Market Research Project Report

Comparative Study of Service Quality between Private & Public Sector Banks

MBA (F&B) Batch VII Page 1

Comparative Study of Service Quality

between Private Sector and Public

Sector Banks- Project Report



Abstract:

Service quality and customer satisfaction are very important concepts that banks must

understand in order to remain competitive in business and grow. The banking industry like

many other financial service industries, witnessed the emergence of many private sectors and is

facing a rapidly changing Market, new technologies, economic uncertainties, fierce competition

and especially more demanding customers. Customer service is one integral part of any facet of

banking and it defines future of any banking organization. In banking sector, the whole range of

activity and generation of income swivels around the customer. From a very comfortable and

peaceful environment, now the Indian Banking Sector is characterized by stiff competition for

the customer’s satisfaction and profit war between different banking groups i.e. (Private bank

vs. Public Bank). This report tries to analyze the comparative analysis of service quality among

these two categories of banks – public and private sector banks using the list of service

attributes based on SERVQUAL method.



Introduction:

The founding of the commercial banks started with the emergence of the Bank of Calcutta later

renamed the Bank of Bengal in the year 1806, thus making it the oldest commercial bank in the

Indian subcontinent, later its merger with the Bank of Madras, Imperial Bank of India became

State Bank of India. The liberalisation of the Indian economy in 1991 set off a chain of

paradigmatic changes in most sectors. One of the sectors that came in for immediate structural

changes was the financial sector. Although the non-banking financial corporations had already

been operating in the private sector, the government zealously guarded the banking sub-sector

ever since bank nationalisation in the 1970s. The public sector banks operated like any public

undertaking. Obviously, their functioning suffered from similar shortcomings. Amongst these,

no less important a shortcoming was customer service. The liberalisation of the banking sector

brought in stiff competition in the form of no holds-barred private sector banks that marketed

their services amongst the public aggressively. It witnessed the emergence of national mega-

banking companies such as (ICICI) and Housing Development Finance Corporation (HDFC)

Banks, for whom customer service was an article of faith. The changed business environment in

general and the banking sub-sector scenario in particular compelled the public sector banks to

give up their elephantine indifference to the needs of the customers. With a view to vying for

the market share with the private sector banks, they started focusing on efforts to provide

quality customer service.

Customer Satisfaction is a measure of how products and services provide by any organization

meet the expectations of a customer. It varies from person to person and service to service. A

customer can be defined as a user or potential user of banking services. A customer would

include an account holder, or a person carrying out casual business transactions with a bank.

The efficiency of a banking sector depends upon how best it can deliver services to its target

customers. In order to survive in this competitive environment and provide continual customer

satisfaction, the banking services providers are required to frequently increase the quality of

services. In banking business it is seen that only 5% increase in customer retention can extend

35% profitability

In the context of the comparative efforts at positioning of private and public sector banks in the

market, this study attempts to assess the level of service quality perceptions of banking sub-



sector customers and map out the differences between the service quality perceptions and

expectations of customers of private and public sector banks along with the factors responsible

for these differences.

Literature Review:

For the past 30 years various topics such as the nature of service quality, bank choice criteria,

bank switching behavior and buying decision-making have been examined by different

researchers. Amongst the studies carried out on corporate customers, focus has been on the

importance of service in contributing to the development of corporate banking relationships.

The SERVQUAL method was used by Parsuraman, Valarie Zeithaml and Len Berry in 1985 and

was extensively used to study the above topics. In 2000, researchers Bahia and Nantel

developed their own Banking Service Quality scale and claimed that it is more reliable than the

SERVQUAL scale. The BSQ scale has effectiveness and assurance, access, price, tangibles,

service, portfolio and reliability as its attributes. In 2002, Mr. Buttle and Mr. Aldaigan

conducted a study on retail bank customers and developed a new scale with four verticals:

behavioral service, service system quality, quality, service transactional accuracy and machine

service quality. This scale had 21 items and was given weights according to the significance of

the items. It was found that the customers measure the service quality on the basis of two

parameters: organization and transaction. This scale was then used to conduct various other

researches in the same field and it was found out that it was highly useful to the banking

industry; moreover the major benefit of this method was that it could be used to extract fairly

accurate results from large and small samples

In United Arab Emirates , two researchers Al-Tamimi and Jabnoun carried out a research in

order to emphasize the fact that market share of banks is proportional to the service quality

concluding that customers value human relationships the most when perceiving service quality.

In 2005, Cheung and Liao conducted a study on measuring the service quality of Internet

Banking and they presented a user-based model for evaluation of service quality of e-banking.

Empirical results suggest that perceived usefulness, ease of use, reliability, responsiveness,

security and privacy and continuous improvement of e-banking services significantly influence

customer attitudes towards Internet e-banking.



The researchers of 20th century did not take into account very important phenomena which was

slowly gathering momentum – the growing use of technology and increasing use of social

Media. Private and public sector banks began relying on technology in order to retain

customers, provide better services, to reduce costs and provide customer delight. The private

and foreign banks started a technological revolution in the banking industry. Mr. B.K. Tiwary

suggested that in the new economy mind share leads to market share and mind share is

influenced not only by the promotions and advertisements but more importantly on favorable

customer perception which in turn is based on satisfaction with regard to products, services and

interaction with the customers.

After the banks started integrating its products with IT solutions the customers were also not

far behind. The internet boom of India in the early 2000s started increasing the internet outreach

in internet penetration. As the customers became more tech savvy the technologically

innovative banks were perceived to be “futuristic” and ahead of times. This is where the private

banks had the edge over its competition vis a vis public banks (D.R. Joshi 2012). But the public

sector banks still enjoy the trust of its customers and leading public sector banks like State Bank

of India, Punjab National Bank and Bank of Baroda started to embrace technology in order to

keep up with the competition.

The competition within the banks was so tough that the products and services offered by the

banks were similar in features and the only differentiating factor was customer experience (J

Sethuraman 2012) . A research done by Pooja Mengi in 2009 found that the customers who had

account with public sector banks were more satisfied as compared to the customers who had

their accounts with the private sector banks. This anomaly was because of the fact that in the

Indian Banking sector the “Human Aspect” of banking is more important than technical and

tangible aspects of service quality (Usha Lenka in 2009).

As the internet penetration increased, the customers also began to share their experiences about

a bank's service quality and satisfaction on social media networking sites like Facebook, Twitter,

Blogs etc. This has lead to a review of the old research methods of SERQUAL and BSQ, through

this research we aim to combine the traditional methods of research with the new ones in order

to arrive at a holistic approach towards analyzing the service quality of private and public

banks.



Objective:

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 service quality.

The research objective was to examine the following hypotheses:

Null Hypothesis, Ho: There is no significant difference in the service quality between public

and private sector banks.

Alternate Hypothesis, Ha: There is significant difference in the service quality between public

and private sector banks.

Research Methodology:

SERVQUAL Model:

The research was directed towards understanding customer’s perceptions towards

Public and Private banks operating in India. The SERVQUAL model was adapted with some

modification for the study. The instrument was designed keeping into consideration the Indian

banking sector scenario. Attributes like convenience, personal interaction, assurance and access

and competence were considered important in defining bank service quality. The questionnaire

was a SERVQUAL one 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 bank customers through survey & Personal Interviews with

consumers of different banks. After the data has been collected, it was entered into SPSS and

was prepared for analysis.

Sample:

Random sampling technique was used for data collection. We had drafted the questionnaire

and floated to respondents over the internet through emails and Facebook. The questionnaires

were administered in English and the responses of the customers was taken on a five-point



Likert scale with responses varying on the scale of 1 for strongly agree and 5 for strongly

disagree.

The basic demographic profiles of the respondents are as below:

Gender:

Qualification:

Occupation:



Marital Status:

Income:

Classification of Questionnaire:

The survey questions have been classified under five servqual parameters to make a

comparative study on service quality of public and private sector banks. The five parameters

are:

1. Tangibility

2. Responsiveness

3. Assurance

4. Empathy

5. Reliability



Tangibility

Visually appealing facilities

Up to date technology

Well groomed and well behaved employees

Responsiveness

24/7 Contact

Timely service

Prompt service

Assurance Polite employees

Employees willing to help

Empathy

Personal attention

Understanding of needs

Service attention on high priority

Reliability Safe transactions

Trust



Data Collection from Survey Questionnaire:

The questionnaires were distributed amongst customers who had current accounts with major

banks in the retail banking industry. All these banks have a strong presence in the banking

industry and are the largest and most profitable banks in India. The sample size was fixed at 40

customers. Convenience sampling technique was used to get the questionnaire filled by the

customers.

Age group Gender

Bank Account Sector Tangibility Responsiveness Assurance Empathy Reliability

Service Quality

26-30 yrs Male SBI Public 4 3.33

4.00

3.67 4.00

7.60

20-25 yrs Male HDFC Private 4.33 4.33

3.67

4.00 4.00

8.13

20-25 yrs Male ICICI Private 4.67 4.33

4.00

4.33 4.50

8.73

20-25 yrs Male ICICI Private 4.00 4

4.33

4.00 4.00

8.13

20-25 yrs Female ICICI Private 4.33 4.33

3.67

4.00 4.00

8.13


4.00

4.33 4.50

8.73

26-30 yrs Male SBI Public 3.67 3.67

4.00

3.33 3.67

7.34


3.67

4.00 4.00

8.13


3.67

3.33 3.67

7.34

26-30 yrs Male

kotak mahindra Private 4.00 4

4.33

4.00 4.00

8.13


3.67

4.00 4.00

8.13


4.00

4.33 4.50

8.73

26-30 yrs Male HDFC Private 4.00 4

4.33

4.00 4.00

8.13

26-30 yrs Male

bank of america Private 4.33 4.33

3.67

4.00 4.00

8.13

26-30 yrs Male

ICICI BANK Private 4.67 4.33

4.00

4.33 4.50

8.73

31-35 yrs Male Citi Private 4.00 4

4.33

4.00 4.00

8.13


3.67

4.00 4.00

8.13

26-30 yrs Male citibank Private 4.67 4.33

4.00

4.33 4.50

8.73




4.33

4.00 4.00

8.13

20-25 yrs Male ICICI Public 4 3.33

4.00

3.67 4.00

7.60

31-35 yrs Female HDFC Private 3.67 4

4.00

4.33 4.00

8.00

26-30 yrs Male ICICI Private 4.00 4.33 3.67

4.00 4.00

8.00

31-35 yrs Female HDFC Public 4 3.33

4.00

3.67 4.00

7.60


4.00

4.33 4.50

8.07

26-30 yrs Male

Indian Bank Public 4.00 3.67

3.67

3.33 3.67

7.34

26-30 yrs Female SBI Public 4 3.33

4.00

3.67 4.00

7.60

26-30 yrs Female ICICI Private 3.67 4

4.00

4.33 4.00

8.00


3.67

3.33 3.67

7.34

26-30 yrs Male ICICI Public 4 3.33

4.00

3.67 4.00

7.60

26-30 yrs Male

standard Chartered Private 3.67 3.67

4.00

4.33 4.00

7.87


3.67

4.00 4.50

8.07

20-25 yrs Male HDFC Private 4.00 4

4.33

4.00 4.00

8.13


3.67

4.00 4.00

8.13

> 35 yrs Male ICICI Private 4.67 4.33

4.00

4.33 4.50

8.73


4.33

4.00 4.00

8.13

26-30 yrs Male

kotak mahindra Private 4.33 4.33

3.67

4.00 4.00

8.13


4.00

4.33 4.50

8.73


4.33

4.00 4.00

8.13

26-30 yrs Male

Bank of maharastra Public 3.67 3.67

4.00

3.33 3.67

7.34

31-35 yrs Female citibank Private 4.33 4.33

3.67

4.00 4.00

8.13



Hypotheses of the Study:

Keeping the objectives in mind, this study intends to test the following hypotheses:

Null Hypothesis, Ho: There is no significant difference in the service quality between public and private sector banks.

Alternate Hypothesis, Ha: There is significant difference in the service quality between public and private sector banks.

Statistical Tests:

The following statistical tests were conducted to test the above mentioned hypotheses using SPSS software:

1. Run test

2. Ks test

3. Independent t test

4. Correlation

5. Regression.



Run Test:

Objective: To find whether the sample data are random or not .

H0: Series is random

Ha: Series is not random.

Level of Significance: 5%

Descriptive Statistics

N Mean Std. Deviation Minimum Maximum

Tangibility 40 4.1420 .31902 3.67 4.67

Responsiveness 40 3.999 .3529 3.3 4.3

Assurance 40 3.950 .2427 3.7 4.3

Empathy 40 3.966 .3178 3.3 4.3

Reliability 40 4.071 .2578 3.7 4.5

Runs Test

Tangibility Responsiveness Assurance Empathy Reliability

Test Valuea 4.00 4.0 4.0 4.0 4.0

Cases < Test Value 6 12 14 10 5

Cases >= Test Value 34 28 26 30 35

Total Cases 40 40 40 40 40

Number of Runs 13 14 26 16 11

Z .838 -1.265 2.224 .000 .569

Asymp. Sig. (2-tailed) .402 .206 .026 1.000 .570

It can be inferred that samples are random for Tangibility, Responsiveness, Empathy &

Reliability and not random for Assurance.



Kolmogorav Smrinov Test:

Objective: The Kolmogorov-Smirnov test was done to decide if a sample comes from a

population with a specific distribution. We have carried out the test to check if the data

collected is normally distributed,

Null Hypothesis: H0: the data is normally distributed

Alternate Hypothesis: Ha: the data is not normally distributed.

The distribution of the data is checked for the normality with level of significance α - 5%

Descriptive Statistics

N Mean Std. Deviation Minimum Maximum

Tangibility 40 4.1420 .31902 3.67 4.67

Responsiveness 40 3.999 .3529 3.3 4.3

Assurance 40 3.950 .2427 3.7 4.3

Empathy 40 3.966 .3178 3.3 4.3

Reliability 40 4.071 .2578 3.7 4.5

ServiceQuality 40 8.051 .4228 7.3 8.7



One-Sample Kolmogorov-Smirnov Test

Tangibility Responsiveness Assurance Empathy Reliability

Service

Quality

N 40 40 40 40 40 40

Normal Parametersa Mean 4.1420 3.999 3.951 3.966 4.071 8.051

Std.

Deviation .31902 .3529 .2427 .3178 .2578 .4228

Most Extreme Differences Absolute .272 .251 .231 .293 .384 .249

Positive .272 .174 .226 .182 .384 .249

Negative -.178 -.251 -.231 -.293 -.266 -.177

Kolmogorov-Smirnov Z 1.720 1.588 1.460 1.852 2.428 1.577

Asymp. Sig. (2-tailed) .005 .013 .028 .002 .000 .014

It can be inferred from the table that the samples are normally distributed for Assurance and

not normally distributed for other parameters.



Independent t test:

Objective: Independent t test is used to compare the mean of two independent samples. In this

case, the two independent samples are service quality values of public and private sector banks.

The SPSS output is as follows:

H0: Mean service quality of private sector banks is equal to the Mean service quality of public

sector banks

Ha: Mean service quality of private sector banks is more than the Mean service quality of public

sector banks

The distribution of the data is checked for the normality with level of significance α - 5%

Group Statistics

Type of

sector N Mean Std. Deviation

Std. Error

Mean

Service Quality Private 30 8.2443 .27875 .05089

Public 10 7.4700 .13703 .04333



Levene's

Test for

Equality of

Variances t-test for Equality of Means

F Sig. t df

Sig. (2-

tailed)

Mean

Difference

Std. Error

Difference

95% Confidence

Interval of the

Difference

Lower Upper

Service

Quality

Equal

variances

assumed

3.737 .061 8.399 38 .000 .77433 .09219 .58770 .96097

Equal

variances

not

assumed

11.585 32.035 .000 .77433 .06684 .63819 .91048

Independent Sample test table

It can be inferred from the table that mean service quality of private sector banks is more than

the mean service quality of public sector banks.

Hence alternate hypothesis is accepted.



Correlation:

Objective: The test is conducted to see the correlation of five parameters to the service quality

value and to find the most correlated parameters. The SPSS output is as follows:

Tangibility

Responsive

ness Assurance Empathy Reliability

Service

Quality

Tangibility Pearson

Correlation 1 .676** -.231 .442** .621** .759**

Sig. (2-

tailed)

.000 .151 .004 .000 .000

N 40 40 40 40 40 40

Responsiveness Pearson

Correlation .676** 1 -.229 .629** .433** .780**

Sig. (2-

tailed) .000

.155 .000 .005 .000

N 40 40 40 40 40 40

Assurance Pearson

Correlation -.231 -.229 1 .198 .124 .173

Sig. (2-

tailed) .151 .155

.221 .446 .285

N 40 40 40 40 40 40

Empathy Pearson

Correlation .442** .629** .198 1 .790** .882**

Sig. (2-

tailed) .004 .000 .221

.000 .000

N 40 40 40 40 40 40



Reliability Pearson

Correlation .621** .433** .124 .790** 1 .842**

Sig. (2-

tailed) .000 .005 .446 .000

.000

N 40 40 40 40 40 40

ServiceQuality Pearson

Correlation .759** .780** .173 .882** .842** 1

Sig. (2-

tailed) .000 .000 .285 .000 .000

N 40 40 40 40 40 40

**. Correlation is significant at the 0.01 level

(2- tailed).

It can be inferred from the table that empathy parameter is more correlated and

assurance parameter is least correlated to service quality.



Regression:

Objective: Regression analysis is performed to model a relationship between two parameters.

The SPSS output for regression is as follows:

Model

Variables

Entered

Variables

Removed Method

1 Reliability,

Assurance,

Responsiveness

, Tangibility,

Empathya

. Enter

a. All requested variables entered.

b. Dependent Variable: ServiceQuality

Model Summaryb

Model R R Square

Adjusted R

Square

Std. Error of

the Estimate Durbin-Watson

1 1.000a 1.000 1.000 .0000 1.645

a. Predictors: (Constant), Reliability, Assurance, Responsiveness, Tangibility,

Empathy




ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 6.973 5 1.395 . .000a

Residual .000 34 .000

Total 6.973 39

a. Predictors: (Constant), Reliability, Assurance, Responsiveness, Tangibility, Empathy


Coefficientsa

Model

Unstandardized Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 1.577E-14 .000 . .

Tangibility .400 .000 .302 . .

Responsiveness .400 .000 .334 . .

Assurance .400 .000 .230 . .

Empathy .400 .000 .301 . .

Reliability .400 .000 .244 . .

a. Dependent Variable: ServiceQuality



Residuals Statisticsa

Minimum Maximum Mean Std. Deviation N

Predicted Value 7.336 8.732 8.051 .4228 40

Residual .0000 .0000 .0000 .0000 40

Std. Predicted Value -1.692 1.610 .000 1.000 40

Std. Residual . . . . 0

a. Dependent Variable: ServiceQuality

In this case, service quality is the dependent variable and Reliability, Assurance,

Responsiveness, Tangibility, Empathy are independent variables. Regression is modeled

between these two variables.

It can be inferred from the table that service quality of private sector banks is better than the

service quality of public sector banks.



Conclusion:

The measurement of service quality has become a significant marketing tool for the banking

sector as a whole which is trying to develop a competitive advantage by learning about their

customers perception towards the service quality attributes. As a part of our research we

collected data which were classified as five empirical service quality measurement heads as

defined by the servquel model. The results showed that all the five attributes held a significant

effect on the customer satisfaction. Improvement in customer satisfaction would mean that it is

gaining competitive advantage. The research can be extended to a larger sample which could

yield different results. The research can be carried out at a more micro level by comparing the

customer satisfaction levels between the Public and private sector banks in the country and

trying to understand the factors which influence customer perceptions towards banks.

The study concludes that in view of the stiff competition in the global business arena where

businesses have to survive and grow on the basis of volumes, instead of margins, service

quality will constitute an essential plank of service marketing. This implies that public sector

banks will have to focus on the reduction of the gap in customer expectations and perceptions

about their service quality if they are to compete in the global marketplace. To this end, public

sector banks should continually assess and re-assess how customers perceive their services to

know whether these banks meet or exceed or fall short of the expectations of their customers.

Such a customer services quality audit, though tedious, will help the banks to pay attention to

potential failure points and service recovery procedure, which could be made integral to

employees' training. In other words, it amounts to empowering employees to exercise

responsibility, judgment and creativity in responding to customers' problems.



Bibliography

1. Bahia, K. &. (2000). A Reliable and Valid Measurement Scale for the Perceived Service Quality.

International Journal of Bank Marketing, 18(2), 84-91.

2. Bonaccorsi, A. &. (1996). Customer service satisfaction in market and intra-company exchanges.

Managing Service Quality, 2, 1-14.

3. D.W., F. &. (1991). An Evaluation of the SERVQUAL Scales in a Retailing Setting. Advances in

Consumer Research, 18, 3-22.

4. Oliver, R. (1980). A cognitive model of the antecedents and consequences of satisfaction.

Journal of Marketing, 17(10), 460–469.

5. Parasuraman, A. Z. (1985). A conceptual model of service quality. Journal of Marketing, 4(4), 41-

50.

6. Parasuraman, A., Zeithmal, V. A., & Berry, L. L. (1988). SERVQUAL: A multiple-item scale for

measuring. Journal of Retailing, 64, 12-40.

7. Raheem, A. (2005). Determinants of banking service quality. An Application of Factor Analysi,

17-20.

8. Ranganathan, C. a. (2002). Key dimensions of business-to-consumer websites. Information and

Management, 39, 457–465.

9. Zhu, J.-S. a.-T. (2010). The antecedents and consequences of e-service quality for online. Social

Behaviour and Personality, 38(8), 1009–1018.

10. http://www.pbr.co.in/Vol%205%20Iss%2012/11.pdf

11. http://www.iimidr.ac.in/iimi/images/IMJ/Volume1_Issue3/Service%20Quality%20Expectations%20and%20Perceptions%20of%20Public%20and%20Private%20Sector%20Banks%20in%20India.pdf

12. http://www.ijsrp.org/research-paper-1012/ijsrp-p1059.pdf

13. http://indianresearchjournals.com/pdf/IJSSIR/2013/August/9.pdf

14. http://en.wikipedia.org/wiki/SERVQUAL

15. http://www.idrbt.ac.in/publications/Frameworks/Social%20Media%20%20Framework%20(2013).pdf

16. http://iosrjournals.org/iosr-jbm/full-issue/vol1-issue5.pdf

17. http://www.arraydev.com/commerce/jibc/2012-12/sangeethav03.pdf

http://www.pbr.co.in/Vol%205%20Iss%2012/11.pdf

http://www.iimidr.ac.in/iimi/images/IMJ/Volume1_Issue3/Service%20Quality%20Expectations%20and%20Perceptions%20of%20Public%20and%20Private%20Sector%20Banks%20in%20India.pdf



http://www.ijsrp.org/research-paper-1012/ijsrp-p1059.pdf

http://indianresearchjournals.com/pdf/IJSSIR/2013/August/9.pdf

http://en.wikipedia.org/wiki/SERVQUAL

http://www.idrbt.ac.in/publications/Frameworks/Social%20Media%20%20Framework%20(2013).pdf

http://www.idrbt.ac.in/publications/Frameworks/Social%20Media%20%20Framework%20(2013).pdf

http://iosrjournals.org/iosr-jbm/full-issue/vol1-issue5.pdf

http://www.arraydev.com/commerce/jibc/2012-12/sangeethav03.pdf

Documents

Market Research Project Report