Determinants of Bank Selection

in Delhi: A Factor Analysis

By
Sajeevan Rao
R.K. Sharma
Presentation by:
Abhishek Prasoon: 04/2009
Nima Wangmu Megeji: 32/2009
Ruchi Sood: 56/2009
Introduction
History of Bank:
Growth was very slow
Periodic failure between 1938-40
Nearly 1100 banks(mostly small)
Streamline the functioning and activities of commercial banks,
Government of India came up with
Banking Companies Act(1949)
Banking Regulation Act(as per Act No.23 of 1965)
Reserve Bank of India vested powers as Central Banking
Authority.
Trust factor: Less in Banking sector as compared to Postal
deposits
Deposit mobilization slow
After Independence
Imperial Bank of India nationalized
1960 SBI was nationalized
1969 Nationalization of 14 major commercial
banks
1980: Second Nationalisation of 7 more Banks
1991: Liberalization of Banking practices
Flooded with foreign banks and ATM’s
Customization
Competition
 Objective
To identify various factors that affect at he choice of
customer in choosing a bank
S. No. Attributes / Variables
1 Loan Facility
Courtesy and Friendliness of the
2 Employees
3 Debit Card Facility
4 ATM Facility
5 Parking Facility
6 Speed in Services
7 Internet Facility
8 Rate of Interest
9 Bank Timings
10 Convenient Display of Counters
11 Free Delivery of Over-Draft
12 Minimum Account Balance
13 Phone Banking
S. No. Attributes / Variables
14 Bank Charges
15 Security Arrangements in the Bank
16 Location of the Bank
17 Brand of the Bank
18 Centralisation of Accounts
19 Over-Draft Facility
20 Locker Facility
21 Demat Account
22 Loyalty Programmes
23 Referral from Friends and Family
24 Continous flow of Information
25 Simple Application for all Accounts
Literature Review
Erdener Kaynak & Talha D.Harcar(2005) revealed
that banks were evaluated positively by customers in
areas like Extra services offered by bank, image of bank
and convenience of bank.
James F Devlin & Philip Gerrord(2004) presented
trend analysis in respect to retail bank selection,
incentives offered, the increase in influence of
recommendations, other factors like wide product range
Importance of Economic factors like interest rate paid
and fees and charges levied increased.
Locational factors such as nearness to home or
workplace have decreased significantly.
Factors like Bank’s image and reputation and
expectations about level of service remained constant.
Ron Shevlin & Catherine Graeber(2001)
Explored factors and pointed out ATM being
the primary reason
Also Branch visit and referral from friends
and relatives were prevalent sources in
Texas,USA.
Mohammed Almossawi(2001) studied that
college students bank selection was Bank’s
reputation, availability of parking space,
friendliness of bank personnel, availability
and location of ATM’s.
HU Phuong Ta, Kar Yir Har(2000) indicated that for undergraduates
pricing and product dimensions of bank services were
important.
 Burc Ulengin’s(1998) concluded that loyalty
programmes,Continous information flow from bank, offsite
ATM’s,maximum five minutes of waiting time and simple
applications for all accounts that bank offers were preferred.
Carolyn Kennington,Jeanne Hill, and Anna Rakowska(1996)
pointed out reputation price and service being the most
important variables.
Josee Bloemer,Kode Ruyter and Pascel Peter (1998) studied
image ,perceived service quality and satisfaction to be important
for loyalty in retail banking.
Laroche,Rosenblatt and Manning (1986) studied demographic
factors like location convinience,speed of service, competence
and friendliness of bank employees.
Meidan(1976) revealed that 90% of respondents found convenience
in terms of location to be an important factor.
Methodology
Primary Data collection from 2 nationalized and 2
private bank using questionnaire.
100 Respondents from 2Nationalized banks (State
Bank of India, Punjab National Bank) and 2 private
Banks(ICICI and Standard Chartered Bank)
Non Probabilistic Convenience Sampling
Method:
1. Respondents happen to be in the right place at
the right time
2. Used in exploratory studies for generating ideas
QuantitativeData Analyzed by using Factorial
Analysis with SPSS Software 10.1 version
Data was for the period February to April
2006
Demographic characteristics of respondents:
◦ 51% Student
◦ 36% Service class
◦ 13% Remaining
Gender:

- 52% Male
- 48% Female
Major Concepts: Factor Analysis
 Data Reduction Statistical technique
 FA is a collection of methods used to examine how
underlying constructs influence the responses on a
number of measured variables.
 2 Types: 1. Exploratory FA
2. Confirmatory FA

1. EFA attempts to discover the nature of the constructs

influencing a set of responses
2. CFA tests whether a specified set of constructs is
influencing responses in a predicted way
 Steps taken to Test
Correlation matrices were computed
Kaiser-Meyer-Olkin measure of sampling
adequacy for individual variance was studied
Tested with Barlett Test of Sphericity

Table: KMO and Barlett's Test

Kaiser-Meyer-Olkin Measure of
Sampling Adequacy   0.592
Approx. Chi-
Barlett's Test of Sphericity
Square 506.846
  df 300
  Sig. 0.000
Extraction Method: Principal Component Analysis

Communalities
S.No. Attributes / Variables Extractio
    Initial n
1 Loan Facility 1.00 0.669
2 Courtesy and Friendliness of the Employees 1.00 0.771
3 Debit Card Facility 1.00 0.757
4 ATM Facility 1.00 0.747
5 Parking Facility 1.00 0.476
6 Speed in Services 1.00 0.719
7 Internet Facility 1.00 0.698
8 Rate of Interest 1.00 0.746
9 Bank Timings 1.00 0.636
10 Convenient Display of Counters 1.00 0.689
11 Free Delivery of Over-Draft 1.00 0.781
12 Minimum Account Balance 1.00 0.697
13 Phone Banking 1.00 0.851
Extraction Method: Principal Component Analysis

Communalities
S.No
. Attributes / Variables
    Initial Extraction
14 Bank Charges 1.00 0.726
15 Security Arrangements in the Bank 1.00 0.607
16 Location of the Bank 1.00 0.709
17 Brand of the Bank 1.00 0.674
18 Centralisation of Accounts 1.00 0.682
19 Over-Draft Facility 1.00 0.556
20 Locker Facility 1.00 0.683
21 Demat Account 1.00 0.725
22 Loyalty Programmes 1.00 0.568
23 Referral from Friends and Family 1.00 0.537
24 Continous flow of Information 1.00 0.692
25 Simple Application for all Accounts 1.00 0.809
Extraction Method: Principal Component Analysis
Total Varience Explained
Extraction Sums of Squared Rotation Sums of Sqaured
Initial Eigen values Loadings Loadings
Compo Cumulative Cumulative Cumulative
nent Total % Variance % Total % Variance % Total % Variance %
1 5.289 21.157 21.157 5.289 21.157 21.157 3.130 12.522 12.522
2 2.683 10.733 31.890 2.683 10.733 31.890 2.386 9.545 22.066
3 2.231 8.923 40.812 2.231 8.923 40.812 2.382 9.529 31.595
4 1.757 7.027 47.839 1.757 7.027 47.839 2.324 9.296 40.891
5 1.518 6.070 53.909 1.518 6.070 53.909 1.904 7.615 48.506
6 1.345 5.379 59.289 1.345 5.379 59.289 1.858 7.434 55.939
7 1.242 4.968 64.256 1.242 4.698 64.256 1.728 6.911 62.85
8 1.142 4.568 68.824 1.142 4.568 68.824 1.494 5.974 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            
 Rotated Component Matrix

Components

  1 2 3 4 5 6 7 8

Loan Facility 0.145 5.02E-02 0.284 0.175 0.153 7.09E-02 -0.117 0.702
 Courtesy and Friendliness
of the Employees 0.787 8.55E-02 0.214 0.236 9.62E-02 -0.104 -0.142  4.904E-02

 Debit Card Facility 4.55E-02 7.47E-02 9.53E-02 0.818 7.27E-03 0.264 -2.85E-02 8.93E-03

 ATM facility 0.131 1.49E-02 -0.0111 0.796 0.158 -8.19E-02 0.209 9.44E-02

 Parking Facility 8.62E+01 0.314 0.211 0.468 -3.31E-03 -0.278 -3.59E-02 -0.169

Speed in Services 0.712 0.338 6.16E-02 -0.171 8.07E-02 8.16E-02 0.206 9.37E-02

Internet Facility 0.175 0.654 0.306 -1.52E-02 8.59E-02 0.31 5.17E-02 0.2

Rate of Interest 0.694 0.263 0.183 -0.232 6.12E-02 0.284 1.33E-02 -0.153

Bank Timings 0.559 2.99E-02 0.153 0.212 0.428 7.42E-02 -0.121 0.227
Convenient Display of
Counters 0.716 0.164 5.99E-02 -2.54E-03 0.259 -1.77E-02 7.43E-02 -0.271

Free Delivery of Over-Draft 0.207 0.819 1.32E-02 -7.13E-02 0.177 7.88E-02 4.02E-02 -0.152

Phone Banking 0.253 0.804 0.308 0.132 6.70E-02 9.29E-02 -5.53E-02 0.109
 Rotated Component Matrix

Components

  1 2 3 4 5 6 7 8

Minimum Account Balance 1.91E-01 0.175 0.426 0.116 5.19E-04 0.415 0.508 -7.08E-02

Bank Charges 0.108 9.62E-02 0.122 1.39E-02 8.97E-02 0.816 0.121 3.40E-02

Over-Draft Facility 8.05E-02 0.183 0.155 0.29 0.525 0.31 -0.108 -0.156

Location of the Bank 0.377 0.297 0.447 0.327 0.169 0.223 0.296 7.90E-02

Brand of the Bank 8.34E-02 0.121 -3.06E-02 8.48E-02 4.81E-02 0.235 0.761 -9.12E-02

Centralisation of Accounts -0.13 0.127 0.103 7.90E-02 -3.60E-02 -0.265 0.703 0.257
Security Arrangements in the
Bank -0.161 7.43E-02 -3.41E-02 -0.116 0.126 -3.40E-02 0.158 0.72

Locker Facility -5.52E-02 6.15E-02 0.809 -3.20E-02 5.50E-02 -1.03E-02 -2.96E-02 0.128

Demat Account -2.39E-02 5.75E-02 0.75 0.29 0.156 0.199 0.106 1.20E-02

Referral from Friends and Family 0.163 2.90E-02 0.262 0.476 0.215 0.393 0.211 5.48E-03

Loyalty Programmes -6.90E-02 0.184 0.408 7.28E-02 0.462 0.3 -0.143 5.12E-02

Continous flow of Information 3.87E-01 0.269 0.189 0.129 0.537 0.214 7.42E-02 0.28
Simple Application for all
Accounts 0.287 6.18E-02 0.126 -5.89E-03 0.797 0.209 0.159 -4.44E-02
Factor 1: Customization (21.15%)
Speed of Services : 0.712
Convenient Display of Counters: 0.716
Continuous Flow of Information :0.787
Rate of Interest: 0.0694

Factor 2: Convenience (10.73%)

Internet Banking Facility : 0.654
Free Delivery of demand draft: 0.819
Phone Banking : 0.804
Factor 3: Value added Services (8.92%)
Locker Facility: 0.809
Demat Account : 0.750

Factor 4: Accessibility (7.03%)

Debit Card Facility: 0.818
ATM Facility: 0.796

Factor 5: Generalization (6.07%)

Simple Application for all Accounts :0.797
Continuous Flow of Information : 0.537
Over-Draft : 0.525
Factor 6: Transaction Cost (5.38%)
Bank Charges : 0.816

Factor 7: Brand Name (4.96%)

Brand Name: 0.716
Centralization of Accounts : 0.703
Minimum Balance Account : 0.508

Factor 8: Reliability (4.56%)

Loan Facility : 0.702
Security Arrangements : 0.720
Conclusion and Managerial Implication
Banks need to provide tailor-made services for its customer
Customer satisfaction
Personalized and Value-added services
Less time consuming
Better display of counters
Speed in services
Less paper work
Charge nominal fee for services
Better rate of interest
Low minimum balance
Good Brand Image
Security Arrangement
Dependability on loan facility
Not only savings Account but also other services like locker
facility, car loan, etc
Scope for Further Research
Research may vary if conducted in different
parts of India.
They may vary even when conducted in urban
and rural areas separately.

Limitations
More of student and service class respondents
as compared to business class respondents.
So if more of business class respondents are
there then the results might differ.
Thank You!