CHAPTER – I

A STUDY ON RETAIL BANKING WITH SPECIAL REFERENCE TO SERVICE

QUALITY OF COMMERCIAL BANKS
INTRODUCTION AND DESIGN OF THE STUDY

INRODUCTION:
RETAIL BANKS:
Retail banking is extremely imperative and relevant concept for Indian Economy as
well as world economy. Across the globe, retail lending has been a impressive innovation in
the commercial banking sector in 21 century. The growth of retail lending, especially in
emerging economies, is attributable to the rapid advances on information technology, the
evolving macroeconomic environment, financial market reform, and several micro level
demand and supply side factors. Retail banking is however, quite broad in nature – it refers to
the dealing of commercial banks with individual customers, both on liabilities and assets
sides of the balance sheet. Fixed current/ savings accounts on the liabilities side and
mortgages, loans( e.g. personal, housing, auto and educational) on the assets side are the most
important of the products offered by banks. Related ancillary services include credit cards or
depository services. To days retail banking sector is characterized by three basic
characteristics:
 Multiple products (deposits, credit cards, insurance, investments and securities);

 Multiple channels of distribution (call centre, branch, internet and kiosk); and

 Multiple customer groups (consumer, small business, and corporate)

Retail banking in India is not a new phenomenon. It has always been prevalent in India in
various forms. For the last few years it has become synonymous with mainstream banking for
many banks. The typical products offered in the Indian retail banking segment are housing
loans, credit cards, and educational loans. The loans are marketed under attractive brand
names to differentiate the products offered by different banks. As the Report on Trend and
Progress of India, 2003-04 has shown that the loan values of these retail lending typically
range between Rs. 20,000 to Rs. 100 lakh. The loans are generally for duration of five to
seven years with housing loans granted for a longer duration of 15 years. Credit cards are
another rapidly growing sub-segment of this products group. In recent past retail lending has
turned out to be a key profit driver for banks with retail portfolio constituting 21.5 per cent of
total outstanding advances as on March 2004. The overall impairment of the retail loan
portfolio worked out much less then the Gross NPA ratio for the entire loan portfolio. Within
the retail segment, the housing loans had the least gross asset impairment .In fact, retailing
make ample business sense in the banking sector.
While new generation private sector banks have been able to create a niche in this regard, the
public sector banks have not lagged behind. Leveraging their vast branch network and
outreach, public sector banks have aggressively forayed to garner a larger slice of the retail
pie. By international standards however, there is still much scope for retail banking in India
.After all, retail loans constitute less than seven per cent GDP in India vis-a vis about 35% for
other .Asian economies –South Korea (55%), Taiwan (52%) 3 www.ssijmar.in

Malaysia (33%) and Thailand (52%) .As retail banking in India is still growing from modest
base, there is a likelihood that the growth numbers seem to get somewhat exaggerated. One,
thus, has to exercise caution is interpreting the growth of retail banking in India.
Private Banks dealing in retail banking Industry is consequently put into lot of pressures due
towards increase in global competition. Various strategies are formulated to retain the
customer and the key of it is to increase the service quality level. Typically, customers
perceive very little difference in the banking products offered by private banks dealing in
services as any new offering is quickly matched by competitors. Parasuraman et. Al (1985)
and Zeithaml et., al (1990) noted that the key strategy for the success and survival of any
business institution is the deliverance of quality services to customers. The quality of services
offered will determine customer satisfaction and attitudinal loyalty.

COMMERCIAL BANKS:

In many countries service sector plays dominant role in the markets. According to ( Kotler,
2003), in the US economy, nearly 80 per cent of the employment opportunities provided and
76 per cent of the GDP contributed by the service sector. In India also service sector playing
greater role in the nation's economy by contributing nearly 64 per cent of the GDP, having
higher share in exports, 42 per cent of total exports from India, and providing high number
employment opportunities. This indicates that the growing importance of the service sector.
That is the reason why, companies well recognized the need for the better service quality and
are looking for ways to perform better and attract and retain their customers in a high
competitive manner (Wang. Y.,2003). Many researchers have been focused on this area of
service quality for the last few years and recognized as one of the most important strategy of
the business firms in the service sector to improve financial as well as marketing
performance.

(Newmn, 2001) Service quality has been defined as the degree and direction between
customer service expectations and perceptions. Perceived service quality is defined as how
well a service satisfies the expectations of customers. Service quality has an impact on
profitability and costs, as service quality influences customer satisfaction: it impacts customer
retention, reduces costs and increases profitability. It is. Thus. Service quality has been
identified as a key determinant of the intention to use a service. And has. Therefore. Been
extensively under study.

IMPORTANCE OF SERVICE QUALITY

Service quality is considered as the most critical determinant of competitiveness for
establishing and sustaining satisfying relationship with customers (Lewis, 1989). Business
firms including banks have recognized the fact that the only one best way to manage the
competition is the quality differentiation. Advance technology, customer oriented corporate
culture, a well designed service-system and excellent information system are the major
factors that decide the superior quality of service of an organization. Providing excellent
service quality and maintaining the high customer satisfaction is the important issue and the
challenge facing contemporary service industry (Hung,2003). Thus Service Quality is an
important subject in both public and private sectors business firms and service industries.
Banking sector is not an exception to this. Before independence the banking system in India
was in private sector and in very weak position. To strengthen the banking system then
government established Reserve Bank India (RBI) in 1935 and empowered to regulate
banking companies by issue of directive, inspection, amalgamation, mergers etc. Major
action was taken 1949 by passing the Banking regulation Act which was very important in
respect of structural reforms in the banking sector. This act had given extensive regulatory
powers to RBI over the banks in India. Nationalization of banks was another major step of
the government (14 banks on 19th July, 1969 and 6 banks on15th April, 1980) to constitute
the public sector banks. These public sector banks occupied a vital role in Indian economy in
general and banking sector in particular. Government implemented many social welfare
schemes through these banks. Prior to globalization there was very little competition in the
banking sector and the public sector banks played dominating role in terms of size of assets?
Due to changing global scenario, the government recognized the need to introduce reforms to
make banking industry more competitive. Thus, the government had made policy changes
like deregulation of interest rates and dilution of consortium lending requirement. Moreover,
banking sector had been opened up to the private sector. With this, new banks have been set
up in private sector, called as new private sector banks, foreign banks have entered the Indian
banking sector and existing banks in private sector (old private sector banks) changed their
level of operations. All these increased the competition among the banks and efficiency of the
banking industry. Survival of banks, in heavy competition, depends upon how the banks are
providing quality services to their customers. Service quality is a comparison of expectations
with performance. From the viewpoint of business administration, service quality is an
achievement in customer service. It reflects at each service encounter(Bhatia, Assessment of
Service Quality in Public and Private Sector Banks of India with Special Reference to Luck
now City). A customer's expectation of a particular service is determined by factors such as
recommendations by peers, personal needs and past experiences. The expected service and
the perceived service sometimes may not be equal, thus leaving a gap. The service quality
model or the 'GAP model' developed by the authors- Parasuraman, Zeithaml and Berry at
Texas and North Carolina in 1985,highlights the main requirements for delivering high
service quality. It identifies 'gaps' that cause unsuccessful delivery of service. Customers
generally have a tendency to compare the service they 'experience' with the service they
'expect'. If the experience does not match the expectation, there arises a gap.

REALIBILITY PERCIEVED SERVICE

PERCIVED
RESPONSEVNESS SERVICE
EMPATHY QUALITY
ASSURANCE EXPECTED SERVICE

TANGIBLES

Model of Service Quality Perception

SERVICE QUALITY DIMENSION IN COMMERCIAL BANKS

Several researchers have suggested that the search for universal conceptualization of the
service quality construct may be futile (Levist, 1981; Lovetock, 1983). The service
quality construct is either industry or context specific(Babakus and Boller, 1992). The
measurement of the service quality construct is multidimensional. In its original structure,
service quality consists of five dimensions(Parasuraman et al., 1988; Carman, 1990; Rust and
Oliver,1994). These are:
1. The tangibility aspects of the service
2. The reliability of the service provider
3. The assurance provided by the service provider
4. The responsiveness of the service provider; and
5. The service provider's empathy with customers
The included variables to measure the service quality of commercial banks were
ranging from seventeen to fifty seven variables (Narul Islam, 2005; Verma and Vehra, 2000;
Sharma and Mehta, 2004; Elango and Gudep, 2006; Sharma and Sharma, 2007; Bhat, 2004;
Levesque and Gorden, 1996; Bhat, 2005; Zillur, 2005; Gani and Bhat, 2003). In the present
study, the included service quality variables are twenty.

STATEMENT OF THE PROBLEM

The banking business has always been different from other business because it comes
under the services industry and financial service category. Everyone makes a financial
transaction and is anxious about the security of their money. This system should be error-free
and provide maximum security and reliability to the users.

Retail banking is still in its infancy is India and with technology as companion
measures are taken to bring banks closer to our finger tips on a secure anytime. Anywhere
basis. The Indian banking sector is taking baby steps into this emerging area by offering non
transactional banking on mobile banking through like salary receipts. Detail of last five
transactions. Stop payment request etc.,

Now-a-day because of advanced technology., customer can make use of the banking
serviced at a distance of one click from the mouse. Hence, there is a need to investigate the
dimension of mobile banking. This study is carried on to find out the customer awareness
about mobile banking. Their opinion regarding the problem faced and the reason for opting
this technology in spite of other technologies.

OBJECTIVES OF THE STUDY

1. To analyses the demographic socio economic factor influencing the customer

level of satisfaction towards commercial banks.
2. To examine the customer preference and satisfaction levels towards various
services offered by commercial banks.
3. To verify the relationship between customer satisfaction customer service quality
and customer loyalty of the commercial banks/
4. To examine the factors influencing the customers to prefer retail banking
Services.

HYPOTHESIS:
 The demographic variables (age. Occupation, Income. Gender, education
Qualification have not influenced the customer satisfaction towards banking
services.
 Customer satisfaction does not influence the services (ATM services, Internet
banking services, SMS services) offered by commercial banks.
 Customers relationship with the bankers significantly influence their level of
perception towards the service quality.
SCOPE OF THE STUDY:
The study encompasses customer service quality of two types of banks namely private
and public sector banks of Tuticorin district. The customers belong to various professions.
Various places. of both genders, with varied income groups and varied age groups.

RESEARCH METHODOLOGY
Research Methodology is the process used to collect information and data for the purpose of
making decisions.
The methodology used this study includes publication research, interviews, surveys which
include both present and historical information.

a)Research design
Since. The study has predetermined objective and methodology it is descriptive in
nature. This study has made an attempt to explain the study on the Retail banking with
special reference to service quality of commercial banks.
b) Sampling Design
By adopting random sampling method, respondents were selected from various parts
of Thoothukudi who had adequate knowledge about Retail banking with special reference to
service quality of commercial banks. The sample size of this study is 50. The questionnaire
method was used to collect the relevant data questionnaires were distributed among the
people who had adequate knowledge about Retail banking with special reference to service
quality of commercial banks.
c) Sources of Data
Data collected for analysis were both primary and secondary data. Questionnaire
method of primary data collection was adopted. The tool for data collection was structured
with the help of past studies. After several process of evaluation, the questionnaire designed
served as an effective tool and was able to collect all possible data in accordance with the
objective.
Secondary source of data was collected from various natural journals. Magazines,
newspaper and also over the internet.
d) Primary Data
Primary data is the qualitative or quantitative attributes of a variable or set of
variables that is collected by the investigator conducting the research. This was made
possible in our analysis through questionnaire.
e) Secondary Data
Secondary data on the other hand is reprocessing and reducing collected information.
The secondary data sources of data were from internet, journals, magazines etc.
A well structured schedule was used to collect primary data from the respondents.
The questionnaire consists of four important parts. The first part covers the demographic
profile of the respondents. The second part of the customer preference and satisfaction levels
towards various services offered by commercial banks. The third part of the relationship
between customer satisfaction customer service quality and customer loyalty of the
commercial banks. The fourth part of the factors influencing the customers to prefer retail
banking services.
Collection of Data
A well structured schedule was used to collect primary data from the respondents. The
questionnaire consists of four important parts. The first part covers the demographic profile
of the respondents. The second part of the customer preference and satisfaction levels
towards various services offered by commercial banks. The third part of the relationship
between customer satisfaction customer service quality and customer loyalty of the
commercial banks. The fourth part of the factors influencing the customers to prefer retail
banking services.

PILOT STUDY:
A pilot study was conducted among 10 respondents from the sampling frame and this
was undertaken to verify the ease and utility of the questionnaire. Based on the feedback of
the pilot study. Modifications. Additions and deletions were carried out. The final draft was
prepared to collect the data.

FRAMEWORK OF ANALYSIS:
The data collected is represented by means of two way classification tables and
simple tables for easy interpretation. The data collected were analysed with the help of the
following statistical tools.

1.Chi-square Analysis
The chi-square test is used to determine whether there is significant difference
between the expected frequencies and the observed frequencies in one or more categories. In
this study, it is used to analyse the association between the education qualification of the
respondents and customer satisfaction towards banking services.

2.Garret ranking method

Garrett’s ranking technique is used to rank the preference indicated by the
respondents on different factors. In this study it is used to rank the tremendous increase in
price.

3.Pie chart
A pie chare is a circular statistical graphic, which is divided into slices to illustrate
numerical proportion. In a pie chart, the arc length of each slice is proportional to the
quantity it represents. Pie charts can be found in square form. The square pie charts serve
the same purpose as circular pie charts and all percentages are taken from a 100% total.

5.Percentage analysis
Percentage analysis is the method to represent raw streams of data as a percentage
(a part in 100-percent) for better understanding of collected data. In this study it is used to
represent the demographic profile of the respondents.

LIMITATIONS OF THE STUDY:

 The study is limited to the study of expectations and perception of customers

having an account in public and private bank sectors.
 The perceptions and expectations of customers are limited to the time period
of the study.
 The perceptions of the bankers are limited only to the place of study.
 The study is limited only to Tuticorin district.
SCHEME OF THE REPORT
For neat and clear presentation of the study, the report has been divided into chapters.
The following is the chapter scheme of the report.
The present study on “A study on Retail banking with special reference to service
quality of commercial banks
 1. The first chapter includes “ Introduction statement of the problem, scope of the
study, objectives, methodology, limitations of the study and chapterisation.
2. The second chapter reviews some of the important previous studies relates to main
study.
3. In the third chapter “Analysis and Interpretation of Data, “ an attempt is made to
analyse and interpret the data collected from the field.
4. The fourth chapter discusses the relevant and important findings of the study.
Appropriate suggestions and conclusion have been given in this chapter.

The banking business has always been different from other business because it comes
under the services industry and financial service category. Everyone makes a financial
transaction and is anxious about the security of their money. This system should be error-free
and provide maximum security and reliability to the users.

Retail banking is still in its infancy is India and with technology as companion
measures are taken to bring banks closer to our finger tips on a secure anytime. Anywhere
basis. The Indian banking sector is taking baby steps into this emerging area by offering non
transactional banking on mobile banking through like salary receipts. Detail of last five
transactions. Stop payment request etc.,

Now-a-day because of advanced technology., customer can make use of the banking
serviced at a distance of one click from the mouse. Hence, there is a need to investigate the
dimension of mobile banking. This study is carried on to find out the customer awareness
about mobile banking. Their opinion regarding the problem faced and the reason for opting
this technology in spite of other technologies.