A Study on Customer Satisfaction in Indian Retail Banking

Anubhav Anand Mishra*

The banking industry like many other financial services industries is facing a rapidly changing market, new technologies, economic uncertainties, fierce competition, and more demanding customers; and the changing climate has presented an unprecedented set of challenges. In the current circumstances a question arises whether the customers are satisfied or not and what are the elements of retail banking which lead to the satisfaction or dissatisfaction of customers. The knowledge of current levels of satisfaction and, in particular, the primary factors of satisfaction are beneficial to those in the industry, thereby allowing them to focus and further strengthen the key areas that lead to highly satisfied customers. This research postulates on the present levels of satisfaction, and also tries to explore the factors that lead to customer satisfaction in retail banking in India. Data from 100 survey respondents were collected from one branch of one of the prominent retail banks in the city of Hyderabad. The findings revealed that customer satisfaction, a transaction-specific attribute is dependent on seven factors, which concur with extensive academic literature.

Introduction
Customer satisfaction is an evaluation by the customer, after buying goods and services. The most time-honored view of customer satisfaction in the academic world is that customer satisfaction is the judgment assumed out of the comparison of pre-purchase expectations with post-purchase evaluation of the product or service experience (Oliver, 1997). Customer satisfaction can result from any factor (it may or may not be quality related) and its judgments may take place from non-quality issues (e.g., needs, equity, and perceptions of fairness) and require experience with the service or service provider (Howard and Sheth, 1969; and Taylor and Baker, 1994). Furthermore, a basic precept of marketing is that customer satisfaction with a product will possibly lead to repeat purchases, acceptance of product line extensions, and favorable word-of-mouth advertising (Cardozo, 1965). Customer satisfaction is widely recognized as a key pressure in the formation of consumers future purchase intentions (Taylor and Baker, 1994). In todays highly competitive, increasingly consolidated world, offering personalized and differentiating services can be critical to a banks success.
* Research Scholar, I NC Research E-mail: anubhavmishras@gmail.com Staff College, Hyderabad, I ndia.

2009 IUP. All Rights Reserved. in Indian Retail Banking A Study on Customer Satisfaction

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Customer satisfaction is one of the most significant factors for the profitability of retail banking in India. It calls for the retention of customers for the long term, which is more economical than attracting new customers (Reichheld and Kenny, 1990). In the current circumstances of retail banking in India particularly with banks becoming larger, the closure of branches and the widespread use of internet banking, the issue arises whether the customers are satisfied or not and what are the rudiments of retail banking which lead to the satisfaction or dissatisfaction of its customers. The knowledge of current levels of satisfaction and, in particular, the primary factors of satisfaction are beneficial to those in the industry, thereby allowing them to focus and further strengthen the crucial areas that lead to highly satisfied customers. Previous results have emphasized that in-branch factors and, in particular, staff, branch location and convenience are the most noteworthy factors that have some bearing on customer satisfaction in retail banking. The banking industry like any other financial services industries is facing a market that is rapidly changing; new technologies being introduced, fear of economic uncertainties, fierce competition and more demanding customers and the changing climate have presented an unparalleled set of challenges (Lovelock, 2001). Banking, being a customer-oriented services industry, the customer is the centre of attention and customer service has to be the distinguishing factor. The challenge for banks is to lower costs, increase efficiency, while improving the quality of their service, and increase customer satisfaction. Attention has now turned to improving the quality of service encounter, when customers enter the bank and come into face-to-face contact with bank staff (Chakravarty, 1996). The Indian banking industry has undergone a sea change in its operations since post independence. Furthermore, liberalization, unwrapping up of the economy in the 1990s and the governments pronouncement to privatize banks by reduction in state ownership has culminated in the banking reforms, based on the recommendations of the Narasimha Committee. After the entry barriers were lowered and the product lines blurred of banks and non-banks, since the financial sector reforms, banks are carrying out their operations under competitive pressures originating from within the banking system, from non-banking financial institutions, and from the domestic and international capital markets. This has led the Indian banking industry to sail through difficult times. In such trying times of mature and intense competitive pressures, it is very important that banks retain a loyal base of customers. In order to achieve this and improve their market and profit positions, many retail banks are targeting their strategies and policies towards increasing the satisfaction levels of their customers and building upon their loyalty through improved service quality.

Need and Relevance of the Study

The retail bank studied here has recently undergone a re-branding exercise. This gives rise to the need for a study to measure the levels of satisfaction of its
46 The IUP Journal of Management Research, Vol. VIII, No. 11, 2009

customers. The recessionary trends being felt at present, will also have a significant impact on the satisfaction levels as well as on factors of satisfaction. The main concern of the study is to provide information that would help the management of the bank to evaluate and re-design its current marketing strategies in order to retain its existing customers and to attract new ones in todays competitive environment. Furthermore, this study is based on the assumption that patronages of a bank depend on the degree of customer satisfaction.

Objectives
The objectives of the study are as follows: To measure the level of satisfaction of retail banking customers. To identify the factors of customer satisfaction in retail banks.

Scope of the Study

The scope of the study are: The study is specific only to retail banking in India. The study also relates to customer satisfaction and its related factors.

The factors studied are:

Service provided by the bank The image or personality of the bank Convenience provided to the customers Pricing policies of the bank Maintenance of relationship with the customers.

Literature Review
Customer satisfaction is of great significance for most marketers and consumer researchers, be it for theoretical or for practical usage. It has become a corporate goal as an ever increasing number of organizations are making every effort to improve the level of quality in their products and services. 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 consumers 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 judgment by the customer after the purchase has taken place. Satisfaction is the consumers contentment
A Study on Customer Satisfaction in Indian Retail Banking 47

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 fulfillment. It is a well researched fact that investments in customer satisfaction, customer relationships and service quality leads to profitability and market share (Rust and Zahorik, 1993). Furthermore, customer satisfaction leads to customer loyalty and this also leads to profitability (Hallowell, 1996). If customers are satisfied with a particular high quality service offering after its use, then they can be expected to engage in repeat purchase and even try line extensions and thus, market share can be improved. Levesque and McDougall (1996) have empirically confirmed and reinforced the notion that poor customer satisfaction leads to a decrease in the levels of customer satisfaction and the chances of further willingness to recommend the service (i.e., word-of-mouth advertising or referrals) is lessened. Besides, costs of customer acquisition are much higher than costs of retention (Reichheld and Sasser, 1990). A review of the existing literature indicates that there can be, in all probability, a large number of antecedents of customer satisfaction as the facets underlying satisfaction judgments are global rather than specific (Rust and Oliver, 1994; and Taylor and Baker, 1994). Nevertheless, some researchers make out a case that customers tend to develop norms for product performance on the basis of general product experiences and these, rather than expectations from a brands performance, influence the confirmation/disconfirmation process (Cadotte et al ., 1987). Thereafter there are arguments that, over and above the cognitive factors, satisfaction judgments are also reliant upon affective components, given the fact that both exist together and make independent contributions to the satisfaction judgments. Previous researches have shown strong linkages between service quality dimensions and overall customer satisfaction (Anderson and Sullivan, 1993). Service quality is accepted as one of the basic factors of customer satisfaction (Parasuraman et al., 1994). However, there is much debate whether customer satisfaction is a precursor of service quality judgments (Parasuraman et al ., 1985; and Bitner et al., 1990) or the other way round (Anderson and Sullivan, 1993; and Taylor and Baker, 1994). Definitive analysis has showed that service quality cannot be divorced from the concept of customer satisfaction. Recent studies have shown that satisfaction is influenced by not only perceptions of service quality but also by perceptions of product quality, and pricing factors as well as situational and personal factors (Zeithaml and Bitner, 2000). For example, customer satisfaction with retail banking will be a broader concept and will certainly be influenced by perceptions of service quality but will also include perceptions of product quality (such as variety of deposit options available to customers), price of the products (i.e., charges charged by the bank or rates offered by the banks on
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various deposits), personal factors such as the consumers emotional state, and even uncontrollable situational factors such as weather conditions and experiences in conveying to and from the bank.

Customer Satisfaction and Retail Banking

Retail banking is a service industry which is focussed towards the customers money and its management. A relationship of the nature of members is involved in this industry due to its continuous nature. An element that strongly drove the satisfaction of customers in the banking sector was the conviviality factor related to the features of a bank and the attributes of its personnel (Rust and Zahorik, 1993). Krishnan et al. (1999) conducted a study and put forward that satisfaction with perceived product quality was the prime driver of overall customer satisfaction. Furthermore, their study also found and recommended that the impact of service delivery factors varies considerably on customer satisfaction. To further exemplify, they became aware of the fact that for customers who traded heavily and had high investable assets, the effect of an automated telephone service was elevated than that of the other drivers of satisfaction. In another research, Hallowell (1996) looked into the relationship between customer satisfaction and loyalty and his conclusions were quite analogous to Parasuraman et al. (1994). The study concluded that satisfaction with the service, and satisfaction with price were elements in the overall satisfaction measurement. The measurements used in the above mentioned study were reasonably all-inclusive, and finally concluded that all the elements measured had a bearing on overall satisfaction. The findings of the study emphasized that the service features of branch, staff and information to be dominant factors. Johnston (1997) promoted the notion that banks in general were to all intents and purposes, barking up the wrong tree by enhancing service quality and these efforts in turn had little or no effect on improving customer satisfaction. The study (Johnston, 1997) suggested that satisfaction or dissatisfaction with retail banking did not arise from the same factors. To be more precise, some elements of service quality, if improved, enhance the satisfaction levels of the customers, while on the other hand, other elements may not improve satisfaction but simply function to keep dissatisfaction at bay or at best, reduce dissatisfaction alone. This line of accepted wisdom stems from the hygiene factors of Herzbergs motivation theory. Levesque and McDougall (1996) exhaustively explored the consequences of service quality, service features and customer complaint handling on customer satisfaction in the Canadian retail banking sector. Based on their empirical analysis, they have suggested that the determinants of satisfaction in retail banking are driven by a number of factors and also included service quality dimensions.
A Study on Customer Satisfaction in Indian Retail Banking 49

The service providers offering can also be expected to affect customer satisfaction (overall) and have a strong bearing upon ongoing patronage. The study concluded that the banks features (e.g. location), the competitiveness of the banks interest rates, the customers judgments about the bank employees skills and whether the customer was a borrower, were among a few other factors that drove customer satisfaction. Reichheld and Sasser (1990) have recognized the benefits that customer satisfaction provides by the retention of customers of a bank. They advocated that the longer a customer stays with a bank, the more utility the customer generates. This is based on a number of factors that relate to the amount of time a customer spends with a bank. These included a high preliminary cost of introducing and attracting a new customer, increase in both the value and amount of purchases, the customers better understanding of the bank, and positive word-of-mouth promotion. A study conducted by Bloemer and Kasper (1995) researched how satisfaction, image and perceived service quality determined loyalty in a retail bank.

Methodology
Measures Used
The major aspiration of the study was to identify the factors that affect the levels of customer satisfaction in retail banking. The measures used in the study were adopted from previous literature dealing with service quality and customer satisfaction (Blanchard and Galloway, 1994; Levesque and McDougall, 1996; Jamal and Naser, 2002; Chakrabarty, 2003; Karatepe et al., 2005; and Shil and Das, 2008).

Sample and Sample Size

The selected respondents represented a balanced mix of various demographic factors (age, gender, marital status, education levels, employment status and income groups). A total of 100 respondents were randomly administered the questionnaire from among those visiting a specific branch of the AX Bank. The questionnaire was self-administered by the researcher. It has been suggested that a study designed to reveal factor structure should have more observations than variables and the minimum absolute sample size should be 50 observations.

Data Collection
For the current study responses were gathered from the customers of one of the most prominent retail banks of India. The bank has been recently re-branded and has a strong and significant retail presence and has been named as AX Bank for reasons of confidentiality. One branch of the bank was randomly selected for the study. The study was conducted in Hyderabad, a metropolis and the capital of the state of Andhra Pradesh, and is situated in the south central region of India with a large and diverse population.
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A one-off cross-sectional quantitative research has been adopted for this research. A survey questionnaire to measure the relationships between the variables of this study and collect demographic characteristics of the respondents has been designed. In order to gain objective views and guard against faulty assumptions and detect flaws in the questionnaire, consultation with experts and pilot tests have been performed. A 5-point interval Likert scale to examine how strongly respondents agree (5) or disagree (1) with statements to measure variables in the hypotheses of this research has been used. Existing established measures have been modified and adopted for this study (Churchill, 1979). Validity and reliability tests of the measures of the questions in the survey questionnaire have been conducted for valid and reliable data to be analyzed correctly to reveal meaningful findings.

Discussion
Demographic Profile
The questionnaire included a segment on customers profile, as an assortment of demographic and other factors were likely to influence the degree of customer satisfaction of products and services offered by the bank. The demographic profile of the customers can be seen in Table 1. As can be seen from Table 1, the respondents had a relatively equal balance of males (53%) and females (47%). The sample customers were mostly in the age group of 26-35 years (55%). It is also evident from the table that 32% of the respondents were youngsters (below 25 years). More than half of the respondents were unmarried (56%), while 40% were married respondents. The respondents were predominantly

Table 1: Demographic Profile of Customers

S. No. 1. Gender Male Female 2. Age (years) Below 25 26-35 36-45 Above 45 3. Marital Status Married Unmarried Others
A Study on Customer Satisfaction in Indian Retail Banking

Demographics

Frequency

Percentage

53 47

53 47

32 55 10 3

32 55 10 3

40 56 4

40 56 4
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Table 1 (Cont.)
S. No. 4. Demographics Education Levels Graduation Postgraduation Others 5. Employment Status Self-Employment Wage-Employment Professionals Students Others 6. Monthly Income Below 10,000 10,001-15,000 15,001-20,000 Above 20,001 Total 23 31 38 8 100 23 31 38 8 100 4 25 42 26 3 4 25 42 26 3 29 64 7 29 64 7 Frequency Percentage

Postgraduates (64%) and Graduates (29%). This implies that the respondents had high literacy levels. The respondents were a mix of students (26%), self-employed (4%), wage employed (25%), professionals (42%) and others (3%). It is quite obvious that employment levels were high among the respondents. The table further indicated that the majority of the respondents were earning between Rs. 10,000 and Rs. 20,000 (69%). Around 23% of the respondents had income of less than Rs. 10,000, while 8% of the respondents earned more than Rs. 20,000.

Factor Analysis Results

The raw data was factor analyzed using SPSS 17.0 (Green et al., 2000) to summarize the 22 variables into smaller sets of linear composites that preserved most of the information in the original data set. The data was subjected to principal component analysis, a method categorized under the broad area of factor analysis. The 22 variables were reduced to seven principal components through varimax rotation (Table 2). Regarding the pre-analysis testing for the suitability of the entire sample for factor analysis, the Kaiser-Meyer-Olkin measure of sampling adequacy was 0.779 and the Bartletts test of sphericity was 754.689 significant at p < 0.001 (Table 3), thus, indicating that the sample was suitable for factor analytic procedures (Hair et al., 2006). According to the analysis, seven factors with eigenvalues greater than 1.0 were obtained and these accounted for 65.787% of the total variance. In order to
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establish the internal consistency, Cronbachs alpha was calculated for the seven constructs (factors) and were 0.720, 0.733, 0.634, 0.673, 0.518, 1.00 and 1.000 respectively (Cronbach, 1951).

Table 2: Results of Factor Analysis on the 22 Items and its Seven Dimensions
Factor and Items BANKSERV (Cronbach Alpha = 0.720) You are satisfied with the skill and competency of the employees The behavior of the employees instils confidence in you Each branch has sufficient number of employees The bank has convenient timings As a customer, when you have a problem, you get proper response from the concerned employees BANKPERS (Cronbach Alpha = 0.634) The bank has clear objectives to satisfy customers The brand (image of the bank) is appealing to you Mission and vision statement of the bank rightly defines its commitment towards customers CUSTCONV (Cronbach Alpha = 0.733) The location of the ATMs is convenient to you The number of branches of the bank is enough The location of the branch of the bank is convenient The bank provides ATMs at several prominent locations The general ambience and comfort level of the bank is satisfactory 2.742 0.780 0.749 0.656 0.653 0.576
53

Eigen- Factor Variance value Loadings (%) 3.216 0.793 14.620

Cumulative Variance (%) 14.620

0.703 0.668 0.665

0.441 2.495 0.617 0.601 11.341 25.961

0.502 12.464 38.425

A Study on Customer Satisfaction in Indian Retail Banking

Table 2 (Cont.)
Factor and Items BANKPRICPOL (Cronbach Alpha = 0.673) The bank has a number of categories to charge its customers or to impose penalties The interest rate offered by the bank on various deposits is competitive enough The rate of interest charged on the loans is satisfactory BANKCRM (Cronbach Alpha = 0.518) It takes a long time to resolve your problems You usually have to stand in a long queue in the bank for any transaction The products and services offered by the bank are satisfactory You wish to continue with the bank, as you are satisfied with it BANKPARK (Cronbach Alpha = 1.000) Parking space available is sufficient BANKCHRG (Cronbach Alpha = 1.000) The charges that the bank collects from you are reasonable when compared with other banks 1.243 1.552 0.727 5.648 65.787 1.590 0.821 0.692 0.661 0.512 7.054 60.139 Eigen- Factor Variance value Loadings (%) 1.635 7.434 Cumulative Variance (%) 45.859

0.694

0.573 0.516 7.226 53.085

0.485

Table 3: KMO and Bartletts Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy Approx. Chi-Square Bartletts Test of Sphericity Degree of Freedom Significance 0.779 754.689 231.000 0.000

The factors derived represent the different elements of retail banking, which form the underlying factors from the original 22 scale response items given. Referring to Table 2, factor 1 represents the elements of the services provided by the bank and is therefore labeled as BANKSERV. These elements are the skill and competency of the employees, their confidence instilling behavior, number of employees in each branch, convenient timings of the bank, and the response given by the concerned employees when needed.
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Factor 2 has all the statements related to the overall image of the bank as perceived by the customers and therefore has been termed as BANKPERS, an abbreviated term for bank personality. The elements were the vision and mission statement of the bank, its clear cut objectives to satisfy its customers, and the brand (image) of the bank. The statements that load into factor 3, all were concerned with the convenience and comforts that a customer should get from a retail bank and thus was abbreviated as CUSTCONV. The elements were the convenient location of the ATMs and also the provision of the ATMs at several prominent locations, the number of branches provided and the convenient location of the branch being used, and the general ambience and comfort level of the bank. Factor 4 consisted of the pricing policies of the bank and has been abbreviated as BANKPRICPOL. The elements factored were, the interest rates charged on loans, the interest rates offered by the bank on various deposits, and the number of categories to charge the customers or to impose penalties. Factor 5 was a summation of the elements that give rise to a healthy relationship with the customers and was termed BANKCRM. The elements were the time taken to resolve a problem, queuing in branch, the products and services offered by the bank, and the continuation with the concerned bank as the satisfaction was there or not. Factor 6 consisted of the availability of sufficient parking space and was aptly termed BANKPARK. The last factor 7 was related to the reasonability of the charges collected by the bank when compared to other banks and was hence, labeled BANKCHRG, an abbreviation for bank charges.

Conclusion
A major contribution of this study is the provision of an approach for the managers to identify the factors of customer satisfaction in retail banking sector in India. Although the satisfaction levels are on the higher side, yet there remains a lot to be done by the managements of the retail banks in order to maximize their customers satisfaction and improve on the retention rates. The satisfaction of the customer with the services of Indian retail banks is linked with the performance of the banks (Jham, 2005). Concerning future investigations, researchers should make use of the variables used in the research for studies on other industries as these are not industry specific and thus can be used to measure the satisfaction levels of customers in other retail settings. Secondly, similar studies can be conducted in other cities as well as on other retail banks. Regarding the limitations of the study it can be said that the recessionary trends being faced currently might have an influence on the satisfaction levels of the customers of retail banking in India. Secondly, responses have been solicited from customers of retail bank in a developing economy, i.e., India. The levels of
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satisfaction of the customers in a developing economy may show a discrepancy from those of a developed economy and consequently there is a possibility of cultural predisposition playing a role in the outcome of the study. To sum up, a major contribution of this study is the provision of an approach for the management of the banks to identify the factors of customer satisfaction and future intentions towards them. The approach has integrated constructs or items beyond the service quality to capture the sphere of influence of factors that drive customer satisfaction. Also, the study has endowed insights and implications for managers in retail banks thus enabling them to improve customer satisfaction and retention rates.

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Appendix
Questionnaire
Part 1: Demographic Profile Please mark () your responses to the following: 1. Name : Mrs/Ms/Mr_________________________________

2. Nationality : Indian/_____________________________________ Factors Age : Categories (a) 25 and below (b) 26-35 (c) 36-45 (d) Above 45 Gender Marital Status : : (a) Male (b) Female (a) Married (b) Unmarried (c) Widowed Educational Qualification : (a) Graduate (b) Postgraduate (c) Others Employment Status : (a) Self-Employment (b) Wage Employment (c) Professional (d) Student (e) Others Monthly Income (in Rs.) : (a) Below 10,000 (b) 10,000-15,000 (c) 15,001-20,000 (d) Above 20,000 [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ]

60

The IUP Journal of Management Research, Vol. VIII, No. 11, 2009

Appendix (Cont.)
Part 2: Customer Opinion The following statements relate to your opinion about AX Bank. Please give the extent to which you are satisfied with AX Bank for the below mentioned statements.
Level of Satisfaction Strongly Disagree Neither Disagree nor Agree Disagree Statements Agree 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 S. No. Strongly Agree 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
61

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Mission and vision statement of the bank rightly defines its commitment towards customers The bank has clear objectives to satisfy customers The brand (image of the bank) is appealing to you The number of branches of the bank is enough The location of branches of the bank is convenient Sufficient parking space available The bank has convenient timings The general ambience and comfort level of the bank is satisfactory You usually have to stand in a long queue in the bank for any transaction The bank provides ATMs at several prominent locations The location of the ATMs is convenient to you As a customer, when you have a problem, you get proper response from the concerned employees Each branch has sufficient number of employees The behavior of the employees instils confidence in you You are satisfied with the skill and competency of the employees The charges that the bank collects from you are reasonable when compared with other banks The interest rate offered by the bank on various deposits is competitive enough The rate of interest charged on the loans is satisfactory The bank has a number of categories to charge its customers or to impose penalties It takes a long time to resolve your problems The products and services offered by the bank are satisfactory You wish to continue with the bank, as you are satisfied with it 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

Reference # 02J-2009-11-04-01
A Study on Customer Satisfaction in Indian Retail Banking

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