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

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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

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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.

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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% 10000-30000 31% <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 M B W Modern equipment used by bank(computer, cash counting machine, Atm etc) 14 25 9 1 0 34 15 2 0 0

Physical facilities at the bank ( building, furniture, counter ,water facility, space etc) 9 26 11 3 1 18 30 2 0 0

Employees neatness and appearances 7 20 20 2 1 29 18 3 0 0 Material quality and appearances (pamphlets, challans, pass book, cheque book etc) 10 23 17 0 0 15 31 4 0 0

Timeschedulefor theoperations(standardtime) 6 17 22 5 0 15 30 5 0 0 Employees interest in solving customers problems 6 19 15 9 1 15 28 7 0 0

Consistency of service provided by the employees 4 19 17 7 1 17 27 7 1 0

Time taken for operation against standard time 2 19 21 6 1 14 30 6 1 0 Quality of record maintained by the employees ( neatness, error ,accuracy etc) 5 24 15 5 0 26 21 4 0 0

Information and guidances to the employess 4 20 17 7 1 13 31 5 2 0 Promptness of service rendered by the employees ( clarity , speed, softness etc) 6 14 21 7 9 27 10 4 2 0

Employees willingness to help the customers 5 17 22 4 2 30 13 7 0 0 Employees attitude to hear the customers problem 4 18 16 8 3 28 13 7 3 0

Employees behavior to increase the confidence of customers 6 18 17 7 1 28 13 7 0 0

Confidence of safety of funds with the bank 11 23 14 2 0 26 18 5 1 0 Employees courtesy with customers 4 19 18 7 3 29 15 6 0 0 Employees knowledge to answer the questions of customers 6 22 16 6 1 27 13 9 0 0

Employees individual attention to the customers 3 18 18 9 2 24 17 8 1 0 Convenience of bank operating hours 4 18 23 2 2 24 17 8 2 0 Employees personal relation with customers 5 17 17 7 4 26 16 8 0 0 Employees aim to promote the customer interest 4 19 15 8 3 25 17 7 0 2 Employees interest to understand the specified needs of customers 4 20 15 7 3 25 16 8 0 2

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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

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comparison to this only 28 % of the customers of 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 comparison to this only 22 % of the customers of 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

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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.

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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.