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4 Characteristics
Innovations
Technology
Users
Segmentation
8 P`s
PEST Analysis
Additional matter
INTRODUCTION:
The banking sector in India has been widening its scope due to liberalization. Banks
today are not mere suppliers of money. They have become providers of services such as
selling insurance, mutual funds, investment opportunities etc. In the past, the banks did
not find any attraction in the Indian Economy because of low level of economic activities
and few business prospects. Today we find positive changes in the National Business
Development Policy. The private sector banks failed in serving the society. This resulted
in nationalization of 14 commercial banks in 1969. Nationalization of commercial banks
paved the way for development of Indian Economy and canalized financial resources for
the upliftment of the weaker sections of the society. The involvement of Public Sector
Banks transformed Indian Economy. It was felt the bankers review their services not
only as financial intermediary but also as a pacesetter.
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4 CHARACTERISTICS OF BANKING INDUSTRY
1) Intangibility: A person who is new to a bank and wants to open up an account in the
bank cannot feel or taste it and ascertain whether the bank is good or bad before opening
an account. He has to experience it, feel how the service is, how humbly do people or the
staff members behave with him, is his money invested or put in a safe account or not. It is
only then he would come to know about the services. Financial services are generally
intangible but the service providers go to considerable lengths to tangibilise the service
for customers. Regular bank statements, credit cards, and insurance policy are all
example of the way in which the banking services are presented to the customer. They
can enhance the image of the service and the provider can bestow status or implied
benefits upon the user as with a gold carpet. Physical reminders of the service product,
brand name and value serve to reassure the customer and help the banks positioning.
(i) Co- production: In this case both the service provider and the customer work together
to produce services. When a customer wants to withdraw cash from the banking
premises, then both the customer and the service provider needs to be present.
(ii) Isolated production: It is that part of service that is done outside to an organization.
E.g. Tele-Banking.
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(iii) Self Service production: In this case, the customer uses the equipments of the
service providers and self serves it. Eg. ATM.
Types of Users:
General Users: Persons having an account in the bank and using the banking facilities at
the terms and conditions fixed by a bank.
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Industrial Users: The industrialists, entrepreneurs having an account in the bank and
using the credit facilities and other services for the establishment and the expansion of
their business.
Prospects: It is necessary to clarify the term „Prospects!‟ The general industrial prospects
do not use banking services at present but they have the potential to become a costumer if
induced or motivated in a right fashion.
1. ECONOMIC SYSTEM:
An important criterion for market segmentation is the economic system in which we
find agricultural sector, industrial sector, services sector, household sector, and rural
sector requiring the weight age while segmenting.
A). AGRICULTURAL SECTOR: In the agricultural sector, there are four categories
since the needs of all categories can‟t be identical.
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B). INDUSTRIAL SECTOR: The banking organizations are supposed to have an in-
depth knowledge of the changing needs and requirements of the industrial sector. The
large –sized, small- sized co-operative and tiny industries use the services of the banks.
The expectation of all the categories can‟t be uniform. The banking organizations are
supposed to have an in-depth knowledge of the changing needs and requirements of the
industrial segment. The emerging tends in competition, the pressure of inflation, the use
of sophisticated technologies, and the business regulations are some of the important
aspects influencing the hierarchy of needs.
Large Sized
Small Sized
Industrial Sector
Co-operative
Tiny
C). SERVICES SECTOR: It is an important sector to the economy where the banking
organizations get profitable business. The two categories of organizations such as profit-
making and non- profit making are found important in the very context. The banking
organizations need to identify the changing needs and requirements of the services sector
with the frequent use of IT and with the mounting pressure of inflation and competition,
we find a change in the hierarchy of needs.
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A). HOUSEHOLD SEGMENT: The high income group, middle income group,
subsistence level group and marginal income group have different hierarchy of needs
which influence the level of their expectations.
B). GENDER SEGMENT: In the gender segment we find male and female having
different needs and requirements. The banking organizations are supposed to identify the
level of expectations of both sexes as shown in the below figure.
Gender Segment
Some of the women are housewives and therefore they have different needs and
requirements whereas some of them are working ladies having different needs and
requirements.
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TECHNOCRA
TS
BUREAUCRA
TS
EMPLOYEES
BLUE – COLLAR
The technocrats, bureaucrats, corporate executives, intellects, white-collar and blue collar
employees have different needs and requirements and therefore the banking organizations
should know their expectations.
3. INSTITUTIONAL SECTOR
In this sector we find different categories of organizations. Some of the organizations are
known as charitable organizations, some of them are cultural/ social organizations, some
of them are industrial and many of them are profit making and many are philanthropic
and many of them are related to trade and commerce. It is natural that the needs and
requirements vis-à-vis the level of expectations can‟t be identical in all cases. To satisfy
and to increase the market share it is imperative that the banking organizations are
familiar with changing needs and requirements. The emerging trends in the social
transformation process determine the hierarchy of needs.
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ISM/ 8 P`s WITH REFERENCE TO BANKING
I. PRODUCT
Levels of service
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Service Flower
II. PRICE
The price mix in the banking sector is nothing but the interest rates charged by the
different banks. In today‟s competitive scenario where customer is the king the banks
have to charge them interest at the rate in force on accordance with the RBI directives.
Banks also compete in terms of annual fees for services lie credit cards, DMAT etc.
another important part of the banks pricing policy today is the interest charged on the
Home Loans and Car Loans. With India‟s economy progressing there are more and more
buyers seeking these loans but at a very competitive interest rate. While framing a pricing
policy different pricing methods can be used:
Value pricing: This type of pricing is mainly done by banks having unique or different
products or schemes. They usually charge a combination of high and low prices depending on
the customer loyalty as well as the products. This type of pricing strategy is usually coupled
with promotion programmes.
Cost plus pricing: In cost plus pricing a detailed analysis of cost structure of various bank
products and services is done.
Going rate pricing: The most pricing technique is going rate pricing. In going rate pricing the
banks bases its price largely depending on the competitor‟s prices. The banks however have to
stay within the RBI directives and compete. The banks may charge higher or lower than their
competitor
Market oriented approach: This indicates what the market can bear or accept as in case of a
corporate client who may not be price sensitive as against an individual client.
Competitive based pricing: In competitive based pricing, the price is decided on the
competitor‟s price.
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III. PLACE
Some of the important factors affecting the location analysis of a bank are:
• The Trade Area:
• Population Characteristics:
• Commercial Structure
• Industrial Structure
• Banking Structure
• Proximity of other convenient outlets
• Real Estate Rates
• Proximity to public transportation
• Drawing Time
• Location of Competition
• Visibility
IV. PROMOTION
a) Personal promotion: the bank marketers get the best opportunity to tangibilize the
product through personal selling; persuasion is more effective with direct contact. It
helps in creating impulse buying. Now a Tele-Sale is also popular.
b) Impersonal promotion: i.e. advertising, publicity and sales promotion measures.
Banks use all types of advertisement such as newspapers, radio, television,
magazines and hoardings. Also sales promotion devices such as Point of Purchase
Material, brochures and advertisement specialist like ball pens, calendars, dairies
etc.
Banks also use sponsorships, celebrities for opening a savings week. Publicity is a
major strength as a promotional tool than advertising, as customer tends to believe a news
item rather than an advertisement. Word Of Mouth promotion is yet another important
promotional tool, as it is a better persuader and convincer than advertising and personal
selling, as bank services are narrated by customers themselves. Besides, as Social Welfare
and Corporate Social Responsibly are important as a part of banking services.
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V. PEOPLE
People are the employees that are the service providers. In a banking sector the service
provider plays a very important and determinant role in rendering the customers a
satisfactory and a good service. It is extremely essential that the service provider
understands what his customers expects from him. In banking sector the customer needs to
be guided in a lot of matters which is possible only with the help of the service provider.
The position in the eyes of the customer will be perceived by appearance, attitude and
behavior of the customer contact employees. Not only the customers contact employee
influence the customers but also the customer base of the organization does so.
Physical evidence is the overall layout of the place. How the entire bank has been
designed. Physical evidence refers to all those factors that helps make the process much
easier and smoother. Most of the private and foreign banks portray a new welcoming and
friendly look to the customer. Flashy cheque books with the name of the account holder
printed, imaginative design of the bank brochure, statement of accounts with details of
transactions are other tangible aspects.
Logos, symbols, attractive brand names etc. add to the customer‟s perception of service
quality. There is an urgent need to implement technologies in order to raise productivity as
well as to enable the banking system to cope with the increasing complexities of business.
For example in case of HDFC, ICICI and Citibank portray a new welcoming and
friendly look to the customers rather than drudgery banking counters. The physical
evidence would be the placement of the customer service executive‟s desk, or the location
of the place for depositing Cheques. It is very necessary the place is designed in such a
manner so as to ensure maximum convenience to the customer and cause no confusion to
him.
VII. PROCESS
Moments of Truth:
• Customer enters branch (Watchman)
• Security check (Security Man)
• Inquiry by customer (Banker)
• Interaction with banker (Banker)
• Fills form (Banker)
• Told will receive welcome kit (Banker)
• Customer leaves (Watchman)
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Blue print of Banking Process
PEST ANALYSIS
1) Political Analysis:
THE INTEREST RATE SCENE: Following the East Asian crisis in 1997-98, the RBI
has always shown its intention to steadily reduce the interest rate resulting in a narrow
difference between global and domestic rates.
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GOVERNMENT POLICY: In the pre-liberalization era, the banks used to function in a
highly regulated environment with administered interest rates, quantitative restrictions on
credit flows, etc. These restrictive regulatory norms led to credit rationing and
unproductive use of credit and low level of growth. Since 1991, banks have been
following flexible interest rates. Interest rates have been deregulated and banks are free to
fix their prime lending rates.
IMPLICATIONS OF SOME RECENT POLICY MEASURES: The move to
increase the foreign direct investment limits has been perceived as a welcome
announcement to foreign players waiting to get a foothold in the Indian markets. With
the liberalization of the public sector, the public sector banks found it extremely
difficult to compete with the new private sector/foreign banks.
ENVIRONMENTAL REGULATIONS: Banks should start taking cognizance of
Environmental Impact Assessment (EIA) and Environmental Audit (EA) in their
assessment for funding because -
• The bank will have to assist the government in putting the India in their league of
the environmental conscious countries of the globe in a view of their continuing
support to social cause in the past too.
• The growth of exports-manufacturing of eco-friendly - finance by bank needed.
• The success of the local population control equipment industry.
2) Economic Analysis:
The main economic factors that should be monitored with regard to banking sector
are as follows:
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• Peculiar socio-cultural differences affecting business prospects adversely.
• Life style of people
Technology has a major impact on many industries including financial services and
banking in particular. ATM services which not only provide cash but also allow for bill
payments, deposits and instant statements are widely used. From the customers view
point technology has played a major role in the development of the process whereby the
service is delivered. Automated queuing systems have made visits to the bank easier
and more convenient. Phone banking and E - Banking services are now being used in
place of traditional branch based - service process Technology has also played a major
role within organizations, bringing out far better efficiency through computerized records
and transaction systems and also in business development, through setting up of detailed
customer database for effective segmentation and targeting.
Some of the technological innovations are: Automatic teller machine (ATM), Net
banking, Phone banking, Mobile banking, Smart cards, Electronic transfer, Electronic
cheques, and Bank net, sophisticated software to analyze, keep track of and cure
customer grievances.
ADDITIONAL MATTER
1) RETAIL BANKING: It is that part of the bank that provides and offers products and
services primarily to individual customers, professionals, self employed individuals or
some business. The focus is on creating that meets the need of the target customers and
are profitable for the bank as well. The approach to retail banking product is more on a
mass production basis wherein all risk and operation are based on and geared to cater a
large number of customers. This is therefore significantly different from corporate
banking or wholesale banking where focus is on large sized customer accounts rather
than large number of accounts. Understanding retail banking will help in servicing your
customer better as it would give you a perspective and insight into how such products are
structured and specific requirements for each set of products. This would help you to
advice your customers in a more informed manner besides making you more informed
customers.
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Current and savings account holders of a bank who hold a certain minimum balance in
the account are issued with an ATM card. The card is a plastic card with a magnetic strip
with the account number of the individual. When the card is inserted into the ATM, the
machine sensing equipment identifies the account holder and asks for his or her
identification PIN number. This number is not even known to the bank staff and is unique
and secret to the individual. The bank generally restricts the maximum amount and the
frequency with which one can withdraw cash. The amount withdrawn is immediately
debited to the concerned account through accounting entries pre- programmed on the
ATM. Similarly cash and cheques can be deposited through the ATM for credit to an
account.
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through this service, many banks offer cash delivery or collection service to certain
classes of customers.
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for the exchange of other messages between banks. The codes can sometimes be found
on account statements. The SWIFT code is 8 or 11 characters, made up of:
Where an 8-digit code is given, it may be assumed that it refers to the primary office
• The services of merchant bankers are described in detail in the following way:
• Project Counseling:
• Issue Management:
• Underwriting of Public Issue:
• Managers, Consultants or Advisers to the Issue:
• Portfolio Management:
• Advisory Service Relating to Mergers and Takeovers:
• Off Shore Finance:
• Loan Syndication:
• Corporate Counseling:
10) FACTORING: Factoring refers to the process of managing the sales ledger of a
client by a financial service company. In other words, it is an arrangement under which a
financial intermediary assumes the credit risk in the collection of book debts for its
clients. The entire responsibility of collecting the book debts passes on to the factor. A
factor provides credit information, collects debts, monitors the sales ledger and provides
finance against debts. Thus he provides a number of services apart from financing.
Functions of a Factor:
Financing facility / Trade debts
Maintenance /administration of sales ledger
Collection facility of accounts receivable
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Assumption of credit risk / credit control & credit restriction
Provision of advisory services
While factoring is well developed in the western countries, in India there are only two
factors, the SBI Factoring and Commercial Services Ltd. And Canbank Factoring Ltd.,
have been permitted by the RBI to operate in the western region and southern region
respectively.
Example of securitization in India: The National Housing Bank (NHB) launched the
first issue of MBS, based on the assets of HDFC and LIC Housing Finance in August‟00
for Rs 137 crore. NHB had been working for years on its pilot project for creating
liquidity from the huge pool of housing mortgages in the country. Under the scheme,
HDFC got Rs 90 crore of its housing loan bond securitised, while LIC Housing Finance
Rs 48 crore, the transaction involved in assignment of retail housing loans from both
housing finance to NHB
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exchange for shares in the invested company. Venture capital typically comes from
institutional investors and high net worth individuals and is pooled together by dedicated
investment firms. Venture capital is most attractive for new companies with limited
operating history that are too small to raise capital in the public markets and are too
immature to secure a bank loan or complete a debt offering. In exchange for the high risk
that venture capitalists assume by investing in smaller and less mature companies,
venture capitalists usually get significant control over company decisions, in addition to a
significant portion of the company's ownership (and consequently value).
14) MUTUAL FUNDS: A mutual fund refers to a fund raised by a financial service
company by pooling the savings of the public. It is invested in a diversified portfolio with
a view of spreading and minimizing risk. The fund provides Investment Avenue for small
investors who can participate in the equities of big companies. It ensures low risks, steady
returns, high liquidity and better capital appreciation in the long run.
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• No Tailor made Portfolios
• Managing a portfolio of funds
16) AML POLICY: In terms of the Guidelines issued by the Reserve Bank of India on
Know Your Customer (KYC) Standards and Anti Money Laundering (AML) measures,
Banks are required to put in place a comprehensive policy framework covering KYC
Standards and AML Measures. The guidelines issued by the Reserve Bank of India take
into account the recommendations made by the Financial Action Task Force (FATF) and
inter government agency, on AML Standards and on combating financing terrorism. The
guidelines also incorporate aspects covered in the Basel Committee document on
customer due diligence which is a reflection of the International Financial Community‟s
resolve to assist law enforcement authorities in combating financial crimes The objective
of KYC guidelines is to prevent banks from being used, intentionally or unintentionally,
by criminal elements for money laundering activities. Section 3 of the Prevention of
Money Laundering (PML) Act 2002 has defined the “Offence of money laundering” as:
“Whosever directly or indirectly attempts to indulge or knowingly assists or knowingly is
party or is actually involved in any process or activity connected with the proceeds of
crime and projecting it as untainted property shall be guilty of offence of money
laundering”. Money launders use the banking system for cleansing „dirty money‟
obtained from criminal activities with the objective of hiding/disguising its source. The
process of money laundering involves creating a web of financial transactions so as to
hide the origin and true nature of these funds. Therefore banks come out with a policy
known as the AML Policy to overcome problems faced due to laundering of funds using
the banking channel.
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