sector Banks was much lower ranging from 0.08 to 0.28 as against 0.00 to 2.68 for Private Sector Indian Banks and 0.10 to 16.06 in the case of Foreign Banks. The majority of the complaints were in the category of loans and advances 18.4%, followed by deposit accounts 18.2%. This trend was observed across all bank groups, except Foreign Banks, which most of the complaints were related to credit cards. Yarran, Raju.B. (1995) in his study on Small Industries : An Overview found that the main cause of sickness was high cost of production because the raw material purchased were in short quantities and at higher price. Small Scale Industries also lack adequate funds from the banks and consequently leads to shortage of working capital. Himachalam, Jaya Chandran and Narender (1995) in their study observed that central capital intensive sector made no attempt to varied socio economic problems chronic unemployment, disparity in income and wealth of different regions, untapped natural, local based resources and so on. It was suggested that small units should be provided required financial assistance at right time and at concessional terms by financial institutions. The

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industrial estates should be provided all infrastructural facilities, technical, managerial and financial assistance at reasonable rates. Gadkari (1977) examined the critical success factors and stressed that excellence in customer service and high level of customer satisfaction will remain elusive goals even with the induction of the state of the art technology and competitive pricing of products if the employees at the grass root level are not committed to these goals. Given this background, it is interesting to evolve the quality of service provided to the SME customers by the Public Sector Banks. undertaken to fill the gap. In quest of an answer, the present study is

10.

Analysis and Interpretation

The analysis and interpretation of data about the various aspects of service provided by the Public Sector Banks to their SME customers is as follows: Responses about the rating of services provided by the banks to their customers are given in Table 1. It is evident from the table that as many as 48 % of the respondents rated the courtesy at the counter as good and 34 % as average. Promptness in transactions is rated as good by 35% and fair by 32 %. Adherence to Govt. norms have been rated as good by 20%, fair by 32% and average by 48% of the respondents. Cost of various services has been rated as good by 12%, fair by 42% and average by 46%. Providing guidance at the counter has been rated as good by 10% only and fair by 18% and average by 72%. It shows that there is scope for a lot of improvement in the services being provided by the Banks to the SMEs Customers. The analysis shows that the difference among the means of these ratings given by the respondents on this account is statistically significant at 5% level.

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Table 1: Rating of Services to Small and Medium Enterprises

Rating of Services in terms of their relative importance a. Courtesy at the counter b. Promptness in transactions c. Prompt redressal of grievances d. Adherence to the norms e. Cost of various services f. Flexibility in granting temporary accommodation over and above the sanctioned limits g). Providing guidance in conducting business Percentage of Responses Good 48 35 32 20 12 16 Fair 18 32 18 32 42 28 Average 34 33 50 48 46 36

10

18

72

Table 2: Factors Affecting Services to Small and Medium Enterprises

Percentage of Responses To what extent according to you, the following factors influence the services of the banks a. Training of the staff b. Placement of the staff c. Location of the bank d. Procedures e. Supervision f. Modernisation g. Communication Total To a large extent 70 54 24 60 68 78 78 432 To some extent 14 38 72 36 26 18 18 222 Not at all 16 8 4 4 6 4 4 46

Responses about the various factors affecting the services are depicted in Table. 2, which indicates that the location of the bank does affect the services but only to some extent and all the other factors affect the services to a large extent. The analysis shows that

Modernization (78%) and Communication (78%) affect the services to a large extent and there is a need of training to the staff (70%) for improvement of service to the SMEs customers. As a whole, it can be said that as many as 62% of the respondents are of the view that these factors affect the services to a large extent. The analysis shows that the difference among the means of the ratings given by the respondents is statistically significant at 1% level.

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Table 3: Comparison of Services of Public Sector Banks with those of Private Sector Indian Banks/Foreign Banks
S.No 1 Do you deal with Public Sector Indian Banks/Foreign Banks: Yes: 72% No:28% If yes, how do you compare the services of Private banks with those of Public sector banks? (a) Far better:48% (b) Better:24% (c) Almost same: Nil (d) Poor: Nil What are the factors, you think, contribute to better services in Public and Private sector Banks? (a)Professionalism (b)More Cooperative (c)Easy approach to Management (d)Higher return on deposits (e)Technology 40 22 16 14 46 24 14 18 22 24 38 20 16 16 26 24 14 26 18 22 18 28 28 14 20 144 94 108 84 138 1 4 3 5 2 Rank 1 Score Rank 2 Score Rank 3 Score Rank 4 Score Rank 5 Score Total Score Overall Rank

We have compared the services of Public Sector Banks with those of Private Sector Banks/Foreign Banks. It is clear from the table that 72 % of the total respondents deal with PSIB/FB banks also and feel that their services are far better than those of Public Sector Banks. According to them Professionalism, Technology, Easy approach to the Management, competitiveness are the main factors contributing to the better services in Private Sector Indian Banks and Foreign Banks. The Public Sector Banks must improve their service to compete with the Private Sector and Foreign Banks.

13

Table 4 Availability of Other Services

Percentage of Responses Yes No 88 12 60 40 57 43 56 65 72 42 44 52 44 35 28 58 56 48

S.No. 1(a) 1(b) 2 3 (a) 3 (b) 4 (a) 4 (b) 4 (c) 5

Questions Do you interact with your bank regularly? If yes, do the banks respond positively Do you get the necessary information and Guidance from the banks? Are you conversant ordinarily with RBI/GOI Directives/Instructions relating to SME Units? Do you think that banks follow the various Directives issued from time to time by RBI/GOI? Is there any machinery for redressal of grievances in banks? If yes, do you make use of them? If yes, do the problems get sorted out promptly? Did you change your Bank due to poor customer service?

Responses regarding the availability of the other services being provided by the banks to their customers are given in Table 4. As exhibited in the table, 88% of the respondents interact with their banks regularly but only 60% of them felt that the banks respond positively. Only 57% of the respondents feel that the banks provide necessary information and guidance. As many as 44% of the respondents are not conversant with RBI/GOI

directions relating to SME Sector. Only 35% of the respondents are of the view that the banks do not follow the various directions/instructions issued from time to time. As many as 72% of the respondents admit that there is a machinery for redressal of grievances in banks and 42% of them make use of it. As high as 56% of them are of the view that

problems do not get sorted out promptly. Inspite of this, 48% of the respondents had not changed their banks. The analysis shows that there is no significant difference in the means of the ratings given by the respondents and there is a lot of scope for improvement in customer service.

14

Table 5: Specialised SME Branches

Percentage of Responses Yes No 56 44 86 44 74 14 Nil 26

S.No. 1(a) 1(b) 1 (c) 2 (a) 2 (b)

Questions Are the banks in your area having specialized SME Branches? If yes, are their dealings with SME clients providing more satisfaction than general branches? If no, do you think that a separate branch would Provide better services? Do you think that banks are more favorably inclined Towards large industries? If yes, how the position can be improved by SME Units? (i) Separate SME wings and delegation to BMs (ii) Separate SME branches (iii) Follow strictly RBI/GOI Guidelines

63 86 86

37 14 14

Responses about the specialized SSI branches are given in Table 5, which reveal that 56% of them have informed that the banks have specialized SME branches of banks in their areas and 86% of them claimed that their dealings with SSI branches provide more satisfaction than the usual branches. As high as 74% of the respondents are of the view that the banks are more favourably inclined towards large industries. This is not a good sign for growth of the SME Sector in India. The Banks should provide better and prompt service to SME Industries. Opening separate SSI branches and following RBI/GOI guidelines strictly as claimed by them can rectify this position for SSI Units. The analysis shows that there is a significant difference in the means of the ratings given by the respondents at 1% level of significance.

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Table 6: Change in Technology

Percentage of Responses Yes No 76 24 90 10 45 86 75 76 82 82 82 74 75 100% 2 4 4 2 4 84 100 86 14 55 14 25 24 18 18 18 26 25 -

S.No. 1 2 3 4 5 6 7

Questions Have you upgraded your technology? Did you require funds from Financial Institutions for this purpose? Were the funds made available by FIs without much Hassles? Were there some changes in Production Schedules? Were there some changes in work allocations? Any changes in material inventories? Any changes in ways of Communication? (a) within the plant (b) with suppliers (c) with customers Do you frequently change Plant level Organisation like: (a) Work allocations (b) Any specific change after 1991 (c) Do you feel further changes after post WTO Era necessary? Why do you go for change? (a) To improve the Production process so as to increase output (b) To increase the flexibility (c) To improve the quality of product (d) To reduce production cost (e) Product diversification (f) All the above Do you think that additional training/qualification will be required after the upgradation of the existing machinery? Do you think that additional Managers/staff will be required after upgradation of the existing machinery?

10 11

Table 6 shows the responses about change in technology for SME Industry in the post WTO regime. It reveals that 76% have upgraded the technology and 90% of them required funds from the financial institutions. But 55% of the responds said that the funds were not made available easily by the Financial Institutions. The changes in technology were 86% for

change in production schedule, 75% for change in the work allocation, 76% for Material Inventory changes. 82% went for change in communication methods within the plant, with suppliers and with customers. As high as 75% said that they had to change/upgrade the technology after the liberalization in 1991 and all the responds agree that they had to upgrade the technology in the pro WTO regime. For this, 86% of the responds had

conveyed that the additional training and staff with professional degrees and experience

16

was required to make the SME Units modernized and to compete with the MNcs at International level. They will require funds from Financial Institutional/Commercial Banks to make their SME units more viable and competitive. Table: 7. Financial Pattern of the SME Industries
Percentage of Responses Yes No 76 24

S.No.

Questions

1 2

Do you need finance from outside sources? If Yes: (a) How much you need by way of fixed capital from external sources? (b) How much you need by way of Plant & Machinery from external sources? (c) How much you need by way of Working Capital From external sources? What are your overall sources of finance? (a) Financial Institutions (b) Development Banks (c) Commercial Banks (d) Personal (e) Relatives (f) Friends (g) One or more of above Is there Equity participation by other firms? The participating firms are: (a) Indian (b) Foreign Do you think that credit requirements for your unit will increase in the post WTO era? If yes, how much more working capital finance will you require from external sources? (a) 10% (b) 20% (c) 30% (d) 50% Has the Credit Flow to SME Sector by Financial Institutions increased? Why do you go for change? (a) To improve the Production process so as to increase output (b) To increase the flexibility (c) To improve the quality of product (d) To reduce production cost (e) Product diversification (f) All the above Do you think that additional training/qualification will be required after the upgradation of the existing machinery? Do you think that additional Managers/staff will be required after upgradation of the existing machinery?

60 65 76

40 35 24

4 5

16 12 50 8 5 9 100 12 12 Nil 100

88

6 7

8 9

3 10 15 72 12 2 4 4 2 4 84 100 86

88

10 11

14

17

Responses about the financial pattern are given in Table 7. It is evident from the table that as many as 76% of the respondents conveyed that they require funds from outside sources. The analysis of the responses reveal that 60% required funds for purchasing of Fixed Capital, 65% for purchase of Plant & Machinery, 76% for Working Capital. 24% of the

respondents are arranging funds from their personal resources. 88% of the respondents revealed that there is no equity participation by the other firms in their Units. All the

responds agree that there will be technology upgradation in the post WTO regime for which they will require funds from outside sources. But the 88% of the respondents revealed that the credit flow to SMEs sector is not sufficient and the Govt. will have to initiate necessary steps for making the required funds available without much hassels and on convenient terms. Table : 8. Government Policy Measures
Percentage of Responses Yes No 78 36 72 78 32 (PLR) 92 22 64 28 22 68 (Credit Rating) 8

S.No. 1

Questions What do you think about changing Govt. Policies? (a) Are they giving you more freedom to take decisions? (b) Do you still feel that the Govt. is regulating? (c) Do you think that Govt. is not providing enough protection to SMEs? (d) Did you ever think Govt. Policies are useful? Should the interest rates be linked to PLR or some Credit Rating System to be devised? Should the Banks be directed to abolish the condition of obtaining collateral security for loans up to Rs.25 lakhs for SME units? Should there be some subsidy or low interest rate on loans obtained for technology up gradation by SME units Are the Govt. Policies for SME Sector of other developing countries better than that of our country?

4 5

82 70

18 8 22 (Not aware)

Table 8 shows the effects of Govt. Policies & measures in the development of SME Sector. 78% of the respondents revealed that Govt. policies are giving more freedom to take business decisions but 36% feel that the Govt. is still regulating. Though the 72% of the

18

respondents had conveyed that the Govt. is not protecting them in this new scenario but 78% still agree that the Govt. Policies are very useful in the survival and growth of the SME Sector in the country. 68% of the respondents had suggested that the interest Rate be

linked to Credit Rating System and 32% says it should be linked to PLR. As high as 92% said that there should b no collateral securities for SME loans upto Rs. 25 lacs and 82% wants that low rate of interest be charged for upgradation of the technology from the SMEs industries. 70% of the respondents feel that the policies for SME Sector of other countries are far better from the policies of our country whereas 22% are not aware of the policies of other countries for SME Sector. Table 9: Processing of Applications for Loans
Percentage of Responses Yes No 52 48 58 42 18 82 37 (in one go) 68 82 18 63 (in piecemeal 32

S.No. 1 2 3 4 5 6 7

Questions Do the banks help in filing the application forms? Are the applications for loans made through Consultants/Advisors etc attended to more expeditiously? Do the banks issue acknowledgement of the loan application? Are the loan applications exhaustive to seek information from the applicant? Do they seek clarification about the loan application in one go or in piecemeal? Do you consider that the application form for loans prescribed by the banks are cumbersome and cause avoidable hardship? If yes, please give suggestions to avoid the same: (a) Formalities to be completed by the banks (b) Objective type questions (c) both a and b above What is the general attitude of the bank at the time of Loan Application receipts? Very Cooperative: 16 Co-operative: 36 Indifferent: 28 Discouraging:20

8 42 50

Table 9 shows the responses about Processing of Loan Application Forms for loans.

It

reveals that the loan application form is exhaustive (82%) and cumbersome (68%). The information is demanded in piece meal (63%). 48% conveyed that the Bank officials do not help in filling the application forms and 58% feel that the loan application submitted by consultants/advisors/liaison officers are attended immediately whereas it takes more time

19

for the individuals. Moreover 82% of the respondents conveyed that no acknowledgement receipt is given by the bank officials. 42% of the respondents feel that the questions in the loan application forms should be objective type only and 50% say that both subjective and objective type questions should be included. Table 10: Sanction of Loans to SME Units
Percentage of Responses Yes No 87 13 30 15 18 24 4 20 46 30 28 22 72 78

S.No.

Questions

1 2

4 5

Have you obtained any bank loan during the last 5 years If yes, how much time was taken by bank? a. One month b. One to two months c. Two to three months d. More than three months If the sanctioned loan is less than Requirement, what is the approximate gap? a. 0 - 10% b. 10-20% c. 20-30% d. More than 30% Are the loans upto Rs.1.00 lakhs released by the banks without detailed documents? Do the banks disburse the amount of credit appraisal upto Rs.1.00 Lac within fortnight after Submission of all papers/particulars? If No, what is the usual delay? Upto One Week: One to two weeks: Two to four weeks: More than four weeks: Do you feel that there is delay in disposing of cases under this category? If Yes, are they due to: (a) Procedural rigidities (b) Unhelpful attitude of the staff (c) Delay in submission of requisite information (d) Complicated Proposals Do the banks dispose of applications for Enhancement of limits with in (a) Six months (b) More than six months Do the banks provide: (a) Need based finance (b) Security based finance (c) Both (a) and (b) above Do you face the problems of Time over-run and Cost over-run due to non availability of Finance from your bank? Do the Banks demand collateral security or Guarantee of third party even when the project has been appraised as viable and primary security is adequate?

8 Nil 14 20 72 28

44 46 6 4 62 38 22 38 40 76 86

9 10

24 14

20

Responses about sanctioning of loans are given in Table 10, which shows that as high as 87% of the respondents have obtained loans during the last five years and the banks usually take more than two months to sanction the loan. The loan sanctioned is 20% to 30% less than the requirement, as claimed by the majority of the respondents. As many as 72% of the respondents are of the view that loans upto Rs.1.00 lac are not released by the banks without detailed documentation. Moreover, the banks also do not dispose of the

credit upto Rs. 1.00 lac within a fortnight of submission of all the information/papers, as stipulated by RBI and the delay is usually more than two weeks. There is delay in

processing due to unhelpful nature of the staff members, as claimed by the majority of the respondents. The banks usually provide finance against security and as high as 86% of the respondents are of the view that the banks ask for collateral security/guarantee from a third party even where the project has been assessed as viable and primary security is adequate. As many as 76% of the respondents feel that they have faced problems of time overrun/cost overrun because of non-availability/time availability of finance from the banks. Table 11: Reasons for Industrial Sickness of SME Sector Do you think that the cases of growing industrial sickness in SME Units are mainly due to?
Rank 1 Score 50 Rank 2 Score 46 Rank 3 Score 45 Rank 4 Score 25 Rank 5 Score 8 Total Score 174 Overall Rank 3

3 4

Non availability of timely Rehabilitation Finance from the banks Deficient Projects, including Technical deficiency Deficient market for products Infrastructural deficiencies, including Labour/ Power etc. Lack of Professional support from the employees

40

58

36

36

16

186

42 26

68 32

29 22

35 30

14 14

188 124

1 4

22

12

18

12

36

100

6. Do the banks help in rehabilitating Sick units by initiating viability study: Yes (22%); No (78%) 7. Is the process of rehabilitation followed Up well in time? Yes (28%); No (72%)

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8. How do you rate the success of Such Rehabilitation? Good: Nil Fair: 8 Average: 16 Below Average: 12

Table 11 shows the reasons for Industrial Sickness.

It is evident from the table that

increasing industrial sickness among SMEs Units is mainly due to deficient market for products, followed by deficient projects, including technical deficiency and non availability of timely rehabilitation finance from the banks and others. As high as 78% of the respondents are of the view that banks do not help in rehabilitating sick units by initiating viability study and moreover, if initiated, the success of such rehabilitation is below average. Table 12: Suggestions for improvement of the Service/Financing for SME Customers
Rank 1 Score 40 50 54 Rank 2 Score 38 28 24 Rank 3 Score 30 22 38 Rank 4 Score 18 24 28 Rank 5 Score 26 34 32 Rank 6 Score 18 26 16 Total Score 178 184 192 Overall Rank 5 4 2

1 2 3

Simplification of Loan Application form Appointment of Technical staff Quick Credit/ Rehabilitation decisions/ Specialized branches Strict compliance Of RBI/GOI directives on SME Credit Reduction of Interest Rates for SME Customers Regular follow-up of SME Units by banks

55

28

34

26

42

13

198

48

44

36

24

22

14

188

36

27

14

16

20

38

158

Responses regarding suggestions for improving the services are given in Table 12, which shows that strict compliance of RB/GOI Guidelines for SME Units, quick credit/rehabilitation decisions, simplification of application forms, reduction of interest rates and appointment of

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Technical staff and specialized branches are the main suggestions, in order of importance, to improve the service to SME customers. 11. Conclusion To conclude, here are a few suggestions: (a) Proper training should be provided to the staff members for proper knowledge of the latest rules/direction of RBI, right attitude and professional approach towards customer service. (b) More Specialized branches be opened for SMEs Entrepreneurs. (c) Loan Application forms/procedures be simplified. (d) Higher Authorities should ensure that Reserve Bank of India/Government of India guidelines on SMEs Sector are being implemented by all the branches in letter and spirit. (e) Quick disposal of the Loan Application should be ensured. (f) The main emphasis be laid on the Project/person rather than the collateral in SMEs financing. (g) Soft loans be granted to SME Units for technology upgradations. (g) Rehabilitation of sick SMEs units be considered timely in a professional way. (h) Lower Interest Rate be charged from SMEs Industries. (i) Technical staff be appointed in the branches to cater to the SMEs Customers 12. Limitations of Research (a) The Research was conducted in Delhi. A more diverse sample across different cities might show that there is a difference in customer attitude towards bank service. (b) Another limitation is the sampling technique. Convenience Random Sampling was used in this study whereas the Random Probability Sampling is expected to give better results.

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References 1. Gadkari R.G. (1977), Customer Service Critical Success Factors IBA Bulletin : Special Issue on Customer Service Vol XIX, No.3. 2. Talwar R.K. (1977), Customer Service in Banks, IBA Publication, Mumbai. 3. Mishra S.N. Organisational Requirements of Village and Small Scale Industries, Mittal Publication, 1986. 4. Goiporia (1990), Customer Service in Banks, IBA Publication, Mumbai. 5. Narsimhan M (1991), The Committee on Financial System, Nabhi Publication, New Delhi. 6. Arora, A.K. (1992)Financing of Small Scale Industries, Deep and Deep Publication. 7. Bansal S.K. (1992), Financial Problems of Small Scale Industries, Anmol Publications, New Delhi. 8. Sharma J.P. Small Scale Industry, Anmol Publisher, New Delhi. (1996). 9. Madhukar (1997), Customer Service in Banks A New Sense of Urgency. IBA Bulletin. Special Issue on Customer Service, Vol XIX, No.3. 10.Ratnam Vijaya N and Suguna Kumari V (2005), Customer Service in Commercial Banks in the New era. Professional Banker, December 2005. 11.Shankar A. Gauri (2004), Customer Service in Banks, IBA Bulletin, Vol. XXVI, No.8. 12.Shanti Sarup K (2004), Customer Orientation in Banks for building long term relationships. IBA Bullatin, Vol. XXVI. No.8. 13.Rao Venkat Janardhan.(2006) K. Working Capital Management in Small Scale Industrial Unit, Anmol Publication Pvt. Ltd., New Delhi. 14.Sultan Singh (2008), A Study of the Quality of Services provided to SSI Customers by Public Sector Banks. 15.http://www.investopedia.com/articles/03/073003.asp 16.http://www.wri.org/climate/topic_content.cfm/cid=4220. 17.http://www.mybusiness.co.uk/Running a successful french SME is no easy_business.YcnrzR9oAI8d7Q.html 18.Office of the Development Commissioner M/O Micro & Small Enterprises Cluster Development Programme (Statistics & Data Bank Division)

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