DEMONITISATION

                   DEMONETIZATION

Historical back ground: -

Governments generally adopt Demonetization of high denomination currency notes to counter black money and for containing forgery and fake currency.. In the year 1970s, the government of India had set up “Wanchoo committee” under the chairmanship of Mr. Justice K.N. Wanchoo, former Chief Justice of Supreme Court, to curb generation of black money. The committee suggested demonetization to unearth and counter the spread of black money. However, this suggestion was not implemented till 1978.

In the year 1938 the Reserve Bank of India for the first time introduced notes of Rs10,000, Rs. 5,000, and Rs. 1,000.. These were the largest currency notes printed by the Reserve Bank of India. These higher denomination notes were in circulation till 1945, when during January 1946, these notes were demonetized. This was the first demonetization of Indian currency.  

In the year 1954 the Reserve Bank of India again introduced these higher denomination notes which were in circulation till 15^th January 1978, and,the government of India again demonetized these higher notes on yon 16^th January 1978 ,after passing an ordinance on 16^th January 1978

The preamble to the Demonetization Ordinance stated that: “availability of high denomination bank notes facilitates illicit transfer of money for financing transactions which are harmful to the national economy or which are for illegal purposes and it is therefore necessary in the public interest to demonetize high denomination bank notes.“

It would be observed from preamble of Demonetization Ordinance that the demonetization was a measure for controlling illegal transactions and against anti-social elements. Demonetization of 1978 was the second demonetization which was done after a gap of over 32 years.

During 1978 the Reserve Bank of India again issued higher denomination notes of Rs.1,000. During October 1987 Reserve Bank issued bank notes of Rs. 500 for the first time.

In exercise of the powers conferred under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934 (2 of 1934) the Central Government on 8th November, 2016 again demonetized currency notes of the denomination of Rs.1,000/- and Rs. 500/-. The sudden demonetization of India’s highest currency notes shook the lives of not only upper middle class and rich people but also the common man and small savings of housewives.

Demonetization of currency on 8^th November 2016 was the third demonetization of Indian currency. With effect from the 9th November, 2016, these notes ceased to be the legal tender. On 31^st December 2016 the President of India passed an ordinance “Specified Bank Notes (cessation of Liabilities) ordinance 2016 under Article 123 of Constitution of India. (As there was no session of parliament)

The government informed countrymen that since the fake currency notes of the specified bank notes have been largely in circulation and that it was found to be difficult to easily identify genuine bank notes from the fake ones and that the fake currency notes are also used for financing subversive activities such as drug trafficking and terrorism it was thought proper to demonetize Rs.1,000/-and Rs.500/ notes.

Government also informed that high denomination bank notes are also used for storage of unaccounted wealth i.e. black money. This fact of storing black money was also revealed from the raids of large cash recoveries made by law enforcement agencies after demonetization.

According to Shri A K Mehrotra, Issues Department, RBI, Bengaluru,. “Fake notes of Rs. 500 dominate the scene, although currency counterfeiters appear to have started targeting Rs. 100 and Rs. 1,000 denominations. The banking system detected over 2.52 lakh pieces of counterfeit notes of Rs. 500 denomination in 2013-14, as against the 2.81 lakh in the year 2012-13, while the number of Rs 1,000 denomination fake notes rose to 1.10 lakh as against the 98,459 in the year 2013-14. However, the year 2014-15 seems to have seen more counterfeit currencies than ever before’’ Source:-RBI 

Addressing the nation on November 8^th 2016 Prime Minister Shri Narendra Modi said that those facing genuine difficulty in depositing demonetized notes by December 31 2016 would get a chance to deposit them till March 31.The speech of Prime Minister gave hopes to people particularly senior citizens, disabled etc. who could not with stand the rush at bank’s counter and could not stand in serpentine queue. Prime Minister’s message gave them a hope that those who missed the December 31 deadline could deposit their old notes by 31, March 2017, once they have explained their difficulty.

Prime minister said "Your money will remain yours. You need not have to worry on this point. If you miss that date too, you can go to any branch of RBI and exchange your money after filling a declaration form.  As mentioned earlier RBI has 19 regional offices and 11 sub offices. But the government backed out of its commitments and put majority of people in lurch. The Central government also came out with an Ordinance making possession of a large number of scrapped notes a penal offence that will attract monetary fine. Why should people suffer when government backed out of its words?

After demonetization, cashless economy became the buzzword. Government encouraged people to make maximum use of credit cards, debit cards, internet banking and digital payment solutions. Without understanding the fact that when digital transaction increases, the number of cyber crimes and online frauds would also rise.

The Reserve Bank of India (RBI) came out with conditions for exchanging  defunct notes for those Resident Indian citizens who were abroad from November 9 to December 30 can avail this facility up to March 31, 2017, and NRI citizens, who were abroad during this period, can exchange their defunct notes up to June 30, 2017. Though RBI has 19 regional offices and 11 sub-offices but this facility was available only through its offices at Mumbai, New Delhi, Chennai, Kolkata and Nagpur.

Neither government nor Reserve Bank realized the problems faced by those who were abroad from November 9 to December 30 2016. that whether a person staying at any part of India other than at Mumbai, New Delhi, Chennai, Kolkata and Nagpur could  go to RBI for exchanging currency notes at these places? What could RBI have done that it should have permitted all its regional offices till 31^st March and 30^th June 2017 for exchanging notes?

Many resident Indians whom were abroad from November 9 to December 30 2017 could not exchange notes as they had to travel to Mumbai or New Delhi or Chennai or Kolkata or Nagpur for exchanging notes, as they had to put in a hotel at that place, stand in queue for depositing currency notes.

These people thought that it was not worth spending good money for exchanging couple of thousand demonetized currency notes. It transpires that the whole idea was not to exchange notes of those who were out of India. Those who ventured to visit RBI’s offices in those places have not yet got credit in their account as they are at the mercy of RBI. The words of Prime Minister that "Your money will remain yours. You need not have to worry on this point.” Is it not a breach of trust committed by the government?

A resident Indian who was out of India from 8^th November2016 till 31^st December 2016 and who deposited currency  notes in RBI not only looses interest but is also deprived of his hard earned money for the time being. According to the RBI, Indian citizens resident in Nepal, Bhutan, Pakistan and Bangladesh cannot avail this facility. Why this discrimination?

As per RBI’s annual financial report for the year 2015–16, the two presently demonetized denominations account for more than 86% of all currency notes circulated in the market. The 80-20 rule in economics (The Pareto principle) refers to the fact that 80% of a country's wealth is usually controlled by 20% of its population. It means that for the sake of 20% of Indian population 80% masses have to suffer. In our country most of the senior citizens who are not pensioners rely of interest income from their savings made through out their life are the worst sufferers. We celebrate senior citizens day but quietly ignore them. 

Generally economy takes time to survive and mature from the shock of demonetization. For the time being demonetization may have a temporary impact in illegal transactions until operators of illegal transactions find out an alternative ways of financing such transactions.

If we look into the past trend of demonetization the chances of next demonetization may be some were around 2040-50. Demonetization resulted into large demand for gold bullion and jewellery. Though government has made Aadhar card mandatory for opening bank account and pan card for conducting financial transactions of Rs. 50 thousand and above this may to some extent curb black money. But in future it would be difficult to control black money as people would instead of keeping black money would keep in crypto currency.

Crypto currency:

Crypto currency is not issued by any central bank or other centralized authority. These are an open-source software, peer-to-peer, digital decentralized currency. There are over 900 crypto currencies. Some of them include Bitcoin, Ethereum, Ripple, Litecoin, Dash etc.

There are over 45 crypto currency exchanges to buy Bitcoin & Crypto currency. Despite restriction on forex trading by The Reserve Bank of India on Indian residents’ crypto currency has gained momentum. Due to demonetization of higher denomination currency of Indian rupees purchase of crypto currency have increased by 20-30 percent.

Crypto currency can be sent anywhere, anytime, for a fee. The Reserve Bank of India (RBI) has issued a warning against the use of digital currencies, particularly Bitcoin. The Reserve Bank of India advises that it has not given any licence / authorization to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.”

What is Black Money?

“There is no uniform definition of black money in the literature or economic theory. In fact, several terms with similar connotations have been in vogue, including ‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, ‘black economy’, ‘parallel Black money gives false information about the economy’, ‘shadow economy’, and ‘underground’ or ‘unofficial’ economy”.1

Black money gives false information about the economy which is mainly due to Tax evasion, from illegal activities such as crime, corruption and acceptance of illegal gratification etc. Black money does not affect those who have black money but affects common man. It is a socio economic problem which results into inequality amongst people which results in to unrest as consumption pattern is titled in favour of rich and elite classes. It affects inflation and results into higher commodity prices.

Reasons for Black Money?

As mentioned earlier during March 1970. Government of India appointed an enquiry committee, under the chairmanship of Mr. Justice K.N. Wanchoo, former Chief Justice of Supreme Court, for studying the problem of black money, tax evasion, tax avoidance and tax arrears etc.

According to the Wanchoo Committee Report, “Black money denotes not only unaccounted currency which is either hoarded or is in circulation outside disclosed trading channels but also its investment in gold, jewellery and even precious stones made secretly, and in land and buildings and business assets over and above the amounts shown in the books”.

Wanchoo Committee reported the principles causes of black money which are : (i) Higher rates of taxation.(ii) Economy of shortages and licensing system.(iii) Donations to political parties.(iv) Corruption.(v) Ineffective enforcement of tax laws.(vi) Corruption in business practices

The committee suggested demonetization of currency to unearth and counter the spread of black money. However the then government was reluctant to demonetize higher denomination notes. It was only on Jan. 16, 1978 that the high denomination bank notes of Rs1,000, Rs5,000 and Rs10,000 were demonetized under The High Denomination Bank Notes (Demonetization) Act. The time lag of submission of Mr. Justice K.N. Wanchoo report and implementation of the report escalated the quantum of black money in the economy.

Corruption:

Corruption is dishonest or fraudulent conduct by those in power, typically involving bribery. The foreword of United Nations Convention against Corruption,(2004) states that “Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish. This evil phenomenon is found in all countries—big and small, rich and poor—but it is in the developing world that its effects are most destructive. Corruption hurts the poor disproportionately by diverting funds intended for development, undermining a Government’s ability to provide basic services, feeding inequality and injustice and discouraging foreign aid and investment. Corruption is a key element in economic underperformance and a major obstacle to poverty alleviation and development.”

In India Corruption has become a routine day to day affair. Barring a few, most of the people occupying higher position are corrupt.(Apr 6, 2017 Hindustan Times “ED conducts nationwide raids against govt. officials facing corruption charges.)

With Mr. Mody becoming head of the country, India has been ranked 79th among 176 countries in the Corruption Perception Index 2016 released by the Transparency International organization. The score runs from zero to 100, from highly corrupt to 100. Though the score has marginally improved from 38 in 2015 to 40 in 2016. Still there is a tremendous scope. Though the Government made several attempts to stop tax evasion but it did not yield expected result

Conclusion:

It is really a difficult task to completely eradicate black money which has permeated every section of our society and every sector of economy. Withdrawal of high-denomination notes may to some extent curb corruption in the country and may control parallel economy as most of the transactions involving black money are carried out in high denomination notes. But people would certainly find out a way and black money would continue to dominate economy. Today corruption is perceived as one of the major challenges faced by the country, and the government is fully committed to countering it. However, unless almost all section of society does not mend their ways, corruption would never come to an end.

References : 1.Black Money Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi – May  2 0 1 2

2. Ministry of Finance (Department of Economic Affairs) Notification New Delhi, the 8th November, 2016.

3. United Nations Convention against Corruption,(2004)

4. Transparency International organization Index 2016

Marketing Challenges in Banks

 Marketing Challenges in Banks

Marketing is one of the most important functions of an origination. It is the art of creating genuine value to customers and a new reality for banks. The object of marketing in banks is to attract funds and convert them in to credit, its core function. In fact marketing is understanding customer’s response to the stimuli to which they are exposed.  

Impact of Development:

Technological developments, globalization, financial modernization, deregulation, opening of banks in the private sector, liberalisation of economy have not only affected operations of commercial banks but has opened floodgates of competition and challenges for the industry. Whereas, deregulation of interest rates has put banks on toes for aggressive marketing, automated banking has made the industry more complex.  

Technology has broadened customer’s vision, made them knowledgeable and has raised their expectations. It has helped banks in delivering end-to-end, round-the-clock services. With the help of Internet, mobile phone, blue tooth technology, customers can get more information about the products and services of different banks and can compare them for taking decision. Internet has opened “virtual" marketplace (“e-market”) where different products are offered through web (World Wide Web). E-market has adversely affected bank’s market share.

A customer, with the click of mouse can do lots of financial transactions through internet or with the help of his mobile phone sitting at any corner of the globe. He   need not visit a brick and mortar branch. Web banking services has lowered the operating cost, reduced footfall in the branches and has given ample time to staff members for marketing. With the help of internet banks can also ascertain the views; responses of customers and can improve services. Since customers desire instantaneous and efficient services, banks have to adopt proactive marketing approach for having proper relationship with customers.

Vide RBI circular number RBI/2007-2008/128 DBOD.No.Leg.BC.30 /09.07.005/2007-08 dated September 3, 2007, banks were advised to establish customer service committees at branch level for encouraging a formal channel of communication between the customers and the bank so that customer services could  be improved.

What is Market? :

Market is a place for exchange of goods/services for some consideration. Globalization and technological developments have widened the scope of market and have liberated it from the shackles of geographical boundaries. Since customer’s behavior is changing fast, banks have to understand that customers do not have common preferences. A product may not be of common utility to all; banks have therefore to understand customer’s aspirations so that better products and services could be provided.

Marketing is identification of demand of different types of customers and then chalking out strategies to meet them keeping in view demographic pattern, market trends, changes in consumption pattern and impact of cultural invasion. Banking needs depend on the age group, marital status, family, social background etc.

Financial needs of married couples with children would certainly be different from that of senior citizens. The young married couples may have lots of financial needs such as for buying a house or a car for which they may require funds.

Senior citizens are more interested in interest income from the funds saved and accumulated during their life time. They have different ethos and value systems. Senior citizens are paid .05% extra on term deposits.

It is not that the interest factor only matters, but the courteous service that matters.

Since bank’s capital base is not enough to do business, banking business depends on public funds. As banks purchase funds from customers, their expectations for returns on their funds are high. Therefore, survival of bank depends on focusing right markets and contacting customers to understand their needs.

Marketing through mass media like newspaper, magazine, radio, outdoor ads and TV commercials generally do not cater to the financial needs of a particular group of customers. If a particular product is preferred by a few, why market that product to all customers? Mass marketing does not give that result as data base marketing does.

Competition in Banking:

Due to deregulation of interest rates, opening of banks in the private sector, influx of foreign banks, banks in India have entered into a new era of hyper competition, which has resulted in to from age old products to an environment of quick strike products. Competition has made the going tough for banks. It is not only confined to resource mobilization but also to lending and other revenue generating areas.

Competition is a healthy sign as it gives an opportunity to improve; it is ‘survival of the fittest’. Some of the top private sector banks are disrupting competitive advantages. Competitive advantage is no longer sustainable over the long run. Customer service is the competition weapon. According to Phillip Kotler "The marketing concept holds that the key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating customer value to its chosen target markets."

Success of Marketing:

The success of marketing depends on letting people know what bank can do for them. It is therefore necessary that the end user is kept apprised about various products and services. Banks have realised that it is the knowledge, awareness, quality of the product that results into constant demand. It is always better to have direct communication with customers. Keeping constant touch with customers is an excellent way of facing competition. Promotion of products and services depends on development and need identification. Even if a scheme is properly developed and designed to suit customer needs, it may not pick up, unless it is properly marketed at all levels. With the technological development, e-mail has become an instant and cheapest mode of communication.

While opening account banks adhere to ‘Know Your Customer (KYC) norms’ prescribed by RBI. Banks obtain detailed information about the account holder and obtain information about family, educational background, marital status, income, assets (both movable and non movable), profession, occupation, number of dependents etc. This can enable banks to do marketing of financial products on the basis of data. Customers are provided an ID which enables bank in judging profitability of a customer, and product turnover.

RBI vide circular number RBI/2014-15/70 DBOD.AML.BC.No.22/14.01.001/2014-15 dated July 1, 2014 on “Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA, 2002”has mentioned under the guidelines (2.1) that “Banks should keep in mind that the information collected from the customer for the purpose of opening of account is to be treated as confidential and details thereof are not to be divulged for cross selling or any other like purposes. Banks should, therefore, ensure that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information from the customer should be sought separately with his/her consent and after opening the account”.

Innovation of Products:

Though product innovation improves business and helps in facing competition, however, there is hardly any product innovation in banks. To face growing competitions innovative know how must is. Innovation in banks mean ‘adds on’ to some special features of convenience to the existing products. For example giving a debit or credit card, providing accidental insurance cover or providing free remittance facility, auto sweep facility, net banking facility etc. ‘Adds on’ to a product may increase business, but certainly it is not innovation.

Generally launching of new service or product is based on the principle’ Copy Competitors’. Once a bank introduces a convenient feature to an existing product and makes it attractive, other banks follow the suit by adding some additional features to the product, and the bank launching a new product faces competition from similar products. Since there is no uniqueness in the products all banks face similar problems. There is no system of patenting banking services, concepts are copied from competitors.

Marketing and Selling:

The word marketing and selling are complimentary and supplementary to each other. Marketing and selling are continuous process. Selling is the end result of marketing. It is conversion of products into cash. Under selling concept, a seller sells what he has on his shelf or in his stock and by adopting various selling skills he persuades customers’ to buy.

According to Prof. Theodore Levitt ‘The difference between selling and marketing is more than semantic. “Selling merely concerns itself with the tricks and techniques of getting the customers to exchange their cash for the company’s products”.

Reputation of an organization including banks is linked with customer care and customer service. Saving reputation does not cost money but boosts business. Banks have realised that loosing reputation is worse than losing money in any particular quarter, hence maintenance of reputation is must for business growth. It is better for banks to take care about customers rather than concentrating on income. The main reason for increase in non-performing assets is that banks have been concentrating only on generating income by hook or crook ignoring other factors. “The true purpose of a business is to create and keep a customer, not to make you money.”(Theodore Levitt)

Till recently bankers were only selling age-old products with certain modifications retaining its original structure. Neither there was any element of innovation, nor was any emphasis given to marketing.

Marketing in Banking:

Marketing is demand management forecasting and projection of bank’s image. The main purpose of opening of branches at different geographical locations is to tap business in new and emerging market and enhance public awareness about various banking products, necessity for survival and meeting competitive challenges? Banks have also opened specialized branches for providing state of the art services to customers. Banks sell both assets and liability products and services (as mentioned in section 5(b) and 6 of BR Act, 1949) to different segments of society through its branches spread both in and outside the country.

RBI has deregulated the pricing mechanism for both asset and liability products. Many banks have adopted a competitive pricing policy. Every bank has its own ‘Benchmark Prime Lending Rate’ (BPLR). A bank may price its asset products for a given customer either above or below the BPLR. Price has direct impact on a product which affects customer retention. Customers do not mind paying a price for specific services.

Success of marketing depends on commitment of staff and on targeting the right people. In fact it is an attitude. Till recently marketing in banks was restricted to deposit mobilisation and no serious efforts were made to market other financial products. It is only during closing that efforts are made to mobilise deposits, otherwise banks rely on walk in business, and adopt lukewarm approach towards marketing. With the liberalisation of economy, banks realised that for meeting competitive challenges they need to have a ‘Marketing Philosophy’. Banks need to find out new ways of marketing. Banks have realised that to make their presence felt in the market and to face competition they need to market their assets and liabilities products aggressively. In the present time marketing has become aggressive and combative. Therefore for sustainable growth knowledge of technology and marketing is must.

While preparing annual performance budget, more weightage is given to deposit and advances. Banks can take clue of emerging markets from the “Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks” published by the Reserve Bank of India. This would certainly help banks in increasing ‘Market Share’. Banks can also work out market share at those places where they have branches and can make vigorous efforts to increase market share.

With the implementation of ‘Core Banking System’ banks have created a large database. Data is a valuable raw material for banks. Access of data is not an issue but getting value from it is. Banks can cull out information from their database and chalk out marketing strategies keeping in view various segments. Market segmentation helps banks in developing marketing messages for the target group and in adopting a pointed marketing approach. Bank can also identify potential and profitable customers from their data base and can contact them either personally or through e-mails for marketing products. Even customer meets can also help in building account holders loyalty.

Business of Banking:

Banking products are about the money in different forms. They can be classified into fund-based and fee-based. Fund-based products can further be sub-divided into asset and liability products. Whereas liability products include deposits, payment cards etc., Asset products include various kinds of credit products like trade finance, corporate finance, project finance, and term loans etc.

Deposits: Deposits is a pivot around which all banking activities rotate as it is vital resource and lifeblood of industry. Survival and development of banks are influenced by their ability to attract deposits from different segments of society.

Banks ‘purchase’ deposits and sells loans. Due to tough competition for deposits among banks, between banks and non-banking companies, deposit mobilisation has assumed a greater significance.  Banks have realised that they can no more depend on walk in business, hence they have to go for aggressive and combative deposit mobilisation.

Deposit cannot be mobilised only on the basis of interest factor, other factors do matter.Though RBI has deregulated interest on deposits, it has laid down minimum cap of 4% interest on savings bank deposits. Banks are free to quote even higher rate on interest on savings bank deposits without any discrimination. That is why some banks are quoting higher rate of interest on savings bank deposits.

Banks quote higher rate of interest by offering different rates for different periods on term deposits. Interest rates also depend on assets liability management, on demand and supply of funds and rates quoted by competitors. Banks do not offer interest on the balances held in current account. To obviate RBI guidelines banks have started ‘auto sweep’ facility both in current and savings account.

It would be observed from the following tables that the pattern of deposit differs from location to location. Term deposits are the most preferred deposits of people living in any geographical area. People living in rural, semi urban and urban, areas prefer to keep deposits either in savings account or in term deposits. The leaning towards current account is not much, whereas, people in Metro areas keep all types of deposits.  People in rural and semi urban areas either do not have enough capacity to save or banks have not done enough marketing and encouraged them to save.

                  : Share of Population Groups in Total Deposits in Percentage:

                                                      End March

Rural Deposits					Semi -urban Deposits
	Current	Savings	Term	Total	Current	Savings	Term	Total
2014	4.3	49.8	45.8	100	7.0	43.2	49.8	100
2013	4.7	50.1	45.2	100	7.4	43.9	48.7	100
2012	5.0	49.9	45.1	100	7.8	44.0	48.3	100
2011	5.3	50.6	44.1	100	8.3	45.3	46.4	100
Urban Deposits					Metro Deposits
	Current	Savings	Term	Total	Current	Savings	Term	Total
2014	9.0	30.4	60.6	100	10.4	16.2	73.5	100
2013	10.2	30.8	59.0	100	11.3	15.9	72.7	100
2012	9.9	31.5	58.6	100	12.8	16.2	71.1	100
2011	10.7	32.8	56.5	100	15.2	17.2	67.6	100
Source: Basic Statistical Returns

Advances:

Banks are the main source of credit supply to various sectors of the economy. Lending is determined by both demand and supply. Credit deposit ratio of a bank indicates its lending behaviour. Since over 70 percent of banks income is derived from lending operations, marketing of loans and advances has become a major activity. Though lending is a risk prone activity (Credit Risk) banks have launched multiple asset products for different set of people.

It would be observed from the table given below that by and large banks do not concentrate in marketing credit (Assets) products in rural and semi urban areas as they do in urban and metro areas. Lending in rural and semi urban areas is generally confined to achieving priority sector targets. Government, non-government organisations, district administration and other rural agencies ‘bridge knowledge gap’ of people living in rural and semi urban areas about various poverty alleviation programmes. ‘Bridging knowledge Gap’ acts as marketing for banks. In addition business establishments engaged in marketing of tractors, machinery, equipments etc., tie up with banks for financial assistance and indirectly do marketing for banks.

In urban and metro areas banks target prime customers who are in need of bank finance. In these areas there is a high demand of finance for housing, purchasing white goods, educational loans etc.

Deposits and Credit of Schedule Commercial Banks

According to Population Group in percentage

March

Year	Population	Rural	Semi Urban	Urban	Metropolitan
2014	Deposits	9.9	14.3	21.5	54.2
	Credit	8.4	10.6	16.0	65.1
2013	Deposits	9.6	14.0	21.3	55.1
	Credit	8.3	10.1	16.4	65.2
2012	Deposits	9.4	13.9	20.9	55.8
	Credit	7.9	9.6	16.3	66.2
2011	Deposits	9.2	13.3	20.6	56.9
	Credit	7.3	9.4	16.8	66.6

Casual Customers: Bank provides public utility services to their customers as well as non-customers. These services include remittances facilities (Demand Draft, Mail Transfer, Telegraphic Transfer, Banker’s cheque) lockers and safe custody, purchase and sale of foreign currency, travellers cheques etc.  No marketing for such services is done.   

Data base Marketing:

As mentioned earlier most of the banks in India have technologically upgraded their systems, procedures, functioning after implementing ‘Core Banking Solution’ and have established ‘Data Centres’. Data gives deep information in understanding trends and customer preferences. Data warehousing builds customer wise data by mapping it from various services and products used by the customers such as deposits, credits, foreign exchange, e-business, safe custody, lockers, bill collection, etc.

Bank has to find out which data is important as it helps in anticipating demand. Data enables banks in adopting a pointed marketing approach and helps in managing customer portfolio. By retrieving data from the data centre bank can chalk out marketing strategies, find out needs and preferences of customers in various segments and can match the appropriate products/services to match those needs. It also helps in penetration of market and cross selling of products.

Database helps in identification of segments and groups to whom the services can be marketed. Database marketing is an intelligent way of marketing. In fact Data base marketing is marketing on customer information. It helps in marketing right products to right customers. It helps in segmentation marketing (target marketing). Some banks rely on market research. Market research tells about present but does not predict future trend.  

As per Phillip Kotler “Marketing is becoming a battlefield more on information than on sale power visible" for that customer.

It is essential for a banker to have full knowledge  not only of its product but also of the products of competitors. For increasing cross selling ratio employees should have a broader perspective and complete knowledge of the entire range of products and services being offered by the bank. So that a banker could provide satisfactory answers to the queries of customers. Despite the fact that India is a developing market, the cross selling ratio of banks is very low.

Market Segmentation and Banks:

 Market segmentation is the technique of identification and bifurcating customers having common needs into various homogenous sub groups or segments. Segmentation helps banks in dealing with individuals, groups, corporate, having common preferences. It is an effective manner of marketing. Segmenting market helps in avoiding head to head competition and keeps the competitor low by putting up entry barriers around their products.

As the choices, preferences, perception, utility of a product or service differs from person to person; marketing a product may not satisfy the need of every one. Hence it is necessary to study the needs, wants, demands and requirement of people on the basis of demographic, psychographic, income and behavioural pattern and thereafter marketing various products and services to suit different section of society.

“Market segmentation is the process of dividing the total heterogeneous market for a product or service into several markets or segments, each of which tends to be homogenous in all significant aspects. Market segmentation is a customer –oriented philosophy.1

By analysing the market into individual segments bank would be able to know the profitable segment and can expand business to that particular segment. For example a bank can segment the market profession wise s viz. medical practitioners, architects, chartered accountants, advocates, consultants, fashion designers, engineers etc., and can accordingly target its products. Segmenting of market in to various sub groups helps in aggressive and combative marketing.

Basis of Segmentation:

Segmentation can be done on the basis of:

1. Demography: Demographic segmentation allows a bank in assessing on personal information submitted while opening an account. It enables a bank to develop products and services that suits customer’s need. Bank can bifurcate customers on the basis of age, occupation, income, religion etc.

2.Geography: Geographical segmentation is quantifying the market based on geographical location as requirement of customers differ from place to place. People in rural areas have different requirement than people living in urban or metro areas. There are products which are in demand only at a particular place or region.

3. Income: Market can also be segmented on the basis of income. Demand of a product depends on the earning capacity of customers. On the basis of income market can be segmented in different income group.

Marketing Plan in Banks

Increasing competition has forced banks to have a system of marketing. Marketing is teamwork. A banker should have thorough knowledge of the area of his operations such as attitudes of local people towards savings, borrowing, spending and traditions. This knowledge goes a long way in creating marketing strategies. Bank has to ensure that the price quoted is realistic and it acceptable to customers.

Instead of utilising the services of their employees, some banks engage marketing experts on contractual and commission basis who are given a target. The best way of marketing in banks is to create a bond of trust through efficient service and product delivery. 

Innovation in Marketing:

Tourists at the International airport of Mumbai would have observed how airport authorities are marketing tourism in India. The entire transit lounge reflects culture of our country, monuments etc. Tourists are attracted and when they go back to their country speak about the culture monuments etc. which ultimately boosts tourism. Even all state governments are advertising about tourist places in their state, which is boosting regional tourism.If banks take clue from “red ribbon expresses train”, an AIDS/HIV awareness campaign launched in India by the Indian Railways on ‘World AIDS Day’, December 1, 2007,
all banks can also launch  a knowledge gap campaign with the help of Indian railways, Ministry of Finance, Reserve Bank of India and Indian Bank’s Association. Where different banks can market their various products for farmers, professionals, industries and so on in separate bogies of train and the train can move to different geographical areas of the country. Even Reserve Bank and IBA can have a bogy depicting various stages of banking developments, various government sponsored programme and the present stage of mobile banking etc. 

Conclusion:

Marketing is a planned and organised effort to find today the opportunities in tomorrow’s market. In order to make decisions about the services to be offered, it is essential to have knowledge of population growth, nature of industrial and trading activities, agricultural development, wage structures, income pattern of potential customers and other relevant factors. The cultural environment in which the bank operates also has a bearing on marketing decisions. This includes attitude of local people about saving, borrowing and spending, and also their traditions and values. The schemes suited for urban sector would be different from those suited for rural sector.

Marketing is teamwork that demands commitment from one and all in the organization for converting new ideas into profit. A skilful marketer has to be a practical psychologist and sociologist, who can understand individual and group behaviour and can foresee changes in the society. He has to be innovative and creative. Banks require visionary leadership. Management skills are not enough. There is no point in managing people and product in wrong direction.

Marketing services are of great importance for banks. Recent developments in marketing of services such as internal marketing, network marketing, data base marketing and relationship marketing is becoming favorable for bankers. Successful marketing depends on precisely targeting audience. Market segmentation helps you achieve that precision. For facing competition, an integrated view of the data analysis is must. Customers’ desire personalised service and attention no matter which bank it is or of what size. He can no longer be taken for granted. Behaviour and approach of bank staff plays crucial role in marketing of various products. For increasing profit bank has to create new markets, increase market shares and to survive intense competition. The shifts in globalization and technology have brought fundamental changes in competition among banks across the boundaries of nation. Rapid technological changes, globalization, global alliance, falling geographical and industry boundries have resulted into hyper competition. Interactive computer networks and telecommunications have blurred the boundaries of banking industry. 

References:

1.  (William J. Stanton, “Fundamentals of Marketing”, McGraw Hill International Book Company, Tokyo, 1981,p.66)

For further reading:

1.“ The Marketing of Bank Services” The Institute of Bankers, London; 1971

2. Pezzulo, Mary Ann,” Marketing Financial Services”, American Banker Association, Washington, D.C, 1998

2. Kotler P.; Armstrong G.; Saunders J.; Wong V. Prentice Hall Europe, Harlow, Essex: 2001

3. Levitt Theodore,” Marketing Myopia, Harvard Business Review, July-August

    1960.

4. George M. Dupuy, William J. Kehoe, Robert F. Linneman, Raymond N. Davis and Jim D.Reed,”Bank Selection Decision and Market Segmentation” American Marketing Association, 1976