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Volume 2, Issue 1, April’13 – September 2013 ISSN: 2278 - 2346

GAP ANALYSIS IN THE SERVICE PERFORMANCE OF THE NEW GENERATION
PRIVATE BANKS IN SALEM DISTRICT: AN EMPIRICAL STUDY

Mr. P.Marishkumar
Assistant Professor of Management Studies
VMKV Engineering College
Vinayaka Missions University, Salem
mailmarish@gmail.com

Dr.C.Natarajan Assistant Professor of
Commerce, Directorate of Distance
Education, Annamalai University,
Annamalai Nagar
rajanaucdm@gmail.comIntroduction

Abstract: Customers are the lifeblood of any business regardless of its nature, type and size. In
the changing global economy, rapid technological growth has brought general awakening among
customers. For most organizations understanding customers is the key to success even as
misunderstanding them is a formula for failure. It is so vital that the stable make in the direction
of satisfy customers are not only a worry for those responsible for moving out marketing tasks;
satisfying customers is a concern of everyone in the entire organization. Therefore, customer
satisfaction can be considered the essence of success in today’s highly competitive world of
business to sustain the customers’ confidence, attract more new customers, increase business with
existing clients, reduce dissatisfied customers with fewer mistakes, maximize a company’s profits
and increase customer satisfaction. Most marketers would of course agree that establishing long-
term business relationship is essential for development and survival. The competitive market
position and the good reputation of a company can quickly translate into market share and profit,
but that distinction is often earned only through a philosophical commitment to service backed by
diligent attention to what customers want and need.

I. Introduction

Service sector is the lifeline for the social and economic growth of a country. It is today the
largest and fastest growing sector, contributing more to the global output and employing more
people than any other sector. The valid reason for the growth of the service sector is the increase
in urbanization, privatization and more demand for intermediate and final consumer services.
During the last two decades, the service oriented industry has potential growth and now
constitutes a major portion of the world economy. One of the few things that companies are left
with is to distinct themselves in terms of quality of service they offer, which has a direct impact
on profit making. Thus quality of service is deeply intertwined with profits, customers’
expectations and eventual performance of a firm. Service delight is now the ethos of several
progressive companies over the world. By means of this growing importance on service delight
and service quality, the banking industry in India is becoming growingly competitive. Banking
being a service business, the best strategy can only be to identify with the customers and offer
them what they actually need. This aim can only be accomplished offering the best customer
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service. In India, the services offered by commercial banks, especially after the reforms that took
place after 1991, have improved notably. After the entry of private and foreign banks in India,
even the nationalized banks have become competitive in nature and have attempted to improve
their service delivery to customers.

II. Importance of Service Quality in Banking Industry

Liberalization, privatization and globalization planks of government of India as lead to a cut-
throat competition in the Indian corporate sector. Banking sector is not be an exception to it. Prior
to the liberalization era the banking industry in India was functioning in a forfended environment
and was dominated by nationalized banks. Banks at that time did not feel the desideratum to
fixate on accommodation quality issues and they assigned very low priority to identification and
gratification of customer needs. The need of the hour in the Indian banking sector is to build up
competitiveness through enhanced service quality, thus making the banks more market oriented
and provide more loans to the customers as they want to improve their standard of living. Service
quality has emerged as one of the most paramount issues in Indian banking sector.. Any bank
faltering on this front is likely to die prematurely. The banks, on the other hand, imparting quality
in their services are likely to outshine others. Without good quality of services practiced, they will
not be able to perform their work effectively. Therefore, service quality has become the basic
mantra for not only the survival but growth as well.

In the era of cut throat competition, the survival of any bank depends upon the satisfied
customers. Regulatory, structural, and technological factors are significantly changing the
banking environment throughout the world. Regulatory changes have reduced or eliminated
barriers to cross-border expansion, creating a more integrated global banking market. Structural
changes have resulted in banks being allowed a greater range of activities, enabling them to
become more competitive with non-bank financial institutions. Technological changes are
causing banks to rethink their strategies for services offered to both corporate and individual
customers. It is within this rapidly changing environment that customer satisfaction and service
quality are compelling the attention of all banking institutions. In this digital era, the service
sector has been growing at a lightening speed across the globe. In India, banking has seen
momentous changes in the post-independence era. It has witnessed a remarkable shift in its
operating environment during the last decade. Various reform measures, both qualitative and
quantitative, were introduced with an objective to revitalise Indian banking sector and to meet the
future challenges.

Banks make up the integral part of the financial system in developing economies. Their primary
roles as financial intermediaries and development partners are not only sought by the government
and regulators, but by the general public as a whole. The most important factor that matters a lot
in today's modern and successful banking business is the quality of services. In the modern
competitive environment, the pursuit of service quality is considered to be an essential strategy.
Service quality is essential in the banking services because bankers tend to be viewed as
relatively undifferentiated, and hence it becomes a key to competitive advantage. In recent years,
service quality has been widely used to evaluate the performance of banking services. Service
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quality has been viewed as a consequential issue in the banking industry. In the present
competitive Indian banking context, characterized by rapid change and increasingly sophisticated
customers, it has become very consequential that banks in India determine the accommodation
quality factors, which are pertinent to the customer's cull process. With the advent of international
banking, the trend towards larger bank holding companies, and innovations in the marketplace,
the customers have more preponderant arduousness in culling one institution from another. In this
context, quality of service furnished by banking sector is very important and profitability of their
business is closely connected to the quality of service they render.

III. Statement of the Problem

The business surroundings marked by fierce rivalry and incessant changes in the alliance between
companies and customers sets the scene for the Indian banking industry. The emergence of new
economies and their rapid growth have been rapid magnification have been the most paramount
contributing factors in the resurgence of banking in India.. The financial reform process initiated
in 1991 poses a lot of challenges before the Indian banking sector as never before. With the entry
of new generation tech-savvy private banks and the expansion of operations of foreign banks, the
banking sector has become too competitive. The challenge for banks is to lower costs, increase
efficiency, while improving quality of service, and increase customer satisfaction. To deal with
the emerging situations, bankers have to shed a lot of old ideas, change in practices, develop
customer loyalty programmes, and adopt a distinct approach to meet the challenges ahead. Thus,
banking has transformed into a ‘buyers’ market where customers are given the choice to select
out of a large number of banks and their differentiated products and services.
Incipient generation private banks are oriented toward niche banking, unlike the public sector
banks, which meet the mass banking requisites. The strategies adopted by the incipient generation
private banks are more in tune with those of the foreign banks, where accentuation is given to
establishing superior benchmarks of efficiency, fixating on niche customers, providing impressive
customer accommodation and establishing operating efficiencies by utilizing high-end
technology.. The new generation private banks recruit the finest manpower, employ state-of-the-
art technologies and are oriented towards building a strong brand image. Even though the new
generation private banks do not have an extensive range of branch networks, the emerging trends
indicate that they pose a great threat to the public sector banks because of their increasing market
share.

The new generation private banks have made a strong presence in the most lucrative business
areas in the country because of technology upgradation. Undoubtedly, being tech-savvy and full
of expertise, the new generation private banks have played a major role in the development of
Indian banking industry. In the process they have jolted public sector banks out of complacency
and forced them to become more competitive. The new generation private banks find new
products avenues and make the industries achieve expertise in their respective fields by offering
quality service and guidance. Therefore, excellent service performance can ameliorate the bank's
ability to lure affluent prospects, elevate the bank's profitability, lower bank operation costs, and
engender more preponderant customer loyalty. It has become essential for the service firms in
general and banks in particular to identify what the customer's requirements are and how these
requirements can be met effectively. In the view of the study broadly, intends to find answers for
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the following questions: What are the factors that influence service quality dimensions of
customers? What is the level of quality of service being offered by the new generation private
banks? What factors mitigate in minimizing the service delivery gap? In this context, the
researcher has made a modest attempt to find out the answers for these questions.

IV. Objectives of the Study

The study has the following objectives:

1. To analyze the perception of the customers towards service quality of the select new
generation private banks in Salem district.
2. To find out the gap in the service performance of the select generation private banks in
Salem district.
3. To offer suitable suggestions to improve the service quality of the select new generation
private banks based on the findings of the study.

V. Testing of Hypotheses

In order to examine the perception of the customers towards service quality of the new generation
private banks, the following null hypotheses were formulated and tested.

H01: There is no significant relationship among the acceptance levels of the respondents
belonging to different demographic profiles towards the perceived level of service quality in the
select new generation private banks.
H02: There is no significant difference in the acceptance levels of the customers between the
expected and perceived levels of service quality in the select new generation private banks in
Salem district.

VI. Scope of the Study

The present study attempts to examine the perception of customers towards service quality of the
new generation private banks in Salem district. The study is confined only to savings bank and
current account holders who have account with select new generation private banks in Salem
district. Service quality is the vast subject; therefore, the most common 5 dimensions of service
quality, namely, assurance, empathy, reliability, responsiveness and tangibility only are studied in
this study. Moreover, the study is confined only to five new generation private banks namely,
Axis Bank, HDFC Bank, ICICI Bank, Indusind Bank and ING Vysya Bank.

VII. Sampling Design

There are 21 public sector banks and 16 private sector banks which include 6 new generation
private banks in operation in Salem district as on March 2012. In order to accumulate primary
data for the purport of the study, multi-stage sampling technique is adopted. At the first stage, 5
new generation private banks which outnumber in number of branches were selected out of the 6
new generation private banks. In the second stage, 40 per cent of the branches i.e. 10 branches
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were selected out of the 5 selected new generation banks. In the final stage, from each of the
branch 40 savings bank account holders and 10 current account holders were selected on the
purposive basis. Therefore, the sample size consists of 500 customers. The following table shows
the sampling distribution of the present study.

Table 1: Sampling Distribution
Samples
No. of
No. of Savings
Name of the Bank No. of Branches No. of Current
Bank Account
Branches Account
Holders
Holders
Axis Bank 5 2 80 20
HDFC Bank 8 3 120 30
ICICI Bank 8 3 120 30
Indusind Bank 3 1 40 10
ING Vysya Bank 2 1 40 10
Total 26 10 400 100

VIII. Tools for Data Collection

The present study is empirical in character, based on survey method. As an essential part of the
study, the primary data were collected from 500 customers. As an essential part of the study, the
primary data were collected for a period of 6 months from July 2012 to December 2012. Taking
into consideration the objectives of the study, a questionnaire was prepared after a perusal of
available literature. Each question was improved for its relevance and meaning by constant
interaction with the experts in the areas. The questionnaire consists of 23 service quality verbal
expressions which are fall under the tangibility, reliability, responsiveness, assurance and
empathy dimensions of accommodation quality. The questionnaire was constructed based on
Likert scaling technique. Pre-testing of questionnaire was done during April 2012, involving 25
respondents to know the relevance of the questions. The secondary data have been collected
mainly from journals, magazines, government reports and books.

IX. Framework of Analysis

The ultimate object of the study is to analyze the perception of the customers towards service
quality of the select new generation private banks in Salem district. The data collected for the
purpose of the study were quantified, categorized and tabulated. In order to study the perception
of the customers, analysis of variance, student t test, paired comparison t-test, analysis of co-
efficient of variation, discriminant function analysis and percentage analysis were employed.

X .Findings

1. There is no significant relationship among the acceptance levels of the customers
belonging to different genders, educational status groups and monthly income groups
towards perceived service quality in the new generation private banks in Salem district.
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However, a significant relationship is found among the acceptance levels of the
customers belonging to different age groups, occupations, banks they belong to and
holding different type of accounts towards perceived service quality in the new
generation private banks.
2. Female respondents, respondents in the age group 46-55 years, respondents belonging to
postgraduate and above qualifications, businessmen, respondents having monthly income
above Rs.40000, customers of the ING Vysya Bank and current account holders have
higher acceptance level towards perceived service quality in the select new generation
private banks in Salem district.
3. There exists consistency among the acceptance level of female respondents, respondents
in the age group 36-45 years, respondents who have Diploma/ITI qualification, students,
respondents having monthly Rs.30001-40000, customers of the IndusInd Bank, and
savings bank account holders towards perceived service quality in the select new
generation private banks in Salem district.
4. Discriminant function analysis was applied to examine how do the respondents who have
savings bank account differ from those who have current account in terms of their
perceived level on service quality? Do service quality dimensions like assurance,
empathy, reliability, responsiveness and tangibility significantly subsist among these two
groups? The results of the analysis reveals that ‘assurance’ is the maximum
discriminating variable (R2%=30.36%) between savings bank account and current
account holders, followed by ‘empathy’ (10.96%)’, ‘tangibility’ (10.24%),
‘responsiveness’ (9.26%) and ‘reliability’ (4.24%)’ being the least discriminating
variable.
5. There is a significant difference in the acceptance level of the respondents between the
expected and perceived levels of various dimensions of service quality such as assurance,
empathy, reliability, responsiveness and tangibility.
6. In regards to the various factors that contribute to the assurance dimension of service
quality, the majority of the respondents (25%) disagree with the list, followed by neither
agree nor disagree agree (24.60%) and agree (23.20%). 6.40% and 20.80% of the
respondents strongly agree and strongly agree respectively on the assurance dimension of
service quality in the select new generation private banks in Salem district.
7. Out of 500 respondents, majority of the respondents indicate that they disagree (31.40%)
with the empathy dimension of service quality in select new generation private banks,
followed closely by neither agree nor disagree (21.60%) and strongly disagree (21%).
6.06% and 19.40% of the respondents strongly agree and agree respectively.

8. The majority of respondents indicate that they disagree (34.60%) with the reliability
dimension of service quality in the select new generation private banks, followed by
strongly disagree (22.80%) and neither agree nor disagree (21.40%). 4.40% and 16.80%
of the respondents strongly agree and agree respectively.
9. In regards to the responsiveness dimension of service quality in select new generation
private banks, majority of the respondents (32%) disagree, followed by neither agree nor
disagree (22.60%) and strongly disagree (21.40%). 4.20% and 19.80% of the respondents
strongly agree and agree respectively.
10. Out of 500 respondents, 28.40% of the respondents reveal that they disagree with the
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tangibility dimension of service quality in the select new generation private banks,
followed by strongly disagree (22.20%), and neither agree nor disagree (21.40%). 7.40%
and 20.60% of the respondents strongly agree and agree respectively.
11. Ranging from 27.60 per cent to 48.60 per cent of the respondents’ problems with their
prime banks are absence of customer intimate strategy, poor-quality customer service,
inadequate range of products, inadequate customer communication and delay in service.
Absence of creativity and innovativeness, inadequate customer contact programmes,
absence of update information and lack of customer specific strategies are the problems
of the customers in the select new generation private banks at 52.40%, 58.60%, 60.20%
and 64.40% respectively.

XI. Suggestions

1. The customer strategy should create differentiation through the bank’s own operational
strengths and by emulating the capabilities of the bankers outside of its peer group.
Therefore, the select new generation private banks must keep innovating and serve their
customers with better quality services.
2. About 48.60% of the respondents state that the select new generation private banks have
not been able to provide quick service. A long delay in making available the services to
the customers may erode the credibility and goodwill as well as customers’ confidence.
Therefore, the select new generation private banks should offer quick and prompt
services to their customers.
3. In order to keep the gap between the expected service and perceived service as minimum
as possible, it is important that the promises about how then service will perform, given
by traditional marketing activities, and communicated by words of mouth, must not be
unrealistic when compared to the service the customers eventually will perceive. Hence,
efforts of the banks should not be only equationalise the customer prospects with what
the banks offer but endeavors have to be put into ascertain that the cull incipient
generation private banks provide such a caliber of quality accommodation which exceeds
the perceived prospects of customers.
4. The banks should design program to train staff with the skills and knowledge required to
deal with customers effectively. With a view to enhance service quality levels in terms of
responsiveness, reliability, empathy and assurance aspects, the training and retention of
staff should be given special care to empower them to exercise responsibility, judgments
and creativity in responding customers’ problems. The new generation private banks
must pay attention to potential failure points and service recovery procedures, which
become integral to employees’ training.
5. The select new generation private banks should provide the necessary logistics to their
staff because they help to achieve customer satisfaction. The select new generation
private banks should be aggressively engaged in internal marketing to arrive at a synergy
of satisfied employees and upgraded service performance.
6. The select new generation private banks must create the culture and model needed to
promote greater commitment, accountability and competency for staff allowing them to
become more responsive in delivering consistently in spite of the natural barriers that size
and silos can create.
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7. Customers are loyal only when the bank has a thorough understanding of their
requirements. Therefore, the select new generation private banks shall keep on tracing the
customers and get thorough knowledge about customers’ problems. Database on various
aspects of customers’ profile should be created which should function in every branch
and it must develop an excellent total customers’ care programme to suit the specific
requirements of its customers.
8. The select new generation private banks shall undertake customer contact programmes in
order to understand the problems and expectations of the customers. For this purpose,
customers meet, special events, direct mails, greeting cards, etc. can be used to get in
touch with customers.
9. The select new generation private banks should focus more on improving the
infrastructure. The infrastructure not only involves the information technology input in
the branches but also the physical evidence, internal environment and layout. This will
help in delivering quick and accurate services to customers as well as reducing the
workload of frontline staff and thereby providing ways to employees to respond to
customer requests.
XII. Conclusion

Today, banking has emerged as an integral part of the financial sector of the economy. The
efficiency of a banking sector depends on how best it can deliver services to its target customers.
In order to survive in the competitive environment and provide continual customer satisfaction,
the providers of banking services are now required to continually improve the quality of services
and technology and other aspects. Before making their banking products, the new generation
private banks should give importance to the various factors that influence banking service quality,
so that they can retain their existing customers and attract new customers. The finding of this
study brings to light that there exists a significant gap between the expected and perceived levels
of service quality in the select new generation private banks. In the increasing competition in
banking industry, banks want to differentiate themselves from the competitors and stay ahead in
the race. The researcher suggests measures such as customer intimate strategy, training to
employees, high-quality customer service, customer communication,
creativity and innovativeness, customer contact programmes,
customer compliant monitoring cell, providing update information, improving
reliability, customer segment specific strategies, staff involvement, provisions of
prompt service and understanding the customers to improve service quality of the select new
generation private banks.

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