Review of Literature on Financial Performance and Efficiency of Indian Banks

Chapter 2 Review of Literature
REVIEW OF LITERATURE
This chapter presents a broad review of existing literature and research completed in
the various aspects of banking. Results of various studies undertaken on financial
performance, financial inclusiveness and customers’ satisfaction have been
summarized below:
2.1Financial Performance:
Various studies have confirmed that the initiation of liberalization had a significant
impact on the performance of Indian banking sector. The banking structure has gone
through an extensive expansion, reorganization and consolidation over time. The
recent technological developments like the beginning of internet and mobile banking
have changed the scenario altogether. Such structural changes certainly have had an
impact on the financial performance of the banks. Studies undertaken on the issue
have been summarized here:
Shetty (1978) in his study on “Performance of Commercial Banks since

Nationalization of major Banks- Promise and Reality" had highlighted the level
achieve by banks to achieve the objectives determined during the nationalization of
banks. It was concluded that composition of deposits remained unchanged and credit-
deposit ratio had shown no improvement over the period. Further, it was reported that
rural areas were neglected for opening of new branches.
Divatia and Venkatechalam (1978) proposed to create a composite index by

studying operational efficiency and profitability of individual banks using factor
analysis technique. Total 15 public sector banks were studied using eighteen
indicators of productivity, profitability and social objectives. The indicators chosen
for the study were divided into productivity, social objectives and profitability. The
results of the study revealed that significant difference was found in terms of social
obligation, productivity and profitability.
Varghese (1983) analyzed the profits and profitability of Commercial Banks in India
for the period from year 1970 to 1971 using operating results, operating margins,
growth yield on assets and spread ratios. The results of the study revealed that during
Faculty of Management Sciences and Liberal Arts 11

the period of study Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
requirements of both Indian and foreign bank groups were found to be same. The
large yield differential between them gives a evidence regarding the declining
productivity of Indian banks. The study concluded that monetary policy measures
taken by RBI impacted the profits and profitability of Indian commercial banks during
mid 1970s.
Chakravarthy Committee (1985) while commenting on the operational

efficiency of banks expressed the view that the concept of operational competence
of commercial banks in India is related with various aspects namely cost efficiency,
profitability, priority sector advances, customer services, mobilization of deposits
and credit deployment. The committee further expressed a need to introduce some
element of price competition among banks. The ‘controlled competition’ was
recommended by the committee in this regard.
Chopra (1987) in her book titled “Managing Profits, Profitability and Productivity in
Public Sector Banking”, discussed about the changing trends in profitability of
selected public sector banks. It was mentioned in the book that it is important for
banks to develop strategies for enhancing profitability and also need to work for
reducing the costs for better earnings.
Ojha (1987) in his paper discussed the productivity and profitability of public sector
banks in India. After studying various indicators of profitability and productivity the
conclusion was drawn that with the increase in productivity not much change was
witnessed in the profitability of banks, whereas Indian banks showed very low
productivity and profitability, when compared with International banks. It was
suggested that more broader and multi-dimensional approach needs to be adopted to
enhance productivity and profitability.
Chawla (1989) in his study examined the policy making and management practices in
relation to affect deployment of funds in banks in the context of rapidly changing
environment. Researcher focused on the objectives and strategies of fund
management. Study was based on detailed structured interviews with head of funds
and investment departments conducted on 26 Indian banks both from both public and

private sector. The study revealed that there were major systematic deficiencies in the
fund management system of banks. It was also revealed that gaps in planning, co-
ordination and control systems also need to be filled for better management in banks.
Amandeep (1991) in her thesis titled, “Profits and Profitability of Indian Nationalized
Banks” examined that banks play an important role in development of the economy
and effect the socio-economic transformation. It was found that profitability of banks
is dependent on two factors i.e. spread and burden. Some of the other factors which
are considered as the determinants of profitability were priority sector lending,
geographical expansion, increase in expenses, credit policy and deposit composition
etc. Further, it was revealed that in order to increase the level of income banks need to
adequately charge on non-fund services such as consultancy, factoring services and
merchant banking.
Committee on the Financial System (1991) appointed by the GOI (Narasimham

Committee) in 1991 examined the cost composition and sufficiency of the capital
structure of financial institutions and worked on the roles of various types of financial
institutions in a financial system. Committee recommended capital adequacy norms,
prudential norms for income recognition, provisioning for bad debts, transparency of
bank balance sheets and liberal branch licensing policy as ways to improve efficiency
and effectiveness of the system.
Kaushik (1995) in his thesis titled, “Social objectives and profitability of Indian
banks,” attempted to study the effect of social responsibility on profitability of Indian
Banking Industry. Various statistical techniques like ratio analysis, annual growth
rates, regression analysis, and correlation analysis were used to study the implication
of social obligations on bank’s profitability. Further, profitability of Indian banks was
measured using various methods like percentage of working funds, total business and
total deposits, whereas productively was judged by calculating loans per employee,
deposits per employee, total business per employee, deposits per branch, loans per
branch and total business per branch. It was concluded that social factors are not
responsible for any change in profitability of the Indian commercial banks.

Thomas (1995) in his thesis titled “Performance Effectiveness of Nationalized Banks

– A Case Study of Syndicate Bank” analyzed the performance of Syndicate Bank for
a period of ten years from 1984 to 1994 using EMEE model. Performance
effectiveness was studied on various aspects like development and expansion of
banking industry, change in capital adequacy, asset quality, profitability, productivity,
social banking and customer service. After studying all aspects and comparing the
performance effectiveness of Syndicate Bank with other nationalized banks, it was
found that five nationalized banks showed low health performance, seven showed low
priority performance and other eleven showed low efficiency in comparison with
Syndicate Bank.
Das (1997) in his study on “Measurement of Productivity, Efficiency and its

Decomposition in Indian Banking Industry”, examined the competence of 65
commercial banks using cross section data for year 1995. On analyzing the data it was
found that Indian banks are technically competent and there are no significant
differences in efficiency measures of public and private banks apart from the scale of
efficiency.
Athma (1997) in his thesis, “Performance of Public Sector Commercial Banks – A

Case Study of State Bank of Hyderabad,” studied the performance of State Bank of
Hyderabad (SBH) from year 1980 to 1994. The study was conducted based on the
parameters like advances, deposit mobilization, credit-deposit ratio, interest spread,
employee productivity, profit to working funds and customer services etc. It was
concluded that the profits of bank showed an rising trend, representing more than a
proportionate rise in spread in comparison to burden. Further it was studied that
decline in operating cost was the clear symptom for increasing productivity of banks.
Subramanian et.al, (2001) in their book titled “Operational Efficiency of Banks –

Banking in India in the New Millennium; Issues Challenges and Strategies”, revealed
that Bank of Baroda from public sector banks and IndusInd from private sector banks
showed highest operating profit per bank employee, whereas wide variation efficiency
was found in among nationalized banks.

Bisht et.al, (2002) studied the impact of liberalization on the Indian banking sector.
They were of the view that prevalent banking system is a outcome of three important
phases i.e. before nationalization, after nationalization and post liberalization. After
the beginning of internet, vast structural changes such as introduction of electronic
delivery channels instead of brick and mortar branches had provided more options to
the customers. The quantum leap in technology had changed the rules of the game. It
was concluded that if Indian PSBs have to survive then they have to incorporate the
new technology to increase overall efficiency, productivity and profitability.
Das and Lal (2002) critically evaluated the Lead Bank Scheme in the light of
Banking Sector reforms. It was revealed that rising Non-performing assets (NPAs),
over staff, low profitability and traditional methods of operations had been one the
reasons for low efficiency of banks. Study revealed that to survive in the competition
it is mandatory that banking sector should be transformed as per the growing need of
customers. It was also stated that rural areas should be covered so that more and more
people can come under the umbrella of banking.
Patak (2003) tried to study and compare the financial performance of private sector
banks from year 1996-97 to 2000-01 using four major parameters i.e. financial
efficiency, operational effectiveness, profitability and productivity. IndusInd Bank,
HDFC Bank, ICICI Bank and UTI Bank were selected as the sample of the study to
measure the financial performance of banks. After analyzing it was established that
working of banks was adequate but HDFC Bank emerged as the top performer
followed by ICICI Bank.
Mohan et.al, (2004) in their study titled, “Productivity, Growth and Efficiency in
Indian Banking – A Comparison of Public, Private and Foreign Banks”, computed
Data Envelopment Analysis (DEA) based efficiency scores of 58 banks from year
1992 to 2000. On evaluating it was found that public sector banks performed
considerably well than private sector banks but foreign banks were found to be better
in revenue maximization. Further the study revealed that public sector banks were
known for higher technical efficiency and State Bank of India was rated the most
efficient among all other banks.

Prasuna (2004) analyzed the performance of Indian banks using the CAMEL Model.
The performance of 65 banks was studied for the period 2003-04. The author
concluded that the competition was hard and consumers benefited from it. Better
service quality, innovative products, better bargains are all greeting the Indian
customers. The coming fiscal will prove to be an evolution phase of Indian banks, as
they will have to align their strategic focus with increasing interest rates.
Mohan and Ray (2004) in their article titled “Comparing Performance of Public and
Private Sector Banks: A Revenue Maximization Efficiency Approach” made a
comparison of performance between public, private and foreign banks from 1992-00.
The findings of the study showed that public sector banks were found to be
comparatively better than private sector banks but foreign banks had an upper hand
over public sector banks. In this study, a comparison of public, private and foreign
banks in India had been made using data envelopment analysis (DEA). In DEA,
physical quantities of inputs and outputs were used. Therefore measures of efficiency
based on output-input quantities may have been more suitable. In the Indian context,
the approach of using deposits and loans as output had been appropriate in the
nationalized era when maximizing these was indeed the purpose of a bank. But the
main business of the banks is to maximize their profits. Interest expense and operating
expense are treated as input during the time of maximizing revenue. It was concluded
that the better performance of public sector banks (PSBs) is to be attributed to higher
technical competence rather than high allocative efficiency.
Arora and Verma (2005) conducted a study to assess the performance of public
sector banks during the reform period. Facts and figures of 27 public sector banks was
collected year 1992 to carry out the study. Analysis was performed on the basis of
four parameters i.e. financial parameters, operational parameters, profitability
parameters and productivity parameters. It was found that the performance of PSBs
fairly acceptable during the study period. It was concluded that major steps like
prudential norms, income recognition provisioning should be taken to remove
unfairness from banking. Further it was suggested that to correct the impact of
directed investments on profitability reserve requirements should be reduced.

Chakrabarti and Chawla (2005) attempted to measure bank efficiency in India to

evaluate the relative efficiency of Indian banks during the period 1990-2002. Using
the DEA model it was found that from value perspective foreign banks were found to
be more efficient than public and private sector banks, while in case of quantity
private sector banks were doing reasonably good than foreign banks. Further it was
concluded that foreign banks give more emphasis on picking up big businesses rather
than to catering to wider section of society whereas public sector banks seem to be
lagging behind their private counterparts.
Bodla and Verma (2006) examined the performance of commercial banks in India
from year 1987-88 to 2003-04 using compound annual growth rate (CAGR) of
deposits and advances, deposit per employee, advances per employee and NPA to Net
Advances. On analyzing the performance it was found that banking sector had shown
huge enhancement after liberalization. Private and foreign banks were ahead of public
sector banks in terms of all selected parameters.
Bhayani (2006) carried out a comparative study on the performance of new private
sector banks from year 2001 to 2005 using CAMEL model. To conduct the study four
major private sector banks (ICICI Bank, HDFC Bank, UTI Bank and IDBI) were
selected as sample and CAMEL model was applied to rank them as per their
performance. The study showed that collective performance of IDBI bank was best
among all four banks followed by the UTI bank. .
Bodla and Verma (2006) in their paper made an attempt to examine and compare the
performance of two largest banks of India - SBI, a public sector bank; and ICICI a
private sector bank - through CAMEL Model. Various ratios were computed under
each parameter of CAMEL Model so as to compute the overall ranking of the banks
from 2000-2005. It was observed that both SBI and ICICI were performing
excellently since beginning of the 21st century. However, in some parameters like G.
Securities to Total Investments, Spread to Total Assets, Interest Income to Total
Income, Liquid Assets to Total Assets and G. Securities to Total Assets SBI had
outperformed ICICI bank. In contrast, ICICI had done better than SBI with regard to
Advances to Assets, Total Advances to Deposits, Business per Employee, Profit per

Employee, Non-interest Income to Total Income, Liquid Asset to total Deposits etc.
The study revealed that on the whole, ICICI bank had performed better than SBI.
Gopal and Dev (2006) empirically examined the productivity and profitability of
selected public and private sector banks in India. During the study the effect of
globalization on productivity and profitability was studied for the period ranging from
1997 to 2004. Five banks each from both public and private sector were selected for
the further study on the basis of deposit mobilization. The Study revealed that except
few cases, the productivity index resulted to be greater than the one in the selected
banks. In terms of profitability, SBI and Punjab National Bank (PNB) were better
than HDFC Bank and ICICI Bank, but the performance of J&K Bank, Canara Bank
and Bank of India was poor in terms of achievements. Interest spread came into view
as the only strong factor influencing the profitability. A high degree of positive
association between productivity and profitability during the study period shows the
better utilization of available resources.
Arora and Kaur (2006) evaluated the performance of banking sector in India during
the post-reforms period. The private sector banks, foreign banks, nationalized banks,
and SBI and its associates were selected for the detailed study. The seven key
performance indicators namely returns on assets (ROA), capital asset, risk weighted
ratio, NPA to net advances, business per employee, net profitability ratio, NPA level
and off-balance-sheet operations were studied using the data of 9 years i.e. from
1996-2005. The analysis revealed that there was exceptional development in the
banking sector particularly in PSBs but still these bank groups were sheathing behind
some important areas, such as asset quality, business per employee, capital adequacy
requirements and profitability. It was suggested that public sector banks need to
manage operating cost, staff cost, Human Resource Development (HRD), minimize
NPA, deploy funds in quality assets, up-grade required technology, introduce risk
management techniques, adapt market-driven approach, relationship management and
credit delivery mechanism etc. for improving the efficiency of banks. With India
getting increasingly integrated with the financial world, the Indian banking sector has
still a long way to go to catch up and contend with their counterparts in the west.
Srivastava (2006) concluded that the post nationalization period witnessed an

unprecedented expansion of Banking industry in India. However, to overcome

the problems of inefficiency and poor financial health and also to develop the
effectiveness of banks, various tectonic measures had been taken since 1991.
This has led to the enhancement in productivity, profitability and strengthening
of financial position of the banks so much that they outperformed those of advanced
nations.
Jain (2006) in his article titled, “Ratio Analysis: An Effective Tool for
Performance Analysis in Banks” discussed various ratios relating to profitability of
the banks. Ratios were classified under three categories likely Costing Ratio,
Returns/Yield Ratio and Spread Ratios. These ratios could be used to understand a
bank’s financial condition, its operation and attractiveness as an investment. He
explained that such ratio analysis can be used to make an inter-branch comparison for
investigating the strengths and weaknesses of individual banks and to enable them to
take strategic decisions and initiate necessary corrective actions. Under costing ratio,
the author advocated for calculation of average cost of deposits, average cost of
borrowings, average cost of interest bearing liabilities, average cost of funds
and operating expenses to average working funds. Similarly under yield/return
category, he computed ratios like yield on advances, yield on investment,
average return on interest earnings, average return on funds and non-interest
income to average working funds and total income. Under spread category, he sub-
categorized the ratios like interest spread, net interest margin and burden ratios. The
author discussed the significance of ratio analysis as a tool for evaluating the
performance of different banks / bank branches. Apart from profitability ratios, the
author mentioned the following categories of ratios for undertaking comparative
performance of banks, i.e. Productivity Ratios, NPA Ratio, Efficiency Ratio, Ratios
on Shares (Shareholders front).
Business India (2006) arranged a panel discussion to judge the best bank in the
Indian banking sector on the basis of certain selected variables. For the purpose of the
panel discussion, Business India looked closely at 24 banks. The selection was based
on size and visibility. The panelist picked 24 contenders from each of the three
categories of banks – the public, private and foreign banks. The panelists selected a
few broad parameters to evaluate the contenders in the first round to produce a short
list. Such parameters included financial and operational performance, quality of

management, the creation of a platform for growth, value creations and how the
stockholders had reacted to the same. In Round-I, thirteen banks were short listed; and
during Round-II, six banks were selected; and finally in Round-III, two banks, i.e.,
HDFC Bank and ICICI Bank competed with each other. Both the banks were
evaluated on the basis of CRAMEL Model i.e. capital adequacy, resources deployed,
assets quality, management efficiency, earning quality and liquidity. Finally, ICICI
Bank was selected Business India’s Best Bank for 2006. On current form, it is only a
matter of time before the ICICI group emerged the country’s biggest financial
powerhouse. In several of the business lines, it had built significant market shares, be
it home loan or vehicle loan or insurance. Within five years of turning into full-
fledged bank, it has shown the world that India can build world class institutions.
Vradi et.al, (2006) in his study on measurement of efficiency of banks in India

concluded that in modern world performance of banking is important to stabilize the
economy. Study was conducted to compare the efficiency of public and private sector
banks from the year 1999-2000 to year 2002-2003. Development Envelopment
Analysis was carried out to gauge the efficiency of banks based on four indicators
namely profitability, productivity, assets quality and financial management. Study
revealed that in all parameters public sector banks were found to be more efficient
than private sector banks.
Shankar (2007) in her study analyzed the score of private sector banks over public
sector banks in India. It was observed that private sector banks had made remarkable
growth during mid 1990s and between year 2002 to 2007 private banks went through
fast branch extension and had increased their income, asset size, capital, reserves and
surplus, deposits, advances and net profit. Centurion Bank of Punjab, HDFC Bank,
ICICI Bank and Axis Bank expanded their branches at a rapid rate of 14-16 percent
p.a. in terms of compound growth rates and increase in staff strength. The study
revealed that a growth of almost 3 times was witnessed when public and private sector
banks were compared with all scheduled commercial banks. Further it was witnessed
that public sector banks declined in number of employees due to streamlining and
implementation of IT infrastructure.

Sundaram et.al, (2008) in their “on Efficiency of Scheduled Commercial Banks in

India –An Analytical Study”, analyzed various parameters such as deposits, advances,
net profit, spread, establishment expenses, working fund, total expenses, business,
total income, and burden in context of branches and employees, for the period
from 1995 to 2004-05. The study revealed that private sector banks showed higher
growth in terms of deposits, advances, net profit, spread, working fund, total
expenses, business and burden, whereas SBI and its associates were found to be
leading in establishment expenses and total income than other banks. In case of
private sector banks total income was high and establishment expenses were low than
other groups.
Suryachandra (2008) evaluated the performance of commercial banks (Public sector

banks and private sector banks) in India since banking sector reforms. On comparing
it was found that both public and private sector banks showed advancement in the
overall performance after reforms. It was also found that due to prescribed prudential
norms financial health of banks got improved and entry of new private sector banks
had also raised the expectations of customers.
Ketkar (2008) examined the efficiency of Indian Banks since the reform period using
DEA method. Secondary data from year 1997–2004 was collected to compute the
efficiency of banks. The results revealed that the comparative efficiency of banks
by ownership does not critically depend upon whether deposits are treated as an
input (intermediation approach) or output (production approach). It was revealed that
foreign banks were the more efficient than new private sector banks. Further it was
found that mandates of priority sector lending have hurt the efficiency of state owned
and nationalized banks but bank branch expansion mandates have not.
Chauhan and Paul (2009) in their study on “Relative Efficiency of Indian

Commercial Banks” discussed the nature and extent of relative technical effectiveness
from 1990-2008. Researchers had used value addition approach and income approach
to study the technical efficiency of Indian Banks. The study revealed that majority of
commercial banks performed good in terms of income approach before liberalization,
but after liberalization efficiency of public sector banks dropped due to entry of
private sector banks.

Raju and Acharya (2010) examined the cost of equity for major banks in India in the
wake of financial crisis. Cost of equity was estimated based on single factor Capital
Asset Pricing Model (CAPM). The study revealed that the cost of equity had
increased for almost all Banks especially in year 2008 with a marginal decline in
year 2009. However, the rise in cost of equity was mainly associated with a rise in the
risk free rate and partly due to enhancement in the sensitivity of bank stock returns to
market risks.
Uppal (2010) attempted to study the efficiency of Indian Commercial Banks

from the period between 1998-2008. It was found that profitability and productivity of
new private sector banks and foreign banks was better than public sector banks,
whereas liquidity position of these bank groups was also sound than public sector
banks.
Sangmi and Nazir (2010) made an effort to evaluate the financial performance of
Punjab National Bank and Jammu and Kashmir Bank using secondary data from year
2001 to 2005. The purposive selection of banks was done keeping in observation their
role and association in shaping the economic conditions in terms of advances,
deposits, employment, branch network etc. Statistical techniques such as mean and
standard deviation were used to analyze the data. The analysis of the study revealed
that both the banks were financially sound as both had adopted better financial
management techniques. It was also concluded that position of the banks was sound
and satisfactory so far as their capital adequacy, asset quality, management capability
and liquidity was concerned.
Choudhary and Tondon (2010) in a study on “Performance Evaluation of Public

Sector Banks in India” made an endeavor to examine financial performance of public
sector banks in India. The study was based on secondary data collected from annual
reports of banks covering the period from year 1997-2007. The most popular ratios
i.e. Return on Equity, Return on Assets, Interest Expended to Total Assets, Interest
Earned to Total Assets, Spread Ratio and NPA Ratio were calculated to measure
financial performance and further the computed ratios were studied using compound
annual growth rates (CAGRs) and coefficient of variation (CV). It was concluded that
CAGR of different variables showed variation from bank to bank. State Bank of

Indore had maximum CAGR in case of total advances, total deposits and total assets.
Punjab & Sind Bank showed least growth of deposits and advances and State Bank of
India had least growth of deposits. Further the study showed that in case of United
Bank of India, return on equity and return on assets were at peak whereas Dena Bank,
Punjab & Sind Bank and Indian Bank showed negative trend. On calculation of NPA
ratio it was found that NPA ratio was highest in case of State Bank of Hyderabad and
least in case of Dena Bank. On the basis of these findings it was suggested that public
sector banks should try to upgrade themselves on technology front and should
formulate customer friendly policies to face competition at national and international
level.
The Analyst Magazine (2010) conducted a study to evaluate the financial

performance of 64 banks (public sector banks, private sector banks and foreign banks)
using the CAMEL model. The study conducted was based on the parameters namely,
asset quality, management quality, earnings quality, liquidity and capital adequacy.
The study revealed that in private sector banks, Tamil Nadu Mercantile Bank was
found to be good in terms of liquidity, whereas Yes Bank and Kotak Mahindra Bank
were ahead in terms of asset quality and management quality respectively. In case of
public sector banks, Canara Bank, Andhra Bank, Bank of Baroda and State Bank of
Patiala were found to be good at capital adequacy, asset quality, management quality
and liquidity respectively. Further the study revealed that Tamil Nadu Mercantile
Bank from private sector and Andhra Bank from public sector were ranked best in
overall performance.
Shrivastava et.al, (2011) examined the financial strength and soundness of AXIS
bank in terms of capital adequacy as well as the effectiveness of the financial ratios
used to assess the performance by applying correlation and T-test. It was
observed that raising of non-equity capital had helped the bank continue its
growth strategy and had strengthened its capital adequacy ratio. Further it was also
found that by proper mapping of credit, operational and market risk to project
business growth enabled assignment of capital that not only adequately covered the
minimum capital requirement but also provided headroom for growth.

Siraj (2011) enumerated the performance of Indian Scheduled Commercial Banks

before and after global financial crisis. The study was based on the secondary data
collected from year 1990 to 2011. The study indicated the weakness of Scheduled
Commercial Banks during financial crisis, stating that various indicators that
reflect efficiency of banks were affected during the financial crisis. A notable
finding was the financial constancy of public sector banks and increased weakness of
private sector and foreign banks during the financial crisis.
Singh and Tondon (2012) compared the financial performance of SBI and ICICI
bank using the secondary data from year 2007-08 to 2011-12. Researcher judged the
financial performance of banks using the technique of ratio analysis. Statistical tools
like mean and compound growth rate (CGR) were calculated to analyze the trends in
profitability of banks. The study concluded that SBI showed good performance and
was financially sounder than ICICI Bank but in context of deposits and expenditure
ICICI Bank had better organizational efficiency than SBI. Further it was also revealed
from the study that banking customer have more trust on the public sector banks as
compared to private sector banks.
Rana (2012) conducted a comparative study of financial management of PNB &

ICICI Bank to evaluate and compare the financial performance of both the banks. In
all 26 parameters was analyzed using ratio analysis. From the findings of the study it
was concluded that ICICI Bank has urban focus whereas PNB focuses more on Semi
Urban and Rural Areas. Further the study reveals that taking into consideration the
different parameters it is difficult to rank the first and second position among these
two banks.
Kaur (2012) examined the financial performance of public and private sector banks
using secondary data from year 2009-10 to year 2010-11. To fulfill the purpose of the
study 10 banks (5 from public sector and 5 from private sector) and 8 parameters
(Growth in Credit-Deposit Ratio, Net worth, Deposits, Advances, Total Income, Total
Expenses and Size of Total Assets) were selected to calculate the financial
performance. The of the study findings revealed that banks had shown growth in
Credit Deposit Ratio, Net Worth, Deposits, Advances, Total Assets, Total Income and
Net Profit except State Bank of India as it showed negative growth in Net Worth and

Net Profits. Further it was found that overall performance of public sector banks was
found to be better than private sector banks over the period of the study.
Singh (2012) in a comparative study on financial performance of HDFC and State

Bank of Patiala (SBOP) analyzed profitability aspects and compared the profitability
of both the banks. To measure the same secondary data from the period 2004-05 to
2009-10 had been collected using the annual reports of banks. Various indicators like
interest expense to total income, interest income to total assets, interest income to
total income, return on equity, return on advances, return on assets, profit margin,
asset utilization and priority sector advances to total advances were studied using
ratio analysis. The study revealed that in case of profitability the performance of
HDFC bank had been found better as compared to the SBOP.
Naidu (2012) conducted a secondary study on financial performance of Andhra Bank

in India covering the period from year 2006 to 2010. To measure the financial
performance Compound Annual Growth rate (CAGR) and Coefficient of Variation of
parameters like total expenditure, total assets, total liabilities, interest earned to total
fund, interest expended to total assets, spread as percentage of total fund,
Interest earned, non interest expenditure, net profit to total funds percentage, and
profit before provisions to total assets percentage , and spread were calculated. On
analyzing it was found that the ratios like interest earned, total expenditure, and net
profit to total funds had shown downfalls which lead to the decrease in profitability
while due to the decrease in interest expenditure ratio and Burden ratios got increased.
Further it was suggested that banks need to revamp their strategies in light of their
own strengths to develop themselves domestically and internationally.
Verma et.al, (2013) in their study titled “Profitability of Commercial Banks after the
Reforms: A Study of Selected Banks” discussed the 7 factors which affected the
profitability of the banks. To perform profitability analysis secondary data from year
2008 to 2012 of four major banks namely, Punjab National Bank, State Bank of India,
ICICI Bank and Federal Bank was collected and statistical tools like Mean, Standard
Deviation, Coefficient of Variation and Ratios applied to analyze and compare
financial performance of selected banks. Analysis of the study revealed that the
profitability of various bank groups operating in India considerably differed from

each other. It was concluded that private sector banks were performing much better on
financial parameters of Interest Income, Non Interest Income and Wage Bill, whereas
public sector banks had been found to be competitive enough so far as financial
parameters like operating expenses, priority sector advances to total advances were
concerned. It was suggested that measures need to be taken to curtail the burden and
to augment the fund based activities to increase the level of spread.
Vadivel and Ayyappan (2013) in their study titled “Financial Efficacy of Selected
Public and Private Sector Banks in India” explored the correlation between return on
total assets and other financial variables of selected private and public sector banks in
India. To analyze the secondary data correlation analysis was performed to study the
relationship between two variables. In the study correlation analysis proved that there
existed a significant relationship among the selected variables and return on total
assets in both positive and negative ways. Further it was also observed that the
variables which were positive in nature would directly improve the profitability of the
industry where as negative correlation indicated that the bankers needed to
concentrate more on those ratios which improved profitability in future.
Soltani et.al, (2013) while “Evaluating the Performance of Public and Private Banks
and Providing Suggestions for Improving the Performance of Them” estimated and
compared the financial performance of public and private banks of Qom city of Iran.
Melli and Agriculture Bank as public and Parsian and Parsargad Bank from private
sector were selected for the study. A five dimensional CAMEL model was selected to
collect secondary data and evaluate the financial performance of all four banks. After
analyzing the data it was found that there existed a significant difference between
private and public banks in terms of liquidity, earning performance and management
quality. It was judged that in terms of liquidity and earning performance the private
banks were better whereas public banks showed better results in terms of management
performance. Further the study revealed that private banks should work to improve
their performance.
Gupta and Sikarwar (2013) conducted a study to measure the growth rate of Punjab
National Bank and HDFC Bank for a period 10 years from year 2000 to 2010.
Researcher used Net Profit Growth, Net Assets Growth, Earning per Share (EPS)

Growth and Reserve and Surplus Growth to measure and compare the growth rate of
public and private banks. After taking into consideration all the parameters it was
revealed that over 10 years time HDFC Bank had performed much better than Punjab
National Bank.
Rani et.al, (2013) in “Studies on Growth and Performance of Indian Commercial

Banks during Global Economic Recession”, discussed the performance and growth of
different categories of Indian commercial banks during the period of global crises and
after the period of global crises i.e. from year 2009 to 2012. The study was based on
the parameters such as deposits, investments, advances, total assets, gross NPA, net
NPA, interest income, other income, interest expanded, operating expenses, total
expenditure, operating profit, net profit, credit deposit ratio, and investment deposit
ratio. Statistical Package for the Social Sciences (SPSS) was used to analyze and
compare the financial performance using the selected parameters. The study revealed
that during the period State Bank of India performed much better than other public
sector banks, whereas among new private sector banks only 7 banks showed the
increasing trend. On examining the complete analyses it was concluded that SBI and 7
new private sector banks had better managerial efficiencies than the other Indian
commercial banks.
Pandya (2014) tried to find out the determinants of profitability of selected

nationalized banks (Bank of India, Central Bank, Punjab National Bank, Canara Bank
and Dena Bank) of India over the period of 2001-02 to 2010-11. Statistical techniques
such as correlation analysis, multiple regression technique, factor analysis and trend
analysis were used to analyze the data. The study revealed that the major determinants
of profitability of selected nationalized banks differ for each bank and had been
identified separately for each bank. As per the study the variables which most
commonly influenced the profitability of all selected nationalized banks were Overall
Business Productivity Factor, Ratio of credit to total deposit, Ratio of priority sector
to total advances, Wages as % to total expenses, Business per employee, profit per
employee and Net NPA ratio to net advances. Further it was observed that
profitability was constantly decreasing till year 2007-08 but after that slight increase
was witnessed in important ratios.

The review of literature shows that many researchers analyzed the financial
performance of commercial banks on the basis of various parameters. These studies
were different from each other with respect to period of study, sample of banks,
parameters and statistical techniques. The reviews revealed that most of the studies
had been conducted without taking into account any major policy change. The present
study had been conducted from year 2005-06 to 2014-15 taking the reference of
financial inclusion plan introduced in 2005-06. Hence, comparative performance of
public and private sector banks had been studied to discuss the performance and latest
developments till year 2015 and bridge the gap in existing literature.
2.2 Financial Inclusion

Financial inclusion is the delivery of financial services at affordable costs to vast
sections of disadvantaged and low income groups. In Indian context, financial
inclusion can be defined as “the process of ensuring access to timely and adequate
credit and financial services by vulnerable groups at an affordable cost” Union Budget
(2007). Findings of the studies conducted on financial inclusiveness have been
summarized below:
Hassan (1997) in a study on “The Experience of the Grameen Bank (GB) of
Bangladesh in Community Development” discussed the role which Grameen Banks
played to fight against financial exclusion. It was indicated that extremely poor people
who do not possess any collateral can get small loans from GBs only if they form
group of five people. Under this scheme each member of group gets individual loan,
however they are mutually responsible for all five credits. It was found that mostly
women from rural poor groups borrow this loan from GB’s and lending money to
women has largely enhanced recoverability for GB’s loans.
Human Development Report (2006) in the article mentioned that India is one of the
best ever budding economies of the world but still the benefit of this growth has not
being passed to people living in rural areas of India. It was highlighted in the article
that around 350-450 million people or 70-80 million families had been benefited by
this growth. India has the largest absolute number of world’s poor as reported in
Human Development Report.

Mohan (2006) in his paper compared the extent of financial exclusion in India and
abroad. It was stated that the extent of financial exclusion was 9% in USA, 1% in
Denmark, 10.4% in Europe, 53% in Botswana, 57% in Brazil, 68.3% in South Africa,
71.6% Namibia and 78.7% in Mexico. In comparison to abroad, the extent of
financial exclusion in India was above 75% in Meghalaya, Arunachal Pradesh,
Uttrakhand, Assam, Mizoram, Manipur and Jharkhand; 50% to 75% in Bihar,
Chhattisgarh, Himachal Pradesh, Jammu &Kashmir, Nagaland, Orissa, Sikkim,
Tripura, Uttar Pradesh; 25% to 50% in Karnataka, Kerela, Madhya Pradesh,
Maharashtra, Punjab, Rajasthan, Tamil Nadu, West Bengal and below 25% in Andhra
Pradesh.
Sinha and Subraniam (2007) in their study titled, “The Next Billion Consumers: A
Road Map for Expanding Financial Inclusion in India” gauged the level of financial
inclusion as per the census report published in 2001. It was found that only 36% of
the people access some kind of banking services and the financial inclusion in India
also affirms that financial exclusion reflects the hostile socio-economic divide
that characterizes the emerging markets.
Report of the Committee for Financial Inclusion (2008) defined financial inclusion
as “the process of ensuring access to financial services and timely, adequate credit
where needed, to vulnerable groups such as weaker sections and low income groups,
at an affordable cost.”
Rangarajan Committee (2008) while discussing financial inclusion, acknowledged

that, “Financial inclusion may be defined as the process of ensuring access to
financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and low income groups at an affordable cost.”
According to the committee factors which determine financial services were savings,
loans, insurance, credit, payments etc. Committee expected that financial system
should be designed to transfer wealth from surplus to deficit units. This transfer of
resources from surplus to deficit units will help the backward class to come out of
poverty.

Sarma and Paise (2008) examined socio economic factors which affect the financial
inclusion in a country. It was revealed that income is positively related with the level
of financial inclusion. Various factors such as electronic connectivity and information
accessibility, road network, telephone and internet usage also play vital role in
enhancing financial inclusion.
Bhole and Mahakud (2009) in their book titled, “Financial Institution and Markets
(Structure, Growth and Innovation)”, discussed the ways in which financial inclusion
can be fostered in India. Opening of bank account and formal credit markets were the
two ways mentioned in the book which could help promote financial inclusion. It was
mentioned that 59% of the adult population had bank accounts and 49% of the adult
population were unbanked. Further, the author described that exclusion from credit
markets was much more, as the number of loan accounts constituted only 14% of the
adult population. In rural areas the coverage was 9.5% against 14% in urban areas.
Kochhar (2009) in his study on financial inclusion found that out of 25 million
accounts opened between April 1st 2007 and May 30th 2009, only around 11 percent
were operational. Study concludes that no guidance was given regarding how to use
the account and the services offered with them. The study indicated that many of the
accounts were opened to just achieve the financial inclusion targets and many other
accounts were opened under “Mahatma Gandhi National Rural Employment
Guarantee Act (NREGA)” with a promise that all the payments will be made through
accounts in banks and post offices. Further, the study revealed that transaction costs
of no-frills accounts for banks were high, making them an unviable option. It was also
analyzed that user also pays high transaction costs of visiting the bank branch and
operating the account which leads to its low usage.
Ramaji (2009) tried to find out the usage of financial services rendered under
financial inclusion drive in Gulbarga district of northern Karnataka which is
considered to be one of the most backward districts if the state. Primary survey of 999
respondents from 50 villages was conducted using structured questionnaire. Study
revealed that around 36% of the sample remained excluded from any kind of formal
or semi formal savings accounts. Further NREGP scheme, which was implemented in
the district was only used to receive government payments whereas its formal usage

and awareness towards it remained low. It was found that Self Help Groups (SHG)
remained the most popular means of savings instead of formal banking schemes. As
access does not mean usage, hence it was concluded that the government needs to
make policies on financial literacy and marketing to make people use their bank
accounts.
Massey (2010) attempted to identify the role of financial institutions in promoting

financial inclusion in India. He stated that financial institutions need to play an
essential role to encourage financial inclusion in India. Study revealed that financial
literacy was one of the major barriers for promotion of financial inclusion. It was
discovered that 50 percent of the savings of household sector and financially illiterate
were drained into non financial investments.
Kumar (2010) in his study titled “The Up scaling Technology to build inclusive
Financial System in India” said that the objective of financial inclusion is to increase
the level of activities to include the unbanked and low income group people into
banking and make them part of economic growth.
Kendall et.al, (2010) reported that in developing countries there is an estimate of 0.9
accounts per adult and 28% banked adults. The European Commission Manuscript
2008 stated that the difficulty in accessing and using financial services leads to
financial exclusion. They also stated that there is some extensive recognition that
financial exclusion can be referred as part of much wider social exclusion faced by
some groups who lack access to quality essential services such as jobs, housing,
education or health care.
Reserve Bank of India (2010) in the report of basic statistical returns of scheduled
commercial banks of India stated that number of credit accounts had increased to
118.6 million and total deposit accounts to `734.8 million in year 2010 for all banks. It
was also examined that no-frill accounts opened by public and private banks had
increased to 33 million in 2009 from 7 million in 2006.

Dhar (2010) specified that to enhance financial inclusion, concepts like branchless
banking should be promoted with the help of business correspondents and business
facilitator. These representatives are local people who are authorized by the
banks to act on their behalf. Business Facilitator helps the laymen villagers in
opening the bank account, explaining the norm of saving, loans etc to customers,
repayment of bank loan, understanding how to avail all other services of bank,
whereas business correspondents can do everything what BF can do and can handle
cash transactions on behalf of the bank. It was concluded that such schemes will help
to reduce financial exclusion and will help to spread awareness among villagers.
Swamy (2011) conducted a study to measure the coverage, progress and trends of
financial inclusion in India. It was mentioned in the study that 9% population of USA
did not have a bank account.
Pinar et.al, (2011) in their paper titled, “Access to Financial Services and the
Financial Inclusion Agenda Around the World”, analyzed the access to deposit and
loan services provided by the banks around the globe. Study revealed that to achieve
100% financial inclusiveness many more initiatives should be taken. It was found that
56% of the adults in the world did not have access to formal financial services.
Government of India (2011) in a report on provisional population totals stated that

with the help of Kisan Credit Cards (KCC) scheme around 95 million farmers were
brought under the purview of banking system in year 2010 as against 84.6 million
farmers in year 2009. Further it was mentioned that under Self Help Group bank
linkage programme, 7 million rural people got access to formal savings and formal
credit system.
Swamy (2011) attempted to understand and evaluate the coverage, progress and
trends of financial inclusion in India. Data collected from various secondary sources
was analyzed using easily understandable graphs and tables. It was concluded that
India is the second largest country after China to have 34% population engaged in
formal banking system and about 135 million households financially excluded from
formal banking. It was stated that about 40% bank account holders do not even access
their bank accounts once a month. It was suggested that the coordinated effort of

banks, government and related institutions should be made to rescue the poor from
poverty and facilitate them to access bank accounts.
Kuri and Laha (2011) made an effort to measure the interstate variations in the
access to finance using composite index of financial inclusion. Study was conducted
in the agricultural year (October, 2006 to June 2007) on the information derived from
both primary and secondary data. A sample survey of three districts of West Bengal,
namely Birbhum, Bankura and North 24-Pargana was conducted to measure the
extent of financial inclusion. A comprehensive measure of financial inclusion was
used to measure interstate variation in financial inclusion (Sarma, 2008). Analysis
based on Binary Probit Regression method revealed that the greater degree of
awareness of basic banking services, diversification of rural non-farm sector, literacy
drive to rural households and an expansion of household level asset were some of the
crucial factors which helped in reducing the obstacles in the process of financial
inclusion. It was also found that among all states, Chandigarh held the top position
and Manipur had been ranked as the bottom most state in the context of financial
inclusion. On other hand, West Bengal fell under the lower category states of India.
Chattopadhyay (2011) measured the extent of financial inclusion in the country in

general and West Bengal in particular. Primary survey of 329 households was
conducted in the three districts of West Bengal namely East Midnapore, Birbhum and
Murshidabad. To analyze the collected data multidimensional approach had been used
to judge the several dimensions (banking penetration, availability of banking services
and usage of banking system) of inclusive financial system. Study revealed that about
61.7% of the households had were having their bank accounts with commercial banks
and RRBs whereas rest 38% did not have enough money to open a bank account and
that still money lenders were the dominant source of rural finance even though there
was wide presence of banks in rural areas. With the help of Index of financial
inclusion (IFI) it was found that Maharashtra led with the highest value of IFI
followed by Karnataka. Whereas Kerala, Tamil Nadu, Andhra Pradesh, Punjab and
Himachal Pradesh were in the group of medium IFI states with IFI values between 0.3
and 0.5. All other states had low IFI values, floating between 0.0 and 0.3. It was
concluded that Bank Correspondent (BC) model should be promoted as rural people
were hesitant to take advantage of banking facilities. Further it was suggested that the

coordinated effort of society, banks, beneficiaries and regulators should be made to

make financial inclusion drive more effective.
Bhanot (2012) conducted a study to measure the level of financial inclusion in the
eastern region of India. IFI was determined on the basis of three dimensions i.e.
banking penetration, availability of baking services and usage of banking system. The
IFI for India is as low as 0.2 (range of values of IFI lie between 0 and 1, 0 indicating
complete financial exclusion and 1 complete inclusion). Study revealed that financial
inclusion for Assam and Meghalaya was very poor with extremely low IFI values of
0.13 and 0.21 respectively.
Raman (2012) in his descriptive and empirical study assessed the Indian experience
and role of RBI in promoting financial inclusion. Secondary data collected from
various sources was used to analyze the role of RBI in promoting financial inclusion.
It was stated that National Vision for 2020 is to open nearly 600 million new
customer’s account and services through different channels. With special reference to
some articles it was found that there are about 403 million mobile users in India out of
which 54% have bank account. Himachal Pradesh was the only state to achieve full
financial inclusion (University Business School, Punjab University, 2010). It was
concluded that financial inclusion had played a major role in driving away the poverty
from the day it was initiated and time is not far when all Indians will have their bank
account and all will be financially included.
Sharma and Tuli (2012) conducted a descriptive study to compare the performance
of Indian banks on the basis of achieved targets and actual given targets. Study was
conducted using the secondary data to measure the performance of financial inclusion
plans up to November 30th 2011. Data collected from the website of ministry of
finance and RBI was analyzed using graphical and percentage method. It was
concluded that being a developing nation, RBI had played a tremendous role for the
success of financial inclusion scheme.
Bagli and Dutta (2012) piloted a study of 28 states in India to examine the
achievement of Indian States in financial inclusion. Data published by RBI during
year 2009-2010 and Government of India had been used for the study. To analyze the

selected indicators various statistical techniques namely, Principal Component

Analysis (PCA) and Composite Index of Financial Inclusion (CIFI) had been used.
Further Pearson Correlation Coefficient of Human Development Index (HDI) was
calculated to examine the degree of association between financial inclusion and
human development of the states. On analyzing it was revealed that marginalized
groups of population were excluded from formal financial system. Moreover people
were not aware about the banking services and on other hand banking officials were
not aware of the needs of people. This gap had been the reason because of which
banks were unable to bring all people under the umbrella of financial inclusion. It was
suggested that all the financial institutions have to become socially responsible to
achieve complete financial inclusion.
Khaki and Sangmi (2012) made an attempt to study the progress of financial
inclusion in the state of Jammu and Kashmir. Data for the present study had been
collected from both primary and secondary sources. Primary data was collected from
the unstructured discussions with top and middle level management. Data collected
was analyzed and represented using graphs and charts. It was concluded that banks of
Jammu and Kashmir in association with government agencies and RBI had made a
significant progress to achieve the objective of inclusive growth. It was suggested that
banks should work in such a way that poor people are not left in the clutches of
informal sources of finance and to achieve greater financial inclusion it was
recommended that coordinated effort should be carried out from both sides (supply
side and demand side) to remove the constraints in inclusive growth.
Batra (2013) conducted an exploratory study to analyze the role that financial
inclusion in empowering women. Study was conducted in three districts of Punjab
namely Jalandhar, Patiala and Ferozpur. Secondary data was gathered from 50 public
sector bank branches, whereas to collect primary data semi structured questionnaire
was circulated among conveniently selected 300 women respondents. Five point
Likert scale, weighted average scores, Chi square and percentage method were used to
analyze the collected data. The study revealed that in districts of Punjab microfinance
services were offered largely as banks had made enough provisions for the same. It
was found that lack of awareness, inconvenience, procedural formalities and difficult

repayment terms were certain areas where banks needed to work upon to reap the
benefit of this financial inclusion step of the government.
Dixit and Ghosh (2013) made an attempt to understand inclusive growth

phenomenon, its need and financial inclusion as an instrument to attain it with
reference to its extent in Indian States. Data collected through secondary sources was
analyzed on the basis of parameters like Gross Domestic Product (GDP) per capita,
literacy rate, unemployment rate and index of financial inclusion (Johnson R.A. &
Wichern D.W., 2000). Hierarchical clustering method was displayed by Dendrogram
considering average linkage between the groups. On analyzing it was found that
Kerala, Maharashtra and Karnataka accounted for higher rate of financial inclusion
whereas the states like Gujarat, Manipur, Assam, Bihar, Uttar Pradesh and Madhya
Pradesh stood poorly on the grounds of financial inclusion. It was concluded that
efforts taken by central and state government were not enough to encounter the
staggering issue of financial exclusion. Further it was suggested that in coordination
with sectoral regulators, banks, governments, civil societies and Non Government
Organization (NGO) etc. states have to develop their own customized solutions to
achieve inclusive growth.
Singla (2013) in a study titled, “Financial Inclusion – Financial Services for

Everyone”, explained the meaning of financial inclusion, it benefits, challenges faced
in way of inclusive growth and measures that need to be taken for the success of
financial inclusion. It was revealed that financial inclusion is a means of providing
finance to every section of the society with reduced cost. To overcome the various
challenges such as lack of financial education, seasonal income of poor, physical
distance of the bank branches and complicated procedure to avail financial services,
RBI had taken various measures like opening of no frill accounts, use of regional
language, simplifying Know your Customer (KYC) norms etc. It was concluded that
to overcome the constraints in inclusive growth RBI has to adopt various strategies
like adaptation of advanced technology, opening of rural bank branches and saving
schemes for low income groups.
Divya (2013) tried to find out the impact of financial inclusion on daily wage earners
of Tenali town in Guntur district of Andhra Pradesh. Primary survey of 210

respondents was conducted using random sampling technique. Data was analyzed
using percentage method. It was concluded that there is more need to educate and
create some new instruments for daily wage earners and make them part of financial
inclusion.
Sharma and Kukreja (2013) focused their study titled, “An Analytical Study:
Relevance if Financial Inclusion for Developing Nations” on the role of financial
inclusion in strengthening India’s position in relation to other countries’ economy.
Study revealed that even today nearly half of the Indian population doesn’t have
access to formal financial services and they still remain dependent on money lenders
(K.C. Chakrabarty, RBI Deputy Governor). Further on analyzing the secondary data it
was found that merely opening of no-frill bank account will not solve the purpose of
financial inclusion. Rather formal financial institutions must gain the trust and
goodwill of the poor through developing strong linkages with community based
financial ventures and cooperatives.
Sahu (2013) endeavored to understand the present status of India’s financial inclusion
to estimate the financial inclusion index for various states and to study the
relationship between financial inclusion index and socio economic variables.
Financial Inclusion Index had been created using multidimensional approach to
analyze the data collected from secondary sources. It was found that 72.7 percent of
India’s 89.3 million farmer households were excluded from formal sources of finance.
Further the study revealed that no state from India belongs to high IFI group. Only
two states likely Chandigarh and Delhi belong to medium IFI and all rest belong to
low IFI values. Regression results showed that 34% of the change in financial
inclusion index is explained by per capita net domestic product.
Chauhan (2013) made an effort to study the overview of financial inclusion in India.
A comparison was made between India and some other selected countries regarding
number of branches, ATMs, bank credit etc to identify India’s position regarding
financial inclusion as compared to other selected countries. Contribution of banks
towards financial inclusion was studied with the help of a case study of Axis Bank.
Study revealed that in terms of number of branches India is at 7th rank as compared to
France which holds 1st rank and in case of number of ATMs India stands at last

position among all selected nations. Whereas UK being at 1st position, India holds 5th
and 3rd rank for bank credit and bank deposits respectively (World Bank, Financial
Access Survey, 2010). Considering the role of Axis Bank in promoting financial
inclusion since year 2006, it has been said that banking sector had played the major
role in this inclusive drive. It was suggested that to bring people into formal banking
system government and RBI have to work in association with technology partners and
other institutions to develop the business models which focus on accessible and
affordable products and processes.
Bhattacharjee (2014) studied the nature of deprival from the various schemes of
financial inclusion on the identified slum dwellers in Assam. Data collected from
secondary sources was analyzed using percentage method. It was concluded that to
bring slum dwellers out of indebtedness and to bring them under formal financial
system they should be made financially aware. It was stated that Government of India
and RBI should come forward to frame some effective policies and implement them
through appropriate governance so that universal banking services can be extended to
the people who are financially excluded.
Ashar (2014) presented the findings on participation of public and private banks for
creating awareness and financial literacy among the customers of the banks. Primary
survey of 100 employees’ from both private and public sector banks was conducted
and the same was analyzed using mean, median, mode and percentage as statistical
tools. Study revealed that to enforce financial inclusion in the country banks should
extend financial literacy, rejuvenate rural branches and explore support of hybrid
channels like NGO’s, Post Offices and Educational Institutes. It was also stated that
banks and local administration have to perform distinctly, but mutually reinforcing
roles in achieving social transformation through financial inclusion.
Kaur and Tanghi (2014) conducted a descriptive study focused on reviewing the
extent of financial inclusion across some developing countries (India, China, Sri
Lanka, South Africa, Russian Federation and Brazil) of the world. Data related to
savings, borrowings and some other financial indicators was collected from various
secondary sources and was presented using graphical representation. It was found that
on the basis of gender, Sri Lanka was on the top with 69.98% males and 67.23%

females having an account at financial institutions; Whereas India was at the bottom
with 43.73% males and 26.49% females. Further, it was observed that in comparison
to other countries India lags behind in all the other factors namely savings at formal
financial institution, loans from formal financial institution and access to banking. It
was concluded that to boost financial inclusiveness it is important to create awareness
among people through mass communication and financial literacy programmes.
Kolloju (2014) in his study on “Business Correspondent Model vis-à-vis Financial

Inclusion in India: New Practice of Banking to the Poor”, introduced the concept of
financial inclusion and how Business Correspondent model helped in promoting
financial inclusion. The secondary data collected was represented with the help of
graphs and charts. It was stated that BC model should be based on three critical
aspects (access to banking markets, access to credit markets and financial education)
in order to address the issue of financial inclusion in a holistic manner (RBI review
report on BC model 2009:16). Further it was concluded BC model possesses great
potential to bring the rural unbanked population within the banking fold. But it is
important that banks and financial institutions need to work in right momentum.
Financial Inclusion is required for providing access to timely and adequate credit and
financial services to poor and low income group people. As per the Human
Development Report released in 2006, it was found that around 350-450 million
people had been benefited by financial inclusion growth. In 2008, Rangarajan
Committee determined saving, loans, insurance, credit, payments etc. as the factors
affecting financial inclusiveness. The Reserve Bank of India in 2010 examined that no
frill accounts in all public and private banks had increased to 33 million in 2009 from
7 million in 2006. The self help group linkage programme also helped 7 million rural
people to get access to formal savings and formal credit system. Some of the
researchers with the help of IFI determined that Maharashtra leads with the highest
value of IFI followed by Karnataka, whereas Kerala, Tamil Nadu, Andhra Pradesh,
Punjab and Himachal Pradesh were in the group of medium IFI states with IFI values
between 0.3 and 0.5. All other states belonged to low IFI values. However, there are
no studies for estimating the outreach of financial inclusion from its formal inception
in 2005-06. The present study aims to study and compare the financial inclusiveness
of public and private sector banks based on the secondary data from 2005-06 to 2014-

15. The study focuses on the outreach and actual usage of ATMs and debit cards
issued under the financial inclusion initiative by public and private sector banks.
2.3 Customer Satisfaction with Regard to Banking Services
Customer satisfaction is one of the major determinants of performance and efficiency

of a bank. Profitability of the bank depends upon the quality of services it can deliver
to its customers. Continuous improvement in the quality of services is also required to
survive in the competitive environment. Hence, an extensive review of the studies was
conducted on customer satisfaction with regard to banking services and the findings
have been listed below:
Parasuraman et.al, (1985) made an exploratory investigation to develop a model on

service quality. Study revealed 10 dimensions that consumers use in forming
expectations about and perceptions of services. These 10 dimensions were access,
communication, competence, courtesy, credibility, reliability, responsiveness,
security, tangibles and understanding. The research also pinpointed four key
discrepancies on service providers’ side which affects service quality as perceived by
customers. Study suggested a conceptual service quality model which can further be
used in empirical research on service quality.
Moutinho and Douglas (1989) explored the nature and direction of the satisfactions
that are delivered to consumers of bank services and highlighted the criteria used to
evaluate these services. The non-metric multidimensional scaling technique was used
to measure the perceptions of respondents towards the services offered. Study
revealed that respondents had high levels of satisfaction with regard to the
location, accessibility of branches & ATMs, and acceptance of the current levels
of banking fees; but expressed some concern in their evaluation of new and
improved services.
Harsh (1993) studied favorable aspects of technology and acknowledged five major
benefits of technology to a service organization. Firstly, labor should be replaced with
equipments. This substitution will help to increase the operational effectiveness.
Secondly, introduction of technology may help to achieve standardization in the
quality of service. Thirdly, higher service levels could be achieved by such blending

of technology. Fourthly, service organizations can maintain close links with their
customers by hooking up in the computer networks. Such technologies authorize one
firm to connect itself with the information system of the other and thereby, be in
touch. Finally, technology may be helpful in directing employees’ behavior and
enhancing status and motivation.
Aurora and Malhotra (1997) in their study titled, “Customer Satisfaction: A

Comparative Analysis of Public and Private Sector Banks” analyzed the level of
customer satisfaction and some marketing strategies in both private and public sector
banks in India. On studying the parameters of satisfaction it was found that routine
operations, price, situational, environment, technology and interactive were the six
factors of customer satisfaction among public sector banks. But in private sector
banks researcher found seven factors of satisfaction out of which staff factor was
ranked first and situational factor was the lowest ranked among all seven. Instead of
price factor, promotional factor was explored by researchers in private sector banks.
Further it was concluded that public sector banks should develop strategies for proper
training and development of bank staff, regular market surveys, designing customized
services, avoiding long queues in bank and maintaining attractive décor. Only then
public sector banks will be able to compete with private sector banks.
Kangis and Voukelatos (1997) conducted a study to measure the perceptions and
expectations of customers towards service quality offered by public and private sector
banks in Greece. The study revealed that services offered by private sector banks had
a more favorable influence on actual perceptions of quality received than that of
public sector banks. It was suggested that to achieve higher level of customer
satisfaction, banks should carefully look at each dimension of customer perception.
Sobti (1997) conducted a survey of public and private sector banks to measure the
customer’s perception towards banks in India. It was discovered that public sector
banks were superior in the aspects of customer loyalty, image and customer
orientation, whereas new private sector banks obtained better rankings for customer
orientation than their overall rank based on various set of aspects.

Salma (1998) studied technological reforms in the banking sector. The emphasis on
technology as the key factor for improving performance and increasing productivity
in banks had been well demonstrated through illustrations. It was found that most of
the Indian banks, largely private ones, were speeding up to connect their nationwide
branches.
Ramayah and Ling (2002) conducted a study on internet banking in Malaysia.

During the study it was examined that main driving factor for the acceptance of
internet banking was the coverage of internet connectivity in Malaysia. It was found
that more than 90% of the respondents had access to internet services because of
which banks had been successful in promoting and creating awareness about their
products and services which were offered through Internet network. It was also
revealed that users of internet banking facility were very much concerned about
security of accounts, however it was found that Internet banking had a lot of potential
in the Malaysian banks if the concern of the customers could be addressed.
Arora (2005) analyzed factors influencing customer satisfaction in public sector,

private sector and foreign banks in northern India. The primary study of 300
customers was conducted using questionnaires which revealed that significant
differences (regarding routine operation and situational and interactive factors) exist
in customer satisfaction level of each group of banks. Foreign banks were found to be
the leaders in mechanization and automation.
Debashish and Mishra (2005) measured customer satisfaction in branch services

provided by public sector banks in northern India. About 1200 customers were
surveyed and it was found out that computerization, accuracy in transactions,
attitude of staff and availability of staff mostly influenced customer satisfaction.
Least important factor was promotion of the products and various schemes.
Raul and Ahmed (2005) investigated customer service in public sector banks in 3
districts in Assam and it was found that customers were disappointed with the
management, technology and interactive factors along with high service charges.
There was a wide gap in rendering services in urban and rural areas.

Beasty (2005) in an article titled, “Private Banks Rate High in Customer

Satisfaction”, discussed about the satisfaction level of customers among public and
private sector banks. The study revealed that public sector banks scored well amongst
customers but on overall analysis it was found that people were more satisfied with
the honesty level of private sector banks and in future want to continue with the
mortgage services offered by private sector banks.
Sharma and Sharma (2006) analyzed customer delight in urban consumer banking.
The study revealed that customers were satisfied with loan facilities, bank
environment, routine work procedures, location, interest rates etc. and were
dissatisfied with loan formalities and promotion through media. It was also examined
that survival and growth of the bank does not depend only on its size of funds but also
on its ability to provide qualitative services to its customers on a regular basis.
Kunjukunju (2006) conducted a study to find out awareness of customer on new

banking services and reasons for the low level of awareness. It was concluded that
large numbers of customers of public sector banks were unacquainted about the new
product and services provided by their banks, whereas on other hand large set of
customers from private sector banks were having an idea of services being provided
by their bank. Study revealed that major reason for the lack of awareness was limited
personal contact with customers and it was suggested to conduct the customer
meetings or customer relationship programmes for better interaction with the
customers and to educate & enlighten them about the new products and services of the
banks.
Sharma et.al, (2007) compared public and private banks with respect to perceptions
of customers regarding service quality. Primary survey of 500 customers (400 from
SBI and 100 from HDFC) was conducted using the structured questionnaire.
Percentage method and weighted average scores were used for the data analysis. It
was found that service quality is associated with customer service and there was
significant difference in the quality of services provided by banks. Banks in smaller
cities were far behind their counterparts in big and metropolitan cities.

Mishra and Jain (2007) conducted a study of nationalized and private sector banks
to know the constituent dimensions of customer satisfaction. Two stage factor
analyses technique was used to arrive at the dimensions of customer satisfaction. On
analyzing it was found that vigilance, competence, advancement in services,
reliability, vision, responsiveness, reach, cost effectiveness and efficient process were
the constituent factors of customer satisfaction for nationalized banks, whereas
service quality, reliability, competence, efficient process, customization, ATM
facility, vision, vigilance, simplicity of system and brand image were the essential
factors for private sector banks. Second order factor analysis resulted into 5
dimensions for both nationalized (service orientation, diligence, adherence, value for
money and amiability) and private banks (Commitment, service orientation, value for
money, dependability and diligence). It was concluded that the best approach for
customer retention is to deliver a high level of customer satisfaction which will result
into strong customer loyalty.
Reserve Bank of India (2008) reported a study conducted by Department of

Statistics and Information Management, Chennai Regional Office, Local Board
(Southern Region) to evaluate the satisfaction level of 2800 customers from 149 bank
branches using systematic sampling method. To measure the customer satisfaction
level factors like staff attitude towards customers, infrastructural facilities, complaint
handling & redressal mechanism, interest rates & fees, loans and credit card facilities
were studied. On analyzing it was examined that private sector banks were better than
public sector banks and foreign banks in complaint handling & redressal mechanism,
quick & fast services and loan facilities. On other hand majority of the respondents
were highly dissatisfied with the infrastructural facilities, rate of interest on credit
cards, service charges and fees levied by the banks, especially private sector banks.
Hugar and Vaz (2008) evaluated the customer orientation in public sector banks for
which 5 public sector, 3 new private sector and 3 foreign banks were selected. The
study concluded that new private sector banks had more ATMs at the end of March
2006 followed by SBI group where 77.5% branches were fully computerized and
18.2% were partially computerized. Business per employee and profits per employee
were higher in foreign banks. It was also found that SBI had received more number of
complaints followed by ICICI. The study also suggested adopting Customer

Relationship Management (CRM) by public sector banks to stand strong in

competitive environment.
Dhade and Mittal (2008) in their study titled, “Preferences, Satisfaction Level and
Chances of Shifting: A Study of the Customers of Public Sector and New Private
Sector Banks”, surveyed the customers of the Public Sector Bank i.e. State Bank of
India and private sector banks i.e. HDFC, ICICI, IDBI and Axis Bank to judge the
level of customer satisfaction among these banks. The study revealed that customers
of private sector banks were more satisfied than the customers of public sector bank
i.e. State Bank of India. Further in the study, it was concluded that customers of
private sector banks were not satisfied with the location of bank to residential area and
delay in the processing time, whereas customers of public sector banks (SBI) were
more sensitive towards the processing time taken for account handling and
technological updates.
Taxak and Kaur (2009) in “A Study of Customer satisfaction in Private and Public
Sector banks”, analyzed and compared the customer satisfaction level in public and
private sector banks. During the study it was found that customers of private sector
banks were more satisfied with counter services like cash deposits, cash payments,
and issue of draft, cheque payment and cheque deposit facilities offered by the bank.
On the other hand as compared to private sector banks, customers of public sector
banks were more satisfied with customary banking services such as ATM, demand
draft and cheque book facility. From the study it was concluded that public sector
banks provide better services to their customers than private sector banks.
Mengi (2009) conducted an empirical study to evaluate and compare the service
quality offered to the customers by public and private sector banks of Jammu.
SERVQUAL (service quality) scale was used to determine different dimensions of
service quality and chi-square test was performed to understand the impact of
SERVPERF (service performance) dimensions (tangibility, reliability,
responsiveness, assurance and empathy) on customer satisfaction. Study revealed that
the customers of public sector banks were more satisfied with the service quality
offered as compared to those of private sector banks.

Padhy and Swar ( 2009) in their paper investigated role of technology in banking
and its impact on perceived service quality in public, private and foreign banks
in Orissa using a sample size of 300 customers. CITI bank from foreign banks,
SBI and PNB from public sector and ICICI and AXIS bank from private sector were
selected for the survey. It was found that technological factors (core service and
systematization of service delivery) appear to contribute more in differentiating the
three banking sectors while the people oriented factor (human element of service
delivery) appears to contribute less to the discrimination. Moreover, foreign banks
were found to be very close to expectations of customers followed by ICICI and
AXIS. Service quality in public sector banks was established to be very low. It was
suggested that banks should put sincere efforts to match the expected service quality
with the offered service quality so that commitment and loyalty of customers can be
achieved.
Kumar and Rajesh (2009) in their study titled, “Whether Today’s Customers are
Satisfied? – A Study with Banks”, evaluated and compared the level of satisfaction on
the basis of quality of service provided by the banks. It was found that there is no
significant difference between overall customer satisfactions in the banks. Further it
was suggested that to increase the level of satisfaction banks should concentrate on
implementation of core banking solutions and development of techno savvy products.
Banks also need to determine the best time to offer the most relevant products.
Mittal and Jain (2010) highlighted the customer satisfaction levels among young
customers in banking industry. A survey indicates the gaps between customer’s
expectations and perception with respect to IT based banking services. It was found
that female customers were satisfied with the service provided where in there was
difference in male customers expectation and perception. Findings indicated that by
just providing technology based services banks cannot attain satisfaction of
customers. Banks should clearly know the expectation of customers and should
provide such technology which would match their need and expectation. This will
help banks to improve the IT based services for enhancing customer satisfaction.
Asgarian (2010) analyzed the customer satisfaction level of Public and Private sector
banks in Iran. Survey of 220 customers was conducted using SERVQUAL

questionnaire to test the client’s expectations and perceptions in bank’s tangibles,

reliability, responsiveness, assurance and empathy. The findings of the survey
revealed that private banks were more successful in attaining higher customer
satisfaction level as compared to public banks.
Khatri and Ahuja (2010) in “A Comparative Study of Customer Satisfaction in

Indian Public Sector and Private Sector Banks”, compared the customer satisfaction
level of public and private sector banks using SERVQUAL method. Study was based
on five key dimensions i.e. tangibles, reliability, responsiveness, assurance and
empathy. A structured questionnaire was used to collect the primary data of 122
respondents from Delhi and North Capital Region (NCR) using judgmental sampling
method. The analysis of the information was done in SPSS using statistical tools like
mean, standard deviation and T-test. The study revealed that private banks had been
successful in retaining their customers by providing excellent services than public
sector banks. Private banks needed to concentrate more on their credit facilities and
insurance services since customers do not possess a very good opinion about these
facilities being offered. Whereas public banks enjoy the trust of customers which they
use to stay in the race, however they need to improve their service quality by
improving their physical facility, infrastructure and giving proper soft skill trainings
to their employees. It was also stated that as technology had been adopted by all the
banks, hence it is no more a factor of differentiation, rather banks should concentrate
more on human factor as it will help in customer acquisition and customer retention.
Singh and Arora (2011) conducted the Comparative Study on Banking Services and
Customer Satisfaction in Public, Private and Foreign Banks of Delhi. Using
multistage sampling technique 6 banks (State Bank of India, Punjab National Bank
and Canara Bank from Public sector; ICICI Bank and Centurion Bank of Punjab from
Private Sector and Standard Chartered from Foreign Banks) were selected for the
study. Primary survey of randomly selected 60 respondents was conducted using
structured questionnaire. It was discovered that the customers of public banks were
not much satisfied with the behavior of employee and infrastructure facilities
provided by banks, while customers of private and foreign banks were not much
satisfied with charges, approachability and communication. They have also suggested
that nationalized banks should impart training on stress management and public

dealing to their employees and should improve their infrastructure and ambience to
compete with private and foreign banks in India.
Patra (2011) conducted the study on service quality of private banks using
SERVQUAL as an assessment tool to measure the gap between customer’s perception
and expectation. Data of 400 customers was collected from four different locations of
India. Statistical tools like weighted average method and t-test were used to analyze
the collected data. Study was conducted based on five dimensions of service quality
namely, responsiveness, reliability, assurance, empathy and tangibility. It was
revealed that weighted average gap score on putting together all five dimensions was
0.21422 and weighted average gap score for tangibility, reliability, responsiveness,
assurance and empathy was 0.17268, 0.24615, 0.17715, 0.1868 and 0.28452
respectively.
Uppal (2011) examined customer’s delightedness from different banking services. A

sample size of 384 customers of Public, Private and Foreign Banks of District
Ludhiana was studied using a well-structured questionnaire and the same was
analyzed with the help of percentage and ranking methods. Using these statistical
tools it was concluded that customers of private and foreign sector banks were more
delighted than the customer’s public sector banks. Gender-wise females and
occupation wise agriculturist were found to be more satisfied. Further it was revealed
that customers are preferring e-banks rather than traditional banks. Hence some
strategies are necessary to enhance quality service in public sector banks.
Kumbhar (2011) made an attempt to examine the customer’s perception towards

internet banking services provided by public and private banks. A well-structured
questionnaire was used to collect data from 190 customers of public sector banks
(SBI, Bank of Baroda, Corporation Bank, IDBI Bank) and private sector banks (Axis
Bank and HDFC Bank) in Satara city of Maharashtra. Stratified judgmental sampling
technique was adopted to collect the data. Statistical tools like Kruskal-Walls Chi
Square Tests, Spearman’s rho non-parametric correlation and Mann Whitney U test
were performed according to the need of the study. Research shows that highly
educated class, employees and businessmen often use internet banking service. Study
also reveals that there is significant difference in the customer’s perception and

internet banking services provided by the public and private sector banks. It was
suggested that public banks improve their internet banking services according to the
expectations of their customers.
Mishra et.al, (2011) conducted the study to compare and analyze the customer
relationship management in public and private banks of Orissa. Data of 337 bank
customers (242 from public banks and 95 from private banks) and 157 bankers
(executives, officers and staff of both public and private banks) was collected for the
study through structured questionnaire. Statistical tools like cross tables, percentage
method, chi-square and t-test were applied for analyzing the collected data. After the
complete analysis it was found that private sector banks were very well located with
high quality infrastructure facilities but public sector banks were lagging behind in
such facilities. Through the study it was suggested that public sector banks should
invest and concentrate more on staff development and should create flexible policies
to reduce dissatisfaction level among their customers.
Singh and Kaur (2011) in their paper titled, “Customer satisfaction and universal
banks: An empirical study”, determined the factors which impact customer
satisfaction level in banks. With the help of structured questionnaire primary survey
of 456 respondents was conducted in the banks of Punjab and Chandigarh. The paper
determined that customer satisfaction is influenced by seven factors i.e. employee
responsiveness, appearance of tangibles, social responsibility, services innovation,
positive word of mouth, competence and reliability. After applying multiple
regression technique on the selected data it was found that social responsibility,
positive word of mouth and reliability were statistically significant at 5% level of
significance and had an impact on overall satisfaction of the customer.
Rao and Lakew (2011) in their study on “Service Quality Perceptions of Customers:
A Study of the Customers’ of Public Sector and Private Sector Commercial Banks in
India”, examined the service quality perceptions of customers of public and private
sector banks in the city of Visakhapatnam. Total 300 respondents were surveyed
using the universally accepted SERVQUAL model in which 42 quality measuring
parameters were used under the five dimensions of service quality i.e. tangibles,
reliability, assurance, responsiveness and empathy. It was concluded that out of all

variables reliability and assurance were rated highest while the tangibles dimension
got the lowest score. Moreover, the study revealed that there was a strong
dissimilarity in service quality perceptions between customers of private sector and
public sector banks.
Dharmalingam and Kannan (2011) carried out an empirical study to evaluate the
service quality of new private sector banks in Tamil Nadu. Data was collected from
240 respondents from three private sector banks i.e. ICICI Bank, AXIS Bank and
HDFC Bank. On analyzing it was judged that from all selected variables of customer
perception, tangibles were rated highest and product variety area was rated lowest
among all.
Bilamge (2011) in “A Comparative Study of Customer Perception Towards

Services Rendered by Public Sector and Private Sector Banks”, evaluated and
compared the customer satisfaction level in ICICI bank and State Bank of India. The
results of the study revealed that behavior of the ICICI Bank staff was friendlier than
that of State Bank of India. As compared to SBI, token system and upholding of
ATMs in ICICI Bank was highly treasured by all the customers. It was concluded that
vital services were lacking in both the banks.
Tiwary (2011) conducted the comparative study to judge the consumer perception
and level of customer satisfaction in public and private sector banks of Chennai City.
The sample of the study consisted of three private sector banks (ICICI Bank, HDFC
Bank and Axis Bank) and three public sector banks (State Bank of India, Indian Bank
and Canara Bank). Data was collected from 250 respondents and was analyzed using
the factor analysis technique. The results of the study revealed that on considering the
score of 4 and above as high satisfaction, it was concluded that none of the customers
of public sector banks expressed high satisfaction, whereas considering the score of 3
and above as moderate satisfaction, four parameters i.e. Time taken for opening an
account, Time taken for withdrawal, Time taken for deposit of money, and Service
charges expressed moderate satisfaction.
Virk and Mahal (2012) analyzed the customer satisfaction level of Public and
Private Sector Banks by conducting a comparative study in Chandigarh City. The

sample of 160 customers who were selected from both public sector (State Bank of
India, Punjab National Bank, Oriental Bank of Commerce) and private sector banks
(ICICI Bank, HDFC Bank, and Axis Bank) using convenient sampling method.
Independent sample T-Test was conducted at 5% and 1% level of significant to
examine whether the differences between all variables were significant or not. Data
collected was analyzed and compared using Independent sample T test. The study
revealed that branch facilities were positively correlated with teller services,
relationship with managers, mutual fund services and telephone enquiry which
contribute to a large extent towards customer satisfaction. Further it was concluded
that private sector banks emphasize more upon building their clients and are better
equipped with modern infrastructure as compared to public sector banks.
Kumar and Prajakta (2012) examined the service quality of public and private
banks in Northern Gujarat region by conducting a survey of 300 customers selected
from both public and private sector banks. Independent T-Test was carried out to
compare expectations of both the group of customers. Multiple regressions technique
was applied to understand the contributions of independent variables like Age,
Gender, Occupations, Annual Income and Education in explaining expectations and
perception of customers. It was concluded that expectation, occupation and education
were found to be the most explanatory variables among all and on other hand
expectations were found to be highly dependent on occupation and education.
Subhash et.al, (2012) in their study analyzed the satisfaction level of customers in
public and private sector banks. Primary survey of 200 customers was conducted in
Panipat City. 4 banks namely State Bank of India and Punjab National Bank from
public sector and HDFC and ICICI Bank from private sector were selected for the
study. To measure the satisfaction level researcher examined various factors such as
availability of customer care services, interest on deposits/loans, operational
performance and reliability of ATM’s, banks recovery method and query handling
mechanism. Statistical tools such as percentage method and chi square test were
applied to analyze the level of satisfaction. Study revealed that customers of private
sector banks were more satisfied with the customer care services whereas other
parameters of satisfaction were posing a challenge to the public sector banks. Results

of different parameters used to judge the level of satisfaction had shown following
results:
1. Availability of Customer Care Services: results revealed that maximum 44%

respondents were strongly satisfied with the customer care services provided
by ICICI bank followed by 40% respondents from HDFC bank. Whereas only
18% respondents from SBI & PNB were found dissatisfied from the customer
care services.
2. Interest on Fixed Deposits Accounts: According to the researcher satisfaction
regarding interest on deposit accounts provided by banks shows that highest
60% respondents were strongly satisfied with the rate of interest provided by
ICICI bank followed by the 50% respondents of SBI bank. Whereas 60%
respondents were found satisfied with PNB and 8% respondents from HDFC
bank were found to be strongly dissatisfied.
3. Interest Rate on Loan/Credit: As per the analyses results depicted that highest
44% respondents were strongly satisfied with ICICI bank followed by SBI
bank and 68% respondents were found satisfied with interest charged on credit
by PNB. It was further revealed that ICICI and SBI were found to be satisfied
with the rate of interest on deposit accounts as well as loans/credit.
4. Operational Performance and Reliability of ATMs: It was found that
maximum 70% respondents were strongly satisfied with the performance &
reliability of ATMs provided by SBI bank followed by HDFC bank with 42%
whereas only 36% were satisfied by ATM services provided by ICICI bank
and on other hand 36% shown their dissatisfaction for PNB. In totality SBI
bank being the largest public sector bank had been found effective in terms of
operational performance and reliability of ATMs.
5. Bank Recovery Method: Findings revealed that maximum 32% respondents
were strongly satisfied with recovery method of PNB whereas 56% shown
their satisfaction towards SBI. Only 10% were dissatisfied with the recovery
method adopted by SBI and ICICI bank. Further the analyses showed that
private banks lead in providing better facilities but at the same time their
recovery method is also stringent.
6. Query Handling System: As per the study satisfaction level towards query
handling system revealed that 24% respondents are strongly satisfied with

query handling system of HDFC bank followed by ICICI bank. Further it was
studied that 28% respondents are satisfied with PNB and highest 42%
respondents of ICICI bank are found dissatisfied with the query handling
system.
Malik (2012) in her study made an attempt to measure the awareness level of the
customers and to analyze the expectations of the customers from their banks. A well-
structured questionnaire was used to collect the views of 400 customers of SBI and
HDFC Bank across India. Various statistical tools such as SERVQUAL, factor
analysis and weighted average method were used to analyze the data. Study revealed
that as compared to public sector banks, customers of private sector banks were more
aware about the phone banking and mobile banking services. It was concluded that
public sector banks need to put an effort in the direction of issues related to staff,
up-gradation of technology and general environment of the bank etc. which will help
PSUs to increase the satisfaction level among the customers.
Lohani and Bhatia (2012) in their study titled, “Assessment of Service Quality in
Public and Private Sector Banks of India with Special Reference to Lucknow City”,
compares the customers’ perception of service quality. Data was collected from 410
customers of public banks i.e. SBI, PNB and Bank of Baroda (BOB) and private
banks i.e. HDFC, ICICI and AXIS using questionnaire based on SERVQUAL model.
On comparison of both banks it was revealed that private bank customers were more
committed and satisfied as they get better quality of service. Study concludes that
both public and private sector banks should work on three most fundamental and
strategic determinants (reliability, responsiveness and assurance) to foster customer
delight.
Gupta et.al, (2013) compared the customers’ perception of service quality of

public and private banks of Delhi and NCR using SERVQUAL method. The
questionnaire consisting of 22 statements in 5 key dimensions namely tangibles,
reliability, responsiveness, assurance and empathy was circulated among 200
respondents using simple random sampling technique. The researcher used the
percentage method to analyze the data. Study revealed that private banks have
satisfied their customers with good services and they had successfully implemented

tangible factors like modern equipments, infrastructural facilities, quality of materials

used etc. Further it was explored that most of the respondents felt that the employees
of private banks were very keen to satisfy their customers whereas on other hand
customers of nationalized banks felt that the employees were least bothered about
their customers.
Gill and Arora (2013) conducted a comparative analysis of level of customer
satisfaction towards services provided by public and private sector banks. Two public
sector banks selected for the study included Punjab and Sind Bank and Union Bank of
India and the private banks include HDFC bank and IDBI bank. Primary survey of
200 customers was conducted using convenient sampling method in three major cities
of Punjab namely Amritsar, Jalandhar and Ludhiana. On the application of Z-
Statistics it was revealed that there are significant differences in the variables
influencing the decision of customers regarding services availed from public banks
vis-a-vis private banks. It was revealed that private banks need to work on gaining
faith of customers as customers still don’t feel secured while dealing with terms and
conditions given by private banks whereas public banks enjoy the hierarchical trust as
they are older in Indian financial system. Further study revealed that public banks
need to work more on technology and overall décor to survive in the market.
Anita and Singh (2013) carried out a study to analyze the customer satisfaction level
in Retail Banking. The study was conducted in Kurukshetra City on the customers of
State Bank of India, Punjab National Bank, HDFC Bank, ICICI Bank, IDBI Bank and
on some other private and nationalized banks. A sample size of 300 customers was
selected using Random Sampling Technique. It was concluded that the majority of
customers prefer to have accounts with both private and public sector banks. It was
also found that income was not a very important determinant for choosing particular
type of bank. Further study revealed that there was no single service in respect of
which actual satisfaction is close to the expectations and the segmentation gap exists
across services, while mobile banking, net banking and phone banking services need
to be popularized. Moreover service delivery and query handling time need to be
reduced.
Salma and Shahneaz (2013) did a comparative study to judge the customer
satisfaction level of public and private sector banks in 5 cities of Bangladesh (Dhaka,

Rajshahi, Khulna, Sylhet and Barishal). A sample of 500 customers was selected
using convenient sampling method to judge the satisfaction level of customers under
various parameters such as prices, reliability, technology, customer service, location
and infrastructure etc. The Statistical tests were conducted at 5% and at 1% of
significant. It was concluded that private sector banks were more preferred by
majority of the customer as they emphasize more upon relationship building with their
clients and are better equipped with modern infrastructure as compared to public
sector banks.
Maurya and Bhat (2013) in a study titled “Comparative Analysis of Private and
Public Sector Banks in Punjab” Level of satisfaction was analyzed using structured
questionnaire which was distributed among 50 customers of Public and Private sector
banks in Punjab. Percentage analysis was used for analyzing the data and to arrive at
meaningful inferences. It was found that majority of the customers rate the quality of
services (76%), Convenience (48%), rate of return (68%), customer relationship
(54%), the risk involved (36%), Internet banking (4%) and mobile banking (8%) as
very important criteria for choosing a bank. Further in the study researcher had given
some recommendation to improve the service quality of banks:
1. Public banks should take less time in sanctioning the loan.

2. Public sector banks should develop a strategy to improve customer
relationships.
3. Private Banks need to install more new ATMs at different locations.
4. As the internet banking service provided by public banks was not up to mark,
it was recommended that same need to be improved.
Rao (2013) in “An Empirical Study of Customer’s Satisfaction in ATM Services”

conducted the survey on customer satisfaction using structured questionnaire based
upon SERVQUAL dimensions. Primary data was collected from the 120 customers of
Andhra Bank and ICICI Bank of Vijayawada city. Percentage method was applied as
statistical tool for analyzing the data. It was found that 68.3% respondents of Andhra
bank in relation to 61.6% respondents of ICICI bank stated that they can easily locate
the ATM in their city. Whereas 65% respondents from ICICI and 53.4% from Andhra
bank replied that they were not able to find ATMs of their bank at all useful places

like Malls, Hospitals and Stations etc. At last it was concluded that respondents of
Vijayawada city are satisfied with the ATM services of both public and private sector
banks.
Garg et.al, (2013) in their study on customer satisfaction with service quality in
Public and Private sector banks tried to analyze the relationship between service
quality and customer satisfaction. Under public sector banks Punjab National Bank
and Oriental Bank of Commerce were selected whereas ICICI and HDFC were
selected among private sector banks. The study was based on the primary survey
which was conducted in Ambala city. A structured questionnaire was used to collect
the data from 160 customers using convenient sampling technique. Statistical tools
such as percentage method, chi square test and Cronbach’s alpha test were used to
analyze the data. Study revealed that private sector banks were more preferred by
majority of the customer as they emphasize more upon relationship building with the
clients and are better equipped with modern infrastructure as compared to public
sector banks. It was found that private sector banks were able to retain their customers
by providing quality services in comparison to public sector banks.
Kaura (2013) conducted the cross sectional research on 445 urban bank customers of
Rajasthan to examine the effect of service quality, perceived price & fairness and
service convenience on customer satisfaction. Regression analysis was used to
evaluate the collected data. The researcher recognized employee behavior, tangibility
and information technology as service quality dimensions whereas access
convenience, transaction convenience, decision convenience and benefit convenience
were the dimensions for service convenience. It was found that in public sector banks
except tangibility and benefit convenience all other dimensions had a positive impact
on customer satisfaction. Significant difference in beta coefficient was found between
public and private sector banks regarding employee behavior, decision convenience,
access convenience and post‐benefit convenience.
Gupta and Agarwal (2013) carried out a descriptive and cross sectional study to
examine the customer satisfaction among the customers of Punjab National Bank and
HDFC Bank located in the Meerut Region of Uttar Pradesh. The service quality
model (SERVQUAL) developed by Zeithamal, Parasuraman and Berry in year 1988

was used to develop the well-structured questionnaire for the survey. Data of 100
bank respondents from each bank was collected and on analyzing the same using
weighted average mean it was found that highest customer satisfaction be
demonstrated in the responsiveness area such as willingness to help customer,
friendly attitude of staff, followed by the reliability area such as customer guidance,
customer support and on other hand, the moderate satisfactions were in the tangibles
area, such as infrastructure facilities, decor, followed by empathy area such as banks
business timing and return on investment. The study provided guidelines to the
managers of the banks to overcome weaknesses and to get more satisfied responses in
future.
Anita (2014) in her research article presented the customer satisfaction level between
public and private sector banks to get a bird’s eye view of customer satisfaction
practices being adopted by selected banks. Under public sector banks State Bank of
India, Punjab National Bank and Central Bank of India were selected and ICICI,
HDFC and Axis Bank were selected among private sector banks. Sample of 400
customers was selected from Kurukshetra city using convenient sampling method.
Statistical techniques such as mean, standard deviation, coefficient of variation,
Cronbach’s Alpha test were used to analyze the data. After analyzing the data results
revealed that there was a significant relationship between all the variables and the
ownership of bank. It was also analyzed that customers were more satisfied with the
private sector banks than public sector banks and customer satisfaction is largely
dependent upon products availability in the banks rather than locations of the bank.
Further, the study revealed that according to hypothesis H0 there is no difference in
satisfaction level of customers in public and private banks but findings of the study
showed that private sector banks had been providing extra services like home facility,
24*7 hours facility, query resolution through telephone, prices of the services and
above all availability of the multiple products.
Verma (2014) highlighted the level of satisfaction of customers regarding ATM

services provided by Union Bank of India and Yes Bank. Using convenient sampling
method Primary data was collected from 40 customers. Statistical tools and
techniques like descriptive statistics, percentage method and raking method were used
to analyze the data. Results of the study revealed the majority of the customers from

both the banks were dissatisfied from the ATM grievance settlement, location,
number of ATMs, quality of notes and availability of complaint book at ATM
counter. Further, it was suggested that bank should primarily work on setting up a
mechanism to solve grievances related to ATMs as it will help in increasing the level
of customer satisfaction.
Goel and Kumari (2014) in a descriptive study titled “Customer Satisfaction and
Customer Retention in Private Banking Sector: The Case of HDFC Bank, Chandigarh
(Panchkulla and Mohali)” conducted a survey on customer satisfaction using the
convenience sampling technique. The data of 120 respondents was collected through a
well-structured questionnaire containing variables such as prices, reliability,
technology, customer service, location and infrastructure and staff attitude towards
problem solving of customers. Statistical techniques like percentage method, standard
deviation and mean were used to analyze the data. Study revealed that customer
satisfaction varied according to the nature of the services. Highest customer
satisfaction (Mean 3.0-3.99) was shown in areas like service reliability, security of
their savings, infrastructure; and staff attitude toward problem solving of customers.
Most of the customers were satisfied with the bank because of multiple branches at
convenient locations, technology offered by bank in form of deposit machines and
utility bill accepting machines etc. Further it was revealed that customers were
dissatisfied (Mean 2.73-2.99) with grievance handling whereas some of the
respondents showed an indifferent attitude (Mean 3.13-3.63) which puts retention and
loyalty towards the bank in question.
The studies mentioned above points out the factors which affect the service quality as
perceived by customers. Studies also indicate the gaps between customer’s
expectations and perception with respect to banking services. However, the evidences
of association between socio-economic variables and customer satisfaction with
respect to the service provided by public and private sector banks are limited. Hence,
the study was undertaken to get a broader view on the variation in the perception and
level of satisfaction of customers across socio-economic variables. It can be further
concluded from the above studies that there are various parameters or dimensions of
customer satisfaction viz. accessibility, price, effectiveness, tangibility, reliability,
assurance, responsiveness etc. Keeping in view the extensive review of literature,

customer satisfaction towards the service of public and private sector banks in this
study has been studied through six parameters viz. effectiveness, accessibility,
tangibility, price, reliability and empathy.

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Chapter 2 Review of Literature

Shetty (1978) in his study on “Performance of Commercial Banks since

Divatia and Venkatechalam (1978) proposed to create a composite index by

Faculty of Management Sciences and Liberal Arts 11

Chakravarthy Committee (1985) while commenting on the operational

Committee on the Financial System (1991) appointed by the GOI (Narasimham

Faculty of Management Sciences and Liberal Arts 13

Thomas (1995) in his thesis titled “Performance Effectiveness of Nationalized Banks

Das (1997) in his study on “Measurement of Productivity, Efficiency and its

Athma (1997) in his thesis, “Performance of Public Sector Commercial Banks – A

Subramanian et.al, (2001) in their book titled “Operational Efficiency of Banks –

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Chakrabarti and Chawla (2005) attempted to measure bank efficiency in India to

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Srivastava (2006) concluded that the post nationalization period witnessed an

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Vradi et.al, (2006) in his study on measurement of efficiency of banks in India

Faculty of Management Sciences and Liberal Arts 20

Sundaram et.al, (2008) in their “on Efficiency of Scheduled Commercial Banks in

Suryachandra (2008) evaluated the performance of commercial banks (Public sector

Chauhan and Paul (2009) in their study on “Relative Efficiency of Indian

Uppal (2010) attempted to study the efficiency of Indian Commercial Banks

Choudhary and Tondon (2010) in a study on “Performance Evaluation of Public

The Analyst Magazine (2010) conducted a study to evaluate the financial

Faculty of Management Sciences and Liberal Arts 23

Siraj (2011) enumerated the performance of Indian Scheduled Commercial Banks

Rana (2012) conducted a comparative study of financial management of PNB &

Singh (2012) in a comparative study on financial performance of HDFC and State

Naidu (2012) conducted a secondary study on financial performance of Andhra Bank

Rani et.al, (2013) in “Studies on Growth and Performance of Indian Commercial

Pandya (2014) tried to find out the determinants of profitability of selected

Faculty of Management Sciences and Liberal Arts 27

2.2 Financial Inclusion

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Rangarajan Committee (2008) while discussing financial inclusion, acknowledged

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Massey (2010) attempted to identify the role of financial institutions in promoting

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Government of India (2011) in a report on provisional population totals stated that

Chattopadhyay (2011) measured the extent of financial inclusion in the country in

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coordinated effort of society, banks, beneficiaries and regulators should be made to

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selected indicators various statistical techniques namely, Principal Component

Faculty of Management Sciences and Liberal Arts 35

Dixit and Ghosh (2013) made an attempt to understand inclusive growth

Singla (2013) in a study titled, “Financial Inclusion – Financial Services for

Faculty of Management Sciences and Liberal Arts 36

Kolloju (2014) in his study on “Business Correspondent Model vis-à-vis Financial

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2.3 Customer Satisfaction with Regard to Banking Services

Customer satisfaction is one of the major determinants of performance and efficiency

Parasuraman et.al, (1985) made an exploratory investigation to develop a model on

Faculty of Management Sciences and Liberal Arts 40

Aurora and Malhotra (1997) in their study titled, “Customer Satisfaction: A

Faculty of Management Sciences and Liberal Arts 41

Ramayah and Ling (2002) conducted a study on internet banking in Malaysia.

Arora (2005) analyzed factors influencing customer satisfaction in public sector,

Debashish and Mishra (2005) measured customer satisfaction in branch services

Faculty of Management Sciences and Liberal Arts 42

Beasty (2005) in an article titled, “Private Banks Rate High in Customer