CUSTOMER RELATIONSHIP MANAGEMENT IN INDIAN BANKS * Popli, G.S ** Rao, D.N.

1. Background Relationship Marketing is the process of building long term mutually beneficial relationship with the customers. The Financial Institutions in the developed countries are using this marketing tool very effectively by taking full advantage of Information and Communication Technologies. The Indian Banking Industry which was operating in a bureaucratic style prior to 1991 had to undergo large scale transformation with the opening up of the economy. The Sector has been facing unprecedented challenges with the wave of liberalization, privatization and globalization of Indian Economy. Banks in India are under intense pressure in today’s volatile market place. Steep competition, globalization, growing customer demand and exposure to higher credit risks are forcing the banks to find new ways of improving profitability.

On the other hand, cost-cutting measures have forced banks to manage

operations with few Customers Relationship Managers and Product Specialists. Industry consolidation also poses fresh challenges to this sector. Even today, most of the banks in India rely on the legacy of Customer Information System. In such a scenario, it is difficult to have a complete customer view across divisions. They face unprecedented challenges to sustain their growth path for survival. The challenges include customer retention, reducing transaction costs, risk management and Regulation Compliance. The result was a huge proliferation in customer’s choice. The strategic tool that was chosen for aiding this process was Information Technology and most of the banks went through adoption of various stages and forms of IT over the years and the process is still continuing. *Popli, G.S. is currently working as General Manager with Oriental Bank of Commerce. **Rao, D.N. is currently working as Director, Centre for Management Education, All India Management Association, New Delhi.

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The rapid growth in Information Technology and its potential to serve the customers in a new way awakened the marketers and enabled them to transform these challenges into opportunities. Under these circumstances, customer satisfaction became an important aspect of the business. The search for new strategies began to meet not only the high expectations of customers but the need to retain them. The competitive world witnessed many banks participating in the race to optimize their profits. It increased the pressure to perform leading to adoption of advanced technology and better skilled work force. Therefore, business model changed from bank-centric approach to customer-centric approach. The customer became not only an essential but the most important part of the business. The Service Sector has emerged as a key sector in Indian Economy. The contribution from this sector to our Gross Domestic Product (GDP) is approximately 55%, as per the current year’s Budget Report (2008-09).

The continuous growth of GDP at 8% and above has

become possible due to the good performance of this sector. In the post - reforms era, there has been a sea change in the financial sector. In such a scenario, the services have grown rapidly and the customer has been more often a purchaser of services rather than a product. The Financial Services is the backbone of service sector. This is important not only for the banking sector but of the Indian economy as a whole.

This is so because banking is a

catalyst and life of modern trade and commerce. It is an integral part of all the businesses and social activities. This rapid transformation of services in the banking system has led to the evolution of a highly competitive and complex market where there is a continuous refinement of services.

Hence the increased role of banking in India’s economic

development on the one hand and the changes in the business climate on the other has put increased pressure on them. These changes are compelling the banks to reorganise themselves in order to cope with the present conditions. Now, the Financial Institutions are trying to provide all the services at the customer’s doorstep. The customer has become the focal point either to develop or maintain stability in the business. Every engagement with the customer is an opportunity to either develop or destroy a customer’s faith in the Bank. The expectations of the customers have also increased many fold. Intense competition among the banks has redefined the concept of the entire banking system. The banks are looking for new ways not only to attract but also to retain the customers and gain competitive advantage over their competitors. The banks like

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other business organizations are deploying innovative sales techniques and advanced marketing tools to gain supremacy.

2. Evolution of CRM One of the important marketing tools in the developed countries is Relationship Marketing. The CRM is a comprehensive approach for creating, maintaining and expanding relationship with the customers. It has emerged as one of the most widely prescribed solutions for diminishing market share and sluggish growth of many industries in general and banking and financial sector in particular. CRM is a simple philosophy, which places the customer at the heart of the business processes, activities and cultures for improving customer satisfaction and maximizing profits.

In one of the encompassing definitions, CRM is

described as “the establishment, development, maintenance, and optimization of long term, mutually-valuable relationship between the customers and the organizations.

It is a

comprehensive approach for creating, maintaining and expanding relationship with the customers. The concept of CRM is very important to the business sector. The essence of the business has been described by Mr. Peter Drucker, the Management Guru as, “the purpose of the business is to attract and retain a good customer”.

Good Customer Service is the best

brand ambassador for any bank. The entire business process consists of highly integrated efforts to discover, create, arouse and satisfy customer’s needs. The modern business has realized it and is making all out efforts to become ‘customer-centric’ across the globe. Hence, CRM is not a once-for-all affair but a continuous process. It is the way of carrying out business covering all the aspects of the modern business. It is an integral approach of dealing with customers by deploying the advanced information technology. CRM is the Information Technology face of the business process that aims to establish enduring and mutually-beneficial relationships with customers in order to drive customer retention, value and profitability.

It is meant for a common and equal good of the two

stakeholders-businesses and their customers. It calls for capturing pertinent data about the prospective and current customers in respect of their buying pattern, shopping behavior and usage habits. It represents the current philosophy that the businesses should be customeroriented. CRM is a tool for delivering a variety of marketing dreams such as: 

To target and serve customers on an individual basis. marketing as opposed to mass marketing.



It helps in establishing durable relationship with customers.

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It permits one to one



It is to dis-intermediarize channels of the wasteful barriers and distortions.



It helps in reducing marketing cost progressively.

3. Need for Study The important factors that establish the need for CRM in the Banking Industry are detailed below:

Intense Competition There is intense competition among the Private Sector Banks, Public Sector Banks and Foreign Banks and they are all taking steps to attract and retain the customers. New technologies, research facilities, globalization of services, the flood of new products and the concept of all the facilities under one roof to provide better customer service leading to customer delight.



Well Informed Customers The Customers in Banking Industry today are well informed. With the introduction of new technology, the world has become like a small village. Thus, if a Bank wants to have more customers, it should develop a good relationship with its present customers and try to maintain the same in the future also.



Decline in Brand Loyalty In the present scenario, brand loyalty is on decline. The customers are switching over frequently to avail the better facilities from other banks. Newer and superior products and services are being introduced continuously in the market. Thus, the banks have to upgrade their products, improve customer service and create bonds of trusts through proper care of customer needs and regular communications. With the help of CRM, strong customer loyalty and a good image for the organisation can be developed.



Improved Customer Retention In the intensely competitive banking industry, retention of existing customers is vital, which can be achieved through the process of CRM.

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4. Requirements of an effective CRM Structure An effective CRM system consists of the following: (i). Personal Customer Needs 

Personal contact



A knowledgeable and reliable banker.



Relevant Information.



Customized and timely solutions



Value for money.

(ii). Business Customer Needs 

A professional partnership approach.



High levels of information.



Customized and highly responsive service.



Quality Customer Information.

5. Benefits of CRM Benefits of CRM can be categorized into three groups namely: Benefits for customers, benefits for employees and benefits for banks. (i) Benefits for Customers 

There is a more coordinated and professional approach to customer contact.



With up-to-date customer information, Banks can offer more personalized services.



Customers feel empowered if they have greater access to products and services. For example 24 Hours banking.



Targeted product and service offerings can be timed to coincide with customer events and requirements e.g., Education Loans and Tourism Loans.

(ii) Benefits for Employees 

Employees are empowered with the information to deliver high quality service and meet customer expectations.



Employees have more time to serve customers.



Employees have higher satisfaction ratings.

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(iii) Benefits for Banks 

Managers are empowered with information that can help them manage customer relationships and make better decisions.



Optimum use of resources.



Customer satisfaction and increased loyalty.



Improved customer acquisition and cross-selling.



It helps in capitalizing on short windows of opportunities in the market.

6. Introduction of Innovative Services through CRM Banks have made several innovations for sustenance by using the CRM System such as: 

The introduction of ATMs.



Biometric ATMs.



Single Window Service.



Teller System.



Internet Banking



Introduction of Plastic Money: Credit Card, Debit Card, Smart Card.



Mobile and E-Mail Alerts



Electronic Cash



Introduction of two in one Accounts.



Introduction of new loan schemes as per the customer’s needs viz. Education Loans, Marriage Loans, Housing Loans, Personal Loans, Vehicle Loans, Furniture Loans, Renovation Loans and Tourism Loans.

7. Review of Literature The literature on Customer Relationship Management in the context of the Banking Industry of developed countries points towards the wide use of all financial services under one roof leading to relationship banking and CRM concept. Brain and Company, USA in a specific study on CRM found that a customer becomes more profitable in the long run. Though the initial acquisition cost exceeds gross margin but the subsequent retention costs are much lower which help in increasing the profits. The Research findings of Technical Assistance Research Project state that 95% of customers do not complain and give opportunity to competitors.

On the other hand, a dissatisfied

customer tells around 14 people about service failure, whereas the same customer tells only around six others when he receives excellent service.

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Bateman & Snell (2007) observed that CRM is a business process which results in optimized profitability and revenue generation, while achieving customer satisfaction. Often also known as relationship marketing by marketing academicians, CRM is an information technology assisted process that establishes a collaborative environment for businesses to analyze the buying behaviour and product/service requirements of an individual or group of existing as well as potential customers. Pisharodi, Angur and Shainesh (2003) in a study of success of CRM found that a processoriented strategic approach to connect the operational, informational and the organizational components of CRM are critical for the success of CRM application. Reinartz & Kumar (2002) pointed out that Managers need to be careful in differentiating customer loyalty and customer profitability. Enterprises ought to understand the fact that managing customers for loyalty is different from managing them for profits. As per the Research Note by Gartner Group (2001), more than 75% of enterprises engaged in CRM initiatives are incapable of putting together a comprehensive view of their customers. Further, it noted that market leadership would be attained by enterprises that achieve maximum value and customer satisfaction within each customer segment being served by them. Parvatiyar and Sheth (2001) observed that CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company with the customers. Day (2000) pointed out that the enterprise has to develop some key marketing competencies for the smooth implementation of CRM. A relationship orientation is the first such thing. Relationship orientation should permeate the mindset, values and norms of the organization.

Further, the enterprise needs to continue to increase its knowledge of the

customers and ensure that it flows all over the organization.

Finally there is a need for

alignment and integration of processes. Ernst & Young (1999) observed that enterprises investing on CRM solutions predominantly focus on technology. The challenge lies in combining people, processes and technologies while implementing CRM Solutions. Davids (1999) observed that choice of relevant technology and implementation are keys to successful customer relationship plans. The failure rate of CRM projects has been estimated to be high.

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Groff et al (1998) observed that CRM facilitates better handling of the obstacles of interweaving customer relationship strategy at all levels. It demands a holistic approach and process orientation. Reichheld & Sasser (1990) found that advancements in information technology, data warehousing and data mining capabilities enable enterprises to manage individualized relationships with key customers.

The benefits come by way of lower costs of customer

retention, improved profitability and lower defection rates.

8. Objective of the Study The main objectives of the study are: 1. To analyze the extent of the implementation of CRM in Indian Banks. 2. To study and compare CRM implementation between the Public and Private Sector Indian Banks. 3. To analyze the perceptions of the customers regarding the impact of CRM on service quality. 4. To evaluate the impact of CRM on customer retention.

9. Research Methodology The study focuses on the CRM practices in Indian Public and Private Sector Banks. For the purpose of analysis, the various dimensions of CRM have been formulated on the basis of the study carried out by N.O. Ndubsi and Chankok.Wah (2005) and further validated by J.G. Barnes in his book “Secrets of Customer Relationship Management”. The scale has been subjected to validation by using Cronbach Alpha test. The test gives the score of 0.89, leading to the inference that the scale is significantly reliable. Likert’s 5 – point scale is used for the collection of data and for its suitability to establish the range and variation in the perceptions (Below 4: Poor; 4 to 5.5: Average; 5.6 to 7: Good; 7.1 to 8.5: Very Good:8.6 to 10:Excellent) 10 aspects of service quality: reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding or knowing the customer and tangibles. It measures the gap between customer expectations and experience. Scale dimensions developed by Zeithamal, Parsuraman and Berry (1988) have been used in the study to ascertain the perceptions of the customers regarding the service quality. The Scale 1 to 5 have been developed, where 1 stands for strongly agree and 5 for strongly disagree.

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We have used 1 to 13 - item scale developed by Parasuraman, Berry and Zeithaml in 1996 in the Research paper entitled “Behavioral consequences of service quality”

for measuring

customer retention. Likert’s scale has been used to analyze the responses received from the customers of the different banks under study. We have considered five Public Sector Banks and five Private Sector banks for this study (Appendix-1). These banks have been chosen because they have a good market share and latest technology. The representative sample has been collected from the 10 Banks situated in Delhi city (the capital city of India). Though we have distributed 200 questionnaires among the customers of ten banks covered for the study but we have received only 150 responses from the customers of (15 each) the above mentioned banks.

9. Hypothesis Hypothesis 1 Null Hypothesis: There is no difference in the CRM implementation between the Public and Private Sector Indian Banks. Alternate Hypothesis: There is difference in the CRM implementation between the Public and Private Sector Indian Banks. Hypothesis 2 Null Hypothesis: There is no impact on customer retention between the Public and Private Sector Indian Banks. Alternate Hypothesis: There is impact on customer retention between the Public and Private Sector Indian Banks.

10. Analysis and Interpretation (i) Extent of CRM Implementation in Indian Banks The first objective of this study is aimed at understanding the extent to which the CRM is implemented by the Public and Private Sector banks (Table 1 gives the list of 5 Public and Private sector Banks). For this purpose, the customer’s perceptions about the CRM have been measured. The five dimensions on which CRM has been perceived by the customer are value, trust, commitment, communication and conflict handling.

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Table 2 depicts the customer’s perceptions of the implementation of CRM in the banks. As it depicts, the overall mean score of CRM implementation has been calculated at 5.01. This shows that CRM implementation is average i.e. satisfactory.

Further, the Private Sector

Banks have been perceived to be having higher mean values of CRM than the Public Sector Banks. While analyzing the Public Sector Banks, it has been observed that SBI is taking initiatives on the technological front and is perceived to be better when compared to the other Public Sector Banks considered in this study. However, on comparing the average grand mean with the bank means, it has been concluded that all the Private Sector Banks have scored above average when compared to the Public Sector Banks. It shows that Private Sector Banks are using Customer Relationship Management technique aggressively to enhance their base. (ii) Comparison of CRM Implementation in Public and Private Sector Banks The second objective of this study is to compare the CRM implementation between the Public and Private Sector Banks (Refer Tables 3 and 4). For this purpose, Student’s t-test has been used.

The t-test reveals that there is no difference in CRM implementation

between the Public and Private Sector Indian banks as the calculated t-value (-1.57) is less than the table value of 1.994 leading to the rejection of Null Hypothesis and acceptance of the Alternate Hypothesis of Hypothesis 1. (iii) Perceptions of customers regarding the Impact of CRM on Service Quality We have also studied the customers’ perceptions regarding the impact of CRM on service quality. The service quality perceptions are based on the five-dimension model, as explained in the Research Methodology. For the purpose of this study, CRM has been considered as the independent and service quality as the dependent variable. The relationship between the two has been studied with the help of regression analysis.

The results reveal the

strength of the relationship between CRM and service quality. The analysis reveals that 41% of the total variance in service quality is explained by CRM as suggested by the R2 value. This indicates that service quality is a complex variable and is a function of many more underlying variables.

Also, the beta values of CRM (0.64) are significant at 5% level of

significance as suggested by the t value. This suggests that there is a positive relationship between CRM and Service Quality. From the analysis, it can be inferred that CRM has a moderate influence on service quality and appropriate steps have to be taken on this front.

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(iv) CRM and Customer Retention The fourth objective of the study is to analyze the impact of CRM on customer retention. The analysis of results obtained reveals the strength of the relationship between CRM and Customer Retention. We have observed that 46% of the total variance in customer retention is explained by CRM as suggested by the R2 value. The beta values of CRM (0.65) are also significant at 5% level of significance as suggested by the t value. This further suggests that there is a positive relationship between CRM and Customer Retention. This leads to the rejection of the Null Hypothesis and acceptance of alternate Hypothesis of Hypothesis that CRM has impact on customer retention.

11. Conclusion Indian Banks have recorded a phenomenal growth in the past decade with the initiation of Economic Reforms. The banks, both Public and Private, have transformed themselves into profit-oriented business organizations besides playing a developmental role in the economy. In an attempt to be more profitable, the banks have become competitive and more customer – oriented. This new orientation has compelled them to take a more pragmatic approach for conducting the business. The CRM is one such tool which helps in meeting the customer’s expectations according to their changing needs. While analyzing the CRM Implementation in both the sectors, it was found that the Private Sector Banks have been able to implement the CRM practices more effectively when compared to their Public Sector counterparts. This indicates that strategically speaking, the Private Sector Banks have been more innovative in understanding their customers and in building good relations with them. This fact has further been corroborated by the findings of the service quality level being provided by these banks. These suggest that in case of the Private Sector Banks, all the five dimensions of service quality have scored higher values when compared to the Public Sector Banks.

It also points towards the same fact that these banks have been able to

enhance the service quality levels for their customers making them more customeroriented. Further, we have observed by analyzing the service quality dimensions that responsiveness and empathy of both the Public as well as the Private Sector Banks, scored the least. However, a micro analysis reveals that the Public Sector Banks have highest scores in terms of reliability and assurance whereas the Private Sector Banks have fared better in terms of

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tangibility, reliability and assurance. This indicates that the banks are in a dire need to make proper strategies to improve their working. This will make the banks more efficient in serving the customers and in maintaining the long term relations with them. The analysis of the results received on customer retention suggests that the banks (whether Public or Private) are equally affected by the kind of CRM initiatives they undertake to retain the customers.

The banks are now under tremendous pressure to retain the older

customers because of the competition in the Banking Sector. This would not only ensure better customer relations but also loyalty among them, which is very critical and important in today’s competitive world. Banks have started acknowledging the importance of the customers in developing their business. They have recognized that it is essential to protect and grow its customer base and ultimately its profitability. The banks can do this by building a strong relationship with the customers. To meet the customer needs and to beat the competition, they must deliver superior quality service. The CRM approach adopted by banks focuses on maximizing the value for the customer and the bank. The key drivers to customer loyalty are: (a) Positive Staff Attitude. (b) Honesty, Integrity and Reliability. (c) Productive advice and delivery of the promised service. (d) Consistent delivery of superior quality service. (e) Simplicity and easiness of doing business. (f) A fair and efficient complaints resolution.

12. Limitations of Research (a) The Research was conducted in Delhi. A more diverse sample across different cities might show that there is a difference in customer attitude towards CRM approach. (b) Another limitation is the sampling technique. Convenience Sampling was used in this study whereas the Random Probability Sampling is expected to give better results.

Table 1: List of the Sample Banks 12

S.No. Public Sector Banks

Private Sector Banks

1

State Bank of India

ICICI Bank

2

Punjab National Bank

HDFC Bank

3

Syndicate Bank

Axis Bank

4

Oriental Bank of Commerce

Kotak Mahindra Bank

5

Corporation Bank

J & K Bank

Table 2: CRM Implementation in Banks S. No.

Name of Bank

Mean

1.

State Bank of India

2.

Punjab National Bank

6.38

3.

Syndicate Bank

5.23

4.

Oriental Bank of Commerce

5.92

5.

Corporation Bank

5.72

6.

ICICI Bank

7.42

7.

HDFC Bank

7.24

8.

Axis Bank Ltd.

6.25

9.

Kotak Mahindra Bank

6.90

10.

J & K Bank Ltd.

4.93

Grand Mean

6.83

5.01

Table 3: CRM Implementation in Public Sector Banks 13

S. No.

Name of Bank

Mean

1.

State Bank of India

6.83

2.

Punjab National Bank

6.38

3.

Syndicate Bank

5.23

4.

Oriental Bank of Commerce

5.92

5.

Corporation Bank

5.72

Grand Mean

6.01

Table 4: CRM implementation in Private Sector Banks 1.

ICICI Bank

7.42

2.

HDFC Bank

7.24

3.

Axis Bank Ltd.

6.25

4.

Kotak Mahindra Bank

5.

J & K Bank Ltd.

6.90 4.93

Grand Mean

6.55

Table 5: Service Quality Analysis in Banks 14

Dimensions

Private Sector Banks

Public Sector Banks

Tangibility

6.43

6.82

Reliability

6.24

6.90

Responsiveness

6.50

6.72

Assurance

6.48

6.24

Empathy

6.49

6.55

6.43

6.65

Mean

Overall Service Quality Dimensions

Score

Tangibility

6.62

Reliability

6.57

Responsiveness

6.57

Assurance

6.36

Empathy

6.52

Mean

6.53

References

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Anand, S (2008), Customer Relationship Management in Indian Banks, Journal of Professional Banker, Dec. 2008 pp 66-70. Bholanath Dutta, CRM in Financial Services Marketing, Journal of Marketing Mastermind, Sept 2008. Davids M (1999), How to Avoid the 10 Biggest Mistakes in CRM, Journal of Business Strategy, Nov-Dec 1999, pp22-26. Day GS (2000), Managing Market Relationship, Journal of the Academy of Marketing Science Vol. 28 (1), pp – 24-30. Ed Thompson et al (2005), Organisations are beginning to think about CRM again, Management update, November, 2005. Kimberly, C et al (2005), CRM Marketing Strategies and Technologies Mature, Management update, November, 2005. Parvatiyar A and Sheth JN (2001), Conceptual Framework of Customer Relationship in Customer Relationship Management – Emerging Concepts, Tools and Applications, Tata McGraw Hill, New Delhi, pp. 3-25. Pisharodi R et al (2003), Relationship Strategy, Effectiveness and Responsiveness in Services Marketing, Journal of Relationship Marketing, Vol 2, No. 1, 2003 pp. 3-22. Rajiv Joshi, Customer Relationship Management : Free and Open Source CRM Software for SMEs, Journal of Marketing Mastermind, Dec. 2008. Sarangapani, A (2008), Customer Relationship Management in Banking Sector, Journal of Professional Banker May 2008 pp 39-47. Shainesh G and Sheth JN (2006), Customer Relationship Management – A Strategic Perspective, Macmillan India, New Delhi, pp 16-29. Sisodia R.S and Wolfe D.B (2000), Information Technology: Its Role in Building, Maintaining and Enhancing Relationships, in Handbook on Relationship Marketing, Saga Publications, pp 526-563. William, B (2005), Best Practices for CRM Deployment, The Forrester, December, 2005.

Websites: www.dmnews.com/Datamonitor-suggests-orcle-SAP-likely-to-remain-atop-CRM market/article/98266. www.opensourcestrategic.com/ofbiz/index.php. www.atosorigin.com/enus/Services/Solutions/Systems_Integration/Solutions/CRM/. www.crm – review.com/software 2. Php.

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