Author(s): Mulabagula Geeta, C. Naga Sivanand
The banking system in India is moving towards lot of amalgamations and absorptions. The banks which are profitable are absorbing the banks which are not profitable and possess lot of Nonperforming assets. The banks which followed relationship banking strategies by offering a variety of different products, and strived to maintain a loyal customer base, made profits, and banks which followed less relationship banking strategies proved to be with fewer profits, with huge Nonperforming assets. In the light of mergers that took place in Indian banking system, a study has become necessary to know the reasons of banks failure in the Indian context. Relationship banking model is not a recent concept and many allege that it is the cause for Asian crisis 1997 which demonstrated the potential traps of relationship banking. Despite this crisis, there are many advantages too with the relationship banking. Relationship banking is a strategy followed by banks to strengthen the customer base and loyalty and provide a single point of contact to provide a range of different products and services. The main function of banks is credit creation. The banks lend from the deposits of customers. According to modern banking theory the two pillars of the bank are deposits and loans. In both the cases banks have to have a loyal customer base. Hence it is important for the banks to follow relationship banking strategies. Relationship banking involves both assurance and uncertainty. A customer has to be careful that he should not be caught in a net and proven to be more expensive rather than maximizing profits. This paper is based on review of theoretical and empirical literature to study whether the objectives of relationship banking are achieved or not by the Indian banks. The present study is made on one private bank and one public sector bank named HDFC and SBI. The data is obtained from the secondary sources like bank reports, international blogs and journals. Even though study is based on secondary data a thorough literature review has been done and many authors like M. Murugan and Senthil Kumar (2011) have empirically studied that the modern banking is wholly customer driven and proved that “better service better business”. Analysis is done through inferential statistical method, T test and descriptive statistical methods namely coefficient of correlation and arithmetic mean are used to find whether the relationship banking plays a crucial role in making banks profitable or not. It is found that gross nonperforming assets has positive relationship with net profits in HDFC bank and where as for State Bank of India there is a negative relationship between the gross nonperforming assets and gross profits. The Arithmetic Mean for gross nonperforming assets of HDFC is low when analyzed with SBI. Based on (Chril Nicholas 2018)” relationship banking value add pyramid” a new model is developed and suggested for implementing better relationship banking strategies by the bank.