SECONDARY DATA m Overall Banking Scene m Profile of some selected banks highlight with their marketing strategies m Consumer Complaints and grievances m Changing Banking Environment 4 CHAPTER FOUR: SECONDARY DATA Introduction: The researcher has collected a wide secondary data quantitative and qualitative data to study the banking scene and have an insight into marketing practices, of banks in this changing environment. The researcher has gone through a number of articles, and other statistics from magazines, RBI bulletins, newspapers, and consumer journal of consumer court cases etc. The data is divided into five parts: 1. Overall banking scene 2. Profile of some selected banks, and their marketing strategies. 3. Consumer complaints ' 4. Changing banking environment 4.1 Overall banking scene Scheduled commercial Banks constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule that satisfy the criteria laid down. Some co-operative banks are scheduled commercial banks albeit not all co-operative banks are. At the same time, this status also subjects the bank to certain conditions and obligation towards the reserve regulations of RBI. This sub sector can broadly be classified into1: (1) Public Sector Banks which include the. a. State Bank of India and its Associates. b. Nationalized bank. (2) Private Sector Banks consisting Indian private sector banks (which, in turn, decompose into old i.e. banks existing prior to 1991, and the new i.e. banks established after 1991). 109 (3) Foreign Banks. For example: Citibank NA, HSBC Bank, Bank of America National Trust & Savings Assn, and The Bank of Tokyo- Mitsubishi LTD etc. Figure (4-1): No. Of Commercial Banks from 1991 to 2004 1991 1995 1997 1999 2001 2002 2003 2004 • J Source: RBI, Report on Trend and progress of Banking in India 2003/2004 Observation: (Figure 4-1) has shown that the total number of banks has been increased in period (1991-1999) because the new private banks and foreign banks have entered. During (1999-2004) the total number of banks has been reduced, this is the result of the amalgamation between banks. Deposits Mobilization: The deposit mobilization function of commercial banks is of vital importance in a developing country like India. For one thing, by attracting deposits from the public, the banking system serves to raise the rate of saving thereby encouraging the growth of capital ceded for the economy's development. Secondly, the Reserve Bank of India can direct deposits with banks towards the most desirable investments. In the absence of an easy access to the banks, these deposits could have gone to agencies lying outside the control of the RBI. Thirdly, such a connection of the rural masses with the banks amounts a vital link between the unorganized sector and the organized sector. 110 Figure (4-2) Growth of Deposits and Credit For All Commercial Banks 1600000 14000001 1200000 10000001" 800000 I Deposits 600000 I Credit 400000 200000 0 1990/91 1994/95 1998/99 2001/02 2003/04 During the period from 1990-91 to 2003-04, aggregate deposit with banks have gone up from Rs 201199 corers to Rs 1542284 corers. Similarly, aggregate credit with banks has gone up from Rs 121865 corers in 1990-91 to Rs 865594 corers in 2003-04. The percentages of aggregate deposits in banks have come up from (7%) to (52%). Showing more than seven times growth. Similarly the percentages of aggregate credit with banks have come up from (6%) to (40%), showing more than six times growth (Figure 4-2). This result of the customer's orientation and attractive marketing strategies using by the commercial banks in India. Observations 1. The budgetary policy of deficit financing followed by the government throughout this period resulted in greater cash holdings with the banks. This gave an opportunity to the banks for more credit-creation. Loans, as we know, create deposits and increase in loans sanctioned meant so many more accounts and more deposits. 2. As a result of planned economic development, various sectors of the economy were expanding. Their credit needs were growing. With a widened net of branches, it was possible for the banks to examine closely the proposals submitted by the promising businessmen and 111 extend finance to them. The now agrarian technology involved more capital inputs, which were now available from the banks. The overall climate thus was investment-friendly and buoyant. This logically led to rapid growth of bank deposits. 4.1.1 Performance of the Banks in India: The impact of banking sector reforms on the performance of the banks in India is reflected in the prudential indicators on capital adequacy, asset quality, profitability and productivity, etc. of these banks based on the information available in the past Reports on the Trend and Progress of Banking in India and other publications of RBI is detailed below. 4.1.1.1 Capita] Adequacy The average CRAR of all banks increased from 9.23% as on March 31, 1994 to 12.78% as on March 31, 2003. Remarkably, as on March 31, 2003, out of the 23 banks in the public sector, 22 had CRAR of more than 10%, which is significantly higher than the prescribed norm of 9%. It may be seen from Table (4-1) that, among the bank groups, although the new private sector banks started at the high level of 25.9% in 94-95 alongside the old private sector banks with a low of 8.8%, the CRAR of all the bank groups converged between 10% to 15% in March, 2003. This shows that the banks have been able to build up the capital cushion over the years to support the anticipated growth in their risk weighted assets and the risk has been diversified across all banks. Table (4-1): Capital to Risk Weighted Assets Ratio (CRAR) Year 93-94 94-95 96-97 97-98 98-99 01-02 02-03 Public Sector Banks 7.71 9.48 10.1 11.6 11.3 11.76 12.68 Old Private Sector Banks 7.41 8.80 11.7 12.3 12.1 12.52 13.02 New Private Sector NA 25.90 15.3 13.2 11.8 12.27 11.62 Banks Foreign Banks 9.56 11.10 10.4 10.3 10.8 12.94 15.21 All Banks 9.23 11.30 10.4 11.5 11.3 12.01 12.78 112 4.1.1.2 Profitability The reform measures have also resulted in the improvement in the profitability of banks. Table (4-2) shows that the Return on Assets (ROAs) of all banks rose from 0.39 in the year 1991-92 to 1.0 in 2002-03. The profitability of public sector banks was affected in the initial years of reforms due to the increased provisioning requirement, etc., thus pushing the ROA to negative, but the banks showed resilience in subsequent years. Despite recording of operating loss by as many as eight public sector banks in the first year of reforms on account of application of prudential norms, by 2003 none of the public sector bank reported net loss, thus staging a remarkable turnaround in performance. Although the ROAs of the old private sector banks, new private sector banks and foreign banks showed significant fluctuations over the period, it may is observed that the ROAs of all the bank groups converged between approximately 1 and 2 in 2002-2003. The steady rise in profits have been attributed to the increase in the trading profits of banks in a declining interest rate scenario, the reduction in the establishment costs in view of the Voluntary Retirement Schemes introduced by them, etc. Table (4-2): Return on Assets of Banks Year 91-92 93-94 97-98 99-00 00-01 01-02 02-03 Public Sector Banks 0.28 -1.15 0.77 0.57 0.42 0.7 0.96 Old Private Sector Banks 0.57 0.56 0.8 0.81 0.62 1.1 1.17 New Private Sector Banks NA NA 1.55 0.97 0.81 0.5 0.9 Private Sector Banks 0.57 0.56 1.04 0.88 0.71 0.66 0.99 Foreign Banks 1.57 1.51 0.96 1.17 0.93 1.32 1.57 All Banks 0.39 -0.08 0.82 0.66 0.5 0.8 1.00 113 4.1.1.3 Productivity The banking sector reforms also emphasized the need to undertake a review of the available manpower resources and rationalize the requirements by drawing a realistic plan in order to decrease the operating cost and improve profitability. Various steps taken by the banks, including Voluntary Retirement Scheme (VRS), which was introduced in consultation with the Government of India, has resulted in significant improvement in the Business per Employee of public sector banks. In 1998-99, the business Per Employee of PSBs was Rs. 94.64 lakh which increased to Rs. 188 lakh by 2002 mainly due to VRS and other measures taken by banks such as branch rationalization, IT initiatives, etc. Observations:- Performance of the Banks in India 1. The position of public sector banks in the Indian banking system continues to be predominant as these banks account for nearly three- fourths of assets and income 2. From the position of net loss in the mi-1990s, in recent years the share of public sector banks in the profit of the commercial banking system has become broadly commensurate with their share of assets, indicating a broad convergence of profitability across various bank groups.