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A bright future for Indian banking

Private players HDFC and ICICI offer a spree of services to come out on top of the HT-Mars Bank Satisfaction survey. Mahua Venkatesh and Zehra Kazmi reports.

business Updated: Dec 25, 2012 23:35 IST

A decade ago, transferring money from your account to a family member's would have meant a visit to the nearest bank branch, a long queue and a few days-long wait. Today, you can use your mobile phone to make the same transaction instantly.

Innovations such as automatic bill payment, cash transfers through mobile phones and online banking have ensured that customers no longer have to make pilgrimages to bank branches. Passbook entries have been replaced by hassle-free e-statements; ATMs facilitate easy withdrawals and payments.


Most importantly, banks have been able to ensure that all these transactions are safe and secure. Banking in India has rapidly innovated to keep up with the times. Banks today are competing heavily with each other, offering low rates on housing loans, credit cards to anyone who answers those annoying tele-marketers and freebies for existing customers. So, how do they stack up against each other?

The HT-MaRS Bank and Credit Card Satisfaction Survey 2012 ranked banks according to customers' satisfaction across various categories. According to the results, India's second-largest private bank, HDFC, emerged as the winner, dethroning 2010's champion, Axis Bank (which slipped to third place). ICICI Bank moved up one place from the previous survey to the second position. Though private sector banks may have got the top spots, ahead of public sector ones, when it comes to satisfying consumers, the top 10 list features more state-owned banks. Bank of Baroda bested the mammoth State Bank of India, improving drastically from its 12th position in 2010 by landing the fourth position over-all, becoming the best government-run bank.

The survey ranked banks across five parameters, namely account opening, bank staff, branch facilities, turnaround time and account-related services. Each parameter had various attributes on which customers were asked to score their banks.

Compared to 2010, there has been a marked increase in over-all satisfaction scores. Indian Bank, Indian Overseas Bank and Canara Bank fell out of the top ten while relative newbies such as Kotak Mahindra Bank and Yes Bank, which featured nowhere in the 2010 list have inched into the results. Results vary from town to town, but residents of Chandigarh seem the most satisfied with their banks, stamping their approval with a high score of 829 points.

Changes ahead
The contours of the banking industry in India is set to change in the coming years with Parliament passing the much awaited Banking Laws Amendment Bill last week. The passage of the bill paves the way for the Reserve Bank of India to come out with final guidelines on issuing new bank licenses. This not only means more banks, but the style of operation is also expected to be different, with the upgradation of technology.

At present, over 70% of the market lies with the public sector banks but the government is now geared up to open the sector to more foreign players while setting up new private banks in the country which would help in bringing more people under the banking net. Several business houses including Aditya Birla Group, the Tatas and Reliance have evinced interest in entering the Indian banking space. Besides the corporate houses, even non-banking financial corporations can now convert themselves into full-fledged banks.

While allowing more banks to be set up, to encourage healthy competition in the market, the government could also look at consolidating the public sector banks with a view to creating mega-banking entities which could face up to stiff competition from others.

The government under late prime minister Indira Gandhi nationalised 14 commercial banks in 1969. The second dose of nationalisation happened in 1980 when 6 more commercial banks were nationalised. The move, according to the government then, was to provide more control of credit delivery. In 1993, the government merged New Bank of India with Punjab National Bank. The Narasimha Rao government in the 1990s embarked on a policy of liberalisation, providing licenses to several private banks, which came to be known as the new generation banks.

With liberalisation and changing economic dynamics in the country, the UPA government is now keen to open up the sector to more private and foreign players.

"The dynamics were different pre-liberalisation and they are very different today and we must move with the times," a senior finance ministry official, who did not wish to be identified, said.

(With inputs from Abhijit Patnaik)