Category: Bank

The Underlying Concepts Of Islamic Finance

Islamic Finance is a financial set up that had a big role in the growth and infrastructure systems for the region such as enabling the funding for the Shard and the London Gateway (Parmley, 2020) It operates in accordance with the Islamic law which is known as the Sharia which insinuates that it is sharia-compliant (Jamaldeen, 2012). It is like conventional banks in the sense that Islamic Finance contains an approach of banking and undertaking financial transactions (What Is Islamic Finance? – dummies, 2020). This essay will discuss how Islamic Finance does not perceive wealth as a commodity and has no value of its own but enables the purchase of services and goods in accordance with Islamic economics and the difference among conventional finance. This essay will also evaluate the working of a Sukuk product and will analyse the advantages and disadvantages in comparison to a conventional bond. Additionally, this essay will evaluate and analyse the growth of the first Islamic UK bank as well as discussing the attainments and the challenges that were faced will also be raised.

The time value of money is significant as it is based on receiving income now rather than later this may have an influence on business finance (Wilkinson, 2020) From an Islamic perspective the concept of the time value of money is totally different in contrast to the conventional aspect. The reason being is that income can be seen as a medium of exchange and not as a store of value (Hamza and Jedidia, 2017) which implies that for it to work effectively then it must be of basic value and that it should not be leased out or brought at a cost higher than its monetary value by anybody (Medium of Exchange Definition, 2020) This is because from an Islamic perspective the amount of income an individual has or makes must be pure so when it does get invested the income is paid by a fixed share of the investment return (Hamza and Jedidia, 2017) In addition to this, (Iqbal and Mirakhor,2006) suggests that income is seen as possible capital which insinuates that for it to officially become capital then it must be involved in participating in a specific activity. This demonstrates that in terms of Islamic economics the return of investment should not be associated with Riba.

From an Islamic perspective, the most important purpose of Islamic economics will have to be the banning of Riba which suggests that money is not viewed as a commodity as money has no fundamental value. This suggests that money cannot always be used to fulfill the basic needs of individuals which indicates that income does not always make a person happy and does not always have significance. According to (Today’s Beautiful Hadith is about Being Content, 2020) The prophet Muhammad peace be upon him believed that ‘’Happiness is due to him who is guided to Islam and possesses provision that suffices him for his day and remains content (Tirmidhi)’’ This insinuates that for an individual to be fully content and pleased in life then they must be practicing deen.

Whereas, from a conventional finance aspect capital is a commodity that is used to acquire many supplies. This may be due to believing that money is eternal and that it is long-lasting which implies that it can be used to buy a lot of things as well as being profitable due to it being high in demand which insinuates that it is used regularly by individuals. (Nurrachmi,2012) It also suggests that being great in value indicates that It is also limited which insinuates that as a reward for capital interest is given which may be due to the time value of money playing a big factor in charging interest on capital (Habib, n.d.) According to (Nurrachmi,2012) income is a type of good alongside store of value and medium of exchange which can be sold and leased out at a price higher than its monetary value.

According to (Godlewski, Turk-Ariss and Weill, 2013) Sukuks are Islamic financial certificates that are dispensed in agreement with the principles of the Sharia and are organised in a way that generates profits which implies that it has different obligations in comparison to a conventional bond (Mohd Saad, Haniff and Ali, 2019) both Sukuk and conventional bonds are supplied to lenders and are secure alternative in contrast to equities. The difference being is that Sukuks include asset ownership in which a share of the underlying asset is signified and must be sharia-compliant in contrast to conventional bonds which are debt agreements in which a share of debt is signified and is used to finance a business that practices authorisation . (dummies, 2020) The rating of both Sukuk and conventional bonds are both associated with price. An example of this could be that an increase in rating could lead to an increased price (Habib, n.d.)

Sukuk’s are a way of lending income to an issuer for a certain amount of time and are dissimilar from other existing debt instruments in the sense that it has the qualities of both debt and equity (Ho, 2020). When a shareholder invests in this type of bond then the income is invested into an asset which allows investors to benefit from the revenue made from the asset. In which the agreed amount of margin from the profit made is given to the shareholder. Individuals who invest in Sukuk receive an evidentiary ownership certificate which enables them to obtain daily payments which may be based on the sum that they have invested and are entitles to get back the sum of investment after a certain period. (Ho, 2020) Shareholders that invest in Sukuks are given dividends on profit sharing deals which are a type of financial aspect that is reliant on the internal information of the investors instead of fixed interest costs in contrast to conventional bonds. This implies that Sukuks are vulnerable to issues to do with the information in comparison to conventional bonds.

There are two types of Sukuk which are known as asset-based and asset-backed Sukuk. According to (White & Case LLP, 2020) asset-based Sukuk are extremely popular which means that the focus is not on the asset but is more reliant on the funding. Whereas, for asset-backed Sukuk’s to thrive then individuals should focus more on looking at the cash flow aspect. In terms of differences, the payment aspect for asset-based arises from the cash flow of the debtor. In comparison to asset-backed in which the expenses come from the income made from the asset.in terms of documenting the asset for asset-based, the asset stays on the balance sheet of the debtor in contrast to asset back which doesn’t Hidayat, S. (2013). The one that is more sharia-compliant will have to be asset-backed in contrast to asset-based Sukuk which behaves more like a conventional bond.

One of the advantages of Sukuk is that if the worth of the asset surges then the worth of the ownership of the asset supported by the Sukuk also rises in comparison to conventional bonds who do not have this trademark (Five Important Differences Between Sukuk and Traditional Bonds – Sukuk | Home of the Global Sukuk Industry, 2020). However, both Sukuk and conventional bonds will have to be the liquidity aspect. This is because both are used within the secondary market which means that many businesses such as insurance companies and banks ply this to their advantage. An example of this how they may do this is by using the income that they may have leftover and using it to purchase Sukuk or conventional bonds (Habib, n.d.)

Another advantage of both will have to be bond ratings which allow individuals to choose which bond to invest in based on consistency and quality. Therefore, an increased rating insinuates how widespread a bond is (Habib, n.d.) Sukuks are securities that are secured in assets such as ownership in an investment or project compared to conventional bonds which are debt instruments. Looking at this from a Sukuk perspective securities are super favored and are likely to be chosen compared to fixed deposits due to the effective rates of profit that are offered. According to (Weighing the Advantages and Risks of Sukuk | Al Bawaba, 2020) Sukuk securities average return is five percent in comparison to fixed payments of the same currency of 1.75 percent but the disadvantage of this could be that there may be some risks such as credit risk.

Moreover, another advantage of both will have to be the investment prospect which may lead to a higher chance of expansion of the market. This is beneficial for investors who may choose to invest in using a certain volume of income (Habib, n.d.). This may attract individuals such as investors internationally who may have an interest in this sector which would be beneficial as it would lead to an increase in sales as well as the possibility of branching out towards other financial markets. An example of this could be working towards more extensive investment markets that could potentially provide a reputational advantage and may have a benefit due to the increase in the certainty that is offered regarding interest expenses as individuals would have a better idea in knowing that they will receive payments on the specific date given. This may also be of some influence in developing on the financial aspect side as individuals may also be given dividend expenses. According to (Habib, n.d.) Sukuk may be used for equitable distribution of income in comparison to a conventional bond. The reason being is that many shareholders may benefit from the profit generated from the underlying asset.

According to (Nawaz, 2018) Al Rayan Bank is a commercial bank that opened its first branch with the support of the Financial Services Authority which allowed them to introduce it in London in the year 2004. In the year 2006 online banking came into surface and in the year 2018, Al Rayan Bank was the first to introduce a Sukuk in a western country. There are over 13,000 corporations in the UK which insinuate that there are more job prospects available for individuals in need of a job ( Al Rayan Bank, 2020).

In terms of growth, AL Rayan Bank is growing at a steady rate as it has an increased amount of Islamic Finance providers which means that Islamic Finance is super popular in the UK in comparison to countries such as the USA. This may be due to having a lot of skilled staff who have relevant knowledge due to the high number of courses available within this field which implies that these employees may be of value for the business due to being trained effectively (News, 2020). This has also had a positive impact on the profit of Al Rayan Bank as they own over 5 billion worth of assets which may be due to their high number of customers who have invested throughout the years many of whom are Muslims and non-Muslims who have invested in AL Rayan Bank (Leap of faith, 2020). According to (History of Al Rayan Bank, 2020) in terms of achievements Al Rayan Bank had achieved in gaining many awards such as in the year 2017 they won the title of being the best Islamic bank in the UK.

However, Al Rayan Bank also faced many challenges along the way. The reason being is that due to the prohibition of interest Al Rayan bank were not able to borrow from the bank of England or other banks in the UK instead they would be dependent on deposits which they split with depositors which may have had an impact on the operation of Al Rayan Bank. Another challenge that Al Rayan Bank may have faced is competition amongst other banks this is because the financial industry is super competitive so when they opened the bank they may have been less known in comparison to other banks such as Lloyds (King, Schaverien and Papantoniou, 2020). In addition to this, AL Rayan Bank may have faced many regulatory changes such as the elimination of double tax and expansion of tax reliefs on Islamic loans as well as effectively applying the Financial Conduct Authority which helps in safeguarding customers as well as ensuring that Islamic finance is being followed efficiently which will help in maintaining the success of Al Rayan Bank (Financial Conduct Authority, 2020) This may have had an impact on AL Rayan Bank as it may have encouraged them to grow and successfully influence the performance of the company.

To encapsulate, this essay has demonstrated the theoretical background on the underlying concepts of Islamic Finance which has been increasing a lot over time as well as evaluating the working of a Sukuk product and analysing the advantages and disadvantages in comparison to a conventional bond. Many investors opt for corporate bonds as well as Sukuks as a safer investment prospect during times of economic instability. I have also identified that the Al Rayan bank faced many achievements as well as challenges to become a success. However, opportunities such as investing more in digital banking would be better in terms of security.

Singaporean Banking System Peculiarities

Singapore become the one of the world’s largest financial centers that provide a variety of products and services. This country also have created one of the most advanced banking system in the world. The banking sector is involved in a wide range of financial services including traditional lending and taking deposit as well as corporate and investment banking activities. Most of the bank in Singapore have different types of client which is consist of individuals, corporations or government agencies. All these banks provide retail banking, commercial banking and private banking services typically associated with the modern bank. Bank of Singapore have expand their business in global of the world include the foreign banks and also the Asian Pacific Region. As a well-known bank in the world, it is easy to bank of Singapore to dealing with the foreign bank that operated in Singapore especially involved the characteristics of the banking system.

One of journal has conducted a thorough examination of in-market mergers taking place between 1981 and 1986. He performed regression of the change in several performance measures on control variables and dummy variable differentiating banks that engaged in an in-market merger from those that did not (Rhaodes, 1993). (Madura & Wiant, 1994) studied abnormal returns of acquirers over a long period of time following the merger announcement. They find that average cumulative abnormal returns of acquirers in a sample of 152 deals taking place between 1983 and 1987 were negative during the 36-month period following the merger announcement (Madura & Wiant, 1994). Moreover, abnormal returns were negative in nearly every month. The empirical work on the European market regarding this issue is the recent work by (Cybo-Ottone, Alberto , & Murgia, 1996). They analyzed 26 mergers of European financial services firms as a whole and not just banks taking place between 1988 and 1995 in 13 European banking markets. Their results are qualitatively similar to much of the analysis conducted on American banking organizations.

One of the characteristics of the Singaporean banking system is liberalization in the financial system of the domestic banks. Definitely that liberalization is an important milestone in achieving the country’s long-term vision to have an efficient, resilient and dynamic financial sector. This liberalization is also expected to contribute to the process of transforming the Malaysian economy into the next stage of development. MAS have introduce a five-year liberalization package started on May 1999. The process include issue a new category of full banking licenses that known as Qualifying Full Bank (QFB) licenses to foreign banks, enlarge the number of restricted banks and furnish with offshore banks better flexibility in their currency (Singapore Dollar) wholesale business. In October 1999, the licenses was given to 4 large multinational banks which is ABN Amro, Banque Nationale de Paris, Citibank and Standard Chartered Bank. The primary aim of this liberalization is to consolidate and strengthen the Singapore’s positions in the local market (swee liang than) and be a dominant regional financial center. The chairman of the central bank, the Monetary Authority of Singapore (MAS) Lee Hsien Long (2001) notes that “…being big is no guarantee for success, as shown by the persistent difficulties of the Japanese banks over the last decade … But being a small bank is definitely a significant handicap”. This look like to recommend that the government feared the domestic banks that cannot endure the niche players, sizeable in the domestic market, even small by the international standards. Through this liberalization, the bank of Singapore sought to maintain the local ownership of banks. Furthermore, the existing cap of 40% of foreign ownership of local bank was maintained. Start in June 2001, the second phase of liberalization which is the restricted banks were classified bank as wholesale banks to improve competitiveness in retail banking. QFB were given more authorizations to establish more location, offer debt and special account services. Specifically, this liberalization has bring about main changes in the local banking scene.

Another features that manages to a clearly boundary for foreign banks to operate in Singapore in banking system is merger and acquisition. Bank of Singapore strengthen their local bank geographical presence through the merger and acquisition. The merger represents a transaction in which two companies agree to unify their operations relatively fairly because they have the resources and ability to create strong competitive advantage. A merger of two or more companies, generally by offering a shareholder a trustee in a company that is taking over in exchange for the surrender of their shares meanwhile acquisitions is a transaction in which one firm buys another firm with the intention of becoming more efficient using its core competencies by making the firm a subsidiary in its business portfolio or it is a obtaining to another company. Started in November 1998, bank of Singapore has bought cash-rich Post Office Savings Banks (POSB) from the Singapore Government for $1.6 billion, approximately 37% premium over POSB’s net tangible asset value, consolidating the DBS bank’s position as Southest Asia’s largest bank and the largest retail bank in Singapore. Meanwhile, in January 1998, DBS announced the acquisition of 50.3% of Thai Danu bank, for $182.34 million and having acquired a 3 % stake in 1989. In addition, on 11 April 2011, DBS has buy Hong Kong’s Dao Heng Bank for $10 billion in order to launch itself into a area powerhouse. The expected can gain from this is hoping instant diversification of business especially on asset and revenue side. Besides, it can be a platform for expanding into China.

The Meaning And Structure Of Bad Bank

ABSTRACT

With the success of the Bad bank concept in European and western countries it grabs the attention of global economies and becomes the most preferable solution for the Non-performing loans. Now Due to COVID 19 Pandemic Indian government also thinking of implementing Bad bank concept but is not easy as it seems in paper because there is no standard and uniform structure for bad bank. Different countries followed variety of methods which are suitable to their environment. This paper attempted to describe the concept of bad bank and the main aim of this study is to study the mechanism followed by various countries to implement the bad bank concept and offer few suggestions to India concerning the implementation of bad bank. For this researcher used secondary data and the result is that there is high success rate when there is private participation and independence from the government as it saves taxpayers money, gives freedom to perform well, and achieve its objective.

INTRODUCTION

The bad bank is in the headlines again. Now, with the COVID-19 pandemic threatening to create a bad loan tsunami. When all measures fail, there’s always the “Bad Bank” comes on. The idea is not new one and has been suggested by various people at different points of time. First in the year 2015 Asset Quality Review conducted by Reserve Bank under Governor Raghuram Rajan, which forced banks to recognise problem accounts as non-performing assets had sparked a debate on bad bank as a possible solution. The 2017 Economic Survey examined this idea and suggested the creation of a Public Sector Asset Rehabilitation Agency (PARA). The then interim Finance Minister Piyush Goyal also revived this idea in 2018, he set up a committee under PNB Chairman Sunil Mehta to study the feasibility of national Asset Reconstruction Company, or in other words, a bad bank. And recently in 2020 the IBA submitted its proposal to both RBI and central government to set up Bad Bank in two tier system.

REVIEW OF LITERATURE

Spyridon Repousis- “Bad Bank” Strategy in Greek Banking Sector and Receivables from Banks under Liquidation (2017)

Spyridon Repousis from University of Nicosia, Cyprus, published a research paper titled “Bad Bank” Strategy in Greek Banking Sector and Receivables from Banks under Liquidation in July 2017. In this research paper the researcher presents the “bad bank” strategy followed in Greek banking system to safeguard the stability during the current financial crisis.

Michael Brei, Leonardo Gambacorta, Marcella Lucchetta and Bruno Maria Parigi – Bad bank resolutions and bank lending (2020)

BIS Working Papers No 837 Bad bank resolutions and bank lending by Michael Brei, Leonardo Gambacorta, Marcella Lucchetta, and Bruno Maria Parigi published in January 2020. This paper investigates whether impaired asset segregation tools, otherwise known as bad banks, and recapitalisation lead to a recovery in the originating banks’ lending and a reduction in non-performing loans (NPLs). The major conclusion is that bad bank segregations are effective in cleaning up balance sheets and promoting bank lending as long as they combine recapitalisation with asset segregation.

STATEMENT OF THE PROBLEM

On paper the idea is simple, but its implementation is more complicated, perhaps the reason why this idea has only been toyed with and not implement by policymakers in India. A Bad bank is not a novel one and already so many countries implemented this concept but there is no standard and uniform structure of bad bank. So before implementing the concept it is important to know the best feasible structure to implement it. This paper helps to understand the different structures followed by different countries to implement the Bad bank concept; this helps to decide the best structure.

MEANING OF BAD BANK

A bad bank is a corporate structure which separates illiquid and high risk assets (Non-performing assets/loans) held by a bank or a financial institution, a group of banks or financial institutions. In addition to segregating the bad assets from the parent banks financial statements, a bad bank structure allows specialized management to deal with the problem of bad debts. The measure allows good banks to focus on their core business of lending while the bad bank can specialize in maximizing value from the high-risk assets. A bad bank is termed so simply because it holds bad loans, or non-performing assets (NPAs).

We can understand the concept with an example. Let’s say Bank X lends advances to several individuals and corporates in its regular course of business but later those borrowers defaulted for repaying, so Bank X accumulates more due amount of instalments and interest as time goes. It needs to keep some money as reserves against these accumulated dues (Non-performing loans) according to central bank rules. Now, this hurts a bank because large size of NPLs shows the ill-health or financial weakness of that bank and it weakens the bank X borrowing and lending ability and makes it difficult to conduct business.

In these circumstances, the bank X want to segregate its ‘good’ assets (loans which are being repaid as per schedule) from its ‘bad’ assets (which are in default, and it realises it will not be easy to recover) through the establishment of a bad bank. The segregation aims to allow investors to assess the bank’s financial health with greater certainty. As a result, Bank X will clean up its balance sheet and reduce its exposure to risky assets.

Therefore, a bad bank is expected to help the banks by purchasing all their bad assets, usually at a price below the book value of these loans, and manage those assets, to recover the money over some time and liquidate itself once its purpose fulfils.

Let see some bad bank structures followed by various countries

GRANT STREET NATIONAL BANK-US

To solve the NPLs problem, the bad bank concept was first introduced in back 1988 by US-based Mellon Bank by creating Grant Street National Bank by spinning off its capital, and five of its board members into it to hold its toxic assets.

Grant Street National Bank is not created as a normal bank to accept deposits from public, but to served the purpose of resolving or liquidating bad debt to recover as much money as it could, and was eventually liquidated itself a few years down the line after it had served its purpose.

Subsequently, countries like Finland, France, Sweden, Indonesia, Germany and several other countries implemented the idea.

THE HELLENIC FINANCIAL STABILITY FUND (HFSF) AND THE HELLENIC

DEPOSIT AND INVESTMENT GUARANTEE FUND (HDIGF)-GREEK

The Hellenic Financial Stability Fund (HFSF) was founded in July 2010 as a private legal entity and not belong to the public sector. It entrusted with administrative and financial autonomy, operates under the rules of the private economy, and is governed by the provisions of the founding law as applicable. Contribute to the maintenance of the stability of the Greek banking system for the sake of public interest, is the main objective of the HFSF.

The Fund shall operate under a comprehensive strategy for the banking sector and the Non-Performing Loans (NPLs) management, which is agreed between the Ministry of Finance, the Bank of Greece and the Fund, as revised from time to time.

The HFSF has its registered office in Athens and its duration by the decisions of the Minister of Finance, shall be up to 31 December 2022 and the duration may be extended, if deemed necessary for the fulfilment of its scope.

And it’s one of the objectives is to provide loans to the HDIGF for resolution purposes.

THE HELLENIC DEPOSIT AND INVESTMENT GUARANTEE FUND (TEKE/ HDIGF)

The Hellenic Deposit and Investment Guarantee Fund (TEKE) is the operator of the deposit guarantee and investment compensation schemes. It is a legal person governed by private law and is supervised by the Ministry of Finance. HDIGF is not a public entity or a government agency and is outside the narrow or broader public sector.

HDIGF is composed of three separate Schemes:

The HDIGF schemes are distinct from each other and are the available funds of each Scheme of HDIGF shall constitute separate property groups distinct from each other and shall be used exclusively for the fulfilment of the purposes of each Scheme.

TROUBLED ASSET RELIEF PROGRAM (TARP)-US

The TARP was established and run by the United States Treasury to stabilize the country’s financial system, restore economic growth, and reduce the effect of the wake of the 2008 financial crisis. TARP seeks to achieve these targets by purchasing troubled companies’ assets and stock.

The US government declared in December 2013 that its investments had earned more than $11 billion for its taxpayers. Actually out of $426.4 billion investment it recovered funds around $441.7 billion. The US government also declared that TARP saved more than one million jobs by preventing the American auto industry from failing, helped stabilize banks, and restored credit availability for both individuals and businesses.

THE NATIONAL ASSET MANAGEMENT AGENCY NAMA-IRISH

NAMA was established in 2009 by the Irish Government to solve the serious financial crisis in Irish banking. NAMA had been assigned with a very large balance sheet and has been given the task of managing that balance sheet right down to zero as soon as it is commercially practicable. It must recover at a minimum all of the expenditure incurred by it on acquiring loans, on advancing working capital and on its costs. In doing so, it will pursue all debts owed by its debtors to the greatest extent feasible.

NAMA’s strategy is not only concentrated with the disposal of property but also on investment in assets to make them more attractive to buyers and thereby increase their ultimate disposal value.

SAREB-SPAIN

SAREB (Spanish: Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria – English: Company for the Management of Assets proceeding from Restructuring of the Banking System) Spanish government bad bank, owned by government , it is established on 31/08/2012 for managing assets transferred by the 4 nationalized Spanish financial institutions (BFA-Bank, Catalunya Bank, NGC Banco-Banco Gallego and Bank de Valencia).

The law empowered the FROB (The Fund for Orderly Bank Restructuring) to transfer the impaired assets and assets which could be considered a threat to the viability of an institution to an asset management company (SAREB) .The main objective is to remove the assets from the balance sheets of the institutions to allow them to be independently managed. The AMC may issues bonds and securities recognising or giving rise to the debt. The law establishes that the assets are to be transferred to the asset management company without any need for consent from third parties. Before transfer, the Bank of Spain (central bank) will determine the value of the assets based on appraisal reports.

FROB held 45% shareholding of the financial institutions and Private shareholders own 55% of SAREB. SAREB performs as a bad bank, it acquires property development loans from Spanish banks in return for government bonds, primarily with an object to improving the availability of credit in the economy. Over the fifteen years years, SAREB has to dispose of all of its assets, its main aim will be to maximise its profitability. However, it does not have a banking license. SAREB equipped with legal benefits that don’t applicable to other Spanish limited liability companies, such as a preferential creditor for subordinated debt over other creditors.

SECURUM AND RETRIVA-SWEDEN

The financial crisis in Sweden evolved with huge losses reported by the country’s largest saving bank, Forsta Sparbanken, in 1991. Later, Nordbanken commercial bank also reported huge losses in which 71% of common stocks owned by the Sweden government. Sweden Government took full control over Nordbanken and separates the bank’s assets into two parts: the “good” assets were still within the bank while the “bad” assets were transferred to separate legal entity, an asset holding company, called Securum, established in 1992. Nordbanken and a government equity infused into Securum for the purchase of bad assets. A second “bad bank” was also created for Gota Bank when it failed in early 1992 and bad assets were transferred to the asset management company, called Retriva. The “good” assets of Gota Bank were auctioned off and bought by Nordbanken in 1993 with no payment to Gota. Securum’s primary aim was to liquidate the “bad” assets to maximizing recovery. Assets were successfully liquidated. Sweden also issued a blanket guarantee of all bank loans in the banking system, until July 1996 and benefited existing bank stockholders. Also, Swedish Central Bank provided liquidity by depositing large foreign currency reserves in troubled banks and by borrowing freely at no risk the Swedish currency. Government’s cash infusion limited to these two banks. Established guidelines for banks receiving government support such as a government member in board composition’s management, balance sheet restructuring targets and risk management. The final results were a relatively speedy recovery, a return to robust economic growth and banking crises were relatively short-lived.

RECENT PROPOSAL OF BAD BANKS BY INDIAN BANKING ASSOCIATION

Indian Banking Association (IBA) has submitted a proposal to both the Government and the RBI to establish a ‘Bad Bank.’

As per IBA estimates the ‘Bad Bank’ would require approximately Rs 10,000 crore of capital initially. The exact quantum of capital and amount of bad loans to be housed in the proposed ‘Bad Bank’ would only be finalised after discussions with the Government and Reserve Bank of India (RBI).

How Does ‘Bad Bank’ Work?

1. Banks will be able to demarcate its assets into good assets and toxic or bad assets.
2. Good assets are ones in which loans are repaid as per schedule, and defaulted ones are classified as toxic assets or bad assets.
3. Toxic assets can be removed from Banks books and transferred to Bad Bank which has the sole purpose of aiding the recovery of risky assets.
4. Hence the banks will clean up and reduce its exposure to risky assets.
5. Bad Bank will absorb all the toxic assets of banks at a price below the book value of these loans.

Bad Bank Structure – IBA Proposal

The ‘Bad Bank’ will be a 2-tiered structure.

Tier 1:

1. There will be an Asset Reconstruction Company (ARC) backed by the Government which would buy bad loans from banks and issue Security Receipts to the Banks.
2. As per RBI guidelines, ARC will hold Security Receipts of 15%.
3. Banks will get 15% of the cash and will hold 85% of Security Receipts. Hence it is called 15:85 structure.

Tier 2:

1. There will be an Asset Management Company (AMC).
2. AMC would be run by public and private bodies which includes banks as well.
3. Turnaround professionals.

FINDINGS

1. In most cases, bad bank was implemented by establishing government owed bad bank with fully government funding or partly government and partly privet funding.
2. It is more effective when the funding to purchase impaired assets from the originating bank is private.
3. Bad bank resolutions are only effective if they combine recapitalisation with asset segregation

SUGGESTIONS

1. It is advised to do banks recapitalisation with asset segregation as it reduces future NPLs and also increase loan growth.
2. It is advised to fund impaired asset purchase from private as it saves taxpayers money. In case of public funding, if anything went wrong the ultimate burden falls on taxpayers.
3. It is suggested to establish an independent institution to decide the purchase price. As it solves the conflict between buyer bank and seller bank.
4. Make bad bank free from political pressure.

CONCLUSION

The main aim of this study is to understand the different structures followed by various countries for Bad bank implementation. The main findings are that recapitalisation of banks with asset segregation gives better results and also country can save the tax payers money by private participation and make it free from political pressure. Conclusively, Bad bank continued to develop as most preferable measure for NPLs and countries welcoming it positively.

REFERENCES

1. http://www.hfsf.gr/
2. https://www.teke.gr/index.html#RESOLUTION@RESOLUTION
3. https://www.investopedia.com/terms/t/troubled-asset-relief-program-tarp.asp
4. https://home.treasury.gov/
5. https://www.nama.ie/
6. https://www.cnbctv18.com/finance/iba
7. https://www.iba.org.in

The Factors Affecting Bank Employee Performance In Bangladesh

Banking industry is growing dominantly over the other industry in Bangladesh. Among the all financial service industry, this banking industry contributes more than 80% of its total contribution to GDP. However, in Bangladesh, there are 59 scheduled banks. Among these, six (6) are state owned commercial banks, three (3) specialized banks, forty one (41) are commercial banks and nine (9) are foreign commercial banks.

Like all other industry around the world, employees are one of the fundamental key resources for any organization. To reach at the apex of its success, each organization should utilize its resource efficiently. So, it is an important factor for any organization which may lead any organization towards the success. Any organization may try to utilize its manpower by force. But, it cannot give the organization its hundred percent efforts. In such case, spontaneous workings is the required one which provides hundred percent of utilization of its manpower. Employees may engage in such spontaneous workings when they will be satisfied in their job.

Spontaneous work comes out when an employee have a positive feeling about its employer. Spontaneous work is very important for each and every organization because its success mainly depend on employee’s devotion towards organization. As banking industry is the backbone of the economy of our country, this study attempts to investigate the factors affecting employee performence of bank employees in Bangladesh.

In this study, the researcher tries to link the dependent variable to its independent variable. In this study, all variables are the followings:

Independent Variable: Employee Performance

Dependent Variable:

• Talent Management;
• Organizational Culture;
• Training and Development; and
• Remuneration and Performance rewards.

A well designed questionnaire is used to collect data for this study. The researcher has done a quantitative analysis using SPSS version 25 to find out factors contributing towards job satisfaction.

Background of the Study

In the previous years, one of the most attractive jobs for job seekers in Bangladesh is to be a banker in Bangladesh. But, recently, it is evident that most of the job seekers are choosing government jobs rather than all other jobs. That may be for the two reasons. One is for the increased salary structure for the government pay scale and another one is less job stress. In past, ambitious job seekers choose private job due to its handsome pay scale. Though job stress was high in private jobs more than the government jobs but it can be adjusted due to high remuneration. This research is aimed to address the factors for which job satisfaction arises and which leads to high employee performance.

However, the above description is to understand the matter why job seekers switch their attitudes in other job sectors. Generally job seeker switches their jobs due to the job dissatisfaction.

In Bangladesh, it is evident from the study that near about 37% university graduate are unemployed. Due to high unemployment rate, job seekers are bound to stay in such job. But, it should mention here that, by force workings may not give any industry fruitful results. As it recognized and acknowledged by worldwide that inefficient use of any organizations workforce may not give it any good result. We need to keep in mind that employee performance is the key to the success for today’s competitive age. So, the researcher is aimed to link such factors which lead to employee performance by satisfying workforce physical and financial needs.

Employee’s productivity is expected to be high if they are highly satisfied with their job. On the other hand, organizations will suffer much because dissatisfied employees are less committed to their organization. Human nature differs from individual to individual according to their fundamental wants, likings, qualifications, skills etc. That’s why it is very important to determine the factors affecting job satisfaction of bank employees (Kamal & Sengupta, 2008).

It is very useful for banks to identify the contributing factors of employee performance and measure the level of employees’ performance. Bank should lift up their employees’ efficiency, organizational culture, retention and commitment. Indeed, organizations should take good care of their workforce abilities and skills to guarantee their retention and engagement in the work place. This leads to assessing employees’ talents and capabilities to reach efficient work achievement (Yarnall, 2011).

Justification of the study

As the banking sector was an attractive sector for job seekers and now it has been interchangeably changed due to the job dissatisfaction. That means employees who are working in the banking sector due to not being able to get alternative job as employment is in high rate. Employees are not satisfied with the banking hours, recently the remuneration also. It is evident from some studies in Bangladesh that bankers are not satisfied due to various factors (Brazendra NathRoya, Md. Anowar Hossainb, Efat Jannat Shammic 2018). However, the study was in a regional area and lacking in appropriate measures and other policy used. The researcher here is trying to stands a relationship with dependent variable and tries to conclude in such stage which should be concentrated by banking sector to be effective in future.

An extensive review of the literature revealed that a great deal has been written about the relationship of talent management and business performance as well as the importance of organizational commitment for the realization of organizational and professional goals. However, very few studies were found which addressed the causes and effects on commercial bank employees’ performance. The previous research has been conducted mostly in the domain of occupational stress related to dimensions like job satisfaction ( Haider et al., 1986; Cochinwala & Imam, 1987), personality characteristics (Khurshid, 2008) and motivation (Andrabi, 2002; Mufti & Hassan, 1965).While, present study focus on talent management and employees performance; SEM with only commercial banks sector applied to achieve research objectives in the context of Bangladesh.

Problem Statement

In previous studies, it was reported that the number of employee’s are not capable enough to perform the task in an efficient manner in particular and due to which the employee performance in these banks was termed as one of the main causes of problem in banks inefficiency. Poor employees’ performance surfed as a problem and need to be address and what factors contribute and effect employees’ performance.

The study of Adnan M. Rawashdeh (2018) revealed that talent management is very substantial to the stayer of the banking sector in the extremely competitive business situation today. It’s of worth that banks would precede into consideration the subject of talent management, the detail that flexibility of talents is very high in today’s cross national and international border furious talent management such a essential issue to the business organizations specially those functioning in developing countries. Previous studies asserted a positive and significant effect of talent management practices on bank performance, and this study empirically confirmed that there is a linear relationship between talent management strategies (attracting, developing, retaining) and bank performance in Jordanian commercial banks. Bank management is advised to keep developing the attracting mechanism they have applied in order to cope with the changes in the business environment and stay competitive. Also, its advised to maintain developing the motivation system according to the labor market conditions and competitiveness in order to retain talented staff and to avoid labor turnover. As it should concentrate on the rewards mechanism as a main key to retain talents. The major limitation of this study is that the study asked for perceived data about actual talent management practices and performance measures, but the respondents might have given desired data, which made their banks sound good, as all of the respondents were line managers and human resource managers. The size of the study sample was relatively small. Consequentially, the researcher adjusted the study data analysis strategy by using the best valuable statistical methods such as means, standard deviation, and Cronbach’s alphas to deal with such small sample sizes. Future studies recruiting larger sample sizes are needed. Furthermore, prospective studies should effectively compare Jordanian bank performance with other banks in the Middle East based on these variables.

The objective of this study was to test the mediating effect of organizational commitment (oc) in the relationship between talent management, organizational culture, training and development, remuneration and performance rewards and commercial bank employee’s performance Bangladesh. However, an extensive review of the literature revealed that a great deal has been written about the relationship of talent management and business performance as well as the importance of organizational commitment for the realization of organizational and professional goals. However, very few studies were found which addressed the causes and effects on commercial bank employees’ performance. The previous research has been conducted mostly in the domain of occupational stress related to dimensions like job satisfaction ( Haider et al., 1986; Cochinwala & Imam, 1987), personality characteristics (Khurshid, 2008) and motivation (Andrabi, 2002; Mufti & Hassan, 1965).While, present study focus on talent management and employees performance; SEM with only commercial banks sector applied to achieve research objectives in the context of Bangladesh.

Research Objectives

This current study aims to explain the mediating role of work attitude in the relationship between Talent Management and Commercial Banks Employees performance in Bangladesh. In regard to this key purpose, the following specific objectives have been developed for this current study to ensure the structure and scope of this research will be on the right track and can be fulfilled at the end of the study:

1. To explore the relationship of independent variable with dependent variable.
2. To determine the level of talent management, organizational culture, training and development, remuneration and performance rewards and employee performance in Bangladesh’s commercial banking sectors.
3. To evaluate the relationship between the talent management, organizational culture, training and development, remuneration and performance rewards in Bangladesh’s commercial banks.
4. To examine the most significant predictor of employee performance of Bangladesh’s commercial banking sector.
5. To investigate the mediating effect of organizational commitment on the relationship between the talent management, organizational culture, training and development, remuneration and performance rewards in the commercial banks in Bangladesh.

Research Questions

In line with the objective of the study that are to be determined, there are several research questions that have been identified for the purpose of this study and to meet the criteria of fulfilling the set objectives. In regard to this, the study will thus attempt to complete the gap that exists within the works of Talent management practices, specifically in terms of Bangladesh’s commercial banks employees’ performance. Based on this idea, there are five major questions that have been specifically developed for the purpose of this study which are believed will be able to cater for each aspect that has been determined as the issue(s) to be investigated. The questions developed are the followings:

Significance of the Study

This research is to determine the relationship between the talent management, organizational cultures, job stress and employee performance in Bangladesh’s commercial banking sectors. The purpose is to offer significant recommendations that can help foster better working environment for the employees as well as helping the talent management within commercial banks in managing their skills to ensure better employees performance for the organization Although this study only focuses on the study of Bangladesh’s commercial banks’ employees performance, it is believed that the content of this research will also be applicable to other cases with similar scope of the study as the focus is basically the influence of the talent management, organizational culture, job stress on employees performance in commercial banks.

Practical Significance

Examining the relationship and influence of the talent management, organizational culture, training and development, remuneration and performance rewards within Bangladesh’s commercial banks and the employee’s performance within the Banking sector has been perceived to be essential for several purposes. First of all, the commercial banks in Bangladesh will be able to obtain the advantage from understanding the relationship and might be able to perform any modification or renewal to their current talent management practices and strategies based on the information that can potentially be obtained through this study in order to ensure more employees can be performed. Understanding the relationships between the talent management practices can also help to disclose the basic reasoning for the organization or not and further develop strategies that can help them better performance of their employees.

Apart from that, it is also crucial for this study to be conducted as it was believed that the content of this research will be able to open up new opportunities for future researches with the potential of using latest data possible. Not to mention that the limitations and restrictions that were and might be faced in this study can further be put into consideration when developing research in the future to ensure better focus and scope for the study being conducted. In addition to this, this research will also be able to let other researchers to further study this issue and of course continue to analyses the changes that might occurred for this exact situation in a different time period.

Limitation of the study

In case of Banking sector of Bangladesh, each bank’s culture is different from others. Specially, Government banks employee enjoys various advantage in comparison to others legally and illegally. However, the study was limited within few employees of each institution. The researcher here tries to concentrate on all the commercial banks. But, few employees’ opinion may not represent the actual culture of any bank. Another one thing, the culture of a bank within all the branches is not similar. It depends on the branch head and how his beliefs on management.

Yet, the study is taken into consideration only the opinion of bank employees and not the management. In such case, the employees of banks may comment in a way in which they will be better. As a nation, they do not ethically developed and judge only by the way in which they have own interest.

Summary

Summarising the content of this chapter, it basically offers the information necessary to help introduce the research topic by providing the background of the study as well as the significance in conducting it. In regard to this, the information provided will be the base for the structure of the next chapter and thus guiding the process of reviewing existing literatures. Additionally, this current chapter had also managed to offer information needed for this study as well as any other necessary information such as the aim and objectives as well as the questions for the research.

Beneficial State Bank: Organisation Structure And Issues

Beneficial State bank found in California is a community development bank. It was founded by Tom Steyer and Kat Taylor man and wife and the operation was started in the year 2007. The man aim of opening the bank was to providing entrance to financial services for all peoples, particularly the by tradition the underserved, as a considerable number of the population living around the area by then were living below poverty line.

For the last four years the bank it has enjoyed a normalized success in profit. Tom Steyer and Kat Taylor were the sole capital providers to the bank. 20% of the banks depended with the loan. Tom Steyer and Kat Taylor advocated for two views in order to change the banking methods. The views included depositors being viewed as citizens and not customers or beneficially. The second view was depositors be viewed as crowd funders due to their deposits. And indeed banking is the most potent known method of crowdfunding.

Organization structure in the bank

All the economic rights were deposited to the bank once the bank was fully registered and scrutinized to hold the voting stock and economic rights. The holding of the rights was done to ensure that the voting rights were based on profit maximization. The mindset of the pioneers Tom Steyer and Kat Taylor was to help and empower the underserved people in the community. Later the business will grow and will run on profit margins. Once the founders are not there the right to the economy will haunt this decision.

To mitigate such an issue, its profit margins will not be based using the other banks bottom-line. The rights in the foundation have to be distinguished from the economic rights of the bank. The bank is an individual business entity, and the foundation was mainly for charity programs. The foundation is prohibited by the law from operating on the interest framework. The bank is growing, and the people are growing their economic interest will grow therefore to some extent their will conflict with foundation.

Regulatory issue

The launch of the bank was done during the housing effervesce burst. And since the majority of the bankers were low-income earners could not be able to build a house from just the savings they had, they needed more support in terms of the loan. Majority of the capital that was running the bank was from credits, and the profit was directed to fund and sustain the foundation. This lead to a mortgage crisis.

The bank also believed in not being conservative about the regulators because the management believed in business values like access to the capital and fair lending. This was an accidental timing, and the bank had to make choices that will make them viable (Charbit, & Desmoulins, 2017). The bank was young and not much invested to be able to sustain such market waves. The regulation required merging or buying another community bank; this would lead to the death of one.

To resolve the issue the regulators could not allow community banks be imperiled by the uncertain business conducted by big banks forcing the small banks to collapse down at once. The idea of buying another bank was viable. Another solution was to make the foundation to operate on the independent ground. So that it could give the bank an opportunity to plough back the profit, the policy of community banking could be abolished to allow economic competitiveness between the Beneficial State Bank and other banks. A community-based bank is not entirely covered by state law. The conversion to a chartered bank increased its capacity to borrow as it was now aligned to the state laws.

The financial crisis

There was a financial crisis that ranged between 2007 and 2013. This was caused by the low capability of the Beneficial State Bank to borrow, and the depositors could not be able to raise enough money to sustain bank activities and still be able to lender loans to the community without failing to give out depositors their money (Ahmed, 2018). As a competitive advantage, Beneficial State Bank applied to get technical and financial assistance but to get this they needed chatter from the states.

In order to solve the crisis bank had to acquire the best person to help them run smoothly. The human resource must rhyme with the business vision and ideologies. The bank was forced to launch a summer internship program to enable them to run the institution with minimal wages and in return convert the wages to financial profit. The interns were guided by the experts.

The societal issue

The majority of the people in the society that the Beneficial State Bank operated were poor and were underserved when it came to matters of banking and access to finances. This is revealed by the fact that they were earning below the poverty line. The big aim of the bank was to make empower and serve them economically. The people were poor, and their needs superseded the bank and the foundation capacity. The author speaks about bringing interns into the field such that they could witness how community development banks are faced with challenges.

The bank by 2016 donated over $450 million and 87 percent of this money was used to mission-driven sectors. The missions were all aimed at making the lives of the people better. The money was rendered to community cooperates rather than individuals. The capacity of the people to repay loans is low. The people surrounding the bank are not able to build homes and rely on mortgage loans to do so. The depositors cannot sustain the bank, and the bank also has to rely on loans. The fact that the Taylors family remained the sole financier of the foundation and the bank reveals a poverty-stricken society.

The bank or the foundation alone can not solve the problem. There is a necessity for government intervention and other well-wishers. The government is responsible for job creation and support the ongoing project to reduce the poverty level. The society needs to be uplifted to standardize their lifestyles (Charbit, & Desmoulins, 2017). There is a need for the non-governmental organizations to support by funding community development banks like Beneficial State Bank. By helping them, they will be able to reach the majority. Groups and foundation should offer guarantor’s services to, though low, potential clients who want to better the life.

Growth capitalization issue.

Another issue that was experienced by Taylor was how to capitalize on growth. The bank required over $5 billion to meet the required regulatory needs. Considering the bank setting and non-interest capacity of the bank depositors such huge amount was not easy to raise. With the need to scale the bank mission they had to change the purpose of banking for good. The bank was small to have such capacity, and therefore there was a need for Taylor and the family to strategize for the better of the entire banking admin.

To mitigate the issue, Taylor implemented a resilient cost structure. That was able to meet the ongoing basis. They have also produced enough excitement and scale to appeal to talented and aligned human capital. They gathered sufficient attention to arousing the depositor base so that they maintain on a changed value proposition allied with the bank’s specified goals. In conclusion, entice equity capital. Another strategy adopted by Taylor was additional mergers and acquisition (M&A). Although the bank was able to grow organically, there was a need for supplement. This could only be achieved through M&A reinvestments.

The social impact of Beneficial banking

The Beneficial Banking model is explained below ( Figure 1) where the profits were distributed to the foundation and reinvested back to community for the sustainable environment

There was an issue on motivation factor. The morale of the depositors was low; this was not due to poor quality on banking services but was due to the quality of life the members were living. In order to make depositors constant clients there was a need to entice them. But the biggest challenge remained how to entice and motivate them. There is a need to enable capital creation in order to increase the bank’s profitable actions. Ever since the bank’s establishment in 2007, Taylor and Steyer had been the only investors in the bank and considering the matter they could not make it alone in the investment they required eternal investors.

To make this a reality they had to outline and define the ownership alignment. They looked for charitable vehicles from foundations and charitable organization and family offices. Taylor understood privatization by selling bank shares would ruin the brand. This was done with regulators requirement on the mind (Borovský et at., 2018). After consideration, Taylor settles on the following options that solved the issues on partnership and investors: perpetual non-cumulative non-voting convertible preferred stock, three-year put, capitalization, and voting, and buyback option.

Perpetual non-cumulative non-voting convertible preferred stock.

Any investor on this option was to operate on of Class C shares into a fixed number of them. He/she had no right to vote and was entitled to dividends after the five years on investment. This was a sure way of making sure that those who have invested are there to stay and were not motivated by self-interest or profit (Bundgaard et al., 2016). The duration of five years was enough period for the investment to be able to payback. Beneficial State Bank concluded that “This is a permanent returns instrument with an exchangeable feature that, while lower than the 5 percent characteristic non-profit disbursement verge, comprehensive downside safeguard with the put.

Three-Year Put

Three-year put entailed an investor receiving the right to a stated price in the incident that they wanted to terminate the contract after three years. As a result, the depositor would be sheltered against a deterioration on the worth of the investment at the termination of the put (usually five years). Expressing this new possibility increased supplementary governing deliberations from not just a bank perspective but a safekeeping perspective as well. All these options were made available to coerce and appeal investors to deposit with the bank with a mind of long-term investment. This resulted to essentially, the creation of own alternative by the couple, on the capital market. This was to enable submission to the “exceptionally inexorable short-term burden when they were right back into the activities that yield economic, short-term revenues at the cost of long-term values.

Capitalization and Voting

Under this option, the duo retained all the class A shares. Which permitted them to carry out effective voting regulation above the Bancorp. Beneficial State foundation had no rights to vote and held Class B shares. This structure was to allow Steyer and Taylor to maintain the prevailing ownership alignment, while also giving new-found venture capitalist the right to make decisions on matters of corporate policy

Buyback Option

The last option considered offering that would liquidity the requirement of investors wishing to exchange a percentage of their asset to money. As a portion of its capital strategy, the bank would deliberate a bonus guiding principle for common investors with economic rights. The members would also deliberate on the addition of a buyback package to offer liquidity for investors and to entice extra mission-aligned depositors.

Conclusion

Steyer and Taylor recognized the regulatory abstruseness and the uncertainty of it is yet to come with venerable passion. The prospect of raising outside capital would be the biggest challenge considering that they were running another charitable foundation and the bank was a community development based organization. Several issues affected the well-being if the bank. The major one being the low societal lives and high levels of poverty. The bank gave an opportunity to the unserved to experience banking services.

The following were the outstanding issues that affected the beneficial state bank. Organization structure in the bank as per regulatory requirements, a regulatory issue on minimum capital and infrastructure. The financial crisis due to non-interest running of the bank and the organization. The societal problem concerning the high rate of poverty. Growth capitalization issue as the mission was not to privatize the bank.

Several possible mitigations were put into place. They included the implementation of resilient cost structure, appealing to talented and aligned human capital mergers and acquisition (M&A) to raise the capital needed. The bank defined the ownership alignment to make it clear for the interested parties. Government appeal and also other foundations foundation. They looked for charitable vehicles from foundations and charitable organization and family office. To avoid selling banks shares.

References

1. Ahmed, M. B. (2018). KASB Bank Limited: Capital Shortage. Asian Journal of Management Cases, 15(1), 1-22.
2. Borovský, T., Doktorová, J., Gruber, E., Hrdlička, J., Jakubec, O., Míchalová, Z., … & Szende, K. (2018). Faces of Community in Central European Towns: Images, Symbols, and Performances, 1400–1700. Rowman & Littlefield.
3. Bundgaard, J., Tell, M., Jensen, S. B., Weber, K. D., Bjerksund, P., Stensland, G., … & Vilhelmsson, A. (2016). Trends in Financial Market Innovations: The Role of Taxes.
4. Charbit, C., & Desmoulins, G. (2017). Civic Crowdfunding.
5. Charbit, C., & Desmoulins, G. (2017). Civic Crowdfunding: A collective option for local public goods?. OECD Regional Development Working Papers, 2017(2), 1.
6. Figure 1. The social impact of Beneficial State Bank. Adapted from the Keeley, M., & Dunbar, M. F. (2016, July 05). Meet The Woman Beating the Big Banks At Their Own Game. Retrieved March 30, 2019, from https://consciouscompanymedia.com/sustainable-business/meet-the-woman-beating-the-big-banks-at-their-own-game. Reprinted with permission.
7. Keeley, M., & Dunbar, M. F. (2016, July 05). Meet The Woman Beating the Big Banks At Their Own Game. Retrieved March 30, 2019, from https://consciouscompanymedia.com/sustainable-business/meet-the-woman-beating-the-big-banks-at-their-own-game

The Usage Of Artificial Intelligence In Banking

Artificial Intelligence and Banking

As global technology has evolved over the years, we have moved from Landline phone to Mobile, Television to Internet and Branch Banking to Mobile Banking and today we are smoothly and gradually adopting Artificial Intelligence (AI). It was John McCarthy who introduced the word AI to the world in 1956. It involves process automation of robotics to the actual process of robotics. AI is very popular today among large companies owing to the data handled by these companies. The unique feature of AI is that it understands the data patterns that have led to the growth in demand for it. AI is much more efficient in identifying data patterns than humans thus it is beneficial for companies to understand their target group and give them better insight. AI is being seen as the next big thing by companies all around the world including the finance industry. It has the ability to change banking and financial transactions in the world. AI is not the only disruptive technology. The advanced analytics, blockchain, quantum computing, internet of things, cloud etc. are in the row to change our banking experience in the coming years.AI is of two types, Weak AI and Strong AI.

• Weak AI- It is also described as Narrow AI, is the system which is set up only to fulfil or accomplish a particular task. It works according to the rules that are set and are bound by it. Weak AI is just like humans, has the capability of all cognitive functions and is not distinct from the human mind. The best example of weak AI is Apple’s Siri or Amazon’s Alexa.
• Strong AI- It is also known as full AI, has much bigger prospects than the weak AI with huge capabilities and functionality. It can broadly mimic the human brain. It is so powerful that its actions and decisions are exactly similar to a human being. It also has the understanding of power and consciousness.

However, the difficulty lies in defining intelligence accurately. It is highly difficult to set boundaries to intelligence as far as strong AI is concerned. Hence weak AI is more preferable, because of its ability to accomplish assigned tasks only with optimum efficiency compared to a human.

Artificial Intelligence and Bank Journey

As per 2016 survey by Bloomberg Capital conducted in association with Regina Corso Consulting, the national survey asked American adults what they thought about traditional banking institutions, Fintech companies and new financial technologies. Interestingly, Majority of Americans believed that most of the financial institutions will not exist in same form in the next few decades, needless to say traditional Banking will be extinct. As per Accenture Financial Services Global Distribution & Marketing Consumer Study 2017, for majority of consumers, especially Gen Y and Gen Z- Google, Apple, Facebook and Amazon (collectively known as GAFA) are attractive alternatives to traditional financial providers. The trend shows that millennials are accustomed to and prefer the level of technology offered by the tech giants. Fintech’s and tech giants like Google, Apple who already have entered digital payments market astounding strides in technology including AI. They have in-house AI scientists, big data and state of the art technology. Now, the challenge is before the bank to complete with fintech and technology firms at a much bigger scale.

Indian Scenario- Indian banking space, a decade or two back one of the most cumbersome fields as far as customer convenience was concerned involving long ques and lengthy procedures. Since then, this sector has come a long way with automation, core banking, ATMs, online banking services, e-KYC and much more serving today’s tech-savvy customers. Since last 2-3 years, the Indian Banking and Financial services has been hit by Artificial Intelligence. Machine Learning and virtual agents. India’s biggest bank SBI launched SIA, an AI-enabled virtual assistant specializing in assisting customers with everyday banking tasks that handles nearly 10,000 inquires per second. HDFC bank, has introduced “Eva”. IndusInd bank has launched few banking services supported by Alexa from Amazon. Introduction of AI is banking is not just limited to chatbots. SBI is using AI to study in real time, the facial expression of its customers visiting the bank’s branches to find out if they are happy or sad. ICICI Bank has deployed robotics software to ease over 200 of its processes across various business functions. Research and prediction say undoubtedly AI will herald a transformational change in the banking industry. Currently AI is being used for customer service, wealth management, advanced analytics and fraud detection. For any bank to survive and grow the most important criteria is increasing bottom line. Apart from gaining market share banks also look at cutting costs especially for tasks which are mundane and repetitive. Squandering human resources on such tasks just adds to the costs of running business. As per Autonomous report on AI, by 2030, traditional financial institutions can save 22% in costs. The report says that banks can save $ 490 billion by adopting AI in front office. Undoubtedly, financial institutions will reap benefits of AI, although the cost of investing is very high but there is no two ways. After the current pandemic of coronavirus, the way of living life will be changed and one of them will be the way of doing banking by the people. People will prefer to go digital and the bank who has already invested huge amount on digitisation will take the lead.

AI can create ‘wow’ moments for the customers

Customers expect bank to anticipate their need and preferences. As banks move forward in digital bank journey, there will be vast amount of digital data available with banks. AI can bridge the gap between isolated customer interactions into a seamless thread of customer experience. Intelligent prediction and customization will make customers feel as if every product or brand experience was tailored just for them. We currently live in a world where we constantly leaving our digital footprints, which display our spending habits, preferences in travelling, shopping etc. On applying analytics and AI, to this real time data, banks can understand their customer’s need and offer products which will give them ‘wow’ experience.

In today’s fast paced world with time constraints very few customers actually visit banks to enable them for creation of a long-term relationship. The only link is data of customers. It is a bitter truth for banks the quaint banking days are over. In 5 ways AI has transformed banking and finance industry,

Risk Assessment and Decision Making

As AI is learning from past data, it is natural that AI should succeed in the Financial services domain, where book-keeping and records are second nature to the business. Let’s us take the example of credit cards. Today, we use credit score as a means of deciding who is eligible for a credit card and who is not. We can make it more customized where interest rate will be charged on the basis of analysing individual’s loan repayment habits, the number of loans currently active, the number of existing credit card, etc. Now, take a minute to think about which system has the capability to go through thousands of personal financial records to come up with solution- a learned machine of course. This is where AI comes in. AI also makes loan approvals easier, reduce operational costs and these savings can then be extended to customers in the form of lower rates.

Fraud Detection and Management

The loan a bank gives you is a basically someone else’s money, which is why you also get paid an interest on deposits and dividends on investments. This is also why banks and financial institutions take fraud very, very seriously. AI is on top when it comes to security and fraud identification. It can use past spending behaviours on different transaction instruments to point out odd behaviour, such as using a card from another country just a few hours after it has been used elsewhere or an attempt to withdraw a sum of money that is unusual for the account in question. AI has the ability to stop this type of fraud.

Financial Advisory Services

AI is also expected to play a significant role in the sales and recommendation of financial products. For instance, a robo-advisor might recommend portfolio changes. It is also believed that robo-advisors could potentially employ some level of machine learning to recommend a specific car or home insurance plan. A report states that artificial intelligence will become the primary channel through which financial institution and their clients will interact in future.

Another evolving field is bionic advisory, which combines machine calculations and human insight to provide options that are much more efficient than what their individual components provide. Collaboration is key. An excellent balance and the ability to look at AI as component in decision-making that is as important as the human viewpoint is the future of financial decision-making.

Investment and Trading

Investment companies have been relying on computers and data scientists to determine future patterns in the market. As a domain, trading and investments depend on the ability to predict the future accurately. Machines are great at this because they can crunch a huge amount of data in short while. Machine can also be taught to observe patterns in past data and predict how these patterns might repeat in the future. While anomalies such as the 2008 financial crisis do exist in data, a machine can be taught to study the data to find “triggers” for these anomalies and plan for them in future forecasting as well.

Personal Financial Management

Personal financial management is one of the recent developments on AI-based wallet. Wallet started by a San Francisco based start-up, uses AI to build algorithms to help the consumers make smart decisions about their money when they are spending it. The idea behind the wallet is very simple. it just accumulates all the data from your web footprint and creates your spending graph. Advocates of privacy breaching on the internet may find it offensive but, may be this is what lies in future. From a small-scale investment to a large investment AI commits to be a watchdog of future for managing finances.

A Game Changer Technology

It is estimated that marketplace lending is expected to grow from 48% annually from 2019 onwards. Looking at Indian market as an example, currently, there are approximately 60 million small businesses in India looking for funding. Out of which only 33 percent are able to access any kind of institutional credit. Almost 80% of Micro Small and Medium enterprises self-finance themselves, 32% rely on their friends and relatives for credit and an additional 12% try raising from informal banking networks. So, there is immense opportunity available in the market. Sooner or later AI will become inseparable part of banking journey. The early movers will gain a lot in terms of market share and customer retention.

AI technology combines with big data and machine learning, monitors more than 1000 parameters to learn and authenticate behavioural biometrics of a customer. Information like how customer holds the phone, the way they interact with it, touch it, the way they scroll and swipe is collected from customer’s mobile. Customers’ cognitive choices, such as how they fill in their passwords or dates are monitored and analysed.

Face recognition in banking has gained momentum in past few years. It is part of biometric authentication. Recently OCBC Bank started AI powered facial recognition system at its Holland Village branch. The system instantly identifies its ‘premier banking’ customers and this creates in enhanced customer service wherein managers are equipped with customer’s banking history in addition to be able to identify and greet customers by their preferred name, offer them their preferred drinks and magazines. Facial recognition system can be used in the ATM also where ATM will authenticate your face before cash withdrawal. This will reduce the risk of ATM card skimming.

Risk, issues and challenges with AI

Bank do hold vast amounts of data which can be leveraged for benefit customers and clients. But there is a catch, this data is confidential. Banks need to protect sensitive data without adversely impacting the project. AI Algorithms are also susceptible to bias, the fact being they are created by humans and by nature humans are biased. It is essential that while building, this factor is accounted for. Checks and controls need to be added at the time of implementation of AI. Banking and Financial Industry also need to consider the ethical and legal liability associated with AI. Regulatory functions attract huge penal liabilities. For example, if a loan application is rejected by machine learning system the decision should be based free from bias. But this does not make AI case weak, rather the finance industry and regulators need to come together to work out these issues in benefit of industry and customers alike. No technology is without its pitfalls.

Conclusion

Artificial Intelligence is slowly changing the way people think and act and it is taking our mind to the next level. Imagine a machine that has the ability to think, learn, create and form its own ideas and thoughts. With the benefits and potential of such platform, computer power has increased by massive amounts.

Face recognition, finger prints or retina scan for unlocking entrance or access points are just some of the common applications of AI today. The potential and future development in this field is somewhat endless with ongoing research. Undoubtedly, the banks and financial institution that benefit most from AI will be those that are prepared to adjust their old age approach.

Artificial intelligence will clearly have a huge impact on the financial services sector. Banks will redefine how they work, what they sell and how they interact with their customers and employees. They will redefine their operating structures for an AI-enabled process and operational efficiency. And new AI application will create growth for the bank through improved customer service and employee experiences.

Corporation and Ethics: Banks and other Financial Institutions

Introduction

On 11th of February 2019 the Royal Banking commission presented its final report on the misconduct of banking and financial sector, revealing sickening behaviour of the financial industry. The investigation was on going since Dec 2017, highlighting unethical behaviour of banking, superannuation, mortgage and other financial industries and spotlighted some shocking facts about the big corporations. The need for the Royal commission surfaced after years of scandals and sharp decline in consumer’s trust in country’s financial services but on the other hand the profits of financial corporations soared. The things got worse after more cases surfaced about misleading financial planning advice, breaches of anti-money laundering laws and work cultures allegedly to reward aggressive sales tactics being just a few of them. Showing that these financial disrespected their clients trust acting in a dishonest nature and failing to show duty to care, complaints continued over a extensive period in few cases, charging people who have been dead for years.

‘There can be no doubt that the primary responsibility for misconduct in the financial services industry lies with the entities concerned and those who managed and controlled those entities: their boards and senior management’ (Hayne 2001). The findings in the report clearly stated that how banks have been unethical and carrying out their business in inappropriate way. According to the report, ‘Commissioner Kenneth Hayne suggested the idea of six ethical principles to be followed by the financial institutions to inform the conduct of financial services entities: 1- Obey the law, 2- Do not mislead or deceive, 3- Be fair, 4- Provide services that are fit for purpose, 5- Deliver services with reasonable care and skill, 6- When acting for another, act in the best interests of that other.’ (Motion). Now, if we look at these suggestions they are just the basic ethical principles for all businesses and corporations, so this was a remark that shows that the financial institutions have failed to follow the basic ethics and to show duty to care and compassion towards their customers.

Impact of the Royal Commission’s report

It has been a year since the report and little action and implementation has been seen, people’s sense that big banks get off scott-free is in away usually true, but there may be an exception this time. In the report Commissioner Hayne gave 76 recommendations out of which 54 were directed to the government, they proposed some fixing in laws to prevent misconduct by financial institutions. As right after the commission report was published, the Australian government got into action and few weeks later released a report called; ‘Restoring trust in financial services’, in which the government agreed with most of the recommendations and informed that they will be bring some legislation which will be implemented timely in the period of almost 2 years. Government’s financial industry regulating bodies such as APRA and ASIC were also mentioned in the report for not fulfilling their duty and failing to detect the offences and frauds in financial industry, APRA’s officials were not even present in the hearing. The government acted on some recommendation for regulating the banks and insurers by reviewing the regulating bodies like APRA and passed legislation to strengthen the accountability of superannuation funds, the government will pass legislation for the rest of implementation by the end of 2020.

Banks, Super and Other Financial Institutions

Although, after the commission the banks started to take some responsibility and accepted a few of their unethical behaviour. In promulgating incipient provisions associated with the costs of cleaning-up years of deplorable misconduct, the big four are putting more finances aside for remediation including compensating wealth to customers who were charged fees for services they didn’t receive. Banks are known for prioritizing profits over customer’s interests, they tend to approve more loan applications to people when interest rates are high and less when interest rates are low, without assessing fulfilment of criteria or applicant’s circumstances. Mortgage businesses have been mentioned for showing no compassion and leniency with their clients, in one case, threatening the wife of a dead man to auction the house due to non-payment of few instalments by the grieving family in financial hardships. Other industries have been accused of giving advices to customers and forcing them to invest in schemes which generates them profit and losses for customers in the long run.

Super industry on the other hand has been looked upon as scam by many people, as a lot of people who pay for super to have a better retirement, spend the rest of their life fighting for it and get little to nothing and getting charged for unprovided services. The employers have been accused of rewarding employers for using forceful tactics to lure consumer into different schemes, the report said. Many people had to, and still go through court and wait for years to get their superannuation in the last few years, although some law were passed a few years ago, due to increase in number of complaints, to facilitate genuine people to get their superannuation easily. ‘Superannuation contributions made prior to bankruptcy with the intention of keeping money out of creditors’ reach will now be recoverable by bankruptcy trustees. The Federal Government will amend the law so the courts will be able to take a bankrupt’s history of contributions into account to determine whether the intent was to defeat creditors. The amendments will address the High Court’s decision in Cook versus Benson, which cast doubt on a trustee’s ability to recover super contributions.’ (John Collet 2006). There is a need for future research to assess whether the recent regime inquiries and the cognate reformative measures have achieved the desired effect of amending the Australian superannuation system.

Role of government

In 2017, when the call for royal commission was heard everywhere, the opposition’s Mr. Shorten favoured the call for royal commission, but the government’s prime minster Turnbull opposed it and asked for a different approach. Government’s suggestion was to bring the directors and executive officers of the big banks in front of parliament once or twice a year and ask them to explain their future plans and proposals to the members and they will decide whether the banks should move forward with the plans proposed. These comments created a sense that government was trying to protect the big financial institution, because they were going to ask them about future and not he past on the other hand the royal commission report started with words; ‘who pays for the past?’. The banks and other financial institutions also have a reputation of lobbying politicians and financing political campaigns of their supporters in order to make sure no legislation is passed to limit their actions. Indeed, according to reports and public hearings, the government and concerned bodies failed to make sure the laws are implemented and if the financial institutions provide their services to the consumers in an ethical way.

Inconsistent application and enforcement by the federal and state entities charged with interpreting and enforcing these laws has sent the message that companies need not make ethics compliance a priority (David). In the report, the regulating bodies were also reminded about their roles and duties and how they have been fulfilling their duties and how the government failed to implement the already existing laws. The ASIC Act prohibits misleading conduct in relation to financial services. It prohibits unconscionable conduct in connection with the supply or possible supply of financial services to a person other than a listed public company. It implies terms of due care and skill, and fitness for purpose into contracts 3 ASIC Act ss 12DA, 12DB, 12DC, 12DF.4 ASIC Act ss 12CA, 12CB. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry for the supply of financial services where the services under the contract were acquired for use or consumption in connection with a small business ASIC Act s 12ED, read with the definition of ‘small business’ in s 12BC(2). (ASIC Act 2001). The report pointed out that how ASIC has failed to detect and distinguish between small and big culprits before otherwise there wouldn’t have been any need for the commission.

Consumer Protection in Financial Market

In the end, handing the banks, insurance and super industry big fines won’t solve the issues in the long run. The motive of these industries has only been profits, by which they have already made billions of dollars in the last decade through their misconduct and unethical behaviour. In a business context, ethics are rules that govern the behaviour of all members of a profession. Failure to adhere to these rules leads to serious consequences (e.g., long- or short-term license suspension, disapproval from colleagues, reputation damage). Business ethics may thus include being reliable, having initiative, or maintaining social skills (Sullivan and Shkolnikov 2007). Commissioner Haynes agreed that the laws are very complex and needs to be simplified, instead of passing a new law to tell the financial institutions ‘what not to do’ which will make the legal process more complex. The government have already passed few legislations last year in order to comply with the report’s suggestions, white the rest will be legislated and implemented by the end of this year. In the mean time little change have been seen by people in the behaviour of banks and financial institutions they just have the finances ready in case they have to pay fines, and started compensating who they think have been wrongly charged fee for the services they never even received.

There is a need for government to set up training programs on a wider level to provide ethical training on all levels of hierarchy in all corporations, to make sure that the legislation passed to protect consumers rights are implemented upon. According to CFA; ‘More than one quarter of respondents (27%) noted that their firms have never provided ethics training to employees. In smaller firms (less than US$1 billion in assets under management (AUM)), the number was 37%, versus only 4% for firms with more than US$100 billion in AUM’ (Michaela, CFA). Some different sort of system can be implemented such as Islamic banking, their ethics and code of conduct are strictly regulated and well sought, and despite not working on interest Islamic banks were the only banks to stay stable during the 2008 financial crisis and they are very compassionate to their customers too. There is also a need of tracking on political lobbying and the relevant departments such as APRA, ASIC and anti-corruption bodies should keep a close eye on the activities of the bank officials and politicians, especially during time of election. The commission also recommended to apply banking executive accountability regime (BEAR) to superannuation, which governs who is responsible for the issues in banking sector. The government’s legislation if all passed and implemented are going to bring significant changes, as ASIC will be the only body to look after super funds and both ASIC and APRA will exercise more power in their jurisdiction and can create civil penalty for breaches of laws by directors and trustee.

Conclusion

In the end the laws are to be changed and made simple otherwise there will always be contradiction within laws which lead to big corporations and institutions escape law with the help of their fancy lawyers, and after generating billions of dollars in revenue, they get off by giving few hundred million in fines. The government in order to comply with the commissioner’s report released a document called ‘Restoring trust in Australia’s financial system’, which stated which of the recommendation they agree with and not, in which they agreed with most. The commission has also recommended to prohibit advice fee on many super accounts and deducted in some. Selling of superannuation product in an unsolicited manner will also be prohibited because that leads to people selecting products not in their interest. If the suggestions by Hayne are legislated and put into action in all financial industry through proper training and awareness, can result in a significant change over a period of time, although consumer’s perception about big corporations might take a little longer to change, but it will change eventually after continuously receiving services and help in an ethical and compassionate manner.

References

1. Final Report Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Commissioner Kenneth M Hayne, Commonwealth of Australia 2019. Volume 1
2. The Challenge of Assessing and Shaping Bank Conduct, Ethics and Culture: Insights from the Social Sciences. Connell, Matthew matthew.connell@uk.zurich.com. Winter2016/2017, Vol. 10 Issue 1, p89-98. 10p.
3. Australian Securities and Investments Commission Act 2001, Act No. 51 of 2001 as amended. https://www.legislation.gov.au/Details/C2013C00002
4. Business ethics: The key role of corporate governance. Corporate Board, Sullivan, J. D., & Shkolnikov, A. (2007). 162,1.
5. MONITOR By: JOHN COLLETT, Sydney Morning Herald, The, 03126315, Jul 29, 2006
6. Australia/New Zealand Reference Centre
7. Financial Institution Compliance with Government Ethics Laws
8. Frulla, David E.1, Rubin, Corey A.1 Community Banker. Mar2007, Vol. 16 Issue 3, p64-66. 3p.
9. CFA Societies Australia submission to the Hayne Royal Commission; Michaela Francis; Executive Director CFA society Sydney.

Effect of Cognitive Capabilities on Sustainable Strategic Fit on Competitive Advantage at Selected Commercial Banks in Kenya

Chapter one. Introduction

1.1 Background of the Study

Competitive advantage ensures that the firm survives and is placed in a prominent position in the market (Allan 2019). Thus, it is important for firms in an industry to develop competitive advantage over its competitors. According to De wit and Meyer (2010), a firm has a competitive advantage when it has the means to edge out and outsmart rivals when contesting for the favour and following of customers. Schermerhorn et al. (2014) says a competitive advantage comes from operating in successful ways that are difficult to imitate. Competitive advantage in banking sector as a broad concept deals with business re-engineering process (BRP) that will put the banks in a lead among other competitors within their sector (Agha, Alrubaiee & Jamhour, 2016). It specifically addresses what the banks have in stock that will achieve an advantage in the competitive market. In these stances, constructs like strategic planning, competitive intelligence, corporate social responsibility, innovation and creativity are used as synonyms to competitive advantage (Diab, 2014). On another hand, competitive advantage is seen as a performance construct that shows a phenomenon of organizational progress. In such cases, constructs like organizational performance, operational efficiency, financial performance, financial sustainability, organization creativity, and innovation (Perren, 2013) have also been used in describing competitive advantage (Prescott, 2014).

A competitive advantage can only be achieved and sustained after careful examination of strategy and the strategic management process. A strategy is the direction and scope of an organization over the long term, which achieves an advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholders” expectations (Johnson, Scholes, &Whittington, 2018). By strategy, managers mean their large-scale, future-oriented plans for interacting with the competitive environment to achieve company objectives.

The ability to outperform competitors and produce above-average profits lies in the pursuit and execution of an appropriate business strategy (Yoo, Lemak& Choi, 2016). The growth and diversity in the international business has brought about new challenges and heightened the competitiveness of firms across the globe and to remain relevant, firms have been forced to re-examine themselves internally in order to improve their performance. This has resulted in greater attention to analyzing competitive strategies under different environmental conditions. According to the resource-based view theory, the firm is regarded as a unit of resources and capabilities. The acceptance of this concept has prompted interest in identifying the nature of these various resources and in evaluating their potential to generate a competitive advantage (Lopez, 2015). Indeed according to Day and Lichtenstein (2016), many firms have spent vast amount of resources in order to improve their competitiveness and sustainability by looking at their internal processes.

A firm’s ability to seek and maintain a competitive advantage rests on its ability to acquire and deploy resources that are coherent with the organization’s competitive needs and as such, alignment requires a shared understanding of organizational goals and objectives by managers at various levels and within various units of the organizational hierarchy. However, most recent research suggests that firms may improve the value of their established competitive advantage through their strategic orientation, business structure and information technology (Stewart, 2017).

The concept of strategic fit began with the research of Skinner (1969). He suggested that companies should tailor their production systems to perform the tasks that were vital to corporate success and consistent with the corporate strategy (Wang and Shyu, 2008). Strategic fit, also referred as strategic alignment, has received significant attention in literature. Strategic fit has been conceptualized in various ways. This conceptualization implies that high level of strategic fit is advantageous; therefore, an organization’s fit should be maximized. The search for strategic fit has been a core concept in normative models of strategy formulation (Zajac et al., 2000). Strategic fit expresses the degree to which an organization is matching its resources and capabilities with the opportunities in the external environment. The matching takes place through strategy and it is therefore vital that the company have the actual resources and capabilities to execute and support the strategy. Dess and Lumpkin (2003) assert that the strategic fit process involves management of all other internal elements within an organization to ensure that the implementation process is successful. Miles and Snow’s classification of the strategic fit is as the following: Defenders: aiming at stability and defending a narrow range of products within a narrow market segment; Prospectors: searching for new product and market opportunities; Analyzers: seeking to minimize risk while seizing opportunities, a balanced approach and Reactors: inconsistent and unstable, simply reacting to the environment (Sadler, 2013).

Scholars of contingency theory argue that firms must have an alignment of internal-external resources, strategies and typical patterns in order to achieve successful results. For example, Powell (1992) emphasizes that successful results are achieved through fit between endogenous design variables such as organization structure and exogenous context variables such as environmental uncertainty and organization size routine. The importance of strategic fit is also underscored in resource-based view (RBV) study. According to the RBV viewpoint, firms generate profits to the extent that they accumulate rent-producing resources that, in addition to providing economic value, meet the tests of scarcity, imperfect imitability, and imperfect trade ability in factor markets (Barney, 1986a, b; Dierickx& Cool, 1989; Peteraf, 1990). The ability to align corporate resources to fit becomes important in order to meet these tests. Thus, the need to analyze effect of strategic fit on competitive advantage of commercial banks.

In addition, some scholars have been theorizing on the cognitive capabilities that can build a competitive advantage, whereas others have been calling for more empirical evidence for the role of individuals and their patterns of interaction (Coff&Kryscynski, 2014; Foss, 2014; Gavetti, 2015; Winter, 2013). In strategic management, the term ‘capability’ refers to the capacity to perform a function or activity in a generally reliable manner when called upon to do so (Helfat and Winter, 2014). The capacity to reliably perform an activity of some type implies only that a capability meets a minimum standard of acceptable functionality (Helfat et al., 2017). As Winter (2013) notes, how well a capability performs its intended function is a matter of degree. Capabilities develop in part through practice. As an individual or an organization gains experience performing an activity, the capacity to perform this activity again in the future tends to improve, particularly early in the development of a capability (ZolloandWinter, 2012)

Research in strategic management has most commonly analyzed cognition, including heterogeneity of cognition among managers, in terms of information structures and mental maps (Gary and Wood, 2014). Adner and Helfat (2013) recognized early on that some managers may have ‘dynamic managerial capabilities’ with which to build, integrate, reconfigure, and competitively reposition organizational resources and capabilities. Adner and Helfat (2013) also observed that manager cognitive capabilities depend in part on managerial cognition. To date, the cognitive underpinnings of dynamic managerial capabilities remain largely unexplored (Eggers and Kaplan, 2013). This study will focus on how cognition may help to explain why some top managers have more effective capabilities than others for choosing a strategy that fit in responding to the demands of an evolving environment

1.1.1 Global Perspective on Strategic Fit /Choice, Cognitive Capabilities, and Competitive Advantage

In Korea, Yin and Zajac (2004) in their study of fit between strategy and governance systems, posited that fit brings about superior performance and that it is significant. Loius and Francois (2007) from a contingency perspective, did a survey of 107 canadian manufacturers, analyzed data through correlation analysis and results indicated strategic fit has positive performance outcomes for manufacturing SMEs in terms of growth, productivity and financial performance, however the study considered only profile deviation perspective of fit.

In China, ShichunXu et al., (2006) did a study on multiple perspectives of strategic fit (moderation, mediation, profile deviation, and covariation) explored their effects on firm performance. Empirical results based on 206 MNCs supported the mediation, profile deviation, and covariation perspectives, but they failed to confirm the moderation perspective. in France, Amadi (2004) highlighted that in the manufacturing industry, the importance of strategic alignment is no longer an issue for debate, but rather a foregone conclusion. Unlike manufacturing strategy very few authors have contributed to strategic fit (or alignment) in domain of competitive advantage.

Narasimhan et al. (2010) investigated fit between strategic integration and manufacturing capabilities. Chi et al. (2009) studied the alignment between business environment characteristics, competitive priorities, supply chain structures, and firm in US textile industry. In Germany, Calantone et al. (2012) conclude that the strategic fit of marketing and operations opens up important two-way communications: marketing will know more about operations, and can also communicate credibly with operations about its needs (such as new product development and range of product offering). In Thailand, strategic fits reflects an outward-looking view of the fit between strategic choices and environment and strategic orientation as a strategic choice should lead the way firms get, allocate, and deploy resources to generate dynamic capabilities (Zhou and Li, 2017).

Bank in Italy, see strategic fit as values that direct and influence the activities of an organization and generate the behaviors intended to ensure its viability and performance (Hakala, 2011). In Thailand, Theodosiou, Kehagias and Katsikea (2012) indicated that the organization is maximizing its performance by implementing strategic fit with other orientations that are appropriate for its environmental conditions and organizational characteristics. Some scholars relate that with activities, such as describing strategic fit as principles that guide and impact the activities of an organization to renew an excellent behavior for preserving the organization and improving performance (Deutscher et al., 2016; Ho, Plewa& Lu, 2016)

Empirical evidence has documented the effects of managerial cognition on efforts directed toward strategic change. In his study of NCR, Rosenbloom (2010) demonstrated that managerial cognition, specifically the ways in which top management conceived of NCR’s business, had a critical impact on both NCR’s difficulty in transitioning to mainframe computers and its eventual success in doing so. Taylor and Helfat (2013) also found that the cognition of top management helped IBM in its successful transition to mainframe computing. In contrast, Tripsas and Gavetti (2010) documented that top management cognition, in terms of how executives conceived of their business, prevented Polaroid from successfully adapting as the camera industry shifted to digital imaging technology. Similarly, Helfat et al. (2017) documented the way in which the mindset of Rubbermaid’s CEO contributed to the company’s difficulty in adjusting to a changing marketplace. Additionally, in a study of the typewriter company Smith-Corona, Danneels (2014) showed that top management’s misunderstanding of which company resources had value, and of the potential application of company resources to new markets, contributed to the company’s demise

Based on the above past studies on Strategic Fit have been done in the developed world’ specifically focusing on firm performance (Loius and Francois, 2017; Yan and Zajac, 2014). Other studies have also focused on sectoral-level constraints, attributing the poor performance to reduced funding (Wangenge-ouma, 2018) and in-effective governance (Mwiria et al., 2016).

1.1.2 Local Perspective on Strategic Fit /Choice, Cognitive Capabilities, and Competitive Advantage

In Nigeria, Olufemi and Olayinka (2013) examines the impact of strategic fit on organizational performance in the African textile industry in Nigeria. However, there are cautions that being too customer-focused can lead to lack of focus and anecdotal evidence suggests that it may be better to ‘ignore your customer’ when developing new products. Building on the market orientation research stream, the authors examine the impact of three alternative strategic orientations—customer orientation, competitor orientation, and product orientation—on a variety of subjective and objective measures of performance in an organization, which is marked by high rates of innovation and largely unpredictable customer preferences. The results indicate that the association between strategic fit and performance varies depending on the type of performance measure used. However, the most unambiguous result is that a customer orientation exhibits a negative association with sale.

In Malaysia, Nasir and Mohd (2013) highlighted the importance of the concept of strategic fit or ‘strategic directions implemented by a firm to create proper behaviors for the continuous superior performance of a business. Similarly, in Ghana, Nasution et al, (2014) Strategic fit is related to the decisions that businesses make to achieve superior performance. Strategic orientation is an organization’s direction for reaching a suitable behavior in order to attain superior performance. Competitor and customer orientations are the most important for organizations to achieve long term success.

Locally there are related studies on Competitive Advantage and strategy alignment for example Asava (2009) study on Knowledge management for Competitive Advantage of Commercial Banks in Kenya, Kitua( 2009) studied The internet as a source of competitive advantage for Insurance Finns in Kenya, Muketi (2009) studied Technological Resources for Sustainable Competitive Advantage in manufacturing, Njeri (2009) researched on Direct sales strategy and Competitive advantage of Commercial Banks in Kenya, Nyatichi (2009) studied Competitive Strategies adopted by Multinational banks in Kenya, Kimari (2010) wrote about Sustainable competitive advantage in the mobile telephony sector in Kenya. Oori (2010) studied Strategies employed by Commercial Banks in Kenya to build Competitive advantage and Mbewa (2010) studied Factors employed by Barclays Bank of Kenya to achieve competitive advantage. ‘ From the studies on Competitive Advantage of Commercial Banks, it is found that Competitive advantage is important for survival of Commercial Banks. The studies also indicate that different strategies may be used by different commercial banks depending on their size, presence and market share. However no study has been carried out on effect of strategic fit on Competitive Advantage of Commercial Banks in developing countries.

1.1.2 Commercial bank of Kenya

As at 31st December 2012, the banking sector consisted of the Central Bank of Kenya as the regulatory authority, 43 commercial banks and 1 mortgage finance company, 5 representative offices of foreign banks, 8 Deposit-Taking Microfinance Institutions (DTMs), 2 Credit Reference Bureaus (CRBs) and 112 Forex Bureaus. Out of the 44 banking institutions, 31 locally owned banks comprise 3 with public shareholding and 28 privately owned, while 13 are foreign owned. During the year 2012, banks increased their branch network by 111, which translated to a total of 1,272 branches. The increase is an indication of increased provision of banking services. The banking sector registered an increase in staff levels by 1580 from 30,056 in 2011 to 31,636, representing an increase 15 of 5.3 percent. All the cadres of staff increased with the exception of supervisory level which reduced by 84. The banking sector was sound and stable and recorded improved performance in 2012 as indicated by total net assets which increased by 15.3 percent from Ksh 2.02 trillion in December 2011 to Ksh 2.33 trillion in December 2012, with the growth being supported by the increase in loans and advances. Customer deposits grew by 14.8 percent from Ksh 1.49 trillion in December 2011 to Ksh 1.71 trillion in December 2012. Pre-tax profit increased by 20.6 percent from Ksh 89.5 billion in December 2011 to Ksh 107.9 billion in December 2012. The growth was largely attributed to income generated by increased loans and advances coupled with regional expansion initiatives. However, the ratio of non-performing loans to gross loans increased from 4.4 percent in December 2011 to 4.7 percent in December 2012 (Central Bank of Kenya Bank Supervision Annual Report, 2012).

There are 43 commercial banks in Kenya. These banks have realized that increased competition in this industry dictates the development of strategies to compete so as to enhance performance. The strategies developed will also lead to the bank survivals. Banks without clear strategies will find it hard to survive in this market. The banking environment in Kenya has drastically changed due to government regulations and stiff competition. According to Dulo (2006), each bank should know how to venture into the market and thereafter form, guard and uphold its competitiveness.

1.2 Statement of the Problem

Competitive advantage comes from an ability to meet customer needs more effectively, with products or services that customers value more highly or more efficiently at lower costs. Meeting customer needs more effectively can translate into the ability to command a higher price, which can improve profits by boosting revenues. Meeting customer needs more cost effectively can translate into being able to charge lower prices and achieve higher sales volumes, thereby improving profits on the revenue side as well as the cost side. Furthermore if a company’s competitive edge holds promise for being sustainable (as opposed to just temporary), then so much the better for both the strategy and the company’s future profitability. What makes a competitive advantage sustainable, as opposed to temporary, are elements of the strategy that give buyers lasting reasons to prefer a company’s products or services over those of competitors – reasons that competitors are to nullify or overcome despite their best efforts(Thompson, Petraf, Gamble & Strickland, 2014).

The products offered by Commercial Banks are generic hence making the competition very stiff. In order for the firms to survive they need to employ a unique strategy which is difficult to imitate and is sustainable. In order to remain competitive Commercial Banks in Kenya over the years have structured their products to suite the market needs. We have also seen acquisitions like Commercial Bank of Africa acquiring ABN Amro Bank. Equatorial Commercial Bank acquiring Southern Credit Bank. Cfc Bank merged with Stanbic Bank to form CfCStanbic Bank all in a bid to strengthen their competitiveness. Commercial Banks have gone through phases as they try to ensure their survival: Barclays Bank closed several Branches upcountry only to try and tap into that market again. Building Societies like East African Building Society have evolved to a Commercial Bank. We have also had several Banks exit the market examples include Delphis Bank, chase bank, imperial bank, Dubai bank, Euro Bank. Kenya Post office savings bank, all which collapsed with Depositors funds. For Commercial Banks to survive, they need to ensure that they have identified a strategy which is right products and fit for the market and created a sustainable structure to support their competitive advantage.

Thus, the strategic fit could be relevant competitive advantage of banks in Kenya, however, Information on strategic fit and competitive advantage of banks is not known. In addition, studies document that top management cognitive capabilities are associated with heterogeneity of strategic fit efforts and outcomes. However, relatively little of this research has focused for indirect on direct of cognitive capabilities on competitive advantage ( Eggers and Kaplan, 2009 and Gavetti, 2012.). Thus this study focuses on moderating effect of cognitive capabilities that enable mental activities, elaborate on the heterogeneity of these capabilities, explain how they underpin dynamic managerial capabilities and assess their potential impact on competitive advantage of banks.

1.3 Research Objectives

1.3.1 General Objective of the Study

The general objective of the study will be to determine effect of cognitive capabilities on the relationship between strategic fit /choice and competitive advantage in Commercial Bank in Kenya

1.3.2 The Specific Objectives the Study

This research endeavored to achieve the following specific objectives:

1. To determine the effect of defender strategy on competitive advantage in Commercial Bank in Kenya
2. To determine the effect of prospector strategy on competitive advantage in commercial bank in Kenya
3. To determine the effect of analyzer strategy on competitive advantage in commercial bank in Kenya
4. To determine the effect of reactor strategy on competitive advantage in commercial bank in Kenya
5. To determine the moderating effect of effect of cognitive capabilities on the relationship between strategic fit (defender strategy, prospector strategy, analyzer strategy, and reactor strategy ) and competitive advantage in Commercial Bank in Kenya

1.4 Research Hypotheses

Based on the stated specific objectives, the following null hypotheses will be derived and tested.

1. Ho1 There is no significant effect of defender strategy on competitive advantage in Commercial Bank in Kenya
2. Ho2 There is no significant effect of prospector strategy on competitive advantage in commercial bank in Kenya
3. Ho3 There is no significant effect of analyzer strategy on competitive advantage in commercial bank in Kenya
4. Ho4 There is no significant effect of reactor strategy on competitive advantage in commercial bank in Kenya
5. Ho5a Cognitive capabilities does not significantly moderate the relationship between defender strategy and competitive advantage in Commercial Bank in Kenya
6. Ho5b Cognitive capabilities does not significantly moderate the relationship between prospector strategy and competitive advantage in commercial bank in Kenya
7. Ho5c Cognitive capabilities does not significantly moderate the relationship between analyzer strategy on competitive advantage in commercial bank in Kenya
8. Ho5d Cognitive capabilities do not significantly moderate the relationship between reactor strategy on competitive advantage in commercial bank in Kenya

1.5 Justification of the Study

This study seeks to establish the contributions and importance of its outcomes to a number of players in the banking industry.This research is significant in several ways and it contributes to the literature both in terms of theory and practice. By empirically investigating the effects of cognitive capabilities on the relationship between strategic fit and competitive advantage in Commercial Bank in Kenya, this thesis proposal anticipates: – that the following individuals, groups and institutions will benefit from the study findings

1.5.1 To Commercial Banks

Commercial Banks can be able to find out whether they have adopted the best strategy compared to theirpeer. They shall be able to find out what they are doing right and continue doing it or what they are doing wrong and what they need to do so as to give them an edge. Once the Commercial Banks identify the types of strategy fit and how they affect competitive advantage they shall be able to position themselves well within their environment

1.5.2 To the Investors

They will benefit directly because the study will enable investors devise strategies that will ensure the competitive advantage is sustained. This will translate to a high return on investment for the investors.

1.5.3 To the Government and policy makes

The government through its agencies like the central Bank of Kenya will also benefit because the findings of this study will help them in the formulation of policies to regulate the conduct of players in the banking industry in Kenya.

1.5.4 Competitors

They also stand to benefit from this study because it will reveal to them some of the determinants that have made some banks have a continued sustained advantage. They can learn from this and try to get hold to some of those sources and apply some of the strategies used by superiors banks so as to better compete in the banking industry in Kenya.

1.5.5 To theory, scholars, and academicians

This study will add to existing knowledge on types of competitive advantage enjoyed by Commercial Banks in a developing country like Kenya and how strategic fit affect competitive advantages. Scholar’s academicians and researchers can use the study as a reference point in evaluating moderating effect of cognitive capabilities on relationship between strategic fit and competitive advantage of Commercial Banks in Kenya. In general This study seeks to contribute further to this wealth of knowledge and find out other strategic fit that can be adopted to gain competitive advantage. Commercial banks and other organizations shall be able to borrow from these other factors while formulating their strategies.

1.6 Scope of the Study

The current study will only focus on effects of cognitive capabilities on the relationship between strategic fit and competitive advantage in Commercial Bank in Kenya. The study will target top management employees from the 47 commercial banks registered under Central Bank of Kenya. The study will choose four strategic fit dimensions based on Snow and Mill Model which includes analyzer strategy, prospector strategy, defender strategy and reactor strategy. The study will be conducted for a period of four months based on university postgraduate calendar.

Conceptual Framework

(Independent variables ence) (Dependent variable) (Moderating variable)(Cognitive capabilities) (H5aa) (H2) (H01) (Reactor strategy) (Competitive advantage) (Prospector strategy) (Defender strategy) (Analyzer strategy) (Figure 1: Conceptual Framework)(H5ca) (H5ba)(H05d)(H3)(H4)

Modern Trends in Marketing of Pakistani Banking Sector Services

Banks in Pakistan had been passed through various stages of development since independence. Throughout all these stages the marketing is not considered to be a banker’s cup of tea. But due to change in the economic structure and increased competition it has now become the fundamental management function. It is not only significant for the survival of the bank but also needed for improving efficiency of the services offered by the bank. Previously, Pakistani banking sector had not paid significant attention towards the marketing and market research. I this essay I discuss the micro and macro trends in the marketing of the banking sector.

Banking sector plays a very significant role in the economic development of the country. The downfall of the banking sector can cause the financial crisis. Many of the banking sectors are now putting emphasize on the marketing of their services to aware the customers regarding the benefits and improving the working efficiency. Banks are now focusing to developing the long-term relationship with the customers for the sustainability and thereby attracting the new customers. So, the relationship marketing gains quite significance in this sector. It focuses on the research on evaluation the requirements of the customers and developing new service methodologies.

Traditionally, banks were considered as the holders of finance, but gradually they made their perspective as the creators of the finance. But in this today’s era, scope of the banks has broadened quite significantly and now banks are considered as the purveyor of the money for the country’s economy. A strong banking system is the backbone of the developing economies and it reflects the country’s economic growth.

Looking at the statistics globally, out of 6.9 billion people in the world only 2.1 billion people owns an account in the bank and about 5.2 billion people uses the mobile phones. This translates that only about 30% of the world population have bank account while about 70% of the population uses phones. According to the Pakistan Telecommunication authority, the teledensity is 72.5% while on the other hand there are only 49 million bank accounts. There is still potential for ample growth of the banking sector, providing the innovative and effective marketing strategies to hit the untapped market.

According to the financial reports banks spent about 3.6% of their total expenditure on marketing and advertising. And it they plan to increase these expenditures on about 4% each year.

Recent trends in marketing strategies of banking sector:

1. Advertising is the most common promotional tool in the banking sector. Banking sector is now investing a large portion of their budget on the promotional advertisement.
2. Customer expectations are continuously increasing due to the rise in literacy rate and customers are now more aware than ever before. They are now expecting more value-added banking services and are ready to pay premium for it.
3. Mobile banking is getting very popular day by day. It is becoming essential demand by the customers. Its blessing for the majority of people whom it is unable to visit the branch for routine transections. Banks are also taking huge benefit from the mobile banking, as it cuts the cost of service facilitation quite significantly.
4. Banking sector is also using the social media for their marketing purpose. Almost every financial institution has developed their social media cells responsible for the promotion of various services. Social media is becoming quite popular among the people today and it is very effective promotional tool.
5. Due to the technology revolution in last few years, forces every industry including the financial institutions and banking sector to evolve their marketing strategy. Virtually all the banks have now their websites and internet banking. E-newsletter has now become the most effective form of the marketing, followed by the search engine optimization.
6. Contrary to the past banking sector are increasing their marketing budget every year despite of overall state of the economy. It has now become the major strategy driver for their business. This is due to the fierce competition and ever-increasing customer demands.
7. Instead of opening as many accounts as possible as before, banking sector is now focusing on the retention of the customer. They are now investing in the customer relations and quality service. Customer’s satisfaction has now become heir top most priority. Banks are now investing in the market research and surveys to analyze the rising demands of their current and potential customers to uplift the level of customer satisfaction.
8. The studies have shown that with the combination of emails and traditional promotional channels efficiency of service marketing is increased significantly. Banks are now developing the data base of the good customers as well as the potential ones. Gathering the email address has never been so important than ever before.

Comparative Analysis of Products and Services of Axis Bank

Axis Bank Ltd., the first bank to begin operations as a new private bank in 1994 after, Government of India allowed new private banks to be established. Axis Bank was jointly promoted by the Administrator of the specified undertaking of the: Unit Trust of India (UTI), Life Insurance Corporation of India (LIC) and General Insurance Corporation Ltd. Additionally, with associates National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

Axis Bank is the third biggest private part bank in India. The bank offers the entire range of money related administrations to client portions covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses. The Bank has a substantial impression of 3703 branches and 13,814 ATMs spread over the province as on 12 Aug 2016 which is the biggest ATM organize in nation among Private Sector Banks in India. The abroad tasks of the bank are spread over its seven worldwide workplaces with branches at Singapore, Hong Kong, DIFC (Dubai International Financial Centre), Colombo and Shanghai and delegate workplaces at Dubai and Abu Dhār.

With an accounting report size of 6,91,330/ – Cr. as on 31st March 2018, Axis Bank has accomplished steady development and stable resource quality with a 5-year CAGR (2012-13 to 2017-18) of 15% in Total Assets, 12% in Total Deposits, 17% in Total Advances.

The most recent contributions of the bank alongside Dollar variant are the Euro and Pound Sterling variations of the international travel currency card (TCDC Card). The travel currency card is a mark based prepaid travel card which empowers the traveler’s global access to their money in neighborhood cash of the meeting province in a sheltered and helpful way. The bank has qualities in both retail and corporate managing an account and is focused on embracing the best business rehearses internationally in request to accomplish perfection.

This research is titled as ‘Comparative Analysis of Products and Services of Axis Bank’. It involves a deeper study into the various services rendered and the products offered by the bank and doing an analytical study thereafter on the basis of the customers visiting the branch.

This study involves preparation of a questionnaire consisting a formal set of questions to be asked from the customers/consumers visiting the bank branch, with regards to the ease of banking and the features of products and services held and used by them. The prime purpose of this research is to do a comparative analysis of Axis Bank with its other competitors in the private sector market in terms of customer preference and overall performance.

The technique of ‘Random Sampling’ has been put to use in this research and a total of 100 respondents have been questioned to assess the bank on various important and crucial parameters that measure its operational efficiency.

A proper literature review has also been done of the existing work done in the same field in order to understand the concepts more precisely and give the research a better direction and to assist in formulating certain hypothesis. The crux of the following researches has been studied and put to use in the study above, these researches are highly sophisticated and revered by.

The following is the list of studies with their crux:

1. Uppal R K and Poonam Rani (2012), in their study titled Customer Perception towards Better Banking Services in India- An Empirical Study, analyzed customer perception about CRM, reliability, accuracy, security and transparency among the customers of public sector banks, Indian private sector banks and foreign banks in Amritsar, Punjab. They have found that most of the customers are satisfied with banking services and that customer satisfaction can be improved by ensuring more speed in rendering transactions and giving prompt services.

2. D Mishra (1997) makes a study on the performance of commercial banks in India choosing relevant parameters like quality of service, risk management, profitability etc. His conclusion is that the banks should try to increase quality, balance risk management, and optimize profitability to survive and succeed. He identifies four challenges for the bank namely competition, credit, customer and control.

3. Gaganjot Singh (1998) in his study ‘New innovations in banking industry – a study of new private sector banks’ views that the new private sector banks in India are using better technology and are offering better services to the customers. The new private banks have emerged as a model to the banking industry in terms of service levels, ambience, technology etc. As the public-sector banks have already established a huge customer base, they become complacent and are slow to become customer friendly. They are also less innovative in the use of technology-assisted customer service. Because of their huge customer base, they feel that they can withstand competitions from new generation banks.

4. Parimal Vyas (2000) studied customers’ satisfaction from the services provided by different banks and analyzed the response of customers towards the actual time taken by banks to complete the banking transactions. The findings of the study revealed that nationalized banks and co-operative banks need to improve on reducing the time taken to complete banking transactions. Comparatively the private and foreign banks take much less time for completing their transactions. The study suggested that the nationalized commercial banks and cooperative banks must increase the use of information technology and customer relationship management to deliver standardized services to their target customers.

5. Mosad Zineldin (2005) in his study ‘Quality and Customer Relationship Management as Competitive Strategy in the Swedish Banking Industry’ stated that a bank had to create customer relationships that deliver value beyond that provided by the core product. This involved added tangible and intangible elements to the core products, thus creating and enhancing the ‘product surrounding’. One necessary condition for the realization of quality was the creation of value-added services, quality measurement and control. Thus, it was an important function to ensure the fulfilment of given customer requirements. The key ways for building a strong competitive position were value-added services and differentiation.

Research Methodology

• Type: Descriptive.
• Method: Questionnaire (Formal).
• Locale of the Study: Axis Bank Limited, Phagwara.
• Sampling Design. The technique of ‘Random Sampling’ has been resorted to, to perform the study. A total of 100 respondents were taken to form a sample for fulfilling the purpose. Random sampling technique was chosen to cover all types of customers of the bank and giving each type an equal opportunity to be a part of the sample.
• Data Collection. A proper literature review has been done to perform the task of data collection. Both the sources, namely primary and secondary data sources have been used to collect data. The data focuses on collecting both the qualitative and quantitative aspects regarding the customer satisfaction. A proper questionnaire with formal set of questions was framed to collect the data from the customers visiting the branch.
• Statistical Framework. In regards to the statistical framework, the following tools and techniques have been used to collect study and present the data. The concept of ‘Percentage’ has been used to differentiate amongst the categories of the customers. The interpretation of the data has been done for both the aspects, namely qualitative and quantitative. The data set has been presented through effective ‘Pie Charts’ to enable easy and quick understanding. The result of the study has been presented effectively in the form of a ‘Two Way Table’.

Findings and Interpretations

The majority (39%) people have savings account in axis bank. While, 23% have current account and FD & other accounts are respectively 28% and 10%. Thus, we can say that most of customers prefer savings account in Axis Bank.

Majority of the customers give ‘good’ criteria lesser give ‘very good’. It shows service quality of axis bank to its customers.

Many customers have other products other than saving/salary account such like, locker, investment, OD, CC, loan, credit card, etc.

Majority customers are accessing their accounts through walk-in to branch less number of customers are using other channel like, mobile banking, net banking, phone banking. Which describes lack of awareness about technology in banking service.

Review of customers on ease of access: the first number is bagged by HDFC and the second one is ICICI and the last is Axis Bank.

In the criteria of flexibility HDFC is best and ICICI is second and last is Axis Bank.

Axis bank is giving better service regarding transactions as compared to HDFC and ICICI.

From the research we can see that axis bank should improve technology for using banking operations and products.

Majority customers rated the axis bank in ‘good’ criteria and less in ‘poor’. Which shows that axis bank is giving proper products and services to customers.

24% respondents said that they expect less formalities while opening account. While 22% respondents said that they expect proper information, other respondent expect quick access, variety of products and working hours of banking.

So, the bank has good relationship with customers. The customers are satisfied with the relationship manager service provided by the bank. The bank and its customers have a long-term relationship. Axis Bank has the tendency to retain its customers at any cost. The number of customers using the Net Banking and Mobile Banking service forms a very low percentage of the total customers. The accounts of these three banks don’t have much difference in terms of features but when it comes to number of branches and ATM’s, HDFC Bank is ahead of Axis Bank. The customers of Axis Bank are satisfied with their savings and salary accounts.

Conclusion

Much is changing in the banking landscape — with regulation, technology, demographics, customer expectations, greater competition and issues with banks’ own legacy business and operating kneels. The challenges are clear, even if the karate endgame is not. The contemplate primarily was on the client introduction that how they think, what they need from their banks and how they take choice heading off to any bank. In this examination I found that the obligation of Axis Bank with its clients is great, since Axis Bank essentially centres on holding their clients. This study finds that anyway Axis Bank isn’t the main restricted area bank, however its huge scope of items and accessibility of choices improve it one of the banks in India. The bank should give careful consideration on giving updates and should expand the level of administration, because the contenders of Axis are better and growing rapidly. The bank should attempt to expand the utilization of innovative methods like versatile and net managing an account among its clients, the customers should be made familiar with newer and easier ways of banking. The bank should keep up with its thought of serving the customers at priority, this is so because it gives the feeling of belongingness to the customer and gives an edge to the organization over the other players in private banking industry.

Recommendations

AXIS Bank was one of the first private banks to launch operations in the country in 1994, after the Government of India passed a resolution in favor of privatization. An IT savvy bank, AXIS Bank is a pioneer in adopting modern technologies in the banking sector. It a very large network of branch offices and extension counters across the country. AXIS Bank needs to promote and encourage people to use internet banking. In terms of ease of access AXIS Bank needs to increase the number of ATM’s. The bank should be more flexible to compete with its competitors like HDFC, ICICI. The bank should focus on attracting and attaining both the business class and other segments, by offering wide range of products and services tailored for matching their specific requirements because, these two classes are significant for keeping the money flow in check and maintain the money administration.