CHAPTER-1
INTRODUCTION
1.0 INDIAN STOCK MARKET
Before liberalization, Indian economy was tightly controlled and protected by number of
measures like licensing system, high tariffs and rates, limited investment in core sectors
only. During 1980s, growth of economy was highly unsustainable because of its
dependence on borrowings to correct the current account deficit. To reduce the imbalances,
the government of India introduced economic policy in 1991 to implement structural
reforms. The financial sector at that time was much unstructured and its scope was limited
only to bonds, equity, insurance, commodity markets, mutual and pension funds. In order to
structure the security market, a regulatory authority named as SEBI (Security Exchange
Board of India) was introduced and first electronic exchange National Stock Exchange also
set up. The purpose behind this was to regularize investments, mobilization of resources
and to give credit.
Mark Twain once has divided the people into types: one who has seen the great
Indian monument, The Taj Mahal and the second, who have not. The same can be said
about investors. There are two types of investors: those who are aware of the investment
opportunities available in India and those who are not. A stock market is a place where
buyers and sellers of stocks come together, physically or virtually. Participants in the
market can be small individuals or large fund managers who can be situated anywhere.
Investors place their orders to the professionals of a stock exchange who executes these
buying and selling orders. The stocks are listed and traded on stock exchanges. Some
exchanges are physically located, based on open outcry system where transactions are
carried out on trading floor. The other exchanges are virtual exchanges whereas a network
of computers is composed to do the transactions electronically. The whole system is order-
driven, the order placed by an investor is automatically matched with the best limit order.
This system provides more transparency as it shows all buy and sell orders. The Indian
stock market mainly functions on two major stock exchanges, the BSE (Bombay Stock
Exchange) and NSE (National Stock Exchange). In terms of market capitalization, BSE and
NSE have a place in top five stock exchanges of developing economies of the world. Out of
total fourteen stock exchanges of emerging economies, BSE stood at fourth positionwith
market capitalization of $1,101.87b as on June, 2012 and NSE at fifth position with market
capitalization of $1079.39b as on June, 2012.
1.1 Bombay Stock Exchange
Bombay Stock Exchange is located on Dalal street, Mumbai. In terms of market
capitalization, BSE is the eleventh largest stock exchange in the world on 31st December,
2012. BSE is the oldest stock exchange in India. In the beginning during 1855, some stock
brokers were gathering under Banyan tree. But later on when the number of stock brokers
increased, the group shifted in 1874. In 1875, the group became an official organization
named as The Native Chor and Stock Brokers Association. In 1986, BSE developed its
Index named as SENSEX to measure the performance of the exchange. Initially, there was
an open outcry floor trading system which in 1995 switched to electronic trading system.
The exchange made the whole transition in just fifty days. BSE Online Trading, known as
BOLT is a automated, screen based trading platform with a capacity of 8 millions orders
per day. BSE provides an transparent and efficient market for trading in equities,
debentures, bonds, derivatives and mutual funds etc. It also provides opportunity to trade in
the equities of small and medium term enterprises. About 5000 companies are listed in
Bombay Stock Exchange. As on January 2013, the total market capitalization of the
companies listed in BSE is $1.32 trillion. In terms of transactions handling, BSE Ltd. is
worlds fifth exchange. As far as Index Options trading is concerned, BSE is one of the
worlds leading exchanges. Some other services like risk management, settlement, cleaning
etc. The purpose of BSE automated systems and techniques are to protect the interest of the
investor, to stimulate market and to promote innovations around the world. It is the first
exchange across India and second across world to get an ISO 9000:2000 certification.
1.2 National Stock Exchange
The National Stock Exchange is located in Mumbai. It was incorporated in 1992 and
became a stock exchange in 1993. The basic purpose of this exchange was to bring the
transparency in the stock markets. It started its operations in the wholesale debt market in
June 1994. The equity market segment of the National Stock Exchange commenced its
operations in November, 1994 whereas in the derivatives segment, it started it operations in
June, 2000. It has completely modern and fully automated screen based trading system
having more than two lakh trading terminals, which provides the facility to the investors to
trade from anywhere in India. It is playing an important role to reform the Indian equity market
to bring more transparent, integrated and efficient stock market. As on July 2013, it has a
market capitalization above than $989 billion. The total 1635 companies are listed in National
Stock Exchange. The popular index of NSE, The CNX NIFTY is extremely used by the
investor throughout India as well as internationally. NSE was firstly introduced by leading
Indian financial institutions. It offers trading, settlement and clearing services in equity and
debt market and also in derivatives. It is one of Indias largest exchanges internationally in
cash, currency and index options trading. There are number of domestic and global companies
that hold stake in the exchange. Some domestic companies include GIC, LIC, SBI and IDFC
ltd. Among foreign investors, few are City Group Strategic Holdings, Mauritius limited,
Norwest Venture Partners FII (Mauritius), MS Strategic (Mauritius) limited, Tiger Global five
holdings, have stake in NSE.
The National Stock Exchange replaced open outcry system, i.e. floor trading with
the screen based automated system. Earlier, the price information can be accessed only by
few people but now information can be seen by the people even in a remote location. The
paper based settlement system was replaced by electronic screen based system and
settlement of trade transactions was done on time. NSE also created National Securities
Depository Limited (NSDL) which permitted investors to hold and manage their shares and
bonds electronically through demat account. An investor can hold and trade in even one
share. Now, the physical handling of securities eliminated so the chances of damage or
misplacing of securities reduced to minimum and to hold the equities become more
convenient. The National Security Depository Limiteds electronically security handling,
convenience, transparency, low transaction prices and efficiency in trade which is affected
by NSE, has enhanced the reach of Indian stock market to domestic as well as international
investors.
1.3 Stock Market Volatility
To invest money in stock market is assumed to be risky because stock markets are volatile.
There is volatility in stock market because macro economic variables influence it and affect
stock prices. These factors can affect a single firms price and can be specific to a firm. On
the contrary, some factors commonly affect all the firms. For example, when stock market
crashed on September 2008, the price of almost all listed companies came down. Volatility
is the variation in asset prices change over a particular time period. It is very difficult to
estimate the volatility accurately. Volatility is responsible to make the stock market risky
but it is this only which provides the opportunity to make money to those who can
understand it. It gives the investor opportunity to take advantage of fluctuation in prices,
buy stock when prices fall and sell when prices are increasing. So, to take advantage of
volatility it is need to be understood well.
If the performance of Indian stock market is seen during last 20 years, it is found
that its all about only four years 2003-2007. Some people believe that investment in stock
market for longer period is always give fair returns but thats not true. According to one
study, returns in September 2001 were just 49% higher as compared to returns in
September 1991, a compound return that is even lesser as compared to the return on a
saving bank account deposit. In the last five years, from 2007 till 2012, the total market
returns are only 5.9% per year.
Source: [Link]
Fig 1.1: SENSEX Journey
The whole growth in stock market is attained during 2003 and 2007, besides this
time period, the stock market has given only substandard returns. The scrip prices have
high returns but overall stock market doesnt raise much.
STOCK MARKET EFFICIENCY
It is general notion in the market that stock markets are efficient and prices reflect all
available information. There is extensive research literature available to see whether stock
markets are efficient or not. Some academicians believe that stock market is weak efficient
(Cootner, 1962; Fama, 1965; Kendall, 1953; Granger & Morgenstern, 1970). While some
others have belief that stock markets are not weak efficient (Chaudhary, 1991;
Ranganatham & Subramanian, 1993). The present study is an attempt to see the efficient
form of Indian stock market.
An efficient market is defined as a market where there are large numbers of
rational, profit maximizes actively competing, with each trying to predict future market
values of individual securities, and where important current information is almost freely
available to all participants. In an efficient market, competition among the many intelligent
participants leads to a situation where, at any point in time, actual prices of individual
securities already reflect the effects of information based both on events that have already
occurred and on events which, as of now, the market expects to take place in the future. In
other words, in an efficient market at any point in time the actual price of a security will be
a good estimate of its intrinsic value. (Fama, 1970)
Market efficiency is very important for any stock market because investment
decisions of an investor are very much influenced by this. An investor can earn abnormal
profits by taking benefit out of inefficient market whereas there is no scope of earning extra
profits in an efficient market. The random walk hypothesis states that future prices are not
predictable form the past. Successive price changes are not dependent over the past periods
and past trends are not followed in future exactly. There is no information available in the
market which is not reflected in the stock prices. Random walk basically means that prices
vary randomly and there is not any significant pattern which followed in the market.
According to Jensen (1978), A market is efficient with respect to information of it
is impossible to make economic profits by trading on the basis of information.
Malkiel (1992), A capital market is said to be efficient if it fully and correctly
reflects all relevant information in determining security prices. Formally, the market is said
to be efficient with respect to some information, if security prices would be unaffected by
revealing that information to all participants. Moreover, efficiency with respect to
information implies that it is impossible to make economic profits by trading on the basis of
information.
Dyckman and Morse (1986) states that A security market is generally defined as
efficient if the price of the security traded in the market act as though they fully reflect all
available information and these prices react instantaneously, or nearly so, and in unbiased
fashion to new information.
2.1 Types of Efficient Market Hypothesis
According to Fama (1965), Efficient Market Hypothesis suggests that security prices fully
reflect all available information. There are three forms of efficient market hypothesis.
These are as follows:
Weak Form Efficiency: This theory states that current prices reflect all past prices
information which means if anyone has some extra ordinary information beyond
this, he can earn profit by use of that information. It means that past information is
reflected in stock price. Beyond past information, no information even publically
available information can also have an impact on share price.
Semi-Strong Efficiency: The theory suggests that not only past prices are reflected
in the current price but all publicly available information is also adjusted in the
stock prices. It states that all relevant publicly available information is going to
reflect in the stock price. It means if there is any new information reaches to the
market, that is immediately digested by the market resulted into change in demand
and supply and a new equilibrium level of prices is attained.
Strong Form of Efficiency: It states that current prices not only reflect publicly
available information but insider information such as data given in companys
financial statements and companys announcements etc. is also reflected in the
present prices. For example, if company is planning to go for corporate
restructuring in future, is also cant be used by investor. All information is available
to the investors and that is reflected to the market price. In normal circumstances
what happens that if someone has nay private information then that person can
make the profits by the use of that information by buying shares. He will continue
doing that until this excess demand of shares will bring the price below, means no
extra information. So he will stop to buy the shares and the stock price will be stable
at the equilibrium level. This level is called strong form of market.
2.2 Efficiency and Market Returns
The all three forms of market efficiency have different consequences as far as excess
returns are concerned:-
If market is weak-form efficient, no excess returns can be received on the basis of
study of past prices. This type of study is called technical analysis which is based on
the past prices study without any further information.
If market is semi-strong efficient, no excess returns can be received by the study of
any publically available information. This study is called fundamental analysis, the
study of companies, sectorals and the whole economy cant produce much returns
than expected compared to risk involved.
If market is strong-efficient, as prices are adjusted even for secret or privately held
information so no excess return can be received even by insider trading.
3.0 SEASONAL ANOMALIES IN STOCK MARKET
A seasonal price tendency is the propensity for a given market to move in a given
direction at certain times of the year. There is lots of research available which emphasized
that seasonal anomalies lie in the stock market. There are different seasonal anomalies such
as Monday effect or Friday effect or Day-of-the-week effect, Turn-of-the-month effect,
Holiday effect, Semi-month effect, January Effect or December Effect or Month-of-the-
year effect etc. Within these calendar anomalies, day-of-the-week effect and month-of-the-
year effect is analyzed under the present study. The day-of-the-week has its importance
because it has its impact on the stock market volatility. If there is any king of seasonal
patterns then the investor has the opportunity to take benefit out of it and earn abnormal
profit.
3.1 Day-of-the-week effect
The Day-of-the-week effect means the average daily returns of all the days of the week are
not the same. It is generally seen that Monday has a lower return as compared to other days
Monday returns are on average lower than returns on other days known as Monday effect
whereas Friday has higher returns as compared to returns of other days known as Friday
effect (Cross, 1973; French, 1980; Gibbons & Hess, 1981, Jaffe & Westerfield, 1985).
Fama (1965) documented that Mondays has 20% greater variances as compared to other
days. There are different factors which cause day-of-the-week effect like settlement
patterns, opening and closing of the market, ups and downs of the market, international
factors, information etc. It is very difficult to consider any particular reason which is
ultimate responsible for the seasonality in stock market. It is believed that investor prefers
to sell more on Monday because he would like to adjust the impact of information received
in prior week as generally bad news are released on Friday after the closing of the market.
So, day-of-the-week effect is a normal practice which is observed in equity market and
there is disparity on the issue whether calendar effects exist or not.
Source: Jeremy J. Siegel Stocks for the Long Run
Fig 1.2: Monday Effect in DJIA
3.2 Month-of-the-Year Effect
Monthly data provides a good illustration of Black's (1986) point about the difficulty of
testing hypotheses with noisy data. It is quite possible that some month is indeed unique,
but even with 90 years of data the standard deviation of the mean monthly return is very
high (around 0.5 percent). Therefore, unless the unique month outperforms other months by
more than 1 percent, it would not be identified as a special month.(Lakonishok and Smidt,
1988). The seasonal anomaly is Month-of-the-Year effect. It means that returns in the
market are not same for all the months of the year. According to one study in US, it is
found that January has higher returns as compared to other months whereas December has
lower returns (Rozeff and Kinnney, 1976; Gultekin and Gultekin, 1983; Keim, 1983).
CHAPTER 2
COMPANY PROFILE
INDIAN OVERSEAS BANK
Indian Overseas Bank (IOB) was founded on 10th February 1937 and had distinction of three
branches at Chennai, Kasaikudi and Rangoon simultaneously commencing business on the
inaugural day. The founder Chairman was [Link] Chettiyar. It was started with a
vision to specialize in foreign exchange and overseas banking business in India. Before 1969, it
had ventured into consumer credit, had begun with computerization and had 195 branches in
India. In 1969, when it was nationalized, the bank had 208 branches and business mix of Rs 156
crores. IOB has gained AA rating by CRISIL for its primary issue and a rating of P1+ for its
term deposits.
IOB is currently one of the major banks based in Chennai, with 1845 domestic branches and 12
branches overseas. IOB also has an ISO certified in house information technology department,
which has developed the software that most of its branches use to provide online banking to
customers. IOB has a network of more than 500 ATMs all over India and IOBs international
visa debit card is accepted at all the ATMs. IOB offers internet banking (E-see banking) and is
one of the banks that the government of India has approved for online payment of taxes. IOB
provides various banking services, including saving bank, current account, credit facilities and
other services. IOB also provides non-residential Indian (NRI) services, personal banking,
foreign exchange reserves (FOREX) collections services, agri-business consultancy, credit card
and e-banking services. The bank is also engaged in merchant banking. IOB is the first public
sector bank in the country to introduce mobile banking services using wireless application
protocol (WAP). It was also the first public sector bank to introduce anywhere banking at its 129
branches in the four metros and is extending the connectivity to 100 other branches in
Hyderabad, Bangalore, Ahmadabad and Ludhiana.
In year 2000, it came out with a public issue of 11,12,00,000 shares of Rs 10 each for cash at par
aggregating Rs 111.20 crores. It also raised Rs 125 crores through bonds issue in year 2001. It
gained the rating of AA for the issue. Being ranked as the best public sector bank in India in
2007, its key trade centers now include Singapore, Seoul, Hong Kong, Bangkok and Germany.
The Balance Sheet of the bank (Attachment -I) distinctly indicates the increase in both the
advances and deposits.
TOTAL ADVANCES AND DEPOSITS OF THE BANK
90000
80000
CRO
RES
70000
60000
50000
Rs. IN
40000
30000
20000
10000
0
March' 05 March' 06 March' 07 March' 08
ADVANCES 26274 35759 47923 61748
DEPOSITS 44241 50529 68746 83204
In 2006, total business of the bank crossed Rs. 100,000 crores where as the total net profit
exceeded the same figure in 2007. As of September 2008, there were 1424 branches under Core
Banking Solution, 522 branches under Total Branch Automation and a number of branches
linked under services like NEFT and RTGS. IOB has been upgraded to BBB (long term)
rating by Standard and Poors, third bank in India after SBI and ICICI.
The bank has a very strong foundation with a high profit margin and a low risk. The efficiency in
their management of funds is reflected in their past records where the balance sheets of last five
years show that the net Non Performing Assets has been decreasing. The rate of deposits is not
as high as provided by the industrys giant State bank of India but by at the same time the loans
sanctioned by the bank have proved to be secured and successful. This in turn has led to a further
increase in total profit of the organization thereby fulfilling its prime objective of being a profit
earning enterprise. The latest audited reports reveal that the bank registered a net profit of Rs.
1325 crores in the financial year that ended on March, 2009 with an increase of almost 21% in its
total business.
2.3 SCOPE AND PURPOSE OF STUDY
The purpose of preparation of this report is to focus on the Lending function of banks with
specific reference to Indian Overseas Bank. The report states the following points:
The study gives an insight into the procedure followed by the Bank as per the norms of
the Reserve Bank of India and the Authority that governs the functioning of Indian
Overseas Bank. It also explains certain terminologies commonly used in the banking
industry.
The report states the different types of advances that are financed by the bank and their
classification as fund and non fund based advances.
The financial analysis of lending i.e. the study of balance sheets and other financial
accounts, to judge the credibility and repaying capacity of the prospective borrower is
done in great detail. The same is illustrated with the help of a practical case analysis
(XYZ Infotech) to build a better understanding of the importance and the procedure of
such a financial analysis.
It also helps us infer the risk involved in sanctioning of advances by imputing the
bankruptcy chances of the proposed borrower in quantitative terms applying Multiple
Discriminant Analysis. It also helps us understand the whole process of financial analysis
involved in appraising a loan.
This brings forth the method to assess the credit worthiness of the borrowers and estimate
the net worth of the assets owned by him, which assists the bank to ascertain the amount
that can be sanctioned to them. The extent to which the credit limit can be sanctioned and
drawing power be enhanced are also mentioned.
Other than this, the project deals with the securities that can be used against lending and
the calculation of Equated monthly Installments (EMI). Moreover procedure of follow
up, the repayment of loan in form of EMIs and credit monitoring lie under the realm of
scope of the study.
Further the documentation of the proposed advances and their final sanction forms
another major area that is taken into consideration.
GENERAL CONCEPTS OF LOANS AND ADVANCES
BORROWER: A borrower being a party in the loan agreement that receives money and
promises to repay it. He may bring a very attractive lending proposition. The banker needs to
know about the character, capacity and capital of the prospect. The borrower may comprise of an
individual, a firm, a company, an HUF or any other business concern.
PURPOSE: The purpose for which a borrower seeks finance should not be anti social and anti
national. The finance required should be proposed to be used for a good cause, the objective
being legal in the eyes of law.
BORROWERS STAKE OR MARGIN: The term margin refers to that portion of the loan that
needs to be contributed by the borrower. This is most likely to sustain commitment of the
borrower throughout the life of the venture. The percentage of margin is fixed by considering
certain factors like borrowers capacity to bring in capital, nature of business, level of risk,
guidelines of RBI, etc.
INTEREST: Interest income refers to the profit that any lending would generate. It is the return
on the advances granted by the bank. The interest amount should be sufficient enough to cover
the cost of lending i.e. it should cover the estimated risk involved and simultaneously generate
enough revenue to fulfill banks prime objective of being profitable.
SECURITY: The banker advances loan keeping certain security which may either be collateral
in nature or in the form of personal guarantee. Each lending is backed by adequate security that
creates a binding on the part of the borrower to repay. Security acts as an assurance, an
alternative to recover the amount by liquidation but the banks basic motto remains recovery of
advances from the income of the borrower. The security must qualify the parameter of being
marketable, ascertainable, transferrable and stable. This means that the security should be easy
enough to sell without incurring much cost in selling. The assets must be easy to identify and
must not result in much loss of value. It should be stable over a significant period of time and
easily transferrable.
3.2 PRINCIPLES OF LENDING
According to general principles of lending, all mortgage originators should act in "good faith and
with fair dealings" in any transaction. A reliable customer forms the basis of a successful
lending. The following principles act as the foundation of a judicious lending:
Safety of funds ensures that the bank, although being a profit generating unit,
continues to build and retain the trust of the public at large.
Security accepted from the borrower as an alternative for recovery of advances in
case of default must be of significant value.
Purpose or the objective of advances should remain in favor of nations security. It
should not be anti- social or illegal.
Profitability and yield on advances should be in line with the banks objective, so the
advances made must be successful.
Liquidity of advances made by the bank indicates its ability to meet its deposit
liabilities, so the advances made should be adequately liquid.
Integrity of borrower is very vital to consider the loan proposal envisaged by him for
further sanction.
Adequacy of bank finance is of prime importance for a borrower to accomplish his
project so both under and over financing should be avoided by the bank.
Timely availability of funds to the borrowers helps the bank grow in the current
scenario.
These principles strengthen the bank finance eventually leading to safe advances.
3.3 BASEL II ACCORD: A MEASURE OF RISK
ADEQUACY
Basel II, also called The New Accord (correct full name is the International Convergence of
Capital Measurement and Capital Standards - A Revised Framework) is the second Basel Accord
and represents recommendations by bank supervisors and central bankers from the 13 countries
making up the Basel Committee on Banking Supervision (BCBS) to revise the international
standards for measuring the adequacy of a bank's capital. It was created to promote greater
consistency in the way banks and banking regulators approach risk management across national
borders.
Basel II is a type of recommendations on banking laws and regulations issued by the Basel
Committee on Banking Supervision that was initially published in June [Link] objective of
Basel II is to create an international standard that banking regulators can use when creating
regulations about how much capital banks need to put aside to guard against the types of
financial and operational risks bank face.
THE ACCORD IN OPERATION:
Basel II uses a three pillars concept-
Minimum Capital Requirements
Supervisory review
Market Discipline
1st Pillar-Minimum Capital Requirements
The first pillar provides improved risk sensitivity in the way that capital requirements are
calculated for three major components of risk that a bank faces: credit risk, operational risk and
market risk. Under the Basel II Norms, banks should maintain a minimum capital adequacy
requirement of 8% of risk assets. For India, the Reserve Bank of India has mandated maintaining
of 9% minimum capital adequacy requirement. This requirement is popularly called as Capital
Adequacy Ratio (CAR) or Capital to Risk Weighted Assets Ratio (CRAR).
nd
2 Pillar-Supervisory Review
The second pillar deals with the regulatory response to the first pillar, giving regulators
much improved 'tools' over those available to them under Basel I. It also provides a
framework for dealing with all the other risks a bank may face, such as name risk, liquidity
risk and legal risk, which the accord combines under the title of residual risk.
3rd Pillar-Market Discipline and Disclosure
The third pillar greatly increases the disclosures that the bank must make. This is designed
to allow the market to have a better picture of the overall risk position of the bank and to
allow the counterparties of the bank to price and deal appropriately.
Credit monitoring, identification of Non Performing Assets (NPA) and legal
procedure adopted by the bank in recovery of those advances forms the most
significant part of the study. The same is exhibited in various case studies that are
included in the project to give a better view, comprising of an integral part of the
report.
The last topic discussed as per the schedule of the project involves an in depth study
of the problems related to pre and post sanction of advances and their possible
solutions. Certain conclusions and recommendations are made as per the analysis of
the cases.
REVIEW OF LITERATURE
Review of literature has vital relevance with any research work due to
literature review the possibility of repetition of the study can be eliminated and
another dimension can be selected for the study. The literature review helps
researcher to remove limitations of existing work or may assist to extend current
study. Several researches have been conducted to analyze the different aspects of
customer services in banks in India and abroad. But there are very few research and
literature available on the subject related to customer services and technologies used
in Indian banks. The available literature related to Customer services in banks,
Customer perception and satisfaction, Performances of public sector banks, Service
qualities in banks, Technologies in the banking sector and varieties of value added
services in Public sector banks.
Prabhakar T, (1986)1 has analyzed the nature and range of the customers
service provided by Indian Banks. He has brought out the fact that in case of
complaints is from depositors. With the mass banking practice a different treatment is
neither possibilities of dividing customers may be of some better service to important
customers. The teller system partially brought out that in India there is a growing size
of current and saving account holders who do not maintain the statutorily required
minimum balance. The default is high and growing which would cause additional
work to bankers.
Buchanan R and Gilles C, (1990) 2 stated that a big concern about information
technology on service delivery channels is security. Security is the condition of being
protected against danger, loss, and criminals. In the general sense, security is a
concept similar to safety. The ultimate satisfaction of any the value added banking
facility offered to the customer is arrived only with the security level attached to that
facility in India.
Singh and Malhothra, (1993) 3analyzed customer satisfaction in banking
services in Amritsar city. They concluded that public sector banks should improve
their services to attract new customers. Bank management should prepare a list of
existing and prospective customers and carry out detailed studies on customer
satisfaction in order to improve their services. Singh appraised customer services of
public sector banks and concluded that the level of customer services and satisfaction
is determined by the branch location, design, variety of services, rates and changes,
systems and procedures, and attitudes and responses.
Ken Blanchard, (1996)4 the author examined the Superior service is the key to
achieving a competitive advantage and creating customers who are so devoted to an
organization is a business strategy. Commitment to service, all out recovery strategy,
continuous improvement, listening, changing role of management, definition of
playing field, autonomy, cost control measures accountability, desire to improve are
the ten fundamental areas according to him which the bank should explore to enhance
customer service.
Stafford M.R, (1996)5 reported the distinct elements (attributes) of bank
service quality as perceived by customers. Seven attributes were found in assessing
bank service quality. The first attribute, named "bank atmosphere"; included
cleanliness, as well as an overall positive and courteous attitude by employees
(kindness, friendliness, and pleasantness). The second attribute, 'relationship",
indicates the importance of a personal relationship with the bank employees, where
customers are recognized easily by long-term employee. The third attribute, "rates and
charges", indicates that low costs and high interest rates can affect an individual's
perception of bank service quality. The fourth attributes, "available and convenient
services", indicates a full array of services that available, easily accessible and
convenient. The fifth attribute, "ATMs", indicates available, convenient, and working
automatic teller machines. The sixth attribute, "reliability/ honesty", indicates the
importance of a solid bank rating and honest, reliable employee. The seventh
attribute, "teller", indicates adequate and accessible teller.
Das Abhiman, (1997)6 examined the X-efficiency of public sector banks since
nationalization using longitudinal data. The findings indicated that banks of SBI
group are more efficient than the nationalized banks. The main source of inefficiency
was found to be more technical in nature, rather than allocative. It has been concluded
that inefficiency in public sector banks in mainly due to underutilization or wasting of
resources rather than incorrect input combinations.
Tanzi P.M, (1997) 7 found that E-channels are preferred by the Indian customers nevertheless
of their socio economic background. These delivery methods have become an increasingly
important technique to retain customers in todays dynamic banking environment since
customers can make withdrawals, deposits and access balances at their own convenience.
Joseph M. et al, (1999)8 examined the factors for high quality electronic
banking services. The five important factors were categorized as:
convenience/accuracy; feedback/complaint management; efficiency; line
management; accessibility; and customization. The results of this study illustrated that
banks have to maintain the standard of their convenience/accuracy and efficiency. In
addition, they need to improve their customization, feedback/complaints and queue
management by reallocating their resources. One point of interest, though, was that
although the performance of the electronic banking service was not accepted as being
of a high standard, out of 300 respondents 52.9 per cent of respondents were satisfied
with it.
Sathye M, (1999)9 stated that six major determining factors for adoption or
rejection of an Internet banking service in Australia were: the availability of
infrastructure; resistance to change; ease of use; reasonable price; awareness of the
service and its benefits; and security concerns. The results from the study
demonstrated that security concerns and lack of awareness about Internet banking and
its benefits played the most important role as the obstacles to non-adoption of Internet
banking.