A comparative study of retail banking practices in compliance with regulatory standard
Date | 02 July 2019 |
Pages | 808-835 |
DOI | https://doi.org/10.1108/JFC-11-2018-0118 |
Published date | 02 July 2019 |
Author | Suman Mittal,Krishan K. Garg,Renu Aggarwal |
Subject Matter | Financial risk/company failure,Financial crime |
A comparative study of retail
banking practices in compliance
with regulatory standard
Suman Mittal
Lingaya’s University, Faridabad, India
Krishan K. Garg
Department of Management, Lingaya’s
Lalita Devi Institute of Management and Sciences, New Delhi, India, and
Renu Aggarwal
Department of Management, YMCA University of Science and Technology,
Faridabad, India
Abstract
Purpose –The Indian banking industry has undergone many changes with the advent of changing
economic environment in the country. Manychanges have taken place in terms of customer services, work
culture, infrastructure,approach to sales and customer relationshipmanagement amongst others. This paper
aims to attempt to evaluate the adherence of BCSBI code by the banks. Customer perception has been
evaluatedto analyse the adherence of the code. Also, the authors have tried to evaluate the impact of customer
type (mass and class customers)and bank type (based on bank ownership- private and public banks) on the
compliance of the code by the bankers or minimum regulatory requirements with respect to customer
services. Questionnairehas been developed as per the Banking Code and Standard Board of India (a customer
services cellof Reserve Bankof India), and BCSBIhas been used as a regulatorystandard to compare the level
of complianceby the banks.
Design/methodology/approach –Primary data have been collected from private and public sector
banks. In the first step, instrument validity and reliability has been checked by using structural equation
modelling;in the second step, descriptive statistics has been used to know the extent of fulfillmentof standard
by banks; and in the third step, a two-way multivariate analysis of variances has been used to do the
comparativeanalyses of the respondents data.
Findings –The overall finding of the research shows that overall adherence of the dimension of code
are not in sync with the objective of the code. Study also has shown the mindset of the Indian bankers
that how they predominantly serve the class customers and push those products to the customers
whicharetargetbasedorearnprofitability for the banks and incentives for the banker. Private
banks are ahead in compliance with respect to the customer services, but they are also ahead in sales
malpractices.
Practical implications –This study is an eye opener for the regulators, as per BCSBI regulations,
surprise supervision take place every year, but this study shows the ineffectiveness of that supervision.
Following the BCSBI normsby the banks is just eyewash of regulators, but all the norms are fulfilledonly in
papers but not in actualpractice.
Originality/value –The research paper is original piece of work; the researcher did not find any study
related to BCSBIcode in Indian as well as in international literature.
Keywords Supervision, Compliance, Service efficiency, Bank type, Customer category,
Regulatory standards
Paper type Research paper
JFC
26,3
808
Journalof Financial Crime
Vol.26 No. 3, 2019
pp. 808-835
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2018-0118
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
1. Introduction
After privatization and liberalization of Indian economy during 1991-1992, private banks
have entered the Indian market and presenteda tough competition for Public sector banks.
During 1994-1995 private banks like HDFC and ICICI established themselves and began a
revolutionary era of banking. These banks focused on reducing customers on the floor by
introducing aspects like plastic cards, internet banking and mobile banking for effective
banking. These banks used all possible means like the free issuance of cards, educating
customers about services and immense marketing of services to make their approach a
success. The motive behind privatization in Indian banking was being achieved, as public
sector banks started to gear up towards new challenges. Public sector banks have since
focused on becoming computer literate, introducing anywhere banking, using CBS (core
banking solution) and a drastic improvement has been seen at the level of services
deliverance.
But like everything else, the competitive environment of the Indian banking industry
also has its pros and cons. As discussed so far, private sector banks have created immense
competition for public sector banks, in terms of providing hygienic, aesthetic physical
atmosphere and world class services in a varied form, say for example, the provision of
grievance redressal cells. Thesetactics are necessary for the very survival of private banks.
A survival that is dependent upon theacquisition of customers, as private bankers are well
aware that public sector banks, were and are ahead, in terms of relationships with their
customers on the basis of reliability and trustworthiness (Banerjee and Sah, 2012). Hence,
private banks have tried to create an edge for themselves through distinguished services
and elaborate infrastructure to their customers, but the real motive of private bank is to
maximize their profits and increase market capitalization for their shareholders. Thus, a
race begun among the private and public sector banks to acquire customers and to
maximize profits. Such competition leads every bank to try and capture the maximum
market share for themselves, each desiring to be on top and become the market leader. A
fundamental belief is that competition is healthy for the growth and development of any
industry, but recent research hasechoed differently on this sentiment (Bennett et al.,2012).
Such research shows that competition also has a dark side, which leads to malpractices
among the concerned parties. We can see the same in relation to the Indian retail banking
industry. In our currentbanking industry, competition is not only limitedbetween the banks
but also between the employees of the same bank. The banking staff indulges in
malpractices to achievetheir targets and become a resourceful for theirorganization, as well
as to meet one’s own need. Malpractices are involved in every sphere of banking whether
they are behavioural practices, aspects of sales,handling complaints, customer information
or first time right practices.
Nowadays, Indian banking industry may be considered as an intensively competitive
industry, where a large numberof public, private and foreign players actively participateto
serve their customers. Public banks generally use the strategy of penetration and
availability, while on the contrary, private and foreign banks have mixed strategies of
penetration and try to skim the cream.No doubt, these private banks provide good services
to their customers but at a very high price. Private sector banks are not meant for the poor
(The International bank for reconstruction and development, 2009). In fact, as per research,
it has been proved thatthe bank staff efficiency depends upon the class of the customer with
whom they engage. Staff efficiency increases when they deal with a wholesale group or
business customers (Nikiel and Opiela, 2002), as these are customers who provide the
maximum profitabilityto the banks.
Retail banking
practices
809
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