"Expectations and Perceptions of Service Quality in Old and New Generation Banks
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"Expectations and Perceptions of Service Quality in
Old and New Generation Banks - A Study of Select
Banks in the South CaÃƒÂ±ara Region"
* Joshua A J
, .V ** Moli. P. Koshi
Recognition of service quality as a competitive weapon is relatively a recent phenomenon in the Indian Banking
sector. Prior to the liberalization era the banking sector in India was operating in a protected environment and was
dominated by nationalized banks. Banks at that time did not feel the need to pay attention to service quality issues
and they assigned very low priority to identification and satisfaction of customer needs.
After liberalization as a result of partial implementation of the Narasimhan Committee Report the nationalized
banks and old generation private banks started facing competition from the new private and foreign banks that had
international banking standards. These new generation banks were characterized by the usage of modern information
technology endorsed services like ATM, telebanking, online systems etc. Clients, for the first time in India were
able to choose from a number of banks offering a wide range of services and delivering quality service.
The need of the hour in the Indian banking sector is to build up competitiveness through enhanced service quality,
thus making the banks more market oriented and customer friendly.
This study endeavours to examine the service quality aspects of some of the leading banks in the Coastal
Karnataka districts of Dakshinakannada and Udupi.This region has been the birthplace of many leading banks such
as Syndicate Bank, Corporation Bank and Karnataka Bank. This region also has a major presence of some of the
new generation banks like ICICI Bank, Global Trust Bank and HDFC Bank.
Moreover, the population in this region is comparatively well educated and has been availing the banking services
actively for the past several decades.
1) To evaluate the service quality of select banks in the Coastal Karnataka region of Dakshinakannada and Udupi
2) To compare service quality across the banks especially those between old and new generation banks.
3) To identify the areas which need improvement so that the quality of service of these banks is enhanced
Four banks were selected four the study of which two (Karnataka Bank and Corporation bank) belong to the
old generation (Started prior to 1990) and two (ICICI Bank and UTI Bank) from the new generation (started after
1990). One hundred and twenty customers from each of these banks were selected on judgmental basis and were
administered modified SERVQUAL questionnaires containing the determinants of service quality in banks. The
parameters of service quality were identified after analysing the extensive literature review of the related works done
in the past.
The respondents were required to record their perceptions and expectations of the service of the respective banks.
Seven point Likert scale was used for this measurement.
Banking is essentially a high contact service industry and there is close interaction between service provider and
the customers in the traditional banking scenario.
Service marketing is different from goods marketing because of the inherent differences in service as compared
to goods. The service is intangible, heterogeneous, production and consumption takes place simultaneously and it
is perishable. These results show the challenges based by the service business and has given rise to the need for new
concepts and approaches for marketing and managing service businesses.
* Sr. Lecturer, Manipal Institute of Management, Manipal-576104
** Reader, School of Management Studies, Cochin University of Science & Technology, Kochi-22 Â¢
6 Indian Journal of Marketing t September, 2005Page 2
Quality in services is an elusive concept because of the intangible nature of the service offering and the definition
of quality may vary from person to person and from situation to situation. Even though a universally accepted
definition of quality does not exist till now, most writers on service quality support a customer-centered definition
Â¢ with the reservation that customer expectations are not necessarily consistenrbr predictable.
The definition produced by Howcraft (1991) that service quality in banking implies consistently anticipating and
satisfying the needs and expectations of the customer. Hence, service quality is the conformance of services to the
customer specifications"and expectations. The quality of service therefore depends on the ability of the server to
meet the expectations of the customer.
Academicians and researches have proposed several approaches to service quality. Some of them are: dimensions
of service quality, gap analysis, the design approaches and the direct application of quality know-how from goods to
services. For this study the two primary approaches taken as framework are dimensions of service quality and
gap analysis. v
DIMENSIONS OF SERVICE QUALITY
One approach to quality is to list those characteristics essential in assessing the quality of a service. In one
model, customer perceived service quality as a result of two generic types quality they are 1 ) technical (or output)
quality and 2) functional (or process) quality (1984). The first refers to the performance of the service and the
second to how it was performed. The second, which is a novel dimension, is the way the service is delivered; it is
the process in which the customer is a participant and co-producer.
Parasuram, Zeithmal and Berry (1985) identified ten determinants of service quality that relate to service: reliability,
responsiveness, competence, access, courtesy, communication, credibility, security, understanding/knowing the
customer and tangible. Later these were reduced to five dimensions namely tangibles, reliability, responsiveness,
assurance and empathy (Prasuram et al 1988).
Tangibles are the physical evidence of the service (physical facilities, appearance of personnel or tools or
equipments used to provide the service.
Reliability involves consistency of performance and dependability (i.e., a firm performs the service right the
first time and honors its promises).
Responsiveness concerns willingness or readiness of employees to provide service (ex: timeliness of service)
Assurance corresponds to the knowledge and courtesy of employees and their ability to inspire trust and confidence
in the customer.
Empathy pertains to caring, individualized attention that a firm provides to its customers.
The dimensions are incorporated in the SERVQUAL multiple item instrument developed by Parasuram et.al (1988).
The SERVQUAL scale is the principal instrument used in this study for assessing service quality. This instrument
has been widely used by both managers and academicians to assess customer perceptions of service quality for a
variety of services. Based on Parasuram et al's (1988) conceptualization of service quality the original SERVQUAL
instrument included two, 22- item sections that intended to measure (a) customer expectations for various aspects of
service quality and (b) customer perceptions of what they actually received from the local service organization. In
short, the SERVQUAL instrument is based on gap theory, the gap between the customer's perception and expectations.
In this study Servqual instrument has been modified to suit the research requirement. Unimportant items and
redundant ones are cut down in order to make the questionnaire more streamlined. An additional dimension was also
included namely Price to reflect the customer expectations and perceptions of service charges and interest rates
offered by these banks.
Even though the proponents of this instrument, (Parasuram et al) have claimed that this has universal applicability
across all service industries, subsequent studies have shown that this is not the case. Modified servqual instrument
is used for this study to overcome some of its limitations.
Research in service sector such as banking started to grow only in the late 1970s that too only to a limited extend.
Researchers, consultants, and practitioners from Northern Europe were among the pioneers and the.Nordic School
Indian Journal of Marketing Â¢ September, 2005 7Page 3
of Services became a destination for contributions mainly from Sweden and Finland (Gronoos and Gummesson
(1985)). Lehtinen and Lehtinen (1988) has identified three dimensions of service quality as
1) Physical quality - equipment, premises, tangibles
2) Corporate quality - image and profile of the organization.
3) Interactive quality - customer contact with service personnel and other customers.
Seminal work in this area was also handled by another group of researchers Parasuram, Zeithmal and Berry in
1983 with encouragement and financial support from Marketing Service Institute (MSI) located in Cambridge,
Massachusetts. After analyzing the literature available to them they fotmd tfÃƒÂat service quality has been discussed in
only a handful of writings (Gronoosl982. Lehtinen and Lehhtinen 1982; Levis and Booms 1983; Sasser, Olsen and
Wychoff 1978) and it has three underlying themes.
1) Service quality is more difficult for the consumer to evaluate than goods quality.
2) Service quality perceptions result from a comparison of consumer expectations with actual service performance.
3) Quality evaluations are not made solely on the outcome of a service, they also involve evaluations of the
process of service delivery.
On the basis of their research Parasuram et.al (1988) were able to crystallize service quality on the basis of five
dimensions (i.e., tangibility, reliability, responsiveness, assurance and empathy). This has led on to the development
of SERQUAL multiple item survey instrument.
Studies in banking sector service quality have been carried out in UK financial service sector by R.F. Blanchard
and R.R. Galloway. Ugur, Yavas Zeynep Bilges and Donald J. Shemwell carry out a similar study on service quality
in banking sector in Turkey. In all these studies the models developed by Parasuram, Zeithmal and Berry were used.
In addition to the above-mentioned studies, there are a number of studies internationally carried out based on the
In India works relating to Banking services have been done by Yogeshwari Phatak and Naseem Abidi; P.S. Verma
and Hema Israney and so on in the recent times. The findings of these studies in brief are: The ultimate success of
any service quality programme can be gauged only by creation and retention of satisfied customers. The role of
customer contact employees in attainment of these goals is of paramount importance.
The difference between the customer perceptions and customer expectations is taken as the gap in delivering
service for the various dimensions of service quality viz; tangibles, reliability, responsiveness, assurance, empathy
Average Service Quality Gap scores, ie; the difference between the average perception score and expectation
score are calculated for the six dimensions for each bank. This is shown in the Tables 1& 2 below.
Graph; 1 depicts the comparative values of the average gap scores across the six dimensions for both old and new
Table: 3 shows the unweighted and weighted average gap scores for old and new generation banks across the six
TABLE 1: Service Gap of UTI & ICICI (New Generation Banks) on a 1-7 point scale
Total Gap (MSP-MSE)
MSE-Mean Service Expectations
MSP-Mean Service Perceptions
8 Indian Journal of Marketing Â¢ September, 2005Page 4
TABLE 2: Service Gap of Corp Bank & Karnataka Bank (Old Generation) on a 1-7 point scale
Total Gap (MSP-MSE)
The findings regarding the various dimensions of service quality (refer tables 1&2) is outlined below:
In case of tangibility, ICIÃƒâ€¡I bank is having $e (east gap showing that the perception almost exceeds expectation.
The second lowest gap s^prÃƒÂ© by UTt BANK follows this. Whereas Corporation bank and Karnataka bank have to
concentrate on improving the tangibility aspects like personality of employees, ambiguous and legibility of forms as
their gap scores are comparatively large.
In reliability aspect the perception of UTI bank customers is exceeding the expectation showing that the customers
are delighted & satisfied by the reliability of the bank. As far as ICICI bank is concerned the perception and
expectation. Gap is 0. This means customer expectations are matched by ICICI bank. Maximum improvement in
reliability has to be done by Corporation bank followed by Karnataka bank. So they have to concentrate on aspects
like keeping up their promises, doing it right the first time and maintaining error free records.
In ICICI bank perception is exceeding expectation showing a very positive outcome with respect to this dimension.
Karnataka bank only has a marginal gap. But Corporation bank has got the large gap followed by which UTI bank
has got the second largest gap. Hence they have to improve the responsiveness aspects by encouraging the employees
to give prompt services and making employees respond to the customers needs.
In assurance aspect the only bank where customers perception exceeds expectation is ICICI bank.. Whereas the
other three banks, especially the Corporation bank has to improve on this aspect by providing proper training to its
employees So that they can instill necessary confidence among the customers. Measures should also be taken so that
customers feel safe in transaction with the banks.
In empathy aspect the only bank whose customer perception exceeds expectation is UTI bank. Whereas the other
three banks especially Corporation bank & Karnataka bank have to improve this aspect. Their employees should be
asked to give individualized attention to the customers with an effort to understand their specific needs.
AH the banks are meeting customer expectations except for Corporation bank whose customers' perception is
below expectation. Probably they can have a re-look on service charges & interest rates so they can align it with the
SERVICE PERCEPTION -EXPECTATION GAP IN OLD AND NEW GENERATION BANKS
New generation banks exceeded expectations of service quality in dimensions of reliability, empathy and price.
In cases of the other dimensipns like tangibility, responsiveness and assurance (refer graph: 1 ), though the gap score
for the new generation banks are negative it is much smaller when compared to those of the old generation banks. In
Indian Journal of Marketing Â¢ September, 2005 9Page 5
Graph:l Comparison of mean Gap Scores across various dimensions for Old and New Generation banks
moki Garatiai BankÃ‚Â»
oatew GÃ‚Â»fw8tiw) BanfiÃ‚Â»
the case of old generation banks in all the dimensions the perceptions are below the expectations contributing to
negative gap scores. Considerable improvements are to be made to reduce this gap especially in the cases of dimensions
like assurance, tangibles and responsiveness.
Thus it is seen that the performance in case of the service quality is much better in the case of the new generation
bank across all the dimensions when compared to those of the old generation banks.
SIGNIFICANCE OF VARIOUS DIMENSIONS
Table 3. gives the respective weightings the respondents assigned to the various dimensiohss, with most weightage
being given to reliability and the least weightage being given to price factor. This shows that customers give more
importance to reliable service by the banks.
Table 3: Unweighted and weighted average gap scores of Old & New Generation Banks
Old Gen Banks
New Gen banks
The total average gap score of new generation banks is only -0.139, whereas the average gap score of old
generation banks is -0.821, which is 6.7 times that of the new generation ones. So, old generation banks have to
improve immensely in order to meet the expectation level of customers with regard to all of the service quality
> In the case of tangibility UTI bank, Karnataka bank & Corporation bank have to make significant improvements.
In order to improve the tangibility aspects these banks could, after finding out customer expectations through a
10 Indian Journal of Marketing Â¢ September, 2005Page 6
survey: improve the ambiance within the bank, provide pamphlets and forms which are visually appealing and
make the employees better dressed and well groomed.
> As far as reliability aspect is concerned maximum improvements have to be made by the Corporation Bank
followed by the Karnataka Bank. Keeping up the promises to the customer especially in timeliness of the
Ã‚Â¦ transactions, sincerely solving the customers' problems, trying to perform the service right the first time,
maintaining error free records and having prompt service recovery strategies when something goes wrong.
> Considering the responsiveness attribute, the Corporation Bank followed by the Karnataka Bank has to make
significant improvements by concentrating on aspects like encouraging the employees to give prompt service,
making employees respond to the customer needs and requests. For enabling these the employees have to be
trained and empowered, facilitating decision-making at the frontline employee level to some extend.
> With regard to assurance, Corporation bank followed by UTI bank & Karnataka bank has to concentrate on
aspects like giving proper training to employees so that they can instill necessary confidence in the customers
while dealing with bank, training the employees to be consistently courteous with the customers, imparting
adequate knowledge to the employees so that they can easily answer the customer queries etc.
> When empathy dimension is taken, Corporation bank followed by Karnataka bank & ICICI bank have to make
improvements by concentrating more on aspects like giving individual attention to customers and by understanding
the specific needs of the customers. Again the frontline employees have to be trained accordingly. Additionally
the operating hours must be made convenient the customers after getting a feedback from them.
> In case of the price dimension only Corporation bank's customers are unhappy. Probably a feedback can be had from
them in this regard and if needed suitable modification in service charges and other interest rates could be made.
> In order to become customer friendly and competitive the banks have to reduce the gap between customer
expectations and customer perceptions. The starting point for this is a deep understanding of customer expectations.
For this customer surveys could be conducted and once the expectations are understood, Customer defined
service standards should be fixed and implemented in order to reduce the gap between the customer perception
and customer expectation of service. This is a general guideline for all the banks to improve quality of service.
Thus modified Servqual instrument can be used to quantify the various dimensions of the service quality in
banks, thereby identifying areas which require improvement. Thus it can be used for comparison of service quality
across different banks. This could also be used for inter-branch comparisons of the various branches of the same
bank as well as comparisons of performances at different points of time.
It was found that the ICICI bank has outperformed the other three selected banks in providing quality service. It
is seen that the performance of the new generation banks across all the service quality dimensions are better than
those of old generation banks in the region selected for study. The old generation banks need improvements in
several aspects, as its negative total average gap score is about 6.7 times larger than that of new generation banks as
per this study.
1. Ugur Yavas, Donald. J. Shemwell & Zeynep Bilgin -"Service Quality in the banking sector in an emerging economy: a
consumer survey" International Journal of Bank Marketing, June 97, pp 217-223
2. Walfried M. Lassar, Chris Monalis and Robert D. Winsor -"Service Quality Perspectives and Satisfaction in Private
Banking" Journal of Services Marketing, March 2000
3. Quality in Retail Banking by R.F. Blanchard & R.L. Galloway. Source: International Journal of Service Industry
4. Christopher Jones -"Quality and productivity in Arab banking", Management Services, Enfield, Jan 2003, Vol 47, Iss 1, p 8
5. Terrence Levesque & Gordon H G Mcdougall -"Determination of customer satisfaction in retail banking", The International
Journal of Bank Marketing, Bradford 1996,Vol 16, Iss 7, pp 12-20.
6. Walfried M. Lassar, Chris Manolis & Robert D. Winsor -"Service Quality perspectives and satisfaction in Private banking",
Journal of Services Marketing 2000, Vol. 14, Issue 2/3, p244 .
7. DPS Verma and Hema Israney- "Market Orientation in Commercial Banks - A Study of Selected Banks in Delhi".
Vision, July - December 2001, pp7-14
8. Zeithmal, Parasuram and Berry ( 1990) - "Delivering Quality Service - Balancing customer perceptions and expectations",
The Free-Press, New York 1990.
9. Parasuram.A, Zeithaml.V.A, & Berry.L.L.-"SERVQUAL: A multiple-item scale for measuring consumer perceptions of
service quality". Journal of retailing 1988, 64, ppl2-40
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