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Comparative Analysis on Perceived Service Quality of Banks and Non-Banking

Financial Companies (NBFCs) – Evidence from Commercial Vehicle finance

Article  in  International Journal of Engineering and Technology · December 2017

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 International Journal of Current Trends in Engineering & Technology
ISSN: 2395-3152
Volume: 03, Issue: 06 (NOVEMBER -DECEMBER, 2017)

Comparative Analysis on Perceived Service Quality of Banks and Non-Banking

Financial Companies (NBFCs) – Evidence from Commercial Vehicle finance
customers
Rajendran. R Ashok Kumar. R Nataraj. B
Assistant professor (S.G) Ph.D research scholar Assistant Professor
Department of Business Manonmaniam Sundaranar Great Lakes Institute of
Administration University Management
Annamalai University Tirunelveli-627012, India Chennai – 600041, India
Chidambaram- 608002, India ashoki9684@gmail.com bnatarajapk@gmail.com
rajendran_au@yahoo.co.in

Abstract: - The aim of this research is to compare and shares, stocks and chit business. The operations of the
contrast the customer perceived service quality of banks non-banking financial companies are regulated by
and non-banking financial services. The Non-banking Reserve Bank of India. The different type of NBFCs in
financial services have become an integral part of the India includes.
vehicle finance system. These NBFCs and Banks inclusively 1. Asset Finance Companies (AFCs)
provide necessary loan for the vehicle finance customers. 2. Investment Companies (IC)
The research study was conducted in Namakkal District, 3. Loan Companies (LC)
Tamil Nadu. Structured questionnaire was developed with 4. Infrastructure Finance Companies (IFC)
the help of established scales. The questionnaire was then 5. Gold Loan NBFCs
subjected to questionnaire interview method. The
customers of the commercial vehicle loan in Namakkal The Asset Finance Companies is a type of NBFC that is
involved in financing the physical assets such as
district was the universe of the research study. Snowball
automobiles, tractors, generators etc. The primary
sampling method was employed to select the sample business of the asset financing companies is that they
respondents. A sample of 247 respondents was identified involve in financing the real or physical assets supporting
and the primary data was collected from them. The results economic activities. The primary business of investment
of the research study reveal that there is a significant companies is to raise funds through securities. The major
difference between expectation and performance of the business of the loan companies is to provide advances
banks and non-banking financial services. The research also that are not covered by asset financing companies. The
revealed that there is significant difference in customer major mode of operation of the infrastructure finance
expectation of the banking and non-banking financial companies is that they involve in long term debt to
companies. The relative importance of various dimensions finance the infrastructure projects. These companies can
of service quality was also analyzed. It was found that raise funds by issuing bonds with minimum five years of
responsiveness and reliability was the most important maturity. These companies can accept investment from
companies and public who are having long term
service quality dimension in case of banks whereas
investment plans. The gold loan NBFCs provides loan
assurance is the primary dimension in case of non-banking
against the gold deposited as collateral to them. Thus the
financial services. The service quality gaps in banks and presence of non-banking financial services in inevitable in
non-banking financial companies were identified in this Indian economy. The banks also play a vital role in
research. The study will be useful for academicians, providing economic stability of the nation. The banks
bankers, commercial vehicle finance customers and the accept deposits and provide advances for the operation of
borrowers. This research can be used to understand the business and other economic activities. Though the banks
perception of service quality among customers of banking and non-banking financial services seem to be similar
and non-banking financial companies. The policy makers there are some fundamental differences in both of them.
can develop proper strategies to retain the existing The difference between the banks and non-banking
customers and attract the new customers. financial services includes, A NBFC cannot accept demand
deposits, whereas a bank can accept and issue demand
Key words: Non-Banking Financial Companies, Service draft. An NBFC is not a part of payment and settlement
Quality, Vehicle Loan, Gap analysis. system, whereas a bank is actively involved in payment
and settlement system as such. A NBFC cannot issue
1. INTRODUCTION cheques drawn on itself and it is not necessary for the
The Non-Banking Financial Companies (NBFCs) is a NBFCs to maintain the ratios prescribed by Reserve Bank
financial institution registered under companies act, of India such as cash reserve ratio, statutory liquidity
1956. The non-banking financial companies are involved ratio etc. Whereas a bank has to strictly maintain the
in the business of advances and loans acquisition of reserve ratios as prescribed by RBI.
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 International Journal of Current Trends in Engineering & Technology
ISSN: 2395-3152
Volume: 03, Issue: 06 (NOVEMBER -DECEMBER, 2017)
1.1 Need For the Study the customers namely, repeat- passive, rational- active, no
Being an important economic hub of the country, the purchase and relational- dependent.
Namakkal district requires commercial vehicles for Kumar M et al., (2010) in the article titled “Comparative
transportation of goods. The need for transportation has evaluation of critical factors in delivering service quality
increased the demand of commercial vehicles in the of banks” analyzed the difference in service quality of
district. The purchase of commercial vehicles may require conventional and Islamic banks. A sample size of 308
initial finances for the procurement of the. The major bank customers consisting of Islamic banks and
lenders for commercial vehicles are banks and non- conventional banks were used in the research study, the
banking financial companies. These companies should results revealed four critical dimension of service quality
understand the mind of their customers and their such as tangibility, reliability, competence and
perceived service quality in case of banks. The present convenience. The competence and convenience were
study investigates the gap in service quality and compares found to contribute 72 percent of the service quality gap
the perception of service quality in the minds of bank both in case of Islamic banks and conventional banks.
customers and nonbanking financial services customers.
3. RESEARCH METHODOLOGY
1.2 Scope of the Study Descriptive research is followed in the research study.
The scope of the study is limited to Non-banking financial Both primary and secondary data is used in the research
services of Namakkal district, Tamil Nadu. The research study. The primary data required for the research was
study especially focuses on the asset financing companies collected with the help of the research tool questionnaire.
that are involved in financing the commercial vehicles. A structured questionnaire was developed with the help
The research did not cover other NBFCs like gold loan of established scales published in previous research
NBFCs, Investment Companies, Infrastructure finance articles. The secondary data required for the research is
companies etc., collected from websites, periodicals, journals, etc. A 22
item questionnaire was developed with the help of RATER
The research study covers the dimensions of service model developed by Zeithaml et al., (1988) was used in
quality such as Reliability, Assurance, Tangibles, Empathy this research. The questionnaire was adopted as per the
and Responsiveness (RATER) model developed by requirements of the commercial vehicle finance
Zeithaml et al., (1988). borrowers. The questionnaire was divided in to five parts,
2. LITERATURE REVIEW namely Reliability, Assurance, Tangibles, Empathy and
Carman J M (1990) tested the service quality dimensions Responsiveness. The questionnaire was then subjected to
in retail outlets. The authors employed certain variation questionnaire interview method. Snowball sampling
in the service quality model and used them in different method was used in the research to select the sample
service settings. The author used the service quality respondents. A sample of 247 respondents were used in
dimensions in tire stores, placement centers and dental this research out of which 150 sample respondents were
clinic with little modifications in the dimensions of service using banks as their source of finance for their
quality. In case of tire store the author used security, commercial vehicles and 97 sample respondents were
courtesy and access as modified dimension, in case of using non-banking financial companies as their source of
placement center the author used security and personal finance for their commercial vehicles. The research tools
attention as dimension, where as in case of dental clinic used in the study includes independent sample t test, Gap
the author used convenience and cost as dimensions of analysis, percentage analysis etc. The service quality
service quality. dimension includes reliability, assurance, tangibles,
Johnson M D et al., (1996) investigated the satisfaction empathy and responsiveness. The reliability in the model
barometers of Swedish customers. The authors compared will measure the service provider’s ability to perform the
the services and non-services bank loan with respect to promised service accurately. The assurance in the RATER
the predictive power of the customers. It was finally model will measure the knowledge and courtesy of the
concluded in the research article that the predictive employees and their ability to convey trust in the minds of
power of the customers is different in case of loans and the customers. The appearance of the service providers’
non-services. work place, equipment and communication materials will
be covered in the third dimension of service quality that is
Beckett, A et al., (2000) proposed a model to tangibles. The fourth dimension of the service quality that
demonstrate the consumer behavior while buying is empathy shows how the employees of the organization
financial products. The theoretical insights generated by can put themselves in the position of the customers and
the proposed model proposed were then used in view their issues clearly. The last dimension of the service
qualitative research. A focus group discussion on the quality measures the responsiveness, the willingness of
consumers' attitudes to their financial providers was then the employees to help customers and to provide the
conducted to explore the insights on the financial necessary and sufficient service to them. The 22 item
behavior. The authors identified four different financial scale in the questionnaire includes five items from
behavior with respect to involvement and confidence of reliability, 4 items from assurance, four items from
tangibles, five items from empathy and four items from

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 International Journal of Current Trends in Engineering & Technology
ISSN: 2395-3152
Volume: 03, Issue: 06 (NOVEMBER -DECEMBER, 2017)
responsiveness. Likert’s seven point scale is used in the and overall perception of service quality was found to be
questionnaire with 1 being the lowest score for strongly 5.76 and 4.36 respectively. The t-statistic results revealed
disagree and 7 being the highest score for strongly agree. that there is a significant difference between the expected
and perceived service quality at 1 percent level of
significance. Table 2 shows the difference in overall
expectation and overall perception of service quality for
Banks and Non-Banking financial services. To analyze the
difference in expectation and perception of each
dimension of service quality in case of banks and NBFCs,
the mean score of each construct was calculated, the
service quality gap was then calculated by subtracting the
perceived service quality dimension and the expected
service quality dimension. The results of the t- test
revealed that there is a significant difference in expected
and perceived service quality of all the dimensions of
service quality both in case of banks and NBFCs. The table
3 shows the average score of the dimensions of service
quality, the gap score and the t- statistic results of the
same.
Figure 1: Figure showing conceptual model of the
proposed research Table 3: t- Statistic results SERVQUAL Dimensions within
Lender type.
After collecting the data, the items in the questionnaire
was subjected to reliability analysis with the help of
Cronbach’s alpha. All the constructs in the questionnaire
had a Cronbach’s alpha of reliability value greater than
0.70, which means that the reliability is established.
4. ANALYSIS and INTERPRETATION
The Table 1 shows the statements used in the
questionnaire, mean score of expectation with each, mean
score of perception and the gap between perception and
expectation. The commercial vehicle finance customers’
expectations of banks are high. The average score of
expectation from banks was found to be 6.35 whereas the
expectations of the commercial vehicle finance customers
in case of NBFCs are found to be 5.57. A two tailed t- test Table 4: t- Statistic results difference in SERVQUAL
was employed to analyze the mean difference between Dimensions between Banks and NBFCs
the expectation of Banks and NBFCs, the results revealed
that there is a significant difference between expectation
of bank customers and expectation of NBFCs customers,
this shows that there is difference in expectation of bank
and NBFC customers.
Table 2: t- Statistic results of difference between overall
expectation and overall perception of Banks and NBFCs.

To analyze the mean difference between overall

expectation and overall perception, student’s t- statistic
test was employed. The overall expectation from banks
was found to be 6.35 and the overall perception of the
banks was 4.44, the t-statistic value was found to be -
8.852, which is above the critical value with 1 percent To compare the service of banks and non-banking
level of significance. Similarly in case of Non-banking financial services, the average score of gap in the service
financial services, the difference in overall expectation quality dimensions were used, the gap in service quality
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 International Journal of Current Trends in Engineering & Technology
ISSN: 2395-3152
Volume: 03, Issue: 06 (NOVEMBER -DECEMBER, 2017)
was found to be higher in banks when compared to the current account holders, credit card holders, etc. Cross
NBFCs. This gap score is then subjected to statistical sectional data is used in the research study; a longitudinal
analysis, which revealed that there is significant data can reveal much more insights about the customers’
difference between the expected and perceived service perception on service quality gaps.
quality of banks and NBFCs. The table 4 displays the
service quality gap of each dimension and the t-statistic 6. CONCLUSION
results of the banks and NBFCs. To understand the The service quality gaps in banks and non-banking
relative importance of each dimension of service quality financial companies were identified in this research. It
in case banks and non-banking financial services and the was found that the service quality gap for banks is higher
difference between the mean expected and mean when compared to the NBFCs. The study will be useful for
perceived score was used. The difference between academicians, bankers, commercial vehicle finance
perceived service quality and expected service quality customers and the borrowers. This research can be used
was identified to be the gap and the gaps were then rank to understand the perception of service quality among
ordered. customers of banking and non-banking financial
companies. The policy makers can develop appropriate
4.1 DISCUSSION strategies to retain the existing customers and attract the
It was found that in case of banks, the responsiveness was new customers. The dominance analysis to predict the
found to be in a wider gap of negative 2.66 followed by SERVQUAL gap indicates that the difference between
assurance with a gap score of -2.49. The dimensions banks and non-banking financial services is in terms of
reliability, empathy and tangibles were relatively ranked service quality dimensions. The responsiveness and
third, fourth and fifth dimensions with a gap score of - assurance are found to be the relatively more dominating
1.87, -1.48 and -1.19 respectively. critical factors in banks, whereas assurance and tangibles
were dominating factors in NBFCs. The dimension
Table 5: Table showing the relative importance of assurance is found to be common in bank and NBFCs and
SERVQUAL Dimensions of Banks if the gap is closed both the customers of banks and
NBFCs can get satisfied in relatively a larger extent. The
dimension assurance is related with human factors. If the
employees can convey trust and confidence in the minds
of the customers they can better serve the customers
leading to closure of the service quality gap.
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 International Journal of Current Trends in Engineering & Technology
ISSN: 2395-3152
Volume: 03, Issue: 06 (NOVEMBER -DECEMBER, 2017)
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Index
Table 1: Comparison of Expectation, Perception and Gap Score of SERVQUAL Dimensions
Item Statements Mean Expectation Mean Perception Gap Score
Banks NBFCs Banks NBFCs Banks NBFCs
Rel1 Timely Delivery of Services 6.39 5.59 4.21 4.38 -2.18
-1.21
Rel2 Sincere interest in solving issues 6.42 5.63 4.89 4.45 -1.53
-1.19
Rel3 Service done Right at first time 6.22 5.33 5.47 4.00 -0.75
-1.34
Rel4 Promises delivered 6.54 5.81 4.03 4.72 -2.51
-1.10
Rel5 Error free records 6.71 6.07 4.31 5.10 -2.4
-0.97
Assur1 Instill confidence 6.34 6.51 3.67 3.77 -2.67
-2.75
Assur2 Feel Safe 6.44 6.66 3.97 4.99 -2.47
-1.67
Assur3 Consistently Courteous 6.38 5.57 4.56 4.36 -1.82
-1.22
Assur4 Knowledge to answer 6.11 5.17 3.13 3.75 -2.98
-1.42
Tan1 Modern Looking 6.01 5.02 5.21 3.52 -0.8
-1.49
Tan2 Visually appealing 6.06 6.09 5.16 4.14 -0.9
-1.96
Tan3 Employees Neat 6.18 5.27 4.81 3.91 -1.37
-1.37
Tan4 Materials visually appealing 6.23 5.35 4.55 4.02 -1.68
-1.33
Emp1 Individual attention 6.88 6.32 4.91 5.48 -1.97
-0.84
Emp2 Convenient operating hours 6.21 5.32 4.11 3.97 -2.1
-1.34
Emp3 Personal attention 6.55 5.83 5.27 4.74 -1.28
-1.09
Emp4 Customers as prime interest 6.03 6.05 5.41 4.07 -0.62
-1.98
Emp5 Specific needs understood 6.23 5.35 4.78 4.02 -1.45
-1.33
Respon1 Convey right delivery of service 6.81 6.22 4.19 5.32 -2.62
-0.89
Respon2 Prompt service to customers 6.22 5.33 3.21 4.00 -3.01
-1.34
Respon3 Willing to help customers 6.48 5.72 4.04 4.58 -2.44
-1.14
Respon4 Never too busy to respond request 6.32 6.48 3.75 4.72 -2.57
-1.76

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