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1 An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence Sunayna Khurana* All the banks in India offer similar kind of services, but may vary in terms of service quality. This paper analyzes the gap between customer expectation and customer perception in the service delivery of retail banks. A sample of 200 customers from 10 top performing banks of Hissar city in Haryana were selected for the study. The responses of the customers were analyzed with the help of factor analysis, and seven factors were extracted. The results show that there is a huge gap between perception and expectation in the case of tangibility dimension of service quality and low in the case of competency. The study suggests that the banks should improve their service quality towards tangibility to maximize customer satisfaction. Introduction From the marketers perspective, service quality is the level of service attributes needed to make the service acceptable and profitable in the marketplace, thus satisfying the marketers needs for profitability and economic success. On the other hand, customers view service quality as equivalent to the level of service attributes required to satisfy their own needs and requirements. In this respect, marketers try to define service quality in advance, while customers make during Author please check and after-use evaluations. Due to the characteristics of service, the principles and practices of product quality control cannot be used for assessing service quality. To assess the quality of services and form an impression about the relative inferiority or superiority of a service provider and its services, customers compare the level of the service delivered to them with their own personal expectations, shaped by their past experience (Grönroos, 1982 and 1984; Lehtinen and Lehtinen, 1982; Lewis and Booms, 1983; and Bitner and Hubert, 1994). Grönroos (1982) and (1984), Takeuchi and Quelch (1983), Parasuraman et al. (1985) and (1988) named the result of this comparison as Perceived Service Quality. However, Parasuraman et al. (1988) explained the perceived service quality as the customer s global attitude or judgement related but not equivalent to satisfaction of the overall excellence or superiority of a service. However, Berry et al. (1988) Author please provide the * Assistant Professor, Chandigarh Business School, Chandigarh Group of Colleges, Landran, Mohali , reference Punjab, India. sunaynak@gmail.com An 2013 Analysis IUP. of All Service Rights Reserved. Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 1

2 opined that what counts in services is the conformance to the wishes of customers rather than to any predetermined set of specifications. According to Lewis and Booms (1983), service quality is a measure as to how well the service level delivered matches customer expectations. Delivering quality service means conforming to customer expectations on a consistent basis. Oliver (1980), Grönroos (1982) and (1984), Author please provide the Parasuraman et al. (1985) gave the disconfirmation paradigm, which defines service quality as reference a result of the comparison between perceived and expected service performance. In this respect, researchers have generally adopted either the Nordic (European) model developed by Grönroos (1982 and 1984), or the American model developed by Parasuraman et al. (1985 and 1988). A number of studies were conducted on service quality gap in the banking industry. Obbe (1980) reported that economic, social, cultural and religious factors also influence the banking activities. Jabnoun and Khalifa (2005) opined that personal skills, reliability, values, and image are important determinants of service quality in banks. Zillur Rahman (2005) investigated the relationship between the perceived and expected service quality among consumers of banking services. Customer loyalty also has a link with service quality and customer satisfaction (Razak et al., 2007). Mengi Pooja (2009) found that customers of public sector banks are more satisfied with the service quality than those of private sector banks. Khattak and Rehman (2010) found that customer satisfaction has a significant relationship with age. Overall, the causal relationships between service quality and customer satisfaction have been examined by a number of studies in service settings around the world. A review of literature revealed that the earlier studies on the measurement of customer perceived service quality were very few for the banking industry, more so in the Indian context. Therefore, the present study attempts to narrow this gap by reporting its findings. Objectives The major objectives of the research are to: Study the customers perceptions of various facilities that banks provide. Study the customers expectations with regard to the services that banks provide. Examine whether there is a gap between the customers perceptions and expectations (service quality gap). Methodology and Data Ten top performing banks from the Hissar City of Haryana were selected for the study: SBI, ICICI Bank, HDFC Bank, Bank of India, PNB, Axis Bank, UBI, IDBI, OBC and Canara Bank. A sample of 200 customers of these banks were selected using random sampling. For collecting the primary data, a structured questionnaire based on service quality model (SERVQUAL) was designed and validated. The scale was sent to management experts for testing the content validity of the scale for service quality. The comments/suggestions received from the experts were incorporated before administering the scale on the target sample. The statistical techniques like percentages, factor analysis and paired sample test were used for the 2 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

3 analysis and interpretation of data. Hypothesis There is no significant difference in the mean of perceptions and expectations of the respondents regarding service quality dimensions of the banking services. Analysis of Data It was observed that a majority (53.5) (Table 2) of the respondents were in the age group of years. This result was in confirmation with Mengi (2009) who found that a majority (47.7%) of bank customers in India belong to the age group of years. Khattak and Rehman Table 2: Demographic Profile of the Customers S. No. Frequency Percentage Age 1. Less than 30 years years years and above Total Gender 1. Male Female Total Marital Status 1. Unmarried Married Total Profession 1. Servicemen Businessmen Others Total Annual Income ( ) 1. Less than 1 lakh lakh lakh More than 3 lakh Total An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 3

4 (2010) also found that in Pakistan a majority are in the age group of 21 to 40 years. A majority of the respondents (79.5%) were males and an equal percentage of the respondents were married. 60% belonged to service class and the annual income of the 60% of the bank customers was more than 3 lakh. These results were in confirmation with the results of Obbe (1980) and Mengi Pooja (2009). It is implied by the results that the use of bank services reduces with increase in age because young customers have more and different personal needs like investment, savings, purchasing which lead to frequent interaction with bank for fulfillment of these services. Also, as the results indicate, the use of bank services reduces with decrease in annual income, and customers with low income have insufficient money for investment, saving, purchasing, and as such do not avail the bank services more frequently. Factor Analysis For measuring the sampling adequacy, Bartlett s Test of Sphericity and Kaiser-Meyer-Olkin (KMO) Measure of Sampling Adequacy were applied on the data. The results indicate that the data were adequate for factor analysis (Table 3). Table 4 exhibits the 22 statements, their communalities and extraction values. Principal Component Analysis using Varimax Rotation was performed for extracting the underlying factors, and overall 7 factors with eigenvalues greater than 1 were retained (Table 5). Table 3: KMO and Bartlett s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett s Test of Sphericity Approx. Chi-Square Table 4: Communalities df 231 Sig. 0 S.No. Statements Initial Extraction 1. The bank has modern equipments and fixtures The physical facilities at bank are visually appealing Materials associated with the bank s service (such as ATM card, debit cards,, catalogs, or statements) are visually appealing. 4. The staff of the bank appears neat and clean The bank staff keeps their promise The bank staff takes sincere interest in solving customers problems. 7. When the bank promises to do something by a certain time, it does it in time. 8. The records and transactions of the bank are error-free The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

5 Table 4 (Cont.) S.No. Statements Initial Extraction 9. The salespersons in the bank give prompt service to customers The bank staff performs services right the first time The bank staff tells customers exactly when the services will be performed. 12. The bank staff is always willing to help Customers The bank staff responds promptly to the queries of the customers. 14. The behavior of bank staff instills confidence in customers Customers feel safe and secure in their transactions with the bank The bank staff is friendly and courteous to the customers The bank staff has sufficient knowledge to answer the questions of the customers. 18. The bank staff pays individual attention to each and every customer. 19. The operating hours of the bank are convenient to you The bank staff has the customers best interest in mind Personal attention is given The bank understands the specific needs of the customers Note: Extraction Method: Principal Component Analysis. Table 5: Total Variance Explained Component Total Initial Eigenvalues % of Variance Cumulative % Extraction Sums of Squared Loadings Total % of Variance Cumulative % Total Rotation Sums of Squared Loadings % of Variance Cumulative % Note: Extraction Method: Principal Component Analysis. An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 5

6 Then the researcher carried out the task of interpretation and naming of factors by identifying the variables having high loading on individual factors. For this purpose, Rotated Component matrix (Table 6) was used. Values close to 1 represent high loading and close to 0 represent low loading. Tangibility Factor 1 explained a variance of % (Table 5). Four items (1, 2, 3, and 16) are loaded on this factor. As this factor includes statements relating to a bank s physical facilities, equipments and fixtures, this factor is named Tangibility (Table 7). Competency Factor 2 explained a variance of %. Five items (4, 5, 19, 20 and 21) are loaded on this factor. This factor is named Competency as it includes statements relating to a bank s convenient operating hours and bank staff s ability to have customers best interest in their mind. Empathy The third factor explained a variance of 8.771%. Three items (9, 10 and 22) are loaded on this factor and is named Empathy. Responsiveness Factor 4 explained a variance of 8.681%. Three items (11, 12 and 13) are loaded on this S. No. Statements Table 6: Rotated Component Matrix Components The bank has modern equipments and fixtures. 2. The physical facilities at bank are visually appealing. 3. Materials associated with the bank s service (such as ATM card, debit cards, catalogs, or statements) are visually appealing. 4. The staff of the bank appears neat and clean. 5. The bank staff keeps their promise The bank staff takes sincere interest in solving customers problems. 7. When the bank promises to do something by a certain time, it does it in time. 6 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

7 S. No. Statements Table 6 (Cont.) Components The records and transactions of the bank are error-free. 9. The salespersons in the bank give prompt service to customers. 10. The bank staff performs services right the first time 11. The bank staff tells customers exactly when the services will be performed. 12. The bank staff is always willing to help customers. 13. The bank staff responds promptly to the queries of the customers. 14. The behavior of bank staff instills confidence in customers. 15. Customers feel safe and secure in their transactions with the bank. 16. The bank staff is friendly and courteous to the customers. 17. The bank staff have sufficient knowledge to answer the questions of the customers. 18. The bank staff pays individual attention to each and every customer. 19. The operating hours of the bank are convenient to you. 20. The bank staff has the customers best interest in mind. 21. Personal attention is given The bank understands the specific needs of the customers. Note: Extraction Method: Principal Component Analysis; Rotation Method: Varimax with Kaiser Normalization. factor. This factor is named Responsiveness, as it includes statements relating to bank and employee s willingness to help the customers, and the ability to answer them promptly. Reliability This factor explained a variance of 7.808% and three items (6, 7, and 8) are loaded on this factor. As this factor includes statements relating to bank staff s sincere interest in solving An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 7

8 Table 7: Naming of Factors S. No. Name I. No. Statements Loading 1. Tangibility 1. The bank has modern equipments and fixtures The physical facilities at bank are visually appealing Materials associated with the bank s service 0.7 (such as ATM card, debit cards, catalogs, or statements) are visually appealing. 16. The bank staff is friendly and courteous to the customers. 2. Competency 4 The staff of the bank appears neat and clean The bank staff keeps their promise The operating hours of the bank are convenient to you The bank staff has the customers best interest in mind Personal attention is given Empathy 9. The salespersons in the bank give prompt service to customers. 10. The bank staff performs services right the first time The bank understands the specific needs of the customers Responsi- 11. The bank staff tells customers exactly when the services veness will be performed. 12. The bank staff is always willing to help customers The bank staff responds promptly to the queries of the customers. 5. Reliability 6. The bank staff takes sincere interest in solving customers problems. 7. When the bank promises to do something by a certain time, it does it in time. 8. The records and transactions of the bank are error-free Credibility 14. The behavior of the bank staff instills confidence in customers. 15. Customers feel safe and secure in their transactions with the bank. 7. Assurance 17. The bank staff has sufficient knowledge to answer the questions of the customers. 18. The bank staff pays individual attention to each and every customer. 8 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

9 Table 8: Paired Sample t-test Between Perceptions and Expectations of Respondents of Banking Service Quality Paired Differences Author please provide SD Mean SD Std. Error Mean 95% Confidence Interval of the Difference Lower Upper Sig. (2-tailed) Pair 1: Tangibility Pair 2: Competency Pair 3: Empathy t df Pair 4: Responsiveness Pair 5: Reliability Pair 6: Credibility Pair 7: Assurance customers problems, promises to be fulfilled, error-free records and transactions, this factor is named Reliability. Author please check the values are repeated for Assurance Credibility Factor 6 explains a total variance of 7.628% (14 and 15). Items relating to bank staff instilling confidence and customers feeling safe and secure are included in this factor, and the factor is named Credibility. Assurance This factor explained a variance of 7.296% and only 2 items (17 and 18) like bank staff having sufficient knowledge to answer the questions of customers and bank staff paying individual attention to each and every customer are loaded on this factor. This factor is named Assurance. Validity of Results The reliability was tested by performing the Cronbach s Alpha reliability statistics. The reliability coefficient of Cronbach s Alpha was computed as 0.84 which indicates the high reliability of the present measure of service quality of banking. For testing the hypothesis, paired sample T-test was conducted. Seven pairs of expectation and perception of the respondents regarding seven dimensions of service quality of bank services were made (Table 8). The results show that the calculated t-value of all the seven pairs ( , 9.693, 7.802, 5.078, 8.092, and ) at 199 degrees of freedom is more than the table value of 1.646, and therefore the null hypothesis is rejected. It is concluded that there is a significant difference in the perception and expectation of the respondents regarding the service quality of banking services. An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 9

10 Rahman (2005), in his study on Indian banking industry, also found that consumers perception of service quality did not meet their expectations. Razak et al. (2007) also found a similar result in their study on Malaysian bank customers. These results support the findings of Gronroos (1984), Bitner (1990), and Bitner et al. (1994) which indicate that front office employees play an important role in influencing customer perception of service quality. Conclusion Service quality gap is the difference in customer expectations and perceptions. The more the service quality gap, the more is the customer dissatisfaction. The study found that there is a huge gap in customer expectations and perceptions towards the tangibility factor of service quality and a low gap in the competency factor. It is suggested that banks should pay more attention to the tangibiltiy dimension of service quality. Banks should have modern equipments and fixtures, and materials associated with the banks services (such as ATM card, debit cards, catalogs, or statements) should be visually appealing. Bank staff should be friendly and courteous to the customers. It is important for the banks to assess the service quality on a regular basis. The first assessment provides a baseline for comparison with future assessments. This comparison is essential for gauging the effectiveness of service quality improvement efforts and identification of service quality trends as they emerge. The frequency of reassessments will vary with the individual bank s situation. However, customer satisfaction studies can be typically conducted either quarterly or annually. Limitation: The study is limited to the investigation of service quality strategies being followed by the selected banks in Hissar city only. Future scope: The study can be extended to more banks and more regions in future research to have a holistic view of the customers in different regions of the country. The sample size may be increased, and a comparative study may be done on private and public sector banks, and Indian and foreign banks. H References 1. Bitner M J and Hubbert A R (1994), Encounter Satisfaction Versus Overall Satisfaction Versus Service Quality: The Consumer s Voice, in R T Rust and R L Oliver (Eds.), Service Quality: New directions in Theory and Practice, pp , Sage Publications, Thousand Oaks, California. 2. Grönroos C (1982), Strategic Management and Marketing in the Service Sector, Swedish School of Economics and Business Administration, Helsingfors. 3. Grönroos C (1984), A Service Quality Model and its Marketing Implications, European Journal of Marketing, Vol. 18, No. 4, pp Author please provide the reference 10 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

11 4. Jabnoun N and Khalifa A (2005), A Customized Measure of Service Quality in the UAE, Managing Service Quality, Vol. 15, No. 4, pp Khattak Naveed Azeem and Kashif-Ur-Rehman (2010), Customer Satisfaction and Awareness of Islamic Banking System in Pakistan, African Journal of Business Management, Vol. 4, No. 5, pp Lehtinen U and Lehtinen J R (1982), Service Quality: A Study of Quality Dimensions, Working Paper, Service Management Institute, Helsinki. 7. Lewis R C and Booms B H (1983), The Marketing Aspects of Service Quality, in L Berry, G Shostack and G Upah (Eds.), Emerging Perspectives on Services Marketing, pp , American Marketing Association, Chicago. 8. Mengi Pooja (2009), Customer Satisfaction with Service Quality: An Empirical Study of Public and Private Sector Banks, The IUP Journal of Management Research, Vol. VIII, No. 9, pp Obbe C (1980), African Women: Their Struggle for Economic Independence, Zed Books, London. 10. Parasuraman A, Zeithaml V A and Berry L L (1985), A Conceptual Model of Service Quality and Its Implications for Future Research, Journal of Marketing, Vol. 49, Fall, pp Parasuraman A, Zeithaml V A and Berry L L (1988), SERVQUAL: A Multiple-Item Scale for Measuring Consumer Perceptions of Service Quality, Journal of Retailing, Vol. 64, Spring, pp Rahman Zillur (2005), Service Quality Gaps in the Indian Banking Industry, The IUP Journal of Marketing Management, Vol. IV, No. 1, pp Razak R M, Chong C S and Lin B (2007), Service Quality of a Local Malaysian Bank: Customers Expectations, Perceptions, Satisfaction and Loyalty, International Journal of Services and Standards, Vol. 3, No. 1, pp Takeuchi H and Quelch J A (1983), Quality is More Than Making a Good Product, Harvard Business Review, Vol. 61, July-August, pp An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 11

12 Dear Madam/Sir Appendix Questionnaire This questionnaire was designed to measure the quality of services banks provide in India. I understand that time is very valuable to you but please spare some time to answer the following questions as you feel about it. Your personal details and responses will be kept confidential and will be used for research purposes only. Your answers will help us to, hopefully, draw useful conclusions beneficial both for consumers and bankers. Section A Please express your opinion on the following questions concerning Features and Services of Bank in which you have your account by circling/ticking an appropriate number. Statements Strongly Disagree Disagree Neutral Agree Strongly Agree The bank has modern equipments and fixtures. The physical facilities at bank are visually appealing. Materials associated with the bank s service (such as ATM card, debit cards, catalogs, or statements) are visually appealing. The staff of the bank appears neat and clean. The bank staff keeps their promise The bank staff takes sincere interest in solving customers problems. When the bank promises to do something by a certain time, it does it in time. The records and transactions of the bank are error-free. The salespersons in the bank give prompt service to customers. The bank staff performs services right the first time. The bank staff tells customers exactly when the services will be performed. The bank staff is always willing to help customers. The bank staff responds promptly to the queries of the customers. 12 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

13 Appendix (Cont.) Statements Strongly Disagree Disagree Neutral Agree Strongly Agree The behavior of bank staff instills confidence in customers. Customers feel safe and secure in their transactions with the bank. The bank staff is friendly and courteous to the customers. The bank staff has sufficient knowledge to answer the questions of the customers. The bank staff pays individual attention to each and every customer. The operating hours of the bank are convenient to you. The bank staff has the customers best interest in mind. Personal attention given The banks understands the specific needs of the customers. Section B Statements Strongly Disagree Disagree Neutral Agree Strongly Agree My bank should have modern equipments and fixtures. The physical facilities at the bank should be visually appealing. Materials associated with the bank s service (such as ATM card, debit cards, catalogs, or statements) should be visually appealing. We expect the bank staff to be neat in appearance. Bank staff should keep their promise The bank staff should be more sincere in solving customers problems. When the bank promises to do something by a certain time, it must do so at a given time. Author please clarify if this section is related to Perception, if so please add a few sentences before this section like section A An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 13

14 Appendix (Cont.) Statements Strongly Disagree Disagree Neutral Agree Strongly Agree The bank should insist on error-free sales transactions and records. Salespersons in the bank should give prompt service to customers. The bank staff should perform services right at the first time. Bank staff should tell customers exactly when the services will be performed. Bank staff must have willingness to help the customers. The bank staff should respond promptly to the customers. The behavior of bank staff should instill confidence in customers. The customers must feel safer in their transactions. The bank staff needs to be more friendly and courteous. The bank staff needs more knowledge to answer questions of the customers. The bank staff should provide individual attention to customers. The operating hours of the bank should be more convenient. The bank staff must have customers best interest in mind. The bank staff must give personal attention to the customers. The bank should understand the specific needs of the customers. 14 The IUP Journal of Bank Management, Vol. XII, No. 3, 2013

15 Appendix (Cont.) Section C: Demographical Information a. Name of the bank in which you have account b. Gender Male Female c. Age (Years) Less than and Above d. Marital Status Unmarried Married e. Occupation Businessman Serviceman Other f. Income Category (per annum) Less than 1 lakh 1-2 lakh 2-3 lakh More than 3 lakh THANK YOU Reference # 10J xx-01 An Analysis of Service Quality Gap in Indian Banking Industry: Some Survey-Based Evidence 15