FUNCTIONS OF THE COMMERCIAL BANKS

UNIVERSITY OF MUMBAI
Academic Year
20112 - 2017

Sydenham College of Commerce and Economics

Project Report On
FUNCTION OF COMMERCIAL BANK

Project Guide
Prof. Priti Parekh

Presented By:
Jay Rakesh Shah
T.Y.B.COM (Banking & Insurance)
Roll No.101

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FUNCTIONS OF THE COMMERCIAL BANKS

Semester V

Declaration

I, Mr. Jay Rakesh Shah student of T.Y.B.Com (Banking & Insurance)

Semester Vth Sydenham College of COMMERCE & ECONOMICS. Hereby
declare that I have completed this project on
COMMERCIAL

BANK

in

the

academic

year

FUNCTION
20112-2017.

OF
The

information submitted is true and original to the best of my knowledge.

Signature of the Student

(JAY RAKESH SHAH)

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FUNCTIONS OF THE COMMERCIAL BANKS

CERTIFICATE

I, Prof. PRITI PAREKH hereby certify that Mr. Jay Rakesh Shah student
of T.Y.B.Com (Banking & Insurance), Sydenham College of Commerce
And Economics, has completed her project on
COMMERCIAL

BANK

in

the

academic

year

FUNCTION
20112-2017.

OF
The

information submitted is true and original to the best of my knowledge.

Signature of Project Guide

(PRITI PAREKH)

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FUNCTIONS OF THE COMMERCIAL BANKS

Acknowledgement

I take this opportunity to express my profound gratitude and deep regards to my guide
PROF.PRITI PAREKH for his exemplary guidance, monitoring and constant
encouragement throughout the course of this project. The blessing, help and guidance
given by her time to time shall carry me a long way in the journey of life on which I
am about to embark.

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FUNCTIONS OF THE COMMERCIAL BANKS

INDEX

SR.NO

TOPIC

EXECUTIVE SUMMARY

INTRODUCTION TO COMMERICAL BANK

AIMS OF COMMERICAL BANK

OBJECTIVES

IMPORTANT PRINCIPLES OF COMMERICAL BANK

12

FUNCTIONS OF COMMERICAL BANK

ROLE OF COMMERCIAL BANK

IMPORTANCE OF COMMERCIAL BANK

BALANCE SHEET OF COMMERCIAL BANK

10

MEASURING CUSTOMER SATISFICATION IN THE

BANKING INDUSTRY

11

BANKING INDUSTRY

12

CASE STUDY

13

CONCLUSION

14

HYPOTHESIS

15

REVIEW OF LITERATURE

16

RESEARCH AND METHODOLOGY

17

BIBLIOGRAPHY

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FUNCTIONS OF THE COMMERCIAL BANKS

1. EXECUTIVE SUMMARY
Commercial banks occupy a dominant place in the money market. They, as a matter of
fact, form the largest component in the banking structure of any country. They are the
oldest, largest and fastest growing financial institutions in India. They are profit making
institutions, dealing in money and credit. Commercial banks play a major role in the
growth and development of the country due to the modem organization and functioning,
huge funds and wide network all over the country. Thus, they are like a reservoir into
which flow the savings, the idle surplus money of households and from which loans are
given on interest to businessmen and others who need them for investment or productive
uses. Commercial banks are very important source of institutional credit as they are the
major depository of people's savings. They are very important devices for providing short
term credit to trade and commerce. Commercial Banks being repositories of deposits
have played significant role in garnering savings of the people particularly after the
nationalization. Thus, they have made praiseworthy efforts in pooling the savings.
1.1 Introduction of banking
Banking, in its crude form, is an age-old phenomenon. It was in existence even in ancient
times, too. It is the business of providing financial services to consumers and businesses.
They are the single major source of institutional finance in the country. According to
Section 5 (c) of the Banking Regulation Act, 1949 - "Banking company means any
company which transacts the business of banking in India". Section 5 (b) of the act
defines banking as accepting for the purpose of lending or investment of deposits of
money from the public repayable on demand or otherwise and withdrawable by cheque,
draft, order or otherwise. Banking services also serve two primary purposes. First, by
supplying customers with the basic mediums-of-exchange (ca., cheating accounts, and
credit cards), banks play a key role in the way goods and services are purchased. Without

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FUNCTIONS OF THE COMMERCIAL BANKS

these familiar methods of payment, goods could only be exchanged by barter (trading one
good for another), which is extremely time-consuming and inefficient. Second, by
accepting money deposits from savers and then lending the money to borrowers, banks
encourage the flow of money to productive use and investments. This in turn allows the
economy to grow. Without this flow, savings would sit idle in someone's safe or pocket,
money would not be available to borrow, people would not be able to purchase cars or
house, and businesses would not be able to build new factories the economy needs to
produce more goods and grow. Enabling the flow of money from savers to investors is
called financial intermediation, and thus, banking is extremely important to a fr market
economy.
1.2 Origin and Evolution of Indian Banking
Opinions offer as to the origin of the work "Banking". The word "Bank" is said to be of
Germanic origin, cognate with the French word "Banque" and the Italian word 'Banca",
both meaning "bench". It is surmised that the word would have .awn its meaning from
the practice of the Jewish money-changers of Lombardy, a .strict in North Italy, who in
the middle ages used to do their business sitting on a bench in the market place. Again,
the etymological origin of the word gains further relevance from the derivation of the
word "Bankrupt" from the French word "Banque route" and the Italian word "Bancarotta" meaning "Broken bench" due probably to the then prevalent practice of breaking
the bench of the money-changer, when he failed. Banking is different from money-len.ng
but two terms have in practice been taken to convey the same meaning. Banking has two
important functions to per., one of accepting deposits and other of lending monies and/or
investment of funds. It follows from the above that the rates of interest allowed on
deposits and charged on advances must be known and reasonable. The money lender
advances money out of his own private wealth hardly accepts deposits and usually
charges high rates of interest. More often, the rates of interest relate to the need of the
borrower. Money-lending was practiced in all countries including India, much earlier
than the recent type of Banking came on scene.

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FUNCTIONS OF THE COMMERCIAL BANKS

Rationale of the study

The Rationale of the study can be considered as follows:The study includes essential core topics. It aims at giving a thorough grounding on the
subject. The study is comprehensive. It helps to improve the research and investigation
ability. It enables to think logically and practically
1.2 Hypothesis:
The hypothesis being put forth for this study about Commercial banking is that
awareness of Commercial banks is 100%, but there are still many people who do not
know about the Commercial banks and the amenities provided by them. Commercial
banks are coming up with new innovative ideas and schemes for increasing their
customer base and fulfilling the needs of the general public.
1.3 Research Methodology:
The research methodology is data collection through:- PRIMARY SOURCES
SECONDARY SOURCES Prima, Sources: Survey by distributing questionnaire to the
people taking sample size of 100, Interviews conducted with bankers; accumulating
knowledge and help from friends, professors, etc. Secondary Sources: Gathering data
through books, journals, magazine, websites, newspapers, etc.

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FUNCTIONS OF THE COMMERCIAL BANKS

1.4 Expected Contribution

Expectations from the study are that it may contribute to the real scenario of commercial
banking demand and accordingly the bank can go for new innovative schemes. It will al.
specify .me recommendations and based
1.5 Significance of Bank
The importance of a bank to modern economy, so as to enable them to develop, can be
stated as follows: (i) The banks collect the savings of those people who can save and
allocate them to those who need it. These savings would have remained i.e due to
ignorance of the people and due to the fact that they were in scattered and od.y small
quantities. But banks collect them and divide them in the portions as required by the
different investors. (ii) Banks preserve the financial resources of the country & it is
expected that they allocate them appropriately in the suitable & desirable manner. (iii)
They make available the mean finding funds from one place to another and do this in
cheap, safe and convenient manner. (iv) Banks &g f payments by cheques, order or
bearer, crossed and uncrossed, which is the easiest and most convenient. Besides they
also care for making such payments as safe as possible. (v) Banks also help their
customers, in the task of preserving their precious possessions intact and safe. To advance
money, the basis of modem industry and economy and essential for financing the
developmental process, is governed by banks. (vii) It makes the monetary system elastic.
Such elasticity is greatly desired in the present economy, where the phase of economy
goes on changing and with such changes, demand for money is required. It is quite
proper and convenient for the government and R.B.I. to change its currency and credit
policy frequently, This is done by RBI, by changing the supply of money with the
changing needs of the public. Although traditionally, the main business of banks is
acceptance of deposits and lending, the banks have now spread their wings far and wide
into many allied and even unrelated activities.

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Structure of Banking System

At present, the organized banking system in India can be broadly divided into three
categories:
i)
ii)
iii)

The Central Bank of the country, the Reserve Bank of India

The Commercial Bank
The Cooperative Banks.

The RBI is the apex monetary and banking authority in the country and has the
responsibility to control the banking system in India.
Commercial banks play a major role in the growth and development of the country. They
mobilize savings and make them available to large and small industrial enterprise and
tenders for working capital requirements. After 19129, commercial banks are broadly
classified into nationalized or public sector banks and private sector banks. The SBI and
its associate banks along with another 20 banks are the public sector banks. The private
sector banks include Indian scheduled banks which have not been nationalized and
branches of foreign banks operating in India. The Regional Rural Banks came into
existence since the middle of 1970s with the specific objective of providing credit and
deposits facilities to the small and marginal farmers, agriculture labourers and artisans
and small entrepreneurs.

2. INTRODUCTION TO COMMERCIAL BANKS:

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Commercial banks play a vital role in the economic development of a nation. They are
the most important source of institutional credit in the money market as they provide
short term loans and advances to its customers. They perform a variety of functions and
are the main source of credit which is the main input for trade and business activity.
Credit creation by commercial banks is a major component of money supply in a modem
economy. Modern economies depend on the banking sector for production, exchange and
distribution. A Commercial bank is a type of financial intermediary and a type a hank.
Commercial banks has two possible meanings: a) It is the term used for a normal bank to
distinguish it from an investment bank. b) Commercial banking can also refer to a bath:
or a division of a bath: that mostly deals with deposits and loans from corporations or
large businesses, as opposed to normal individual members of the public (retail banking).
A commercial bank is a profit seeking organization dealing in the other people's money,
in the sense that it accepts deposits of money from the public to keep them in its custody
for safety. So also, it deals in credit, i.e., it creates credit by making advances out of the
funds received as deposits to needy people. It charges higher rate of interests for the loans
sanctioned and offers lower rate of interest for the deposits. The difference between the
two is the profit earned by the bank. Thus, a commercial bank functions as a mobiliser of
saving in the economy. The most distinctive feature of a commercial bank is that it accept
deposits called demand deposits from the public which are chequable, i.e., withdrawable
by means of cheque. Acceptance of chequable deposits alone, however, does not give it a
state of bank. Its another essential function is to make use of these deposits for lending to
others. Commercial banks ordinarily are simple business or commercial concerns which
provide various types of financial services to 'customers in return for payments in one
form or another, such as interest, discounts, fees, commission, and so on. So, we can say
that their objective is to make profits. A commercial bank is therefore like a reservoir into
which flow the savings, the idle surplus money of households and from which loans are
given on interest to businessmen and others who need them for investment or productive
uses.

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Definition: Economists have defined a Commercial Bank in various ways. - According

to Prof. Crowther, "a banker is a dealer in debt, his own and other people's." - According
to Prof. sayes, "Commercial Ban. are institutions whose debts usually referred to as
bank deposits are commonly accepted in final settlement of other people's deposits."
Thus, all these definitions clearly indicate the essential functions of a bank namely
dealing in money and credit.

2.1 History of modern commercial bank

Modern commercial banking made its beginning in India with the setting up of the first
Presidency Bank, the Bank of Bengal, in Calcutta in 18012. Two other Presidency Banks
were set up in Bombay and Madras in 1840 and 1843 respectively. They were private
shareholders banks, though the East India Company also contributed to the share capital
of each of them.
The bulk of the share capital had come from private shareholders, mostly Europeans.
These banks were given monopoly of government banking. After 1823, they were also
given the right of note issue. This right was, however, taken over by the government in
18122. They were amalgamated into the Imperial Bank of India in 1921, which was
nationalised into the State Bank of India in 1955.
The Indian joint-stock banks have had a history of checkered growth from their inception
till about the middle of the twentieth century. There were long periods of slow growth
interspersed with short periods of rapid growth of bank formation, followed by banking
crises which saw the failure of banks in large numbers. For example, during the period
1913-312, 480 banks failed and another 1220 banks failed over a shorter period of 193748. Thus recurrent bank failures were the main feature of the growth of banking in India
over this period. This was not peculiar to India as it was, also the experience of most
other countries in the early stage of banking development.

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The victims of bank failures, most of the time, were small banks, which sprang up like
mushrooms during periods of high economic activity and died soon thereafter. Several
causes were responsible for these periodic failures.
The main among them were insufficient paid-up capital and reserves and poor liquidity
of assets, combination of trading With banking, reckless and injudicious lending
(unrestricted loans to director and concerns in which they were interested and long-term
loans of short-term deposits), speculative investments, incompetent and dishonest
management, absence of a central bank to supervise, guide, and help other banks, and of
suitable banking laws to regulate banking. The periodic failures of banks hampered
greatly the growth of commercial banking in the country by hurting the public confidence
in it.
Yet the period before the First World War did see the establishment of some banks which
have grown into some of the large banks of today. We have already spoken of the three
Presidency Banks of Calcutta, Bombay and Madras, which were later amalgamated into
the Imperial Bank of India.
The Allahabad Bank and the Punjab National bank were established in 18125 and 1894
respectively. Under the stimulus of the Swadeshi Movement some other large banks of
to-day that got established between 19012 and 1913 are the Bank of India, the Central
Bank of India, the Bank of Baroda, the Canara Bank, the Indian Bank, and the Bank of
Mysore.
The major banking events of the inter-war period (1918-39), were the amalgamation of
the three Presidency Banks into the Imperial Bank of India in 1921 and the establishment
of the Reserve Bank of India in 1935 as the central bank of the country.
The establishment of the Imperial Bank of India, with its large network of branches all
over India, strong capital base, and conservative management, according to the principles
of commercial banking, lent stature and strength to commercial banking in India. The

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setting up of the RBI filled a big gap in Indias banking structure and met one of the
necessary conditions for a healthy growth of banking in the country.
The progress of banking during the Second World War and its immediate aftermath was
again characterised by over-rapid expansion and large-scale failure of banks. When India
became independent in 1947, it inherited an extremely weak banking structure, with 1240
banks of which only 912 were scheduled banks and the rest small non-scheduled banks.
The banking facilities were heavily concentrated in metropolitan centres, cities, and port
towns, with a very high proportion of total advances going to trade.

2.2 Advantages
Commercial banking can help a small business by making it easier to manage day-to-day
financial tasks. An established commercial account with a bank will make it easier to
borrow money when you grow your business. Often a business is assigned a
representative who works directly with the company to find the best services and
solutions for the issues the business is facing. For example, the company may save
money by outsourcing payroll processing. Banks also offer invoicing services, with
personalized invoices, and can set up transfers to other banks which will simplify
accounting procedures. Some banks offer retirement account management for your
employees as well as other employee benefits. This can save you money, and make it
easier to manage all of the services you offer employees. Some banks allow you to make
deposits online by scanning checks. Your bank may offer you discounts on your merchant
services fees. Commercial banking allows you to set up direct deposits for your
employees as well as for any invoices you need to pay to others, which will save you
time.

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2.3 Disadvantages
Commercial banking or business accounts are often more expensive than traditional bank
accounts. Banks may charge fees for night deposits, for processing a certain number of
checks and for the payroll services. Depending on the size of your business, some of the
services offered may not be needed, and you may still be charged for the services even if
you're not fully using them. Different banks may offer different services and charge
different fees, and it can be difficult to compare the services. Signing up for a commercial
account before your business is ready for one will cost you and may slow the growth of
the business. If you choose the wrong bank, you may have a difficult time opening a new
account and transferring all of the services to another bank. This can cost you both time
and money.

3. AIMS OF COMMERCIAL BANKS:

The key aim of a commercial bank is to make a profit for its shareholders. The main way
it does this, is by giving loans ( which bankers often refer to as advances). Another aim
which can conflict with the key aim is what is known as liquidity. Banks have to ensure
that they can meet their customers' requests to withdraw money from their accounts.
To do this bank have to keep a certain amount of, what are called, liquid assets. These are
the items which can be turned into cash quickly and without incurring loss. Bank earn
most of the interest by giving long term loans.
However if they tie up all their money in such loans, they would not be able to pay out
cash to the customers requesting it. They have to balance profitability and liquidity
having some assets earning high interests but being illiquid and having others earning
low or no interest but being liquid.
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4.OBJECTIVE
1.
2.
3.
4.
5.
6.
7.
8.

To study the present position of selected Commercial Banks

To emphasis the growth profile of selected commercial banks
Describe the various functions of commercial banks;
Differentiate between primary and secondary functions of commercial banks;
Classify and discuss the primary functions of modern commercial banks;
Enumerate the various modes of acceptance of deposits;
Identify various methods of granting loans;
Describe agency and general utility services of modern commercial banks.

5. IMPORTANT PRINCIPLES OF COMMERCIAL BANKS

1. Principles of liquidity:- Deposits are the life blood of the commercial bank.
Depositors are repayable on demand or after the expiry of a certain period. Everyday
depositors either deposits or withdraw cash.
2. Principles of Profitability:- The driving force of commercial enterprise is to generate
profit. So it is true in case of commercial bank.
3. Principles of solvency:- Commercial bank should have financially sound and maintain
a required capital for running the business.
4. Principles of safety: While investing the fund, banks are to be cautions because banks
money is depositors money. Unless the money lent out is safe, the banks cant pay
depositors money back. Therefore, the banks are considering very seriously the aspects of
safety of the lent out money.
5. Principles of collection of savings: This is very important principles for today are
banking business. Commercial banks always seek huge amount of idle money from the
clients. Now a days banks fix up the target for their employees to generate more savings
from the people.

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6. Principles of loan and investment policy: the main earning sources of commercial
banks are lending and investing money to the viable projects. So commercial banks
always try to earn profit through sound investment.
7. Principles of economy: Commercial banks never go for any unnecessary expenditure.
They always try to maintain their functions with economy that increase their yearly
profit.
8. Principles of providing services: Commercial bank thinks that customer service
should be done efficiently and promptly. A better service brings great reputation for the
bank.
9. Principles of secrecy: Commercial bank maintains and keeps the clients accounts
secretly. Nobody except the legitimized person is allowed to see the accounts of the
clients.
10. Principles of modernization: It is the age of science and technology. So to cope up
with the advanced world the commercial bank has to adopt modern technical services
like online banking, credit card etc.
11. Principles of specialization: It is an age of specialization. Here commercial banks
segments their whole functions into various parts and place their human resources
according to their efficiency.
12. Principles of location: Commercial banks choose a suitable site where the
availability of customers is large.
13. Principles of relation: Commercial banks always try to maintain a good relation with
their clients and potential customers.
14. Principles of publicity: It is an age of publicity. If you would like to earn more
money, you have to give more advertisement through various media. In that case,
commercial banks follow this kind of principles to increase their customers.

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6.THE FUNCTIONS OF COMMERCIAL BANKS

Commercial banks perform several crucial functions to satisfy the needs of the various
sectors of the economy, which may be classified into two categories: (I) Primary
functions, and (II) Secondary functions.
(I) Primary banking functions of the commercial banks include:
I. Accepting Deposits
2. Lending of funds
3. Use of cheque system; and
4. Remittance of funds.
1. Accepting Deposits from the Public Accepting deposits is the primary function of a
commercial bank. By receiving deposits from the public, commercial banks mobilise
savings of the household sector. Banks generally accept deposits in three types of
accounts:
(i) Current Account,
(ii) Savings Account, and
(iii) Fixed Deposits Account.
1. Deposits in Current Account are withdrawable by the depositors by cheques for any
amount to the extent of the balance at their credit, at any time without a, prior notice.
Deposits of current accounts are, thus, known as Demand deposits. Such accounts are
maintained by commercial and industrial firms and businessmen, and the cheque
system is the most convenient and very safe mode of payment. No interest is
provided for such deposits. In fact bank charge certain commission for providing the
facility.

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2.Saving Accounts are maintained for encouraging savings of households. Withdrawals

from deposits from savings account are not freely allowed as in the case of current
account. There are some restrictions on the amount to be withdrawn at a time and also on
the number of withdrawals made during a period. Indian commercial banks have,
however, relaxed these nrtes of savings accounts to a certain extent in recent times.
Banks pay a rate of interest on the savings account deposits as prescribed by the central
bank. Presently, it is 5 % p.a. A nominal rate of interest is provided for such deposits.
3. Fixed Deposits Account are time deposits. In the normal course, deposits cannot be
withdrawn before the expiry of the specified time period of the deposits. A premature
withdrawal is, however, permitted only at the cost of forfeiture of the interest payable, at
least partly. On these deposits commercial banks pay higher rates of interest, and the rate
becomes higher with the increase in duration. Longer the time period, higher would be
the rate of interest and vice versa.
By creating such varieties of deposit, banks motivate savers and depositors in a variety of
ways and encourage savings in the economy. Further, by keeping deposits with bank,
depositors' money, is not secure and remains in safe custody, but it yields interest also.
Moreover, banks demand deposits are in the form of liquid cash, for they serve as money
to the business community and, therefore, is called bank money.

2. Lending of funds Another major function of commercial banks is to extend loans and
advances out of the money which comes to them by way of deposits to businessmen and
entrepreneurs against approved such as gold or silver bullion, government securities,
easily saleable stock and share, and marketable goods. Banks advances to customers may
be made in many ways:
(i) Overdrafts,

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(ii) Cash Credits,

(iii) Discounting Trade Bill,
(iv) Money-at-call or very short-term advances,
(v) Term loans,
(vi) Consumer Credit,
(vii) Miscellaneous Advances.
(i) Overdraft: A commercial bank grants overdraft facility to an account holder by which
he is allowed to draw an amount in excess of the balance hels in the account, up to the
extent of stipulated limit. Overdrafts are permissible in current account only. Suppose, a
customer has Rs. 50,000 in current account with the banks. Bank grants him overdraft
facility upto R, 10,000. Then, this customer is entitled to issue cheques upto Rs. 120,000
on (111 110. Obviously, overdraft facility sanctioned upto Rs.I0,000 by the bank in this
case is as good as credit granted by the bank to that extent.
(ii) Cash credit: Bank give credit in cash to business firm in industry and trade, against
pledge or hypothecation of goods, or personal guarantee given by the borrowers. It is
essentially a drawing account against credit sanctioned by the bank and is operated like a
current account on which an overdraft is sanctioned. It is the most popular mode of
advance in the Indian banking system.
(iii) Discounting trade bill: The bank facilitate trade and commerce by discounting bills
of exchange called trade bills. Traders often draw bill of exchange to meet their
obligations in business transitions. Such a trade bill is payable in cash on =rarity, after a
stipulated date. Discounting of bills by the bank amounts to granting of credit to the party
concerned till the maturity date of the bill. This method of bank lending is widely
adopted for two reasons:
(a) such loans are self liquidatory in character; and
(b) these trade bills are rediscountable with the central bank.

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(iv) Money at call or very short term advances: Bank also grants loans for a very short
period, generally not exceeding 7 days to the borrowers, usually dealers or brokers in
stock exchange markets against collateral securities like so. or equity share, debentures,
etc., offered by them. Such advances are repayable immediately at notice hence, they are
described as money at call or call money
(v) Term Loans: Banks give term loans to traders, industrialism and now to
agriculturists also against some collateral securities. Term loans are so-called because
their maturity period varies between 1 to 10 years. Term loans as such provide
intermediate or working capital funds to the borrowers. Sometimes, two or more banks
may jointly provide large term loan to the borrowers against the common security. Such
loans are called as participation loans or consortium finance.
(v) Consumer credit:- Bank also grant to households in a limited amount to buy some
durable consumer goods such as television sets, refrigerators, etc. Or to meet some
personal needs like payment of hospitals bills, etc. Such consumer credit is made in a
lump sum and is repayable in instalments in a short time. Under the 20 point expenses on
marriage funeral etc. As well.
(vi) Miscellaneous advances: among other forms of the bank advances there are packing
credit given to exporters for a short duration, exports bills, finance to the self employed,
credit to the public sector, credit to the cooperative sector and above all, credit to the
weaker section of the community at concessional rates.
A commercial bank is authorized to serve the following functions:
Receive deposits - take money in from individuals and businesses (called
depositors)
Disburse payments - make payments upon the direction of its depositors, such as
honouring a check

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Collections - a bank will act as your agent to collect funds from another bank
payable to you, such as when someone pays you by check drawn on an account
from a different bank
Invest funds in securities for a return
Safeguard money - banks are considered a safe place to store your wealth
Maintain and service savings and checking accounts of its depositors
Maintain custodial accounts - accounts controlled by one person but for the benefit
of another person, such as a trust account
Lend money
3. Use of cheque system: it is a unique feature and function of banks that they have
introduced the cheque system for the withdrawal of deposits.
There are two types of cheques:
1. The bearer cheque and
2. The crossed cheque
A bearer cheque is encashable immediately at the bank by its possessor. Since , it is
negotiable, it serves as good as cash on transferability. A crossed cheque, on the other
hand , is one that is crossed by two parallel lines on its face at the left hand corner and
such a cheque is not immediately encashable. It has to be deposited only in the payees
account. It is not negotiable. In modern business transactions, the use of cheque to settle
debts is found to be much more convenient than the use of cash. Commercial banks, thus,
render an important service by providing an inexpensive medium of exchange such as
cheque. In fact, a cheque is also considered as the most developed credit instrument.
4 Remittance of funds:

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Commercial banks, on account of their network of branches throughout the country, also
provide facilities to remit funds from one place to another for their customer by issuing
bank drafts, mail transfer or telegraphic transfer on nominal commission charges. As
compared to the postal money orders or other instrument, bank draft have proved to be a
much cheaper mode of transferring money and has helped the business community
considerably. Secondary banking functions of the commercial banks are also known as
non-banking functions. They perform a multitude of other non-banking functions which
may be classified as:
Agency services and General utility services
1. Agency services
Bankers perform certain functions for & on behalf of their clients as:
To collect or make payments for bills, cheques, promissory notes, interest,
dividends, rents; subscriptions, insurance, premia, etc. For these services, some
charges are usually levied by the banks.
To remit funds on behalf of the client by drafts or mail or telegraphic transfers.
Sometimes, bankers also employ income-tax exporters not only to prepare
income tax returns for their customer but also to help them to get refund of
income tax in appropriate cases.
To work as correspondents, agents or representatives of their clients, often ,
bankers obtain passports, travellers tickets, secure passage for their customers,
and receive letters on their behalf .
2. General utility services
Modern commercial banks usually perform certain general utility
services for their community such as:
Letter of credit may be given by the banks at the behest of the importers
in favour of the exporter.
Banks drafts and travellers cheque are issued in order to provide
facilities for transfer of funds from one part of the country to another.
Banks may deal in foreign exchange or finance foreign trade by
accepting or collecting foreign bills of exchange.

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Shares floated by government, public bodies and corporation may be

underwritten by banks.
Certain banks arrange for safe deposit vaults, so that customers may
entrust their securities and valuables to them for safe custody.
Banks also compile statistics and business information relating to trade,
commerce and industry. Some banks may publish valuable journals or
bulletins containing research on financial, economic and commercial
matters.
Commercial banks play an important role in a modern economy:
They constitute the very life-blood of modern trade, commerce &industry
as they provide the necessary funds for their working capital such as to
buy raw material, to pay wages, to incur current business expenses in
marketing of goods.
These banks encourage peoples saving habit through their various
saving deposit schemes.
They also mobilize idle saving resources from households to business
people for productive use.
The expectation if one of its principal shareholders. In the changed scenario, there would
be two major groups of shareholders, viz. The government of India and RBI on the one
hand and the private shareholder, on the other. Since the expectations of these two
categories of owners are not necessarily identical, the bankers will have to manage
collecting interests.
6.1 Opportunities for indian commercial banks
Challenges are the driving forces that keep on going. They prevent us from being vagary
because they also bring in their wake opportunities. In fact, challenges & opportunities
are like healthy twins, !mocking at our door steps. The process of globalization and
liberalization have thrown open tremendous opportunities for the ban. in terms of
widening of scope of business, greater freedom to operate in financial market both
national and international freedom to deloy relatively largest fun. Because of reduction in
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premption requirements. The Commercial bank are now enjoying greater autonomy in
reviewing & revising existing branch network & greater discretion to reduce amplitude of
cross subsidization to priority sector. Indian Commercial bank have also got the
autonomy in respect of pricing of bank, ducts. In the regulated regime, interest, rates on
both deposits and advances of Commercial banks were tightly regulated and so was the
product range. With gradual deregulation of interest rates, banks are blessed with more
power in pricing and structuring their products. As we know, Commercial banks are in
the business of providing banking services to individuals, small businesses and large
organizations. While the banking sector has been consolidating, it is worth nothing that
far more people are employed in the commercial banking sector than any other part of the
financial services industry. Jobs in banking can be exciting and offer excellent
opportunities to leam about business interact with people and build up a clientele. If you
are well-prepared and enthusiastic about entering the field, you are likely to find a wide
variety of opportunities open to you.
6.2 Strengths of indian commercial banks:
Indian commercial bank possess the following strengths which are distinct from others: i.
Tremendous branch network giving an access to almost entire spectrum of customers ii.
High market coverage iii. Diversified operations iv. Intimate knowledge of local
environment v. High class human resource pool

6.3 Weakness of indian commercial banks:

Indian commercial banks have been ailing from the following weakness because of
which they are finding it to difficult to out beat the new players and exploit the emerging
opportunities:
i.
ii.

Lower Profitability
a. High Operating Costs
High NPAs
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iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

Low Productivity
High Provisioning
Complex and Non- responsive organizational structure.
Poor asset management
Inadequate HRD strategy
Low work culture
Action flippant and inward looking management and employees
Strong, militant and non-responsive unions xii. Limited automation.

6.4 Basic problem of a commercial bank

The basic problem facing a bank manager is to have a satisfactory trade off between
liquidity and profitability - the two principal but conflicting goals of a bank. A batik deals
in the money of the people. The success of the business of a bank depends partly on the
efficiency with which it can provide services to its creditors (depositories), but mainly on
the confidence it inspires among the depositors. It has been AS to attract the deposits of
the people not only by promising some returns on their money but also by committing
itself to repayment on demand. This is why the public accepts bank deposits as being "as
good as cash." The banker must, therefore, ensure an adequate amount of liquidity in his
assets so that he may be able to meet any claims upon it in cash on demand. The perfectly
liquid asset is cash itself because it can fully satisfy the depositors' claims. The more cash
a banker hold, the more obviously he can, without difficulty of any kind, offer cash in
exchange for deposits. Further, the banker with an adequate amount of cash in hand can
meet the credit needs of the community and can make speculative gains. However, cash
is a sterile asset which earns no income at all. A banker cannot afford to ignore income
because the ultimate object of a bank is to make earnings on its business which are
sufficient to compensate it for the cost which it incurs on raising fund, besides paying the
wages of the staff and meeting other expenses. If a banker holds a large portion of his
funds in ready cash without earning any income on it, his business will result in losse,
and sound the death-knell of the bank after some time. He must therefore, employ the
bulk of the bank's resources in giving loans and advance, and in investing them in highyielding securities. Such investments are, however, subject to credit risk the risk

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arising from default in repayment money lent out and the money rate risk the risk
arising out of fluctuations in the market rate of interest. The banker will not be able to
satisfy the cash requirements of the depositors on demand with the funds deployed in the
other investments. Once the depositor's cheques are not honored, the bank will lose the
confidence of the public, which will result in a mass run on the banes counters and
jeopardize the liquidity position of the bank. Ultimately, the very survival of the bank is
endangered. Liquidity and profitability are, therefore, inimical to each other. Cash has
perfect liquidity but lacks yield. At the other ends are some loans and investments which
yield a high rate of interest, but are hardly liquid at all. The conflict between liquidity and
income is not as sharp as it appears. In order to ensure long-run earnings, the commercial
bank must retain public confidence in order to continue to survive and provide for the
liquidity needs of the bank. The art of commercial banking lies in the resolution of the
conflict between liquidity and profitability. "It is an art because science has not furnished
inviolable rules; bank must be managed with discrimination and good judgement rules
and scientific procedures for doing the whole job cannot be framed."I A number of
approaches, ways and means of resolving
6.5 Current scenario of commercial banking:
Currently (2007), overall, banking in India is considered as fairly mature in terms of
supply, product range and reach-even though reach in ruml India still remains a challenge
for the private sector and foreign banks. Even in terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent balance
sheets-as compared to other banks in comparable economies in its region. The Reserve
Bank of India is an autonomous body, with minimal pressure from the government. The
stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated
exchange rate-and this has mostly been true. With the growth in the Indian economy
expected to be strong for quite some time-especially in its services sector, the demand for
banking services-especially retail banking, mortgages and investment services are

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expected to be strong. M&As, takeovers, asset sales and much more action (as it M
unravelling in China) will hap, on this front in India.
In March 20012, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector bank since the .1 announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them
Currently, India has 88 scheduled commercial banks (SC.) - 28 public sector bank (that is
with the Government a India holding a stake), 29 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 31
foreign banks. They have a combined network of over 53,000 branches and 17,000
ATIS.. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
ban. holding 18.2, and 12.5, respectively. We know that, in banking, there is no such
thing as "one size fits all." But today's commercial banks are mom diverse than ever.
You'll find a tremendous range of opportunities in commercial banking, starting at the
branch level because Commercial bankers, now are highly experienced in working with
businesses to develop the right financial package to meet your unique business nee..
Thus, Commercial lending today is a very intense activity, with bank carefully analysing
the financial condition of their business clients to determine the level of risk in each loan
transaction

6.6 Future prospects of commercial banking:

Indian banking has developed. But, its perfection is yet to be seen. There still remain
many tasks to be fulfilled. Historically, profitability from lending activities has been
cyclic and dependent on the needs and strengths of loan customers. In recent history,
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investors have demanded a more stable revenue stream and banks have therefore placed
more emphasis on transaction fee, primarily loan fees but also including service charges
on array of deposit activities and ancillary services (international banking, foreign
exchange, insurance, investments, wire transfer, etc). However, lending activities still
provides and in future, too will provide bulk of a Commercial bank's income.
As part of the financial services industry, commercial banking are worldwide attempting
to compete better by improving core operations and differentiating the customer
experience. The banking sector has been consolidating; it is worth noting that far more
people are employed in the Commercial banking sector than a, other part of the financial
services industry. Jobs in banking can be exciting and offer excellent opportunities to
learn about business, interact with people and build up a clientele. In future, if we are
well-prepared and enthusiastic about entering the field, we are likely to find a wide
variety of opportunities open to us.
Thus, we can predict the future of Commercial bank, to be spreaded world wide. They
will be providing an unprecedented level of service to a wide range of business clients,
from small business, through to multi-national corporate clients. In future, Commercial
Bank will come up with more innovative and experienced depth knowledge of specific
sectors, to meet all of our banking requirements.
Abstract The Indian Banking Industry has undergone radical changes due to liberalization
and globalization measures undertaken since 1991. Today, Indian Banking Industry is one
of the largest industry in the world. There has been a great surge in efficient customer
services. A highly satisfied and delighted customer is a very vita qndl non-financial asset
for the banks in the emerging IT era. The curtsey, accuracy and speed are like a crown
factors for a bank. Based on the responses of 100 customers of Punjab National Bank
operating in the Meerut district of Uttar Pradesh has been taken into consideration. The
survey was conducted in Meerut district. Key Words: Organized Segment, Customer
satisfaction, Retail Banking, Universal Banking.

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In the organized segment of Indian economy, the banking sector occupies an important
place in nations economy. It plays a pivotal role in the economic development of a
country and forms the core of the money market in developed country. Banks have to
deal with many customers every day and render various types of services to its customer.
It's a well known fact that no business can exist without customers. Not so long ago,
accessing our own money was about setting aside a couple of hours, getting to the bank
before closing time, standing in a queue to get a token and then in another to collect the
cash. The banking industry like many other financial service industries is facing a rapidly
changing market, new technologies, economic uncertainties, fierce competition and more
demanding customers and the changing climate has presented an unprecedented set of
challenges. Banking is a customer oriented service industry, therefore, the customer is the
focus and customer service is the differentiating factor. The banking industry in India has
undergone sea changes since post independence. The business depends upon client
services and the satisfaction of the customer and this is compelling them to improve
customer services and build up relationship with customers. The main driver of this
change is changing customer needs and expectations. Customers in urban India no longer
want to wait in long queues and spend hours in banking transactions. This change in
customer attitude has gone hand in hand with the development of ATMs, phone and net
banking along with availability of service right at the customer's doorstep. With the
emergence of universal banking, banks aim to provide all banking product and service
offering under one roof and their endeavor is to be customer centric. With the emergence
of economic reforms in world in general and in India in particular, todays banks have
come up in a big way with prime emphasis on technical and customer focused issues.
Customer satisfaction, a business term, is a measure of how products and services
supplied by a company meet or surpass customer expectation. It is seen as a key
performance indicator within business. In a competitive marketplace where businesses
compete for customers, customer satisfaction is seen as a key differentiator and
increasingly has become a key element of business strategy. Customer satisfaction is an
ambiguous and abstract concept and the actual manifestation of the state of satisfaction

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will vary from person to person and service to service. The state of satisfaction depends
on a number of both psychological and physical variables.
3. LITERATURE REVIEW Indian banking system has undergone a drastic change
after the independence of the country. There has been a significant change in the
structure, composition, management objectives and the mode of working of the
banking institutions over the last three decades or so. Cut to the present day and
the nature of banking has changed beyond recognition. With ATM cards, simple
banking transactions like withdrawing and depositing money are easier than ever
before. For the tech savvy, there is the option of banking online. The next medium
may just be your mobile. Even when it comes to products, the changes have been
many. Graduating from simple saving accounts and fixed and recurring deposits,
banks now offer a host of products like special saving accounts and sweep-inaccount, no frills accounts and easy receive accounts. Satisfaction is basically a
psychological state; care should be taken in the effort of quantitative measurement,
although a large quantity of research in this area has recently been developed.
Work done by Berry (Bart Allen) and Brodeur between 1990 and 1998 defined ten
'Quality Values' which influence satisfaction behavior, further expanded by Berry
in 2002 and known as the ten domains of satisfaction. These ten domains of
satisfaction include: Quality, Value, Timeliness, Efficiency, Ease of Access,
Environment, Inter-departmental Teamwork, Front line Service Behaviors,
Commitment to the Customer and Innovation. These factors are emphasized for
continuous improvement and organizational change measurement and are most
often utilized to develop the architecture for satisfaction measurement as an
integrated model. Work done by Parasuraman, Zeithaml and Berry (Leonard L)
between 1985 and 1988 provides the basis for the measurement of customer
satisfaction with a service by using the gap between the customer's expectation
of performance and their perceived experience of performance. This provides
the measurers with a satisfaction "gap" which is objective and quantitative in
nature.

Work

done

by

Cronin

and

Taylor

propose

the

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"confirmation/disconfirmation" theory of combining the "gap" described by

Parasuraman, Zeithaml and Berry as two different measures (perception and
expectation of performance) into a single measurement of performance
according to expectation. According to Garbrand, customer satisfaction equals
perception of performance divided by expectation of performance. The usual
measures of customer satisfaction involve a survey with a set of statements
using a Likert Technique or scale. The customer is asked to evaluate each
statement and in terms of their perception and expectation of performance of
the organization being measured. The working of the customer's mind is a
mystery which is difficult to solve and understanding the nuances of what
customer satisfaction is, a challenging task. This exercise in the context of the
banking industry will give us an insight into the parameters of customer
satisfaction and their measurement. This vital information will help us to build
satisfaction amongst the customers and customer loyalty in the long run which
is an integral part of any business. The customer's requirements must be
translated and quantified into measurable targets. This provides an easy way to
monitor improvements, and deciding upon the attributes that need to be
concentrated on in order to improve customer satisfaction. We can recognize
where we need to make changes to create improvements and determine if these
changes, after implemented, have led to increased customer satisfaction.

7.ROLE OF COMMERCIAL BANK

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1.Mobilising Saving for Capital Formation:

The commercial banks help in mobilising savings through network of branch banking.
People in developing countries have low incomes but the banks induce them to save by
introducing variety of deposit schemes to suit the needs of individual depositors. They
also mobilise idle savings of the few rich. By mobilising savings, the banks channelise
them into productive investments. Thus they help in the capital formation of a developing
country.
2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways. They provide
short-term, medium-term and long-term loans to industry. In India they provide shortterm loans. Income of the Latin American countries like Guatemala, they advance
medium-term loans for one to three years. But in Korea, the commercial banks also
advance long-term loans to industry. In India, the commercial banks undertake short-term
and medium-term financing of small scale industries, and also provides hire- purchase
finance.
3. Financing Trade:
The commercial banks help in financing both internal and external trade. The banks
provide loans to retailers and wholesalers to stock goods in which they deal. They also
help in the movement of goods from one place to another by providing all types of
facilities such as discounting and accepting bills of exchange, providing overdraft
facilities, issuing drafts, etc.

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4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing countries in a
number of ways. They provide loans to traders in agricultural commodities. They open a
network of branches in rural areas to provide agricultural credit. They provide finance
directly to agriculturists for the marketing of their produce, for the modernisation and
mechanisation of their farms, for providing irrigation facilities, for developing land, etc.
5. Financing Consumer Activities:
People in underdeveloped countries being poor and having low incomes do not possess
sufficient financial resources to buy durable consumer goods. The commercial banks
advance loans to consumers for the purchase of such items as houses, scooters, fans,
refrigerators, etc. In this way, they also help in raising the standard of living of the people
in developing countries by providing loans for consumptive activities.
6. Financing Employment Generating Activities:
The commercial banks finance employment generating activities in developing countries.
They provide loans for the education of young persons studying in engineering, medical
and other vocational institutes of higher learning. They advance loans to young
entrepreneurs, medical and engineering graduates, and other technically trained persons
in establishing their own business. Such loan facilities are being provided by a number of
commercial banks in India. Thus the banks not only help inhuman capital formation but
also in increasing entrepreneurial activities in developing countries.
7. Help in Monetary Policy:
The commercial banks help the economic development of a country by faithfully
following the monetary policy of the central bank. In fact, the central bank depends upon

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the commercial banks for the success of its policy of monetary management in keeping
with requirements of a developing economy.

8.IMPORTANCE OF COMMERCIAL BANK

Commercial banks play a key role in the economy both at a national and global level.
The importance of commercial banks include the fact that they serve as a trusted and safe
place where the funds of people and businesses can be kept on their behalf, reducing the
necessity to keep large sums of money on the private or business premises. On the
international level, commercial banks serve as a source for transferring money from one
country to another, eliminating the need to travel with money. The money paid by
depositors into their savings accounts are also used by the banks to foster economic
growth through the lending of such money to various businesses and individuals.
An importance of commercial banks is the role they play in the development of the
economy. They help various consumers, both individuals and businesses, purchase items
that they would not have been able to purchase without financial assistance from the
banks. This includes the purchase of cars, houses and more capital intensive items like
machinery or manufacturing plants. They also make it easier for their customers to repay
the money through the arrangement of long-term financial plans where the money will be
spread over a determined length of time. The advantage is that this makes it easier for the
borrowers to repay the money, even if they have to pay interest on the loan as a sort of
service charge.
Commercial banks are also called joint stock banks, retail or high street banks. All four
names tell us something about them. Commercial indicates that they are business
organizations which seek to make a profit. Joint stock means that they have limited
liability and are in the private sector.
In most countries, the majority of banks are public limited companies but there is usually
a number of private limited banks also. Retail suggests that they are selling the public
something in this case banking services. High street tells us that these banks are found
in most of the towns and cities. They are the banks we are most familiar with.

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9.BALANCE SHEET OF COMMERCIAL BANK

Form of Balance sheet:

Liabilities

Asset

1. Share Capital

1. Cash

2. Reserve Fund

2.Balances with the Central Bank and other

banks.

3.Deposits

3. Money at call and Short-Notice

4. Borrowings from other banks

4.Bill Discounted and Purchased.

5.Bills Payable

5. Investments

12. Bills for collection

12. Loans, Advances, Cash Credits and

Overdrafts.

7. Acceptances. Endorsements and other

7. Liabilities of Customer for Acceptances.

obligations

Endorsements and other Obligations.

8. Contingent Liabilities

8. Property, Furniture, Fixtures less

Depreciation

9. Profit and Loss

9. Profit and Loss

10.MEASURING CUSTOMER SATISFACTION IN THE

BANKING INDUSTRY

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Banking operations are becoming increasingly customer oriented. The demand for
'banking supermalls' offering one-stop integrated financial services is well on the rise.
The ability of banks to offer clients access to several markets for different classes of
financial instruments has become a valuable competitive edge. Convergence in the
industry to cater to the changing demographic expectations is now more than evident.
Bank assurance and other forms of cross selling and strategic alliances will soon alter the
business dynamics of banks and fuel the process of consolidation for increased scope of
business and revenue. The thrust on farm sector, health sector and services offers several
investment linkages. In short, the domestic economy is an increasing pie which offers
extensive economies of scale that only large banks will be in a position to tap. With the
phenomenal increase in the country's population and the increased demand for banking
services; speed, service quality and customer satisfaction are going to be key
differentiators for each bank's future success. Thus, it is imperative for banks to get
useful feedback on their actual response time and customer service quality aspects of
retail banking, which in turn will help them take positive steps to maintain a competitive
edge.
10.1 The need to measure customer satisfaction
Satisfied customers are central to optimal performance and financial returns. In many
places of the world, business organizations have been elevating the role of the customer
to that of a key stakeholder over the past twenty years. Customers are viewed as a group
whose satisfaction with the enterprise must be incorporated in strategic planning efforts.
Forward-looking companies are finding value in directly measuring and tracking
customer satisfaction as an important strategic success indicator. Evidence is mounting
that placing a high priority on customer satisfaction is critical to improved organizational
performance in a global market place. With better understanding of customers'
perceptions, companies can determine the actions required to meet the customers' needs.
They can identify their own strengths and weaknesses, where they stand in comparison to
their competitors, chart out the path of future progress and improvement. Customer

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satisfaction measurement helps to promote an increased focus on customer outcomes and

stimulate improvements in the work practices and processes used within the company.
When buyers are powerful, the health and strength of the company's relationship with its
customers its most critical economic asset is its best predictor of the future. Assets on
the balance sheet basically assets of production are good predictors only when buyers
are weak. So it is no wonder that the relationship between those assets and future income
is becoming more and more tenuous. As buyers become empowered, sellers have no
choice but to adapt. Focusing on competition has its place, but with buyer power on the
rise, it is more important to pay attention to the customer. Customer satisfaction is quite a
complex issue and there is a lot of debate and confusion about what exactly is required
and how to go about it. This article is an attempt to review the necessary requirements,
and discuss the steps that need to be taken in order to measure and track customer
satisfaction.
10.2 What constitutes Satisfaction? The meaning of satisfaction: "Satisfied" has a range
of meanings to individuals, but it generally seems to be a positive assessment of the
services. The word "satisfied" itself had a number of different meanings for respondents,
which can be split into the broad themes of contentment/happiness, relief, achieving aims
and happy with outcome and the fact that they did not encounter any hassle:
10.3 Happy Content Happy, pretty happy, quite happy Pleased Walked out of
there feeling good Walk out of there chuffed Grateful the service has been Relieved
Thank God for that: Phew At ease Can relax Stress reduction Secure Safe
10.4 Go to the bank with a troubled mind and they sort it out for you Sleep at night
without worrying what's going to go on Everything is sorted out in your mind and
you're happy Secure, you know the money has been sorted out Knowing the money's
going to be there
10.5Achieving aims Achieving your aim or goal Getting what you went in for
Achieve whatever it is you wanted to achieve Come away with a proportion of what
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you want Got what wanted in the end Got what you went down for Everything went
according to plan, the way it should have done Met expectations To be unsatisfied is
when you come out and you are still on the same level as you were before Achieving
aims, and happy with outcome Happy with the results Happy with what you've got
When you walk out you're happy they've sorted everything out and quickly
Happy with outcome Pleased with what has happened Content with what has been
done for you A feeling of happiness having achieved your goal
You go there feeling down and the only way you are going to come out satisfied is that
if they have been good to you
10.6No hassle
Not frustrated Everything goes smooth No hassle No problem

No hassle

getting there Straight forward Clearly then there is some variation in understanding
of the term. Some of the interpretations fit with the definition used in much of the
service quality and satisfaction literature, where satisfaction is viewed as a zero state,
merely an assessment that the service is adequate, as opposed to delight which
reflects a service that exceeds expectations. However, most respondents have more
positive interpretations of the term. These questions allow us to identify priorities for
improvement by customer satisfaction with stated (overt) importance, comparing
satisfaction with modeled (covert) importance (from identifying key drivers of overall
satisfaction), as well as respondents own stated priorities.
10.7 Service Quality and Customer Satisfaction There is a great deal of discussion
and disagreement in the literature about the distinction between service quality and
satisfaction. The service quality school view satisfaction as an antecedent of
service quality satisfaction with a number of individual transactions decay into
an overall attitude towards service quality. The satisfaction school holds the
opposite view that assessments of service quality lead to an overall attitude
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towards the service they call satisfaction and customer retention customers
perception of Service and Quality of product will determine the success of the
product or service in the market. If experience of the client from the previous
services, greatly exceeds the expectations then satisfaction will be high, and vice
versa. In the service quality literature, perceptions of the service delivery are
measured separately from customer expectations, and the gap between the two
provides a measure of service quality.
10.8 Expectations and Customer Satisfaction Expectations have a central role in
influencing satisfaction with services, and these in turn are determined by a very
wide range of factors lower expectations will result in higher satisfaction ratings
for any given level of service quality. This would seen sensible; e.g., poor previous
experience with the service or other similar service is likely to result in it being
easier to pleasantly surprise customers. However, there are clearly circumstance
where negative preconceptions of a service provider will lead to lower
expectations, but will also make it harder to achieve high satisfaction ratings and
where positive preconception and high expectations make positive rating more
likely. The expectations theory in much of the literature, therefore, seems to be an
over simplification.

11.BANKING INDUSTRY:
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AN OVERVIEW For centuries banks have played an important role in financial

system of the country. The vital role continues even today although the form of
banking has changed today with changing need of the economy and individuals.
With expansion of trade and commerce, the concept of banking gained importance.
The banking transcended from individuals to groups and later to companies.
During the Mughal period the indigenous bankers played a very important role in
lending money and financing foreign trade in India. During British rule the agency
houses carried on the banking business. The Banking system in India has three
tiers. There are scheduled commercial banks, the regional rural banks; and the
cooperative banks. The scheduled commercial banks constitute those banks which
are included in the second schedule of RBI Act, 1934. In the organized segment,
banking system occupies an important place in nations economy. It plays a pivotal
role in the economic development of a country and forms the core of the money
market in developed country. The commercial banks in India comprise of both
Public sector as well as private sector banks. There are total 28 Public sector and
27 private sector banks functioning in the country presently. Banks have to deal
with many customers everyday and render various types of services to its
customer. It's a well known fact that no business can exist without customers.

12.CASE STUDY
12.1 PUNJAB NATIONAL BANK
Since its humble beginning in 1895 with the distinction of being the first Indian Bank to
have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2011 amounted to 5,55,005 crore. PNB is ranked as the 2nd
largest bank in the country after SBI in terms of branch network, business and many

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other parameters. With over 120 million satisfied customers and more than 5100 offices
including 5 overseas branches, PNB has continued to retain its leadership position
amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise
value and good brand image. Apart from offering banking products, the bank has also
entered the credit card, debit card; bullion business; life and non-life insurance; Gold
coins & asset management business, etc. PNB has earned many awards and accolades
during the year in appreciation of excellence in services, Corporate Social Responsibility
(CSR) practices, transparent governance structure, best use of technology and good
human resource management.

12.2 OBJECTIVES OF THE STUDY

Analyzing what is relevant to a successful banking relationship, so that Punjab National
Bank can achieve and maintain customer satisfaction in the new climate; and identifying
and commenting on what we see as the key actions that bank must take to retain and
expand their customer base in this challenging and increasingly sophisticated market.

12.3 SCOPE OF THE STUDY

The scope of the study is confined to the Punjab National Bank in terms of customer
satisfaction. The study has been undertaken on the basis of sample survey.
12.4 DATA ANALYSIS
Table-1: Statement showing different level of customer satisfaction in Punjab National
Bank Very Dissatisfied Very Satisfied Highly Satisfied Not Using Service Mobile
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Banking 0% 0% 20% 4% 0% 712% Branch Banking 4% 8% 120% 28% 0% 0% Internet

Banking 0% 0% 112% 12% 0% 72% ATM Banking 12% 8% 49% 14% 0% 23% 712%
of the customers are not using mobile banking whereas only 20% of the customers are
satisfied with the service. 120% of the customers are satisfied with the behavior of the
staff and 28% are very satisfied and no one is highly satisfied. 28% of the customers are
using internet banking out of which only 12% are very satisfied with the service whereas
72% of customers are not using the internet banking 23% of the customers are not using
ATM banking, whereas only 14% are very satisfied with this service. Reasons of
Dissatisfaction in Public sector banks: Behavior and attitude of the staff in the bank is
the first reason of customer dissatisfaction. Time taken to process the transaction is the
second reason of customer dissatisfaction.

Many customers are unaware with the

services provided by the bank e.g., Mobile Banking.

Continuous services are not

provided by ATM machines installed by the bank.

12.5 RECOMMENDATIONS
The staff should be adequately trained to deal with the customer on one to one basis.
Banks need to revive their infrastructure to have pace with the competing environment.
Many of the services needs improvement e.g., ATM facilities.

Staff should be

adequately trained to encourage face to face dealing. Staff should be friendly and
approachable.

Clearly defined customer policy should be adopted by the banks.

Customers needs should be anticipated in advance so that they can be helped out in a
better way. Treat your customers like your friends and they'll always come back.
Honour your promises

12.6 LIMITATIONS

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The study is geographically restricted to Meerut city, U.P. (India) only. Findings are
based on sample survey through questionnaire method. Hence there is a scope for the
respondents to be biased.

12.7 EMERGING ISSUES

The emerging competition and information technology has enhanced the expectations of
banks customers. Many banks are unable to meet the expectations of the customers and
gap between the available facilities and expectations is widened. It is the utmost
important to fulfill this widening gap. The new competition has raised many issues like,
awareness regarding new technology, high cost in e-banks, customers confidence in echannels, capturing rural and semi-urban population, marketing with e-channels,
changing customer profile, proper location of ATMs, lack of IT experts and IT related
infrastructure for the Indian banking industry. These issues must be tackled very carefully
and wisely to compete in the global market.

13.CONCLUSION

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In the emerging competitive environment and IT era, with little or no distinction in the
product offerings, it is the speed of rendering service that sets apart one bank from
another. Prompt service is equated with quality service. Time is a major factor which
affects the quality and reputation of the bank. E-banks are providing quick service and
that is why they are becoming more popular. Hence it is very essential that the bank
should put in place the right kind of systems to further cut down on service time and
render instantaneous services to the customer. Only such banks will tend to survive in the
rat race for market shares in the days to come.
Over five decades the Commercial banks in India achieved astounding success by
enormously spreading banking services in far-flung and unbanked areas a the country
through their massive branch network are garnering burgeoning amount of savings which
represent half of the GDP of the country. A major portion of these resources had been
deployed to meet the needs of priority sectors which are critical to the economy.
However, it is crucial for the commercial banking industry to meet the increasingly
complex savings and financing needs of the economy by offering a wider and flexible
range of financial products tailored for all types of customers. In recent yea, it is being
felt widely that the commercial banking system has not actually grown as sound &
vibrant as it needed to be. Strong capital positions and balance sheets places the
Commercial banks in a better position to deal with and absorb the economic shocks.
These Banks need to face competition without diluting the operating standards. In
banking, there is no such thing as "one size fits all." But today's commercial banks are
more diverse than ever. You'll find a tremendous range of opportunities in commercial
banking, starting at the branch level because commercial banker, now are highly
experienced in working with businesses to develop the right financial package to meet

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your unique business needs. The face of Commercial banking is changing rapidly.
Competition is going to be tough Bank should avail of the existing and upcoming
opportunities as well as address the above-discussed issues if they have to succeed, not
just survive, in the changing environment. Thus, Commercial Banks occupy a dominant
place in the money market, they are like a reservoir into which flow the savings, the idle
surplus, money of household and from which loans are given on interest to businessmen
& others who need them for investment or productive uses.

14.HYPOTHESIS

The Hypothesis being put forth for this study about commercial banking is that
awareness of commercial banks is 100% but there are still many people who do not know
about the commercial banks and the amenities provided by them. commercial banks are
coming up with new innovative ideas and schemes for increasing their customer base and
fulfilling the needs of general public.

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15.REVIEW OF LITERRATURE

Commercial banks have always played an important role in the tremendous economic
development that has taken place in the region over recent years. In the light of these
developments, the objective of this review is to identify the determinants of profitability
of commercial banks. The determinants of profitability and theories thereof used in this
review are those frequently described in conventional banking studies and literature. The
profitability determinants were basically divided into two main categories, namely the
internal determinants and the external determinants. The internal determinants include
management controllable factors such as liquidity, investment in securities, investment in
subsidiaries, loans, non-performing loans, and overhead expenditure. Other determinants
such as savings, current account deposits, fixed deposits, total capital and capital
reserves, and money supply also play a major role in influencing the profitability.
Similarly, external determinants include those factors which are beyond the control of
management of these institutions such as interest rates, inflation rates, market growth and
market share.

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16.RESEARCH & METHODOLOGY

In order to make the report more meaningful and presentable, two sources of data and
information have been used widely.
Primary Data:Face to Face conversation with the respective officers and staffs of the branch.
Informal conversation with the clients.
Practical work exposures from the different desks of the departments of the branch
covered.
Secondary Data:Gathering Data through books, journals, websites, newspaper etc.

Data Collection Procedure:In Order to collect the data a questionnaire which is a combination of both open
ended and close ended has been used. Personal Interview also use to collect the
data.

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17.BIBLIOGRAPHY
BOOKS REFERD:MODERN FUNCTIONS OF COMMERCIAL BANK
https://en.wikipedia.org/wiki/Commercial_bank
theincomparable.yolasite.com/.../Functions%20of%20Commercial%20Ba...
https://www.scribd.com/.../Meaning-and-Functions-of-Commercial-Bank

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