75 Chapter – III CUSTOMER SERVICES IN INDIAN BANKING SECTOR: A PARADIGM SHIFT 3.1. INTRODUCTION In the hypercompetitive banking environment it is viewed that prompt and efficient service with smile generally ensures long lasting customer relations, reduce complaints and enhance the volume of business. The most important requirement for financial institutions like commercial banks is to understand and anticipate customer’s needs. The key to successful attraction of customers will not only to have the knowledge of the customer’s needs but also the ferreting out of customer’s potential wants. Customer service is a dynamic, creative and interactive process where the banker and customers are actively involved in improving the process continuously. The bankers should be aware by keeping themselves at least one step ahead of the customers. With the advancement of information technology and communication system, the whole world has been reduced to a global village. He is aware of the fact of service level available around the world and thus expects the best from his bank (Rao, 2002). The entry of new generation Private Sector Banks and evolving technology has been changing the face of Indian banking industry. It is necessary for Public Sector Banks (PSBs) to adopt a standardized customer services code to remain competitive and profitable. The Goiporia committee set up by RBI in 1990 to study customer services in PSBs, has made suggestions to improve customer
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75
Chapter – III
CUSTOMER SERVICES IN INDIAN BANKING SECTOR: A PARADIGM SHIFT
3.1. INTRODUCTION
In the hypercompetitive banking environment it is viewed that prompt and
efficient service with smile generally ensures long lasting customer relations,
reduce complaints and enhance the volume of business. The most important
requirement for financial institutions like commercial banks is to understand and
anticipate customer’s needs. The key to successful attraction of customers will not
only to have the knowledge of the customer’s needs but also the ferreting out of
customer’s potential wants. Customer service is a dynamic, creative and
interactive process where the banker and customers are actively involved in
improving the process continuously. The bankers should be aware by keeping
themselves at least one step ahead of the customers. With the advancement of
information technology and communication system, the whole world has been
reduced to a global village. He is aware of the fact of service level available
around the world and thus expects the best from his bank (Rao, 2002). The entry
of new generation Private Sector Banks and evolving technology has been
changing the face of Indian banking industry. It is necessary for Public Sector
Banks (PSBs) to adopt a standardized customer services code to remain
competitive and profitable. The Goiporia committee set up by RBI in 1990 to
study customer services in PSBs, has made suggestions to improve customer
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services. The PSBs are still reluctant to adopt some of the suggestions, while
private banks are making every effort to delight their customers. He further
suggested that, PSBs should learn to retain the customers to remain in business
(Mohanty, 2006).
Customer service is a vital function in any walk of life and especially so in
business and service organizations like banks. Customers from their backbone and
taking care of their requirements are of paramount important. In banks, the role of
customer service needs to be hardly emphasized as it is what banking is all about.
Day in and day out banks deal with customers, be it the depositors or borrowers or
any one who walks into its portals for transacting any business. Banks have to
adopt innovative strategies to meet customer requirements in terms of services,
products etc. (Parthasarathi, 2006). Customer services in commercial banks are
facing many hurdles in the new era of deregulation and ever-increasing
competition. To fight these problems efficiently, banks should focus on customer
satisfaction. It can be achieved through providing customized products, innovative
ways of delivery etc. Apart from this, bank should prepare customer relationship
strategies that include bifurcation of business operations, effective management of
complaints, service as a brand etc. (Ratnam and Kumari, 2006). Customer service
is not only a crucial function, but becoming key posture for the business. It is the
next most business strategy. The improved customer service will definitely
increase the profitability. A bank can be said as customer oriented if its various
organizational activities like organizational restructuring, staffing and coordination
are geared up to fulfill customers need (Ambashta, 2000). Customer service is of
high standard and quality implemented through the use of modern technology. It
helps banks to succeed in the competitive world of retail banking in India. RBI has
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come out with broad guidelines by framing ‘fair Practices Code’ on lenders
‘liability’ to be implemented by all the banks to improve customer service.
Further, the biggest challenge banks face is the protection of privacy and dignity
of customers in the electronic age (Joshi, 2006).
3.2. OBJECTIVES OF THE CHAPTER
The objectives of the chapters are as follows:
To assess the customer service state of affairs in Indian banking sector over
the years.
To examine the impact of the advent of IT on banking sector in the context
of offering customer services in India.
3.3. METHODOLOGY
To assess the effectiveness of core customer services rendered by banking sector over
the years and to understand the impact of technological advancement on banking
sector in India, secondary data were collected from various publications of RBI. The
collected data were compiled and analyzed with the help of various statistical tools.
Here growth rate has been calculated using exponential function and linear growth
has been calculated using linear function. Percentage method is also adopted to find
out the growth or changes in the growth of various banking services.
3.4. PARADIGM SHIFT IN CUSTOMER SERVICES
Banking in India came into existence in the year 1786 with “The General Bank of
India” being the first bank. RBI came into being in 1935 and became the central
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banking authority in 1965. Banking Companies Act passed in 1949. Formation of
SBI took place in 1955. Nationalization of 14 major banks was done in 1969 and
further nationalization of 6 more banks took place in1980. Indian banking sector
has witnessed a paradigm shift in its operation with initiation of banking sector
reforms measures since 1991. The floodgate of economy was opened and
liberalization in the banking sector took place. Opening up of economy marked the
entry of private and foreign players with modern technology. It intensified the
competitive ambience. Quantity of banking products increased and the quality
become more sophisticated.
The changed operating environment underpinned by globalization, deregulation
and advances in information technology, has resulted in intense competitive
pressures in the sector. There has been a radical shift in the market power from
banks to their customers. Effectiveness and efficiency became the buzzword of
the success of banking operation particularly in respect of providing services to
the customers (Reddy et. al., 2000). There has been a paradigm shift in scope,
context, structure, functions and governance of banking. Indian banking industry,
today is in the midst of an IT revolution. The information and communication
technology revolution is radically and perceptibly changing the operational
environment of the banks. “Technology-driven” products and services have now
become common parlance in the corridors of the banking industry. Universal
banking, virtual banking, mergers and acquisitions are increasingly becoming the
order of the day. For customers, it is the realization of their “anywhere, anytime,
anyway, banking dream”. For the banks, technology has emerged as a strategic
resource for achieving higher efficiency, control of operations, productivity and
profitability. The recent trend shows that most banks are shifting from a
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‘product-centric model to a customer centric model’ as they develop their new e-
banking capability.
Customers are now demanding multiple channels through which they can interact
with their providers including face-to-face contract, phone, websites, e-mail,
mobile devices etc. These has forced the banking sector to explore new
distribution channels, so that ordinary customers have more information about
multiple banking products than even before. This is aimed not only to present the
customers from taking their business elsewhere but also to ensure that they are
offered the products and services that are most appropriate and most likely to
result in new revenue for the bank. There is phenomenal change towards customer
services over the past five decades (Tripathy, 2009).
Table – 3.1: Shift towards Customer Focus of Banking over the Decades
Decade Focus on Customer 1950-1960 Serving the customer 1960-1970 Satisfying the customer 1970-1990 Pleasing the customer 1990-2000 Delighting the customer
2000 and beyond Retaining the customer Source: Tripathy, N P (2009). Financial Services, New Delhi: PHI Learning Limited, Eastern Economic Edition.
Banking all over the world is undergoing significance change. In India too steps
are being taken to improve the banking system to suit the changing requirement of
the customers. According to Rangarajan (1998) ‘the Indian banking is at the start
of second banking revolution’. Economic and structural reforms on the basis of
Narasimhan Committee Report (1991) herald a new era in the economic history of
India. Nineties as a whole witnessed rapid changes in the Indian Banking scenario.
‘Anywhere banking’ and ‘anytime banking’ have become a reality in Indian
banking sector. At the time of nationalization, the primary importance was given
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to ‘more banking’. Now the thrust is to be upon ‘better banking’ than more
banking. Following table (table 3.2) depicts the qualitative shift of banks before
and after 1991.
Table – 3.2: Banking Scenario: Shifting Before and After Liberalization
Before 1991 After 1991 Seller's market Buyer's market Protected market Open market Not many global brands Increase in number of global brands Friendly competition Cut-throat competition Patient customers Demanding customers Non-awareness customers Awareness customers Limited choice for customers Multiple choice for customers Limited media promotion Extensive media promotion Cost plus pricing Competitive price cutting Limited customer services Increase customer services IT-competitive advantage IT-enabler Focus on new customer New and retaining existing customer Monologue Dialogue Transactional banking Relationship banking Product orientation Orientation to product innovation Short time scale Long time scale Little customer commitment High customer contact Quality is primarily the concern of a few Quality is the concern for all
Source: From Various Secondary Data.
Banks in India have traditionally offered mass banking products and services.
Most common deposit products are savings bank account, current account, term
deposit account and lending products being cash credit and term loans. Further,
remittance products are limited to issuance of drafts, telegraphic transfers,
banker’s cheque and internal transfer of funds etc. Other than the traditional
banking services like various types of accounts and loans, modern banks have
already introduced customized banking products like demat (dematerialized)
Growth@ has been calculated using exponential function; y = αebx, where, b=growth rate.Source: Report on Trend and Progress of Banking in India, Various Issues from 2002-03 to 2008-09.
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Further, advance to priority sector over the years increases by 0.171 per
cent. Compared to last decade (0.134) the present decade is experiencing
more growth (0.214 per cent), which is even higher than the average
growth rate than overall growth because of banking initiatives towards the
growth of agriculture, small-scale industries, small business finances,
educational and housing loans etc. As per the RBI's norms, banks need to
extend nearly 40% of their total adjusted net bank credit to the priority
sector. The bank has exceeded the 40% pre-determine lending to the
priority sector. Although there was a substantial increase in adjusted net
bank credit over the years, a matching growth in priority sector advances
has been registered to ensure the required share in overall lending.
There is a positive correlation between number of branch with deposit,
credit and investment i. e. total business of a bank. Further, there is a
positive correlation between number of employee with deposit, credit and
investment i. e. total business of a bank. But, there is negative correlation
between the numbers of bank branches with number of employees serving
customers in the bank (table – 3.5).
Table - 3.5: Correlation Metrics among Branch, Employee, and Total Business of Bank
Branch Employee Deposit Credit Investment Total Business Branch 1 Employee -.224 1 Deposit .557* -.129 1 Credit .338 .048 .341 1 Investment .154 -.302 -.205 -.439 1 Total Business .652* -.196 .743* .712* .063 1
*Correlation is significant at 0.05 level (2-Tailed). Source: Calculated From Primary Data.
The Correlation metrics is developed among branches, employee, deposit,
credit, investment and total business of commercial banks in India. From
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the above correlation matrix, we get the Pearson’s correlation coefficient
value for two tailed test at 5% level of significance. From the output, it can
be seen that correlation coefficient between Deposit and Branch, Total
Business and Branch, Total Business and Deposit, and Total Business and
credit are found to be highly correlated with 0.557, 0.652, 0.743 and 0.712
respectively. From these figures we can conclude that there is a strong
positive correlation between the above stated pairs. As far as progress of
banking in India is concerned, it also considers size of population per
branch, deposits per office, credit per office, per capita deposit, credit -
deposit ratio and investment – deposit ratio (table – 3.6).
Table – 3.6: Progress of Banking in India: At a Glance
Growth@ has been calculated using exponential function; y = αebx, Where, b=growth rate. (lin) growth has been calculated using linear function. Source: Various issues of RBI Bulletin and Trend and Progress Report of Banking in India, from 2000-01 to 2008-09.
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The average population served by a single bank branch changed from
14,000 in 2009 as compared with 15000 in 2008. The average population
served by a single bank branch remained unchanged at 14,000 as in 2009 as
compared with 1991.
Over the period of time commercial banks’ population has shown a
polynomial growth trend which is erratic in nature. Since 1991 to 2009 per
thousand population served by a single branch has not been changed
considerable. Number of customer served by the banks during 2003 to
2007 was higher (16000/branch) when actual technology adoption took
place and number of customer base increased in comparison to the number
of branch expansion. During 2008 and 2009 there is a further fall, means
the expansion of bank branches took place during 2008 and 2009 with a
view to offer better services to customers.
Deposits per branch have also exhibited an exponential pattern of growth.
Over the years during 1991 to 2009 the growth rate (0.148 per cent) is quite
healthy because of customers’ banking habits are changing. As a result of
implementation of policies for financial inclusion during present decade
(2001 to 2009) the deposits rate (0.156) has been increased more than the
last decade (0.146 per cent) and two decades.
Per capita deposits by banks are showing the increasing (0.158 per cent)
trend in the present decade during 2001-2009 which comparatively better
than previous decade (0.139 per cent) and two decades (0.144).
Credit per branch in the current decade (during 2001 to 2009) has been
improved a lot and the growth rate is (0.204 per cent) quite encouraging for
the customers as the amount of credit is in the increasing trend compared to
the last decade (0.136 per cent). It implies that the percentage of credit
availed by the customers is becoming more and more. Per branch
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disbursement of credit to customer increases means that banking
transactions are also at the exponential rate.
Per capita credit has also increased exponentially during this decade (0.205
per cent) which is very high compared to last decade (0.130 per cent)
which is very beneficial for the customer and a kind of positive attitude
towards customer services by the banks. It also means the increasing trend
of banking business over the years.
Statistics published by the Reserve Bank of India (RBI) show that the
incremental credit-deposit ratio has increased during 1992-2009 over the
previous year. Continuing the trend witnessed during 2008 (74.6 per cent),
CD ratio declined further to 73.9 per cent at the end-March 2009, reflecting
some deceleration in the overall credit growth. The credit-deposit (CD)
ratio of commercial banks touched a highest of 74.6 per cent in 2008.Credit
deposit ratio; an indicator of the health of banking system, of Indian
commercial banks was 60.6 percent during 1991, which is comparatively
lesser than in 2009. A declining CD ratio implies that banking sector was
flush with funds without any corresponding demand for credit affecting the
bank's profitability in the long run as they have to pay interest to depositors
without corresponding income from the credit outflow. The trend of
dipping credit-deposit (CD) ratio of commercial banks, experienced in
banking sector for the last several years, has undergone a transformation.
The year 2005-09 witnessed a definite reversal of the trend, with the CD
ratio recording a quantum jump.
3.5.1. Foreign Banks in India
In India, the presence of foreign banks dates back to the pre-independence period.
Established in 1858, Standard Chartered Bank is the oldest foreign bank in India.
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BNP Paribas and HSBC began their operations in 1860s. Since 1991, the entry of
foreign banks has been liberalized. The number of foreign banks in India increased
from 24 in 1990 to 41 in 2000 but their number declined to 32 in 2009 largely due
to mergers and acquisitions in the global banking industry. The number of
branches of foreign banks increased from 138 in 1990 to 207 in 2003 and further
to 277 in 2008. The foreign banks’ share in total banking assets also increased
from 5.6 per cent in 1990 to 8 per cent in 2008. In 2008, 30 foreign banks were
operating in India with a network of 277 branches and 765 off-site ATMs. These
banks originated from 21 countries. Besides, 41 foreign banks have also opened
representative offices in India.
As on June 2008, there were 30 foreign banks operating in India with a network of
279 branches and 765 off-site ATMs. Out of 279 branches, 227 (81.4 per cent)
were located in metropolitan areas, 50 (17.9 per cent) in urban areas and just 2 (0.7
per cent) in semi-urban areas. Year 2005 has shown maximum growth (21.26 per
cent) of bank branch over the year 2003 (11.29 per cent) and 2007 has exhibited
minimum expansion (3.81 per cent) over previous year.
Source: Uppal, R K and Rani, P (2010). Transformation in Indian Banks through Corporate Governance- Emerging Challenges and Strategies for New gateway. Prabandhan: Indian Journal of Management, August, 3(8), 3-4.
Further, they have highlighted the process of transformation, parameters of
transformation and in implications Indian banking sector (table-3.9). It gives a
clear picture about the paradigm shift taking place in banking service sector in
India over the years.
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Table - 3.9: Process of Transformation
Parameters of Transformation Process Implications
Structure, Business Re-engineering, Human Resource Development, Work Culture, Information Technology, System, process and procedure, Ethos/Philosophies
Information Technology as the
catalyst of transformation
Improved and efficient structure; Improved vision for business; Productivity, profitability and
efficiency has increased; Innovations are taking place;
International outlook; Inspired employees; More ethical work
culture; Vision for global economy.
Source: Uppal, R K and Rani, P (2010). Transformation in Indian Banks through Corporate Governance- Emerging Challenges and Strategies for New gateway. Prabandhan: Indian Journal of Management, August, 3(8), 3-4.
The overall banking size and structure has changed considerably. More
private players and multinational banks are establishing their base in India.
This sudden surge has necessitated the use of technology in offering better
services competitively. Most of the banks have coupled IT with their
offering to add value. Internet banking services have revolutionized the
functioning of the entire banking sector. Most of the bank’s businesses are
carried out with the help of electronic gadgets including computers. This
has resulted in the improvement of productivity and efficiency of the
industry and also the quality of services to consumers. The number of
customers who chose online banking as their preferred method of dealing
with their finances is growing rapidly. Cost of internet banking amounts to
a fraction of the cost incurred through alternative delivery channels.
Internet banking has not only increased the ease of banking transactions but
also reduced the amount of time and cost spent on these transactions
(Ramani, 2007).
The advances in information and telecommunication technologies (IT) over
the years have had a profound impact on the nature of banking and in the
way in that banks are organized. Indian banks are transformed themselves
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to customer centric and competitive branch seeing. The ATM enabled
services, electronic transfer system, tele-banking etc. benefit have changed
the service orientation of Indian banking sector. The services sector has
been fastest growing sector in the post liberalization period. Indian banking
is now changing its face (Aggrawal and Mehta, 2004). Impact of
technological advancement and information technology is conspicuously
found in the banking industry. The banking industry today depends on
information systems to make payments, transfer funds and manage
liquidity. These systems do the job with precision and reliability on a
massive scale. The financial services, e-commerce, micro billing, and self-
service banking are becoming the order of the day. Customers and
merchants today demand more flexible options from their financial services
providers, even as banks strive to customize their service offerings.
3.6.1. Computerization in Banking Sector in India
Computerization has changed the facet of banking industry in the recent years.
Advent of communication and information technology is ensuring better customer
services than those bygone days. All type of banks started rendering services to
customers electronically rather than manually. Core banking has become the need
of the hour. Presently most of the bank branches are computerized and significant
percentage of bank branches providing Core Banking Solution (CBS) to its
customers. The total number of branches of public sector banks which have
implemented CBS increased from 35,464 as on March 31, 2008 to 44,304 as on
March 31, 2009. The process of computerization of the banking sector, which is
regarded as the precursor to other technological initiatives, is almost on the
completion stage. Public sector banks continued to spend large amounts on
computerization and development of communication networks. In fact the growth
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rate of amount spent by public sector banks on computerization, which had shown
some deceleration in 2007-08, accelerated during 2008-09. From September 1999
to March 2009 a cumulative amount to the tame of Rs.18, 168 crore registering an
increase of 21.0 per cent was accounted for the branch computerization.
Table – 3.10: Computerization in Public Sector Banks (As On End March)
Category Year 2005 2006 2007 2008 2009
Full Computerized Branches (i+ii) 71 77.5 85.6 93.7 95.7 i Branches under CBS 11 28.9 44.4 67 81.4 ii Branches already Fully
Computerized* 60 48.5 41.2 26.6 14.3
iii Partially Computerized Branches 21.8 18.2 13.4 6.3 4.3
Figures showing percentage of total number of bank branch. *Other than branches under Core Banking Solution (CBS). Source: Report on Trend and Progress of Banking in India, Various issues from 2004-05 to 2008-09.
At present (2009) 95.7 per cent branches of PSBs are fully computerized,
which has shown a sharp growth of 24.7 per cent than the year 2005.
Currently (81.4 per cent) branches of PSBs are under CBS and have shown
a high growth compared to year 2005. Now only 4.3 per cent of PSBs’
branches are partially computerized.
Figure - 3.2: Computerization in Public Sector Bank Branches
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The Graph showing the number of percentage of total bank branches of
public sector banks in India, constituting of fully computerized branches,
branches under core banking solution, branches already fully computerized
and partially computerized branches. It is crystal clear from the graph that
the trend of full computerization and CBS branches are increasing. On the
other hand percentage of partially computerized branches are showing
declining trend.
Table – 3.11: Computerization in Public Sector Banks (As on March 31, 2009)
Bank (i)
Branches Under CBS
# (ii) Branches Already Fully Computerized
Fully Computerized
Branches
Branches Partially
Computerized Public Sector Banks 81.4 14.3 95.7 4.3
Nationalized Bank 73.4 20.4 93.8 6.1
State Bank Group 100 0 100 *
Figures showing percentage of total number. #Other than branches under Core Banking Solution. * Nil / Negligible. Source: Report on Trend and Progress of Banking in India 2008-09.
The proportion of public sector bank branches which achieved full
computerization increased from 93.7 per cent as at end-March 2008 to 95.7
per cent as at end-March 2009. Continuous progress is being made by banks to
achieve a higher target, as far as computerization is concerned. All branches of
SBI group of banks has achieved 100 per cent CBS with a view to offer fast,
accurate and hassle free services for customers. In line with the trend
witnessed last year, the proportion of branches providing core banking
solution in total branches increased significantly during 2004-05 to 2008-09.
3.6.2. ATMs of Scheduled Commercial Banks
During 2008-09, the total number of ATMs installed by the banks grew by 25.4
per cent, with number of ATMs of SBI Group registering a sharp growth of 34.5
96
per cent. While, the ATMs installed by new private sector banks and foreign banks
were more than 3 times of their respective branches, the ATM to branch ratio was
much lower for other bank groups.
Table – 3.12: Growth of ATMs of Scheduled Commercial Banks
Figures in parentheses indicate pc change over previous year. Growth@ has been calculated using exponential function; y = αebx, Where, b=growth rate. Source: Report on Trend and Progress of Banking in India, Various issues from 2004-05 to 2008-09. Of all the ATMs installed in the country at end-March 2009, new private
sector banks had the largest share in off-site ATMs, while nationalized
banks had the largest share in on-site ATMs.
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Figure – 3. 3: Growth Trend of ATM of Schedule Commercial Banks
3.6.3. Retail Electronic Payment Systems
Indian Banking System has made significant progress in payment systems by
introducing modern payment media viz., smart / credit cards, electronic funds
Figures in parentheses showing percentage change over previous year. Growth@ has been calculated using exponential function; y = αebx, Where, b=growth rate. *Debit Cards figures for 2003-04 and 2004-05 are estimated based on 2005-06 figures. #Card Payments figures pertain only to Point of Sale (POS) transactions. Source: Report on Trend and Progress of Banking in India, Various issues from 2002-03 to 2008-09.
100
In recent years, the use of electronic payments has witnessed manifold
increase, partly reflecting increased adoption of technology. The growth of
volume of transactions directed through electronic payment method,
however, decelerated from 41.35 per cent in 2007-08 to 24.75 per cent in
2008-09. More strikingly, the amount of transactions (-51.98 per cent)
directed through electronic payment method declined sharply during 2008-
09. The entire decline is due to (-87.54 per cent) fall in value of transaction
in respect of ECS-credit. It is noteworthy in this regard that the sharp rise in
ECS credit value during 2007-08 was mainly due to the refund of the
oversubscription amount of Indian Postal Orders floated by companies
using electronic mode as mandated by the stock exchange. Therefore, the
decline in value of ECS credit transactions during 2008-09 may be
interpreted more as returning to normal trend rather than a matter of
concern. The volume of ECS credit and more significantly ECS debit
continued to show an increasing trend during 2008-09 in line with the trend
witnessed during past few years.
Figure – 3.4: Number of Total Electronic Payments
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Overall the total numbers of electronic payments are exhibiting exponential
growth over the years of modern banking services.
Figure – 3.5: Amount of Total Electronic Payments
The amount of total electronic payments is showing power growth
represented in the above graph. There is a sudden increase of growth during
the period 2007-08 (41.35 per cent) and subsequently fall in the period
2008-09.
3.6.4. Changing Trend of Clearing Houses / Centres
The number of cheque clearing centres managed by RBI, Nationalized banks, SBI
and its associates increased to a greater extent, reflects the volume of services
rendered by the banks over the years is in the increasing trends (table – 3.14).
102
Table – 3.14: Growth of Clearing Houses / Centres over the Years (As On March 31)
Figures in parentheses indicate MICR (Magnetic Ink Character Recognition) Cheque processing Centres. Growth@ has been calculated using linear function; y = αebx, Where, b=growth rate. Source: Report on Trend and Progress of Banking in India, 2009-10. Only the year 2006 is showing the negative growth over the previous year
2004. Year 2005 has shown no change from the earlier year 2004. Year
1989 exhibited the maximum growth compared to all other years among
1978 to 2009 (figure – 3.6).
103
Figure – 3.6: Changing Trend of Clearing Houses/Centres
The changing trend in the number of clearing houses managed by RBI, SBI
group and nationalized banks over the period of time exhibits linear pattern
of growth.
3.6.5. Real Time Gross Settlement
Real time gross settlement systems (RTGS) are funds transfer systems where
transfer of money takes place from one bank to another on a "real time" and on
"gross" basis. Settlement in "real time" means payment transaction is not subjected
to any waiting period. The transactions are settled as soon as they are processed.
"Gross settlement" means the transaction is settled on one to one basis without
bunching or netting with any other transaction. Once processed, payments are final
and irrevocable. The large value payment systems include the Real Time Gross
Settlement (RTGS), Government securities clearing and forex clearing. The RTGS
has been working smoothly since its operationalization in March 2004. As at end-
August 2009, 107 participants (96 banks, 8 primary dealers, the Reserve Bank and
the Deposit Insurance, Credit Guarantee Corporation and Clearing Corporation of
104
India Limited) are members of the RTGS system. National Electronic Fund
Transfer (NEFT) is an online system for transferring funds of Indian financial
institution (especially banks). This facility is used mainly to transfer funds below
Rs. 1,00,000. The Reserve Bank of India has instructed banks that they should not
use RTGS for amounts below Rs 1 lakh (100 thousand). The new rule came into
effect on 1 January 2007.
105
Table – 3.15: Growth of Large Value Clearing and Settlement Systems (As on End March)
Large Value Clearing and Settlement Systems (Number in Lakh and Amount in Rs. crore)
Real Time Gross Settlement System (RTGS)
Total Customer Remittance Inter-Bank Remittance Inter-bank Clearing Settlement* Total Inter-bank
1 2=(3+4+5) 3 4 5 6=(4+5)
Period Number Amount Number Amount Number Amount Number Amount Number Amount
Growth@ has been calculated using exponential function; y = αebx, Where, b=growth rate. *The Inter-Bank Clearing Settlement pertains to RTGS started from 12 August, 2006. Source: Report on Trend and Progress of Banking in India, Various issues from 2002-03 to 2008-09.
106
The reach and utilization of the RTGS is consistently increasing. The bank
/ branch network coverage increased to 58,720 branches at more than
10,000 centres leading to increased usage of this mode of funds transfer.
The daily average volume of transactions is 90,000 for about Rs.1,200
billion of which 82,000 transactions for about Rs.980 billion pertain to
customer transactions as at end of August 2009. The data mentioned in the
above table have been presented graphically below (figure – 3.7).
Figure – 3.7: Growth Trend of RTGS Transaction
In the above mentioned graph the growth rate amount transacted through
RTGS is 0.007 per cent over the years. The growth curve is exponential in
nature, means that over the period of time (during the period 2003-04 to
2009-10) significant growth took place in the transaction of RTGS mode.
3.7. SOME OTHER BANKING SERVICES In addition to the earlier mentioned services rendered by the banks, several other
services are also rendered by them. Kisan Credit card scheme (KCC), Banking
107
Ombudsman (BO) scheme for receiving complaints from the customers and
disposing those complaints effectively and efficiently have become the need of the
hour with a view to retaining and satisfying existing customers. It has ensures
better customer services over the period of time by mitigating the grievances of
customers.
3.7.1. Kisan Credit Card Scheme
The Kisan Credit Card is a successful financial innovation which was
introduced pursuant to the announcement made in the Union Budget of 1998-
99. The KCCs are issued by SCBs, including the Regional Rural Banks
(RRBs) and co-operative banks. These cards were introduced to simplify credit
delivery. The KCC scheme has been implemented through cooperative banks,
RRBs and public sector commercial banks to provide an easy access to
adequate, timely and cost effective credit to farmers. In addition to meeting the
term credit and working capital requirements of agriculture, KCC also covers
consumption credit needs of farmers. The endeavor of NABARD has been to
bring all farmers including inter alia oral lessees, tenant farmers, and share
croppers into the ambit of KCC.
Notwithstanding the overall impressive increase in the number of cards issued till
now, there has been a wide variation in implementation of the scheme across
States. Three States alone, viz., Uttar Pradesh, Andhra Pradesh and Maharashtra
accounted for over 45 per cent of the total number of cards issued and 36 per cent
of the total loan amount sanctioned under KCC as at end-March 2009. On the
other hand, the hilly States, States from the north-eastern region and Sikkim
showed relatively poor progress in the spread of KCC.
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Table – 3.16: Growth of Kisan Credit Card Scheme
Number of KCCs Issued by Banks - in million (at the end- March)
Figures in parentheses showing the percentage of growth over previous year. Source: Report on Trend and Progress of Banking in India, 2008-09.
Of the total number of KCCs (84.6 million) issued till end-March 2009 since
the inception of the scheme, the largest percentage has been issued by
commercial banks. Moreover, there has been a more or less steady increase
in the number of cards issued through commercial banks since the scheme
was started. As against this, the number of cards issued by cooperative banks
after peaking in 2000-01, has been on steady fall. Consequently, there has
been a steep fall in the share of cooperatives banks between 2000-01 and
2008-09 from 64.2 per cent to 42.7 per cent in the total number of KCCs
issued. The period 2005-06 has shown a negative growth for all bank groups.
The year 1999-2000 has exhibited maximum percentage of growth compared
all other period since the inception of KCC. Though the Cooperative banks
holds maximum share (42.7 per cent) over the period of time, but failed to
maintain positive growth rate compared to the previous year.
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3.7.2. Receipt of Complaints
The Banking Ombudsman Offices receive complaints pertaining to deficiency
in service provided by banks. The number of complaints received has increased
substantially over the years and this trend is maintained during the year 2008-
09 also by recording an increase of 44% over the previous year. The number of
complaints received has recorded substantial increase since 2006 as new
grounds of complaints such as credit card issues, failure in providing the
promised facilities, non-adherence to fair practices code and levying of
excessive charges without prior notice, etc were included in the Scheme.
Further, internet banking related complaints were added as a new ground for
complaint as per amendment of the Scheme dated February 3, 2009. Increased
awareness among the public about the Banking Ombudsman Scheme (BOS)
and online accessibility to BO office through internet also contributed to the
increase in receipt of complaints.
Table - 3.17: Bank-Group-Wise Complaints Received by BO Offices
Bank-group-wise complaints received by BO Offices during 2004-05 to 2008-09
Period
Bank Group
Total Nationalized Banks
SBI Group
Private Sector Banks
Foreign Banks
Scheduled Primary Co-op. Banks
RRBs
2004-05 5124 3359 1863 577 256 359 11538
2005-06 10137 (97.83)
9892 (194.49)
6754 (262.53)
2997 (419.41)
198 (-22.66)
794 (121.17)
30772 (166.70)
2006-07 10543 (4.00)
11117 (12.38)
9036 (33.79)
3803 (26.89)
313 (58.08)
536 (-32.49)
35348 (14.87)
2007-08 12033 (14.13)
13532 (21.72)
14077 (55.79)
6126 (61.08)
295 (-5.75)
826 (54.10)
46889 (32.65)
2008-09 14974 (24.44)
18167 (34.25)
21982 (56.16)
11700 (90.99)
302 (2.37) 846 (2.42) 67971
(44.96)
Total 52811 56067 53712 25203 1364 3361 192518
% share in total 27 29 29 13 1 2 100
Figure in parentheses showing percentage of growth of complaint received over pervious year. Source: Trend and Progress Report on Banking in India, Various Issues From 2006-07 to 2008-09.
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It is clear from the above mentioned table (table – 3.17) regarding bank-
group-wise complaints received by Banking Ombudsman (BO) Offices
during 2004-05 to 2008-09 that the number of complaints over the
period of time are increasing. Maximum number of complaint received
(total number 56067) by SBI group of bank, which is 29 per cent of the
total complaint received by the banks over the period of time. The
period 2005-06 has experienced the maximum growth rate (166. 70 per
cent) and during 2006-07 there minimum increase (14.87 per cent) over
the previous year. Scheduled Primary Co-op. Banks in the year 2005-06
and 2007-08 has received lesser number of complaint than previous
year. During the period from 2004-05 to 2008-09 there is a increase
complaints of about 5 times which is very alarming for the banking
sector in general and Nationalized banks, SBI group and Private banks
(Pvt.B) in particular. The prime reasons for increasing trend of
complaints are increased awareness of customer about the services and
the facility provided by the banks to submission of complaints through
online.
3.7.3. Complaints vis-a vis business size Instead of considering complaints in isolation, the number of complaints is seen
with reference to the bank’s business size and the number of accounts and is
analyzed as such. It is seen that the private sector banks and the foreign banks
continue to have a larger share in the number of complaints vis a vis the total
number of deposits and loan accounts. This may be due to the fact that these banks
cater to customers who are more aware of their rights. The break-up of bank wise
(SCBs) complaints received in the year 2008-09.
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Table- 3.18: Bank Group-Wise Complaints in Relation to Number of Accounts
Bank* Group-Wise Complaints in Relation to Number of Accounts
*Institutions not covered under the Scheme (only Bank Group-wise complaints in the years 2006-07, 2007-08 and 2008-09 in relation to number of accounts). @ Figures in parentheses indicate % of total accounts. #Figures in parentheses indicate % of total complaints received. Source: Trend and Progress Report on Banking in India, Various Issues from 2006-07 to 2008-09.
3.7.4. Nature of complaints handled
The nature of complaints received by banks are related to deposit accounts,
remittances, credit cards, loans and advances, charge without notice, pension,
failure to meet commitment, notes and coins, against direct selling agents and
recovery agents (table – 3.19). The types of complaints pertaining to credit cards
continue to be those related to issuance of unsolicited credit cards and unsolicited
insurance policies and recovery of premium charges, charging of annual fee in
spite of being offered as 'free' cards and issuance of loans over phone, disputes
over wrong billing, settlement offers conveyed telephonically, non-settlement of
insurance claims after the demise of the card holder, abusive calls, excessive
charges etc. A general source of these complaints continues to be difficulty in
accessing the credit card issuers and the poor response from the call centers. This,
in sum, is the issue of non-transparency and mis-selling.
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Table- 3.19: Category-Wise Receipt of Complaints Received
Nature of complaint Received in 2006-07
Received in 2007-08
Received in 2008-09
Deposit accounts 5803 5612 (-3) 6706 (19)
Remittances 4058 5213 (28) 5335 (2)
Credit cards 7688 10129 (32) 17648 (74) Loans and advances - General 4442 5297 (19) 7331 (38)
DSAs and recovery agents 1039 3128 (201) 3018 (-3)
Notes and coins 130 141 (8) 113 (-20)
Others 9636 5900 (-39) 8589 (45)
Total 38638 47887 (24) 69117 (44)
Figures in parentheses indicate the percentage change over the previous year. Source: Trend and Progress Report on Banking in India, Various Issues from 2006-07 to 2008-09.
Complaints relating to credit cards (comprising 26% of the total complaints
in 2008-09) continue to show an uptrend. The number of complaints
pertaining to credit cards increased by 74% during 2008-09. While the user
base of credit cards has definitely increased during 2008-09 (from 137.17
million to 170.03 million, i.e. by 24%), it does obviate the need for better
service and transparency at the point of sales by banks.
Complaints relating to failure on commitments made (non-adherence to fair
practices code as adopted by the bank, failure to provide or delay in
providing banking facilities other than loans and advances etc) ranked
second among the complaints received at the offices of the Banking
Ombudsman (17% of the total complaints - an increase of 85% over the
previous year). This points to the lack of sensitivity, transparency and need
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for improvement at the point of sales. As these complaints mostly relate to
basic banking facilities, banks need to address these issues on priority basis
without any demur. ‘Other' complaints comprised 12% of the total
complaints and increased by 45% during the year. These include mainly
non-adherence to prescribed working hours, refusal to accept or delay in
accepting payments towards taxes as required by RBI/ Government of
India, refusal to accept/delay in issuing or failure to service or delay in
servicing or redemption of Government securities, refusal to close or delay
in closing of accounts.
3.7.5. Disposal of Complaints
Over the period of time, awareness among the customers in banks increases.
Private and foreign players in the same sector further intensified competition.
Technological innovations made customers’ life easier. Online submission of
complaints is made available by the banks. To retain the existing customer, banks
started disposing the compliant with a view to redress customers’ grievance. For
the disposal of complaints banking ombudsman scheme is adopted in a modest
way during the year 2006. A brief profile of the complaints disposed of by BO
Offices during the year is given in the table (table – 3.20).
Table - 3.20: Disposal of Complaints by BO Offices
Particulars Year/ Period 2004-05 2005-06 2006-07 2007-08 2008-09
Complaints received during the year* 12034 33363 44766 54992 75009
Total number of complaints disposed of
10403 (86)
27193 (82)
37661 (84)
49100 (89)
65576 (87)
Complaints carried forward to next year
1631 (14)
6170 (18)
7105 (16)
5892 (11)
9433 (13)
Figures in parentheses showing percentage. *including complaints brought forward from previous year. Source: Trend and Progress Report on Banking in India, Various Issues From 2006-07 to 2008-09.
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Banking Ombudsman (BO) Offices disposed of 87% (65576) of the 75009
complaints received during the year 2008-09, as against disposal of 89% of
the complaints received during previous year. Broadly, around 35%
(22461) of the complaints dealt with (65576) have been closed by mutual
settlement or by issue of awards while 65% (43115) of the complaints have
been disposed of citing reasons like : First resort complaints (27.73%),
Complaints Pending in other forum (1%), Subject matter outside the BO