Academic journal article Asia-Pacific Business Review

An Insight into Factors Influencing Bank Selection Decisions of Indian Customers

Academic journal article Asia-Pacific Business Review

An Insight into Factors Influencing Bank Selection Decisions of Indian Customers

Article excerpt

Indian banking industry is undergoing metamorphosis in terms on adoption on technology and automation. New generation private sector banks which came into existence in the last ten years have gained a substantial market share and government owned banks are losing market share to these new banks. It is very important for the banks to understand the preferences of the customers to offer the services required both to attract new clients and protect existing client-base from migrating to other banks. A survey was conducted and results obtained from 292 clients were analysed to understand the factors that influence the bank selection decisions. The top 10 parameters based on importance are found as Safety of Funds, secured ATMs, ATMs availability, reputation, personal attention, pleasing manners, confidentiality, closeness to work, timely service and friendly staff willing to work.

Introduction

For the past two decades, both the global and Indian banking industries have been undergoing rapid changes, reflecting a number of underlying developments. The most significant change has been advances in communication and information technology, which have accelerated and broadened the dissemination of financial information while lowering the costs of many financial activities. A lot of structural changes were introduced in 1991 in the Indian banking industry, which coincided with the Information Technology Revolution of the 1990s. Reserve Bank of India (RBI) appointed a committee under Dr Rangarajan in 1980s to implement computerisation in phases to improve customer service, productivity and enhance management control. A new class of banks "New Private Sector Banks (NPSBs)" came into existence as a result of liberalisation of Indian economy, which competed with both foreign banks and Indian banks for market share. The domination of Public Sector Banks has declined over the years with the entry and aggressive expansion of the Private Banks. NPSBs perceived future competition among banks would be essentially based on the technology and developed state of the art technology infrastructure, comparable to that of banks in developed countries. The government owned commercial banks today have a market share of around 75% (down from the earlier 95%), the private sector banks about 20% and the foreign banks about 5% (Kannabiran and Narayan (2005)). NPSBs also stress that importance of branch banking will diminish by Information Technology based channels like ATMs, Internet/Mobile/Phone banking etc. Tech-savvy foreign banks and NPSBs have progressed a long way in offering a wide range of innovative services to their clients while other banks (both PSBs and Old Private Sector Banks (OPSBs)) are racing to catch-up. All the banks are moving towards core banking solutions and are investing heavily on Technology. As almost a decade is over since the arrival of NPSBs, it will be in the fitness of things to study in the Indian context the banking habits and preferences of Indian customers. A survey was conducted and the responses received from 292 respondents were analyzed to understand the perception on technology based services and preferences in banking. The study listed the factors of importance in choosing a bank by customers and also measured the performances in a five-point scale.

Literature Survey

The business literature is flooded with vast array of information on the customer preferences of customers various countries, while such data is limited in the Indian context. Even though customer preferences vary from country to country based on the culture, demography, affordability, IT penetration etc., study of the scenario in the other countries may throw some light to us on the subject.

Profitability of banks and growth of client base are interlinked. With intensifying competition in the market, it is very important for the banks to understand "How customers choose their banks?" Then only banks can take proper marketing efforts to increase client base. …

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