Bank Selection Criteria Employed by MBA Students in Delhi

Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 56-69 ISSN 2152-1034
Bank Selection Criteria Employed by MBA Students in
Delhi: An Empirical Analysis
A Sajeevan Rao, Fortune Institute of International Business, New Delhi
R K Sharma, Institute of Information Technology & Management, New Delhi
Introduction
Abstract
This paper presents the factor influencing the choice criteria in respect of
selecting a bank by MBA students. In particular, it finds those criteria, which
have become significantly important in motivating the choice. A quantitative
methodology, using responses given by three hundred and twelve students, is
employed in the analysis. Findings show that reliability is a significant choice
criterion, which includes employee’s courtesy, parking facility, loyalty programs,
brand name, security system and low charges with the bank. Other factors, which
have also increased in importance are the responsiveness, value added services
and convenience. Assurance factors, such as speedy services, good rate of interest
and zero balance account facility are also significant in importance in motivating
choice of a bank.
Key Words: Banks, India, Customer Service, Generation Y, MBA students.
The issue of “how customers select banks” has been given considerable attention
by researchers (for example: Anderson et al. 1976; Evans 1979; Kaynack and Yavas
1985; Ross 1989; Kazeh and Decker 1993; Hegazi 1995; Metawa and Almossawi 1998).
Exploring such information will help banks to identify the appropriate marketing
strategies needed to attract new customers and retain existing ones (Kaynak and
Kucukemiroglu, 1992). With growing competitiveness in the banking industry (Grady
and Spencer, 1990), and similarity of services offered by banks (Holstius and Kaynak,
1995), it has become increasingly important that banks identify the factors that determine
the basis upon which customers choose between providers of financial services. The
relevant literature indicates that a great deal of research effort has been expended to
investigate bank selection criteria for broad categories of customers (Yue and Tom,
1995). One promising segment, which, arguably, has not been given enough attention, is

© A Sajeevan Rao and R K Sharma
the younger age group. Banks which are planning to cultivate this vibrant market segment
must understand how individuals belonging to such segments select their banks.
A review of literature also indicates that studies related to bank selection criteria have
been mainly conducted in the USA and some European countries (Denton and Chan,
1991). Although such studies have contributed substantially to the literature on bank
selection, their findings may not be applicable to other countries, due to differences in
cultural, economic and legal environments. A set of determinant factors that have a
significant role in bank selection in one nation may prove to be insignificant in another.
This article focuses on studying the bank selection criteria being employed by a
crucial segment (i.e. MBA students) of potential customers (aged 21-28) in India.
In India, the growth 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 an aftermath
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 this Indian Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a
large scale especially in rural and semi-urban areas. It formed 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, 1969, major process of nationalization was
carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14
major commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% 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 by his name, which worked for the liberalization of
banking practices. The country is flooded with foreign banks and their ATM stations.
Efforts are 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 is
given more importance than money.
Over the years, banks are also customizing themselves. The Indian banking
industry is passing through a phase of customers market. The customers have more
choices 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 attributes a bank has to provide in Indian
banks or in other words try to assess what are the variables that attract a MBA student to
choose banking services.
57

Literature Review
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Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 56-69
Thomas Foscht, Judith Schloffer, Cesar Maloles III, Swee L. Chia (2009) found
the differences among the three age groups contained in Generation Y in terms of their
sources of information, financial services used, likelihood of switching, and number of
banks utilized. In addition, determinants of satisfaction, loyalty, and behavioral intention
are primarily affected by satisfaction with employees and services rendered. There results
indicated that as young people reach certain milestones, their needs become more
multifaceted. Consequently, the determinants of satisfaction have also changed. A study
conducted by Mamunur Rashid, M. Kabir Hassan (2009) in Bangladesh in six full
fledged Islamic banks found non-Islamic factors such as Corporal efficiency, Core-
Banking Services, Confidence, etc. were given higher weights by majority of the
respondents. The report recommends introducing complete E-Banking solution, to
increase advanced marketing efforts and to hire experienced human resources for better
Islamic Banking activities in Bangladesh.
Charles Blankson , Ogenyi Ejye Omar , Julian Ming-Sung Cheng (2009)
identified four key factors - convenience, competence, recommendation by parents, and
free banking and/or no bank charges - to be consistent across the two economies. The
recommendation of the study is that in the context of an open and liberalized market
environment, retail bank marketing strategies should be standardized irrespective of the
national development stage. It concludes that retail bank managers particularly in
developing countries should learn to provide consistent and good customer care.
Omar Masood, Jamel E. Chichti, Walid Mansour , Muzafar Iqbal (2009) research
attempt is made to assess the degree of customer awareness, satisfaction as well as
selection criteria. A sample of 200 respondents took part in this study. The responses
where shows a certain degree of satisfaction, there few respondents also have expressed
their dissatisfaction with some of the Islamic bank's services.
Dominic Celestine Fernandez (2008) conducted a survey and results indicated no
attribute obtained was an outright determinant of bank selection choices. This was
attributed to the diverse needs of respondents as revealed by this survey. While some
determinants such as location was of prime importance when selecting a bank, other
factors that emphasize of better social interaction between banker and client, is gaining
prominence partly due to the influence of Asian culture. It also revealed the use of the
consumer decision making model when selecting bank choices. As a whole, this study
was able to achieve its objective in understanding and providing a snapshot of the
important determinants in bank selection based on the feedback from survey respondents.
How a larger sample over a greater length of time is deemed to provide a better
understanding of trends in Malaysia.
Charles Blankson, Julian Ming-Sung Cheng, Nancy Spears (2007) study reveals
three key dimensions, factors, strategies that are consistent across all three economies.
The paper concludes that open and liberalized business climate appear to explain
consumers' decisions. This research is based on the college student cohort and thus the
results do not represent the public. This poses generalizability questions without further
replications and validations. This study did not examine whether there were consumers'
switching behaviors involving banks.
©JBSQ 2010

© A Sajeevan Rao and R K Sharma
A study conducted by Erdener Kaynak, Talha D. Harcar (2005) revealed 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. And pointed 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
work place, have decreased significantly in importance in motivating choice. Certain
criteria have remained broadly constant through time, amongst them, and perhaps
surprisingly, are 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 factor the
influence a customer in choosing a particular bank. They pointed out that ATM
(Automatic Teller Machine) being the primary reason for a customer choice for a bank
and further branch visit and referral from friends and relatives are 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 Yin Har (2000) indicated indicate that undergraduates place high 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 Ülengin’s (1998) findings
concluded that respondents prefer the extended loyalty programs, the continuous
information flow from the bank, the off-site ATMs, the maximum five-minutes waiting
time in the branches and a simple application for all the accounts the bank offers. Carolyn
Kennington, Jeanne Hill, Anna Rakowska (1996) pointed that most important variable
influencing customer choice are reputation price and service. Josee Bloemer, Kode
Ruyter and Pascel Peeters (1998) investigated 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 included importance of location
convenience, speed of service, competence and friendliness of bank employees. Meidan
(1976) revealed that about 90% of the respondents banked at the branch nearest to there
home place and place of work. Convenience, in terms of location, was 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 MBA
Students in choosing a bank namely: ATM facility, Friendliness of employee, Debit card
facility, Loan facility, Parking facility, Speed of services, Loyalty program, Internet
banking facility, Rate of Interest, Bank timing, Convenient display of counters, Free
home delivery of Drafts, Phone banking facility, Minimum account balance, Bank
charges, Overdraft facility, Brand name, Close to where you live or work, Security
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Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 56-69
arrangement, Locker facility, De-mat Facility, Referral from friend 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 customer’s choice of bank have been highlighted.
Methodology and Data Collection
For the purpose of the study primary data was collected from MBA Students who
have a bank account with the help of a well drafted Questionnaire. A sample of 312
students 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). The survey was conducted during the period of August 2009 to
November 2009.
Previous studies on banking as well as theories of consumer behaviour have
shown demographics to be a factor, influencing he adoption of technology-based product
and services.
The demographic characteristics of the students depict that the majority of the
respondents (63.5%) were males and 36.5% of the respondents were females. 5.8% of the
students were with less 10000 rupees income followed by 32.7% with 10001-20000
rupees 23.1% with 20001-30000 rupees 23.1% 30001-40000 rupees and 15.4% of
students with more than 40000 rupees per month as house hold income. Apart from that
19.2% of the students were from science background 51.9% from commerce background
17.3% and 11.5% of the student were from other backgrounds in their graduation.
Factor Analysis
Factor Analysis is a data reduction statistical technique that allows simplifying the
correlational relationships between a numbers 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 services from 312
students. 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. (KMO &
Bartlett’s Table 1)
• To test the sampling adequacy, Kaiser-Meyer-Olkin MSA is computed which is
found to be 0.704. It is indicated that the sample is good enough far sampling.
• The over all significance of correlation matrices is tested with Barlett Test of
Sphericity provided support for the validity of the factor analysis of the data set.
(KMO & Bartlett’s Test Table 1)
©JBSQ 2010

© A Sajeevan Rao and R K Sharma
After the standards indicate that data is suitable for factor analysis, Principal Components
Analysis was employed for extracting the data, which allows determining the factor
underlying the relationship between a numbers of variables. The total variable Explained
box is suggesting that it extracts one factor accounts for 74.62% of the variance of the
relationship between variables. (Total Variance Explained 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 is the factor. However Comrey (1973) 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.
(Communalities Table 2)
Rotation is necessary when extraction technique suggest 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 load on
which factor.
There are only six factors, each having Eigen value exceeding 1 for mobile
banking drivers. The Eigen values for six factors were 5.533, 2.257, 2.039, 1.325, 1.219,
and 1.059 respectively. (Total Variance Explained 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
74.620% of the total variations for choosing a bank services. It is pretty good extraction
as it can be economize on the number of factors (from 18 it has reduced to 6 factors)
while we have lost 25.380% information content for factors in choosing a bank. The
percentage of variance explained by factor one to six for factors effecting in choosing a
bank are 30.739, 12.541, 11.325, 7.362, 6.772 and 5.881 respectively (Total Variance
Explained Table 3). Communalities Table 2 tells us that after six factors are extracted
and retained; the communality is 0.657 for variable 1, 0.731 for variable 2 and so on. It
means 74.6% of the variance of variable 1 is being captured by the six 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 Rotated Component matrix Table 5.
The six factors shown in table 5 have been discussed below:
Factor 1: Reliability
It is the most vital factor, which explains 30.74% of the variation. Reliability
factors such as employees in the bank are friendly and courteous (0.670), Parking facility
(0.515), Loyalty Program (0.453), good brand name of the bank (0.847), security
arrangement with the bank (0.737) and low bank has low bank charges(0.440) emerge
with good positive correlations. This yields a great influence while choosing a banking
service.
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Factor 2: Convenience
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2010, Vol. 1, No. 2, pp. 56-69
There are four loads to this factor. The factor “Convenience” is the second
important factor, which accounts for nearly 12.54% of the variations. The factors parking
facility with the bank (0.589), free delivery of demand draft (0.789), Phone banking
(0.849), and free home cash delivery (0.849) signifies that consumers want convenience
in banking and they want to save time.
Factor 3: Assurance
There are three significant variables with a variation of 11.33% and these factors
are speedy services (0.500), bank provide good rate of interest (0.782), zero balance
account facility (0.835) depicts that the students want assurance of the services from the
bank.
Factor 4: Value Added Services
This factor has the two significant variables, which has 7.36% of the variation,
and this comprises of three loadings depicting the value added services required by the
consumers. The factor loading of 0.571, 0.867 and -0.621 representing debit card facility,
loan facility and loyalty programs respectively show value added services are also a
significant factor in choosing a bank.
Factor 5: Accessibility
The next important factor, which carries a loading of 6.77% of the variation,
comprises of four loadings, ATM facility, debit card facility speed in services and
internet banking with rotated value of 0.780, 471, .455 and 0.592 signifies that easy
accessibility to their bank accounts is vital factor in choosing a bank.
Factor 6: Responsiveness
Responsiveness is the next factor, which influences a consumer in choosing a
bank and has 5.88% of the variation. This factor has two loading namely the employees
in the bank are friendly and courteous (0.476), and convenient display of counters (0.889)
Conclusion and Implications
To attract the students i.e. future customers 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
customer’s 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. Students also wants that the banks should also need to improve upon the
©JBSQ 2010

© A Sajeevan Rao and R K Sharma
display of counters again which imply that the customer wants speed in the services.
Apart from this students also want easy access to their accounts and want that there
should less paper work. Banker 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. As another product banker should also try to
build good brand image, as many of the respondents prefer to have accounts in renowned
banks and security arrangement are good so they can be assured safety of their money.
Another factor which influences a customer to choose a bank is dependability, which
imply how much a customer can depend on a bank for a service e.g. loan facility.
Bankers have to keep this in account that customer do not open an account for only for
saving money but also want other services like locker facility, car loan, personal loan,
home loans 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. And further if the study is conducted
taking all the students of all the B-Schools the results may vary. But if the survey is
conducted in whole India result may substantially vary. As the research conducted in
metropolitan city area result may not be the same if the survey is conducted in semi urban
area. The main limitation of the survey was that it was only confined to MBA students; if
all of the Post-Graduation students would have been included, the results may not be the
same.
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Author Biography
A Sajeevan Rao is a Professor of Marketing at Fortune Institute of International
Business, New Delhi. He has 13 years of teaching experience and 4 years of industry
experience, he has done B.Com (H), M.Com, Ph.D. PGDM (Marketing). His current area
of interest is Market Research and Services Marketing. He published many Papers &
articles and also attended and presented papers in international seminars & symposia like
IIM Banglore, to name a few, like Attributes used by young consumers when gauging a
fashion product (Denim Jeans), The Magnitude of Adoption of retailing in India, The
Internal Marketing and the Commitment of the Employees – a case study of Khadi Gram
Udyog. Dr. Rao has conducted international seminar on "Strategic Imperatives and core
competencies of Indian Organizations". A Sajeevan can be reached at:
sajeevan.rao@gmail.com.
Rajkumar Sharma is a Professor of Finance at the Institute of Information
Technology & Management, New Delhi. His qualifications are Ph.D in Accounting,
MBA (Finance), M Com and PGDIT. He has published many Research Papers in reputed
Journals. Dr. Sharma has 8 years of teaching and 15 years of administration experience of
Indian Air Force. He has been regularly delivering live expert lectures on Accounting and
Finance at Indira Gandhi National Open University, New Delhi at AIR FM 105.6 MGZ.
He has been delivering Expert lectures on Accounting, Finance and Management topics,
live telecast on DD-National Channel (GYAN DARSHAN) at Indira Gandhi National
Open University (IGNOU), Delhi. He has been working as guide/evaluator for
MBA/M.Phil dissertations and Ph.D thesis of students of many universities in India.
Rajkumar can be reached at: rksharma992@yahoo.com.
©JBSQ 2010

© A Sajeevan Rao and R K Sharma
Appendix
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy.
Bartlett's Test of
Sphericity
Table 1
Bank has Atm facility
The employees in the
bank friendly and
courteous
The bank has debit card
facility
The bank has loan facility
Bank has Parking facility
Bank has speedy
services
Bank has Loyalty
Programmes
Bank has internet
banking facility
Bank provide good
interest rates
Bank has convinient
display of counters
Bank provide has free
homedelivery of drafts
bank provide free home
cash delivery
Bank has phonebanking
facility
Bank has zero balance
account facility
Bank has good brand
name
Bank has good security
arrangements
Bank has low bank
charges
Bank provide overdraft
facility
Approx. Chi-Square
df
Sig.
Communalities
Extraction Method: Principal Component Analysis.
Table 2
Initial Extraction
1.000 .657
1.000 .731
1.000 .718
1.000 .885
1.000 .676
1.000 .703
1.000 .848
1.000 .597
1.000 .783
1.000 .846
1.000 .782
1.000 .762
1.000 .708
1.000 .779
1.000 .733
1.000 .847
1.000 .716
1.000 .662
67
.704
3110.382
153
.000

Component
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Total Variance Explained
68
Journal of Business Studies Quarterly
2010, Vol. 1, No. 2, pp. 56-69
Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative % Total % of Variance Cumulative %
5.533 30.739 30.739 5.533 30.739 30.739 2.790 15.498 15.498
2.257 12.541 43.280 2.257 12.541 43.280 2.729 15.162 30.661
2.039 11.325 54.605 2.039 11.325 54.605 2.495 13.858 44.519
1.325 7.362 61.967 1.325 7.362 61.967 2.112 11.734 56.253
1.219 6.772 68.739 1.219 6.772 68.739 1.921 10.672 66.925
1.059 5.881 74.620 1.059 5.881 74.620 1.385 7.694 74.620
.873 4.850 79.470
.687 3.817 83.287
.552 3.067 86.354
.529 2.937 89.291
.444 2.464 91.755
.326 1.810 93.565
.301 1.671 95.237
.247 1.372 96.609
.222 1.233 97.842
.169 .941 98.783
.125 .692 99.475
.094 .525 100.000
Extraction Method: Principal Component Analysis.
Table 3
©JBSQ 2010

Bank has Atm facility
The employees in the
bank friendly and
courteous
The bank has debit card
facility
The bank has loan facility
Bank has Parking facility
Bank has speedy
services
Bank has Loyalty
Programmes
Bank has internet
banking facility
Bank provide good
interest rates
Bank has convinient
display of counters
Bank provide has free
homedelivery of drafts
bank provide free home
cash delivery
Bank has phonebanking
facility
Bank has zero balance
account facility
Bank has good brand
name
Bank has good security
arrangements
Bank has low bank
charges
Bank provide overdraft
facility
Rotated Component Matrix a
1 2 3 4 5 6
.780
69
Journal of Business Studies Quarterly
2009, Vol. 1, No. 1, pp. 1-15
.670 .476
.515 .589
.571 .471
.867
.500 .455
.453 -.621
.847
.737
.440
.789
.849
.677
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 7 iterations.
Table 4
Component
.782
.835
.486
.592
.889
©JBSQ 2010