Determinants of bank selection in Delhi: a factor analysis.

Rao, A. Sajeevan ; Sharma, R.K.

Introduction

In India, the growth of banking industry was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act, 1949, as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.

During those days, public had lesser confidence in the banks. As a result deposit mobilization was slow. Earlier, savings bank facility provided by the postal department was comparatively safer. Moreover, funds were largely given to traders.

Government took major steps in the Indian banking sector reform after independence. In 1955, it nationalized the Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed the State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and state governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July. In 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. Fourteen major commercial banks in the country were nationalized. Second phase of nationalization of Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80 per cent of the banking segment in India under government ownership.

Major development, occurred in 1991, under the chairmanship of M. Narasimham Rao, when a committee was set up in his name which worked for the liberalization of banking practices. The country got flooded with foreign banks and their ATM stations. Efforts started being put to give a satisfactory service to customers. Phone banking and net banking were introduced. The entire system became more convenient and swift. Time became more important than money.

With years, banks also started customizing themselves. The Indian banking industry is now passing through a phase of customers' market. Customers have more options in choosing their banks. A competition has been established within the banks operating in India. With stiff competition and advancement of technology, the services provided by banks have become more easy and convenient.

In this paper, the researchers have tried to study the attributes a bank has to provide in Indian scenario, or in other words an assessment is made about the variables that attract a customer to choose the services of a particular bank.

Literature Review

A study conducted by Erdener Kaynak, and, Talha D. Harcar (2005) revealed that banks were evaluated more positively by customers in areas such as extra services offered by the bank, image of the bank, and convenience of the bank. James F. Devlin and Philip Gerrard (2004) presented an analysis of trends in the relative importance of choice criteria in respect of selecting a retail bank. They pointed out that the influence of recommendations has increased significantly and is now the most important choice criterion. Other factors which have also increased in importance are the offering of incentives, having a wide product range, and economic factors such as interest rate paid and fees and charges levied. Locational factors, such as choosing a bank close to home or workplace, have decreased significantly in importance in motivating choice. Certain criteria have remained broadly constant through time. Amongst them, and perhaps surprisingly, is choosing on the basis of a bank's image and reputation and expectations about level of service.

Ron Shevlin and Catherine Graeber (2001) explored the various factors that influence a customer in choosing a particular bank. They pointed out that ATM (Automated Teller Machine) was the primary reason for a customers' choice for a bank and further branch visit and referral from friends and relatives were most prevalent sources of influence in Texas, USA. Findings of Mohammed Almossawi (2001) reveal that the chief factors determining college students' bank selection are: bank's reputation, availability of parking space near the bank, friendliness of bank personnel, and availability and location of automated teller machines (ATM). Findings of Huu Phuong Ta, Kar Yir Har (2000) indicate that undergraduates place a great emphasis on the pricing and product dimensions of bank services. The results are of interest to bank managers because they provide information on the importance of the selection criteria as well as areas of strengths and weaknesses of banks. Burc Ulengin's (1998) findings conclude that respondents prefer the extended loyalty programmes, the continuous information flow from the bank, the offsite ATMs, the maximum five-minute of waiting time in the branches, and a simple application for all the accounts the bank offers. Carolyn Kennington, Jeanne Hill, and Anna Rakowska (1996) point out that the most important variables influencing customer choice are reputation price and service. Josee Bloemer, Kode Ruyter, and Pascel Peter (1998) investigate how image, perceived service quality, and satisfaction determine loyalty in retail banking. The key findings by Laroche, Rosenblatt, and Manning (1986) on diverse demographic segments include importance of location convenience, speed of service, competence, and friendliness of bank employees. Meidan (1976) reveals that about 90 per cent of the respondents bank at the branch nearest to there home and place of work. Convenience, in terms of location, is also found to be the single most important factor for selecting a bank.

Objectives of the study

The paper attempts to identify the various factors that affect the choice of customer in choosing a bank, namely, ATM facility, friendliness of employees, debit card facility, loan facility, parking facility, speed of services, loyalty programme, internet banking facility, rate of Interest, bank timing, convenient display of counters, free home delivery of drafts, phone banking facility, minimum account balance and bank charges, overdraft facility, brand name, nearness to home or workplace, security arrangement, locker facility, Demat facility, referral from friends and relatives, computerization of the bank, continuous flow of information from bank, and simple application for all transactions.

A statistical approach--Factor Analysis--has been used for the study. Finally, practical implications concerning the customers' choice of bank have been highlighted.

Methodology and Data Collection

For the purpose of the study primary data were collected from the account holder of two nationalized banks, namely State Bank of India, and Punjab National bank, and two private banks, namely ICICI and Standard Chartered Bank in central Delhi area with the help of a well-drafted questionnaire. A sample of 100 respondents was selected by following the non-probabilistic convenience sampling, as it is appropriate for exploratory studies. Further, convenience sampling method was used for two reasons, firstly, respondents are selected because they happen to be in, right place at the right time and secondly, convenience sampling technique is not recommended for descriptive or casual research but they can be in exploratory research for generating ideas (Malhotra 2005). According to the chosen methodological research approach, the quantitative data were analyzed by using factor analysis with SPSS Software 10.1 version. The survey was conducted during the period of February to April 2006.

Previous studies on banking as well as theories of consumer behaviour have shown demographics to be a factor, influencing the adoption of technology-based product and services.

The demographic characteristics of the respondents depict that the majority of the respondents (51 per cent) were students followed by service class people (36 per cent), and the remaining (13 per cent) were business class. It was further revealed that 52 per cent of the respondents were male and 48 per cent female.

Factor Analysis

Factor analysis is a data reduction statistical technique that allows simplifying the correlational relationships between a number of continuous variables. Exploratory factor analysis is used in order to identify constructs and investigate relationships among key interval scaled questions regarding reasons for choosing a bank's services from 100 respondents. To test, the following steps were taken:

* The correlation matrices were computed. It revealed that there is enough correlation to go ahead for factor analysis.

* Kaiser-Meyer-Olkin Measure of Sampling Adequacy (MSA) for individual variance was studied. It found sufficient correlation for all the variables (Table 1).

* To test the sampling adequacy, Kaiser-Meyer-Olkin MSA was computed and found to be 0.592. It indicates that that the sample is good enough far sampling.

* The overall significance of correlation matrices was tested with Barlett Test of Sphericity providing support for the validity of the factor analysis of the data set. (Table 1).

After the standards indicated that the data are suitable for factor analysis, Principal Components Analysis was employed for extracting the data, which allowed determining the factor underlying the relationship between a number of variables. The Total Variable Explained suggests that it extracts one factor accounts for 68.8 per cent of the variance of the relationship between variables (Table 3).

Loading on factors can be positive or negative. A negative loading indicates that this variable has an inverse relationship with the rest of the factors. The higher the loading the more important the factor. However, Comrey (1973: 1346) suggested that anything above 0.44 could be considered salient, with increased loading becoming more vital in determining the factor. All the loadings in the research are positive (Table 2).

Rotation is necessary when extraction technique suggests that there are two or more factors. The rotation of factors is designed to give an idea of how the factors initially extracted differ from each other and to provide a clear picture of which item loads on which factor.

There are only eight factors, each having Eigen value exceeding 1 for mobile banking drivers. The Eigen values for eight factors were 5.289, 2.683, 2.231, 1.757, 1.518, 1.345, 1.242, and 1.142 respectively (Table 3). The percentage of total variance is used as an index to determine how well the total factor solution accounts for what the variables together represent. The index for present solution accounts for 68.824 per cent of the total variations for choosing a bank's services. It is pretty good extraction as it can economize on the number of factors (from twenty-five it has reduced to eight factors) while we have lost 31.176 per cent information content for factors in choosing a bank. The percentage of variance explained by factor one to eight for factors effecting in choosing a bank are 21.157, 10.733, 8.932, 7.027, 6.070, 5.379, 4.968, and 4.568 respectively (Table 3). Table 2 tells us that after eight factors are extracted and retained, the communality is 0.669 for variable 1, 0.771 for variable 2, and so on. It means that 67 per cent of the variance of variable 1 is being captured by the eight extracted factors together. The proportion of variance in any one of the original variables, which is being captured by the extracted factor, is known as communality (Nargundkar 2002).

Large communalities indicate that a large number of variance has been accounted for by the factor solution. Varimax rotated factor analytic results for factor influencing the choice of a bank is shown in Table 4.

The eight factors shown in Table 4 have been discussed below:

Factor 1: Customization

It is the most vital factor, which explains 21.15 per cent of the variation. Customization factors such as speed in services (0.712), convenient display of counters (0.716), continuous flow of information (0.787), rate of interest (0.0694), emerge with good positive correlations. This yields a great influence while choosing a banking service.

Factor 2: Convenience

There are three loads to this factor. The factor 'Accessibility' is the second important factor, which accounts for nearly 10.73 per cent of the variations. The factors Internet banking facility (0.654), free delivery of demand draft (0.819), and phone banking (0.804) signify that consumers want convenience in banking and they want to save time.

Factor 3: Value-added Services

This factor has two significant variables which have 8.92 per cent of the variation, and this comprises two loadings depicting the value-added services required by the consumers. The factor loading of 0.809 and 0.750 representing locker facility and Demat account respectively show that value-added services are also a significant factor in choosing a bank.

Factor 4: Accessibility

The next important factor, which carry a loading of 7.03 per cent of the variation comprises two loadings--debit card facility, and ATM facility--with rotated value of 0.818 and 0.796, signifying that easy accessibility to their bank accounts is a vital factor in choosing a bank.

Factor 5: Generalization

Generalization is the next factor, which influences a consumer in choosing a bank and has 6.07 per cent of the variation. This factor has three loadings, namely simple application for all the accounts (0.797), continuous flow of information from the bank (0.537), and overdraft (0.525).

Factor 6: Transaction cost

The factor 'Transaction cost' is the next important factor, which accounts for nearly 5.38 per cent of the variations. There is only one load to this factor. The factor Bank charges (0.816) signifies that bank charges are also the vital factor in choosing a particular bank.

Factor 7: Brand name

This factor has three significant loads, which has 4.96 per cent of the variation, and this comprises of three loadings depicting the brand name preferred by the consumers. The factor loading of 0.716, 0.703, and 0.508 representing brand name, centralization of accounts, and minimum balance account respectively show that brand name is also a significant factor in choosing a bank.

Factor 8: Reliability

This last factor has two loads, which has 4.56 per cent of the variation and this comprises loan facility (0.702) and security arrangements in the bank (0.720). This shows consumers expect the bank to be more reliable.

Conclusion and Implications

To increase the clientele and business volume banks had to set up many kinds of hi-tech services such as ATM, phone banking, internet banking, computerization, and so on. In turn the banks have to understand the customer needs so as to take care of its customers' satisfaction. It is clear from the research conducted that banks need to provide tailor-made service for it customers. In today's era customers require more and more personalized and value-added services like ATM, e-banking, phone banking, etc. All these factors imply that they do not want to spend their valuable time waiting for their turn in a queue. Customers' also want that banks should improve upon the display of counters which again implies that customers' want speed in services. Apart from this customers' also want easy access to their accounts and want that there should be less paper work. Bankers should also provide that kind of service where they charge nominal fee for the transactions, better rate of interest, and low minimum balance so as to increase the number of clientele. Bankers should also try to build good brand image, as many of the respondents prefer to have accounts in renowned banks. Security arrangement should also be good so that customers' can be assured of safety of their money. Another factor which influences a customer to choose a bank is dependability, which implies how much a customer can depend on a bank for a services e.g. loan facility. Bankers have to keep in mind that customers' do not open an account only for saving money but also want other services like locker facility, car loan, personal loan, home loan etc.

Scope for further Research

As the survey conducted was only confined to Delhi region results may vary if research is in conducted in other parts of India. If the survey is conducted all over India, the result may substantially differ. Research conducted in an urban area may not yield the same result if the survey is conducted in a rural area. The main limitation of the survey was that more of student and service-class respondents constituted the demography and the business-class respondents were less in number. So if more of business-class respondents are considered the result might differ.

References

Almossawi, Mohammed, 'Bank selection criteria employed by college students in Bahrain: An empirical analysis', International Journal of Bank Marketing, Vol. 19, No. 3, June 2001, pp. 115-25.

Comrey, A.L., A First Course in Factor Analysis, San Diego: Academic Press, 1973.

Devlin, James F., and Philip Gerrard, 'Choice criteria in retail banking: An analysis of recent trends, Journal of Strategic Marketing, Vol. 12, No. 1, March 2004, pp. 13-27.

Huu Phuong Ta, and Kar Yir Har, 'A Study of Bank Selection Decision in Singapore using the Analytical Hierarchy Process', International Journal of Bank Marketing, Vol. 18, No. 4, July 2000, pp. 170-80.

Josee Bloemer, Kode Ruyter, and Pascal Peter, 'Investigating Drivers of Bank Loyalty: The Complex Relation between Image, Service Quality and Satisfaction', International Journal of Bank Marketing, Vol. 16, No. 7, December 1998, pp. 276-86.

Kaynak, Erdener, and Talha D. Harcar, 'American consumers' attitudes towards commercial banks: A comparison of local and national bank customers by use of geodemographic segmentation', International Journal of Bank Marketing, Vol. 23, No. 1, January 2005, pp. 73-89.

Kennington, Carolyn, Jeanne Hill, and Anna Rakowska, 'Customer Selection Criteria for Banks in Poland', International Journal of Bank Marketing, Vol. 14, No. 4, December 1996, pp. 12-21.

Laroche, M., J.A. Rosenblatt, and T. Manning, 'Services used and factors considered important in selecting a bank: An investigation across diverse demographic segments', The International Journal of Bank Marketing, Vol. 4, No. 1, 1986, pp. 35-55.

Malhotra, N.K., Marketing Research: An Applied Orientation, New Delhi: Pearson Education, 2005.

Meidan, A., 'Branch managers attitude on bank objectives and operations', Proceedings of the European Academy of Advanced Research in Marketing Conference, Paris, France: Insead, 26-29 May 1976, pp. 215-28.

Miller, Robert L., Ciaran Acton, Deiredre A. Fullerton, and John Maltby, SPSS for Social Scientists, New York: Palgrave Macmillan, 2002.

Nargundkar, Rajendra, Marketing Research: Text and Cases, New Delhi: Tata McGraw Hill, 2002.

Shevlin, Ron. and Catherine Graeber, 'What Influences Consumers' Choice of Banks?', Forrester Researc, Inc., October 2001.

Ulengin, Burc, 'Using hierarchical information integration to examin customer preferences in banking', International Journal of Banking, Vol. 16, No. 5, September 1998, pp. 202-10.

http://economics.about.com/cs/finance/a/india_banking.htm http://www.india-today.com/btoday/netexcl/net20040912/3.html

A. Sajeevan Rao, Assistant Professor, Asia-Pacific Institute of Management, New Delhi--110025, India.

R. K. Sharma, Assistant Professor, Lalita Devi Institute of Management and Science, New Delhi--110047, India.

Table 1: KMO and Bartlett's Test

Kaiser-Meyer-Olkin 0.592
Measure of Sampling
Adequacy.

Bartlett's Test of Approx. 506.846
Sphericlty Chi-Square

 df 300

 Sig. 0.000

Table 2: Extraction Method: Principal Component
Analysis

 Communalities

 Initial Extraction

Loan facility 1.000 0.669

Courtesy and friendliness 1.000 0.771
of the employees

Debit card facility 1.000 0.757

ATM facility 1.000 0.747

Parking facility 1.000 0.476

Speed in services 1.000 0.719

Internet facility 1.000 0.698

Rate of Interest 1.000 0.746

Bank timings 1.000 0.636

Convenient display of 1.000 0.689
counters

Free delivery of overdraft 1.000 0.781

Phone banking 1.000 0.851

Minimum account balance 1.000 0.697

Bank charges 1.000 0.726

Overdraft facility 1.000 0.556

Location of the bank 1.000 0.709

Brand of the bank 1.000 0.674

Centralization of accounts 1.000 0.682

Security arrangements in 1.000 0.607
the bank

Locker facility 1.000 0.683

Demat account 1.000 0.725

Referral from friends and 1.000 0.568
family

Loyalty programmes 1.000 0.537

Continuous flow of 1.000 0.692
information

Simple application for all 1.000 0.809
accounts

Table 3: Extraction Method: Principal Component Analysis.

 Total Variance Explained

 Extraction Sums of Squared
 Initial Eigenvalues Loadings

 Com- % Vari- Cumula- % Vari- Cumula-
ponent Total ance tive % Total ance tive %

 1 5.289 21.157 21.157 5.289 21.157 21.157
 2 2.683 10.733 31.890 2.683 10.733 31.890
 3 2.231 8.923 40.812 2.231 8.923 40.812
 4 1.757 7.027 47.839 1.757 7.027 47.839
 5 1.518 6.070 53.909 1.518 6.070 53.909
 6 1.345 5.379 59.289 1.345 5.379 59.289
 7 1.242 4.968 64.256 1.242 4.968 64.256
 8 1.142 4.568 68.824 1.142 4.568 68.824
 9 0.970 3.880 72.705
 10 0.866 3.463 76.168
 11 0.840 3.362 79.530
 12 0.732 2.927 82.457
 13 0.656 2.623 85.080
 14 0.598 2.393 87.472
 15 0.529 2.115 89.587
 16 0.511 2.042 91.629
 17 0.466 1.864 93.493
 18 0.349 1.397 94.891
 19 0.303 1.211 96.102
 20 0.235 0.939 97.042
 21 0.233 0.933 97.975
 22 0.163 0.651 98.626
 23 0.142 0.570 99.196
 24 0.114 0.455 99.652
 25 8.71E-02 0.348 100.000

 Total Variance Explained

 Rotation Sums of Squared
 Loadings

 Com- % Vari- Cumula-
ponent Total ance tive %

 1 3.130 12.522 12.522
 2 2.386 9.545 22.066
 3 2.382 9.529 31.595
 4 2.324 9.296 40.891
 5 1.904 7.615 48.506
 6 1.858 7.434 55.939
 7 1.728 6.911 62.850
 8 1.494 5.974 68.824
 9
 10
 11
 12
 13
 14
 15
 16
 17
 18
 19
 20
 21
 22
 23
 24
 25

Table 4: Rotated Component Matrix

 Components

 1 2

Loan facility 0.145 -5.019E-02

Courtesy and friendliness 0.787 8.551E-02
of the employees

Debit card facility 4.554E-02 -7.468E-02

ATM facility -0.131 -1.492E-02

Parking facility 8.623E-02 0.314

Speed in services 0.712 0.338

Internet facility 0.175 0.654

Rate of Interest 0.694 0.263

Bank timings 0.559 -2.993E-02

Convenient display of 0.716 0.164
counters

Free delivery of 0.207 0.819
overdraft

Phone banking 0.253 0.804

Minimum account balance 0.191 0.175

Bank charges 0.108 9.623E-02

Overdraft facility 8.054E-02 0.183

location of the bank 0.377 0.297

Brand of the bank 8.336E-02 -0.121

Centralization of -0.130 0.127
accounts

Security arrangements -0.161 7.43E-02
in the bank

Locker facility -5.52E-02 -6.148E-02

Demat account -2.389E-02 5.749E-02

Referral from friends 0.163 2.903E-02
and family

Loyalty programmes -6.901E-02 0.184

Continuous flow of 0.387 0.269
information

Simple application for 0.287 6.178E-02
all accounts

 Components

 3 4

Loan facility 0.284 0.175

Courtesy and friendliness -0.214 0.236
of the employees

Debit card facility 9.530E-02 0.818

ATM facility -0.111 0.796

Parking facility 0.211 0.468

Speed in services 6.158E-02 -0.171

Internet facility 0.306 -1.522E-02

Rate of Interest 0.183 -0.232

Bank timings -0.153 0.212

Convenient display of -5.991E-02 -2.537E-03
counters

Free delivery of -1.315E-02 -7.125E-02
overdraft

Phone banking -0.308 0.132

Minimum account balance -0.426 0.116

Bank charges -0.122 1.387E-02

Overdraft facility 0.155 0.290

location of the bank -0.447 0.327

Brand of the bank -3.059E-02 8.481E-02

Centralization of 0.103 7.900E-02
accounts

Security arrangements -3.410E-02 -0.116
in the bank

Locker facility 0.809 -3.203E-02

Demat account 0.750 0.290

Referral from friends 0.262 0.476
and family

Loyalty programmes 0.408 7.276E-02

Continuous flow of -0.189 0.129
information

Simple application for -0.126 -5.888E-03
all accounts

 Components

 5 6

Loan facility -0.153 7.090E-02

Courtesy and friendliness 9.624E-02 -0.104
of the employees

Debit card facility 7.273E-03 0.264

ATM facility 0.158 -8.191E-02

Parking facility -3.312E-03 -0.278

Speed in services 8.068E-02 8.162E-02

Internet facility 8.593E-02 0.310

Rate of Interest -6.115E-02 0.284

Bank timings 0.428 7.421E-02

Convenient display of 0.259 -1.768E-02
counters

Free delivery of 0.177 -7.880E-02
overdraft

Phone banking 6.704E-02 9.292E-02

Minimum account balance 5.194E-04 0.415

Bank charges 8.969E-02 0.816

Overdraft facility 0.525 0.310

location of the bank 0.169 0.223

Brand of the bank 4.812E-02 0.235

Centralization of -3.598E-02 -0.265
accounts

Security arrangements 0.126 -3.400E-02
in the bank

Locker facility 5.503E-02 -1.026E-02

Demat account -0.156 -0.199

Referral from friends 0.215 -0.393
and family

Loyalty programmes 0.462 0.300

Continuous flow of 0.537 0.214
information

Simple application for 0.797 -0.209
all accounts

 Components

 7 8

Loan facility -0.117 0.702

Courtesy and friendliness -0.142 4.904E-02
of the employees

Debit card facility -2.846E-02 8.925E-03

ATM facility 0.209 9.442E-02

Parking facility -3.586E-02 -0.169

Speed in services 0.206 9.365E-02

Internet facility 5.171E-02 0.200

Rate of Interest 1.326E-02 -0.153

Bank timings -0.121 0.227

Convenient display of 7.427E-02 -0.271
counters

Free delivery of 4.019E-02 -0.152
overdraft

Phone banking -5.531E-02 0.109

Minimum account balance 0.508 -7.079E-02

Bank charges 0.121 3.398E-02

Overdraft facility -0.108 -0.156

location of the bank 0.296 7.900E-02

Brand of the bank 0.761 -9.117E-02

Centralization of 0.703 0.257
accounts

Security arrangements 0.158 0.720
in the bank

Locker facility -2.961E-02 0.128

Demat account 0.106 1.203E-02

Referral from friends 0.211 5.476E-03
and family

Loyalty programmes -0.143 5.117E-02

Continuous flow of 7.422E-02 0.280
information

Simple application for 0.159 -4.444E-02
all accounts