bank marketingjnujprdistance.com/assets/lms/lms jnu/mba/mba - ba… · · 2014-08-28bank...

Bank Marketing

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Bank Marketing.

JNU, JaipurFirst Edition 2014

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

I/JNU OLE

Index

ContentI. ...................................................................... II

List of FiguresII. .........................................................VI

List of TablesIII. ........................................................ VII

AbbreviationsIV. ......................................................VIII

Case StudyV. .............................................................. 110

BibliographyVI. ........................................................ 115

Self Assessment AnswersVII. ................................... 118

Book at a Glance

II/JNU OLE

Contents

Chapter I ....................................................................................................................................................... 1Introduction to Bank and Marketing ......................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 21.2 Need of Banks .......................................................................................................................................... 21.3 History of Indian Banking System ........................................................................................................... 21.4 Functions of Banks in Economy ............................................................................................................. 31.5 Bank Failures ........................................................................................................................................... 31.6 Trends in Banking .................................................................................................................................... 41.7 Types of Banks ......................................................................................................................................... 4 1.7.1 Central Bank ............................................................................................................................ 5 1.7.2 Commercial Banks ................................................................................................................... 5 1.7.3 Development Banks ................................................................................................................. 5 1.7.4 Co-operative Banks .................................................................................................................. 5 1.7.5 Specialised Banks .................................................................................................................... 5 1.7.6 Indigenous Bankers .................................................................................................................. 6 1.7.7 Rural Banking .......................................................................................................................... 6 1.7.8 Saving Banks ........................................................................................................................... 6 1.7.9 Export-Import Bank ................................................................................................................. 6 1.7.10 Foreign Exchange Banks ....................................................................................................... 61.8 Types of Banking ..................................................................................................................................... 6 1.8.1 Walk-in-Banking ...................................................................................................................... 6 1.8.2 Drive thru Banking .................................................................................................................. 6 1.8.3 ATM Banking ........................................................................................................................... 6 1.8.4 Online Banking ........................................................................................................................ 71.9 Marketing ................................................................................................................................................. 71.10 Marketing Process .................................................................................................................................. 71.11 Need, Wants and Demand ...................................................................................................................... 91.12 Value, Cost and Satisfaction................................................................................................................... 91.13 Marketing Mix ..................................................................................................................................... 10 1.13.1 Product ................................................................................................................................. 10 1.13.2 Price ..................................................................................................................................... 10 1.13.3 Place ..................................................................................................................................... 10 1.13.4 Promotion ..............................................................................................................................11Summary ..................................................................................................................................................... 12References ................................................................................................................................................... 12Recommended Reading ............................................................................................................................. 13Self Assessment ........................................................................................................................................... 14

Chapter II ................................................................................................................................................... 16Indian Banking Regulations...................................................................................................................... 16Aim .............................................................................................................................................................. 16Objectives .................................................................................................................................................... 16Learning outcome ........................................................................................................................................ 162.1 Introduction ............................................................................................................................................ 17 2.1.1 Current Regulators of the Financial System .......................................................................... 17 2.1.2 Regulations for Indian Banks ................................................................................................ 172.2 Reserve Bank of India Act 1934 ............................................................................................................ 182.3 Banking Regulations Act 1949 .............................................................................................................. 182.4 Other Important Sections of Banking Regulations Act 1949 ................................................................. 19 2.4.1 Opening of New Banks and Branch Licensing ...................................................................... 19

III/JNU OLE

2.4.2 Setting Up of New Bank ........................................................................................................ 20 2.4.3 Branch Licensing ................................................................................................................... 20 2.4.4 New Bank Licensing Policy 2013 ......................................................................................... 212.5 Cash Reserve Ratio and Statutory Liquidity Ratio ................................................................................ 222.6 Audit and Inspection of Banking Company ........................................................................................... 242.7 Corporate Governance in Banks ............................................................................................................ 252.8 Role of Banks ......................................................................................................................................... 26Summary ..................................................................................................................................................... 28References ................................................................................................................................................... 28Recommended Reading ............................................................................................................................. 28Self Assessment ........................................................................................................................................... 29

Chapter III .................................................................................................................................................. 31Evolution of Bank Marketing ................................................................................................................... 31Aim .............................................................................................................................................................. 31Objectives .................................................................................................................................................... 31Learning outcome ........................................................................................................................................ 313.1 Introduction ............................................................................................................................................ 323.2 Evolution of Bank Marketing in USA ................................................................................................... 323.3 Bank Marketing in India ........................................................................................................................ 333.4 Evolution of Bank Marketing in UK ..................................................................................................... 363.5 Evolution of Bank Marketing in Japan .................................................................................................. 38Summary ..................................................................................................................................................... 39References ................................................................................................................................................... 39Recommended Reading ............................................................................................................................. 39Self Assessment ........................................................................................................................................... 40

Chapter IV .................................................................................................................................................. 42Bank Marketing Strategies ....................................................................................................................... 42Aim .............................................................................................................................................................. 42Objectives .................................................................................................................................................... 42Learning outcome ........................................................................................................................................ 424.1 Introduction ............................................................................................................................................ 434.2 Traditional Banking ............................................................................................................................... 454.3 Development Banking Period ............................................................................................................... 454.4 Bank Marketing Period ......................................................................................................................... 464.5 Marketing Orientation in Banking ......................................................................................................... 47 4.5.1 Household Segment ............................................................................................................... 49 4.5.2 Institutional Segment ............................................................................................................. 50 4.5.3 Rural Segment ........................................................................................................................ 504.6 Keys for Drafting Strategic Bank Marketing Plan ................................................................................. 514.7 Marketing Strategy System .................................................................................................................... 51Summary ..................................................................................................................................................... 54References ................................................................................................................................................... 54Recommended Reading ............................................................................................................................. 55Self Assessment ........................................................................................................................................... 56

Chapter V .................................................................................................................................................... 58Marketing of Banking Services ................................................................................................................. 58Aim .............................................................................................................................................................. 58Objectives .................................................................................................................................................... 58Learning outcome ........................................................................................................................................ 585.1 Introduction ............................................................................................................................................ 595.2 Importance of Service Sector in India ................................................................................................... 595.3 Service Marketing .................................................................................................................................. 62

IV/JNU OLE

5.3.1 Implications of Service Characteristics ................................................................................. 62 5.3.2 Steps in Service Planning ...................................................................................................... 63 5.3.3 Implications of Service Marketing in Indian Banks ............................................................. 635.4 Marketing Approach to Banking Services ............................................................................................. 635.5 Service Marketing and New Development in Indian Banking Sector .................................................. 645.6 Product and Services .............................................................................................................................. 645.7 Different Product and Services .............................................................................................................. 64Summary ..................................................................................................................................................... 66References ................................................................................................................................................... 66Recommended Reading ............................................................................................................................. 67Self Assessment ........................................................................................................................................... 68

Chapter VI .................................................................................................................................................. 70Marketing of Financial Services .............................................................................................................. 70Aim .............................................................................................................................................................. 70Objectives .................................................................................................................................................... 70Learning outcome ........................................................................................................................................ 706.1 Introduction ............................................................................................................................................ 71 6.1.1 Marketing ............................................................................................................................... 716.2 Situation Appraisal ................................................................................................................................. 716.3 Forecasting of Marketing Environment ................................................................................................. 726.4 Trends in Saving Indian Economy ......................................................................................................... 726.5 Marketing Planning in Banks ................................................................................................................. 736.6 Services .................................................................................................................................................. 73 6.6.1 Characteristics of Services .................................................................................................... 746.7 Service Marketing Mix .......................................................................................................................... 74 6.7.1 Expanded Marketing Mix for the Services ............................................................................ 74 6.7.2 People ..................................................................................................................................... 75 6.7.3 Physical Evidence .................................................................................................................. 75 6.7.4 Financial Services .................................................................................................................. 766.8 Indian Financial Market ......................................................................................................................... 76 6.8.1 Money Market ........................................................................................................................ 77 6.8.2 Capital Market ....................................................................................................................... 786.9 Challenges of Bank Marketing .............................................................................................................. 79Summary ..................................................................................................................................................... 80References ................................................................................................................................................... 80Recommended Reading ............................................................................................................................. 81Self Assessment ........................................................................................................................................... 82

Chapter VII ................................................................................................................................................ 84Pricing Strategies in Bank Marketing ...................................................................................................... 84Aim .............................................................................................................................................................. 84Objectives .................................................................................................................................................... 84Learning outcome ........................................................................................................................................ 847.1 Introduction ............................................................................................................................................ 857.2 The Price of the Banking Services: Concept, Characteristics and Particularities .................................. 867.3 Price Strategies ....................................................................................................................................... 87 7.3.1 Settlement of Price for a Basic Service ................................................................................. 88 7.3.2 Setting the Price of Complementary Service ......................................................................... 89 7.3.3 On the Spot Setting the Price ................................................................................................. 91 7.3.4 Structure that Influence the Price Calculation ....................................................................... 917.4 E-marketing ............................................................................................................................................ 937.5 Benefits of E-marketing as a Marketing Tool ........................................................................................ 937.6 E-banking and E-marketing ................................................................................................................... 937.7 E-marketing: Futuristic Approach .......................................................................................................... 94

V/JNU OLE

7.8 Challenges of Electronic Marketing ...................................................................................................... 94Summary ..................................................................................................................................................... 95References ................................................................................................................................................... 95Recommended Reading ............................................................................................................................. 95Self Assessment ........................................................................................................................................... 96

Chapter VIII ............................................................................................................................................... 98SBI and ICICI Bank Marketing ............................................................................................................... 98Aim .............................................................................................................................................................. 98Objectives .................................................................................................................................................... 98Learning outcome ........................................................................................................................................ 988.1 Introduction ............................................................................................................................................ 998.2 ICICI Marketing ..................................................................................................................................... 998.3 Government Business ............................................................................................................................ 998.4 SWOT Analysis of ICICI bank ............................................................................................................ 1008.5 Marketing Efforts of ICICI Bank ......................................................................................................... 1018.6 SWOT Analysis of SBI ........................................................................................................................ 1028.7 Marketing Efforts of SBI ..................................................................................................................... 1038.8 Bank Marketing Tools .......................................................................................................................... 104 8.8.1 Advertising ........................................................................................................................... 104 8.8.2 Promotional Items of Value ................................................................................................. 104 8.8.3 Public Relations ................................................................................................................... 104 8.8.4 Collateral Materials .............................................................................................................. 1048.9 Characteristics of Retail Bank Marketing Services ............................................................................. 1048.10 Marketing Ideas for Bank .................................................................................................................. 105Summary ................................................................................................................................................... 107References ................................................................................................................................................. 107Recommended Reading ........................................................................................................................... 107Self Assessment ......................................................................................................................................... 108

VI/JNU OLE

List of Figures

Fig. 1.1 Types of banks .................................................................................................................................. 4Fig. 2.1 Stages of money laundering ........................................................................................................... 25Fig. 4.1 Evolution of bank marketing in India ............................................................................................. 45Fig. 4.2 Financial intermediation ................................................................................................................. 46Fig. 4.3 Financial disintermediation ............................................................................................................ 46Fig. 4.4 Concept of marketing orientation in banking ................................................................................. 48Fig. 4.5 Marketing strategy system .............................................................................................................. 53Fig. 6.1 Planning arrangement in a commercial bank ................................................................................. 73Fig. 7.1 The factors that influence the calculation of the banking services price ........................................ 92

VII/JNU OLE

List of Tables

Table 2.1 Banks and their legal framework ................................................................................................. 19Table 3.1 Progress of commercial banks in India over the years ................................................................. 36Table 5.1 Sectors attracting highest FDI equity inflows .............................................................................. 60Table 5.2 Share of broad sectors in employment (UPSS) ............................................................................ 60Table 5.3 Share of different services categories in GDP at factor costs (current prices) ............................. 62Table 5.4 The correlation between service characteristics, implications and marketing strategy .............. 63Table 6.1 Household savings in financial assets (As % of total financial assets) ........................................ 72Table 6.2 Service characteristics and their implications .............................................................................. 74Table 6.3 The expanded marketing mix for services ................................................................................... 75Table 6.4 The seven P’s of bank marketing ................................................................................................. 76Table 7.1 The importance of the price for the seller and the buyer ............................................................. 86Table 7.2 The sensitivity of the incomes to the changes on the basis of expenses ...................................... 89

VIII/JNU OLE

Abbreviations

ASBA - Applications Supported by Blocked AccountsBIS - Bank for International SettlementCAG - Corporate Accounts GroupCD - CertificateofDepositsCP - Commercial PaperCRM - Customer Relationship ManagementEXIM - Export-Import Bank of IndiaFDI - Foreign Direct InvestmentGDP - Gross Domestic ProductHOPS - Heart On-line Processing SystemIDBI - Industrial Development Bank on IndiaIPOs - Initial Public OffersLPG - Liquid Petroleum GasMNC - Multinational CompanyNABARD - National Bank for Agricultural and Rural DevelopmentNBFCs - Non-Banking Financial CompaniesNEFT - National Electronic Fund TransferNOW - Negotiable Order WithdrawalNPA - Non-Performing AssetsNRI - Non Residential IndianOTC - Over The CounterPIN - PersonalIdentificationNumberRBI - Reserve Bank of IndiaSEBI - Securities Exchange Board of IndiaSFIs - Special Financial InstitutionsSIDBI - Small Industries Development Bank of IndiaTCS - Tata Consultancy Services

1/JNU OLE

Chapter I

Introduction to Bank and Marketing

Aim

The aim of this chapter is to:

introduce the bank structure•

elucidate the history of Indian banking system •

discuss functions of banks in economy•

Objectives

The objectives of this chapter are to:

introduce marketing •

elaborate the trends in bank•

determine the marketing process•

Learning outcome

At the end of this chapter, you will be able to:

analyse the need, wants and demands•

understand the value, cost and satisfaction•

explain types of banking•

Bank Marketing

2/JNU OLE

1.1 IntroductionAbankisafinancialinstitutionthatprovidesbankingandotherfinancialservicestotheircustomers.Abankisgenerally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also non-banking institutions that provide certain banking services without meeting the legaldefinitionofabank.Banksareasubsetofthefinancialservicesindustry.

A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, throughout the day. The banking system in India should not only be hassle-free, but should be able to meet the new challenges posed by the technology and any other external and internal factors. For the past three decades, India’s banking system has several outstanding achievementstoitscredit.ThebanksarethemainparticipantsofthefinancialsysteminIndia.Thebankingsectoroffers several facilities and opportunities to their customers.

All the banks safeguards the money and valuables and provide loans, credit and payment services, such as checking accounts, money orders, and cashier’s cheques. The banks also offer investment and insurance products. As a variety ofmodelsforcooperationandintegrationamongfinanceindustrieshaveemerged,someofthetraditionaldistinctionsbetweenbanks,insurancecompaniesandsecuritiesfirmshavediminished.Inspiteofthesechanges,bankscontinueto maintain and perform their primary role accepting deposits and lending funds from these deposits.

1.2 Need of BanksBeforetheestablishmentofbanks,thefinancialactivitieswerehandledbymoneylendersandindividuals.Atthattime the interest rates were very high. Again there were no security of public savings and no uniformity regarding loans. In order to overcome such problems, the organised banking sector was established, which was fully regulated bythegovernment.Theorganisedbankingsectorworkswithinthefinancialsystemtoprovideloans,acceptdepositsand provide other services to their customers. The following functions of the bank explain the need of the bank and its importance:

To provide the security to the savings of customers.•To control the supply of money and credit.•To encourage public confidence in theworking of the financial system, increase savings speedily and•efficiently.Toavoidfocusoffinancialpowersinthehandsofafewindividualsandinstitutions.•To set equal norms and conditions (i.e., rate of interest, period of lending, etc.) to all types of customers.•

1.3 History of Indian Banking SystemThefirstbankinIndia,calledTheGeneralBankofIndiawasestablishedintheyear1786.TheEastIndiaCompanyestablished The Bank of Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of Madras (1843). The next bank was Bank of Hindustan which was established in 1870. These three individual units (Bank of Calcutta, Bank of Bombay, and Bank of Madras) were called as Presidency Banks. Allahabad Bank which was established in 1865 wasforthefirsttimecompletelyrunbyIndians.PunjabNationalBankLtd.,wassetupin1894withheadquartersat Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore were set up. In 1921, all Presidency banks were amalgamated to form the Imperial Bank of India which was run by European Shareholders. After that, the Reserve Bank of India was established in April 1935.

At the time of first phase, the growth of banking sectorwas very slow.Between 1913 and 1948 therewereapproximately 1100 small banks in India. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as a Central Banking Authority.

3/JNU OLE

After independence, Government has taken most important steps in regard of Indian Banking Sector reforms. In 1955, the Imperial Bank of India was nationalised and was given the name “State Bank of India”, to act as the principal agent of RBI and to handle banking transactions all over the country. It was established under State Bank of India Act, 1955. Seven banks forming subsidiary of State Bank of India was nationalised in 1960. On 19th July, 1969, major process of nationalisation was carried out. At the same time, 14 major Indian commercial banks of the country were nationalised. In 1980, another six banks were nationalised which later on raised the number of nationalised banks to 20. Seven more banks were nationalised with deposits over 200 crores. Till the year 1980, approximately 80% of the banking segment in India was under government’s ownership. On the suggestions of Narsimhan Committee, the Banking Regulation Act was amended in 1993 and thus the gates for the new private sector banks were opened. The following are the major steps taken by the Government of India to regulate banking institutions in the country:

1949: Enactment of Banking Regulation Act•1955: Nationalisation of State Bank of India•1959: Nationalisation of SBI subsidiaries•1961: Insurance cover extended to deposits•1969: Nationalisation of 14 major banks•1971: Creation of credit guarantee corporation•1975: Creation of regional rural banks•1980: Nationalisation of seven banks with deposits over 200 crores•

1.4 Functions of Banks in Economy Banksbeingfinancialintermediariesprovidemoneyintheeconomythroughcredit-creationandfacilitatingliquidity.Banks are able to generate credit many times more than the initial deposits they receive from the public subject to regulations relating to cash reserves to be maintained and customers’ cash requirements. The resources of banks are generated mainly through a variety of deposits, both short-term and long-term from the public. The ability of the bank to generate more deposits depends on the interest rate offered and the marketing skills of the bank. Shorter duration and higher interest on deposits will add to the operational risk of the banks.

Bank’s role in the economy is necessitated on account of differences in the preference of public in terms of maturity requirements, risk requirements, denomination of currency and access to adequate information. The existence of market imperfection such as transaction and contracting cost also strengthen the need for the functioning of banks. Banking industry differs from other industries in the economy in terms of its asset structure and legal obligations and developmental functions. Besides offering a variety of loans and advances to different needy clients, banks also provide a lead role in translating the development objectives of the government through lead bank schemes and prioritysectorlendingandfinancialinclusion.

In the process of performing these functions, banks have to manage a variety of risks which are inherent in banking operations.Oneofthemajorrisksthataffectthebankiscreditriskwhichisreflectedintheproportionofnon-performing assets (NPA) held by the banks. The maturity structure of various assets and liabilities of the bank posesliquidityrisktothebank.Thefluctuationininterestratesisanothersourceofrisk.Exchangerateriskarisesto the bank when they provide foreign currency loans to their customers or when they make investments in foreign securities or accept foreign currency deposits.

1.5 Bank FailuresThesuccessofbankingbusinessdependsonpublicconfidenceintheabilityofthebankstomeettheirobligations.Banksfacemanyfinancialriskssuchascreditrisk,liquidityrisk,foreignexchangerisk,interestraterisk,operationalriskandmarketrisk.Thenatureofassetsheldbythebankandthemannerinwhichthesearefinancedinherentlycauses problems for the bank.

Bank Marketing

4/JNU OLE

Mismatch in maturity structure in both assets and deposits lead to payment problems. Poor credit assessment and monitoring leads to increase in non-performing assets. As per the survey conducted by Bank for International Settlement (BIS), the major causes for bank failures are poor asset quality and management practices, fraud and weak economic environment. Deterioration in asset quality has been attributed to loss from credit transactions, connectedlendingandinheritedportfolios,steepincreaseincommoditypricemovements,excessivediversificationand fraud. Most often certain business practices forecast the failure of banks. Holding of excessive loan portfolios thatarenotprotected,deterioratingfinancialsandhigherdepositratesthanmarketrateshaveindicatedfuturefailureof banks. Holding off-balance sheet bank liabilities and creative accounting also disclose possible bank failures in the future.

Central banks in many countries develop models to combat bank failures. UK, US, Spain and Chile are some of the countries that have come out with support mechanism and in certain cases closure of banks to restore credibility in banking.

1.6 Trends in BankingComputerisation and developments in information technology brought in new trends in banking business. One of the offshoots of this development is internet banking. This facility enables customers to access their accounts and perform a variety of bank transactions from anywhere. This saves time, cost and paper work for the banks as well as theclients.However,internetbankinghasinherentriskssuchassecurityrisk,technologyriskandfinancialfrauds.Banks also face legal risk since the jurisdiction in which the bank is operating could be different from its registered place of operation.

Another development in the banking sector is the introduction of virtual banks that do not have any physical presence and all banking operations are in electronic mode. The bank exists on a virtual ground with the internet address as the only link with its customers. New products have been introduced by the banks to cope with increasing competition and customer needs. They can be categorised into investment based products and innovative services offered by the banks.

Investmentproductsincludeofferofgoldandsilvercoins,marketingofinsuranceproductsandfloatingofmutualfunds and issue of different types of credit and debit cards. Innovative services include establishing ATM facilities and providing ASBA (Applications Supported by Blocked Accounts) facility to investors applying for initial public offerings of the corporate sector. Technological developments enable banks to offer electronic fund transfer facility to meet their customer requirements. National electronic fund transfer facility has been created at Mumbai to offer this service.

1.7 Types of BanksTherearevarioustypesofbankswhichoperateinourcountrytomeetthefinancialrequirementsofdifferentcategoriesof people engaged in agriculture, business, profession, etc. On the basis of functions, the banking institution may be divided into following types:

1 2 3 4 5 6 7 8 9 10

Central Bank [RBI, in India]

Development Banks

Specialised Banks (NABARD, SIDBI)

Rural Banking

Export Import Banks

Commercial Banks [Public Sector Banks, Private Sector

Banks, Foreign Banks]

Indigenous Bankers

Saving Banks

Foreign Exchange

Banks

Co-operative Banks (i) Primary credit

societies (ii) Central Co-operative Banks

Fig. 1.1 Types of banks

5/JNU OLE

1.7.1 Central BankAcentralbankfunctionsastheapexcontrollinginstitutioninthebankingandfinancialsystemofthecountry.Itfunctions as the controller of credit, banker’s bank and also enjoys the monopoly of issuing currency on behalf of the government. A central bank is usually control and quite often owned, by the government of a country. The Reserve Bank of India (RBI) is such a bank within an India.

1.7.2 Commercial BanksItoperatesforprofit.Itacceptsdepositsfromthegeneralpublicandextendsloanstothehouseholds,thefirmsandthe government. The essential characteristics of commercial banking are as follows:

Acceptance of deposits from public•For the purpose of lending or investment•Repayable on demand or lending or investment.•Withdrawal by means of an instrument, whether a cheque or otherwise•

Another distinguishing feature of commercial bank is that a large part of their deposits are demand deposits withdrawable and transferable by cheque.

1.7.3 Development BanksItisconsideredasahybridinstitutionwhichcombinesinitselfthefunctionsofafinancecorporationandadevelopmentcorporation. They also act as a catalytic agent in promoting balanced and viable development by assuming promotional roleofdiscoveringprojectideas,undertakingfeasibilitystudiesandalsoprovidetechnical,financialandmanagerialassistance for the implementation of project. In India ‘Industrial Development Bank on India’ (IDBI) is the unique example of development bank. It has been designated as the principal institution of the country for co-ordinating theworkingoftheinstitutionsengagedinfinancing,promotingordevelopmentofindustry.

1.7.4 Co-operative BanksThemainbusinessofco-operativebanksis toprovidefinancetoagriculture.Theyaimatdevelopingasystemofcredit.Agriculturefinanceisaspecialfield.Theco-operativebanksplayausefulroleinprovidingcheapexitfacilities to the farmers. In India, there are three wings of co-operative credit system namely:

Short-term•Medium-term•Long-term credit•

The former has a three tier structure consisting of state co-operative banks at the state level. At the intermediate level (district level) these are central co-operative banks, which are generally established for each district. At the base of the pyramid, there are primary agricultural societies at the village level. The long-term exit is provided by the central land development bank established at the state level. Initially, these banks used to advance loans on mortgage of land for the purpose of securing repayment of loans.

1.7.5 Specialised BanksThese banks are established and controlled under the special Act of parliament. These banks have got the special status. One of the major bank is ‘National Bank for Agricultural and Rural Development’ (NABARD) established in1982,asanapexinstitutioninthefieldofagriculturalandothereconomicactivitiesinruralareas.In1990,aspecial bank named Small Industries Development Bank of India (SIDBI) was established. It was the subsidiary of Industrial Development Bank of India. This bank was established for providing loan facilities, discounting and rediscounting of bills, direct assistance and leasing facility.

Bank Marketing

6/JNU OLE

1.7.6 Indigenous BankersThat unorganised unit which provides productive, unproductive, long-term, medium-term and short-term loan at the higher interest rate are known as indigenous bankers. These banks can be found everywhere in cities, towns, mandis and villages.

1.7.7 Rural BankingAsetoffinancial institutionengagedinfinancingofruralsector is termedas‘RuralBanking’.Thepoliciesoffinancingofthesebankshavebeendesignedinsuchawaysothattheseinstitutionscanplaycatalystroleintheprocess of rural development.

1.7.8 Saving BanksThese banks perform the useful services of collecting small savings commercial banks also run “saving bank” to mobilise the savings of men of small means. Different countries have different types of savings bank viz., mutual savingsbank,postofficesaving,commercialsavingbanks,etc.

1.7.9 Export-Import BankThesebankshavebeenestablishedforthepurposeoffinancingforeigntrade.Theyconcentratetheirworkingonmediumandlong-termfinancing.TheExport-ImportBankofIndia(EXIMBank)wasestablishedonJanuary1,1982 as a statutory corporation wholly owned by the central government.

1.7.10 Foreign Exchange BanksThesebanksfinancemostlytotheforeigntradeofacountry.Theirmainfunctionistodiscount,acceptandcollectforeign bulls of exchange. They also buy and self foreign currencies and help businessmen to convert their money into any foreign currency they need. Over a dozen foreign exchange banks branches are working in India have their headofficesinforeigncountries.

1.8 Types of BankingBanking is described as the business carried on by an individual at a bank. Today, several forms of banking exist, giving consumers a choice in the way they manage their money. Most people do a combination of at least two banking types. However, the type of banking a consumer use is normally based on convenience. These are different types of banking through which consumer can attach to it.

1.8.1 Walk-in-BankingIt is still apopular typeofbanking.As, in thepast, it still involvesbank tellersandspecialisedbankofficers.Consumers must walk into a bank to use this service normally, in order to withdraw money or deposit it; a person mustfilloutaslipofpaperwiththeaccountandspecificmonetaryamountandshowaformofidentificationtoabank letter. The advantage of walk in banking is the face to face connection between the banker and a letter. Also unlike drive thru and ATM banking, a person can apply for a loan and invest money during a walk in.

1.8.2 Drive thru BankingIt is probably the least popular form of banking today, however is still used enough by consumers to create a need for it. It allows consumers to stay in their while and drive up to a machine equipped with container, chute and intercom. This machine is connected to a bank and is run by one or two bank letters. A person can withdraw or depositmoneyatadrivethru.Hemustfilloutaslipwithhisaccountandspecificmonetaryamountandputitinthecontainer. The container travels through the chute to the bank letter, which will complete the banker’s request. This iswheretheintercomcomesintoplay.Thebanktellerandbankeruseittocommunicateanddiscussthespecificbanking request.

1.8.3 ATM BankingIt is very popular because it gives a person 24 hour access to his bank account. Walk in and drive thru banking does notofferthisperk.InordertouseanATM,apersonmusthaveanATMcardwithPersonalIdentificationNumber(PIN) and access to an ATM machine. Any ATM machine can be used; however charges apply if the ATM machine

7/JNU OLE

isnotaffiliatedwiththebanklistedontheATMcard.ByslidinganATMcardintoanATMmachine,itisactivatedand then through touching buttons on the machine, a consumer is able to withdraw or deposit money.

1.8.4 Online BankingIt allows a person to get on the internet and sign into their bank. This process is achieved with the use of a PIN, different from the one used for the ATM card. By going through website of a bank and entering it, a consumer can get into his account, withdraw money, deposit money, pay bills, request loans and invest money. Online banking is growing in popularity because of its convenience. These different types of banking give a consumer the power of choice and also give them a comfortable banking system that gives them a convenient choice.

1.9 MarketingMarketing is so basic, that it cannot be considered as separate function. It is the whole business seen from the point ofviewofitsfinalresult,thatis,fromthecustomer’spointofview.

Marketing is indeed an ancient art; it has been practiced in one form or the other, since the days of Adam and Eve. Today,ithasbecomethemostvitalfunctionintheworldofbusiness.Marketingisthebusinessfunctionthatidentifiesunfulfilledneedsandwants,definesandmeasurestheirmagnitude,determineswhichtargetmarkettheorganisationcan best serve, decides on appropriate products, services and programmes to serve these markets and calls upon everyone in the organisation to think and serve the customer. Marketing is the force that harnesses a nation’s industrial capacity to meet the society’s material wants. It uplifts the standard of living of people in the society.

Marketingmustnotbeseennarrowlyasthetaskoffindingcleverwaystosellthecompany’sproducts.Manypeopleconfuse marketing with some of its sub-functions, such as advertising and selling. Authentic marketing is not the art of selling what you make, but knowing what to make. It is the art of identifying and understanding customer needsandcreatingsolutionsthatdeliversatisfactiontothecustomers,profittotheproducers,andbenefitsforthestakeholders. Market leadership is gained by creating customer satisfaction through product innovation, product quality and customer service. If these are absent, no amount of advertising, sales promotion or salesmanship can compensate.

William Davidow observed: ‘While great devices are invented in the laboratory, great products are invented in the marketing department’. Too many wonderful laboratory products are greeted with yawns or laughs. The job of marketers is to ‘think customer’ and to guide companies to develop offers that are meaningful and attractive to target customers. Already sea changes have been taking place in the global economy. Old business road maps cannot be trusted. Companies are learning that it is hard to build a reputation and easy to lose it. The companies that best satisfy their customers will be the winners. It is the special responsibility of marketers to understand the needs and wants of the market place and to help their companies to translate them into solutions that win customers approval. Today’s smart companies are not merely looking for sales; they are investing in long-term, mutually satisfying customer relationships based on delivering quality, service and value.

1.10 Marketing ProcessA simple model of the marketing process:

Understand the marketplace and customer needs and wants.•Design a customer-driven marketing strategy.•Construct an integrated marketing programme that delivers superior value.•Buildprofitablerelationshipsandcreatecustomerdelight.•Capturevaluefromcustomerstocreateprofitsandcustomerquality.•

Need: State of felt deprivation including:Physical needs: Food, clothing, shelter, safety, etc.

Social needs: Belonging, affection, etc.•Individual needs: Learning, knowledge, self-expression, etc.•

Bank Marketing

8/JNU OLE

Want: Form that a human need takes, as shaped by culture and individual personality.Wants + Buying Power = Demand

Needsandwantsarefulfilledthroughmarketingoffering:Products

Persons, places, organisations, information, ideas, etc. Services

Activityorbenefitofferedforsalethatisessentiallyintangibleanddoesnotresultinownership.:Experiences

Consumers live the offering.

Customer value and satisfactionDependent on the product’s perceived performance relative to a buyer’s expectations. Care must be taken when setting expectations:

If performance is lower than expectations, satisfaction is low.•If performance is higher than expectations, satisfaction is high.•

Customer satisfaction often leads to consumer loyalty. Somefirms seek to 'delight' customers by exceedingexpectations.

Marketing managementTheartandscienceofchoosingtargetmarketsandbuildingprofitablerelationshipswiththemrequiresthatconsumersandthemarketplacebefullyunderstood.Aimistofind,attract,keepandgrowcustomersbycreating,delivering,and communicating superior value.

Marketing managers must consider the following, to ensure a successful marketing strategy:What customers will we serve?•What is our target market?•How can we best serve these customers?•What is our value proposition?•

Choosing a value propositionThesetofbenefitsorvaluesispromisedbyacompanytodelivertoconsumerstosatisfytheirneeds.Valuepropositionsdictatehowfirmswilldifferentiateandpositiontheirbrandsinthemarketplace.

The marketing conceptA marketing management philosophy that holds that achieving organisational goals depends on knowing the ‘needs’ and ‘wants’ of target markets and delivering the desired satisfaction better than competitors.

Customer perceived value“Customer’sevaluationofthedifferencebetweenallofthebenefitsandallofthecostsofamarketingofferrelativeto those of competing offers.”

Perceptions may be subjective•Consumers often do not objectively judge values and costs•

Customervalue=Perceivedbenefits–Perceivedsacrifice

9/JNU OLE

1.11 Need, Wants and DemandMarketing starts with the human needs and wants. People need food, air, water, clothing and shelter to survive. They also have a strong desire for recreation, health, education and other services. They have strong performances for particular versions and brands of basic goods and services. A human need is a state of felt deprivation of some basic satisfaction. People require food, clothing, shelter, safety, belonging, esteem and a few other things for survival. These needs are not created by their society or by marketers; they exist in the very texture of human biology and the human condition.

Wantsaredesiresforspecificsatisfiersofthesedeeperneeds.Forexample,oneneedsfoodandwantsapizza,needsclothingandwantsaRaymondshirt.Theseneedsaresatisfiedindifferentmannersindifferentsocieties.Whilepeople’s needs are few, their wants are unlimited. Human wants are continually shaped and reshaped by social forces and institutions.

Demandsarewantsforspecificproductsthatarebackedupbyanabilityandwillingnesstobuythem.Forexample,many people want to buy a luxury car but they lack in purchasing power. Companies must therefore measure not only how many people want their products, but also make sure how many would actually be willing to buy and finallyabletobuyit.Marketersdonotcreateneeds,theysimplyinfluencewants.Theysuggesttoconsumersthata particular product or brand would satisfy a person’s needs for social status. They do not create the need for social status,buttrytopointoutthataparticularproductwouldsatisfythatneed.Theytrytoinfluencedemandbymakingthe product attractive, affordable and easily available.

ProductsPeoplesatisfytheirneedsandwantswithproducts.Productcanbedefinedasanythingthatcanbeofferedtosomeoneto satisfy a need or want. The word product brings to mind a physical object, such as T.V., Car, and Camera, etc. The expression products and services are used to distinguish between physical objects and intangible ones. The importance of physical products does not lie in owning them rather using them to satisfy our wants. Thus, physical products are vehicles that deliver services to the people.

Services are also supplied by other vehicles such as persons, places, activities, organisations and ideas. If people are bored, they can go to a musical concert (persons) for entertainment, travel to beautiful destination like Shimla (place), engage in physical exercise (activity) in health clubs, join a laughing club (organisation) or adopt a different philosophy about life (idea). Services can be delivered through physical objects and other vehicles. The term product covers physical products, service products and other vehicles that are capable of delivering satisfaction of a need orwant.Theothertermsalsousedforproductsareoffers,satisfiersorresources.

Manufacturers pay more attention to their physical products than to the services produced by these products. They love their products, but forget that customers buy them to satisfy their need. People do not buy physical objects for theirownsake.Adrillisboughttosupplyaservice:producingholes.Themarketers’jobistosellthebenefitsorservices built into physical products rather than just describe their physical features.

1.12 Value, Cost and SatisfactionHow consumers choose among the various products that may satisfy a given need is very interesting phenomenon. Ifastudentneedstotravelfivekilometrestohiscollegeeveryday,hemaychooseanumberofproductsthatwillsatisfy this need, a bicycle, a motorcycle, automobile and a bus. These alternatives constitute product-choice set. Assume that the student wants to satisfy different needs in travelling to his college, namely speed, safety, ease and economy. These are called the need set.

Each product has a different capacity to satisfy different needs. For example, bicycle will be slower, less safe and more effortful than an automobile; however it would be more economical. Now, the student has to decide which product delivers the most satisfaction. Here comes the concept of value. The student will form an estimate of the value of each product in satisfying his needs. He might rank the products from the most need-satisfying to the least need-satisfying. Value is the consumer’s estimate of the product’s overall capacity to satisfy his or her needs. The student can imagine the characteristics of an ideal product that would take him to his college in a split second with absolute safety, no effort and zero cost. The value of each actual product would depend on how close it came to this ideal product.

Bank Marketing

10/JNU OLE

Assume the student is primarily interested in the speed and case of getting to college. If the student was offered any of the above mentioned products at no cost, one can predict that he would choose an automobile. Here comes the concept of cost. As, each product involves a cost, the student will not necessarily buy automobile. The automobile costs substantially more than bicycle or motorcycle. Therefore, he will consider the product’s value and price before making a choice. He will choose the product that will produce the most value per rupee.

Today’s consumer behaviour theorists have gone beyond narrow economic assumptions of how consumers form value in this mind and make product choices. These modern theories on consumer behaviour are important to marketers ,because the whole marketing plan rests on assumptions about how customers make choices. Therefore, the concept of value, cost and satisfaction are crucial to the discipline of marketing.

1.13 Marketing MixThe marketers deliver value to the customer basically through his market offer. He takes care to see that the offer fulfilstheneedsofthecustomer.Healsoensuresthatthecustomerperceivesthetermsandconditionsoftheofferasmoreattractivevis-à-visothercompetingoffers.MarketingMixisthesetofmarketingtoolsthatthefirmusesto pursue its marketing objectives in the target market. It is the sole vehicle for creating and delivering customer value.

It was James Culliton, a noted marketing expert, who coined the expression marketing mix and described the marketing manager as a mixer of ingredients. To quote him, “The marketing man is a decider and an artist, a mixer of ingredients, who sometimes follow a recipe developed by others and sometimes prepares his own recipe. Sometimes, he adapts his recipe to the ingredients that are readily available and sometimes invents some new ingredients, or experiments with ingredients as no one else have tried before.” The dynamics of the marketing process and the versatility of the marketing process and the versatility of the marketing mix tool cannot be described any better.

Subsequently Niel H. Borden, another noted marketing expert, popularised the concept of marketing mix. It was JeromeMcCarthy,thewellknownAmericanProfessorofmarketing,whofirstdescribedthemarketingmixintermsofthefourPs.Theyclassifiedthemarketingmixvariablesunderfourheads,eachbeginningwiththealphabet‘p’:

Product•Price•Place (referring to distribution)•Promotion•

McCarthy has provided an easy to remember description of the marketing mix variables. Over the years, the term marketing mix and four Ps of marketing have come to be used synonymously.

1.13.1 ProductThemostbasicmarketingmixtoolisproduct,whichstandsforthefirm’stangibleoffertothemarketincludingtheproduct quality, design, variety features, branding, packaging, services, warranties, etc.

1.13.2 PriceA critical marketing mix tool is price, namely, the amount of money that customers have to pay for the product. It includes deciding on wholesale and retail prices, discounts, allowances and credit terms. Price should be commensurate with the perceived value of the offer, or else buyer will turn to competitors in choosing their products.

1.13.3 PlaceThis marketing mix tool refers to distribution. It stands for various activities the company undertakes to make the product easily available and accessible to target customers. It includes identifying, recruiting and linking various middlemenandmarketingfacilitators,sothatproductsareefficientlysuppliedtothetargetmarket.

11/JNU OLE

1.13.4 PromotionThe fourth marketing mix tool, stands for the various activities the company undertakes to communicate its products’ merits and to persuade target customers to buy them. It includes deciding on hiring, training and motivating salespeople to promote its products to middlemen and other buyers. It also includes setting up communication and promotion programme consisting of advertising, personal selling, sales promotion and public relations.

Marketing mix or 4 Ps of marketing is the combination of a product, its price, distribution and promotion. It must be designed by marketers in such a manner that these four elements together must satisfy the needs of the organisation’s target market and at the same time, achieve its marketing objectives.

Bank Marketing

12/JNU OLE

SummaryA bank is generally understood as an institution which provides fundamental banking services such as accepting •deposits and providing loans.A banking system also referred as a system provided by the bank which offers cash management services for •customers, reporting the transactions of their accounts and portfolios, throughout the day.Theorganisedbankingsectorworkswithinthefinancialsystemtoprovideloans,acceptdepositsandprovide•other services to their customers.ThefirstbankinIndia,calledTheGeneralBankofIndiawasestablishedintheyear1786.•After independence, Government has taken most important steps in regard of Indian Banking Sector reforms.•On the suggestions of Narsimhan Committee, the Banking Regulation Act was amended in 1993 and thus the •gates for the new private sector banks were opened.Banksbeingfinancialintermediariesprovidemoneyintheeconomythroughcredit-creationandfacilitating•liquidity.The existence of market imperfection such as transaction and contracting cost also strengthen the need for the •functioning of banks.OneofthemajorrisksthataffectthebankiscreditriskwhichisreflectedintheproportionofNon-performing•Assets (NPA) held by the banks.The success of banking business depends on public confidence in the ability of the banks tomeet their•obligations.Deterioration in asset quality has been attributed to loss from credit transactions, connected lending, and inherited •portfolios,steepincreaseincommoditypricemovements,excessivediversificationandfraud.Investmentproductsincludeofferofgoldandsilvercoins,marketingofinsuranceproductsandfloatingof•mutual funds, and issue of different types of credit and debit cards.Acentralbankfunctionsastheapexcontrollinginstitutioninthebankingandfinancialsystemofthecountry.•Itisconsideredasahybridinstitutionwhichcombinesinitselfthefunctionsofafinancecorporationanda•development corporation.The Export-Import Bank of India (EXIM Bank) was established on January 1, 1982 as a statutory corporation •wholly owned by the central government.The advantage of walk-in Banking is the face-to-face connection between the banker and a letter.•A critical marketing mix tool is price, namely, the amount of money that customers have to pay for the •product.

ReferencesChoudhry, M., 2011. • An Introduction to Banking: Liquidity Risk and Asset-Liability Management. John Wiley & Sons.Drummond, G. and Ensor, J., 2006. • Introduction to Marketing Concepts. Routledge.Unit - 1 : An Introduction to Banking• . [Pdf] Available at: <http://online.vmou.ac.in/oldweb/studymaterial/BBA%2010.pdf> [Accessed 9 July 2014].Basic Principles of Marketing and Management• . [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/pgdapr/pgdapr-105.pdf> [Accessed 9 July 2014].Banking 5: Introduction to Bank Notes• . [Video online] Available at: <https://www.youtube.com/watch?v=cNFLqhU4MN0> [Accessed 9 July 2014].Banking 1• . [Video online] Available at: <https://www.youtube.com/watch?v=E-HOz8T6tAo> [Accessed 9 July 2014].

13/JNU OLE

Recommended ReadingStrydom, J., 2005. • Introduction to Marketing. Juta and Company Ltd.Glantz, M., 2003. • Managing Bank Risk: An Introduction to Broad-base Credit Engineering, Volume 1. Academic Press.Iyengar, V., 2007. • Introduction to Banking. Excel Books India.

Bank Marketing

14/JNU OLE

Self AssessmentA_________isafinancialinstitutionthatprovidesbankingandotherfinancialservicestotheircustomers.1.

banka. moneyb. treasurec. customerd.

WhatwasthenameofthefirstbankinIndia?2. Bank of Bombaya. Bank of Bengal/Calcuttab. General Bank of Indiac. East India Bankd.

In which year was the Bank of Hindustan established in India?3. 1870a. 1843b. 1809c. 1865d.

Match the following4. Banking Regulation Act1. 1949A.

State Bank of India Act2. 1993B.

Banking Regulation Act3. 1993C.

Banking Regulation Act4. 1955D. 1-B, 2-A, 3-C, 4-Da. 1-A, 2-C, 3-D, 4-Bb. 1-D, 2-B, 3-A, 4-Cc. 1-C, 2-D, 3-B, 4-Ad.

What does the maturity structure of various assets and liabilities of the bank presents?5. Cash requirementsa. Liquidity risk to the bankb. Bank failuresc. Deterioration in asset qualityd.

_____________ arises to the bank when they provide foreign currency loans to their customers or when they 6. make investments in foreign securities or accept foreign currency deposits.

Exchange rate riska. Holding off-balance sheetb. Credibility in bankingc. Computerisation and developmentsd.

15/JNU OLE

___________ enable banks to offer electronic fund transfer facility to meet their customer requirements.7. Investment productsa. National electronic fundb. Technological developmentsc. Banking institutiond.

Which of the following statement is false?8. Banking is described as the business carried on by an individual at a bank.a. Banking is the face to face connection between the banker and a letter.b. Online banking is growing in popularity because of its convenience.c. Marketing can be considered as separate function.d.

Wants + Buying Power = ____________.9. Demanda. Productsb. Servicesc. Experiencesd.

Demandsare_________forspecificproductsthatarebackedupbyanabilityandwillingnesstobuythem.10. needsa. wantsb. valuec. costsd.

Bank Marketing

16/JNU OLE

Chapter II

Indian Banking Regulations

Aim


introducecurrentregulatorsoffinancialsystem•

elucidate banking regulations act 1949•

explicate reserve bank of India act 1934•

Objectives


introduce important sections of banking regulations Act 1949•

elaborate setting up of new bank•

determine cash reserve ratio and statutory liquidity ratio•

Learning outcome


analyse opening of new banks and branch licensing•

understand audit and inspection of banking company•

determine corporate governance in banks•

17/JNU OLE

2.1 IntroductionIndia’sfinancialsectorisdiversifiedandexpandingrapidly.Itcomprisescommercialbanks,insurancecompanies,non-bankingfinancialcompanies,cooperatives,pension’sfunds,mutualfundsandothersmallerfinancialentities.Oursisabankdominatedfinancialsectorandcommercialbanksaccountforover60percentofthetotalassetsof thefinancial system followedby the Insurance.Otherbank intermediaries include regional ruralbanksandcooperative banks that target under serviced rural and urban populations. Many Non-Banking Finance Companies (NBFC)operateinspecialisedsegments(leasing,factoring,microfinanceandinfrastructurefinance),thoughsomecan accept deposits. Pension provision covers 12 percent of the working population and consists of civil service arrangements, a compulsory scheme for formal private sector employees, and private scheme offered through insurance companies.

2.1.1 Current Regulators of the Financial SystemTheregulationandsupervisionofthefinancialsysteminIndiaiscarriedoutbydifferentregulatoryauthorities.TheReserveBankofIndia(RBI)regulatesandsupervisesthemajorpartofthefinancialsystem.ThesupervisoryroleoftheRBIcoverscommercialbanks,urbancooperativebanks(UCBs),somefinancialinstitutionsandNon-BankingFinanceCompanies(NBFCs).Someofthefinancialinstitutions,inturn,regulateorsuperviseotherinstitutionsinthefinancialsector,forinstance,RegionalRuralBanksandtheCo-operativebanksaresupervisedbyNationalBankforAgricultureandRuralDevelopment(NABARD);andhousingfinancecompaniesbyNationalHousingBank (NHB). Department of Company Affairs (DCA), Government of India regulates deposit taking activities of corporate, other than NBFCS registered under companies Act, but not those which are under separate statutes.

The Registrar of Cooperatives of different states in the case of single state cooperatives and the Central Government in the case of multi-state cooperatives are joint regulators, with the RBI for UCBs, and with NABARD for rural cooperatives. Whereas RBI and NABARD are concerned with the banking functions of the cooperatives, management control rests with the State/Central Government. This dual control impacts the supervision and regulation of the cooperative banks. The capital market, mutual funds and other capital market intermediaries are regulated by Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) regulates the insurance sector; and the Pension Funds Regulatory and Development Authority (PFRDA) regulates the pension funds.

2.1.2 Regulations for Indian BanksCurrently in most jurisdictions commercial banks are regulated by government entities and require a special bank licensetooperate.Usuallythedefinitionofthebusinessofbankingforthepurposesofregulationisextendedtoinclude acceptance of deposits, even if they are not repayable to the customer’s order although money lending, by itself,isgenerallynotincludedinthedefinition.

Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e., a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government’s central bank.

Sometypesoffinancialinstitutions,suchasbuildingsocietiesandcreditunions,maybepartlyorwhollyexemptedfrom bank license requirements and therefore regulated under separate rules. The requirements for the issue of a bank licence vary between jurisdictions, but typically include:

Minimum capital•Minimum capital ratio•FitandProper’requirementsforthebank’scontrollers,owners,directors,and/orseniorofficers•Approvalofthebank’sbusinessplanasbeingsufficientlyprudentandplausible•

Bank Marketing

18/JNU OLE

2.2 Reserve Bank of India Act 1934The Reserve Bank of India Act, 1934 was enacted to constitute the Reserve Bank of India with an objective to:

Regulate the issue of bank notes•For keeping reserves to ensure stability in the monetary system•To operate effectively the nation’s currency and credit system•

The RBI Act covers:The constitution•Powers•Functions of the Reserve Bank of India•

The act does not directly deal with the regulation of the banking system except for few sections like Section 42 which relates to the maintenance of CRR by banks and Section 18 which deals with direct discount of bills of exchange and promissory notes as part of rediscounting facilities to regulate the credit to the banking system. The RBI Act deals with:

Incorporation, capital, management and business of the RBI•The functions of the RBI such as issue of bank notes, monetary control, banker to the central and state governments •and banks, lender of last resort and other functionsGeneral provisions in respect of reserve fund, credit funds, audit and accounts•Issuing directives and imposing penalties for violation of the provisions of the Act•

2.3 Banking Regulations Act 1949The Banking Regulation Act, 1949 is one of the important legal frame works. Initially, the Act was passed as Banking Companies Act, 1949 and it was changed to Banking Regulation Act 1949. Along with the Reserve Bank of India Act 1935, Banking Regulation Act 1949 provides a lot of guidelines to banks covering wide range of areas. Some of the important provisions of the Banking Regulation Act 1949 are listed below.

ThetermbankingisdefinedasperSec5(i)(b),asacceptanceofdepositsofmoneyfromthepublicforthe•purpose of lending and/or investment. Such deposits can be repayable on demand or otherwise and withdraw able by means of cheque, drafts and order or otherwise.Sec5(i)(c)definesabankingcompanyasanycompanywhichhandlesthebusinessofbanking.•Sec 5(i)(f) distinguishes between the demand and time liabilities, as the liabilities which are repayable on demand •and time liabilities means which are not demand liabilities.Sec 5(i)(h) deals with the meaning of secured loans or advances. Secured loan or advance granted on the security •of an asset, the market value of such an asset in not at any time less than the amount of such loan or advances. Whereas unsecured loans are recognised as a loan or advance which is not secured.Sec6(1)dealswiththedefinitionofbankingbusiness.•Sec7specifiesbankingcompaniesdoingbankingbusinessinIndiashoulduseatleastonworkbank,banking•and banking company in its name.Banking Regulation Act through a number of sections restricts or prohibits certain activities for a bank.•

The following are some examples which will clear the above idea:Trading activities of goods are restricted as per Section 8.•Prohibitions: Banks are prohibited to hold any immovable property subject to certain terms and conditions. •Further, a banking company cannot create a charge upon any unpaid capital of the company as per Section 14. Sec14(A)stipulatesthatabankingcompanyalsocannotcreateafloatingchargeontheundertakingoranyproperty of the company without the prior permission of Reserve Bank of India.A bank cannot declare dividend unless all its capitalised expenses are fully written off as per Section 15.•

19/JNU OLE

2.4 Other Important Sections of Banking Regulations Act 1949Sections11and12dealswiththePaidupCapital,Reservesandtheirtermsandconditions,Sec18specifiestheCashReserveRatiotobemaintainedbyNon-scheduledbanksandSec19(2)clarifiesabouttheshareholdingofa banking company. Non-banking company shall hold shares in any company, either as pledge, or mortgagee or absolute owners of any amount exceeding 30% of its own paid up share capital plus reserves (or) 30% of the paid upsharecapitalofthatcompanywhicheverisless.Section24specifiestherequirementofmaintenanceofStatutoryLiquidity Ratio (SLR) as a percentage (as advised by Reserve Bank of India from time-to-time) of the bank’s demand and time liabilities in the form of cash, gold, unencumbered securities.

Other compliance requirementsSection 29: Every bank needs to publish its balance sheet as on March 31stSection30(i):AuditofBalancesheetbyqualifiedauditorsSection 35: Gives powers to RBI to undertake inspection of banks

The other various sections deal with important returns which are to be submitted by banks to Reserve Bank of India:

Return of bank’s liquid assets and liabilities (Monthly)•Return of bank’s assets and liabilities in India (Quarterly)•Return of unclaimed deposits of 10 years and above (Yearly)•

With changing time and requirements from time-to-time, various other compliance issues which need to be handled by banks, have been amended/incorporated relating to:

Nomination facilities•Time period for preservation of bank books/records•

2.4.1 Opening of New Banks and Branch LicensingIn India, there are various types of banks and they were set up under different Acts passed by the Central and State Governments as below:

Banks Category Legal Framework

State Bank of India State Bank of India Act,1955

SBI Associate Banks State Bank (Subsidiary Banks) Act,1959

Nationalised Banks - 1969 Banking Companies (Acquisition and Transfer of Undertakings) Act,1970

Nationalised Banks - 1980 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

Regional Rural Banks Regional Rural Banks Act,1976

Private Sector Banks Indian Companies Act,1986

Co-operative BanksCo-operative Societies Acts (State/Central) and Banking Laws (Applicable to Cooperative Societ-ies) Act,1965

Banking Laws (Application to Co-operative Societ-ies Act,1965

Table 2.1 Banks and their legal framework

Bank Marketing

20/JNU OLE

All the above types of banks are required to follow the relevant laws of RBI Act and Banking Regulation Act besides theprovisionsofthespecificActunderwhichthesaidbankhasbeenincorporated.

2.4.2 Setting Up of New BankThe Reserve Bank of India has the powers as per the provisions of the BR Act and the RBI Act to issue licenses to new banks to function as banks and also to open new branches from time to time. The Banking Regulation Act 1949 requires a company or entity to obtain a license from the Reserve Bank of India to start the business of banking in India. Further to the licensing, the required permission is also to be obtained for opening and shifting of branches as per the Branch Authorisation Policy declared by RBI from time-to-time.

Reserve Bank of India would grant the licence and the permission subject to certain terms and conditions in each case.ItisopentotheReserveBankofIndiatoconsiderthefindingsoftheinspectionreportunderSec35oftheBanking Regulation Act, while disposing of an application for licence. Before granting a licence under Sec 22, ReserveBankmayhavetobesatisfiedbyaninspectionofthebooksofthebankingcompanyinrespectofthefollowing aspects:

Whether the company is or will be able to pay its present and future depositors in full as and when their claims •accrue.Whether the affairs of the company are being conducted or likely to be conducted in a manner detrimental to •the interests of its present and future depositors.Whether the company has an adequate capital structure and earning prospects.•Whether public interest will be served by grant of license to the company.•Other issues relating to branch expansion, unbanked area and other aspects.•

In respect of foreign banks, (which are incorporated outside India), application for a license to the Reserve Bank of India to open banks/branches in India, would be considered by RBI on satisfying the following conditions apart from the conditions applicable to domestic banks:

Whether carrying on of banking business by the company in India will be in public interest.•Whether the government or the law of the country in which the company is incorporated discriminates against •banking companies registered in India.Whether the company complies with provisions of the BR Act as applicable to foreign companies.•

Section 11 of the Banking Regulation Act stipulates the minimum capital and reserve requirements of Banking Company, the Reserve Bank of India can stipulate a higher requirement of capital for licensing a company. As per the provisions of the Banking Regulation Act, 1949 Reserve Bank of India can cancel the licences granted to any banking company on account of any one or more of the following reasons:

The company ceases to carry on banking business in India.•ThecompanyfailstocomplywithanyoftheconditionsimposedunderthespecificprovisionsoftheBanking•Regulation Act.

Before cancellation of a licence for non-compliance with any of the conditions, the company has to be given an opportunityfortakingnecessarystepsforcomplyingwithorfulfillingtheconditions.However,incases,wheretheReserve Bank is of the opinion that delays will be prejudiced to the interests of the depositors or the public then Reserve Bank can take appropriate action. A banking company whose licence is cancelled can appeal to the Central Government within 30 days from the date of the order of cancellation.

2.4.3 Branch LicensingThe opening of branches by banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949. In terms of these provisions, without the prior approval of the Reserve Bank of India (RBI), banks cannot:

Open a new place of business in India or abroad.•Cannot shift or change, except within the same city, town or village the location of the existing place of •business.

21/JNU OLE

As regards branch licensing, banks have to refer to the guidelines of the Reserve Bank from time to time, including change of premises, shifting of branches to other locations, etc. As regards Regional Rural Banks, the application for permission have to be routed through the National Bank for Agriculture and Rural Development and based on the comments of NABARD, RBI would act accordingly. The Branch Authorisation Policy for commercial banks as on 1st July, 2013 is as under. Branch authorisation policy for commercial banks is as follows.

Forthepurposeofbranchauthorisationpolicy,a“branch”meansafull-fledgedbranch,includingaspecialised•branch, a satellite ormobile office, anExtensionCounter, an off-siteATM (AutomatedTellerMachine),administrativeoffice,controllingoffice,servicebranch(backofficeorprocessingcentre)andcreditcardcentre.A call centre will not be treated as a branch.Domestic scheduled commercial banks (other than RRBs) are permitted to open branches, Administrative •offices,CentralProcessingCentres(CPCs)andServicebranchesinTier-2toTier-6centres(withpopulationupto 99,999 as per Census 2001) and in rural, semi-urban and urban centres in North Eastern States and Sikkim, and to open mobile branches in Tier-3 to Tier-6 centres (with population up to 49,999 as per Census 2001) and in rural, semi-urban and urban centres in North Eastern States and Sikkim without permission from Reserve Bank of India in each case, subject to reporting. As, the concept of mobile branches was mooted for rural areas, the general permission granted for operationalising mobile branches in Tier-3 to Tier-6 centres has not been extended to the operationalisation of mobile branches in Tier-2 centres.Withaviewtofurtherincreasingoperationalflexibilityofbanks,domesticscheduledcommercialbanks(other•thanRRBs) are permitted to openoffices exclusively performing administrative and controlling functions(RegionalOffices/ZonalOffices)inTier-1centreswithouttheneedtoobtainpriorpermissionineachcase,subject to reporting.Opening of branches/Central Processing Centres (CPCs)/Service branches by domestic scheduled commercial •banks (other than RRBs) in Tier-1 centres (centres with population of 1,00,000 and above as per 2001 Census) will continue to require prior permission of the Reserve Bank of India, except in the case of North Eastern States and Sikkim, where the general permission would cover Tier-1 centres also.Domestic Scheduled Commercial Banks, while preparing their Annual Branch Expansion Plan (ABEP), should •allocate at least 25 percent of the total number of branches proposed to be opened during a year in unbanked rural (Tier-5 and Tier-6) centres. An unbanked rural centre would mean a rural (Tier-5 and Tier-6) centre that does not have a brick and mortar structure of any scheduled commercial bank for customer based banking transactions.In view of the requirement for opening at least 25 per cent of the branches under ABEP in unbanked rural •centres, it would now not be mandatory to open at least one third of the total number of branches proposed to be opened in Tier-2 to Tier-6 centres in under-banked districts of under-banked States. However, as there is a continuing need for opening more branches in under-banked districts of under-banked States for ensuring more uniform spatial distribution, banks would be provided incentive for opening such branches. Accordingly, for each branch proposed to be opened in Tier-2 to Tier-6 centres of under banked districts of under-banked States, excluding such of the rural branches proposed to be opened in unbanked rural centres that may be located in the under-banked districts of under-banked States in compliance with the requirement as indicated in sub para above, authorisation will be given for opening of a branch in a Tier-1 centre. This will be in addition to the authorisation given for branches in Tier-1 centres based on the considerations stated above.Banks may consider front-loading (prioritising) the opening of branches in unbanked rural centres over a 3 year •cycle co-terminus with their Financial Inclusion Plan (2013-16). Credit will be given for the branches opened in unbanked rural centres in excess of the required 25 percent of the ABEP for the year which will be carried forward for achieving the criteria in the subsequent ABEP/year of the Financial Inclusion Plan (FIP).

2.4.4 New Bank Licensing Policy 2013Over the last two decades, the Reserve Bank of India (RBI) gave licence to twelve banks in the private sector. This happened in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001, based on the experience gained from the functioning of these banks and fresh applications were invited. The applications received in response to this invitation were vetted by a high-level Advisory Committee constituted by the RBI and two more licences were issued, to two entities, viz., Kotak Mahindra

Bank Marketing

22/JNU OLE

Bank and Yes Bank. While preparing these guidelines, the Reserve Bank recognised the need for an explicit policy on banking structure in India keeping in view the recommendations of the Narasimham Committee, Raghuram Rajan Committee and other viewpoints.

2.5 Cash Reserve Ratio and Statutory Liquidity RatioCash Reserve Ratio (CRR) is the mandatory reserves to be maintained with Reserve Bank of India. Every scheduled Bank is required to keep certain percentage of their demand and time liabilities, as cash balances with the Reserve Bank of India from time to time as per Section 42 of the Reserve Bank of India Act. There is no maximum ceiling orfloorrateinrespectofCRR.Thenon-scheduledbanksarerequiredtomaintainthecashreserveasperSection18 of the Banking Regulation Act.

Computation of DTLLiabilities of a bank may be in the form of demand or time deposits or borrowings or other miscellaneous items ofliabilities.AsdefinedunderSection42oftheRBIAct,1934,liabilitiesofabankmaybetowardsthebankingsystem or towards others in the form of demand and time deposits or borrowings or other miscellaneous items of liabilities.

Demand liabilitiesDemand liabilities of a bank are liabilities which are payable on demand. Some of the important items are:

Current deposits•Demand liabilities portion of savings bank deposits•Margins held against letters of credit/guarantees•Balancesinoverduefixeddeposits•Cashcertificatesandcumulative/recurringdeposits•Outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs)•Unclaimed deposits•Credit balances in the Cash Credit account and •Deposits held as security for advances which are payable on demand•

Money at call and short notice from outside the banking system should be shown against liability to others.

Time liabilitiesTime liabilities of a bank are those which are payable otherwise than on demand. These include:

Fixed deposits•Cashcertificates•Cumulative and recurring deposits,•Time liabilities portion of savings bank deposits,•Staff security deposits, •Margin held against letters of credit, if not payable on demand, •Deposits held as securities for advances which are not payable on demand and•Gold deposits•

Other Demand and Time Liabilities (ODTL)ODTL include interest accrued on deposits, bills payable, unpaid dividends, suspense account balances representing amounts due to other banks or public, net credit balances in branch adjustment account, any amounts due to the banking system which are not in the nature of deposits or borrowing. Such liabilities may arise due to items like:

Collection of bills on behalf of other banks.•Interest due to other banks and so on. If a bank cannot segregate the liabilities to the banking system, from the •total of ODTL, the entire ODTL may be shown against item II.

23/JNU OLE

‘Other Demand and Time Liabilities’ of the return in Form ‘A’ and average CRR maintained on it by all •SCBs

Cash collaterals received under collateralised derivative transactions should be included in the bank’s DTL/NDTL for the purpose of reserve requirements as these are in the nature of ‘outside liabilities’.

Assets with the banking systemAssetswiththebankingsystemincludebalanceswithbanksincurrentaccount,balanceswithbanksandnotifiedfinancialinstitutionsinotheraccounts,fundsmadeavailabletobankingsystembywayofloansordepositsrepayableat call or short notice of a fortnight or less and loans other than money at call and short notice made available to the bankingsystem.Anyotheramountsduefrombankingsystemwhichcannotbeclassifiedunderanyoftheaboveitems are also to be taken as assets with the banking system.

Borrowings from abroad by banks in IndiaLoans/borrowings from abroad by banks in India will be considered as ‘liabilities to others’ and will be subject to reserve requirements.

Arrangements with correspondent banks for remittance facilitiesWhen a bank accepts funds from a client under its remittance facilities scheme, it becomes a liability (liability to others) in its books. It should be shown as ‘ Liability to others in India’ and the same should also be taken into account for computation of DTL for CRR/SLR purpose.

Liabilities not to be included for DTL/NDTL computationThe following items will not form part of liabilities for the purpose of CRR and SLR:

Paidupcapital,reserves,anycreditbalanceintheprofitandlossaccountofthebank,amountofanyloantaken•fromtheRBIandtheamountofrefinancetakenfromEximBank,NHB,NABARDandSIDBI.Net income tax provision•Amount received from DICGC towards claims and held by banks pending adjustments thereof•Amount received from ECGC by invoking the guarantee•Amount received from insurance company on ad-hoc settlement of claims pending judgment of the Court•Other items as approved by RBI•

Exempted categoriesSCBs are exempted from maintaining CRR on the following liabilities:

Liabilities to the banking system in India as computed under Clause (d) of the explanation to Section 42(1) of •the RBI Act, 1934.Demand and Time Liabilities in respect of their Offshore Banking Units (OBU) and SCBs are not required to •include inter-bank term deposits/term borrowing liabilities of original maturities of 15 days and above and up to one year in “Liabilities to the Banking System” (item 1 of Form A return).Similarly banks should exclude their inter-bank assets of term deposits and term lending of original maturity •of 15 days and above and up to one year in “Assets with the Banking System” (item III of Form A return) for the purpose of maintenance of CRR. The interest accrued on these deposits is also exempted from reserve requirements.

Procedure for computation of CRRIn order to improve cashmanagement bybanks, as ameasure of simplification, a lag of one fortnight in themaintenance of stipulated CRR by banks is provided.

Bank Marketing

24/JNU OLE

Maintenance of CRR on daily basisWithaviewtoprovidingflexibilitytobanksinchoosinganoptimumstrategyofholdingreservesdependingupontheirintrafortnightcashflows,allSCBsarerequiredtomaintainminimumCRRbalancesupto70percentoftheaverage daily required reserves for a reporting fortnight on all days of the fortnight (Reserve Bank of India has increasedtherequirementofminimumdailyCRRbalancemaintenanceto99percenteffectivefromthefirstdayof the fortnight beginning July 27, 2013). No interest is paid on Eligible Cash Balances maintained by SCBs with RBI under CRR.

Fortnightly return in form A (CRR)Under Section 42 (2) of the RBI Act, 1934, all SCBs are required to submit to Reserve Bank a provisional Return inForm‘A’within7daysfromtheexpiryoftherelevantfortnightandthefinalForm‘A’returnisrequiredtobesubmitted to RBI within 20 days from expiry of the relevant fortnight. As regards the SB accounts, the calculation of the proportion of demand liabilities and time liabilities by SCBs in respect of their savings bank deposits on the basis of the position as at the close of business on 30th September and 31st March every year. The average of the minimum balances maintained in each of the month during the half year period should be treated by the bank as the amount representing the “time liability” portion of the savings bank deposits. When such an amount is deducted from the average of the actual balances maintained during the half year period, the difference would represent the “demand liability” portion. The proportions of demand and time liabilities so obtained for each half year should be applied for arriving at demand and time liabilities components of savings bank deposits for all reporting fortnights during the next half year.

PenaltiesPenal interest will be charged as under in cases of default in maintenance of CRR by SCBs as per the directives of the Reserve Bank of India.

2.6 Audit and Inspection of Banking CompanyThebalancesheetandtheprofitandlossaccountofabankingcompanyhavetobeauditedasstipulatedunderSection30oftheBankingRegulationAct.Everybankingcompany’saccountneedstobeverifiedandcertifiedbythe Statutory Auditors as per the provisions of legal framework.

The powers, functions and duties of the auditors and other terms and conditions as applicable to auditors under the provisions of the Companies Act are applicable to auditors of the banking companies as well. The audit of banking companiesbooksofaccountscallsforadditionaldetailsandcertificatestobeprovidedbytheauditors.Theyincludewhether or not:

Information and explanation, required by the auditor were found to be satisfactory•The transaction of the company, as observed by the auditor were within the powers of the company•Profitandlossaccountshowsatruepictureoftheprofitorlossfortheperiodforwhichthebookshavebeen•audited and any other observations to be brought to the notice of the shareholders

Specialresponsibilityiscastonthebankauditorincertifyingthebank’sbalancesheetandprofitandlossaccount,sincethatreflectsthesoundfinancialpositionofthebankingcompany.Apartfromthebalancesheetaudit,ReserveBank of India is empowered by the provisions of the Banking Regulation Act to conduct/order a special audit of the accounts of any banking company. The special audit may be conducted or ordered to be conducted, in the opinion of the Reserve Bank of India that the special audit is necessary in the following cases:

In the public interest and/or•In the interest of the banking company and/or•In the interest of the depositors•

The Reserve Bank of India’s directions can order the bank to appoint the same auditor or another auditor to conduct the special audit. The special audit report should be submitted to the Reserve Bank of India with a copy to the banking company. The cost of the audit is to be borne by the banking company.

25/JNU OLE

2.7 Corporate Governance in BanksOvertheyears,theReserveBankofIndiaasSupervisorofBankingcompaniesinIndiahasbeenplayingsignificantrole in ensuring the sound corporate governance practices which are followed by the banking companies. RBI’s various guidelines in mergers and acquisitions, pattern of shareholding, restrictions on various issues, are some of the examples of RBI’s role in the corporate governance practices of banks in India. Laundering means acquiring, owning, possessing or transferring any proceeds (of money) of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of crime, within or outside India. It is a process for conversion of money obtained illegally to appear to have originated from legitimate sources. Invariably, there are three stages through which money laundering takes place.

Integration

Layering

Placement

Fig. 2.1 Stages of money laundering

The stages are as follows: Thefirststepiscalledtheplacement,whenthecashisdepositedinthedomesticbanksorisusedtobuygoods•such as precious metals, work of art, etc.Thesecondstepiscalledthelayering.Oncethefundsareenteredintothefinancialsystem(banks),thefunds•are converted by transfers to different destinations. This stage is called as layering. At different locations, bank accounts are opened and the funds are transferred as quickly as possible (breaking into series of small transactions to escape from the limits set up by banks for cash transactions).The last stage is called the integration. In this stage, the launderer attempts to justify that the money obtained •through illegal activities is legitimate. Through different methods attempts are made at this stage, like using frontofficesofthecompanies,usingthetaxhavenandoffshoreunits,usingthesefundsassecurityforloansraised, etc.

The Prevention of Money laundering Act, 2002 (PMLA) aimed at combating money laundering in India with threemainobjectivetopreventandcontrolmoneylaunderingtoconfiscateandseizethepropertyobtainedfromlaundered money and to deal with any other issue connected with money laundering in India. The Act provides that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and project it as untainted property should beguiltyoffencesofmoneylaundering.Forthepurposeofmoneylaundering,thePMLAidentifiescertainoffencesunder the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, the Arms Act, the Wild Life (Protection)Act,theImmoralTraffic(Prevention)ActandthePreventionofCorruptionAct,theproceedsofwhichwould be covered under this Act.

Bank Marketing

26/JNU OLE

To combat the menace of aforesaid offences of money laundering, the government is entrusting the work relating to investigation, attachment of property/proceeds of crime relating to the scheduled offences under the act and fillingofcomplaints,etc.,tothedirectorateofenforcement,whichcurrentlydealswithoffencesundertheforeignexchange management act.

2.8 Role of BanksAll banks (including RRBs and Co-operative banks) are covered under the above Act. The money launderers may open deposit accounts with banks in fake names and banks will be required to be vigilant for not becoming a party to such transactions. With a view to preventing banks from being used, intentionally or unintentionally, by criminal elements formoney launderingor terroristfinancing, it is clarified thatwhenever there is suspicionofmoneylaunderingorterroristfinancingorwhenotherfactorsgiverisetoabeliefthatthecustomerdoesnot,infact,posea low risk, banks should carry out full scale Customer Due Diligence (CDD) before opening an account.

Similarly, they have to observe the norms regarding record keeping, reporting, account opening and monitoring transactions. The Act has made various provisions regarding money laundering transactions which include maintenance of record of all transactions relating to money laundering. Records relating to such transactions should be preserved for 10 years from date of termination of transactions between the client and the banking company.

Government has set up Financial Intelligence Unit (FIU-IND) to track and curb money laundering offences. Banks, financialinstitutions,stockbrokers,etc.,aretoreportnon-cashtransactions(cheques/drafts)totallingtoover1croreamonth and cash transactions of 10 lakh a month, to Financial Intelligence Unit. Non-adherence of the provision of the Act will be an offence and these offences are cognisable/non-bailable. Punishment would be rigorous imprisonment fornotlessthan3yearsbutupto7yearsandfineasperthegravityoftheoffence.EnforcementDirectoratehasbeen made the designated authority to track cases of money laundering.

AspertheAct,bankingcompanies,financialinstitutionsandintermediariesshouldmaintainrecordoftransactions,identity of clients, etc. A director appointed by the Central Government has the right to call for records and impose penaltiesincaseoffailureonthepartofthebankingcompaniesandotherfinancialintermediaries.CentralGovernmentin consultation with the Reserve Bank has framed rules regarding the maintenance of records, retention period of records,verificationoftheidentityofclient(KYCnorms)andsubmittingthedetailsandinformationtothedirectorwhen called upon to do so.

To ensure compliance under the PMLA, banking companies should strictly comply with the KYC norms without any deviation. KYC norms are applicable for both the new and existing client accounts. One of the objectives of KYC norms is the clear identity of the customer. The identity does not end with obtaining the required identity prooflike,verificationandretainingcopiesofPANcard,Passport,AADHARcardandotherrelevantdocumentsasspecified.Further to obtaining the required application forms, the photo identity and address proof documents, banks are required toensurethatalltherelevantdetailslikestatusofthecustomer,andrelevantdocumentaryverificationtoconfirmthestatus, declaration about the multiple bank account details, source of income, source of funds, and expected income and activities in the accounts, etc., are obtained and bank records are updated with these details. Banks should also accordinglysetupinternalcontrolcheckingsystems,wherebythesystemcanidentifyandcautionthebankofficialsaboutunusualtransactions,atthetimeofinputstagetoenabletheofficialstotakeappropriateaction.

Banks should be very careful to avoid incidents of Money Laundering at the entry level itself. This precautionary actiononthepartofbankofficialsandtheinbuiltwarningsysteminthecomputersofbankingcompanieswouldgoalong way to control the menace of Money Laundering. Banking companies should also ensure that as part of effective control system, that all the employees at all levels should be informed and trained to practise anti money laundering to safe-guard not only the customers funds, but also to be proactive to avoid incidents of money laundering.

The internal auditors, external auditors including the Statutory Auditors and the Reserve Bank of India inspectors shouldincludetheverificationof theanti-moneylaunderingproceduresaspartof theirauditandinspectionofbanking companies. They should ensure that all the required guidelines and directives in respect of anti-money

27/JNU OLE

laundering including the adherence to the KYC norms, monitoring of accounts, maintenance of records, reporting ofhighvolumetransactions,suspicioustransactions,filingofrequiredreturnstotheauthoritiesandpropercontrolmechanism are adhered to. The executives should ensure monitoring and controlling of such incidents. Further the computer systems should be upgraded with the required checking and cautioning of suspicious and unauthorised transactions at the input stage.

Bank Marketing

28/JNU OLE

SummaryIndia’sfinancialsectorisdiversifiedandexpandingrapidly.•Pension provision covers 12 percent of the working population and consists of civil service arrangements, •a compulsory scheme for formal private sector employees, and private scheme offered through insurance companies.The regulation and supervision of the financial system in India is carried out by different regulatory •authorities.Department of Company Affairs (DCA), Government of India regulates deposit taking activities of corporate, •other than NBFCS registered under companies Act, but not those which are under separate statutes.The capital market, mutual funds and other capital market intermediaries are regulated by Securities and Exchange •Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) regulates the insurance sector; and the Pension Funds Regulatory and Development Authority (PFRDA) regulates the pension funds.Currently in most jurisdictions commercial banks are regulated by government entities and require a special •bank license to operate.The Reserve Bank of India Act, 1934 was enacted to constitute the Reserve Bank of India with an objective.•The Banking Regulation Act, 1949 is one of the important legal frame works.•Banking Regulation Act through a number of sections restricts or prohibits certain activities for a bank.•The Reserve Bank of India has the powers as per the provisions of the BR Act and the RBI Act to issue licenses •to new banks to function as banks and also to open new branches from time to time.The Banking Regulation Act 1949 requires a company or entity to obtain a license from the Reserve Bank of •India to start the business of banking in India.When a bank accepts funds from a client under its remittance facilities scheme, it becomes a liability (liability •to others) in its books.Liabilities to the banking system in India as computed under Clause (d) of the explanation to Section 42(1) of •the RBI Act, 1934.The average of the minimum balances maintained in each of the month during the half year period should be •treated by the bank as the amount representing the “time liability” portion of the savings bank deposits.

ReferencesGelder, D. and Woodcock, P., 2003. • Marketing and Promotional Strategy. Nelson Thornes.Lamb, C., Hair, J. and McDaniel, C., 2011. • Essentials of Marketing. 7th ed., Cengage Learning.Chapter Two Marketing Strategies of The Banking Industry• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/562/10/10_chapter%202.pdf> [Accessed 15 July 2014].Bhattacharyay, N. B., • Marketing Approach to Promoting Banking Services. [Pdf] Available at: <http://vikalpa.com/pdf/articles/1989/1989_apr_jun_35_41.pdf> [Accessed 15 July 2014].The Seven Ps of the Marketing Mix: Marketing Strategies• . [Video online] Available at: <https://www.youtube.com/watch?v=ys7zx1Vc9po> [Accessed 15 July 2014].Episode 24: Introduction to Marketing: The Marketing Mix• . [Video online] Available at: <https://www.youtube.com/watch?v=dV1LbZg0if4>[Accessed15July2014].

Recommended ReadingHallberg, K., 2000. • A Market-oriented Strategy for Small and Medium Scale Enterprises, Volume 63. World Bank Publications.Sahoo, S. C. and Sinha, P. K., 1991. • Emerging Trends in Indian Marketing in the 90s. Academic Foundation.Majumdar, R., 2007. • Product Management in India. 3rd ed., PHI Learning Pvt. Ltd.

29/JNU OLE

Self AssessmentMatch the following1.

Placement1. The launderer attempts to justify that the money obtained A. through illegal activities is legitimate

Layering2. Cash is deposited in the domestic banksB.

Integration3. Funds are converted by transfers to different destinationsC.

PMLA4. Combating money laundering in IndiaD.

1-C, 2-D, 3-B, 4-Aa. 1-B, 2-C, 3-A, 4-Db. 1-D, 2-A, 3-C, 4-Bc. 1-A, 2-B, 3-D, 4-Cd.

Who regulates deposit taking activities of corporate?2. Insurance Regulatory and Development Authoritya. Securities and Exchange Board of Indiab. Department of Company Affairs (DCA)c. Non-Banking Finance Companiesd.

The Reserve Bank of India Act, 1934 was enacted to constitute the Reserve Bank of India with an objective to 3. ______________.

regulate the issue of bank notesa. the constitutionb. the powerc. the functions of the Reserve Bank of Indiad.

Which act was initially passed as Banking Companies Act, 1949?4. Wild Life Protection Acta. Money laundering Act, 2002b. Reserve Bank of India Act 1935c. Banking Regulation Act, 1949d.

The __________ act provides that whosoever directly or indirectly attempts to indulge or knowingly assists or 5. knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projective it as untainted property should be guilty offences of money laundering.

PMLAa. RBIb. Banking Regulations Act 1949c. NABARDd.

Bank Marketing

30/JNU OLE

A banking company whose license is cancelled can appeal to the Central Government within ________ from 6. the date of the order of cancellation.

4 monthsa. 30 daysb. 10 daysc. 2 monthsd.

___________ is the mandatory reserves to be maintained with Reserve Bank of India.7. Mail Transfers a. Telegraphic Transfersb. Cash Reserve Ratioc. Demand Draftsd.

__________ of a bank are liabilities which are payable on demand.8. Fixed depositsa. Demand Liabilitiesb. Cashcertificatesc. Gold depositsd.

______ include interest accrued on deposits, bills payable, unpaid dividends, suspense account balances 9. representing amounts due to other banks.

ODTLa. CRRb. SCBc. NDTLd.

_________ with the banking system include balances with banks in current account.10. Liabilitiesa. Loansb. Assetsc. Borrowingsd.

31/JNU OLE

Chapter III

Evolution of Bank Marketing

Aim


introduce evolution of bank marketing•

explain the evolution of bank marketing in USA•

explicate bank marketing in India•

Objectives


elucidate evolution of bank marketing in UK•

elaborate evolution of bank marketing in Japan•

analyse Indian banking industry•

Learning outcome


analyse marketing in the banking industry•

understand automatic transfer service•

determined development of marketing approach•

Bank Marketing

32/JNU OLE

3.1 IntroductionMarketing in the banking industry in the style and intensity we see today is a comparatively recent development. It owes much to the creation of mass production and mass consumption society which inturn has stimulated competition by creating greater selling opportunities and rewards.

Sincethemid-andlate1970’sfinancialservicesinthemoreadvancedcountrieshavebeencharacterisedbyincreasingcompetition.Financialmarketshavebeentransformedandnewfinancialinstrumentshavebeeninnovatedatregularintervals. The increased competition has been brought about by a combination of factors like the saturation of traditionalmarketsofbanks,ashiftfromquantitativetoqualitativegrowth,inflationandfinancialdisintermediation.Allthesefactorshaveledtoderegulationandinternationalisationofthefinancialsystems.Thishasinturnledtoblurringoffinancialdistinctionsbetweenbanksandotherfinancialinstitutions.Theevolutionoffinancialsystemsof countries from ‘bank-oriented stage’ to ‘market-oriented stage’ is examined in this chapter along with the Indian experience.

3.2 Evolution of Bank Marketing in USAIn United States, marketing has developed to the greatest extent. Aggressive marketing practices have been largely responsible for the high material standard of living in USA. However, even in this country modern marketing came of age after First World War, when the words ‘surplus’ and ‘overproduction’ became an important part of economics vocabulary. Since about 1920, except during the Second World War and the immediate post-war period, a strong buyers market existed in USA. That is, the available supply of products and services has far surpassed effective. Live demand.

The type of economy of USA largely explains why marketing is an American phenomenon. It is a country of abundance that produces and consume far beyond their subsistence needs. Although marketing exists in every type of modern economy, it is especially important for successful business performance in a highly competitive economy of abundance. One of the major trends in America has been the dramatic growth of services. As a result of rising affluence,moreleisuretimeandthegrowingcomplexityofproductsthatrequireservicing,theUSAhasbecometheworld’sfirstserviceeconomy.Thishasledtoagrowinginterestinthespecialproblemsofmarketingservices.

The seeds of the applications of the marketing concept to banking can be related to the American Banking Association Conference of 1930. In USA, 1960s was the growth period of retail banking. In the initial stages, marketing was by and large associated with advertising, public relations and promotional expects. The operative word in banks was ‘business development’ and not selling on marketing of services. The American Bankers Association (ABA) has over a period conducted several surveys and brought out numerous publications on marketing of banking services from the middle of 1950s. Over the years, the Marketing Department of ABA has extended commendable support to the member banks of the Association in developing the marketing functions.

A number of factors are contributed to the development of marketing approach to banking in USA. Being the classical landofunitbanking,Americanbankshavebeenunabletorelyonbranchexpansiontoincreasetheirprofits.Thismeant that the US banks had to sell their services to the customers. For this, they have used marketing approach to collect feedback from the staff and customers on their product and service development. Most US banks keep their staffwell-stockedwithadvertisementandleafletsforthecrosssellingofnewservicesuggestions.Afterascreeningprocess, any seemingly viable proposition will be tested by market research to establish whether the combination ofexpecteddemandandprojectedpricejustifieslaunchingtheservice.

For years, commercial banks in USA made customers feel that they should be honoured to have their money in a checking account with no interest, however with a service charge and savings accounts earned with very low interest rates. Stanton remarked that banks were ‘marble mausoleums’ and bankers were the black-hated and caped villains of song and story. When the market situation has changed most banks strived to change such images. Due totheextentofderegulationbythegovernment,commercialbanksencounteredintensifiedcompetitionfromothercommercialbanks,savingsandloaninstitutionsandfinancialinstitutionsoutsidethebankingindustry.Bankerswere compelled to do a little marketing to meet these challenges.

33/JNU OLE

In fact, some banks moved aggressively to shorten the transition period by pirating marketing executives from famous consumer product companies. Banks began to establish marketing departments, conduct sales training programmes and engaged in marketing research during this period. Later banks made every effort to attract retail and wholesale business. Buildings and material layouts were designed to project an image of warmth, friendliness and informality.

Drive-in-service and bank credit cards have been introduced for consumer convenience. In USA, many of the state branching laws, along with Mc Fadden Act, place severe limits on the locations where banks can serve their customers. In the past, branches have been buildings at precise locations fully staffed and open for business during a limited number of hours in a week. Towards the end of seventies, customers have been given different ways to complete the majority of their banking outside the traditional time and place limitations imposed by manned branches.

The continuation of Regulation ‘Q’ by Congress since 1966 has kept a ceiling on the interest rate payable on savings deposits, lower for commercial banks than for savings and loans or mutual savings banks. Commercial banks found thenegotiablecertificateofdeposittoovercometheinterestceilingonRegulation.FormerlycheckingfacilityinUSAwasofferedonlybybanks.However,lateronnon-bankfinancialinstitutionsalsostartedofferingthisfacility.Consumers made bankers understand that they want the convenience of a checking account but they also want to earn interest. This necessitated the introduction of NOW (Negotiable Order Withdrawal) accounts.

In 1978, the ATS (Automatic Transfer Service) was introduced giving customers the ability to have funds automatically moved from an interest bearing savings account to a non-interest bearing demand deposit account as and when needed.Consumerfinancecompanieshavebeencompetitorsofcommercialbanks in thegrantingofcredit fordecades. Since 1900, banks increased their share of consumer instalment credit through the introduction of “bank cards”, in competition with the retailers “charge cards”.

The different stages of bank marketing in USA can be summarised as follows: Firstly, the “production era” up to 1960’s when the emphasis was on producing and selling. During this stage, •banks had a predominantly inward looking focus.In the second stage the “promotion era” from 1960’s to 1970’s, the focus was more on product quality and •effects of competition. Banks began to recognise the need to identify customers and to advertise. The potentials of marketing were increasingly recognised in this stage.The early 1970’s saw the development of the third stage the “marketing - oriented era”. The selling concept was •much more strongly emphasised during this stage and greater efforts were directed at promotion.Thefindstageofevolutioncalled“marketingcontrolera”beganby1980’s.Here,marketingcontrolimpliesthat•marketing considerations ultimately drive the whole organisation. In one sense, the historical transition from the product on to the marketing control stage is also one from a seller’s market to a buyers’ market.

The USA is trying to move towards cash less system. Banking is now brought home by the pay- by-phone procedure where in the customer calls the pay-by-phone number and gives the appropriate account number, code, etc. There are a few more access controls. The transaction is validated and their effected. Today the banks in USA are using andexploringtheuseofinternetforbankingtransactionsandsendingfinancialmessages.

3.3 Bank Marketing in IndiaIndian Banking started on the classical Scottish banking model as an intermediary for taking deposits and to deploy funds to working capital requirements of trade and industry. Yet the marketing concept has not been fully accepted by the management as a corporate philosophy in India. Though India has the largest network of branches in the world, innovative banking remained years behind the developments in the banking world. There are various reasons stated against this backwardness in marketing orientation of Indian banks. Some of which are given below:

Strict regulatory directives exerted by Government of India and Reserve Banking of India such as social banking, •priority sector lending, high liquidity ratios, etc., have reduced the loanable resources of commercial banks.Operational staffs of the banks were burdened with the dual responsibility of development of business besides •their regular operations.

Bank Marketing

34/JNU OLE

Ground Rules and Code of Ethics by IBA which have often curbed creative and innovative banking.•Public sector banks executives do generally avoid risk taking because of fear of accountability.•Dearth of appropriate reward incentives for successful marketing efforts either in cash or promotions for career •build up.

A peep into the history of Indian banking right from the beginning of the century shows that large number of banks failed with heavy losses of depositors’ money. The failure of Palai Central Bank in 1960 caused uproar and shook thepublicconfidenceinthebankingsystem.Inordertoprotectthedepositors,RBIsinceitsformationandtheGovernment of India from time-to-time set regulations in the banking industry. This marked the real beginning of administered banking in India.

Untilafewyearsago,theIndianfinancialsystemwasheavilyregulatedtosuchanextentintermsofparticipants(institutions), paper (instruments) and prices (interest rates). Restrictions were also imposed on location of branches andpromotionalaspects.Thebasicrequisitesofafreeandflexiblesystemwerealmostabsent.BeforeindependenceIndianbanksweremoreconservativeandinwardlookingandonlyconcernedwiththeirprofits.Bankofficesweremostly located at the important trade and industrial centres. A notable feature of Indian commercial banks was the control of the major banks by leaders of commerce and industry. The Banking Commission observed that the ratio of paid up capital and reserves to deposits declined by 75 percent from 1951 to 1969 period. The increase in deposits in relation to owned capital and reserves enabled the industrialist shareholder with a low capital contribution to command the much larger resources available to the bank in the form of deposits collected from the public at large.

The formation of the State Bank of India by nationalising the Imperial Bank of India in 1955 was with three main objectives:

To expand branch network in rural and unbanked areas •To provide assistance to agriculture and small scale industry•To enable to function as a substitute of RBI in areas where it has no branch•

SBIwasgivenatargetofopening400branchesinfiveyearswhichwasachievedbythebanksuccessfully.

A pioneer attempt in the direction of marketing was initiated by the State Bank of India in 1972. The bank was reorganised on the basis of major market segments dividing the customers on the basis of different activities. Accordinglyfourmajorsegmentswereidentifiedascommercialandinstitutionalsegment,smallindustriessegment,agriculture segment and personal and services banking segment. The major objective of the scheme was:

Deeper penetration and coverage of its markets by looking outwards•Adequateflexibilityoforganisationtoaccommodategrowthandrapidchange•Delegation of work for releasing senior management for more futuristic tasks•

Gradually,themarketingterminologywasusedinIndianbankingscene,butitconfinedtoadvertisingandselling.However, attempts were made to improve the product development and customer service. There are three phases of marketdiversificationintheoperationsofIndianbanking.Duringthefirstfiveyearplanperiod,moreemphasiswasgiven to industrialisation and banks started catering to the longer capital needs of the industry including consortium lending and loans to public sector undertaking.

Towards the end of 1965 a beginning was made in the direction of bringing credit activities of banks more in alignmentwiththeplanningpolicies.TheCreditAuthorisationSchemewasintroducedin1965.Thiswasthefirstphase of consolidation of Indian banks. With social control of banks in 1968 and subsequent nationalisation of 14 commercialbanksinJuly1969thesecondphaseofdiversificationstarted.Thebankingpriortonationalisationwas the privilege of a few big wigs like big industrialists, big businessmen and big landlords. There was hardly any public relationing or any marketing in bank services. Banks were happy with walk-in business and there was nourgefordepositmobilisationorfulfillingsocialobligationsandnationalgoals.Thepublicingeneralwerenotmade aware of the facilities of the banks and no attempt was made by the authorities to do that. Nationalisation has

35/JNU OLE

brought in metamorphic change in the very objective of banking and the banking system has taken upon itself the role of most important development agency in the country.

Geographicalexpansionandfunctionaldiversificationinnewerandcomplexareasencompassingmillionsofclienteleinthedispersedandfarflungareashavebeenthehallmarkofthisphenomenalgrowth.Theinvolvementofpublicsector banks in the transformation process of Indian economy made it urgent that bankers review their services notonlyasfinancialintermediariesbutalsoaspace-setters.Indianbankscannotignorearationalapproach,whileframing the marketing strategies keeping in mind of the aspirations of the nation upon it.

The third phase of transformation of Indian banking began in early 1980s, when banks had started involving themselves in disintermediation activities like merchant banking. The decade of 1980s has clearly established the cult of equity in India in the capital market. Against a target of Rs 3500 crores to be raised by private sector from capital markets during the seventh plan, actual amount raised was as high as Rs 13000 crores. As companies started raising resources directly from capital markets and introduced competitive savings instruments to attract household savings, there was a visible shift towards the process of disintermediation.

In order to arrest this trend of bypassing the banking system, RBI came up with liberalisation measures like withdrawalofCreditAuthorisationSchemeandderegulationofinterestrates,etc.CertificatesofDepositswereintroduced to ensure the superiority of banks in the deposit mobilisation. The demarcation line between capital and money market is also getting thinner gradually though on a limited basis with the introduction of Commercial Paper. The bankers in India have been practising some aspects of marketing for the period after nationalisation in an unconscious manner. When branches were expanded to even remote areas of the country, it was a means to tap the rural savings to a considerable extent.

The traditionally bank-shy weaker and backward sections of the community were given the opportunity to develop themselves through various subsidised bank schemes like IRDP, DRI, etc. Service Area Approach adopted by the banks isamarketingapproachwherebyaspecifictargetmarketisassignedtoeachbankbranchandafteridentificationofthe needs of the customers all efforts of the bank are required to be concentrated to satisfy the customers to achieve the bank’s social objectives.

The Indian banking industry has been undergoing another phase of its metamorphosis since the commencement of liberalisation in 1991, following the recommendations of the Narasimhan Committee on Financial Systems. Measures like reduction in reserve requirements, deregulation of interest rates, introduction of prudential norms relating to capital adequacy, liberalisation of branch licensing policy, etc., forced the banks to relook at their business strategies. Moreover, opening up of doors to private sector banks and foreign banks add to the competition. The technological developmentsandglobalisationhasexertedpressureonbankstoredefinetheirbusiness.

Presently,Indianbankersincreasinglyfindthemselvesoperatinginabuyers’market.Thescopeofactivitiesthattheyengagein,therangeofnewfinancialinvestmentstheyhandleandtheleveloftechnologyabsorptionwhichhas brought market across the globe closer, have all forced them to accept marketing an organisational imperative. The old order of regulated and administered banking has changed and cleared the way for a paradigm shift towards market-oriented, commercially-driven banking system in India.

The progress of Indian commercial banking since nationalisation is given in Table 2.1. It can be observed that the numberofbankofficesincreasedfrom8262in1969to62,849by1996showingmorethan6timesincrease.Theaveragepopulationservedperbankofficehasalsochangedcorrespondinglyshowingadeclinefrom62000to15000by 1996. As a policy of reducing branch expansion, the rate of growth in the coverage of population has not shown significantchangeafter1990.

Bank Marketing

36/JNU OLE

The wide expansion of branches brought about considerable progress in the matter of deposit mobilisation and deployment of credit. The aggregate deposit which stood at Rs. 4646 crores in 1969 accumulated to Rs. 426073 crores by 1996. The per capita deposit has increased from Rs. 951 in 1969 to Rs 4552 by 1996. Similarly, the share of bank deposit to GNP which was 13 percent in 1969 has gone up to 44 percent in 1996. The deposit mobilisation strategy of the banks yielded good results during this period. In the case of advances also remarkable progress was made after nationalisation. The aggregate advances of commercial banks increased from Rs.3599 crores in 1969 to Rs. 263533 crores in 1996, with a corresponding increase in the per capita credit from Rs. 691 to Rs. 2864 during the same period. However, an important change to be noticed is that the credit deposit ratio which is an indicator of bank’s performance has gradually declined from 77.5 percent in 1969 to 61.9 percent in 1996.

Bank and Their Branches

1951 1961 1969June

1980June

1985June

1990March

1995March

1996March

Number of commercial banks

566 298 89 153 268 274 282 289

Number of bankoffices 4151 5012 8262 32419 51385 59756 62264 62849

Population peroffice 87000 88000 62697 20482 14382 14040 14000 15000

Total deposits in India (Rs in crores)

908.47 2011.52 4646 33377 77075 173515 375451 426073

Deposits per office(RsinLakhs)

25 46 56 103 150 290 603 678

Per capita deposits (Rs.) - - 95 503 1043 2111 4158 4552

Deposits as percentage of GNP

9 14 13 29 34 39 35 44

Credit in India (Rs in crores) 626.9 1293.17 3599 22068 50921 105450 222507 263533

Credit Depos-it Ratio (%) 69.2 64.3 77.5 66.1 66.1 60.8 59.2 61.9

Table 3.1 Progress of commercial banks in India over the years

3.4 Evolution of Bank Marketing in UKThe decision of the clearing banks to introduce marketing into their operations was an important turning point in thedevelopmentofpersonalbankinginEngland.AlthoughitisdifficulttoputaprecisedateonthedecisionofUKbanks to become involved in marketing, it was a cautious and creeping process. In the early sixties, several banks had sent their senior executives to USA to study the latest updates. This has followed by the creation of marketing departmentsintheirheadoffices,typicallylabelled“Marketing”andsincethen,overaperiodoftentofifteenyearsthe idea of marketing has been applied in a variety of ways and a number of banking operations.

Retail banking in UK and many other European countries has changed at an unprecedented rate since early 1960’s. New competitors and new forms of competition have continually extended the traditional frontiers of retail banking. Systematic and effective implementation of bank marketing started in UK only towards the latter part of 1970’s. From mid-seventies banks have been forced to adopt a more positive market orientation under the pressures of competition.Shapedby the forcesofderegulation, innovation (financial and technological), social changeandcompetition,themarketforretaildepositsbecameamarketforaplethoraoffinancialservices.

37/JNU OLE

The commercial banks in UK were traditionally more conservative and banks were acting merely as “clock rooms” into which deposits were paid and some of which were eventually drawn out again. “The appearance of the so called ‘personal loan’ in the 1960s and the acquisition by a Scotish bank of a hire purchase company signalled the beginning of a new era in banking. There are many factors behind the resistance to marketing approach in UK banking system.

Unlike USA, British banks are following branch banking system where the banks know relatively little about their customers. Secondly, the wide product range of banks reduces problems of effective marketing. It requires considerable number of branch staff, time and enthusiasm to market more than 250 services through a branch. Finally, the perception of the bank customer who traditionally sees the bank as a provider of loans rather than a supplier of other senices, limits the marketing efforts of banks.

The large banks in UK formed marketing departments only towards 1970. The abolition by the Government of Credit Control Regulation and Bank rate control in 1971 sharpened the competitiveness between banks, since they became free to set their own base rates on which to base the interest offered to depositors and borrowers. From theearly1970s,theUKfinancialsystemhasbeenderegulatedtoanincreasingextent.Thegenesisofderegulationmovement was marked by the competition and Credit Control measures of September 1971. During this period, the number of foreign banks in London grew at an unprecedented rate under the stimulus of a generally liberal political and regulatory environment. The internationalisation movement by banks was originally fostered by international and corporate banking considerations. Foreign banks followed their multinational corporate customers abroad and they began to penetrate the domestic banking market later.

The ‘Big four’ clearing banks concentrated more on international and whole sale banking activities during the 1970s. Growing competition from US and other foreign banks in domestic corporate banking markets tended to shift the emphasis away from retail banking. During this time, however, the building societies, insurance companies and other operators began to make serious inroads into the traditional retail dominance of the ‘big four’ banks. It was notuntiltheearly1980’sthattheattractionofstableretaildepositsandthegrowingopportunitiesinretailfinancialservices were given a much higher priority by the major clearing banks in UK. Following the abandonment of ‘corset’ balance sheet restrictions in 1980, the banks responded by entering the home mortgage market in a far more aggressive fashion. The deregulation of building societies and ‘Big Bang’ on the London Stock Exchange, heralded anewerainbankingandfinancialservicecompetitioninUK.

An important phenomenon in the changing environment has been that of structural diffusion in UK banks both at institutionalandmarketlevels.Institutionalstructuraldiffusionreferstothemovementoffinancialfirmsintonewandoftennon-traditionalareasandnon-financialfirmsmovingintofinancialservicesarea.Asaresult,thetraditionalbarriersbetweenfinancialinstitutionsandotheroperationsareerodingrapidly.Similarly,structuralmarketdiffusionresultedinbreakingdownoftraditionalbarriersbetweenfinancialmarkets.

As a consequence of all these changes, UK banking has changed from a sleepy supply led business dominated by commercial banks in the early sixties into a dynamic demand-oriented activity in which many players, both bankers andnon-bankerscompeteaggressivelytoobtainavaluableshareofthemarket.Banksandotherfinancialserviceorganisations in Britain have found it increasingly necessary to become more marketing oriented during the mid seventies.

Major Banks appointed Managers with strong marketing grounds to very senior positions. Growing competition convincedbanksthattheycouldnotrelyforeveroninterestmarginstoprovideprofitsandwiththebanksloosingthefightwithbuildingsocietiesfordepositmarket,feeearningservicesandwiderproductrangebecamepriorities.Inaddition,consumerdemandforfinancialservicesincreasedconsiderablyandanewapproachwasrequiredtocreate and win customers.

The combined effect of all these developments made UK banks realise the importance of marketing. They started identifying their customer needs and introduced a number of products and services. Market segmentation and managementinformationsystemsweredevelopedtosupportproductcostingandcustomerprofitabilityanalysis

Bank Marketing

38/JNU OLE

were introduced. Gradually, UK banks have undergone the transition from ‘marketing oriented era’ to ‘marketing control era’ and of late the ‘relationship banking era.’

The acquisition of Midland bank by Hongkong and Shangai Banking Corporation in 1993 and the purchase of major building societies like Cheltenham and Gloucester by Lloyds bank in 1994 have important implications for further diversificationbybanksbeyondwhathasalreadytakenplace.Thetechnologicaladvancementinservicedeliveryhas bought in modern banking facilities like home banking, Tele-banking and internet banking by UK banks in recent years.

3.5 Evolution of Bank Marketing in JapanTheSecondWorldWarhadadevastingeffectonthewholeofJapan'seconomyincludingbanks.However,theyreconstructed their banking system. The Dai-ichi Kangyo Bank, which is the largest bank in Japan, started working with computers since 1960. By 1980, an audio-response system was established for all clients with a push-button telephone. A nation-wide online banking network called Heart On-line Processing System (HOPS) was established which covers all major banking functions such as deposits, loans, foreign exchange, etc. Hence, the quality of customerserviceandefficiencyofthebankhassignificantlyincreased.TheMitsubishibankhasinnovatedimaginativeapplications for its customers into “voice answer back system.”

Japanesebanking,likeIndianbanking,wastotallyadministeredandkeptunderafirmcontrol.Foreignbanksweredisallowedtoenterintocompetitionwithdomesticfinancialinstitutions.Intheprocess,Japanhadaccumulatedlargenetexternalassetswhichputherinauniquepositiontoplaywellinfinancialliberalisation.Itwasonlysince1984, that they were allowed to liberalise. Today, Japanese banks are offering high-tech services to customers and using all techniques and tools of bank marketing.

39/JNU OLE

SummaryMarketing in the banking industry in the style and intensity we see today is a comparatively recent •development.In United States, marketing has developed to the greatest extent.•The American Bankers Association has over a period conducted several surveys and brought out numerous •publications on marketing of banking services from the middle of 1950s.In USA, many of the state branching laws, along with Mc Fadden Act, place severe limits on the locations •where banks can serve their customers.CommercialbanksfoundthenegotiablecertificateofdeposittoovercometheinterestceilingonRegulation.•Consumer finance companies have been competitors of commercial banks in the granting of credit for•decades.Indian Banking started on the classical Scottish banking model as an intermediary for taking deposits and to •deploy funds to working capital requirements of trade and industry.A notable feature of Indian commercial banks was the control of the major banks by leaders of commerce and •industry.A pioneer attempt in the direction of marketing was initiated by the State Bank of India in 1972.•Towards the end of 1965 a beginning was made in the direction of bringing credit activities of banks more in •alignment with the planning policies.The banking prior to nationalisation was the privilege of a few big wigs like big industrialists, big businessmen •and big landlords.The involvement of public sector banks in the transformation process of Indian economy made it urgent that •bankersreviewtheirservicesnotonlyasfinancialintermediariesbutalsoaspace-setters.The traditionally bank-shy weaker and backward sections of the community were given the opportunity to •develop themselves through various subsidised bank schemes like IRDP, DRI, etc.The decision of the clearing banks to introduce marketing into their operations was an important turning point •in the development of personal banking in England.

ReferencesArora, S., 2005. • Marketing of Financial Services. Deep and Deep Publications.Shanker, R., 2002. • Services Marketing. Excel Books India.Chapter- 2 Marketing Strategies of the Banking Industry• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/562/10/10_chapter%202.pdf> [Accessed 10 July 2014].Chapter-4 Development and Reforms in Indian Banking• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/3712/11/11_chapter%204.pdf> [Accessed 10 July 2014].Evolution ofBanks – Simplified• . [Video online] Available at: <https://www.youtube.com/watch?v=0AkT-Pn4qCk> [Accessed 10 July 2014].Introduction to Marketing - Lecture 2 - The Evolution of the Marketing Concept -- FREE Course• . [Video online] Available at: <https://www.youtube.com/watch?v=g3tIoR0wCIk> [Accessed 10 July 2014].

Recommended ReadingRao., 2004. • Services Marketing. Pearson Education India.Subramanyam., 2005. • Investment Banking. Tata McGraw-Hill Education.Giri, S. P., • Investment Banking. Tata McGraw-Hill Education.

Bank Marketing

40/JNU OLE

Self Assessment_________ remarked that banks were ‘marble mausoleums’ and bankers were the black-hated and caped villains 1. of song and story.

Stantona. Governmentb. Mc Faddenc. USAd.

______________ was introduced giving customers the ability to have funds automatically moved from an interest 2. bearing savings account to a non-interest bearing demand deposit account as and when needed.

Regulation ‘Q’a. Negotiable Order Withdrawalb. Automatic Transfer Servicec. Commercial bankd.

Which of the following has reduced the loanable resources of commercial banks?3. Incentivesa. RBIb. Operational staffsc. Social bankingd.

Which of the following is not a reason for backwardness in marketing orientation of Indian banks?4. Ground Rules and Code of Ethics by IBA which have often curbed creative and innovative banking.a. Public sector banks executives do generally avoid risk taking because of fear of accountability.b. Dearth of appropriate reward incentives for successful marketing efforts either in cash or promotions for c. career build up.Adequateflexibilityoforganisationtoaccommodategrowthandrapidchange.d.

Whichincidentshookthepublicconfidenceinthebankingsystem?5. A peep in to the history of Indian bankinga. The failure of Palai Central Bank in 1960b. Heavy losses of depositors’ moneyc. Regulations in the banking industryd.

A pioneer attempt in the direction of marketing was initiated by the _____________ in 1972.6. State Bank of Indiaa. Bank of Indiab. Bank of Barodac. Punjab National Bankd.

The third phase of transformation of Indian banking began in early __________.7. 1860sa. 1950sb. 1980sc. 2010sd.

41/JNU OLE

The decade of 1980s has clearly established the cult of equity in India in the _________.8. retail bankinga. capital marketb. credit marketc. marketingd.

The decision of the clearing banks to introduce marketing into their operations was an important turning point 9. in the development of personal banking in _________.

UKa. Japanb. Indiac. Englandd.

___________ in UK and many other European countries has changed at an unprecedented rate since early 10. 1960’s.

Retail bankinga. Commercial bankingb. Dai-ichi Kangyo Bankc. On-line bankingd.

Bank Marketing

42/JNU OLE

Chapter IV

Bank Marketing Strategies

Aim


introduce bank marketing strategies•

explain marketing orientation in banking•

explicate traditional banking•

Objectives


elucidate development banking period•

elaborate bank marketing period•

explain evolution of bank marketing in India•

Learning outcome


analyse marketing strategy system•

understand keys for drafting strategic bank marketing plan•

determinefinancialintermediation•

43/JNU OLE

4.1 IntroductionBanking Industry is one of the most important service industries which touch the lives of millions of people. Its service is unique, both in social and economic points of view of a nation. Earlier the attitude of banking service was that it was not professional to sell one’s services and was unnecessary in the sense that traditional relationships and qualityofproductsweresufficienttocarryforwardthetasks.Beforethemid1950’s,thebankshadnounderstandingor regard for marketing.

The bank building was created in the image of a Greek Temple to impress the public about the importance of a bank. The interior was sober. Bankers maintained strict dignity and they hardly maintained friendliness. It was in the late 1950’s that marketing in banking industry emerged in the West. Its emergence was in the form of advertising and promotionconcept.Atthattime,personalsettingcouldnotgetasignificantplace.Graduallytherewasachangeintheattitudeofbankers,probablyintimewiththeattitudinalchangeincustomers.Theideaofcustomer'ssatisfactionbeganinthelate1950’s,flourishedin1960’sandbecameanintegralpartofthebankingservicesinthe1970’s.However,thesametrendcouldnotbeapplicable,especiallyindevelopingcountriesandtobemorespecificinIndiabecause of socioeconomic and political reasons.

Marketing came into Indian banks in the late 1950’s not in the form of marketing concept, but in the forms of advertising and promotion concepts. Soon, it was realised that marketing transcends advertising and friendliness. Till 1950, it was recognised that personal selling was not necessary. The bankers went out of their way to avoid being accused of selling. The bankers even eliminated the word ‘selling’ and they called the function of customer contact, ‘business development function’. The bankers’ attitudes and comprehensions about marketing changed in the 1960’s. They began to realise that marketing was a lot more than smiling and friendly tellers.

Theideaofcustomerconveniencebeganinthelatefiftiesanditflourishedinthe1960’s.Bankerswerebeginningtounderstand the concept of market segmentation in the late 1960’s. The bank marketing profession changed dramatically in the 1970’s. Marketing positions in banks were created and marketing was accepted as an organisational imperative. To understand how banking services can be marketed better, one must examine backings a service industry, in the contentofaswiftlychangingenvironment,redefinemarketingtosuitabanker’sneeds,analysehowthemarketingoffinancialservicesdiffersfromthatofotherproducts,identifythetasksinvolvedthereinandsetforthaseriesofsteps for effective bank marketing.

When modern managers the world over are busy having their marketing skills, bankers in India can ill-afford to shrug it off and keep away from global changes in banking which are in favour of “optimal satisfaction of customers” wants and creation of customers for novel products. As a matter of fact, competition was not in existence. On the one side of the fence was the State Bank of India alone, which is enjoying Government, ownership and on the other side were private Commercial Banks, local by orientation, primarily servicing the interest of the controlling business houses. Therefore, neither the State Bank nor the others cared much for the public. Furthermore, their service is confirmedtoalimitedrangeofserviceswhichincludedcurrentaccounts,termdepositaccountsandsavingsbankaccounts in deposit area. In the area of advances, limits were sanctioned on the basis of security by the way of lock and key accounts and bills, purchased limits; their miscellaneous services included issuance of drafts, collection of outstation cheques, executing standing instructions and lockers facility at a few centres. It was the phase of class banking and even the communication through the media which was looked down upon with contempt as something against the tenets of banking culture. Even the advertisements released till 1966 were very few.

After nationalisation of 14 major commercial banks in 1969, banking system in India is no longer the exclusive preserve of a few industrial houses or business families and has become a very important instrument of socio-economic changes. Bankers, after nationalisation, woke up from their splendid isolation and found themselves placed in a highlycompetitiveandrapidlychangingenvironmentwithcompetitionbecomingfierceday-by-day.Thetraditionaldescriptionhardlysufficestoday’sneeds.Duetothis,banksapproachestowardscustomersandmarketunderwentchanges and focus was gradually shifted to marketing their products.

Bank Marketing

44/JNU OLE

Even the economist’s view that bankers are creditors of money and not mere purveyors of credit does little justice to the present-day bankers’ pivotal role in our society. Today, banks are virtually becoming “Financial Supermarket” for their customers. Banks were product-oriented organisations, placing before the prospective customer their range of services, expecting him to choose, presuming that the customer had the knowledge, time, interest and skill to pick out the services that would suit him. Along with it, banks also became conscious of their corporate image and its projections and this introduced the public relations philosophy in banks with the purpose of image projection.

ThefirstmajorstepinthedirectionofmarketingwasinitiatedbytheStateBankofIndiain1972,whenitrecogniseditself on the basis of major market segments, dividing the customers on the basis of activity and carved out four major market segments. They are commercial and institutional segment, small industries and small business segment, agriculture segment and personal and services banking segment. The new organisational framework embodied the principle that the existence of an organisation primarily depends upon the satisfaction of customer needs. The hallmark of the reorganised setup was customer orientation. It aimed at:

Having a total view of customers needs•Meetingtheidentifiedneedsinthebestpossiblemanner•Identificationofpotentialcustomersand•Conducting activities at the branches on the basis of carved out market segments instead of job wise•

By 1974, the environment became more demanding with the emphasis on mass banking and canalisation of credit into priority areas and lending at differential rates of interest to the weaker sections of the society. This placed strains on theprofitabilityofbankswhichledtokeencompetition,whichisdetrimentaltothebankingsystemintheultimateanalysis. This time even though banks were talking of marketing, they were essentially selling. A notable change during the period was related to two major components, that is product and promotion. The other two ‘Ps’ that is priceandplacewerehighlycontrolledbycentralbankingauthority.Bankingbegantoofferprofitsecurityregularincome,retirementbenefits,moneyformarriageofthedaughter,educationtorgrowingchildren,etc.

It was in the early 1980’s that banks realised that marketing was more than that. They started thinking in terms of product development, market penetration and market development. Moreover, banks also accelerated the process of equipping their staff with marketing capabilities in terms of both skill and attitude through internal and external training.ThroughthecontinuousmodificationandrectificationinbankingandimplementationoffinancialsectorreformsaspertherecommendationofthecommitteeonfinancialsystemthefunctioningofbanksinIndiahasundergone dramatic changes. Starting from very conservative traditional banking where the service of banks was confinedtoafewinthesociety,nowduetoliberalisationandprivatisation,a‘U’turnhastakenplaceinIndianbanking.Thehallmarkofthechangedconceptaimedathavingafullviewofcustomers’needs.Thatis,fulfillingtheidentifiedneedsinthebestpossiblemannerbyrequiredservice.Thesesplendidchangeshavethreephases.They are:

Traditional banking period•Development banking period •Bank marketing period•

45/JNU OLE

Period Banker’s major orientation

Traditional banking period up to 1969 Accounting orientation

Development Banking period 1969 to mid 1980’s Selling orientation

Bank marketing period after mid 1980’s

Towards marketing orientation

and

Bra

nch

Ex

pans

ion

Targ

ets

Ban

king

ope

ratio

n

Ris

ing

cust

omer

ne

eds

Ban

k N

atio

nalis

atio

n

Soci

al b

anki

ng

Con

solid

atio

n of

Dis

inte

rmed

iatio

n

Fig. 4.1 Evolution of bank marketing in India

4.2 Traditional BankingThis period is also known as Pre-nationalisation period. The basic symbol of this period was strong accounting orientation of bankers down the time, in other words, meticulous maintenance of accounts books and an inward-lookingapproachintransactingbusinesswiththecustomer.Investmentofbank'sfundsisbasedonliquidityprinciples.In loaning, the quality of security is more important and the requirement of the customer gets least importance. The customer was presented with ready made banking products with an option to take it or leave it. Due to the limited banking network available, the customer had little alternatives. Thus, the banking business kept prospering even withalimitedclientelebaseandasetofinflexiblerulesandregulationsmeticulouslyobservedbothinletterandspirit. During the period, there was a strong banker-customer relationship, but the customers selected were few in the society. This period is popularly known as period of class banking.

4.3 Development Banking Period It is otherwise known as post-nationalisation period. There was a dramatic change with the nationalisation of 14 major commercial banks in 1969. Inspired by the well-known socio-economic objectives of nationalisation, the banks went in for phenomenal branch expansion during the seventies to cover every nook and corner of the country. Financial assistance on a very large-scale was made available to the economically weaker sections of the society. The sheer magnitude of development banking efforts undertaken by public sector banks during this period remains unmatched by the banking industry anywhere else in the world.

As far as the evolution of bank marketing is concerned, the bankers came out of their ivory towers and reached out to the masses. A large number of deposits and loan schemes were developed during this period according to the requirements of different sections of society as per the national priorities. Even though bankers reached out to the masses, however, the orientation and mindset still did not evolve much beyond the "take it or leave it" syndrome of the pre-nationalisation era.

Bank Marketing

46/JNU OLE

The basic reason is that the banker was still operating sellers’ market. The inference of this scenario suggests that the banker of this period never found it necessary to ascertain what the customer actually wanted. What the banker did was present a few products to the customers and push hard enough amongst the customers in order to achieve the predeterminedlevelsofdepositsandadvancesfixedbythebank.Inotherwords,thebankadoptedasellingstance.The discipline of bank marketing did travel some distance as much as marketing tools like market segmentation, productdiversificationandexpansionwereexperimentedwith.Forinstance,theStateBankcameoutwithitsmarketsegmentation scheme and innovative loan products like, IRDP, Differential Interest Rate Scheme and Crop loans were extensively marketed. However, the basic content of marketing had yet to be absorbed by the bankers at large.

4.4 Bank Marketing Period It is also known as modern period. The frantic pace of branch expansion and credit disbursement during the development banking period has direct impact on the health of public sector banks. The real outcome was the proliferation of loss-making branches. The problem of communication and transport network in the countryside, rising customer dissatisfaction with banking services, and resultant apathy of bank staff towards developmental work are the basic reasons for this. The RBI urged commercial banks to take stock of the state of affairs, to consolidate their gains and go slow on branch expansion, thus ushering in the period of consolidation.

The bank visualises the risk inherent in continuing to do business as before. Therefore, there is a growing awareness that marketing was an essential tool in the hands of the banker, an inescapable necessity without which perhaps survivalitselfmightbecomedifficultinfuture.Themostimportantfactorswhichhavegivenamomentumtothebank marketing in the country are Financial Disintermediation. The basic job of a banker is to accept deposits from investors and or depositors and after providing funds for statutory obligation like SLR and CRR bank extend loan to borrowers. The difference between deposit interest rate and the loan interest rate is the banker’s ‘spread’. Thus, thebankactsasaninterlinkingfactorandthisiscalledfinancialintermediationasinFig.4.2.

DEPOSITOR BANKER BORROWER

Fig. 4.2 Financial intermediation

In another angle, the banker brings together those who have surplus fund and those who are in need of it. This has been the process for the last few decades in India. Now due to the opening of new avenues for both deployment of surplus fund and also for securing funds, meeting of depositor and borrower via banks are now meeting without the mediationofbank.Thereareanumberofnon-bankingalternativesforthedepositorlikesharemarket,Post-officesaving,UTI,mutualfundsandcompanyfixeddeposit.AlltheseareinvestmentavenuesandmanyothersimilaroneshavefloodedintotheIndianfinancialmarket.Furthermore,itisanunavoidableprocessofrapideconomicgrowth.The outcome of these processes is undermining the traditional banking function of intermediary between investors andborrowers.ThisisknownastheprocessoffinancialdisintermediationwhichisdepictedinFig.4.3.

DEPOSITOR BANKER BORROWER

Fig. 4.3 Financial disintermediation

Thebasicoutcomeisthattheprocessoffinancialdisintermediationcuttheroofoftraditionalbanking.Ontheoneside, deposit mobilisation is threatened because of alternative lucrative investment avenues available to the depositors. Similar is the case for lending aspect too as the borrowers can now access cheaper and less cumbersome avenues forraisingresources.Inanutshell,financialdisintermediationhascreatedaseriousthreattotheeverysurvivalandgrowth of basic banking activities.

47/JNU OLE

In such a situation, banks have been frantically looking for alternatives to survive and thrive. It is here that bank marketing came to their rescue. With its emphasis on the centrality of the customer to entire banking operations, the bank marketing concept has provided a way out in the form of a host of new banking services and instruments. Bank marketing has emerged as the principal survival strategy for banks confronted with an accelerating pace of disintermediation. Another face of the growth of Indian economy in recent years has been the fantastic increase in needs and expectation of banking customers. The important factors for this change are:

The spread of television, including access to international channels•RiseofIndianmiddle-classwithconsiderablefinancialresourcesandfurthermore,ahigherpropensitytowards•consumptionEntry of foreign and private sector banks in India•Break-up of the joint family system in urban India•Government intervention for protecting the interest of consumers•

All these and similar other developments have combined to produce a typical bank customer who is no longer preparedtoacceptthingslyingdown.Thecustomerhasstartedharbouringhigher-expectationsfrombankstofulfilhis newfound needs and has become quite articulate about them. Now due to the change in the attitude of’ customers, banks cannot continue with their “take it or leave it” attitudes. If they do so, they will lose their customers because customers have a number of other options. Thus, banks must be closer to the customer in order to satisfy them. In other words, this is exactly what bank marketing is.

An offshoot of economic liberalisation is the phenomenal growth in competition in the banking industry. A number ofprivatesectorbankswithconsiderablefinancemightandexpertiseshavealreadymadeanentry.Inadditiontothis, foreign banks have also made their presence in the country besides, a large number of non-banking. Finance Companies as well as recently proposed local area banks are competing to get the maximum share of the market. Therefore,forthefirsttime,bankcustomersinIndiaaregoingtohaveachoice.Thissituationbrings‘bankmarketing’toincreasebusinessandprofit.

ApopulardefinitionofbankmarketingisgivenbyS.Kuppuswamiinthefollowingwords,“Creationanddeliveryoffinancialservicessuitabletomeetthecustomer’sneedataprofittothebank.”Thisdefinitionrecognisestheimperativeneedtosatisfycustomers,thesignificanceofboththecreationanddeliveryaspectsofbankservicesandunderlyingprofitmotive.ThemostcomprehensivedefinitionofbankmarketingisgivenbyDerykWeyerofBarclaysBank.Hecallsitas,“Consistingofidentifyingthemostprofitablemarketsnowandinfuture,assessingthe present and future needs of customers, setting business development goals, making plans to meet them and managing the various services and promoting them to achieve the plans, all in the context of changing environment in the market.”

Hartley prefers to call bank marketing responsive marketing which suggests an attuning or responding to the changing needs of customers’ society and environment. Gist looks at the social dimensions from a different angles. He says that because marketing activities lead to the creation of new products and services, because marketing activities promote new ideas to the society which is being served and because marketing involves an important persuasive role in the formation of public opinion, marketing is unavoidably a social concern.

4.5 Marketing Orientation in BankingMarketingorientationisbasicallydefinedasanattitudinaldispositionofabankerwhichenableshimtoanticipatecustomer needs and also inspires him to satisfy that need. Two ingredients of marketing orientation are:

An ability to anticipate customer needs•Willingness to satisfy them•

Bank Marketing

48/JNU OLE

Fig. 4.4 displays the concept of marketing orientation in banking.

Customer

Marketing Orientation

Bankers’ ability to anticipate customer needs

Bankers willingness to satisfy customers’ needs

Cus

tom

er n

eed

satis

fact

ion

Fig. 4.4 Concept of marketing orientation in banking

The customer of a bank today is most discerning. With banks operating in a buyer’s market, the customer looks for a bank which can meet all his present and future requirements at an affordable competitive cost. He is also increasingly quality-conscious. Almost everyone would appreciate that no two classes of customers are alike. Therefore, in any environmentrelatingtoabank’sbranchorregion,thepotentialclientelecanalwaysbeclassifiedintodifferenthomogeneous segments and distinct 4Ps package judiciously offered to each segment. As Alan Roberts observes, “Market segmentation is the strategy of dividing markets in order to conquer them, a continuous policy of looking for differences, geographical or otherwise in the total market and the continuous exploitation of these differences.”

Market segmentation differentiates customers with similar banking needs from those with dissimilar needs. If homogeneity is greater in needs and behaviour of a group of customers, then it is easier to understand them. In addition to that, segmentation provides a solid basis upon which the marketing strategy of a bank can be designed. Furthermore, segmenting the market also helps to evolve a distinctive marketing package for each segment based on the needs of different customer segment. This in turn helps the marketer to cultivate in the customer’s mind a perception of psychological membership of bankers’ offerings. A customer is more likely to have a feeling that the given marketing package has been specially designed for a person like him only and not for everyday.

This will result in greater satisfaction of customer needs which will in turn result into higher return for every rupee spent in marketing. Marketing literature is teeming with information about the different basis on which market segmentation may be attempted. Some of the popular basis of segmentation is geographic, demographic, psychological,volume,benefit,etc.

Geographic segmentation in the banking context: One may have variations like metropolitan, urban, rural, North West, East, South, large city, small city on the basis of population, hill area, tribal area and desert area. By this segmentation, it is assumed that customers in a given geographic region would show a high degree of homogeneity in their banking needs. As geographic region are already demarcated, it is the easiest way of segmentation.

49/JNU OLE

Generally, geographic segmentation could be further extended on the basis of demographic segmentation of customers. Typical demographic parameters in use are age, sex, income, occupation education, social class, etc. In India, geographic and demographic segmentation combined together are likely to yield far more homogeneous segments than either of them individually. Another more sophisticated criteria that a bank may use for segmentation ispsychographicbenefitparameters.Amongstpsychographicparameters,onecouldusesegmentationvariableswhichreflectpersonalitytraitsofcustomerslikeleader-followertypes,extrovert-introverttypesandconservative-liberal types. This type of segmentation requires in-depth understanding of customer psychology.

Even then, it may remain uncertain to that extent these personality traits actually determine customer needs and behaviour.Becauseofthesereasons,psychographicsegmentationmaybeverydifficulttoimplementinbanks.Segmentationisbenefitsegmentation.Here,segmentationisonthebasisofthebenefitthatacustomerseeksfrompurchasingagivenbankproduct.Forinstance,goingfora‘creditcard’isseekingthebenefitofstatuswhilegoingforaloantoaparticularbankisseekingthebenefitofeconomy.Similarly,athirdcustomerisseekingthebenefitofconvenienceandpreparedtopayapriceforprompt,efficientandcourteousservice.

Thus,benefitslikestatus,economyandconveniencecouldbethebasisformarketsegmentation.Inanutshell,geographic and demographic basis of segmentation applied in tandem, appear perfectly capable of yielding useful, specificandfairlyhomogeneousmarketsegmentforbanks.Thesesegmentsneedtobetestedonthebasisofthreeparameterssuchasmeasurability,profitabilityandaccessibilitybyeachbank,beforebeingadopted.Someoftheleading segments are senior citizens, students, domestic tourists, working women, investors, community, housewives, defence personnel, young salaried people, etc. They are also known as house-holding banking segments. None of these segments are totally new to bankers. However, the degree of marketing effort they require is of a high order.

Household and corporate segments display several distinctive characteristics which are diametrically opposite to each other. In terms of marketing theory, the household segment has to be approached with consumer marketing principles while the corporate sector can be best understood through the principles of industrial marketing. Under the sponsorship of Indian Banks Association, National Institute of Bank Management in 1986 conducted a study on “All India savings and Deposit Trends and Patterns” which is one of the important sources of’ Indian banking industry customers. This survey has collected data about households and institutions separately on a host of parameters of interesttobankmarketers.Importantfindingscanbecategorisedunderthreeheadssuchashouseholdssegment,institutional or corporate segment and rural segment of banking market in India.

4.5.1 Household SegmentA large number (80-85 percent) of bank savers are either professionals or services workers. A sizeable population of production workers is still non-bank savers who are yet to be tapped by banks. Banking is still a habit mainly of literate class only with 86-94 percent of bank savers being literate. As against this, 30-42 percent of non-bank savers are illiterate, a potentially lucrative market segment for banks to tap with innovate products and marketing strategy.

Urbannon-banksaversshowastrongpreferenceforinvestmentinphysicalratherthanfinancialassets.Themotivebehind this preference for investment deserves to be examined to knock this important group of household segment effectively.76-87percentof’investmentinfinancialassetsbynon-banksaversgoestoinstrumentslikepost-officesavings, LIC, and Chit Fund. Awareness about most banking products is strikingly low amongst non-bank savers. Lack of awareness could be a major reason why non-bank savers continue to stay away from becoming bank savers.

Aggressive marketing promotion may overcome this problem. The most important reasons for saving amongst bank savers are provision for emergencies, provision for old age and provision for marriage. Suitable location of bank branch and quality of its service are the two main criteria for selection of bank by bank savers. Only 56-62 percent of bank savers feel that bank staff has a positive attitude towards customers. A sizeable 35.41 percent opine that the attitude of the bank staff is neutral.

Bank Marketing

50/JNU OLE

Of the total suggestions given by the urban bank savers, 31 percent to pertain to improvement in systems and procedures of banks, 28 percent to improvement in customer service and an additional 18 percent to providing better and new services to bank savers. 9 percent of urban-non bank savers (and 5 percent of rural non-bank savers) have hadbankaccountswhichwereclosedlater.Twomainreasonsfortheirclosurehavebeeninsufficientsavingsandquitesignificantlynon-cooperativeattitudeofbankemployees.

About 77 percent of urban-non-bank savers (52 percent rural non-bank 6 savers) read newspapers and watch movies regularly. The media habit of non-bank savers could be useful for marketing promotion by banks in this potentially profitablesegment.

4.5.2 Institutional SegmentIn general, irrespective of the type of banks, the quantum of interest and security of investment are found to be most important reasons promoting institutional savers to invest in banks. Unlike household savers, institutional savers arenotquitesatisfiedwiththespeedofvariousbanksavers.Majorityofcomplaintsofinstitutionalsaverspertainto delay in transactions, error in entries of passbook/statement of account, misbehaviour of bank staff, etc.

4.5.3 Rural SegmentRuralsaversexhibitastrongpreference(58percent)forinvestmentinphysicalassetsinsteadoffinancialassetsascomparedtopreferenceofurbansavers(51percent).Apartfromsavingaccountandfixeddepositschemes,theawareness about other banking products is relatively low amongst rural savers. Besides the saving motive of bank saversmentionedearlier,adefinitemotiveforsavingamongstruralsaversistheacquisitionoffarmassets.

Suitable location of a bank is the most important selection criterion amongst rural savers. Gramin banks have an edge over the other types of banks in terms of location suitable to rural savers. About 84-86 percent of rural bank saversaresatisfiedwiththecourtesyandpromptnessofbankstaff.45percentofruralbanksaversarenotsatisfiedwith theexistingnetworkofbranches in theirarea.Thisdatahas significant implication forbranchexpansionplanning in banks.

The suggestions given by rural savers, besides those given by urban bank savers also include an expectation about improvement in staff behaviour. Newspapers and magazines are found to be the most effective media for advertising bankproductstoreachruralbanksavers.95percentoftheamountisinvestedinfinancialassetsbyruralinstitutionalsavers in banks. This is substantially higher than 68 percent in case of urban institutional investors.

In the case of rural institutional savers the quality of service rendered by Gramin Banks seems to play a more vital role than quantum of interest income. Understanding the customer is crucial and it is around this the entire range of marketing activities revolve. Alongwith segmentation, judicious combination of ‘Ps’ is essential to satisfy customers. However, when it comes to service marketing the context is different. In service marketing, the human factor has an overriding role to play. Again, due to intangible nature of service products, tangibilising them becomes important. Furthermore, due to the presence of the human factor producing quality product is crucial.

Such a combination is termed as marketing mix. Framing a market mix for service industry like bank is a laborious task. The level of customer satisfaction is not static among bank customers. The level of satisfaction will vary with the changing level of standard. It also changes to different customer segments according to their respective attitudes and aspirations. The multi-faceted development in the socioeconomic fabrics has made it urgent that Indian banksreframetheirmarketingmix.Duetoincreasingcompetitionfromotherfinancialinstitutionsitisnecessarythat Indian commercial banks review the line of banking service channels of management pricing strategies and promotional stages. Investors started to invest their savings in other avenues of investment, earning 50 to 100 percent of returns.

Furthermore,co-operativebanksandothernon-bankingfinancialinstitutionsalsoofferattractivedividendinreturn.Thus, it is high time to think about reframing marketing mix of banking service.

51/JNU OLE

4.6 Keys for Drafting Strategic Bank Marketing PlanInthefiercecompetitivemarket,needsofcustomerkeepchanging.Hence,ourmarketingstrategymustbedynamicandflexibletomeetthechangingscenario.Herearestepsthatformsuccessfulandeffectivemarketingstrategyforbank products.

Emphasis on depositsEmphasis,thoughinadiscretemanner,shouldbegiventomobilisemoreoftermdepositsastheyaremoreprofitableforthebankincomparisontodemand.Introductionofproductscomparableto“KisanVikasPatra”ofpostofficeand product with the facility of tax rebate under section 88 of Income Tax Act will be of much help in this regard.

Form a saleable product schemeBank should form a scheme that meets the needs of customers. A bunch of such schemes can also form a product. A bankproductmayincludedepositscheme,anaccountofferingmoreflexibilities,technicallysoundbanking,Tele/mobile/net banking, an innovative scheme targeted to special group of customers like children, females, old aged persons, businessman, etc. In short, a bank product may consist of anything that you offer to customers.

Effective brandingConsidering the features of products and target group of customers, the product can be effectively branded so as to sound it catchy and appealing. Some proven examples are Apna Ghar, Dhan Laxmi, Kuber, Flexi Deposit, Smart Kid, Sapney, Vidya, etc. The branding should be done in such a way that the brand name must attract the attention of customers. It should be easy to remember. The target group and the silent feature of the product should resemble brand name. This will help a lot in making the brand successful. All employees and all our campaigns should refer the product by its brand name only, so that it strikes the same in the customer’s mind.

Products for womenThe national perspective plan for women states that 94 percent of women workers are engaged in the unorganised sector and 83 percent of these in agriculture and allied activities like dairy, animal husbandry, sericulture, handloom, handcrafts and forestry. Banks should do something to improve their access to credit their requirements.

Customer awarenessThere is a need to educate the customers on bank products. Efforts should be made to widen and deepen the process ofinformationflowforthebenefitandeducationofIndiancustomers.Today,thecustomersdonothaveanyideaasto how much time is required for any type of banking service. The rural customers are not aware for what purpose the loans are available and how they can be availed. Customers do not know the complete rules, regulations and procedures of the bank and bankers preserve them for themselves and do not take interest in educating the customers. It is a need to educate the customers from the grassroots of banking. It is the time that each bank branch takes steps to educate the customers on all banking function, which will facilitate growth of banking on healthy lines both qualitatively and quantitatively.

4.7 Marketing Strategy SystemFor developing strategies relating to deposit mobilisation and improving customer service, market research has to be conducted for market segmentation and targeting, broadly covering the following categories.

Determinants of depositsThereareseveralfactorswhichinfluencethegrowthofbankdeposits.Fewofthemareasfollows:

Higher industrial and agricultural production•Increasing savings rate in the economy•Development programs of the government to boost rural economy and small-scale industries•

Bank Marketing

52/JNU OLE

Factors having adverse effect on deposit mobilisation are:Setback in the agricultural sector during poor monsoon years•Rising cost of hiring•Government reducing its budget and restricting money supply•Growing competition from other channels of investment which offer higher interest rates•Government’s control on branch expansion of banks•Non-recovery of loans•

Astatisticalanalysisofthedeterminantsofdepositshadbeenperformedtomeasurethemagnitudeofinfluenceofdifferent environmental factors on deposit mobilisation. Regression analysis on secondary time series data has been conducted at all India and state levels to achieve the above objective.

Trends and patterns of savings and depositsThis involves estimating current and potential markets for deposits and segmenting the market in terms of geographical location, customers, socioeconomic characteristics and other related factors.

Customer behaviour, attitude, and perceptionsThisinvolvesunderstandingcustomerprofile,theirsocio-economicanddemographicbackground,theirpsychographicmake-up, motivations behind their savings, awareness of and attitude to various modes of savings and reasons for their preference for one form of savings over another. This will help bankers in providing new banking services/products by which even the non-bank customers can be adopted.

Customer servicesLaunching new schemes with advertisements attracts new depositors. However, what ultimately sustains the process of generation of new deposits and continues the acceleration of deposit mobilisation is the quality of customer service as perceived GBY customers. Bank’s performance in different banking services like withdrawal of cash, collection of cheques, quality and adequacy of infrastructural facilities available to customers, attitudes of bank employees towards customers, promptness and general attitude have to be analysed and evaluated before strategy formulation.

53/JNU OLE

Marketing objectivesDeposit mobilisationImproving customer servicesImproving bank imageIncreasing customer base and its spreadMarginalprofit

Marketing strategies

Segmentation of market and targeting

Market research on current and potential households and Institutions

Environmental analysis

Customer Behaviour, Attitudes

and Perceptions

Market Analysis and

Measurement

Evaluation of Quality

Customer Service

Place

Price

Product/Service

Promotion

Fig. 4.5 Marketing strategy system

Bank Marketing

54/JNU OLE

SummaryBanking Industry is one of the most important service industries which touch the lives of millions of people.•The bank building was created in the image of a Greek Temple to impress the public about the importance of •a bank.Theideaofcustomers’satisfactionbeganinthelate1950’s,flourishedin1960’sandbecameanintegralpart•of the banking services in the 1970’s.Theideaofcustomerconveniencebeganinthelatefiftiesanditflourishedinthe1960’s.•After nationalisation of 14 major commercial banks in 1969, banking system in India is no longer the exclusive •preserve of a few industrial houses or business families and has become a very important instrument of socio-economic changes.Banks were product-oriented organisations, placing before the prospective customer their range of services, •expecting him to choose, presuming that the customer had the knowledge, time, interest and skill to pick out the services that would suit him.The new organisational framework embodied the principle that the existence of an organisation primarily depends •upon the satisfaction of customer needs.The sheer magnitude of development banking efforts undertaken by public sector banks during this period •remains unmatched by the banking industry anywhere else in the world.The RBI urged commercial banks to take stock of the state of affairs, to consolidate their gains and go slow on •branch expansion, thus ushering in the period of consolidation.The basic job of a banker is to accept deposits from investors and or depositors and after providing funds for •statutory obligation like SLR and CRR bank extend loan to borrowers.Inanutshell,financialdisintermediationhascreatedaseriousthreattotheverysurvivalandgrowthofbasic•banking activities.Bank marketing has emerged as the principal survival strategy for banks confronted with an accelerating pace •of disintermediation.Creationanddeliveryoffinancialservicessuitabletomeetthecustomer’sneedataprofittothebank.•Hartley prefers to call bank marketing responsive marketing which suggests an attuning or responding to the •changing needs of customers’ society and environment.Marketingorientationisbasicallydefinedasanattitudinaldispositionofabankerwhichenableshimtoanticipate•customer needs and also inspires him to satisfy that need.Market segmentation differentiates customers with similar banking needs from those with dissimilar needs.•A customer is more likely to have a feeling that the given marketing package has been specially designed for a •person like him only and not for everyday.76-87percentof’investmentinfinancialassetsbynon-banksaversgoestoinstrumentslikepost-officesavings,•LIC, and Chit Fund.Ruralsaversexhibitastrongpreference(58percent)forinvestmentinphysicalassets,insteadoffinancialassets•as compared to preference of urban savers (5 1 percent).

ReferencesSingh, K. & Dutta, V., 2013. • Commercial Bank Management. Tata McGraw-Hill Education.Gurusamy., 2009. • Financial Services, 2E. Tata McGraw-Hill Education.Bhattacharyay, N. B. • Marketing Approach to Promoting Banking Services. [Pdf] Available at: <http://vikalpa.com/pdf/articles/1989/1989_apr_jun_35_41.pdf> [Accessed 14 July 2014].Dr. Uppal, R. K. • Marketing of Bank Products – Emerging Challenges & New Strategies. [Pdf] Available at: <http://ww.w.jmijitm.com/papers/130082034035_42.pdf> [Accessed 14 July 2014].Dong-Kyu Ahn., • Bank Marketing with Social Media. [Video online] Available at: <https://www.youtube.com/

55/JNU OLE

watch?v=cn_VnLNePMQ> [Accessed 14 July 2014].Commercial Banking• . [Video online] Available at: <https://www.youtube.com/watch?v=L24w7IuYSk0> [Accessed 14 July 2014].

Recommended ReadingRao, V. S. P., 1999. • Bank Management. Discovery Publishing House.Honohan, P., 2003. • Taxation of Financial Intermediation: Theory and Practice for Emerging Economies, Volume 235. World Bank Publications.Roldos, J., 2006. • Disintermediation and Monetary Transmission in Canada. International Monetary Fund.

Bank Marketing

56/JNU OLE

Self AssessmentThe bank building was created in the image of a _________ to impress the public about the importance of a 1. bank.

Greek templea. empire state buildingb. Indian templec. Indian banksd.

__________ came into Indian banks in the late 1950’s not in the form of marketing concept but in the forms of 2. advertising and promotion concept.

Savingsa. Marketingb. Mutual fundsc. Accountsd.

Which of the following statement is false?3. Theideaofcustomerconveniencebeganinthelatefiftiesanditflourishedinthe1960’s.a. Bankers were beginning to understand the concept of market segmentation in the late 1960’s.b. The bankers’ attitudes and comprehensions about marketing changed in the 1960’s.c. The bank marketing profession changed dramatically in the 1990’s.d.

Marketing positions in banks were created and marketing was accepted as an/a _______________.4. satisfaction of customera. organisational imperativeb. banking servicec. outstation chequed.

___________ are creditors of money and not mere purveyors of credit.5. Financial Supermarketa. Marketersb. Bankersc. Customersd.

Whoinitiatedthefirstmajorstepinthedirectionofmarketing?6. State Bank of Indiaa. Reserve Bank of Indiab. Bank of Barodac. Oriental Bank of Commerced.

57/JNU OLE

Match the following7.

Traditional Banking1. Differentiates customers with similar bank-A. ing needs from those with dissimilar needs

Development Banking Period2. Modern periodB.

Bank Marketing Period3. Pre-nationalisation periodC.

Market Segmentation4. Post-nationalisation periodD.

1-B, 2-A, 3-D, 4-Ca. 1-A, 2-C, 3-B, 4-Db. 1-C, 2-D, 3-B, 4-Ac. 1-D, 2-A, 3-C, 4-Bd.

____________ is the strategy of dividing markets in order to conquer them, a continuous policy of looking 8. for differences, geographical or otherwise in the total market and the continuous exploitation of these differences.

Segmentationa. Market segmentationb. Marketing literaturec. Bank associationd.

____________ is teeming with information about the different basis on which market segmentation may be 9. attempted.

Marketing literaturea. Market segmentationb. Household segmentc. Aggressive marketingd.

Suitable location of a bank is the most important selection criterion amongst ____________.10. rural saversa. market mixb. income taxc. effective brandingd.

Bank Marketing

58/JNU OLE

Chapter V

Marketing of Banking Services

Aim


introduce marketing of banking services•

defineservicemarketing•

explain the product and services•

Objectives


determine marketing approach to banking services•

elaborate marketing approach to banking services•

determine the steps in service planning•

Learning outcome


analyse service marketing and new development in Indian banking sector•

understand importance of service sector in India•

explain implications of service marketing in Indian banks•

59/JNU OLE

5.1 IntroductionBanks in India have traditionally offered mass banking products. In the past, banks in India were having less to dobesidesacceptingdepositsatratesfixedbytheCentralBankandtolendmoneyonthebasisofaformulaandrates stipulated by RBI. Prime lending rate was the benchmark for interest on the lending products. ,However, PLR itself was, more often than not, dictated by RBI. Further, remittance products were limited to issuance of drafts, telegraphic transfers, bankers’ cheques and internal transfer of funds.

In view of the Financial Sector Reforms in the 1990s, the entire banking sector including products and structure has undergone a major change. As part of the economic reforms, banking industry has been deregulated and made competitive.I.Trevolutionhasmadeitpossibletoprovideeaseandflexibilityinoperationstothebankcustomers.Rapidstridesininformationtechnologyhave,infact,redefinedtheroleandstructureofbankinginIndia.

Now after having exposure to global trends, customers-both individuals and corporate are demanding better services with more customised products from their banks. The Commercial Banks in India have already introduced customised banking products like investment advisory services, SGL II accounts, photo-credit cards, cash management services, investment products and tax advisory services. A few banks have gone into market mutual funds schemes and insurance products. The banks also plan to market bonds and debentures in near future. The. 64 trillion Indian banking industries has made an exceptional growth even when the world was facing a global turmoil and its repercussions the Indian banking industry is standing still under the guidance and supervision of the market regulators. The world renowned rating agency Moody’s considers that the strong deposit base and a stringent credit approval system with the Governments continuous support to the market players has brought a positive wave in the economy.

5.2 Importance of Service Sector in IndiaThe Economic development story of India post liberalisation has been quite unique with the service sector serving as the key engine of growth. India’s growth is at present service sector driven. India stands out for the size and dynamism of its services sector. The contribution of the services sector to the Indian economy has been manifold a 55.2 percent share in Gross Domestic Product (GDP), growing by 10 percent annually, contributing to about a quarteroftotalemployment,accountingforahighshareinForeignDirectInvestment(FDI)inflowsandoverone-thirdoftotalexportsandrecordingveryfast(27.4percent)exportgrowththroughthefirsthalfof2010-11.Themain highlights of the service sector in India are appended below:

Performance in services growth of top 12 countries shows India’s position at number 11 with a growth rate of •6.8% highest amongst all.Services concerning personal, cultural and recreational had a growth of 96 %.•Retail sector is expected to record healthy sales in 2010-11 and grow by 10.2 per cent in 2011-12.•A survey conducted by the country’s Labor Ministry indicated that during the last quarter, employment in the •industry rose to 15.72 million..In the global crisis year of 2009, when most of the top 12 countries registered negative growth in services, only •China (9.4 per cent), India (6.8 per cent) and Brazil (2.6 per cent) registered positive growth.Services Sector as a percentage of GDP shows a remarkable increase from 27.4 percent in 2000-01 to 52.1 •percent in 2008-09. The progress of Service Sector is presented in the following table:

Bank Marketing

60/JNU OLE

Sector 2008-09(Apr.-Mar.)

2009-10(Apr.-Mar.)

2010-11(Apr.-Dec.)

Cumulative Inflows (Apr. 2000- Dec. 2010)

% age to Total Inflows (In US$ter-ms)

Services sector (financial&non-financial)

28,516(6,138)

20,776(4,353)

13,044(2,853)

1,18,274(26,454) 21%

Computer software & hardware

7,329(1,677)

4,351(919)

3,054(670)

47,144(10,601) 8%

Telecommunications (radio paging, cellular mobile, basic telephone services)

11,727(2,558)

12,338(2,554)

6,021(1,327)

46,727(10,258) 8%

Housing and real estate 12,621(2,801)

13,586(2,844)

4,680(1,024)

42,049(9,380) 7%

Construction activities (including roads & highways)

8,792(2,028)

13,516(2,862)

4,109(911)

39,802(8,964)

7%

Table 5.1 Sectors attracting highest FDI equity inflows

Shares Change in shares

Sectors 1993-94 2004-05 2007-08 2004-05 over 1993-94

2007-08 over 2004-05

2007-08 over 1993-94

Primary 64.5 57.0 55.9 -7.5 -1.1 -8.6

Secondary 14.3 18.2 18.7 3.9 0.5 4.4

Tertiary 21.2 24.8 25.4 3.6 0.6 4.2

Table 5.2 Share of broad sectors in employment (UPSS)

For the years 2004-05 and 2007-08, projected population at mid-point of these two rounds was obtained by applying projectedpopulationfiguresfromtheRegistrarGeneralofIndia’soffice.Fortheyear1993-94,thepopulationatmid-point of the survey period was obtained by interpolation of census population of 1991 and 2001. Work participation rates of rural males, rural females, urban males and urban females were obtained separately from unit-level data of the national sample survey and by multiplying them with the respective population, the total numbers of usual principal and subsidiary status workers for these four categories were obtained. Then, the distribution of employment from unit-level data for broad sectors (primary, secondary and tertiary) was obtained.

From the number of workers in the four categories and sectoral distribution of employment, total employment for three sectors for each of these four categories was obtained. From this, overall employment distribution at broad sectoral level was calculated.

61/JNU OLE

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Trade, hotels & restaurants 16.1 16.7 17.1 17.1 16.9 16.3

Trade 14.6 15.1 15.4 15.4 15.4 14.9

Hotels & restaurants 1.5 1.6 1.7 1.7 1.5 1.4

Transport, storage & communication

8.4 8.2 8.2 8.0 7.8 7.8

Railways 1.0 0.9 0.9 1.0 0.9 1.0

Transport by other means 5.7 5.7 5.7 5.5 5.5 5.2

Storage 0.1 0.1 0.1 0.1 0.1 0.1

Communication 1.7 1.6 1.5 1.4 1.4 1.5

Financing, insurance, real estate & business services

14.7 14.5 14.8 15.1 16.1 16.7

Banking & insurance 5.8 5.4 5.5 5.5 5.7 5.4

Real estate, ownership of dwellings & business services

9.0 9.1 9.3 9.6 10.4 11.4

Community, social & personal services

13.8 13.5 12.8 12.5 13.3 14.4

Public administration & defence

5.9 5.6 5.2 5.1 5.8 6.3

Other services 8.0 7.9 7.6 7.4 7.5 8.1

Construction 7.7 7.9 8.2 8.5 8.5 8.2

Bank Marketing

62/JNU OLE

Total services (excluding Construction)

53.0 52.9 52.9 52.7 54.1 55.2

Total services (including Construction)

60.7 60.8 61.1 61.2 62.6 63.4

Total GDP 100 100 100 100 100 100

Table 5.3 Share of different services categories in GDP at factor costs (current prices)

5.3 Service MarketingAserviceisanactivityorbenefitthatonecanoffertoanotherthatisessentiallyintangibleanddoesnotresultinthe ownership of anything. This attribute of service is referred to by Mr. Philip Kotler, well-known authority on marketing. Another management Guru Mr. Shostack has elaborated the intangible character of services. He states thatservicesarethoseseparatelyidentifiable,essentiallyintangibleactivitieswhichprovidewantsatisfactionandare not essentially tied to the sale of a product or another service. Mr. Bessom proposed that the consumer services areactivitiesofferedforsalethatprovidevaluablebenefitsorsatisfactions.Theconceptson‘services’bythevariousauthorities mentioned above have the following implications:

Services are by a large activities or they are services of activation rather things.•As a result services are intangible.They take place in the interaction between the customer and service provider •which means that services are produced and consumed simultaneously.Customer has a role to play in the production process as the services are provided in response to the problems •of customers as solution.

5.3.1 Implications of Service CharacteristicsThe special characteristics of services like intangibility, indivisibility, heterogeneity and ownership have led to a wider dimension of marketing than the normal 4 Ps of marketing services. Now, the marketing should be looked into 7 Ps viz. Product, Price, Place, Promotion, People, Physical evidence and Process of service delivery system. The service characteristics, implications and marketing strategy can be correrelated as mentioned in the undernoted table:

Service Characteristics Implications Marketing Strategy

IntangibilityDifficulttojudgequalityandvalueinadvancesamplingisdifficult.Relativelydifficulttopromote.

Usebrandnames.Focusonbenefits.Use personalised service. Develop reputation.

InseparabilityInvolves presence of performer/producer-sale is direct limited scale of operations.

Learn to work in larger groups. Work faster. Train more service performers.

Heterogeneity Standardisationofqualityisdifficult.

Careful selection and training of personnel.Definebehaviournorms.Mechanise and automate. Maximum possible operation.

Perishability Cannotbestored.Demandfluctuationposes a problem.

Advisable to match between supply and demand by a price reduction season-wise.

63/JNU OLE

Ownership Customer has access to service but no ownership of facility or activity.

Impress advantages of non ownership such as easier payment service.

Table 5.4 The correlation between service characteristics, implications and marketing strategy

5.3.2 Steps in Service PlanningThe task begins at the corporate level with a statement of objectives. This statement leads into a detailed market and competitiveanalysis,addressingeachofthemarketsinwhichthefirmisinvolvedorthinkingofentering.Parallelingthisstepisaresourceallocationanalysis,requiringdefinitionandappraisalofthefirm’sresourcesandhowtheyarebeingallocated,aswellasidentificationofadditionalresourcesthatmightreasonablybeobtained.Thispairofsteps can be thought of collectively as a form of SWOT analysis, identifying strengths, weaknesses, opportunities and threats on both the marketing and operational/human resources fronts. Each leads to a statement of assets.

5.3.3 Implications of Service Marketing in Indian Banks The foreign sector banks and private sector banks have already incorporated the concept of service marketing in their working. Thanks to competition from these banks, Public Sector Banks have also started to effect some visible changes in their day-to-day working. The concept of service marketing includes new products, placement, price and promotion in their business development plan; they have taken a 360 Degree turn. Public Sector Banks are sharpening their products and services while reasserting their strengths to cater to younger, savvier customers. From swanky waiting rooms to glitzy lobbies and better service, they’re pulling out all stops to attract customers. And they are conveying this through aggressive advertising. Some examples are quoted below:

StateBankof India has not let up its pace ever since it first ventured into aggressive advertisingwith its•“Surprisingly SBI” campaign in 2005. Now, they are advertising their heritage by stating that it served some of India’s best known personalities among them Rabinder Nath Tagore and Dr. Rajendra Prasad in their time. “The Banker to every Indian”.Another PSU Bank IDBI has been running the second round of its highly noticed ‘Not just for the big boys’ ad •campaign featuring little boys and elephants. It has tried to establish itself as a bank not just for the big corporate but also for the SMEs and retail businesses.Since 2005, a number of PSU Banks have gone in for revamps ranging from identity and image makeovers •to an expansion of services. S.B.I, Corporation Bank, Bank of Baroda, Allahabad Bank, Union Bank, Canara Bank and OBC, to name a few.

5.4 Marketing Approach to Banking ServicesMarketing of banking services is a device to maintain commercial viability and an approach to market the services profitably.Itisamethodtoenergiseorientation.Itisamanagerialapproachtoexcelcompetition.Themarketingapproach in bank services consists of the following elements:

Toidentifythefinancialrequirementsofthecustomers.•To develop appropriate banking products and services to meet the requirements of the customer.•To determine the fair and competitive prices for the products/services developed.•Advertisement of the products and services to the existing and potential customers•To set up suitable distribution channels and bank branches.•Continuous focus on forecasting and research of future market needs.•

In the wake of electronic banking the perception of bank marketing requires a new vision. The marketing of banking servicesrelatestogivingrightdirectiontobanksvisa-a-visamultidimensionalbenefitstothedifferentsegmentsusing the services of banks. The quality of services has undergone a major change due to the use of sophisticated technologies by the banking organisations. The holistic concept of management has made marketing of banking services a device to establish a balance between the commercial and social consideration often considered to be a balance between two opposite wings.

Bank Marketing

64/JNU OLE

5.5 Service Marketing and New Development in Indian Banking Sector The following are the main highlights of service marketing and new development in Indian banking sector:

SpecificidentificationofmarketingpersonnelandthedesiretopickupMBAsthroughcampusplacements.•Staff,especiallyatfront-endretainedtodealwithcustomerneedsquickly,efficientlyandpleasantly.•Computerisation and air-conditioning of branches.•Simplificationofsystemsandservicestomaketransactionsfaster.Thisenabledquickerdisbursementofloans,•for example. Long queues, complex paperwork, multiple visits to the bank are the things of the past.Uniform look and feel at branches. Something MNC Banks introduced.•Launch of new products and services.•Online banking, multiple ATM services beyond cash withdrawals, online payment by instant debit to your •internet banking account. Also, online transactions such as insurance premiums, mobile bills, ticket bookings, credit card payments and shopping, etc.Focused customer acquisition and retention. SBI has a three-pronged strategy customer retention in metros, •customer acquisition and retention in smaller cities and towns and customer acquisition in rural India.Product personalisation through cross selling. For instance, loans against insurance or insurance linked deposit •schemes.Proactive sales with trained personnel approaching customers either on phone or when they visit the branch.•Greater variety of loan products retail, automobile, housing, SME and trade loans.•Introduction of Single-window banking.•Easy, even proactive availability of information on products and services through on the ground executives and •literature at branches.

5.6 Product and ServicesAproductisdefinedas“Anythingthathasthecapacitytoprovidethesatisfactionuseorperhaps,theprofitdesiredby the customer”. Product and service are the words used interchangeably in banking parlance. The bank products are deposit, borrowing or other product like credit card or foreign exchange transactions which are tangible and measurable whereas service can be such products plus the way/manner in which they are offered that can be expressed but cannot be measured, i.e., intangibles. Better service is more important than just a good product in the marketing of banking service, so the focus should be on the want and need of satisfying that product or service.

5.7 Different Product and ServicesBanks accept the deposits of the public. In order to attract the savings of the people, the bank provides every sort of facility and inspiration to them and collects the scattered savings of the society. The bank opens an account of those people who deposit their savings with the bank. These deposit accounts can mainly be of three types and people can open any of these three types of accounts according to their wish. These accounts are current account, saving bankaccount,fixeddepositaccount.

The bank just don’t keep with themselves the deposited amount of the people, rather they advance them in the form ofloanstothebusinessmanandentrepreneurs,justtoearnprofitsfortheirpartners.Theloanerkeepssomegold,silver,fixedandvariableassetsintheformofsecuritywiththebank.Thebankcanadvanceloantotheircustomersin three ways: overdrafts, money at call, discounting bills of exchange.

Marketing approach to banking servicesThe following is the marketing approach to banking services:

Identifyingthecustomer’sfinancialneedsandwants.•Develop appropriate banking products and services to meet customer’s needs.•Determine the prices for the products/services developed.•Advertiseandpromotetheproducttoexistingandpotentialcustomeroffinancialservices.•

65/JNU OLE

Set up suitable distribution channels and bank branches.•Forecasting and research of future market needs.•

From the above discussion of bank marketing, it can be understood that the existence of the bank has little value without the existence of the customer. The key task of the bank is not only to create and win more and more customers, but also to retain them through effective customer service. Customers are attracted through promises andareretainedthroughsatisfactionofexpectations,needsandwants.Marketingasrelatedtobankingistodefinean appropriate promise to a customer through a range of services (products) and also to ensure effective delivery through satisfaction. The actual satisfaction delivered to a customer depends upon how the customer is interacted with. It goes on to emphasise that every employee from the topmost executive to the junior most employee of the bank is market.

Due to the introduction of LPG policy and IT Act of 2000, the scope of the market has enhanced. Customer’s expectations are high from the service industry like a banking industry. Only those banks will survive who will provideefficientandcustomer-desiredservices.

Bank Marketing

66/JNU OLE

SummaryBanks in India have traditionally offered mass banking products.•In view of the Financial Sector Reforms in the 1990s, the entire banking sector including products and structure •has undergone a major change.RapidstridesinInformationTechnologyhave,infact,redefinedtheroleandstructureofbankinginIndia.•The world renowned rating agency Moody’s considers that the strong deposit base and a stringent credit •approval system with the Governments continuous support to the market players has brought a positive wave in the economy.A survey conducted by the country’s Labor Ministry indicated that during the last quarter, employment in the •industry rose to 15.72 million.For the years 2004-05 and 2007-08 projected population at mid-point of these two rounds was obtained by •applyingprojectedpopulationfiguresfromtheRegistrarGeneralofIndia’soffice.Aserviceisanactivityorbenefitthatonecanoffertoanotherthatisessentiallyintangibleanddoesnotresult•in the ownership of anything.Services are by a large activities or they are services of activation rather things.•The special characteristics of services like intangibility, indivisibility, heterogeneity and ownership have led to •a wider dimension of marketing than the normal 4 Ps of marketing services.The task begins at the corporate level with a statement of objectives.•The foreign sector banks and private sector banks have already incorporated the concept of service marketing •in their working.Public Sector Banks are sharpening their products and services while reasserting their strengths to cater to •younger, savvier customers.Marketing of banking services is a device to maintain commercial viability and an approach to market the •servicesprofitably.Customers are attracted through promises and are retained through satisfaction of expectations, needs and •wants.Product and service are the words used interchangeably in banking parlance.•The holistic concept of management has made marketing of banking services a device to establish a balance •between the commercial and social consideration often considered to be a balance between two opposite wings.

ReferencesDr. Koli, L. N. and Koli, P., 2010. • Marketing Knowledge (For Various Competitive Exams., Especially for Banking Services). Upkar Prakashan.Zeithaml.,2011.• Services Marketing – Sie. Tata McGraw-Hill Education.Sutton, N. C. and Jenkins, B., • The Role of the Financial Services Sector in Expanding Economic Opportunity. [Pdf] Available at: <http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_19_EO%20Finance%20Final.pdf> [Accessed 15 July 2014].Chapter–Ii Research Design• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/14112/9/09_chapter%202.pdf> [Accessed 15 July 2014].Services Marketing (Part-1)• . [Video online] Available at: <https://www.youtube.com/watch?v=5MBEHY7Q0Ls> [Accessed 15 July 2014].Tully, K., • Business Service Marketing. [Video online] Available at: <https://www.youtube.com/watch?v=q966hxdNpSc> [Accessed 15 July 2014].

67/JNU OLE

Recommended ReadingZeithaml.,1996.• Services Marketing. Tata McGraw-Hill Education.Nargundkar., 2010. • Services Marketing 3E. Tata McGraw-Hill Education.Gilmore, A., 2003. • Services Marketing and Management. SAGE.

Bank Marketing

68/JNU OLE

Self AssessmentA____________isanactivityorbenefitthatonecanoffertoanotherthatisessentiallyintangibleanddoesnot1. result in the ownership of anything.

servicea. customerb. characterc. productd.


Ownership1. Train more service performers.A.

Perishability2. Impress advantages of non ownership such as B. easier payment service.

Hetrogeneity3. Cannot be stored.C.

Inseparability4. Standardisationofqualityisdifficult.D.

1-C, 2-B, 3-D, 4-Aa. 1-D, 2-A, 3-B, 4-Cb. 1-B, 2-C, 3-D, 4-Ac. 1-A, 2-D, 3-B, 4-Cd.

____________isrelativelydifficulttopromoteandusespersonalisedservice.3. Inseparabilitya. Intangibilityb. Perishabilityc. Ownershipd.

__________ of banking services is a device to maintain commercial viability and an approach to market the 4. servicesprofitably.

Introductiona. Developmentb. Marketingc. Sellingd.

Which of the following is not the marketing approach in bank services?5. Toidentifythefinancialrequirementsofthecustomers.a. To determine the fair and competitive prices for the products/services developed.b. To set up suitable distribution channels and bank branches.c. Computerisation and Air-conditioning of branches.d.

Anythingthathasthecapacitytoprovidethesatisfactionuseorperhaps,theprofitdesiredbythecustomeris6. called as the ____________.

producta. serviceb. foreign exchange c. depositsd.

69/JNU OLE

The bank opens an account of those people who deposit their savings with the ________.7. banka. companyb. businessmanc. entrepreneurd.

The bank can advance loan to their customers through __________.8. savings accounta. overdraftsb. chequesc. moneyd.

Due to the introduction of ___________ and IT Act of 2000, the scope of the market has enhanced.9. SWOT analysisa. Canara bankb. LPG policyc. MNC banksd.

The holistic concept of _____________ has made marketing of banking services a device to establish a balance 10. between the commercial and social consideration often considered to be a balance between two opposite wings.

information technologya. managementb. bankingc. marketingd.

Bank Marketing

70/JNU OLE

Chapter VI

Marketing of Financial Services

Aim


introducemarketingoffinancialservices•

defineservices•

explicate situation appraisal•

Objectives


determine forecasting of marketing environment•

elaboratemajorplayersinIndianfinancialmarket•

determine characteristics of services•

Learning outcome


analyse marketing planning in banks•

understand trends in saving Indian economy•

explain service marketing mix•

71/JNU OLE

6.1 IntroductionThe forces of deregulation, advancing technology and general trend towards globalisation have vastly increased the competitivepressureswithinthefinancialservicesmarketthathasinturnaffectedboththestructureandoperationoffinancialserviceprovidingfirmslikebanks.

Banksareprovidersoffinancialservices,financialintermediariesandkeyparticipantsinanation’spaymentsystem.Assuchbanksplayamajorroleintheeconomyandinthefinancialwell-beingofanation.InIndiasince1992,deregulation, technology and aggressive competition fostered more changes in the banking industry than it has experiencedinitsentirehistory.Preciselybecauseofcompetition,providingfinancialservicesinanablemannerrequires an excellent marketing-orientation.

Banksnowoperateinasituationofkeencompetitionintheirfinancialserviceactivities,whetheritiscanvassingofdeposits, extending credit line or in selling ancillary services. With the liberalisation of the banking sector and entry of more players, banks need to become market oriented with new and innovative schemes, at competitive prices availableattheplacethecustomerneedsthemanddeliveredwithefficiencyandqualityof’service.

6.1.1 MarketingIndian banks were traditionally in the ‘business of banking’, namely borrowing from one market and lending to another. However, since the commencement of banking sector reforms in the early 1990s, their orientation has becomethe‘businessoffinancialservices’,withamuchwiderfocusinrelationtoconsumer/markerneedsandconsequent marketing strategies. Marketing as a narrow management function, appears to be in decline. Marketing as a narrow management philosophy and orientation, espoused and practised throughout the corporation, is however seen increasingly as critical to the success of any organisation.

Thisisreflectedinaheightenedemphasisonbeing“closetothecustomer”,stressingcustomersatisfactionandcustomer relationship building, understanding customer value and the enhanced product offering, and the brand equity represented in a loyal customer base. Increasingly these are the domains and responsibilities of employees throughout the organisation, whether it is customer service, sales, manufacturing, R&D or top management and notjustofthemarketingstaff.Bankmarketinghasbeendefinedasthatpartofmanagementactivitywhichseemstodirecttheflowofbankingservicesprofitablytoselectedcustomers.

Marketing of bank’s services implies the delivery (maintaining existing demand) and creation (creating of new demand) of want satisfying (i.e., right) services at right price, at right time at right place and to a right customer.

Bank marketing strategies and mixesThe overall marketing programme of a bank may involve a large number of marketing strategies mixes. The marketing strategy includes:

Averycleardefinitionoftargetcustomers•Thedevelopmentofamarketingmixtosatisfythecustomersataprofittothebank•Planning for each of the ‘source’ markets and each of the ‘use’ markets, and organisation and administration•

The bank marketing management system essentially should start with situation appraisal to evaluate the opportunities and threats for evolving a marketing strategy for the organisation.

6.2 Situation AppraisalThe situation appraisal must identify strengths and weaknesses and do so in terms of the results established by the situation appraisal. Some major areas to be examined are:

Management•Organisation•Product lines•Geographic presence•

Bank Marketing

72/JNU OLE

Pricing strategy•Human resources and system support•

Eachareamustbeexaminedforefficiency,integrationwiththeorganisationandexternalimagecreated.Datashouldfirstbedevelopedonsuchmajorcategoriesofassetsandliabilitiesasloans,deposits,totalassetsandequity.Overallperformance,specificeffectivenessbygeographicalsectorandimpactoneachserviceorproductofferedbythebanmust be calculated and considered. Situation appraisal can lead to the forecasting of the marketing environment.

6.3 Forecasting of Marketing EnvironmentBank management must make many assumptions about the future and project the organisation into that expected environment. It is at this point that forecasting becomes important. The bank’s economist, if the bank has one, will playanimportantrolehere.Assumptionsmustbemadeaboutmanyeconomicandfinancialfactorsthatwillimpactthe bank in the coming months.

Answers must be forthcoming to such questions as the future trends of interest rates, bond yields, and the demand for credit. Will the economy be expanding or contracting? What industries will show most progress? What will happen to wage rates taxes and the social and political environments? After an evaluation of the external forces, bank management must turn to the internal qualities of the bank.

Answersarerequiredtosuchquestionsasdowehavesufficientpersonnelincertaindepartmentstohandleadequatelythe expected level of activity’? Should we plan for additional branches or should we emphasise ATMs? Is this the year to add a leasing department or introduce a credit card programme? Overall, the trends in savings of the economy are of utmost importance in forecasting the environment.

6.4 Trends in Saving Indian EconomyGross domestic savings as percentage of GDP constituted 23.4 percent in 200-01 as against 20.9 percent in 1999-00. Duringtheyear2000-01,thehouseholdsavingsconstituted20.51percentofGDPandthesameincludedfinancialassetsandphysicalassets.Thefinancialassetsarefurtherclassifiedintocurrency,deposits,claimsongovernment,investment in shares and debentures, contractual savings (LIC, PF, and Pension Funds, etc.). An analysis of household savings as a percentage of total assets is given in Table 6.1.

Financial Assets 98-99 99-00 00-01 01-02

Currency 10.5 8.7 6.9 9.7

Deposits 38.8 37.5 40.9 38.6

Claims on government 13.6 12.2 15.2 17.1

Investment in shares debentures 3.4 7.1 2.4 2.4

Contractual savings 33.7 34.5 34.6 32.2

Table 6.1 Household savings in financial assets (As % of total financial assets)

The bank deposits constitute 38.6 per cent in the household savings in the year 2001-02. The same was 45.8 percent in 1980-81 and since then has been gradually declining showing a process of disintermediation. Financial disintermediation has thrown open a vast challenge to banks and will have to devise various strategies to retain their position.Marketingthereforeassumesmuchsignificanceinbankingandnecessitatesarelookattheentirebankmarketing programme starting from the planning stage.

73/JNU OLE

6.5 Marketing Planning in BanksA market plan is a written document containing the guidelines for the business centre’s marketing programmes and allocations over the planning period. The objective of a marketing plan can be stated concisely, as to:

Definethecurrentbusinesssituations(andhowwegotthere)•Defineproblemsandopportunitiesfacingthebusiness•Establish objectives•Definethestrategiesandprogrammesnecessarytoachievetheobjectives•Pinpoint responsibility for business center objectives•Establish time tables for achieving objective•Encourage careful and disciplined thinking•Establish a customer/competitor orientation•

Bank resources Bank objectives

Strategy

EvaluationForecasts

Integration and

evaluation

Fig. 6.1 Planning arrangement in a commercial bank

In India too in the beginning of 1990s most banks in India had established marketing departments and the range of marketing activities in these banks have also increased considerably. Every year bank managers prepare their performancebudgetsfordeposits,advances,profits,etc.Thesebudgetsarenothingbutmarketingplansenvisagingthe stepping up of deposits by a certain percentage. Similarly, the marketing plan for credit includes the different categories and sectors of advances to be stepped up in the ensuing year.

Oneimperativeinmarketplanningistomakesurethatprofitsareproperlysafeguarded.Emphasismustbeplacedonmarketplanningasasystem.Itisthemethodologythatisimportant,notaspecificmarketingplan.Planscanchange; methodology, if it is correct, evolves slowly. The entire planning process in banks should also consider the various elements of the marketing mix.

6.6 ServicesAll industrial and economic activities fall into three main groups, primary, secondary and tertiary. Primary activities includeagriculture,fishingandforestry.Secondaryactivitiescovermanufacturingandconstructionandtertiaryactivities refer to the services and distribution. In the pre-industrial era, primary activities were the mainstay of the economy. The industrial revolution marked the beginning of increasing importance of the secondary activities and graduallydecreasingstatusofagricultureandalliedactivitiesincountrieslikeUSAwhichbecametheworld’sfirst‘service economy’.

There is growing importance of manufacturing and service sectors even in countries like India, where agriculture still continues to retain its stronghold on the economy. The manufacturing and service sectors are growing not only in volume, but also in sophistication and complexity. A service is all activity that has some element of intangibility associated with it, which involves some interaction with customers or with property in their possession and does not result in a transfer of ownership. A change in condition may occur and production of the service may or may not be closely associated with a physical product.

Bank Marketing

74/JNU OLE

A service is any act or performance that one party can offer to another that is essentially intangible and does not result intheownershipofanything.Itsproductionmayormaynotbetiedtoaphysicalproduct.Servicesfulfillcertainneeds.Servicesarethoseseparatelyidentifiable,essentiallyintangibleactivitieswhichprovidewantsatisfactionand are not necessarily tied to the sale of a product or another service. To produce a service may or may not require the use of tangible goods. However, when such use is required, there is no transfer of title (permanent ownership) to these tangible goods.

Servicesareactivities,benefitsorsatisfactionthatareofferedforsaleorareprovidedinconnectionwiththesaleofgoods. Given the unique characteristic features of service as well as the fact that everybody and every organisation irrespectiveofthesectortowhichitbelongsprovideservice,ServicemaybedefinedasServicesaretheobjectsof transactionofferedbyfirmsandinstitutionsthatgenerallyofferservicesor thatconsider themselvesserviceorganisations.

Servicesmarketingrequireaseparateapproachfromthemarketingofphysicalgoodsorwithidentifyingspecificmarketing strategies to deal with problems posed by the unique characteristics of services.

6.6.1 Characteristics of Services Services have a number of unique characteristics that makes them so different from products. Table 6.2 describes the service characteristics and their implications.

Service characteristics Implications

Intangibility Samplingdifficult.Difficulttojudgequalityandvalueinadvance.Notpossibletopatentorhavecopyright.Relativelydifficulttopromote.

Inseparability Requires presence of performed producer. Direct sale. Limited scale of operations. Geographically limited markets.

Heterogeneity Difficulttostandardisequality.

Perishability Cannotbestored.Problemofdemandfluctuations.

Ownership The customer has access to but not ownership of facility or activity.

Table 6.2 Service characteristics and their implications

6.7 Service Marketing MixCareful management of product, place, promotion and price are essential to the successful marketing of services. However,thestrategiesforthefourP’srequiresomemodificationsandanexpandedmarketingmix,whenappliedto services because of its distinct characteristics. Therefore, in addition to the traditional four P’s, the services marketing mix includes people, physical evidence and process.

6.7.1 Expanded Marketing Mix for the ServicesPeopleincludeallhumanactorswhoplayapartinservicedeliveryandthusinfluencethebuyer’sperceptions;namelythefirm’spersonnel,thecustomerandothercustomersintheserviceenvironment.Physicalevidenceistheenvironmentinwhichtheserviceisdeliveredandwherethefirmandcustomerinteract,andanytangiblecomponentsthatfacilitateperformanceorcommunicationoftheservice.Processistheactualprocedure,mechanismsandflowofactivities by which the service is delivered as the service delivery and operating systems. The expanded marketing mix is shown in Table 6.3

75/JNU OLE

Product Place Promotion Price People Physical evidence Process

Physical good Channel type Promotion

blend Flexibility Employees Facility design

Flow of activities

Features Exposure Sales people Price level Recruiting Aesthetics Standardised

Quality level Intermediaries Number Terms Training Functionality Customised

Accessories Outlet locations Selection Differentiation Motivation Ambience

conditionsNumber of steps

Packaging Transportation Training Discounts Rewards Equipment Simple

Warrantees Storage Incentives Allowances Teamwork Signage Complex

Product lines Managing Advertising Customers Employee dress

Level of customer involvement

Branding Channels Targets Education Other tangibles

Media types Training Reports

Type of Ads Communication Business cards

Copy thrust Culture and values Statements

Sales promotion

Employee research

Guarantees, Publicity

Table 6.3 The expanded marketing mix for services

6.7.2 PeopleService marketers need to develop a high level of inter-personal skills and customer-oriented attitude in employees for the simple reason that employees in services are the key to the service experience. “Employee behaviour is often an integral part of the service product. This is not true in a manufacturing operation, where employee behaviour may affect product quality, but is not a part of the product”.

Bankers have metamorphosed into retail sales people and have been required to adopt all the skills of selling. All employeesinthebankhavesomeinfluenceonthesaleofproductsand,mustthereforebecomemoremarket-oriented.This is particularly true of frontline staff that lays direct contact with customers, they provide the link between the bank and the market place and they sell and or perform the service. To the customer, they represent the bank and are seen as a part of the product itself. Quality of the service provided is inseparable from the quality of the service provider and are ideally situated to take advantage of cross selling opportunities.

6.7.3 Physical EvidenceTraditional branches had up to 90 percent of their space devoted to staff and operations. The allocation of greater amount of space to customers within the branch is likely to have a positive effect on customer-to-customer relationships and increase in the comfort factors as banking halls are now less crowded.

The framework consisting the elements of marketing mix for services were further expanded to include an eight P model of integrated service management which highlights the strategic decision variables facing managers of serviceorganisationsfilecomponentsoftheintegratedservicemanagementareproductandelements,placeandtime, promotion and education, price and other user costs, processes, people, physical evidence and productivity and quality. Productivity and quality should be treated strategically as interrelated. Productivity relates to how inputs are

Bank Marketing

76/JNU OLE

transformedintooutputsthatarevaluedbycustomers,whereasqualityreferstothedegreewhichaservicesatisfiescustomersbymeetingtheirneeds,wantsandexpectations.Servicequalityasdefinedbycustomersisessentialforproduct differentiation and building customer loyalty.

6.7.4 Financial ServicesThedevelopmentofmarketinginthefinancialservicessectorhasbeenslowandforalongtimetheindustrywasseenasprimarilyproductled.However,thefinancialserviceorganisationoperateinahighcontactbusinesswherethenatureofbuyer-sellerinteractionsandtheestablishmentoflong-termrelationshipsbasedonconfidenceandtrusthave real implications for successful retention of customers and recruitment of prospects. This necessitates a relook attheentiremarketingmixespeciallywhenitcomestofinancialservicesmarketingbybanks.Table6.4givesanidea as to the seven elements of marketing mix that can be effectively used in bank marketing.

Product Price Place Promotion People Process Physical Evidence

Development Theories Branch expansion Advertising Selection Customer

orientationEssential evidence

Range Variety Practices Network Publicity Incentive

systems System studies Peripheral evidence

Innovation Servicing charges Amalgamation Communication Training Management

audit -

Product differentiationProduct cost

Costing Exercises Location Promotional

mix

Attitude and behavioural aspects Creativity

Mechanisation -

Product mixServices of the future

-

ArchitectureLayoutOverseas Office

Evaluation MoraleNew technologyDocumentation

-

Table 6.4 The seven P’s of bank marketing

Ajudiciousmixofthesemarketingelementsgetsreflectedinthecustomerservicerenderedbyfinancialservicesinstitutions like banks.

6.8 Indian Financial MarketWeknowthat,moneyalwaysflowsfromsurplussectortodeficitsector.Thatmeanspeoplehavingexcessofmoneylendittothosewhoneedmoneytofulfilltheirrequirement.Similarly,inbusinesssectorsthesurplusmoneyflowsfrom the investors or lenders to the businessmen for the purpose of production or sale of goods and services. Thus, wefindtwodifferentgroups,onewhoinvestmoneyorlendmoneyandtheothers,whoborroworusethemoney.

Nowyouthink,howthesetwogroupsmeetandtransactwitheachother.Thefinancialmarketsactasalinkbetweenthese two different groups. It facilitates this function by acting as an intermediary between the borrowers and lenders ofmoney.Therefore,financialmarketmaybedefinedas‘atransmissionmechanismbetweeninvestors(orlenders)andtheborrowers(orusers)throughwhichtransferoffundsisfacilitated’.Itconsistsofindividualinvestors,financialinstitutions and other intermediaries who are linked by a formal trading rules and communication network for trading thevariousfinancialassetsandcreditinstruments.Themainfunctionsoffinancialmarketareasfollows:

It provides facilities for interaction between the investors and the borrowers.•It provides pricing information resulting from the interaction between buyers and sellers in the market when •theytradethefinancialassets.Itprovidessecuritytodealingsinfinancialassets.•Itensuresliquiditybyprovidingamechanismforaninvestortosellthefinancialassets.•It ensures low cost of transactions and information.•

77/JNU OLE

Types of financial marketsAfinancialmarketconsistsoftwomajorsegments:

Money market•Capital market•

While the money market deals in short-term credit, the capital market handles the medium term and long-term credit. Let us discuss these two types of markets in detail.

6.8.1 Money MarketThemoneymarketisamarketforshort-termfunds,whichdealsinfinancialassetswhoseperiodofmaturityisupto one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These financialinstrumentsareclosesubstituteofmoney.Theseinstrumentshelpthebusinessunits,otherorganisationsand the government to borrow the funds to meet their short-term requirement.

Moneymarketdoesnot implytoanyspecificmarketplace.Rather it refers to thewholenetworksoffinancialinstitutions dealing in short-term funds, which provides an outlet to lenders and a source of supply for such funds to borrowers. Most of the money market transactions are taken place on telephone, fax or internet. The Indian money marketconsistsofReserveBankofIndia,Commercialbanks,Co-operativebanks,andotherspecialisedfinancialinstitutions. The Reserve Bank of India is the leader of the money market in India. Some Non-Banking Financial Companies(NBFCs)andfinancialinstitutionslikeLIC,GIC,UTI,etc.,alsooperateintheIndianmoneymarket.

Money market instrumentsSome of the important money market instruments or securities are discussed in the paragraphs given below.

Call moneyCall money is mainly used by the banks to meet their temporary requirement of cash. They borrow and lend money from each other normally on a daily basis. It is repayable on demand and its maturity period varies in between one day to a fortnight. The rate of interest paid on call money loan is known as call rate.

Treasury billA treasury bill is a promissory note issued by the RBI to meet the short-term requirement of funds. Treasury bills are highly liquid instruments that mean, at any time the holder of treasury bills can transfer of or get it discounted from RBI. These bills are normally issued at a price less than their face value; and redeemed at face value. Therefore, the difference between the issue price and the face value of the Treasury bill represents the interest on the investment. Thesebillsaresecuredinstrumentsandareissuedforaperiodofnotexceeding364days.Banks,financialinstitutionsand corporations normally play major roles in the treasury bill market.

Commercial paperCommercialPaper (CP) isapopular instrument forfinancingworkingcapital requirementsofcompanies.TheCP is an unsecured instrument issued in the form of promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to raise short-term funds. It can be issued for period ranging from 15 days to one year. Commercial papers are transferable by endorsement and delivery. The highly reputed companies (Blue Chip companies) are the major player of commercial paper market.

Certificate of DepositCertificate ofDeposits (CDs) are short-term instruments issued byCommercialBanks andSpecial FinancialInstitutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year. These can be issued to individuals, co-operatives and companies.

Bank Marketing

78/JNU OLE

Trade billNormally the traders buy goods from the wholesalers or manufactures on credit. The sellers get payment after the end of the credit period. However, if any seller does not want to wait or is in immediate need of money he/she can draw a bill of exchange in favour of the buyer. When buyer accepts the bill, it becomes a negotiable instrument and is termed as bill of exchange or trade bill. This trade bill can now be discounted with a bank before its maturity. On maturity, the bank gets the payment from the drawee, i.e., the buyer of goods. When trade bills are accepted by commercial banks, it is known as Commercial Bills. Therefore trade bill is an instrument, which enables the drawer of the bill to get funds for short period to meet the working capital needs.

6.8.2 Capital MarketCapitalmarketmaybedefinedasamarketdealinginmediumandlong-termfunds.Itisaninstitutionalarrangementfor borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. Thusitconstitutesalllong-termborrowingsfrombanksandfinancialinstitutions,borrowingsfromforeignmarketsand raising of capital by issue various securities such as shares debentures, bonds, etc. In the present chapter, let us discuss about the market for trading of securities.

The market where securities are traded known as Securities market. It consists of two different segments, namely primary and secondary market. The primary market deals with new or fresh issue of securities and is therefore, also known as new issue market; whereas the secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange.

Primary marketThe primary market consists of arrangements, which facilitate the procurement of long-term funds by companies by making fresh issue of shares and debentures. Companies make fresh issue of shares and/or debentures at their formation stage and if necessary, subsequently for the expansion of business. It is usually done through private placementtofriends,relativesandfinancialinstitutionsorbymakingpublicissue.Inanycase,thecompanieshaveto follow a well-established legal procedure and involve a number of intermediaries such as underwriters, brokers, etc., who form an integral part of the primary market. You must have learnt about many Initial Public Offers (IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on.

Secondary marketThe secondary market known as stock market or stock exchange plays an equally important role in mobilising long-term funds by providing the necessary liquidity to holdings in shares and debentures. It provides a place where these securitiescanbeencashedwithoutanydifficultyanddelay.Itisanorganisedmarketwheresharesanddebenturesare traded regularly with high degree of transparency and security. In fact, an active secondary market facilitates the growth of primary market as the investors in the primary market are assured of a continuous market for liquidity of theirholdings.Themajorplayersintheprimarymarketaremerchantbankers,mutualfunds,financialinstitutionsand the individual investors; and in the secondary market you have all these and the stockbrokers who are members of the stock exchange who facilitate the trading.

After having a brief idea about the primary market and secondary market let see the difference between them.

Distinction between primary market and secondary marketThe main points of distinction between the primary market and secondary market are as follows:

Function: While the main function of primary market is to raise long-term funds through fresh issue of securities, •the main function of secondary market is to provide continuous and ready market for the existing long-term securities.Participants:Whilethemajorplayersintheprimarymarketarefinancialinstitutions,mutualfunds,underwriters•and individual investors, the major players in secondary market are all of these and the stockbrokers who are members of the stock exchange.Listing requirement: While only those securities can be dealt within the secondary market, which have been •approved for the purpose (listed), there is no such requirement in case of primary market.

79/JNU OLE

Determination of prices: In case of primary market, the prices are determined by the management with due •compliance with SEBI requirement for new issue of securities. However, in case of secondary market, the price ofthesecuritiesisdeterminedbyforcesofdemandandsupplyofthemarketandkeepsonfluctuating.

Distinction between capital market and money marketCapital market differs from money market in many ways. Firstly, while money market is related to short-term funds, the capital market related to long-term funds. Secondly, while money market deals in securities like treasury bills, commercialpaper,tradebills,depositcertificates,etc.,thecapitalmarketdealsinshares,debentures,bondsandgovernment securities. Thirdly, while the participants in money market are Reserve Bank of India, commercial banks, non-bankingfinancialcompanies,etc.,theparticipantsincapitalmarketarestockbrokers,underwriters,mutualfunds,financialinstitutionsandindividualinvestors.Fourthly,whilethemoneymarketisregulatedbyReserveBankofIndia, the capital market is regulated by Securities Exchange Board of India (SEBI).

6.9 Challenges of Bank MarketingBankmarketingfacesmanychallengesindifferentfields.Thesearelistedbelow.

TechnologyMarketing by private sector banks and foreign banks is more effective than public sector banks because these banks are IT-oriented. Private sector banks and foreign banks are attracting more customers by providing e-services. Thus, technology has become a challenge before the public sector banks.

Untrained staffOften it happens that when a prospective customer approaches the branch, the employees seem to have very little knowledgeaboutthescheme.Thisreflectsanuglypictureofourbank’simage.Banksarenotlosingoneprospectivecustomer, but 10 more customers who would be in touch with this man. Attitudes of the employees towards customers is also not very good. Thus, it is a need of time to reorient the staff.

Rural marketingThis is a big challenge before the Indian banks to enhance rural marketing to increase their customers. Banks should open their branches not only in the urban and semi-urban areas, but also in the rural areas.

Trust of customersMarketing can be enhanced only by increasing the customers. Customers can be increased or attracted only by winning the trust of the customers.

Customer awarenessCustomer awareness is also a challenge before the banks. Bank can market their products and services by giving the proper knowledge about the product to customer or by awarding the customer about the products. Bank should literate the customers.

Bank Marketing

80/JNU OLE

SummaryBanksareprovidersoffinancialservices,financialintermediariesandkeyparticipantsinanation’spayment•system.Banksnowoperateinasituationofkeencompetitionintheirfinancialserviceactivities,whetheritiscanvassing•of deposits, extending credit line or in selling ancillary services.India Banks were traditionally in the ‘business of banking’, namely borrowing from one market and lending •to another.Marketing of Bank’s services implies the delivery (maintaining existing demand) and creation (creating of •new demand) of want satisfying (i.e., right) services at right price, at right time at right place, and to a right customer.Thefinancialassetsarefurtherclassifiedintocurrency,deposits,claimsongovernment,investmentinshares•and debentures, contractual savings (LIC, PF, and Pension Funds, etc.).Financial disintermediation has thrown open a vast challenge to banks and will have to devise various strategies •to retain their position.A service is any act or performance that one party can offer to another that is essentially intangible and does •not result in the ownership of anything.Servicesmarketingrequireaseparateapproachfromthemarketingofphysicalgoodsorwithidentifyingspecific•marketing strategies to deal with problems posed by the unique characteristics of services.Processistheactualprocedure,mechanisms,andflowofactivitiesbywhichtheserviceisdelivered-theservice•delivery and operating systems.Employee behaviour is often an integral part of the service product.•Thedevelopmentofmarketinginthefinancialservicessectorhasbeenslowandforalongtimetheindustry•was seen as primarily product led.Thefinancialmarketsactasalinkbetweenthesetwodifferentgroups.•Themoneymarketisamarketforshort-termfunds,whichdealsinfinancialassetswhoseperiodofmaturity•is up to one year.Call money is mainly used by the banks to meet their temporary requirement of cash.•The CP is an unsecured instrument issued in the form of promissory note.•CapitalMarketmaybedefinedasamarketdealinginmediumandlong-termfunds.•The primary market consists of arrangements, which facilitate the procurement of long-term funds by companies •by making fresh issue of shares and debentures.Themajorplayersintheprimarymarketaremerchantbankers,mutualfunds,financialinstitutions,andthe•individual investors; and in the secondary market you have all these and the stockbrokers who are members of the stock exchange who facilitate the trading.Capital market differs from money market in many ways.•

ReferencesWright, M. and Watkins, T., 2010. • Marketing Financial Services. 2nd ed., Routledge.Estelami, H., 2012. • Marketing Financial Services: Second Edition. Dog Ear Publishing.Indian Financial Market• . [Pdf] Available at: <http://download.nos.org/srsec319new/319EL18.pdf> [Accessed 16 July 2014].Marketing of Financial Services: 4 Ps of the Marketing Mix• . [Pdf] Available at: <http://www.aueb.gr/users/esaopa/courses/marketing%20mix.pdf> [Accessed 16 July 2014].Financial Advice & Credit Building Lecture• . [Video online] Available at: <https://www.youtube.com/watch?v=_4i2YN9Z38Q>[Accessed16July2014].A New Look at the 4Ps of Marketing• . [Video online] Available at: <https://www.youtube.com/watch?v=JIirzTdaey4> [Accessed 16 July 2014].

81/JNU OLE

Recommended ReadingEnnew, C. and Waite, N., 2013. • Financial Services Marketing: An International Guide to Principles and Practice. Routledge.Ehrlich, E. and Fanelli, D., 2012. • The Financial Services Marketing Handbook: Tactics and Techniques That Produce Results. John Wiley & Sons.Stephenson, R., 2005. • Marketing Planning for Financial Services. Gower Publishing, Ltd.

Bank Marketing

82/JNU OLE

Self Assessment__________ are providers offinancial services, financial intermediaries andkeyparticipants in a nation’s1. payment system.

Industriesa. Banksb. Productsc. Sectorsd.

Which of the following statement is false?2. Thefinancialassetsarefurtherclassifiedintocurrency,deposits,claimsongovernmentinvestmentinsharesa. and debentures, contractual savings.Marketing plan encourage careful and disciplined thinkingb. Marketing plan establish a customer/competitor orientationc. Financialassetdefinesthecurrentbusinesssituationsd.

A __________ is a written document containing the guidelines for the business centre’s marketing programmes 3. and allocations over the planning period.

currencya. market planb. financialassetc. bankd.

Which of the following is not an objective of a marketing plan4. ?Establish objectivesa. Definethestrategiesandprogrammesnecessarytoachievetheobjectivesb. Pinpoint responsibility for business centre objectivesc. The industrial revolution establish time tables for achieving objectived.

A ___________ is any act or performance that one party can offer to another that is essentially intangible and 5. does not result in the ownership of anything.

servicea. productb. connectionc. priced.

83/JNU OLE


Physical evidence1. Theactualprocedure,mechanisms,andflowofactivitiesbywhichA. the service is delivered-the service delivery and operating systems

Process2. HumanactorswhoplayapartinservicedeliveryandthusinfluenceB. the buyer’s perceptions

Employee behaviour3. The environment in which the service is delivered and where the C. firmandcustomerinteract,

People4. An integral part of the service productD.

1-A, 2-C, 3-D, 4-Ba. 1-D, 2-B, 3-C, 4-Ab. 1-C, 2-A, 3-D, 4-Bc. 1-B, 2-D, 3-A, 4-Cd.

The___________isamarketforshort-termfunds,whichdealsinfinancialassetswhoseperiodofmaturityis7. up to one year.

cost of transactiona. liquidityb. capital marketc. money marketd.

___________ is mainly used by the banks to meet their temporary requirement of cash.8. Liquiditya. Call moneyb. Long-term creditc. Money marketd.

A _________ is a promissory note issued by the RBI to meet the short-term requirement of funds.9. commercial papera. certificateofdepositb. call moneyc. treasury billd.

The _____________ consists of arrangements, which facilitate the procurement of long-term funds by companies 10. by making fresh issue of shares and debentures.

primary marketa. secondary marketb. money marketc. capital marketd.

Bank Marketing

84/JNU OLE

Chapter VII

Pricing Strategies in Bank Marketing

Aim


introduce pricing strategies in bank marketing•

explain the concept of price of the banking services•

explicate setting the price of complementary service•

Objectives


determine the challenges of electronic marketing•

elaborate the sensitivity of the incomes to the changes on the basis of expenses•

enlist the price strategies•

Learning outcome


understand setting the price of complementary service•

distinguish between importance of buyers and sellers•

analyse challenges of electronic marketing•

85/JNU OLE

7.1 IntroductionInamarketsuchastheoneofbankingservices,inwhichitisdifficulttocreateandsustaineitherareal“productplus”, either an evident advantage regarding the competitors at the level of the performed service. It is tempting, althoughdangerous,toconsiderthepriceastheonlycompetitive“weapon”trulyefficientandbreakoutawarofthepriceafterwhich,finally,nobodywins.

Secondly, the price must be based on the solvent demand expressed through a market mechanism and not the cost of the goods or respective services’ production. This is only half true, even in theory. The production costs must be found in the price, as the companies that sell their product range at a lower prices than the production and commercialisation price will not survive too long on the market; although, the companies that settle a much bigger pricethanthecostafferenttoefficientproductionandcommercialisationwillbeeliminatedfromthebusinessbymore realistic competitors (even the obvious monopolies and the models over any critics from the theoretical point ofviewrepresent,usually,onlyonedelayfactor,becauseitispermanentlypossibletofindanotherwaytosatisfya real need).

Thepricepolicymustbeflexible,grantingaspecialattentiontothesegmentationfactorsofthemarketandproduct’slife cycle. In certain markets or consumer segments, the price is a less important factor than in others or else said, the elasticity of the demand towards the price is smaller. A percentage of twenty percent added to a Rolls Royce will probably not bother the customers too much, if the superiority feeling towards the common people that do not afford such symbols of the prestige may be consolidated in this way.

However, a percentage of twenty percent added to a price of a Logan, in the conditions that the competitors maintain their prices unchanged, may be catastrophic. What makes the banking sector to be so interesting to a specialist is the existenceofaverylargerangeofinfluencefactorsoftheprice.Thebankingproductitselfisextremelycomplex,never existing by itself. A deposit also supposes an account, a credit card supposes an account, money supply at sight, payments, a credit may entail payments, letters of credit, guarantees, etc. The settlement of the prices must takeintoaccountthegroupoftheservicesaclientbenefitsfromandlessofthestrictincome-costrelation.

In the case of larger companies which have accounts opened to many banks, which they pay commissions or in the case of the credits granted to them, the price is a very sensitive aspect. This is one of the reasons for which the reference instalments are approximately aligned and no bank can afford to exclude this for long. Even if a new product or service, representing a real advantage for the clients may be sold at the beginning with a high price (when the costs are big and the competition does not represent a threat) in case the success attracts serious competitors, both the price and the costs will probably have to be reduced in time.

Thefactthatabankingcompanyneedscertainproductswithhighprofitmarginnotonlytoobtainfundsforthefuture investment this way, but also to compensate the products that from a reason or another, must be sold with low margins. It seems it has not been understood by various governmental institutions, which periodically tried to regulate the prices. It seems these institutions have a rather educational than practical point of view regarding the price. This is a very distinct relevant aspect for numerous sectors that provide multi-products services, including for the British sector, which, for many years, provided its main services of personal current account at an equal or lower price than the cost.

The exposing of the price policies at the governmental checks is one of the factors which determine that the price policyinthebankingservicessectoristobemoredifficulttoapplyinpractice.Also,“theproductioncost”foranindividualserviceisneverafixedelement,settledwithoutconsideringthereasonablearguments,basedonwhichthe strategy of the market price should be elaborated. In the case of a great administrative costs organisation (related to the personnel, seat, etc., and relatively small variable prices, the way the administrative costs are assigned on serviceshasastronginfluenceover“thecost”ofanindividualservice.

We may argue that the accountant profession has its “laws” regarding the assignment of administrative costs. However, as a wise politician said, “If you want the laws to be respected, be careful they are normal”, in the last years,theaccountantsmodifiedtoooftentheirprinciplestoinspiretrust.Anewservicemayappearveryprofitablewithreducedprofitornon-profitable,dependingonthedecisionofassigningofitsquotaofadministrativecostsbased on the variable costs, on the proportion of the turnover or on the charge estimated to the execution time.

Bank Marketing

86/JNU OLE

7.2 The Price of the Banking Services: Concept, Characteristics and ParticularitiesFor a bank, the price is one of the elements of the marketing mix. The prices must always be in conformity with theotherfourPsandtheymustnotbeconsideredasapurelyfinancialproblem,inwhichtheyarecalculatedbyestimatingthecosts,towhichamarginforprofitwillbeadded.Themarketingevaluatesthemarket,essentially,from the client’s point of view. Thus, the perception of the price by the client is more critical than the size of the developmentcostsoroftheprofitthatwillberealised.

Nowadays, the clients take into consideration the value perceived by them for services, the producers recover the costs afferent to the production and commercialisation of the merchandise. The recovery of the costs creates the premises of the economic activity resumption. The evaluation of the cost of a service involves two problems as follows:

Theidentificationofthecostsrelevantforthecompany,whentheprofitforacertainserviceiscalculated.•Theidentificationofsomemethodsfortheallocationoftherelevantcostsonthisservice.•

The best answer for the relevancy problem is the consideration of some “unique costs” for a service. From the ones mentioned before we may break off three main differences between the evaluation of the price in the material goods and its evaluation on services are as follows:

Theconsumershaveinmostofthecasesincompleteorinsufficientinformationaboutservices.•The price is a visible element of the service’s quality.•The monetary costs are not the only relevant elements in the settlement of the price.•

One of the most used methods of price calculation is the one based on the value of the service perceived by the consumer.Theconsumersdefinethevalueinfourways:

The value represents a low price•The value represents what they expect from a product or service•The value represents what they receive for the price they pay•The value represents what they receive for what they give•

In the calculation and promotion of the price policy, many of the concepts applied in the domain of material goods are also used in the case of the services, reason for which, from the peculiarities’ point of view, they are placed on asecondarypositioninthemix.Finally,indefiningthepricetheimportanceofthepricemustalsobetakenintoconsideration from the seller and the consumer’s point of view, as it results from table 7.1.

The Importance of the Price for the Seller The Importance of the Price for the Buyer

The price represents the costs afferent to the product or the service.

The price represents the value of the product or ser-vice.

The price represents the income generated by the sale of the product or service. The price represents the costs beard by the consumer.

Thepriceindicatestheshort-termprofitandthelong-termprofitability.

The price illustrates the quality of the product or ser-vice and/or of the supplier.

The price represents the ability to adapt to the mar-ket’s requests. Thepriceisinfluencedbythepurchasingpower.

Table 7.1 The importance of the price for the seller and the buyer

A peculiarity of the price of the banking services is also a partial lack of transparency of these. The consumer is often informed about the price paid at the counter, because of the fact that the supplier has access to the client’s funds, which he manages as he considers (for example, life insurance, pension funds).

87/JNU OLE

Also,thankstothelong-termcontracttheperformanceorenrolmentofsomeservicespresumes,itisdifficultforthe consumer to appreciate the value of the service in the moment of the conclusion of the contract. Pursuant to this,inthefinaloptionfortheselectionoftheinstitutionwhichofferssuchdecisivefinancialservicestherearethe reputation and prestige of the company. Else said, the price does not have a determining role in choosing the company.Adifferenceof10%inthepriceofalifeinsurancemaynotbesignificant,howeverifsomeclausesofthe contract seem more advantageous for the buyer (as it has been mentioned, the performance may be appreciated with exactitude on the enrolment of the contract).

In this case, for an insurance company the main objective should be the rendering of irreproachable quality, services which would surprise the consumer and which anyway exceed his expectations. The fundamental problem (commune moreover to the companies from the sector of the services) is that the evaluation of the quality cannot be made in the moment of the purchase. Additional to this general problem is the case of some banking services which are not frequently requested. For example, a consumer buys a certain additional pension fund or a life insurance. This limits the possibility of the market’s testing of the services’ purchase or of the contracts offered by other companies or of the learning from past experience.

Itisdifficulttospecifythenatureofabankingservice,asitmayalsoincludeimplicitservices.Forexample,aperson that obtains a credit card has implicit access to a credit line. Therewith, the long-term contracts involve many services, even if not all of them are requested. The complex nature of the purveyance of these services draws the conclusion that the settlement of the request and of their price with exactitude in each moment of the enrolment of the contract is almost impossible. Also, there are services which have risk elements for the banks subjoined, for example, the granting of a credit. This is why the price of the service must be calculated taking into consideration the risks it implies.

7.3 Price StrategiesAs it has been mentioned before, the price is a very important part of the marketing mix. If a product is not given a correct price, this may affect the sales and may lead to the product’s failure. The price and sales of the product are therefore related to one another. There are six main strategies to settle the price for a product. These are as follows:

Costplusprofit:Thisisthemostsensitivestrategytocosts;theinstitutioncalculateshowmuchthemanufacturing•oftheproductcostitaddsamarginfortheprofitandrequirestheclientsthisprice.The settlement of the prices for “taking the cream”: This strategy may be used for products that are very new •and of high quality; it means the settlement of the price when the product is freshly introduced on the market to “takethecream”ofthedemandforthatproduct,maximisingtheprofittocovertheresearchanddevelopmentexpenses, after which, later, in time, the price may be reduced to increase the demand.The settlement of the price depending on the competition: This strategy takes into consideration the price the •competition practices, thus the price will be similar to one of the competition, however will allow the covering oftheexpensesandtheprofitmargin.The settlement of the price on the market: The price of a product is settled depending on the price of a similar •product already existing on the market. The difference in comparison to the settlement of the price depending on the competition is that the settlement of the price on the market might not cover the production expenses of the product.The settlement of the price depending on the value: This strategy is based on the evaluation of the clients’ •perception viz-a-viz the value of the product answering the question “How much a client would pay for this product?” This strategy is then the most oriented towards marketing.The settlement of the price to penetrate: The bank will settle a low price for a product with the purpose to win •fast a big quota of the market and thus to realise a fast and substantial penetration.

Bank Marketing

88/JNU OLE

For the main banking services, the approach is, usually, the following. Centralised settled consists the following points:

Personal current accounts, including interests•Deposit accounts, including interests•Payments•Cash out/cash in•Factoring•Leasing•Fixed terms credits for natural persons or small trading companies•Exchange rates•Tradefinanceoperations(lettersofcredit,guaranties,collection)•

Individually negotiated are as follows:Legal persons current accounts, including interests•Currency services•Credits(fixedorreferencerateplusamargin)•Individual services•

7.3.1 Settlement of Price for a Basic ServiceIn the case of the prices settled centralised, “the price” perceived, for example, for personal current accounts has an especially complex aspect. This is why, we may argue that an account may be considered as a service with a reduced profitmarginorevenlossesgenerator(incomparisonwiththeintroductory,familiarlyoffersfromothermarkets),withtheconditionthatthesizeofthemarginisquantifiedandcontrolledinbothcases.

The argument that a basic service with a low price will determine the increase of the activity volume and will attract new customers to the respective bank is not valid. There are great differences in using the account between the activeusers,whoprofittothefullbytheincreaseoftheavailableservicesrelatedtothecurrentaccount,presentedbelowandthepassiveuserswho,often,donotknowtherangeofservicestheycanbenefitfrom.Letustakeonlythe example of the services afferent to the current account:

Facilities for the cashing of the cheques•Payment order/direct debits•Other debit elements•Credits, overdraft facilities•Account extract•Payment card•Credit card•The issuance of the account extracts•Telephonic operations through call centre•Internet operations•Facilities for keeping in custody•The keeping of the value objects•Financial consulting•Cash in/cash out•Various other services•

89/JNU OLE

Thus, the one that approaches the marketing strategy is “divided” between the wish to have a simple price structure, which is easy to manage and to underline through the advertising and promotion campaigns of the sales and the refuse to subsidise the active users based on the passive users.

In the 70s, when the competition for current accounts has become harsh, one of the British clearing banks of small dimensions decided not to use the “follow the line set by the leader” policy and adopted an independent price policy, howeveronlyafteracarefulanalysisoftheeffectsuponthecosts.Thefirststepwastodeterminethedegreeofuseof the current accounts by the customers of the bank. Consequently, an accounts pattern from all the branches of the bank was chosen and quantitative data regarding the main variables that affect the cost of the administration of the account are collected:

The number of the automatic entries on credit•The number of the non-automatic entries on credit•The number of the automatic entries on debit•The number of the non-automatic entries on debit•The medium credit balance•Minimum balance•Debt circulation•

Whenever it was possible, the total of key-variables and the relations between them were validated with the help of the available information from the computer regarding the census of the population, in order to make sure that thepatternisnotsignificantlydifferentthantheallcustomersingeneral.Inordertomeasurethesensitivityoftheincomes to the changes on the basis commission collection, a model of the price structure was elaborated under the form of a computer program, which incorporated the data obtained from the pattern. The result was the matrix presented in the table below (the ciphers were omitted).

High Medium Low

VARIABLES

Commissions on non-automatic element. Tolerance estimated to the medium credit balance.The effectively paid interest to anycreditbalance–minimumormedium.

Commissions on credit element.The level of the medium credit balance from which all the commissions are given up

Commissions on automatic element.The level of the minimum balance from which all commissions are given up.The level under which all commissions are given up.Tolerance estimated to the minimum credit balance.

Table 7.2 The sensitivity of the incomes to the changes on the basis of expenses

Intime,theeffectivecostoftheprice“independentpolicy”waswithintheprovidedlimits,beingfullyjustifiedbythebenefitobtainedbythebankfromthepointofviewofthenumberofnewclientsandfavourableadvertising.

7.3.2 Setting the Price of Complementary ServiceThemainproblematthemomentofintroducinganewcomplementaryserviceorasubstantiallyredefinedoneis represented by the rarity or non-existence of relevant historical data regarding its costs. That’s why, the person elaboratingthepricestrategycansolvetheproblemthroughorthodoxmarketingproblems,establishingfirsttheoptimum sales price then estimating the “tolerable” production level and the marketing expenses.

Bank Marketing

90/JNU OLE

Basedonthosementionedabove,thefirststageconsistsin,ononehand,theidentificationofallcompetitiveproducts(boththepersonalandofthecompetitors)whichofferstheclientmoreorlessthesamebenefitsandontheotherhand, in their analysis. Except the case in which we are referring to an unusual market or a market in which very little suppliers activate, probably the result will be a series of prices, from the high prices services, that imply certain special or exclusive characteristics to low price services.

The second stage is the approximate determination of the place our new product or service will occupy in the price hierarchy, by taking into account the special features or the advantages that can justify its introduction. To a certain extent, the opinion of the clients is useful in this sense. By discussing with potential customers, chosen on the basis of a representative pattern that has already been established in the developing process of the product, it is possible to be established how important the basic common features of the majority contestant services are.

Thedisadvantageofthiskindofresearchisthedifficultquantificationoftheadditionalpricethattheclientwillbewilling to pay for the special features. Hypothetical questions of the type, “ Have you paid for x or y more?” encourage a hypothetical freedom, that can evaporate when people are required to pay. That’s why; it is recommendable that, whenever it is possible, a marketing test-situation to be carried out, in which effective service packages to be offered on price.

The third stage, which regularly carried out simultaneously with the second stage and not subsequently to it, is the estimation of the sales volume that can be obtained at the chosen price level and calculation of the afferent costs. Two cost categories are taken into account:

Fix costs (more or less) of the service supply •Variablecostsofthenecessaryrawmaterialsincaseofthefinancialservices,moneytowhichitisaddedthe•planned commercialisation expenses.

Asitwaspreviouslymentioned,theadministrationcostsandothersarepartiallyfixedfromthepointofviewofthe additional work volume for the departments implied in the respective service, generated by the “new” product, partially negotiable to the extent in which an approach from the perspective of the marginal cost is agreed upon, in case there is an underused capacity existing within the organisation.

The cost of the monetary resources varies directly proportional to the sales volume of the new product, as well as an answer to the market changes in the demand and supply for the respective type of monetary resources. The level of the sales expenses is the only factor that the marketing planner can control, but only to a certain extent. It has no sense, for example, to establish in a non-realistic manner a low-level of the sales and expenses of the sales promotion only for the sake of attempt and equilibration, book-keeping.

The fourth stage consists in the combination of the interdependent variables of price, volume and sales expenses, sothatnetprofitobtainedbythecompanytobemaximised.Thecalculationmusttakeintoaccountthetimelimitregardingthematerialisationoftheprofit(ifitisalongperiodoftime,thediscountprinciplesmustbeapplied),as well as the possible income losses for other services, from the range of those offered by the bank, adjacent to the new product. The effective calculation manner (computerised or manually) depends on the importance of the product and the availability for the data on which the estimations are based. The elaboration of the statistic exercise isnotjustified,incaseofsmallamountsandofsomehypothesesthatmainlyaresomecorrectsuppositionsbasedon information.

Inanyofthesecases,thefifthstageisessential.Ifthepropositionprovestobefeasible,apriceisestablishedandthe product is launched on a test-market or on a general scale. At this moment, the essential stage is controlling the effective result in comparison to the estimations made and adopting corrective measures, by reducing the price orincreasingthesalesandtheintensificationofthesalespromotioncampaign,incasetheresultsarenotthoseexpected. As it very rarely happens, in practice, that things develop according to the plan, or even more rarely that the results are better than the estimations, when there are hesitations between the two prices, as a rule the higher one is chosen. It is always easier to reduce the price than to raise the price; a higher price allows special discounts or transactions with the important customers; and it is possible that the price to be reduced in a subsequent stage of the life course of the product.

91/JNU OLE

7.3.3 On the Spot Setting the PriceAnyattemptof“scientific”approachofthepricepolicylosesitsimportanceinveryfrequentcasesofthebankingservices marketing, in which a director or a clerk in charge with the development of the company’s business must negotiate an expense or a commission more or less on the spot. Usually, there are rules or precedents for this kind of situations, however the respective person has the freedom to decide upon the appropriate cipher from the existing parameters or to combine two types of arrangements, for example, overdraft facility and long-term loan for obtaining a weighted average.

It is easy to consider that obtaining the correct price in this kind of cases is a matter of “experience-based judgement”. However,withoutminimisingtheimportanceofexperienceorvaluejudgement,itcanbejustifiedthatthosethatmanage to reach a correct result in most of the cases don’t use the computer, but analyse the main aspects that can be solved in a more elaborated manner than a computerised model.

What are the intervals for “the existing rates” for the respective service?•What is the approximate price for the service supply?•What are the sensitivities of the costs?•What is the probable risk, on the basis of the previous experience?•How important is the customer (or the group of customers) for the bank?•How important is for the customer to obtain from the bank the respective service?•How close to the upper limit of the interval of “the existing rates” the cipher can be chosen without discouraging •the customer and without making him to go somewhere else?How good the customer’s “experience-based judgement” is?•

It can be said that all these are encouragement to charge commissions at the market level. To a certain extent, this is true. As long as the banks and the insurance companies are trade organisations, they have the obligation to gain enoughprofitforcoveringtheexpenses,includingtheexpensesofthecapitalopportunities,ofobtainingasecuritymarginwhichcanallowthemtosupportriskybusinessesandtheeasysolvingofthedifficultiesaswellasthesupplying of resources for all the other elements necessary for providing the long-term stability of the company. The existence of a margin that is too low between prices and cost won’t allow the accomplishment of those from above. There are three factors that rapidly prevent any impulse for a higher price as follows:

Thefirstisthecompetition.•The second, the normal desire to remain in business for an undetermined period and not endanger the future •for the sake of rapid earnings.The third is a great care regarding the protection of the reputation of business integrity and correctitude, which •isthemostimportantassetofanyfinancialservicesupplyingcompany.

7.3.4 Structure that Influence the Price CalculationTherearemanyfactorsthatinfluencetoasmallerorbiggerextentthepriceformationandthatacompanymusttakeintoaccount.Asitwasearlierpresented,thefinancialproducthasdistinctfeatures,withacomplexstructure,beingoftenrepresentedbyapacketofservicesthatimpliesdifficultiesinthedeterminationoftheprice.Forexample,therate paid by the consumer for the leasing of a car has several compounds:

The value of the car, the corresponding interest•The value of the car insurance•

The structure of the costsThe bank will wish to establish a price which will cover all the costs for developing and promoting of the service,obtainingacorrespondingprofitoftheriskittakes,inalastinstance,thepricemustreflectthefollowingelements:

Thefixandvariablecostsoftheprovidedservice•The risk that must be covered•

Bank Marketing

92/JNU OLE

The future development (investments)•Thecorrespondingprofitoftheinvestedfund•

The riskAs itwasmentionedbefore, the risk is an element of thefinancial institution costswhich it has to take intoconsideration in determining the price. The risk appears in the moment the price of a service (for example a loan) mustbeacquittednomattertheperformanceofthefinancialinstitution,incaseofthedepositofanamountofmoney, the depositor is sure that he may withdraw in any moment the full amount. The funds subscribed by the shareholders have the role of provisions which should cover the risks assumed by the bank and as a consequence they receive the dividends. A certain risk is assumed by the bank and with the holders of the credit card, which may delay with the payment over the stipulated term.

The shareholdersFor the subscribed capital, the shareholders receive compensation in the form of dividends or by the increase of the heldsharedacompensationthatmustbefoundinthefinalprice.

The consumersTheconsumers,theirperceptionsabouttheproductsandservicesandtheleveloftherequestarefoundinthefinalpriceoftheservice.Asitwasmentioned,theconsumersofthefinancialservicesperceiveharderthevalueandthequality of what they bought, because of the lack of information, of some aspects less visible of the services and of the consequences in the future which some of them have. As a consequence, their request is less elastic than the one of the material goods, for which the relation quality price and costs is easier to determine. There are categories of services, for example, the insurance, that are sensible to the price variations, probably because of the legal obligations of paying some insurance (for example, the car insurance that is paid annually).

The competitionThepricesofthecompetitionmayinfluencethepricestrategiesofanybank.Theclientswillevaluatethepricebycomparing the products of many organisations. Any company must know the price and quality of the competition products and use the information in establishing their own prices when they are offered similar services, of close quality and value, the price must be comparable to the one practised by the closest competition, otherwise the organisation risks the loss of sales.

Internal factors External factors

The objectives of the company

The components of the marketing mix

Costs

Risks

The shareholders

Consumers

The competition

The price

Legal restrictions

Fig. 7.1 The factors that influence the calculation of the banking services price

93/JNU OLE

AsweseeinFig.7.1,thefactorsareclassifiedininternalandexternalfactors.Theinternalfactorsaretheonesinsidethe institution and which are under its control: the objectives of the company, the other variables of the marketing mix,thestructureofthecostsandtheevaluationoftherisk.Theexternalfactorsaretheonesthatinfluenceoutsidethe institution. The company has a reduced or inexistent control of them, but it must know the impact they may have over the decision of the price. These ones, on their turn, can be shared in internal factors of the activity sector (competition, shareholders and intermediaries) and external (consumers and the legislation).

7.4 E-marketingE- Marketing is a notorious term with a comparatively new concept. E-marketing works as a computer based marketingtool.E-Marketing‟utiliseselectronicchannelstoaccomplishtheirmarketingactivitieswiththatattainmarketingobjectivesof theorganisation.” It enters in thebusinessvocabularyaround1970swith theflawlessapplication of information technology. E-marketing is a broader term that performed marketing activity with the electronic channels, technology, customer support, knowledge of market, etc. Electronic marketing brought up a moderately new dimension of marketing for customers where they can buy their product and offer services through electronic channels.

E-marketing mainly works effectively in the electronic market. It is all about making the practice of marketing and salesmorecosteffectiveandefficient.Variousmediatoolssuchase-mail,internet,mobilephonesandotherwirelessmedia, etc., E-marketing includes the broad range of application of information technologies such as:

E-marketing creates additional customer value by transforming marketing strategies during effective segmentation, •targeting, differentiation and positioning strategies.E-marketing makes arrangement and executes the conception, distribution, promotion and pricing of goods •and services.E-marketingsatisfiestheindividualconsumerandorganisationalcustomer’sobjectives.•

7.5 Benefits of E-marketing as a Marketing ToolE-marketing gives admittance to the market of a large size at an affordable price. It is beyond doubt a kind of personalisedmarketing.SpecificbenefitsofE-marketinginclude:

E-marketing allows the users to discover new markets and try to win globally•Planned and effective E-marketing movement can reach to the precise customer at a reasonable cost•E-marketing provides 24-hour marketing•Personalisation helps to come across the customers and make them enlighten about targeted offers using •websiteOne-to-one-marketing•Interactive campaigns are structured to generate awareness about E-marketing•Improved conversion rate•

7.6 E-banking and E-marketingE-marketingisasupportivetechniqueinwhichboththecustomerandthebanksgetsbenefited.Acrosstheglobe,customers want fast delivery of products and services. E-marketing is a new technique which is adopted by the banks throughout the globe. The experience of E-marketing with E-banking designed at one common goal, i.e., satisfaction of customers and achievement of their needs. In this increasing competitive world, the internet has become the key element for performing transactions online either through E-banking or E-marketing. E-banking carries on a number of applications like transfers and payments, etc., with that it become an indispensable mechanism in the banks. It performs banking services 24 hours a day sending important information to customers about bank policies, loan schemes, interest rates, account balances and other formalities, etc. E-marketing is the recent new best marketing policies and within short span of time products can be delivered to the customers through E-marketing in banks.

Bank Marketing

94/JNU OLE

7.7 E-marketing: Futuristic ApproachE-marketing can be recognised in foremost three areas. They are customer creation, product promotion and customer retention. They are described below:

Customercreation:E-marketingpreferredincreatingcustomerprofilesformodellingandinidentificationof•most potential customers.Productpromotion:E-marketingrangeproductpromotionfrommailingtoeverynameoffileoverdifferentand•usedsegmentation.Thesegmentationdefinedbyuserinvolvestheuseoftraditionalapproachwhichincludesgeographicandbehaviouralcharacteristics.Themainemphasisisontheidentificationofproducts,whichisgoing to be offered to the customer.Customer retention: In E-marketing procedure, E-marketers widely concentrate on retaining their existing •customers by providing by standard services in the areas of banking sector; customers are no more to stand in queues they want quick, fast and accurate services.

7.8 Challenges of Electronic MarketingThe numerous challenges can be faced by E-marketing in future they are:

Consumer resistance to online shopping•Customer service•System breakdowns•Speed of site performance•Internet connection costs•Legal issues•Privacy issues•Communicating without spam (unsolicited and unwanted E-mail)•Finding a workable business model•Expectations of free services•Integrating bricks and clicks operations•Global issues•

95/JNU OLE

SummaryThe banking product itself is extremely complex, never existing by itself.•A deposit also supposes an account, a credit card supposes an account, money supply at sight, payments, a credit •may entail payments, letters of credit, guarantees, etc.In the case of larger companies which have accounts opened to many banks which they pay commissions or in •the case of the credits granted to them, the price is a very sensitive aspect.The exposing of the price policies at the governmental checks is one of the factors which determine that the •pricepolicyinthebankingservicessectortobemoredifficulttoapplyinpractice.The fundamental problem (commune moreover to the companies from the sector of the services) is that the •evaluation of the quality cannot be made in the moment of the purchase.The price of a product is settled depending on the price of a similar product already existing on the market.•In the 70s, when the competition for current accounts has become harsh, one of the British clearing banks of •small dimensions decided not to use the “follow the line set by the leader” policy and adopted an independent price policy, but only after a careful analysis of the effects upon the costs.Themainproblematthemomentofintroducinganewcomplementaryserviceorasubstantiallyredefinedone•is represented by the rarity or non-existence of relevant historical data regarding its costs.Thedisadvantageofthiskindofresearchisthedifficultquantificationoftheadditionalpricethattheclientwill•be willing to pay for the special features.The cost of the monetary resources varies directly proportional to the sales volume of the new product, as well •as an answer to the market changes in the demand and supply for the respective type of monetary resources.It is always easier to reduce the price than to raise the price; a higher price allows special discounts or transactions •with the important customers; and it is possible that the price to be reduced in a subsequent stage of the life course of the product.Therearemanyfactorsthatinfluencetoasmallerorbiggerextentthepriceformationandthatacompanymust•take into account.A certain risk is assumed by the bank and with the holders of the credit card, which may delay with the payment •over the stipulated term.Thepricesofthecompetitionmayinfluencethepricestrategiesofanybank.•E- Marketing is a notorious term with a comparatively new concept.•

ReferencesMills, G., 2002. • Retail Pricing Strategies and Market Power. Melbourne Univ. Publishing.Stephenson, R., 2005. • Marketing Planning for Financial Services. Gower Publishing, Ltd.Chapter 7 Marketing of Banking Services• . [Pdf] Available at: <http://shodhganga.inflibnet.ac.in/bitstream/10603/6893/10/10_chapter%207.pdf> [Accessed 18 July 2014].Essentials of Service Marketing• . [Pdf] Available at: <http://bschool.nus.edu.sg/Marketing/Jochen%20papers/2_Chapter12.pdf> [Accessed 18 July 2014].Jurgensen, S., • Pricing Strategies in Marketing. [Video online] Available at: <https://www.youtube.com/watch?v=H8aZr-Ula1w>[Accessed18July2014].Introduction to Marketing - Lecture 22 Pricing Tactics & Strategies -- FREE Course• . [Video online] Available at: <https://www.youtube.com/watch?v=0U_6Huw2gFo> [Accessed 18 July 2014].

Recommended ReadingHoffman, K. and Bateson, J., 2010. • Services Marketing: Concepts, Strategies, & Cases, 4th ed., Cengage Learning.Iibf., 2005. • General Bank Management: (For Caiib Examinations). Macmillan.Arora, S., 2005. • Marketing of Financial Services. Deep and Deep Publications.

Bank Marketing

96/JNU OLE

Self AssessmentIn __________ the institution calculates how much the manufacturing of the product cost it, adds a margin for 1. theprofitandrequirestheclientsthisprice.

sell of producta. financialserviceb. costplusprofitc. settlement of the priced.

The _______ is a very important part of the marketing mix.2. costa. priceb. bankc. moneyd.

Which of the following is not a strategy to settle the price for a product?3. Costplusprofita. The settlement of the prices for taking the creamb. The settlement of the price depending on the competitionc. Individual servicesd.

The _________ of a product is settled depending on the price of a similar product already existing on the 4. market.

pricea. qualityb. quantityc. proposed.

___________ creates additional customer value by transforming marketing strategies during effective 5. segmentation, targeting, differentiation and positioning strategies.

Customer Retentiona. E-marketingb. E-bankingc. Customer serviced.

E-marketing preferred in creating customer profiles formodelling and in identification ofmost potential6. ___________.

producta. organisationsb. banksc. customersd.

97/JNU OLE


E-marketing1. e-mailA.

Media tool2. This strategy is based on the evaluation of the B. clients’ perception

The settlement of the price depending on the 3. competition

SatisfiestheindividualconsumerandC. organisational customer’s objectives

The settlement of the price depending on the 4. value

Takes into consideration the price the D. competition practices

1-D, 2-A, 3-C, 4-Ba. 1-C, 2-B, 3-A, 4-Db. 1-C, 2-A, 3-D, 4-Bc. 1-B, 2-D, 3-A, 4-Cd.

Thepricesofthe__________mayinfluencethepricestrategiesofanybank.8. competitiona. consumersb. shareholdersc. riskd.

The___________ isanelementof thefinancial institutioncostswhich ithas to take intoconsideration in9. determining the price.

producta. e-mailb. riskc. e-marketingd.

The____________definedbyuserinvolvestheuseoftraditionalapproachwhichincludesgeographicand10. behavioural characteristics.

segmentationa. customer retentionb. customer creationc. product promotiond.

Bank Marketing

98/JNU OLE

Chapter VIII

SBI and ICICI Bank Marketing

Aim


introduce SBI and ICICI bank marketing•

explain ICICI Marketing•

explicate services offered by SBI•

Objectives


determine government business•

elaborate bank marketing tools•

determine SWOT analysis of SBI•

Learning outcome


analyse marketing efforts of ICICI bank•

understand SWOT analysis of ICICI bank•

determine marketing efforts of SBI•

99/JNU OLE

8.1 IntroductionInternationalbankingservicesofStateBankofIndiaaredeliveredforthebenefitofitsIndiancustomers,non-residentIndians,foreignentitiesandbanksthroughanetworkof84offices/branchesin32countriesason31March2008,spread over all time zones. The network is augmented by a cluster of overseas and NRI branches within India and correspondent links with over 522 banks worldwide. Bank’s Joint Ventures and Subsidiaries abroad further underline the Bank’s international presence.

The services include corporate lending, loan syndications, merchant banking, handling letters of credit and guarantees, short-termfinancing,collectionofcleananddocumentarycreditsandremittances.TheBankhascarvedanicheforitself in the Euro land with branches located in Antwerp, Paris and Frankfurt. Indian banks and corporate are able to avail single window Euro services from the Bank’s Frankfurt branch.

Corporate bankingSBIisaoneshopprovidingfinancialproducts/servicesofawiderangeforlarge,mediumandsmallcustomersbothdomesticandinternational.Workingcapitalfinancingassistanceextendedbothasfundbasedandnon-fundbasedfacilitiestocorporate,partnershipfirmsandproprietaryconcerns.

WorkingcapitalfinanceextendedtoallsegmentsofindustriesandservicessectorsuchasITtermloanstosupportcapital expenditures for setting up new ventures as also for expansion, renovation, etc. Deferred payment guarantees to support purchase of capital equipments. Corporate loans for a variety of business related purposes to corporate. Export credit to corporate /non corporate strategic business units:

Corporate Accounts Group (CAG)•Project Finance•Lease Finance•

SBI offers various services to its customers; following is the list of those services.Domestic treasury•SBI vishwa yatra foreign travel card•Broking services•Revised service charges•ATM services•

8.2 ICICI MarketingICICIhasthisverygoodpunchlinethat“Bankingatyourfingertips!!!”ICICIhasmanygoodattractionslikethiswhich is the major part of their marketing. They also promote their bank with the features like, “Why be inline when you can be online for paying your utility bills, mobile bills, prepaid mobile recharge, shopping, credit card, insurance premium and lots more.”

Internet banking•E-pay•E-rail•RBIEFT•Safe deposit lockers•Gift cheques•

8.3 Government BusinessState Bank of India’s linkage with Government business is widespread. No wonder that out of 9315 branches in India, about 7000 branches are conducting government business. The large network of our branches provides easy access to the common man to deposit the following government dues and pension payments.

Bank Marketing

100/JNU OLE

SME (small scale industries)State Bank of India has been playing a vital role in the development of small scale industries since 1956.The bank hasfinancedover8lakhsSSIunitsinthecountry.Ithas55specialisedSSIbranches,99branchesinindustrialestatesandmorethan400brancheswithSIBdivisions.Thebankfinancesforsmallbusinessactivitieswhichareofspecialsignificancetoalargenumberofpeopleasmanyoftheseactivitiescanbestartedwithrelativelylowerinvestment and with no special skills on the part of the entrepreneurs.

The ICICI bank and SBI can work towards reducing transaction cost and speedy decision-making. The banks can achievethisbycreatingflatorganisationalstructurewithminimumhierarchy.Here,thestaffalsoneedstoshowinnovative and creative abilities. Similarly, in case of lending these banks, should adopt less complex procedure. Theimportantfactorforconsideringbythesebanksisflexibilitybyadoptingsimplifiedbankingproceduresandpractice.

Meaningful appraisal of customer’s services is an essential activity of ICICI bank and SBI. This can be done with customer surveys at regular intervals. Information collected through such surveys after analysing, will throw light forrectification,refinement,whichwillgoinalongwaytoimprovecustomerservicesinbanks.

The banks should maintain feedback team, which should be given authority to solve customers’ complaints satisfactorily. In fact, each and every operational branch should have a response team for such complaints redressal and feedback. These customers’ complaints should be reviewed at monthly meetings at branch level and rectify the deficienciesprevailingeitherinsystemorservice.

Relationshipbankingmeanshavingamutuallybeneficialandlong-termrelationshipnotonlywiththeexistingcustomers but also with the prospective customers. ICICI banks and SBI should use this technique to attract and retain customers.

Suggestions regarding service charges: The major reason that has emerged by the present study for customer’s dissatisfaction with the ICICI bank (7.0%) and SBI (10.8%) bank is service charges. Both the banks should consider the following suggestion in respect of service charges. The amount required to open saving account with both the banksRs.5000/-whichneedstobereducedbecause,themiddleclasscustomersfindittoohighamountforopeningof saving account.

In case of cheque bouncing the customer of both ICICI bank and SBI has to pay between Rs. 300 to Rs. 500 whereas inpublicsectorbanksitsisRs.50toRs.75onlyasfinesandcharges.Thesetwobanksneedtoconsiderthehugedifferenceinchargesandaccordinglyfixtheircharges.

8.4 SWOT Analysis of ICICI bankThere are many features of ICIC bank which are the main aspects of their strength. They are listed below:

ICICI is the second largest bank in terms of total assets and market share.•TotalassetofICICIisRs.4062.34billionandrecordedamaximumprofitaftertaxofRs.51.51billionand•located in 19 countries.OneofthemajorstrengthofICICIbankaccordingtofinancialanalystsisitsstrongandtransparentbalance•sheet.ICICIbankhasfirstmoveradvantageinmanyofthebankingandfinancialservices.•ICICIbankisthefirstbankinIndiatointroducecompletemobilebankingsolutionsandjewelrycard.•The bank has PAN India presence of around 2,567 branches and 8003 ATM’s.•ICICIbankisthefirstbankinIndiatoattachlifestylebenefitstobankingservicesforexclusivepurchasesand•tie-ups with best brands in the industry such as Nakshatra, Asmi, D’damas, etc.ICICI bank has the longest working hours and additional services offering at ATM’s which attracts •customers.Marketing and advertising strategies of ICICI have good reach compared to other banks in India.•

101/JNU OLE

Weaknesses of ICICI bank are as follows:Customer support of ICICI section is not performing well in terms of resolving complaints.•TherearelotsofconsumercomplaintsfiledagainstICICI.•The ICICI bank has the most stringent policies in terms of recovering the debts and loans, and credit payments. •They employ third party agency to handle recovery management.There are also complaints of customer assault and abuse, while recovering and the credit payment reminders •are sent even before the deadlines which annoys the customers.The bank service charges are comparatively higher.•The employees of ICICI are in maximum stress because of the aggressive policies of the management to win •ahead in the race. This may result in less productivity in future years.

Opportunities of ICICI bank are as follows:Banking sector is expected to grow at a rate of 17% in the next three years.•Theconceptofsavinginbanksandinvestinginfinancialproductsisincreasinginruralareasasmorethan62%•percentage of India’s population is still in rural areas.As per 2010 data in TOI, the total number B-schools in India are more than 1500. This can ensure regular supply •oftrainedhumanpowerinfinancialproductsandbankingservices.Within next four years, ICICI bank is planning to open 1500 new branches.•Smallandnon-performingbankscanbeacquiredbyICICIbecauseofitsfinancialstrengths.•ICICI bank is expected to have 20% credit growth in the coming years.•ICICI bank has the minimum amount of non-performing assets•

Threats of ICICI bank are as follows:RBI allowed foreign banks to invest up to 74% in Indian banking.•Government sector banks are in urge of modernising the capacities to ensure the customers switching to new •age banks are minimised.HDFC is the major competitor for ICICI and other upcoming banks like AXIS, HSBC, imposes a major •threat.Inruralareas,themicro-financinggroupsholdamajorshare.•Thoughcustomeracquisitionishighononeside,theunsatisfiedcustomersareincreasingandmakethemto•switch to other banks.

8.5 Marketing Efforts of ICICI BankUnlike other banks in India, all of whom began as private banks and became nationalised or public banks through the intervention of the government laws, the concept of ICICI Bank came from ICICI. This was an institution set up forpublicpurposes.Yet,thisbankisoneofthosewhichhaveagroupofverysatisfiedcustomersandhighdeposits.This is what all banks try for and these may be considered as the proof of marketing success of ICICI bank.

Unlike other banks in India, ICICI Bank was not established as a bank, however the beginning was as ICICI. This started in 1950s with support from World Bank, government of India and certain industrialists. Its purpose was toprovidedevelopmentfinance for Indianbusiness.Developmentof thisorganisation led to ICICIBank.Thepurposewastocollectfundsdirectlyandthusatalowercost.ThisaspectofIndianfinancecanbeseenevennowaspracticallyallbanksareprofitable.Atthetimeofestablishment,thiswasasmallorganisationwithonly1,200staff as compared to 30,000 people working for the bank today.

Bank Marketing

102/JNU OLE

It is a bank that has a very developed outlook by Indian standards. Yet, it has tried methods for better service to many of them. In 2005, it tried to go deep into rural areas. It was not very successful then and its rural loans had to come down to Rs. 10 billion in September 2007 from Rs. 20 billion in March. On the way, it was cheated of Rs. 2 billion at State and Central government warehouses in Kolhapur district.

The bank is again looking at the rural areas for business. “As we focus on enhancing our capabilities to serve our corporate and retail customers across India’s towns and cities, it is also our endeavour to proactively reach out to ruralIndiaandtothevastnumbersofourpeoplewhodonothaveaccesstoformalfinancialservices.”Managingdirector and CEO Chanda Kochhar. There is also a proposed merger with Bank of Rajasthan which will give it some 200 branches in rural and semi-rural areas. This is a large number for a bank which has only some 2000 branches now. However, it has still some way to cover before it can reach its earlier levels of penetration. The loans given in those areas still amount to only Rs. 17.3 billion.

Themostimportantassetofanypublicserviceorganisation(whetherithasanobjectivetomakeprofitsornot)are the people that it serves. This is handled by customer relationship and management of that is called customer relationship management. This can also be spelled out in various terms like additional numbers of customers served orevenadditionalprofitsobtainedfromeachcustomer.

Themeasurementofcustomeralsoreflectsintheorganisationthroughincreasedprofits,increasesinnumbersofcustomers serviced, etc. This is not easy for a large bank like ICICI. It has more than 13 million customers/clients to be dealt with. There are also many aspects to be dealt with 2025 ATMs, many call centres, banking through internet and mobile banking. The customers also keep shifting from one medium to another. ATMs and electronic transfers are the way now to handle more than half the money. There are also special ATMs which have the ability for large deposits to be made.

Yet the bank is handling all these customers and their various requirements. This is through customer service. Training of personnel to a high-level is done as also more of direct marketing to customers telling them that they can get better facilities if they switch their account to ICICI. Customers are studied more through studies and communications required for them from departments within the bank are well prepared. Total information about the service that will be given to them is also made clear. In short, know the customers and their requirements better; then provide them with service they require.

All products and services require marketing efforts to succeed and ICICI bank is no exception. It continues to develop its services to customers and change them with changes in their demand.

8.6 SWOT Analysis of SBIWe will study the SWOT analysis of SBI with the help of its strengths and weakness. Strengths are as follows:

SBI is the largest bank in India in terms of market share, revenue and assets.•As per recent data, the bank has more than 13,000 outlets and 25,000 ATM centres.•The bank has its presence in 32 countries engaging in currency trade all over the world.•The bank has merged with State Bank of Saurashtra, State Bank of Indore and the bank is planning to go further •acquisition in the current FY2012.SBIhasthefirstmoveradvantageincommercialbankingservice.•SBI has recently changed its vision and mission statements showing a sign of inclination towards new age •banking services.

Weakness are as follows:Lack of proper technology-driven services, when compared to private banks.•Employees show reluctance to solve issues quickly due to higher job security and customers’ waiting period is •long, when compared to private banks.The banks spend a huge amount on its rented buildings.•

103/JNU OLE

SBI has the largest number of employees in banking sector; hence the bank spends a considerable amount of •its income in employee’s salary compensation.In spite of modernisation, the bank still carries the perception of traditional bank to new age customers.•SBI fails to attract salary accounts of corporate and many government sector employees salary accounts are •also shifted to private bank for ease of operations unlike before.

Opportunities with SBI are as follows:SBI’smergerwithfivemorebanksnamelyStateBankofHyderabad,StateBankofPatiala,StateBankof•Bikaber and Jaipur, State of Bank of Travancore and State Bank of Mysore are in approval stage.Mergers will result in expansion of market share to defend its number one position.•SBI isplanning toexpandand invest in internationaloperationsdue togood inflowofmoney fromAsian•market.As the bank is yet to modernise few of its banking operations, there is a better scope of using advanced •technologies and software to improve customer relations.Young and talented pool of graduates and B-schools are in rise to open new horizon to so called “old government •bank”.

Threats are as follows:Netprofitoftheyearhasdeclinedfrom9166.05intheyearFY2010to7,370.35intheyearFY2011.•This shows the decrease in market share to its close competitor ICICI other private banks like HDFC, AXIS •bank, etc.FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend to switch to •foreign banks for better facilities and technologies in banking service.Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing.•Customersprefertoswitchtoprivatebanksandfinancialserviceprovidersforloansandmortgages,asSBI•involvesstringentverificationproceduresandtakelongtimeforprocessing.

8.7 Marketing Efforts of SBICustomer centricity is core SBI scale of operations. Many pro-customer initiatives support this belief. In fact, SBI cards is among the players with the lowest customer complaints received from the Banking Ombudsman, bearing testimony to our continuous efforts to ‘Make Life Simple’ for our customers.

Offers 14 payment options : The only company in India to offer 14 different modes of payment options to •customers. This includes SBI Account holders who can direct their remittances through Onlinesbi.com; National Electronic Fund Transfer (NEFT) and Over the Counter (OTC) (at SBI Branches).OneofthefirstfewcompaniestohavemigratedtotheEurope,MasterCardandVisa(EMV)platform.SBI•Cards uses this cutting-edge technology for its wide spectrum of Credit Cards.Insta-Card for making immediate spends.•Comprehensive real-time SMS alerts system with more than 60 types of useful and critical alerts for •cardholders.www.sbicard.com that allows cardholders to discover the power of convenience and manage their SBI Card •account 24x7.A cutting-edge IVR (Interactive Voice Response) system, which is truly customer-friendly and has a host of •services for the customers.The SMS channel for grievance redressal wherein cardholders can simply SMS the word “Problem” to < •9212500888> and get their concerns addressed.SBI Cards is also highly active on Twitter and Face book, the Social Media Channel thus enabling a 360 degree •approach to reach out to customers and in turn giving them various ways to contact us.

Bank Marketing

104/JNU OLE

8.8 Bank Marketing ToolsBanks use various strategies and marketing tools for their business and promotion. The following are the bank marketing tools.

8.8.1 AdvertisingAs much as consumers complain about excessive advertising, such as what’s seen on television or billboards, bank customersclaimadvertisingisthemainwaytheyfindnewbanksorreasonforswitchingfromonebanktoanother.The type of advertising taps into an emotional component, such as the feeling that your current bank doesn’t understandachangeinyourfinancialcircumstances,canbeapowerfulandpersuasivetool.

8.8.2 Promotional Items of ValueA promotional item that has a value to a customer will be more of a draw during economic hardship even more so, thanreducedfeesorlowerinterestrates.J.D.Powerreportsthatofferssuchasgiftcardscanstronglyinfluencecustomers’ decisions to change banks and banks typically use them to entice new customers rather than offering such incentives to current customers to invest in new banking products.

8.8.3 Public RelationsCustomer experience and relations, along with bank reputation, rank high among the reasons why banks reel in new customers and prevent customer turnover. Public relations tactics offer excellent opportunities to enhance the customer service experience, as well as publicise positive customer case studies and stories. It can also be used topubliciseabank’sfinancialreputation,acquisitions thatmight increasebranchorATMpresenceandmoneyavailable for lending.

8.8.4 Collateral MaterialsMany bank customers enjoy Internet or mobile banking, however not everyone is comfortable relying solely on technology; many people still like to go to their neighbourhood branch, or get their statements in the mail. Collateral materials inside bank branches remain an important part of bank marketing. Banking brochures convey information on account types and features; interest rates and other fees; and branch and ATM locations. Inserts sent with statements promotenewservicesandfulfilotherinformationrequirements,suchasprivacylaws,newservices,orpromotingthe value of paperless or online banking features.

8.9 Characteristics of Retail Bank Marketing ServicesThe characteristics of retail bank marketing services are listed below.

Consumer banking focusMost retail banks focus on the needs of consumers versus commercial account holders. Teller cages are most often dedicated to walk-in consumer patrons. Retail bank tellers are trained to focus on consumer checking and savings needs. Branch managers are trained to offer customer-service issues in regards to those accounts. Commercial account transactions are typically limited to one to two separate stations dedicated to merchant accounts.

Internal promotions to cross-sell servicesRetail banks utilise their internal and external space to promote and cross-sell services. Inside the bank, customers willseestandingfloorsignstopromoteinterestratesonmortgagesandsavingsaccounts.Desksthathousedepositslips are typically topped with brochures about various checking and savings instruments. Tellers might even wear a badge or button that states “ask me about” to promote new services.

CRM practicesCustomer Relationship Management (CRM) techniques are growing in application among most major retail banks. Websites assist and guide current and prospective customers to branch locations. Site visitors are offered the opportunity to provide feedback about their online banking experiences as well as their on-site banking experiences. Retail banks use this information to track and monitor customer satisfaction, gauge the feasibility for new products and services, and to identify areas for improvement of the customer service experience inside the branches.

105/JNU OLE

Extended hours, services, locationsRetail banks are often governed by state banking regulations in terms of hours of operation. Banks deploy savvy strategies to make sure that no opportunity is missed to service customers. Most understand that customer’s hours may not match bank hours. As a result, most retail banks have ATM machines that can accommodate every banking need from making a deposit and inquiring about account balances, to transferring funds between checking and savings accounts. Banks are now also offering their services inside of major grocery stores, retail super stores, gas stations and convenience stores, to make their services accessible on a 24-hour basis so customers have “touch point” access to retail banking services near where they work, live and shop.

New customer incentivesRetail banks have a major marketing mission to increase new customers. They utilise many advertising tactics and strategies to achieve their new customer goals. This often includes broadcast television and radio advertising, print and magazine advertising and public relations efforts to sponsor national and local events. Some retail banks will provide a cash reward up to several hundred dollars to open a new account. The overall goal is to increase new accounts, among both prospective and existing customers. Banks capture information to rate and rank new customers via information furnished on credit applications to assess creditworthiness and approve new account applications.

8.10 Marketing Ideas for BankThere are so many products in market and for those products, there should be different ways to promote it. Some bank marketing ideas are illustrated here.

In general, banks offer similar products checking, savings, money markets, loans and CDs, just to name a few. Marketersfindthattheyneedtocreatedifferentwaystopromotethesameproductsoverandoveragain,whileatthe same time maintaining that same voice of safety and soundness.

Additionally, a marketer needs to identify what makes his bank’s products different from the competition in order to entice prospective customers to his bank versus the bank down the street. The banking market is extremely competitive so marketers need to be especially creative. Luckily, thanks to the Internet and the vast number of channels available to marketers, banks have no trouble reaching nearly any demographic or mass market within reach. In fact the traditional means, such as radio, TV and newspaper, are slowly being replaced with e-mail blasts, targeted direct mail and Internet banners.

Banks also have the advantage of promoting rate and structural changes. You can feature the same checking account but at a higher rate. Or many banks are promoting step CDs where the customer can step up to the next highest rate once during the term.

Different approaches to marketingSome banks are taking a more interactive approach to marketing. Customer contests engage an audience and make a campaign a little more interesting. For example, a fun summer promotion for auto loans could have a golf theme. The customer could put for a rate discount. The bank could create a mini putting green in the lobby and give the customer one chance to put the ball into one of the three or four holes. Inside each hole is a different rate discount whichcouldbearrangedbasedondifficulty?Forinstance,a50percentAPRdiscountratecouldbethemostdifficulttohit.StaffmemberscouldcoordinatetheiroutfitsandweargolfattireonFridayandserverefreshmentsduringthe campaign.

Another interactive way to promote products is through a direct mail campaign. For example, if you were marketing checking accounts, you could mass mail postcards to prospects and existing clients with a secret code. The customer or prospect would need to come into the branch to see if their code matched the one in the lobby and if it did they could win a prize. The bank could arrange to have several codes associated with a variety of prizes. Once the customer is inthebranch,thefrontlinefinancialservicerepresentativecouldsignthecustomerupforthecheckingaccount.

Bank Marketing

106/JNU OLE

You could take this campaign one step further by awarding prizes to the customer if she opened additional products or services, too. These prizes could be as simple as a pen or a coffee mug or even a grand prize. Flat screen TVs, iPods and computers are great giveaways. Another way banks are promoting their products is through referral programmes. Plenty of bank runs refer a friend campaigns where the existing customer receives a cash reward (usually around $10 to $25) if she refers a friend to the bank and he signs up for a product, such as a checking account. Banks are also running referral programmes where employees are receiving incentives for making referrals to the loan or investment department.

MessagingBanks have many means in which to market their campaign. Great marketing ideas need an impressive communication vehicle. Some of the top ways, marketers are bringing their message to their target audience include email blasts, online banner ads, newspaper ads, radio, TV, direct mail, in-branch merchandising (including posters, handouts and flyers),newsletter,statementstuffers,ATMreceiptmessages,onlinebankingmessages,parties,events,educationalseminars, press releases, newspaper editorials and social media.

107/JNU OLE

SummaryInternationalbankingservicesofStateBankofIndiaaredeliveredforthebenefitofitsIndiancustomers,non-•residentIndians,foreignentitiesandbanksthroughanetworkof84offices/branchesin32countriesason31March 2008, spread over all time zones.SBIisaoneshopprovidingfinancialproducts/servicesofawiderangeforlarge,mediumandsmallcustomers,•both domestic and international.Deferred payment guarantees to support purchase of capital equipments.•State Bank of India has been playing a vital role in the development of small-scale industries since 1956.•The ICICI bank and SBI can work towards reducing transaction cost and speedy decision-making.•Meaningful appraisal of customer’s services is an essential activity of ICICI bank and SBI.•Relationshipbankingmeanshavingamutuallybeneficialandlong-termrelationshipnotonlywiththeexisting•customers but also with the prospective customers.The amount required to open saving account with both the banks Rs. 5000/- which needs to be reduced because, •themiddleclasscustomersfindittoohighamountforopeningofsavingaccount.Theconceptofsavinginbanksandinvestinginfinancialproductsisincreasinginruralareasasmorethan62%•percentage of India’s population is still in rural areas.It is a bank that has a very developed outlook by Indian standards. Yet, it has tried methods for better service •to many of them.ATMs and electronic transfers are the way now to handle more than half the money.•All products and services require marketing efforts to succeed and ICICI Bank is no exception.•Banks have many means in which to market their campaign.•

ReferencesRamaswamy., 2009. • Marketing Management: Global Perspective. Indian Context. Macmillan.Arya, P. P. and Tandon, B. B., 2003. • Economic Reforms in India: From First to Second Generation and Beyond. Deep and Deep Publications.The Challenges of Marketing Financial Services• . [Pdf] Available at: <http://www.bnet.fordham.edu/estelami/fsmbooksample.pdf> [Accessed 21 July 2014].Chapter 7 Marketing of Banking Services• . [Pdf] Available at: <http://shodhganga.inflibnet.ac.in/bitstream/10603/6893/10/10_chapter%207.pdf> [Accessed 21 July 2014].Marketing Strategies | Marketing Strategy | Marketing Plan | SimplySell• . [Video online] Available at: <https://www.youtube.com/watch?v=IQg4N01nITc> [Accessed 21 July 2014].Marketing Strategy Examples• . [Video online] Available at: <https://www.youtube.com/watch?v=GNRPRH-E-sI> [Accessed 21 July 2014].

Recommended ReadingRai, A. K., 2012. • Customer Relationship Management: Concepts and Cases. 2nd ed., PHI Learning Pvt. Ltd.Gulati, D. A. and Jain, D., 2010. • Winning Strategies for the Indian Market. Northwestern University Press.Padmalatha, S., 2011. • Management of Banking and Financial Services, 2/E. Pearson Education India.

Bank Marketing

108/JNU OLE

Self Assessment__________ guarantees to support purchase of capital equipments.1.

Corporate loana. Projectfinanceb. Leasefinancec. Deferred paymentd.

Whichbankhasfinancedover8lakhsSSIunitsinthecountry?2. SBIa. ICICIb. PNBc. HDFCd.

__________meanshavingamutuallybeneficialandlong-termrelationshipnotonlywiththeexistingcustomers3. but also with the prospective customers.

Market sharea. Relationship bankingb. Regular intervalc. Bank needsd.

The major reason that has emerged by the present study for customer’s dissatisfaction with the ICICI bank and 4. SBI bank is ___________.

savings accounta. market shareb. service chargesc. taxd.

__________ is the second largest bank in terms of total assets and market share.5. ICICIa. HDFCb. SBIc. RBId.

Which of the following statement is false?6. ICICI bank has PAN India presence of around 2,567 branches and 8003 ATM’s.a. Marketing and advertising strategies of ICICI have good reach compared to other banks in India.b. ICICI bank has the shortest working hours and there are no additional services.c. OneofthemajorstrengthofICICIbankaccordingtofinancialanalystsisitsstrongandtransparentbalanced. sheet.

_________ allowed foreign banks to invest up to 74% in Indian banking.7. CBIa. RBIb. IIBc. SBId.

109/JNU OLE

________ has recently changed its vision and mission statements showing a sign of inclination towards new 8. age banking services.

HDFCa. ICICIb. CBIc. SBId.

____________ is core SBI scale of operations.9. SBI Cardsa. Customer centricityb. A cutting-edge IVRc. Banking brochured.

____________ utilise their internal and external space to promote and cross-sell services.10. Customer relationship management.a. Customer goalsb. Retail banksc. Banks incentivesd.

Bank Marketing

110/JNU OLE

Case Study I

Leading a Revolution in Banking

IntroductionIn today’s technology driven, modern world, most organisations operate in highly competitive markets, this is particularlytrueofthefinancialservicessector.Technologyhasbeenoneofthekeydriversofchangewithinthismarket and most retail banks now offer online banking services. Until recently, most banks operated from the traditional high street branches, offering very similar products and services to their customers. A product can be definedasanythingthatcanbeofferedforsale,thiscouldbesomethingtangiblethatcanbeownedoritmaybeaservice that is performed for the buyer. Most products contain both a tangible and a service element.

Product positioning is the way in which a product and its associated brand are perceived by customers in relation to other competitive products. Different customers value different combinations of product or service attributes, basedontheextenttowhichitmeetstheirparticularneedatthatgiventime.Forexample,thefigureshowsthatsome customers are prepared to pay a particularly high price for a high quality service. While others, prefer a quick standardservice,foralowprice.Ifanorganisationidentifiesagroupofcustomers,whorequireacombinationofeither goods and or services which is not currently offered, it will have discovered a ‘gap’ in the market.

High price

Low price

GAP

Quick Standard Service H

igh

Qua

lity

Serv

ice

Price comparision

Intelligentfinance’schiefexecutive,JimSpowart,hasbeenapioneerofdirectbanking.Herealisedthatwhilepeople were queuing in banks at the counter, the customers who telephoned got priority. He felt that if telephone bankingcouldbeimproved,thenafastandefficientservicecouldbedeliveredtocustomers,withouttheoverheadsof an expensive branch network. This was the beginning of Jim Spowart’s venture into direct banking. Intelligent Finance is the third new generation bank Jim Spowart has set up. It set out to offer something that no other bank wasoffering,therefore,fillingagap.

By embracing new technology, Intelligent Finance has developed a new approach to delivering both products and services, in a highly innovative way. This looks set to transform the traditional retail bank as we know it by putting thecustomerfirst.

The propositionDespite the fact that most banks now offer telephone and internet banking services, most continue to function in traditional ways. One of the ways is placing traditional branch networks at the forefront of their operations. High street branches are an expensive overhead and often offer products which do not always meet the customer’s needs.

Intelligent Finance was launched last year as a division of the Halifax plc. Intelligent Finance offers a phone and internetbankingservice,withproductsthatgivethecustomer,choice,flexibilityandtheabilitytomakethemost

111/JNU OLE

oftheirownmoney.IntelligentFinanceoffersfiveproducts,acurrentaccount,savings,creditcard,personalloanand a mortgage. The innovation is in the way in which the technology has allowed customers to choose to manage their money and allows them to link the products together to ensure that their money works for them in the most efficientway.

Technology has facilitated this revolutionary new system of banking. This allows customers to connect products together, taking account of both their borrowings and savings. This means that by connecting products together, interest is only paid on the balance. For example, a customer may have two products with Intelligent Finance, a personal loan and a current account. The customer has a personal loan for £5,000 and £2,000 in their current account. Intelligent Finance’s integrated approach allows the customer to connect the two accounts together. The £2,000 in the customer’s current account can be offset against the loan, so interest is only paid on the £3,000 personal loan balance and the customer receives no interest on the current account balance.

Alternatively, the customer can choose to pay borrowing rates on their loan and receive the same rates on their savings. It is based on the principle that in effect, some of what customers borrow is their own money, so they should not pay or receive different interest rates on it. Given that the amounts can change daily, the system will calculate balances on a daily basis, allowing the customer to receive the best possible rate of interest on their money. The system is unique in that it allows a customer to have a few products or the whole range of products in their plan. Otherbanksrequirethecustomertohaveamortgagetobenefit.

(Source: Leading a revolution in banking. [Online] Available at: <http://businesscasestudies.co.uk/intelligent-finance/leading-a-revolution-in-banking/identifying-a-gap-in-the-market.html#ixzz37dAJFA00> [Accessed 23July 2014]).

QuestionsDefineproduct1. AnswerAproductcanbedefinedasanythingthatcanbeofferedforsale,thiscouldbesomethingtangiblethatcanbeowned or it may be a service that is performed for the buyer.

What is product positioning?2. AnswerProduct positioning is the way in which a product and its associated brand are perceived by customers in relation to other competitive products.

Whataretheproductsofferedbyintelligentfinance?3. AnswerIntelligentfinanceoffersfiveproducts,acurrentaccount,savings,creditcard,personalloanandamortgage.

Bank Marketing

112/JNU OLE

Case Study II

Liberalisation of the Indian Banking Industry

IntroductionPrivatesectorbanksmadetheirfirstappearanceinJanuary1993.Duringthatperiod,PSBsaccountedforoverthree-fourths of total banking industry assets. They were weighed down with huge NPAs (Non-Performing Assets), falling revenues, lack of modern technology and a massive and highly unionised workforce. New entrants began to erode the market share of the nationalised banks, especially in metro cities and urban areas. The PSBs found it increasingly difficulttocompetewiththenewprivatesectorbanksandtheforeignbanks.Thesebanksalsoemployedstate-of-the-art technology, which helped them to save on manpower costs and concentrate on providing better services.

The restructuringTo overcome the intense competition from private and foreign banks, SBI planned a major organisational restructuring exercise. The key aspects involved redesigning of branches, providing alternate channels; focus on a lean structure and technological upgradation. A Business Process Reengineering (BPR) team was constituted in June 2003 with McKinsey and Company as consultants. The BPR’s basic goal was to create an operating architecture that would facilitateservicedeliveryofinternationalstandards.Theprojectobjectivesweredefinedas“increasingcustomersatisfaction and convenience, freeing up time for branch manager and branch staff to focus on sales and marketing, simplifyingprocess for employees, enhancingSBI’scompetitiveness in themarket, increasing theprofitabilitythroughhighermarketshareandimprovedprocessefficiency.”

New Products and ServicesApart from restructuring, SBI launched several innovative, value-added products and services to project a customer friendly image. It launched a special service for corporate customers called tele-banking and remote login to support transactional requests.

Thisfacilitywouldbeavailableat593branchesandremoteloginat269branches.Thebank’stradefinancesolution,calledEXIMBILLS,wasintendedtohandletradefinancetransactionsefficientlyandenhancetherangeofservicesprovided to corporate and network branches. In March 2004, SBI announced that it would introduce ‘anywhere banking’ facility for its customers from over 9000 branches across India in the next two years. All branches in Mumbai would provide this facility by December 2004. SBI also launched different customised loan programmes to cater to various sections of society depending on income levels and repayment capabilities. Interest rates and repayment periods were tailor-made to suit the customer groups.

(Source: State Bank of India: Competitive Strategies of a Market Leader. [Online] Available at: <http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR132.htm> [Accessed 23 July 2014]).

QuestionsWhat are the project objectives of this case study?1. What are the services and products launched by SBI?2. Explain tele-banking3.

113/JNU OLE

Case Study III

UTI Bank to AXIS Bank: A Corporate Rebranding Exercise

IntroductionThe case is about the corporate rebranding of the erstwhile UTI Bank, a leading private sector bank in India to Axis Bank. It discusses the circumstances which led to the decision of the bank to forego its well-known brand name that ranked among the top 50 brands in India, in favour of a new name. The case further discusses how the company arrived at the new name and how the company launched a mass media campaign to communicate the new corporate identity. The simple, but high-decibel integrated marketing communication campaign, created by Ogilvy & Mather, sought to reassure the bank’s customers that nothing had really changed in the bank except its name.

The customers could expect the same level of service from the bank as earlier. In addition to this, the bank also had to prevent its customers from falling victim to phishers who could take the advantage of any confusion arising out of the rebranding.

IssuesUnderstand the issues and challenges in rebranding a well established brand, especially in the banking sector •in India.Understand the issues that led to the decision of UTI Bank to rebrand as Axis Bank.•Understand the rationale behind the marketing communication campaign and how the campaign was executed •by the ad agency.

The UTI brand name was given to us by the promoters. The name has grown on us. The change in name is on account of several shareholder-unrelated entities using the UTI brand and the consequent brand confusion. The new name, Axis Bank, will give us a brand of our own.”

UTI bank by any other nameOnJuly30,2007,thethirdlargestprivatesectorbankinIndiaofficiallychangeditsnametoAxisBank.Thedecisionto rebrand itself was taken by the bank as it was allowed to use the ‘UTI’ brand name for free till January 31, 2008, but beyond this date, it would have to pay royalty for use of the name. Moreover, rebranding itself also gave it the opportunity to have a brand of its own. This, would go a long way in resolving the brand confusion that was created by several shareholder-unrelated entities using the UTI brand. The name ‘Axis’ sounded contemporary and had an appeal that could transcend geographical boundaries. This was important for the bank as it planned to make a serious attack into the global market in the future.

In addition to changing its name, the bank also changed its logo. The bank hired Ogilvy & Mather (O&M) to design and implement the rebranding campaign. The simple, but high-decibel integrated marketing communication campaign sought to reassure the bank’s customers that nothing had really changed in the bank except its name. The customers could expect the same level of service from the bank as earlier.

The campaign that built on the theme of identical twins to put forward this message was launched in multiple media channels including television (TV), radio, print, Internet and outdoor media. The bank also leveraged on its 2,500-odd ATM locations spread across the country to communicate the change in name. In addition to the integrated marketing campaign, the bank communicated the change in name to its customers personally well in advance. To prevent its customers from falling victim to phisher who could take the advantage of any confusion arising out of the rebranding, the bank cautioned them against responding to any email claiming to come from the bank that asked for personal/account details of the customers.

Industry watchers said that, though there were instances of banks rebranding following a merger and acquisition (M&A)deal,thiswasthefirstinstance,whereabankwasvoluntarilyrebrandingitselfbygoinginforanewnameand shedding a well-recognised brand. They noted that the company was spending a huge amount of money on the

Bank Marketing

114/JNU OLE

rebranding exercise more than three times its marketing expenditure in 2006. Some of them felt that by going in for the new brand name, the company would lose the quasi-governmental connotation that came with the UTI brand.

(Source: UTI Bank to AXIS Bank: A Corporate Rebranding Exercise. [Online] Available at: <http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG183.htm> [Accessed 23 July 2014]).

QuestionsList the issues focused in this study.1. When did UTI change its name to Axis Bank?2. Who designed and implemented the rebranding campaign for Axis bank?3.

115/JNU OLE

Bibliography

ReferencesA New Look at the 4Ps of Marketing• . [Video online] Available at: <https://www.youtube.com/watch?v=JIirzTdaey4> [Accessed 16 July 2014].Arora, S., 2005. • Marketing of Financial Services. Deep and Deep Publications.Arya, P. P. and Tandon, B. B., 2003. • Economic Reforms in India: From First to Second Generation and Beyond. Deep and Deep Publications.Banking 1• . [Video online] Available at: <https://www.youtube.com/watch?v=E-HOz8T6tAo> [Accessed 9 July 2014].Banking 5: Introduction to Bank Notes• . [Video online] Available at: <https://www.youtube.com/watch?v=cNFLqhU4MN0> [Accessed 9 July 2014].Basic Principles of Marketing and Management• . [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/pgdapr/pgdapr-105.pdf> [Accessed 9 July 2014].Bhattacharyay, N. B., • Marketing Approach to Promoting Banking Services. [Pdf] Available at: <http://vikalpa.com/pdf/articles/1989/1989_apr_jun_35_41.pdf> [Accessed 14 July 2014].Chapter 7 Marketing of Banking Services• . [Pdf] Available at: <http://shodhganga.inflibnet.ac.in/bitstream/10603/6893/10/10_chapter%207.pdf> [Accessed 18 July 2014].Chapter Two Marketing Strategies of The Banking Industry• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/562/10/10_chapter%202.pdf> [Accessed 10 July 2014].Chapter-4 Development and Reforms in Indian Banking• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/3712/11/11_chapter%204.pdf> [Accessed 10 July 2014].Chapter II Research Design• .[Pdf]Availableat:<http://shodhganga.inflibnet.ac.in/bitstream/10603/14112/9/09_chapter%202.pdf> [Accessed 15 July 2014].Choudhry, M., 2011. • An Introduction to Banking: Liquidity Risk and Asset-Liability Management. John Wiley & Sons.Commercial Banking Ppt• . [Video online] Available at: <https://www.youtube.com/watch?v=L24w7IuYSk0> [Accessed 14 July 2014].Dong-Kyu Ahn., • Bank Marketing with Social Media. [Video online] Available at: <https://www.youtube.com/watch?v=cn_VnLNePMQ> [Accessed 14 July 2014].Dr. Koli, L. N. and Koli, P., 2010. • Marketing Knowledge (For Various Competitive Exams., Especially for Banking Services). Upkar Prakashan.Dr. Uppal, R. K., • Marketing of Bank Products - Emerging Challenges & New Strategies. [Pdf] Available at: <http://ww.w.jmijitm.com/papers/130082034035_42.pdf> [Accessed 14 July 2014].Drummond, G. and Ensor, J., 2006. • Introduction to Marketing Concepts. Routledge.Episode 24: Introduction to Marketing: The Marketing Mix• . [Video online] Available at: <https://www.youtube.com/watch?v=dV1LbZg0if4>[Accessed15July2014].Essentials of Service Marketing• . [Pdf] Available at: <http://bschool.nus.edu.sg/Marketing/Jochen%20papers/2_Chapter12.pdf> [Accessed 18 July 2014].Estelami, H., 2012. • Marketing Financial Services: 2nd., Dog Ear Publishing.Evolutionofbanks–Simplified• . [Video online] Available at: <https://www.youtube.com/watch?v=0AkT-Pn4qCk> [Accessed 10 July 2014].Financial Advice and Credit Building Lecture• . [Video online] Available at: <https://www.youtube.com/watch?v=_4i2YN9Z38Q>[Accessed16July2014].Gelder, D. and Woodcock, P., 2003. • Marketing and Promotional Strategy. Nelson Thornes.Gurusamy., 2009. • Financial Services, 2E. Tata McGraw-Hill Education.

Bank Marketing

116/JNU OLE

Indian Financial Market• . [Pdf] Available at: <http://download.nos.org/srsec319new/319EL18.pdf> [Accessed 16 July 2014].Introduction to Marketing - Lecture 2 - The Evolution of the Marketing Concept - FREE Course• . [Video online] Available at: <https://www.youtube.com/watch?v=g3tIoR0wCIk> [Accessed 10 July 2014].Introduction to Marketing - Lecture 22 Pricing Tactics & Strategies - FREE Course• . [Video online] Available at: <https://www.youtube.com/watch?v=0U_6Huw2gFo> [Accessed 18 July 2014].Jurgensen, S., • Pricing Strategies in Marketing. [Video online] Available at: <https://www.youtube.com/watch?v=H8aZr-Ula1w>[Accessed18July2014].Lamb, C., Hair, J. and McDaniel, C., 2011.. • Essentials of Marketing. 7th ed., Cengage Learning.Marketing of Financial Services: 4 Ps of the Marketing Mix• . [Pdf] Available at: <http://www.aueb.gr/users/esaopa/courses/marketing%20mix.pdf> [Accessed 16 July 2014].Marketing Strategies | Marketing Strategy | Marketing Plan | SimplySell• . [Video online] Available at: <https://www.youtube.com/watch?v=IQg4N01nITc> [Accessed 21 July 2014].Marketing Strategy Examples• . [Video online] Available at: <https://www.youtube.com/watch?v=GNRPRH-E-sI> [Accessed 21 July 2014].Mills, G., 2002. • Retail Pricing Strategies and Market Power. Melbourne Univ. Publishing.Ramaswamy., 2009. • Marketing Management: Global Perspective. Indian Context. Macmillan.Services Marketing (Part-1)• . [Video online] Available at: <https://www.youtube.com/watch?v=5MBEHY7Q0Ls> [Accessed 15 July 2014].Shanker, R., 2002. • Services Marketing. Excel Books India.Singh, K. and Dutta, V., 2013. • Commercial Bank Management. Tata McGraw-Hill Education.Stephenson, R., 2005. • Marketing Planning for Financial Services. Gower Publishing, Ltd.Sutton, N. C. and Jenkins, B., • The Role of the Financial Services Sector in Expanding Economic Opportunity. [Pdf] Available at: <http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_19_EO%20Finance%20Final.pdf> [Accessed 15 July 2014].The Challenges of Marketing Financial Services• . [Pdf] Available at: <http://www.bnet.fordham.edu/estelami/fsmbooksample.pdf> [Accessed 21 July 2014].The Seven Ps of the Marketing Mix: Marketing Strategies• . [Video online] Available at: <https://www.youtube.com/watch?v=ys7zx1Vc9po> [Accessed 15 July 2014].Tully, K., • Business Service Marketing. [Video online] Available at: <https://www.youtube.com/watch?v=q966hxdNpSc> [Accessed 15 July 2014].Unit - 1 : An Introduction to Banking• . [Pdf] Available at: <http://online.vmou.ac.in/oldweb/studymaterial/BBA%2010.pdf> [Accessed 9 July 2014].Wright, M. & Watkins, T., 2010. • Marketing Financial Services. 2nd ed., Routledge.Zeithaml.,2011.• Services Marketing – Sie. Tata McGraw-Hill Education.

Recommended ReadingArora, S., 2005. • Marketing of Financial Services. Deep and Deep Publications.Ehrlich, E. and Fanelli, D., 2012. • The Financial Services Marketing Handbook: Tactics and Techniques That Produce Results. John Wiley & Sons.Ennew, C. and Waite, N., 2013. • Financial Services Marketing: An International Guide to Principles and Practice. Routledge.Gilmore, A., 2003. • Services Marketing and Management. SAGE.Giri, S. P., • Investment Banking. Tata McGraw-Hill Education.Glantz, M., 2003. • Managing Bank Risk: An Introduction to Broad-base Credit Engineering, Volume 1. Academic Press.

117/JNU OLE

Gulati, D. A. and Jain, D., 2010. • Winning Strategies for the Indian Market. Northwestern University Press.Hallberg, K., 2000. • A Market-oriented Strategy for Small and Medium Scale Enterprises, Volume 63. World Bank Publications.Hoffman, K. and Bateson, J., 2010. • Services Marketing: Concepts, Strategies, & Cases, 4th ed., Cengage Learning.Honohan, P., 2003. • Taxation of Financial Intermediation: Theory and Practice for Emerging Economies, Volume 235. World Bank Publications.Iibf., 2005. • General Bank Management: (For Caiib Examinations). Macmillan.Iyengar, V., 2007. • Introduction to Banking. Excel Books India.Majumdar, R., 2007. • Product Management in India. 3rd ed., PHI Learning Pvt. Ltd.Nargundkar., 2010. • Services Marketing 3E. Tata McGraw-Hill Education.Padmalatha, S., 2011. • Management of Banking and Financial Services, 2/E. Pearson Education India.Rai, A. K., 2012. • Customer Relationship Management: Concepts and Cases. 2nd ed., PHI Learning Pvt. Ltd.Rao, V. S. P., 1999. • Bank Management. Discovery Publishing House.Rao., 2004. • Services Marketing. Pearson Education India.Roldos, J., 2006. • Disintermediation and Monetary Transmission in Canada. International Monetary Fund.Sahoo, S. C. and Sinha, P. K., 1991. • Emerging Trends in Indian Marketing in the 90s. Academic Foundation.Stephenson, R., 2005. • Marketing Planning for Financial Services. Gower Publishing, Ltd.Strydom, J., 2005. • Introduction to Marketing. Juta and Company Ltd.Subramanyam., 2005. • Investment Banking. Tata McGraw-Hill Education.Zeithaml.,1996.• Services Marketing. Tata McGraw-Hill Education.

Bank Marketing

118/JNU OLE

Self Assessment Answers

Chapter Ia1. c2. a3. d4. b5. a6. c7. d8. a9. b10.

Chapter IIb1. c2. a3. d4. a5. b6. c7. b8. a9. c10.

Chapter IIIa1. c2. d3. d4. b5. a6. c7. b8. d9. a10.

Chapter IVa1. b2. d3. b4. c5. a6. c7. b8. a9. a10.

119/JNU OLE

Chapter Va1. c2. b3. c4. d5. a6. a7. b8. c9. b10.

Chapter VIb1. d2. b3. d4. a5. c6. d7. b8. d9. a10.

Chapter VIIc1. b2. d3. a4. b5. d6. c7. a8. c9. a10.

Chapter VIIId1. a2. b3. c4. a5. c6. b7. d8. b9. c10.

bank marketingjnujprdistance.com/assets/lms/lms jnu/mba/mba - ba… · · 2014-08-28bank...

Documents