CHAPTER - II

REVIEW OF LITERATURE

2.1 Introduction

A detailed review of literature has been made to find out the prevailing
researchable gap and to identify the relevant issues for the study. This chapter
provides a sketch of available related studies arranged logically at international and
national level. The review of literature has been confined to discussion paper of
banking commissions, RBI reports, survey report of various private agencies,
published research articles related to the study and PhD thesis carried in efficiency,
performances and profitability or in similar area.

2.2 Performances of Banking Sector in India

Athma and Srinivas (1997)1conducted a study to analyze the productivity in

commercial banks group wise i.e., public sector banks, private sector banks and
foreign banks for the period 1982 to 1995. They measured two aspects of bank
productivity. First, the measurement of business (deposits + advance) per branch and
business per employee. Second was the cost responsiveness (percentage variation in
cost/ percentage variation in earnings) and return on working funds. The results
showed that the productivity-both per employee and per branch showed a rise for all
the three bank groups though it was relatively higher in the case of private sector and
foreign banks. High cost responsiveness resulted in lower productivity and vice versa.
An increasing trend was noticed in the percentage of returns on the working funds
over the period of study in case of private banks. A percentage for foreign banks in
the were stated in year1992-1993 and it was noticed the these banks reserved its
position firms in the very next year. The entire three bank group (public, private and
foreign banks) made efforts to improve their productivity in 1994-95 and succeeded in
earning profits by recovering the operative costs fully. The study concluded that the
efficient operations prompt recoveries, proper appraisal of credit risks and avoidance
of risky investments were the key to profitability in banking.

The Financial Express (1998)2published its report in November 1998. The

researchers studied performance of the commercial banks for the period 1997-1998.
They used weighted ranking approach to performance rating, which took into account

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35 parameters under the four functional categories. These categories were: financial,
operational, profitability and productivity. A total of 98 banks were considered out of
which, 27 were public sector banks, 33 banks were private sector banks and 38 banks
were foreign banks. The financial parameters included aggregate deposits, average
working funds, reported net profits and operating net profits. The operational
parameters included total debt to net worth, interest income to average working funds,
non-interest income to average working funds, operating expenses to average working
funds and the capital adequacy ratio. The profitability parameters included interest
spread to average working funds, net spread to average working funds, reported net
profits to average working funds, reported net profits to report net worth. The
productivity parameters included business per employee, business per branch,
operating profits per branch and operating profits per employee. In addition to these
parameters each bank was judged on growth ratios to each of above ratios except the
Capital Adequacy Ratio. The results showed that the ANZ Grindlays Bank stood first
in overall ranking followed by the State Bank of Mauritius which was at second
position and the Bank of America was at number 3 position. The public sector banks
dominated the top 15 with the State Bank of India in the lead. In terms of productivity
the Bank of America stood at number 1 followed by the bank of Nova Scotia.

Verma and Verma (1999)3reserch study attempted to determine the

determinants of profitability of SBI group, other nationalized and foreign banks in
India. The study reported that, in general, State bank group and private-foreign group
banks have performed better than their counterparts during 1992-1999.

Ganeshan (2001)4 revealed in his empirical study that establishment of profit

function the interest cost, interest income, deposits per branch, credit to total assets,
proportion of priority sector advances and interest income/ loss are significant
determinants of the profits and profitability of Indian public sector banks.

Alka Sharma and Versha Mehta (2004)5 in their empirical work commented
that the service sector is the most important sector, which contributed largely to the
national economy. In India, the banking sector is an important component of this
sector. The share of banking and insurance sector has burgeoned from 2.78 per cent in
1980-81 to 6.27per cent in 1997-98. This had resulted due to the increased
significance of financial services in post- reforms era. In case of banking services, the

15
varied service products being offered and their interface with the information
technology had emerged as the potent tools of competition. The findings of the study
stated that banks were using these tools to seize the markets and be the ultimate
winners. The survey results showed that HDFC bank had been rated as the number
one bank in India. It had quality growth as the main objective.

PunitaRao (2006)6 in her research work found that productivity factors had a
significant impact on the performance and profitability of the banks in India. The
study focused on the concept like the financial sector reforms and the implication of
the banks services, the various changes in monetary policy of India, and the impact of
monetary policy on the profitability of banks.

Mittal and Sanjay Dhingra (2007)7commented that Indian banks are

investing heavily in the technologies such as telebanking, mobile banking, net
banking, automated teller machine (ATMs), credit cards, debit cards, smart cards, call
centers, CRM, data warehousing etc. The authors stated that after understanding the
significance of heavy investment in technological requirement they had evaluated the
impact of computerization on the performance of Indian banks in terms of their
profitability and productivity. The authors had applied Data Envelopment Analysis
(DEA) to study the impact of computerization on Indian banks’ profitability and
productivity. The study concluded by stating that private sector banks, which took
more IT initiative, were found to be more efficient in productivity and profitability
parameters than public sector banks.

Using an appropriate theoretical framework and econometric methodology

Bhanu and TaruKV.(2008)8research the study has sought to measure and model
competition in private banking industry in India in an attempt to analyze the process
of market dynamics in the industry. The changing scenario of private banking
consequent to deregulation provided the motivation behind the study. It used the
concept of competition proposed by Stigler (1961) and measured it by Bodenhorn’s
(1990) measure of mobility. The study provides a critique of the mechanism of
inducing competition, which is implicit in the Narasimham Committee (1991). It then
provides the theoretical background of an alternative mechanism based on Structure-
Conduct-Performance (S-C-P) paradigm, which incorporates basic conditions and
strategic groups, apart from including entry, economies of scale, product

16
differentiation and price cost margin, One basic contention of the study is that
competition goes beyond “conduct” and encompasses all the four components of S-C-
P paradigm: basic conditions, structure, conduct and performance. Accordingly, a
three equation simultaneous equation model is used to ultimately estimate the
equation of competition through Tobit technique. The result demonstrates that
variables related to basic conditions, structure, and conduct and performance
influence competition. The study has found evidence against the simplistic
relationship between concentration and competition, which remained implicit in the
literature. The study also developed a methodology to arrive at market form from an
analysis of three aspects of a market and concludes that private banking industry in
India is characterized by monopolistic competition.

Bakar and Tahi (2009)9comment in their research work that globalization

and technological advancement has created a highly competitive market in the
banking and finance industry. Performance of the industry depends heavily on the
accuracy of the decisions made at managerial level. This study uses multiple linear
regression technique and feed forward artificial neural network in predicting bank
performance. The study aims to predict bank performance using multiple linear
regression and neural network. The study then evaluates the performance of the two
techniques with a goal to find a powerful tool in predicting the bank performance.
Data of thirteen banks for the period 2001-2006 was used in the study. ROA was used
as a measure of bank performance, and hence is a dependent variable for the multiple
linear regressions. Seven variables including liquidity, credit risk, cost to income
ratio, size, concentration ratio, inflation and GDP were used as independent variables.
Under supervised learning, the dependent variable, ROA was used as the target output
for the artificial neural network. Seven inputs corresponding to seven predictor
variables were used for pattern recognition at the training phase. Experimental results
from the multiple linear regressions show those two variables: credit risk and cost to
income ratio are significant in determining the bank performance. Two variables were
found to explain about 60.9 percent of the total variation in the data with a mean
square error (MSE) of 0.330. The artificial neural network was found to give optimal
results by using thirteen hidden neurons. Testing results show that the seven inputs
explain about 66.9 percent of the total variation in the data with a very low MSE of
0.00687. Performance of both methods is measured by mean square prediction error
17
(MSPR) at the validation stage. The MSPR value for neural network is lower than the
MPSR value for multiple linear regressions (0.0061 against 0.6).

Ramachandran.A and Kavitha.N (2009)10 research study viewed of the

importance of improving the profitability performance of the banking sector in recent
years, a census study has been adopted by covering all the Indian scheduled
commercial banks, which have been divided into three groups viz., the SBI group, the
Nationalized Banks group and the Private Banks group with two sessions, i.e., Period
I and Period II by dividing the 10 year-study period into the first five years and the
last five years. The step-wise multiple regression analysis was adopted for the study.
An analysis of the SBI group reveals that in both the periods of study, the variable
provisions and contingencies to total expenses occupied a prominent place. The
nationalized banks group showed a position of provisions and contingencies to total
expenses in the first half of the study period and Capital Adequacy Ratio (CAR)
during the second half of the study period. In relation to the private banks group, it
has changed from other interest expenses ratio to capital adequacy ratio.

Shobana V.K and G Shanthi’s (2010)11 research paper is an attempt to

determine the profitability of FBs operating in India, using the data for the period
from 1996-97 to 2004-05. The study uses multi-discriminant function analysis to
identify the variables discriminating the high profitability bank groups from the low
profitability groups. The author comment that moving from the scenario that was
dominated by nationalized banks, Indian commercial banking system has witnessed a
rapid spread of Foreign Banks (FBs). The operations of FBs have received a
considerable boost during the post-reform era beginning with the year 1993, providing
opportunities for players to shape up and prepare for their growth.

Biresh K Sahoo and AnandadeepMandal (2011)12research paper evaluates

the performance of the Indian banking sector during the post transition period (1997-
2005). The productive performance, scale elasticity, efficiency and capacity
utilization parameters are calculated using Data Envelopment Analysis (DEA). The
empirical results calibrated through these models are analytic on several fronts. The
positive trend of the reform process is visible through the increase in technical
efficiency over the years of the post transition period. The cost efficiency parameters
state that the nationalized banks are yet to exercise their cost minimizing principles

18
compared to the other banks. Finally, the empirical findings showed a significant
difference between the technology and the market-based hypothesis. These results are
in line with the distinction between economies of scale and the returns to scale.

Vohra et.al (2012)13 had commented banks are the main participants of any
financial system, because they play a vital role in an inclusive growth of economy.
India is one of the most preferred banking destinations as its economy is not only
growing at 8plus percent annually, but it is also going through a transformation to the
next level of maturity. After liberalization & economic reforms Indian banking sector
underwent major changes and it has been totally changed especially after arrival of
private and foreign sector banks. This research work will provide an assessment of
comparative study of financial efficiency of Indian banking sector through their
deposit performance and lending performance. The purpose of this attempt is to
analyze the financial performance of public and private banking in post Indian
banking reforms era in the light of pre global recessionary period (Before year 2006)
and post global recessionary period (2006 onwards). The findings of the research will
have managerial implication for understanding the global recessionary impacts on
Indian banking performance, which will comprise a sample size of 6 banks. The
research analysis will be based on secondary source and primarily all data will be
collected and analyzed through audited annual reports only.

Dharuman. A (2013)14 in his study an attempted to compare the parameters

and the factors that directly influence the financial performance of the two categories
of banks that are operating in India i.e. OGBs and NGBs (Old and New Generation
Banks). The study concluded that though the NGBs have registered excellent
performances in terms of growth of advances, deposits, total business and net profit,
OGBs have registered efficiency in term of productivity and earning quality. It has
been observed that the old generation banking sector in India has responded very
positively in the field of enhancing the role of market forces regarding measures of
prudential regulations of accounting, income recognition, provisioning and exposure
to risk.

2.3 Customer Service in Banking Sector

Rajalakshmi’s (1990)15 empirical study aimed to critical appraisal of general

utility Services of Commercial Banks in Aruppukottai Town. The study found that

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different ranges of general utility services are provided by banks in India. The finding
of the study also revealed that such services play a very important role in attracting
and satisfying the customers.

Biswa.N. Bhattacharyya (1991)16summoned the finding made by NCAER

(1971) and NIBM (1975) on “Evaluation of customers service in Banking Industry”.
According to the summary report NCAER made a study to find the reasons for the
poor quality of customer service in Banks. The result of the study stated that more
than 50 per cent of the customers who made complaints cited inefficient service being
the main cause. The delay in encashment of cheques was the reason for customer’s
complaints. A similar study was also made by NIBM in 1975, to know how well the
commercial banks, provided services to their customers in the city and suburbs of
Bombay. The result of the study pointed out that there was considerable delay in the
services rendered which resulted in total dissatisfaction among customers.

Dilshath’s (1992)17M.Phil Dissertation aimed to analyse the Customer

satisfaction in Nationalized Banks- with special reference to Madras city. The study
found that customers of nationalised banks were not satisfied with their bank’s
counter services, due to the long time taken for drawing money. The customers were
also dissatisfied with certain services like investment advice and tax advice given to
them. The author also found that borrowers were dissatisfied with the cumbersome
procedural formalities practiced in availing loans from the nationalized banks.

Vijaya Walia (1992)18 in her research article focused on the causes for falling
profitability and customer services in banks. The study found that the manual
accounting system used in banks is the main cause for the problems like error in
posting, maintaining a large number of ledgers, delayed posting in the books of
Accounts etc. The study suggested that all banks should resort to computerization for
overcoming the problem and for quick disposal of customer demands.

Farrance (1993)19 in a research article focused on the customers’ perception

towards expected banking services. The research article discussed the issues like the
demand-side changes, stimulation for higher levels of consumer awareness and
sophistication, combined with supply- side changes, and changes in banking
legislation, in India. The author stated that banks in India are competitively poor,
particularly in cost terms, profit and productions. The author suggested that for

20
building a good customer service base the banks required a better understanding of
marketing, organizational flexibility and should also have clear customer focus.

Jayaraman .P (1994)20 in his empirical work identified the components of the

marketing mix of banking services. The author found that banks in India in order to
grow and prosper and even to survive have to keep abreast of changing customer
needs and preferences apart from knowing the strategies of competing banks.

Reddy and Ramana (1994)21 in their research article analyzed the marketing
services and marketing mix of banks in India. The authors stated that banking
indirectly can survive and can win over the growing competitive market in future by
adopting efficient marketing strategy.

Ranganathan (1994)22 in his research paper focused on the problems of the

bank customers. The study found that there has been deterioration in the services
offered by banks in India. The author suggested that there should be an enquiry
window in every bank manned by a staff well versed in banking routine and having
abundant HRM qualities. He also suggested training courses for the bank officials in
HRM.

AchimMachauer (2006)23 commented in his research paper that segmentation

of customers’ by demographic factors is widely used in bank marketing despite the
fact that the correlation of such factors with the needs of customers is often weak.
The author specified that segmentation by expected benefits and attitudes could
enhance a bank’s ability to address the conflict between individual service and cost
saving standardization. The author had used cluster analysis to segment the
combinations of customer ratings for different attitudinal dimensions and benefits of
bank service. The clusters generated in this way were superior in their homogeneity
and profile to customer segments gained by referring to demographic differences.
Additionally, four characteristic groups of customers were identified showing special
preferences for and against information services and technology used in the modern
banking.

Thirumagal Vijaya (2006)24 in her empirical study aimed critically to

evaluate the Customer perspective towards marketing of services by public sector
banks in India. The study observed that the customers of public sector banks felt that
the services delivered by their bankers were moderate in quality. The study revealed
21
the fact that though there was the existence of private sector banks, the customer
prefer to continue with public sector banks. The author found it a positive signal to
public sector banks for retaining their existing customers and concentrate on
developing new customer bases by providing quality services. It was also found that
the advertising for public sector banks was not effective and needed to be revised.

Uppall (2008)25 empirically analyzed the quality of e-banking servicesin the

changing banking environment, i.e., post-liberalisation era. The findings of paper
stated that most of the customers of e-banks are satisfied with the different e-channels
and their services but the lack of awareness is a major obstacle in the spread of e-
banking services. The researcher suggested measures to make e-banking services
more effective in the future.

Safeena et al (2010)26 in their research study aimed to determine the

customer’s perception on internet banking adoption .The results of the study shows
that perceived usefulness, perceived ease of use, consumer awareness & perceives
risk are the important determinants of online banking adoption and have strong and
positive effect on customer to accept online banking system.

Surbhi Singh and RenuArora (2011)27 in their research paper draw a

comparative study of banking services and customer satisfaction in public, private and
foreign banks of Delhi. The findings of this study showed that the customers of
nationalized banks were not satisfied with the employee behavior and infrastructure,
while respondents of private and foreign banks were not satisfied with high charges,
accessibility and communication.

Linda Mary Simon.MS (2012)28 in her research study aimed to analyse

customer perception towards services provided by Public sector bank and Private
sector bank in Coimbatore region. The study findings revealed that private bank is
providing better services to its customers than the public sector bank. It is evident that
public sector banks have a strong presence in the market, but in recent times they are
facing stiff competition from private sector banks in the range and quality of services
offered.

Doddaraju. M.E (2013)29 in his research study aimed measure customer

satisfaction towards public and private sector banking services with special reference
to the Anantpur District of Andhra Pradesh. The study concluded that satisfaction
22
level with regard to public sector units courtesy shown by bank staff at the counter is
very low. Therefore, the banks should pay special attention to “Human Resource
Development” by giving timely training to the employees to conduct themselves
better.

Kaur Saluja et.al (2013)30 in their research paper aimed to survey customer
perception towards banking services provided by banks in Indore region. The
attributes like internet banking, ATM services, timings, attitude of staff towards
customer of the bank etc., have been analysed in the study. Finding of the study
revealed that customers’ satisfaction level with regard to courtesy shown by bank staff
at the counter is very low. Therefore, banks should pay special attention to “Human
Resource Development” by giving timely training to the employees to conduct
themselves better. The study also suggest that the banks should win customers
confidence by providing them guidance regarding service charges, service tax, interest
rate, penalty if any etc at an early stage. All branches of a bank should provide
different facilities like parking, seating arrangement, drinking water and sanitary
facilities. New investment schemes should also be displayed at appropriate places.
Modern technology and innovation are required in every aspect of banking system .To
develop the social banking environment, bank officials should maintain good
relationship with the customers.

2.4 Role of Technology in Modern Banking Services

Joseph et al. (1999)31 investigated the role that technology plays in Australian
banking and its impact on the delivery of perceived service quality. A sample of 440
electronic banking customers was taken and 300 useable questionnaires were
analysed. A mall intercepts method was used to distribute the surveys. The authors
identified the relevant dimensions of service using the items generated from the focus
groups and these were then examined in more detail for purposes of comparison
between themselves and across respondents. The six factors of e-banking service
quality identified in the study were: convenience/accuracy; feedback/complaint
management; efficiency; queue management; accessibility and customization. The
study results indicated that consumers have perceptual problems with some aspects of
electronic banking. Their study has taken a generalized perspective on electronic
banking.

23
 Ombati et al. (2010)32 conducted research to establish the relationship
between technology and service quality in the banking industry in Kenya. The
research was carried through a cross-sectional survey design which questioned
respondents on e-banking services. The population of study mainly constituted of
customers of banks within the Central Business District (CBD), Nairobi. The
respondents of the study were customers of banks using e-banking services (internet
banking, mobile banking and ATM). The sample in this study consisted of 120
respondents who are users of the e-banking services. The data collected was analyzed
by use of frequency, percentage, means and correlation analysis. The findings
revealed that, secure services as the most important dimension, followed by
convenient location of ATM, efficiency (not need to wait), ability to set up accounts
so that the customer can perform transactions immediately, accuracy of records, user
friendly, ease of use, complaint satisfaction, accurate transactions and operation in 24
hours.

Ganguli and Roy (2011)33 in their research study identified the generic
service quality dimensions of technology-based banking and examined the effect of
these dimensions on customer satisfaction and customer loyalty. Authors identified
generic service quality dimensions using an exploratory factor analysis (EFA). They
established the reliability and validity of the factors and customer satisfaction and
customer loyalty through confirmatory factor analysis (CFA) using AMOS 16.0
software. The related hypotheses were tested using structural equation modeling using
AMOS 16.0. The paper identified four generic service quality dimensions in the
technology-based banking services – customer service, technology security and
information quality, technology convenience, and technology usage easiness and
reliability. It was found that customer service and technology usage easiness and
reliability have positive and significant impact on customer satisfaction and customer
loyalty. It was also found that technology convenience and customer satisfaction have
significant and positive impact on customer loyalty.

Alabar, t. timothy (2012)34 in a research study had focused on electronic

banking services and customer satisfaction in the Nigerian banking industry. The
study concluded that there is an impact of e-banking on customer satisfaction towards
banking services in Nigeria.

24
 Giovanis, A.N., S. Binioris, and G. Polychronopoulos (2012)35 in their
research study provided . An extension of TAM model with IDT and security/ privacy
risk in the adoption of internet banking services in Greece. The authors opine that
banking has always been a highly information intensive activity that relies heavily on
information technology (IT) to acquire, process and deliver the appropriate
information to all relevant users and differentiate their products and services.

Sreelatha T. and Chandra Sekhar CH. (2012)36 had commented that after
the nationalization of banks in India, this sector has been growing without Leaps and
bounces and catering to the needs of various segments of the society. In recent times,
the Banking Sector has been making rapid straights by using information technology
as a platform and endeavoring to scale higher heights. An attempt has been made in
this paper to examine various innovative instruments that have been introduced by
Banks in recent times. Information Technology enabling banking services are found
to driving transformation in the Industry. Information Technology course do promise
to change the pace of banking to the next few years. Mobile bank and internet banking
are going to make indoor in the banking sector in the near future. Even though IT
systems are complex and sophisticated but they are “energy guzzlers”. Hence, the
future for banking sector is going to make rapid straights in near future.

Sundara Panidan P et.al (2014)37 in a study aimed that to know the

customers’ satisfaction on technology enabled banking services in Nagai district. The
study results indicated that customers access to bank services, online shopping
facilities, privacy is protected, Time taken for transactions, Mobile banking services,
E banking services, Credit card services and Bank charges on technology services
were found to factors that influences customers’ satisfaction. It has also noted that the
variables such as Pass words and PINs, Safety lockers information, ATM facility
services, Internet banking services, online shopping facilities, privacy is protected,
Time taken for transactions, Mobile banking services, E banking services, Credit card
services and Bank charges on technology services are positively associated with the
level of satisfaction. Further, it indicates that these variables that contribute to the
satisfaction level of the respondents on technology enabled services of banks are
statistically significant implying that their influence is stronger than the other
variables.

25
2.5 Service Quality in Banking Industry

According to Parasuraman et. al., (1994)38 in the recent past there had been
more debate were made to the concept that whether customer satisfaction is a
precursor of service quality judgments or the other way round. Definitive analysis has
showed that service quality cannot be divorced from the concept of customer
satisfaction.
Hussein A. et. al (2003)39 had argued in their empirical research work that
service quality in banking industry is a significant issue to be discussed. The study
analyzed service quality in the UAE Islamic banks and compared service quality
between the Dubai Islamic Bank and the Abu Dhabi Islamic Bank. Linear regression
results study indicated a positive and statistically significant relationship between
overall service quality and the SERVQUAL dimensions in the UAE Islamic banks. It
was also found in the study that empathy and tangibles were the most important
dimensions of banking services. ANOVA results showed that there was no significant
difference between the levels of overall service quality in the Dubai Islamic Bank and
the Abu Dhabi Islamic Bank. ANOVA results also indicated that there was no
significant difference in the level of service quality in the UAE Islamic banks based
on the customer’s gender and nationality. The results of the study indicated, that there
existed a significant difference in the level of service quality in the UAE Islamic
banks based on the customer’s age, education and number of years with the bank.

According Lia Patricio, et.al (2003)40, service quality has been identified as a
key determinant of the intention to use a service, and has therefore been extensively
studied. The increased use of internet as a delivery channel has prompted the
development of e- service quality measure. Customers tend to use the different service
delivery system in a complimentary way, taking into account their assessment of the
advantages and disadvantages of each one. Customer characteristics, and the type of
financial operation, are also identified as important factors influencing this process.
This result indicate that in a multi-channel context, customer satisfaction with internet
services depends not only on the performance of this channel isolation, but also on
how it contributes to satisfaction with overall service offering.
Mukherjee et.al (2003)41in their research paper presented a brief note on the
development of a theoretical framework for measuring the efficiency of banking
services taking into account physical and human resources, service quality and
26
performance. The authors commented that impact of expenditures on quality
improvement efforts and the impact of service quality on financial outcomes have
long intrigued researchers. They pointed out that the banks traditionally focused on
how to transform their physical resources to generate financial performance and they
inadvertently ignored the mediating intangible factor of service quality. A theoretical
framework on the optimization triad of resource, service quality and performance was
proposed in the study creating linkage with the marketing variables to the financial
metrics. The author commented that a measure for the return on quality is developed
as the ratio of the potential improvements in financial performance by enhancement of
service quality. Empirical results obtained from a study of 27 Indian public sector
banks and their customers helped the researchers to measure the impact of service
quality on financial performance, optimal level of service quality that can be
generated using existing resources and the opportunity cost for sub-optimal service
delivery. The findings of the study stated that banks delivering better service were
shown to have better transformation of resource to performance using superior service
delivery as the medium. The result of the study confirmed that the linkage between
resource, service quality and performance.

According to Al-Hawari et.al (2005)42,automated service quality has been

recognized as the factor which determines the success or failure of electronic
commerce. Those models currently available to measure automated service quality
and limited in their focus, encompassing only one electronic channel-the internet-
thereby ignoring attributes of other automated service channels. In relation to the
banking sector, research has identified that bank customers tend to use a combination
of automated service channels. As such, this research strives to develop a
comprehensive model of banking automated service quality taking into consideration
the unique attributes of each delivery channel and other dimensions that have a
potential influences on quality issues. The proposed model has been empirically tested
for undimentionality, reliability, and validity using confirmatory factor analyse. The
study finding is the gap analysis shows that product variety is having more gap
between customer expectation and perception of service quality.

Balestrini and FangbingHuo (2005)43 have opined that service quality has
become a primary competitive weapon for banks to achieve success in the market
place with commonly undifferentiated products. For International banks, however,
27
pursuing a superior service quality strategy could be particularly challenging as cross-
national customers may have different attitudes about service expectations fashioned
by cultural and social norms. The article also investigated the cultural and gender
influences on service quality expectations between Chinese and British retail bank
customers. The study used self-administered questionnaires from the SERVQUAL
instrument. An e-mail survey was conducted with 160 demographically similar
Chinese and British retail bank customers. The major findings of the study were: (1)
British retail bank customers had higher overall expectations of service quality and
also predominantly had higher expectations on responsiveness, reliability, empathy,
and assurance dimensions of service quality; (2) Chinese retail bank customers had
higher expectations on tangible aspects of service quality; (3) British female
customers expect more responsiveness in retail banking services than male customers.
The finding of research can be significantly used by the financial services marketers
to develop nationally-based and gender-based service strategies in China and the
United Kingdom.

Pairot (2008)44 defined Customer’s satisfaction as the company's ability to

fulfill the business, emotional, and psychological needs of its customers. In the words
of Oliver (1981, p.27), customer satisfaction is “the summary psychological state
resulting when the emotion surrounding disconfirmed expectations is coupled with the
consumer’s prior feelings about the consumption experience.” Customer satisfaction
has also been defined by Hunt (1977, p.459) as “an evaluation rendered that the
(consumption) experience was at least as good as it was supposed to be.”
Furthermore, Engel and Blackwell (1982, p.501) have opined it to be “an evaluation
that the chosen alternative is consistent with prior beliefs with respect to that
alternative”. Thus, it can be said that customer satisfaction is a judgement by the
customer after the purchase has taken place. Satisfaction is the consumer’s
contentment response. It is a considered opinion that either a product or service
feature, or the product or service itself, endows with a pleasurable level of
consumption-related fulfilment. However, customers have different levels of
satisfaction as they have different attitudes and experiences as perceived from the
company.

Sadique Khan and Mahapatra’s (2009)45 in their study aims at evaluating

the service quality of internet banking (i-banking) services in India from customer’s
28
perspective. A structured questionnaire containing 44 quality items was administered
among various target groups. Seven quality dimensions, viz. reliability, accessibility,
user friendliness, privacy/security, efficiency, responsiveness and fulfillment were
identified as the principal component factor analysis. Demographic analysis of data
revealed that gender was hardly a basis for use and evaluation of service quality of i-
banking in most of the cases across various categories of customers. A valid
mathematical model was proposed to assess the overall service quality using
regression analysis. The results of the study also showed that customers were
satisfied with quality of service on four dimensions such as reliability, accessibility,
privacy/security, responsiveness and fulfillment, but least satisfied with the ‘user-
friendliness’ dimension. The empirical findings not only prioritised different
parameters but also provided guidelines to bankers to focus on the parameters on
which they needed to improve.

Leevlyn L. R. Rodigues, et.al (2009)46 in their research study focus on

Service quality and customer satisfaction: A case study in general insurance using
customized SERVPERF Instrument. The authors argued that to investigate the
relationship between service quality and customer satisfaction in a service industry.
The study found that there is a significant difference in service quality and customer
satisfaction perception in General insurance Industry. Customer satisfaction not only
depends upon service quality that also depends upon several other variables. It is
suggested that quality improvement initiatives by the management in service quality
but also focus on customer satisfaction variables with a holistic approach.

Vanniarajan T. and Nina Mohammed (2009)47 in their research study

aimed assess the perceptions of service quality in Indian Banking Industry from the
perspective of both customers and bank officials. Factoring analysis has used, one
variance analysis used. Customer perceptions of service quality provided in Indian
Banking Industry were consistently lower than their expectations. The bank officials
over estimated about their service delivery in meeting customer’s expectations of
service quality. From the result gap analysis, had been concluded that the service
quality gap and delivery gap were main reason contributing to the service quality
shortfalls in the Indian banking Industry. The service quality model was derived from
the magnitude and direction of time gaps. These are –understanding, service
standards, service performance, and communication and service quality. The study
29
simply tried to present the findings of assessing the expectations and perceptions of
service quality for customer and bank officials in banking industry. The overall
negative score is higher among the customers in Nationalised Banks followed by SBI
groups.

Sandip Ghosh Hazra, and Kailash B.L Srivastava (2010)48 in their

empirical study critical evaluated the service quality determinant of competitiveness
and for establishing and sustaining satisfying relationships with customers. Customer
minded corporate culture, an excellent service system design and effective use of
technology and information are crucial to superior service quality. ANOVA and
Factor Analysis used in this study .The study examined the strength of association
among the independent variables namely service quality perception and dependent
variables namely customer satisfaction, customer loyalty, and customer commitments.
The results of the study showed that customer value dimensions of perceived service
quality; assurance –empathy, tangibles, security and reliability. All the dimensions of
service quality tend to have a strong impact on customer satisfaction depending on the
quality of performance and customer satisfaction depends upon the quality of service
provided by the banks.

Arora et.al (2011)49 in their research study had argued that various
dimensions of service quality and these dimensions determine customer satisfaction in
Indian banking sector. The study has applied service performance model
(SERVPERF), the survey undertaken to test the dimensionality of server by using
construct validity and reliability test. Further multi variable regression analysis was
used to see the impact of service quality dimensions on customer satisfaction. The
study has found that banks need to focus more on reliability of the service in order to
keep their customer satisfied followed by service interaction. The study suggests that
to improve the overall customer satisfaction, banks can work upon the above
mentioned areas. Service quality in Indian retail banking may comprise of tangibility,
reliability and third factor service interaction takes care of responsiveness, empathy,
assurance, relation quality and employee customer relationship etc. The possible
explanation of this finding would be that tangibility and reliability have been
perceived distinctively by customers whereas other factors are getting combined or
coming separately depending on the nature of industry, culture and economic
environment of the nation. Tangibility of the bank was found as major determinant of
30
customer satisfaction, employee should be keeping the promises and provide reliable
and error free service to the customer.

Ashfaq Ahmad et.al (2011)50 in their empirical study aimed at analyzing the
services quality of products offered by Islamic banks with mediating effect of
customer satisfaction on bank performance. There is an increasing competition among
banks to capture new customers as well as to retain existing customers. It requires a
study to measure the impact of service quality on customer satisfaction towards bank
performance. Data were collected from 720 respondents of 60 branches of six full-
fledged Islamic banks operating in Pakistan by simple random sampling. The
researcher used PLS based SEM to assess the magnitude of the relationship among
service quality, customer satisfaction and performance of Islamic banks. The results
indicate a strong positive relationship between service quality and customer
satisfaction, while weak positive correlation exists between service quality and bank
performance, but negative relationship was found between customer satisfaction and
performance of Islamic banks in Pakistan. Furthermore, it is found that customer
satisfaction does not mediate between service quality and bank performance. The gap
between customer satisfaction and bank performance may be due to bankers’
concentration on network expansion instead of customer orientation and customer
focus. This study enables the bankers, policy makers and researchers to identify the
factors that could result a discrepancy between satisfaction and performance of banks.

Mohammad and Alhamadani (2011)51 in their research study aimed to

examine the level of service quality as perceived by customers of commercial bank
working in Jordan and its effect customer satisfaction, Service quality measure is
based on modified version of SERVQUAL as proposed by Parasuraman et al. (1988),
which involve five dimensions of Service quality, namely Reliability,
Responsiveness, Empathy, Assurance, and Tangibles. Customer satisfaction was
measured by a nine item adapted from Walfried et al. (2000), 260 questionnaires were
distributed randomly to customers of commercial banks branches located (thirteen
commercial banks in Jordan ) in IRBID (Acity of Jordan ). Multiple regression
analysis was employed to test the impact of service quality on customer satisfaction.
The results of this study indicated that service quality is an important antecedent of
customer satisfaction. It is apparent from the present study that managers and decision
makers in Jordanian commercial banks to seek and improve the elements of service
31
quality that make the most significant contributions on customer satisfaction .Quality
is such an important issue that it is considered a really significant concept in our real
life. It is regarded as a strategic organizational weapon. And the pressing need of
developing service organizations and upgrading their services necessitates the
measuring of service quality.
Hayat, M. Awan, et.al (2011)52 conducted a comparative study on
Conventional and Islamic Banks in Pakistan. The research examined the dimension of
service quality from the customer perspective. Given that service quality perceptions
depends substantially on the service context, every effort made through study to
maintain closely as possible the concepts and working of the SERVQUAL model,
although modification of items was necessary. The research also establishes that the
compositions of these dimensions are not too different from SERVQUAL. Although
many of the items were similar in nature, their dimensional alignment was
significantly different than the standard SERVQUAL scale. The main are of interest
in this study focused on understanding the determinants of service quality and
customer satisfaction in banking industry. The study proposed that SERVQUAL
dimensions would replicate in the banking industry but certain modification of
structure that is based on the priority of service quality and customer satisfaction
element from the perspective customers. In addition the functional quality is a
principal determinant of overall service quality.

Sivesan S. (2012)53 research study drew our attention on the impact of the
service quality on customer‘s satisfaction I banking sectors. The study evaluated
Quality of services based on the: reliability, functionality, responsiveness service
design and assurances parameters, The study found that customer satisfaction is
appraised by service facility and accessories, convenience and supporting service,
customer value, customer loyalty. There is positive linear relationship between the
service quality and customer satisfactions. Finally, service quality influences on
customer satisfaction. The study further points out that keen attention should be paid
to polish service quality. Because, service quality are inter related with customer
satisfaction. Customer satisfaction and service quality are most important elements in
achieving organizational goals. Organization tries to have constant customer satisfied
with the service provided by it. Because of, service quality plays a pivotal role in
determining customer satisfaction. In a way, quality needs to be understood and
32
manage throughout the services of an organization. Hence, quality services are
considered as most important aspect. Whatever aspect (reference object establish,
relevance of emotion) for the distance are satisfaction or quality particularly
importance regarding the impact on customer retention, transaction related
satisfaction valued have to be complement by product, service related quality
perception of customers because of the ephemeral characters emotional determination
of the satisfaction construct. Here we have to consider the significance customer
satisfaction due to customer satisfaction depends on service quality. Even though,
customer satisfaction is a feeling which is differed person to person. By that, the
present studies initiated to find out that to what extent impact of the quality service on
customer satisfaction.

Amin Mojoodi et.al (2013)54 in their study aimed at providing a model which
is able to assess the quality of any kind of banking technologies (whether the
technologies that are already in use or those that will be used in the future). The
service dimensions identified in this study are: easiness, assurance, security,
customization, comprehensiveness, convenience, support services and the employee
knowledge. These dimensions will act as guidelines for the managers of banking
services as it will help them to understand the particular dimensions that customers
consider while evaluating the service delivery process of banks using technology. The
authors say that various dimensions of service quality identified in this study should
be viewed as levers of improving bank’s perceived service quality in the minds of its
customers.

2.6 Conclusion

Technology plays a vital role in “Customer Satisfaction”, especially in

Banking Sector. With the advent of internet, a wide range of services have been
offered by bank through online such as processing cheque, cash and direct debit
payments and withdrawals, setting up and maintaining customers’ accounts, dealing
with enquiries, promoting and selling financial products and services to customers,
using a computerized system to update account details, general administration tasks
such as maintaining records, opening post and sending letters to customers, operating
overseas currency bills, helping customers with loan and mortgage applications. But
so far no research scholar has been undertaken for an extensive study on the role of

33
updated technology on providing customer service that too with reference to leading
nationalized banks like State of Bank of India in Chennai City. All these issues have
been identified as the prime motive for the conduct of this study.

34
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