INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH CENTRE (IJMRC) ISSN: 2454-3659(P) 2454-3861(E)

IJMRC All Rights Reserved Volume I, Issue 4 September 2015 Page 1

ISSN: 2454-3659 (P), 2454-3861(E)

Volume I, Issue 4 September 2015

International Journal of Multidisciplinary Research Centre

Research Article / Survey Paper / Case Study

A STUDY ON SERVICE QUALITY AND ITS IMPACT ON CUSTOMER

SATISFACTION WITH SPECIAL REFERENCE TO PRIVATE AND

PUBLIC SECTOR BANKS IN TAMIL NADU, INDIA

Authors Details

Name: Dr.M.SIRAJUDEEN

Affiliation: JAMAL MOHAMED COLLEGE, TRICHY

COUNTRY: INDIA

E mail Id: sumaij7@gmail.com

ABSTRCT Banking Means “Accepting Deposits for the purpose of lending of investing of deposits of

money from the public, repayable on demand or otherwise and withdraw by cheque, draft or

otherwise”. Satisfaction plays a important role in competitive environments such as banking

services because of its impact on customer satisfaction. Customer satisfaction refers to the

“customer‟s evaluation of a product or service in terms of whether that product or service has

met their needs and expectations” (Zeithaml and Bitner 2003). Besides, customer satisfaction

is multifaceted in nature, and factors that drive satisfaction can be explicit customer needs or

implicit expectations, while the key for a firm to retain customer is to differentiate itself from

competition. In this study, the researcher defines satisfaction as the perceived degree of

contentment with regard to a customer‟s prior purchase experience (Anderson and Srinivasan

2003). Conceptual frameworks on consumer satisfaction have been developed to measure and

conceptualize issues related to it (e.g., Cronin and Taylor 1992). Most studies have focused

on satisfaction from different dimensions in the banking industry. Service quality is a key

factor that directly influences the customer satisfaction. Service quality has many dimensions

that are represented by a scale called as SERVQUAL. The Banking sector in India is

undergoing major changes due to competition and the advent of technology. The customer is

looking for better quality and services which can provide him/her with satisfaction. This

study reveals the different levels of satisfaction that customer had with their banks and helps

identify the factors (or relationship dimensions) responsible for satisfying the customer. This

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would help in enhancing the relationship between the two, and thus aid decision makers in

banks to identify the major factors that determine satisfaction

Key words: Banking Industries, Service Quality, Customer Satisfaction

INTRODUCTION

The concept of Banking in India dates back to the first half of 18th century. The first

bank that was established in the country was The General Bank of India founded in 1786.

After that came the State Bank of India in Kolkata in 1806 which was then known as The

Bank of Bengal.The operations of all the banks in India are controlled by the Reserve Bank

of India. All the Indian banks are governed by the RBI or Reserve Bank of India. This

governing body took over the reasonability of formally regulating the Indian banks in 1935.

The Reserve Bank of India was announced as the official Central Banking Authority for the

smooth supervision of the banking industry in India. Banks in India are classified into 2 broad

categories namely, Public sector banks and Private sector banks.

The banking scenario in India has already gained momentum, with the domestic and

international banks gathering pace. All the banks in India are following the 'cost', determined

by revenue minus profit model. This means that all the resources should be used efficiently to

improve the productivity and ensure a win-win situation. To survive in the long run, it is

essential to focus on cost saving. Previously, banks focused on the 'revenue' model which is

equal to cost plus profit. Post the banking reforms, banks shifted their approach to the 'profit'

model, which meant that banks aimed at higher profit maximization.

INDUSTRY PROFILE

Banking in India originated in the first decade of 18th

century with The General Bank

of India coming into existence in 1786. This was followed by Bank in existence by Bank of

Hindustan. Both these banks are now defunct. The oldest bank existence in India is the State

Bank of India being established as The Bank of Bengal in Calcutta in 1806. A couple of

decades later, foreign banks like Credit Lyonnais Started their Calcutta operations in the

1850‟s. At that point of time, Calcutta was the most active trading pert, mainly due to the

trade of the British Empire, and due to which banking activity took roots there and proposed.

The first fully Indian owned bank was the „Allahabad Bank‟, established in 1865.By the

1990s, the market expanded with the establishment of banks such as Punjab National Bank,

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in 1895 in Lahore and Bank of India, in 1906, in Mumbai – both of which were founded

under private ownership. The Reserve Bank of India formally took on the responsibility of

regulating the Indian banking sector from 1935. After India‟s independence in 1947, the

Reserve Bank was nationalised and given broader powers.

HIGHLIGHTS OF BANKING INDUSTRIES-2015:

The Indian banking sector is fragmented, with 46 commercial banks jostling for

business with dozens of foreign banks as well as rural and co-operative lenders. State banks

control 80 percent of the market, leaving relatively small shares for private rivals.

At the end of February, 13.7 crore accounts had been opened under Pradhanmantri

Jan Dhan Yojna (PMJDY) and 12.2 crore RuPay debit cards were issued. These new

accounts have mobilised deposits of Rs 12,694 crore (US$ 2.01 billion).Standard & Poor‟s

estimates that credit growth in India‟s banking sector would improve to 12-13 per cent in

FY16 from less than 10% in the second half of CY14.

There have been many investments and developments in the Indian banking sector

The United Economic Forum (UEF), an organization that works to improve socio-

economic status of the minority community in India has signed a memorandum of

understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs

from backward communities to set up businesses in Tamil Nadu

The RBI has allowed third-party white label automated teller machines (ATM) to

accept international cards, including international prepaid cards, and said white label

ATMs can now tie up with any commercial bank for cash supply.

With the objective of increasing investment opportunities for Indian alternative

investment funds (AIFs), the RBI has allowed these funds to invest overseas.

In a major boost for the infrastructure sector, as well as for banks financing long

gestation projects, the RBI has extended its flexible refinancing and repayment option

for long-term infrastructure projects to existing ones where the total exposure of

lenders is more than Rs 500 crore (US$ 78.98 million).

RBI governor Mr Raghuram Rajan and European Central Bank President Mr Mario

Draghi have signed an MoU on cooperation in central banking. “The memorandum of

understanding provides a framework for regular exchange of information, policy

dialogue and technical cooperation between the two institutions. Technical

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cooperation may take the form of joint seminars and workshops in areas of mutual

interest in the field of central banking,” RBI said on its website.

RBL Bank has announced that it would be the anchor investor in Trifecta Capital‟s

Venture Debt Fund, the first alternative investment fund (AIF) of its kind in India

with a commitment of Rs 50 crore (US$ 7.89 million). This move provides RBL Bank

the opportunity to support the emerging venture debt market in India.

The RBI has allowed banks to become insurance brokers, permitting them to sell

policies of different insurance firms subject to certain conditions.

PUBLIC SECTOR BANKS IN INDIA

Banks such as State Bank of India, Bank of Baroda, Syndicate Bank and Canara Bank are

known as Public sector banks. Public sector banks are controlled and managed by the

Government of India. Public sector banks have been serving the nation for over centuries and

are well known for their affordable and quality services.The banking sector in India is mostly

dominated by the Public sector banks. The Public sector banks in India alone account for

about 75 percent of the total advances in the Indian banking industry. Public sector banks

have shown remarkable growth over the last five four decades. Allahabad Bank was the first

fully owned Indian bank. It was founded in the year 1865.

LIST OF PUBLIC SECTOR BANKS IN INDIA

Bank of Baroda

Allahabad Bank

State Bank of Saurashtra

Central Bank of India

State Bank of Patiala

Andhra Bank

Canara Bank

State Bank of Hyderabad

Oriental Bank of Commerce

Punjab National Bank-

State Bank of Bikaner and Jaipur

State Bank of Travancore

Dena Bank

State Bank of Mysore

State Bank of Indore

UCO Bank

Vijaya Bank

Syndicate Bank

State Bank of India

Bank of India

Corporation Bank

Indian Bank

Union Bank of India

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PRIVATE SECTOR BANKS IN INDIA

Private Banks are banks like HDFC bank, ICICI Bank, UTI bank and IDBI bank. The

concept of private banking was introduced about 15 years ago. These are the banks that do

not have any government stakes.Private Banks have gained quite a strong foothold in the

Indian banking industry over the last few years especially because of optimum use of

technology. The Private Banks are accountable for a share of 18.2 percent of the Indian

banking industry. IndusInd Bank was the first private bank in India. Currently the bank is

among the fastest growing Bank Private Banks in the country. IDBI which is ranked as the

tenth largest global development bank is counted as one of the finest financial institutions in

the subcontinent.

Bank of Rajasthan

Catholic Syrian Bank

Bank of Punjab

Dhanlakshmi Bank

HDFC Bank

Karur Vysya Bank

ING Vysya Bank

Laxmi Vilas Bank

Karnataka Bank

South Indian Bank

United Western Bank

UTI Bank

Centurion Bank

City Union Bank

Development Credit Bank

Federal Bank

ICICI Bank

IndusInd Bank

Jammu & Kashmir Bank

CONCEPTS OF SERVICE QUALITY

An assessment of how well a delivered service is straight to the customers‟ expectations.

Service business operative often evaluate the service quality provided to their customers in

order to improve their service, to quickly identify problems, and to better review customer

satisfaction. Quality in service is very important especially for the growth and development

of service sector business enterprises (Powell, 1995).Service quality has been defined by

Robinson (1999) as “an attitude or global judgment about the superiority of a service”

Service quality of late has emerged as the major attractant to many banks as a competitive

differentiator (Newman, 2001). Measuring the customer satisfaction helps banks to

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understand the customers‟ needs and can thus change strategies accordingly. Customer

satisfaction is defined as the result of a cognitive and affective evaluation, wherein a standard

comparison is adopted for the actually perceived performance. Nowadays, with the increased

competition, service quality has become a popular area of academic investigation and has

been recognized as a key factor in keeping competitive advantage and sustaining satisfying

relationships with customers (Zeithmal et al.2000).

DIMENSIONS OF SERVICE QUALITY

The SERVQUAL scale was developed by Parasuraman et al. in 1985, and refined in

1988,1991 and 1994 which would be used to measure service quality across a broad range of

service categories. Within the SERVQUAL model, service quality is defined as the gap

between customer perceptions of what happened during the service transaction and his

expectations of how the service transaction should have been performed. Formerly 10

dimensions of service quality were proposed (reliability, responsiveness, competence, access,

courtesy, communication, credibility, security, understanding the consumer, and tangibles).

Later these were reduced to five (reliability, responsiveness, empathy, assurances and

tangibles). The later model of five quality dimensions (RATER) is as follows:

R: Reliability: Ability to perform the promised service dependably and accurately.

A: Assurance: Ability, knowledge and politeness of employees to inspire trust and confidence

T: Tangibles: Physical facilities, equipment and appearance of employees

E: Empathy: Individualized, caring attention that the firm provides to its customers

R: Responsiveness: Willingness to help customers and provide timely service

CUSTOMER SATISFACTION IN BANKING INDUSTRIES:

Customer satisfaction, a business term, is a measure of how products and services

supplied by a company meet or surpass customer expectation. It is seen as a key performance

indicator within business and is part of the four perspectives of a Balanced Scorecard. In a

competitive marketplace where businesses compete for customers, customer satisfaction is

seen as a key differentiator and increasingly has become a key element of business strategy.

Organizations need to retain existing customers while targeting non-customers;

Measuring customer satisfaction provides an indication of how successful the organization is

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at providing products and/or services to the marketplace. Customer satisfaction is an abstract

concept and the actual manifestation of the state of satisfaction will vary from person to

person and product/service to product/service. The state of satisfaction depends on a number

of both psychological and physical variables which correlate with satisfaction behaviors such

as return and recommend rate. The level of satisfaction can also vary depending on other

factors the customer, such as other products against which the customer can compare the

organization's products. Satisfaction with banking services is an area of growing interest to

researchers and managers.

This change in customer attitude has gone hand in hand with the developments of

ATMs, phone and net banking along with availability of service right at the customer

doorstep. Further the world class banking experience provided by private and multinational

banks with their ever evolving products and services has raised the bar of customer

expectations. With the emergence of universal banking, banks aim to provide all banking

products and service offering under one roof and their Endeavour is to be customer centric.

The Indian banking industry is also embracing technology rapidly. A significant level of

customer satisfaction is among the most critical indicators of the business‟s future. Customers

who are satisfied are also loyal and this ensures a consistent cash-flow for the business in the

future. In addition, satisfied customers are often characterized as less-price sensitive and they

are more partial to spend more on the products they have tried and tested before. Moreover,

stability in business relations is also beneficial where the positive quality image minimizes

the cost for a current customer.

REVIEW OF LITERATURE

Huseyin Arasli (2003) in his study, “Customer Perception of Bank Service Quality in

Developing Country: Some Evidence From the Turkish Republic of Northern Cyprus” has

conducted a survey of 260 customers of selected banks in Turkish Republic of Northern

Cyprus and examined customer‟s perception in respect of service quality. He has observed

that better service quality is necessary for customer satisfaction. He has found that “as service

quality improves, customer satisfaction increases which in turn leads to customer loyalty and

customer retention and positive words to others for the enterprise”. Pertaining to his study,

hehas concluded that the expectations of customers have not been met by the banks. The

customers expect safety, politeness and helping attitude from staff which has been found

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missing. Banks are focusing more on new customers. Liquidation of several banks resulted in

shifting of customers to sound banks and this resulted in making financial soundness of banks

as one of the important criterion for selecting a bank.

A.Abdul Raheem (2005), [7] highlighted the areas in which public sector banks need

to improve to survive in the competition posed by the new entrants in the banking sector. He

pointed out that the existing organizational structure and policies of public sector banks are ill

equipped to meet the new objectives. He emphasized that public sector banks should commit

themselves to provide quality service to survive

Nalini (2006) in her study, “A Service Quality Model for Customers in Public Sector

Banks” has opined that entry of new private sector banks in the banking industry of India has

lead to higher utilisation of technology, improved customer service and better products.

Jaiswal K.S and Neetu Singh (2007) in their study, “Retail Banking: Indian Scenario”,

have elaborated that customer retention and customer share are the two very important

aspects for a concern apart from attracting new customers. Customer share is the ratio of a

customer‟s purchase of a category of products or services from supplier X to the customer‟s

total purchase of products or services of that category from all suppliers. This, thus, discard

dead or nearly dead accounts from customer retained category. The authors have also

elaborated upon demographics, value, attitude, belief, knowledge, needs and motivation as a

base for designing CRM and successful marketing.

OBJECTIVES OF THE STUDY

1. To compare the services of different banking sectors and to check the expectations and the

level of satisfaction of the customers.

2. To measure and analyze the quality of services provided by public sector and private sector

Banks India.

3. To ascertain service quality variations across selected banks by demographic variations.

5. To measure the customer satisfaction in selected public and private sector banks by

analyzing the gap between expectations and their perceptions of banking services

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DATA COLLECTION

Data was collected from two different sources:

(1) Primary data

Primary Data has been collected from Respondents of Public and private sector banks

customers as well as bank managers from the select area of Tamil Nadu region by

administering the questionnaire and personal interview.

(2) Secondary data

Secondary data have been collected from different published sources such as Journals,

Books, Magazines, Electronic Data, bank websites etc.,

COMPARISON BETWEEN PRIVATE AND PUBLIC SECTOR BANKS

The Private sector banks introduced the concept of online banking in India. This was

mostly because the private banks were technologically well equipped. Online banking is

extremely common today since you can sit anywhere and go ahead with your banking

transactions. You do not have to personally visit your bank. The Private sector banks were

using state of the art technology and fully computerized systems since the time they entered

the Indian market whereas the Public sector banks were not. However despite the

technological challenges the public sector banks in India are still the preferred destinations

for many as they are considered as safer options for money deposit.

The customer is the king. In any industry or services sector, this supreme ruler

satisfaction decides profitability and survival of the fittest. Consumer fulfillment has been

considered the essence of success in today‟s highly competitive banking industry. Customer

satisfaction is the consumer‟s retort to the judgment of the perceived difference among

preceding expectations of the users and the actual performance of the product or services

perceived by users, buyers or consumers. The customer is the focal point and the customer

service is the core competitive strategy for the modern banking industry. Because, bank is a

consumer inclined services industry and depends on the consumers for continued existence in

the fierce competitive market. In order to satisfy its customers, banks are differentiating it

services, operations from its competitors by adopting services quality dimensions as a

strategic options. The bankers provide a high level of service quality which leads to a high

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level of customer satisfaction as well as acquiring sustainable competitive advantage. For

this, Bankers are espousing high quality customer‟s oriented services by using service quality

dimensions like Tangibility, Responsiveness, Assurance, Reliability and Empathy. But

success rate depends on the ultimate user‟s perceived satisfaction about bank service

dimensions.

Because, Today‟s customers are not same as yesterday; they have become strong

enough in knowledge and carefully consider all aspects of services provided by Bankers.

Among different service quality dimensions, Tangible aspect of banking services play pivotal

role in satisfying all kind of customers of any bank. But banking is basically intangible in

nature and bankers are converting it into tangible with the help of physical facilities,

equipment, personnel, communication materials and etc.

The banker who converts theses tangible factors well, reaching successfully every

customer, results customer‟s satisfaction. But at the same time, several banking is

experiencing increasing customer dissatisfaction and resulted the customers‟ switching

behavior. This study could be the cause of missing tangible options of the banks. Because, the

toll gate of customer retention and satisfaction highly depends on various tangible factors like

bank providing data, information, the modern looking equipments, staff appearances, bank

providing materials associated with services and visual appealing part of banks. This

excellent tangible service quality is major optional competitive strategy which may, or may

not, be adopted to differentiate one bank from another: today it is essential to customers

satisfaction, profitability and survival. Hence in this study, an attempt is made to know the

customer satisfaction on service quality attributes on banking services.

RESULTS AND DISCUSSIONS:

The effectiveness and efficiency became the buzz word of the success of banking

operations and its proper functioning particularly with respect to providing service to the

customers. The concepts of customer satisfaction and service quality are 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. The higher service quality results in customers‟ satisfaction

and loyalty, greater willingness to recommend to someone else, reduction in complaints and

improved customer retention rates. Hence, this study is conducted to know the customers‟

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satisfaction and service quality of private and public sector banks in Tamil Nadu. The study

revolves around the service quality and its dimensions. The dimensions studied are

Tangibility, Reliability, Responsiveness, Assurance and Empathy. A total of 500 respondents

have been considered for the study and is equally divided to public and private sector bank

customers. The analysis reveals that the service quality of public sector banks there is an

obligation to concentrate on, responding the customers queries on the spot. In respect to

service quality dimensions, the private sector banks need to concentrate on convenient

working hours and competency of the staffs to answer the queries of bank customers‟.

The following are the important findings based on analysis and interpretations.

1. Procedure problems of opening an account.

2. Problems in withdrawal.

3. Problems in depositing cash.

4. Problems in getting a loan.

5. Problems in using advanced services.

6. There is a partiality of bank employees.

7. Absence of grievance cell.

8. Long distance of the bank.

9. Problems in getting a debit card.

10. Problems in using a debit card.

11. Crowd problem at the counter.

12. Problem in explaining modern/new services from the bank employee.

13. Problem in filing challan / slip in the bank.

14. Problem in infrastructure facility in the bank.

15. Non-cooperation of the employees.

CONCLUSION

The Banking sector in India is undergoing major changes due to competition and the

advent of technology. The customer is looking for better quality and services which can

provide him/her with satisfaction. This study reveals the different levels of satisfaction that

customer had with their banks and helps identify the factors (or relationship dimensions)

responsible for satisfying the customer. This would help in enhancing the relationship

between the two, and thus aid decision makers in banks to identify the major factors that

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determine satisfaction. Many service firms, including retail banks have been measuring

customer satisfaction and quality to determine how well they are meeting customer needs.

This study derives its basic findings and is also in line with empirical findings with respect to

customer satisfaction by other researchers.

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