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A STUDY ON CUSTOMER PERCEPTION IN BANKING INDUSTRY USING

GAP ANALYSIS
- Dr. Hema Bhalakrishnan

Background

Our perception is an approximation of reality. Our brain attempts to make sense


out of the stimuli to which we are exposed. This works well when we are about to
perceive familiar facts. However, our perception is sometimes “off” when we are not
clear about concepts. Perception is a process by which an individual select, organize &
Interpret stimuli in a meaningful picture of the world Also, we can describe as “how we
see the world around us” Perception is the process of selecting, organizing, & Interpreting
or attaching meaning to events happening in environment

The Concept of Perception


Perception is one of the objects studied by the science of consumer behaviour.
Analyzing the works of scientists studying consumer behaviour, it is possible to make a
conclusion that perception is presented as one of personal factors, determining consumer
behaviour. Personal factors mean the closest environment of a human, including
everything what is inside the person, his head and soul, characterizing him as a
personality. Using his sensory receptors and being influenced by external factors, the
person receives information, accepts and adapts it, forms his personal attitude, opinion,
and motive, which can be defined as factors that will influence his further activity and
behaviour. Perception within this context is considered as one of the principal personal
factors, conditioning the nature and direction of remaining variables.

Authors J. C. Mowen (1987), D. L. Loudon and A. J. Della Bitta (1993) determine


perception as a phase of information processing, while C. G. Walters and B. J. Bergiel
(1989), F. G. Crane and T. K Klarke (1994), G. D. Harrell, G. L. Frazier (1998), M. R.
Solomon (1999), B. Dubois (2000) define perception as a separate variable of consumer

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behaviour having features of the process and including separate phases of the process. C.
G. Walters and B. J. Bergiel (1989) characterize perception as a solid process during
which an individual acquires knowledge about the environment and interprets the
information according to his/her needs, requirements and attitudes. The works of F. G.
Crane and T. K Klarke (1994), G. D. Harrell, G. L. Frazier (1998), M. R. Solomon
(1999), B. Dubois (2000) present perception as a more complicated process, during
which sensory receptors of a consumer capture a message sent by external signals and the
information received is interpreted, organized and saved, providing a meaning for it and
using it in a decision making process.

Customer Perception

Customer perception is an important component of our relationship with our


customers. Customer satisfaction is a mental state which results from the customer’s
comparison of expectations prior to a purchase with performance perceptions after a
purchase. A customer may make such comparisons for each part of an offer called
‘‘domain-specific satisfaction’’ or for the offer in total called ‘‘global satisfaction’’.
Moreover, this mental state, which we view as a cognitive judgment, is conceived of as
falling somewhere on a bipolar continuum bounded at the lower end by a low level of
satisfaction where expectations exceed performance perceptions and at the higher end
by a high level of satisfaction where performance perceptions exceed expectations.

Customer Perception on Service


These characteristics of service also make service unique and different from goods as
described below
1. Intangibility. Unlike manufactured goods that are tangible, a service is intangible. The
products from service are purely a performance. The consumer cannot see, taste,
smell, hear, feel or touch the product before it purchased
2. Heterogeneity. A service is difficult to produce consistently and exactly over time.
Service performance varies from producer to producer, from customer to customer,

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and from time to time. This characteristic of service makes it difficult to standardize
the quality of the service
3. Inseparability. In service industries, usually the producer performs the service at the
time the consumption of the service takes place. Therefore, it is difficult for the
producer to hide mistakes or quality shortfalls of the service. In comparison the goods
producers, have a buffer between production and customers’ consumption
4. Perishability. Unlike manufactured goods, services cannot be stored for later
consumption. This makes it impossible to have a quality check before the producers
send it to the customers. The service providers then only have one path, to provide
service right the first time and every time.
5. Non-returnable. A service is not returnable, unlike products. On the other hand, in
many services, customers maybe fully refunded if the service is not satisfactory.
6. Needs-match uncertainty. Service attributes are more uncertain than the product. This
yield to higher variance of making a match between perceived needs and service is
greater than perceived need and product match.
7. Interpersonal. Service tends to be more interpersonal than products. For example,
compare buying a vacuum cleaner to contracting for the cleaning of a carpet. While
customers will judge the quality of the vacuum cleaner by how clean the carpet is,
customers will tend to judge the quality of the carpet cleaning service on both the
appearance of the carpet and the attitude of the technician.
8. Personal. Customers often view services to be more personal than products. For
example, a customer may perceive the service of her car (balancing the tires) as more
personal than purchasing new tires. If the same customer has problems later with the
tires, the defect in the tires would be less personal than if the tires were never
balanced.
9. Psychic. Even though the food at a restaurant might not be as delicious as other famous
restaurants., the customers will recognize the restaurant and tend to be satisfactions if
the service of the restaurant is excellent. Another example is when a flight is delayed,
and people tend to be upset with this poor service . However, if the gate agent is very
helpful and friendly, people tend to still be pleased with the service (Groth, & Dye,
1999).
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Like other industries, banking and financial services companies have reached the
conclusion that the relationship with the customer should not (metaphorically and
literally) end at the bank door. Customer access after the transaction adds value to the
transaction.

Definition of Banking

Banking means accepting for the purpose of lending or investment, of deposits of


money from the Public, repayable on demand or otherwise and withdraw able by
cheques, draft, order or otherwise.

Features of Banking:

1. Dealing in Money:

The banks accept deposits from the public and advancing them as loans to the
needy people. The deposits may be of different types- Current, Fixed, Savings, etc.
accounts. The deposits are accepted on various terms and conditions.

2. Deposits must be withdrawable:

The deposits (other than fixed deposits) made by the public can be withdrawable
by cheques, draft or otherwise, i.e., the bank issue and pay cheque. The deposits are
usually withdrawable on demand.

3. Dealing with Credit:

The banks are the institutions that can create Credit i.e., creation of additional
money for lending. Thus, ‘Creation of Credit’ is the unique feature of banking.

4. Commercial in Nature:

Since all the banking functions are carried on with the aim of making profit, it is
regarded as a commercial institution.

5. Nature of Agent:

Besides the basic functions of accepting deposit and lending money as loans,
banks possess the character of an agent because of its various agency services.

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Measuring Customer Perception in the Banking Industry

Banking operations are becoming increasingly customer dictated. The demand for
'banking super malls' offering one-stop integrated financial services is well on the rise.
The ability of banks to offer clients access to several markets for different classes of
financial instruments has become a valuable competitive edge. Convergence in the
industry to cater to the changing demographic expectations is now more than evident.
Bancassurance and other forms of cross selling and strategic alliances will soon alter the
business dynamics of banks and fuel the process of consolidation for increased scope of
business and revenue. The thrust on farm sector, health sector and services offers several
investment linkages. In short, the domestic economy is an increasing pie which offers
extensive economies of scale that only large banks will be in a position to tap. With the
phenomenal increase in the country's population and the increased demand for banking
services; speed, service quality and customer satisfaction are going to be key
differentiators for each bank's future success. Thus it is imperative for banks to get useful
feedback on their actual response time and customer service quality aspects of retail
banking, which in turn will help them take positive steps to maintain a competitive edge.

The working of the customer's mind is a mystery which is difficult to solve and
understanding the nuances of what perception the customer has to attain satisfaction is, a
challenging task. This exercise in the context of the banking industry will give us an
insight into the parameters of customer satisfaction and their measurement. This vital
information will help us to build satisfaction amongst the customers and customer loyalty
in the long run which is an integral part of any business. The customer's requirements
must be translated and quantified into measurable targets. This provides an easy way to
monitor improvements, and deciding upon the attributes that need to be concentrated on
in order to improve customer satisfaction. We can recognize where we need to make
changes to create improvements and determine if these changes, after implemented, have
led to increased customer satisfaction.
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The Need to Measure Customer Perception:

Satisfied customers are central to optimal performance and financial returns. In


many places in the world, business organizations have been elevating the role of the
customer to that of a key stakeholder over the past twenty years. Customers are viewed as
a group whose satisfaction with the enterprise must be incorporated in strategic planning
efforts. Forward-looking companies are finding value in directly measuring and tracking
customer satisfaction as an important strategic success indicator. Evidence is mounting
that placing a high priority on customer satisfaction is critical to improved organizational
performance in a global marketplace.

With better understanding of customers' perceptions, companies can determine the


actions required to meet the customers' needs. They can identify their own strengths and
weaknesses, where they stand in comparison to their competitors, chart out path future
progress and improvement. Customer satisfaction measurement helps to promote an
increased focus on customer outcomes and stimulate improvements in the work practices
and processes used within the company.

When buyers are powerful, the health and strength of the company's relationship
with its customers – its most critical economic asset – is its best predictor of the future.
Assets on the balance sheet – basically assets of production – are good predictors only
when buyers are weak. So it is no wonder that the relationship between those assets and
future income is becoming more and more tenuous. As buyers become empowered,
sellers have no choice but to adapt. Focusing on competition has its place, but with buyer
power on the rise, it is more important to pay attention to the customer.

Customer satisfaction is quite a complex issue and there is a lot of debate and
confusion about what exactly is required and how to go about it. This article is an attempt
to review the necessary requirements, and discuss the steps that need to be taken in order
to measure and track customer satisfaction.

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Need and Importance of the Study
One of the most important developments in banking sector has been the growth of
the financial industry over the past two decades. The benefits of financial industry can be
seen in the form of large scale industrial development, increased employment
opportunities, higher turnover as well as revenue generation to the government and also
increase in export of goods and services.

Banking industry in India has undergone a process of evolution with the package
of time. To count or to depend on a bank merely by the function it is supposed to perform
would be insufficient in the world that we live today.

Investments play a vital role on the part of the customers. A real investor does not
simply throw his or her money random investment; he or she performs through analysis
and commits capital only when there is a reasonable expectation of profit. Hence they
both are interdependent i.e., it all depends upon the customer. “Customer knows what to
expect”. Today banks have a relationship management approach with their clients.

Banks are offering more customized solutions to their clients. The need of the
hour is not only to introduce more value added products for which the customers are
willing to pay here but also to innovate & enter new segments like small business &
periodical finance.

Everything resolves around the customer and banks via with their innovative and
quality products to suit their clients. Today the bottom line for any customer is
convenience understanding and evaluating the customers perception on the service &
products of a bank has without doubt become a need, which propels the body to structure
itself for better performance and service.

Thus delivering high quality service to clients is just as important as delivering


performance that meets or exceeds their expectations. It is in this context that a study is
necessary to know about awareness levels on the services provided by the public and
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private sector banks namely, Public Sector Banks : State Bank of India, Indian Bank and
Indian Overseas Bank and Private Sector Banks : ICICI, HDFC and IndusInd Bank and
the customer perception towards the banks.

Objectives
The objectives of the study are:
♦ To evaluate the different factors considered by the investors while making
investments.
♦ To study the services provided by Private Sector and Public Sector banks and the
performance of it.
♦ To analyze the service facilities those are being effectively utilized by the
customers.
♦ To ascertain suggestions from the investors for further improvement of the
institutions.

Methodology
The data required for this study has been collected from the primary sources.
Initially a ‘Pilot Study’ will be conducted for testing the questionnaires. The pilot survey
will help in making certain improvement in the final questionnaire. A structured
questionnaire shall then be prepared for the respondents in order to collect primary data.
The questionnaire is designed based on the objectives.

Source of Data
The researcher proposed to gather the required data through primary data and
secondary data. Primary data are those which are collected afresh and for the first time,
and thus happen to be original in character. It will be collected through questionnaires
method. Secondary data is collected from the possible records like books, magazines,
periodicals and websites.

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Universe
The proposed study is to find out the services rendered by the Public and Private
Sector Banks to their Customers. The population is uncountable and is considered as
infinite. However, the proposed sample for the study from Private Sector Banks and
Public Sector Banks are 300 respectively.

Sampling Method
The universe of the study is the account holders of Public and Private Sector
banks and the sampling technique adopted will be convenient sampling method.

Statistical Tools and Techniques


The collected data have been analyzed with the help of tools like Gap Analysis
and Factor Analysis

Limitations of the Study


The time spent for canvassing the bankers and customers to get the questionnaire
filled was considerable. Further, there was reluctance on the part of customers to respond
the questionnaire. The cost and time factors are the other limitations. However adequate
care was taken to collect unbiased data.

Gap Analysis
The gap analysis is carried out between the expected level and derived level of
satisfaction on the various aspects such as

Loan Flexibility;
Easy Access;
Security;
Customer friendly
Latest Facilities (Phone banking, Net banking, etc);
Reasonable Interest rate for Credit card transaction.
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This analysis is carried out using t-test based on the average score of the values
obtained for each factors. The significance is assessed using 5% level. The results are
presented in the following tables with suitable interpretations.

Gap Analysis on Expected and Derived Level of Satisfaction – State Bank of India
The table provides mean difference between expected level of satisfaction and the
derived level of satisfaction on the various aspects of customer perception, its t-value and
p-value. The aspects considered are Loan Flexibility, Easy Access, Security, Customer
friendly, Latest Facilities (Phone banking, Net banking, etc), Reasonable Interest rate for
Credit card transaction.

Table 1: Gap Analysis- Expected and derived level of satisfaction - SBI

Aspects Mean Difference t-value p- value S/NS


Expected-Derived
Loan Flexibility 0.9 59.059 0.004 S
Easy Access 0.9 57.559 0.009 S
Security 0.78 37.566 0.001 S
Temperature 0.91 45.525 0.000 S
Customer friendly 0.46 16.389 0.002 S
Latest Facilities (Phone 0.63 23.912 0.001 S
banking, Net banking, etc)
Reasonable Interest rate 0.6 22.551 0.000 S
for Credit card transaction
S-significant(pvalue <= 0.05); NS- Not significant (p value >0.005)
It is found from the table 1 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that
the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the various facilities in SBI.

It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in SBI.

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Gap Analysis: Expected and derived level of Satisfaction - SBI

Loan Flexibility
4

3
Reasonable Interest Rates 2 Easy Access

1
Expected
0
Derived

Latest Facilities Security

Customer Friendly

Gap Analysis on Expected and Derived Level of Satisfaction – IOB


The table provides mean difference of IOB between expected level of satisfaction
and the derived level of satisfaction on the various aspects of customer perception, its t-
value and p-value. The aspects considered are loan Flexibility, easy access, security,
customer friendly, latest Facilities (Phone banking, Net banking, etc), reasonable interest
rate for credit card transaction.

Table 2: Gap Analysis- Expected and derived level of satisfaction - IOB

Aspects Mean Difference (E-D) t-value p- value S/NS


Loan Flexibility 0.9 62.95 0.002 S
Easy Access 0.9 46.123 0.000 S
Security 0.9 55.687 0.003 S
Customer friendly 0.93 46.165 0.000 S
Latest Facilities (Phone 0.96 54.311 0.000 S
banking, Net banking, etc)
Reasonable Interest rate 0.2 9.703 0.005 S
for Credit card transaction
S-significant(pvalue <= 0.05); NS- Not significant (p value >0.005)

It is found from the table 2 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that

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the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the various aspects of Indian Overseas bank.

It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects of Indian Overseas bank.

Gap Analysis: Expected and Derived level of Satisfaction - IOB

Loan Flexibility
4

3 Easy Access
2
1
Expected
0 Security
Derived

Reasonable Interest Rates Customer Friendly

Latest Facilities

Gap Analysis on Expected and Derived Level of Satisfaction – Indian Bank

The table provides mean difference of Indian Bank between expected level of
satisfaction and the derived level of satisfaction on the various aspects of customer
perception, its t-value and p-value. The aspects considered are loan Flexibility, easy
access, security, customer friendly, latest Facilities (Phone banking, Net banking, etc),
reasonable interest rate for credit card transaction.

Table 3: Gap Analysis- Expected and derived level of satisfaction - IB

Aspects Mean Difference t-value p- value S/NS


Expected-Derived
Loan Flexibility 0.62 24.097 0.003 S

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Easy Access 0.65 25.474 0.009 S
Security 0.87 29.992 0.001 S
Customer friendly 0.86 36.987 0.007 S
Latest Facilities (Phone 0.94 40.098 0.006 S
banking, Net banking, etc)
Reasonable Interest rate 0.92 50.028 0.004 S
for Credit card transaction
It is found from the table 3 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that
the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the various aspects of Indian bank.

It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects of Indian bank.

Gap Analysis: Expected and Derived Level of Satisfaction- IB

Loan Flexibility
4

3
Reasonable Interest Rates 2 Easy Access

1
Expected
0
Derived

Latest Facilities Security

Customer Friendly

Gap Analysis on Expected and Derived Level of Satisfaction – ICICI Bank


The table provides mean difference between expected level of satisfaction and the
derived level of satisfaction on the various aspects of customer perception, its t-value and
p-value. The aspects considered are loan Flexibility, easy access, security, customer

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friendly, latest Facilities (Phone banking, Net banking, etc), reasonable interest rate for
credit card transaction.

Table 4: Gap Analysis- Expected and derived level of satisfaction - ICICI

Aspects Mean Difference t-value p- value S/NS


Expected-Derived
Loan Flexibility 0.61 24.637 0.005 S
Easy Access 0.61 25.066 0.001 S
Security 0.61 23.922 0.001 S
Customer friendly 0.61 21.494 0.000 S
Latest Facilities (Phone 0.72 28.127 0.004 S
banking, Net banking, etc)
Reasonable Interest rate 0.75 29.045 0.001 S
for Credit card transaction
S-significant(pvalue <= 0.05); NS- Not significant (p value >0.005)
It is found from the table 4 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that
the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the various facilities in ICICI bank.
It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in ICICI bank.

Gap Analysis; Expected and Derived Level of Satisfaction -


ICICI

Loan Flexibility
4
3
Reasonable Interest Rates 2 Easy Access
1
Expected
0
Derived

Latest Facilities Security

Customer Friendly

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Gap Analysis on Expected and Derived Level of Satisfaction – HDFC Bank

The table provides mean difference of HDFC between expected level of


satisfaction and the derived level of satisfaction on the various aspects of customer
perception, its t-value and p-value. The aspects considered are loan Flexibility, easy
access, security, customer friendly, latest Facilities (Phone banking, Net banking, etc),
reasonable interest rate for credit card transaction.

Table 5: Gap Analysis- Expected and derived level of satisfaction - HDFC

Aspects Mean Difference t-value p- value S/NS


Expected-Derived
Loan Flexibility 0.6 24.373 0.002 S
Easy Access 1.01 38.813 0.002 S
Security 0.66 25.678 0.004 S
Customer friendly 1.02 39.331 0.009 S
Latest Facilities (Phone 0.56 21.336 0.008 S
banking, Net banking, etc)
Reasonable Interest rate 0.16 8.131 0.000 S
for Credit card transaction
S-significant(pvalue <= 0.05); NS- Not significant (p value >0.005)
It is found from the table 5 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that
the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the various facilities in HDFC bank.
It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in HDFC bank.

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Gap Analysis: Expected and Derived Level of Satisfaction-
HDFC

Loan Flexibility
4
3
Reasonable Interest Rates 2 Easy Access

1
Expected
0
Derived

Latest Facilities Security

Customer Friendly

Gap Analysis on Expected and Derived Level of Satisfaction – IndusInd Bank


The table provides mean difference of IndusInd bank between expected level of
satisfaction and the derived level of satisfaction on the various aspects of customer
perception, its t-value and p-value. The aspects considered are loan Flexibility, easy
access, security, customer friendly, latest Facilities (Phone banking, Net banking, etc),
reasonable interest rate for credit card transaction.

Table 6: Gap Analysis- Expected and derived level of satisfaction - Indusind

Aspects Mean Difference t-value p- value S/NS


Expected-Derived
Loan Flexibility 0.75 28.686 0.002 S
Easy Access 0.72 29.609 0.001 S
Security 0.33 13.971 0.003 S
Customer friendly 0.3 12.166 0.009 S
Latest Facilities (Phone 1 26.055 0.008 S
banking, Net banking, etc)
Reasonable Interest rate 1.03 27.061 0.003 S
for Credit card transaction

It is found from the table 6 that all the mean difference values are positive
indicating that the expected level of satisfaction is more than the derived level of
satisfaction. Further it is implied that all the aspects are found significant resulting that
the expected level of satisfaction is significantly more than the derived level of
satisfaction of the respondents on the reasonable interest rates.

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It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to various facilities in Indusind bank.

Gap Analysis: Expected and Derived level of Satisfaction -


Indusind

Loan Flexibility
4
3
Reasonable Interest Rates 2 Easy Access

1
Expected
0
Derived

Latest Facilities Security

Customer Friendly

Factor Analysis

The factor analysis is mainly employed for 2 purposes


1. For data reduction
2. For identifying the factor which influences most.

In this section the factor analysis under extraction method of principal component
analysis is employed to identify the important aspects relating to customer perception on
public sector and private sector banks.

Important factors are identified with extraction value more than 0.7. The results
are presented in table 7. Table 7 describes the extraction values for each aspect relating to
customer perception on public sector and private sector banks.
through principal component analysis.

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Table 7: Extraction Values- Aspects relating to customer perception on service of
banks

Aspects Extraction values


Customer Friendly 0.888
Easy Access 0.910
Can Relax 0.795
Stress Reduction 0.771
Security 0.836
Safe 0.720
Go to bank with a trobled mind and ther sort it out for you 0.816
Sleep in night without worrying whats going on 0.640
Facilities are too good 0.657
Come away with a aproportion of what you want 0.764
Got what you went down for 0.743
Everything went according to plan 0.762
Met expectations 0.767
To be unsatisfied when you come and you are still in the same level 0.409
as you went before
Happy with results 0.551
Content with whats been done for you 0.574
Awareness about net banking 0.534
Not frustrated 0.462
Everything goes smooth 0.710
No hassle 0.787
Straight forward 0.409

It is found from the table 7 that among the 21 aspects relating to customer
perception towards public and private sector banks 14 aspects are considered as more
important than other aspects because of their expectation value more than 0.7. Further it

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can be deduced that “ easy access” is considered as very important because of its high
extraction value 0.910 followed by “customer friendly” (0.888); “security” (0.836); “Go
to bank with a troubled mind and there sort it out for you” (0.816); “can relax” (0.795)
and so on.
It is concluded that among the various aspects relating to perception of customers
“easy access” is considered as more important than the other factors.

Factors Influencing Customer Perception

1
0.9
0.8
0.7
0.6
0.5 Series1
0.4
0.3
0.2
0.1
0
Achieving

Everything
Happy with
Secure

Got what you

Happy with
Met
Go to bank

Straight
Can Relax
Walked out

Findings based on GAP Analysis

 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in SBI.
 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects of Indian Overseas bank.
 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects of Indian bank.

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 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in ICICI bank.
 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to facilities in HDFC bank.
 It is concluded that the respondents’ expectation are significantly more than they
derive on the various aspects relating to various facilities in Indusind bank.

Findings from Factor Analysis


 It is concluded that among the various aspects relating to perception of customers
“easy access” is considered as more important than the other factors.

SUGGESTIONS, DISCUSSIONS AND CONCLUSIONS


Suggestions
The following suggestions are the outcome of the research and applications of these
 Every bank should take precautions to keep customers experience safe. It should
take continued efforts to safeguard online banking transactions.
 All internet banks should provide close interaction between bank service and web
based e-commerce and even service through direct electronic payments.
 The bank should provide more convenient international transactions which means
internet along with general trends.
 Elimination of geographical boundaries will help free access of internet banking.
 The bank should provide more customer awareness and need of transparency in
their dealings.
 All banks should provide digital certification procedure as it helps the customers
data that they receive from the correct system.
 The banks should come up with innovative ways of service at their door steps this
may be a costly affair but will surely give positive results in the long run.

 The banks should take the initiative of training the advisors about the new
schemes from time to time which also makes the advisors connected to the bank.

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 The banks should also emphasis on the monitoring of EMI which directly relates
to the returns of a loan amount.
 The company should come up with proper fixed deposit plans at this point of time
where the market is highly volatile and the investors become very cautious at this
level.
 The banks should use brand ambassadors for example the CEO’s of major
companies where the company allocate the funds. This will probably ensure
proper results.
 The banks should focus on the advertising strategy and also the marketing of the
bank product.
 The bank doesn’t have enough tax saving plans or appropriate plans for tax so
which they should come up with.

Managerial Implications and Discussions


Good Performance, Questionable Health
Indian banks have compared favourably on growth, asset quality and profitability
with other regional banks over the last few years. The banking index has grown at a
compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per
cent growth in the market index for the same period. Policy makers have made some
notable changes in policy and regulation to help strengthen the sector. These changes
include strengthening prudential norms, enhancing the payments system and integrating
regulations between commercial and co-operative banks. However, the cost of
intermediation remains high and bank penetration is limited to only a few customer
segments and geographies. While bank lending has been a significant driver of GDP
growth and employment, periodic instances of the “failure” of some weak banks have
often threatened the stability of the system. Structural weaknesses such as a fragmented
industry structure, restrictions on capital availability and deployment, lack of institutional
support infrastructure, restrictive labour laws, weak corporate governance and ineffective
regulations beyond Scheduled Commercial Banks (SCBs), unless addressed, could

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seriously weaken the health of the sector. Further, the inability of bank managements
(with some notable exceptions) to improve capital allocation, increase the productivity of
their service platforms and improve the performance ethic in their organisations could
seriously affect future performance.

Opportunities and Challenges for Players


The bar for what it means to be a successful player in the sector has been raised.
Four challenges must be addressed before success can be achieved. First, the market is
seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side,
and in fee-based income and investment banking on the wholesale banking side. These
require new skills in sales & marketing, credit and operations. Second, banks will no
longer enjoy windfall treasury gains that the decade-long secular decline in interest rates
provided. This will expose the weaker banks. Third, with increased interest in India,
competition from foreign banks will only intensify. Fourth, given the demographic shifts
resulting from changes in age profile and household income, consumers will increasingly
demand enhanced institutional capabilities and service levels from banks.

Need to Create a Market-Driven Banking Sector with Adequate Focus on Social


Development
The term “policy makers” used in this thesis, refers to the Ministry of Finance and
the RBI and includes the other relevant government and regulatory entities for the
banking sector. We believe a co-ordinated effort between the various entities is required
to enable positive action. This will spur on the performance of the sector. The policy
makers need to make co-ordinated efforts on six fronts: Help shape a superior industry
structure in a phased manner through “managed consolidation” and by enabling capital
availability.

Focus on Social Development


Focus strongly on “social development” by moving away from universal directed
norms to an explicit incentive-driven framework by introducing credit guarantees and
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market subsidies to encourage leading public sector, private and foreign players to
leverage technology to innovate and profitably provide banking services to lower income
and rural markets. Create a unified regulator, distinct from the central bank of the
country, in a phased manner to overcome supervisory difficulties and reduce compliance
costs. Improve corporate governance primarily by increasing board independence and
accountability. Accelerate the creation of world class supporting infrastructure (e.g.,
payments, asset reconstruction companies (ARCs), credit bureaus, back-office utilities) to
help the banking sector focus on core activities. Enable labour reforms, focusing on
enriching human capital, to help public sector and old private banks become competitive.

Need For Decisive Action by Bank Managements


Management imperatives will differ by bank. However, there will be common
themes across classes of banks: PSBs need to fundamentally strengthen institutional skill
levels especially in sales and marketing, service operations, risk management and the
overall organisational performance ethic. The last, i.e., strengthening human capital will
be the single biggest challenge. Old private sector banks also have the need to
fundamentally strengthen skill levels. However, even more imperative is their need to
examine their participation in the Indian banking sector and their ability to remain
independent in the light of the discontinuities in the sector. New private banks could
reach the next level of their growth in the Indian banking sector by continuing to innovate
and develop differentiated business models to profitably serve segments like the rural/low
income segments; actively adopting acquisitions as a means to grow and reaching the
next level of performance in their service platforms.

Attracting, developing and retaining more leadership capacity would be key to


achieving this and would pose the biggest challenge. Foreign banks committed to making
a play in India will need to adopt alternative approaches to win the “race for the
customer” and build a value-creating customer franchise in advance of regulations
potentially. At the same time, they should stay in the game for potential acquisition
opportunities as and when they appear in the near term. Maintaining a fundamentally
long-term value-creation mindset will be their greatest challenge. The extent to which
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Indian policy makers and bank managements develop and execute such a clear and
complementary agenda to tackle emerging discontinuities will lay the foundations for a
high-performing sector in the near future

Scope for Future Research


There is a wide scope to extend this study in the future. Future researchers may
continue the same study or they can study by taking all the private sector banks or public
sector banks. The study may be done as a world wide study to bring about the potential of
the bank industry.

Conclusion
The last decade has seen many positive developments in the Indian banking
sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of
Finance and related government and financial sector regulatory entities, have made
several notable efforts to improve regulation in the sector. The sector now compares
favourably with banking sectors in the region on metrics like growth, profitability and
non-performing assets (NPAs). A few banks have established an outstanding track record
of innovation, growth and value creation. This is reflected in their market valuation.
However, improved regulations, innovation, growth and value creation in the sector
remain limited to a small part of it. The cost of banking intermediation in India is higher
and bank penetration is far lower than in other markets. India’s banking industry must
strengthen itself significantly if it has to support the modern and vibrant economy which
India aspires to be. While the onus for this change lies mainly with bank managements,
an enabling policy and regulatory framework will also be critical to their success. The
failure to respond to changing market realities has stunted the development of the
financial sector in many developing countries. A weak banking structure has been unable
to fuel continued growth, which has harmed the long-term health of their economies. In
this “white paper”, we emphasise the need to act both decisively and quickly to build an
enabling, rather than a limiting, banking sector in India.

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