Chapter

Introduction and Conceptual Frame

1.0 Introduction to the

1.1 Banking Sector at a Glance in

1.2 Service Quality (Concept &

1.3 Chapter

1
 Introduction and Conceptual Frame work

1.0 Introduction to the Theme

The basic objective of this chapter is, to represent a pattern of conducting the research and
delivering the best possible justification for initiating the research. The primary motive of this
research basically relates to the service quality provided by the Indian public and private sector
banks and introducing the Indian banking system.

The Importance of the Study

In today’s scenario service quality came in the light with a great deal of attention from
academics, industrialist and practitioners within available service quality and service marketing
literature. The organizations which are working in service industries or having service product,
should include service quality as a core strategic issue for the business success. The service
provider who incorporates a high rate of customer’s satisfaction by fulfilling expectations to
obtain a long term sustainable competitive advantage. Research reveals that the companies which
are having a good customer service quality track, report to an increase in profit as compared to
others. It also has been observed that retaining existing customer is much easier than obtaining
new customers, it is five times costlier to attract new customer. So, to achieve high level of
customer satisfaction & customer loyalty, providing better service quality is one of the best
methods.

Researcher has considered various issues towards the comparisons between Indian public and
private banking sector on the basis of different business areas. Lynn, Lytle and Samo, (2000)1,
found that private banks outperformed state banks in terms of service orientation and financial
performance. Another study by Isik (2007)2 describes that the private banking sector exceeds the
public banking sector in Turkey with regard to productive growth. So all these various reliable
evidences clearly define that the private banking sector represents better services more than the
public banking sector in terms of service quality.

It is also found that there are only two study had conducted the comparative study between these
two banking sector, private and public in terms of level of service quality in different service

1
Lynn, M.L., Lytle, R.S. and Samo B. (2000), Service orientation in transitional markets: does it matter? European
Journal of Marketing, 34(3/4), pp. 279-98.
2
Isik, I. (2007), Bank ownership and productivity developments: evidence from Turkey, Studies in Economics and
Finance, 24(2), pp. 115-39.

2
industry. The first study was conducted in Greece by Kangis and Voukelator (1997)3 defines
about the service quality effects, that service quality offered by private banking sector had more
positive impact on customer’s perceptions towards service quality perceived, than those services
which is offered by public banking sectors. And the second study made by Sureshchandra,
Rajendran and Anantharaman (2003)4 which represents that foreign banks are found to be
performed well, followed by private sectors banks and then public banking sector in terms of
customers satisfaction towards service quality.

The real quality value of this research clearly shows the fact that this research will be the next
important study to find out the difference between the Indian private and public banking sector
towards the service quality gaps. It has been found that a very small amount of researches carried
out in the Indian banking sector with special focus to the service quality gap between employees
and customers. Thus it is easy to say that the availability of research or literature on Indian
banking sector is scarce or can say that is not sufficient and there are few empirical and non-
empirical studies covering the subject of the study or domain of the study.

Out of among available study or research, one study specially related to the level of technology
in the public banking sector, was found and examined. The researcher observed that the Indian
public banks still deals with customers in an inefficient or ineffective manual way which leads to
fall in the level of service quality which is offering by the public banking sectors. The next study
was conducted by the Elmayar (2007) which measured the quality of services and its volume in
the Bank of Commerce and Development which is a private bank, as a case study. This particular
study defined that the banking customers have high amount of perception of service quality and
as per quality is provided to them, in other words it can be measured that it’s an comparative
study between perception and actual.

The limitation of the available research literature on the subject study clearly indicates that there
is a gap found in the area of research work in the Indian banking service quality. So, this research
is having the aim to bridging the gap in the literature by complementing it to the previous
research by enhancing the study of service quality gap in Indian private or public banking
sectors. So the context of the present study is characterized by very limited research.

3
Kangis, P. and Voukelatos, V. (1997), Private and public banks: a comparison of customer expectations and
perceptions, International Journal of Bank Marketing, 15(7), pp. 279-87.
4
Sureshchandra, G.S., Rajendran, C. and Anantharaman, R.N. (2003), Customer perceptions of service quality in
the banking sector of a developing economy: a critical analysis, International Journal of Bank Marketing, 21(5), pp.
233-42.

3
 5
Another research study conducted by the Welsh and Raven (2006) for measuring the
importance of service quality for both customer and employees in retailing market in different
countries, concludes that customers and employees in their own respective region are so unique
in many ways so it is important to know about the function of service quality in different-
different culture. Thus, service quality issues within the emerging countries and its economies
regarding banking sectors have long been avoided when compared to the research available in
developed economies including. The available literature suggests to conducting research study
on service quality in different environmental conditions as – culture, religion and other
demographics, having impact and its affection on customer perception of service quality in
Indian banking. This original fact motivated to the researcher for the further investigations and
exploring the facts related to the service quality gaps in Indian banking sectors.

From the desk of researcher, the current study is much important and so valuable because it is
conducted to measure and assess the service quality gap in Indian public and private banking
sector both. This research is conducted in order to identify the significant difference between the
two groups of banking in terms of customer perception of service quality. Both banking sectors
of India are competing with each other, so it became appropriate to examine minutely the context
to which service perception are compared among all those customers and how much amount they
fulfill the expectation of the customers. It also explores the area of strength and weakness with
respect to service quality and offers appropriate solutions and decisions. The research also
identifies the major important dimensions of service quality for each functions of banking sectors
in India. This will also measure the relationship between the variables of customer demographics
and the bank status of ownership as demographics features are most used bases for market
segmentations and customers (Blech and Blech, 19936; Kotler and Armstrong, 20107). Finding
these various related aspects of banking industry will in fact add to the existing body of
knowledge in respect of service quality.

1.1 Banking Sector at a Glance in India

The central bank of India, Reserve Bank of India, and all commercial banks plays a important
role in Indian banking sector. The major financial institutions are the part of commercial banks
since 1770, when the first Indian public banks commenced its operations. The local commercial
5
Welsh, D.H. and Raven, P (2006), Family business in the middle east: an exploratory study of retail management
in Kuwait and Lebanon, Family Business Review, XIX(1), pp. 29-48.
6
Blech, G.E. and Blech, M.A. (1993), Introduction to Advertising and Promotion, 2nd Edition, Irwin, Homewood.
7
Kotler, P. and Armstrong, G. (2010), Principles of Marketing, 13th edition, London: Pearson.

4
banks consist of both kind of banking sectors i.e., state owned and privately owned banks in
India. Some of the public banks are as Allahabad Bank, Andhra Bank, Bank of Baroda, Canara
Bank and Central Bank of India etc whereas the private banks are Axis Bank, Catholic Syrian
Bank, City Union Bank, Development Credit Bank, Dhan Laxmi Bank, Federal Bank, HDFC
Bank, etc. Indian banking system also consist some of Foreign Banks but foreign banks are not
allowed to deal in retail services rather they are allowed to open representative office under the
term and conditions of law governing the Indian banking system. Few of foreign banks found in
India include Abu Dhabi Commercial Bank, Royal Bank of Scotland, Bank of America and
HSBC etc.

In 1996, the first private bank, Bank of Commerce and Development, was established offering a
range of Indian retail banking services and with this, private banks entered in Indian retail
banking. These drastic changes in respect to development showed that Indian public banking
sectors are having some kind of weakness in respect of service performance and there is a need
to develop much more. All these weaknesses have lead to the growth of private-owned banks in
India.

In November 2010, Indian central bank, the Reserve Bank of India announced in accordance
with its plan for restructuring and modernizing (Indian public banking sector) that public sector
banks require improvements and development. The aim of central bank of India is to develop a
new and update modern bank for increasing the profitability within next upcoming few year.

Reserve Bank of India

Reserve Bank of India serves as one of the most important financial institutions as well as central
government body of India, in modern economy. Reserve Bank has important public policy
function of monitoring the operations of financial system and controlling the growth of money
supply. Reserve bank generally communicates with the commercial banks and securities
agencies to carry out their required policy making functions and it does not deal with customers
directly, that’s why Reserve Bank is called the “Banker’s Bank”.

Reserve Bank of India is a self governing corporate body which is 100% state-owned and
represents the monetary authority in India. The Indian law which relate to establishment of
Reserve Bank of India, has decided it long term goals and objectives which means to focus on

5
maintaining economic stability and enhanced the sustainable growth in Indian economy in all
monetary aspects in accordance with the general economic policy in Indian govt.

The central bank of India was established in 1935 on the time of British Raj, in accordance with
the provision of the Reserve Bank of India Act, 1935. RBI is an India’s central banking
institution which regulates the monetary and fiscal policy of Indian currency. The involving
capital of central bank was divided into share of 100 rupees each fully paid, which was entirely
owned by private shareholders. After the Independence of India in 1947, RBI was nationalized in
1949. It plays a significant role in developing the strategy of Indian economy. It is also serving
as one of the participating bank of the Asian Clearing Union. As far as its management are
concern, RBI consist 21 members and Central Board of Directors which consist of the one
Governor, four deputy governor, two experts from financial ministry as a representatives, ten
persons from government nominated in the form of Directors, and four Directors are selected to
represents local board for the directions and superintendence of Indian economy. Reserve Bank
of India also having its own four headquarters which are located at Mumbai, Chennai, New-
Delhi, and Kolkata and each board consist five members who basically works for the interest of
regional, co-operatives and indigenous banks.

The Reserve Bank of India plays a significant role in extending the financial inclusion and its
policy. It is a leading member of the Alliance of Financial Inclusion (AFI).

Here is the list of various functions and policies of RBI are as:-
 Issuing Indian Currency
 Sustaining the stability of the Internal and External value of Indian currency.
 Regulation and controlling of state reserves of gold and foreign exchange.
 Management of credit and banking system policy within the framework.
 Objective of national economy and institutions.
 Regulation of state loans.
 Delivering Banking services to public administrative units and institutions.

Today banking is mostly known as innovative banking. Information technology has given rise to
new innovations in the product designing and their delivery in the banking and finance industries
which defines customer services and customer satisfaction as their prime work. One of the most
significant areas where IT had a positive impact i.e., substitutes for traditional funds movement

6
services. The electronic banking, electronic funds transfer and other similar products funds
transfer within time frames which would have appeared possible within a few years. With the
invention of networking and inter connection, new challenges are arising related to security,
privacy and confidentiality of transactions. At last, the banking sector will need to master a new
business model by building management and customer services with a variety of products and
controlled cost to stay in the long run for increasing profits.

The basic foundation of banking i.e. building the trust and confidence of the people on the
banking institution keep it up for the years. The majority of the banks are still successful in
keeping with the confidence and trust of the customers and all associate entities. By the drastic
changes in time, banking services brings some different kind of risk exposure. Thus Indian
banking are said to be the Indian dominant financial institution which have made excellent
progress since last five years as it becomes most reliable evident factors on several tested
parameters including annual growth, trends in gross non-performing assets (NPAs) and
profitability.

Banks are one of the major institution which have benefitted with an overall good rate of
economic growth over the last decade which means setting up of credit information bureaus
some kind of internal improvements such as up-gradation of technology, infrastructure,
tightening the appraisal and time to time monitoring the process. One of the basic reasons behind
the improvement of Indian banking services is strengthening of the risk management platform.
Improvements in the Indian Banking services and performance has been achieved despite several
hurdles created on the way such as temporary slowdown in Indian economy and its activity
during the second half of 2008-09, a tightening liquidity situation, enhancing in wages following
revision and changes in regulations by the Reserve Bank of India (RBI).

In the current scenario, Indian banks face several challenges like: increasing and decreasing in
interest rate on saving deposits, tight monetary policy, and govt. deficit, increasing in stress in
some industries like: airlines, restructured loan accounts etc. The face of Indian Baking has been
changing time to time. Now-a-days banks are reaching out to the masses with the technology to
better facilitate of communication and different transactions are carried out with the use of
technology like internet and some devices like mobile.

Indian Banking

7
The traditional functions of banks were limited to accept the deposits and to provide loan and
advances. At present banking sector has come up with a lot of initiatives oriented towards
providing better customer services with the help of new initiatives and new technologies. In the
competitive banking world, improvement in customer services day by day is necessary as it is the
most useful tool for their better growth. Bank offers so many opportunities to access their
banking and other services.

Banks play a crucial role in the economic development of developing countries. Economic
development involves investment in various sectors of the economy of the country due to which
bank collect savings for investment in various projects of a country. In normal day to day life,
bank perform agency services for their customers and help in the economic development of the
country such as purchase and sale of securities, shares, make payments, receive subscription
funds for the government department. For this purpose, banks save time and energy of busy
peoples. Bank arranges the facility of foreign exchange services for the business transactions
with other countries. Banks does not work simply collect funds but also serve as a guide to the
customer about their investment of their money.

1.1.1 Structure of Indian Banking Industry

Under the supervision of Reserve Bank of India, several functions are performed by the
commercial banks in India. Indian banking industry mainly consists:

1. Commercial Banks
2. Co-operative Banks

The India commercial banking is classified in to two categories: Scheduled Commercial Banks
and Unscheduled Banks. Scheduled commercial banks comprises of those banks which have
been included in the 2nd Scheduled of Reserve Bank of India (RBI) Act, 1934. Basically
scheduled banks are benefitted by the Reserve Bank of India in terms of accommodation during
the times of liquidity constraints.

The Central bank of India categorized the Indian banks in various forms such as: Public Sector
Banks, old private sector banks, new private sector banks and foreign banks.

8
 Figure 1.1 Structure of Indian Banking Industry

Reserve Bank of India

Bank Financial Institution

State Level Institution

All India Financial Institution Other Institution
Scheduled CommercialCo-operative
Banks credit institutions

Public Sector Banks Foreign Banks

Regional Rural Banks Urban Cooperative

Private Sector Banks

Rural Cooperative Credit

9
Growth Rate of Banking Sector in India

The development of the Indian banking industry has been with very fast growth rate over the past
decade. Like other financial intermediaries over the world, Indian banking sector has been one of
the institutions which providing continuing growth to the Indian economy as well as to the world
economy. It is also creating the growth opportunities. Some reputed organization like FICCI
conducted a survey for Indian banking services to know about the competitive advantage
offering by the banking sector as well as the policies and structures required to continue
stimulate the growth.

The revenue of Indian banks increased from US$ 11.8 billion to US$ 46.9 billion in the years
2001-2010. The profit tax rose nine times which increased profitability. Banking index defines
the performance of primary banking sector.

Growth rate of Scenario

In the present scenario banking become very dynamic. Before liberalization, the picture of Indian
banking was totally different with current status & scenario accordingly as the Indian govt.
started various measures as an important participation in economic development. The industrial
policy resolution was firstly adopted by the govt. of India in 1948 which defines the concept of
mixed economy i.e. involvement of the state in several segments of the Indian economy.

The central bank of India was nationalized on Jan 1, 1949 under the Reserve Bank of India Act,
1934. It was empowered to regulate, control and inspecting the banking in India. This only
institution are having the right to provide the basic essentials like license of opening new bank or
new branches in different areas and the common thing is that there is no common directors for
every two branches. In July 19, 1969 the GOI declared 14 commercial banks as nationalized for
the purpose of economic development. The basic reason was behind this nationalization, to give
the govt. more control of credit delivery.

Change is the law of nature as it is also very much necessary in each field for the further growth
so banking is not any exceptional case. In this industry, changes are made relatively, it relate to
the fundamental way of working performance which is going through quick transformation in
today’s world. The key elements of each business should be very clear, adjustable, adaptable and
changeable. The coming challenges faced by the commercial banks in today’s scenario, is the
increasing customer expectation, risk management and maintain growing rate.

10
Recent Trends

The Indian banking industry has been categorized on the basis of types of ownership and its
origin in to public sectors banks, private sector banks and foreign banks. The present bank
scenario represents a lot of opportunities and challenges. In the last years, a lot of ups and downs
are shown in the banking industry due to global financial crisis.

1. Assets- There is 18.4% growth in the assets of Indian banking industry in the year 2005-06.
2. ATMs- The total number of onsite and offsite ATMs of Indian banks in July 2012 reached up
to 100042.
3. Information Technology- The use of information technology (IT) has been increasing day by
day for banking operations. Banks has extended the use of IT as Core Banking Solutions
(CBS) which are:
a) Facilitate banking anywhere,
b) Introduced services such as mobile banking and
c) Increased internet banking facilities.
4. Internet Banking- Internet banking has became most important part of banking facilities.
The Reserve Bank of India has continued to provide various products and services of banks
related to the internet use. The use of NDS, RTGS, CFMS and SFMS over INFINET has been
increasing day by day. The use of RTGS has been increasing for the transfer of funds
especially of large value. New facilities has been developed except internet delivery channel
which are:
a) Transfer of funds to cover third party customer accounts within the same bank.
b) Transfer of funds across banks
c) Bill payments and other payment facilities
d) Integration with third party such as rail booking, air booking etc.
5. Mobile Banking- It is one of services provided by banks which have been increasing day by
day. SMS alerts facilities have been very useful for customers. Technological advancement
has lead to the growth of banking sector.

According to the RBI report, a lot of expenditure has been incurred on the computerization and
development of communication networks between the years 1999-2006. RBI, Ministry of Finance
has made notable efforts for improving the major areas of Indian Banking Sector. The policies
related to rules and regulations such as CRR, Interest Rates Special, etc have been changed for

11
the purpose of growth. Several banking products and services are launched which is result of
innovations and initiatives. Indian banks entered the global market due to liberalization,
privatization and globalization. Banks operations are carried out on the basis of consumerism due
to liberalization as consumer is said to be the king of the market. Banks are also operating in non-
banking operations such as insurance etc.

1.1.2 Challenges Faced by Indian Banking

Banking sector has emerged as the most important leading service sector in the today’s era. India
is also known as the largest economy in the world serving more than 110 cr. population. Service
sector is contributing half of the GDP in Indian economy and banking is said to be the most
popular service sector in India. The important role of banking industry is essential to speed up the
social economic development. The various challenges faced by Indian Banking Sector in today’s
era are as follows:

Customer Satisfaction

Customer is said to be the king of the market. So each service sector provides services and
products according to the will and choices of the customers to fulfill their expectations and gain
customer satisfaction.

To provide several personnel services

It has been said that banking Industry must be able to offer a complete personnel services to its
own customers who are full of expectation for the banking services for building the customer
loyalty and retaining them. The banks have to provide various services to customers for
continuous growth for which bank have to invest in social banking, strong organization culture,
selective up gradation, computerization, supervision, control and innovation.

Non-performing assets

Another challenge faced by Indian banking sector is non-performing assets. The upward
movement in interest rates, restrictions on collection practices and soaring real estate prices lead
by the vehicle loans and unsecured loans which increases NPA in the banking sector.

Competition

12
The public sector banks faces competition from the private sector banks and the foreign banks.
Competition creates various types of challenges for these banks such as product positioning, new
market trends, innovative ideas, maintaining assets, managing organization and risks. Now-a-days
banks manage their administrative value by converting man power to machine power. Skilled and
specialized man power is appointed which is termed as result oriented and targeted.

Managing technology

To achieve and maintain high service and efficiency standards, it is necessary to develop or
acquire the right technology, deploying it optimally and then leveraging it to its maximum extent.
It helps to provide cost effective and deliver sustainable return to shareholders. Hence, managing
technology has become an important challenge for Indian banking sector.

Other challenges

a) Effective coping with regulatory reforms

b) Appointment of skilled staff

c) Customer satisfaction and awareness

d) Corporate governance

e) Changing needs and wants of customers

f) Technology advancement

g) Lack of standards and

h) Structural changes and man power planning

1.1.3 Opportunities for the Indian Banking

As each coin has head and tail in the same way, when challenges exist, there must be
opportunities. Some of the opportunities for the nationalized and commercial banks have been
discussed below:

Rural area customers

As it is known India is an agricultural country. So 70% of the population of India lives in the rural
areas. Banks have entered urban market and towns but villages are remaining untouched. People
are not aware of banking facilities.

13
Offering different ways

Banks are offering various different ways to access banking services such as ATMs, local
branches, mobile banking and internet banking for the increment of banking business.

Good customer services

The best brand ambassador for any bank for growth of its business is good customer services as it
is said customer is the king of the market. Customer services have become the backbone for
judging the performance of banks with increasing competition in the market.

Internet banking

This is a new emerging opportunity for banks which is offering different product and services
such as share trading, insurance, loans, based on the data warehousing and data mining
technologies. These features are common for banking services anytime and anywhere.

Retail lending’s

The new focus area for banking sector is retail lending in respect of financing of consumer
durables, housing, automobiles etc. It is helpful in risk management.

Indian customers

Indian banking sector is growing day by day with emerging opportunities. The biggest
opportunity for the banking sector is the Indian consumers which is rational. The changing
profiles of the customer are related to their income level and life style aspirations. This changing
profile is and will be a key driver of economic growth of the country.

Other opportunities

There are several opportunities for banking sector for growth and development which are as:
a) New markets and new business,
b) Develop new ways of performing,
c) Efficiency improvement and
d) Delivery of high level of consumer services and consumer expectations.

14
1.1.4 Global Expansion of Banking

Competition in the market is increasing day by day. To face cut throat competition in the market,
the Indian banks to be up to global standards. During the financial crisis, it is found that several
international banking institution was fail to fulfill its promises, obligations or commitment on
their funding to Indian companies. The global expansion of Indian banks was made possible with
launch of New Economic Policy in 1991. Some methods of global expansion are as:

Benchmarking

The best method of global expansion of Indian banks is benchmarking. It means to develop the
banks up-to-date so that they can be able to match with the global standards.

Advance technology

Indian banks should use most advance and innovative technology to meet the global standards. It
is another method of global expansion.

New products and services

The Indian bank should introduce its new products and services to fulfilling the customer’s
expectations and delivering them a huge amount of satisfaction.

Scope of New Entrants

There is very large scope for new entrants in the market as there are various opportunities in the
unbanked areas. It is known from the survey that 30% - 35% of Indian population is using
banking services. Most of Indian population lives in rural areas and if new entrants follow rural
areas, there are lots of opportunities which may also lead to economic growth of the India.

New entrants face problems regarding license, capital management, if they get help from the
government, it may be possible to make India developed country from the developing country in
coming years.

Changing Dimensions of Banking

India is an agricultural country, the liberalization in 1991 cause the development of service sector
in India with fast growing rate. Indian banking sector has changed paradigm shift especially in the
field of scope, structure, governance, function and content with the help of globalization and post

15
liberalization in Indian economy. The composition, management, functions and contours of
Indian banking sector have been changed with the time.

With the use of advanced information and communication technology, the operating function of
banking sector have been changed i.e. every function is performed with the help of computer and
internet. The growth of Indian banking sector has made possible to face concurrent challenges,
global standards, increased competition, rising customer expectations and diminishing customer
loyalty.

State of Banking in the Post-Liberalization Period

Narasimhan Committee realized that banking sector may have an active participation in the
economic growth of the country. The banking sector was working in a highly controlled, deputed,
regulated and protected region during the liberalization. Above mentioned committee was formed
by the Indian govt. to suggest reforms in the Indian banking sector for enhancing the efficiency,
effectiveness and profitability.

The areas where major reforms are counted, which were included in the committee are:
 Decreasing Statutory Liquidity Ratio
 Decreasing Cash Reserve Ratio
 Redesigning the priority of the sector lending
 Interest rate on deposits, and advances was updated to compete in the financial sectors.
 Capital adequacy essentials.
 Approaching for capital market.
 Prudential accounting conditions.
 Competition

These all above mentioned measures which were recommended by the Narasimhan Committee
were accepted by GOI and RBI and all banking institutions, lead to the ultimate objective of
growth and profitability. The branch licensing procedure was relaxed, interest rates were
deregulated, SLR and CRR was reduced, entry of foreign banks was allowed and private banks
were nationalized to face the cut throat competition in the world.

16
1.1.5 Impact of Globalization of Indian Banking

Globalization as ''the worldwide drive towards a globalised economic system, dominated by

corporate trade and banking institutions that are not accountable to the democratic processes or
national governments. Due to Globalization, all important institutions like the nation, state,
family, work, services, trade, leisure, culture, knowledge etc. are changing. As a result of this,
life styles of people throughout the world are also changing, making the world a single unit when
it comes to decision making.

Globalization has great influence on the Indian Banking system. The overall development and
growth of banking system was possible with globalization. The impact of globalization on Indian
Banking Sector has been described below:

1. Growth rate could be increased: Globalization has lead to uniform growth rate of Indian
banking sector which is 18%.
2. Opportunity for private sector: Entry of new private sector has made possible with liberty
in licensing procedure.
3. Emphasis on professionalism: The spirit of competition and gain success leads to emphasize
on the professionalism.
4. Healthy competition would increase: The global standards may increase healthy
competition which means economic growth of the country will rise.
5. Performance needs to increase: The performance of banks is required to be improved and
increased to meet global challenges.
6. Productivity of personnel: Globalization and liberalization has increased the productivity of
the personnel of the banking sector.

1.1.6 Strategies for the Development of Banking

With the change of time, banking sector need to be more develop to face global standards. To
face these challenges, many strategies should be developed for effective management and to earn
profitability and growth in banking sector. Looking on the side of Globalization Some of these
strategies have been given below:

a) Intensively competitive market

17
With the time the structure of market has changed drastically. It has become customer centric as
customer is said to be the king of the market. The bank has to provide services at the door step of
the customer and meet their requirements of products and services in a customized manner. This
development is necessary for growth of banking business in future.

b) Need based technology

Technology is necessary for banking industry for providing convenience in product delivery and
access, managing productivity and performance, product design, adapting to market and customer
needs and access to customer market. These developments are much essential for Indian banking
sector for growth and development in the future. It may improve efficiency and provide more
opportunities to the banking sector.

c) Consolidation through mergers / acquisition

The Indian banks are pressurized from the international market through globalization. Indian
commercial banks are needed to match with the financial strength with the international
competition. Mergers and acquisition are offering new opportunities for the banking sector to
reduce cost of product and growth of industry.

d) Customer relationship management

The Indian banking scenario would become sharper and widespread with developing strong
relationship with the customers. The expertise in information technology and functional
knowledge is required in future to face competencies. The banks should appoint staff with
required skills according to the job. The training should be provided to the personnel to up-grade
their skills because of competition.

e) Delivering customer delight

Customer delight is a method which can identify the areas where improvements can be made for
providing customer satisfaction. It is a revolutionary and cost-effective approach which means
internal improvements, performance and increased business may lead to customer satisfaction. It
results with exceeding expectations of satisfied customers.

f) Imparting good governance

18
The banks should concentrate on improving performance with regard to capital adequacy, asset
quality, management performance, liquidity and systems & controls. These can be ascertained
from the balance sheet management which involves subjective evaluation.

g) Corporate social responsibility

It is said to be a commitment by any business to achieve commercial business in such a way that
it must honor ethical values, addresses legal issues and leads to economic development of the
country. It must improve the quality of experience of the workforce and their families as well as
the local community and society.

h) Appropriate HR policies

Banks should make appropriate HR policies to meet the challenges and opportunities in the
future. The training and development programme should be provided to the staff for updating
their skills to face the emerging challenges. Human resource plays a key role in the development
of the service industry.

i) Management of NPAs

Banks are mostly concerned about their non-performing assets. The most important for
improving bottom line of the banking sector is managing credit management skills.

j) Product re-engineering strategy

The changing and diversified needs to the customers are result of the impact of growth in
disposable incomes, changing lifestyles, global changes on the economy. The Indian banking
sector has to develop very innovative products and services to meet the customer expectation and
needs and the requirements of various sectors of the economy.

1.1.7 Public and Private Sectors Banks

Two types of the banks have been developed in Indian Banking Industry:

1. Public Banks
Public sector bank which has the majority of holding of govt. These banks are categorized in to
two parts.
 Nationalized Banks
 State Bank of India & its associates

19
Indian banking sector has nineteen nationalized banks and eight state banks of India associates.
These banks include maximum amount of deposits and advances in the banking Industry. These
are further divided into:
 State Bank of India
 Nationalized Banks
 Regional Rural Banks
Some of these banks are as:
1. Bank of Baroda
2. Punjab National Bank
3. Bank of India
4. Canara Bank
5. Central Bank of India
6. Indian Bank
7. Indian Overseas Bank
8. Syndicate Bank
9. UCO Bank
10. Allahabad Bank
11. United Bank of India
12. Oriental Bank of Commerce
13. Corporation Bank
14. Vijaya Bank
15. Bank of Maharashtra

2. Private Banks

The bank which is formed with majority holding by a private organization is known as private
sector banks but these banks also work under rules & regulations of RBI. So these private sectors
bank came in the light for bridging the performance of the public sector banks and fulfilling the
gap for serving the need of the Indian economy in a better way. Public sector banks lack profit
due to government interruptions but private sector banks are free from these interruptions. Hence
RBI approval is needed for both the banks.

Distinguish b/w Private and Public Banks

20
The both banks i.e., private and public banks differ from each other in different ways. Some of
the most common differences between them are discussed below:

1. Network of banks

The networks of banks are made through branches and ATMs. In India it can be said that private
sector banks has maximum number of branches than public sector banks. Private Banks
expanded them at very fast pace than public banks. Private Banks provide innovative services at
much faster rate of growth.

2. Productivity

Productivity can be measured in terms of the volume of production that is, what has been
produced and what has to produce. Productivity can be measured in the sense of banking such as
profit per employee, business per employee etc. This ratio shows efficiency level of banks. The
ratio of public and private banking sector shows that public sector banks have greater
productivity ratio than private sector banks.

3. Capital adequacy ratio

The ability of the Indian banking is to maintain the capital with the nature and extent of all types
of risk. And the ability of management is to identify, controlling, measure and monitor these
risks. The private banks are more comfortable to absorb losses than public sector banks.

4. Growth of bank

Each bank aspires to have growth with change in time. The growth of Indian bank is measured
with the growth in balance sheet like: asset base, total income etc. The public sector banks grew
at an increasing rate whereas private banks faced many fluctuations. The data of 2014-15 is
represented below:
Table: 1.1 Growths of Banks

% Growth in Balance sheet size % Growth in total income

2014 2015 2014 2015
New Private Sector Banks 10.86% 23.51% -2.19% 14.63%
Public Sector Banks 17.93% 19.21% 12.46% 16.71%
Source: Data on number of bank offices are taken from Banking Statistics.

21
5. Asset quality

The volume of existing credit risk is associated with the loan and investment portfolio as well as
off-balance sheet activities are called asset quality. The parameter to judge asset quality is non-
performing assets ratio. The public sector banks have higher NPAs than private banks.

6. Efficiency of management

The efficiency of management is one of the most important issues for the bank. The parameters to
measure efficiency of management are ratio of no-interest expenses to total assets, assets turnover
ratio etc. The efficiency ratio of private banks is better than public banks.

7. Liquidity

The efficiency of bank to pay back debts is called liquidity. The liquidity risks are of two types:
Firstly: The risk of being unable to liquidate assets in a timely manner at a best possible price and
secondly risk of being unable to fund assets at appropriate maturity and rates. The following
ranks have been designated on the basis of comparison between banks of both sectors:

Table: 1.2 Public & Private Bank Ranking

Bank Rank
Yes Bank 1
Punjab National Bank 2
HDFC Bank 3
Kotak Mahindra Bank 4
State Bank of India 5
Axis Bank 6
Bank of Baroda 7
ICICI Bank 8
Indian Bank 9
Canara Bank 10
Allahabad Bank 11
Bank of India 12

Source: RBI Annual Financial Report, 2015

22
1.1.8 Conclusion

The growth of banking sector is said to be as apt indicator of the economic growth of the
country. Reserve Bank of India is known as banker’s bank which control and regulate all other
banks of India. Every new bank has to get license by RBI for new launch or new branch opening.
It can be said that each decision of the banks can be taken with the permission of the RBI
(Reserve Bank of India). Government banks dominate the competitive scenario of the India. The
new entry has been very tough due to excessive competition and consolidated nature of the
industry. The key challenges for the banking sector are to reduce NPAs, increase financial
inclusion, rise capital, profitability and productivity of the personnel.

The growth of public sector is optimized through increasing productivity and efficient human
resource management. Banks has to hire employees with both core and specialist skills with
supervising and controlling the management of the bank. Growth of banking industry needs
sustained government support and a careful revaluation of existing business strategies. Indian
banking sector faces lots of challenges and cut throat competition from the world market. Banks
has to manage time and cost of all operations with earning profits.

The globalization in the Indian banking sector has lead to the growth and development of the
economy of the country. It has opened various new opportunities for the Indian banks with lots
of challenges. The changes lead by globalization in the Indian banking system has been
mentioned above. Banks has to make their new policies and strategies to face technological
innovations and competition from global banks.

It is a high challenge for the Indian banking industry to serve the crowded market or mass market
of India i.e. rural and urban people. Banks have to shift their focus from product to customer as
customer is said to be the king of the market. The services of the banks have become customer-
centric. Banks are more success if they fulfill the expectations of the customer. The basic
challenge for banks is product differentiation, global competition, customer retention etc.
Updating or adopting the technological changes is a single way aspect to face the various
challenges. The common things are found in Indian banking customer that is relate to the
rationality where priority goes to cost and price.

In present scenario, customer demand about the technological up-gradation like: internet
banking, mobile banking and some of ATM services rapidly. The major priority for banking

23
sector is to fulfill customer expectation to gain customer retention. If any bank has to gain
success in the market, it has fulfilled the needs and requirements of the customers. Now-a-days,
customers demand internet banking, mobile banking and ATM services with faster rate. Indian
banks are most trust worthy service industry in the market.

1.2 Service Quality (Conceptual Framework & Orientation)

Service quality is a new energetic, emerging and dynamic concept which has created the
participation of researcher in the area of service management and various fundamentals of the
marketing research. Here are several study has been conducted on service quality by the
combination of both either academic or practitioners who indicate that service quality has a
strong correlation with various aspects of the customers like customer satisfaction, financial
performance, manufacturing cost, customer retention, customer loyalty and delightness and
finally the success of marketing strategy (Cronin and Taylor, 19928; Cronin, Brady and Hult,
20009; Wong, Rexha and Phau, 200810). Service institutions consider various service quality
factors to be strategic components of their marketing plan. Service organizations can achieve a
high level of customer satisfaction and they also can control or regulate a constant competitive
advantage by providing a high level of service quality.

Service Quality is most commonly used term in different areas to express different concepts on
different industries. Johnston and Clark (2005)11 implement the term service quality to express
organization function that is how an organization reacts or interacts with its customers in
different ways. Service quality addresses the function of the customer requirements and its
configurations, how customer’s desires are fulfilled and measuring the customer expectations
with the service delivery, either its matches or not.

Furthermore, they also suggested that the service quality is the sum of different-different inter-
related aspects like satisfaction, the relative impression of an organization’s services, and the
quality of services, which is delivered.

8
Cronin Jr, J.J. and Taylor, S.A. (1992), Measuring service quality: a re-examination and extension, The Journal of
Marketing, 56, pp. 55-68.
9
Cronin, J.J., Brady, M.K. and Hult, G.T. (2000), Assessing the effects of quality, value and customer satisfaction
on consumer behavioural intentions in service environments, Journal of Retailing, 76(2), pp. 193-218.
10
Wong, D.H., Rexha, N. and Phau, I. (2008), Re-examining traditional service quality in an e-banking era,
International Journal of Bank Marketing, 26(7), pp. 526-45.
11
Johnston, R. and Clark, G. (2005), Service Operations Management, 2nd Edition, Prentice Hall.

24
Gronroos (1984)12 defined that service quality is the outcome of the difference which customer
makes between their expectations and perceptions towards the service quality.

Parasuraman, Zeithaml and Berry (1985) 13 had examined and observed various studies
regarding service quality and gave three propositions which are as follows:

1. The quality of services is not a simple task for a customer to evaluate goods as their
quality.
2. The perception towards service quality is the result of the comparison, whatever a
customer makes between its expectation and the performance of services for any service
industry.
3. Quality assessment includes assessment of the process of service delivery to the
customer, it not only depends upon the result of a services.

Table: 1.3 General Concepts of Service Quality

Organization Service Quality Definition

American Express “Quality is our only form of patent protection”

Federal Express “The presence of value defined by customers”

AT&T “Meeting or exceeding competitor’s quality”

Florida Power and Light “Meeting the desires and expectations of customers”

Marriot (American hotel chain) “Quality is conformance to requirements. Requirements are

determined and modified through continuous communication between
customers, frontline associates and management.
Source: Edvardsson, Thomason and John (1994, p.80)

A general concept of service quality can be said that the services must be indicated to the
customers and it should match to the customer expectation and requirements as well as it should
satisfy the customer’s desires, fulfilling the demands and needs of the customers (Edvardsson,
Thomason and John, 1994)14. So, it is most important priority to listen and understand the
customer’s requirements, need and then meet those needs, to provide a high level of service

12
Gronroos, C. (1984), A service quality model and its market implications, European Journal of Marketing, 18(4),
pp. 36-44.
13
Parasuraman, A., Zeithaml, V.A. & Berry, L.L. (1985), A conceptual model of service quality and its implications
for future research, Journal of Marketing, 49, pp. 41-50.
14
Edvardsson, B., Thomasson, B. and John, O. (1994), Quality of Service Making it Really Work Berkshire,
McGraw-Hill Book Company Europe.

25
quality. A good service provider or competent professional should try to determine the customer’s
expectations and needs and then try to match them, to secure a competitive advantage and achieve
the high level of success.

Table: 1.4 Relationship among different definitions of service quality

Definition/ Result of the A track to The The result of The perceived Fulfilling
Author and comparison competitive measurement of applying the level of customer
Year that customers advantage and the extent of service’s service satisfaction.
make b/w corporate compatibility technical and coming from
expectations profitability. between the functional measuring the
about service standard of the dimensions. difference b/w
& perceptions service the
of the way delivered to the expectation
that a service customer and and the service
has been the customer’s performance.
performed. expectations.

Sasser et al. Yes

Gronroos
Yes
(1982)
Gronroos
Yes Yes
(1984)
Parasuraman
Yes
et al.

Lewis (1987) Yes

Gronroos
Yes
(1990)

Cronin and
Yes
Taylor (1992)

Edwards and
Yes
Elliott (1994)

Palmer (1994) Yes

Liljander and
Yes
Tore (1995)

26
 Ravald and
Gronroos Yes
(1996)
Tumbull and
Moustakatos Yes
(1996)

Chaston
Yes
(2000)

Caruana et al.
(2000)
Yes Yes
Caruana and
Malta (2002)
Jabnoun and
Al-Tamimi Yes Yes
(2003)

Johnston and
Yes
Clark (2005)

Petridou et al.
Yes
(2007)

The above various studies on service quality shown in the table gives some evidences which
supports the opinion that different customers who received the services and different services
organizations which are known as service providers have different-different perceptions towards
the service quality that is, service quality should be defined and what it actually means. By
reviewing the huge amount of literature on service quality, it has become successful to recognize
that the service quality is most likely related to the customer satisfaction and it is the
responsibility of the service organizations or service providers. Garvin (1988)15 Defined that
service quality is not a easy concept, it is only easy to visualize but difficult to define in the
various service industry.

15
Garvin, D.A. (1988), Managing quality: The strategic and competitive edge. New York: Free Press.

27
 Figure: 1.2 Service Quality Definitions and Associated Concepts

Fulfilling customer satisfaction.

Fulfilling service
Valuation of the extent of specification
compatibility between standard of
the service delivered to the
customer and the customer’s
expectations.
Fulfilling customer
expectations
The perceived level of service
coming from the assessment of the
difference between the expectation
and the performance of the service
performance of the service.
Fulfilling customer
The result of the comparison that a satisfaction
customer makes between their
expectations about a service and
their perception of the way that the
service has been performed.

The outcome of applying the

service’s technical and functional
dimension.

A route to competitive advantage.

General Characteristics of Services Necessary for measuring quality

Various researchers and analyst have defined the different characteristics of services as a group
of intangible activities or resources (as services are) resulting from the interaction between the
service organization’s and the customers (service receivers) as well as the organizational systems
and the required tangible resources.

28
Service is defined as the work performance (Lovelocke, 1992)16. The organizational system of a
service firm has been defined as the advanced skills and benefits obtained by the customers
while using or leasing an organizational tangibles or intangibles facilities, maintenance or
professional advice for better customer satisfaction (Juran and Gryna, 1988)17.

Palmer (1994)18 had studied the intangible features of the services. He defined that services are
having the intangibles features just because of unlike goods; services don’t have any physical
appearances. Infect, it can be said that services are made by the compositions of intangibilities so
that’s why it is much difficult to measure the service levels.

Thus, a customer who is having desires to measure the service quality relies on intangible aspects
of services such as: delivery, consistency, speed and customization. It clearly shows the
importance of the confidence and trust building during measuring the intangible services such as
banking & insurance industry etc. (Al-Marri, Ahmad and Zairi, 2007)19.

The leadership skills of a service provider say that a leader should have a clear vision towards
the services as it helps to differentiate it from other service providers. Much more that is, it is
also said that exploring a service strategy can give positive impact in profitable manner and such
kind of strategy is a kind of never-stopping journey in the field of service quality. They should
also focus on improving the various dimensions of the service quality especially on the reliability
dimensions for the betterment of the service quality (Zeithaml, Parasuraman and Berry 1990).

Service Quality Perceptions

Researcher also have worked out on both, customer perceptions and expectations as global
decisions of customers, correlating to the highest level of service quality which is mostly touched
by a number of various demographic factors including: education level, social background,
cultural factors etc. (Parasuraman, Zeithaml and Berry , 1988; Sureshchandar, Rajendran
and Aantharaman, 200220; O’Neill and Palmer, 2003)21, It also consider the consumer beliefs

16
Lovelocke, C.H. (1992), Classifying service strategic marketing insights, Managing service marketing: Text and
readings, 2nd edn, Florida: The Dryden Press.
17
Juran, J.M. and Gryna, F.M. (1988), Juranis Quality Control Handbook, New York: McGraw-Hill.
18
Palmer, A. (1994), Principles of Services Marketing, Berkshire, England: McGraw-Hill Book Company Europe.
19
Al-Marri, K., Ahmed, A. and Zairi, M. (2007), Excellence in service: an empirical study of the UAE banking
sector, International Journal of Quality and Reliability Management, 24(2), pp. 164-76.
20
Sureshchandar, G.S., Rajendran, C. and Anantharaman, R.N. (2002), Determinants of customer-perceived service
quality: a confirmatory factor analysis approach, Journal of Services Marketing, 16(1), pp. 9-34.
21
O’Neill, M. and Palmer, A. (2003), An exploratory study of the effects of experience on consumer perceptions of
the service quality construct, Managing Service Quality, 13(3), pp. 187-96.

29
towards service received (Ziethmal, Parasuraman and Berry, 1985), having the direct
interaction of the service organizations with its consumer’s (Bitner, Brown and Meuter,
2000)22, as well as the evaluation during the interaction (Taylor and Cronin, 1994, Bitner,
Zeithmal and Gremler, 2009)., It also includes the judgment of consumer’s towards the
performance of the actual services (Lewis, 1989), includes the process of interaction, perception
23
and interpretation (Schiffman and Kanuk, 1987) , and consumer perception towards the
product and services (Foster, 2004).

Customer decision on the actual services performance is known as customer perception.

Customer perception is associated to how customers feels and assesses the service quality about
the received services through the services organizations. Through this perception only, the
evaluation and judgment regarding the service quality is determined (Obaid, 2006)24.

Palmer the price dimensions of service quality has a significant factor on the consumers
perception, while rest of others remains equals, so the target customers can make the judgment
on perceived service quality in respect of price. Customer interest is based on the basis of various
factors of service quality and its level like: impact of promotion, past experiences, corporate
image and branding and finally customer preference accordingly.

Table: 1.5 Quality Perception Factors

Before Purchasing At Point of Purchasing After Purchasing

Company’s brand Performance Ease of installation and use
Name and image Specifications Handling of repair claims
Previous experience Comments of sales people Warranty
Opinions of friends Warranty provisions Spare parts availability
Store reputation Service and repair policies Service effectiveness
Published test results Support programmes Reliability
Advertised price for performance Quoted price for performance Comparative performance
Source: Obaid (2006. P.23)

22
Bitner, M.J., Brown, S.W. and Meuter, M.L. (2000), Technology infusion in service encounters, Academy of
Marketing Science Journal, 28(1), pp. 138-49.
23
Schiffman, L.G. and Kanuk, L.L. (1987), Consumer Behaviour: Englewood Cliffs NJ, Prentice-Hall.
24
Obaid, S.H.A.A.Z. (2006), Islamic banks and service quality: an empirical study of the UAE, Ph.D. Thesis,
University of Durham.

30
The second part relate to the presence level of the customer knowledge to the service
organizations towards technical performance which also affects the service quality. So the task
performance is dependent on customer perception towards the service quality (Burch, Rogers
and Underwood, 1995)25.

Customer taste and preference has been widely participated to measure the service quality level
by the service providers. So, service quality sensing referred to the consumer measurement and
decision of the current services offered to the customers which mean that it lead that, how
customers are perceiving the services, how they evaluate and judge, either customers are having
the past experiences or not, are they satisfied or not? It is much necessary to know that customer
perception is associate by the primary factors of service quality such as: service encounters,
service evidences, image and price of services.

Customer Expectation

In the field of service quality, Expectations plays a greatest role (Zeithaml, Bitner and
Gremler, 2009)26. Expectation are inter related with the satisfaction with a services and product
performance (Zeithaml, Bitner and Gremler, 2009). While it has been observed that
expectations plays a very important role in service operations (Johnston and Clark, 2005).

So finally it can be said that expectation includes, what customers think or believe and the
service provider and its capabilities of delivering and customer prediction about service aspects.
So it is most important thing for service providers to know about customer expectations (Wilson
et al., 2008)27 and understanding that customer expectation will lead to customer satisfactions
(Dutta and Dutta, 2009)28.

How expectations are formed

Researcher has discussed broadly about the expectation which are found in the customers. It can
be based on image of service providers (Gronroos, 1990), word of mouth, previous experiences

25
Burch, E., Rogers, H.P. and Underwood, J. (1995), Exploring SERVPERF: An empirical investigation of the
importance-performance, service quality relationship in the uniform rental
industry,saber.uca.edu/docs/proceedings11/95ama121.
26
Zeithaml, V.A., Bitner, M.J. and Gremler, D.D. (2009), Services Marketing, New York:McGraw-Hill.
27
Wilson, A., Zeithaml, V., Bitner, M. and Gremler, D. (2008), Service Marketing:Integrating Customer Facts
Across the Firm, London: The McGraw-Hill Companies.
28
Dutta, K. and Dutta, A. (2009), Customer expectation and perception across the Indian banking industry and the
resultant financial implications, Journal of Services Research, 9(1), pp. 32-49.

31
(Zeithmal, Gremler and Bitner, 2009), traditional marketing, market communication and
attitude of the customers in the market (Leventhal, 2008) and customer desires (Edvardsson,
John and Thomason, 1994). Customers want, desires and need can be classified in to three
categories (Leventhal, 2008)29 which have been following:

1. Must be needs-unsatisfied needs.

2. Expected needs- expected needs for better services.
3. Exciting requirements- unexpected needs which relate to the good level of the
customer satisfaction and retention.

In some cases, customer’s expected needs for better services are transformed to must be needs,
which are missed for fulfilling and can be motive for service providers for regular improvement
in service quality (Lim, Jackson and Tank). While customer’s expectation can lead to single
services or product about not replacing their providers and services (Leventhal, 2008).
Factors influencing Expectations

In the process of providing the service quality, customer expectations are influenced by the
several factors. Berry and Parasuraman (1991) have defined two levels of expectations in respect
of customer services. First one is desired level and second one is adequate level of desires. The
expectation of the customers referred to the services that a customer expect to accept from the
service distributors which says that expected services is, what should be the level of services,
while the adequate level says that customer can accept from the supplier. It is just because of
customer function that is, to know what will be the service level. The gap which comes between
the both levels of expectation is called the Zone of Tolerance which very person to person and
service to service and finally time to time (Kasper, Helsdingen and Gabbott, 2006)30. The
study of Zeithmal, Gremler and Bitner (2009) defined that this is the extent to which customer
are ready or willing to accept the variations and recognize in service quality.

1.2.1 Service Quality Gap

Few gaps are found between expectation and satisfaction in service quality.

29
Leventhal, L. (2008), The role of understanding customer expectations in aged care, International Journal of
Health Care Quality Assurance, 21(1), pp. 50-9.
30
Kasper, H., Helsdingen, P.V. and Gabbie, O. (2006), Services Marketing Management: a strategic perspective, 2nd
edition, West Sussex: John Wiley & Sons, Ltd.

32
Gap 1 (Understanding): this gap is all about the perception of management towards the service
quality levels. This gap comes due to the difference between the actual customer’s expectations
and management perceptions about the customer expectations.

Gap 2 (Service Standards): this gap comes due to the difference between service quality
specifications and standards and mgt perceptions about the customer expectations.

Gap 3 (Service Performance): this difference comes between actual delivered and
specifications.

Gap 4 (Communications): when the difference creates between, what is communicated (word
of Mouth) towards the received services and actual services.

Gap 5 (Service Quality): when the difference creates between customer expectation and
customer perceptions about the organization’s performance towards the service delivery.

Gap 1 to 4 the extent of the gap 5 depend upon the size, nature, type and directions of above 4
gaps just because gap 1 to 4 influences, the way of services delivered.

Figure 1.3 SERVQUAL Gap Model of PZB

Source: Parsuraman, Zeithmal and Berry (1985, p.44)

In gap model, several kind of parameter has been used along with some specific services by
regular customer (our respondent) with the objective of satisfaction level to measure the gap is
known as SERVQUAL.

33
1.2.2 Service Quality Model

In recent times service quality has been given a big importance by academicians and researchers.
The innovations of service quality in service industry have made it important to obtain a clear
image of service quality from an advantage stand point.

Understanding clearly about service quality is necessary, but it will not be sufficient to suggest
the various improvements in the organization for the service quality. That’s why various
observed modals have become much necessary for getting the service quality more efficiently
which enables the organization’s employee to identify about the service quality deficits and plans
for the better service qualities (Seth, Deshmukh and Vrat, 200531; Ahmad et al., 2009)32.

In different words, the various service quality models creates various relevant relationship
among the different variables related to services which may be known as simple description of
the reality. While the available literature of the service quality models reflects the multi-
dimensionality theories of the service quality models. It is observed that the level of service
quality should be evaluated on the basis of the customer’s perspective for obtaining the better
services (Parasuraman, Zeithamal and Berry, 1988).

Hierarchical Model
33
The Hierarchical Models was given by the Brady and Cronin (2001) . This model also
included the perception and views of Rust and Oliver (1994)34 and Dabholkar, Thorpe and
Tenz (1996).

After putting the lot of efforts and observations for his models they all reach to a final conclusion
that is, three dimensions are involved in perceived service quality from the supplier. These
dimensions are: customer employee interaction, outcome and service environment. Moreover,
they all explained that service quality is having the different-2 dimensions and concepts. So, the
hierarchical models also having the three dimensions that is: interaction quality, outcome quality

31
Seth, N., Deshmukh, S.G. and Vrat, P. (2005), Service quality models: a review, International Journal of Quality
& Reliability Management, 22(9), pp. 913-49.
32
Ahmad, N., Awan, M., Raouf, A. and Leigh, S. (2009), Development of a service quality scale for pharmaceutical
supply chains, International Journal of Pharmaceutical and Healthcare, 3(1), pp. 26-45.
33
Brady, M.K. and Cronin, J.J. (2001), Some new thoughts on conceptualizing perceived service quality: a
hierarchical approach, Journal of Marketing, 65(3), pp. 34-49.
34
Rust, R. and Oliver, R. (1994), Service Quality: New directions in Theory and Practice, Thousand Oaks: Sage
Publications.

34
 and physical environment of service quality. There are also three sub-dimensions, held with the
each dimension which leads to the perception of that dimension. Now the collective perception
or the sum of perception of each dimension (interaction quality, outcome quality and physical
environment) generates the complete service quality perception in a service quality models.

Figure 1.4 Hierarchical Models

Service Quality

Interaction Quality Physical Environment Quality Outcome Quality

Tangibles Valence

Attitude Behavior Expertise Ambient conditions

Design Social factors Waiting time

Source: Brady and Cronin (2001, p.37)

Other Service Quality Models

There are most of the related models are developed, based on the importance of the service
quality. It has been developed with some specific objectives like: how the quality of services can
be measured, and how the services can be improved and what are the various dimensions are
necessary for the service quality. Service quality dimensions are also known as the service
attributes whatever a customer expects about and also service need which customer want to
fulfill at a specified level to get better satisfaction (Johnston and Clark, 2005).

Parasuraman, Zeithaml and Berry (1985) also developed a model by the name of service
quality dimensional model. This model considers ten basic dimensions which are the basic
determinants of perceived service quality.

35
 Figure 1.5 Service Quality Dimensional Model

Service Quality Dimensions:

W.O.M Personal Needs Past Experience
Access
Communication
Competence
Courtesy
Credibility Expected Service
Responsiveness
Security
Tangibles Perceived Service Quality
Reliability
Understanding & knowing the customer Perceived Service

Source: Parsuraman, Zeithmal and Berry (1985, p.48)

Three factors are suggested in this model which affects the perception of the customers. Few
other dimensions of service quality in other models are also identified like: access,
communication, competence, credibility, courtesy, credibility, tangibles, understanding, and
security and knowing the customers. It is said in this models that these dimension are not
independent but rather the overlapping may be overlap b/w two or more of them.

For the service providers, one more important factor which influences the success of the service
quality that is the maintaining the balance b/w customers and organization’s staff. Beddowes et
al. (1987)35 generated a model which is known as behavioral service quality models. This model
is based on the behavioral science. They examined that during the service delivery the common
mistakes are basically done from the service organization. When considering the customer
expectation as the part of marketing strategy or marketing effort, without measuring it with the
available staff or running system to enhance or improve, what the service providers can represent
to the customers. This particular model explains about the necessary factors which have an
impact on the service quality success like: effectiveness or efficiencies of the service providers in
service delivery system.

35
Beddowes, P., Gulliford, S., Knight, M. and Saunders, I. (1987), Service success! Who is getting there, Operations
Management Association, University of Nottingham.

36
 Figure: 1.6 Behavioral Service Quality Model

Service Concept

Internal operations: staff process systems

External presentation: marketing mix communication

Balancing factor

Staff expectations
Customer expectations

Service delivery system

Experience

Source: Beddowes et al. (1987)

Loyalty Profit

Service quality can be measure in to six steps according to the Moore’s (1987) 36 model. This
model is completely descriptive and introductive in nature which develops a route map of how to
develop service quality or quality drive for the customers. It focuses with a high intensity but this
doesn’t lead to service quality problems for reducing the selective market for the purpose of
profitability. The basic disadvantage of this model is that it doesn’t identify the area where
quality deficit might arise. It includes followings:

(a) An objective statement, (b) A short intro about the expected improvement, (c) An order of
priority, (d) An implementation schedule and (e) A list of required resources.
This kind of regulating system supports in measuring the internal and external satisfaction both,
in service organizations. This model also reflects the broad service quality issues by providing a
frame work of addressing.

36
Moore, C.D. (1987), Outclass the competition with service distinction, Mortgage Banking, 47(11).

37
 Figure 1.7 Organizational Service Quality Improvement Model

Identifying quality problems Define external and internal customers Assess magnitude of quality problems
Provide staff and financial resources Identify expectations Identify causes of low quality and estimate c
Integrate quality improvement with other corporate programmes
Emphasize importance of quality improvement efforts

Step 2 Step 3
Step 1 Identify customer Evaluate performance
Obtain management commitment expectations

Step 6 Step 5
Monitor performance Implement strategy Step 4
Develop quality
strategies

Assess effectiveness of quality improvement Changes culture Commitment statement

Revise standards and plans and identify changes in
Improve
customers
performance Quality objectives
Reduce costs Quality standards
Quality action plans
Monitoring systems

Source: Moore (1987.

It is generally said that customer access the service whatever they receive. For the service
providers it is most important to know about their perception and expectation so that it could be
measure that whether they are satisfied or not.

It had been generally known that customers access the service they receive. Their expectations
and perceptions are most important to know whether they are satisfied or not. Nash (1988)37
developed a model which totally defined to the service journey idea.

37
Nash, C. (1988), A question of Service: action pack, Business Management Programme, Hotel and Catering
Industry Training Board, London: National Consumer council.

38
 Figure: 1.8 Service Quality Journey Model

Need
Formal communication
Word-of-mouth
accessibility Perceived Quality

Compare expectation against experience

Compare need with perceived offering

Initial expectation Expectation

Experience Expectation

Preparing / Leaving Reflection

Joining Participatio
Purchase

Experience Experience
Experience

Expectation
Expectation Expectation

Source: Nash (1988)

Above models describes that the past experience and expectations framed prior to purchase,
support to forming the expectations of the next stage and the service journey is initiated by the
need. If there is any equality, are found between the customer’s needs and observed service
offerings, the purchase will be formed. Precise communication and the reputation always play an
important role by the customer’s, on the time of selection of service organizations for purchasing

39
the different services. There is a significant impact of Prior communication and promotion of the
services is found on consumer decision process.

This service quality model can be implemented by the top management of service industries for
better improvement of the service quality. This model also having some new designed service
quality models by seeing the drastic changes in service organizations and observe the models for
the better appropriation / suitability and analyzing the need of the service firms for the
modifications in the running context.

SQ1. Technical and functional quality model (Gro¨nroos, 1984)

SQ2. GAP model (Parasuraman et al., 1985)
SQ3. Attribute service quality model (Haywood-Farmer, 1988)
SQ4. Synthesized model of service quality (Brogowicz et al., 1990)
SQ5. Performance only model (Cronin and Taylor, 1992)
SQ6. Ideal value model of service quality (Mattsson, 1992)
SQ7. Evaluated performance and normed quality model (Teas, 1993)
SQ8. IT alignment model (Berkley and Gupta, 1994)
SQ9. Attribute and overall affect model (Dabholkar, 1996)
SQ10. Model of perceived service quality and satisfaction (Spreng and Mackoy, 1996)
SQ11. PCP attribute model (Philip and Hazlett, 1997)
SQ12. Retail service quality and perceived value model (Sweeney et al., 1997)
SQ13. Service quality, customer value and customer satisfaction model (Oh, 1999)
SQ14. Antecedents and mediator model (Dabholkar et al., 2000)
SQ15. Internal service quality model (Frost and Kumar, 2000)
SQ16. Internal service quality DEA model (Soteriou and Stavrinides, 2000)
SQ17. Internet banking model (Broderick and Vachirapornpuk, 2002)
SQ18. IT-based model (Zhu et al., 2002)
SQ19. Model of e-service quality (Santos, 2003)

The different models which are presented above have been following:

40
 Table: 1.6 Primary Focuses of Service Quality Models
Models
Service Quality Dimensions
(Parasuraman, Zeithaml and Berry, 1985)
Behavioural Service Quality
(Beddowes et al., 1987)
Organizational Service Quality Improvement
(Moore, 1987)
Service Quality Journey
(Nash, 1988)
Service Quality Trade-Off Continuum
(Haywood-farmer, 1988)
Multistage Model of Service Quality and Value
(Bolton and Drew, 1991)
Oliver’s Service Quality Model
(Spreng and Mackoy, 1996)
Service Quality-Profit Chain
(Heskett, Sasser,Schlesinger (1997)
These all models represented in table 1.6 have been represented in chronological order. Here are
some similarities among all models.
41
Primary focus of the model
This model shows various service quality dimensions
and their relation to the expected and perceived services.
It also explores some factors which influence the
expectations.
This model defines the significance of the influence of
behavior of delivery personnel on perceived quality. It
also suggest for making the bridge between customer
and staff expectation which creates the good service
quality. It also provides the importance of the delivery
system.
It provides a framework for implementing a quality
improvement programme. It explains the steps involved
in a quality improvement programme and others factors.
Service Journey model has some stages which show the
impact of experiences in identifying the expectation &
perception of service quality.
This model identifies so many quality trade-offs using
various attributes: a-) Frequency of customization, b-)
Labour intensity, c-) Degree of contact & interaction.
Customer expectations are affected by some of personal
needs, word-of-mouth and past experience. It explores
various organizational and engineering attributes
influence service quality dimensions which influence
perceptions of performance.
Customer expectations have an indirect effect on service
quality. It also explains that customer desire have a
negative effect on perceived service quality.
Correlation between improvement in service quality and
improvements in financial performance.
 Table: 1.7 Similarities in the Focus of the Service Quality Models

Model focuses on Model focuses on Model focuses on

Model name Source service quality service quality factors influencing
improvements importance service quality
Service Quality Parasuraman et al.,
Yes
Dimension (1985)
Behavioural Service Beddowes et al.,
Yes
Quality (1987)
Organizational Moor (1987)
Service Quality Yes
Improvement
Service Quality Nash (1988)
Yes
Journey
Service Quality Haywood-farmer
Yes
Trade-offs (1988)
Multistage Service Bolton and Drew
Yes
Quality and Value (1991)
Oliver’s Service Spreng and Mackoy
Yes
Quality (1996)
Service Quality- Heskett et al., (1997)
Yes
Profit Chain

Above table shows six models which influence the quality of services while out of two models,
one model tells about the improvement of the service quality and the second one made for the
importance of the service quality in the service industry.

According to Martinez and Martinez’s (2010)38, Service Quality models have been classified in
to three models, is listed below:

1. The multidimensional reflective model - Retail service scale is the example of these models,
developed by Dabholkr, Thorpe and Rentz (1996). This model has different-2 level of the
variations which defines the level of service quality, it leads to variation in the service quality
dimensions & sub-dimensions.

38
Martinez, J. and Martinez, L. (2010), Some insights on conceptualizing and measuring service quality, Journal of
Retailing and Consumer Services, 17, pp. 29-42.

42
2. The multidimensional formative model - The service quality model, service performance
model and Nordic models are examples of this model. This multidimensional model defines
that variations in service quality dimensions leads to variations in the level of service quality
construct which serve as the opposite of reflective models.

3. The multidimensional formative-reflective model - the Brady and Cronin (2001)

hierarchical model is the example of this model. This model is a combination of formative
and reflective models. These models are very similar to formative models as they
conceptualize service quality as formed by the dimensions of service quality and are similar to
reflective models in that dimensions are reflected by the sub-dimensions of service quality.

1.2.3 The Importance of Service Quality

Good service quality affects the business performance positively. On the basis of this reaction the
service quality cannot be defined or explained. Delivering expected level of service quality to the
customer is most important factor in achieving the success and for surviving in the competitive
environment (Wang, Lo and Hui, 2003)39. It is most important for the service organization to
provide good service quality for improving the company reputation for attracting the new
customers via word-of-mouth and with the intention of increasing the profitability (Julian and
Ramaseshan, 1994)40. Service quality is known as a core strategic issue for service providers
(Lewis and Mitchell, 1990; Spathis, Petridou and Glaveli, 2004). It is said that service
organization, for achieving a high level of customer satisfaction provides a high level of service
quality. It is an antecedent of sustainable competitive advantage of the firm (Lewis and Mitchell,
1990; meuter et al., 2000; Guo, Duff and Hair, 2008).

A review of literature towards the service quality describes the importance of the service quality
in minimizing or maximizing the value customers. There is a clear picture which is related to the
management of customer relationship in the organization and the value which customer and
relationship brings to the organization. Existing literature (Cronin and Taylor, 1992; Cronin,
Brady and Hult, 2000; Norreklit, 2000; Rao and Kelkar, 1997; Zhu and Nakata, 2007;
Metters and Marucheck, 2007; Standing and Altay, 2007) represents some of factors which

39
Wang,Y., Lo, H.P. and Hui, Y.V. (2003), The antecedents of service quality and product quality and their
influences on bank reputation: evidence from the banking industry in China, Managing Service Quality, 13(1), pp.
72-83.
40
Julian, C.C. and Ramaseshan, B. (1994), The role of customer-contact personnel in the marketing of a retail
bank’s services, International Journal of Retail & Distribution Management, 22(5), pp. 29-34.

43
point out the importance of service quality. Here are some of factors which are considered as the
critical foundation of best practice in service quality in organizations:

1. Achievement of customer satisfaction,

2. Achievement of customer loyalty and retention,
3. Enhance the financial performance,
4. Ensure the success of the marketing strategy,
5. Ensure the well development of service interaction,
6. Focus on easy doing business with customers and
7. Enhance IT capability to improve customer orientation.

Achievement of Customer Satisfaction

Customer satisfaction is an instrument which is used as a tool for measuring the service quality
and products. According to the (Gatchalian, 1999; Oliver, 1980)41, if the service providers are
successfully able to provide the service quality as customer are requiring, then customer
satisfaction will be achieve or may be. If service organization doesn’t fulfill the customer
requirement in same manner, similarly customer satisfaction will not be achieved. It is said that
all unsatisfied customers can cause the negative word of mouth communication as they are having
the negative impression to other customers about services (Lewis, 1991; Newman, 200142 ;
Caruana, 2002). Positive and negative word-of-mouth messages are very much essential in India
as well as in other countries where social life and cultural factors are well structured with strong
societal relationship among the people.

So many studies have been done to find out the customer satisfaction as a task function where the
customer accesses the service quality, price and product quality. Lee, Lee and Yoo (2000)
explained customer satisfaction is a kind of emotion reaction of a customer after using the product
or services. Cronin and Taylor (1992) have described customer satisfaction as the form of
“transaction specific”. Customer satisfaction is a most important tool for fulfilling the relevant
objective and goal for confirming the stability and continuously growing business in an
organization. (Goetsch and Stanley, 1997)43. Palmer (1994) defined that customer satisfaction

41
Oliver, R.L. (1980), A cognitive model of the antecedents and consequences of satisfaction decisions, Journal of
Marketing Research, 17(10), pp. 460-69.
42
Newman, K. (2001), Interrogating SERVQUAL: a critical assessment of service quality measurement in a high
retail bank, International Journal of Bank Marketing, 19(3), pp. 126-39.
43
Goetsch, D.L. and Stanley, B.D. (1997), Introduction to total quality: quality management for production,
processing and services. New Jersey: Prentice-Hall Inc.

44
and service quality generally both are most important tool but customer satisfaction is much
important than service quality for enforcing the purchasing function.

Achievement of Customer loyalty and Retention

In service marketing customer loyalty is most important tool which indicates the possibilities of
repeated purchase to the proportion of purchase (Dick and Basu, 1994). Oliver (1997) expressed a
deeply held allegiance to re-buy or re-patronize a desired product or service consistently in the
future despite of conditional influences and marketing efforts having the potential to cause
switching behavior is termed as a customer loyalty.

The existing Literature developed by (Boulding et al., 1993; Cronin, Brady and Hult, 2000;
Zeithaml, Berry and Parasuraman, 1996) described the correlation between service quality and
customer loyalty. Kurtz and Clow (1998) also examined the relations among the customers who
accepts the service quality what they receive, will be the most loyal and the least willing to switch
to a new service organization.

Figure: 1.9 Oliver’s Four Stage Loyalty Model

Desires

Desires Congruency Overall Service

Quality
Perceived
Performanc

Expectations Overall Satisfaction

Disconfirmation
Expectation

Source: Spreng and Mackoy (1996)

Some researchers have worked out on customer loyalty and its integration with service quality
and customer satisfaction. Oliver (1997) has developed Four Stage Loyalty Model and each
stage defines a new stage for loyalty each stage also provides cognitive loyalty which indicate
that customer may patronize regularly because of the better service delivered.

45
By this model, it is clear that service quality is strongly related to the customer retention which
shows its necessity in developing customer ability to maintain the relationship with service
organization which in turn participates to the success of the service organizations.

Enhance Financial Performance

Customer service quality and its evaluation is most necessary part and extensively documented
field. The available literature clearly explores the integration between service quality and it
financial performance. It is found that there is a positive integration between service quality and
profitability through customer loyalty, customer satisfaction and referrals (Heskett and
Schlesinger, 1991; Zahoric and Rust, 1992; Rust, Zahorik and Keiningham, 1995).

A service profit chain model has been developed in the study of Heskett and Schlesinger
(1991)44. This model develops some of relations between internal and external service quality.
These relations may be internal and external factors of the company like: customer satisfaction to
employee satisfaction, productivity to customer loyalty and retention, revenue growth to
probability. So these all relation has been expressed in this chain model.

A model which examined the relation among service quality, financial performance and
efficiency, developed by the Duncan and Elliot (2004)45. It has been proved in this model that
there is positive relations b/w service quality and financial performance but the relation between
efficiency and financial performance, service quality and efficiency was rejected due to the
negative impact. In 2002, Parasuraman gave evidence which proves the positive relationship
b/w service quality and financial performance through empirical evidences.

In the literature of (Kaplan and Norton, 1996; Ittner and Larcer, 1998; Norreklit, 2000;
Banker, Potter and Srinivasan, 2000) it has been examined and proved that there is a positive
relationship between customer satisfaction / service quality and financial performance. In
banking industry service quality is a factor which influences positively to the financial
performances measured in terms of the profitability (Soteriou and Zenious, 1998; Cuganesan,
Bradley and Booth, 1997; Duncan and Elliot, 2004).

44
Schlesinger, L.A. and Heskett, J.L. (1991), the service-driven service company, Harvard Business Review, Vol.
69, No. 5, pp. 71-81.
45
Duncan, E. and Elliott, G. (2004), Efficiency, customer service and financial performance among Australian
financial institutions, International Journal of Bank Marketing, 22(5), pp. 319-42.

46
Finally it can be concluded that positive relationship between customer service quality and
financial performance has a lot of research and observation in the area of service, marketing and
accounting which proves that service quality values as one of the most important factors which
lead to the business success.

Enhance IT capabilities to improve Customer Orientation

Customer orientation driven by service quality effects business performance significantly Zhu
and Nakata (2007). His study explains the integration b/w customer orientation and business
performance. It is positively influenced by the Information technology in the service
organizations.

The effect of Information Technology on customer preferences is the result of enhanced service
quality by information technology changes in the business. Updated and required technology in
the service organizations develops the automation and better connectivity which increases the
level of service quality. Furthermore, it also maintains the customer related activities for the
growth of the firm as well as the economy of the country like: sharing of the customer
knowledge (background of the customer and desires etc.) gathering the information regarding the
customers, analyzing the customer and behavior, making the decisions and strategies for further
initiatives towards the better services.

47
 Figure: 1.10 Improved Service Reliability Model

Improved service reliability

Higher retention and more business Reducing cost of re-doing service

from current customers

Increased positive word-of-mouth Higher employee morale and enthusiasm

Greater opportunity for charging premium prices Lower employee turnover

Improved marketing effectiveness Increased productivity and lower

and higher sales revenues costs

Higher profit

Source: Parasuraman and Berry (1991)

1.2.4 Measuring Service Quality

In last century, so many researcher and practitioners have done lot of work for the subject of
service quality measurements, concentrating on the development of service quality dimensions.
In this topic researcher will provide the fundamental aspects of the service quality measurements
which describes that how services and its quality can be measured in the banking sector. This has
been applied to discover the most effective tools for evaluating the level of service quality in the
banking industry which also explores and seeks to understand the major challenges in the
development of service quality in service industry.

The fundamental objectives of this chapter are to review the existing literature and exploring the
various instruments which measures the validity and appropriateness of the service quality
models in the different service sectors. For examining the better results and new challenges

48
coming in the service industries, a lot of researches and tools have been analyzed in order to
establish valid and reliable tools for measuring service quality in the banking sectors.

Service Quality Dimensions

In the last decades, so many researches and efforts are made to help organizations to understand
the various services quality which is also known as service quality determinants and service
quality dimensions.

Parasuraman, Zeithaml and Berry (1985) described that customer generally measures the
service quality by the help of some set of the dimensions in any service industries. In his study it
has been identified more than 10 dimensions of service quality on the basis of its applicability
such as: Reliability, Competence, Responsiveness, Communication, Courtesy, Security,
Credibility, tangibles and finally knowing and understanding the customers. Further they also
said that the application of the service quality dimensions vary from industry to industry and
situation to situation nut the determinants of the service quality for the customer service
industries will be the same.

According to the PZB the ten dimensions are classified in to the five dimensions which are as
follows: Assurance, Responsiveness, Tangibles, Empathy and reliability. These five dimensions
are an outline of the multi-dimensions or multi-items which is also known as SERVQUAL scale.

This integration of dimensions or determinates was supported by the PZB in 1985. In (2003)
Jabnoun and Al-Tamini reviewed the five dimensions of SERVQUAL and describes their
views on the applicability of each dimension. These are as follows: Reliability is said to be
ability of service organizations to deliver the service dependably and accurately. Responsiveness
is said to be an employee’s ability to help the customer sand deliver the best services. Tangibles
are called to the availability of the physical facilities, equipments and presence of the personnel
perceiving services. Assurance is also said to be an employee’s knowledge, courtesy, and ability
to build the confidence between the customer and organizations. And finally the Empathy is said
to be the level of paying attention and caring the individual attention towards the customer
services.

Zeithaml, Parasuraman and Berry (1990) again had a review on the SERVQUAL
determinants and find out that reliability is the most important dimensions of service quality.

49
It is followed by the responsiveness, assurance and empathy while the tangibles is very least
concern for the customer service.

Stewart and Walsh (1992)46 has evaluated through their study that three dimensions should be
used for measuring service quality which are given as:

1. Core Services: Core services refer to the services which specially fulfill the customer
requirements, its needs and desires.
2. Physical Condition: Physical conditions refer to the environment where the services are
performed.
3. Service Relationship: Service relationship, which are made between the service providers
and service receiver.

47
Gravin (1988) provided some of different ways regarding the dimensions of the service
quality. He explored the eight dimensions on the basis of the service quality levels which are as
follows: performance, ventures, durability, aesthetics, perceived quality, reliability and service
ability.

Sasser (1997) defined five dimensions regarding service quality levels which are as follows:

1. Attitude: Refer to the politeness, manners, positive reactions and cultural adequate of the
service organizations.
2. Availability: it refers to the location of the service providers, training and development,
frequency and accessibility of the service delivered.
3. Security: it includes the physical safety, service safety and confidence about the services.
4. Consistency: it refers to a permanent and substances level of service quality.
5. Completeness: it consist the existence of a full range of services and facilities at the time
when services are delivered.

48
Naser, Jamal and Al-Khatib (1999) also reviewed and described the three different
dimensions towards the service quality levels which are as follows:

46
Stewart, J. and Walsh, K. (1992), Change in the management of public services, Public Administration, 70(4), pp.
499-518.
47
Garvin, D.A. (1988), Managing quality: The strategic and competitive edge. New York: Free Press.
48
Naser, K., Jamal, A. and Al-Khatib, K. (1999), Islamic banking: a study of customer satisfaction and preferences
in Jordan, International Journal of Bank Marketing, 17(3), 135-51.

50
 1. Experience Quality: it includes the ability, taste and satisfaction which can be measured
after the purchase or while the service are consumed by the customers.
2. Search Quality: it includes the price, fees, function, and various requirements which are
determined before purchasing the services.
3. Credence Quality: it includes the dimensions which require a desired level of skills for
providing the services.

Skelcher (1992)49 defined in his study that service quality dimensions have four elements and
each element has its own no. of relevant attributes which are as follows:

1. Service Sitting: This element includes the composition of the physical appearances like
building, service outlets. It must be physically accessible. It also includes tangibles
resources like equipments must be reliable and easily operable and should be updated.
2. Service Characteristics: it includes the configuration of the services providing to the
customers, availability of service resources and product whether it suits to the customer’s
need and desires, stability in service performance, reliability, accuracy, equality in
services and updation etc.
3. Customer Power: this includes that customer should have the options to take the
decisions like selecting the services & its standard. Customer having the power for
complaining the fault and knowing their rights and raising the voice.
4. Personal Relationship: it includes the competencies of the service organizations and
skills to performing the services, courtesy to know the customer needs and requirements,
security and credibility and finally the way of communicating with customer regarding
the services and maintaining the relationship.

The SERVQUAL

Parasuraman, Zeithaml and Berry (1985 & 1988) in his study on service quality developed so
many elements and according to their relevancy they classified these dimensions in to five
dimensions. After this they collectively generate a model, an instrument namely “SERVQUAL”.
This instrument is basically made for measuring the service quality across a wide range of
service industries all over world. “SERVQUAL” also helpful in measuring the customer
expectation and their perception towards the services what actually they receive.

49
Skelcher, C. (1992), Managing for service quality. Longman: Harlow.

51
 1. SERVQUAL Instrumentation

Parasuraman mainly focus along with his friend Zeithml and Berry had so much analysis on
Service quality measurement during 1985-1988 and find out a Gap between the expectation
towards the services and perceived services that is called the Gap 5 model or gap model. In 1988,
an article was published, titled as “SERVQUAL-A Multi-Item Scale for Measuring the Customer
Perception of Service Quality”. This article generated a new equation towards service quality
that is “Q = P-E” (where Q stands for quality and P for perception and E for expectation). So
SERVQUAL is used to measure the customer’s expectation and perception separately.

2. SERVQUAL Perception Measure

Perception is all about to measuring the customers feeling about the perceived services. The
customer showed the extent of their satisfaction towards the services offered by the service
organization and described it by the scale statements. This scale has some range like no. one
stand for strongly disagree and five stands for strongly agree. On this scale there is no option for
right and wrong type answer. Customers have to provide their views on the basis of their
perception whatever they have received.

3. The structure of the SERVQUAL Instruments

SERVQUAL is basically based on the five dimensions which measures the service quality on
different-different segments. It is a survey questionnaire which represents the translation of
SERVQUAL’S dimensions of service quality to know about customer’s views and opinions.

4. Literature towards SERVQUAL

Liljander and Standvik (1995) examined in his study the relation between perceived service
quality and the intentions to re-purchasing the services. They both used the SERVQUAL to
analyze the reliability of their findings and then find out the correlation between price and
service quality. It is used as the fundamental tools for measuring the relationship.

Shields (1995) implement the SERVQUAL to measuring the service quality in academic
industry as advisory services. This study also examined in academic industry and defines the
long term relationship with the students. They also defined that how we can train an individual
by providing the highest standard of service quality. This study also provided a continuous
measurement process in order to make service quality processes more effective and efficient.

52
Roest and Theo (1995)50 defined that expectations of customers for better service quality are
used as a reference point for the measurement of the service quality in service industry. The
SERVQUAL instrument considers those elements which particularly measures the customer
expectations and perceptions. The difference b/w these two elements of the customers referred to
the level of perceived service quality.

Lim and Tang (2000) described the uses of SERVQUAL instruments in medical industry. He
demonstrated the areas where hospitals are very close to fulfill the admitted patient expectations
in hospitals. He conducted the study to know the actual condition of hospitals in Singapore. The
performance of the SERVUQAL helped to regulate the resources which are too shifted to those
areas which most heavily unable to fulfill patient perception towards the service quality. This
was also conducted by the earlier research conducted by the Babakus and Mangold in 1991.
His study explained that SERVQUAL has big participation in measuring the service quality in
health care industry. In his study it is also explained that adapting SERVQUAL instruments is
very effective in specific service sector and health care is one of them.

SERVQUAL Criticism

In the field of the service quality there are some criticism regarding the “GAP SCORE”. It has
been found that the subtraction theory used in the SERVQUAL instruments, has no equivalent
theory of psychological function (Ekinci and Riley, 1998). The adoption of gap scores for
measuring the construct psychology having the poor condition in the service quality. There is no
evidences are found which may define that customers accurately measure the service quality by
using the subtraction theory (Perception-Expectation Scores) (Ekinci and Riley, 1998; Peter,
Churchill and Brown, 1992; Buttle, 1996). The equation operational validity of the gap score
was criticized as these scores are not possible to be separated from their component scores.

It has been also examined that implementing the perception scores in SERVPERF is more
effective and accurate tools than SERVQUAL in identifying the complete measurement of the
service quality (Mc Alexander, Kaldenberg and Koenig, 1994; Cronin and Taylor, 1992).
This also lead to the further research and examination of SERVQUAL instrument (Duncan and
Elliott 2004).

50
Roest, H. and Theo, V. (1995), Quality marks: Prospective tools in managing service quality perceptions,
Managing service quality (eds) Paul, K. and Jose, L. London: Paul Chapman: 65-78.

53
In the study of Cronin, Taylor and Teas, (1993a, 1993b) have defined after viewing GAP
scores that expectation and performance has positive relationship but will have negative impact
on the reliability dimensions of the SERVQUAL gap measures. So it is most difficult to find out
the statistical significance as the range of variances of expectations and performances scores are
different (Churchill and peter, 1993).

1.2.5 Measuring Service Quality in a Specific Banking Context

Assessing and delivering the banking service quality is most important and significant part of the
manager’s job. The regular measurement of the service quality is much useful for managers to
find out the weaked areas and then established the stable competitive advantage through
improved quality of services and customer relationship.

For example, the regular assessment in Nat West Bank in United Kingdom about service quality
is able to identify what their customers expect. The questionnaire was prepared about various
variables in banking services. They distribute the questionnaires through surveys by post, every
three months which is ensured to measure service quality on regular basis.

The review of the current and existing literature has been designed under three categories of
research which is related to evaluation of service quality in banks which are below:

1. Replication Studies: This study includes the adoption of SERVQUAL scale for
measuring the service quality in the retail banking. Newman (1996) defined the
applications of SERVQUAL in to two banks in UK and both banks provide some reliable
evidences about the suitability of the SERVQUAL model. The other study done by the
Blanchard and Galloway in 1994, through interviewing 39 banks and 439 bank
customers in UK.

2. Comparative Studies: this comparative study explored the comparison between the
SERVQUAL models and other models which measure the service quality in the banking
sectors. Cronin and Taylor in 1992 described in his study, the comparison between the
SERVQUAL & SERVPERF. This study explained that the dimensions of the
SERVQUAL cannot be replicated while the performance based model “SERVPERF” is
most appropriate for the banks.

54
 3. Niche Models: The modifications in SERVQUAL model consist of five dimensions
which are completely or partially selected from the original dimensions of the
SERVQUAL with addition of the new updated dimensions. This niche models seems to
be superior model within the banking industry.

1.2.6 Conclusion

After reviewing a lot of available literature, researches and previous study on service quality
about service marketing and operation management, it can be said that service quality has
received a high attention for both academics and practitioners. It has been justified that expected
level of service quality enables a company to satisfy every customers, neutralizing the
competition and leading the markets.

In this chapter researcher includes the healthy discussion about several theories of the service
quality with the addition of the perception and expectation of the customers. There are several
service quality gap models are analyzed by focusing the Gap Analysis Models in order to
understanding the cause and effects relationships and different kind of the benefits.

In this chapter it has been concluded that there are five gaps which are found in the service
quality. The first gap is found between consumer expectations and management perceptions
while the second gap exists between the perception of the management related to the customer
expectations and specialization of service quality. The third gap is mostly presented between the
specifications of service quality and the actual service delivery while the fourth gap is found
between the actual service delivery and the external communication about the service to the
customers. Finally, the fifth and last gap occurs between the expectations of the customers and
their perceptions about the services.

The reasons behind theses all gaps are discussed with the antecedents of the service quality gaps.
Thus it can be said from the above discussion that service quality plays a major role in achieving
the customer satisfaction and fulfilling the customer requirements by providing the best services.
Measurement of service quality in service organizations should be on regular basis to determine
the requirement of customers need and offer best services to the customers beyond the
expectation, time to time for creating the customer delightness.

55
In this chapters various dimensions of service quality has been considered such as, how service
quality is to be measured, what are the effective tools for measuring the services etc. in the deep
of the chapters SERVQUAL has been found an effective and result oriented measurement tool of
service quality which already has been used in a different variety of service industry. This
SERVQUAL model also faced some difficulties on its function and reliability, some of criticism
regarding its dimensions and its universality. It also has some criticism in performing the
expectation and perception operation separately which creates some doubts regarding the
effectiveness and results of SERVQUAL in measuring service quality in banking sector.

1.3 Chapter Summary

This chapter of service quality framework has observed the no. of available research studies
regarding the service quality and its dimensions with their significant participations which is
used to find out the dimensions to be considered as determinants of service quality levels.

This chapter also provided a deep study on the SERVQUAL model i.e. development of
SERVQUAL which is a measurement scale of service quality in different service sectors i.e.
banking sector. The criticism about SERVQUAL model is also discussed in the chapter. At last
the chapter has examined and analyzed the literature for measuring the service quality in the
BSQ in order to create an effective and valid scale which would be useful and beneficial for
retail banking sector.

In the respect of above discussion, the level of service quality can be measured effectively and
efficiently in Indian private and public banking sectors by using the Banking Service Quality
Scale which was basically developed for measuring the service quality in retail banking.

56