Chapter – II

REVIEW OF LITERATURE

2.1. REVIEW OF LITERATURE

A literature review is a body of text that aims to review the critical points of

current knowledge and or methodological approaches on a particular topic.

Literature reviews are secondary sources, and as such, do not report any new or

original experimental work. Most often associated with academic-oriented

literature, such as theses, a literature review usually precedes a research proposal

and results section. Its ultimate goal is to bring the reader up to date with current

literature on a topic and forms the basis for another goal, such as future research

that may be needed in the area. A well-structured literature review is

characterized by a logical flow of ideas; current and relevant references with

consistent, appropriate referencing style; proper use of terminology; and an

unbiased and comprehensive view of the previous research on the topic. A

literature review is a survey and discussion of the literature in a given area of

study. It is a concise overview of what has been studied, argued, and established

about a topic, and it is usually organized chronologically or thematically. A

literature review is written in essay format. It is not an annotated bibliography,

because it groups related works together and discusses trends and developments

rather than focusing on one item at a time. It is not a summary; rather, it evaluates

previous and current research in regard to how relevant and/or useful it is and how

37
it relates to the research. A literature review is written to highlight specific

arguments and ideas in a field of study. By highlighting these arguments, an

attempt is made to show what has been studied in the field, and also where the

weaknesses, gaps, or areas needing further study. The review further demonstrates

the necessity of research.

We have undertaken extensive review of literature based on selected parameters

and interacting variables shaping the banking services and customer satisfaction.

First part is devoted to review committee recommendations on banking services

and the second part is related to individual or group observation on banking

services and customer satisfaction. Literature has been reviewed with a view to

have some ideas on the work done by the earlier researchers on banking services.

Review of various committee-reports, individuals’ or group researchers’

publications, books, and published documents on banking services in abroad as

well as at the national level was undertaken with a view to:

1. Identify research gap,

2. Indentify interacting variables and

3. Develop theoretical background that would serve the basic tenet of the study.

2.1.1. COMMITTEE RECOMMENDATIONS ON CUSTOMER

SERVICES
Banking industry was highly regulated by the government particularly in pre-

reform period. It was observed that the root causes of poor performance of public

sector banks were stringent regulation, administered interest rates, directed and

concessional lending, deteriorated portfolio, poor recovery process and above all

lack of competition (Mitra, 2007). The new era of financial intermediation that

38
followed the financial sector reforms has opened up new vistas in business for

banks and at the same time, thrown up umpteen challenges in a deregulated

environment. Banking is no more a monopoly of the banks in a particular sector

and has been proved that only the most deserving would survive in the situation.

Banks are required to cope up with stiff competition from domestic as well as

foreign players in the banking field in a globalized market. Reforms process has

been instrumental to perceptible and positive changes in the approach and the

attitude of bank personnel towards customers. Quality of customer service plays a

pivotal role in the prosperity of a bank to survive in the turbulent market.

Against this background various committee set up by RBI to ensure better

customer service. The committee recommended some measures with a view to

improve customer service and gaining competitive advantage.

2.1.1.1. On Customer Services

A customer mostly expects ability to provide what was promised dependably and

accurately. A customer wants to be assured of the knowledge and courtesy of

employees and their ability to convey confidence. A customer also expects caring

and individual concern. Realizing the role played by the banks in regards to

service quality, Saraiya Committee (1972) suggested recommended for

improvement of customer services. Talwar Committee (1975) examine the nature

of customer services offered by the banks and opined that it is a dynamic concept

and recommended that the bank should assess and reassess the customers’

perception about bank services, appraise customer services and improve the

customer services. On customer service, some important recommendations of the

Talwar Committee are highlighted below.

39
  Establishment of customer service committee / staff committee in every

branch.

 Customer meets to be held at branches at least once in a half year.

th
 Fifteenth of every month (next day if 15 is a holiday) to be observed as

customers' day at branches and at administrative offices.

 Provision of complaint - cum - suggestion box in every branch.

 Provision of "May I help you" counter in branch.

 Immediate credits of cheques up to Rs.2500 which has since increased to

Rs.15000.

 Payment of penal interest in cases of delay in collection of cheques.

Goiporia Committee (1991) in the respect of customer services in banks

emphasized on amicable banker-customer relationship. 15 Core Recommendations

of the Goiporia Committee on Customer Service are as follows.

 Commencement of employees' working hours 15 minutes before

commencement of business hours can be made operative by banks at

branches in metropolitan and urban centres.

 All the customers who enter the banking hall before the close of business

hours should be attended to.

 Staff at the counters should undertake the following transactions during the

extended business hours (branch to indicate the timings).

a) Non-Voucher generating transactions

i) Issue of pass book/statement of accounts.

ii) Issue of cheques book.

iii) Delivery of term deposit receipts/draft.

iv) Acceptance of share application form.

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 v) Acceptance of clearing cheques / bills for collection.

b) Voucher generating transaction

i) Issue of term deposit receipts.

ii) Acceptance of cheques for locker rent due.

iii) Issue of traveler cheques.

iv) Issue of gift cheques.

v) Acceptance of individual cheques for transfer credit.

 To ensure that no counter remains unattended during the business hours

and uninterrupted service is rendered to the customers.

 All branches, except, very small branches, should have 'Enquiry' or 'May I

help you Counter, either exclusively or combined with other duties, located

near the entry point of the banking hall.

 In addition to obtaining nomination form, banks may provide for

mentioning name and address of the nominee in the account opening form.

Publicity about nomination facility is needed, including printing compatible

message on cheque book, pass book and any other literature reaching the

customer as well as launching periodical drives to popularize the facility.

 Unless the customer prefers not to nominate, (this may be recorded,

without giving scope for conjecture of non-compliance) nomination should

be a rule, to cover all other existing and new accounts.

 Issuance of statements of accounts and updating of pass books with correct

and legible particulars should attract bank's constant attention.

 Trilingual brochures and pamphlets should be actively promoted,

containing myriad customer-useful information.

 Facility of instant credit of outstation cheques may be raised to Rs. 5,000

(from Rs. 2,500). A separate type of pay-in-slip may be evolved for

41
 availing of this facility.

 Delay in collection of outstation cheques may be compensated by paying

interest at 2% p.a. above savings bank rate, if such interest payable is Rs.

5/- or more. However, if the proceeds are to be credited to the borrowal

accounts, like cash credit/over-draft/loan, etc. banks have to pay at the

minimum lending rate that will be stipulated by RBI from time to time.

 Dishonored instruments may be returned / dispatched to the customer

within 24 hours.

 Complaint book with perforated copies in each set may be introduced, so

designed as to instantly provide an acknowledgement to the customer and

intimation to the controlling office.

 Infrastructure facilities at branches should be upgraded by bestowing

particular attention to providing adequate space, proper furniture, drinking

water facilities, etc.

 Time norms for specialized business transactions should be displayed

predominantly in the banking hall.

Many of the recommendations of Goiporia Committee were implemented which

include introduction of attracted term deposit schemes, fixation of customer

services indices and so on. In the context of banking sector reform measures,

Narasimham Committee – I (1991) in his first report recommendations the

following issues:

i). Opening of more private sector banks.

ii). Motivation foreign banks to expand their network by opening new

branches.

iii). Deregulation of RBI and making RBI as a regulator of all Banks.

42
 iv). Corporate Governance: promoting customer relations and office

culture

vi). Asset Reconstruction for bringing down NPA in future.

vi). E-Banking and VRS.

Further, Narasimham Committee- II (1998), in the context of customer services

in banks emphasized on continuous evaluation and improvement of the level of

customer satisfaction. The committee identified the weakness of banking sector

and recommended provisions for capital adequacy, liberalization of interest

rate, easy norms for entry of foreign banks. Further, it suggested as a part of the

banking reform that an independent outside agency may be involved to assess

customers’ satisfaction level, preferably, from March 1994 with signing the

memorandum of understanding (MOU) by individual banks with RBI. The

ministry of finance proposed in December 1993 that, banks should draw up a

comprehensive code of banking practices, outlining standards for disclosure of

information about the bank’s service, and right and obligations for its

customers. This Committee is also called the “Committee on Banking Sector

Reforms” and was appointed by Central Government headed by Shri M.

Narasimham. Some of the major recommendations of the committee are as

follow:

 Three Tier Banking: There should be three types of banks: (i) Two or

three large Indian Banks with international character; (ii) Eight or Ten large

National Banks to take care of the needs of large/medium corporate sector,

and (iii) Large or Local Area/ Regional Banks to serve local trade, small

industry and agriculture.

43
 Universal Banking: The distinction between Development Finance

Institutions and commercial banks should disappear paving the way for

universal banking.

 Narrow Banking: Weak banks whose accumulated losses and net NPAs

exceed their capital funds can be rehabilitated by branding them as

“Narrow Banks” (banks which restrict their operation to only certain

activates).

 Banks should bring out revised Operational Manuals and update them

regularly, keeping in view the emerging needs and ensure adherence to the

instructions so that these operations are conducted in the best interest of a

bank and with a view to promoting good customer service.

 These should form the basic objective of internal control systems, the

major components of which are :

i). Internal Inspection and Audit, including concurrent audit,

ii). Submission of Control Returns by branches/controlling offices to higher

level offices,

iii). Visits by controlling officials to the field level offices,

iv). Risk management systems,

v). Simplification of documentation, procedure and of inter office

communication channels.

 The managements of individual banks must initiate steps to measure what

adjustment in the size of their work force is necessary for the banks to

remain efficient, competitive and viable. Surplus staff, where identified,

would need to be redeployed on new business and activities, where

necessary after suitable retraining. It is possible that even after this some

of the excess staff may not be suitable for redeployment on grounds of

44
 aptitude and mobility. It is necessary to introduce an appropriate

Voluntary Retirement Scheme with incentives. The managements of

banks would need to initiate dialogue in this area with representatives of

labor.

 The Committee urges the managements of Indian banks to review the

changing training needs in individual banks keeping in mind their own

business environment and to address these urgently.

 The Committee has suggested achieving rapid induction of information

technology in the banking system. Further, information and control systems

need to be developed in several areas like better tracking of spreads, costs and

NPAs for higher profitability, accurate and timely information for strategic

decisions to identify and promote profitable products and customers.

2.1.1.2. On customer complaint and grievances

The Consumer Protection Act (1986) provides simple, speedy and inexpensive

redressal to the consumers' grievances, award relief and compensation wherever

appropriate to the consumer. It provides better protection to the consumers.

Unlike existing laws which are punitive or preventive in nature, the provisions of

this Act are compensatory in nature. The act has been amended in 1993 both to

extend its coverage and scope and to enhance the power of the redressal

machinery. The Ombudsman Scheme is a system of expeditious and inexpensive

resolution to customer complaints. The bank Ombudsman Scheme (1995, 2002

and 2006) was initiated in 1995 for expeditious and inexpensive resolution of

deficiencies in banking services. It enables resolution of complaints of bank

customers relating to certain services rendered by banks. The Banking

45
Ombudsman is a person appointed by the Reserve Bank of India to redress

customer complaints against certain deficiency in banking services and act as a

quasi judicial authority. It is empowered to summon both the parties - bank and its

customer, to facilitate resolution of complaint through mediation. All Scheduled

Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative

Banks (COB) are covered under the Scheme. The new Scheme (2002) also

provides for online submission of complaints. The Banking Ombudsman (2006)

will consider complaints from Non-Resident Indians having accounts in India in

relation to their remittances from abroad, deposits and other bank-related matters.

2.1.2. REVIEW OF INDIVIDUAL / GROUP STUDIES

2.1.2.1. On Computerized Services

Banking and finance have become information based business. As such,

computerization of the banking operations has become inevitable. The Indian

banking system will rise up to the occasion and enter into the 21st century with

more refined and sophisticated services ensuring customer satisfaction. In this

connection, Biswas (2008) articulated that innovation has become an industry

phenomenon and computerized environment in banking has transformed the

banking services which ensured better customer satisfaction. In the context of

customer service in bank, Srivastava (2000) opined that, speeding up in the

computerization of bank branches enhance the profitability, operating efficiency,

service quality, and to diversify the earning base.

2.1.2.2. On Banking Technology

Global competition continues to heat up in markets around the world and

emerging technologies continue to empower customer with more market

46
knowledge and wider choices. As such, quality of service will increasingly

become the pivotal determinants on a sustained basis. Moreover, conventional

marketing will increasingly appear as a ticket to enter the competitive arena. In

this context, Parasuraman (2000) opined that superior customer service and

marketing excellence are the two sides of the same coin. Shanthi (2006) viewed

that, banks have been upgrading technology day by day and delivering the

products and services through various innovative channels like ATM, internet

banking, mobile banking etc. But, what banks are forgetting is the personal touch

that can develop long-term relationship with customers. Small banks can take the

benefit of this because they can not be compared with bigger banks in terms of

implementation of technology. It is in the interest of bigger banks that they should

use judicious mix of technology.

2.1.2.3. On Information Technology (IT)

The use of IT in the banking industry in India has been somewhat limited and has,

as a result, restricted its presence in international operations. Banks in India cannot

survive without the support of IT. Its application is increasing, but to a limited

extent. Banking industry as a service provider cannot naturally lag behind in this

movement toward the new techno-age. Better quality public disclosures can

translate into an overall improvement of financial market transparency. Such

disclosures can also provide useful and accurate data to bank supervisors which in

turn could enhance the oversight of banks. The use of technology can improve

systems for administrative control such as enabling better management of risk,

which if disclosed in regulatory reports to supervisors and can improve bank

transparency. Hence, technology can be the key to differentiation, competitive

edge, and institutional survival.

47
The nationalization of banks back in the 1980s is proving to be a major obstacle in

bringing about the required technological changes. Technology has now become a

permanent concern to the business environment. The use of modern technology by

banks is one of the strategic responses that manage the business of banking in

more transparent and profitable manner in the globalized and liberalized financial

system (Sharma, 2002). Looking back, the Narasimham Committee-II (1998)

deserves mention in that it was instrumental in forcing Indian banks to become

competitive. Fleet footed private sector banks, forced the public sector banks to

embrace technology and improve their level of customer service. In this

connection, Agboola (2003) viewed that, investment in information technology

has become an important component in the overall strategy of banking operations

to ensure competitive strength. It continues to change the way relationship

between banks and customers. Banking automation occasioned by the

breakthrough in information technology has brought about various innovations

that now dictate the pace for banking activities. This has far reaching effects on

both the customers and the personnel requirements.

2.1.2.4. On Internet Banking

Internet banking services have revolutionized the functioning of the entire banking

sector. Most of the bank’s businesses are carried out with the help of electronic

gadgets including computers. Internet banking has not only increased the ease of

banking transactions but also reduced the amount of time and cost spent on these

transactions. Banks have invested a huge amount of money to set up IT

infrastructure. This has resulted in the improvement of productivity and efficiency

of the industry and also the quality of services to consumers. The number of

customers who chose online banking as their preferred method of dealing with

48
their finance is growing rapidly. Cost of internet banking amounts to a fraction of

the cost incurred through alternative delivery channels. Many customers hesitate

to deal with an internet banks as they are not sure of the quality of products and

services they will receive. The distinctive features of internet banking have given

rise to some regulatory and supervisory issues. Internet banking increases

operational efficiencies reduces costs, besides giving a platform for offering value-

added services to the customers (Ramani, 2007).

2.1.2.5. On ATM Service

Patnaik (2004) stated the importance of ATM and viewed that ATM become an

indispensable tool of convenience as most of the people have changed the

acronym to anytime money. Selvaraj (2006) studied the customer’s perception

towards utilization of ATM and offered some suggestions for increasing the level

of satisfaction of the services of ATM users.

2.1.2.6. On Price Factor

Nukpezah and Nyumuyo (2009) established that the competitive pricing as well as

company image contribute to customer satisfaction and that service quality along a

number of pathways drives customer loyalty and profitability thus: service quality,

customer satisfaction, customer loyalty, market share and profitability. The results

among other things reveal that, whilst service quality and bank image and

reputation are important instigators of customer satisfaction and loyalty,

competitive pricing showed a weak linear relationship with customer satisfaction

and loyalty. Mobarek (2007) found that, it difficult to compete on price and need

to look at other ways to retain customers. After conducting this research, it is

clearly seen that delivery channels are lacking in meeting the demands of the

49
customer by not making them aware of e-banking and using obsolete or not very

up-to-date technology. It was experiential that there is a relationship between age

group, occupation type and some aspects of e-banking.

2.1.2.7. On Customer Orientation

Kansal and Singh (2007) studied on customers orientations towards banking

services in urban areas of Punjab particularly the innovative services to the

customers of some private banks viz, HDFC bank, ICICI bank and Bank of

Punjab. They observed that the most of the services offered by private banks have

remained unutilized by the urban customers.

2.1.2.8. On Customer Awareness

Khattak and Rehman (2010) analyzed the customer's satisfaction and awareness

level towards the Islamic Banking Industry of Pakistan. It has investigated the

relationship between different demographic variables and the satisfaction and

awareness of customers. A sample of 156 respondents from different cities of

Pakistan was selected. For the analysis, the Kruskal-Wallis one-way ANOVA was

adopted to check the relationship between demographic variables and satisfaction

and awareness. The respondents expressed their satisfaction to some of the

services and expressed dissatisfaction with few. The customers indicated that they

are aware of different products but do not adopt these products.

2.1.2.9. On Customer Attitude

With the current change in the functional orientation of banks, Kumar (2008)

observed that the main driver is changing customer needs and expectations.

Customers in urban India no longer want to wait in long queues and spend hours

50
in banking transactions. This change in customer attitude has gone hand in hand

with the development of ATMs, phone and net banking along with availability of

service right at the customer's doorstep.

2.1.2.10. On Relationship Management and Customer Loyalty

Roy (2001) articulated that customer loyalty management program must be a vital

part of relationship marketing exercise should be undertaken at the bank branches.

He found that, customer loyalty is a useful tool in retail banking. Further he

suggested that bank should develop ATM usage; financial institutions should

review basic banking services as customer loyalty is a function of more than one

variable.

2.1.2.11. On Marketing Strategy

In order to grow and flourish the banking sector in India, in particular, the public

sector banks need to formulate a sound and effective product strategy based on

overall marketing strategy. This should be focused on satisfying the needs, wants

and expectations of the banking customer of the country for achieving the banking

objectives (Jha, 2000). Besides the credit card schemes, mutual funds, merchant

banking, lease financing etc. were included in the banking area of operation to

attract and satisfy more number of customers. Banks also did a lot of marketing of

their services to persuade the customers (Mohamed, 1995).

In the era of globalization and liberalization, economic reforms have become an

imperative to remain in the main stream of global economy. The banking sector being

the backbone of the economy can not maintain the status quo. It is legitimately feared

that the privileged status, which PSBs enjoyed for more than a decades, has already

51
been changed with the entry of new players in the form of private and foreign banks.

Under these circumstances, the banks will have to face two pronged challenges like-

to retain the existing customers and to create new customers. However, success rate

depends on the innovative strategies adopted by the banks including the better

customer services and adequate fulfillment of customers’ expectation. Today, the

concept of banking is not merely the function of accepting deposits, lending and

money transmissions. They have now diversified into insurance, brooking, advisory

services, merchant banking, factoring and almost other legitimate financial activity.

In order to survive present day world of competition, the banks will have to formulate

marketing strategies in a way to woo the customers towards the level of customer

satisfaction is becoming one of the major targets in the hands of banks to increase

their market share (Aurora and Malhotra, 1997). East (1997) opined that the customer

satisfaction is a major outcome of marketing activity whereby it serves as a link

between the various stages of consumer buying behaviour.

2.1.2.12. On Customers’ Complaint

Gopalakrishnan (2006) in the context of customer complaint opined that, there is a

dawn of realization on the banks that customer retention is more crucial than

acquiring new customers. On the other hand, the growing competition and

technological innovations have created a tremendous awareness among the

customers of their rights and entitlements. Along with several strides in banking

with technology innovation, customer dissatisfaction is also growing. Despite

implementation of many recommendations of Talwar Committee, Goiporia

Committee, IBA Guidelines, customers’ grievances remain unsolved in many

cases. These customer grievances stem from the gaps between the customer

expectations and communication processes.

52
Any person whose grievance against a bank is not resolved to his satisfaction by

the bank within a period of two months, he can approach the BO if his complaint

pertains to any of the matters specified in the scheme. The services of banking

sector have been changed dramatically in the recent past since the early nineties,

i.e. between pre-reform and today. The idea is not merely to state the reforms in

the banking sector that have been undertaken by the RBI, but to focus on how

such reforms have changed banking services. There are a number of measures that

are yet to be taken up to bring the banking to global standards. RBI to reforms in

banking sector and some issues need to be addressed in future (Reddy, 1998). In

the context of customer complaints, Sharma and Bardia (2003) suggested that

most of the banks are adhering to out of court settlements, therefore, the banks

under review should also adopt this policy for quick settlement of dispute.

Murthy (2006) articulated that, there have been perceptible and positive changes in

the approach and attitudes of bank personnel towards customer in the recent times.

An element of professionalism and market orientation is visible in the approach of

PSBs in the present competitive market. But still many customers’ complaints

continue to pour in with various authorities about the quality of customer service.

This is due to widening gap between customer expectations and actual content of

customer service in the banks. Fulfillment of customer needs calls for a proper

orientation and undertaking about the customer aspirations, customer psychology

and a commitment to provide services exactly as the customer expects. In most

cases, even managers need to equip themselves with these techniques/skills and

pass them on to others working in the banks. He further suggested that grievances

of customers should be handled properly on regular basis for ensuring customer

satisfaction.

53
2.1.2.13. On Human Factor / Employee

The humane aspects are very important drivers of service performance in Indian

banks. Customers develop personal relationships with service personnel through

the process of service encountering (Dash et. al., 2007). In classical marketing

literature there are four components of marketing strategy i.e. product, price,

place and promotion. The production of quality service is crucial, because of the

strong presence of human factor in the bank (Selvaraju and Vasanthi, 2009).

Rangarajan (1996) articulated that, the future ability of banks to execute their

strategy and achieve their business goals will critically depend on the manner in

which they are able to organize their human resources. People in banks have to be

organized effectively, the staffing levels and skill-mix to be optimized right skills

and work culture built up and individual and unit performance closely monitored

in order to help achieve institutional goals. An organization which is devoid of a

proper structure will be unable to execute its mission and strategy, meet its

financial and developmental goals and survive in a competitive environment.

Dedicated in building the right skills and work culture is fundamental to the

success of banking industry in India.

Customers in developing economies seem to keep the "technological factors" of

services such as core service and systematization of the service delivery as the

yardstick in differentiating good and bad service while the "human factors" seem

to play a lesser role in discriminating the three groups of banks

(Sureshchandar, Rajendran and Anantharaman, 2003). In this context, Nainta

(2005) viewed that, with the rise in the banking business, there has been an up

trend in the number of frauds and even the fraudsters become more sophisticated

and ingenious. The author opined that the banking fraud mainly occur due to the

54
ignorance of staff members or clientele about system or procedure and sometimes

because of delivery irregular functioning of bank employee. With the growing use

of technology, there has been spurring in the technological crime. Hartline et. al.,

(2000) and Parasuraman et. al., (1985) argued that efficient interpersonal

interactions between customers and employees (human aspects of service quality)

can improve customer satisfaction.

2.1.2.14. On Efficient Service

Deregulation not only increased the cost inefficiency but also affected the rate of

fall in inefficiency of banks. During this period private banks were more efficient

than the public sector banks. In this context, Bhide, Prasad and Ghose (2002)

articulated that, the traditional face of banking is undergoing change from one of

mere inter-mediator to that of provider of quick cost effective and efficient

services. Jham and Khan (2008) studied the customer’s satisfaction in the Indian

banking sector and inferred that the satisfaction of customers with the services of

Indian banks is linked with the performance of banks.

2.1.2.15. On Efficiency and Productivity

There has been a drastic change in Indian banking in terms of efficiency and

productivity. The patterns of efficiency and technological change witnessed in

Indian banking can be viewed as consistent with expectations in the industry

undergone rapid change in response to the forces of deregulation. In reaction to

evolving market prospects, a few pioneering banks might adjust quickly to seize

the emerging opportunities, while others respond cautiously. As deregulation

gathers momentum, commercial banks would need to devise imaginative ways of

augmenting their incomes and more importantly their fee-incomes so as to raise

55
efficiency and productivity (Mohan, 2006). In this context, Reddy (2005)

articulated that banks offering services to customer with more number of branches

can become more productive by adaptation of new technology than banks with

less number of branches, which is the sign of justification for coexistence of

productivity efficiency and social equality. The contribution of technological

progress towards productivity is declining, however, technical efficiency and scale

efficiency has been increased for all banks in India.

2.1.2.16. On Customer Relationship Management

Sesha and Sai (2006) articulated that, increasing use of technology in banks could

change the customer relationship management. It can also be levered to improve

customer satisfaction.

Uppal (2008) viewed that, Customer Relationship Management (CRM) in the

Indian banking system is fundamental to building a customer-centric organization.

CRM in banking is a key element that allows a bank to develop its customer base

and sales capacity. The goal of CRM is to manage all aspects of customer

interactions in a manner that enables banks to maximize profitability from every

customer. Increasing competition, deregulation, and the internet have all

contributed to the increase in customer power. Customers, faced with an

increasing array of banking products and services, are expecting more from banks

in terms of customized offerings, attractive returns, ease of access, and

transparency in dealings. Retaining customers is a major concern for banking

institutions which underscores the importance of CRM. Banks can turn customer

relationship into a key competitive advantage through strategic development

across a broad spectrum.

56
Deregulation and technological changes have considerably influenced customers

and their preferences. Financial service providers like banks have been designing

products and selling them. But the diversity and speed of change in the

environment, due to deregulation and technological changes have considerably

influenced customer and their preferences. This is reflected in the emphasis that

banks are laying on building relationship with customer and providing quality

service to entice them to move from transaction banking to relationship banking

(Nair, 2006). CRM offers the promise of maximized profits for today’s highly

competitive businesses. It emphasizes the utilization of database marketing in

order to build strong and profitable customer relationships (Kumar, Werner and

Reinartz, 2006). Gopal (2006) observed that, the pre-requisite for successful CRM

in banks should have a through understanding of the organizational structure and

environment. Frontline executives in bank should possess adequate knowledge

about the banks’ as well as the competitors’ products and the competitive

environment.

2.1.2.17. On Competition

Competition for customers’ services is reflected in increase use of computer and

telecommunication technology by the banks to provide improved and faster

banking services with greater emphasis on value added services. The improved

technology has led to the low cost, instantaneous communications and electronic

fund transfers (Zenoff, 1989). This has led to the integration of inter-national

financial markets. Moreover, due to increase in awareness and literacy ratio the

customer of today has become more learned about the risk, costs, and returns,

associated with various financial services. As consequences, banks one of the

pioneer and premier financial institution have had to face the brunt of intense

57
competition both from their counterparts and several other privately owned

financial institutions. To combat with the volatility and risks associated with these

financial markets; a specialized marketing function has to be developed in the

banking sector (Watkins et. al. 1989).

2.1.2.18. On Tangible/ Physical Aspects

Tangible cue in the physical environment of a service sector influences behavior

of customers and their future purchase decisions. Tangible elements include

exterior facility of the services like parking, interior decor, furniture and the

equipment used. Consumers look at these tangible elements and infer about the

firm and its service performance. Services are intangible and customers are often

present during the process. Therefore, physical environment can have an influence

on customer perception of service quality and better tangible aspects of service

quality of the bank branches enhance customers’ satisfaction (Baker et. al., 2002).

Accordingly, it is proposed that better human, technical and tangible aspects of

bank services will increase the satisfaction level of customers. Environment cues

had positive influence on customers’ perceived merchandise value and patronage

intentions.

2.1.2.19. On Service Quality

Services are difficult to manage due to certain inherited characteristics such as

intangibility, heterogeneity, inseparability and perishability. The complex nature

of services, coupled with the growing prominence of the services sector has also

increased the need for better service quality. Therefore, the topic of service quality

is increasingly recognized as being one of the key strategic values of organizations

in both the manufacturing and service sectors (Lewis, 1991). Service quality,

58
allows the company to differentiate itself from its competitors by increasing sales

and market shares, it results in the satisfaction and retention of customers and

employees, thus reducing turnover rates, it leads to repeat purchase behavior and

brand loyalty and furthermore, new customers are attracted through positive word-

of-mouth (Wang and Hui, 2003).

Customer satisfaction is the function of service quality. Customer satisfaction is an

important aspect for service organizations and is highly related with service

quality (Bolton and Drew, 1991). As service quality improves, the probability of

customer satisfaction increases. Increased customer satisfaction leads to

behavioral outcomes such as commitment, intent to stay (customer retention),

creation of a mutually rewarding relationship (bond) between the service provider

and the user, increased customer tolerance for service failures and positive word-

of-mouth advertising about the organization (Reichheld, 1996). Service quality has

been linked with customer satisfaction within the banking industry (Avkiran,

1994). Banks now know that delivering quality service to customers is essential

for success and survival in today’s global and competitive banking environment

(Wang et. al., 2003).

Service quality is the key to measure user’s satisfaction. Few scholarly studies

have been made to identify quality dimensions and detailed aspects of bank

services and their relationships with customer satisfaction. One of the more widely

used instruments for assessing customer satisfaction is SERVQUAL developed by

Zeithaml et. al. (1988). Researchers have paid much attention to the close

relationship between service quality and customer satisfaction (Bitner, 1990).

As SERVQUAL is widely recognized and used and it is regarded as applicable to

59
a number of industries, including the banking industry (Yavas, Bilgin and

Shemuell, 1997).

For measuring service quality, 5 service quality dimensions are adopted by

Parasuraman, Zeithaml and Berry (1988) have been used as these are widely

accepted dimensions. SERVQUAL was originally measured on 10 aspects of

service quality: reliability, responsiveness, competence, access, courtesy,

communication, credibility, security, understanding or knowing the customer and

tangibles. It measures the gap between customer expectations and experience. By

the early nineties the authors had refined the model to the useful acronym

RATER: Reliability, Assurance, Tangibles, Empathy, and Responsiveness.

SERVQUAL has its detractors and is considered overly complex, subjective and

statistically unreliable. The simplified RATER model however is a simple and

useful model for qualitatively exploring and assessing customers' service

experiences and has been used widely by service delivery organizations. It is an

efficient model in helping an organization shape up their efforts in bridging the

gap between perceived and expected service. SERVQUAL measuring tool

“remains the most complete attempt to conceptualize and measure service

quality”. The main benefit to the SERVQUAL measuring tool is the ability of

researchers to examine numerous service industries such as healthcare, banking,

financial services, and education.

Service quality has been defined as a form of attitude – a long-run overall

evaluation (Parasuraman et. al., 1988) while perceived service quality as a general,

overall appraisal of service. The global value judgment on the superiority of the

overall service could occur at multiple levels in a particular organization

(Sureshchandar et. al., 2002). Many researchers such as Parasuraman et. al.

60
(1988), Juwaheer and Ross (2003) and Walker, Johnson and Leonard (2006)

highlight that responsiveness, assurance and empathy as among the three most

important service quality features.

Responsiveness has often been defined as the willingness of a service provider to

provide the needful services accurately and promptly. Assurance refers to

credibility, competence and security in delivering those services. Empathy is

related to care, attention and understanding of the individual customer needs and

interests when dispensing the prescriptive core services (Juwaheer and Ross,

2003). Extant research in this area shows that the proper implementing and

dispensing of the core service quality features may justifiably increase customer

satisfaction (Gronroos, 1984; and Walker et. al., 2006).

In a quality management context, customer satisfaction is defined as a result of

comparison between what a customer expects about services provided by a service

provider and what the customer receives in actual terms (Caruana, Money and

Berthon, 2000). If the service provided by an organization does meet a customer’s

needs and expectations, then this may subsequently lead to higher customer

satisfaction (Foster, 2004).

Surprisingly, a thorough investigation of such relationships reveals that the effect

of service quality features on customer satisfaction is not consistent if perceived

value is present in organizations (Varki and Colgate, 2001). Perceived value is

considered as customer recognition and appreciation on the utility of a product that

is given by a service provider which may fulfill his/her expectation (Heininen,

2004).

61
In a service management framework, many researchers are in tandem that

responsiveness, assurance, empathy, perceived value and customer satisfaction are

distinct constructs that are highly interrelated. For example, the ability of an

organization to incorporate the use of responsiveness, assurance and empathy in

the delivering services will inadvertently promote an increase in customer

perceptions of value; and this in turn will motion a higher level in customer

satisfaction. In the era of globalization and liberalization, economic reform has

become an imperative to remain in the main stream of global economy. The

banking sector being the backbone of the economy can not maintain the status

quo. It is legitimately feared that the privileged status, which PSBs enjoyed for

more than last three decades, has already been changed with the entry of new

players in the form of private and foreign banks. Under these circumstances, the

banks will have to face two pronged challenges like, to retain the existing

customers and, to create new customers. However, success rate depends, on the

innovative strategies adopted by the banks, including the better customer services

and adequate fulfillment of customer’s expectation.

In this context, Gronroos (1982), Lewis and Booms (1983) suggested that service

quality stems from a comparison of customers expectations with seller’s actual

service performance. A broad-based study conducted by Parasuraman et. al.

(1985) reinforced the idea that service quality is a function of customers’

expectations and performance gap. Several authors have also articulated different

attributes that the customers use a criterion in evaluating quality of services.

Three kinds of quality: physical quality, i.e., physical aspects associated with the

service such as equipment and building; corporate quality, i.e., firm’s image or

62
reputation in rendering services; and interactive quality, which indicates

interaction between services personal and customers.

Berry et. al. (1997) suggested four essential approaches of quality of services. It

includes: Transaction surveys, Customers’ complain comments and inquiry, Total

market survey, Employee survey.

Later development of a model for measuring service quality brought Parasuraman,

Zeithaml and Berry (1998) to a conclusion that awareness solution is more

acceptable for above-mentioned ten dimensions converted into the following five

ones: (1) tangibility (physical objects, equipment, appearance of service staff), (2)

reliability (potential to deliver a promised service), (3) sensitivity (willingness to

help consumers and to provide fast service), (4) safety (knowledge and politeness

of the staff and their capability of getting trust), (5) empathy (care, individual

attention for consumers).

Safety and empathy represent in fact seven original quality dimensions:

competitiveness, accessibility, politeness, communicability, credibility, safety and

understanding and commitment for consumers. Reducing number of dimensions

has not reduced accuracy in quality measurement. It is obvious that there are

different opinions on dimensions of service quality. It would be hard to extinguish

some of above approaches as the most acceptable in explanation and

understanding the essence of perceived service quality; however, when speaking

on quality measurement the Parasuraman’s concept of five dimensions is mostly

used. The most prominent instrument for service quality measurement among

researchers, practitioners and managers is SERVQUAL (Parasuraman et. al.,

1988).

63
Akroush, Mahadin and Bataineh (2010) studied the relationship between the e-

service quality dimensions and customer satisfaction of banks in Jordan. The

primary data was collected from 457 customers who had e-banking transactions

with banks in Jordan. The study indicated that, e-service quality dimensions such

as website attributes, reliability, perceived risk, responsiveness and customization

have a positive and significant effect on the banks overall customers' satisfaction.

The study also indicated that the strongest predictors, based on beta values, of e-

service quality dimensions on the overall banks customers' satisfaction and its

individual elements are responsiveness, website attributes and customization

respectively.

Lenka, Suar, and Mohapatra (2009) in a case study of Orissa state analysed service

quality of Indian commercial banks fosters customer loyalty. The socio–

demographic variables along with human, technical, and tangible aspects of

service quality, customer satisfaction and loyalty have been considered. It was

found that better human, technical and tangible aspects of service quality of the

bank branches increase customer satisfaction. Human aspects of service quality

were found to influence customer satisfaction more than the technical and tangible

aspects.

2.2. THE RESEARCH GAP

Comprehensive study on banking sector taking the recommendations of various

committee established by Reserve Bank of India over the years had not been

conducted so far. However, the major studies were concerned about

computerized services, customer complaint and customer grievance,

technological factor, information technological factor, internet banking,

64
customer loyalty, marketing strategy, human factor/ efficiency and productivity

factor, competition, customer relationship management, service quality,

performance, customer perception, customer satisfaction etc. There is a dearth

of literature particularly abridging the gap between banking services and

customer satisfaction in the context of banking sector. Further, considering a

host of service marketing mix variables with a view to render appropriate

services to customer, no single study has been conducted so far. In the study

area barring a few which were undertaken at individual level partially

considering the market forces, no exhaustive study has been made considering

all the services marketing mix elements (7Ps), service quality and customer

satisfaction fully. There has been no comprehensive demographic and

psychographic based study that encompasses all the bank services together.

There is no study covering all the above mentioned criteria.

India is witnessing rapid changes in technology, with the advent of technology

there has been a paradigmatic shift in the customer services by bank and there is a

change in the banking habits of the customers in India. With the changing scenario

banks are offering an array of product and services. With that, the satisfaction

level of customer is also being getting transformed. No study has considered all

the issues, which creates a big scope of research in the same area. Information

Technology and use of computer in Indian banking has come a long way since the

days when banks were perceived only as instruments of social change. However,

despite its importance, no significant studies that have closely examined

technological change in the Indian banking sector. Where lies a big research gap

that demands a fresh study on customer services and customer satisfaction in

present realm.

65
2.3. IDENTIFICATION OF MAJOR INTERACTING VARIABLES
In order to evaluate the dynamics of customer services and customer satisfaction

in banking services, a framework must be created. The theoretical basis for a

framework can be built using the service marketing literature and the

characteristics of banking services. Essentially, banking is a service industry and

customers purchase the services of the bank. In the present study, we explored the

relationship between customer services provided by the banks with satisfaction

level of customers from the services rendered by them.

For the purpose of present study, the reasons for satisfaction/dissatisfaction are

computerized services; innovative service; systematic and accurate; smooth and

hassle free; timely service; staff availability at counter; waiting time; timely

information; service with smile; committed employees; skilled and knowledgeable

employee; cordial, customer friendly and helpful employee; service charge;

specious premises; seating, drinking water and lavatory facility; hygienic

atmosphere; transparency in services; effective handling of complaints; recognize

as individual customer; customer relationship management; reliable services;

service assurance; service infrastructure; empathy to customer; and service

responsiveness etc. These variables (reasons) have been derived on the basis of

studies conducted by earlier researchers such as Rao (1987), Kaptan and Sagane

(1995), Gavini and Athma (1997), David and Bro (1989), Aurora and Malhotra

(1997), Terninko (1997), Reddy, et al, (2000), Bhattacharyya et.al, (2002),

Reinartz et al, (2002). However, the list of variables as identified based on

extensive literature survey may not be exhaustive, but suppose to be adequate to

identify the satisfaction level of the customers.

66
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