volume: i 2019€¦ · the impact of service quality on customer satisfaction of janata bank ltd.,...

RNI Reg. No: ASSENG/2019/77169 ISSN: 2582-113X

PDUAMT BUSINESS REVIEW

An International Peer-Reviewed Annual Journal of Pandit Deendayal Upadhyaya Adarsha

Mahavidyalaya,Tulungia, Bongaigoan, Assam, India

Volume: I 2019

Co

nt

en

ts

Service Quality Gap in the Branches of United Bank of India: A Study in Cachar District of

Assam

Dr. Biswajit Paul

1-7

Dissemination of PSD2 (The revised Directive on Payment Services): Opportunity or

Intimidation?

Dr. Gazmend Nure

8-13

The Impact of Service Quality on Customer Satisfaction of Janata Bank Ltd., Bangladesh

Pronab Kumer Saha

14-20

Comparison of ICICI’s Performance between Pre and Post Basel II Norms Implementation

Dr. Suman Goel and Dr. Raj Kumar

21-25

Service Quality and Customer Satisfaction in Private Sector Banks of Karimganj Town: A

Perceptual Study

Dipankar Das

26-33

Risk Management and Corporate Governance: A Global Perspective

Kabita Kalita and Dr. Sujit Sikidar

34-41

A study of Consumer Awareness and Perception towards Green Marketing in Bongaigaon

Town, Assam

Shubhankar Nath

42-48

Low Cost Branding Techniques for Entrepreneurs: A Conceptual Outlook

Bhartrihari Pandiya, Chandra Kant Upadhyay and Arijeet Das

49-55

Role of Micro, Small and Medium Enterprises (MSMEs) in Indian Economy

Dr. Md. Safiqul Hassan

56-65

Corporate Social Responsibility Practices of Banks: A Study on Public Sector Banks in India

Dr. Nitashree Barman

66-77

Editor


Assistant Professor

Department of Accountancy

Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya,Tulungia, Bongaigoan, Assam, India

i


An International Peer-Reviewed Annual Journal of Pandit Deendayal Upadhyaya Adarsha

Mahavidyalaya, Tulungia, Bongaigoan, Assam, India

Patron

Dr. Gunindra Das

Principal

Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya, Tulungia, Bongaigoan, Assam, India

Email: [email protected]

Editor


Assistant Professor, Department of Accountancy

Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya, Tulungia, Bongaigoan, Assam, India

Email: [email protected]; [email protected]

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Prof. Bhagirath Singh

Vice-Chancellor

Maharaja Ganga Singh

University,

Bikaner-334004, Rajasthan,

India. Email:

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Vice-Chancellor

The Maharaja Sayajirao

University of Baroda,

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Berhampur University,

Berhampur-760007, Odisha,

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Suryavanshi

Vice-Chancellor

SGT University, Gurugram,

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Singh

Department of Commerce,

Banaras Hindu University,

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North-Eastern Hill

University,

Shillong-793022, Meghalaya,

India. Email:

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Department of Business

Management, Saurashtra

University, Rajkot-360005,

Gujarat, India. Email:

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M.D. University, Rohtak-

124001, Haryana, India.


Prof. Nawab Ali Khan

Faculty of Commerce,

Aligarh Muslim University,

Aligarh- 202002, U.P., India.

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Prof. Ajanta Borgohain

Rajkonwar


Dibrugarh University,

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India. Email:

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Prof. G.P. Prasain


Manipur University, Indo-

Myanmar Road, Canchipur -

795003

Imphal, India. Email:

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Prof. Sanket Vij

Department of Management

Studies, B.P.S. Women

University, Khanpur Kalan,

Sonipat, Haryana-131305,

India. Email:

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ii

Prof. Debabrata Das

Department of Business

Administration, Tezpur

University, Napaam-784028,

Assam, India. Email:

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Prof. Ratan Barman


Assam University, Diphu

Campus, Diphu-782460,

Assam, India. Email:

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Prof. Tasi Kaye


Rajiv Gandhi University,

Arunachal Pradesh-791112,

India. Email:

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Prof. Elangbam Nixon

Singh

Department of Management,

Mizoram University,

Tlangnuam, Aizawl-796004,

India. Email:

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Prof. Debasish Sur


The University of Burdwan,

West Bengal-713104, India.

Email:

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Prof. Abhijit Dutta


Sikkim University, Gangtok,

6th mile, Samdur, Tadong,

Gangtok-737102, India.


Prof. Matiur Rahman

College of Business,

McNeese State University,

Burton Business Center, 325

Lake Charles, LA, USA.

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Prof. Alfred Lewis

Faculty of Management,

Canadian University, Dubai.

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Prof. Vittal Anantatmula

College of Business,

Western Carolina University,

USA. Email:

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Prof.Jagdish Mukhi

MESSAGE

I am happy to know that Pandit Deendayal Upadhyaya Adarsha

Iqahavidyalaya, Tulungra is publishrng an annual internabonal peer

reviewed journal,

I hope the joutnal besides be the mirror ofthe mission and vBion

of Pandrt Deendayal Upadhyaya Adarsha lvlahavidyalaya will also help to

convey the Mahavidyalaya's long-term goal in creating an rntellectlally

imbued sodety of Pandrt Deendayal ljpadhyaya.

I convev mv best wishes to the editorial team of the joumal for all

success in jts endeavour, Hope the journal is \,\,ell read and appreciated

by all.

Dated: aqgust 13, 2019r.Jagdish ukhi)

qlRrRtaffimq-qGAUHATI UNIVERSITY

Date : 1,8.06.2019

Dr. Mridul HazarikaVice ChancellorPhone : +91-361-2570a12 iO); Zbt040B (R)Fax : +91.361-267SSiSE-mail lD : [email protected],in

hazarika 50@gma it, com

MESSAGE

I am happy to learn that pandit Deendayal Upadhyaya Adarsha

Mahavidyalaya, Bongaigaon is going to publish its Annual College Journalentitled "PDUAMT BUSINESS REVIEW' very soon. college Journal is an

important publication which provides scope for contributors to work on acreative platform. I believe that the college should take initiativeto encourage students in developing creative skills beyond regularcurriculum. I appreciate the efforts being made in publication

of the journal,

I wish all success and hope the |ournal will be well accepted by

the readers.

Uut-Mridul Hazarika )

Address :Gopinath Bardoloi Nagar,Jalukbari, Guwahati,Assarn 78'1014

Phone: 0361 257 A412 Web : www.gauhati.ac.in

Office of the Principal

PANDIT DEENDAYAL UPADHYAYA ADARSHA MAHVIDYALAYA

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Patron’s Message

University Grants Commission (UGC) and other regulatory authorities frame rules

and regulations to encourage research works in different operational fields to create more

individual and social wealth of the nation. In view of this, higher education system of India

has initiated an intrinsic role to empower our younger generation for improvement of their

strategic skill cope with needs of the global world. Following the aim and objective of the UGC,

Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya, Tulungia has published “PDUAMT

Business Review” an International Peer-Reviewed Annual journal.

I hope, this initiative will obviously encourage our younger generation to improve their

creativity in research and learning process in the field of acquiring more knowledge of higher

education.

Wishes all the stakeholders who have devoted their mind and concentration to this

noble activity.

Dr. Gunindra Das

Patron

mailto:Email:%[email protected]

Editorial

Dear Readers

Eradication of illiteracy from the society has always been an agenda of discussion at

academic as well as political level. The fruitful result of such kind of discussion can be

witnessed in the existence of newly established five Pandit Deendayal Upadhaya Adarsha

Mahavidhyalaya in five different districts of the state of Assam. The Department of Higher

Education, Government of Assam and the Ministry of Human Resource Development,

Government of India under the holistic developmental scheme of Rashtriya Uchchatar

Shiksha Abhiyan (RUSA) established these model degree colleges in 2017 with the objective

of enhancement of literacy rate in those districts and empowerment of the enrolled students

as well. Pandit Deendayal Upadhaya Adarsha Mahavidhyalaya, Tulungia is one of those

five model degree colleges, situated in the district of Bongaigaon.

It is a great feeling of euphoria to extend congratulations to all the stakeholders of

Pandit Deendayal Upadhaya Adarsha Mahavidhyalaya, Tulungia because it has come up

with its first official publication of journal. I am profusely privileged to serve as the Editor

of PDUAMT Business Review, the official publication of the institute.

The paramount objective of PDUAMT Business Review is to disseminate

information and knowledge about contemporary issues pertaining to accounting,

management, economics and other allied areas of commerce. In this direction, the current

issue of the journal presents a total number of ten research papers featuring the

contemporary business issues, viz., service quality gap and customer satisfaction of banks,

low cost branding techniques for entrepreneurs, risk management and corporate

governance, corporate social responsibility practices of banks, role of micro, small and

medium enterprises in Indian economy, consumer awareness and perception towards green

marketing and banking reforms, particularly, implementation of Basel II Norms. Besides,

the current issue also includes two international papers, viz., probable consequences of the

revised Directive on Payment Services in EU countries and the impact of service quality on

customer satisfaction of public bank in Bangladesh.

I, on behalf of the Editorial Board, would like to thank to all the authors who have

contributed their immensely valuable papers for the present volume. I look forward to

coming up with more such valuable research papers in future for our prospective readers.

Suggestion and feedback are expected from readers as PDUAMT Business Review strongly

beliefs in tenacious and comprehensive quality improvement.


Editor

PDUAMT Business Review, Volume I, 2019, pp. 1-7

1

Service Quality Gap in the Branches of United Bank of India: A

Study in Cachar District of Assam

Dr. BISWAJIT PAUL*

Abstract

Financial sector reforms have changed the entire scenario of banking business in

India. The entry of private sector banks as well as foreign banks has posed

enormous challenges to the public sector banks in India and United Bank of India

are no exception to this. To survive in this competitive regime, banks need to give

emphasis on delivery of quality services to their customers. Delivery of quality

services will not only enable the banks to make their customers satisfied but will

also help the banks in enhancing their profit earning capacity. The present study

tires to identify the gap (Perception-Expectation) in service quality of the branches

of United Bank of India (UBI) operating in Cachar district of Assam. One sample

Kolmogorov Smirnov test has been applied to ensure the distribution of the data.

Further, gap in service quality dimensions across the branches of UBI has been

tested using Analysis of Variance (ANOVA). The study reveals that at 5 % level of

significance there exists significant difference in the gap with respect to all the

dimensions under study except reliability and tangibility dimensions of service

quality.

Keywords: Service Quality, Reliability, Tangibility

JEL Classification: G21, M30, M31

Introduction

Banking is one of the important organized sectors in Indian economy and the

functioning of the financial system of India is to a large extent dependent upon the status of

the banking sector. In fact, commercial banks, especially the public sector banks, play an

effective role in the process of development by mobilizing the resources and making

allocation of the same in a prudent way (Paul, 2017). Owing to the increased level of

competition linked with the entry of new players in the market, service quality has become

an important factor for evaluating the performance of any commercial bank. The expansion

and diversification of banking business in the present context is to a great extent

dependent upon the quality of services offered by the commercial bank to its existing

customers. Delivery of quality services not only enables a bank in retaining its existing

customer base but attracting new and potential customers as well (Paul, 2017). In other

words, provision of high service quality by a bank is necessary in meeting several

requirements, such as, customer satisfaction and its consequent loyalty, which in turn,

increases the market share and profitability of a bank (Kumari & Rani, 2011).

* Lecturer, Lalit Jain Commerce College, Silchar, Assam, India, Email: [email protected]

Service Quality Gap in the Branches of United Bank of India: A Study in Cachar District of Assam

2

Review of Literature

Rahaman, Abdullah & Rahman (2011) found that among five dimensions of service

quality, responsiveness dimension showed the largest negative gap followed by reliability,

assurance, tangibility and empathy dimensions. In a similar way, Nair & Nair (2013)

observed highest negative gap in case of tangibility dimension which had been followed by

reliability, responsiveness, empathy and assurance dimensions of service quality. Tripathi

(2013) found that out of the seven dimensions of service quality, namely, tangibility,

reliability, responsiveness, assurance, empathy, ease of use and variety of products,

reliability dimension recorded the highest negative gap score and tangibility the lowest

negative gap score. Ilyas, Nasir, Malik, Mirza & Munir (2013) revealed that out of the five

dimensions of service quality, tangibility, responsiveness and reliability dimensions showed

positive gap while assurance and empathy dimensions showed negative gap. Similarly,

Ariffin, Aziz & Rahman (2014) concluded that all the dimensions under study, namely,

reliability, empathy, tangibility and special requirement showed negative gap. Rathee,

Deveshwar & Rajain (2014) revealed negative gap regarding all the five dimensions of

service quality as none of the banks had been able to meet the expectation of customers

over any of the select dimensions. Muthusamy (2014) concluded that there existed negative

gap regarding all five dimensions of service quality.

The literature surveyed reveals that five dimensions, namely, reliability, tangibility,

responsiveness, assurance and empathy plays a great role to analyze the gap in service

quality. Thus, in order to find out the gap in service quality of the branches of UBI

operating in Cachar district of Assam the said five dimensions have been considered.

Objectives of the Study

1. To analyze the branch-wise gap (Perception-Expectation) in select dimensions

of service quality of UBI in Cachar district of Assam.

2. To analyze the branch-wise gap (Perception-Expectation) in service quality of

UBI in Cachar district of Assam.

Hypotheses of the Study

1. There is no significant difference in the gap (Perception-Expectation) with

respect to select dimensions of service quality across the select branches of UBI

operating in Cachar district.

2. There is no significant difference in the gap (Perception-Expectation) with

respect to service quality across the select branches of UBI operating in Cachar

district.

Methodology of the Study

The present study calls for the collection of primary data through field survey. An

interview schedule has been prepared with 24 statements covering five dimensions of

service quality, namely, reliability, tangibility, responsiveness, assurance and empathy for

recording the responses of customers on two aspects, i.e., perception as well as expectation.

The sample size for the present study is 80 customers, taking 20 customers each from four

Dr. Biswajit Paul

3

branches of United Bank of India operating in Cachar district of Assam. A numerical scale

ranging from Strongly Disagree (1) to Strongly Agree (5) has been used to record the

responses of customers.

Gap in the dimensions of service quality has been computed by considering the

methodology of SERVQUAL model (Parasuraman, Zeithaml & Berry, 1985).

Gap = Perception of Customers - Expectation of Customers

In the present study, the terms ‘gap in service quality’, ‘gap with respect to service

quality’ and ‘service quality gap’ have been interchangeably used. Negative gap scores imply

that customers' perceptions is less than their expectations and positive gap scores imply

that customers' expectations is less than their perception. Normality of the data has been

ensured using one sample Kolmogorov Smirnov test. Further, ANOVA has been employed

in order to test the hypotheses of the present study.

Data Analysis and Interpretation

Table 1 shows the normality test of the gap in dimensions of service quality. One

sample Kolmogorov Smirnov test has been employed to test the normality of the data. It

can be seen from Table 1 that p values of gap in each of the five dimensions of service

quality as well as gap in service quality are greater than 0.05. Thus, it can be concluded

that the distribution of the data i.e. gap in dimensions of service quality as well as gap in

service quality is normal.

Table 1: Normality Test of the Gap in Dimensions of Service Quality

Gap in Dimensions Kolmogorov Smirnov Z p value

Reliability 1.013 0.257

Tangibility 1.131 0.155

Responsiveness 0.799 0.546

Assurance 1.156 0.138

Empathy 1.137 0.151

Gap in Service Quality 0.858 0.453

Source: Based on Field Survey

Table 2 shows the branch wise gap in reliability dimension of service quality in

United Bank of India. From the table, it can be seen that the gap score with respect to

reliability dimension is negative in case of all four branches of UBI operating in Cachar

district of Assam. This implies that none of the select branches of UBI could meet the

expectation of its customers regarding the said dimension. However, the negative gap

regarding reliability dimension is the highest in case of Silchar branch (-1.45) which has

been followed by Sonai (-1.18), Nagatilla Point (-0.93) and Hospital Road (-0.92) branches of

UBI operating in Cachar district of Assam.


4

Table 2: Branch wise Gap in Reliability Dimension of Service Quality

Branches of UBI Gap Score (Perception - Expectation) Result of ANOVA

Sonai -1.18

F value = 2.322

p value = 0.082

Nagatilla Point -0.93

Silchar -1.45

Hospital Road -0.92


ANOVA has been applied to test the hypothesis. The result of ANOVA having F

value = 2.322 and p value = 0.082 reveals that there is no significant difference in the gap

with respect to reliability dimension of service quality across the select branches of UBI

operating in Cachar district at 5% level of significance.

Table 3: Branch wise Gap in Tangibility Dimension of Service Quality


Sonai

-1.11

F value = 2.171

p value = 0.098


Silchar -1.25

Hospital Road -0.69


Table 3 shows the branch wise gap in tangibility dimension of service quality in


tangibility dimension is negative in case of all four branches of UBI operating in Cachar



regarding tangibility dimension is the highest in case of Silchar branch (-1.25) which has

been followed by Sonai (-1.11), Hospital Road (-0.69) and Nagatilla Point (-0.66) branches of


Table 4 shows the branch wise gap in responsiveness dimension of service quality in


responsiveness dimension is negative in case of all four branches of UBI operating in

Cachar district of Assam. This implies that none of the select branches of UBI could meet

the expectation of its customers regarding the said dimension. However, the negative gap

regarding responsiveness dimension is the highest in case of Silchar branch (-1.83) which

has been followed by Hospital Road (-1.36), Nagatilla Point (-1.22) and Sonai (-1.15)

branches of UBI operating in Cachar district of Assam.

Dr. Biswajit Paul

5

Table 4: Branch wise Gap in Responsiveness Dimension of Service Quality

Branches of UBI Gap Score (Perception -

Expectation) Result of ANOVA

Sonai

-1.15

F value = 3.023

p value = 0.035


Silchar -1.83

Hospital Road -1.36


ANOVA has been applied to test the hypothesis. The result of ANOVA having F value

= 3.023 and p value = 0.035 reveals that there is significant difference in the gap with

respect to responsiveness dimension across the select branches of UBI operating in Cachar

district at 5% level of significance.

Table 5: Branch wise Gap in Assurance Dimension of Service Quality

Branches of UBI Gap Score (Perception -

Expectation) Result of ANOVA

Sonai

-0.62

F value = 6.318

p value = 0.001


Silchar -1.16

Hospital Road -0.60


Table 5 shows the branch wise gap in assurance dimension of service quality in


assurance dimension is negative in case of all four branches of UBI operating in Cachar



regarding assurance dimension is the highest in case of Silchar branch (-1.16) which has

been followed by Sonai (-0.62), Hospital Road (-0.60) and Nagatilla Point (-0.31) branches of




respect to assurance dimension across the select branches of UBI operating in Cachar


Table 6 shows the branch wise gap in empathy dimension of service quality in United

Bank of India. From the table, it can be seen that the gap score with respect to empathy

dimension is negative in case of all four branches of UBI operating in Cachar district of


6

Assam. This implies that none of the select branches of UBI could meet the expectation of

its customers regarding the said dimension. However, the negative gap regarding empathy

dimension is the highest in case of Sonai (-1.47) which has been followed by Silchar branch

(-1.06), Hospital Road (-0.96) and Nagatilla Point (-0.60) branches of UBI operating in

Cachar district of Assam.

Table 6: Branch wise Gap in Empathy Dimension of Service Quality


Sonai

-1.47

F value = 3.837

p value = 0.013


Silchar -1.06

Hospital Road -0.96


ANOVA has been applied to test the hypothesis. The result of ANOVA having F

value = 3.837 and p value = 0.013 reveals that there is significant difference in the gap with

respect to empathy dimension across the select branches of UBI operating in Cachar


Table 7 shows the branch wise gap in service quality of United Bank of India. From

the table, it can be seen that the gap score with respect to service quality is negative in case

of all four branches of UBI operating in Cachar district of Assam. This implies that none of

the select branches of UBI could meet the expectation of its customers regarding service

quality. However, the negative gap regarding service quality is the highest in case of

Silchar branch (-1.35) which has been followed by Sonai (-1.11), Hospital Road (-0.92) and

Nagatilla Point (-0.75) branches of UBI operating in Cachar district of Assam.

Table 7: Branch wise Gap in Service Quality


Sonai

-1.11

F value = 3.674

p value = 0.016


Silchar -1.35

Hospital Road -0.92




respect to service quality across the select branches of UBI operating in Cachar district at

5% level of significance.

Dr. Biswajit Paul

7

Conclusion

Service quality of a bank can best be measured by comparing the customers’

perceptions of services with their expectations about the services. The process enables a

bank to indentify the aspects where the customers’ expectations are not met and thereby

helps in taking necessary steps to reduce the gap. This ultimately adds to the number of

satisfied customers of the bank. Delivery of quality services facilitates banks to gain a

competitive advantage over their competitors. The present study concludes that there exists

negative gap in all four branches of UBI operating in Cachar district of Assam regarding all

the select dimensions of service quality. This implies that none of the branches of UBI could

meet the expectation of its customers. However, at 5 % level of significance, there exists

significant difference in the gap across the branches of UBI with respect to all the

dimensions except reliability and tangibility dimensions of service quality.

References

Ariffin, A.A.M., Aziz, N.A. & Rahmam, M.R.Z.A. (2014). Gap analysis of bank’s service quality (BANKQUAL): Local banks versus foreign banks. Australian Journal of Basic and Applied Sciences, 8 (7), 417-422.

Ilyas, A., Nasir, H., Malik, M. R., Mirza, U. E. & Munir, S. (2013). Assessing the service quality of bank using SERVQUAL model. Interdisciplinary Journal of Contemporary Research in Business, 4 (11), 390-400.

Kumari, V. & Rani, S. (2011). Customer perception of services quality in the retail banking sector, European Journal of Business and Management, 3 (3), 299-305.

Muthusamy, A. (2014). An evaluation of service quality gap in selected private sector banks. International Journal of Research in Finance & Marketing, 4 (2), 1-13.

Nair, G.K. & Nair, H.K. (2013). A study on customer perception on service quality in commercial banks: An empirical study. ZENITH International Journal of Multidisciplinary Research, 3 (7), 35-47.

Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A Conceptual Model of Service Quality and its Implications for Future Research. Journal of Marketing, 49 (4), 41-44.

Paul, B. (2017). Service Quality Gap in State Bank of India & United Bank of India: A Comparative Study with Reference to Cachar District of Assam. Ph.D Thesis. Silchar: Department of Commerce, Assam University.

Rahaman, M., Abdullah, M. & Rahman, A. (2011). Measuring service quality using SERVQUAL model: A study on private commercial banks in Bangladesh. Business Management Dynamics, 1 (1), 1-11.

Rathee, R., Deveshwar, A. & Rajain, P. (2014). To identify service quality gaps in banking sector: A study of private banks. International Journal of Emerging Research in Management &Technology, 3 (7), 101-106.

Tripathi, S. (2013). An empirical study - Awareness of customers on service quality of public sector banks in Varanasi. Journal of Business Management & Social Sciences Research (JBM&SSR), 2 (1), 24-29.

*****


8

Dissemination of PSD2 (The revised Directive on Payment Services):

Opportunity or Intimidation?

Dr. GAZMEND NURE*

Abstract

The PSD2 is an EU directive that sets out a number of new rules for payment

services in order to make international payments within the EU so simple, efficient

and safe as payments within a single country. The purpose of PSD2 is to stimulate

innovation by introducing new types of customer services and to overcome the gaps

in existing legislation in order to enhance customer protection and transparency.

Despite the legal enforceability in each country, PSD2 is a framework that changes

the way banks operate and provide their services and how consumers value their

bonds with their banks, following usage trends and technology. Moreover, PSD2

aims to ensure PSPs equal competition environment resulting to greater efficiency,

multiple choice of services and lower prices, transparency and strengthening the

vision of harmonized payments market. While planning a strategy for PSD2 banks

should consider certain compoents, viz. bank revenues, business model, customer

relationships, market positioning and future growth.

Keywords: Bank Strategy, PSD2, EU Regulation, Payment Services

JEL Classification: G21; G29

Introduction

2018 is going to be a year of change for European banks and payment operators.

The revised Directive on Payment Services (PSD2), which goes into effect in January, sets

the stage for open banking, providing third-parties access to banks’ customer data and

infrastructure. PSD2 will lower the barriers to entry for these third-party providers, such

as FinTechs, and stimulate the development of new business models. This is a huge impact

to traditional banking business because this is the first time parties outside banking

industry are invited to join in their application programming interface (Nair, 2017).

Because EU members must make substantial changes to comply with the new rule by the

January deadline, PSD2 demands immediate attention. Despite the legal enforceability in

each country, PSD2 is a framework that changes the way banks operate and provide their

services, and how consumers value their bonds with their banks, following usage trends

and technology. The EU’s vision of a Single Euro Payment Area is an act towards cashless

society and PSD2 is a step closer in that journey. This is all part of even bigger

transformation shift that is evolving the whole society and it is called digitalization.

According to Honkapohja (2016), it challenges old and established payment practices and

*Associate Professor, Union Scientist Albert Einstein , Germany, Email: [email protected]

Dissemination of PSD2 (The revised Directive on Payment Services): Opportunity or Intimidation?

9

will likely change them. Banking industry is in the middle of a large digitalization phase

that affects first of all customers with different kinds of more convenient services but it also

impacts the staff of banks with a risk of losing jobs. According to a survey on the

availability and pricing of basic banking services in 2016 the amount of bank branches has

declined to around one thousand from 1,500 in a six-year period in Finland (Financial

Supervisory Authority, 2016). Consequently, it is clear that banks will no longer compete

with each other, but with all organizations providing financial services. Size of payment

market is massive. According to European Central Bank’s (2017) payment statistics, the

total number of payment transactions in EU in 2016 was 122 billion. As seen in chart 1

below, number of transactions has risen in EU for the past five years making payments

market larger and everything including in it, for example, security and risk management

activities. Business-to-customer ecommerce has risen 15% in 2016 and forecasted to grow

14% in 2017 in Europe according to European Ecommerce Report 2017. If banks don’t

develop, or only remain the same, other players will capture this business area and PSD2

brings appropriate push factor to the innovation process of whole industry. Due to creative

destruction, fintech startups or tech giants have the opportunity to replace as mass’

payment platform.

Figure 1: Number of payment card transactions. European Central Bank (2017)

120 000 000 000

100 000 000 000

80 000 000 000

60 000 000 000

40 000 000 000

20 000 000 000

0

2013 2014 2015 2016 2012

The PSD contains two main sections

The 'market rules' describe which type of organizations can provide payment

services. Next to credit institutions (i.e. banks) and certain authorities (e.g. central banks,

government bodies), the PSD mentions electronic money institutions, created by the E-

Money Directive in 2000, and created the new category of 'payment institutions' with its

own prudential regime rules. Organizations that are neither credit institutions or EMIs can

apply for an authorization as a payment institution if they meet certain capital and risk

management requirements. The application can be made in any EU country where they are

Dr. Gazmend Nure

established and they can then "passport" their payment services into all other EU member

states without additional PI requirements. The 'business conduct rules' specify what

transparency of information payment service institutions need to provide, including any

charges, exchange rates, transaction references and maximum execution time. It stipulates

the rights and obligations for both payment service providers and users, how to authorize

and execute transactions, liability in case of unauthorized use of payment instruments,

refunds on payments, revoking payment orders, and value dating of payments.

In 1990, Bill Gates wisely stated that banking is needed, not banks. The new

directive opens up the EU payment market for companies providing payment services,

based on access to payment account details, in particular for:

Account Data Services Providers (AISPs), which allow payment service users to

have an overview of their financial situation at any time, allowing users better

management of their personal finances. Moven is an example in this regard.

Payment Initiation Services Providers (PISPs), which allow customers to pay

through their simple online purchases by providing merchants with guarantees that

payment is initiated, so that goods or services can be sent or offered without delay.

Sofort is an example in this regard. According to a recent study published by PwC,

68 percent of bankers worry that the new directive will bring less control over their

clients, while feeling unsafe about how to respond to the challenges it brings.

Consequently, they are following the strategy of "seeing and doing" in comparison

with other providers of these services and FinTech-save, who are now embracing

open banking opportunities, aiming to gain a dominant position in the new arena of

payments.

PSD2

A Fundamentally Transforming Private Banking Directive Paying Bills (Liabilities)

Directly From Your Facebook Account Account? This is what PSD2 will bring to practice.

The PSD2 is an EU directive that sets out a number of new rules for payment services in

order to make international payments within the EU so simple, efficient and safe as

payments within a single country. In short, PSD2: (i) aims to provide electronic payments

and expand the financial services ecosystem; (ii) provide payment service providers with

service; (iii) Requires strong customer authentication; (iv) exhibit banking data to third

parties through APIs. Given the emerging technologies in the payment landscape, this

directive seeks to open the payment market for new players, leading to greater competition

between banks, FinTech-saves and other stakeholders. In addition, the purpose of PSD2 is

to stimulate innovation by introducing new types of customer services and to overcome the

gaps in existing legislation in order to enhance customer protection and transparency.

PSD2 covers a number of payment services, including:

Provision of deposit and withdrawals in cash.

Execution of transfers, Permanent Payment Orders, Direct Debits.

Payments by cards or similar devices.

Issuance of payment instruments (cards, portfolios) and / or receipt of payment

transactions.

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Money remittances.

Initiation of payment services.

Services about account data

Despite the legal enforceability in each country, PSD2 is a framework that changes

the way banks operate and provide their services, and how consumers value their bonds

with their banks, following usage trends and technology. Consequently, it is clear that

banks will no longer compete with each other, but with all organizations providing financial

services.

Compliance or Competition?

Open Banking will eventually revolutionize the value chain in the payments field.

For "traditional" banks to continue to be competitive in this new era modeled by PSD2, they

should focus their digital strategy on transforming a simple financial transaction into a

means of establishing personalized relationships with customers. Since there is no

universal answer on how strategically all these challenges can be addressed, banks need to

find modular solutions through the use of APIs to link data, products and services that

belong not only to the financial services sector but even other sectors. In this way, they can

capture consumer demand and transform it into more and more compelling solutions.

Banks can act as aggregators and provide "Account Data Services" for their clients, as well

as provide Personal Financial Management services. Banks need to see it collaborating

with FinTech-sat as an opportunity to use APIs to integrate them into their platforms in

order to provide new services based on data analysis. As access to payment account data is

already open, banks can also extend their services to individuals' payments by expanding

their services as PISP. The implementation of a flexible IT architecture that will enable the

provision of services beyond access to account data is crucial for the transition period.

Rather than simply being a payment processor, banks can raise their value chains by

offering payment initiation services via the Internet, directly via their websites or mobile

channels. Key Recipes: Klaus Schwab (founder and chief executive of the World Economic

Forum) says:

"In the new era, it's not the big fish that eats the

fish, but it's the fast fish that catches the fish."

Customer Relationships

With a customer that is becoming more and more digital, all existing payment

providers and new ones have no other option than to adapt their strategies quickly and

effectively according to circumstances. Increasing competition may result in passionate

technology-seeking customers using companies that offer a range of services for all their

financial needs, instead of a single bank. Clients are seeking immediate, personalized, and

more convenient experiences and if they do not get what they expect from financial service

providers, they will easily pass to the competitor as they do with any other purchases they

make. However, it should also be borne in mind that security consumers are equally

concerned about the security of their information and depending on their profile (age,

adaptation to technology, etc.), many would feel safer with a "traditional" bank, rather than

a FinTech.

Dr. Gazmend Nure

Opportunity or threat?

The directive may be a serious threat to banks that decide not to take action,

despite the existence of national-level regulations to be enforced, - someone else, whether a

domestic or global actor, will do so. So the question here is not "if" but "when". On the other

hand, PSD2 is a good opportunity for banks seeking to be transformed and differentiated,

using the advantages of the PSD2 platform for implementing innovative services for their

customers, competing with FinTechsat and, most importantly, protecting the wealth of

their most valued customers.

Summary and Conclusion

Compliance expenses and possible complaint handlings or errors among new third-

party services are difficult to forecast but have to be considered. Banks may lose their

market share and customer relevance in payment services to third parties and therefore

suffer a loss in revenues, in use of traditional cards and in cross-selling other products.

Product developing landscape is under threat to shift to third parties which can slow rate of

innovations in banks. Incumbent banks can also benefit from opportunities that the new

directive raises . The rules will apply EU wide which means that business environment will

grow and possibly brings more competition. Increased competition may lead to smaller

transaction fees which will reduce revenues.Banks could benefit from new innovative

services of third parties and this way their customers could get better payment services; the

size of future transaction services portfolio could enlarge. Less use of cash is easier and

more inexpensive for bank to operate. More innovative payment services could mean more

transactions which could mean more revenues. Partnerships may generate new revenue

streams through new services. Banks need to stay relevant in developer landscape to get

bright ideas and skilled staff. The head of banks need to carefully decide how to approach

PSD2 and create a strategy to stay relevant to customers and keep cross-selling. This way

incumbent banks could be ahead in innovation competition and make it more difficult for

new competitors to succeed in their market.Changing consumer behavior has been grown

during digital technology’s influence into daily life of a consumer and it has driven to

customers’ developed expectations regarding to payment services. Goal of the new directive

is to develop and integrate payments market further in EU. The directive is established to

set a clear and comprehensive legal foundation for existing and new PSPs. PSD2 aims to

ensure PSPs equal competition environment resulting to greater efficiency, multiple choice

of services and lower prices, transparency and strengthening the vision of harmonized

payments market.Strategies consider bank revenues, business model, customer

relationships, market positioning and future growth. These are components that banks

should include into consideration when planning a strategy for PSD2.

References

Cortet, M., Rijks, T. & Nijland, S., (2016). PSD2: The digital transformation accelerator for

banks. Journal of Payments Strategy & Systems, 10 (1), 13-27.

Deloitte (2015). Payments Disrupted-The Emerging challenge for European retail banks,

London: The Creative Studio at Deloitte.

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Donnelly, M., (2016). Payments in the digital market: Evaluating the contribution of

Payment Services Directive II. Computer Law & Security Review, 32, 827-839.

Ecommerce Foundation (2017). European Ecommerce Report 2017, Amsterdam: Ecommerce

Foundation.

European Central Bank (2007). Press release 24th Apr 2007: Payment Services Directive.

[Online] Available at: http: //www. ecb. europa.eu /press/pr/ date/2007/ html/

pr070424.en.html [Accessed 2. 11. 2017].

European Central Bank (2009a). The Single Euro Payments Area (SEPA)-An integrated

retail payment market, Luxembourg: Imprimerie Centrale s.a..

European Central Bank (2017). Statistical Data Warehouse: Payments statistics (full

report).[Online] Available at: http: //sdw.ecb. europa.eu /servlet/ desis? node=

1000004051 [Accessed on 26. 10. 2017].

European Commission (2017). The European single market. [Online] Available at:

https://ec.europa.eu/growth/single market_fi [Accessed 6. 11. 2017].

European Union (2017a). Payment services. [Online] Available at:

https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-

finance-and-payments/payment-services/payment-services_en [Accessed on 15. 11.

2017]

Gulamhuseinwala, B. L., (2015). FinTech is gaining traction and young, high-income users

are the early adopters. The Journal of Financial Perspectives, Winter, 16-23.

PwC (2016). Blurred lines: How Fintech is shaping Financial Services, s.l.: s.n.

World Economic Forum (2017). Beyond Fintech: A Pragmatic Assessment Of Disruptive

Potential In Financial Services, 44. [Online] Available at: http:

//www3.weforum.org/docs/Beyond_Fintech__A_Pragmatic_Assessment_of_Disruptiv

e_Potential_in_Financial_Services.pdf [Accessed on 27. 10. 2017].

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14

The Impact of Service Quality on Customer Satisfaction of

Janata Bank Ltd., Bangladesh

PRONAB KUMER SAHA*

Abstract

The ability of banks to survive in the market relies on its service quality. Service

quality paves the way for customer satisfaction. The present study endeavored to

apply SERVPERF model to measure the service quality of Janata Bank Ltd.

(government owned) and its impact on customer satisfaction. The study found that

only empathy dimension of the bank is satisfactory, whereas other dimensions, viz.

tangibility, reliability, responsiveness, and assurance are not satisfactory. Thus, the

bank managers need to find out the reasons behind customer dissatisfaction and

take necessary steps to mitigate the level of dissatisfaction.

Keywords: Service Quality, Customer Satisfaction, SERVPERF


Introduction

Banks play an important role in a country. Public banks (government owned) are

crucial part to serve the citizen. But are they performing up to the mark to serve the

nation? is the table talk issue now. The government owned public commercial banks are-

Sonali Bank, Rupali Bank, Janata Bank, Agrani Bank, and Basic Bank Ltd. Bangladesh

being a developing economy, its banking sector with a wide geographical reach catering to

the needs of a huge clientele offers an excellent scope for research on the issue of customer

service quality in banking, and can provide the beacon for the evaluation of effectiveness of

banking in developing economies (Siddique, Karim & Rahman, 2011). The efficiency of a

banking sector depends upon how best it can deliver services to its target customers. In

order to survive in this competitive environment and provide continual customer

satisfaction, the banking services providers are required to frequently increase the quality

of services (Salma & Shahneaz, 2013).

In the service industry, successful companies need more than just a competitive

advantage in customer service. They need to have unwavering loyalty from their customers.

The key to providing superior service is to understand and respond to customer

expectations. This is because customers compare perceptions to expectations when judging

the quality of a firm’s service offering (Parasuraman et. al., 1988). Service quality,

satisfaction and loyalty are strongly and positively related to each other (Akter, 2011).

Service quality is about meeting customer needs adequately by matching to his

expectations. Service quality in banking implies every time anticipating and satisfying the

* Senior Lecturer, Department of Business Administration, Sylhet International University, Bangladesh, Email: [email protected]

The Impact of Service Quality on Customer Satisfaction in a Public Bank

15

needs and expectations of customers. The significance of service quality in Banks has been

emphasized in studies and perceived quality advantage leads them to higher profit. Service

quality is a concept that has aroused considerable interest and debate in research literature

because of the difficulties in both defining it and measuring it with no overall consensus

emerging on either (Wisniewski, 2001).

Service quality is the core concept for ensuring a successful supply of services in

general. In such a setting, bank services aim to optimize the service quality in order to

attain a superior outcome level. The outcome of service quality, what firms expand by

delivering a high-quality service, is the return on quality concept and service profit chain.

Nowadays, service quality has received much attention because of its obvious relationship

with costs, financial performance, customer satisfaction and customer retention.

The present study has been conducted because there are not available studies on

measuring service quality of public commercial banks by using SERVPERF model in

Bangladesh, especially in Sylhet Division.

Conceptual Framework

Service Quality

The speedy growth and intensified competition in service industries has made it

considerably important for the companies to calculate and evaluate service quality.

Organizations operating in service sector know that their consumers' service quality is one

of key input factors for victory at local as well as global level.

Service quality can be defined as the difference between customers' expectations of

service and their perceptions of the actual service performance. Different meaning could be

attached to the word quality under different circumstances. It has been defined in a

different ways by various scholars. Some of the prominent definitions include “Quality is

predictability” (Deming, 1982), “conformance to specification or requirement” (Crosby,

1984), “fitness for use” (Juran, 1988) and “customer’s opinion” (Feigenbaum, 1945). A solid

foundation in defining and measuring service quality was emanated in the mid eighties by

Gronroos (1984) and Parasuraman, Berry & Zeithaml (1985).

Defining service quality is difficult as compared to product quality due to some

features unique to services including intangibility, inseparability, heterogeity and

perishability (Chang & Yeh, 2002). In presence of these limitations, Parasuraman come up

with a comprehensive way of defining service quality. Service quality has been defined in

different ways by researchers. Gronroos (1978) suggests that service quality is made of two

components- technical quality and functional quality. Technical quality refers to what the

service provider delivers during the service provision while functional quality is how the

service employee provides the service. Parasuraman et. al. (1988) defined service quality as

a difference between customer’s expectations of service and customer’s perceptions of the

actual service. According to these definitions, customers are the sole judges of service

quality. If they perceive it to be good service, then it is. They assess the quality of service by

comparing their expectation with perception.

Pronab Kumer Saha

Parasuraman SERVQUAI model (1988) is widely used to measure perceived service

quality. Consumer's evaluation about service quality depends on size and direction of the

gap between the service the customer expects to receive and what he or she perceives to

have been received. Service quality is defined as the difference between the consumer's

expectation about service and insight of the service experience. A service quality gap exists

when there is a shortfall in which the service provider would like to close. Service quality is

well-known as a multi-dimensional construct. Its dimensions often differ from one

researcher to other researcher, but still there is some agreement that service quality

mainly consists of three main features: "outcome quality", "interaction quality" and

"physical service environment quality". Numerous researchers elaborated sub aspects of

these three extensive dimensions, e.g., the most popular construct of service quality

SERVQUAL has five dimensions:

Reliability (The ability to perform the promised service dependably and

accurately)

Responsiveness (Willingness to help customers and provide prompt services)

Assurance (Knowledge and courtesy of employees and their ability to convey

trust and confidence)

Empathy (Caring, Individualized attention the firm provides its customer)

Tangibles (Physical facilities, equipment, and appearance of personnel)

The SERVPERF model was carved out of SEVQUAL by Cronin & Taylor in 1992.

SERVPERF measures service quality by using the perceptions of customers. Cronin &

Taylor (1992) argued that only perception was sufficient for measuring service quality and

therefore expectations should not be included as suggested by SERVQUAL (Baumann,

2007). Along with other researchers in 1994, Parasuraman et al. also mentioned that

measurement method using SERVPERF is better than using SERVQUAL, though

SERVQUAL can provide better diagnostic results of service quality. The SERVPERF scale

is found to be superior not only as the efficient scale but also more efficient in reducing the

number of items to be measured by 50% (Hartline & Ferrel, 1996; Babakus & Boller, 1992;

Bolton & Drew, 1991).

Customer Satisfaction

Customer satisfaction implies the extent to which performance matches a customer

expectations (Kotler & Armstrong, 2012). Perceived service quality is a component of

customer satisfaction (Zeithamal et al., 2009) and it determines customer satisfaction

(Cronin & Taylor,1992). The quality of services offered will determine customer satisfaction

and attitudinal loyalty (Ravichandran, Prabhakaran & Kumar, 2010). So organization

needs to know how to keep their customer, even if they appear to be satisfied. Fornell

(1992) noted that although customer satisfaction and quality appear to be important for all

firms, satisfaction is more important for loyalty in industries such as banks, insurance,

mail order and automobile.

Objective of the Study

The prime objective of the study is to examine the influence of service quality

dimensions on customer satisfaction of Janata Bank Ltd.

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Hypothesis of the Study

There is no positive influence of service quality dimensions on customer satisfaction

of Janata Bank Ltd.

Methodology of the study

Data Source: Field Survey

Data collection method: A structured questionnaire (SERVPERF model)

Sampling method: Convenience Sampling

Sample size: 101

Scaling Technique: 5-point Likert scale type

Data Analysis Tools: Percentage and Multiple Regression Analysis

Results and Discussion

Table 1: Profile of Respondents

Gender No. of

Respondents % of

Respondents

Male 65 64.4

Female 36 35.6

Age (in completed years)

Upto 20 11 10.9

21-30 46 45.5

31-40 31 30.7

41-50 9 8.9

Above 50 4 4

Profession

Student 34 33.7

Business 19 18.8

Government employee 37 36.6

Private Job 10 9.9

Others 1 1

Source: Field Survey

Table 1 provides the profile of total respondents of the study. It is clear from the

table that out of the total 101 respondents investigated under this study, overwhelming

majority, i.e. 65 per cent of them were male whereas 36 per cent were found to be female.

With regard to age group, the table depicts that the important age groups among the

respondents in the present study are 21-30 and 31 to 40 years, which constitute 46 per cent

Pronab Kumer Saha

and 31 per cent of the total sample size respectively. The respondents falling in the age

group of upto 20 years constitutes 11 per cent of the total. The number of respondents in

the age group of above 50 is found to be the lowest, i.e., 4 per cent only. Furthermore, it is

evident from the table that profession of highest number of respondents, i.e., 37 per cent

was government employees. Whereas, near about 34 per cent of the respondents were

students. The number of respondents engaged in private job and other profession were 10

per cent and 1 per cent respectively.

Table 2 discloses the multiple regression result of the explanatory variables. The

value of R2 (0.356) suggests that 35.60% of the variation in the level of customer

satisfaction has been explained by the explanatory variables, i.e., the select dimensions of

service quality of Janata Bank Ltd. Bangladesh.

The F statistics (10.495) with p value of 0.000 shows that the regression model is

highly significant which. This result implies that the data are well suited in explaining the

influence of the select service quality dimensions on customer satisfaction of Janata Bank

Ltd. Bangladesh.

Table 2: Result of Multiple Regression Analysis

Variables B value t value p value

Constant -5.585 -1.585 0.116

Tangibility 0.066 0.370 0.712

Reliability -0.097 -0.815 0.417

Responsiveness 0.265 1.528 0.130

Assurance 0.223 0.790 0.432

Empathy 0.763* 6.304 0.000

R2 0.356

F 10.495

p value 0.000

Note: Dependent variable: Customer Satisfaction

Source: Based on filed survey

The table discloses that the beta values of all the select service quality dimensions

except Reliability dimension are positive. Thus, Tangibility, Responsiveness, Assurance and

Empathy have positive influence on satisfaction. On the other hand, Reliability has negative

influence on customer satisfaction. Further, the beta value of Empathy dimension on

customer satisfaction is found to be the highest while influence of Reliability dimension on

customer satisfaction is the lowest. The result of corresponding t-value and p-value make it

clear that only Empathy dimension is making significant contribution to the model at 5%

level of significance among others.

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Conclusion

Good service quality creates satisfaction as well as positive word-of-mouth, which

helps to retain existing customers as well as get new customers. Taking a good position in

marketplace also depends on service quality. The study found that empathy of Janata bank

is only satisfactory but other dimensions of service quality are not satisfactory. Therefore,

managers of the select branch need to identify the reasons of dissatisfaction of customers

with respect to service quality and make necessary strategies to overcome such problems.

The present study has considered only one branch of the bank operating in Sylhet city.

Therefore, further research may be conducted considering all the branches of Janata Bank

Ltd., which may help to identify more service quality dimensions.

References

Akter, J. (2011). Determinant of service quality and their relationship with behavioral outcomes: Empirical study of the private commercial banks in Bangladesh. International Journal of Business & Management. 6 (11), 146-156.

Babakus, E. & Boller, G.W. (1982). An empirical assessment of the SERVQUAL scales. Journal of Business Research, 24 (3), 253-68.

Baumann, C. (2007). Prediction of attitude and behavioral intentions in retail banking. International Journal of Bank Marketing, 25 (2), 102-110.

Bolton, R.N, & James, D.H. (1991). A longitudinal analysis of the impact of service changes on customer attitudes. Journal of Marketing, 55 (1), 1-10.

Chang, Y.H & Yeh, C.H. (2002). A survey analysis of service quality for domestic airlines. European Journal of Operational Research, 139 (1), 166-177.

Cronin, J. & Taylor, S. A. (1992). Measuring service quality: A re-examination and extension. Journal of Marketing, 56 (3), 55-68.

Crosby, P.B. (1984). Quality without tears: The art of hassle free management. New York: McGraw-Hill.

Deming, W.E. (1982). Out of cruses. Cambridge: Mass MIT Center for Advance Engineering Study.

Feigenbaum, A.V. (1945). Quality control: Principles, practice and administration; an industrial management tool for improving product quality and design and for reducing operating costs and losses. New York: McGraw-Hill Industrial Organization and Management series, McGraw-Hill.

Fornell, C. (1992). National customer satisfaction barometer: The Swedish experience. Journal of Marketing, 56, 6-21.

Gronroos C. (1984). A service quality model and its market implications. European Journal of Marketing, 18 (4), 36-44.

Gronroos, C. (1978). A service-oriented approach to marketing of services. European Journal of Marketing, 12 (8), 588-601.

Hartline, M.D. & Ferrell, O.C. (1996). The management of customer-contact service: An empirical investigation. Journal of Marketing, 60 (11), 52-70.

Juran, J.M. (1986). The quality trilogy. Quality Progress, 19 (8), 19-24.

Pronab Kumer Saha

Kotler, P. & Armstrong, G. (2012). Principles of marketing. New Jersey: Pearson Prentice Hall.

Parasuraman, A., Berry, L.L & Zeithaml, V.A. (1985). A conceptual model of service quality and its implication for future research. Journal of Marketing, 49 (4), 41-50.

Parasuraman, A., Berry, L.L. & Zeithaml, V.A. (1988). SERVQUAL: A multiple-item scale for measuring customer perceptions of service quality. Journal of Retailing. 64, 12-40.

Ravichandran, K., Prabhakaran, S. & Kumer, S.A. (2010). Application of SERVQUAL model on measuring service quality: A bayesian approach. Enterprise Risk Management, 1 (1).

Siddique, A.B., Karim,K.S., & Rahman, M.L. (2011). Customers perception about the determinants of service quality of foreign and domestic banks: An empirical study of Bangladesh. Journal of Business and Technology, 6 (1). 1-14.

Wisniewski, M. (2001). Using SEVQUAL to assess customer satisfaction with public sector services. Managing Service Quality, 11 (6),380-88.

Zeithaml, V. A., Bitner, M. J., & Gremler, D. D. (2009). Services marketing: Integrating customer focus across the firm. Singapore: McGraw-Hill and Irwin.

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Comparison of ICICI’s Performance between Pre and Post Basel II

Norms Implementation

Dr. SUMAN GOEL*

Dr. RAJ KUMAR†

Abstract

Banks play major role in the financial sector of each economy. They are the most

important financial intermediaries and their activities have an impact on each

sector of the economy. Banking in India has faced an enormous change after

banking sector reforms and the implementation of Basel norms. Basel II is the

second of the Basel Accords suggested on banking rules and parameters issued by

the Basel Committee on Banking Supervision. The objective of this paper is to

compare performance of ICICI before and after the implementation of Basel II

norms. This performance has been measured with the help of four financial ratios

i.e. cost- income ratio, return on equity, operating profit to total assets and credit-

deposit ratio. Independent sample t test has been used to review the difference in

selected ratios over the two periods. The result of the study shows that there is no

significant improvement between the periods excepting the case of operating profit

to total assets, which shows significant improvement between the periods.

Keywords: Basel-II Norms, Cost-Income Ratio, Return on Equity, Operating Profit

to Total Assets, Credit- Deposit Ratio

JEL Classification: G21, G28

Introduction

Addressing the alleged shortcomings and structural weaknesses of Basel I accord,

the Basel Committee proposed a new capital adequacy framework to replace 1988 Basel I

Accord in June 1999. Basel II was mainly presented in June 2004 by BCBS, which became

effective from March 2005. All banks operating in India necessitate to preserve minimum

Capital Funds at 8% of Total Risk Weighted Assets. Banks necessitate disclosing their risk

exposure etc. to the central bank. In India, all commercial banks have started

implementing Basel II with effect from March 31, 2007 although a marginal extending

beyond this date should not be ruled out in view of the latest indications on the state of

preparedness. RBI report observed that foreign banks operating in India and Indian banks

with presence abroad migrated to the Basel II framework with effect from March 31, 2008.

All other scheduled commercial banks (except regional rural banks and local area banks)

are expected to move around to the Revised Framework not later than by March 31, 2009

(Sarma, 2007). As compared to Basel I, Basel II is a much more comprehensive framework

* Assistant Professor, Department of Management, PDM University, Haryana, India, Email: [email protected]

† Professor, Institute of Management Studies and Research (IMSAR), Dean of DSW, Director of Placement Cell, Maharsh

Dayanand University, Rohtak (124001), Haryana, India, Email: [email protected]


of banking supervision was fully implemented on April 2009 in India where banks are

required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) at 9%. It not only

deals with the CRAR calculation but also has provisions for supervisory review and market

discipline. In the present study, the performance of ICICI has been analyzed before and

after the implementation of Basel II norms.


Kumar and Sreeramulu (2008) measured the performance of Indian banks in terms

of the employee's cost and productivity ratios for the period from 1997-2008. They inspected

that the performance of modern banks was superior as compared to conventional banks.

Sitheswaran and Pradeep (2010) emphasized that the implementation of new Basel

norms, enhanced transparency and disclosures, advanced corporate governance and

deployment of highly developed technology might carry economic steadiness in banking

sector.

Shanmugasundaram (2011) assessed the operational, efficiency and profitability

variables of the public sector banks pre and post Basel I’s perspective. These variables were

scrutinized with the help of a few financial ratios. The performance of the public sector

banks has been enhanced after the implementation of Basel I norms. The operational

efficiency variables explicated humble improvement owing to enhanced profitability.

Khan et al. (2013) analyzed operational efficiency of selected Malaysian and

Pakistani Islamic banks for the period 2006-2011. They studied that Malaysian Islamic

banks were comparatively more proficient in forms of income-expense ratio and operating

efficiency ratio, while Pakistani Islamic banks have admirable assets deployment latent.


The objective of this study is to compare performance of ICICI before and after the

implementation of Basel II norms in respect of select parameters.

Hypothesis of the Study

There is no significant difference in performance parameters of ICICI in view of

Basel II norms.

Research Methodology

The ICICI bank was taken as sample for the study. The present study covers a total

period of 14 years starting from 2002-03 to 2015-16 divided into two sub-periods, namely

pre-Basel II starting from 2002-03 to 2008-09 and post-Basel II norms from 2009-10 to

2015-16 (See Table 1). Independent sample T-test was used in order to see the differences

in respect of selected parameters in the two periods. The parameters selected on the basis

of the review of literature are Cost- Income Ratio (CIR), Return on Equity (ROE),

Operating Profit to Total Assets (OPTA) and Credit- Deposit Ratio (CDR). The study uses

only secondary data, which were collected from annual reports of RBI. SPSS20 software

package and M.S. Excel were used for statistical analysis.

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Data Analysis

It is good practice, once we have entered data, to test for normality of distribution.

In this way, we can be sure that our data have achieved an important assumption for

parametric testing. Kolmogorov-Smirnov test is a more suitable test of normality of

distribution. These types of tests essentially test data for goodness of fit against pre-

calculated normally distributed values.

Table 2 shows that p values of the selected variables greater than 0.05 except cost to

income ratio for pre-Basel II period. Thus, the null hypothesis, i.e., performance parameters

are not different from a normal distribution, is accepted and it is concluded that the data are

normally distributed and have fulfilled the requirement of parametric test.

Table 2: Result of Normality Test

Parameters Period Test of normality

Kolmogorov-Smirnov p value

CIR Pre -Basel II 0.309 0.042

Post -Basel II 0.187 0.200*

ROE Pre -Basel II 0139 0.200*


OPTA Pre -Basel II 0.206 0.200*


CDR Pre -Basel II 0.300 0.056


Note: * indicates significant at 5 % level

Source: Computed

Since the data are normally distributed as evident from the result of normality test,

the parametric test i.e. Independent sample T-test is employed in order to test the null

hypothesis of not significant difference between mean performances of ICICI in respect of

selected parameters in view of Basel II norms. Table 3 provides the comparative

performance of ICICI in respect of selected parameters for the pre and post Basel period.

The Independent sample T-test evaluates the difference of means of the respective

parameters between pre and post Basel II period. It is found that the p values of CIR, CDR,

and ROE are greater than 0.05. Thus the null hypothesis is accepted and it is concluded

that there is a minor change in the mean values of these parameters during the post Basel

II period. In other words, it can be stated that the performance of the bank with regard to

cost efficiency, return to shareholders and asset quality is not significantly different

between the two periods. On the other hand, a major increment is observed in the mean

value of OPTA after the implementation of Basel II norms, as its p value is less than 0.05.


This result has confirmed the rejection of null hypothesis and hence, it is concluded that

there is an improvement in respect of earning operating profit relative to total assets

during the Basel II period.

Table 3: Comparative Performance of ICICI between Pre and Post Basel II period

Parameters Period

Descriptive

statistics Independent Samples Test

Mean S.D. t value p value Remarks

CIR Pre -Basel II 42.57 3.552

2.140 0.054

> 0.05, No

Significant

difference Post-Basel II 38.86 2.911

ROE Pre -Basel II 14.87 4.521

1.642 0.127

> 0.05, No

Significant


OPTA Pre -Basel II 2.109 0.199

-3.691 0.006

< 0.05

Significant


CDR Pre -Basel II 94.163 8.560

-1.384 0.192

> 0.05, No

Significant


Source: Computed

Conclusion

The above said results of the study conclude that after Basel II implementation,

ICICI Bank’s performance has improved in case of OPTA. This shows a considerable

enrichment in this ratio. But no significance change was found in case of CIR, ROE and

CDR. There is a possibility that after implementation of Basel III, the bank performance

will improve if banks’ risks are reviewed appropriately.

References

Khan, M. A., Chaudhary, G. M., Asad, M., & Naqvi, S. M. H. (2013). Operational efficiency

of islamic banks: The case of Malaysia and Pakistan. Interdisciplinary Journal of

Contemporary Research in Business, 5 (3), 660-668.

Kumar, S. & Sreeramulu, M. (2008). Employee’s productivity and cost- a comparative study

of banks in India during 1997-2008. Reserve Bank of India Occasional Papers, 28

(3).

Sarma, M. (2007). Understanding basel norms. Economic and Political Weekly, 42 (33),

3364-3367. Retrieved from http://www.jstor.org/stable/4416364

Shanmugasundaram, G. (2011). Basel I norms: Boon or bane to Indian public sector banks -

A prelude to Basel II norms. International Journal of Research in Commerce,

Economics & Management, 1 (6), 82-88.

Sitheswaran, K. & Pradeep, R. S. (2010). Challenges and opportunities of Indian banking

industry. Contemporary issues and challenges in the Banking and Financial Sector

in India, New Delhi: Excel Books, 461-470.

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Appendix I: Pre & Post Basel II Description of Key Ratios of ICICI

Parameters Pre- Basel II Post- Basel II

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

CIR 49.88 42.85 42.2 39.9 40.2 40.4 43.4 37 41.9 42.9 40.5 38.2 36.8 34.7

ROE 17.38 20.93 18.86 14.33 13.17 11.63 7.80 7.96 9.65 11.20 13.10 14.02 14.55 11.43

OPTA 2.44 2.04 2.02 1.86 1.97 2.14 2.29 2.62 2.35 2.32 2.57 2.93 3.18 3.49

CDR 110.61 91.17 91.57 88.54 84.97 92.30 99.98 89.70 95.91 99.31 99.19 102.05 107.18 103.28

Source: Compiled from various issues of RBI’s Annual Publications

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26

Service Quality and Customer Satisfaction in Private Sector Banks

of Karimganj Town: A Perceptual Study

DIPANKAR DAS*

Abstract

At present, banking sector faces fierce inter-bank competition at the time of

providing customer service in different parts of the country. The element of

competition in small towns has not been intensified like that of metropolitan cities

and state capitals. The entry of new generation private sector banks in the country

has practically revolutionized the expectation level of customers. The thrust area of

private sector banks is to improve their service quality as it is the reason to enhance

the degree of customer satisfaction. The present paper makes a modest attempt to

study the perception of customers about service quality of private sector banks in

Karimganj town of Assam and tries to evaluate its influence on customer

satisfaction. The study concludes that all the five dimensions of service quality are

positively correlated with customer satisfaction and the influence of responsiveness

dimension on customer satisfaction is the highest, which is followed by empathy,

reliability, assurance and tangibility dimensions of service quality.

Keywords: Tangibility, Reliability, Responsiveness, Assurance, Empathy


Introduction

Indian economy has been passing through a phase of metamorphosis and banking

sector is no exception to this. In the current millennium, the elements of competition in the

banking industry have been gaining momentum (Adhikari & Das, 2016). Service quality

and customer satisfaction are of great importance because of their interrelationship and

service quality of a bank often leads to improvement in overall performance of the bank,

which ultimately leads to higher degree of customer satisfaction (Negi, 2009). The banking

industry not only focuses on providing wide range of products to create competitive edge

but also lays emphasis on the offering of quality services. Customer satisfaction in banking

industry is a multidimensional construct and the service quality has a strong influence on

customer satisfaction (Culiberg & Rojsek, 2010).

In marketing literature, it can be easily found that both service quality and

customer satisfaction are interlinked with each other. This interlink concept has been

gaining utmost importance in service sector since customer satisfaction is to a great extent

influenced by various dimensions of service quality. However, over the years, researchers

across the world are by and large at consensus about some of the dimensions of service

*Research Scholar, Department of Commerce, Assam University, Silchar, Assam, India, Email: [email protected]

Service Quality and Customer Satisfaction in Private Sector Banks of Karimganj Town: A Perceptual Study

27

quality, which have been incorporated in SERVQUAL model and later on supported by

SERVPERF model.

Service Quality

Service quality is a measure of how well the service level delivered matches

customer expectations. Delivering quality service means conforming to expectations of

customers on a consistent basis (Lewis & Booms, 1983). At the time of evaluating service

quality, consumers compare the service they expect with perceptions of the service they

receive (Gronroos, 1982). Service quality is the comparison of what consumers feel service

firm should offer (i.e., from their expectations) with their perceptions of the performance of

firms providing the services (Parasuraman, Zeithmal & Berry, 1988).

In a cut-throat competitive business environment, service quality may be considered

as an effective weapon in the hands of the service organizations which may help them to

consolidate their position in the market by effectively satisfying their valued customers.

Customer Satisfaction

Customer satisfaction can be defined as the extent to which a product’s perceived

performance matches the expectations of buyers (Kotler & Armstrong, 2012). Satisfaction is

the consumer’s fulfillment response. It is a judgment that a product or service feature, or

the product or service itself, provided (or is providing) a pleasurable level of consumption

related fulfillment (Oliver, 1997).

Service quality and customer satisfaction are separate concepts, but both are closely

related. There is a strong positive relationship between service quality and customer

satisfaction (Parasuraman, Zeithaml & Berry, 1988). Service quality helps to determine the

satisfaction level of customers (Cronin & Taylor, 1992). Customer satisfaction is one of the

key factors for survival and growth of any business organization particularly in a buyers’

market. In banking sector, customer satisfaction is highly contingent upon the various

service quality dimensions, which have great influence upon the degree of customer

satisfaction (Das, 2017).

In the era of information technology, the awareness level of customers about various

alternatives is generally more as compared to yester decades and customers often prefer to

deal with the bank that is capable of fulfilling their ever-changing expectations. The

increased and diversified expectations of customers are the priority in the hands of every

bank management in order to retain and expand their market share.


Munusamy, Chelliah & Mun (2010) revealed that tangibility and reliability

dimension of service quality had significant impact on customer satisfaction while

assurance, empathy and responsiveness dimensions of service quality had insignificant

impact on customer satisfaction. Ravichandran, Mani, Kumar & Prabhakaran (2010)

observed that increased level of service quality of banks could satisfy and develop customer

satisfaction. However, the influence of responsiveness dimension of service quality upon

customer satisfaction was maximum and significant. Al-Hawary, Alhamali & Alghanim

Dipankar Das

(2011) revealed that four dimensions of service quality, namely, tangibility, reliability,

assurance and responsiveness were positively and significantly correlated with customer

satisfaction. Ghost & Gnanadhas (2011) revealed that out of five service quality dimensions

of SERVPERF framework, the impact of assurance dimension was the highest and the

same was lowest in case of tangibility dimension of service quality. Lohani & Bhatia (2012)

pointed out that reliability, responsiveness and assurance dimensions of service quality

were important determinants of customer satisfaction. Shanka (2012) found positive

correlation between service quality dimensions of SERVPERF model and customer

satisfaction. Although all the service quality dimensions made a positive impact on

customer satisfaction, but empathy, assurance and responsiveness dimensions significantly

influenced customer satisfaction in private banks. Sivesan (2012) & Nautiyal (2014)

revealed positive relationship between each of the five dimensions of SERVPERF model of

service quality and customer satisfaction and all the five service quality dimensions

positively influenced customer satisfaction. Ushantha, Wijeratne & Samantha (2014)

observed highest correlation between reliability dimension and customer satisfaction,

which was followed by assurance, responsiveness, empathy and tangibility dimensions of

service quality. Adhikari & Paul (2015) revealed that in the age of fierce competition,

delivery of quality services helps a bank in making their customers feel satisfied. Thus,

from the finding of literatures, it may be safely commented that service quality and

customer satisfaction are interrelated and both play a convincing role for improving the

overall performance of a bank.


1. To study the service quality of private sector banks operating in Karimganj town of

Assam.

2. To examine the influence of service quality on customer satisfaction of private sector

banks operating in Karimganj town of Assam.

Hypotheses of the Study

1. There exists no significant correlation between service quality dimensions and

customer satisfaction of private sector banks operating in Karimganj town of

Assam.

2. There exists no significant influence of service quality dimensions on customer

satisfaction of private sector banks operating in Karimganj town of Assam.

Methodological Design

Study Area and Organization: The present study makes an attempt not only to

study the service quality and its relationship with customer satisfaction but also to

examine the influence of service quality on customer satisfaction in private sector banks,

namely, AXIS bank, HDFC bank and ICICI bank operating in Karimganj town which is

located in south Assam.

Sampling Design: The sample size of the present study is one hundred twenty (120)

numbers of customers taking forty (40) numbers of customers from each of the three private

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sector banks under study. In order to attain the required information pertaining to the

study, the convenience sampling technique has been used.

Variables Consideration: Service quality has been assessed on the basis of the

responses of customers over nineteen (19) numbers of components of service quality, which

have been categorized into five (05) service quality dimensions, namely, Tangibility,

Reliability, Responsiveness, Assurance and Empathy.

Data Collection Tool: A structured interview schedule comprising of a numerical

scale ranging from

Strongly Disagree

(=1)

Moderate Disagree

(=2)

Disagree (=3)

Neutral (=4)

Agree (=5)

Disagree (=6)

Strongly Agree (=7)

Statistical Tools: For the purpose of analysis of collected data, Mean, Standard

Deviation (SD), Correlation and Multiple Regression have been used.

Results and Discussion

Table 1 depicts the perception of bank customers on select dimensions of service

quality. The mean values in the table imply that the customer perception about service

quality dimensions in private sector banks operating in Karimganj town of Assam is by and

large favourable. The mean score of customer perception is the highest with respect to

reliability dimension (5.71) of service quality. However, relatively higher mean scores have

also been observed with assurance dimension (5.53) and empathy dimension of service

quality (5.43). But the level of perception of the bank customers is found to be moderate

with responsiveness dimension (5.39) and the perception of bank customers is the lowest

regarding tangibility dimension of service quality (5.29). Table 1 further discloses that the

mean score of customer satisfaction is 4.78 with a standard deviation of 0.8947, which

implies that service quality of these banks under study could not be considered as the best

source of solace for the customers.

Table 1: Customer Perception about Service Quality

Service Quality Dimensions

Mean SD

Tangibility 5.29 0.7870

Reliability 5.71 0.8341

Responsiveness 5.39 0.9595

Assurance 5.53 0.7754

Empathy 5.43 0.9049

Customer Satisfaction 4.78 0.8947


Dipankar Das

The values of SD of customer perception with respect to different dimensions of

service quality have been computed to study the consistency /variation in their responses.

The value of standard deviation with respect to assurance dimension is the lowest which

implies that the perception of customers is more concentrated about this dimension. On the

contrary, since the value of the standard deviation with respect to responsiveness dimension

is the highest, it denotes that the tilt of the views of the respondents is bent more towards

this.

Table 2 represents the degree of association between overall customer satisfaction

and select dimensions of service quality. It can be observed from the table that all the

dimensions of service quality are positively correlated with customer satisfaction at 1%

level of significance. Highest degree of correlation exists between customer satisfaction and

customer perception about empathy dimension of service quality, i.e., 0.730. The degree of

correlation between customer satisfaction and customer perception about responsiveness

dimension (0.727) as well as assurance dimension (0.692) are quite high.

Table 2: Correlation between Service Quality Dimensions and Customer Satisfaction

Service Quality Dimensions Correlation Coefficient

Tangibility 0.374*

Reliability 0.683*

Responsiveness 0.727*

Assurance 0.692*

Empathy 0.730*

Note: *Correlation is significant at 0.01 level.


However, relatively moderate level of correlation has been observed between

customer satisfaction, customer perception about reliability dimension is 0.683, and

tangibility dimension is 0.374 of service quality. The p values as shown against the select

dimensions of service quality in Table 2 indicate that there exist significant linear

relationship between customer satisfaction and customer perception about all the

individual dimensions of service quality.

The influence of different dimensions of service quality on customer satisfaction

(dependent variable) of private sector banks in Karimganj town of Assam has been

analyzed by employing multiple regression technique.

Table 3 discloses the regression results of explanatory variables, which reveal that

all the five service quality dimensions positively influence the satisfaction of customers

since all the five predictors, have positive b values. The b values indicate that out of five

predictors, the influence of responsiveness dimension is the highest while the same is the

lowest in case of tangibility dimension of service quality on customer satisfaction if the

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effects of other dimensions are held constant. The result of corresponding t value and p

value make it clear that all the predictors are making significant contribution to the model

except tangibility and assurance dimension of service quality at 5% level of significance.

The value of R2 (0.651) suggests that 65.10% of the variation in the level of customer

satisfaction has been explained by explanatory variables, i.e., the select five dimensions of

service quality. The adjusted R2 value (0.636) also indicates that the predictors explain

63.60% of the variation in the degree of customer satisfaction. Thus, the dimensions of

service quality selected for the study could explain a very large amount of variation in

customer satisfaction. The difference between R2 and adjusted R2 is only 0.015 or 1.5% and

this reduction implies that if the model were derived from the population, it would account

for approximately 1.5% less variation in the outcome.

Table 3: Multiple Regression Results of the Selected Variables

Model

Unstandardized Coefficients

Standardized Coefficients

t value p value B Std. Error Beta

(Constant) -0.216 0.415 -- -0.520 0.604

Tangibility 0.015 0.074 0.013 0.206 0.837

Reliability 0.250 0.096 0.233 2.616* 0.010

Responsiveness 0.320 0.084 0.344 3.818* 0.000

Assurance 0.018 0.124 0.015 0.142 0.887

Empathy 0.307 0.093 0.310 3.282* 0.001

R2 = 0.651, Adjusted R2 = 0.636

F = 42.584, p = 0.000

Note: *indicates that the variable is significant at the 0.01 level


The overall predictability of the model is also calculated. The F statistics (42.584)

with respect to p value (0.000) shows that the regression model is highly significant which

implies that the data are well suited in explaining the influence of five service quality

dimensions on customer satisfaction in the banks of private sector operating in Karimganj

town of Assam.

Summary of Findings

The perceptions of customers in private sector banks operating in Karimganj town

of Assam are by and large favourable with respect to all the dimensions of service quality.

The perception of customers towards reliability dimension of service quality is most

favourable which is followed by assurance, empathy, responsiveness and tangibility

dimensions of service quality. The variation in the perception of customers has been lowest

Dipankar Das

with respect to assurance dimension while highest variation has been noticed in case of

responsiveness dimension of service quality.

There exists significant and positive relationship between customer satisfaction and

all the five service quality dimensions at 5% level of significance. Highest degree of positive

correlation exists between empathy dimension of service quality and customer satisfaction.

On the contrary, lowest degree of positive correlation has been noticed between customer

satisfaction and tangibility dimension of service quality.

All the five service quality dimensions positively influence customer satisfaction

since all the five predictors have positive b values. The b values indicate the influence of

responsiveness dimension on customer satisfaction is the highest and the influence of

tangibility dimension on customer satisfaction is the lowest out of five predictors. There

exists significant cause and effect relationship between all the predictors to the model

except tangibility and assurance dimensions of service quality at 5% level of significance. In

other words, empathy, reliability and responsiveness dimensions of service quality at 5%

level of significance significantly influence customer satisfaction.

Conclusion

A bank, it either in private sector or in public sector, cannot continue to survive in

the long run if its customers are dissatisfied for a reasonable period of time. Private sector

banks operating in Karimganj town are relatively new entrants in the market and are

expected not only to invent new products and services on a continuous basis after

understanding the needs and requirements of their potential and valued customers but also

to provide better quality of services in order to effectively satisfy their customers. Although

the present study reveals positive influence of all the five select dimensions of service

quality on satisfaction of customers of private sector banks operating in one of the old

towns of south Assam. Bank management at branch level are expected to consider sincerely

about assurance and tangibility dimensions of service quality for ensuring higher degree of

satisfaction of customers since the scope for improving these two dimensions are yet to be

explored to a large extent. The findings of the study will have to be interpreted with caution

for generalizing as it largely reflects the situation specific to the chosen study area.

References

Adhikari, K. & Das, D. (2016). Service quality of private sector banks: An empirical study. EPRA- International Journal of Economic and Business Review, 4 (10), 128-134.

Adhikari, K. & Paul, B. (2015). Perceived service quality and customer satisfaction in public sector banks: An empirical study. Vidyasagar University- Journal of Commerce. 20, 151-159.

Al-Hawary, S. I. S., Alhamali, R. M. & Alghanim, S. A. (2011). Banking service quality provided by commercial banks and customer satisfaction. American Journal of Scientific Research, X (27), 68-83.

Cronin, J. J. & Taylor, S. A. (1992). Measuring service quality: A reexamination and extension. Journal of Marketing, 56 (3), 55-68.

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Culiberg, B. & Rojsek, I. (2010). Identifying service quality dimensions as antecedents to customer satisfaction in retail banking. Economic and Business Review. 12 (3), 151-166.

Das, D. (2017). Service Quality and Customer Satisfaction: A Study with reference to Private Sector Banks in Karimganj Town of Assam. M.Phil. Dissertation. Silchar: Department of Commerce, Assam University.

Ghost, F. H. & Gnanadhas, M. E. (2011). Impact of service quality in commercial banks on the customers satisfaction: An empirical study. Zenith International Journal of Multidisciplinary Research, 1 (6), 19-37.

Gronroos, C. (1982). An applied service marketing theory. European Journal of Marketing, 16 (7), 30- 41.

Kotler, P. & Armstrong, G. (2012). Principles of marketing. Boston: Pearson Prentice Hall.

Lewis, R.C. & Booms, B.H. (1983). The marketing aspects of service quality. In Berry, L., Shostack, G. & Upah, G. (Eds), Emerging Perspectives on Service Marketing (pp. 99-107). Chicago, LL: American Marketing Association.

Lohani, M. B. & Bhatia, P. (2012). Assessment of service quality in public and private sector banks of india with special reference to Lucknow city. International Journal of Scientific and Research Publications, 2 (10), 1-7.

Munusamy, J., Chelliah, S. & Mun, H. W. (2010). Service quality delivery and its impact on customer satisfaction in the banking sector in Malaysia. International Journal of Innovation, Management and Technology, 1 (4), 398-404.

Nautiyal, G. (2014). Impact of service quality on customer satisfaction in the retail banking sector. Global Journal of Commerce and Management Perspective, 3 (3), 77-80.

Negi, R. (2009). Determining customer satisfaction through perceived service quality: A study of Ethiopian mobile users. International Journal of Mobile Marketing, 4 (1), 31-38.

Oliver, R. L. (1997). Satisfaction: A Behavioral Perspective on the Consumer. McGraw-Hill, Boston, New York.

Parasuraman, A., Zeithaml, V. A. & Berry, L. L. (1988). SERVQUAL: A multiple- item scale for measuring consumer perceptions of service quality. Journal of Retailing, 64 (1), 12-40.

Ravichandran, K., Mani, B. T., Kumar, A. & Prabhakaran, S. (2010). Influence of service quality on customer satisfaction application of servqual model. International Journal of Business and Management, 5 (4), 117-124.

Shanka, M. S. (2012). Bank service quality, customer satisfaction and loyalty in Ethiopian banking sector. Journal of Business Administration and Management Sciences Research, 1 (1), 001-009.

Sivesan, S. (2012). Service quality and customer satisfaction: A case study-Banking sectors in Jaffna district, Sri Lanka. International Journal of Marketing, Financial Services & Management Research, 1 (10), 1-9.

Ushantha, R.A.C., Wijeratne, A.W. & Samantha, P.A.P. (2014). Customers’ perception on service quality towards satisfaction: An application of SERVPERF in State Sector Banks in Sri Lanka. European Journal of Business and Management, 6 (4), 72-81.

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34

Risk Management and Corporate Governance:

A Global Perspective

KABITA KALITA*

Dr. SUJIT SIKIDAR†

Abstract

Risk is one of the key factors that determines the success of a business. Though

taking risks is important for the business to succeed but too much of risk can also

hamper the business. Proper risk management is necessary for a business to

succeed. Taking this matter into consideration the corporate governance norms in

various countries have included the concept of risk management under their

purview clearly defining which level of management will undertake risks, how the

risks will be managed and what role auditors will play in risk management. This

paper gives a detailed theoretical view of the risk management practices across

Singapore, Norway and India. The data for the study has been mainly collected

from secondary sources. The findings of the study reveals that all the three

countries had different board compositions but the corporate norms in all the three

countries paid attention to risk management and the auditors played the major role

in these practices.

Keywords: Risk, Corporate Governance, Management

JEL Classification: G15, G32, G34

Introduction

Risk management is one of the fundamental driving forces in any organization.

With the changes in economic conditions around the globe the focus on risk management is

becoming more and more evident. The cost that an organization has to bear due to failures

in risk management practices are often underestimated by the companies, as of which

along with monetary losses an organization also has to waste a long time in controlling the

situation. Therefore, it becomes necessary that risks are properly estimated, calculated and

managed so that organizations do not have to face adverse situations later on. With the

growing concern regarding risks many guidelines on corporate risk management have been

included in the corporate governance standards. Risk in terms of business is the

uncertainty of deviation from expected earnings in the future. Risk management is the

future actions or the processes that an organization takes into action in order to minimize

the likelihood of failure and increasing their chances of success in the business endeavors.

Effective risk management by an organization increases it’s profits, this in turn confirms to

* Assistant Professor, Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya, Tulungia, Bongaigaon, Assam,

Email: [email protected] † Professor, Department of Commerce, University of Science and Technology (USTM), Meghalaya, India, Email:

[email protected]


35

the shareholders, customers, employees and society at large that a business is being

managed effectively. It also helps the company to confirm its compliance with the corporate

governance guidelines. It has also been observed that there exists a considerable difference

between the risk management practices in the listed companies and the State Owned

Enterprises (SOE’s). Though the SOE’s should try to implement the risk management

practices in line with the listed companies, the same cannot be seen in practical

applicability as the SOE’s often state difference in corporate governance codes as their

cause of non adherence. It is also seen that they often tend to state risk management as the

duty of the board, or the duty of audit committee, the risk management committee or

external auditors. The factors that affect the decisions are the size of the company or the

sector in which it is operating. Whether a listed company or a SOE compliance with the risk

factors becomes essential for them in the long run.

The risk theory was explained in much greater detail by Nassim Nicholas Taleb in

his Black Swan Theory. This theory emphasizes on factors that came as a surprise, are rare

in character and has a major impact on the business. The main aim of the theory was not to

predict unpredictable events but to be strong against events which exploit the positive

events. Banks and trading businesses are most importantly vulnerable to hazardous

events. Black swan events also depend on the psychology of the observer as the risk which

may come as an unpredictable event for one may not be the same for the other person.

Dr. David Hillson often referred to as the risk doctor pointed out that one of the

common failures in managing risks is the risk identification. It is very essential to identify

risks and distinguish them from uncertainties as risks are termed as uncertain events but

all uncertain events are not risks. Only those uncertainties can be termed as risks which

will affect one or more objectives of a business.

Few of the governance standards on risk management are listed as follows:

The UK Corporate Governance Code Main Principle C.2 Risk Management and

Internal Control states:

‘The board is responsible for determining the nature and extent of the significant

risks it is willing to take in achieving its strategic objectives. The board should maintain

sound risk management and internal control systems ’ (ICAEW, n.d., para. 4).

Code Provision C.2.1 provides:

‘The board should, at least annually, conduct a review of the effectiveness of the

company’s risk management and internal control systems and should report to

shareholders that they have done so. The review should cover all material controls,

including financial, operational and compliance controls’(ICAEW, n.d., para. 5).

UK Corporate Governance Code Main Principle C.3 states:

‘The board should establish formal and transparent arrangements for considering

how they should apply the corporate reporting and risk management and internal control

principles and for maintaining an appropriate relationship with the company’s auditor’

(ICAEW, n.d., Para 6).


36

Although few governance standards have been incorporated for management of

risks, it can be seen that most of these standards relate to internal controls and financial

risks. Very few standards have been developed by taking into consideration external risks

faced by the business, also the risk governance standards tend to be very high level,

thereby limiting their applicability and are mainly related to financial institutions.

The Organisation for Economic Co-operation and Development (OECD) has

conducted various studies on the area of risk management during the year 2009-2010 and

has passed numerous guidelines in this area. In the study “Corporate Governance Lessons

From The Financial Crisis” the organization has clearly pointed out the importance of a

corporate governance framework in risk management.

The responsibility of the board both in case of State Owned Enterprises as well as

listed companies is important. The board should set out clear lines of duties and

accountability in case of corporate risk policy throughout the organization with the

oversight of the top management, the line managers of a company should not be only

responsible for the risk management practices.


The researcher while conducting the present study has taken into account the

following studies:

Sharukh Tara & Sorab Sadri (2015) discussed the case studies of two big companies,

i.e., Enron and Satyam, which failed to succeed in their respective businesses due to their

unethical practices, which were against the governance norms of the country. The debacle

of these two companies were mainly due to wrong corporate culture, the CEO and CFO of

the companies put their own self interest before the interest of the companies, the

malpractices in audit reporting, incorrect financial statements.

Audit Committee Institute (2008) in a poll conducted across various respondents in

India found that there is a weak oversight regarding governance practices in India. It was

also reported that the system of protecting the minority shareholders is yet to be developed

in India, also it is seen that the independent directors are yet to be conferred with powers.

The study also revealed that majority of the board practices are yet to be revived in India.

Andrew Ellul (2015) reviewed the literature on risk management and corporate

governance. It emphasized on the relationship between risk practices and governance

norms in various countries. The study found that that the governance pattern in few

countries were unable to control the risk mechanism. Further suggestions were discussed

as to how the governance mechanisms will be able to control risks in the businesses.

Karatzias Vassileios (2011) discussed risk management against the backdrop of

global credit crisis. The study found that some of the major loopholes in the relationship

between corporate governance and risk management are that risks were often not linked to

the overall business strategies, the Boards of the companies often failed to take risks under

their purview. A study conducted by the Risk Metrics Group found that most of the people

affected by the global crisis believed that inefficient risk management was one of the key

indicators of the crisis.


37

Research Gap

Though it can be seen that numerous studies have been conducted in the field of

risk management and Corporate Governance but most of the studies are related to risk

management practices in companies, risks in banks, comparison of literature on risk

management but very few studies have focused on risk management across various

countries around globe. Thus, the present study is an attempt to fill the gap in the existing

literature and bring to light new observations in this field.


The objective of the present study is to make a review on the corporate governance

framework related to risk management in Singapore, Norway and India.

Methodology of the Study

The present paper is a theoretical study on the given problem. The data related to

the study has been collected from secondary sources i.e. from various books, journals,

reports on corporate governance etc. The countries selected for the study are Singapore,

Norway and India. The countries were selected by the simple random sampling technique.

Risk Management Practices in Singapore

The ownership structure in the companies in Singapore reflects two patterns i.e. the

state owned enterprises and the family owned enterprises. Though the presence of

government linked company tends to be high in the country. The Singapore Exchange

(SGX) comprises of two boards the SGX main board and the catalist.

The corporate governance code for the companies in Singapore was first enacted in

2001 and the laws were revised in the year 2005. In May 2012, the Monetary Authority of

Singapore issued a revised code on Corporate Governance. This code acts as the major

guideline for corporate governance practices in the Singapore listed companies and is

applied on a “comply or applied” basis. The Singapore Exchange (SGX) Listing Manual

requires the companies to explain any deviation from the set codes of governance. Certain

organizations like the financial institutions are subject to more stricter corporate

governance regulations.

The stock exchanges in Singapore have undertaken various measures to enhance

the risk management guidelines. The SGX updated the listing requirements in 2011 to

bring into light the internal control guidelines and the opinion of the board on the

compliance with audit committee and their opinion on operational, financial and

compliance risks. The review of the code in 2012 brought into light the perspective of

integrated risk management and the need for increasing accountability of the board and

management on risk governance.

Regulatory framework for risk management in Singapore

Responsibilities of the board: The Singaporean Corporate Governance code

recommends a unitary structure for the board. Independent directors should comprise at

least one-third of the board. The SGX has fixed the responsibility of the board towards risk

management as mandatory. The new provisions requires the board to give their opinion on


38

the audit committee, matters of internal control and the three areas of risk namely

operational, financial and compliance risk.

Enterprise wide risk management: It is observed that majority of the companies

in Singapore have implemented the Enterprise wide risk Management (ERM) in their

framework though they have not clearly outlined the associated risk related functions. The

Corporate Risk Governance guidelines of the country clearly sets out the main

characteristics of the ERM process namely- the risk management process, the risk strategy

and policy and the organization structure.

Whistle blowing policy: The whistle blowing policy of a company recommends that

appropriate actions are taken against illegal actions being done in the companies. The

policies and their procedures should be reported in the annual reports of the companies.

The KPMG report stated that 95% of the companies in Singapore have whistle blower

policies and they are duly reported in the annual reports of the companies.

Assessment of risk governance in Singapore: Independent assessment of risk

is important for proper maintenance of risk in the long run. The main components involved

in the assessment are:

Internal auditors: The internal reporting system in an organization plays a vital

role in managing the internal monitoring system. The governance code of Singapore also

abides by these laws and realizes the importance of internal monitoring. Therefore, it has

been made mandatory to appoint an internal auditor for auditing functions and they should

report directly to the board.

External auditors: Though there are no statutory requirements that a listed

company have to get their internal audit verified but the Companies Act of the country

prescribes that a good audit being reviewed by external auditors will improve the corporate

governance practices and will help in better risk management in the country. It also

mandates that it is the duty of the auditor to report any accounting fraud that may hamper

the company or the employees of the company.

Risk Management Practices in Norway

Norway’s equity market presents certain distinctive features which makes it an

interesting study for observing risk management practices. Its market is characterized by

a large proportion of public ownership and a limited proportion of private ownership.

Though the duty of risk assessment is entrusted on the board but it is also seen that the

state plays a active role in managing the risk.

The Public Limited Companies Act in Norway do not clearly set out the duties for

risk management but the board is entrusted with certain responsibilities which act as the

torch bearers of risk management. This includes a responsibility that the board of directors

should be at all times informed about the status of the business at all time including it’s

capital management, its liabilities. In addition special mention was made about the audit

committee of a business including internal audit, its role in risk management and external

auditors.


39

The Accounting Act of the country was amended in 2011 and it requires that the

annual report of listed companies should include a corporate governance report. The

Norwegian Code of Practice for Corporate Governance provides the basic guidelines for

interpretation of the broader governance practices. The Code includes 15 major topics and

one of the main topic is risk management and internal control. The code emphasizes that

the company should include sound risk management practices and system of internal

control. There are numerous versions of the Norwegian Code and the risk management and

internal control part was undertaken in the year 2006. The Code was first formed by the

Norwegian Corporate Governance Board.

One aspect in which the Norwegian Code differs from most of the European

countries Code of Corporate Governance is that it does not specify the role of an internal

auditor; moreover it is observed that only around 10% of the listed companies in Norway

have an internal auditor. In Norway, the Corporate Governance Code recommends that the

Boards should be single tier and neither the Chief Executive Officer nor any other executive

should be the member of the board. The amended Code in Norway in 2006 passed a

regulation and implemented it in 2008 that each gender should have at least 40 percent

presence in the Board of Public Limited Companies. This in turn had an effect on risk

management as studies show that boards with better gender equality had a more balanced

risk management procedure.

With regard to reporting by the board, the board of directors according to the laws of

a company must give a full view of their internal control and risk management in the

company’s annual report. The reporting must be done in such a way that it gives a detailed

view of the company’s internal reporting to all the shareholders. A review conducted by EY

in 2012 gave an insight into the fact that though a majority of the companies in Norway are

seen to comply with the recommendations of the code of governance but the compliance

level varies from company to company.

It has also been observed that the CEO has an important role to play in the risk

management practices of Norway. The role of the CEO extends to the establishment of risk

management practices based on the current risks, continuous monitoring of the firm’s risk

and ensuring that the risks are met in accordance with the board practices, proper

documentation of the company’s risks, etc. Most of the companies in Norway establish

Management Co-ordination System to report risks across the company. This system also

brings in the expertise of various persons on managing risks. For example the CFO of a

company may be made responsible for financial risks, the legal officer for matters relating

to compliance with legal matters etc.

Another emerging issue in the Norwegian structure is the growing importance of

corporate social responsibility. Under the Norwegian Accounting Act, companies are

required to report on the social responsibility practices. There has also been a growing

interest among various investors on the issues relating to social responsibility and the

Norwegian companies whether public or private are seen to comply with these provisions.

Assessment of risk in Norway: The Norwegian companies are expected to report

on the issue of risk annually and show the reporting standards on the financial statements


40

as well. The role of the external auditors and shareholders on this issue are discussed

below:

External auditors: In the Norwegian Code the external auditor has an important

bearing on the risk management practices and they must participate in all the annual

meetings of a company. The auditor must also show his findings in the annual report and

should hold routine meetings with the audit committee. There should also be a provision

that the auditor should hold at least one meeting with the board in which no one from the

executive body should be present.

Shareholders: The role of the shareholders in risk management is a matter of

debate as the state as a shareholder takes active interest in risk management practices but

the same cannot be said of the other shareholders as few of them may have questions on

the risk practices particularly those with long term interest on the company and few others

may not have any sort of interest on the risk practices.

Risk Management Practices in India

The regulatory framework in India recognizes the importance of the Board in

decisions regarding risk management. The issue of risk management has been issued by

experts since the early 2000’s. The Narayan Murthy Committee Report in the early 2000’s

included an detailed discussion on risk management wherein it stated that it is important

for company boards to be aware on the topic of risk management.

The Companies Act 2013 emphasized the importance of risk management and

identification of various risk by the companies. But it does not mandate the companies to

set up a separate Risk Management Committee. Section 134(3) (n) of the Act requires that

the board must include a statement that indicates the development of a risk management

policy and identification of various risks therein. Section 177(4)(vii) of the act entrusts the

audit committee to assume the responsibilities of a risk evaluator.

The SEBI listing Regulations 2015 states that one of the main responsibilities of the

board is to analyze that the company’s risk management policies are in place. It also

requires the top 100 companies determined by market capitalization to set up a risk

management committee.

The Committee of Sponsoring Organisations of the Treadway Commission (COSO)

in 2009 released an Enterprise Risk Management review which states that the members of

a Company’s Board must understand the risk philosophy of a company, must review the

company’s risk portfolio and must understand the most significant risks faced by a

company and whether the members of a company significantly dealing with them. India too

is one of the countries following the COSO recommendations, though the form of follow up

may vary from company to company.

Findings

The researcher in the current study went through the practices of three countries

i.e. Singapore, Norway and India. The study revealed that though the composition in the

board varied from country to country as it was seen in Singapore there were more family

businesses as compared to Norway where state- owned enterprises dominated but the root


41

of risk management remained the same in all the three countries. All the three countries

related risk management as a part of governance norms of the country and the Boards of

the companies were entrusted with responsibilities of maintaining proper codes of risk

management. The audit committee played a central part in the risk practices of the country

and it was entrusted with the key role of managing these practices both the internal and

external auditors. In India, it was seen that the Companies Act 2013 and the SEBI listing

Requirements 2015, came up with new clauses as to how to manage risks in the business.

Conclusion

Risk in business is one of the key components that determine the fate of the

business. If not taken into account properly this might have a long term impact on the

business. Though the manner in which risks are tackled in various countries differ but the

main aim in all the countries around the globe is to keep at bay. It is seen that the strength

of the governance practices defines risk in business and thus all the countries as well the

authorities concerned with framing the policies should build a strong base for mitigation of

risks.

References

A.Ellul (2015). The role of risk management in corporate governance. Kelly School of Business, Research Paper No. 15-81.

Audit Committee Institute (2008). The state of corporate governance in India- A poll. KPMG India.

OECD (2014). Risk management and corporate governance. OECD Publishing. http://dx.doi.org/10.1787/9789264208636-en (Accessed on 24-05-2018)

Taleb N.N. (2007). The black swan: The impact of the highly improbable. UK: Penguin Publication.

Tara S., & Sadri S. (2015). Corporate governance and risk management: an Indian perspective. International Journal of Management Science and Business Administration. 1 (9), 33-39.

Vassileios, K. (2011). The relation between corporate governance and risk management during the credit crisis: The case of financial institutions, MIBES, 145-156.

www.icaew.com/technical/corporate-governance/risk-management (accessed on 25-05-2018)

*****


42

A study of Consumer Awareness and Perception towards Green

Marketing in Bongaigaon Town, Assam

SHUBHANKAR NATH*

Abstract

As the world’s economy is rapidly developing, the global environment is

increasingly deteriorating. Protecting environment, creating a safe living

environment has become one of the most important concerns of consumers. Green

marketing generally aims to promote environmentally friendly products and a safe

environment where people could stay. There has been a change in consumer

attitudes towards a green lifestyle. People are actively trying to reduce their impact

on the environment. However, this is not widespread and is still evolving.

Organizations and business however have seen this change in consumer attitudes

and are trying to gain an edge in the competitive market by exploiting the potential

in the green market industry. Customer’s attitudes are changing towards the

environment to encourage innovation for conservation and the benefits from this

source of innovation are certain to outlive our current generation. The current study

introduced the concept of green marketing and looks into the various ways in which

the different consumer attributes are related to the concept of green marketing A

structured questionnaire with a five point balanced Likert scale for measuring

consumer attitude towards green marketing has been used. This study based on

analytical and description in nature. The data have been collected primarily

through both questionnaire and schedule method from the respondents are

tabulated and analyzed into logical statements using percentage; mean score

analysis for finding the perception and awareness of people regarding the Go green

concept in semi-urban areas, i.e., Bongaigaon Town, Assam.

Keywords: Awareness, Perception, Green Marketing

JEL Classification: M31

Introduction

Today the concept of sustainability is almost ubiquitous by showing application in

corporate strategy, consumer choice, student education and academic research. The need

for sustainable business practices by corporations around the world is identified to be a

result of overall increase in the consumer awareness of lack of environmental protection

and social inequities. Over the last decade environmentalism has emerged to be a vital

aspect due to increasing issues related to acid rains, depletion of the ozone layer, and

degradation of the land and many more pressing environmental issues. Successful

* Ph.D. Research Scholar, Department of Commerce, Assam University Diphu Campus, Diphu, Assam Email: [email protected]

A study of Consumer Awareness and Perception towards Green Marketing in Bongaigaon Town, Assam

43

marketing has always been about recognising trends and positioning products, services and

brand in a manner that supports buyer intentions. "Green" marketing has moved from a

trend to a way of doing business and businesses that sell should recognise (a) the value of

going green and (b) incorporating this message into their marketing program and

communicating the green concept to their consumers. According to the American Marketing

Association green marketing is the marketing of products that are presumed to be

environmentally safe. At present, green marketing is widely becoming a phenomenon

throughout the world as concerns towards environment have begun in the past few decades.

Compared to consumers in the developed countries, the Indian consumer has much less

awareness of global warming issues. Green is slowly and steadily becoming the symbolic

colour of eco-consciousness in India. The growing consumer awareness about the origin of

products and the concern over impending global environmental crisis there are increasing

the opportunities to marketers to convince consumers.

Phase of green marketing

First phase was termed as “Ecological” green marketing, and during this period all

marketing activities were focused to help environment problems and provide remedies for

environment problems. Second phase was “Environmental” green marketing and the focus

shifted on clean technology that involved designing of innovative new products, which take

care of pollution and waste issues. Third phase was “Sustainable” green marketing. It came

into prominence in the late 1990s and early 2000. The need of the green marketing can be

stated as follows:

In the recent times issues like global warming and depletion of ozone umbrella

which are detrimental for healthy survival has cropped up.

Every person rich or poor is interested in quality life full of health and vigor.

Financial gains and economic profit are the main aims of any corporate business.

But harm to environment at the cost of sustainable business across the globe is

realized now through off late.

This sense is building corporate citizenship in the business class. So green

marketing by the business class is still in the selfish anthological perspective of long

term sustainable business to please the consumer and obtain the license from the

governing body.

Industries in Asian countries are catching the need of green marketing from the

developing countries but still there is a wide gap between their understanding and

implementation.

Profile of the Study Area

Bongaigaon, one of the important cities in the state of Assam of India, spans

across Bongaigaon and Chirang district. The city is one of the biggest commercial and

industrial hubs of Assam and North-East India. Bongaigaon also acts as the gateway

of North-East Frontier Railway Zone with its New Bongaigaon Junction railway station,

the second biggest railway station in North-East India. Bongaigaon is the administrative

headquarters and municipal board of Bongaigaon district.

https://en.wikipedia.org/wiki/Assam

https://en.wikipedia.org/wiki/Bongaigaon_district

https://en.wikipedia.org/wiki/Chirang_district

https://en.wikipedia.org/wiki/Assam

https://en.wikipedia.org/wiki/Northeast_India

https://en.wikipedia.org/wiki/Northeast_Frontier_Railway_zone

https://en.wikipedia.org/wiki/New_Bongaigaon_Junction_railway_station

https://en.wikipedia.org/wiki/Northeast_India

https://en.wikipedia.org/wiki/Bongaigaon_district

Shubhankar Nath

44

It was the last capital of the Kamatapur Kingdom and home to many historical

monuments of Assamese culture. The city, divided into two parts – Old Bongaigaon and

New Bongaigaon - is situated 180 kilometres north west of Guwahati, largest city of Assam.

The Bongaigaon Town Committee was first constituted in the year 1961 and was upgraded

to a Municipal Board in the year 1977. Presently, the Municipal Area consists of 25 nos. of

wards covering an area of 14.31 sq m. The population of the city is 109,810 with density

7,800/km2 .There are many departmental stores and shopping malls etc. have established

and others malls have been growing from last 2 to 3 years.


Green marketing is applied to consumer goods, industrial goods and even services

like eco-tourism. Companies that develop new and improved products and services with

environmental impacts in mind give themselves access to new markets, substantially

increase profits and enjoy competitive strategies over those marketing no environmentally

responsible alternatives. The main problem in green marketing is that firms should ensure

that their activities are not misleading the consumers. Green marketing claims should

always be genuine and state the environmental characteristics and benefits. Competitive

pressures and increased costs are some of the other problems (Singh 2008). Green

marketing means greening products as well as greening firms and it has examined issues

such as what needs to be greened (products, systems or processes), why consumers

purchase / do not purchase green products and how firms should think about information

disclosure strategies on environmental claims. Consumer apathy to green products is due to

many factors, including scarce information about levels of greenness, lack of credibility of

firms’ claims and the tendency to free ride. Firms should not advertise products’

environmental benefits unless such claims can be credibly substantiated (Prakash 2002).

Consumers with high involvement and high perceived consumer effectiveness will display

highest levels of attitude-behaviour consistency (Intentionally green consumers). Those

with low involvement and high perceived consumer effectiveness will display high levels of

attitude – behaviour inconsistency (Idealist consumer). Consumers with low involvement

and low perceived consumer effectiveness exhibit high levels of attitude-behaviour

consistency (Accidental purchase). Those with high involvement and low perceived

consumer effectiveness will display high levels of attitude-behaviour inconsistency towards

green product (Gupta & Ogden 2006). The present trends of green marketing in India,

described the reason why companies are adopting it, future of green marketing and has

concluded that green marketing is something that will continuously grow in both practice

and demand. The need for standardisation and authenticity, lack of awareness, lack of

patience and perseverance on the part of the marketers who expect immediate results were

found to be the major challenges of green marketing. Customers are becoming more

demanding and they have started to pay more attention to the environment. What is

important with brands is how customers perceive them and what the image of the brand is.

The aim of this study is to find out how consumer behavior is influenced by green

marketing by companies (Roy 2013).

https://en.wikipedia.org/wiki/Kamatapur_Kingdom

https://en.wikipedia.org/wiki/Guwahati


45


1. To examine the awareness, perception and importance of green marketing among

the Customer of Bongaigaon town.

2. To exhibit the perception related to factors stimulating purchase of green products

and purpose of using green products.


The present study is analytical and descriptive in nature. The data have been

collected primarily through both questionnaire and schedule from the respondents at

various places like shopping mall, departmental stores, and also local market in

Bongaigaon town. The sample size of the present study is 84. A structured questionnaire

with a five point balanced Likert scale for measuring consumer attitude towards green

marketing has been used.

Data Analysis

Table 1: Awareness & Perception of Green Marketing among the Customers

SL

No. Factors

Percentage of Respondent Mean

Score SA A N D SDA

1. Aware of Green Marketing 63 17 12 5 3 4.32

2 Believe in the concept of green

marketing 59 15 13 9 4 4.16

3 Aware about the benefits of using green

products 57 12 5 17 9 3.91

4 Productivity can be improved drastically

by using green product 53 14 9 16 8 3.88

5 Companies are unwilling in

implementing green marketing concept 52 22 6 9 11 3.95

6 Government should take initiative in

making companies to go green 48 32 5 10 5 4.08

7 Huge Investment is required to develop

green product 38 43 8 4 7 4.01

8 Interested to know about green

marketing 69 19 3 5 4 4.44

9 Difficult for all companies to produce

green product 62 21 6 4 5 4.29

10

Green marketing is not only for green

products it’s all about go for

environment cleanness, health safety

and etc.

67 21 3 6 3 4.43

Note: Strongly Agree (5) = SA ; Agree (4) = A ; Neither Agree or Nor Disagree (3) = N; Disagree (2) =

D; Strongly Disagree (1) = SDA Source: Based on Field Survey

Shubhankar Nath

46

The data collected from the respondents are tabulated and analyzed into logical

statements using percentage, mean score analysis. The data are tabulated and analyzed

graphically with the help of MS Excel 2007.

Interpretation of Table 1 clearly depicts that Respondents said strongly agree that

they believe in the concept of green marketing as the computed mean score is 4.32 and also

infer consumers do have a strong belief about green marketing. Respondents Strongly

Agree about the awareness of companies going green as the mean score is 3.95. This

implies that consumers keep eye on the companies going green. That Respondents strongly

agree that there is an advantage of green products as the mean score is 3.91. Respondents

strongly agree that the productivity can be improved drastically by using green marketing

as the mean score is 3.88. Respondents are of the view that green marketing can improvise

on productivity. From the above table it cleared that customers have some good perception

on Government for taking initiative on Green Marketing.

Table 2: Multiple Responses of Consumers on Stimulating Factors towards the Purchase of Green Products

Stimulating Factors Response

Rank N %

Price 79 16.29 I

No chemical ingredients 40 8.25 VIII

Not polluting the environment 53 10.93 VI

Minimal package 72 14.85 III

Natural ingredients 55 11.34 V

Recycled/ Reusable 66 13.61 IV

Brand name 75 15.46 II

Convenience 45 9.27 VII

Total 485 100.00 -

Source: Based on Field survey

Table 2 explains the composition of multiple responses of the people of Bongaigaon

Town with regard to the various stimulating factors which induce people to purchase green

products. Based on the cumulative score of all the eight factors, two factors, namely, price

and brand name stand first and second in the ranking and hence these factors seems to be

the most important in stimulating people for the purchase of green products. Another three

factors, namely, minimal package, Recycled/Reusable and natural ingredients ranked third,

fourth and fifth respectively in motivating the people for purchase of green products. It can

be concluded that certain brands are getting established in the market which attract the

people and create awareness of green products among people. The researcher concludes

that the price of green products is comparatively higher than the non green products, which


47

naturally instigate the people to believe in the purity and hygiene of the products. Moreover

it also motivates them towards both purchase and usage of these products in the study

area.

Findings

1. Consumer’s Values/Beliefs, Attitudes towards Environmentally Friendly

Products: No one strongly disagree, where three-forth of the respondents strongly

agree that they would choose echo friendly brands. Respondents reacted positively

about buying brands which are less damaging to environment However; the

expectation of the customer is not away from the effective functioning of green

brands as that of non green products.

2. Consumer Awareness: Majority consumers expressed that identifying

environmentally products on the shelves of the store is slightly difficult. When

asked, majority of the respondents are unable to name a specific product or product

type which are eco-friendly. This speaks about the consumer unawareness of green

brands.

3. Efforts of Marketing: Marketing plays a pivotal role in bringing consumer

awareness. As the response show consumers would be more likely to choose

environmentally friendly brands and were unable to recall green products/brands.

This speaks about the gap in marketing effort put by the green marketers in

bringing consumer awareness.

4. Trust and Product Performance: Survey reveals that the green product

performance was significantly affected by environmental beliefs. Further, it is

expressed by as large as of the respondents that they are likely to trust well known

products and judge green products basing on their previous experience.

Conclusion

Given India’s rapid GDP growth rate and the highly negative environmental

impact, demand for eco-abeles products may create the necessary consumer pressure to

ensure a cleaner environment. This study confirms the existence of an environmental

value-action gap, a gap between consumers’ beliefs and behaviors over being green. This

paper has highlighted awareness and perception of green Products and market for Pro-

environmental values are more likely to result in more pro-environmental behavior when

values and beliefs are specific enough, the green action aligns with consumers’ subjective

interests, and product attributes are positively perceived. A major barrier in the purchasing

of green products is: concern over whether the product will perform as expected. However,

consumers generally trust the performance of well known brands, so green products that

work well and do not make over inflated green claims could sell successfully under well-

known brands. The current low levels of consumer awareness about global warming, India’s

brands need to help raise consumer consciousness. Indian manufacturers have yet to find a

market for green products, even as consumers have a low awareness of them because of the

insufficient efforts made by the marketers. But, by embracing the green imperative, and

investing in green initiatives and consumer education, Indian brands can break this vicious

Shubhankar Nath

48

cycle. Overall, it is clear that the Bongaigaon market for greener products is under-

exploitation by marketers within consumer groups with pro-environmental values. This

finding suggests that there has customer they have well known about green marketing and

green product for greater use of marketing brands to buy green products that are genuinely

environmentally friendly in Bongaigaon Town. It seems that people who belong to the

service category among occupation are more aware and willing to buy eco-friendly products.

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Sophisticated Strategic Marketing Approach. AMA Winter Educators’ Conference

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reference to West Bengal (India). International Journal of Behavioral Social and

Movement Sciences, 2 (1), 44-55.

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www.epa.qld.gov.au/sustainable_ industries

www.google.com

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www.greenpeace.org/international

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49

Low Cost Branding Techniques for Entrepreneurs:

A Conceptual Outlook

BHARTRIHARI PANDIYA*

CHANDRA KANT UPADHYAY†

ARIJEET DAS‡

Abstract

A report of The National Association of Software and Services Companies

(NASSCOM) has highlighted that India will have around 10,000 start-ups by

2020. This is a huge figure in terms of number of entrepreneurs but also poses a

challenge to the young innovators to flourish in today’s cut throat competition and

grow not only in India but expand in foreign lands too. They will require

recognition and identity for their growth along with trust. Branding can be a big

boon to these start-ups as they will grow gradually from unknown entities to trusted

bigger organizations. There are various techniques which a start-up can adopt for

starting its branding and promotion to be known in the market and to its

stakeholders. Few strategies which can be adopted are co-sponsoring an event with

relevant partners, trying out reaching to targeted audience and offering a sample of

their products or services so that they can have an idea of it and give their feedback

on social media. Likewise, the branding strategies should be of low cost such that

they can be adopted as dearth of finance is evident in such organizations. Also the

medium of promotion should be permeating to maximum levels such that

maximum prospective customers can be targeted.

Keywords: Branding, Entrepreneurship, Social Media, Marketing

JEL Classification: D23; M30; M37; L26

Introduction

“India has emerged as the third largest start-up base and such ventures are poised

to grow 2.2 times to reach 10,500 by 2020 despite a perception that the ecosystem in the

country has slowed down in the last year. India is in the third position just behind US and

UK, and nearly 1,400 new startups are expected by end of 2016, up by 8-10% from last

year”(Indian Startup Ecosystem Maturing - 2016 report by NASSCOM-ZINNOV).

A brand is a name, phrase, symbol, shape or a combination of all which presents the

goods of a manufacturer or sellers, and is used to distinguish it from others’ goods (Kotler

and Armstrong, 2008). Branding strategy initiates how the firm chooses to use branding as

*Research Scholar, Department of Management Studies, IIIT Allahabad, Email:[email protected]

† Research Scholar, Department of Management Studies, IIIT Allahabad, Email: [email protected]

‡ Research Scholar, Department of Commerce, Assam University, Email: [email protected]

Low cost branding techniques for entrepreneurs: A conceptual outlook

an integral part of its overall marketing strategy. In a sense, branding is simply another

dimension of marketing strategy. To the consumer, a brand name is a means of

identification of the product as well as means of differentiation of the branded product from

its rivals.

The brand name is the centre around which the entire marketing mix is built up.

The brand name can incorporate all marketing efforts together either in consumers’ mind

or in the marketing program. Branding simplifies control of the commercial process. It

gives necessary advertising and promotional support in order to make the product

recognizable and to create consumer patronage. Brand formation should be emphasized for

the entrepreneurs to achieve competitive advantage which elaborates the long term impact

that an innovative entrepreneurial brand can make. Entrepreneurs implement brand value

to assure their innovations in the market and mitigate the competitor’s threats. Brand

value which is presented in the market by the enterprises brings the subject brands great

profitability along with them and strengthens their position in the market. Brand is one of

the basic marketing instruments to create this differentiation.

In terms of vertical growth, investors are looking at domains like health-tech, fin-

tech, and edu-tech. With a total funding of approximately $4 billion, close to 650 startups

were funded signifying a healthy growth of the ecosystem. The number of tech startups in

India is expected to grow by 10-12% to over 4,750 by the end of 2016. With this impetus,

India will become home to over 10,500 startups by 2020, employing over 2,10,000 people

and ushering in a new era of revolution (Indian Startup Ecosystem Maturing - 2016 report

by NASSCOM-ZINNOV).

Objectives of the study

1. To know latest techniques of mass communication.

2. To suggest low cost branding techniques for entrepreneurs.

Research methodology

The paper is descriptive, explorative and theoretical in nature. In the present study,

various research articles, news articles, business journals and various reports have been

reviewed.

Review of literature

Mukolwe and Korir (2016) initiated a study to explore the benefits of using social

media for women online entrepreneurs, to find out the challenges of using social media

faced by women online entrepreneurs and examine the social media strategy that can be

implemented by women online entrepreneurs. The study was made in Kenya. The

researcher concluded that the policy makers of the country must provide favorable internet

rates and must encourage e-business policies which would ultimately favors the growth of

SME industry.

Gundala (2014) undertook a study to know how brand is managed across SMEs in

UAE, what is the owner-managers attitude towards brand building and what are the

barriers for building a strong brand. The research found that a large number of small and

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medium enterprises do not practice branding strategies and most of the respondents believe

that incorporating branding strategies are insignificant for success of the SMEs.

Szabo, et.al. (2011) researched on the role of knowledge in entrepreneurial

marketing. The objectives of the study was to explain how two sources of knowledge i.e.

know-how and know-who influence the use of innovative techniques and their impact on

competitive advantages. It was found in the study that while conventional markets use the

traditional market research to adapt to the environment, entrepreneurial marketers rather

build on experience, immersion, and intuition for making their decisions.

Leighton and Bird (2012) carried out a study to know the impact of reduced

branding on consumers choice, when branding on packaging is reduced how does the

influence decision making, the impact of increased non-branded information on consumer

choice. The study found that reducing the branded elements displayed on packaging has a

detrimental effect on consumers’ ability to find and choose the brands they are looking for.

Need for branding in entrepreneurship

The challenges are many in case of managing a new venture. It’s not an easy ride

for the startups as they have to manage the finances and marketing simultaneously. The

present scenario of the Indian startups is that they are very good in technology but lack in

the user interface/user experience area. New companies have to pay thousands a month in

team salaries, office-leasing fees, raw materials and other ongoing operational costs, all

while struggling to secure enough revenue to stay afloat. They are caught in this dire

financial balancing act and as a result most entrepreneurs end up abandoning investments

they come to view as superfluous, such as marketing and advertising. The cruel irony is

that neglecting marketing altogether stifles a business’s growth, leaving it less revenue to

collect and forcing it into an even more restrictive budget. With roughly an estimated 80

percent of entrepreneurs having no idea of how to measure a marketing strategy’s

effectiveness, it’s no wonder why marketing is so quick to get the ax.

The major area where they lack and struggle the most is getting customers, holding

on to the customers, analyzing the customer behavior.

Thus, branding to some extent and marketing the products and services can help

the entrepreneurs to mitigate the issue of customer identification and attracting the

prospective customers. The strategies should be of low cost and easy to adopt. Many well

known companies, like Apple and Flipkart were unknown since their inception days. But

the vision and planning of the entrepreneurs was the burning oil which kept the flame

burning.

Entrepreneurs need to attract investors, good partners and suppliers, employees

and optimum number of customers initially early on. In doing such promotional activities

each time the portrayal of the product through words or action helped in creating a brand.

Gradually they attracted investors on the basis of the robustness of their business model

and their products or services. Simultaneously, a brand is formed in accordance with their

growth. Their employees were the internal customers and were equally responsible for the

positive word of mouth to spread the goodwill of the company.


Low Cost techniques

Effective marketing doesn’t have to cost a lot of money. Higher-budget marketing

strategies might bring more visibility and consistency in their eventual returns but there

are plenty of highly effective and low-cost marketing strategies which can help the startup

to grow. Few of them are discussed here:

1. Referrals: One of the best ways to market is to avoid marketing altogether;

instead, create a system that lets customers do the marketing. It is a fact that

people are four times more likely to buy a product when it’s referred to them by a

friend. Despite tech publication reviews, we still trust personal recommendations

more than anything else. Establishing a referral program doesn't cost much, and

depending on how you structure it, might be entirely free. Offering your current

customers a discount on their subscriptions in exchange for referring a new

customer, or offer a cash reward. Getting word to your customers in this manner

might help.

2. Content Marketing: Content marketing takes many forms, but none require

significant investment. The simplest approach is to manage an on-site blog, adding

new content a few times a week that informs or entertains your readers in some

unique and practical way. Info graphics, videos and podcasts all belong to the

content-marketing category as well. All these content mediums have the power to

improve the brand reputation, increase inbound traffic and complement multiple

other strategies.

3. Search Engine optimization: Some of the businesses involve spending time

writing articles for the content-marketing campaign, entrepreneurs might as well

invest in improving your search engine optimization (SEO). Making structural

changes might be required, writing consistently high-quality content and attracting

back links to the domain. It’s a lot of work, but if it is done by one then only cost will

be time which is worth it, because the long-term benefits are enormous. Pay-per-

click ads can get expensive if you’re targeting high-traffic head keywords, but there

are niches and platforms that are friendly even to the most budget-conscious

startup entrepreneur.

4. Social media marketing: Social media marketing isn’t something you can do

casually, but it is freely available, and it’s something you can master if investment

is made on time. Entrepreneurs can start by establishing profiles for the

business on major platforms like Facebook, Twitter and Instagram. The profiles can

be flashed out on these platforms and start syndicating content that your target

market would like. An attempt can be made to reach out to the individuals, and

make sure to stay connected. In very less time the business can grow an audience of

thousands, representing an anchor stream of traffic to the site.

5. Forums and groups: An entrepreneur should not underestimate the power of

gathering on public forums and social media groups. Question that can be answered

with the expertise of the entrepreneur and this makes his presence felt or catching

the venue of a local event can help to use to promote the business. The more

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involved an entrepreneur is with his/her respective communities, including the local

neighborhood as well as the broader industry, the more chances to gain. Best of all,

it usually doesn’t cost anything to become a member of these communities, so he/she

can reap the benefits with nothing more than a few hours of time.

6. Impression: Startups often scrimp on marketing elements, and it is much better to

do less and spend more to make a good first impression. Also, many companies put

the cart before the horse and focus on tactics before strategy. Understanding the

value proposition and ensuring everything does connect back to that core. Also, it

should be ensured that the tactics are high-value and look professional.

7. Care of existing customers and appropriate feedback: The least expensive way

to get the word out about your brand is by focusing on the existing customer’s

experience. It is an irony that many companies don’t put customers first. When

customers feel well-taken care of, they tell others about your company. Customer

testimonials and referrals that are genuine get more attention than anything else.

8. Conducting a quick and low cost pilot survey: It’s critical to create a marketing

plan before moving on to tactics. And the first step in developing a marketing

plan is to understand who the target customers are and what they want from your

company. A good way to gain a better understanding of your customers is to conduct

a survey about your products or services. If it is tough to afford to hire a research

company, it can be done on own by creating a short questionnaire and recruiting

existing and prospective customers to participate.

9. Creating Media stories: A media story about the company is generally much more

valuable than an advertisement because of the credibility it confers on the business.

But getting journalists is not an easy task but something new and compelling or

grueling can attract them. Innovative product, unusual customers or any other

gimmick can help to attract the media as their role is very crucial.

10. Physical marketing: The office premises, the surroundings, the vehicle associated

if any, area nearby can be the places where the billboards or banners. They should

aim what is being sold not about the company. The space in and around should be

used for presenting the product or services such that the people around can see and

get an idea of it.

Stages in creation of entrepreneurial brand

The process of creating entrepreneurial brand requires specific attention. In this

aspect, it is possible to handle the related process in 5 stages (Crane, 2010):

1. All possible branding choices consider the customers, competitors and all

entrepreneurs. By this way, choosing the most appropriate brand should be the best idea

which puts forth the strengths, meets the customer needs and creates competition

opportunity.

2. While linking the brand with benefits the customers seek in goods and services

gradually making a brand positioning in a way to touch the hearts and minds of the

customers on the other side.


3. Constituting the name and identification of the brand within the framework of

the strengths of the enterprise which are believed to be valued by the customer or within

the framework of the strengths of the goods and services and while doing this, preferably

regarding the suggestions and feedback of the customers.

4. Conniving a brand communication strategy which shall transmit a continuous

and stable message on the brand.

Conclusion

It is mostly the case that starting a business is usually the result of a personal

dream or need. Investors tell that they invest in people, more than the idea. Customers buy

from people, not from a company, at least at the startup stages. That’s why, it is important

to build a personal brand, in parallel and before your business brand. This will kick-start

the business, and improves odds of success. Entrepreneurship and branding are closer to be

science as it can be applied. Being a brand entrepreneur requires learning and is an ever-

changing art without easy formulas.

An entrepreneur these days can’t afford to hide behind an impersonal website or

hole up in the corner office. Social media such as Facebook, Twitter, and blogs, connect your

customers to one another, and you, twenty-four hours a day, seven days a week. If this is

not taken in charge of by the entrepreneur, someone else will grab the opportunity and they

are not likely to brand you in the way you want to be branded. Every business wants to be a

customer's first choice. Building and managing a brand can play a significant part in

making that happen. The concept of a brand extends far beyond just the company’s logo or

business' core values and to every interaction the organization has with customers and

suppliers. In effect, brand creates and maintains the reputation and so reflects

customers' experience of the organization. Customers and employees can build up

emotional attachments to certain brands, allowing for strong loyalties and even a sense of

ownership. This can help maintain employee motivation and increase sales but it can also

cause problems if these stakeholders are not consulted as your business grows.

An entrepreneurs brand is what it is really selling to customers, not just a product

or service for which there may already be many existing providers. A strong brand can

make any business stand out from the crowd, particularly in competitive markets. Thus

these low cost techniques can help the entrepreneurs to grow gradually and lay their

imprint in the marketplace.

References

Crane, F. (2010). Marketing for entrepreneurs: Concepts and applications for new ventures,

Thousand Oaks. California: SAGE Publications, 125-127.

Gundala, R.R (2014). Brand management in small and medium enterprise: Evidence from

Dubai, UAE. Global Journal of Business Research, 8 (1).

Indian Startup Ecosystem Maturing (2016). Nasscom-ZINNOV.

Kotler, P. (1971). Armstrong Social Marketing: An Approach to Planned Social Change.

Journal of Marketing, 35 (3), 3-12.

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Leighton, J. & Bird, G. (2012). The effects of branding on consumer choice. Mountainview

learning teaching brain science to business, 1-27. Retrieved from:

http://www.packagingfedn.co.uk/images/reports/The%20Effect%20of%20Branding%

20on%20Consumer%20Choice.pdf.

Mukolwe, E. & Korir, J. (2016). Social media and entrepreneurship: Tools, benefits, and

challenges. A Case study of women online entrepreneurs on Kilimani Mums

marketplace on Facebook. International Journal of Humanities and Social Science,

6 (8), 248-256.

Szabo, R.Z., Hortovanyi, L., Tarody, D.F., Ferincz, A. & Dobak,M. (2011). The role of

knowledge in entrepreneurial marketing. International Journal of Entrepreneurial

Venturing, Inderscience Enterprises Ltd, 3 (2), 149-167.

https://www.forbes.com/sites/martinzwilling/2012/06/16/entrepreneurs-need-to-brand-

themselves-first.

https://www.bdc.ca/en/articles-tools/marketing-sales-export/marketing/pages/7-low-cost-

tactics-business.aspx.

www.blackenterprise.com/branding-techniques-for-your-small-business/

www.entrepreneur.com/article/297515

www.sheownsit.com/free-or-low-cost-branding-strategies-for-creative-entrepreneurs

*****

https://ideas.repec.org/a/ids/ijeven/v3y2011i2p149-167.html

https://ideas.repec.org/a/ids/ijeven/v3y2011i2p149-167.html


56

Role of Micro, Small and Medium Enterprises (MSMEs) in Indian

Economy

Dr. MD. SAFIQUL HASSAN*

Abstract

In India role of micro, small and medium enterprises (MSMEs) in the economic

and social development of the country is well recognised. MSME sector is a nursery

of entrepreneurship, often driven by individual creativity and innovation. This

sector contributes 37.54 per cent of the country’s GDP, 37.33 per cent of the

manufactured output and 40 per cent of total exports. The MSME sector has

provided employment to about 117 million through 51 million enterprises. The

study found that MSME sector has made significant role in overall development of

the country.

Keywords: MSMEs, Employment, Production, GDP

JEL Classification: L26, L32, L53

Introduction

Small Business development as an issue has become more increasingly important in

recent years in both developed and developing countries (Ray & Hutchinson, 1983).

Substantial money and energy world-wide has been invested in support services for the

small and mid-sized enterprises (SME) sector, as interest has grown in the development

small enterprises (Bolton Committee, 1971; International Labour Organisation, 1992). The

attention and significance of micro-enterprise development among economic architects and

international assistance agencies stem from the need for more direct assistance to the

reduction of poverty (Neck, 1977).

During the struggle for independence in India, Mahatma Gandhi-“Father of the

Nation” has been keen on the protection and expansion of traditional, mainly rural,

household enterprises. Another stand of thinking has been shaped by the report of the Ford

Foundation team (Government of India, 1954) which emphasised the role of modern small-

scale units as an industrial structure.

MSMEs provide immediate large scale employment; they approach a method of

confirming a more equitable distribution of the national income and they facilitate an

effective mobilization of resources and skill which might otherwise remain unutilized. Some

of the problems that unexpected urbanization tends to create will be avoided by the

establishment of small samples of industrial production all over the country (Planning

Commission, Second Five-Year Plan,1956-61).

*Assistant Professor, Ananda Chandra College of Commerce, Jalpaiguri, West Bengal, Email: [email protected]


57

Micro, Small and Medium Enterprises (MSME) sector has appeared as a highly

promising and dynamic sector of the Indian economy over the last five decades. This sector

plays very important role by offering large employment opportunities at relatively lower

capital cost than large industries as well as helps in industrialization of rural & backward

areas, to reducing regional disparities, promising more equitable distribution of national

income and wealth. MSMEs serving to fill out large industries as ancillary units and this

sector contribute immensely to the socioeconomic development of the country. This sector

contributes 37.54 per cent of the country’s GDP, 37.33 per cent of the manufactured output

and 40 per cent of total exports. The MSME sector provides employment to about 117

million persons through 51 million enterprises. In the MSMEs labour to capital ratio and

the overall growth is much higher than in the large industries. MSMEs are more evenly

distributed in different geographic parts of the nation. Thus, MSMEs are important for the

national growth objectives that are ‘inclusive economic growth’ (Annual Report 2015-16,

Ministry of Micro Small and Medium Enterprises, Government of India).

By using comparatively low capital investment, higher employment opportunities

and ample official support, the small-scale sector maintained its growth trend in the pre-

reform period. Importance of MSMEs has not been undermined in the post-liberalization

era and even in the Ninth Five-Year Plan (1997-2002) document, it has been agreed that:

The small sector has become matured and is in a position to make a much larger

contribution to the national economy as well as can face the challenges of large industry,

including multinationals.

Ragunathan (1988) opined that the Industrial Policy Resolution of April 1948,

rightly found the small scale industries as being “Particularly suitable for the better usage

of local resources and for the accomplishment of local self-sufficiency in respect of certain

types of necessary consumer goods like food, cloth and agricultural equipment”.

Definition of MSMEs as per the MSME Development Act, 2006

Presently in India, micro, small and medium enterprises as per the MSME

Development Act, 2006 has been defined based on their investment in plant and machinery

(for manufacturing enterprise) and on equipment’s for enterprises providing services. As

per this act the Micro, Small and Medium Enterprises (MSME) are classified in two Classes

these are as follows:

Manufacturing Enterprises: The enterprises engaged in the manufacture or

production of goods relating to any industry specified in the first schedule to the industries

(Development and Regulation Act, 1951). The Manufacturing Enterprise is defined in terms

of investment in Plant & Machinery.

A micro enterprise is an enterprise where investment in plant and machinery

does not exceed Rs 25 lakhs.

A small enterprise is an enterprise where the investment in plant and

machinery is more than Rs 25 lakh but does not exceed Rs 5 crores.

A medium enterprise is an enterprise where the investment in plant and

machinery is more than Rs 5 crores but does not exceed Rs 10 crores.


Service Enterprises: The enterprises involved in providing or execution of services

and are defined in terms of investment in equipment.

A micro enterprise is an enterprise where investment in equipment does not

exceed Rs 10 lakh.

A small enterprise is an enterprise where the investment in equipment will be

more than Rs 10 lakh but does not exceed Rs 2crores.

A medium enterprise is an enterprise where the investment in equipment will

be more than Rs 2crore but does not exceed Rs 5 crores.

Objective of the study

To analyse the performance of Micro, Small and Medium enterprises (MSMEs) in

India with respect to growth of total working MSMEs; employment generation; investment

in fixed assets; gross output; contribution to country’s GDP and contribution to

manufacturing output.


The study is based on secondary information, which has been collected from various

annual reports of MSMEs and SSI. Further, information has also been collected from

different issues of Economic Survey, Government of India and Handbook of Statistics on

the Indian Economy, RBI. In the present study data from 2001-02 to 2014-15 have been

considered. The collected data has been presented in tabular form and for lucid

presentation, graphs have been used.

Analysis and Interpretation

Number of working MSMEs: The small-scale industrial sector has been playing a

crucial role for the Indian economy in terms of employment and growth. MSME has

recorded a high rate of growth since independence irrespective of difficult competition from

the large sector and not so-encouraging support from the government.

Figure 1: Growth of total working MSMEs in India (in Lakhs)

Source: Annual Report, 2013-14, 2014-15 & 2015-16. Ministry of Micro, Small and Medium Enterprises, www.msme.gov.in

It can be deciphered from the above figure 1 that the number of MSMEs has

increased steadily in India from 105.21 lakhs units in 2001-02 to 510.57 lakhs units in

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2014-15. This could be possible due to the conducive policy environment during post

liberalization era of 1991. Number of MSMEs increases significantly from the year 2006-07

onwards due to changes in definition of MSMEs as per MSMEs Development Act, 2006,

which has widen the scope of definition given earlier. Increase in number of MSMEs leads

to increase in investment which leads to capital formation of India. Not only investment,

increase in number of MSMEs also pushed up employment of India where unemployment is

one of the severe problem.

Table 1: Performance of SSI / MSME Units, Employment, Investments

and Gross Output

Year Total Working

Enterprise (In Lakh)

Employment (In Lakh)

Investment in Fixed Assets

(In Rs Crores)

Gross Output

(In Rs Crores)

2001-02 105.21 249.33 154349 282270

2002-03 109.49 260.21 162317 314850

2003-04 113.95 271.42 170219 364547

2004-05 118.59 282.57 178699 429796

2005-06 123.42 294.91 188113 497842

2006-07 361.76 805.23 868543.79 1351383.45

2007-08 377.37 842.23 917437.46 1435179.26

2008-09 393.7 881.14 971407.49 1524234.83

2009-10 410.82 922.19 1029331.46 1619355.53

2010-11 428.77 965.69 1094893.42 1721553.42

2011-12 447.73 1012.59 1176939.36 1834332.05

2012-13 467.54 1,061.40 1,268,763.67 NA

2013-14 488.46 1,114.29 1,363,700.54 NA

2014-15 510.57 1,171.32 1,471,912.94 NA

Source: Annual Report, 2013-14, 2014-15 & 2015-16. Ministry of Micro, Small and Medium

Enterprises, www.msme.gov.in

Employment generated by MSMEs: Rapid economic growth requires the

generation of a large economic surplus in all fields of productive activity. The advantage of

large industries is that they are generally capital intensive and accordingly per capita

productivity and economic surplus is greater in them. Against this, the small scale

industries are generally labour intensive. Accordingly, they have a substantially higher

employment potential as compared to the large scale industries. P. C. Mahalanobis had this

to say on the employment potential of small scale and cottage industries: “In view of the


meagreness of capital resources there is no possibility in the short run, for creating much

employment through the factory industries. Now consider the household or cottage

industries. They require very little capital. About six or seven hundred rupees would get an

artisan family started. With any given investment, employment possibilities would be ten

or fifteen or even twenty times greater in comparison with corresponding factory

industries”.

Figure 2: Trends in Employment Generated by MSMEs in India (in Lakhs)

Source: Annual Report, 2013-14, 2014-15 & 2015-16. Ministry of Micro, Small and Medium Enterprises, www.msme.gov.in

It can be observed from the above figure 2 that number of persons employed in

MSMEs has risen from 249.33 lakhs in 2001-02 to 1,171.32 lakhs in 2014-15. The huge

increase in employment has been observed from the year 2006-07 onwards. Trend line also

shows a steady increase of employment over the years. The increasing trend may be due to

the changes in MSME definition as per MSMEs Development Act, 2006 which has widen

the scope as well as coverage of MSME sector which leads to mass labour absorption has

taken place in the unorganized/ informal enterprises.

Investment in fixed assets by MSMEs: The MSMED Act, 2006 gives us tools for

classification of enterprises based on their investment size and the nature of the activity

undertaken by that enterprise. Enterprises are classified into two categories as per

MSMED Act. These are manufacturing enterprises and service enterprises. For each of

these categories, a definition is given to describe what comprises a micro enterprise or a

small enterprise or a medium enterprise. Enterprises not coming under the above three

categories would be treated as a large scale enterprise in India. It can be interpreted from

the figure 3 that investment made by the MSMEs has increased steadily from ₹ 154349

crores in 2001-02 to ₹ 1471912.94 crores in 2014-15. The huge increase in fixed investment

in MSME sector has been observed from the year 2006-07. The increasing trend gives a

clear indication of the fact that investment in MSMEs has been showing a significant

growth, which helps in increasing the total capital formation of the country.

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Figure 3: Trends of Fixed Investment in MSMEs (Rs. in Crore)

Source: Annual Report, 2013-14, 2014-15 & 2015-16.

Ministry of Micro, Small and Medium Enterprises, www.msme.gov.in

Production made by MSMEs: In India, MSMEs are manufacturing over 6,000

products. Some of the major products produced by subsectors of MSMEs in terms of

manufacturing output are food products (18.97%), textiles and readymade garments

(14.05%), basic metal (8.81%), chemical and products with chemical content (7.55%),

metallic products (7.52%), machinery and equipments (6.35%), transport equipments

(4.5%), rubber and plastic products (3.9%), furniture (2.62%), paper and paper products

(2.03%) and leather and leather products (1.98%).

Figure 4: Trends in Output of MSMEs in India (in Crore)

Source: Annual Report, 2013-14, 2014-15 & 2015-16.

Ministry of Micro, Small and Medium Enterprises, www.msme.gov.in

It can be observed from the figure 4 that production made by MSMEs has risen from

Rs 2,82,270 crores in 2001-02 to Rs 18,34,332.05 crores in 2011-12. Output (production)

data are not available for the years 2012-13, 2013-14 and 2014-15. The huge increase in

production has been observed from the year 2006-07 onwards.


Importance of MSME sector in Indian Economy

Contribution to GDP: As per the revised method recommended by the Central

Statistics Office (CSO), Ministry of Statistics and Programme Implementation (MoSPI), on

the basis of the data on Gross Domestic Product (GDP) published by CSO, MoSPI and final

results of the up-to-date Census (Fourth Census), accompanied (with base reference year

2006-07), in which the data was collected till 2009 and results put out in 2011-12, the

projected contribution of MSME sector (including service segment) to GDP during 2010-11,

2011-12 & 2012-13 are 36.69 per cent, 37.97 & 37.54 per cent respectively. Further, the

contribution of manufacturing sector of MSME to Gross Domestic Product (GDP) has

declined marginally from 7.73% in 2006-2007 to 7.04% in 2012-13. The contribution of the

MSME service sector to the Gross Domestic Product (GDP) has increased from 27.42% in

2006-2007 to 30.5% in 2012-13. Total contribution made by MSME sector has increased

from 35.13% in 2006-2007 to 37.54% in 2012-2013. This happen due to the better

performance made by service sector of MSMEs in the context of Indian economy.

Share in manufacturing output: The total number of SSI units has increased

from 79.6 lakhs in 1994-95 to 133.68 lakhs in 2007-08, indicating annual growth rate of 4.1

percent, but their production (at 1993-94 prices) increased from Rs 1,09,116 crores in 1994-

95 to Rs 532979 crores in 2007-08 i.e. an annual average growth of 13 percent. The

contribution of the MSME sector to overall industrial production has declined marginally

from 42.02% in 2006-2007 to 37.33% in 2012-13. Decline in share of manufacturing output

over the years by the MSME sector may be due to better performance made by the other

segment of industrial production.

Contribution to export: With the establishment of a huge number of

contemporary small-scale industries in the post-independence period, the involvement of

the small-scale sector in export earnings has increased by leaps and bounds. It is

encouraging to observe that majority of the exports of small-scale industries output consists

of non-traditional items like readymade garments, sports goods, leather sandals and

chappals, other leather products, canned and processed fish, woollen garments and

knitwear, processed foods, chemicals and allied products and a large number of engineering

goods. The volume of export made by the MSMEs has increased steadily from Rs 96.64

billion in 1990-91 to Rs 6301.05 billion in 2011-12. The huge increase in export made by

MSME sector has been observed from the year 1990-91 onwards. This may be due to the

adoption of liberal economic policy of the government which leads to earn more foreign

currency as well as create more employment opportunity.

Mobilisation of Capital and Entrepreneurial Skill: The small-scale industries

are at a divergent advantage as far as the utilisation of capital and entrepreneurial skill is

concerned. A number of entrepreneurs are spread over small towns and villages of the

country. Obviously, large scale industries cannot make use of them as effectively as the

small-scale and village industries scattered over every parts of the country. Similarly,

large-scale industries cannot utilise the savings made by people in areas far flung from the

urban centres. But this task can be successfully done by setting up a network of small scale

and cottage industries. In addition, a great number of other resources scattered over the

country can be put to a decisive use by the small scale and cottage industries.

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Regional Dispersal of Industries: Large enterprises are usually concentrated in

metropolitan cities. The smaller towns and the rural areas in order to benefit from modern

industrialism must inspire small enterprises. Industrialisation of the country can become

complete only if it go through into the distant corners of the country. It may not be feasible

to start small enterprises in every village, but it is fairly possible to select a group of

villages and start small enterprises to satisfy to the needs of the small area from the local

centre. Decentralisation of industrial enterprises also helps to tap local resources such as

raw materials, idle savings local talents and also improves the standard of living in

backward regions. In addition, decentralisation helps to solve the problems of bottle neck in

the few industrial towns by widening the area of employment. It is pertinent to note that,

out of total, 51.77% of MSMEs are located in rural areas whereas 48.23% of total units are

established in urban areas of the country. The establishment of more enterprises in rural

areas helps to remove regional disparity of income and unemployment problem and ensures

proper utilisation of local resources.

Conclusion

Based on the findings of previous studies, MSMEs are struggling with certain

problems, namely, financial assistance, lack of marketing assistance, lack of technical

assistance, allocation of raw materials, imported component and equipment, absence of

MSME friendly legislation, limited capital and knowledge, lack of access to global markets

etc. However, MSME sector has made significant contribution towards employment

generation, investment and GDP. Further, in order to increase the performance of MSME

sector government need to simplify the existing policy on urgent basis.

References

Annual Report (2013-14). Ministry of Micro, Small and Medium Enterprises, Government of India, Udyog Bhavan, New Delhi-110 107. Retrieved from the website: www.msme.gov.in



Bolton Committee (1971). Small Firms-Report of the Committee of Inquiry on Small Firms. London: HMSO, U.K.

Das, A. K. (2006). Financial management: A study of small business in North Eastern region of India. New Delhi: Akansha Publishing House.

Datt, R. & K. P. M. Sundharam (2005). Indian economy. New Delhi: S. Chand & Company Ltd.

Datt, R. & K. P. M. Sundharam (2009). Indian economy. New Delhi: S. Chand & Company Ltd.

Datt, G. & A. Mahajan (2012). Indian economy. New Delhi: S. Chand & Company Ltd.

Desai, V. (2006). Small scale industries and entrepreneurship. Mumbai: Himalaya Publishing House.

Dhar, P. N. & Lydall, H. F. (1961). The role of small enterprises in Indian economic development. New York: Asia Publishing House.


Eighth Five Year Plan (1992-97). Planning Commission, Government of India, New Delhi. Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Eleventh Five Year Plan (2007-12). Planning Commission, Government of India, Oxford University Press, New Delhi.

Fifth Five Year Plan (1974-79). Planning Commission, Government of India, New Delhi. Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

First Five Year Plan (1951-56). Planning Commission, Government of India, New Delhi. Retrieve from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Fourth All India Census of Micro, Small and Medium Enterprises (2006-2007). Registered Sector. Development Commissioner MSME (MSME) Ministry of Micro, Small and Medium Enterprises, Government of India. Retrieved from: http://fisme.org.in/document/FinalReport010711.pdf

Fourth All India Census of Micro, Small and Medium Enterprises 2006-2007: Unregistered Sector. Development Commissioner MSME (MSME), Ministry of Micro, Small and Medium Enterprises, Government of India. Retrieved from: http:// dcmsme.gov.in/ publications/Final%20Report%20of%20Fourth%20All%20India%20Census%20of%20MSME%20Unregistered%20Sector% 202006-07.pdf)

Fourth Five Year Plan (1969-74). Planning Commission, Government of India, New Delhi. Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Handbook of Statistics on the Indian Economy. Reserve Bank of India (2014-15). Retrieved from: http://dbie.rbi.org.in.

Handbook of Statistics on the Indian Economy. Reserve Bank of India (2015-16). Retrieved from: http://dbie.rbi.org.in.

Misra, S. K. & V. K. Puri (1986). Indian economy. New Delhi: Himalaya Publishing House.

N. Ragunathan, (1988). Former development commissioner (SSI), New Delhi.

Neck, P. A. (1977). Small enterprise development: Policies programmes. International labour office, Geneva, Switzerland.

Ninth Five Year Plan (1997-02). Planning Commission, Government of India, New Delhi.

Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Rajan, K. (2013). Globalisation and small scale industries in India. International Journal of Advanced Research in Management and Social Sciences, 2 (7).

Ray, G.H. & Hutchinson, P.J. (1983). The financing and financial control of small enterprise development. UK: Gower Publishing.

Report of Prime Minister’s Task Force on Micro, Small and Medium Enterprises, Government of India (2010). Retrieved from: www.http://msme.gov.in/mob/ActsRule.aspx

Report of the Working Group on Micro, Small and Medium Enterprises (MSMEs) Growth for 12th Five Year Plan (2012-2017), Ministry of Micro, Small and Medium Enterprises, Government of India, New Delhi. Retrieved from: www.http:// msme.gov.in/ mob/ActsRule.aspx

Second Five Year Plan (1956-61). Planning Commission, Government of India, New Delhi.. Retrieved from: http:// planningcommission.gov.in / plans/ planrel / index.php ?state= planbody.htm

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Seventh Five Year Plan (1985-90). Planning Commission, Government of India, New Delhi. Retrieve from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Sixth Five Year Plan (1980-85). Planning Commission, Government of India, New Delhi. Retrieve from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Quick results, Fourth All India Census of Micro, Small and Medium Enterprises (2006-07), Development Commissioner (MSME), Ministry of Micro, Small and Medium Enterprises, Government of India, New Delhi. Retrieved from: www.http://msme.gov.in/mob/ActsRule.aspx

Tarum, T. N. S. (1986). Small Scale Industries and India’s Economic Development, (New Delhi: Deep & Deep Publications, p.91.

Tenth Five Year Plan (2002-07). Planning Commission, Government of India, New Delhi. Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Third Five Year Plan (1961-66). Planning Commission, Government of India, New Delhi. Retrieved from: http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm

Twelfth Five Year Plan (2012-17). Planning Commission, Government of India, SAGE Publications India Pvt Ltd, New Delhi. Retrieved from: http://planningcommission.gov.in/ plans/planrel/index.php?state=planbody.htm

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66

Corporate Social Responsibility Practices of Banks: A Study on

Public Sector Banks in India

Dr. NITASHREE BARMAN*

Abstract

Banks and other financial institutions attain their sustainable development goal,

mainly focusing on the integration of environmental, social and economic concerns

into decision-making, through undertaking corporate social responsibility

activities. The importance of corporate social performance is exigently growing in

parallel with corporate financial performance. Having this background, the present

study aims to study the corporate social responsibility practices of public sector

banks in India. For the purpose of performance evaluation of the banks, total six

areas of CSR activities have been considered, viz., Education, Rural Development,

Healthcare, Environment Protection, Women Empowerment and Girl Child and

Sports Development. The study has revealed that the banks render various welfare

services to the society, mainly, rural development followed by contribution to the

health sector, environment protection and educational support. Besides, the

performance of State Bank of India in respect of discharging the corporate social

responsibilities leads to other public sector banks in India.

Keywords: Sustainable Development, Corporate Social Responsibility, Public

Sector Banks in India

JEL Classification: G21, M14

Introduction

In the present scenario, banks and other financial institutions are considered as

drivers of economic and sustainable development. Usually, they attain their sustainable

development goal, mainly focusing on the integration of environmental, social and economic

concerns into decision-making, through undertaking corporate social responsibility

activities. The importance of corporate social performance is exigently growing in parallel

with corporate financial performance. It is argued on the ground that banks are parts of

society. Therefore, they are supposed to be social banks that take care of needs and

expectations of stakeholders in a community (Yeung, 2011 & Tran, 2014). Consequently,

being financial intermediaries, the symbiotic relationship between banks and their

stakeholders will become more strengthened through such altruistic activities. In this

context, Bihari & Pradhan (2011) opined that organizations involved in corporate social

responsibility activities continue to exist for much longer durations in comparison to those

*Assistant Professor, Department of Accountancy, Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya

Tulungia, Bongaigaon, India. Email: [email protected]


67

not involved in such activities. Therefore, it has become an increasingly important part of

the corporate business strategy.

There is no uniform perspective on CSR in the literature. However, different views

on CSR can be designated into three schools of thoughts, viz. ‘Sceptic’, ‘Idealistic’ and

‘Pragmatist’ (Rajput, Batra & Pathak (2012). The proponents of sceptic view are contrary to

CSR. The sole objective of the business is to earn only profit and generate shareholders’

wealth but not to give away money for benevolent purpose. In contrast, the idealistic view

considers not only stockholders’ well being in terms of emphasizing only on profit motive

but also well being of other stakeholders in terms of producing good quality product and

complying with all the legal regulations, etc. Usually, the pragmatist view prevails into the

practice. This perspective on CSR is wider than the Idealistic view. The proponents of this

view believe in conducting business operations ethically. The objective of the business

organizations, being good corporate citizen, should be to produce an overall positively

significant impact on society by means of following good business practices responding as

well as all the priorities and expectations of varieties of stakeholders.

The origin and development of the concept grouping into six phases is given as

follows (Bhaduri & Selarka (2016):

1950–1960s—Period of Introduction of CSR in the academic arena and corporate

philanthropy as CSR

1970s—Period of rapid growth in the concept of CSR

1980s—Period of Stakeholder Theory and Business Ethics

1990s—Period of CSR Practicing by Corporate

2000 onwards—Period of empirical works to investigate the determinants and

consequences of CSR on corporate strategy

To sum up, social responsibility is the assumed obligation of business to society.

Being socially responsible means to maximize the positive effects and minimize the

negative effects on society (Nicolae & Sabina, 2010). The concept of CSR is nothing new at

a conceptual level, business has always had social, environmental and economic impacts,

been concerned with stakeholders. However, it is different at an operational level. The

context of business operation is changing at an increasingly rapid pace, mainly, due to

globalization and major economic reforms. Accordingly, the changing expectations of the

stakeholders force business organizations to optimally balance social, environmental and

economic impacts in decision making. Thus, CSR management tools are needed in order to

develop and implement a successful business strategy (Dahlsrud, 2006).

Literature Review

Mocan, Rus, Draghici, Ivascu & Turi (2015) mentioned some benefits of CSR

activities such as economic efficiency, improved company reputation, employee loyalty,

communication between the banking industry and society, attracting new opportunities

and increase organizational commitment. Sarre, Doig & Fiedler (2001) opined that

accountability mechanisms that incorporate the principles of corporate social responsibility

provide a valuable tool not only for the mitigation of risk but also as a means of improving


business performance. In addition, Tran (2014) pointed out some barriers of CSR such as

lack of awareness, lack of regulatory framework, lack of motivational incentives and lack of

combined initiatives from governments.

Oikonomou, Brooks & Pavelin (2014) investigated the impact of various dimensions

of corporate social performance on the pricing of corporate debt and the assessment of the

credit quality of specific bond issues. The study found that the higher level of corporate

social performance positively influences credit quality and credit risk. Furthermore, it is

suggested that the financial benefits produced from corporate social performance accrue

mainly in the long run. Moreover, Wang (2011) also investigated the impact of corporate

social responsibility on corporate stock performance. The result of study supported the

evidence that when a firm endeavors to fulfill its CSR, it has a positive impact on stock

performance. In contrast, Zaccheaus, Oluwagbemiga & Olugbenga (2014) claimed through

their empirical testing that firms’ CSR performance has no effect on stock prices. Rajput,

Batra & Pathak (2012) examined the relationship between CSR expenditure and financial

performance of Indian companies. The study found that CSR expenditure results in

improved financial performance and the companies having more sales and profits spend

more on CSR activities. Thus, the study claims the positive relationship between CSR and

Financial performance.

Bihari & Pradhan (2011) reviewed corporate social responsibility practices of eight

Indian banks, namely ICICI Bank, HDFC Bank, IDBI Bank, Punjab National Bank, Bank

of Baroda, Canara Bank, Union Bank of India, Oriental Bank of Commerce. The study

asserted that banks have ample scope to implement CSR and argued that the initiative of

financing sustainable development through CSR activities by the banks would lead to social

as well as economic benefits. Dhingra & Mittal (2014) concluded that public sector banks

mostly concentrate on rural development and women's empowerment. On the other hand,

private sector banks involve themselves in CSR activities of education, community welfare

and environment protection.


The present study aims to study the Corporate Social Responsibility practices of

public sector banks in India.

Research Methodology

The present study is conducted exclusively on public sector banks in India operating

during the study period, i.e., 2016-17. The study considers twenty-one public sector banks

presently operating in India. The objective designed for the present study requires

secondary data. The requisite secondary data have been collected from the annual reports

and website of the respective banks. Furthermore, six performance parameters have been

selected based on review of the existing literatures and reports of the respective banks.

These parameters include Education (EDUCN), Rural Development (RRLDV), Healthcare

(HEALTH), Environment Protection (ENVPRT), Women Empowerment and Girl Child

(WEMPG) and Sports Development (SPRTDV). Under the study, Rank has been assigned

in order to make comparative analysis across the selected banks in respect of their

performance on CSR activities.

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CSR and Public Sector Banks in India

The adoption of CSR activities in the Indian banking sector was exerted after the

circular of Reserve Bank of India issued in December 2007. Under the circular, financial

institutions and particularity, banks were advised to extend their efforts for the cause of

sustainable development. The central bank elucidates sustainable development as the

process of maintenance of the quality of environmental and social systems in the pursuit of

economic development. As mentioned earlier, banks, usually, exert their efforts for the

sustainable development through performing CSR activities. Further, CSR is a concept

entailing the integration of social and environmental concerns in their business operations

and in their interactions with their stakeholders on a voluntary basis, according to the

central bank. Considering this, the present study attempts to evaluate the CSR practices of

public sector banks. Public sector banks are considered for the study because of their

paramount role played in respect of financing government’s development activities and

economic development as well.

Table 1: Bank wise CSR Expenditure during 2016-17

Code Name of

Bank

Amount spent on CSR

(Rs. in Crore)

Profit/Loss (Rs. in Crore)

Percentage of profit

Rank

B1 ALB 8.27 (314.00) (2.63) 4

B2 ANB 3.19 174.34 1.83 9

B3 BOB 1.40 1383.14 0.10 15

B4 BOI 6.42 (1558.00) (0.41) 6

B5 BOM 0.29 (1372.51) (0.02) 18

B6 CNB 32.68 1122.00 2.91 2

B7 CBI - (2439.00) - -

B8 COB 2.06 561.21 0.37 13

B9 DNB 2.43 (863.63) (0.28) 12

B10 IDBI 4.35 (5158.14) (0.08) 8

B11 INB 2.65 1405.68 0.19 11

B12 IOB - (3416.74) - -

B13 OBC 1.23 (1094.07) (0.11) 16

B14 P&SB 0.24 201.08 0.01 19

B15 PNB 2.72 1325.00 0.02 10

B16 SBI 109.82 104841.00 0.10 1

B17 SYNB 1.45 358.95 0.40 14

B18 UCO 20.85 (1850.67) (1.13) 3

B19 UBOI 7.27 (555.22) (1.31) 5

B20 UNBI 0.57 (219.51) (0.26) 17

B21 VIB 4.97 (750.48) (0.66) 7

All PSBs 212.86 91780.43 0.22 -

Source: Compiled from annual reports of respective banks for the year 2016-17


Table 1 depicts bank wise CSR expenditure of Public sector banks in India for the

year 2016-17. During the period, all the banks have incurred total amount of Rs.212.86

crore on CSR activities constituting 0.22 per cent of the profits earned. Further, bank wise

analysis depicts that State Bank of India has secured first position in respect of incurring

highest amount of CSR expenditure of Rs. 109.82 crore followed by Canara Bank, UCO

Bank, Allahabad Bank, Union Bank of India and Bank of India. On the other hand, Punjab

& Sind Bank has obtained last rank because of spending lowest on CSR amounting Rs.0.24

crore followed by Bank of Maharashtra, United Bank of India, Oriental Bank of Commerce,

Bank of Baroda and Syndicate Bank. It is pertinent to note that, during the year, CSR

budget or expenditure of Central Bank of India and Indian Overseas Bank was nil. The

reason might be due to the loss incurred by them during the financial year. However, other

banks, viz. Allahabad Bank, Bank of India, Bank of Maharashtra, Dena Bank, IDBI Bank,

Oriental Bank of Commerce, UCO Bank, Union Bank of India, United Bank of India and

Vijaya Bank have discharged corporate social responsibilities in spite of financial losses.

Table 2 portrays the CSR practices of Public sector banks in India. It is evident from

the table that all the public sector banks considered under the study contribute towards

rural development under the aegis of CSR followed by other areas of CSR activities, viz.,

health sector, environment protection and education. On the other hand, only 28.57 per

cent of total sample banks have integrated women empowerment and girl child

development and sports development in their agenda of CSR.

For the further elaboration of CSR activities performed by the Indian public sector

banks, it is to be stated that the banks, namely, Andhra bank, Bank of Maharashtra,

Canara Bank, IDBI Bank, Indian Bank, Oriental Bank of Commerce, State Bank of India,

Syndicate Bank and Union Bank of India contribute to the education sector in several

ways. These are distribution of books, school bags, uniforms to the poor students,

sponsoring infrastructure development of school, namely, school benches, desks, other

furniture items, water purifier, computers to school, etc., providing rural digital library,

repairs, renovation and construction of college building, scholarship scheme to meritorious

students, sponsoring cost of education of tribal children, establishing vocational training

centre for mentally and physically challenged children, financial assistance to government

schools under the scheme of mid-day meal and also extending support to Universal Higher

Education Trust.

Rural development, being integral part of India’s socio-economic-politico development,

comprises of development of rural areas and enhancement of wellbeing and socio-economic

empowerment of rural masses (Patel, 2010 & Singh, 2010). Thus, rural development entails

all sorts of services such as education, medical facilities, proper sanitation facilities,

agricultural development, employment opportunities, etc. In this direction, all the public

sector banks have integrated the agenda of rural development in their CSR strategy. The

banks usually develop rural areas by means of village adoption scheme and empowering

rural youth.

Under the village adoption scheme, financial assistance is provided to the adopted

villages for the development of school infrastructure and sanitation facilities. The banks

also organise agriculture related training programmes to farmers with the objective of

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boosting cultivation of crops. With regard to empowering rural youth, economic growth can be

achieved by either increasing efficiency in the existing systems that support growth or

creating a new framework that supports an ecosystem for self-employed youths,

entrepreneurs by providing them productive skill sets (Joshi, Bahadauria & Dixit, 2015). The

banks empower rural youth through developing their entrepreneurial skill. Particularly, the

banks carry out activities to mitigate the unemployment or underemployment problem

among the rural youth by means of creating and managing Rural Self Employment Training

Institutes (RSETIs). These institutes are established as per directives of Ministry of Rural

Development of Government of India. These are based on the concept of Rural Development

& Self Employment Training Institute (RUDSETIs) and aim to boost up entrepreneurship

development in the rural areas by way of providing need based capacity building and skill

development training programme to unemployed rural youth. After completion of the

progamme, the trained participants are provided with credit linkage assistance by the

banks to start up their entrepreneurial ventures.

Table 2: CSR Practices of Public Sector banks in India

Code Name of

Bank EDUCN RRLDV HEALTH ENVPRT WEMPG SPRTDV

B1 ALB

√ √ √ √

B2 ANB √ √ √

B3 BOB

√ √

B4 BOI

√ √ √

B5 BOM √ √ √

B6 CNB √ √ √ √ √

B7 CBI

√

B8 COB

√ √

B9 DNB

√

B10 IDBI √ √ √ √ √

B11 INB √ √ √ √ √

B12 IOB

√

B13 OBC √ √ √ √

B14 P&SB

√

B15 PNB

√ √ √ √

B16 SBI √ √ √ √ √ √

B17 SYNB √ √ √ √

B18 UCO

√ √

B19 UBOI √ √ √ √

B20 UNBI

√ √ √ √

B21 VIB √ √ √ √ √

Total 10

(47.62) 21

(100) 14

(66.67) 12

(57.14) 6

(28.57) 6

(28.57)

Note: Figures in parentheses indicate percentage of banks Source: Compiled from annual reports of the respective banks for the year 2016-17


Exceptionally, the performance of State Bank of India is worth to be mentioned

hereunder. It is evident from Table 3 that the Bank has set up 151 Rural Self Employment

Training Institutes followed by Punjab National Bank (57), Bank of Baroda (49), Central

Bank of India (46), Bank of India (42), Canara Bank (30), UCO Bank (27), Allahabad Bank

(21), Syndicate Bank (16) and United Bank of India (16). It is found from Table 4 that State

Bank of India has highest number of training institutes in the state of Odisha (17) followed

by Madhya Pradesh (13) and Chhattisgarh (11). On the other hand, it has only one RSETIs

in the states of Andaman & Nicobar, Haryana, Himachal Pradesh, Manipur, Mizoram,

Nagaland, Sikkim and Tripura. It is depicted in Table 5 that since 2011, total 21728

training programmes have been conducted by the bank with the enrollment of total number

of 579279 trainees. Out of these trainees, 64.83 per cent have been found to be settled after

training programme. Furthermore, out of these settled candidates, 88.78 per cent have self-

employed themselves. Thus, the performance State Bank of India is paramount as

compared to other banks in respect of skill development.

On the count of contribution to health sector, public sector banks, particularly,

Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, IDBI

Bank, Indian Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of

India, Syndicate Bank, Union Bank of India, United Bank of India and Vijaya Bank render

services, like, conducting medical check-up camps, blood donation camp, free admission of

underprivileged or economically weak patients, setting up health centre in remote areas

and rendering free medical facility to the poor patients, arrangement of safe drinking water

in the hospital and distribution of artificial limbs. Besides, the banks also donate

ambulance, all sorts of necessary medical equipments, extend support to cancer patient and

other physically challenged poor patients.

In respect of contribution towards environment protection, Bank of India, Canara

Bank, Corporation Bank, IDBI Bank, Indian Bank, Oriental Bank of Commerce, Punjab

National Bank, State Bank of India, UCO Bank, Union Bank of India, United Bank of India

and Vijaya Bank have taken several initiatives. These are installing solar lighting system

in the rural areas and educational institute campus, tree plantation, donation of e-

rickshaws, garbage pickup tricycles and supporting the government’s initiative of Swachha

Bharat and Swachh Vidyalaya Mission. For the Swachh Mission, the banks provide

donations for the construction of toilets in schools and public places. Some banks also

install automated vending machine for sanitary napkins and incinerator machine in girl’s

hostel and support the cleanliness drive.

Apart from the above cited CSR activities, Allahabad bank, Canara Bank, Indian

Bank, State Bank of India, United Bank of India, Vijaya Bank render various services for

the women empowerment and girl child development such as providing stipend to girl child,

adoption of girl child and offering financial support to rural women. Indian public sector

banks are also interested in extending their helping hands towards development of sports

of the country. To this end, Allahabad Bank, Andhra Bank, IDBI Bank, Punjab National

Bank, State Bank of India and Syndicate Bank contribute to National Sports Development

Fund, set up sport academy, sponsor sport events, etc.

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Conclusion

To conclude, all the banks considered under the study have incorporated CSR into

their business model as indispensable. It might be due to the compliance of the law levied

by the banking regulators, creation of goodwill, conducive business environment, right

thing to do for the society and environment and banks see it as good public relations and

ethical (Zaccheaus, Oluwagbemiga & Olugbenga, 2014). However, it is observed that there

is a discrepancy in corporate social performance and its disclosure. Some of the banks do

not disclose the details of CSR activities. Considering this, the banks have ample scope of

improvement in the sphere of process of conducting CSR activities and their reporting as

well. Therefore, banking regulators need to take up stringent steps towards the

improvements of CSR disclosure in particular and corporate social performance in general.

References

Bhaduri, S. N. & Selarka, E. (2016). Corporate governance and corporate social responsibility of Indian Companies. Springer.

Bihari, S. C. & Pradhan, S. (2011). CSR and Performance: The story of banks in India. Journal of Transnational Management, 16, 20–35.

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www.sbi.co.in

Appendix I: List of Bank

Code Abbreviation of Bank Name Bank Name

B1 ALB Allahabad Bank

B2 ANB Andhra Bank

B3 BOB Bank of Baroda

B4 BOI Bank of India

B5 BOM Bank of Maharashtra

B6 CNB Canara Bank

B7 CBI Central Bank of India

B8 COB Corporation Bank

B9 DNB Dena Bank

B10 IDBI IDBI Bank

B11 INB Indian Bank

B12 IOB Indian Overseas Bank

B13 OBC Oriental Bank of Commerce

B14 P&SB Punjab & Sind Bank

B15 PNB Punjab National Bank

B16 SBI State Bank of India

B17 SYNB Syndicate Bank

B18 UCO UCO Bank

B19 UBOI Union Bank of India

B20 UNBI United Bank of India

B21 VIB Vijaya Bank

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Table 3: Bank wise Number of RSETIs

Code Name of

Bank Number of RSETIs Rank

B1 ALB 21 8

B2 ANB 14 11

B3 BOB 49 3

B4 BOI 42 5

B5 BOM 7 16

B6 CNB 30 6

B7 CBI 46 4

B8 COB 2 19

B9 DNB 12 14

B10 IDBI 1 21

B11 INB 12 14

B12 IOB 13 13

B13 OBC 5 17

B14 P&SB 3 18

B15 PNB 57 2

B16 SBI 151 1

B17 SYNB 16 9

B18 UCO 27 7

B19 UBOI 14 11

B20 UNBI 16 9

B21 VIB 2 19

Source: Annual reports and website of the respective banks for the year 2016-17


Table 4: State/Union Territory wise number of RSETIs of State Bank of India

Sl No. State /Union Territory Total Number of

RSETIs

1 Andaman & Nicobar 1

2 Andhra Pradesh 2

3 Assam 5

4 Bihar 7

5 Chhattisgarh 11

6 Gujarat 7

7 Haryana 1

8 Himachal Pradesh 1

9 Jammu & Kashmir 9

10 Jharkhand 8

11 Karnataka 7

12 Kerala 4

11 Madhya Pradesh 13

15 Maharashtra 8

16 Manipur 1

17 Meghalaya 2

18 Mizoram 1

19 Nagaland 1

21 Odisha 17

22 Punjab 7

23 Rajasthan 8

24 Sikkim 1

25 Tamil Nadu 2

26 Telangana 9

27 Tripura 1

28 Uttar Pradesh 6

29 Uttarakhand 9

30 West Bengal 2

Total 151

Source: www.sbi.co.in

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Table 5: Performance of SBI – RSETIs

Sl No. Particulars Cumulative since 2011

1 Number of Programmes Conducted 21,728

2 Number of candidates Trained 5,79,279

3 Number of candidates Settled 3,75,586

4 Percentage of candidates Settlement 64.84%

5 Number of candidates Self Employed 3,33,439

Source: www.sbi.co.in

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