Kotak Mahindra Bank Limited

KOTAK MAHINDRA BANK LIMITED

WEALTH MANAGEMENT SOLUTIONS AT KOTAK MAHINDRA BANK LIMITED

SUBMITTED BY:

SHREYA VORA, SEMCOM COLLEGE, VVN, NO9978929345

EMAIL ID:[email protected] DATE: 01/08/2010

A REPORT ON

WEALTH MANAGEMENT SOLUTIONS AT

KOTAK MAHINDRA BANK

A REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE MASTERS OF E-BUSINESS PROGRAM OF SEMCOM VVN.

DISTRIBUTION LIST:

COMPANY GUIDE: SUSHIT NANDI (BRANCH MANAGER)

FACULTY GUIDE: SARVESH TRIVEDI (FACULTY)

DATE OF SUBMISSION: 1/08/2010

PROJECT

SUBMITTED BY SHREYA VORA

AUTHORISATION

The report is submitted in partial fulfillment of the requirement of the MEB program of SEMCOM. This report is authorized by Mr. Sushit Nandi, Branch Manager, Kotak Mahindra Bank Limited, and prof.

sarvesh trivedi, faculty, SEMCOM VVN as a part of the evaluation for the summer internship program 2010.

ACKNOWLEDGEMENTS

I express my sincere gratitude to Kotak Mahindra Bank Limited (Vadodara) and SEMCOM COLLEGE, VVN which gave me this opportunity to carry on my summer internship Project.

I acknowledge my indebtedness to my company Guide; Mr. Sushit Nandi, Branch Manager, for his patient help, valuable suggestions, encouragement and guidance at every stage of my project.

I dotingly thank my faculty guide prof. Kamini Shah (SEMCOM COLLEGE VVN) for his valuable guidance and commitment towards the successful completion of my summer internship summer report.

In the end, I would also take the opportunity to thank the priority League team including Mr. Hitesh, Ms. Annu and other staff of kotak Mahindra bank.

TABLE OF CONTENTS

Authorization

Acknowledgment

List of illustration

List of tables

Abstract

INTRODUCTION

Objective

Scope of study

Brief description of the project

Methodology

Limitations of the study

Benefits

BACKGROUND OF BANING COMPANY

History of banking

Banking in India

KOTAK MAHINDRA BANK-COMPANY PROFILE

Introduction to kotak Mahindra bank

Kotak group of Companies

Kotak Mahindra Bank

PRIOPRITY BANKING

What is priority banking?

Why concept of priority banking has evolved

Investment management at priority banking

Process of Investment Management

FINANCIAL PLANNING AND RISK PROFILING

Financial planning

Risk profiling

Customer satisfaction

UNDERSTANDING AND ANALYSIS OF PERSONAL BANKING QUESTIONNAIRE

FINDING AND RECOMMENDATION

LEARNINGS

LIST OF ILLUSTRATIONS

LIST OF FIGURES

Logo of the Kotak Mahindra bank

Investment Management Process

LIST OF TABLES

Global Banking

Risk profiling categories

Assets Tab Table

Inflows tab table I

Inflows tab table II

Inflows tab table III

Inflows tab table IV

Outflows tab table I

Outflows tab table II

ABSTRACT

Most studies indicate that investment performance is a direct result of the investor’s allocation across different asset classes and not a specific investment or marketing timing. Each individual will have different risk capacity. Hence Financial Planning is very much important in today’s scenario, especially when markets are having improved performance in comparison to previous year.

The project includes financial planning of investors, considering all different parameters, which could have affected the investment and the returns of investors. Some investors are risk-averse; some invest mainly because of thrill. Hence, the appetite of these investors is different according to the returns expected by these investors. Financial planning is not only for improving the returns of the investor, but also for stabilizing returns. Hence, the project explains how to recommend and what to recommend, as per the requirements of the investors.

Also Risk Profiling is equally important, when we talk of financial planning, because as said earlier risk appetite of Investors differs according to the requirements of the Investors.

And finally the project also looks for the customer satisfaction parameters, which helps identify the Kotak Mahindra Bank ltd. Parameters that influences the customer behavior towards the organization. The analysis of the parameters helps the organization to improve the service and also look for those parameters which the customers find in other organization and influences their behavior. This project is carried out under the purview of Kotak Mahindra Bank Limited.

CHAPTER 1: INTRODUCTION

The Kotak group has a net worth of over Rs. 6,237 crore and has a distribution network of more than 1300 branches, franchisees, representative offices and satellite offices across cities and towns in India and offices in New York, London, san Francisco, Dubai, Mauritius and Singapore.

Kotak Mahindra is one of India’s leading financing organizations, offering a wide range of financial from commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the diverse financial needs of individuals and corporate.

Established in 1984, The Kotak Mahindra group has long been one of India’s most reputed financial organizations. In February 2003, Kotak Mahindra finance ltd. the group’s flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). This approval creates banking history since Kotak Mahindra finance limited is the first company in India to convert to a bank. The license authorizing the bank to carry on banking business has been obtained from the RBI in tune with section 22 of the banking regulation 1949.

KMBL was promoted by Mr. Uday. s. Kotak and the company ltd and Mr. Sidney & A.A. Pinto under the name Kotak capital management finance ltd on 21st November 1985 and obtained a certificate of commencement of business on 11 February 1986.

The bank customers have access to entire VISA network of 4500 ATM’S in India and 800000 ATM’S worldwide accepted in more than 56,000 establishments across India and 10 million worldwide. The customer also has access to over 800 ATM’S with sharing arrangements with UTI BANK, of these 125 are in the NCR.

1.1 Objective

1) Investment profiler- Financial planner of the customers of KMBL (i.e. listing down asset assumptions, current assets, inflows, outflows, goals) and finding best investment strategy for the customer.

2) Risk Profiling of the customers (i.e. Priority Banking)

3) Analyzing customer satisfaction of the services provided by KMBL and finding out the important factors affecting customer satisfaction using factor analysis.

1.2 Scope of the study

1) The project helps in understanding basic concept of financial planning, and also how to recommend different investment products to different investors according to their goals and requirements.

2) It helps in analyzing the risk profile of investors and thereby suggest them which risk profile (i.e. conservative, moderate and aggressive) suits them the most.

3) Also the study involves identifying important parameters that affect the customer behavior towards services offered by Kotak Mahindra Bank limited.

1.3 Brief description of the project

1) Using flexi cube personal banking system (FCPBS) software, financial banking of the customers will be done on the basis of their portfolio. This data will be fed in FCPBS software which shall generate portfolio builder (i.e. it will feed the best investment strategy for the customers). On the basis of this, customers will be given suggestions so as to help them find best investment strategy on the basis of their asset allocation and risk-awareness. This will be done in the following stages:

STAGE 1: getting the financial planner (investment profiler) filled with the help of the information provided by the existing customers of kotak. During this stage, one to one interaction provided by the existing shall be done with the customers and aim will ne to gather as many information as I can about the customer’s portfolio.

STAGE 2: in this stage, data collected in the first stage will fed the company’s software i.e. flexi cube personal banking system (FCPBS) and the software will generate a suggestion portfolio for that particular investor on the basis of the information provide by him.

STAGE 3: in this stage, suggestion portfolio generated in stage 2 will be presented to the customer and giving the suggestions that would suit his/her risk profile.

2) Risk profiling will be done on the basis of risk profiling questionnaire filled by the customers. Thereafter, these customers will be divided in to three clusters (conservative, moderate and aggressive) with the help of cluster analysis technique.

3) Analysis of the customer satisfaction questionnaire will be done of the existing customers of KMBL and thereby finding out factors affecting customer satisfaction. In this phase, factor analysis technique shall be used to find out the factor scores of the important variables affecting customer satisfaction and doing analysis of the same.

1.4 Methodology

1) Collecting secondary data from the internet and official gazettes

2) Using factor analysis technique while analyzing the factors affecting customer satisfaction

3) Primary data collection (i.e. questionnaire ) of the customers

4) Final recommendations and conclusion

1.5 Limitations of the study

1) Some of the investors might not be willing to disclose all the information due to some reason or the other. Hence, in absence o complete information, the data which will be fed in Flexi Cube Personal Banking System (FCPBS) might not generate the ideal suggestion for the investor.

2) The number of investors taken for cluster analysis purpose might not be large enough so as to generalize the risk category (i.e. conservative, moderate and aggressive) of the investors.

3) Lack of data available from the websites.

1.6 Benefits

Academic Benefits

This project has provided enough knowledge about the risk profiling and financial planning. The rigor and experience while carrying on this project has enabled me to understand the nitty-gritty of the outside market and an overview of the banking industry as well. Besides this, the project has also enabled me to get acquainted with the competitive nature of acquiring and retaining customers and honing my social skills by coming in contact with the various people of various fields.

Value addition to the company

This project is a self-sufficient guide that explains how to deal with various customers according to their needs and requirements, and to maintain relationship with them and provide them the best service an organization can give. The financial planning of investors, risk profiling and factor analysis of the customer feedback form helps organization understand the areas that needs improvement and recovery. Kotak Mahindra Bank will be

able to improve its services as far as satisfying customers is concerned, and factor analysis could be a useful tool for the same.

CHAPTER 2: BACKGROUND OF BANKING INDUSTRY

2.1 History of Banking

The first banks were probably the religious temples of the ancient world, and were probably established sometime during the third millennium B.C. Banks probably predated the invention of the money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. There are extant records of loans from 18th century BC in Babylon that were made by temple priests/monks to merchants.

MAJOR EVENTS IN BANKING HISTORY

Knights Templar- Earliest Euro wide/Mideast banking 1100-1300

1602- First joint-stock company, the –Dutch East India Company founded.

1781- The Bank of North America was founded by the continental congress.

1800- Rothschild family founds Euro wide Banking

1930-33 in the wake of the Wall Street Crash of 1929, 9000 banks close, wiping out a third of the money supply in the United states

2008 Washington Mutual collapses. It was the largest bank failure in the history

GLOBAL BANKING

A good definition of Tier I capital is that it includes equity capital and disclosed reserves.

Rank Company Tier 1 capital(US$ billions)

Country

1 Citygroup 73 US

2 JP Morgan Chase 69 US

3 HSBC 67 UK

4 Bank of America 64 US

5 Credit Agricole Group 63 France

6 Royal Bank of Scotland

43 UK

7 Mitsubishi Tokyo financial group

40 Japan

8 Mizuho financial group

39 Japan

9 HBOS 36 UK

10 BNP paribas 35 France

OLDEST PRIVATE BANKS

Monte dei paschi di siena 1472 – present, the oldest surviving bank in the world. Founded in 1472 by the Magistrate of the city state of Siena, Italy

C. Hoare & Co founded 1672

Barclays, which was founded by John Freame and Thomas Gould in 1690 and renamed to Barclays by Freame’s son-in-law, James Barclay, in 1736

Rothschild family 1700 – present

Wegelin & co private Bankers 1741- present, to oldest Swiss Bank, founded in 1741 in St. Gallen, third largest private bank in Switzerland

Hope & co, founded in 1762

OLDEST NATIONAL BANKS

Bank of Sweden- the rise of national banks, began operations in 1668

Bank of England- the evolution of modern central banking policies, established in 1694

Bank of America- the invention of centralized check and payment processing technology

Swiss bank

United states bank

The Pennsylvania Lank bank, founded in 1723 and receiving the support of Benjamin Franklin who wrote “Modest Enquiry on to the nature and necessity of a paper Currency” in 1729

Imperial bank of Persia (Iran) - history of banking in the Middle East

2.2 Banking in India

Only one Indian bank on the top 100 banks in the world

India’s best and brightest, the SBI, is roughly one-tenth the size of the world’s biggest bank –Citygroup

Six Chinese banks feature among the top 25 Asian banks while India has only two representatives- SBI and ICICI Bank

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government- owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve bank of India, which in 1935 formally took over these responsibilities from the then Imperial bank of India, relegating it to commercial banking functions.

Currently, India has 88 scheduled commercial banks (SCBs)- 27 public sector banks (that is with the Government in India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks.

HISTORY

Banking in India originated in the last decades of the 18th century. The first banks were the General bank of India, which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company.

NATIONALISATION

By the 1960s, the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. They started reason for the nationalization was to give the government more control of credit delivery. With the second close of nationalization, the GOI controlled around 91% of the banking business of India.

LIBERALISATION

In the early 1990s, Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank (earlier as UTI bank), ICICI Bank and HDFC Bank.

CHAPTER 3: KOTAK MAHINDRA BANK LIMITED- COMPANY PROFILE

3.1 Introduction of kotak Mahindra group

HISTORY OF KOTAK GROUP

The kotak Mahindra group was born in 1985 as Kotak capital management finance limited

1986- Kotak Mahindra financial limited starts the activity of bill discounting

1990- The auto finance division is started

1995- Brokerage and distribution businesses incorporated in to a separate company – Kotak Securities

1996- The auto finance business is hived off in to a separate company- Kotak Mahindra Prim Limited (formally known as Kotak Mahindra Primus Limited)

1998- Enters the mutual fund market with the launch of Kotak Mahindra Asset Management

2000- Kotak Mahindra ties up with old mutual plc for the life insurance business. A Kotak security launches its on-line broking site (now www.kotaksecurities.com).

2003- Kotak Mahindra finance ltd converts to a commercial bank- the first Indian company to do so

2006- Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities

DISTRIBUTION NETWORK

The Kotak group has a net worth of over Rs. 6327 crore and has a distribution network of more than 1300 branches, franchisees, representative offices and satellite offices across cities and towns in India and offices in New York , London, san Francisco, Dubai, Mauritius, and Singapore.

SERVICES OFFERED

Kotak Mahindra is one of the India’s leading financial organizations, offering a wide range of financial from commercial banking, to stoke broking, to mutual funds, to life insurance, to investment banking, the group caters to the diverse financial needs of individuals and corporate.

BOARD OF DIRECTORS

1. Dr. Shankar Acharya Chairman

2. Mr. Uday Kotak executive Vice chairman and managing director

3. Mr. Anand Mahindra

4. Mr. Cyril shroff

5. Mr. pradip Kotak

6. Mr. shivaji Dam

7. Mr. C. Jayaram – executive director

8. Mr. Dipak Gupta- executive director

9. Mr. Asim Ghosh

10. Ms. Bina Chandarana – secretary and senior Vice President

3.2 KOTAK GROUP OF COMPANIES

KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE

KOTAK MAHINDRA ASSET MANAGEMENT COMP. LTD. (MUTUAL FUND): KOTAK CAR FINANCE

KOTAK SECURITIES

KOTAK SECURITIES INSTITUTIONAL EQUITIES

KOTAK MAHINDRA CAPITAL COMP. LTD. (INVESTMENT BANKING) KOTAK MAHINDRA

INTERNATIONAL BANKING

KOTAK MAHINDRA WEALTH MANAGEMENT

3.3 KOTAK MAHINDRA GROUP

Established in 1985, The Kotak Mahindra group has been long of India’s most reputed financial organizations. In February 2003, Kotak Mahindra Finance ltd, the group’s flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). This approval creates banking history since Kotak Mahindra Financial Ltd is the first company in India to convert to a bank.

Corporate Identity

Logo of the bank

CHAPTER 4: PRIORITY BANKING

4.1 WHAT IS PRIORITY BANKING?

In general priority banking means giving priority to the customers in the services like financial services, trade services, commercial banking, stock broking, mutual fund, insurance services and investment banking offered by the bank compare to the normal bank customers. As per Kotak Mahindra Bank priority banking is all about customer- customer needs, customer goals, customer dreams and customer aspiration and fulfilling these by making their money work for them. The core of the priority banking is to identify new opportunities to develop the right investment plan and also for the management of the investment of the priority customer to work towards the attainment of the financial objective of the customer. Means the investment planning of the customer on the basis of risk profile, financial goals, time horizon and many more. With comprehensive suite of banking services it access the wide range of investment products like mutual funds, insurance and exclusive investment products from Kotak Mahindra Group Companies.

4.2 WHY CONCEPT OF PRIORITY BANKING HAS EVOLVED?

From the customer point of view: Needs has given the rise to the concept of the priority banking. Need of convenience, comfortless, relaxation, lifestyle etc. are some of the forces which are important for the evolution of the priority banking. Nearer to home, time saver, home banking, net banking, electronic transfer, free services, investment planning, waiving off charges has evolved due to the needs of the customers.

From the bank point of view: If we think from the bank point of view we can say that banks want money for the investment purpose, for the lending purpose, for the lending purpose etc. but a/c’s are not enough to generate those money. Also HNI’s have idle money which they are not able to utilize due to their awareness and ignorance of the investment opportunities which bank can provide.

HOW PRIORITY BANKING IS DIFFERENT FROM THE GENERAL BANKING?

Priority banking is in many ways different from the general/normal banking. On the basis it differs. Like, on the basis of

1. Customer

2. Features and services

3. Charges

4.3 INVESTMENT MANAGEMENT AT PRIORITY BANKING

Investment management is the professional management of various securities (shares, bonds, etc.) and assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes (e.g. mutual funds or exchange traded funds)). The provision of ‘investment management services’ includes elements of financial analysis, asset allocation, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world’s largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Investment management at priority banking is not a onetime process; it is a continuous process. Priority customers invest through bank in different investment products so its duty of the bank to manage their investments in profitable way. Investment management at priority banking is done by a priority relationship manager for the customers who are mapped under them or through his/her guidance customers have invested in the investment products. Investment management process at priority banking is done in different steps which can be described in this manner. It starts from the customer profiling and ends at feedback of the customer.

4.4 PROCESS OF INVESTMENT MANAGEMENT

Customer profiling

Risk profiling of the customer

Investment opportunities

Risk profiling of different investment opportunities

Finding out the best investment opportunity

Investment

Follow up

Convert ability

Feed back

CHAPTER 5: FINANCIAL PLANNING AND RISK PROFILING

5.1 FINANCIAL PLANNING

FINANCIAL PLANNING

The Financial Planning process

The financial planning process consists of the following six steps:

1. Establish and define the client-planner relationship

The financial planner should clearly explain and document the services that he or she will provide to you and define both his/her and your responsibilities during the financial planning engagement. The financial planner should explain fully how he or she will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

2. Gather client data, including goals

The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.

3. Analyze and evaluate your financial status

The financial planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.

4. Develop and present financial planning recommendations and/or alternatives

The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.

5. Implement the financial planning recommendations

You and the financial planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your coach, coordinating the process with you and the other professionals such as attorneys, accountants or stockbrokers.

6. Monitor the financial planning recommendations

You and the financial planner should agree on who will monitor your progress towards your financial goals. If the planner is in charges of the process, he or she

should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.

Financial planning is simply the process of identifying financial goals and then developing a coordinated plan for prioritizing future financial decisions. Financial planning can be extremely overwhelming or quite manageable, depending on the approach of the investors and also on the asset allocation of them. With the right information and tools, the choices become much easier.

A financial plan has 3 key elements:

1. Defining goals- Define what investor wants to achieve. Define his/her financial goals, be it small or large. It may range from taking a vacation, or buying a car, property, or providing for education, marriage, retirement, etc.

2. Assess tolerance- Risk and return go hand-in-hand returns. Therefore, the choice of investment options would largely of getting higher returns. Therefore, the choice of investment options would largely depend upon the level of risk investors are willing to take.

3. Develop a plan- Finally; develop the best strategy to achieve goals. This will largely depend on risk tolerance, investment horizon, current wealth and future income.

Mostly studies indicate that investment performance is a direct result of the investor’s allocation across different asset classes and not a result of a specific investment or market timing. Each individual will have different risk taking capacity.

For example, a person just out of college may take much higher risk compared to a person nearing his retirement. So, every investor needs a unique portfolio based on his/her life stage, risk profile and investment horizon. Financial plans should anticipate and keep pace with these changes.

The first step is to find out your risk profile. Risk-return profile reflects an individual’s willingness and ability to balance risk and return, and depends upon his/her financial soundness and psychological ability to take risk.

The next step is to formulate a financial plan. The financial planner integrates your risk profile and planned financial goals with your current investments and liabilities. It rebalances your portfolio as per the suggested asset allocation projects your cash flow and

net worth over your planning horizon. It also calculates your insurance requirements and suggests instruments for investment.

5.2 RISK PROFILING

RISK PROFILING

The risk profile of an investor is difficult to gauge because it oscillates with market moods. When the market is on the rise, even the most risk-averse start buying stock. A sharp correction leads to panic selling, even by risk-takers.

No wonder, the first thing a financial planner wants to know is his client’s risk profile. It helps him direct investments. A person’s risk is a combination of his attitude towards asset classes and his investment tenure and objectives.

Many wealth management companies use psychometric testing. “These tests could be a starting point. But risk profile cannot be mapped considering the investible amount and the tenure of investments.”

An investor is given a set of questions with four options. Each answer has points and the sum total defines the risk profile. The person is then defined as conservative, moderate, aggressive and very aggressive.

While there are a large number of wealth management companies and websites that can help you gauge your risk profile, here’s some help of you wish to do on your own.

Step 1

Investment horizon: Whether it is equity, debt, gold or property, you need to take a call on the tenure and accordingly choose the asset class.

Step 2

What is your investment goal? The goal has to be matched with investment horizon. For instance, if you wish to purchase a car in the next three years, investing in equities is the best option. However, if you want to buy a flat in six months, you may have to compromise on returns to ensure there is no erosion of capital. In such circumstances, a fixed deposit is ideal.

If the investment horizon is between three years and five years, investing in equity for the first three years and then shifting to debt slowly can help get decent returns. That is, young person wishing to get married and buy a property and a car needs to be aggressive in the first few years.

For the investment goals of less than three years, debt is ideal. One could take the route of fixed deposits or short-term and long term debt funds. However, if you want to make money aggressively, investing in good balanced funds can shore up returns. This is because they invest a part of their money in equities, which increases returns. Such investment goals are typically related to purchasing a car or planning a holiday.

Below is the classification of various risk profiles and their description in brief:

Risk category Description

Secure As a secure investor, the best investments for your risk profile will be low risk instruments such as cash and fixed income securities. This approach offers a high degree of stability, liquidity and is aimed towards capital prevention.

Conservative As a conservative investor, the best investments for your risk profile will be primarily low risk instruments such as cash and fixed income securities with small exposure to equity instruments. This approach aims to protect your capital and at the same time generate better returns than a secure portfolio.

Moderate As a moderate investor, the best investments for your risk profile will be a judicious combination of cash, fixed income securities and equities. This approach aims to achieve balance between capital prevention and growth but is likely to involve at least some short term volatility.

Growth As a growth investor, the best investments for your risk profile will be primarily in equity instruments. This approach concentrates on achieving a

good overall return on your investment while avoiding the most speculative areas of the capital market. Significant short term fluctuation in value can be expected but with a high potential for upside in the long term

Aggressive As a growth investor, the best investments for your risk profile will be in equity instruments. The aim is to maximize the appreciation of assets in the long term while accepting the possibility of large short term fluctuations in value. Due to the exposure to higher risk instruments there possibility of a return greater than what is expected from a growth portfolio in the long term.

5.3 CUSTOMER SATISFACTION

CUSTOMER SATIFACTION

The working of the customer’s mind is a mystery which is difficult and understanding the nuances of what customer satisfaction is a challenging task. This exercise in the context of the banking industry will give us an insight into the parameters of customer satisfaction and their measurement. This vital information will help us to build satisfaction amongst the customer and customer’s loyalty in the long run which is an integral part of any business. The customer’s requirements must be translated and quantified into measureable targets. This provides an easy way to monitor improvements, and deciding upon the attributes that need to be concentrated on in order to improve customer satisfaction. We can recognize where we need to make changes to create improvements and determine if these changes, after implemented, have led to increased customer satisfaction. “if you cannot measure it, you cannot improve it.”- Lord William Thomson Kelvin (1824-1907).

CHAPTER 6: UNDERSTANDING AND ANALYSIS OF PERSONAL BANKING QUESTIONNAIRE

Assumption Tab

The user can enter the basic assumptions guiding the financial planning calculations in this tab as described below. All the parameters are initially defined at the bank level and can be changed within the limits specified at the bank level.

1. Life Expectancy:

This figure represents the life expectancy of the customer as well as the spouse. All the financial projections will be displayed starting from the current year till the customer’s life expectancy. All the entries in the other tabs like inflows, outflows and goals have to be within this period.

2. Retirement Age:

The retiral amounts entered in the inflows tab will be compounded till the retirement age and the cumulative value of the same will be added as a cash flow to the total inflows figure in the retirement year. This retirement age should be within the life expectancy of the client.

3. Spouse’s Retirement Age:

Treatment for this will be similar to the client’s retirement age. It should be within the life expectancy of the client.

4. Rate of Inflation:

This will be used to inflate the inflow, outflow or goal values wherever applicable.

5. Risk Free Return:

This will be used for insurance calculations to find the present value of future cash-flows.

6. Assumptions relating to assets for all the asset classes defined at the bank level.

a. Annual rate of return percentage (RoR): This will be used to calculate the returns on client’s holdings in the respective asset classes with annual compounding.

b. Tax rate percentage: This will be used at the time of automatic asset liquidation by the system to meet shortages if any in a particular year. This rate will be applied to the total amount liquidated from the respective asset class, i.e. if the required

amount is 100 and the tax rate is mentioned for the asset class is 10% the amount liquidated will be 100/0.9=111.11. Please note this is not on the capital gains alone but on the total amount liquidated.

c. Order of liquidation: This will be used to identify the client’s preferences for the order of liquidating an asset class over the others in case any shortages in a year. The assets will be liquidated in the ascending order of the numeric order of liquidation specified.

Assets Tab

At least one entry is mandatory in this tab to go to the next tab and to complete the proposal. The user can capture the following details:

1. The current market value of the client’s existing assets (based on the asset classes defined in the master).

For an existing customer who already has investment holdings, these values will be auto populated with the client’s existing holding pattern available in the system. The user can further add/modify these values to incorporate any other assets not captured in this system. Only one entry per asset is allowed.

2. Annual cash return on the asset class will be used to derive cash return for each asset class based on the previous year end value of that asset class which will be added to the inflows for the year. This amount should be less than or equal to the annual RoR specified for respective assets in the assumptions tab. Please note that the cash return is a component of the annual RoR defined for the asset class, hence the asset value appreciation will be computed on the basis to annual RoR less the annual cash return. No tax is applied on the cash returns.

3. Client allocation of investable surplus percentage captures the client’s current allocation pattern for investing surplus/savings generated. This will be used to allocate surplus generated each year in to the respective asset classes for building the “Assets- As is” projection from the existing assets. Please note that this percentage allocation will not be used to rebalance the existing assets while calculating “Asset Level (as is)”. E.g. assume the client has the following assets as captured in the Assets Tab:

Asset class Market value Cash return (%) Client allocation for investable surplus

(%)

Equity 500000 6% 75%

debt 300000 4% 25%

Real estate 200000 2% 0%

In the above case all 3 asset classes will exist for deriving ‘Asset Level (as is)’ value. Any investible surplus from each year will be invested only in Equity and Debt in the ratio of 75:25. However, real estate asset class will keep growing based on the annual RoR mentioned in the ‘Assumptions Tab’.

4. Current total value of insurance risk covers of the client which will be used to calculate the additional insurance cover needed for the client.

Inflows Tab

The user can capture inflows in one of the three following tabs available according to the type of inflow.

Net Take Home Income – Self

1. The user can enter the net annual (post tax) take home salary/ other income and the retrials as described below, the amount and its annual growth rate for different periods, life stages into the future till the Life Expectancy. The period for an income that has a retrial amount associated with it cannot exceed the Retirement age. If there is no retrial amount associated with an income, the period can extend up to the Life expectancy.

2. The annual retrials amount captures the total annual contribution (including self and the employer’s) towards pension/PF/superannuation and the rate of return obtained from such contributions; the annual contributions are grown year on year at the same rate as the income growth rate till the end year of compounding salary income and compounded (with the rate of return on retrials as specified) to a lump sum inflow at the Retirement age. The returns on the contributions would be computed on contribution from the next year. Hence in the retirement year itself, there will be no returns computed on that year’s contribution. If the income stops before the retirement age of the client the retrial corpus accumulated till that year

will keep growing at the rate of ‘RoR of the retrials’ till the retirement age and show an inflow only on the retirement year of the accumulated amount.

3. Income will grow each year based on the growth rate % mentioned. Salary income and the retrial figures starting from future dates will be inflated annually (using the inflation rate defined in the assumptions tab) to the start year of the range, or not inflated as per the option selected for ‘inflate till the start year’ while entering the income details; from then on it will be grown at the income growth rate specified. Salary income and the retrials starting from previous year will be grown at the specified income growth rate from the start year and the current year cash flows will consider the grown salary figure.

Example:

If a client was born in 1970, retirement age is 60 years (year 2030) and the life expectancy is 75 years (year 2045) and the rate of inflation is 7.5%. if we are in year 2008 consider the following incomes:

SN Description Year from

Year to

Annual amount

Growth rate

Retrials amount

Retrial ROR

Inflatable

(a) Salary without retrial

2010 2045 10000 20% - - Y

(b) Salary with retrials

2010 2030 10000 15% 1000 10% Y

(c) Salary from previous years

2007 2009 100000 10% 20000 8.5% Y

(d) Salary ending before retirement

2008 2020 10000 0% 1000 10% Y

(e) Non inflatable

2020 2025 60000 10% 1000 10% N

future salary

Of the above incomes only income (e) has been chosen to be non inflatable till the start year. The following table summarizes the inflows figures for the above salaries in the starting year, retirement year, and the last year in the customer’s life expectancy.

Year

Salary (a) Salary (b) Salary (c) Salary (d) Salary (e)

Income

Retrial

Income

Retrial

Income

Retrial Income

Retrial

Income

Retrial

2008

- - - - 110000

43700 10000

1000 - -

2009

- - - - 121000

71615 10000

2100 - -

2010

11556 - 11556

1156 - 77702 10000

3310 - -

2011

13868 - 13290

2485 - 84306 10000

4641 - -

2020

71553 - 46751

28139

- 175682

10000

24523

60000

1000

2021

85864 - 53764

33515

- 1906165

- 26975

66000

2200

2025

178047

- 94034

64389

- 264166

- 39494

96631

9663

2029

369199

- 164466

118386

- 366097

- 57823

- -

2030

443039

- 189136

137300

118810

397215

- 63606

- -

2031

531647

- - - - - - - - -

2044

5688258

- - - - - - - - -

2045

6825910

- - - - - - - - -

Net Take Home Income- Spouse

1. To add rows in this table, it is mandatory that spouse details are added in ‘demographics’ tab under the dependents information section.

2. Retrial income will be calculated based on the retirement age of the spouse. For an income with retrials specified at the end year has to be less than the retirement age of the spouse as well as life expectancy of the client.

3. All other calculation logic will be same as that for Net take home income – self. If a client was born in 1970, his wife in 1975, his wife in 1975, the retirement age is 60 years and life expectancy is 75 years. If we are in year2008 consider the following incomes:

SN Description Year from

Year to Annual amount

Growth rate (%)

Retrials amount

Retrial ROR

(a) Spouse’s Salary without retrial

2010 2045 1000000 20% - -

(b) Spouse’s salary with retrials

2010 2035 1000000 15% 100000 10%

In the above case (a) as the client’s life expectancy is 75 years and the income doesn’t have any retrials it can be earned latest till 2045.

In the above mentioned case (b) as the spouse’s retirement age is 60 years and the income has retrials also mentioned, it can be earned latest till 2035.

Onetime Cash Inflows

1. Amount expected as one time inflows from insurance maturities/ money back policies/bond maturities/known inheritance etc. in future can be entered here. The system does not inflate the figures entered here, as these amounts are known upfront.

2. If the inflow is resulting from maturity if an existing asset, the respective asset class should also be indicated while entering the amount. The system validates that this amount cannot exceed the amount of this asset class captured in the ‘Assets’ tab. Please note that only illiquid investments made in the respective asset class that have to be necessarily held till maturity need to be included here. Fixed maturity instruments that are tradable and can be sold in secondary market ahead of maturity should not be mentioned here, as the system would automatically liquidate them if and when required to fund a deficit in a particular year, as per the order of liquidation.

3. Year of inflow will be derived as (current year+ years from now). E.g. if the user enters 2 years from now (year 2008), then inflow would happen in the year 2010.

4. For calculating the “Asset Level as is” the amount mentioned as one time inflow against an asset will not be available for liquidation to meet any shortfall till the time of inflow. No such constraint will be maintained for the “Asset Level recommended” column as the user includes the one time inflow amount in the “Asset Level recommended” column as the user includes as the user includes the one time inflow amount in the “Assets” tab and all assets mentioned there are reallocated according to the recommended asset allocation every year. E.g. assuming the current year is 2008 and recommended asset allocation is commodities 50% and equity 50%.

SN Description Amount Years from now

Asset redeemed

(a) RBI Bonds Maturity

500000 5 Bonds

(b) Inheritance 2000000 2 -

In the above case (a) system will check that bonds asset must be present in the assets tab and the market value of the same should be more or equal to 500000. This amount of 500000 will be reallocated into the recommended asset allocation (50% each into commodities and equity) for calculating “Asset Level recommended”.

Only for the “Assets Level As is” column, in case of any shortages till the year 2013 (2008+ 5 years) this amount will not be available for liquidation, though it will continue to yield the defined RoR and cash returns as mentioned in the assumptions. In 2013 this amount of 500000 will be added to the inflows and the value of asset class ‘Bonds’ will be decreased by the same amount in the “Assets Level As is”.

In the above case (b), a sum of 2000000 will be added to the inflows amount in year 2010 (2008+2 years) for calculating both “Assets Level As is” and “Asset Level recommended”.

Outflows Tab

At least one entry is mandatory in this tab to go to the next tab and complete the proposal. The user can capture the following details:

Expenses

1. It allows capturing the expense levels at different life stages of the client up to life expectancy.

2. Each expense can be indicated as inflatable or not inflatable e.g. insurance premiums are fixed amounts and are not inflated, while living expenses would be inflated. The inflated expenses are grown year on year at the inflation rate maintained in the Assumptions section.

3. All expenses indicated as non-inflatable are considered in the outflows at the actual amounts entered within the period range defined.

4. Inflatable expenses starting from previous years will be inflated from the start year to arrive at the amount of current year’s expense and will continue to be inflated till the ‘to year’.

5. Inflatable expenses starting from a future year will be inflated from current year at arrive at the expense amount for the future start year and will continue to be inflated from thereon till the ‘To year’.

Example: if rate of inflation is set as 10%, consider following expenses:

SN Description Year from Year to Annual amount

Inflatable

(a) Living expenses

2006 2040 10000 Y

(b) Living expenses

2010 2045 800 Y

(c) Golf classes 2010 2012 500 N

(d) Medical expenses

2005 2035 500 N

In the above case (a) the system will start inflating the expenses from 2006 to arrive at the figure in 2008 (i.e. 12100) and then it will continue inflating till the year 2040.

In the above case (b) the system will start inflating the expenses from 2008 to arrive at the figure to be considered in 2010 (i.e. 968) and then it will continue inflating till the year 2045.

In the above case (c) the system will not inflate the expenses at all and the amount of 500 will be considered in outflows from the year 2010 to 2012.

Similarly in case (d) it will consider the sum of 500 in the outflows from the year 2008 to 2035.

Contracted investment outflows

1. The user can enter any contracted outflows of fixed amount that add to the asset value e.g. SIPs, contributions to PPF, committed investments into a Venture capital, private equity or real estate fund,, recurring deposits etc. The system does not apply inflation on these figures. Please note that the contracted outflows that cannot be cancelled need not be included. This is because FCPB includes the assets built due to contracted investments while rebalancing to calculate “Asset Level recommended” every year end.

2. These outflows have to be entered against an asset class. Even if the selected asset is not a part of the clients existing assets (as entered in the assets tab) or the recommended asset allocation, his contracted outflow amount will create the mentioned asset class explicitly to calculate the “Asset Level recommended” as well as “Assets Level As is” from next year, but it will be rebalance for calculating “Asset Level recommended”.

3. This amount will also be considered to calculate the total outflow amount for the relevant years.

4. For contracted investment outflows starting from a previous year the inflows/outflows of previous years will not be considered and no assets will be created for the previous years. The respective assets will be built starting from the current year only.

5. For contracted investment outflows starting from the current or future years the assets will be built from the start year and also outflows will be considered from the future investment amount.

Loans/Lien

1. The user enter the loan details including principal amount outstanding as of the loan start year, loan period, the annual repayment/ EMI of the loan, and the asset class against which the loan is taken, in case of secured loans.

2. If the user defines a loan which starts in current or previous years, the system will assume that the cash flow on account of the loan disbursement has already been realized and is reflected in the assets entered in the assets tab. In the special case of a loan starting from current year for which the disbursement is yet to take place, this amount should be added as a clean one-time cash inflow in the inflows tab, with the number of years from now maintained as “0”.

3. For loans against an asset starting in either previous or the current year, that asset should be available under assets tab and the principal outstanding of the loan in the current year should be less than the market value of the assets class in the client’s portfolio. Current principal outstanding amount will be calculated by the system for loans started in previous years to check whether there are sufficient assets in the assets tab to back the loan.

4. When entering the details for loans starting in the future years, the user is free to enter any asset against the loan. There is no check on the sufficiency of the asset value to back the loan that is to start from a future year. For loans starting in future years, loan amount will be considered as inflow in the year mentioned as ‘Year From’. Also amortization of loan will start from the same year. Loan outstanding amount displayed is as of the end of the respective year. Kindly note that as the loans starting in future is assumed to be a planning recommendation, such loans are considered only for calculating the “Asset Level recommended”.

5. The rest period is the frequency at which the principal outstanding amount of the loan is reduced.

6. If annual repayments/EMI for a loan against an asset is mentioned as zero then the same will be considered as lien on that asset class to prevent liquidation during the term of the lien for calculating “Assets Level As is”. Therefore this amount will be set off from the total current assets while considering rebalancing the existing rebalancing the existing assets as per recommended allocation.

However this amount will be considered in its asset class and will continue to grow at the RoR specified for that asset class in the assumptions tab and also generate cash returns. This lien amount will not get added to the outstanding loan bucket. No such restriction will be maintained “asset level recommended”.

Example:

If a lien is entered against the asset class equity for an amount for Rs. 20000 with a term of 3 years from now EMI=0, there will be no addition to loan outstanding. If the equity class level in the beginning is say 300000, than initially the asset available for rebalancing as per recommended allocation would be 280000; for the first 3 years even though the entire asset of 300000 will grow as per the RoR, an amount of 20000 will be blocked for liquidation

7. Any loan or lien against on asset will make the respective asset unavailable for liquidation to meet any shortages to the extent of the principal outstanding as of that year that year while calculating the “Assets Level as is”. Such restriction will be maintained while calculating “Asset Level recommended”.

E.g. assuming the current year is 2008.

SN Description Amount From year To year Against asset

(a) Loan against RBI bonds

500000 2006 2010 Bands

(b) Personal loan

2000000 2008 2013 -

(c) Loan against shares

200000 2010 2012 Equity

In the above case (a) system will check that bonds asset must be present in the assets tab and the market value of the same should be more than or equal to the amount outstanding as of 2008. In case of any shortages till the year 2010 this amount will not be available for liquidation while calculating “Assets Level as is”, though it will continue to yield the defined RoR and cash returns as mentioned in the assumptions.

In the above case (b) system will include EMI from the first year (i.e. 2008) but the inflow due to this loan i.e. a sum of 2000000 is assumed to have already taken place and reflected in the existing assets as mentioned in assets tab.

In the above case (c), the system will allow such a loan even if Equity asset is not available in the current assets or the recommended assets. But while calculating “Assets Level as is” system will exclude to the extent of amount outstanding of this loan or the actual value of the asset (whichever is lower) in the respective year when calculating the assets available for liquidation in the equity asset class between the years 2010 and 2012. This figure of 200000 will be included in the inflows for the year 2010 for calculating “Asset Level recommended”.

Goals Tab

1. The user can enter the details of the clients financial goals, with a description, the amount expected at today’s prices and the time period from now in years.

2. The user also has to enter the client’s preference as to whether the system can take a loan to the extent of shortages if any to meet the goals. Interest rate, tenor and the rest period need to be entered if the loan is to be taken.

3. As the amount in expected cost column is as of the current year, it will be inflated based on the inflation rate mentioned in the ‘assumptions’ tab till the year of goal to arrive at the actual cost of the goal.

4. If the user mentions time from now (years) as 2 from the current year (2008), goal will be considered in the year 2010.

5. If loan required flag ‘y’ then loan will be considered to the extent of the shortfall/ deficit after liquidating the assets as per order of liquidation mentioned in the assumptions tab to meet the goal. If the deficit amount exceeds the goal amount itself, then the loan amount is capped at the cost of the goal in that year.

6. Amortization of loan taken to meet the goals will start from the next year. (I.e. year after the loan inflow.)

Projections Tab

This is a display only tab that shows the projections for each year starting from the current year till life expectancy of the client. Following is a description o the each head displayed and the computation methodology.

1. Calendar year

2. Age of the client

3. Total inflows as projected for each year based on information captured in the inflows tab calculated as:

a. The annual income as entered in the net take home sections for self and the spouse.

b. The annual cash return on the respective asset levels as of prior year end,

c. Plus

d. Any one time inflows entered in the inflows tab without any asset mentioned against it. Plus

e. The lump sum retirement inflow in the respective year, plus

f. Any new loans that are planned to be taken to meet the goals to be met in the year or a loan entered in the outflows tab with a future start year plus

g. Any asset liquidation that is undertaken to meet the net deficit for the year, if applicable.

NOTE: the inflows for calculating ‘Asset Level as is’ will be calculated in the same way but they will include any one time inflows mentioned against some asset also happening in the corresponding years. Inflows for calculating ‘Asset Level as is’ will also not include any inflows of the loans taken in future as entered in the loans/lien section under ‘outflows’ tab.

4. Total outflows as projected for each year calculated as:

a. the sum of all the expenses for the each year for the respective year plus

b. the contracted investment outflows for the respective year plus

c. the annual repayment towards the loans taken plus

d. the inflated cost of the goal in the goal year plus

e. the annual repayment of any loans taken to meet a goal or any outstanding loans

NOTE: the outflows for calculating “asset level as is” will be calculated in the same way but they will not include the annual repayment of any loans taken in future as entered in the loans/lien under ‘outflows’ tab.

5. Shortage/surplus calculated as the excess or shortage of the inflow amount over the outflow amount. In a situation wherein the total inflows even after asset liquidation to the extent allowed are not able to cover the outflows, the deficit will be shown for the year to indicate the need of replanning by adjusting the underlying parameters or by taking a loan.

6. Asset Liquidated to show the gross amount of assets liquidated in the year to meet any deficit.

7. Loan outstanding which is the total principal value of the loans outstanding as the end of the year; this will be computed based on the loan details captured in the outflows tab and any loans taken for goal fulfillment. The loan amortization for each year is computed as the net of the annual loan payment and the interest component for the year.

8. Asset level (as is), for each year is computed as follows:

a. Asset level as of previous year grown based on the annual rates of return for each asset class (as per existing asset allocation of the client) less

b. the annual cash return (as it is already considered in the inflows for the year) plus

c. the contracted investment outflows in the respective asset class (returns thereon will be included from second year onwards of the respective outflow) less

d. any one-time cash inflow plus

e. The surplus amount (inflows-outflows), if any, distributed into each asset class as per the client’s existing allocation for investable surpluses. Less

f. Any assets liquidated to meet the shortage/ deficit, if any, to make good the deficit, if any, to make good the deficit in the respective year.

9. Asset Level (recommended) the distribution of the total existing assets in the first year is done according to the recommended model asset allocation. Also any surplus and the returns on the assets are allocated according to the recommended model asset allocation.

Step 1: Calculation of the total asset values for rebalancing at the end of the year.

a. Asset level as of previous year grown based on the annual rates of return for each asset class (as per existing asset allocation of the client) LESS

b. The annual cash return (as it is already considered in the inflows for the year) PLUS

c. The contracted investment outflows in the respective asset class PLUS

d. The surplus amount (inflows-outflows), distributed into each asset class as per the model asset allocation. LESS

e. Any assets liquidated to meet the shortage/ deficit, if any, to make good the deficit, if any, to make good the deficit in the respective year

Step 2: Rebalancing

a. Total asset value as calculated in step 1 is rebalanced in the recommended asset allocation in the defined ratios.

CHAPTER 7 FACTOR ANALYSIS OF CUSTOMER SATISFACTION QUESTIONNAIRE

7.1 Factor analysis

The customer satisfaction questionnaire of the Kotak Mahindra Bank was filled by existing customers of the bank and the factor analysis of the same was done and accordingly the grouping of the various important factors was done so as to gather the information on the various important parameters organization should concentrate on.

To continue towards the main analysis, factor analysis has been performed to identify the main factors influencing the customer satisfaction behavior of the existing customers of the bank. The respondent ratings were subject to principal axis factoring with varimax rotation to reduce potential multicollinearity among the items and to improve reliability on the data. Varimax rotation (with Kaiser Normalization was converged in four iterations.). Eight items were reduced to three orthogonal factor dimensions which explained 75.602% of the overall variance indicating that the variance of original values was well captured by these three factors.

7.2 Reliability of Data (KMO and Bartlett’s test)

Analysis was done with the help of the statistical software SPSS. This table shows two tests which indicate the suitability of data for factor analysis.

KMO and Bartlett’s test

KMO and Bartlett’s test

Kaiser-Meyer- Olkin Measure of sampling Adequacy

Bartlett’s Test of Approx. chi-square

Sphericity df

Sig.

.331

193.862

28

.000

Kaiser-Meyer-Olkin

The Kaiser-Meyer-Olkin Measure of sampling Adequacy is a statistic which indicates the proportion of variance in your variables which is common variance, i.e. which might be caused by underlying factors. [It is the index for comparing the magnitudes of the observed co-relation coefficient to the magnitude of the partial correlation coefficients]

High values (close to 1.0) generally indicate that a factor analysis may be useful with your data.

If the value is less than .50, the results of the factor analysis probably won’t be very useful.

Bartlett’s Test of Sphericity

Bartlett’s test of simplicity indicates whether your correlation matrix is an indentify matrix, which would indicate that your variables are unrelated.

The significance level gives the result of the test. Very small values (less than .05) indicate that there are probably significant relationships among your variables.

A value higher than about .10 or so may indicate that your data are not suitable for factor analysis

Ho: There is significant indifference of all the factors affecting the customer satisfaction behavior of the existing customers of the bank.

H1: There is significant difference of all the factors affecting the customer satisfaction behavior of the existing customers of the bank.

The observed significance level is 0.000 (Refer Table 1) which is less than .05, which is small enough to reject the hypothesis.

It means there is a significant difference between the factors affecting the customer satisfaction behavior of the existing customers of the bank.

Strength of relationship among variables is strong. It presents good idea to proceed to factor analysis for the data.

7.3 Communality- Common Factor Variance

Principal component analysis works on the initial assumption that all variance is common; therefore, before extraction all the communalities are 1.

The communalities in the column labeled Extraction reflect the common variance in the data structure.

So, for example we can say that 67% of variance associated with the first factor is shared or common, variance.

“Eigen Value”: indicates the amount of variance in the original variables accounted for by each component. The total initial variance in the new components will be 8.

Communalities

Initial Extraction

ACC. TYPE

EXPERIENCE

FREQUENCY OF SERVICES

SERVICES RECOMMENDED

TIME OF DURATION OF SERVICES

POLITNESS

1.000

1.000

1.000

1.000

1.000

1.000

1.000

1.000

.678

.829

.607

.720

.753

.724

.895

.842

PRODUCT KNOWLEDGE

SPEED OF SERVICE

Extraction Method: Principal Component Analysis

Another way to look at these communalities is in the terms of variance explained by the underlying factors.

After extraction, some of the factors are discarded and some information is lost.

The amount of variance in each variable that can be explained by the retained factors is represented by the communalities after extraction.

7.4 Total Variance Explained

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Rotation Sums of Squared Loadings

Total

% of variance

Cumulative %

Total

% of variance

Cumulative %

Total

% of variance

Cumulative %

1

2

3

4

5

6

7

8

2.654

1.748

1.646

.710

.619

33.180

21.848

20.574

8.872

7.739

4.617

33.180

55.028

75.602

84.474

92.213

96.830

99.271

100.00

2.654

1.748

1.646

33.180

21.848

20.574

33.180

55.028

75.602

2.223

1.998

1.827

27.783

24.975

22.843

27.783

52.758

75.602

.369

.195

.058

2.442

.729

0

Extraction Method: Principal Component Analysis

This page gives Eigen values, variance explained, and cumulative variance explained for the factor solution. It lists the Eigen values associated with each linear component (factor) before extraction, after extraction and after rotation. For the initial Eigen values solution, there are as many components or factors as there are variables. The extraction sums of squared loadings group gives information regarding extracted factors or components. We can see from the above table that 3 components have been extracted from the initial 8. We have also rotated the factors to see the difference more clearly. The variance accounted for by rotated factors or components may be different from those reported for the extraction but the cumulative % for the set of factors or components is the same. The results of the extraction sums of squared loadings obtained are explained below.

7.5 Scree Plot

Graph here. On x axis eiganvalue and on y axis component numer

X-axis plot number from 0.0 to 3.0. for eg. 0.0, 0.5,1, 1.5 and so on

y-axis number from 1 to 8

The scree plot is an indicative of the number of factors that we finally get from the initial variables considered. The inflection on the curve gives the number of factors. This curve is difficult to interpret because it usually tails off after 3 factors. For this reason, the indications of the scree plot are not very reliable. But if we look carefully; there is a break at the 6th component as well indicating 6 factors.

We can interpret that 8 variables are now reduced to 3 components contributing 75.602% of the total variance. With the help of, scree plot,

we can just visualize that 3 factors are reduced with Eigen value greater than 1.000.

7.6 Component Matrix

This table reports the factor loadings for each variable on the unrotated components o factors. Each number represents the correlation helps to formulate an interpretation of the factors or components. This is done by looking for a common thread among the variables that have large loadings for a particular factor or component.

We can see from the table below that in component 1, many variables are highly loaded. Similar is the case for other components. This makes interpretation difficult. Thus we conducted a rotation to obtain a clearer picture of the factor loadings.

Component Matrix(a)

Component

1 2 3

ACC. TYPE

EXPERIENCE

FREQUENCY OF SERVICES

SERVICES RECOMMENDED

TIME OF DURATION OF SERVICES

POLITNESS

PRODUCT KNOWLEDGE

SPEED OF SERVICE

.477

-.764

.716

.646

-.059

.672

-.346

.582

-.350

.246

.240

-.488

.456

.513

.596

.665

.572

.430

-.193

.254

-.736

.099

.648

.245

Extraction Method: Principal Component Analysis

a 3 components extracted.

7.7 Rotated Component Matrix

After applying rotation to the data, the loadings were observed. Rotation method was Varimax with Kaiser Normalization. After the rotation, the factor loadings were clearly observed. The variables under each factor have been shown.

Rotated Component Matrix (a)

Component

1 2 3

ACC. TYPE

EXPERIENCE

FREQUENCY OF SERVICES

SERVICES RECOMMENDED

TIME OF DURATION OF SERVICES

POLITNESS

PRODUCT KNOWLEDGE

SPEED OF SERVICE

.171

-.339

.661

.164

.186

.847

.226

.902

-.073

-.838

-.413

-.446

-.218

-.061

.918

.162

.802

-.107

.005

.703

-.819

.060

.032

.054

Extraction Method: Principal Component Analysis

Rotation method: varimax with Kaiser Normalization

A Rotation converged in 4 iterations

Each variable has been categorized into different factors depending upon the factor loadings. It has been observed that contrary to the 8 variables considered

initially, only 7 have a significant effect on the consumer buying behavior pattern under study.

The significant variables are those contribution is more than or equal to 0.7 in any factor.

Our first factor (politeness) is composed of 2 variables politeness & speed of service.

Factor1 (politeness) =0.847*(politeness) +0.902(speed of service)

Our second factor (skills) is composed of 2 variables experience & product knowledge

Factor2 (skills) =0.838*(experience) + 0.918*(product knowledge)

Our third factor (involvement) is composed of 3 variables account type, services recommended and time duration of service

Factor3 (involvement) =0.802*(account type) + 0.703*(services recommended) +0.819*(time duration of service)

CHAPTER 8 FINDINGS AND RECOMMENDATIONS

FINDINGS

CITI & HDFC bank are the most preferred banks amongst the priority customers.

Most of the priority customers are businessmen

Customers are willing to invest in equity market, insurance and bank savings & FDs.

Investments are long term investors

Most of the investors are medium risk taker

Most of the investors take their investment decision on their own

Economic changes affect the investor’s investment perspective

Recommendations

Customer satisfaction

Kotak bank can improve upon its services through more customer interaction. More focus upon their customer’s benefits with individual target achievement of the employees.

Survival in the competition

In today’s scenario kotak has to compete with already established giants like CITI, HDFC, SBI, AXIS etc upon their offerings.

Kotak, to be in can lower down its lending rates which are as high as 14% to 24.75% compare to other banks 10.5% to 20%

Kotak can also become more liberal in processes without compromising upon its service quality

Increase Sales & revenue

For sales boost up from the survey it is being known that now more & more investors want to invest in equity and debt. Market as well as insurance products

If see in terms of unclaimed money only, the distribution of such funds RBI said that most of this money is lying in saving deposit accounts. More than 77.4 lakh accounts, which form a massive 75% of the entire accounts percent have these funds. In terms of unclaimed money this segment accounts for Rs. 629.94 crore, which is over 60% of the total amount. Rs. 232 crore is lying unclaimed in 8.3 lakh fixed deposit accounts. The money has not been able to apply properly generated into the market. There is ample amount of idle money lying into bank FDs and different savings a/c which is not being used according to the market needs. Also return customers get is nominal compare to other investment opportunities available to them. Today most of the people working in the market are for their benefit; hardly very few people are working for their customers benefit. They all are target oriented. They want to complete their targets at the cost of the customers. They convenience the customers to invest in the products which are profitable to them but less compare to other investment opportunity because they have targets for that.

Idle money with banks

savings

FD

The money has not been able properly generated into the market. There is a ample amount of idle money lying into the banks FDs & different savings a/c which is not being used according to the market needs. Also the return customers get is normal compare to other investment opportunities available to them. Today most of the people working in the market are for their benefit; hardly very few people are working for their customers benefit. They all are target oriented. They want to complete their targets at the cost of the customers. They convince to other investment opportunity because they have targets for that.

In banking 2 kind of relationship can be maintained with the customer. Take, invest & throw out. Take, invest & maintained life long relationship. But in today’s scenario it is needless to say that to save their jobs most of the employees o almost all the banks are practicing first rather than second.

CHAPTER 9 LEARNINGS

From the 2 month of my summer training internship I got to learn lot of things. I had learned to apply my theoretical knowledge into practical and where no theory can work accept the practically. I had learned some things as mentioned below.

It makes me understand the practically of the banking industry.

It also makes me understand the practically of job of priority Relationship manager (PRM).

How to handle a pressure of work?

Hoe to convince a customer?

Where to invest so that it gives them maximum return to the customer?

What customer wants from the ban?

How to give them better service?

How to sale?

ANNEXURE 1: CUSTOMER SATISFACTION QUESTIONNAIRE

As a part of internship program, on behalf of the KOTAK MAHINDRA BANK, I am carrying out the survey on CUSTOMER SATISFACTION QUESTIONNAIRE ON BANKING SERVICES. All the information provided should be kept confidential and should be used for the best of interest of the customers and the bank.

Name:

Gender: male[] female[]

Age:

o <25 yrs

o 25-35 yrs

o 25-45 yrs

o >45 yrs

What are your occupation/earning type?

o Pension

o Student

o Self employed

o Salaried/wages

o Retired/home maker

What is your annual salary/income (Rs)?

o 50000

o 50001-100000

o 100001-300000

o 300001-500000

o >500001

o none

What kind of accounts do you hold?

o Saving account

o Current account

o Credit card

o Fixed deposits

Do you think that the bank caters to all your banking needs?

o Yes

o No

Does Kotak Mahindra Bank offer competitive interest rates?

o Yes

o No

Does Kotak Mahindra Bank offer competitive service charge?

o Yes

o No

Do you avail any modern banking facility(s) at this branch?

o RTGS/NEFT

o Internet banking

o SMS/Mobile Banking

o ATM cum Debit Card

o Cheque drop box facility

How often do you use service?

o Daily

o Once a week

o 2 to 3 times a month

o Once in 6 months

o Once a year

Will you recommend product/service to others?

o Definitely

o Probably

o Might or might not

o Probably not

o Definitely not

How long have you used service?

o Less than 1 month

o 1 to 6 months

o 6 months a year

o 1 to 3 years

o Over 3 years

Strongly agree

Agree

Neutral

Disagree

Strongly disagree

The customer service representative are very courteous/helpful

The customer service representative handled my call quickly

The waiting time for having my question addressed was satisfactory

I feel, I have a good relationship with the staff members

Service representatives act in my best interest

Staff assistance makes banking easier

ANNEXURE 2: RISK PROFILING QUESTIONNAIRE

On the following pages there is an investor profile questionnaire for competition. The questionnaire helps using allocating customers to 1 of 3 categories- conservative, moderate and aggressive. Based on the questionnaire output, we will suggest a portfolio tailored to the client’s risk profile.

1) What is your investment horizon?

o Up to 1 year

o 1-3 yrs

o 3-5 yrs

o More than 5 yrs

2) Kindly indicate your age group?

o 18-29 yrs

o 30-39 yrs

o 40-49 yrs

o Above 50 yrs

3) How many people are financially dependent on you?

o None

o 1-2 persons

o 3-4 persons

o More than 4 persons

4) Excluding your pf and real estate how long will your saving sustain you?

o Less than 3 months

o Between 6-18months

o Between 18-36 months

o Greater than 36 months

5) How secure is your current and future income?

o Unstable

o Somewhat unstable

o Somewhat stable

o Stable

o Very stable

6) The next several years you annual income to:

o Stay about the same

o Grow moderately

o Grow substantially

o Decrease moderately

o Decrease substantially

7) Which of the following broadly defines your current stage in life?

o You are self dependent and do not support anybody

o You have dependent(s) and alternative financial support

o You have dependent(s) but without alternative financial support

o Nearing retiring

o Retired.

8) Describe your investment knowledge.

o Excellent

o Good

o Average

o Poor

9) Post 9/11WTC attacks markets plunged. If you made investment fortnight before the attack, what would be your reaction?

o sell the investment

o sell the part of investment

o hold onto investment and sell nothing

o see an opportunity and make fresh purchases

10) Which of the following investment plan suits you the most?

o Low steady returns with safety on principal at all times

o Medium returns with a temporary decline in principal at times

o Above average returns with fluctuating value of investment

o High returns with high risk

11) I generally prefer to stay in a familiar situation, rather than a chance on a new situation

o Strongly agree

o Somewhat agree

o Somewhat disagree

o Strongly disagree

12) You just have reached the Rs.10 lakh plateau on TV game show (KBC). Now you must choose between quitting with 10 lakh in hand or betting the entire 10 lakh in one of the three alternative scenarios?

o The Rs. 10 lakh. You take money and run

o A 50% chance of winning Rs. 50 lakhs

o A 25% chance of winning Rs 75 lakhs

o A 10% chance in winning 1 crore

REFERENCES:

1) www.google.com

2) www.investopedia.com

3) www.amfiindia.com

4) www.nseindia.com

5) www.mutualfundsindia.com

6) www.thehindubusinessline.com

7) www.rbi.com

8) www.moneycontrol.com