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BriefDescription of Banking System in India

There are basically four categories of banks such as Public Sector Banks, Private Banks, Foreign
Banks and Cooperative Banks operating in India that are regulated by Reserve Bank of India (RBI).
Besides, there are some subsidiaries of public sector and cooperative banks that are operating in the
different parts of the country. The major Public Sector banks are State Bank of India, Allahabad
Bank, Andhra Bank,Indian Bank, UCO Bank and United Bank of India. The Private Banks include
ICICI Bank, HDFC Bank and UTI Bank. The important foreign banks that are operating in India are
HSBC, Citibank and ABN-AMRO Bank.
Today Banks are providing various services apart from the traditional Banking services.In this
competitive scenario it is very vital for a Bank to provide excellent quality services to remain
competitive and hold a advantage over others.
In our study we are going to have a comparative analysis between HDFC and INDIAN Bank based
on SERVQUAL Model.So it is better to know about them and their services.

















HDFC BANK

HDFC Bank was incorporated in August 1994, and, currently has an nationwide network of 1412
Branches and 3275 ATM's in 528 Indian towns and cities. The Housing Development Finance
Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation
of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of
'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.
Their single-minded focus on product quality and service excellence has helped us garner the
appreciation of both national and international organizations.
The merger of Centurion Bank of Punjab Ltd (CBoP) with HDFC Bank
Limited became effective on May 23, 2008 as per the order of Reserve
Bank of India (RBI), with April 1, 2008 as the appointed date


























FINANCIAL RESULTS:
Profit & Loss Account: Quarter ended December 31, 2008 The total income for the bank for the
quarter ended December 31, 2008 grew by 58.8% over the corresponding quarter ended December
31, 2007 to Rs. 5,407.9 crores. Net revenues (net interest income plus other income) were Rs.
2,918.6 crores for the quarter ended December 31, 2008, an increase of 37.9% over Rs. 2,116.5
crores for the correspondingquarter of the previous year. Interest earned (net of loan origination costs
and amortization of premia on investments held in the Held to Maturity (HTM) category) increased
from Rs. 2,726.9 crores in the quarter ended December 31, 2007 to Rs. 4,468.5 crores in the quarter
ended December
31, 2008, up by 63.9%. Net interest income (interest earned less interest
expended) for the quarter ended December 31, 2008 increased by 37.7% to Rs. 1,979.3 crores, driven
by average asset growth of 44.1% and a net interest margin (NIM) of around 4.3% for the quarter
ended December 31,
2008.

The products offered by HDFC BANK are :

Accounts & Deposits

Savings Accounts

Current Accounts

Fixed Deposits

Demat Account
Safe Deposit Lockers

Loans

Personal Loans

Home Loans

Two Wheeler Loans

Cards

Credit Cards

Debit Cards

Prepaid Cards

Investments & Insurance

Forex Services

Payment Services

Models of Banking Service Quality

Based on the models of organizational effectiveness and institutional

effectiveness, seven models of Banking Service quality have been proposed in the literature to
illustrate the different concepts that can be used to deepen understanding of Banking Service quality
and develop management strategies Each of these models deals with the different key areas for
evaluation of quality.These are :

1.Goal and specification model

2.Resource ± input model

3.Process model

4.Satisfaction model

5.Legitimacymodel

6.Absence of problem model

7.Organizational learning model

Out of the seven education models, µSatisfaction Model¶ has been considered here to evaluate the
Banking quality because variation of satisfaction level among the Customers can be accounted for.
According to this model, Banking quality is defined as the satisfaction of Customers of an Banking
institution for its survival. The Banking quality should be determined by the extent to which the
performance of an Banking institution can satisfy the needs and expectations of its Customers.
Banking Service quality primarily depends on the expectations and perceptions of Customers.
Therefore, it is difficult for all institutes to achieve it and satisfy the needs of all the Customers.
Furthermore, the objective evaluation of quality

achievement is often technically difficult and conceptually controversial.

Therefore, satisfactions of Customers are frequently used instead of

some objective indicators as the critical element to assess quality in Banking institution.
For the present research, two important indicators of Banking Service quality we have taken are low
income and High income Customers.

SERVQUAL (and its modified versions), a multiple-item survey instrument, that supports qualitative
analysis with quantitative information are still popular among researchers as far as assessment of
service quality is concerned and have been applied to different service sectors.The instrument uses
five core criteria (dimensions) consisting of twenty-two pairs of components evaluated in a seven
point Likert-type scale under which customers decide in evaluating the service quality. The first
twenty-two items are designed to measure customer¶s pre-purchase expectations for a particular
service and the other twenty-two items are provided to measure perceived level (perceptions) after
delivery of a service.

Tools for Evaluation of Service Quality

Quantitative measurement of service quality is extremely difficult because of the involvement of

human behavioral aspects and the absence of precise numerical data. Some of the approaches of
service quality

measurement are outlined as follows:

1. Statistical analysis

2. Artificial Neural Networks (ANN)

3. Machine learning techniques such as genetic algorithms and fuzzy

logic

4. Rough Set

5. Analytical Hierarchy Process

6. Quality Function Deployment (QFD)

7. Data Envelopment Analysis (DEA)

8. Taguchi Method

9. Decision trees

10.Data visualization

Artificial Neural Networks (ANN) has been a very effective approach employed by many studies for
the evaluation of µSatisfaction Model¶ because it is frequently applied in the literature for modeling
the human decision-making process since it is considered to be the brain metaphor of human
judgments. It is a potential technique to predict an output, classify a given inputs into a groups
(pattern recognition) and incorporates the criteria.It can also exploit and represent the nonlinear
relationship between the customer satisfaction and their perception of the service that are the key
elements for evaluation of the service such as banking sector.In earlier research ANN has been
applied to evaluate the service quality considering four performance models (P-E, P-only, E-P and
E&P) for customer satisfaction using their expectations and perceptions of the service.It was found
P-E model will be an appropriate one in bankigsector.So we have used P-E model in our study

Usually, four models such as perception minus expectation gap (P-E gap), expectation minus
perception gap (E-P gap), perception-only (P-only), and expectation and perception (E&P) models
are used to predict service quality. However, performance of various models in relation to predictive
power of service improvement widely differs depending on various application.The deviations in
obtaining the best model of service quality are due to the fact that the quality of service varies from
one sector to another. For example, the components of quality in a fast food restaurant are very
different from those on a railway or a bank or a holiday resort. Therefore, quality of service is much
difficult to define precisely because service provider generally provides utility, not objects, as in case
of manufacturing sector. The diverse components of service sector make its quality control and
improvement more difficult to generalize. The service quality items in the banking sector largely
differ that from the auto-dealer network, financial or transportation sector. Thus, neural network
models, when tested in a different service sector with different survey items, may indicate
significantly different results.

There are 4 different models available

Model-I (P-E gap model): In this network model, the input is defined using the traditional
SERVQUAL-based gap that means perceptions of customers minus the expectations.This resulted in
twenty-two input nodes, a hidden layer and an output layer consists of one node representing the
overall evaluation of service quality.

Model-II (P-only model): The use of perception and expectation gap had raised concern among the
researchers due to its low reliability. It is argued that perceptions of the customer are more important
than the gap between their perceptions and expectations.
Therefore, a service quality measuring instrument known as µSEVPERF¶
considering only the perceptions of the customers is suggested by the researchers.In this model, only
customer perceptions are used as input.

Model-III (E-P gap model): Generally, it is assumed that most customers enter a service situation
with some expectations .These expectations are formed either by previous experiences of the same or
similar service, or simply expectations generated by customer independently. So customer usually
undertakes a service experience with some preconceived expectations and thereafter develops a
perception of that experience.

Hence, service quality could be measured as expectations minus perceptions or E-P gap. A positive
E-P score implies that customer
expectations are more than the perceptions of the customer i.e. the
expectations of customers are not met whereas a negative score in this gap indicates the delighted
customer. The values of gap for the twenty-two items of SERVQUAL can be used as the input data
for this model.

Model-IV (E & P model): Customer expectations are generally accepted as a part of the service
experience but their exact role in the overall evaluation of service quality is still
controversial.Therefore, the interactions of expectations and perceptions independently may be
considered without a predefined relationship between them.
In our comparative study between HDFC and INDIAN BANK ,we have used P-E gap model for the
analysis and evaluation of service quality in banking sector with the input data such as customer
expectations, perceptions and the gaps.

The Conceptual Framework

To understand the characteristics of service quality in general and service quality in banking in
particular, discussions on various aspects of the customer satisfaction in relation to the traditional
Banking service quality is necessary. Widespread literature survey discussed suggests various
authors have pointed out several Banking service dimensions. The most common dimensions of
banking for evaluation of customer perceived service quality banking from the literature are
Tangibility,Reliability, Responsiveness,Assurance and Empathy.

The RATER is an instrument that might be used to define and measure banking service quality and to
create useful quality-assessment tools. It includes all SERVQUAL five dimensions (Othman, et al.,
2001) that consist of 22 questions. Both models define customer satisfaction as perceived service
quality, which is the gap between expected service and perception of service actually received.

The RATER may finally provide the following benefits to the Indian banks:

1. It is the first approach to add and mix the customers¶ religious beliefs and cultural values with
other quality dimensions.

2. It provides for multi-faced analysis of customer satisfaction.

3. It links quality with customers¶ satisfaction and service encounter.

4. It provides information at several levels, already organized into meaningful groupings.

5. It is a proven approach, which results in usable answers to meet customers¶ needs.

6. It is empirically grounded, systematic and well documented.

Even more Indian bank should learn how to prioritise these factors according to their cultures,
current situations and the availability of resources.Banks managers can use the RATER model and its
dimensions first to identify the following issues:
1. To identify those areas where improvement should be made and resources can be allocated. For
instance, they need to know the level of quality in their banks and they can manipulate to make bank-
wide improvement in quality performance. Also they can use benchmarking to compare their
performance and other banks¶, which have already implemented quality program that will help to
prioritise the quality management efforts.

Tangibility : This dimension deal with modern looking equipments and visual appealing part of
banks.

Reliability: This dimension has a direct positive effect on perceived service quality and customer
satisfaction in banking institutions.Banks must provide error free service and secure online
transactions to make customers feel comfortable.

Responsiveness: Customers expect that the banks must respond their inquiry
promptly.Responsiveness describes how often an bank
voluntarily provides services that are important to its customers.Researchers examining the
responsiveness of Banking services have highlighted the importance of perceived service quality and
customer satisfaction.

Assurance; Customer expect that the bank must be secured and the behaviour of the employees must
be encouraging.

Empathy ; individual attention,customized service and convenient banking hours are very much
important in todays service.

In order to achieve better understanding of service quality in banking sector, the proposed five
service quality dimensions are conceptualized to illustrate the overall service quality of the banking
in relation to customers¶ and providers¶ perspective
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The five dimensions of banking service quality have been indicated with respect to customer¶s and
banker¶s perspective. The relationship
between customer satisfaction and the service are also mentioned in the Figure 1.1. Basically, service
quality in banking can be viewed from both customers¶ perspectives and bankers¶ perspective. From
the customers¶ perspective, service quality is the perceived quality. From the bankers¶ perspective
there are targets and delivered quality. However, bankers are first required to understand the
attributes that are significant for the customers¶ satisfaction to judge the service quality for enhancing
banking service

Basically, service quality in banking can be viewed from two perspectives:

‡ customer perspective
‡ bank perspective

Customer perspective

From the perspective of the customer, the service quality differentiates sought quality and perceived
quality. Sought quality is the level of quality customers explicitly or implicitly demand and expect
from service providers. The sought quality (customer expectations) is
created due to several factors ± primarily, the expectations are formed during a previous personal
experience of a customer with a service, and the customer is influenced by the experiences of the
other users and by the image of anorganisation. Perceived quality means the overall impression a
customer has and experiences about the level of quality
after service realisation. The potential difference between the sought quality and the perceived
quality gives the service provider an opportunity to measure customer satisfaction based on
formulating the precise and actual criteria according to which the customers are assessing the
services.

Providers perspective
From the provider perspective, there are target quality and delivered quality. The focus of process- or
supply-led quality definition is rather internal than external, and it is defined as conformance to
requirements. It lays emphasis on the importance of the management and the supply-side quality, and
there is an important role of the process in determining
the quality of outcome (Ghobadian, 1994). Achieving the quality of conformance between the
planned (target) quality level and the real quality delivered to customers depends on the service
quality management system in an organisation.

Hypothesis to Test

With the stiff competitions in banking industry, it is apparent that the service providers need to
provide customers with high standard services. To achieve this goal, the bankers are first required to
understand the attributes that are used by customers to evaluate the service quality. Therefore, the
main purpose of this study is to gain a better understanding of how each of the dimensons affects
service quality in the banking sector. The following proposition appears to be significant.
1. The dimensions reflecting service quality in banking is significantly
related to each other.
.
2.. The dimensions significantly determine the customer satisfaction in banking.

Research Methodology (Survey Design)

The questionnaire consists of three parts.The first part consists of 2 questions concerning the
demographic information of the respondents such as Age & Income. The second part consisting of
twenty-two questions exploring the respondent¶s perception about the service quality of banking. The
third part consisting of twenty-two questions exploring

the respondent¶s expectation about the service quality of bank. We have also taken some suggestions
from the respondents.
These questions have been organised under the proposed framework based on the SERVQUAL
model.

Earlier studies on evaluation of service quality of banks had used dimensions of services quality as
Tangibility, Reliability, Responsiveness, Assurance and Empathy.So in our study we have used the
same five dimensions.

Sample Selection

We have collected the data¶s from the customers by visiting two retail branch of HDFC AND
INDIAN BANK in Bhubaneswar.The collection of data was done during April,2009. Non-
Probabilistic sampling method has been employed in this study. The most common type of non-
probabilistic sampling method which is applied in this study is µconvenience sampling¶ through
which we had selected the sample members who can provide required information and available to
participate in the study.
We have taken the response of 15 customers from each bank.
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FINDINGS AND SUGGESTION

1.In HDFC the GAP score of responsiveness is highest so they should focus on promt service,
employees should be willing to help the customers and say the exact time when the services will be
performed.

2.customer expectations regarding visual appealing of HDFC is very high.so they should work on
that and try to fulfil the gap.

3.Reliability part is better as compared to indanbank.Still the gap score is negative.

4.As gap score is minimum so the customers of hdfc bank are very confidence and feel safe while
transacting with the bank.

5.Physical facilities and modern looking equipment are not sufficient in Indian bank.

6.As compared to HDFC Indian bank are not able to provide prompt service to their customers.

7.The present customized service and convenient operating hours are not sufficient to meet the
expectations of the customers.

8.According to our study HDFC BANK is a better service provider in all the dimensions.