Service Quality and Customer Retention in Indian Private Sector Banks: An Empirical Study

Abstract

Purpose – The purpose of this study is to examine the influence of service quality on customer retention in Indian private sector banks, with particular emphasis on the mediating role of customer satisfaction.

Design/methodology/approach – The study adopts an empirical research design using primary data collected from 1,000 long-term customers of a leading Indian private sector bank. Service quality is measured using an extended SERVQUAL framework comprising tangibility, reliability, responsiveness, assurance, empathy and access. The data were analyzed using descriptive statistics, reliability and validity tests, multiple regression analysis, service quality gap analysis and Structural Equation Modeling (SEM).

Findings – The results indicate that all service quality dimensions significantly influence customer satisfaction, with reliability and responsiveness emerging as the strongest predictors. Customer satisfaction, in turn, has a significant positive effect on customer retention and fully mediates the relationship between service quality and retention. The study also identifies negative gaps between customer expectations and perceptions across all service quality dimensions, highlighting areas requiring managerial attention.

Practical implications – The findings suggest that private sector banks should prioritize reliability-driven service delivery, responsive customer support and continuous monitoring of service quality gaps to enhance customer retention.

Originality/value – The study contributes to the banking literature by empirically validating the mediating role of customer satisfaction in the service quality–customer retention relationship in the Indian private banking context.

By integrating service quality gap analysis with a mediation-based SEM framework, this study extends bank marketing literature by explaining how service quality translates into customer retention in an emerging market context.