A Comparison of Indian Public and Private Sector Banks Based on Banking Service Quality Model

Abstract

Indian banks are amongst the most technologically advanced in the world, with vast networks of branches empowered by strong banking systems, and their product and channel distribution capabilities are on par with those of the leading banks in the world. The Indian banking system was heavily dominated by nationalised commercial banks until globalisation. The financial regulation and credit controls imposed by the government created a system in which competition was very less. A more competitive banking environment has gradually been achieved through the deregulation measures and permission granted to many private and foreign banks into the Indian banking industry. These changes have also caused a compression of profits and a re-orientation of banking strategy towards quality service provision. The introduction of new private sector banks and foreign banks has decreased margins and revenues to banks. As a result of the heightened competition, bank service quality has become an increasingly important factor in determining market shares and profitability in banking sector. With a high potential in the Indian banking industry, all leading banks are differentiating themselves based on service quality offering. The results of the study show that there is a significant difference between the expectations and the perceptions of banking service quality of the respondents for all of the variables under the Banking Service Quality (BSQ) model. It was found that public banks fared better overall than private/foreign banks in terms of perceptions of banking service quality. This can be explained partially by the experience with private/foreign banks worldwide. With the sudden collapse of some of the oldest and most well-established international banks and the onset of the global financial meltdown, customers have become more cautious about private/foreign banks. At the same time the trust level on public banks have increased. Therefore, private/foreign banks would have to concentrate on meeting customer expectations better.