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Service Quality o f Public Sector Bank s to SME Custom ers:
An Em pirical Study in the I ndian context
* Popli, G.S.
* * Ra o, D.N.
1 . I ntroductionThe Indian Banking Industry which was operating in a bureaucratic style prior to 1991 had
to undergo large scale transformation with the opening of the economy. The sector has
been facing unprecedented challenges with the wave of liberalization, privatization and
globalization of Indian economy. Banks in India are under intense pressure to perform in
todays volatile market place. Steep competition, globalization, growing customer demand
and exposure to higher credit risks are forcing the banks to find new ways of providing
better customer service so as to improve profitability. On the other hand, cost cutting
measures have forced banks to manage operations with few Customers Relationship
Managers and product specialists. Industry consolidation also poses fresh challenges to this
sector. Given the prevailing trends of buyers market, the market players cannot afford to
take the customers for granted. When the competition has resulted in the thinning of
margins, enhancement of profits can be possible only through multiplying the volume of
business. And, the volume of business, in turn, can be increased only if the banks are able
to attract and retain the customers. But the quantum of customer assets in banks balance
sheets is declining day by day. A large number of customers are shying away from banks;
therefore there is an urgent need to bring the customers back to the banking fold.
__________________________________________________________________
*Popli, G.S. is currently working as Deputy Chief Manager (Financial Analyst), with Oriental
Bank of Commerce, New Delhi.
** Rao, D.N. is currently working as Director, Centre for Management Education, All India
Management Association, New Delhi.
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However, in this new scenario, the advancement of Information Technology has provided
major support to the financial systems. Communication technology has been facilitating the
gathering and transferring of information across the globe and helping to understand and
apply the better systems and procedures of one country into other countrys functioning.
The awareness of the customers about the market place is also increasing. These trends
compel one to believe that the banks will have to concentrate on customer service not only
for expansion and maximization of profits but also for their survival.
With a delayed entry into the process of globalization compared to peers, Indian Banking is
at the cross roads. On the one hand, it has to service the age-old traditional customers and
on the other has also to develop products for meeting the emerging demands of the present
and prospective new customers. During the post-nationalization period, class banking stand
transformed into mass banking. Now, with the thrust on profit-maximization, the shift is in
favor of class-banking.
The environments in which banks operate today are divergent. In metro centers, every
activity is technology driven, whereas, there are remote branches situated in hilly areas,
where even daylong electric supply is not assured. The customer service requirements at
these centers are also totally different. The awareness level of customers at different
centers is also varied. One set of customers in rural areas feel that the bank is obliging
them by giving service, while the other group in metros considers such service at lowest
possible cost is more or less their fundamental right. Customers in rural areas are more
interested in getting the service they require and are unaware of the profits the bank makes
through these services. Alternatively, the urban customers not only insist on best service at
the lowest cost, but also as prospective shareholders of the bank, expect from the officials
to show excellent growth and profits also. Following the advent of disinvestment
programmes of Public Sector Banks, there is pressure from shareholders on banks to excel
in profits as well as in customer service.
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2 . BackgroundThe Small and Medium Sector occupies an important place in the economy of a country.
The SMEs Sector plays a key role as a growth engine for the national economy, employment
generation and greater prosperity for the nation. They represent over 80% of Industrial
Enterprises and have been instrumental in building a solid industrial base in India. Their
contribution to the economy is huge and hence they are entitled to their rightful share of
attention from financial institutions.
It has a share of 40% in the industrial production and produces about 8000 products. 35%
of the total manufactured exports of the country are directly accounted for by this sector.
In terms of employment generation, this sector is next only to agriculture employing
approximately 29 Million people. Since 1994, the number of SME units has increased by
about 40% touching to 12 Million Enterprises in the country. As a result of this, the
production output has increased by 150 per cent, employment by over 30% and exports by
around 140 per cent. The annual growth rate of SMEs Sector exceeds the growth of the
entire industrial sector. The sector therefore, presents an opportunity to the nation to
harness local competitive advantages for achieving global dominance. As such this sector
and SME Customers require the immediate and prompt attention of the authorities at the
helm of the affairs at each level.
3 . Com mit tees for improvem ent of Custom er Service in banksThe consequence of nationalization of banks saw tremendous quantitative explosion and
thoroughly altered the input-output relationship set up in banks. The customer service in
banks probably reached its lowest level by the mid-1970 and the early 1980s. The
organized effort to tackle the issue and initiation of corrective measures took the form of
Talwar Committee, which submitted its report in 1977. The committee went into various
aspects of customer service in banks and came with 176 recommendations, the majority of
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which were accepted and implemented in right earnest under the close monitoring of the
Finance Ministry and RBI.
However, given the dynamic context and rising customer expectations, the level of public
satisfaction with bank services again suffered a downturn, leading to the constitution of yet
another committee in 1990. This committee, more popularly known as Goiporia Committee
carried out extensive studies and interviews and came up with 97 recommendations. These
recommendations too found ready acceptance. There can be no denial of the fact that both
these committees have contributed significantly by focusing the attention on various aspects
of customer service but failed to bring about perceptible improvement in the quality of
service mainly due to the facts that the recommendations were formed without considering
the inadequacies of internal and external infrastructure and support system. Further the
committee had not suggested any punitive measures for not implementing the
recommendations.
The Narsimham Committee (1991), which covered the whole gamut of the Indian Banking
Sector, had also emphasized the need to improve service to the customers.
Simultaneously, besides the pressure of having to work efficiently, the banks are being
subjected to pressures in such matters as prudential norms and transparency. Other
important developments with respect to customers include the Customer Protection Act,
which interalia; covers the bank services and the establishment of Banking Ombudsman
Scheme.
4 . W TO and its I m pact on I ndian SMEsSo far SMEs have survived under protected environment. With the introduction of W.T.O.
and its conditionality many of the support structures would vanish and SMEs would have to
struggle on their own. The new WTO regime, that is going to affect every economic activity,
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will have an enormous affect on the SMEs Sector in India, which comprises multidimensional
target groups varying from small, tiny units to highly qualified technocrats.
There will be far reaching, ramifications of the scope, objectives and principles of WTO
agreements, as already illustrated earlier on the conduct of business in the member
countries of WTO. So far, the Indian Small Enterprise Sector has survived due to the
protected environment in the form of product reservation, market reservation, price
preference, priority sector lending, fiscal exemptions, concessions, etc.
With the emergence of WTO and its conditionality, which considers protection as
discriminatory or a barrier to trade, many of the existing support systems for protection and
promotion of the Small Scale Sector will have to be dismantled. As a result, the small- scale
sector will have to compete on its own to find a place for itself in the domestic as well as
international market. The small scale sector has to upgrade its technology and modernize,
adopt modern marketing, management practices and improve the quality of its products in
order to be efficient and competitive. In the absence of these changes, its survival may be
at peril. Most of the small scale units are unaware to the challenges thrown by the WTO
agreements and negotiations because of the lack of understanding about these agreements
and negotiations.
Since the WTO regime, as it unfolds itself in totality, would have far reaching implications
for the SME Sector, it is imperative for the Government to review its policies concerning the
sector with a view to not only making them compatible with the WTO regime, but also
preparing them completely to respond to the emerging environment as an opportunity
rather than a threat.
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5 . Dim ensions of Financial Dem and from SMEs in t he Post W TO RegimeSince quantifying the demand for capital from small industry is an extremely difficult task in
view of its heterogeneity, the dimensions are discussed in the form of identifying
areas/motives requiring finance and their relative importance.
Broadly, credit demand from the SME Sector in the present scenario is:
(a) Demand for Working Capital, and
(b) Demand for Investment
While the growth of working capital demand is directly related to the growth of small
industry sector, what is of more significance in the liberation period is investment demand.
Investment demand can be subdivided into several categories:
(i) Replacement of obsolete machinery or Technological Up-gradation and
Modernization.
(ii) Expansion of the Unit by adding Plant and Machinery to produce more.
(iii) Quality Improvement.
(iv) New Ventures/Diversification
(v) Labor Saving Devices.
(vi) Research and Development to constantly upgrade the competitiveness of
the unit.
(vii) Environment related investments (industry specific).
The Investment Demand for finance from Small Industry will increase enormously in the
coming decade. A substantial part of the demand will emanate from the factory sector,
particularly because of technology up-gradation and modernization, expansion and quality
improvement. But equally significant will be the transformation demand of the unorganized
sector workshops and household industrial and their subsequent entry into the factory
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sector. Though R & D is not yet significant, the competitive pressure and the urge to grow
will prompt many small factories to go for setting up their own R & D facilities. In the
process of all these, some of the Small Industry Units will grow into Medium/Large Scale
Units.
6 . Rationale of the StudySmall and Medium Enterprises have been unable to achieve the competitiveness that would
allow them to drive the manufacturing sector and overall economic growth, employment
and poverty reduction. Essentially this is because of their lack of awareness of the market
and resources, as well as the problems that SMEs face in assessing adequate financing and
business development services. Bankers are reluctant to lend to SME Units because of the
high transactions costs and perceived risks of lending in the face of insufficient credit
information, inadequate credit appraisal and risk management skills, poor repayment
records and low market credibility of SMEs.
Moreover, Industrial liberalization and post WTO regime has made enhancement of
competitiveness crucial for the development of Small and Medium Industries. In majority
countries, the policies and strategies towards industrialization have been reformulated with
a special focus on SMEs. The policy framework for the development of SMEs has been
undergoing fast change in tune with the changing economic scenario in India like ASEAN
Countries.
The focus of this study is on the development of an appropriate financial infrastructure and
to provide sufficient finance without much hassles and delay to SME customers, which in
turn would contribute to the overall development of a competitive Small and Medium
Enterprises Sector in India.
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7 . Objectives of the StudyThemain objectives of the study are:
To analyze the customer satisfaction status of SME Customers. To find out the financial requirements of SME Units in the pro WTO regime. To study and compare the quality of service with Private Sector Indian Banks and
Foreign Banks.
To find out the reasons for Industrial Sickness in SME Sector.8 . Research Met hodologyThe research carried out under the topic is of analytical nature. The primary data is
collected through a pre-tested structure structured questionnaire for SME customers. We
have covered 100 SME Customers/experienced Bankers/Officials from Small Industry
Development Bank of India/Policy Makers in Ministry of SME Sector of Delhi Govt. and Govt.
of India. Random Sampling was adopted. The responses were analyzed with the help of
various statistical techniques, such as mean, percentage, t-test and ANOVA to obtain results
regarding the quality of customer service.
9 . Review of LiteratureJong Wook Ha, Soon-Gwon Choi and Sungwoo Jung (2007) analyzed the Korean firms on
When, how and where do SMEs start global business. This paper investigates whether
traditional internationalization theory, especially Uppsala Internationalization Process (UIP)
perspective, can be applicable to analyze new international phenomena of small and
medium sized enterprises, such as International New Venture (INV). They recommend the
development of a new concept to explain and analyze new internationalization phenomena,
such as INV, Born-global, as 'Condensed Internationalization.'
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Kozan, Oksoy and Ozsoy (2006), in a study of Turkish Entrepreneurs found that business
management training and financing are significantly related to an SME owners expansion
plans. To be specific Turkish entrepreneurs need market information, technical assistance,
information resources and training in finance and marketing to accumulate the resources
necessary for expansion.
Wheeler (2006), had studied on the urge to work by Micro entrepreneurs in West Africa.
He found that they were motivated by a desire to satisfy basic physiological needs food
and shelter. The Government should ensure provision of basic infrastructure and conducive
environment for the survival and growth of the SME Sector in the country.
Ratnam and Sengupta (2005) said that the banks are facing many hurdles in the new era of
deregulation and ever increasing competition. To fight these problems efficiently, banks
should focus on customer satisfaction, which can be achieved through providing customized
products, innovative ways of delivery etc.
EIM (2005) in his study on technology upgradation observed that growing enthusiasm for
internationalization by new technology based firms has led to a general perception that all
Small and Medium Enterprises, irrespective of industrial activity, can enter foreign market
through Foreign Direct Investment.
Shankar (2004) concluded that focus on customer is not to be viewed as just a business
strategy but should become the corporate mission. The challenge for banks is in the areas
of people changing their beliefs and attitudes, technology and competition.
Santi (2004) concluded that for delivering quality service, it is imperative to have customer
orientation as a culture in the bank. Customer orientation builds long term relationships
resulting in customer satisfaction and cash flows to the banks.
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Mukherjee et al (2003), presented the development of a theoretical framework for
measuring the efficiency of banking services, taking into account physical and human
resources, service quality and performance. Expenditures on quality improvement efforts
and the impact of service quality on financial outcomes have long intrigues researchers.
A study by RBI on complaints received against commercial banks located in the jurisdiction
of the concerned Regional Offices of RBI was carried out for the period January 1, 2003 to
June 25, 2005. The complaints have been categorized into seven broad categories,
including deposit account related activities of Direct Selling Agents, harassment of recovery
of loans and general/others.
Although in absolute terms, the number of complaints received against Public Sector Banks
were the highest (9006), the average complaints per branch for Public Sector Banks was
much lower ranging from 0.08 to 0.28 as against 0.00 to 2.68 for Private Sector Indian
Banks and 0.10 to 16.06 in the case of Foreign Banks. The majority of the complaints were
in the category of loans and advances 18.4%, followed by deposit accounts 18.2%. This
trend was observed across all bank groups, except Foreign Banks, which most of the
complaints were related to credit cards.
Yarran, Raju.B. (1995) in his study on Small Industries : An Overview found that the main
cause of sickness was high cost of production because the raw material purchased were in
short quantities and at higher price. Small Scale Industries also lack adequate funds from
the banks and consequently leads to shortage of working capital.
Himachalam, Jaya Chandran and Narender (1995) in their study observed that central
capital intensive sector made no attempt to varied socio economic problems chronic
unemployment, disparity in income and wealth of different regions, untapped natural, local
based resources and so on. It was suggested that small units should be provided required
financial assistance at right time and at concessional terms by financial institutions. The
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industrial estates should be provided all infrastructural facilities, technical, managerial and
financial assistance at reasonable rates.
Gadkari (1977) examined the critical success factors and stressed that excellence in
customer service and high level of customer satisfaction will remain elusive goals even with
the induction of the state of the art technology and competitive pricing of products if the
employees at the grass root level are not committed to these goals.
Given this background, it is interesting to evolve the quality of service provided to the SME
customers by the Public Sector Banks. In quest of an answer, the present study is
undertaken to fill the gap.
1 0 . Analysis and I nter pretat ionThe analysis and interpretation of data about the various aspects of service provided by the
Public Sector Banks to their SME customers is as follows:
Responses about the rating of services provided by the banks to their customers are given
in Table 1. It is evident from the table that as many as 48 % of the respondents rated the
courtesy at the counter as good and 34 % as average. Promptness in transactions is rated
as good by 35% and fair by 32 %. Adherence to Govt. norms have been rated as good by
20%, fair by 32% and average by 48% of the respondents. Cost of various services has
been rated as good by 12%, fair by 42% and average by 46%. Providing guidance at the
counter has been rated as good by 10% only and fair by 18% and average by 72%. It
shows that there is scope for a lot of improvement in the services being provided by the
Banks to the SMEs Customers. The analysis shows that the difference among the means of
these ratings given by the respondents on this account is statistically significant at 5% level.
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Table 1 : Rating of Services to Small and Medium Ente rprises
Rating of Services in terms oftheir relative importance
Percentage of Responses
Good Fair Averag e
a. Courtesy at the counter 48 18 34
b. Promptness in transactions 35 32 33c. Prompt redressal of
grievances32 18 50
d. Adherence to the norms 20 32 48
e. Cost of various services 12 42 46
f. Flexibility in granting temporaryaccommodation over and above thesanctioned limits
16 28 36
g). Providing guidance inconducting business
10 18 72
Table 2: Factors Affecting Services to Sma ll and Medium Enterprises
To what extent according to
you, the following factorsinfluence the services of the
banks
Percentage of Responses
To a large
extent
To some
extent
Not at al l
a. Training of the staff 70 14 16
b. Placement of the staff 54 38 8
c. Location of the bank 24 72 4
d. Procedures 60 36 4
e. Supervision 68 26 6
f. Modernisation 78 18 4
g. Communication 78 18 4
Total 432 222 46
Responses about the various factors affecting the services are depicted in Table. 2, which
indicates that the location of the bank does affect the services but only to some extent and
all the other factors affect the services to a large extent. The analysis shows that
Modernization (78%) and Communication (78%) affect the services to a large extent and
there is a need of training to the staff (70%) for improvement of service to the SMEs
customers. As a whole, it can be said that as many as 62% of the respondents are of the
view that these factors affect the services to a large extent. The analysis shows that the
difference among the means of the ratings given by the respondents is statistically
significant at 1% level.
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Table 3 : Compa rison of Services of Public Sector Banks w ith th ose of Private
Sector I ndian Banks/ Foreign Banks
S.No Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Total Overall
Score Score Score Score Score Score Rank
1 Do you deal with
Public Sector IndianBanks/Foreign Banks:
Yes: 72%No:28%
2 If yes, how do youcompare the servicesof Private banks withthose of Public sectorbanks?
(a) Far better:48%(b) Better:24%(c) Almost same: Nil
(d) Poor: Nil3 What are the factors,
you think, contributeto better services inPublic and Privatesector Banks?
(a)Professionalism(b)More Cooperative(c)Easy approach to
Management(d)Higher return on
deposits(e)Technology
402216
14
46
241418
22
24
382016
16
26
241426
18
22
182828
14
20
14494108
84
138
143
5
2
We have compared the services of Public Sector Banks with those of Private Sector
Banks/Foreign Banks. It is clear from the table that 72 % of the total respondents deal with
PSIB/FB banks also and feel that their services are far better than those of Public Sector
Banks. According to them Professionalism, Technology, Easy approach to the Management,
competitiveness are the main factors contributing to the better services in Private Sector
Indian Banks and Foreign Banks. The Public Sector Banks must improve their service to
compete with the Private Sector and Foreign Banks.
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Table 4 Ava ilability of Other Services
S.No. QuestionsPercentageof Responses
Yes No
1(a) Do you interact with your bank regularly? 88 12
1(b) If yes, do the banks respond positively 60 40
2 Do you get the necessary information andGuidance from the banks?
57 43
3 (a) Are you conversant ordinarily with RBI/GOIDirectives/Instructions relating to SME Units?
56 44
3 (b) Do you think that banks follow the variousDirectives issued from time to time by RBI/GOI?
65 35
4 (a) Is there any machinery for redressal of grievances in banks? 72 28
4 (b) If yes, do you make use of them? 42 58
4 (c) If yes, do the problems get sorted out promptly? 44 56
5 Did you change your Bank due to poor customer service? 52 48
Responses regarding the availability of the other services being provided by the banks to
their customers are given in Table 4. As exhibited in the table, 88% of the respondents
interact with their banks regularly but only 60% of them felt that the banks respond
positively. Only 57% of the respondents feel that the banks provide necessary information
and guidance. As many as 44% of the respondents are not conversant with RBI/GOI
directions relating to SME Sector. Only 35% of the respondents are of the view that the
banks do not follow the various directions/instructions issued from time to time. As many
as 72% of the respondents admit that there is a machinery for redressal of grievances in
banks and 42% of them make use of it. As high as 56% of them are of the view that
problems do not get sorted out promptly. Inspite of this, 48% of the respondents had not
changed their banks. The analysis shows that there is no significant difference in the means
of the ratings given by the respondents and there is a lot of scope for improvement in
customer service.
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Table 5: Specialised SME Branches
S.No. QuestionsPercentageof Responses
Yes No
1(a) Are the banks in your area having specializedSME Branches?
56 44
1(b) If yes, are their dealings with SME clientsproviding more satisfaction than general branches?
86 14
1 (c) If no, do you think that a separate branch wouldProvide better services?
44 Nil
2 (a) Do you think that banks are more favorably inclinedTowards large industries?
74 26
2 (b) If yes, how the position can be improved by SME Units?(i) Separate SME wings and delegation to BMs(ii) Separate SME branches(iii) Follow strictly RBI/GOI Guidelines
638686
371414
Responses about the specialized SSI branches are given in Table 5, which reveal that 56%
of them have informed that the banks have specialized SME branches of banks in their
areas and 86% of them claimed that their dealings with SSI branches provide more
satisfaction than the usual branches. As high as 74% of the respondents are of the view
that the banks are more favourably inclined towards large industries. This is not a good sign
for growth of the SME Sector in India. The Banks should provide better and prompt service
to SME Industries. Opening separate SSI branches and following RBI/GOI guidelines strictly
as claimed by them can rectify this position for SSI Units. The analysis shows that there is
a significant difference in the means of the ratings given by the respondents at 1% level of
significance.
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Table 6 : Change in Technology
S.No. QuestionsPercentageof Responses
Yes No
1 Have you upgraded your technology? 76 24
2 Did you require funds from Financial Institutionsfor this purpose?
90 10
3 Were the funds made available by FIs without muchHassles?
45 55
4 Were there some changes in Production Schedules? 86 14
5 Were there some changes in work allocations? 75 25
6 Any changes in material inventories? 76 24
7 Any changes in ways of Communication?(a) within the plant(b) with suppliers(c) with customers
828282
181818
8 Do you frequently change Plant level Organisation like:(a) Work allocations(b) Any specific change after 1991
(c) Do you feel further changes after post WTO Era necessary?
7475
100%
2625
-9 Why do you go for change?
(a) To improve the Production process so as to increase output(b) To increase the flexibility(c) To improve the quality of product(d) To reduce production cost(e) Product diversification(f) All the above
2
442484
10 Do you think that additional training/qualification will berequired after the upgradation of the existing machinery?
100
11 Do you think that additional Managers/staff will be requiredafter upgradation of the existing machinery?
86 14
Table 6 shows the responses about change in technology for SME Industry in the post WTO
regime. It reveals that 76% have upgraded the technology and 90% of them required funds
from the financial institutions. But 55% of the responds said that the funds were not made
available easily by the Financial Institutions. The changes in technology were 86% for
change in production schedule, 75% for change in the work allocation, 76% for Material
Inventory changes. 82% went for change in communication methods within the plant, with
suppliers and with customers. As high as 75% said that they had to change/upgrade the
technology after the liberalization in 1991 and all the responds agree that they had to
upgrade the technology in the pro WTO regime. For this, 86% of the responds had
conveyed that the additional training and staff with professional degrees and experience
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was required to make the SME Units modernized and to compete with the MNcs at
International level. They will require funds from Financial Institutional/Commercial Banks to
make their SME units more viable and competitive.
Table: 7. Financial Pattern of the SME I ndustries
S.No. QuestionsPercentageof
Responses
Yes No
1 Do you need finance from outside sources? 76 24
2 If Yes:
(a) How much you need by way of fixed capital from externalsources?
(b) How much you need by way of Plant &
Machinery from external sources?(c) How much you need by way of Working Capital
From external sources?
60
65
76
40
35
24
3 What are your overall sources of finance?
(a) Financial Institutions(b) Development Banks(c) Commercial Banks(d) Personal(e) Relatives(f) Friends(g) One or more of above
161250859100
4 Is there Equity participation by other firms? 12 88
5 The participating firms are:
(a) Indian(b) Foreign
12Nil
6 Do you think that credit requirements for your unit will increase in the postWTO era?
100
7 If yes, how much more working capital finance will you require from externalsources?
(a) 10%(b) 20%(c) 30%(d) 50%
3101572
8 Has the Credit Flow to SME Sector by Financial Institutions increased? 12 88
9 Why do you go for change?(a) To improve the Production process so as to increase output(b) To increase the flexibility(c) To improve the quality of product(d) To reduce production cost(e) Product diversification(f) All the above
2442484
10 Do you think that additional training/qualification will berequired after the upgradation of the existing machinery?
100
11 Do you think that additional Managers/staff will be requiredafter upgradation of the existing machinery?
86 14
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Responses about the financial pattern are given in Table 7. It is evident from the table that
as many as 76% of the respondents conveyed that they require funds from outside sources.
The analysis of the responses reveal that 60% required funds for purchasing of Fixed
Capital, 65% for purchase of Plant & Machinery, 76% for Working Capital. 24% of the
respondents are arranging funds from their personal resources. 88% of the respondents
revealed that there is no equity participation by the other firms in their Units. All the
responds agree that there will be technology upgradation in the post WTO regime for which
they will require funds from outside sources. But the 88% of the respondents revealed that
the credit flow to SMEs sector is not sufficient and the Govt. will have to initiate necessary
steps for making the required funds available without much hassels and on convenient
terms.
Table : 8. Governme nt Policy Measures
S.No. Questions
Percentage
of Responses
Yes No
1 What do you think about changing Govt. Policies?(a) Are they giving you more freedom to take decisions?
(b) Do you still feel that the Govt. is regulating?(c) Do you think that Govt. is not providing enough protection to SMEs?(d) Did you ever think Govt. Policies are useful?
78
3672
78
22
6428
22
2 Should the interest rates be linked to PLR or someCredit Rating System to be devised?
32(PLR)
68(CreditRating)
3 Should the Banks be directed to abolish the conditionof obtaining collateral security for loans up to Rs.25 lakhsfor SME units?
92 8
4 Should there be some subsidy or low interest rate on loans obtained fortechnology up gradation by SME units
82 18
5 Are the Govt. Policies for SME Sector of other developing countries betterthan that of our country?
70 822(Notaware)
Table 8 shows the effects of Govt. Policies & measures in the development of SME Sector.
78% of the respondents revealed that Govt. policies are giving more freedom to take
business decisions but 36% feel that the Govt. is still regulating. Though the 72% of the
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respondents had conveyed that the Govt. is not protecting them in this new scenario but
78% still agree that the Govt. Policies are very useful in the survival and growth of the SME
Sector in the country. 68% of the respondents had suggested that the interest Rate be
linked to Credit Rating System and 32% says it should be linked to PLR. As high as 92%
said that there should b no collateral securities for SME loans upto Rs. 25 lacs and 82%
wants that low rate of interest be charged for upgradation of the technology from the SMEs
industries. 70% of the respondents feel that the policies for SME Sector of other countries
are far better from the policies of our country whereas 22% are not aware of the policies of
other countries for SME Sector.
Table 9: Processing of Applications for Loans
S.No. Questions
Percentage
of Responses
Yes No
1 Do the banks help in filing the application forms? 52 48
2 Are the applications for loans made through Consultants/Advisorsetc attended to more expeditiously?
58 42
3 Do the banks issue acknowledgement of the loan application? 18 82
4 Are the loan applications exhaustive to seek information from theapplicant?
82 18
5 Do they seek clarification about the loan application in one go or inpiecemeal?
37 (inone go)
63 (inpiecemeal
6 Do you consider that the application form for loans prescribed bythe banks are cumbersome and cause avoidable hardship? 68 32
7 If yes, please give suggestions to avoid the same:(a) Formalities to be completed by the banks(b) Objective type questions(c) both a and b above
84250
8 What is the general attitude of the bank at the time of LoanApplication receipts?
Very Cooperative: 16Co-operative: 36Indifferent: 28Discouraging:20
Table 9 shows the responses about Processing of Loan Application Forms for loans. It
reveals that the loan application form is exhaustive (82%) and cumbersome (68%). The
information is demanded in piece meal (63%). 48% conveyed that the Bank officials do not
help in filling the application forms and 58% feel that the loan application submitted by
consultants/advisors/liaison officers are attended immediately whereas it takes more time
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for the individuals. Moreover 82% of the respondents conveyed that no acknowledgement
receipt is given by the bank officials. 42% of the respondents feel that the questions in the
loan application forms should be objective type only and 50% say that both subjective and
objective type questions should be included.
Table 1 0: Sanction of Loans to SME Units
S.No. QuestionsPercentageofResponses
Yes No
1 Have you obtained any bank loan during the last 5 years 87 13
2 If yes, how much time was taken by bank?a. One monthb. One to two monthsc. Two to three monthsd. More than three months
30151824
3 If the sanctioned loan is less than Requirement, what is the approximate gap?
a. 0 - 10%b. 10-20%c. 20-30%d. More than 30%
4204630
4 Are the loans upto Rs.1.00 lakhs released by the banks without detaileddocuments?
28 72
5 Do the banks disburse the amount of credit appraisal upto Rs.1.00 Lac withinfortnight after Submission of all papers/particulars?
If No, what is the usual delay?Upto One Week:
One to two weeks:Two to four weeks:More than four weeks:
22
8
Nil1420
78
6 Do you feel that there is delay in disposing of cases under this category?
If Yes, are they due to:(a) Procedural rigidities(b) Unhelpful attitude of the staff(c) Delay in submission of requisite information(d) Complicated Proposals
72
444664
28
7 Do the banks dispose of applications for Enhancement of limitswith in(a) Six months(b) More than six months
6238
8 Do the banks provide:(a) Need based finance(b) Security based finance(c) Both (a) and (b) above
223840
9 Do you face the problems of Time over-run and Cost over-run due to nonavailability of Finance from your bank?
76 24
1 0 Do the Banks demand collateral security or Guarantee of third party evenwhen the project has been appraised as viable and primary security isadequate?
86 14
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Responses about sanctioning of loans are given in Table 10, which shows that as high as
87% of the respondents have obtained loans during the last five years and the banks
usually take more than two months to sanction the loan. The loan sanctioned is 20% to
30% less than the requirement, as claimed by the majority of the respondents. As many as
72% of the respondents are of the view that loans upto Rs.1.00 lac are not released by the
banks without detailed documentation. Moreover, the banks also do not dispose of the
credit upto Rs. 1.00 lac within a fortnight of submission of all the information/papers, as
stipulated by RBI and the delay is usually more than two weeks. There is delay in
processing due to unhelpful nature of the staff members, as claimed by the majority of the
respondents. The banks usually provide finance against security and as high as 86% of the
respondents are of the view that the banks ask for collateral security/guarantee from a third
party even where the project has been assessed as viable and primary security is adequate.
As many as 76% of the respondents feel that they have faced problems of time
overrun/cost overrun because of non-availability/time availability of finance from the banks.
Table 1 1: Rea sons for I ndustrial Sickness of SME Sector
Do you think that the cases of growing industrial sickness in SME Units are mainly due to?
Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Total Overall
Score Score Score Score Score Score Rank
1 Non availability of timelyRehabilitation Financefrom the banks
50 46 45 25 8 174 3
2 Deficient Projects,including Technicaldeficiency
40 58 36 36 16 186 2
3 Deficient market forproducts
42 68 29 35 14 188 1
4 Infrastructuraldeficiencies, including
Labour/ Power etc.
26 32 22 30 14 124 4
5 Lack of Professionalsupport from theemployees
22 12 18 12 36 100 5
6. Do the banks help in rehabilitating Sick units by initiating viability study: Yes (22%); No (78%)
7. Is the process of rehabilitation followed Up well in time? Yes (28%); No (72%)
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8. How do you rate the success of Such Rehabilitation?
Good: Nil
Fair: 8
Average: 16
Below Average: 12
Table 11 shows the reasons for Industrial Sickness. It is evident from the table that
increasing industrial sickness among SMEs Units is mainly due to deficient market for
products, followed by deficient projects, including technical deficiency and non availability of
timely rehabilitation finance from the banks and others. As high as 78% of the respondents
are of the view that banks do not help in rehabilitating sick units by initiating viability study
and moreover, if initiated, the success of such rehabilitation is below average.
Table 12 : Suggestions for im provement of the Service/ Financing for SME
Customers
Rank1
Rank2
Rank3
Rank4
Rank5
Rank6
Total Overall
Score Score Score Score Score Score Score Rank
1 Simplification of LoanApplication form
40 38 30 18 26 18 178 5
2 Appointment ofTechnical staff
50 28 22 24 34 26 184 4
3 Quick Credit/Rehabilitationdecisions/ Specializedbranches
54 24 38 28 32 16 192 2
4 Strict compliance OfRBI/GOI directives onSME Credit
55 28 34 26 42 13 198 1
5 Reduction of InterestRates for SMECustomers
48 44 36 24 22 14 188 3
6 Regular follow-up of
SME Units by banks
36 27 14 16 20 38 158 6
Responses regarding suggestions for improving the services are given in Table 12, which
shows that strict compliance of RB/GOI Guidelines for SME Units, quick credit/rehabilitation
decisions, simplification of application forms, reduction of interest rates and appointment of
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Technical staff and specialized branches are the main suggestions, in order of importance,
to improve the service to SME customers.
1 1 . Conclusion
To conclude, here are a few suggestions:
(a) Proper training should be provided to the staff members for proper knowledge of
the latest rules/direction of RBI, right attitude and professional approach towards
customer service.
(b) More Specialized branches be opened for SMEs Entrepreneurs.
(c) Loan Application forms/procedures be simplified.
(d) Higher Authorities should ensure that Reserve Bank of India/Government of India
guidelines on SMEs Sector are being implemented by all the branches in letter and
spirit.
(e) Quick disposal of the Loan Application should be ensured.
(f) The main emphasis be laid on the Project/person rather than the collateral in SMEs
financing.
(g) Soft loans be granted to SME Units for technology upgradations.
(g) Rehabilitation of sick SMEs units be considered timely in a professional way.
(h) Lower Interest Rate be charged from SMEs Industries.
(i) Technical staff be appointed in the branches to cater to the SMEs Customers
12. Limitations of Research
(a) The Research was conducted in Delhi. A more diverse sample across
different cities might show that there is a difference in customer attitude towards bank
service.
(b) Another limitation is the sampling technique. Convenience Random
Sampling was used in this study whereas the Random Probability
Sampling is expected to give better results.
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