A

PROJECT

ON

IMPORTANCE OF BANKS IN INDIA

NAME-SHWETA GAWAS

ROLL NO-24

T.Y.B.B.I. SEMISTER-5

PROJECT GUIDE

PROF. ALOK HARDIKAR

SUBMITTED TO

UNIVERSITY OF MUMBAI

RAJASTHANIS SAMELANS

GHANSHYAMDAS SARAF COLLEGE

OF ARTS AND COMMERCE

AFFILLIATED TO UNIVERSITY OF MUMBAI

REACCREDITED BY NAAC WIYH A GRADE

S.V ROAD, MALAD (WEST)

MUMBAI 400064.

A.Y-2016-2017
CERTIFICATE

This is to certify that SHWETA SUKHAJI GAWAS Roll No-24

Of Third Year B.Com (Banking and Insurance) Semester 5 has

successfully completed the project on Importance of bank in india

Under the guidance of Prof. ALOK HARDIKAR in the Academic

Year 2016-2017.

Project Guide: Principal:

Date:

College seal

Date:
DECLARATION

I SHWETA SUKHAJI GAWAS, a student of Ghanshyamdas Saraf

College of Arts and Commerce , Malad (West) T.Y.B.com (Banking

and Insurance) SEMESTER-5 hereby declare that I have completed

my project on IMPORTANCE OF BANKS IN INDIA IN THE

Academic Year-2016-2017.This information is true and original to the

best of my knowledge .

Date: student signature

ACKNOWLEDGEMENT

To list who all have helped me in difficult because they are so

numerous and the depth is so enormous.

I would like to acknowledge the following as a being idealistic channel

and fresh dimensions in completion of my project.

I take this opportunity to thank the UNIVERSITY OF MUMBAI for

giving me a chance to do this project.

I would like to thank Principal Dr. Sujata Karmarkor providing the

necesasasary facilities required for the project.

I take the opportunity to thank our Chief Coordinator Dr. Lipi

Mukherjee and Corse Coordinator Prof. Urvi Jain for their moral

support and guidance.

I would also like to express my sincere gratitude towards my Project

Guide Prof. Alok hardikar 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.

 Index.

CHAPTER 1

1.1 EVALUATION OF BANK . . . . . . . . . . . . . . . .

1.2 HISTROY OF BANK . . . . . . . . . . . . . .. . . . .

1.3 SCOPE OF BANKING .. . . . .. . . . . . .. . . . . . . ..

1,4 ROLE OF BANK . . . . . .. .. . . .. .. . . . . . . . .

CHAPTER 2

2.1 IMPORTANCE OF BANK IN INDIA . .. . . .

2.2 CHALLENGES AND OPPORTUNITY. . . .. .

2.3 CONCLUSION. . .. . . . .. . . . .. . . . . . . . . . .. .. .

CHAPTER 3

FUTURE OF BANKING . . . . . . . . . . . . . . ..

3.1 LITERATURE REVIEW. . . . . . ..

3. 2 PERFORMANCE OF THE BANKS. .. . . .. . .

3.3 CUSTOMER SATISFACTION

3.4 EMPLOYEE EFFICIENCY & SATISFACTION

3.5 CORPORATE SOCIAL RESPONSIBILITY

3.6 FINANCIAL PERFORMANCE

3.7 ANALYTIC HIERARCHY PROCESS

3.8 GAPS FOUND FROM THE LITERATURE REVIEW

CHAPTER 4

4.1. RESEARCH METHODOLOGY

4.2 RESEARCH QUESTIONS AND FORMULATION OF HYPOTHESIS

4.3 DATA

4.4 POPULATION AND SAMPLING

4.5 RESEARCH INSTRUMENTS FOR THE PRIMARY STUDY

4.6 OBJECTIVES OF THE STUDY

CHAPTER 5

5.1 DATA ANALYSIS

CHAPTER 6

6.1 FINDINGS AND CONCLUSION

6.2 MAJOR FINDINGS

6.3 CONCLUSION

6.4 LIMITATIONS

6.5 SCOPE FOR FURTHER RESEARCH

REFERENCE
BIBLOGRAPHY
EVALUATION OF BANK

The first bank of limited liability managed by Indians was Oudh

Commercial Bank founded in 1881. Subsequently , Punjab National Bank

was established in 1894. Swedish movement , which began in 1906 ,

encouraged the formation of a number of commercial banks. Banking

crisis during 1913-1917 and failure of 588 banks in various parts of the

country during the decade ended 1949 underlined the need for regulating
and controlling commercial banks. The Banking Companies Act was passed

in February 1949 , which was subsequently amended to read as Banking

Regulation Act, 1949. This Act provided the legal framework for regulation

of the banking system in India.

The largest bank - Imperial Bank of India - was nationalised in 1955

and renamed as State Bank of India , followed by formation of its 7

Associate Banks in 1959. With a view to bringing commercial banks into

the mainstream of economic development with definite social obligations

and objectives , the Government of India issued an ordinance on 19 July

1969 acquiring ownership and control of major banks in the country. Six

more commercial banks were nationalised from April 1980.

As certain rigidities and weaknesses were found to have developed in the

banking system during the late eighties , the Government of India felt that

these had to be addressed to enable the financial system to play its role in

ushering in a more efficient and competitive economy Accordingly , a high-

level Committee on the Financial System (CFS) was set up on 14 August

1991 to examine all aspects relating to the structure, organization, functions

and procedures of the financial systems. Based on the recommendations of

the Committee (Chairman: Shri M.Narasimham), a comprehensive reform of

the banking system was introduced in 1992-93.

To review the record of implementation of financial system reforms

recommended in 1991 by the Committee on Financial System and chart the

path of reforms in the years ahead , a high-level Committee on Banking

Sector Reforms , under the Chairmanship of Shri M. Narasimham was

constituted by the Government of India in December 1997. The Committee

submitted its report in April 1998. Some of the recommendations of the

Committee , on prudential norms, Capital Adequacy Ratio , classification of

Government guaranteed advances , provisioning requirements on standard

advances and more disclosures in the Balance Sheets of banks were

accepted and implemented. Recent major initiatives undertaken for

strengthening the financial sector in pursuance to the recommendations of

the above Committee relate to guidelines to banks on Asset-Liability

Management and integrated risk management systems , compliance with

Accounting Standards, consolidated accounting and supervision , fine-tuning

of prudential norms for income recognition , asset classification and

provisioning for NPAs, etc. The guidelines on setting-up of Off-shore

Banking Units in Special Economic Zones , Fair Practices Code for

Lenders , Corporate Governance , Anti-Money Laundering measures , Know

Your Customer (KYC) norms , Corporate Debt Restructuring (CDR)

derivatives , guidance notes on Credit Risk , Market Risk , Operational Risk ,

etc. , are other important developments introduced in the banking sector in

recent years. RBI has also issued revised guidelines on migration to Basel II

Framework on Capital Adequency. The Securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest Act , 2002 has

facilitated NPA management by banks more effectively.

In 1993, in recognition of the need to introduce greater competition, new private

sector banks were allowed to be set up. Licenses were issued to 10 banks which

had satisfied the necessary regulatory requirements. Subsequently in 2001, fresh

guidelines for setting up new private sector were issued and two banks were issued
license under those guidelines. A draft comprehensive policy framework for

ownership and governance in private sector banks was put In the public

domain on 2 July 2004 for discussion and feedback. After taking into

consideration the feedback received from all concerned and in consultation

with Government of India , RBI issued detailed Guidelines on ownership and

governance in private sector banks on 28 February 2005 . The underlying

principles of the guidelines inter alia are to ensure that the all banks in the

private sector have a networth of 300 crore , ultimate ownership and control

of private sector banks is well diversified , important shareholders (i.e.,

shareholding of 5 per cent and above) conform to the 'fit and proper'

criteria. The directors and the CEO who manage the affairs of the bank

should also satisfy the 'fit and proper' criteria. The guidelines also provide for

restrictions on cross holding above 5 per cent by one bank / Financial

Institution (FI) in another bank / FI and observance of sound corporate

governance principles.

On a review of corporate governance practices in Banks in 2007 , RBI

advised banks in private sector to ensure that their Memorandum and

Articles of Association conform to the above mentioned stipulations. Banks

in private sector were also advised to split the posts of Chairman / MD /

CEO and have a part time Chairman of the Board of Directors and a

separate Chief Executive Officer / Managing Director who would be

responsible for day to day management / activities of the bank.

Reserve Bank of India issued guidelines on May 11 , 2005 for merger/

amalgamation of private sector banks for consolidation in the banking sector.

The guidelines are applicable where the merger takes place between two

banking companies or between a banking company and a non banking

financial company.

History of bank

The first bank of limited liability managed by Indians was

Oudh Commercial Bank founded in 1881. Subsequently, Punjab
National Bank was established in 1894. Swadeshi movement, which
began in 1906, encouraged the formation of a number of commercial
banks. Banking crisis during 1913-1917 and failure of 588 banks in
various parts of the country during the decade ended 1949
underlined the need for regulating and controlling commercial
banks. The Banking Companies Act was passed in February 1949,
which was subsequently amended to read as Banking Regulation
Act, 1949. This Act provided the legal framework for regulation of
the banking system in India.
The largest bank - Imperial Bank of India - was nationalised in
1955 and renamed as State Bank of India, followed by
formation of its 7 Associate Banks in 1959. With a view to bringing
commercial banks into the mainstream of economic development
with definite social obligations and objectives, the Government of
India issued an ordinance on 19 July 1969 acquiring ownership and
control of major banks in the country. Six more commercial banks
were nationalised from April 1980.

As certain rigidities and weaknesses were found to have developed

in the banking system during the late eighties, the Government of
India felt that these had to be addressed to enable the financial
system to play its role in ushering in a more efficient and
competitive economy Accordingly, a high-level Committee on the
Financial System (CFS) was set up on 14 August 1991 to examine all
aspects relating to the structure, organization, functions and
procedures of the financial systems. Based on the recommendations
of the Committee (Chairman: Shri M.Narasimham), a comprehensive
reform of the banking system was introduced in 1992-93.
To review the record of implementation of financial system reforms
recommended in 1991 by the Committee on Financial System and
chart the path of reforms in the years ahead, a high-level Committee
on Banking Sector Reforms, under the Chairmanship of Shri
M.Narasimham was constituted by the Government of India in
December 1997. The Committee submitted its report in April 1998.
Some of the recommendations of the Committee, on prudential
norms, Capital Adequacy Ratio, classification of Government
guaranteed advances, provisioning requirements on standard
advances and more disclosures in the Balance Sheets of banks were
accepted and implemented. Recent major initiatives undertaken for
strengthening the financial sector in pursuance to the
recommendations of the above Committee relate to guidelines to
banks on Asset-Liability Management and integrated risk
management systems, compliance with Accounting Standards,
consolidated accounting and supervision, fine-tuning of prudential
norms for income recognition, asset classification and provisioning
for NPAs, etc. The guidelines on setting-up of Off-shore Banking Units
in Special Economic Zones, Fair Practices Code for Lenders,
Corporate Governance, Anti-Money Laundering measures, Know Your
Customer (KYC) norms, Corporate Debt Restructuring (CDR)
derivatives, guidance notes on Credit Risk, Market Risk, Operational
Risk, etc., are other important developments introduced in the
banking sector in recent years. RBI has also issued revised
guidelines on migration to Basel II Framework on Capital Adequency.
The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 has facilitated NPA
management by banks more effectively.

In 1993, in recognition of the need to introduce greater competition,

new private sector banks were allowed to be set up. Licenses were
issued to 10 banks which had satisfied the necessary regulatory
requirements. Subsequently in 2001, fresh guidelines for setting up
new private sector were issued and two banks were issued license
under those guidelines. A draft comprehensive policy framework for
ownership and governance in private sector banks was put in the
public domain on 2 July 2004 for discussion and feedback. After
taking into consideration the feedback received from all concerned
and in consultation with Government of India, RBI issued detailed
Guidelines on ownership and governance in private sector banks on
28 February 2005. The underlying principles of the guidelines inter
alia are to ensure that the all banks in the private sector have a
networth of 300 crore, ultimate ownership and control of private
sector banks is well diversified, important shareholders (i.e.,
shareholding of 5 per cent and above) conform to the 'fit and proper'
criteria. The directors and the CEO who manage the affairs of the
bank should also satisfy the 'fit and proper' criteria. The guidelines
also provide for restrictions on cross holding above 5 per cent by one
bank/Financial Institution (FI) in another bank/FI and observance of
sound corporate governance principles.

On a review of corporate governance practices in Banks in 2007, RBI

advised banks in private sector to ensure that their Memorandum
and Articles of Association conform to the above mentioned
stipulations. Banks in private sector were also advised to split the
posts of Chairman/MD/CEO and have a part time Chairman of the
Board of Directors and a separate Chief Executive Officer /Managing
Director who would be responsible for day-to-day
management/activities of the bank.

Reserve Bank of India issued guidelines on May 11, 2005 for merger/
amalgamation of private sector banks for consolidation in the
banking sector. The guidelines are applicable where the merger
takes place between two banking companies or between a banking
company and a non-banking financial company.
 Scope of banking

Banking activities are considered to be the life blood of the

national economy . Without banking services , trading and business activities

cannot be carried on smoothly. Banks are the distributors and protectors of

liquid capital which is of vital significance to a developing country. Efficient

administration of the banking system helps in the economic growth of the

nation. Banking is useful to trade and commerce. Banking activities are

useful to trade and industry in the following ways.

a) Money deposited in a bank remains safe. Precious articles too can be

kept in the safe custody of banks in lockers.

b) Banks provide credit facilities to their customers. Customers with bank

accounts also enjoy better credit in the business world.

c) Banks encourage the habit of saving and thrift among people. They

mobilise savings and invest them in productive activities. Thus, they help in

increasing the rate of savings and investment in the country .

d) Banks provide a convenient and safe means of transferring money from

one place to another and facilitate business dealings / transactions.

e) Banks collect and realize bills , cheques , interest and dividend warrants

etc. on behalf of their customers. f) Foreign trade is facilitated considerably

with the help of bank.

 Definition of bank

1. An establishment authorized by government to accept deposits , pay

interest , clear checks , make loan , act as an intermediatery in financial

transaction , and other financial services to its customer.

2. an establishment for the custody, loan, exchange, or issue of money, for

the extension of credit, and for facilitating the transmission of funds

- Merriam-Webster

3. "A bank is an institution, usually incorporated with power to issue its

promissory notes intended to circulate as money (known as bank notes); or to

receive the money of others on general deposit, to form a joint fund that shall be

used by the institution, for its own benefit, for one or more of the purposes of

making temporary loans and discounts; of dealing in notes, foreign and domestic

bills of exchange, coin, bullion, credits, and the remission of money; or with both

these powers, and with the privileges, in addition to these basic powers, of

receiving special deposits and making collections for the holders of negotiable

paper, if the institution sees fit to engage in such business."

- In 1901, Justice Holmes

 Role of bank

Everyone needs banks, but not everyone understands how banks work, or the role

they play in the worlds economy. Here are five questions and answers to help

explain.

1. What do banks do?

Banks play an important role as an intermediary, or go-between, in the financial

system. They have three main functions:

1. Banks are where people can safely deposit their savings, which banks then

pay interest on. If there were no banks, people would have to store and protect

their savings themselves, which would involve major risks.

2. Banks are largely responsible for the payments system. Electronic

payments are becoming more important as people use less cash. This means that

banks are processing more card payments, transfers, direct debits, etc. every day.

3. Banks issue loans to both people and companies. Without banks, it would

be very hard for people to buy a home or start a business, or for companies to

make investments, for example.

Banks do a variety of other things, such as helping corporations with their, often

more complex, financial needs. This can range from the various ways to gain
access to capital for growth and investments, to assisting in mergers and

acquisitions, to converting currencies.

2. Why is this important?

Our economy couldnt function without banks. By attracting savings and granting

credit, banks are the oil for the wheels that keep the economy turning.

Without banks wed have to pay for everything with cash, which wed have to save

somewhere. Thats obviously very risky.

Without banks as a go-between, savers and borrowers would have to find each

other personally, and a single transaction between a saver and a borrower would be

very costly: just think of the fees youd have to pay a solicitor to draw up a

contract.

Plus, the saver would be assuming a big riskif the borrower cant repay, the

saver would lose all their savings. A bank lends money to a lot of people and

companies. If some are unable to repay their loans, the bank can absorb these

losses and savers wont be affected.

Banks also help solve the issue that customers generally want ready access to the

money they deposit, while many loans require long-term commitments, such as a

30-year mortgage for financing a house.

So banks borrow (i.e. hold customers deposits) short-term but lend long-term. By

doing this they transform debts with short maturities (deposits) into credits with

very long maturities, managing the risks associated and collecting the difference in

the interest rate as profit. This is known as term transformation and is a vital part

of banking.

3. Why and how does using a bank minimise risk for customers?

Managing and monitoring risks are at the heart of banking, and most banks have

strict policies in place at various levels to handle both financial and non-financial

risk, including social and environmental risk.

But more generally speaking, banks make transactions possible that otherwise

wouldnt have been possible, or that only wouldve been possible with huge risks.

One reason why banks can handle such transactions, and private individuals and

companies cant, is scale.

Even though savers can generally withdraw their savings at any time, the total

amount of money held by a bank doesnt fluctuate much because they have many

customers. This scale helps banks cover risks, such as those related to term

transformation mentioned above.

Other risks, such as a borrower not being able to repay, are reduced through

diversification, meaning that banks can spread risks over various countries and

industries.
This doesnt mean that risks are non-existent, but theyre spread over the bank's

portfolio and initially absorbed by the banks margins, with equity capital there

to cushion unexpectedly high losses.

Above all, banks specialise in estimating possible risks. However, its important to

realise that risks can never be eliminated completely. In fact, that wouldnt be a

good thing either. A certain level of risk is necessary to keep the economy going.

Economic growth is driven by entrepreneurs who start up new enterprises, i.e. take

risks. Sometimes they fail, but if no one would take such risk, there would be no

economic growth.

4. How does a bank make money?

A bank can make money in a variety of ways. Most of a bank's revenue comes

from the interest they receive on the money they lend. Interest is, however, also a

major cost for a bank, as savers receive interest on their savings.

Very basically, banks earn money by charging more interest on loans than that they

pay on savings.

Interest income is used to cover the costs involved in keeping interest-rate risk

under control, to cover losses on loans that are not repaid or not repaid in full, and

to pay the bank's overhead, such as wages.

Besides interest income, banks also make money from other transactions and

services, such as providing financial advice and products to large corporations.

5. How does this all apply to ING?

We see our role as a financial institution as supporting and stimulating economic,

social and environmental progress. We create value by providing products and

services that help people to improve their lives and fuel economic growth. INGs

purpose - empowering people to stay a step ahead in life and in business - is

reflected in our structure, strategy and in the values and behaviours we believe in.

So, what do we do specifically? ING helps customers secure their financial futures,

supports people when making life-changing decisions, processes transactions

quickly, accurately and easily, and empowers customers to have greater insight into

their finances. We also fuel entrepreneurship, support the growth of large

corporations, and accelerate sustainable transitions.

CHAPTER NUMBER - 2

IMPORTANCE OF BANKS IN INDIA

Banks are one of the most important part of any country. In this modern time

money and its necessity is very important. A developed financial system of the

country ensure to attain development. A modern bank provides valuable services to

a country. To attain development there should be a good developed financial

system to support not only the economic but also the society. So, a modern bank

plays a vital role in the socio economic matters of the country. Some of the

important role of banks in the development of a country are briefly showing below.

I- Promote Saving Habits Among People

Bank attracts depositors by introducing attractive deposit schemes and providing

rewards or return in the form of interest. Banks providing different kinds of deposit

schemes to its customers. It enable to create banking habits or saving habits among

people.

II- Capital Formation and Promoting of Industries

Capital is one of the most important part of any business or industry. It is the life

blood of business. Banks are increase capital formation by collecting deposits from

depositors and converts these deposits in to loans advances to industries.

III- Easiness of Trade and Commerce Functions

In this modern era trade and commerce plays vital role between any countries. So,

the money transaction should be user friendly. A modern bank helps its customers

to sent funds to anywhere and receive funds from any where of the world. A well

developed banking system provides various attractive services like mobile

banking, internet banking, debit cards, credit cards etc. these kind of services fast

and smooth the transactions. So, bank helps to develop trade and commerce.

IV- Generate Employment Opportunities

Since a bank promote industry and investment, there automatically generate

employment opportunity. So, a bank enables an economy to generate employment

opportunity.

V- Promote Agricultural Development

Agricultural sector is one of the integral part of any economy. Food self sufficiency

is the major challenge and goal of any country. Modern bank promote agricultural

sector by providing loans and advances with low rate of interest compared to other

loans and advances schemes.

VI- Implementation of Monitory Policy

Monitory policy is a important policy of any government. The major aim of

monitory policy is to stabilize financial system of the country from the dangerous

of inflation, deflation, crisis etc.

VII- Balanced Development

Modern banks spreading its operations throughout the world. we can see number

of big banks like citi bank, Baroda bank etc. It helps a country to spread banking

activities in rural and semi urban areas. With the spreading of banking operations

around the country, helps to attain balanced development by promoting rural areas.
Modern bank plays vital role in the socio- economic development of the country. A

developed banking system enables the country to attain balanced development

without any special consideration of rich and poor, cities and rural areas etc

CHALLENGES AND OPPORTUNITIES

The Indian banking sector continues to face some structural challenges. We have a

relatively large

number of banks, some of which are sub-optimal in size and scale of operations.

On the regulatory front,

alignment with global developments in banking supervision is a focus area for both

regulators and banks.

new international capital norms require a high level of sophistication in risk

management, information systems,

and technology which would pose a challenge for many participants in the Indian

banking sector. The deep and

often painful process of restructuring in the Indian economy and Indian industry

has resulted in asset quality

issues for the banking sector; while significant progress is being made in this area,

a great deal of work towards

resolution of these legacy issues still needs to be done. The Indian banking sector

is thus at an exciting point in

its evolution. The opportunities are immense to enter new businesses and new

markets, to develop new ways

of working, to improve efficiency, and to deliver higher levels of customer service.

The process of change and

restructuring that must be undergone to capitalize on these opportunities poses a

challenge for many banks.

The Indian banking sector is faced with multiple and concurrent challenges such as

increased

competition, rising customer expectations, and diminishing customer loyalty. The

banking industry is also

changing at a phenomenal speed. While at the one end, we have millions of savers

and investors who still do not

use a bank, another segment continues to bank with a physical branch and at the

other end of the spectrum, the

customers are becoming familiar with ATMs, e-banking, and cashless economy.

This shows the immense

potential for market expansion. The exponential growth for the industry comes

from being able to handle as

wide a range of this spectrum as possible. In this complex and fast changing

environment, the only sustainable

competitive advantage is to give the customer an optimum blend of technology and

traditional service.

As banks develop their strategies for giving customers access to their accounts

through various

advanced services like e banking, mobile banking and net banking, they should

also regard this emerging

platform as a potential catalyst for generating operational efficiencies and as a

vehicle for new revenue sources.

Banking industrys opportunities includes

A growing economy
Banking deregulation
Increased client borrowing
An increase in the number of banks
An increase in the money supply
Low government-set credit rates and

Larger customer checking account balances. Developing countries like India, has

a huge number of people who dont have access to banking services due to

scattered and fragmented locations. But if we talk about those people who are

availing banking services, their expectations are raising as the level of services are
increasing due to the emergence of Information Technology and immense

competition between the services and products provided by different banks. Since,

foreign banks are playing in Indian market, the number of services of offered has

increased and banks have laid emphasis on meeting the customer expectations.

India's banking sector has made rapid strides in reforming and aligning itself to the

new competitive business environment. The major challenges faced by banks

today are as to how to cope with competitive forces and strengthen their balance

sheet. Today, banks are groaning with burden of NPAs. It is rightly felt that these

contaminated debts, if not recovered, will eat into the very vitals of the banks.

Indian Consumer

The biggest opportunity for the Indian banking system today is the Indian

consumer. Demographic shifts in terms of income levels and cultural shifts in

terms of lifestyle aspirations are changing the profile of the Indian consumer. This

is and will be a key driver of economic growth going forward. The Indian

consumer now seeks to fulfil his lifestyle aspirations at a younger age with an

optimal combination of equity and debt to finance consumption and asset creation.

This is leading to a growing demand for competitive, sophisticated retail banking

services. The consumer represents a market for a wide range of products and

services he needs a mortgage to finance his house; an auto loan for his car; a

credit card for on-going purchases; a bank account; a long-term investment plan to

finance his childs higher education; a pension plan for his retirement; a life

insurance policy the possibilities are endless. And, this consumer does not live

just in Indias top ten cities. He is present across cities, towns, and villages as

improving communications increases awareness even in smalltowns and rural

areas. Consumer goods companies are already tapping this potential it is for the

banks to make the most of the opportunity to deliver solutions to this market.

Revolution of Information Technology

Technology is the key to servicing all customer segments offering convenience to

the retail customer and operating efficiencies to corporate and government clients.

The increasing sophistication, flexibility, and complexity of product and servicing

offerings makes the effective use of technology critical for managing the risks

associated with the business. Developing or acquiring the right technology,

deploying it optimally, and then leveraging it to the maximum extent is essential to

achieve and maintain high service and efficiency standards while remaining cost-

effective and delivering sustainable returns to shareholders. Early adopters of

technology acquire significant competitive advantage. Managing technology is,

therefore, a key challenge forthe Indian banking sector. Wide disparities exist

between various banks as far as technology capabilities are concerned; the sector

as a whole needs to make significant progress on this front.

Banks may have to go for mobile banking services for a cluster of villages.

Alternatively, technological institutions have to come out with low-cost, self-

service solutions/ ATMs. The government and the RBI should actively support

such research efforts. Here, it is worthwhile to mention that the adaptability of the

Indian rural population to high-tech devices is one of the fastest in the world. A

wider dissemination of information on technologies and products to the Indian

banking industry by the research institutions could benefit the banking institutions.

This cross-pollination of ideas would mutually enrich the banking and the
technology development processes. The Indian banks are subject to tremendous

pressures to perform as otherwise their very survival would be at stake. The

application of IT and e-banking is becoming the order of the day with the banking

system heading towards virtual banking.

Industrial Development

The developments in Indian industry and government and the integration of India

with the global markets also offer innumerable opportunities to the banking sector.

Companies and governments are increasingly seeking high-quality banking

services to improve their own operating efficiency. Companies seek to offer better

customer service and maximize shareholder returns and governments seek to

improve the quality of public services. The internationalization of India offers

banks the opportunity to service cross-border needs of Indian companies and India-

linked needs of multinationals.

Knowledged Society

Building knowledge-driven, learning organizations is important in the current

scenario of rapidly evolving operating environments. Knowledge and assimilation

of new ideas and trends are essential to keep the organization ahead on the curve.

This is true for banking as it is for all other sectors. Banks must continuously seek

to be aware of cutting edge practices in banking internationally and institutionalize

this learning across the organization. This will prepare them for the future as

Indian markets become more sophisticated and integrated into the global financial

markets. Another critical area for the Indian banking sector is people. The ability to

attract and retain talent is a key success factor for a people-oriented business like
banking. Banks have to build organizations that are process driven yet innovative,

stable yet flexible, and responsive to change.

Intense Competition

The RBI and Government of India kept banking industry open for the participants

of private sector banks and foreign banks. The foreign banks were also permitted

to set up shop on India either as branches or as subsidiaries. Due to this lowered

entry barriers many new players have entered the market such as private banks,

foreign banks, nonbanking finance companies, etc. The foreign banks and new

private sector banks have spearhead the hi-tech revolution. For survival and

growth in highly competitive environment banks have to follow the prompt and

efficient customer service, which calls for appropriate customer centric policies

and customer friendly procedures.

Employees Retention

The banking industry has transformed rapidly in the last ten years, shifting from

transactional and customer service-oriented to an increasingly aggressive

environment, where competition for revenue is on top priority. Long-time banking

employees are becoming disenchanted with the industry and are often resistant to

perform up to new expectations. The diminishing employee morale results in

decreased revenue. Due to the intrinsically close ties between staff and clients,

losing those employees completely can mean the loss of valuable customer

relationships. There tail banking industry is concerned about employee retention

from all levels: from tellers to executives to customer service representatives

because competition is always moving in to hire them away.

Indian Banking Sector Challenges and Opportunities

Financial inclusion has become a necessity in todays business environment.

Whatever is produced by business houses that have to be under the check from

various perspectives like environmental concerns, corporate governance, social

and ethical issues. Apart from it to bridge the gap between rich and poor, the poor

people of the country should be given proper attention to improve their economic

condition. In India, RBI has initiated several measures to achieve greater financial

inclusion, such as facilitating no-frills accounts and GCCs for small deposits and

credit.

Rural Market

Banking in India is generally fairly mature in terms of supply, product range and

reach, even though reach in rural India still remains a challenge for the private

sector and foreign banks. In terms of quality of assets And capital adequacy, Indian

banks are considered to have clean, strong and transparent balance sheets relative

to other banks in comparable economies in its region. Consequently, we have seen

some examples of inorganic growth strategy adopted by some nationalized and

private sector banks to face upcoming challenges in banking industry of India. For

example recently, ICICI Bank Ltd. merged the Bank of Rajasthan Ltd. in order to

increaseits reach in rural market and market share significantly. State Bank of India
(SBI), the largest public sector bank in India has also adopted the same strategy to

retain its position. It is in the process of acquiring its associates. Recently, SBI has

merged State Bank of Indore in 2010.

High Transaction Costs A major concern before the banking industry is the high

transaction cost of carrying non- performing assets in their books. The growth led

to strains in the operational efficiency of banks and the accumulation of non-

performing assets (NPAs) in their loan portfolios.

Social and Ethical Aspects

There are some banks, which proactively undertake the responsibility to bear the

social and ethical aspects of banking. This is a challenge for commercial banks to

consider these aspects in their working. Apart from profit maximization,

commercial banks are supposed to support those organizations, which have some

social concerns.

Timely Technological up gradation

Already electronic transfers, clearings, settTimely Technological up gradation

Already electronic transfers, clearings, settlements have reduced translation times.

To face competition it is necessary for banks to absorb the technology and upgrade

their services.

Global banking

The impact of globalization becomes challenges for the domestic enterprises as

they are bound to compete with global players. If we look at the Indian Banking
Industry, then we find that there are 36 foreign banks operating in India, which

becomes a major challenge for Nationalized and private sector banks.

IV. Conclusion

The pre and post liberalization era has witnessed various environmental changes

which directly affects the aforesaid phenomena. It is evident that post liberalization

era has spread new colours of growth in India, but simultaneously it has also posed

some challenges. This article discusses the various challenges and opportunities

like High transaction costs, IT revolution, timely technological up-gradation,

intense competition, privacy & safety, global banking, financial inclusion. Banks

are striving to combat the competition. The competition from global banks and

technological innovation has compelled the banks to rethink their policies and

strategies. Different products provided by foreign banks to Indian customers have

forced the Indian banks to diversity and upgrade themselves so as to compete and

survive in the market.

The biggest challenge for banking industry is to serve the mass and huge market

of India. Companies have become customer centric than product centric. The better

we understand our customers, the more successful we will be in meeting their

needs. In order to mitigate above mentioned challenges Indian banks must cut their

cost of their services. Another aspect to encounter the challenges is product

differentiation. Apart from traditional banking services, Indian banks must adopt
some product innovation so that they can compete in gamut of competition.

Technology up gradation is an inevitable aspect to face challenges. The level of

consumer awareness is significantly higher as compared to previous years. Now-a-

days they need internet banking.

3. FUTURE OF BANK AND LITRATURE REVIEW

WHAT WILL SHAPE THE FUTURE OF BANKING?

Banking is an industry undergoing huge change. Multiple forces are playing out

simultaneously, although often at different speeds and at varying intensities across

the globe. Understanding what is shaping the industry, and how to optimise your

strategy in response, is crucial in crafting a sustainable competitive advantage.

Unfortunately, human beings are hard-wired to be poor at understanding the future.

We hate uncertainty. To avoid it, we either pretend it doesnt exist or we create

ever-increasingly complex models and forecasts to help determine what we should

do today in order to be successful tomorrow.

So how can we be more constructive and thoughtful in understanding what the

future of banking may bring? Where should we focus in understanding the future

of banking?

I believe there are five key uncertainties events or forces we simply cannot

predict, but will significantly shape/impact the future environment we should pay
particular attention to in order to better understand how the banking landscape will

evolve over the next 10 plus years. The way they play out will shape the global

banking industry, determining winners and losers, survivors and casualties.

1. Changing Places, Changing Faces : Traditionally demographics

have been closest to being predictable, but even these trends are

hard to predict with the rise and dominance of globalization and

connectivity. The worlds population continues to grow with rapidly

growing youth demographics in significant countries needing more

jobs, housing and food. With growing urbanisation, more than 50

percent of the worlds population now lives in a city and projected

to reach 70 percent by 2050.

What does this mean for banking? Another one billion people will enter the

consuming class by 2025. There will be increased investment in infrastructure

and housing. Economic activity will intensify. Individuals and organisations

will require finance, credit, risk intermediation and financial transactions.

However, increasingly expensive welfare systems will need to be funded.

Aging populations will have to save more for retirement. Higher taxation to

meet increasing and unfunded liability gaps will dent consumers ability to

consume.

Knowing all this, how will changing demography, migration and urbanisation

impact the world economys ability to grow?

2. New Sheriff in Town

For more than 40 years, globalisation has driven the growth of banking.

However is continued unfettered global integration still a positive? The

concept of gated globalisation seems to be gaining currency. Trade flows

have stagnated since 2008. Capital flows have collapsed by more than 60

percent since all-time highs in 2007. Furthermore, state-sponsored capitalism

could dominate market-driven economies due to the growing influence of so-

called state-sponsored capitalism.

The implications for banking are enormous. As financial markets re-regulate,

the nature and pace at which different jurisdictions do so will have significant

impact on the relative competitive position of global, regional and national

players. Opportunities for regulatory arbitrage, and in particular the

difficulties of managing multiple sets of rules, will hamper many if there is

continued fragmentation of global governance and markets, instead of a shift

towards great harmonisation.

A key question therefore remains: Is this slowdown in global connectivity

cyclical (a speed bump) or a longer-term structural trend that may reverse

many of the factors that have been responsible for the growth of global

banking?

3. Advantage Big Data?

 Mining big data is driving innovation across industries. There is no lack of

data in the world and it is increasing at quite an alarming rate. However,

obtaining genuine insights from the mass of big data is harder than one might

imagine. If an organization can derive new insights, they can gain both

increased market and wallet share from customer data.

For many years, the Holy Grail in banking has been the cross-sell; how many

products can we sell to the same customer? The new mind-set should be,

How do we better meet our customers needs with the insights we can garner

from our relationship, without infringing their sense of privacy or

independence as a valued client? How much will customers allow a bank to

know about them? Whats the upside for them in allowing a bank into their

worlds?

4. The Connected Customer

We know that the impact of technology and the digitisation of markets has

significantly changed behaviour, and yet, in many ways we have perhaps only

seen the tip of the iceberg. Power has shifted to the consumer with

expectations of service and experience raised significantly. A direct

comparison of experience online across multiple industries is readily available

and presents deep challenges to many financial services organisations as they

essentially compete in terms of customer service with built-for-the-net-age

products and services. Customer loyalty is now an asset that is even harder to
 win and much easier to lose. Ironically, in consumer banking, the most

valuable customers (those with investable assets over $1 million) are the least

loyal. The increasing digitisation of banking will only make it easier to switch.

We have to think about what will customers want from their banks? Perhaps

more importantly, what will they be willing to share with their banks? And

will banks become an increasingly commoditised service with little

differentiation?

5. Banks vs. Banking A New Paradigm?

Across the banking landscape, from consumer to wholesale, alternative

banking business models are emerging through a confluence of stricter

regulation of traditional banks and connective technologies. Peer-to-peer

lending is becoming mainstream. Electronic transfers and transactions are

reshaping the field of financial services. From mobile phone banking, to

digital currencies and crowd funding, new service providers are challenging

the incumbent banks with faster, cheaper, more accessible and more relevant

services to customers. In wholesale, shadow banking continues to thrive,

filling the vacuum left as the regulated banks activities are curtailed by Dodd-

Frank, the Volcker Rule and Basel III capital ratio requirements. Arguments

flow both ways in terms of the value that this group of capital providers adds,

from offering vital credit and risk intermediation, filling the void left by the

traditional banks, to unregulated, opportunistic entities that some believe may

cause the next financial crisis.

 So as we look out 10 years, which entities will be the dominant providers of

banking services the banks, or the alternatives?

What do these uncertainties mean for the future of banking?

The single largest threat to incumbent banks is that they become consumed by

short-term urgent and operational imperatives, largely driven by regulatory

requirements, while missing the seismic, structural shifts in the broader industry

environment that may make their finely tuned business models obsolete.

Creating a list of mega-trends can be intellectually interesting. However, it is not

until these driving forces and uncertainties are combined into multiple narratives of

the future (what we call scenarios) that the logic, dependencies and implications of

the future for an organisation start to unfold.

Using scenarios to explore strategic options will create a different type of

conversation amongst senior decision makers one focused on what if and so

what, rather than I know or I predict. The former will lead to more creative

outside-in discussions and asking better questions before coming to more robust

and better answers. Leveraging scenario thinking frees banking executives from

the pressure to accurately predict the future (a somewhat futile notion at best),

allowing them to concentrate their energy in agreeing and aligning behind a robust

set of strategic options that anticipates their customers needs, matches their

organisational ambitions and is consistent with their overall risk appetite.

Ultimately, using scenario-based thinking to develop and stress test their strategies,

will allow banks to better prepare for the uncertain future to come.
 1. INTRODUCTION AND RATIONALE OF THE STUDY

Thank God, in joy & sorrow, to deposit & borrow, BANKS ARE THERE,

Otherwise, The question would be funny, to keep & get money, HOW & WHERE

? These words of Montek Singh Ahluvaliya, Deputy Chairman of the

Planning Commission of Republic of India, indicate the importance of Banks.

Banking system occupies an important role in the economy of a nation. In fact,

banking system of any country is the lifeblood of an economy. A banking

institution is indispensable in the modern society. It plays a pivotal role in the

economic development of a country and forms the core of the money market for

the country. The banking sector performs three primary functions in an economy;

first, the operation of the payment system, second, the mobilization of savings and

finally, the allocation of savings to investment projects. The banking system which

constitutes the core of the financial sector plays a critical role in transmitting

monetary policy impulses to the entire economic system. An efficient banking

structure can promote greater amount of investment which can further help to

achieve a faster growth rate of economy. Worldwide experience confirms that

countries with well developed and market oriented free banking system grow faster

and more consistently

2. LITERATURE REVIEW

Literature Review section comprises the literature on performance of banks,

dimensions of the performance of banks as; customer satisfaction, employee

efficiency & satisfaction, corporate social responsibility and performance indicator

for measuring the financial aspect, and the analytical hierarchy process (AHP)

model.

2.1 PERFORMANCE OF THE BANKS

Indian banking sector has emerged as one of the strongest drivers for Indias

economic growth [3]. The Indian banking system is among the healthier

performers in the world, when compared with top three banks in total assets and in

terms of return on assets [4]. A diverse range of studies have been conducted by

the researchers for measuring the performance of the banks, which present

different perspective with regards to the performance of the banks in different

countries. Traditional systems of performance evaluation of banks mostly use the

factors like ROA and ROI for measuring the financial 4 performance of the banks.

However, nowadays intellectuals and managers of organization find that traditional

systems of performance evaluation have been typically based on financial views

which are incomplete in evaluating overall performance of the organization and

presenting an effective feedback [5]. Excessive financial measurements may

increase organization's short term profit, but bring about losing competitive

situation and threatens long-term profit. Non-financial criteria like customer's

satisfaction, employees satisfaction and corporate social responsibility can be

necessary for strategic success of any bank [6]. Customer satisfaction is the key to

the profitability of retail banking, which is having a long term financial impact on

the business of the banks [7]. Performance of the banks depends upon the

efficiency and level of satisfaction of its human resources. High level of human

capital efficiency and employee satisfaction leads to the high performance of the

banks [8]. It has also been found by the researchers that the banks which adhere to
be socially responsible in their routine activities, outperform in their financial

performance. There is a positive relationship between the corporate social

responsibility and the financial performance of the banks both in short and long

run [9]. Thus there are two main aspects from which one can measure the overall

performance of the banks namely, financial aspects and human aspects. The

dimensions of performance of a bank under human aspect are namely, customer

satisfaction, employee satisfaction and Corporate Social Responsibility (CSR). The

following conceptual model explains the performance and its dimensions.

A detailed literature review, on every dimension discussed in the above conceptual

model, has been done in the following section.

 CUSTOMER SATISFACTION

Customer satisfaction is the judgment assumed out of the comparison of pre-

purchase expectations with post-purchase evaluation of the product or service

experience, as defined by academic literature [10]. Customer Satisfaction has

become an important dimension for performance measurement particularly for

banking and finance industry. As most banks and finance organizations offer

similar products and services, improving customer satisfaction and loyalty is the

most important factor in maintaining as well as increasing market share for these

organizations.

2.1.2 EMPLOYEE EFFICIENCY & SATISFACTION

Banking sector is highly intellectually intensive, where the main asset of the banks

is its human capital, as the expenses incurred on employees are the major operating

expense in the banking sector. The human capital is a key intellectual and strategic

asset which increases the efficiency of banks. Performance of the banks depends

upon the efficiency of its human resources. High level of Human Capital

Efficiency (HCE) leads to the high performance of the banks [12]. Efficient

employees are not a sufficient criterion to measure the performance of the banks. It

should also be ensured that employees are efficient and satisfied both, because the

dissatisfaction of employees may turn their efficiency into inefficiency at any time.

Employee satisfaction is crucial in achieving quality and profitability in the service

industry. Employee satisfaction leads to higher service quality and it influences

customer satisfaction directly. Service quality and customer satisfaction eventually

lead to financial gains [13]

2.1.3 CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is the continuing commitment by business to

behave ethically and contribute to economic development while improving the

quality of life of the workforce and their families as well as of the local community

and society at large [14]. Banking sector is not untouched by the social

responsibilities. Banks do not exist in a vacuum. They make a large contribution to

the country's GDP growth, meet the demand of the growing middle class,

contribute to infrastructure spending, and reach out to the semi-urban and rural

areas

2.1.4 FINANCIAL PERFORMANCE

On the basis of the literature review, performance indicators of the banks can be

divided into two main categories, namely the financial statement and non financial

statement indicators. The financial statement indicators are related to the decisions

which directly affect the items in a balance sheet and profit & loss accounts. On

the other hand, the non financial statement indicators involve those factors which

do not have a direct impact on the financial statements

2.2 ANALYTIC HIERARCHY PROCESS

An effective evaluation of firm's overall performance is a key step for firm's long-

term strategic planning process [17]. The Analytic Hierarchy Process has been

proposed in recent literature as an emerging solution approach to large, dynamic,

and complex real world multicriteria decision making problems, such as the
measuring the overall performance of any organisation using quantitative and

qualitative criteria

2.3 GAPS FOUND FROM THE LITERATURE REVIEW

There are very few such studies where a large number of financial variables have

been taken together for measuring the performance of the banks. Performance

has generally been measured in terms of financial performance. The human

aspects of the performance such as employee satisfaction and customer satisfaction

have been ignored. Very few studies are available which have measured the

corporate social responsibility (CSR) of the banks in India in quantitative terms.

No such comprehensive model is available which take both the financial and

human aspect simultaneously for measuring the overall performance of banks.

Few researchers have made efforts to provide a comparative analysis of Indian

private, public and foreign sector banks simultaneously.

2.4 OBJECTIVES OF THE STUDY

On the basis of literature review and gaps identified during literature review; the

following objectives have been framed: 1. To study the relationship of financial

indicators with the performance of Indian commercial banks. 7 2. To measure the

customer satisfaction and its relationship with performance of banks. 3. To

measure the employee satisfaction and its relationship with performance of banks.

4. To study and measure the corporate social responsibility and its relationship

with performance of banks. 5. To make a comparative study of overall

performance of the public sector banks, private sector banks and foreign banks in

India.

4. RESEARCH METHODOLOGY

5. This section discusses the research methodology adopted for the present

study which includes secondary and primary data variables, population and

sampling, development of tools/instruments along with standardising them

scientifically establishing validity and reliability, conceptual model,

statistical techniques used for quantitative analysis and qualitative analysis

3.1 RESEARCH QUESTIONS AND FORMULATION OF

HYPOTHESIS

From the literature review; liquidity, profitability, efficiency, asset quality

and capital adequacy ratio have been identified as the main indicators of

performance of banks.

To study the relationship of financial indicators, employee satisfaction and

customer satisfaction and corporate social responsibility with the

performance of banks, the following research questions have been

formulated:

Research Question 1: Is there any relationship between financial

indicators; namely, liquidity, profitability, efficiency, asset quality and

capital adequacy ratio with performance of the banks?

Null Hypothesis 1 (H01): There is no relationship between liquidity and

performance of banks

Null Hypothesis 2 (H02): There is no relationship between profitability and

performance of banks.

Null Hypothesis 3 (H03): There is no relationship between efficiency and

performance of banks. 8

Null Hypothesis 4 (H04): There is no relationship between asset quality

and performance of banks.

Null Hypothesis 5 (H05): There is no relationship between capital

adequacy ratio and performance of banks.

Research Question 2: What are the various factors which lead to customer

satisfaction and up to what extent these factors are contributing towards

customer satisfaction in Indian Commercial Banks?

Research Question 2.1: Is there any significant difference in the level of

satisfaction of customers due to different ownership structures of banks

(Public, Private and Foreign)?

Null Hypothesis 6 (H06): There is no significant difference in customer

satisfaction level of public, private and foreign banks.

Research Question 2.2: Is there any significant difference in the level of

satisfaction of banks customers across the four regions as North, South,

East and West in India?

Null Hypothesis 7 (H07): There is no significant difference in satisfaction

level of banks customers from different regions of the India. Research

Question 3: What are the various factors which lead to employee

satisfaction and up to what extent these factors are contributing towards

employee satisfaction in Indian Commercial Banks?

Research Question 3.1: Is there any significant difference in the level of

satisfaction of employees due to different ownership structures of banks

(Public, Private and Foreign)?

Null Hypothesis 8 (H08): There is no significant difference in employee

satisfaction level of public, private and foreign banks.

Research Question 3.2: Is there any significant difference in the level of

satisfaction of banks employees across the four regions as North, South,

East and West in India? 9

Null Hypothesis 9 (H09): There is no significant difference in satisfaction

level of banks employees from different regions of the India. Research

Question 4: What is the contribution of the dimensions of human aspects

in banking as; customer satisfaction, employee satisfaction and corporate

social responsibility in the performance of the banks?

Research Question 5: What is the contribution of financial and human

aspect in the overall performance of the banks?

3.2 DATA

Both the secondary as well as the primary data have been used for the

present study. Secondary data is used to study the relationship of financial

indicators with the performance of banks and to measure the corporate

social responsibility activities of the banks. The secondary data has been

collected for the five variables namely; liquidity, profitability, efficiency,

asset quality and capital adequacy ratio, which are identified from the

literature review and for the corporate social responsibility activities done

by the banks. The CSR score of the banks for each year are measured by

using nine variables namely; Rural Branch Expansion, Priority Sector

lending ratio, Environment Protection, Community Welfare, Women

Welfare, Farmers Welfare, New Initiative related to CSR, Financial

Literacy and Education. To measure the customer satisfaction and

employee satisfaction primary data have been collected from the bank

employees and bank customers. Further, an attempt is made to understand

the importance of the dimensions of bank performance, i.e. financial

performance and human aspects, to establish the overall performance of the

banks. For the matter, senior bank officials and industry experts were

contacted for their opinion regarding the importance of the dimensions of

the performance of the banks.

3.3 POPULATION AND SAMPLING

The secondary data has been collected for three years from the period

2009-10 to 2011-12. Since the secondary data has been collected on

financial indicators of commercial banks, hence all the commercial banks

 operating in India during the above period are the population of the study.

Regarding the primary data, the objective of the study is to measure the

customer satisfaction and employee satisfaction; hence all the customers

and employees of commercial banks are the population of the study

There are four types of commercial banks operating in India; public

sector banks, private sector banks, foreign banks and regional rural

banks (RRB). Out of these only private, public and foreign banks have

been taken in the study. The RRBs have been excluded from the study

because the RRBs are not comparable with the other commercial banks

in terms of size, scope, business and products/services offered by the

banks. Thus sample of 30 banks consisting, 15 public sector banks, 10

private sector banks and 5 foreign banks has been taken. The

proportion of public, private and foreign banks in the total sample of 30

banks is based on the contribution of assets of these three types of

banks in the total assets of the banking industry as on 31st March 2011.

Among each group of public, private and foreign banks, banks have

been randomly selected by using random number method. The group

wise list of 30 banks used in the study is shown in figure 3.1. After

determining the list of sampled banks, the sample size of the customers

and employees for collecting primary data has been determined using

the following method given by Krejcie & Morgan.

Where:

n = Sample size, X2 = Chi-square for the specified confidence level at 1 degree of

freedom, N = Population Size, P = population proportion, ME = desired Margin of

Error (expressed as a proportion).

As shown in Table 3.1, the population size has been calculated on the basis of data

taken from the website of Reserve Bank of India. Thus the calculated sample size
for customers and employees of the banks has been rounded of to 3000. To collect

primary data stratified random sampling technique has been used. For sampling of

customers and employees, whole India has been divided into four geographical

regions as North, South, West and East. A list of capital cities in each geographical

region has been prepared. Capital cities have been randomly selected from each list

by random number method. Thus total 9 capital cities have been selected for the

study. Figure 3.2 shows the detail sampling plan which is used for collecting

primary data for both, from the customers and employees of the banks.

The collection of primary data on the importance of financial and human aspects in

performance of banks has been done from thirty senior level bank employees. The

list of experts from the area of banking and finance have been prepared using

professional database, newspapers, magazines, and with the help of internet

browser. Snowball sampling has been used for collecting data from the experts.

3.4 RESEARCH INSTRUMENTS FOR THE PRIMARY STUDY

For the purpose of primary data collection, three well-structured questionnaires

have beendeveloped. Questionnaire A has been developed for measuring the

customer satisfaction. Questionnaire B has been developed for measuring

employee satisfaction. Questionnaire C has been developed for measuring the

importance of dimensions of performance of banks. The nature of questions in the

all the questionnaires is close ended. In questionnaire A, 24 statements and in

questionnaire B, 34 statements have been included on the basis of review of

literature and discussions with experts in the relevant fields. The statements in both

the questionnaires were to be rated on the five point Likerts scale; where 1 means

very dissatisfied, 2 means dissatisfied, 3 means neutral, 4 means satisfied and 5

means very satisfied.

A pilot study was conducted to measure the reliability and validity of the

research instruments to check for potential errors and overall appropriateness of

the questionnaires. The pilot study was conducted on 250 respondents for each

questionnaire from Delhi/NCR region.

The reliability of the questionnaire was checked using cronbachs Alpha. As per

the table 3.2 the cronbachs alpha for both the questionnaires was above 0.70,

which shows that both the questionnaires are reliable. In order to test the validity

of the questionnaires, thequestionnaires were presented to the experts in the field

of banking/finance and to the academicians in relevant field and all the items of
both the questionnaires were discussed with them. The Questionnaire C has been

developed to find relative importance of financial aspects and human aspects in

performance of banks. To measure the relative importance Analytic Hierarchy

Process (AHP) model has been used.

4. DATA ANALYSIS

Primary data analysis for questionnaire A and B, has been done using various

statistical tools like Factor Analysis, Multiple Linear Regression Analysis,

ANOVA, Chi-square test, and Multiple Dichotomy Test. Data analysis of

questionnaire C has been done using AHP Model. Secondary data analysis has

been done using multiple regression analysis method.

Research Question 1: Is there any relationship between financial indicators;

liquidity, profitability, efficiency, asset quality and capital adequacy ratio with

performance of the banks?

It can be interpreted from the regression analysis that Return on Asset (ROA)

which has beenused for measuring the financial performance of the bank, is

positively related to the liquidity, profitability and capital adequacy while ROA is

negatively related to the asset quality indicator. The relationship between ROA and

efficiency is found to be insignificant.

Research Question 2: What are the various factors which lead to customer

satisfaction and up to what extent these factors are contributing towards customer

satisfaction in Indian Commercial Banks?

Figure 4.1 depict the three factors which have emerged from the study for the

customer satisfaction in the Indian commercial banks using factor analysis. A

further regression of factors with the Overall customer satisfaction revealed that

Convenience & Excellence, Banks Workforce and Banks Physical Environment

are positively and significantly related to Overall customer satisfaction. Regression

coefficients are statistically significant at 1 percent level of significance. The three

independent variables of regression model can explain 85 percent of variation in

the value of dependant variable as shown by the adjusted R Square which is 0.851.

Research Question 2.1: Is there any significant difference in the level of

satisfaction of customers due to different ownership structures of banks (Public,

Private and Foreign)?

A significant P-value indicates that there is a significant difference in the level of

satisfaction of customers due to different ownership structures of banks (Public,

Private and Foreign).

Research Question 2.2: Is there any significant difference in the level of satisfaction

of banks customers across the four geographic regions as North, South, East and

West in India?

An insignificant P-value indicates that there is no significant difference in

satisfactionlevel of banks customers from different geographic regions of the

country.

The customer satisfaction level has also been analysed with respect to the

demographic factors. Chi square test has been used to measure the differences in

satisfaction level of the customers on the basis of their demographic profiles such as,

age, occupation, annual income and qualification.

*Significant at 1% level of significance.

It can be interpreted from table 4.3 that there is a significant difference in the

satisfaction level of customers belonging to different age groups, different

occupations and having different annual income. However, there is no significant

difference in the customer satisfaction level on the basis of gender and educational

qualification.

Research Question 3: What are the various factors which lead to employee

satisfaction and up to what extent these factors are contributing towards employee

satisfaction in Indian Commercial Banks?

Figure 4.2 depict the factors which have emerged from the study of the employee

satisfaction in the Indian commercial banks using factor analysis. A further regression

analysis of the above factors with the Overall employee satisfaction indicates that all

the six factors are positively and significantly related to Overall employee

satisfaction. Regression coefficients are statistically significant at 1 percent level of

significance. The six independent variables of regression model can explain 0.695

percent of variation in the value of dependant variable, R Square is 0.695.

Research Question 3.1: Is there any significant difference in the level of satisfaction

of employees due to different ownership structures of banks (Public, Private and

Foreign)?
A significant P-value indicates that there is a significant difference in the level of

satisfaction of employees due to different ownership structures of banks (Public,

Private and Foreign).

Research Question 3.2: Is there any significant difference in the level of satisfaction

of banks employees across the four geographic regions as North, South, East and

West in India?

An insignificant P-value indicates that there is no significant difference in satisfaction

level of banks employees from different geographic regions of the country.

The employee satisfaction level has also been analysed with respect to the

demographic factors. Chi square test has been used to measure the differences in

satisfaction level of the employees on the basis of their demographic profiles such as,

age, gender and job tenure.

It can be interpreted from table 4.4 that there is a significant difference in the

satisfaction level of employees belonging to different age groups and having different
job tenure. However, there is no significant difference on the basis of gender of the

employees.

Research Question 4: What is the contribution of the dimensions of human aspects

in banking as; customer satisfaction, employee satisfaction and corporate social

responsibility in the performance of the banks?

The weights of the dimensions of human aspect using AHP model have been shown

in table 4.5

From the results of the AHP model it can be interpreted that corporate social

responsibility is having highest weight among the three dimensions of human aspect.

Corporate socialresponsibility which is having a weight of approx 63 percent is found

to be important than customer satisfaction and employee satisfaction while customer

satisfaction having a weight of 24 percent is more important than employee

satisfaction with a weight of approx 12 percent.

Research Question 5: What is the contribution of financial and human aspect in the

overall performance of the banks? The weights of the financial and human aspect

using AHP model have been shown in table 4.6.

From the results of the AHP model it can be interpreted that financial aspect is having

a weight of approx 48 percent while human aspect is having a weight of approx 52

percent in the overall performance of the banks. Thus human aspect is slightly more

important while measuring the overall performance of the banks. Financial aspect is

also important to be considered while measuring the overall performance of the banks

because 48 percent is a significant contribution as shown by the experts on the basis

of their judgements on two criteria.

COMPARATIVE ANALYSIS OF OVERALL PERFORMANCE OF BANKS

USING CONCEPTUAL MODEL

This section deals with the comparative analysis of the overall performance of the

banks using the conceptual model shown in Fig 2.1. The overall performance has

been measured as the weighted average of financial aspect and human aspect score of

the banks.

Overall Performance = w1*Financial Aspect + w2*Human Aspect

Financial Aspect: Financial aspect of the banks has been measured through multiple

regression equation derived from the analysis done in the Table 4.2.

Y = -1.603 + 0.021*LQ + 0.245*PR + 0.119*EFF + -0.356*AQ + 0.082*CA

Human Aspect: Human Aspect has been measured using the following equation:

Human Aspect = w3*Customer Satisfaction + w4*Employee Satisfaction +

w5*Corporate Social Responsibility.

The weight w1, w2, w3, w4, and w5 are relative importance of these criterions from

the AHP model. Where w1 = 0.475765, w2 = 0.524235, w3 =0.242216, w4 =

0.1248160 and w5 =0.632968.

Customer Satisfaction (CS) = Customer satisfaction score has been calculated as the

mean of overall satisfaction of total number of respondents for each bank.

Employee Satisfaction (ES) = Employee satisfaction score has been calculated as the

mean of overall satisfaction of total number of respondent employees for each bank.

Corporate Social Responsibility (CSR): The CSR variable has been measured as the

mean value of CSR score of the banks for the period 2009-10 to 2011-12. The CSR

score of the banks for each year has been calculated by adding up the score of nine

variables used for measuring the CSR.

CSR = RBE + PSL + EP + CW + WW + FW + NI + FL + EDU

Where; RBE is the Rural Branch Expansion, measured as the number of branches in

rural areas of a particular bank, PSL is the Priority Sector lending ratio of advances

made to priority sector to total advances by a bank, EP is the number of Environment

Protection activities done by a bank, CW is the number of Community Welfare

activities done by a bank, WW is the number of activities done by a bank for women

and girl child welfare, FW is the number of activities done by a bank for farmers

welfare, NI is the number of new initiatives related to CSR activities taken by a bank

in the year in which CSR is being measured, FL is the number of efforts made for

promoting financial literacy and EDU is the number of activities done by a bank for

promotion of education in society.

Table 4.7 reveals the overall performance of the banks along with individuals score of

financial aspect, human aspect and three variables under human aspect; corporate
social responsibility, customer satisfaction and employee satisfaction. It can be

interpreted from the table, that overall performance score of the banks is ranging from

3.46 (minimum) to 8.05 (maximum) with an average score 5.75. The maximum score

is achieved by the Punjab National Bank while the minimum score is recorded for

YES bank. Only six banks have shown overall performance above the average score

among which three banks are public sector banks and three are private sector banks.

None of the foreign bank has achieved the overall performance score above the

average score for overall performance of the banks.

On the basis of performance scores calculated in Table 4.8, the banks have been

classified into three categories, high performers, medium performers and low

performers. The banks with Overall performance score 5.5 and above have placed in

The banks with overall performance score 4.5 and above have been placed in the

medium performers category and the remaining banks with lower scores have been

kept in the low performers category.

5. FINDINGS AND CONCLUSIONS

This section discusses the major findings from the data analysis, conclusions derived

from the study, limitations and further scope of the study.

5.1 MAJOR FINDINGS

The following are the empirical findings from the data analysis chapter.

1. The analysis of financial parameters in the study revealed that Return on assets

ratio is positively related to liquidity, profitability and capital adequacy ratio while it

is negativelyrelated to the asset quality variable.

2. On the study of customer satisfaction it is found that Convenience & Excellence,

Banks Workforce and Banks Physical Environment are the three main factors which

lead to customer satisfaction in commercial banks of India. These factors are

positively and significantly related to Overall customer satisfaction.

3. An analysis of employee satisfaction in banks revealed that the job-specific factors,

management behavior, working environment, training & development opportunities,

interpersonal relationship and compensation & other benefits are the six factors which

lead to employee satisfaction in commercial banks. All these factors have a positive

and significant relationship with the overall employee satisfaction in Indian

commercial banks.

4. It is derived from the study that there is no difference in the satisfaction level of

customers and satisfaction level of employee on the basis of location of bank

branches in different geographical regions.

5. From the study it has been found that there is a significant difference in the

satisfaction level of customers and satisfaction level of employee on the basis of

ownership structures of the banks.

6. The comparative analysis of the public, private and foreign banks on the basis of

overall customer satisfaction shows that public banks are on top position in terms of

customer satisfaction except the tangibility factors such as ambience, infrastructure,

hygiene etc. The comparative analysis of the public, private and foreign banks on the

basis of overallemployee satisfaction shows that foreign banks are leading in

employees of foreign banks are more satisfied with the job design, status, autonomy

and independence while doing routine works, authority and responsibility and

flexibility to balance life and work issues, compensation and other financial benefits;

except job security. Public banks are leading in management behaviour factor and

working environment factor while private sector banks are leading in training and

development opportunities factor and interpersonal relationship factor.

7. The study shows that there is a significant difference in the satisfaction level of

customers belonging to different age groups, different occupations and having

different annual income. However, there is no significant difference in the satisfaction

level of the customers due to the gender difference and due to the difference in their

educational qualification.

8. The analysis reveals the fact that there is a significant difference in the satisfaction

level of the employees belonging to different age group and different job tenure while

there is no difference in the satisfaction level of the employees due to the gender

difference.

9. On the basis of analysis of the corporate social responsibility in India commercial

has been found that public banks are leading in CSR score while foreign banks are far

behindfrom both the public and private banks in CSR score. It is also found that

banks are performing well related to the community welfare activities while lowest

performance of banks is recorded for the CSR activities related to women welfare.

10. The human aspects have been found to be more important than financial aspect.

Among three dimensions of human aspect i.e. corporate social responsibility,

customer satisfaction and employee satisfaction; corporate social responsibility of the

bank is found to be more important than customer satisfaction and employee

satisfaction. On comparing customer satisfaction and employee satisfaction the

customer satisfaction has been found to be more important than employee satisfaction

in the banks.

5.2 CONCLUSION
In financial service sector, particularly in banking activities, globalization increased

managements need for performance measurement. In this context, this study puts

forth a comprehensive model proposal for the performance evaluation of the banking

system whose effective and productive performance is measured by using financial

and non-financial performance criteria. The performance criteria have been

determined via the developed model and the performance of Indian commercial banks

has been analyzed within the scope of the model. From the analysis it is clear that

human aspect is more important than financial aspect in banks. The banks which are

performing well in three dimensions of human aspect i.e. corporate social

responsibility, customer satisfaction and employee satisfaction are found to be overall

good performers.

5.3 LIMITATIONS

The research suffers from the following limitations:

Geographical scope of the study is limited to urban areas only.

The sample size for primary study is three thousand customers and three

thousand employees of the banks, which is of course small in comparison to

population of customers and employees nationwide.

There can be many interpretations and explanations to the data collected. This

is an empirical study and the research provides the explanation as understood

by the researcher onlu

The secondary data is collected for the period 2009-10 to 2011-12 therefore

more evidence may be needed to generalize the results.

5.4 SCOPE FOR FURTHER RESEARCH

Since the current study is limited to data collected from urban areas only, the study

can be extended to rural areas also. The further scope of the study is that a

comparison between the Indian banks and banks of foreign countries can also be done

using same conceptual model. The time period of collecting secondary data can be

extended from 3 years to 5 years or more.

REFERENCES

[1] Ahluvaliya, Montek S., Economic Reforms in India since 1991, has Gradualism

Worked, Journal of Economic Perspective, vol.16, no.3, pp. 67-88, 2002. [2] Jain,

T.R. and Khanna, O.P., Macroeconomics (Money, Banking and Public Finance),

V.K. Global Publication, New Delhi, pp. 344-345, 2011. [3] Suriyamurthi, S.,

Karthik, R. and Mahalakshmi, V., Global Practices of Financial Services with

Reference to Banking in India, Advances in Management, vol.5, no.2, pp. 24-28,

February 2012. [4] Dwivedi, Amit and Charyulu, Kumara, D., Efficiency of Indian

Banking Industry in the Post-Reform Era, Working Paper No. 2011-03-01, pp. 1-15,

Indian Institute of Management, Ahmedabad, March 2011.[5] Pandey, I.M.,

Balanced Scorecard: Myth and Reality, Vikalpa, vol.30, no.1, pp. 51-66, January-

March 2005.
BIBLOGRAPHY

https://en.wikipedia.org/wiki/Bank

http://www.factmonster.com/ipka/A0801059.html

http://www.localhistories.org/banking.html

https://www.pwc.com/gx/en/financial-services/publications/assets/pwc

http://bankinnovation.net/
QUESSTIONREE
 Questionnaire Name -

_____________________________________

Occupation-_________________________________

Contact Detail -_______________________________.

1. On which bank you depend for your regular transaction?

1. Public 2. Private 3. co.oprative 4. Specify (_____________)

2. Are you aware of products & services provided by banks?

1. YES 2. NO

3. Which loan product of bank you have used?

1. Home Loan 2. Education Loan 3. Car Loan 4. Personal Loan

5. Other Loans

4. What do you feel about the services providing by banks in advance product?

1. Bad 2. Satisfactory 3. Good 4. Excellent

5.Which bank you prefer for taking loans?

1 public 2 private 3. Co.oprative 4.Specify (_____________).

6. which account would you prefer for saving your money?

1. saving deposit account 2. Fixed deposit account 3. Recurring deposite account

7. Have you ever done foreign trade in any of the bank?

1. Yes 2. no

8. Are you aware about the ATM (automatic tailor machine)?

1. Yes 2. No

9. Are you aware about the basic types of account given by commercial banks?

1. Yes 2. No

10. Any suggestion you want to give for the betterment of banking services..?

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

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