A STUDY ON CUSTOMER RELATIONSHIP MANAGEMENT IN BANKING SECTOR

WITH SPECIAL REFERENCE TO DHARMAPURI

INTRODUCTION

Many companies are turning to customer relationship management systems to better

understand customer wants and needs. CRM applications often used in combination with data
warehousing e-commerce application and call-centre, which allows companies to assess
information about customers buying history, preferences, complaints and other data so they can
better anticipate what customer will want. The goal is to instil greater customer loyalty.

Other benefits include:

The ability to provide faster response to customer inquiries.

Increase efficiency through automation.
Having a deeper knowledge of customers.
Getting more marketing of cross selling opportunities.
Identifying the most profitable customers.
Receiving the customer feedback that leads to new and improved product and services.
Doing One to One marketing.
Why now?

What makes CRM appropriate for todays environment? While there are many number of
environmental factors and business advancement that impact and enable the real importance for
CRM in todays environment is competitive and differentiation. CRM promises to be competitive
and differentiation in todays environment.

Organization today is finding it difficult to compete on the basis of product. Technology

advancement has enabled the near immediate replication of product features and functions. It is
just a matter of weeks between a product launch and saturation of the market. Just think about it,
are there many products out there that are truly unique?

Price, which has traditionally been another basis of competitive differentiation, is no longer a
means for many to compete. Complex channel networks have caused parity pricing.
Promotion strategies have similarly lessened as a means of differentiation. Clubs abound, special
offer are the norm, and sales are continual. Place of distribution has likewise become less
influential in the success or failure of a business. The Internet has created an avenue for even the
smallest business to compete.

While all these factors are still important, none of them can alone support the success of most
business. CRM the ability to provide a more meaningful sales and service experience promises
to be means of differentiating, of providing customers with a reason to frequent your business
rather than that of your competitors.

Ownership of customer relationship provides exponentially greater rewards than differences in

product, price, promotion or place of distribution could ever offer. All of these factors can even
be mitigated if you can serve as the one stop provider that can identify, quantify, and service
customers need.

Effective CRM starts by focusing on the development of business strategies and by aligning an
organization to serve customers. These business strategies are then executed using CRM
technology solutions. The most successful business strategies are developed only after an
organization learns about customers behavior patterns and attitudes. Behavior studies
show what products or services have been purchased in the past and what products or services
are currently being bought.

Customer relationship management (CRM) is developing into a major element of corporate

strategy for many organizations. CRM, also known by other terms such as relationship marketing
and customer management, is concerned with creation, development and enhancement of
individualized customer relationships with carefully targeted customers and customer groups
resulting in maximizing their customer life time value.

A new form of cross-functional marketing, i.e. CRM is replacing narrow functionally based
traditional marketing. The traditional approach marketing has been continuously questioned in
recent years. This approach emphasized on the management of the key marketing mix elements
such as product, price, promotion, and place within the functional context of the marketing
department.
The new CRM approach, while recognizing these key elements still need to be addressed, reflect
the need to create an integrated cross functional which focus on marketing one which
emphasizes keeping as well as winning customers. Thus the focus is shifting from customer
acquisition to customer retention and ensuring the appropriate amount of time, money and
managerial resources are directed towards these tasks.

The adoption of CRM is being filled by a recognition that long-term relationship with customers
is one of the most important assets of the organization and that information enabled systems
must be developed that will give them customer ownership. Successful ownership will create
competitive advantage, which result in improved customer retention and profitability for the
company.

INCORPORATING CUSTOMER RELATIONSHIP MANAGEMENT

Businesses today are continually looking for ways to achieve a competitive advantage. Margins
are shrinking, competition is increasing and industries are consolidating. While customer
expectation intensify for quality, service and delivery, businesses are reducing staff and the same
time searching for ways to arm employees with information to make better decisions and
innovate.

Customer is the most important asset in businesses. Consequently, applying some management
resources to improve the customers experience and maximize the profit, potential of that asset is
important. The concept of CRM as a strategy reflects the business process and technology that
can be combined to optimize revenue, profitability and customer royalty.

The CRM market is evolving rapidly and is one of the fastest growing market segments in
application software .CRM has captured the mind share of senior executives across a variety of
industries.

With a rapid growth of E-customer applications and the increasing need to sell to and support
customers through Internet, CRM solutions must provide a focal point for all the customers-
facing activities across the channels.

The effective use of CRM principles requires a three-pronged approach. First, all CRM efforts
should begin with a well-defined strategy. Second, an infrastructure must be developed to
achieve appropriate objectives. Specifically, the infrastructure should align product and sales
goals to meet customer needs, according to their preferences, in the most cost-efficient manner.
Third, continuous analytic intelligence should be used to determine and modify customer
interaction.

In addition to the above approach, implementing CRM involves collecting and reviewing the
most relevant customer data. Relevant customer data can uncover needed information about
behavior patterns and attitudes. Once identified, the customer data should be incorporated into
the infrastructure so that effective marketing plans can be developed. The execution of marketing
plans is driven both by analytic insights obtained about customers and by any existing marketing
communication plans. After appropriate customer data analysis and marketing plan development
is complete, the multi-channel customer contact strategies can be implemented within the CRM
technology infrastructure.

CUSTOMER EQUITY DURING DIFFERENT ECONOMIC CYCLES

Customer relationships are an important company asset. A firm can use this customer equity to
improve its growth and profitability prospects during economic downturns and upturns. Just as a
squirrel buries nuts in anticipation of winter, a smart business will build customer equity during
good times in order to produce more business during bad times. Companies should know who
their Most Valuable Customers (MVCs) are. More resources should be used to market relevant
products and services to these MVCs while fewer resources should be expended on unprofitable
customers. The goal is to make the right offer to the right customer at the right time. Such
customer knowledge can immediately and significantly reduce total cost while, at the same time,
increase sales with individual customers. This strategy enables an organization to anticipate
greater returns from its campaigns, a reduction in costs, an increase in conversion rates, and more
one-to-one communication initiatives.

The Picket Fence strategy can be used to isolate the firms MVCs from the broader customer
base. For each customer behind the picket fence, there is a particular objective and a strategy for
achieving that objective by the management team.

In an upturn economy, business strategies should involve growth. This includes acquiring new
customers and increasing the number of current customers. In a downturn economy, business
strategies should involve harvesting. Harvesting implies that an organization gets the most from
every existing relationship by selling more to current customers. The concept of harvesting is
sometimes referred to as cheap growth.

PRODUCT VERSUS CUSTOMER-CENTRIC BUSINESS STRATEGY

Traditionally, banking and financial organizations are organized around product-centred and
function-centred models rather than a customer-centred model. By becoming truly customer-
centred, a bank or financial organization can achieve the following benefits:

Higher returns on invested capital

More profitable customers

Lower capital costs (due to the consistency of financial results that comes from those long-
term, carefully managed customer relationships)

Larger investment opportunities (due to their understanding of customer finances and unmet
needs).

SMART CUSTOMER EQUITY ASSET MANAGEMENT DATA INFRASTRUCTURE

Many components play a pivotal role in the management of the customer asset base, especially
now, with complex business environments and fierce global competition. Two of the most
important components include effectively serving the existing MVC base and growing the MVC
base.

BUILDING CUSTOMER INFORMATION SYSTEMS

Almost every major bank or financial organization that has been in business for the last a few
decades has typical account servicing legacy systems. These systems facilitate account opening,
balance maintenance, and support a monthly or periodic statementgenerating process. However,
these legacy systems lack the capabilities to manage and grow MVCs because their sole
objective is to service the transaction activity of an account. Building an intelligent Customer
Information System (CIS) is the fundamental first step required to manage customer equity in
this scenario.
The focus of the CIS should be to collect, store, and maintain the following types of information
on the customers in a data warehouse:

Customer or Household Identification (name, phone, address, title, company name)

Rating (size, value level, or profitability contribution)

Background (demographic, lifestyle characteristics)

Communication Record (contact with company, participation in marketing programs, types of

information or services required, channels of contact, requests for information, complaint
frequency or recency)

Purchase Behaviour (recency, frequency, monetary value)

Credit-worthiness

Performance Ratings or Credit Scoring, and History (performance evaluation, loyalty, and
likelihood to refer the company to others)

Customer Survey Data Collection

The next generation of advanced CIS is called a Knowledge Discovery Database (KDD). Instead
of mining layers upon layers of customer transactional and lifestyle data for knowledge nuggets,
KDDs establish a set of flexible knowledge-required algorithms.

The available data is then searched to find any exceptions. 2

Any good CIS or KDD must be able to provide the launching pad to evaluate, classify, acquire,
grow, and support the efficient servicing capabilities of customer equity asset management
activities.

CHALLENGES TO IMPLEMENTING CUSTOMER EQUITY ASSET MANAGEMENT

The following key challenges face those that try to implement customer equity asset
management:
 Limited Scope: Many existing CIS tools are very limited in scope, and do not support customer
equity management.

Complex Technology: Technology solutions sold by vendors have become very complex to use,
expensive to maintain, and contain irrelevant information for data mining.

No Pertinent Data: Most of the existing data warehouses lack information on recency,
frequency, and monetary values. They also offer information that is insufficient for supporting
predictive modelling and predictive scoring.

Extended Time to Market: The addition of new capabilities to existing data warehouses is cost
prohibitive and takes a long time to bring into production stage capabilities (or even to catch up
with the fast-changing dynamic nature of the market place).

Multi-Vendor Tools and Capabilities: Over the years, many major financial organizations have
developed data warehouses by purchasing diverse sets of software tools and then building data
warehouses in-house. For example, Data Quality and Cleansing tools, Extract Transform Load
(ETL) tools, database management and storage tools, data mining, and campaign management
solutions from various vendors. 3

Overburdened Internal Information Technology Organization: Information technology

organizations have had to employ individuals who have specialized vendor product skill sets to
support multi-vendor tools. This can increase organizational expenses significantly.

CRM IN NEW AGE BANKING

Banks Become Customer-Centric

The post-liberalized banking sector in India has been witnessing spectacular changes. The major
reasons for the recent radical changes in banking industrys portfolio are competition,
consolidation, information technology and the need to be customer-centric. Banks could improve
the profitability by adopting strategies like market segmentation, innovation, price bundling and
relationship. Technology has a major role to play in retail banking, but its role is complementary
to customer service initiatives.
Due to increased financial market products like commercial paper and variety of financial
instruments, big corporate clientele of several commercial banks have shifted their loyalty, and
have been raising resources from the market directly and commercial banks have become more
retail customer-centric by offering wide range of services. Banks have identified new customer
segments like students, workingwomen, and high rich net worth individuals.

In the era of cut throat competition globally as well as locally, Data Mining is used by almost all
the proactive corporations and organizations to build and manage customer relationships. Data
Mining helps to retain the customers by understanding and fulfilling their needs proactively and
thus delighting them in the long run. Earlier it was very difficult to understand and manage the
data. But now with the usage of CRM Software from companies like SAP, Siebel, Oracle,
Amdocs and others; many companies are utilizing the benefits of enhancing customer loyalty
through Customer Relationship Management. In the banking sector in India, New Age Private
Banks like ICICI Bank, HDFC Bank, Axis Bank are at the forefront of utilizing the data mining
techniques to enhance the customer relationship.

Data Mining

Data mining is the principle of sorting through large amounts of data and picking out relevant
information. It is usually used by business intelligence organizations, and financial analysts, but
it is increasingly used in the sciences to extract information from the enormous data sets
generated by modern experimental and observational methods. The Internet and technology
opens up a wealth of information 24 hours a day, seven days a week, thereby heightening the
transparency of the markets. Customers use the Internet to quickly shop around and see what
competitors can provide. As a consequence, the attention span of customers has decreased, and
customer loyalty is subject to new laws. Customers are looking beyond products to assess
whether the overall solution you provide addresses their individual needs and priorities.

Technology has also paved the way for a new dimension of customer relationship management.
The falling costs for computing power and the arrival of new software tools for capturing and
analyzing mass data have provided the main thrust behind the increase in importance of
analytical solutions in general. Powerful hardware and software give better ways than ever
before to understand and leverage customer relationships. Data mining is one of the technologies
which provide analytical ability to the organizations for leveraging on customer relationships and
thus customer loyalty and this paper analyzes the potential of data mining for building and
managing better relationships. (META, 2007)

Data Mining uses a variety of techniques to find hidden patterns and relationships in large pools
of data and infer rules from them that can be used to predict future behavior and guide decision
making. To use data mining effectively for managing customer relationships the data must be
categorized in some manner if it is to be accessed, reused, organized, or synthesized to build a
picture of the organization's competitive environment or solve a specific business problem
(Pearlson, 2001, p.196).

Customer relationship Management form a learning relationships with the customers by noticing
their needs with the use of online transaction processing i.e. operational CRM, remember their
preferences with the use of Decision support Data warehouses and learn how to serve them with
the use of Data mining. There may be number of channels by which company interfaces with its
customers for example direct mail, Email, telemarketing etc. Analytical CRM (Laudon, 2006)
includes applications that analyze customer data generated by operational CRM applications to
provide information for improving business performance management. For example, its use in
developing customer profiles, analyzing customer profitability etc.

Data Mining is defined as exploration and analysis of large quantities of data by automatic or
semi-automatic means to discover meaningful patterns and rules and these patterns allow a
company to better understand its customers, improve its marketing, sales, and customer support
operations. (Berry and Linoff, 1997) The process of extracting hidden key information from a
large pool of available data is data mining.

Advanced statistical tools are used in data mining to understand current behaviour and to predict
future behavioural patterns. Mathematics, genetics, cybernetics and other fields of research make
extensive use of data mining. In CRM, Web mining (pertaining to Web-related information) is
used to gain insights into customer behavior. Interesting little poll over on KD Nuggets today -
readers were asked where they had applied data mining in the last 12 months. The top 5 were
CRM (26.1% of respondents), Banking (23.9%), Direct Marketing/ Fundraising (20.3%),
Science (18.8%) and Fraud Detection (18.8%).
Customer Relationship Management

CRM can be defined as the process of predicting customer behavior and selecting actions to
influence that behavior to benefit the company (Jenkins, 1999), usually leveraging on
information technology and database-related tools.

CRM initiatives usually seek to fulfill several objectives. One of the objectives is to get closer to
the customer by utilizing the data "hidden" in scattered enterprise databases. Examining and
analyzing the data can turn raw data into valuable information about customer's needs. By
predicting customer needs in advance, businesses can then market the right products to the right
segments at the right time through the right delivery channels. Customer satisfaction can also be
improved through more effective marketing. Another objective of the CRM initiative is to
transform the company into customer-centric organizations with a greater focus on customer
profitability as compared to line profitability. The insights gained from CRM enable companies
to calculate or estimate the profitability of individual accounts. Other CRM objectives include
increased crossselling possibilities, better lead management, better customer response and
improved customer loyalty (Chin, 2000).

NEED FOR THE STUDY

The idea of CRM is that it helps businesses use technology and human resources to gain insight
into the behavior of customers and the value of those customers. With an effective CRM strategy,
a business can increase revenues by:

providing services and products that are exactly what your customers want

offering better customer service

cross selling products more effect ively
helping sales staff close deals faster

retaining existing customers and discovering new ones

STATEMENT OF THE PROBLEM

Banking sector has always been the focus of society due to its essential role in the finance
world and the wellbeing of worlds economy. In the banking field a unique Relationship exists
between the customers and the bank. But because of various reasons and apprehensions like
financial burdens, risk of failure, marketing inertia etc., many banks are still following the
traditional ways of marketing and only few banks are making attempts to adapt CRM. It is with
this background, the researcher has made a modest attempt towards the idea that CRM can be
adapted uniformly in the banking industry for betterment of Banking Services. Particularly in
banking sector, the role of CRM is very vital in leading the banks towards highlevel and volume
of profits. So there is a need to study the role of CRM in development and promotion of banking
sector through the sidelines of the practices, problems and impact of the CRM on banking sector
all the time.

NEED OF THE STUDY:

Today, for any organization or firm to survive in this competitive world depends on its
ability to be dynamic and be different from the competition to be unique in the industry.
Customer satisfaction helps every organization to keep the existing customer and to build new
customer. The purpose of this study is to study whether customer relationship management
policies followed by the banks cater to the needs of the clients or not. Whether the clients are
happy with the services provided by the banks.

OBJECTIVES OF STUDY

1. To study and understand the concept of CRM.

2. To study the CRM Practices in Banking Sector in India.

3. To examine the importance of CRM in banking sector.

4. To study the Benefits of CRM context in Banking Sector.

RESEARCH METHODOLOGY

Research methodology is a purely and simply the framework or a plans for the study that
guides the collection and analysis of data. Research is the scientific way to solve the problems
and its increasingly used to improve market potential. This involves exploring the possible
methods, one by one, and arriving at the best solution, considering the resources at the disposal
of research.

RESEARCH DESIGN

A research design is the specification of methods and procedure for acquiring the
information needed. It is the over all operation patterns or framework of the project that
stipulates what information is to be collected from which source by what procedure it is also the
blue print of the research process.

DESCRIPTIVE RESEARCH

Descriptive research design was used in this study. It includes survey and fact finding
enquiries of different kinds. Descriptive research, also known as statistical research, describes
data and characteristics about the population or phenomenon being studied. Descriptive research
answers the questions who, what, where, when, "why" and how...

SOURCE OF DATA

A well set of questions were prepared for the interview schedule. The interview schedule
was the main source of data, i.e. primary data & secondary data. A simple random sampling
conducted based on the information received; the schedules were administrated to the
respondent.

SAMPLING METHOD
 The researcher has adopted Probability sampling technique in this survey. The sampling
method is simple random sampling. Simple random sampling refers to the collection of
information randomly from members of the large population to prove the research.

SAMPLE SIZE DETERMINATION

Sample size restricted as the set of the sample is one organization. This sample
Size was determined as 100 as it is selected randomly in the organization.

TOOLS USED FOR STUDY

Collected data were tabulated for this study. Statistical tool used for analysis is
percentage method, Chi Square.

PERCENTAGE ANALYSIS

Percentage Analysis is a simple method that converts the whole data to an answer against
hundred. The Formula used is as follows:

No of respondents * 100 / total no of Respondents

CHI-SQUARE

Chi-Square Test is a useful measure of comparing experimentally obtained results with

those expected theoretically and based on hypothesis that provides a set of theoretical
frequencies with which observed frequencies are compared. The measure of chi-square enable us
to find out the degree of discrepancy between observed discrepancy so obtained between
observed frequencies and theoretical frequencies is due to error of sampling or due to change.

CHI-Square = (Oi-Ei) / Ei

SCOPE OF THE STUDY:

The study is about customer awareness and satisfaction about CRM software used by the
banks. The study will be useful for the banks to know about the usage or CRM and the
awareness and satisfaction level of the customers where the banks can modify according to the
result.
LIMITATIONS OF THE STUDY:

During the project following limitations where known:

The area was large and it was not possible to deal with each and every customers.

Time was the major constraint as I have only two months and the area is very vast .Even
though I have put up the best of my efforts to cover all the areas given to me.

Many of the customers where not cooperative when they are asked give few minutes.
To convince the people for a proper interviewing process is also difficult.

REVIEW OF LITERATURE

M.Jisha & Dr. C. R. Karpagam(2016), The main objective of the study is to study the
customer relationship Management practice that is implemented at customer level and to know
the satisfaction level of the customers towards CRM practices. For this purpose a sample of 150
respondents were collected from the respondents and the conclusion is that the study report can
be used as a supplementary factor to know about the perception of customers about software and
many of the customers are not aware of the software if the company arranges for a work shop on
software usage then it can used by every customers where the client database can be maintained
easily.

Dr.Archana Mathur (2008) in her article Customer Service in Public Sector Banks: A
Comparative Study studied the problems faced by customers with regard to delayed service,
lack of proper guidance and customer discrimination made by bank staff. She suggests that the
banks could solve all such problems if they go in for automation, and the discrepancies made by
bank staff could be reduced to a great extent.

Reichheld and Sasser (2010) recognized the benefits that customer satisfaction provides
by the retention of customers of a bank. They advocated that the longer a customer stays with a
bank, the more utility the customer generates. This is based on a number of factors that relate to
the amount of time a customer spends with the bank. These include high preliminary cost of
introducing and attracting a new customer, increase in both value and amount of purchases,
customer better understands of the bank, and positive word-of-mouth promotion.

Biswa N.Bhattacharya (2011) found out the reason for the poor quality of customer
service in banks. The result showed that more than fifty per cent of the customers who made
complaints cited inefficient service as the main cause. The delay in encashment of cheque was
the next reason for customer complaints. The study pointed out that there was considerable delay
in the service rendered which resulted in total dissatisfaction among customers.

Dilshath (2012) studied the extent of customer satisfaction with regard to the service
rendered by the nationalized banks. She found that customers were not satisfied at the cash
counter due to long time taken for drawing money. Customers were also dissatisfied because
certain services like investment advice and tax advice were not given to them and borrowers
were dissatisfied due to cumbersome procedural formalities in getting loans sanctioned.

Ranganathan (2014) stated that there had been deterioration ratio in the services offered
by banks. He suggested that there should be an enquiry window in each bank manned by a staff
well-versed in banking routine and having abundant human qualities. Training courses should be
organized for the bank officials to train them in matters relating to dealing with customer and
development of customer relationship and computerization of transactions should be done to
render better services to the customers.

Blanchard and Galloway (2014) analysed the data using the SERVQUAL classification
and link this to staff perceptions using the gap model. The data were collected with the help of
questionnaire from 439 current/deposit account customers of the bank. Respondents were
recruited outside a quota sample of 71 bank branches and interviewed at home. 401 valid replies
were analysed. The implications of the findings for retail banking are clear. Customers
overwhelmingly consider the process elements of the service when evaluating quality. They are
seeking a responsive service with a high level of assurance. One that gives an impression of
competence and credibility, one that can be trusted. They suggest that although interpersonal and
subjective issues are important, and a proper balance of attention in designing and monitoring is
necessary, addressing the hard and objective issues could more readily provide, monitor, a high
quality service in a fairly prescriptive and reproducible manner. It is also suggested that the use
of these three dimensions to analyse customer perceptions can direct the service designer's
attention to those areas which are important for a good quality service and identify their relative
importance and ease of attainment.

Combs Howard, W and Bourne S. Graham (2015) conducted a study on the title
Preparing Retail Banking for a Competitive Environment. Two questionnaires were designed
to be distributed to bank managers and bank employees. One hundred and two management
responses and ninety-eight employee responses were collected from seventy-three banks polled
within the area of the Mid-Atlantic region. Management responses consisted primarily of branch
and assistant branch managers, and employee responses consisted of loan officers, tellers, and
customer service representatives. Managers were asked to rank a list of eight skills on their
importance for success in retail banking. The skills listed were financial, accounting, listening,
computer, selling, verbal,

writing, and interpersonal.

N.Hallowell (2016) in his study The Relationships of Customer Satisfaction, Customer

Loyalty and Profitability: An Empirical Study looked into the relationship between customer
satisfaction and loyalty. The study concluded that satisfaction with the service and satisfaction
with price were the elements in the overall satisfaction measurement. The measurements used in
the above mentioned study were reasonably all-inclusive. The findings of the study emphasize
that the service features of branch, staff and information are the dominant factors. He concluded
that all the elements measured had a bearing on overall satisfaction.

Levesque and McDougall (2016) explored the consequences of service quality, service
features and customer complaint handling on customer satisfaction in the Canadian retail
banking sector. Based on their empirical analysis, they have concluded that the determinants of
satisfaction in retail banking are driven by a number of factors which also include service quality
dimensions. The service providers offering could be expected to affect overall customer
satisfaction and had a strong bearing upon ongoing patronage. The study concluded that the
banks features, the competitiveness of the banks interest rates, the customers judgments about
the bank employees skills lead to customer satisfaction.

Zeph Yun Chang, Joanne Chan and Siew Leng Leck (2007) analyzed customers
expectation about basic banking services and different levels of services to maximize the value
that could be derived from the banks. They found that the customers evaluate competing offers in
terms of the totality of the product and value-added service as well as the relationship that exists
between themselves and the bank. They suggested that in order to gain marketing advantage,
banks had to exceed customers expectations rather than merely meet the bare minimum and
succeed, a bank might distinguish itself from its competitors not just in the quality of the core
product but also in how it manages the service surround. Every interaction with a customer
provides an opportunity to be unique and to go beyond the call of duty.

OVERVIEW OF STUDY AREA

BANKING
Definition of banking

Banking in a traditional sense is the business of accepting deposits money from public for
the purpose of lending and investments. These deposits can have a distinct feature of being
withdrawal by cheques, which no other financial institution can offer. Dr. Paget in Law of
Banking states, No one and no body, corporate or otherwise, can be a banker who does not:

i. Conduct Current Accounts

ii. Pays cheques drawn on himself
iii. Collects cheques for his customers

Banking in India is fairly mature in terms of supply, product range and reach-even
through the reach in rural India still remain a challenge for the private sector and foreign banks.
In terms of quality of assets and capital adequacy, Indian banks are considered to have a clean,
strong and transparent balance sheet relative to other banks in comparable economics in its
region. The autonomous body (self-governing) has minimal pressure from the government. The
stated policy of the bank on Indian rupees is to manage volatility but without any fixed exchange
rate and this has mostly been true.

With the growth in Indian economy expected to be strong for quite some time especially
in its service sector the demand for banking services, especially retail banking, mortgages and
investment services are expected to be great. Without a sound and effective banking system in
India it cannot have a healthy economy. The banking system of India should not only be hassle
free but it should be able to meet new challenges posed by the technology and any other external
and internal factors. For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. In fact, Indian banking system
has reached even to the remote corners of the country. This is one of the main reasons of India's
growth process.

About RESERVE BANK OF INDIA

A central bank, reserve bank or monetary authority is the entity responsible for the
monetary policy of a country or a group of member of state. It prime responsibility is to maintain
the stability of national currency and money supply, but more active duties includes controlling
subsidize-loan, interest rates and acting as a lender or last resort to the banking sector during
financial crises. It could also have supervisory powers, to ensure that banks and other financial
institutions do not behave recklessly or fraudulently.

The RBI handles the cash reserves of other banks in the country. It acts as a "Bank of
Banks". It makes the transactions or transfers of money and payments occurring between the
banks much easier

FUNCTION OF RBI

The functions are classified into three heads, viz.,

A) Traditional functions
B) Promotional functions and
C) Supervisory functions. Lets see the detailed account in these heads.,
A) Traditional functions
1. Monopoly of currency notes issue
2.Agent and advisor to the Government
3.Custodian of the foreign exchange reserves
4. Maintaining the external value of domestic currency
5.Ensures the internal value of the currency
6.Publishes the Economic statistical data
7.Fight against economic crisis and ensure stability of Indian economy.
8. The banker to the Government of India and the State governments. It manages the public debt.
It undertakes to accept money on behalf of the Government and make payment on its behalf etc.

CURRENT SCENARIO

With the potential to become the fifth largest banking industry in the world by 2020 and third
largest by 2025 according to KPMG-CII report, Indias banking and financial sector is expanding
rapidly. The Indian Banking industry is currently worth Rs. 81 trillion (US $ 1.31 trillion) and
banks are now utilizing the latest technologies like internet and mobile devices to carry out
transactions and communicate with the masses.

The Indian banking sector consists of 26 public sector banks, 20 private sector banks and 43
foreign banks along with 61 regional rural banks (RRBs) and more than 90,000 credit
cooperatives.

Factors promoting growth of Banking and Financial Services

The Banking Laws (Amendment) Bill that was passed by the Parliament in 2012 allowed the
Reserve Bank of India (RBI) to make final guidelines on issuing new bank licenses. Moreover,
the role of the Indian Government in expanding the banking sector is noteworthy. It is expected
that the new guidelines issued by RBI will curb practices of impish borrowers and streamline the
loan system in the country. In the coming time, India could see a rise in the number of banks in
the country, a shift in the style of operation, which could also evolve by incorporating modern
technology in the industry.

Another emerging trend witnessed by the banking sector is the use of social media platform like
Facebook to attract customers. In September 2013 ICICI bank launched a Facebook bill payment
and fund transfer service called Pockets for customer convenience.

According to a report by Zinnov, a Globalization and Market Expansion firm, IT adoption in

BSFI sector in India, the Information Technology Industry spend in BFSI vertical is expected to
reach USD 3.5 billion by Financial Year 2014. The study also highlighted the growing maturity
of Indian BFSI organizations in IT adoption, as technology is seen as a driver of business value.
Technology firms have great potential to explore in the BFSI sector, which contributes to eight
per cent of India's Gross Domestic Product.

Life Insurance

The Indian life insurance industry is estimated to grow at a compounded annual growth rate
(CAGR) of 14.1 per cent, and reach US$ 111.9 billion in 2015 from US$ 66.5 billion in 2011,
according to a report by BRIC data. This would make India the third-largest market for life
insurance in the world by 2015. Indias present position is at number 12, among top global
markets for life insurance. Number of policies sold is expected to increase to 85.21 million in
2015 from 53.23 million in 2010. The 2014-15 Union Budget should exempt life insurance
products from taxation to provide investors an incentive to buy a policy. The insurance industry
can gain leverage from India's burgeoning population only by providing a special tax window for
life insurance policies.
Health Insurance

In the non-life insurance industry, health insurance is the second largest segment in India; with
players in both the public and private sectors playing an active role. The industry is concentrated
around 4 major public sector companies namely, New India Assurance, United India Insurance,
National Insurance and Oriental Insurance.

The Indian health insurance industry has seen major growth in the past 6 years. The Indian
health insurance industry is expected to grow at a CAGR of 37.2% from FY2011 - FY2016;
with surging medical costs, rising population and increased awareness among consumers in the
country.

Recruitment Trends in BSFI Industry

The Banking and Financial Services Industry is expected to recruit about 8.4 million people as
per the growth rate each year. BSFI workforce requirement between 2008 and 2022 is expected
to be about 4.2 million and sector may create up to 20 lakh new jobs in the next 5-10 years.

Advantaged by issuance of new licences and efforts being made by the RBI and the Government
to expand financial services into rural areas, the hiring trend may further get a boost from the
public sector banks. Since most banking workforce is scheduled to retire in the times to come,
they would be in dire need of fresh talent. According Randstad India, global HR service provider
in India, the banking sector will generate 7-10 lakh jobs in the coming decade and the sector
would be the among top job creators in 2016.
According to Human Resource and Skill Requirements in the Banking, Financial Services &
Insurance Sector (2022) report, apart from the on-rolls employment there is significant
contractual employment across all the above segments through various financial positions such
as Direct Selling Agents (DSAs), Insurance agents, Mutual Fund Advisors, etc.

Challenges in BFSI

The major challenge faced by the Indian Banking and Financial sector is that the level of
financial exclusion in India is alarming and there is an urgent need to find a plausible solution to
the same. The IBABCG survey of banks revealed that the level of confidence in finding
profitable solutions for financial inclusion is not very high. Financial inclusion has solely been
the responsibility of public banks up until now, but by using inclusive growth as one of the
criteria for new licences (new banks have to open 25 per cent of their branches in rural areas);
the RBI will have made the new private sector banks responsible as well. Currently, public sector
banks have more branches than any other bank group in the rural and semi-urban areas.

The banking and insurance industry is challenged by competitive pressures, changes in customer
loyalty, stringent regulatory environment and entry of new players, all of which are pressuring
the organizations to adopt new business models, streamline operations and improve processes.

Road Ahead

An IBA-FICCI-BCG report suggests that Indias gross domestic product (GDP) growth will
make the Indian banking industry the third largest in the world by 2025. According to the report,
the domestic banking industry is set for an exponential growth in coming years with its assets
size poised to touch USD 28,500 billion by the turn of the 2025. With the deposits growing at a
CAGR of 21.2 per cent (in terms of INR) in the period FY 0613, there has been evident growth
in the overall industry.
This growth can be attributed to banks shifting focus to client servicing. Public as well as private
sector banks are underlining the importance of technology infrastructure, in order to improve
customer experience and gain a competitive edge. Utilizing the popularity of internet and mobile
banking, banks are increasingly adopting an integrated approach for assetliability match, credit
and derivatives risk management.

CHALLENGES FACED BY BANKING SECTOR

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. The 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 withcompetit ive 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.