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					Bank Selection Criteria Employed by MBA Students in
            Delhi: An Empirical Analysis

     A Sajeevan Rao, Fortune Institute of International Business, New Delhi, India
   R K Sharma, Institute of Information Technology & Management, New Delhi, India

       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 employees
       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
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 is introduced. The entire system became more convenient and swift. Time is
given more importance than money.
        With years, banks are also 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 variable that attract a MBA students to
choose a banking services.

Literature Review

        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
pledged 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.
        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
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). According to the chosen methodological research approach, the
quantitative data was analyzed by using factor analysis by using SPSS Software 14.0
version. The survey was conducted during the period of August 2009 to November 2009.
        Previous studies have 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 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 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 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)

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: 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.
(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 Programme (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

Factor 2: Convenience

        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

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
display of counters again which imply that the customer want 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 substantial 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 the Post-Graduation students are the results may not be the same.
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    df on 20 January, 2010
Author Biography

        Dr. A Sajeevan Rao is a Professor of Marketing at Fortune Institute of
International Business, New Delhi, India

      Dr. R K Sharma is a Professor of Finance at the Institute of Information
Technology & Management, New Delhi, India

                  KMO and Bartle tt's Te s t
  Kais er-Mey er-Olkin Meas ure of Sampling
  A dequacy.                                        .704

  Bartlett's Test of      A pprox. Chi-Square   3110.382
  Sphericity              df                         153
                          Sig.                      .000

 Table 1
                   Com m u n alitie s

                                  Initial    Ex traction
  Bank has A tm f ac ility          1.000          .657
  The employ ees in the
  bank f riendly and                1.000          .731
  The bank has debit card
                                    1.000          .718
  f ac ility
  The bank has loan f acility       1.000          .885
  Bank has Parking f acility        1.000          .676
  Bank has speedy
                                    1.000          .703
  servic es
  Bank has Loyalty
                                    1.000          .848
  Bank has internet
                                    1.000          .597
  banking f ac ility
  Bank provide good
                                    1.000          .783
  interes t rates
  Bank has convinient
                                    1.000          .846
  display of c ounters
  Bank provide has f ree
                                    1.000          .782
  homedelivery of draf ts
  bank provide f ree home
                                    1.000          .762
  cash delivery
  Bank has phonebanking
                                    1.000          .708
  f ac ility
  Bank has zero balance
                                    1.000          .779
  ac count f acility
  Bank has good brand
                                    1.000          .733
  Bank has good s ecurity
                                    1.000          .847
  Bank has low bank
                                    1.000          .716
  Bank provide ov erdraf t
                                    1.000          .662
  f ac ility
  Ex traction Method: Princ ipal Component A nalys is .

Table                                                      2
                                                          Total Variance Explaine d

                           Initial Eigenvalues              Ex traction Sums of Squared Loadings       Rotation Sums of Squared Loadings
Component        Total     % of Varianc e Cumulativ e %     Total      % of Varianc e Cumulativ e %   Total     % of Varianc e Cumulativ e %
1                 5.533             30.739      30.739       5.533           30.739         30.739     2.790          15.498         15.498
2                 2.257             12.541      43.280       2.257           12.541         43.280     2.729          15.162         30.661
3                 2.039             11.325      54.605       2.039           11.325         54.605     2.495          13.858         44.519
4                 1.325               7.362     61.967       1.325            7.362         61.967     2.112          11.734         56.253
5                 1.219               6.772     68.739       1.219            6.772         68.739     1.921          10.672         66.925
6                 1.059               5.881     74.620       1.059            5.881         74.620     1.385           7.694         74.620
7                   .873              4.850     79.470
8                   .687              3.817     83.287
9                   .552              3.067     86.354
10                  .529              2.937     89.291
11                  .444              2.464     91.755
12                  .326              1.810     93.565
13                  .301              1.671     95.237
14                  .247              1.372     96.609
15                  .222              1.233     97.842
16                  .169               .941     98.783
17                  .125               .692     99.475
18                  .094               .525    100.000
Ex traction Method: Princ ipal Component Analy sis.

Table 3
                                       Rotate d Com pone nt Matra

                                   1            2          3               4       5       6
  Bank has A tm f ac ility                                                          .780
  The employ ees in the
  bank f riendly and                .670                                                   .476
  The bank has debit card
                                                                           .571    .471
  f ac ility
  The bank has loan f ac ility                                             .867
  Bank has Parking f acility        .515         .589
  Bank has speedy
                                                           .500                    .455
  servic es
  Bank has Loyalty
                                    .453                                   -.621
  Bank has internet
  banking f ac ility
  Bank provide good
  interes t rates
  Bank has convinient
  display of c ounters
  Bank provide has f ree
  homedelivery of draf ts
  bank provide f ree home
  cash delivery
  Bank has phonebanking
  f ac ility
  Bank has zero balance
  ac count f acility
  Bank has good brand
  Bank has good s ecurity
  Bank has low bank
  Bank provide ov erdraf t
  f ac ility
  Ex traction Method: Princ ipal Component A nalys is .
  Rotation Method: V arimax w ith Kaiser Normaliz ation.
      a. Rotation converged in 7 iterations.

Table 4

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