Managing Service Quality with Technological Innovations in the Banking Industry

A researcher’s perspective


Academic Paper, 2019

170 Pages


Excerpt

TABLE OF CONTENTS

CHAPTER 1
INTRODUCTION
1.1 Background of the research
1.2Relevance of Banking Industry for economic growth of India
1.3 Problem Statements of the Research
1.4 Significance of the Research

CHAPTER 2
LITERATURE REVIEW
2.1History of the Banking Industry of India
2.2 Structure of the Banking Industry of India
2.3 Constituents of the Commercial Banks of India
2.3.1 Public Sector Banks
2.3.2 Private Sector Banks
2.3.3 Foreign Sector Banks
2.4 Constituents of the Non - Commercial Banks of India
2.4.1 Local Area Banks
2.4.2 Co-operative Banks
2.4.3 Regional Rural Banks
2.5 Approaches to Quality
2.6 Models and Theories of Service Quality and Customer Satisfaction
2.6.1 Grönroos Model of Service Quality
2.6.2 The SERVQUAL Model
2.6.3 The SERVPERF Model
2.6.4 Haywood-Farmer's Model of Service Quality
2.6.5 Attribute Model of Service Quality
2.6.6 Boulding, Kalra, Staelin and Zeithaml Model of Service Quality
2.6.7 Rust and Oliver’s the three-component Model of Service Quality
2.6.8 Rust, Zahorik and Keiningham’s Return-on-Quality approach of Service Quality
2.6.9 Philip and Hazlett’s P-C-P service attribute Model of Service Quality
2.6.10 Dabholkar, Shepherd and Thorpe’s Model of Service Quality
2.6.11 Brady and Cronin’s hierarchical approach of Service Quality
2.6.12 Kang and James adaptation of the Grönroos Model of Service Quality
2.6.13 Kang's hierarchical Service Quality framework
2.6.14 Carr's FAIRSERV Model of Service Quality
2.6.15 BANKSERV Model of Service Quality
2.6.16 The Dissonance Theory
2.6.17 The Contrast Theory
2.6.18 The Expectancy Disconfirmation Paradigm Theory
2.6.19 The Expectation Theory
2.7 Review of significant Research Papers
2.8 Profile of Banks chosen for Research
2.8.1 Public Sector Banks
2.8.2 Private Sector Banks
2.8.3 Foreign Sector Banks
2.9 Strategic level Customer Centric policies in the chosen Banks
2.9.1 Public Sector Banks
2.9.2 Private Sector Banks
2.9.3 Foreign Sector Banks
2.10 Indian Customer Satisfaction Index score
2.11 Issues raised with India’s Banking Ombudsman
2.11.1 Nature wise segmentation of complaints
2.11.2 Zone wise segmentation of complaints
2.11.3 Population wise segmentation of complaints
2.11.4 Bank wise segmentation of complaints

CHAPTER 3
RESEARCH METHODOLOGY
3.1 Objectives of the Research
3.2 Hypotheses of the Research
3.3Research Site
3.4 Research Design
3.5Data Collection
3.6 Sampling

DATA ANALYSIS
4.1 Demographic parameters of the Research
4.1.1 Gender Profile
4.1.2 Range of customer ages
4.1.3 Customer’s Annual income
4.1.4 Occupation of the participants
4.1.5 Respondents across Banks
4.1.6 Types of Banking Products
4.1.7 Account Held Duration
4.2 Demographic segmentation based Analysis
4.2.1 Age Group based analysis of Customer Service Quality Scores
4.2.2 Gender based analysis of Customer Service Quality Scores
4.2.3 Occupation based analysis of Customer Service Quality Scores
4.2.4 Income based analysis of Customer Service Quality Scores
4.2.5 Time Account held based analysis of Customer Service Quality Scores
4.2.6 Banking Product based analysis of Customer Service Quality Scores
4.2.7 Region based analysis of Customer Service Quality Scores
4.2.8 Type of Bank Sector based analysis of Customer Service Quality Scores
4.2.9 Specific Bank based analysis of Customer Service Quality Scores
4.3 Correlation Analysis amongst all demographic parameters
4.4 Customer Based SERVQUAL Analysis
4.4.1 Perception based analysis of Customer Service Quality
4.4.2 Reliability based analysis of customer perception
4.4.3 Empathy based analysis of customer perception
4.4.4 Responsiveness based analysis of customer perception
4.4.5 Assurance based analysis of customer perception
4.4.6 Tangibility based analysis of customer perception
4.5 Customer Based SERVQUAL Gaps Analysis
4.5.1 Reliability Gap based analysis of SERVQUAL
4.5.2 Empathy Gap based analysis of SERVQUAL
4.5.3 Responsiveness Gap based analysis of SERVQUAL
4.5.4 Assurance Gap based analysis of SERVQUAL
4.5.5 Tangibility Gap based analysis of SERVQUAL
4.5.6 Comparison of SERVQUAL gap in the four Regions
4.5.7 Comparison of SERVQUAL gaps for different sector of Banks
4.5.8 Comparison of SERVQUAL gaps for each Bank
4.6 Bank employees based SERVQUAL analysis
4.6.1 Assurance based perception by Bank Employees
4.6.2 Reliability based perception by Bank Employees
4.6.3 Empathy based perception by Bank Employees
4.6.4 Responsiveness based perception by Bank Employees
4.6.5 Tangibility based perception by Bank Employees
4.7 Cronbach’s Analysis of SERVQUAL parameters
4.8 Challenges faced by Bank Employees in providing Quality Services

CHAPTER 5
CONCLUSIONS, RECOMMENDATIONS AND SUGGESTIONS
5.1 Discussion and Findings
5.2 Conclusion
5.3 Recommendations and Suggestions
5.3.1 Proposed Dimension of Service Quality: Sustainability
5.3.2 Proposed Quick Calculator for measuring Service Quality
5.3.3 Recommendations for bankers and customers to improve Service Quality
5.4 Research Limitations
5.5 Further scope of Research

BIBLIOGRAPHY

ANNEXURE I - BOOK QUESTIONNAIRE

LIST OF TABLES

Table 2. 1: Market Capitalization of Public Sector Banks in India as on 16 August, 2019

Table 2. 2: Market Capitalization of Private Sector Banks in India as on 16 August, 2019

Table 2. 3: Indian Customer Satisfaction Index scores, 2017

Table 2. 4: Category wise distribution of complaints received by Banking Ombudsman

Table 2. 5: Number of complaints received OBO wise in North zone

Table 3. 1: Number of participants from each Region

Table 3. 2:Number of participants from each Banking Sector

Table 3. 3: Banks chosen for Research under each sector

Table 4. 1: Gender wise segregation of participants

Table 4. 2: Age wise segregation of participants

Table 4. 3: Income wise segregation of participants

Table 4. 4: Occupation wise segregation of participants

Table 4. 5: Composition of the participants across Banks

Table 4. 6: Types of Banking Products of the participants

Table 4. 7: Account duration of the participants

Table 4. 8 : Age Group based analysis of Customer Service Quality Scores

Table 4. 9: Gender based analysis of Customer Service Quality Scores

Table 4. 10: Occupation based analysis of Customer Service Quality Scores

Table 4. 11: Income based analysis of Customer Service Quality Scores

Table 4. 12: Time Account held based analysis of Customer Service Quality Scores

Table 4. 13:Banking Product based analysis of Customer Service Quality Scores

Table 4. 14: Region based analysis of Customer Service Quality Scores

Table 4. 15: Type of Bank Sector based analysis of Customer Service Quality Scores

Table 4. 16: Specific Bank based analysis of Customer Service Quality Scores

Table 4. 17: Correlation Analysis amongst all demographic parameters

Table 4. 18: Perception based analysis of Customer Service Quality

Table 4. 19: Reliability based analysis of customer perception

Table 4. 20: Empathy based analysis of customer perception

Table 4. 21: Responsiveness based analysis of customer perception

Table 4. 22: Assurance based analysis of customer perception

Table 4. 23: Tangibility based analysis of customer perception

Table 4. 24: Customer Based SERVQUAL Gaps Analysis

Table 4. 25: Reliability Gap based analysis of SERVQUAL

Table 4. 26: Empathy Gap based analysis of SERVQUAL

Table 4. 27: Responsiveness Gap based analysis of SERVQUAL

Table 4. 28: Assurance Gap based analysis of SERVQUAL

Table 4. 29: Tangibility Gap based analysis of SERVQUAL

Table 4. 30: Comparison of SERVQUAL gap in the four Regions

Table 4. 31: SERVQUAL Gap in all four chosen Regions

Table 4. 32: Comparison of SERVQUAL gaps for different sector of Banks

Table 4. 33: Comparison of SERVQUAL gaps for each Bank

Table 4. 34: Assurance based perception by Bank Employees

Table 4. 35: Reliability based perception by Bank Employees

Table 4. 36: Empathy based perception by Bank Employees

Table 4. 37: Responsiveness based perception by Bank Employees

Table 4. 38: Tangibility based perception by Bank Employees

Table 4. 39: Cronbach’s Analysis of SERVQUAL parameters

Table 5. 1: Proposed Quick Calculator for Incognito Visits or Service Audits

LIST OF FIGURES

Figure 2. 1: Indian Banking Structure

Figure 2. 2: Grönroos model of Service Quality

Figure 2. 3: Identification of gaps in Service Quality

Figure 2. 4: The initial 10 determinants of Service Quality

Figure 2. 5: The revised 5 determinants of Service Quality

Figure 2. 6 : The SERVPERF Model

Figure 2. 7: Haywood-Farmer's Model of Service Quality

Figure 2. 8: Attribute Model of Service Quality Haywood–Farmer as adapted by Seth et al

Figure 2. 9: Boulding, Kalra, Staelin and Zeithaml Model of Service Quality

Figure 2. 10: Rust and Oliver’s the three-component Model of Service Quality

Figure 2. 11: Rust, Zahorik and Keiningham’s Return-on-Quality approach of Service Quality

Figure 2. 12: Philip and Hazlett’s P-C-P service attribute Model of Service Quality

Figure 2. 13: Dabholkar, Shepherd and Thorpe’s Model of Service Quality

Figure 2. 14: Brady and Cronin’s hierarchical approach of Service Quality

Figure 2. 15: Kang and James adaptation of the Grönroos Model of Service Quality

Figure 2. 16: Kang's hierarchical Service Quality framework

Figure 2. 17: Carr's FAIRSERV Model of Service Quality

Figure 2. 18: Zone wise receipt of complaints received by Banking Ombudsman

Figure 2. 19: Population group-wise distribution of complaints during 2017-

Figure 2. 20: Bank sector wise number of complaints received by Banking Ombudsman

Figure 4. 1: Gender wise segregation of participants

Figure 4. 2: Age wise segregation of participants

Figure 4. 3: Income wise segregation of participants

Figure 4. 4: Occupation wise segregation of participants

Figure 4. 5: Composition of the participants across Banks

Figure 4. 6: Types of Banking Products of the participants

Figure 4. 7: Account duration of the participants

Figure 4. 8: Age Group based analysis of Customer Service Quality Scores

Figure 4. 9: Gender based analysis of Customer Service Quality Scores

Figure 4. 10: Occupation based analysis of Customer Service Quality Scores

Figure 4. 11: Income based analysis of Customer Service Quality Scores

Figure 4. 12: Time Account held based analysis of Customer Service Quality Scores

Figure 4. 13: Banking Product based analysis of Customer Service Quality Scores

Figure 4. 14: Region based analysis of Customer Service Quality Scores

Figure 4. 15: Type of Bank Sector based analysis of Customer Service Quality Scores

Figure 4. 16: Specific Bank based analysis of Customer Service Quality Scores

Figure 4. 17: Correlation Analysis amongst all demographic parameters

Figure 4. 18: Perception based analysis of Customer Service Quality

Figure 4. 19: Reliability based analysis of customer perception

Figure 4. 20: Empathy based analysis of customer perception

Figure 4. 21: Responsiveness based analysis of customer perception

Figure 4. 22: Assurance based analysis of customer perception

Figure 4. 23: Tangibility based analysis of customer perception

Figure 4. 24: Customer Based SERVQUAL Gaps Analysis

Figure 4. 25: Reliability Gap based analysis of SERVQUAL

Figure 4. 26: Empathy Gap based analysis of SERVQUAL

Figure 4. 27: Responsiveness Gap based analysis of SERVQUAL

Figure 4. 28: Assurance Gap based analysis of SERVQUAL

Figure 4. 29: Tangibility Gap based analysis of SERVQUAL

Figure 4. 30: Comparison of SERVQUAL gap in the four Regions

Figure 4. 31: SERVQUAL Gap in all four chosen Regions

Figure 4. 32: Comparison of SERVQUAL gaps for different sector of Banks

Figure 4. 33a: Comparison of SERVQUAL gaps for Public Sector Bank

Figure 4. 34: Assurance based perception by Bank Employees

Figure 4. 35: Reliability based perception by Bank Employees

Figure 4. 36: Empathy based perception by Bank Employees

Figure 4. 37: Responsiveness based perception by Bank Employees

Figure 4. 38: Tangibility based perception by Bank Employees

ABOUT THE AUTHOR

Dr. Sheerali Arya is Programme Leader for Business (NZDB5) at the reputed Aspire2 International College which is the largest PTE in New Zealand. She holds a PhD in Management and specializes in Service Quality Management. She implements Quality tools in different Industries to analyze and customize the driving forces of customer satisfaction. She has more than fourteen years of experience in the fields of her core competencies of Research, Education and Banking Operations. She has also previously worked as an Academic Tutor in Stellaris PTE Ltd (New Zealand) and as Manager in ICICI Bank Limited (India). Throughout her career she has received several awards. Most notable among them are a community award from the Mayor of Tauranga, New Zealand for Exceptional Adult Educator, Best Employee and Best Service Star at ICICI Bank Ltd. Sheerali has been featured in several prominent Newspapers of New Zealand like Rotorua Weekender and Priority One. Her Research Papers on Service Quality have been published in leading academic International Journals. She is also a keen writer and poet with her articles and poetry having been published in major Newspapers and Magazines like Times of India, The Hindu and Aalav. She also devotes equal time towards Social work and is a member of welfare Organizations like UNICEF and Breast Cancer Foundation, NZ. Currently, Sheerali is living in New Zealand with her family.

ACKNOWLEDGEMENT

To begin with, I would like to thank Prof. (Dr.) T.V.Raman for continuous support, patience, motivation, and enormous expertisein my research. His guidance assisted me to conduct this research and write this book. I am obliged to all the managers and staff of the various banks who have gave me the opportunity to be an observer and provided valuable feedback related to my research. This study would not have been feasible without their valuable assistance. I want to thank my family for their love and support throughout this journey. It was my father Shri. Ashok Kumar Munshi's dream to see me become an author and I hope I have made him proud in heaven. My mother Mrs. Vijay Munshi has been my pillar of strength, my children Shaunak Arya and Shamik Arya have understood when I was busy multi-tasking and my in-laws for being supportive during this entire period. Finally, a big thanks to my husband Mr. Sanjeev Kumar Arya for encouraging me to pursue my passion. His confidence in me stimulated me to fly high and fulfill my aspirations.

ABSTRACT

Customer satisfaction is paramount to any sector which provides service and needs to sustain its advantage over the competitors(Bright Jowerts & Franco, 2017). The Banking Industry of India is highly competitive with the advent of recent entrants into the market functioning along with well-established Banks. It becomes imperative for senior management of banks to focus on quality of services and products offered to customers to ensure their growth and retention(Manilall, Jhalukpreya, & Ephraim, 2014). Banks need to continuously innovate their methodologies and techniques to remain at the fore front. Even though the different sector of Banks in India are making huge efforts in achieving this objective, there is not enough proof to demonstrate comparative analysis of how customer satisfaction is impacted by the quality of their services, leaving a major gap in Indian literature.

This research therefore tries to examine the impact of service quality on customer satisfaction in Banking Industry of India. The researcher has collected primary data from 850 customers of public, private and foreign sector banks operating in the northern region of India namely Delhi NCR, Uttar Pradesh, Rajasthan and Punjab. The researcher also took feedback from 50 bankers including one Senior Manager from each Bank to analyze their perspectiveand initiatives taken at strategic level to ensure optimum customer satisfaction is provided. The data was collected through a structured questionnaire for both customers and bankers. The secondary data was collected from academic journals, bank annual reports and credible websites. The aim of this research is specifically to analyze the dimensions of the perceived and expected service quality and its effects on customer satisfaction.

The findings show that the customers’ expectations of quality of service rendered to them is quite high, continuous in nature and has a huge impact on their satisfaction levels. The research further highlighted that customer satisfaction is influenced by multiple variables like personalized interaction, environment, monetary benefits, and product worth among others. To enhance the service quality at each branch, banks must concentrate on creating customer-oriented strategies, culture of empathized service and adopt a persistent approach to remove all service related gaps.

CHAPTER 1

INTRODUCTION

The first chapter of this bookdiscusses the background of the research followed by the significance of banks for economic growth of India. Then the chapter discusses the problem statements of the research and concludes with significance of the research.

1.1 Background of the research

Quality drives development of all corporate strategies. Consequently, the concept of quality is regarded as a very important factor for businesses(Dean & Bowen, 1994). The word Quality was first used by Peters and Waterman in their work In Search of Excellence who sated that the core interpretation of quality is complete satisfaction of the customers expressed and implied requirements(Peters, Waterman, & Jones, 1982).According to ISO(1994), Quality is the totality of the characteristics of a product or service which bears on its ability to meet a stated or implied need. This enables organizations to accurately define the needs related to design, performance, price, security, delivery and other business activities to have the competitive advantage over their competitors(Hoyle, 2017). There are three main criterion on which framework of quality is based namely customer based, manufacturing and service based and valuebased(Androniceanu, 2017). Customerbased quality is the degree to which a particular product satisfies a specific customer's wishes and on how well it justifies customer preferences(Zineldin, 2005). Manufacturing and service based quality is the degree to which conformance to needs is met(Reeves & Bednar, 1994). Value based quality is the degree of excellence at a satisfactory price and the control of variability at an acceptable cost(Garvin, 1988). According to Newell & Dale(1991)quality needs to be accomplished in five fundamental fields of customers, equipment, procedures, materials and environment to guarantee customer requirements are met.

Service quality concentrates mainly on meeting the needs and specifications of customers and how well the service provided meets their expectations(Reeves & Bednar, 1994). Differences between expected performance and perceived performance result in disconfirmation which can either be positive or negative and is called as the paradigm disconfirmation(Armstrong & Seng, 2000). Expectations are based on individual standards, values, wishes and needs and are therefore highly individualistic in nature. Customer expectations are service beliefs that serve as standards or benchmarks against which quality is assessed(Armstrong & Seng, 2000). Customer satisfaction has been essential to any successful business since several decades(Caruana, 2002). It is fundamental in nature and is commonly acknowledged in the product and service industries as the main measure of performance and the key to any enterprise's achievement(Lovelock & Patterson, 2015). The intangible nature of customer satisfaction makes it hard to assess and many researchers have tried to examine the background and implications of service quality on customercontentment, market share, profitability and service efficiency(Ramu & Anbalagan, 2017). Previous studies have described customer satisfaction as ameasure of how products and services provided by a company meet or exceed customerexpectancy (Grzegorz Biesok, 2011).Customer satisfactionis defined by earlier authors as “the number of customers, or percentage of totalcustomers, whose reported experience with a firm, its products, or its servicesexceeds specifiedsatisfactiongoals”(Farris, Bendle, Pfeifer, & Reibstein, 2010).However, the general evaluation of satisfaction levels is based on total usage of services or products over the time leading to a greater emphasis on cumulative customer satisfaction(Yang & Peterson, 2004).

The banking sector is facing swift advancement and constant changes in form of keeping pace with latest technologies, economic uncertainty, and tough competition and demanding customers amongst others(Casu, Ferrari, & Zhao, 2013). Efficiency and effectiveness have become the motto behind the achievement of banks and its proper functioning, especially in providing continuous exceptional customer service to its customers(Sufian, 2011). Service is intangible in nature and its perception depends on comprehension of each customer's requirements from time to time(Sufian, 2011). Customers now are well aware of the products and services available in market and therefore expects the best from his bank(Sparrow & Budhwar, 1997). Remarkable quality of customer service is bound to boost profitability of the bank who endeavor to keep up with these expectations. This interest is primarily owing to the fact that better service leads to enhanced customer satisfaction, customer loyalty, readiness to recommend banks services to others and reduction in complaints(Yavas, Benkenstein, & Stuhldreier, 2004). Customer satisfaction is therefore quite a complicated issue and a source of constant discussion about exact parameters required for improving service quality(Zeithaml, Berry, & Parasuraman, 1996). The improvement in living standards of customers is also compelling the banks to evaluate their customer service strategies.

Many banks prefer to retain current customers’ along with gaining new ones as the cost of obtaining new customers is greater than the cost of maintaining existing customers(Hansemark & Albinsson, 2004). There is sufficient evidence that demonstrates that the service quality has strategic advantages for increasing the market share and return on investment of a bank. According to these studies, the Banks laying stress on customer service will emerge front runners and have distinctive advantage(Zeithami, 2000). This research aims to provide banks, a quantitative estimate of their services with intricate analysis on whether they are able to fulfill the expectations of customers.

1.2 Relevance of Banking Industry for economic growth of India

Business profitability has been frequently interrelated to customer satisfaction in the banking sector as they provide services and products as per needs of customers and are expected to fulfill their expectations(Metawa & Almossawi, 1998). Once thee service has been rendered, the feeling or behavior of customers is directly related to their further relations with the bank (Molina, Consuegra, & Esteban, 2007). Previous studies on customer satisfaction in banks indicatethat that high levels of contentment leads to increased customer loyalty, higher profit levels and customer retention (Cohen, Gan, Hwa, & Chong, 2006). It also encourages banks to enhance the quality of service by providing innovative and relevant products for their customers. This customer satisfaction is therefore generally recognized as one of the main components for banks survivalin a competitive financial market.

Competition in the Banking sector in India is regarded as extremely intense with the advent of as fresh entrants along with existing well established banks in public, private and foreign sector(Kamath, et al., 2003). This competition has become even fiercer in the last ten years. The Banks play a major role in India’s economic development as it is an entity which accepts deposits and channelizes it directly to the financial market in form of lending for the purpose of business and manufacturing, thus facilitating commerce (Bhattacharya & Patel, 2005).Banks provide loans to the business for the purchase of raw materials and to fulfil other necessities like working capital. Individual customers prefer to keep their money in Banks in different forms like saving accounts, fixed deposits or recurring deposits as it is considered safe and earns them interest(Kuzilwa, 2005). This monetary benefit stimu­lates the need to save and increase the volume of savings. These savings are further utilised to generate new capital assets which aids the growth process of the country (Griffin, 1978).

A stable and effective banking industry is an important precondition for improving the financial standard of a nation. It is so essential that its absence leads to stagnation of economic development of nation, inability to form capital, obstruction of businesses and halt of product innovations(Bhattacharyya, Lovell, & Sahay, 1997). The banking system encourages national and international commerce as a majority of trade is carried out on credit. Banks provide references in form of Bank Guarantees, Letters of Credit to ensures that companies can import or export goods for their customers(Iqbal & Sami, 2017). This is particularly important when the trading companies function in different countries and maybe unknown in international trade. Banks also conduct foreign exchange operations to aid the smooth flow of operations between domestic and international companies and function as advisors and agents for business and industrial organizations(Bhattacharya & Patel, 2005).

1.3 Problem Statements of the Research

The study focuses on the quality of customer service of the three types of banks sectors namely public, private and foreign sectors in the four regions of North India namely Delhi NCR, Uttar Pradesh, Rajasthan and Punjab. It is difficult for banks to balance between service quality and work efficiency while trying to achieve its targets and objectives(Bright Jowerts & Franco, 2017). In today’s scenario of intense competition, the vitalstrategy to maintain sustainable advantage over others lies in delivering high quality service resulting in satisfied customers(Payne, 2014). Several previous researchers have studied customer satisfaction in banking sector of India but they have not highlighted the key variables affecting customer satisfaction on a comparative basis of all sectorssignificantly. Due to the intense competition, increased customer demands and continuous changes in banking, efficiency and profitability of the banking sector in India has assumed primary importance. It is difficult to quantify the output in the service sector because of it intangible nature and thus the imperative need to explore the interrelationship between service quality and customer satisfaction is addressed by this research.

1.4 Significance of the Research

The purpose of this research is to provide an in-depth analysis of customer satisfaction and quality of service across all banking sectors in India. The main focus is on service quality rendered by banks, levels of satisfaction the bank customers and relationship between various service quality dimensions in Indian Banking Industry. More importantly, the research aims to identify the important dimensions of service quality as perceived and expected by the customer to assist banks in better comprehension of the requirement of their customers. The findings of the research will provide significant input to the Bank’s management in recognizing their existing strength and weaknesses of service quality delivery and contentment experienced by customers in dealing with the Banks. This research will enable Banks to focus on prominent dimensions of service quality, customer satisfaction and fostering these principles into employees as well. This will assist in customer retention which is currently a major challenge for Indian banksand their profitability is greatly affected by it (Yiu, Grant, & Edgar, 2007).

CHAPTER 2

LITERATURE REVIEW

This chapter contains the history and structure of BankingIndustry of India followed by discussion about various constituents of Commercial and Non – Commercial Banks of India. The next part discusses the traditional and contemporary approaches to Quality. Then major models and theories of service quality in relation to and customer satisfaction followed by review of key research papers is analyzed. This is followed by the profile of Banks chosen for this research along with existing customer centric service policies currently practiced by the Banks. The chapter concludes with other data points of research like Indian Customer Satisfaction Index score and issues raised with India’s Banking Ombudsman.

2.1 History of the Banking Industry of India

The origin of India’s Banking system in Indiacan betraced withthe foundation ofBank of Calcutta in 1786 with the foundation of the English Agency houses in Mumbai and Kolkata (Jones, 2000). Three presidency banks namely Bank of Bengal, Bank of BombayandBank of Madras were established in the 19thCentury under the charter of the British East India Company and in 1935, these banks were merged together and a new bank was established, Imperial Bank of India (Panandikar, 1937). The first Indian-owned Allahabad Bank was set in 1865 and in 1895 Punjab National Bankwas established followed by The Bank of India in 1906 in Mumbai (Panandikar, 1937). Several other banks like Canara Bank, Indian Bank, Central Bank of India, Bank of Baroda and Bank of Mysorewere also establishedbetween 1906 and 1913 and in 1935 Reserve Bank of India (RBI) was established onthe recommendation ofHilton-Young Commission (Panandikar, 1937). During these years, the banks mainly catered to the urban population.

Until India’s independence in 1947, the complete Banking sector was under privatized. The rural population of India had to rely money lenders for their needs and the Indian government had to focus on many subjects which included one of the country's major task of economic development(Gauba, 2012). The government implemented the Industrial development policy in 1948 to focus on upliftment of economy thereby paving way for development of various sectors including banking and finance (Misra & Puri, 2011). To resolve these issues and for growth of the economy the Indian government developed the Indian banking sector into its present position in three stages.

In the first stage, the government nationalised the Reserve Bank of India in 1949 and in 1955 theImperial Bank of Indiawas nationalisedand renamed as theState Bank of India (Shah, Rao, & Shankar, 2007). The nationalization of banks was an important step forward for India and to strengthen this Banking Regulation Act was formed in 1949 which authorized the Reserve Bank of India to regulate, control and inspect banks in India (Gauba, 2012). All banks in India were now subjected to the regulations of the banking laws and policies laid by the Reserve Bank of India. In the second stage, in 1969 the government nationalized 14 largest commercial banks which were private until then to centralize the control over banking sector (Wanniarachchige & Suzuki, 2011). This led to rapid development of Banking system, however the rural and weaker populations of India were still not getting benefits. This led to formation of Regional Rural Banks (RRB) in 1975 post recommendations from theNarasimhamCommittee. The RRBswere establishedwith the intention of extending credit to the rural areas. In the third stage, in 1980, the government nationalized six more banks and the target of priority sector lending was raised to 40%. Thus 27 banks made up Indian Commercial Banking.

In 1990, liberalization took force in India and the Narasimham's Committee on Banking Sector Reforms proposed the expansion of banks and recommended to make banks competitive and beneficial for economic stability ofthe financial system (Arun & Turner, 2002). They suggested non - nationalisation of banks, entry of foreign banks in India either as branches or as subsidiaries and that public and private sector banksmust be given equal treatment by the Government and RBI (Arun & Turner, 2002). Bankswere encouraged to adopt progressive features like merchant and retail banking. Foreign and Indian banks were allowed to set up joint ventures, ten private entities got a license from the RBI to enter the Banking Industry which were Global Trust Bank,ICICIBank,HDFCBank, Axis Bank, Bank of Punjab,IndusIndBank, Centurion Bank,IDBIBank, Times Bank and Development Credit Bank (Ahluwalia, 1999). These recommendations were accepted by the government as they were designed to guarantee financial viability and give emphasis on technologically savvy banks from the very beginning. Banks now realized that they were required to work in a discipline and professional manner to improve the image of the banking system and to win the public's confidence (Singh A. , 2008).

2.2 Structure of the Banking Industry of India

The Indian banking system (as shown in Figure 2.1) consists of 20 public sector banks, 22 private sector banks, 44 foreign banks, 56 regional rural banks, 4 Financial Institutions, 7 Payment Banks, 10 Small Finance Banks, 3 Local Area Banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks(IBEF, 2019).

Figure 2. 1: Indian Banking Structure

Abbildung in dieser Leseprobe nicht enthalten

(Source : IBEF, 2018)

The major highlights of the Banking system in FY07-18 were that total lending grew by 10.94% at the CAGR, while total deposits rose by 11.66% at the CAGR(RBI, 2018). In the developing nations, the retail loan industry of India is the fourth biggest(RBI, 2018). In December 2017 it rose to 281 billion dollars, from 181 billion dollars in December 2014(RBI, 2018).The key investments and developments in India's banking industry include introduction of India's Post Payment Bank (IPPB) as of September 2018 wherein branches were opened across 650 districts with the goal of financial inclusion(RBI , 2019).NBFC's overall valuation of mergers and acquisition in 2017 was US$2.564 billion and the largest FY17 merger deal was of IndusInd Bank Limited and Bharat Financial Inclusion Limited valued at US$2.4 billion(RBI, 2019). In May 2018, the total equity funding’sof microfinance industry rose from US$ 1.03 billion to US$ 4.49 billion and the Pradhan Mantri Jan Dhan Yojana (PMJDY) program started by the Government of India in 2018 giving additional incentives to customers across India opened 333.8 million accounts (RBI, 2019). Further, 204,000 point-of-sale (PoS) terminals were sanctioned by the National Bank for Agriculture and Rural Development (NABARD) for financial inclusion and enhancement of infrastructure in villages(RBI, 2018).

The Reserve Bank of India (RBI) is at the apex of the Indian banking structure and was set up on April 1, 1935(RBI, 2014). It performs a multi-facet role by performing manifold functions like overseeing monetary policy, currency issuance, forex management and banker for the government and other banks(RBI, 2019). The RBI performs the regulatory function under the guidance of the Board for Financial Supervision (BFS) which was established in 1994 as a committee of the Central Board of Directors of the RBI under its BFS Regulations(RBI, 2019). The principal objective of RBI is to perform consolidated supervision of India’s financial sector consisting of Scheduled Commercial and Co-operative Banks, Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers(Roland, 2007). The major functions of RBI are to formulate, implement and monitor the monetary policy, regulate and supervise the financial system byprescribes broad parameters of banking operations within which the country's banking and financial system functions and facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India through monitoring of Foreign Exchange Management Act, 1999(Padmalatha, 2011).

RBI also issues and exchanges or destroys currency and coins not fit for circulation, performs a wide range of promotional functions to support national objectives and introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the customers(Budhwar, 2001).As per RBI (2019), the Indian banking industry is adequately capitalized and well-regulated. The country's financial and economic circumstances are well above any other nation in the globe. Credit, market and liquidity risk surveys indicate that Indian banks are usually resilient and have successfully resisted the worldwide downturn(RBI, 2018). Recently, the Indian banking sector has seen the development of innovative banking models such as payments and small finance banks(RBI , 2019). RBI's fresh policies can go a long way in assisting the national banking industry to restructure.

2.3 Constituents of the Commercial Banksof India

The main role of the commercial banks is to accept deposits from the general publicand are ready to deposit them to collect interest(Amit, 2018). The bank offers multiple products which include savings account, bank account, fixed deposit and recurrent deposit to customers. The commercial bank's plays a significant role in lending funds to the people and businesses in form of term loans, credit cards, letter of credit, bill of exchange and overdrafts(Kasturi, 2019). Banks helpmovement of funds from one individual to another or from one location to another through payment methods like intrabank transfers or interbank transfers called NEFT or RTGS(Silva, Tabak, Cajueiro, & Dias, 2018). Other services rendered by commercial banks is interest and dividend payouts, the collection and payment of utility bills, DEMAT and securities dealing, providing various insurance schemes, facilities to store valuables in lockers, debit cards, drafts, traveler's check, foreign exchange remittances and online banking(Raina, Sharma, & Bhat, 2019). India’s digital payments system has evolved the most among 25 countries worldwide with Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments Innovation Index (FPII)(RBI , 2019). Commercial banks are categorized into three types, public sector banks where government holds more than 51% of the shares, private sector banks where private individuals hold more than 51% of the shares, foreign sector banks which are owned by other nations whereas non-scheduled commercial banks refer to banks whose paid-up capital is not more than Rs. 5 lakhs(Amit, 2018).

2.3.1 Public Sector Banks

Public Sector banks are the oldest banks in the Banking structure, some of which were established in the nineteenth century. Initially, they were established in big numbers, mainly as corporations with personal holdings(Murugan, Balammal, Priya, & Kamatchi, 2018). Several small banks were combined with other banks in the 1960s to developa stronger banking system(RBI, 2014). Based on their property and control of management, commercial banks operating in India fall under various sub-categories of Nationalized Banks and State Bank and its Associates(Sharma & Chopra, 2018). In nationalized banks the government control and regulates the functioning of the banking entity. Today in Indian commercial banking, 27 banks represent a powerful public sector, 19 nationalized banks and 8 SBI associates(IBEF, 2019). The key public sector banks are SBI, PNB, BOB, OBC and Allahabad Bank wherein over the time, the government has reduced their stake in these banks and giving them autonomy to function on its own(Arun & Turner, 2002).

2.3.2 Private Sector Banks

Private sector banking has a vital role in India’s economy. These banks in conjunction with other private sector business account for a large part of monetary transaction through the financial markets(Gupta, 2019). Since a substantial component of the economy relies on private sector’s activity, the current policies and processes governing the private sector banking of India can often assist the slow growth resulting in reversal of unfavorable economic trend like recession(Bhatia & Mulenga, 2019).Another benefit of private sector banking is the assistance provided by them in maintaining the free enterprise system in India. These banks tend to work in harmony with government and other companies, thus supporting the continuous and prudent rate for economic growth(Dsouza, KB Subhash, & Weiermair, 2018). They also support the acquisition of expansion projects, introductionof stock offerings and other essential activities that eventually benefit both banks and customers guided under regulatory rules applicable to all banks in India(Mohanty & Mehrotra, 2018). This enables the banks to compete for the customer and offer best possible financial services and products to individualand business customers.

2.3.3 Foreign Sector Banks

Foreign Commercial Banks are the branches of overseas banks established in India. As on November 2018 there are 44 foreign banks with 286 branches operating here(IBEF, 2019). In addition to funding the country's foreign trade, these banks also conduct ordinary banking services. Foreign banks must receive a permit from the RBI to function in India(Caussat, Prime, & Wilken, 2019). For granting this license, the factors to be considered are financial soundness of the bank, international and home country rating, economic and political relations between home country and India(Noronha, 2018). The bank should be under consolidated supervision of the home country regulator. The minimum capital requirement is US$25 million spread over three branches, US$ 10 million each for the first and second branch and US$5 million for the third branch(RBI, 2014). The main business of foreign banks is the financing of India's foreign trade which they can handle most efficiently with their vast resources. Recently, they have made substantial inroads in internal trade including deposits, advances, discounting of bills, mutual funds, ATMs and credit cards. A large part of their credit is extended to large enterprises and MNCs located mostly in the tier one cities, though some banks are now foraying in the rural sector as well(Gondgawe, Shinde, & Gawde, 2019). Technology used by these banks has been a major driver of change in the Indian banking industry. A highly trained and efficient workforce and the huge pool of capital resources at the disposal of these banks have created tremendous goodwill and prestige of foreign banks in India(Lathabhavan, Balasubramanian, & Natarajan, 2018).

2.4 Constituents of the Non - Commercial Banks of India

2.4.1 Local Area Banks

In 1996, the government decided to allow fresh regional banks with a twin objective of offering an organizational system to promote rural and semi-urban saving and to lend credit to sustainable, local financial operations(Rajpara, 2018). The promoters may be individuals, firms or companies. The individual promoter’s family cannot hold more than 40% of the banks equity capital and if promoter is NRI, his holding cannot exceed 20% of the total number of promoters(RBI, 2014). Each Local Area Bank may open a branch in only one urban centre, and other offices in rural and semi urban centres, subject to the required clearance of the District Consultative Committee(Soosai & Lalitha, 2019). These banks require minimum paid up capital of Rs. 5 crores with promoter contributions of at least Rs. 2 crores(RBI, 2014). They must be established in county cities and the region where they operate would be restricted to no more than three counties that are geographically adjacent(Soosai & Lalitha, 2019).

2.4.2 Co-operative Banks

The Co-operative Banks were established under the multiple Co-operative Societies Acts implemented by State Governments and are hence regulated by them(Thoomkuzhy & John, 2018). In 1966, their operations had to be regulated to guarantee their financial health and to safeguard depositor’s interests(Reddy & Chandraiah, 2019). As a result, certain provisions of the Banking Regulation Act 1949 were applied to cooperative banks and these banks fell under dual control of State Government and RBI which controls their banking activities(Reddy & Chandraiah, 2019). These banks operate on the basis of collaboration in urban and rural regions. They play a supportive role in spreading banking practices across India. Their economic situation is not as sound as commercial bank sectors and most cooperative banks still need sustainable economic viability(Raju, 2018). They conduct all major banking functions but have a smaller variety of services than commercial banks. Some of them are planned banks but most of them are unplanned ones. They have a three-tier federal structure and vertical integration and are financial intermediaries onlywho in recent past have moved from rural to urban regions as their industrial and non-farming businesses have shown significant growth(Selvakumar, 2019).

2.4.3 Regional Rural Banks

Regional Rural Banks (RRB) are comparatively new banks supplementing cooperative and trade banks attempts to meet the lending demands of the rural sector(Jha S. , 2018). Since October 1975, these banks have been established in India under the Regional Rural Banks Act of 1976 and there are currently 56 RRBs in 484 districts(Shekhar & Verma, 2018). A Regional Rural Bank's unique characteristic is that it isa distinct entity with a perpetual succession and a common seal. It is very closely related to the commercial bank, which sponsors its proposition and is referred as the sponsor bank. At the request of the sponsoring bank, the central government created a RRB and defined local boundaries within which it could establish its branches(Devi & Koti, 2019).A RRB conducts regular banking services like loans and advances, especially for farmers, agricultural workers and cooperative societies for agricultural and similar reasons(Erwin, Abubakar, & Muda, 2018). The authorized capital of the RRB needs to be Rs. 5 crores, which the central government in conjunction with NABARD and the Sponsor Bank can increase or decrease but not below Rs. 25 lakhs(Jha S. , 2018). The capital issued should not exceed Rs. 25 lakh. Of the issued funds, the Central Government subscribes to 50%, the sponsoring bank 35% and the concerned State Government 15%(Jha S. , 2018). The RRB’s stocks are considered to be in the securities listed in section 20 of the Indian Trusts Act, 1882 and are also considered as authorized securities pursuant to the Banking Regulation Act, 1949(Jayaprakash & Reddy, 2016).

2.5 Approaches to Quality

There have been five major traditional approaches of quality namely transcendent approach, product based approach, manufacturing based approach, value based approach and user based approach(Androniceanu, 2017). Transcendent approach and innate excellence are synonymous with the each other and is regarded as a mark of uncompromising standards and high performance(Georgiev & Georgiev, 2017). This approach addresses the problem of quality and grade confusion as customers usually consider a product or service as high grade if it’s expensive but may not be necessarily be of high quality(Georgiev & Georgiev, 2017). Productbased approach states that quality is a specific and measurable variable(Loyyl & Kumar). Consequently, the quality difference reveals the differences in the ingredients or attributes used for the product or service(Loyyl & Kumar).Manufacturingbased approachfocuses on the supply side and is fundamentally concerned with engineering and manufacturing practices(Alzaydi, Al-Hajla, Nguyen, & Jayawardhena, 2018). Value based approach deals with cost of products and services which a customer is willing to pay(Alzaydi, Al-Hajla, Nguyen, & Jayawardhena, 2018). Userbased approach focuses on customer satisfaction and deals with best possible methods to fulfill customer preferences. This approach is of a subjective and demandoriented nature and is helpful in identifying customer satisfactions levels based on their needs(Alzaydi, Al-Hajla, Nguyen, & Jayawardhena, 2018).

With advent of time a more contemporary approach of quality was formed by International Organization for Standardization (ISO) which is an independent, international non-governmental organization comprising of 164 national standards bodies(ISO, 2019). Through its members, they bring together experts to share knowledge and develop international standards that support innovation and provide solutions to global challenges on a voluntary, consensus-based basis(ISO, 2019). They guarantee secure, reliable and good quality products and services by providing strategic tools for business that reduce costs by minimizing waste and errors and increase productivity(ISO, 2019). They help businesses access new markets and level the playground for developing countries thereby facilitating free and fair global trade(ISO, 2019). ISO 9001:2015 adopts a number of management principles for an organizations improved performance. The first principle is of customer focus which focuses primarily on meeting customer requirements and striving to exceed customer expectations(ISO, 2015). This helps to sustain success in an organization, attract customers and other stakeholders on whom it depends, and retain their trust and understanding current and future needs of customers. The second principle is of leadership which is enables establishment of unity for purpose and direction and creates conditions where employees are committed to achieve the goals of the organization(ISO, 2015).

Leaders are accountable for taking necessary changes to improve quality, promote a sense of quality throughout the organization, and build unity of purpose and direction which enables an organization to align its strategies, policies, procedures and resources to accomplish its goals. The third principle of engagement of people deals with competent, empowered and involved employees at all levels in organizationas they are crucial to improve valuecreation(ISO, 2015).Recognition, enablement and skill enhancement facilitates employees in achieving the set standards of the organization. The fourth principle is process approach which focuses on consistent and predictable results achievements of procedures by understanding and managing them as an interrelated processes of a coherent system(ISO, 2015).Understanding how this system produces outcomes allows an organization to optimize the system and its performance. The fifth principle of continuous improvement deals with maintenance of current performance levels, responding to internal and external changes and creating new opportunities(ISO, 2015). The sixth principle of decisionmaking stipulates making decisionbased on data and information analysis and evaluation as that is more likely to yield desired results(ISO, 2015). Decision making can be a complicated process involving some degree of uncertainty, multi input sources and subjective interpretation. Understanding the relationships between cause and effect and potential unintended consequences is important. Facts, proof and data analysis lead to higher objectivity and trust in decisionmaking. The seventh principle of relationship management deals with an organization managing its interactions with all stakeholders for continuous achievement as they have a bearing on its performance(ISO, 2015). Sustained achievement is more likely to be achieved when the organization manages relationships to optimize its effect on its results with all its stakeholders.

2.6 Models and Theories of Service Quality and Customer Satisfaction

Theories and models of service quality which are dominated by multidimensional aspects have formed through two schools of thought: Nordic Europe and North American (Ekinci, Riley, & Fife-Schaw, 1998). Early researchers of the service quality founded the Nordic European School with two or three dimensions and in their views service quality was based on a "disconfirmation theory" which presented better than expectation or worse than expectation approach (Grönroos, 1984). They concentrated mainly on conceptualizing service quality without offering powerful empirical proof supporting its stance. For this reason their approach did not gain much attention (Ekinci, Riley, & Fife-Schaw, 1998). The North American school of thought contributed a significant amount to the quality of service measurement using the well-known SERVQUAL model (Parasuraman, Zeithaml, & Berry, 1985). The model was created as a result of extensive research across the various services sectors. Under the model, the quality of service is "a gap" between the expectations and perception of the customers and should thus be assessed by subtracting the performance ratings (P) of the customer from the customer's expectation ratings (E) wherein the greater the positive gap score the better quality of service and vice versa (Parasuraman, Zeithaml, & Berry, 1985). Some of the most relevant service quality models are now discussed in the next part.

2.6.1 Grönroos Model of Service Quality

Grönroos, one of Nordic's leading think-tanks on service literature, argues that customer-based quality of service conceptualization should be suitable(Kozak & Aydın, 2018). Customer perception of service quality also affects the quality of service(Grönroos, 1984). The model emphasizes that the connection between the customer and the seller in a service environment is as essential as the end result(Gulc, 2017). The basic idea of the model (Figure 2.2) is that the quality of service is comparable by two variables: the expected service and the perceived service(Lagrosen & Lagrosen, 2017). The quality of the service is seen as a result of this comparative method. It should be noted, however, that this model measures quality effectiveness scores only after recognizing the issues of separately assessing customer demands(Ali & Raza, 2017).

Grönroos recognized three dimensions of service quality were recognized as technical, functional and image(Felix, 2017). The technical quality is what customers get through interaction with the banks and what is essential for them to assess service quality(Mittal, Gera, & Batra, 2015). The functional quality is how the customer obtains a technical resultincludingcommunication, expertise, personnel among others and the image is built up through technical and functional perfection(Mittal, Gera, & Batra, 2015). Normally, but not always, the outcome (technical element) of a service is objectively assessed by the customer. The image can be affected by multiple factors such as technical and operational efficiency, price, interaction, physical place and behavioral aspects of the service provider(Monferrer-Tirado, Estrada-Guillén, Fandos-Roig, Moliner-Tena, & Garcia, 2016).

Grönroos also suggested that when a customer has a favorable corporate image, he will tend to find excuses for unfavorable technical or functional results(Hossain, Dwivedi, & Naseem, 2015). However, if the negative experience continues, the performance of the service provider will deteriorate(Grönroos, 1984). A negative image can also easily enhance perceived quality of service problems. Acceptable technical quality may be considered a precondition for excellent functional results. Grönroos found the functional quality to be more crucial to the overall perceived quality of service even if the technical quality is sufficient(Ghotbabadi, Feiz, & Baharun, 2015).

Figure 2. 2: Grönroos model of Service Quality

Abbildung in dieser Leseprobe nicht enthalten

(Source : Grönroos, 1984)

Grönroos then added the model to incorporate six outstanding quality of service demands, based on previous empirical, conceptual studies and present service quality perceptions(Sayareh, Iranshahi, & Golfakhrabadi, 2016). Each of these six demands were categorized into a three-dimensional service quality model. The first dimension consisted of professionalism and skills which were linked to results and hence a dimension of technical quality(Veselova, 2018). The second dimension consisted of reputation and credibility and were related to image(Veselova, 2018). The third dimension consisted of attitudes and behavior, accessibility and flexibility, reliability and trustworthiness were linked to procedures and therefore represent functional quality(Veselova, 2018).

This model is useful as a measuring tool for quality assessment of services, however the connection between perceived quality and customer satisfaction and the dimensions described above are not evident(Polyakova & Mirza, 2015). Many components of the Grönroos proposal have generally been acknowledged particularly in the manner in which customers perceive quality. The model has been criticized, especially in relation to its threecomponents as it did not define the technical and functional efficiency of all elements of the service adequately(Hamid & Yip, 2016). It was further believed that there should be no preference for either aspect over the other. This model is based primarily on services rendered through human interaction and there is no adequate acceptance of the services in which the physical and technological components play a significant part(Polyakova & Mirza, 2015).

2.6.2 The SERVQUAL Model

In 1988, Valarie Zeithaml, A. Parasuraman and Leonard Berry created and implemented the service quality model or SERVQUAL. Initially, the SERVQUAL model was intended for use by service industries. While many organizations offer some kind of customer service, only the service industries are interested in understanding and measuring the quality of services. SERVQUAL therefore requires a wider view of service, far beyond simple service(Parasuraman, Zeithaml, & Berry, 1985). SERVQUAL is predominantly a qualitative analysis. If a satisfaction survey mainly depends on the transactions between supplier and buyer, the observed quality is measured through generic, environmental factors(Parasuraman, Zeithaml, & Berry, 1985).The special characteristics of services (as compared with physical products) were one of the drivers for the development of the SERVQUAL model. These distinctive features, such as intangibility and heterogeneity, make it much difficult for a company to evaluate its quality level objectively as opposed to a producer that is able to inspect and test physical products(Parasuraman, Zeithaml, & Berry, 1985). The creation of this model offered a structured strategy for services companies and distributors to evaluate the various variables influencing customer’s perceptions of the general quality of service of the company(Parasuraman, Zeithaml, & Berry, 1985).

SERVQUAL is an empirically based method that a service organization can use to enhance the quality of service. It comprises of an in-depth understanding of customers perceived service requirements(Zeithaml, Berry, & Parasuraman, 1988). These measured perceptions of the quality of service for an organization are then evaluated against "outstanding" organizations and the resulting gap analysis can then be used as a driver for the enhancement of service quality(Zeithaml, Berry, & Parasuraman, 1988). SERVQUAL takes customer perceptions of the relative significance of service characteristics into consideration. This enables a company to prioritize and use its resources to enhance the most important service characteristics(Donnelly, Wisniewski, Dalrymple, & Curry, 1995).

Parasuraman et al. (1988) refined their 1985 exploratory studies, leading to measuring customer perception of service quality called SERVQUAL. They split the ten initial dimensions into five aspects: reliability, response, safety, tangibility and empathy(Santos, 2003). Their 1985 paper set the foundations for SERVQUAL, conceptualizing service quality as a gap between customer expectations and perceptions (Parasuraman et al., 1985). They performed an exploratory survey to study the notion of service quality. They undertook interviews with managers in four services industries which resulted to the conclusion that there are differences between what management thinks is the quality of the service and what customers think is the quality of the service(Parasuraman, Zeithaml, & Berry, 1994). This set of gaps discussed further (Figure 2.3) were considered the primary obstacle to attempting to deliver a service of high quality to customers (Parasuraman, Zeithaml, & Berry, 1994).

Gap 1: Customer expectations: Gap in the perception of management.

Due to high customer expectations, there are inconsistencies between their expectations and leadership perceptions. Service organization executives might not always know which functions indicate high customer quality, which features of a service should meet customer requirements, and the level of efficiency of these characteristics should be in order to provide a high quality service. This can affect the perception of customer service quality(Parasuraman, Zeithaml, & Berry, 1985).

Gap 2: Management perceptions: Gap in the specification of Service Quality

Due to resource constraints, market circumstances and the absence of engagement of leadership to service quality, a gap may arise between management opinions on customer expectations and real service requirements. This discrepancy can influence the perception of customer service quality(Parasuraman, Zeithaml, & Berry, 1985).

Gap 3: Service Quality Specification: Gap in the Service Delivery

While businesses may have official norms or service quality requirements, these requirements may be hard to comply owing to service variability (Parasuraman, Zeithaml, & Berry, 1985). This affects the customer's quality of the service.

Gap 4: Provision of services: Gap in the External Communication

This gap is the difference between the provision of services and what the company promises by means of internal and/or absence of data on elements of service communication that can affect customer perceptions of the quality of service (Parasuraman, Zeithaml, & Berry, 1985).

Gap 5: Expected service –Gap in the Perceived Service

This is the most significant gap and can be seen as a function of the first four gaps and Parasuraman et al. (1985) claim that Gap 5 is related to the first four gaps. Quality perceived service is a function of the magnitude and direction of the gap between service anticipated and service perceived (Parasuraman, Zeithaml, & Berry, 1985).

Figure 2. 3: Identification of gaps in Service Quality

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(Source: Parasuraman et al., 1985)

For managing service quality, it is essential to handle the gap between individual administrations, employers and customers’ expectations and perceptions for quality of service(Wong & Sohal, 2003). With reference to the model of the gap, the service provider must close gap 5, but to do so, four additional gaps that impede the quality of service provided to the organization need to be closed (Tan, Hamid, & Chew, 2016). Since service quality is regarded to be a multidimensional structure, Parasuraman et al. (1985) also recognized 10 dimensions of vital services (Figure 2.4). They realized that customers basically use comparable requirements, regardless of the type of service, to evaluate the quality of their service.

Only two factorstangibles and credibility might be known before buying a product or availing a service, which shows that the amount of search features is lowered (Lovelock & Patterson, 2015). Access, courtesy, reliability, responsiveness, understanding and communication are regarded to be the characteristics of experience by a customer (Lovelock & Patterson, 2015). Only when the customer experiences the service can they know each of these characteristics. It was also observed that two determinants that appeared in group could likely be included in the credibility properties category which cannot be accessed even after the customer experience including competition (with the abilities and expertise needed to provide the service) and security (Santos, 2003). Parasuraman (1986) indicated that customers have general experience in evaluating the quality of service, which is too hard to assess and does not seek only a few facilities.

Figure 2. 4: The initial 10 determinants of Service Quality

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( Source: Parasuraman et al., 1986)

Parasuraman et al. (1985) claimed that the service quality they viewed could be continuously placed by an optimal quality for an unacceptable quality. Somewhere along this continuum will be satisfactory quality. The location of a customer's perception of the quality of service relies on the nature of the difference between the anticipated (ES) service and the perceived (PS) service(Parasuraman, Zeithaml, & Berry, 1985). Therefore, when ES is larger than PS, quality is not considered satisfactory and tends to be completely unacceptable. If ES is equal to PS, the quality perceived is satisfactory and if ES is below PS, the quality perceived is more than adequate and tends towards the optimal value(Parasuraman, Zeithaml, & Berry, 1985).Parasuraman et al. (1988) refined their 1985 exploratory studies and produced a SERVQUAL scale for measuring customer perception of quality of service. They split their initial ten dimensions into five dimensions in 1985 (Figure 2.5), namely reliability, responsiveness, assurance, tangibility (include initial communication, expertise, credibility, courtesy and safety) and empathy (including initial access and comprehension) and comprehension of customers. The improvised version of five quality determinants is shown in the table below followed by explanation.

Figure 2. 5: The revised 5 determinants of Service Quality

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(Source: Parasuraman et al., 1988)

Reliability deals with delivery of commitments and this dimension is constantly the most significant determinant of service quality perceptions and involves the consistency of fulfilling service commitments to keep schedules or appointments, complete tasks on time and make sure results are fulfilled (Parasuraman, Zeithaml, & Berry, 1988). Responsiveness is the readiness to assist and this dimension highlights the attention and speed with which customer demands, issues, complaints and issues are addressed. This involves the time a customer has to wait for help and receive solutions for his queries and is reflects the perspective of customers and not service providers (Parasuraman, Zeithaml, & Berry, 1988). Assurance deals with inspiring confidence and trust which is essential when customers perceive services as risky or feel unsure about their capacity to assess results. The service providers must strive to create confidence and allegiance between employees and customers (Parasuraman, Zeithaml, & Berry, 1988). Tangible represents physical representation of the service wherein service providers should provide good ambience for their service to customers for quality assessment(Parasuraman, Zeithaml, & Berry, 1988). Empathy states that every customer must be treated in a humane manner as each customer is distinctive and special and it is essential to understand their requirements(Parasuraman, Zeithaml, & Berry, 1988).

Every customer expects companies that provide a particular service should make them feel essential and important. SERVQUAL serves as a useful approach for companies to understand their customers and develop interactions that represent their private experience with their needs and preferences. Although SERVQUAL is only 5-dimensional, these dimensions capture facets of all the initial ten aspects of the Quality Conceptual Service field that started to evolve (Parasuraman, Zeithaml, & Berry, 1988). The scale was first released in 1988 but has since been subject to countless changes and revisions. The term'should' has been substituted by'would' in 1991 and the complete amount of items has been decreased to 22 in 1994(Avkiran, 1994). The authors suggested that service expectations exist at two levels: the required service and appropriate service used by customers as comparison norms for quality of service evaluation(Avkiran, 1994).Desired service is the level of service which is a mix between what customers think can and should be and the minimum standard of service customers are prepared to accept is appropriate service(Avkiran, 1994). SERVQUAL presently includes 21 perception items and a number of expectation items reflecting the five dimensions of service quality(Cronin & Taylor, 1994).

The data gathered through the SERVQUAL survey can be used for a variety of purposes, namely, determination of the average gap score (between customers' perceptions and expectations) for each service attribute, assessment of a company's service quality along each of the five SERVQUAL dimensions, tracking customers' expectations and perceptions (on individual service attributes and/or on the SERVQUAL dimensions) over time, comparing a company's SERVQUAL scores against those of competitors, identifying and examining customer segments that differ significantly in their assessments of a company's service performance and assessment of internal service quality (that is, the quality of service rendered by one department or division of a company to others within the same company)(Robledo, 2001).

2.6.3 The SERVPERF Model

One of SERVQUAL's best-known alternative is the SERVPERF model (Figure 2.6)which measures experience alone and does not ask respondents about expectations(Cronin & Taylor, 1994). Consequently, SERVPERF only utilizes the perceptions in the SERVQUAL scale(Cronin & Taylor, 1994). It claims that the perceptions of real services received are better anticipated than the distinction between perceptions and expectations as indicated by Parasuraman et al. (1988). Experience is evaluated in a spectrum of characteristics designed to give a definitive description of the service. Although Cronin and Taylor (1992) do not disagree with the definitions of service quality that regard it as the difference between expectations and the perceptions of customers, they do differ in the manner in which to measure perceptions of such services. They maintained that performance instead of “performance-expectation” determines service quality and they reason further that customer expectations are built into the performance and is therefore not necessary to measure it separately(Cronin & Taylor, 1994).

Carrillat et al. (2007) stated that in the last several years, both SERVQUAL and SERVPERF have received equal quantities of citations. However, while SERVPERF became more popular, it did not decrease the use of SERVQUAL among researchers. It was analyzed that both the SERVQUAL and the SERVPERF scales were appropriate and valid predictors of general service performance, even though the SERVQUAL scales are more stimulatingfor specialists (Carrillat, Jaramillo, & Mulki, 2007). This finding was supported by Beerli et al. (2004) and they stated that SERVPERF can provide a convergent and more discriminatory explanation of the quality of service structure(Beerli, Martin, & Quintana, 2004). They also discovered that this is the most cost-effective measure of quality of service and can explain more variability in the general service quality as measured by a single scale and agreed that SERVQUAL has superior diagnostic authority to identify regions for managerial interference(Beerli, Martin, & Quintana, 2004).

Figure 2. 6 : The SERVPERF Model

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(Source : Cronin and Taylor, 1994)

2.6.4 Haywood-Farmer's Model of Service Quality

Haywood-Farmer (1988) indicated that services have three fundamental characteristics of three Ps (Figure 2.7) namely physical facilities, processes and procedures, elements of human behavior and professional judgement. While they did not define distinct service dimensions, they thought a strategic management decision was essential to choose components from each of these three sets of service performance variables. The management should thoroughly select the mixture of these variables in order to guarantee a proper equilibrium between the three characteristics(Haywood-Farmer & Stuart, 1990). The relative degrees of labor intensity, customization of service processes, and customer contact and interaction with the service system partly determine the right combination(Haywood-Farmer & Stuart, 1990). To help managers in properly classifying each service, the authors proposed a three-dimensional service classification scheme. This allowed management to obtain the right combination of the three ps(Haywood-Farmer & Stuart, 1990). Due to the fact that the three Ps do not have scales that range from low to high and because of concepts differences, Haywood-Farmer (1988) suggested that the model of service quality cannot be mapped straight on the three Ps triangular model.

Figure 2. 7: Haywood-Farmer's Model of Service Quality

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(Source : Haywood-Farmer, 1988)

2.6.5 Attribute Model of Service Quality

Managers may consider this model (Figure 2.8) to be appropriate in the design of the procedures for the services provided and to take into account the significance of the different determinants to be measured(Sahay, Seth, Deshmukh, & Vrat, 2006). Furthermore, three of Haywood-Farmer's (1988) service characteristics cannot be comparable directly with the three service aspects of Grönroos (1984) or with those of Parasuraman et al. (1985).

Figure 2. 8: Attribute Model of Service Quality Haywood–Farmer as adapted by Seth et al

(Source : Haywood – Farmer as adapted by Seth et al, 2005)

2.6.6 Boulding, Kalra, Staelin and Zeithaml Model of Service Quality

Boulding et al. (1993) tried to provide insights into both the process in which customers assess the quality of service and the manner in which these decisions influence subsequent behavior (Boulding, Kalra, Staelin, & Zeithaml, 1993). It is based (Figure 2.9) on the premise that customersperception of the quality of the service right after a service meeting is a combination of two main elements, namely their previous expectations of what will and what should occur during a business meeting and the service they actually deliver during a service meeting(Boulding, Kalra, Staelin, & Zeithaml, 1993). They recognize that the views and expectations of customers are changing over time, and thus they demonstrate that the model can clarify and test the relations between expectations, perceptions and planned conduct (Boulding, Kalra, Staelin, & Zeithaml, 1993). After empirically testing the model, they found that the greater the customers' perceptions of the overall service quality of a business, the more likely they will be to act in a way that will be to the benefit of the business(Boulding, Kalra, Staelin, & Zeithaml, 1993).

This can include positive word of mouth communications or customers recommending the service to somebody else. Theoretically, businesses can therefore increase customers' perceptions of their overall service quality by either increasing perceptions or to lower their expectations(Boulding, Kalra, Staelin, & Zeithaml, 1993). This however, was found not to be the case. It is only customers' perceptions that directly influence service quality. To increase customer expectations of what a firm will provide during a service encounter, in reality leads to higher perceptions of quality after a positive service experience(Boulding, Kalra, Staelin, & Zeithaml, 1993). What businesses can do to increase the customers' perceptions of quality, is to manage the customers' expectations of what a firm should deliver, downward. The difficulty in this lies however in the fact that, if a customers' “will expectations” increase, the “should expectations” also increase(Boulding, Kalra, Staelin, & Zeithaml, 1993). In other words, if customers believe the business will deliver a service of a certain quality (because of past experience or word of mouth communications) they would also expect that the business should offer that quality service(Boulding, Kalra, Staelin, & Zeithaml, 1993). According to Boulding et al. (1993) the “will expectations” will however, increase faster than the “should expectations” which will result in an increase in overall service quality.

Figure 2. 9: Boulding, Kalra, Staelin and Zeithaml Model of Service Quality

Abbildung in dieser Leseprobe nicht enthalten

(Source : Boulding et al., 1993)

2.6.7 Rust and Oliver’s the three-component Model of Service Quality

The two dimensions of functional and technical quality were further enhanced by Rust and Oliver (1994) into a three-piece model (Figure 2.10), namely the service product (service as intended to be supplied, comparable to technical quality), distribution of services (sequence of occurrences and service provider roles expectations, comparable to operating quality) and service environment(Bansal, Irving, & Taylor, 2004). The functional quality of Grönroos (1984) encompassed both tangible (environment) and service delivery but Rust and Oliver (1994) identified tangible products as a separate dimension (Bansal, Irving, & Taylor, 2004). Although the conceptualization of Rust and Oliver (1994) was not tested, literature has discovered support for their model (Brady & Cronin, 2001; Martinez & Martinez, 2010:30; McDougall and Levesque, 1994).

Figure 2. 10: Rust and Oliver’s the three-component Model of Service Quality

Abbildung in dieser Leseprobe nicht enthalten

(Source : Rust and Oliver, 1994)

2.6.8 Rust, Zahorik and Keiningham’s Return-on-Quality approach of Service Quality

The majority of service quality models were developed from the perspective of customers. Although Rust et al. (1995) followed the concept of identifying the quality of service from the customer’s viewpoint, they claimed that the dimensions of the quality of service to be measured should relate to the company procedures as well(Rust, Zahorik, & Keiningham, 1995). They used the survey methodology for information gathering to strengthen their model and to promote change and want to make the change workable. The author attempted to improve company performance by targeting the level of processes and sub processes(Rust, Zahorik, & Keiningham, 1995). They recommended using customer focus groups so that no significant regions of interest are omitted from customer surveys and so that study items are formulated for easy understanding of customers(Rust, Zahorik, & Keiningham, 1995). This enables companies to organize itself in accordance with business processes and focus on the return-on-quality strategy. This model consisted of four assumptionsnamely quality is an investment, quality attempts have to be financially responsible, funds spent on quality can be excessive and not all quality costs are equally valid(Rust, Zahorik, & Keiningham, 1995). Rust et al. (1995) provided a structure to assess the financial effects of attempts to improve quality. This strategy (Figure 2.11), involved being financially responsible and treating all these attempts as investments. The financial viability of a quality expense was measured by the return on quality approach, which quantified the implications of the market share and the net present value of the resulting profit(Rust, Zahorik, & Keiningham, 1995). This model related to the value-based viewing quality and is linked to customer retention or buyback behavior.

Figure 2. 11: Rust, Zahorik and Keiningham’s Return-on-Quality approach of Service Quality

Abbildung in dieser Leseprobe nicht enthalten

(Source : Rust et al, 1995)

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Details

Title
Managing Service Quality with Technological Innovations in the Banking Industry
Subtitle
A researcher’s perspective
Author
Year
2019
Pages
170
Catalog Number
V986172
ISBN (eBook)
9783346329400
ISBN (Book)
9783346329417
Language
English
Tags
managing, service, quality, banking, industry, technology
Quote paper
Dr. Sheerali Arya (Author), 2019, Managing Service Quality with Technological Innovations in the Banking Industry, Munich, GRIN Verlag, https://www.grin.com/document/986172

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