Service gaps in baking sector and comparison of local and foreign banks

Service'Marketing'
To'identify'service'gaps'in'Banking'Sector'and'a'
comparative'study'of'Local'and'Foreign'Banks'
Ayush'Parekh'
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Index
Sr.!No.! ! ! Topic! Page!No.!
1.! Introduction! 3!
2.! Role!of!Banking!in!Indian!Economy! 3!
3.! Indian!Banking!Industry!and!Service!Quality! 6!
4.! Importance!of!Service!Quality!in!Banks!! 8!
5.! Measuring!Service!Quality!in!Banking!Sector! 9!
6.! Electronic!Banking!and!Service!Quality!! 10!
7.! Service!quality!and!Customer!Satisfaction! 13!
8.! Service!Quality!Gaps!Research! 15!
9.! Study!of!local!and!foreign!banks! 19!
10.! Findings!and!Conclusion! 23!
11.! Suggestions!! 24!

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Introduction:
Bank plays an important role in the economic development
of a country. It is a financial institution that accepts
deposits and channels those deposits into lending activities
either directly or through capital markets. A bank connects
customers, which have capital deficits to those customers
with capital surpluses. The banking industry in India is
facing certain challenges i.e. challenges of quality service,
customer satisfaction, customer retention, customer loyalty,
Quality service plays a major role in achieving customer
satisfaction, and creating brand loyalty in banking sector.
Role of Banking in Indian Economy
The Government of India, after independence had to focus
on many areas among which one of the important tasks was
economic development of the country. In this context, the
Industrial policy resolution in 1948 focused on mixed
economy, which played an active role in development of
different sectors including banking and finance. A major
step in this direction was the nationalization of banks in
1948.The Banking Regulation Act was enacted which
empowered the Reserve Bank of India (RBI) to regulate,
control and inspect the banks in India. In other words all
the banks in India fell under the jurisdiction of Reserve
Bank of India under the Banking Regulation Act.
The Government of India nationalized private banks in
1969 and later in 1980 in order to have better control over

! 4!
this sector. Government of India controls around 91% of
the banking business in India. In early 1990s, the then
prime minister of India P.V Narsimha Rao liberalized the
sector by giving licenses to a small number of private
banks, which came to be known as new generation tech-
savvy banks. Among these banks were, Global Trust Bank
(Now acquired by Oriental Bank of Commerce), UTI Bank
(now re-named as Axis Bank), ICICI Bank and HDFC
Bank. The banking sector in India constitutes government
banks, private banks and foreign banks.
In the era of Liberalization, Privatization, and Globalization
(LPG) banks play a dynamic role in contributing to the
economic development of the country. Some of the
contributions of banks to the economy of the country are
discussed below:
Facilitator for Monetary Policy: The fiscal and monetary
policy of a country has greater impact on its economic
development, and a well-developed banking system is pre-
requisite for successful implementation of the monetary
policy.
Promoting Capital Formation: Banks are the reservoirs of
capital providing loans to the individuals and business.
Pooling of financial resources and formation of capital is
encouraged by banks by way of deposits and other
activities. This capital is utilized by entrepreneurs and
contributes for the economic development of the country.
Encourages Innovation: Entrepreneurship and Innovation
go hand-in-hand. Banks encourage entrepreneurship by

! 5!
attractive credit, which empowers them towards innovation.
Monetization: The coining of currency or printing of
banknotes is done by the central bank. In other words;
banks are the manufacturers of money, which is important
for the economy.
Influence Economic Activity: Banks influence the rate of
interest in the money market through its supply of funds. It
can influence a monetary policy with low- interest-rates,
which will tend to stimulate economic activity.
Banking sector has become so important that the absence of
banking industry leads to stagnation in economic
development of the country, the savings would sit idle in
our homes, the entrepreneurs would not be in a position to
raise money, innovation of new products or business
models will get affected. Ordinary people having dreams of
new car or house will not be able to purchase-which will
affect automobile and real estate business.

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Indian Banking Industry & Service Quality
The banking industry is facing rapid changes in the market,
such as: new technologies, economic uncertainties, fierce
competition, more demanding customers and the changing
climate, which lead to, an unprecedented set of challenges.
Banking is a customer oriented service industry, which has
witnessed a radical shift in the market power. The
effectiveness and efficiency became the buzzword of the
success of banking operations and its proper functioning
particularly with respect to providing services to the
customers. Service is an invisible thing, which is
indispensable from the person who extends it. An efficient
or effective service is one, which is extended appropriately
by identifying and understanding the needs of the
individual customer from time to time. Customer service is
a dynamic interactive process, which needs continuous
improvement. With the advancement of information
technology and communication system, the whole world
has been reduced to a global village.
The customers at the present juncture are well exposed to
unstoppable innovations in communication technology.
He/she is aware of the kind of service level available
around the world and thus expects the best from his/her
bank. Customer service is not only a critical function but
plays a vital role for the business. It is the next most
important business strategy. The improved customer
service will definitely increase profitability. A bank can be
said as customer oriented if its various organizational
activities like organizational restructuring, staffing, and

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coordination are geared up to fulfill the needs of customers.
During the past two decades or so, regulatory, structural
and technological factors have significantly changed the
banking environment in India. In a milieu, which becomes
increasingly competitive, service quality as a critical
measure of organizational performance continues to compel
the attention of banking institutions. The interest is largely
driven by the realization that higher service quality results
in customers’ satisfaction and loyalty, greater willingness
to recommend to someone else, reduction in complaints
and improved customer retention rates
In the era of globalization and liberalization, economic
reform has become an imperative to remain in the main
stream of global economy. In this regard, banking sector
being the backbone of the economy cannot maintain status
quo. It is legitimately feared that the privileged status,
which banks enjoyed for the last three decades, has already
been changed with the entry of new players in the form of
private and foreign banks. Under these circumstances, the
banks will have to face pronged challenges to retain the
existing customers and to create new customers. However,
success rate depends on the innovative strategies adopted
by the banks including better customer services and
adequate fulfilment of customer expectations. Thus,
customer satisfaction is quite a complex issue and there is a
lot of debate and confusion about what exactly is required
and how to go about it.

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Importance of Service Quality in Banks
Increased competition, highly educated consumers, and
increase in standard of living are forcing many businesses
to review their customer service strategy. Many business
firms are channelling more efforts to retain existing
customers rather than to acquire new ones since the cost of
acquiring new customer is greater than cost of retaining
existing customers.
There is enough evidence that demonstrates the strategic
benefits of quality in contributing to market share and
return on investment. Maximizing customer satisfaction
through quality customer service has been described as the
ultimate weapon by Davidow and Vital (1989).
According to them, in all industries, when competitors are
roughly matched, those with stress on customer’s service
will win. In view of the above-mentioned facts, an analysis
of service quality perceptions from customer’s point of
view may be sound and interesting at this juncture. Such an
analysis will provide banks, a quantitative estimate of their
services being perceived with intricate details such as
whether banks are meeting the expectations of the
customers or not.

! 9!
Measuring Service Quality in Banking Sector
Customer is vital for the development of trade, industry and
service sector particularly in financial services. Therefore,
the significance of customer service in the banking sector
came to force to compete in a market driven environment.
Measuring service quality in the service sector particularly
in the banking sector is more difficult than measuring the
quality of manufactured goods. The service sector as a
whole is very heterogeneous and what is heterogeneous
may hold true for one service and may not hold for another
service sector.
Each bank is having a variety of services. Due to this
differentiation, services in this industry could not be
standardized, moreover these services are intangible in
nature, which could not be compared or seen.
The concept of customer satisfaction and service quality is
interrelated with each other. Moreover satisfaction of
customer depends upon service quality and service quality
is increasingly offered as a strategy by marketers to
position themselves more effectively in the market place.
Due to the advent of e-banking, quality of service has been
improved a lot as compared to traditional banking services.
Internet banking, Mobile banking, automated teller
machine, electronic fund transfer has totally changed the
way of providing services by the banks.

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Electronic Banking and Service Quality
As customers become more sophisticated, therefore, it
becomes essential to consider the use of technology to
respond to their continuous needs. Banking is an industry
highly involved with the customers. Customers in
developing economies seems to keep the technological
factors of services as the yardstick in differentiating good
& bad services and the human factor the employees seem to
play a lesser role in discriminating the quality of service for
banks. The variations in services offered by the banks
develop excellence for service quality. Banking is no
longer regarded as business dealing with money transaction
alone, but it also seem as a business related to information
on financial transaction. Customers at the corporate level or
at retail level have always been important for the banks. As
electronic banking is becoming more prevalent, level of
customer satisfaction is also changing the scenario of
technological environment.
Informational technology in the form of e-banking plays a
significant role in providing better services at lower cost.
Several innovative IT based services such as Automated
Teller Machine (ATM), Internet banking, Smart Cards,
Credit Cards, Mobile banking, Phone banking, Anywhere-
Anytime banking have provided number of convenient
services to the customer.
So as the service quality improves, the probability of
customer satisfaction increases. Increase satisfaction in turn
increases the mutual understanding, customer retention and
a bond of trust between customers and banks. The banks

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which are providing these services on a wider scale to
customers are more reputed in the eyes of customers. But at
the same time technology based product is different in
public and private sector banks. Bank automation and
electronic banking is fast in private sector comparative to
public sector.
E-banking is an improvement over traditional banking
system because it has reduced the cost of transaction
processing, improved the payment efficiency, financial
services and also has improved the banker-customer
relationship. The relationship between e-banking and
service quality can be studied with the level of satisfaction.
E-banking plays a pivotal role in giving satisfaction to the
customers because e-banking fills the gap between the
expected and perceived service quality. So in order to fill
this gap, banks should find ways of making electronic
services more accessible and by allowing the customer to
verify the accuracy of the e-banking transactions.
There are number of reasons due to which customer
satisfaction on account of e-banking has improved. The
reasons are as follows;
1. Customer can withdraw funds, transfer funds anytime,
anywhere they want.
2. Accessibility has been extended through technological
development as it allows customers to do business from
their home and office.
3. It makes the banking activities and transaction very
simpler to understand

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4. There is no requirement of direct control with bank, as
services can be operated wherever customer wants.
5. It has reduced the waiting time of the customer;
6. Availability of employees at all times is not required as
these services are provided 24 hours a day, seven days a
week.
7. Internet based services has enabled the corporate and
retail customers to transact from home, office and
travelling.
8. Online fund transfer has enabled the customer to transfer
funds from one bank to another or within the same bank at
same time.
9. Communication, interaction between the bank and
customer has been improved due to e-banking.

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What Satisfies a Customer?
According to Juran, Deming and Crosby it‟s the quality of
the product or service, that satisfies a customer. Quality is
especially important in the banking sector because
duplication of products and services is relatively easy.
Further, differentiation of products is difficult in case of the
banking sector. Thus, quality becomes the only
differentiator and the key to continuing success. With
increasing competition, banks that survive and succeed will
be the one that provide quality service. Research studies
have repeatedly proved that customers are willing to pay
for quality service. Banks that wish to succeed and stay
ahead must, therefore, systematically build a structure that
aims at providing Total Quality Service. As with the bank's
financial goals, success can be achieved only with proper
analysis and suitable goals.
Service Quality and Customer Satisfaction:
There is a great deal of discussion and disagreement in the
literature about the distinction between service quality and
satisfaction. The service quality school view satisfaction as
an antecedent of service quality - satisfaction with a
number of individual transactions "decay" into an overall
attitude towards service quality. The satisfaction school
holds the opposite view that assessments of service quality
lead to an overall attitude towards the service that they call
satisfaction. There is obviously a strong link between
customer satisfaction and customer retention. Customer's
perception of Service and Quality of product will determine

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the success of the product or service in the market. If
experience of the service greatly exceeds the expectations
clients had of the service then satisfaction will be high, and
vice versa. In the service quality literature, perceptions of
service delivery are measured separately from customer
expectations, and the gap between the two provides a
measure of service quality.
Objectives:
1. To find out the parameters on which a customer decides
with which bank he wants to be associated with.
2. To compare the public sector banks and private sector
banks in terms of customer satisfaction.
Research Methodology:
The study is based on a survey conducted in Delhi and
NCR with the help of Primary data And Secondary data.
The secondary data was collected from various possible
records like books, magazines, periodicals and websites.
Simple random sampling technique is adopted and 250
respondents (customers of banks) constituted the sample
for the survey. It included equal proportion from both
private banks and nationalized banks. The questionnaire
was a SERVQUAL one consisting of 22 statements in 5
key dimensions namely tangibles, reliability,
responsiveness, assurance and empathy. The list of service
attributes based on different service dimensions are ranked
and rated by the customer to identify the importance of
each service attributes. All the data were collected from

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bank customers through Personal Interviews, Interactions
with consumers of different banks and Interaction with
customers at Malls and other market places. After the data
has been collected, it was entered into Microsoft Excel and
was prepared for analysis.
Data Analysis :
The major statistical tool used in this study is Percentage
analysis
Limitations of the Study:
This study is geographically restricted to Delhi and NCR
city only. Limited number of banks (only two Public sector
and two Private sector banks) were covered under the
study. The sample size do not ensure representative and
conclusive finding and finally, a more robust analysis is
needed to reach a strong conclusion.
Hypothesis :
There is no significant difference between the types of
banks (Public and Private sector) with respect to service
quality dimensions.

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Data Analysis and Interpretation Demographical Data
Factors
Gender
Male 60%
Female 40%
Age
Upto 20 2%
20-40 65%
40-60 25%
Above 60 8%
Occupation
Business 14%
Govt job 9%
Private job 65%
others 2%
Education
HSC 5%
UG 19%
PG 71%
Others 9%
Marital status
Married 76%
Unmarried 24%
Income
>10000 17%
10000-3000031%
<30000 52%
From the above data it can be said that out of the 250
respondents 60% were Male and 40% were female.
2% of the respondents were under the age of 20, 65% were
in the age group of 20 to 40 years, 25 % were in the age
group of 40-60 years and 8% were above 60 years.

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If we see the educational qualifications then 5% were 12th
pass, 19% were graduates and 71% were post graduates.
76% of the respondents were married and 24% were
unmarried.
Of the 250 respondents 17% had an income of less than
10,000 rupees, 31% had an income between 10,000-30,000
rupees and 52% had an income of more than 30,000 rupees.
SERVEQUAL Factors ( In Percentage)
E= Excellence, G= Good, M=Moderate, B=Bad, W =Worst
Data Analysis and Interpretation
1. Modernequipmentused:-
Ifwelookintothetangiblefactorslikemodernequipments
used we find that private sector score more in this
area. 34 % of the people having a relationship with the
private bank find that the modern equipments used by
the private banks are excellent as compared to only 14
% of the people having a relationship with the
nationalized bank.
2. Physical facilities: - As far as physical facilities are
concerned customers of private banks are more
satisfied than those of the nationalized banks. It is
evident from the fact that 48% of the customers of
private banks have given a rating of excellent and
good. Whereas only 35% of the customers of
nationalized banks have given a rating of excellent and
good.

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3. Employee’s appearances: - Customers of the private
banks feel that the employees are very presentable as
it is evident from the fact that 47% of the customers of
private banks feel so. In comparison to this only 27 %
of the customers of nationalized banks feel so.
4. Material quality: - If we consider the quality of the
materials used for passbook, Cheque book etc. we find
here also the customers of private banks are satisfied
with it. As 46% of the customers have given a grading
of excellent and good as compared to 33% in the case
of nationalized banks.
5. Timeschedulefortheoperations:-
PrivateBanksfairwellascomparedtonationalized banks
in maintaining time schedule for operations. 45% of
the private bank customers feel so as compared to
23% of the nationalized bank customers.
6. Employee’sinterestinsolvingcustomer’sproblems:-
Customersofprivatebanksfeel that employees of these
banks are interested in solving their problem. It is
evident from the fact that 45% of the customers of
private banks feel so. In comparison to this only 23 %
of the customers of nationalized banks feel so.
7. Consistencyofserviceprovidedbytheemployees:-
Ifwelookintotheconsistencyof the services being
rendered by the banks from both the sectors we find
that 44% of the private bank customers feel so as
compared to 25% of the nationalized bank customers.

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Factors
Nationalized
Bank
Private
Bank
E G M B W E G MBW
Modern equipment used by bank(computer, cash
counting machine, Atm etc)
14 25 9 1 0 34152 0 0
Physical facilities at the bank ( building,
furniture, counter ,water facility, space etc)
9 26 11 3 1 18302 0 0
Employees neatness and appearances 7 20 20 2 1 29183 0 0
Material quality and appearances (pamphlets,
challans, pass book, cheque book etc)
10 23 17 0 0 15314 0 0
Timeschedulefor theoperations(standardtime) 6 17 22 5 0 15305 0 0
Employees interest in solving customers
problems
6 19 15 9 1 15287 0 0
Consistency of service provided by the
employees
4 19 17 7 1 17277 1 0
Time taken for operation against standard time 2 19 21 6 1 14306 1 0
Quality of record maintained by the employees (
neatness, error ,accuracy etc)
5 24 15 5 0 26214 0 0
Information and guidances to the employess 4 20 17 7 1 13315 2 0
Promptness of service rendered by the
employees ( clarity , speed, softness etc)
6 14 21 7 9 27104 2 0
Employees willingness to help the customers 5 17 22 4 2 30137 0 0
Employees attitude to hear the customers
problem
4 18 16 8 3 28137 3 0
Employees behavior to increase the confidence
of customers
6 18 17 7 1 28137 0 0
Confidence of safety of funds with the bank 11 23 14 2 0 26185 1 0
Employees courtesy with customers 4 19 18 7 3 29156 0 0
Employees knowledge to answer the questions
of customers
6 22 16 6 1 27139 0 0
Employees individual attention to the customers 3 18 18 9 2 24178 1 0
Convenience of bank operating hours 4 18 23 2 2 24178 2 0
Employees personal relation with customers 5 17 17 7 4 26168 0 0
Employees aim to promote the customer interest 4 19 15 8 3 25177 0 2
Employees interest to understand the specified
needs of customers
4 20 15 7 3 25168 0 2

! 20!
8) Time taken for operation against standard time: - 44% of
the customers of private banks have given a grading of
excellent and good in regard to the time taken for operation
as against the standard time. Where as only 23% of the
nationalized bank customers have given a grading of
excellent and good in this area.
9) Qualityofrecordmaintainedbytheemployees:-
Customersofprivatebanksfeelthat the banks maintain the
records in a very proper manner. It is evident from the fact
that 57% of the customers of private banks feel so. In
comparison to this only 29 % of the customers of
nationalized banks feel so.
10) Information and guidance to the employees: - 44% of
the customers of private banks feel that the bank provides
proper information and guidance to its employees but only
24% of the customers of nationalized banks feel so.
11) Promptness of service rendered by the employees: -
Customers of private banks are pretty satisfied with the
promptness of services rendered by these banks. It is
evident from the fact that 37% of the customers of private
banks feel so. In comparison to this only 20 % of the
customers of nationalized banks are satisfied in this area.
12) Employee’s willingness to help the customers: - 43% of
the customers of private banks feel that the employees of
these banks are willing to help the customers. Where as
only 22% of the nationalized bank customers feel so.

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13) Employee’s attitude to hear the customers problem: -
Customers of private banks feel that the employees of these
banks have a very positive attitude towards solving the
customer‟s problem. It is evident from the fact that 41% of
the customers of private banks feel so. In comparison to
this only 22 % of the customers of nationalized banks are
satisfied in this area.
14) Employee’s behavior to increase the confidence of
customers: - 41% of the customers of private banks feel
that the employees of these banks try to increase the
confidence level of their customers. Where as only 24% of
the nationalized bank customers feel so.
15) Confidence of safety of funds with the bank: - It seems
customers of private banks are quite confident about the
safety of the funds with the banks. 44% of the customers of
private banks feel so. In comparison to this only 34 % of
the customers of nationalized banks are confident about the
safety of the funds.
16) Employee’s courtesy with customers: - 44% of the
customers of private banks feel that the employees of these
banks are very courteous towards their customers. Where
as only 23% of the nationalized bank customers feel so.
17) Employee’s knowledge to answer the questions of
customers: - Customers of private banks feel that the
employees of these banks are very efficient in answering to
the queries of the customers. It is evident from the fact that
40% of the customers of private banks feel so. In

! 22!
nationalized banks are satisfied in this area.
18) Employee’s individual attention to the customers: -
41% of the customers of private banks feel that the
employees of these banks give personal attention to its
customers. Whereas only 21% of the nationalized bank
customers feel so.
19) Convenience of bank operating hours: - Customers of
private banks find the operating hours very convenient. It is
evident from the fact that 41% of the customers of private
banks feel so. In comparison to this only 22 % of the
customers of nationalized banks are satisfied in this area.
20) Employee’s personal relation with customers: -
Customers of private banks feel that the employees of these
banks develop a personal relation with their customers. As
42% of the customers of private banks feel so. In
nationalized banks feel so.
21) Employees aim to promote the customer interest: - 42%
of the customers of private banks feel that the employees of
these banks work towards customer interest. Whereas only
23% of the nationalized bank customers are of this opinion.
22) Employee’s interest to understand the specified needs
of customers: - Customers of private banks feel that the
employees of these banks understand the specific needs of
the customers. It is evident from the fact that 41% of the

! 23!
customers of private banks feel so. In comparison to this
only 24% of the customers of nationalized banks feel so.
Findings and Conclusion
When the private sector banks are compared with public
sector banks, Private Banks score more in all the 22
parameters considered for this study. Private Banks seems
to have satisfied its customers with good services and they
have been successful in implementing tangible factors like
modern equipment, infrastructural facilities, quality of
materials used etc. Private sector Banks have been
successful in achieving a satisfying relationship with
customers however public sector banks have to improve a
lot in this area. Most of the respondents felt that the
employees of the private banks are very keen to satisfy
their customers. On the other hand customers of
nationalized banks felt that the employees were least
bothered about their customers. Private Banks customers
feel that their banks take due consideration about their
convenience and are ready to cope up with their preferences
of working hours.
Although in this study it was attempted to cover all aspects
of service quality, there may be certain aspects that may
have been omitted or that may become relevant as new
trends in banking evolve. In future research, customers may
reveal new aspects of service quality in retail banking that
are important to them, and these would have to be
incorporated in the scale so as to further explore the
concept of service quality in the retail banking arena.

! 24!
Suggestions
If the following suggestions are followed by nationalized
banks, it can increase customers‟ satisfaction and
ultimately it will be a boost for the Indian banking industry:
! Staff should be knowledgeable about the services
offered.
! Staff should be more courteous towards their customers.
! Staff members should apologies for mistakes.
! Account should be handled carefully.
! Customers‟ instructions should be carried out carefully.
! Operation time should be reduced.
! Complaint should be handled then and there.
! Regarding complaint customers should receive follow up
contact.
! Name and address of customers should be handled
carefully.
! There should be a personal touch between the customers
and staff.
! Disagreements with the customers should be avoided.

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