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Journal of Intellectual CapitalThe intellectual capital performance of the Indian banking sectorG. Barathi Kamath
Article information:To cite this document:G. Barathi Kamath, (2007),"The intellectual capital performance of the Indian banking sector", Journal ofIntellectual Capital, Vol. 8 Iss 1 pp. 96 - 123Permanent link to this document:http://dx.doi.org/10.1108/14691930710715088
Downloaded on: 04 February 2015, At: 20:44 (PT)References: this document contains references to 32 other documents.To copy this document: [email protected] fulltext of this document has been downloaded 3971 times since 2007*
Users who downloaded this article also downloaded:Pek Chen Goh, (2005),"Intellectual capital performance of commercial banks in Malaysia", Journal ofIntellectual Capital, Vol. 6 Iss 3 pp. 385-396 http://dx.doi.org/10.1108/14691930510611120Steven Firer, S. Mitchell Williams, (2003),"Intellectual capital and traditional measuresof corporate performance", Journal of Intellectual Capital, Vol. 4 Iss 3 pp. 348-360 http://dx.doi.org/10.1108/14691930310487806Dimitrios G. Mavridis, (2004),"The intellectual capital performance of the Japanese banking sector", Journalof Intellectual Capital, Vol. 5 Iss 1 pp. 92-115 http://dx.doi.org/10.1108/14691930410512941
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The intellectual capitalperformance of Indian banking
sectorG. Barathi Kamath
ICFAI Business School, Nirlon Complex, Goregaon, Mumbai, India
Abstract
Purpose – The paper seeks to estimate and analyze the Value Added Intellectual Coefficient(VAICe) for measuring the value-based performance of the Indian banking sector for a period of fiveyears from 2000 to 2004.
Design/methodology/approach – Annual reports, especially the profit/loss account andbalance-sheet of the banks concerned for the relevant years, were used to obtain the data. A reviewis conducted of the international literature on intellectual capital with specific reference to literaturethat reviews measurement techniques and tools, and the VAICe method is applied in order to analyzethe data of Indian banks for the five-year period. The intellectual or human capital (HC) and physicalcapital (CA) of the Indian banking sector is analysed and their impact on the banks’ value-basedperformance is discussed.
Findings – The study confirms the existence of vast differences in the performance of Indian banksin different segments, and there is also an improvement in the overall performance over the studyperiod. There is an evident bias in favour of the performance of foreign banks compared with domesticbanks.
Research limitations/implications – All 98 scheduled commercial banks are studied as per theinformation provided by the Reserve Bank of India (RBI)/India’s Apex bank. Regional rural banks(RRBs), a segment of the indian banking sector, are not dealt with in the study since their number islarge (more than 200), but they contribute only 3 percent of the market of Indian banks. This paper is alandmark in Indian banking history as it approaches performance measurement with a newdimension.
Practical implications – The paper has strong theoretical foundations, which have a proven recordand applications. The methodology adopted has been research tested. Domestic banks in India areprovided with a new dimension to understand and evaluate their performance and benchmark it withglobal standards. The paper also has policy implications, as it reflects the lop-sided growth of a fewsections in the Indian banking segment.
Originality/value – The paper represents a pioneering and seminal attempt to understand theimplications of the business performance of the Indian banking sector from an intellectual resourceperspective.
Keywords Human capital, Intellectual capital, Business performance, Banks, India
Paper type Research paper
Development of a research propositionThe term “intellectual capital” has been widely used in recent times by the researchcommunity in the developed world; however, there have been very few studies thathave used emerging economies as a case for evaluating the implications of IC forspecific industries. The implications of IC are more prominent in these economies asthey have abundant human capital at their disposal. Therefore, it becomes necessary to
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JIC8,1
96
Journal of Intellectual CapitalVol. 8 No. 1, 2007pp. 96-123q Emerald Group Publishing Limited1469-1930DOI 10.1108/14691930710715088
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understand whether this resource is being efficiently utilized by specific sectors to theiradvantage in creating value over a period of time.
On the one hand, service sectors are playing a dominant, important role in thegrowth of economies, and on the other, these economies are moving towards moreliberalization and globalization. In the changing context of an environment wherecompetitiveness becomes key to survival, are domestic industries geared up to meet thecompetition? Answers to these questions raise an important issue: in the emergingknowledge economy the role of traditional accounting and measurement systems toevaluate performance appears to be diluted and there is a need to look at the wholescenario from a different dimension of evaluating the business performance of firmsthat use IC as an important resource for growth. Using novel methods of measurementand reporting tools becomes imperative.
Banks happen to be one service sector that uses a huge amount of human capitaland customer capital for its survival. Thus, this paper evaluates the businessperformance of the Indian banking system over a period of five years using the ValueAdded Intellectual Coefficiente (VAICe).
Intellectual capitalIn general parlance, intellectual capital (IC) is defined as any creation of the humanintellect or mind. However, several researchers across globe have defined anddelineated specific concepts of IC in their own way (Roos et al., 1997; Stewart, 1997).However, there has been no consensus as to the specific constituents of IC. Intellectualcapital has been defined and classified in several ways by several researchers since theconcept gained importance.
Edvinsson and Malone (1997) defined it as “Knowledge that can be converted tovalue”. Sveiby (1997) first proposed a classification for intellectual capital into threebroad areas of intangibles:
(1) human capital;
(2) structural capital; and
(3) customer capital.
This classification was accepted most and was later modified and extended by Bontis(1996), who replaced customer capital with relational capital.
The next logical aspect is to determine why is it imperative to measure the IC of afirm. The answer is quite simple: it is because both tangible and intangible assets areperceived as potential strategic assets. This resource-based view of the firm, includingthe benefits of both tangible and intangible assets, is gaining acceptance in theaccounting, economic and strategic management literature, following positive resultsof linkages between firms’ resources and measures of performance (Canibano et al.,2000). The inclusion of intangible assets derives from their ability to possess all of thecharacteristics of strategic assets (Godfrey and Hill, 1995).
Various methods have been devised to measure the valuation of IC, ranging fromthe traditional Tobin’s Q method to the Balanced Scorecard approach (Kaplan andNorton, 1996) to the Intangible Asset Score Sheet (Sveiby, 1989) and the latest ValueAdded Intellectual Coefficiente (Pulic, 1998), since the traditional accounting systemwas insufficient to incorporate the new developments. The implementation ofintellectual capital management requires the building a model to function correctly.
The Indianbanking sector
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There are three different ways of moving ahead to develop a model:
(1) adjusting the conventional methods of accounting to accommodate the newparameters and variables;
(2) retaining traditional accounting and adding new measures to account forintellectual capital; and
(3) abandoning old methods completely and creating a new method.
Today’s discerning investors take a critical look at not only the financial parametersbut also the non-financial parameters that determine the long-term success of acompany. These new non-financial parameters challenge the usefulness of evaluatingcompanies solely on traditional measures as they appear in the financial reports of acompany. Thus, the intangible assets of the company have been receiving considerableattention from all corners of the industry. Besides simply reporting the IC statements italso becomes essential to show the relation between the IC investments made by thefirm with its performance in the long run. Therefore, the absolute increase in value maybe as insufficient as reporting the financial ratios.
The VAICe is a new management and control tool that is designed to enable theorganization to monitor and measure the intellectual capital performance and potentialof the firm. This measurement is necessary as these are considered to be an importantresource in firms in which knowledge or human capital is dominant. Generally,traditional measures of accounting are used to evaluate the business performance ofthese firms. This results in partial or biased communication to stakeholders, who aremore interested in finding the true value and performance of the firm. The wrongconclusions may also result in wrong decisions. Thus, if the intellectual capital beingcreated in the process of business functions is ignored, it may be disastrous for the firmin the long run. The VAICe is considered appropriate for an organization that isintellectually inclined. It can be used within the organization to measure the intellectualperformance over a period of time without much change in the existing business setup.The VAIC method enables the firm to measure its value creation efficiency (Pulic, 2001,2002).
Thus, summarizing the above, the main logic for using VAICe as a tool forperformance measurement is as follows:
. intellectual potential is the most important resource of corporate success,especially in a knowledge economy;
. raising the efficiency of intellectual potential is the simplest, cheapest and mostsecure way to ensure sustainable business success;
. VAICe has proved its suitability as a tool for the measurement of IC; and
. the fact that companies have higher expenditures for intellectual potential thanfor physical capital, and that with VAICe we have found a reliable indicator forIP, are very good reasons to pay higher attention to intellectual potential.
Value creation is considered key to every business activity. However, in recenttimes the efficiency of value creation is more important for success than theabsolute value addition. Intellectual capital is an important resource in this valuecreation process. Thus, measuring it enables the firm to increase its marketperformance.
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The banking sector in general is an ideal area for IC research because:. there are reliable data available in the form of published accounts (balance
sheets, P/L);. the business nature of the banking sector is “intellectually” intensive; and. the whole staff is (intellectually) more homogeneous than in other economy
sectors (Kubo and Saka, 2002).
There have been much research on the Indian banking system to evaluate itsperformance on financial parameters as it entered into a new phase of liberalization.However, there have been no studies looking at the intellectual performance of Indianbanks. This paper is therefore a contribution to the existing literature on Indian banksand intellectual capital as its objective is two-fold:
(1) to add a new dimension to measure and evaluate value-based performanceefficiency of firms in service sector, especially banks in India; and
(2) to evaluate the significance of IC in the different economic environment of anemerging economy.
VAICe measurement and performance in the banking sector – a survey ofthe relevant literatureVery few research papers in recent times have aimed at the measurement of IC withspecific reference to the banking sector. Pioneering and exhaustive research by Pulic(2001, 2002) discusses the value creation efficiency analysis of 20 banks in the Croatianeconomy, for a period of five years and comes out with a VAICe ranking of the same.Pulic argues that intellectual capital is still not treated as a resource equal to physicaland financial capital in many service firms, and there is a strong incompatibility of newmeasuring models and the existing accounting system.
The efficiency of the banks is measured using the performance of the capitalemployed and the intellectual capital using VAICe as a tool of measurement. Theefficiency of each bank is measured and then compared with the average performance ofall of the banks. The analysis provides a strong case for reporting of the value creationthrough intellectual capital in the annual reports. The reporting would be a useful tool forbenchmarking the performance of the banks across various countries, besides serving asan absolute measure of performance for each bank within the economy.
An evaluation of the efficiency of the physical capital and intellectual potential ofthe major European banks for the year 1996 was another work that can be noted in thiscontext (Pulic, 1998). The results of the study indicate that intellectual potential is ofcrucial importance for corporate success, and therefore the obvious conclusion arisesthat increasing the efficiency of intellectual potential is the simplest, cheapest and mostsecure way to ensure sustainable business success. A similar study was conductedfocusing on how New Zealand banks incur a cost in acquiring IC (human capital) andtheir need to recognise the important cost drivers. The study produced a model inaccounting for IC in New Zealand banks (Sahrawat, 2001).
The Indianbanking sector
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Indian bankingStructureThe banking system in India has three tiers (see Figure 1). These are:
(1) the scheduled commercial banks;
(2) the regional rural banks (RRBs), which operate in rural areas not covered by thescheduled banks; and
(3) the cooperative and special purpose rural banks.
The present study deals only with the first set of banks, which number 98. A detailedbreak-down of these banks is shown in Table I. Also see Appendix, Table AI.
Figure 1.Composition of the Indianbanking system
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There are approximately 98 scheduled commercial banks, both Indian and foreign,almost 200 regional rural banks, more than 350 central cooperative banks, 20 landdevelopment banks; and a number of primary agricultural credit societies. In terms ofbusiness, the public sector banks, namely the State Bank of India and its associates,and the nationalized banks lead and dominate the scene. The share of banks in depositsand loans and advances is shown in Figures 2 and 3, respectively.
Brief history and reformsIndia had a fairly well developed commercial banking system in existence at the timeof independence in 1947. The Reserve Bank of India (RBI) was established in 1935.While the RBI became a state-owned institution from 1 January 1949, the BankingRegulation Act (BRA) was enacted in 1949, providing a framework for regulation andsupervision of commercial banking activity. The banks that were in the private sectorwere nationalized in 1969 for social and political reasons.
No major reforms were put in place until the 1980s, when the actual liberalizationprocess of Indian public sector banks started by giving them more autonomy. Greatercompetition was introduced into the banking system by permitting the entry of private
Figure 2.Percentage share of
various banks in deposits
Group Category Number of banks
01 State Bank of India and Associates 802 Nationalized banks 1903 Foreign banks 4104 Private sector domestic banks 30
Total 98
Table I.Number of banks in each
category
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sector banks, liberal licensing of more branches by foreign banks, and the entry of newforeign banks. With the development of a multi-institutional structure in the financialsector, the emphasis is on efficiency through competition, irrespective of ownership.Since non-bank intermediation has increased, banks have had to improve theirefficiency to ensure their survival.
Regulatory aspectsIndian banks were completely under the regulation of the BRA 1949, which was quiterestrictive in several aspects of growth and performance is concerned. One aspect wasthat there were social obligations such as the generation of employment and setting upbranch networks in financially unviable and rural areas, which the public sector bankstook up over a period for the faster growth of banking over the period afterindependence. This led to unsustainable development of banks in the long run,especially in today’s competitive economy. Another aspect is the domination of publicsector banks over private sector banks in the pre-liberalization phase. The controlledand protected economic environment had its costs for the Indian banking structureover a period (see www.iba.org).
However, prudent regulation and supervision have formed a critical component ofthe financial sector reform programme since its inception, and India has endeavouredtowards international prudent norms and practices. These norms have beenprogressively tightened over the years, particularly against the backdrop of theAsian crisis. Banks’ exposure to sensitive sectors such as equity and real estate havebeen curtailed.
The system of Annual Financial Inspection was introduced in 1992, in place of theearlier system of Annual Financial Review/Financial Inspections. The inspectionobjectives and procedures have been redefined to evaluate the bank’s safety andsoundness, to appraise the quality of the board and management, to ensure compliancewith banking laws and regulations, to provide an appraisal of soundness of the bank’s
Figure 3.Percentage share ofvarious banks in loans andadvances
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assets, to analyze the financial factors that determine a bank’s solvency and to identifyareas where corrective action is needed to strengthen the institution and improve itsperformance.
India has had the distinction of experimenting with Self Regulatory Organizations(SROs) in the financial system since pre-independence days. At present, there are fourSROs in the financial system:
(1) the Indian Banks’ Association (IBA);
(2) the Foreign Exchange Dealers Association of India (FEDAI);
(3) the Primary Dealers Association of India (PDAI); and
(4) the Fixed Income Money Market Dealers Association of India (FIMMDAI).
Present and future scenarioThe structure of the banking sector in India, using broad parameters, the classificationand contribution of each group of banks towards loans and advances, assets, liabilities,profits, income, expenditure and the respective market share of each section is shownin Table II. Indian banks have seen a huge growth over the years, especially after theopening up of the sector to external participation. The Indian Banks’ Association (IBA)has set up a proposal about how they visualize the Indian banking sector at the end ofthis decade. The vision statement in summary is presented in Table III.
Since the liberalization phase of the Indian economy began in the mid-1980s, thebanking sector has also seen growth along with the economy. There have been severalchanges in the banking policies and regulatory environment, which has led banks toperform better than before. There was marked stability and a positive rate of growtheven during the East Asian financial crisis. In the present scenario, banks are gearingup well to adapt to the norms of BASEL-II set up by the Basel Committee on BankingSupervision. Banks in India are more prone to the market now than ever before. Thus,looking at performance efficiency becomes even more compelling.
Looking at all the above aspects, and the fact that India is an emerging economy, theimportance of utilizing limited financial and physical resources becomes even morepressing than in a developed economy. Although there is a surplus of human capital interms of absolute numbers, skilled and professional human capital are limited inrelative terms. Therefore, efficiency analysis becomes important to evaluate theperformance of the key resources of the economy. An efficient economy is a collectionof efficient sectors, industry and firms. This boils the argument down to the fact that ifeach sector/industry/firm performs efficiently then economic resources would be usedeconomically. Such efficiency analysis would also enable efficient allocation andutilization of resources over long run; this implies that it would have policyimplications for the policy-makers. Being resource rich gets a new meaning whenknowledge of people turns into value for the organization (Sveiby, 2002).
Survey descriptionObjective of the studyThe major objective of this paper is to estimate and evaluate the VAICe for Indianbanks for a five-year period from 2000 to 2005. The evaluation is done on the basis ofthe ranking obtained by each bank in the VAICe index estimated and then on thebasis of the regression analysis conducted in the paper.
The Indianbanking sector
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No.
Ban
kg
rou
pN
um
ber
ofb
ank
sD
epos
its
Cap
ital
Res
erv
esT
otal
asse
tsB
orro
win
gs
Inv
estm
ents
Loa
ns
and
adv
ance
s
1P
ub
lic
sect
orb
ank
s27
1,07
9,39
3.81
14,1
75.3
951
,407
.16
1,28
5,23
5.70
22,4
31.0
454
5,66
8.10
549,
351.
18M
ark
etsh
are
9.34
76.8
759
.30
65.3
772
.92
25.6
077
.26
72.0
71a
Sta
teb
ank
gro
up
839
1,03
2.69
1,03
5.80
22,0
97.0
249
3,95
4.27
11,5
92.5
622
3,36
6.50
189,
203.
89M
ark
etsh
are
2.77
27.8
54.
3328
.10
28.0
313
.23
31.6
224
.82
1bN
atio
nal
ized
ban
ks
1968
8,36
1.12
13,1
39.5
929
,310
.14
791,
281.
4310
,838
.48
322,
301.
6036
0,14
7.29
Mar
ket
shar
e6.
5749
.02
54.9
737
.27
44.8
912
.37
45.6
347
.25
2In
dia
np
riv
ate
sect
orb
ank
s30
207,
173.
572,
921.
0615
,974
.40
297,
279.
3142
,139
.95
107,
327.
9413
8,95
1.10
Mar
ket
shar
e10
.38
14.7
512
.22
20.3
116
.87
48.1
015
.20
18.2
32a
Old
pri
vat
ese
ctor
ban
ks
2191
,431
.26
648.
775,
646.
3810
5,10
9.50
2,38
5.75
40,0
01.0
340
,001
.03
Mar
ket
shar
e7.
276.
52.
717.
185.
962.
725.
665.
312b
New
pri
vat
ese
ctor
ban
ks
911
5,74
2.31
2,27
2.29
10,3
28.0
219
2,16
9.81
39,7
54.2
067
,326
.91
89,5
14.7
6M
ark
etsh
are
3.11
8.24
9.51
13.1
310
.90
45.3
89.
5311
.89
3F
orei
gn
ban
ks
inIn
dia
3669
,312
.82
4,49
7.79
8,90
6.28
116,
401.
0822
,904
.42
40,7
95.4
952
,170
.87
Mar
ket
shar
e12
.46
4.94
18.8
211
.32
6.60
26.1
45.
786.
844
Tot
alp
riv
ate
sect
orb
ank
s(3þ
2)66
276,
486.
397,
418.
8524
,880
.68
413,
680.
3965
,044
.37
148,
123.
4319
1,12
1.97
Mar
ket
shar
e22
.84
19.6
931
.04
31.6
423
.47
74.2
520
.97
25.0
75
Tot
alco
mm
erci
alb
ank
s(1þ
4)M
ark
etsh
are
9,33
2.18
1,35
5,88
0.2
21,5
94.2
476
,287
.84
1,69
8,91
6.09
87,4
75.4
169
3,79
1.53
740,
473.
1525
.07
96.5
690
.34
97.0
096
.39
99.8
598
.23
97.1
46
Reg
ion
alru
ral
ban
ks
196
48,3
38.0
02,
308.
592,
357.
4163
,614
.00
131.
0012
,524
.00
21,7
73.0
0M
ark
etsh
are
67.8
23.
449.
663.
003.
610.
151.
772.
867
Tot
alof
all
ban
ks
289
1,40
4,21
8.20
23,9
02.8
378
,645
.25
1,76
2,53
0.09
100.
0070
6,31
5.53
762,
246.
15M
ark
etsh
are
100.
0010
0.00
100.
0010
0.00
100.
0087
,606
.41
100.
0010
0.00
Table II.Structure of Indiancommercial banks as atend of March, 2003 (in Rs.crores)
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Data sourcesThe data for the paper is mainly collected from secondary sources. The data isavailable in the balance sheets and profit/loss accounts of the banks concerned; thisdata is compiled and published by the Reserve Bank of India (RBI) in a consolidatedmanner in its annual statistics on Indian banking. Thus, the data for the paper wascollected from the RBI website (see www.rbi.org.in) directly.
MethodologyThe data collected from the secondary sources is treated to derive the VAICe for allbanks’ average, the group average, and each bank separately. Besides this a regressionis run to find the coefficients and also to find the linear best fit.
Phase I: deriving VAICe – steps involved.
. Output (OUT) – The total of all income/revenue generated during the fiscal yearby an organization by selling its goods or services.
. Input (IN) – All the costs that is incurred by the organization towards purchaseof inputs for operating and continuing the business. Here, the employees’compensation and other costs incurred on them for training and development
No. Particulars 1995a 2003b 2010 (est.)2003 over
19952010 over
2003
1. Capital 15 22 35 4.90 6.862. Reserves and surplus 16 76 230 21.50 17.143. Deposits 403 1,356 3,500 16.38 14.51
Demand 71 165 400 11.12 13.49Savings 88 302 700 16.66 12.76Term 244 889 2,400 17.54 15.24
4. Borrowings 16 87 120 23.57 4.705. Other liabilities and provisions 43 158 205 17.67 3.796. Total liabilities/assets 493 1,699 4,090 16.73 13.377. Cash and balance with RBI 62 86 100 4.17 2.188. Balance with banks and money
at call and short notice 16 75 300 21.30 16.999. Investment 171 694 1,640 19.14 13.07
Government securities 114 537 740 21.38 4.86Other approved securities 31 19 50 5.94 14.82Others 26 138 850 23.20 29.66
10. Loans and advances 207 740 1,900 17.26 14.42Bills purchased and discounted 29 59 150 9.28 14.26CC, OD and Demand loans 127 357 800 13.55 12.49Term loans 51 330 900 26.29 13.31
11 Fixed assets 7 20 50 14.02 13.9912 Other assets 44 84 150 8.42 8.64
Notes: GDP at factor cost 2001-2002: Rs. 20,80,255 crores; GDP at market price 2001-2002: Rs.22,88,281 crores; GDP (2001-2002 prices) 2006-2007: Rs. 30,47,183 crores; Market prices 2006-2007: Rs.33,73,879 crores; GDP at current market prices in 2009-2010: Rs. 61,40,000 crores; 1 crores ¼ 10million; aIndian Banks’ Association (1987/8); bReserve Bank of India (2003)
Table III.Macro magnitudes of
Indian banking sectorvisualized for the year
2010 (In Rs. “000 crores)
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would be deducted from total expenses for the simple reason that they would betreated as investment and not expenditure.
. Value Added (VA) – The difference between the Output and Input is the valuecreated by the organization during the particular financial year:
VA ¼ OUT 2 IN:
. Human Capital (HC) – All the expenses on compensation and development ofemployees.
. Capital Employed (CE) – All the physical and material assets of theorganization.
. Capital Employed Efficiency (CEE) – Ratio of VA to CE. This ratio gives thecontribution made by every unit of capital employed to the value added in theorganization:
CEE ¼ VA=CE:
. Human Capital Efficiency (HCE) – Ratio of VA to HC. This ratio gives thecontribution made by every unit of money invested in human capital to the valueadded in the organization:
HCE ¼ VA=HC:
. Value Added Intellectual Coefficient (VAIC) – Indicates the intellectual ability ofthe organization. It is the sum of the HCE and the CEE, and this also measuresthe intellectual capability of the organization. It can also be denoted as BPI or theBusiness Performance Indicator.
VAIC ðBPIÞ ¼ HCE þ CEE:
Phase II. Since the value added in any organization would be a function of the capitalemployed and also the intellectual capital invested, two regressions are run using theVA as the dependent variable in both and CE as the independent variable in one andHC as the independent variable in the other:
VA ¼ f ðCEÞ; ð1Þ
VA ¼ f ðHCÞ: ð2Þ
Survey resultsDescriptive statisticsThe mean for each bank group of each variable is analyzed regarding which groupdominates in which area (Table IV). As far as income and expenditure is concerned, theState Bank group dominates, and it can be clearly seen that the nationalized andforeign banks follow SBI. However, one evident aspect is that in terms of theexpenditure of the foreign banks, this group, though huge in number, makes the leastexpenditure of all.
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SBI and associates top almost all the absolute parameters, and their human capitalinvestment is beyond comparison (Table V). Again it is clearly evident that foreignbanks as a group rank lowest in terms of both capital expended and human capitalinvestment. The nationalized banks as a group make a huge contribution towardshuman capital in the Indian banking sector.
The value-added average of the State Bank group is 20 times that of the foreignbanks’ average. A similar pattern of vast differences is observed in each parameter thatis analyzed in absolute terms. However, this trend is reversed when observed in termsof the value creation efficiency. Though the absolute value of investment in key
Category 2000 2001 2002 2003 2004
IncomeState Bank of India and Associates 425,182.38 492,155 559,534.60 610,833.13 648,621.9Nationalized banks 306,844.95 337,508.10 381,523.90 418,935.53 451,116.10Foreign banks 24,595.48 28,488.20 31,609.46 29,376.17 31,610.76Private sector domestic banks 41,994.63 51,547.7 69,391.53 105,370.97 109,231.40Total 798,617.44 909,699 1,042,060 1,164,515.8 1,240,580
ExpenditureState Bank of India and Associates 352,193.13 420,410 450,538.60 470,469.13 469,078.6Nationalized banks 267,590.95 295,122.20 313,329.90 321,639.89 318,952.4Foreign banks 18,026.09 21,109.59 23,041.15 20,282.41 19,441.56Private sector domestic banks 33,807.63 42,405.87 53,964.03 81,540.36 82,290.90Total 67,1617.8 779,047.6 840,873.7 893,931.8 889,763.5
Note: One million ¼ 10 Lakhs
Table IV.Mean of income and
expenses (in Rs. Lakhs)
Category 2000 2001 2002 2003 2004
HCState Bank of India and Associates 74,079.87 97,903.63 84,499.13 92,698.5 104,408.3Nationalized banks 57,097.84 69,172.53 64,823.89 68,747.89 68,747.89Foreign banks 2,039.53 2,345.87 2,738.04 2,532.87 2,911.82Private sector domestic banks 3,544.43 3,853.96 5,376.93 7,015.03 8,434.10Total 136,761.69 173,276 157,438 170,994.31 184,502.1
CEState Bank of India and Associates 193,994.5 217,438.9 250,735 289,160.13 346,866Nationalized banks 160,699.32 171,106.5 196,815.5 223,419.63 270,922.50Foreign banks 18,468.58 20,590.37 25,645.93 32,650.53 35,919.61Private sector domestic banks 24,701.3 27,195.53 53,970.1 61,203.13 72,978.93Total 397,863.7 436,331.3 527,166.5 606,433.43 726,687
VAState Bank of India and Associates 147,069.13 169,648.6 193,495.1 233,062.5 283,951.5Nationalized banks 96,351.84 111,558.5 133,017.9 166,043.53 206,207.7Foreign banks 8,608.92 9,724.48 11,306.37 11,626.63 15,081.02Private sector domestic banks 11,731.43 12,995.8 20,804.43 30,845.63 35,374.6Total 263,761.33 303,927.4 358,623.9 441,578.29 540,614.9
Table V.Mean of HC, CE and VA
(in Rs. Lakhs)
The Indianbanking sector
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resources is much lower in foreign banks as compared with public sector banks, theefficiency of utilization (Table VI) of these resources is much higher on average inforeign banks, especially in the case of Human Capital Efficiency. In the case of CapitalEmployed Efficiency, the average figures of public sector banks are much higher,indicating a performance that is better than foreign banks on this front. Thus it canclearly be concluded that to meet the social obligations of employment generation forthe Indian population, these banks invested a huge amount in Human Capital, whichcould not increase or contribute much to value creation efficiency.
It is necessary to determine whether the variables used in the survey are reliable forinferences. Therefore, the regression results are analyzed first. The results are shownin Tables VII-XI separately for each group of banks and all banks. The variables ValueAdded (VA), Capital Employed (CE) and Human Capital (HC) are taken for analysis.
Category 2000 2001 2002 2003 2004
VACEState Bank of India and Associates 0.9378131 0.937591 0.921024 0.9116591 0.91089Nationalized banks 0.6954162 0.717644 0.753147 0.8375467 0.82608Foreign banks 0.2521022 0.23859 0.234448 0.1862473 0.190258Private sector domestic banks 0.5734892 0.549013 0.655596 0.5907278 0.534706Mean 0.614705 0.61071 0.641054 0.631545 0.615484
VAHCState Bank of India and Associates 2.0990422 1.921955 2.617717 2.9416885 3.439101Nationalized banks 1.7812175 1.679487 2.156315 2.5002188 2.891638Foreign banks 3.9874596 3.74986 3.728277 3.8283093 4.014788Private sector domestic banks 4.3813746 3.604235 4.000491 3.7759414 3.644457Mean 3.062273 2.738884 3.1257 3.26154 3.497496
VAICState Bank of India and Associates 3.0368553 2.859547 3.538742 3.8533476 4.349991Nationalized banks 2.4766338 2.397131 2.909462 3.3377655 3.717718Foreign banks 4.2395618 3.98845 3.962726 4.0145566 4.205046Private sector domestic banks 4.9548638 4.153247 4.656087 4.3666692 4.179163Mean 3.676979 3.349594 3.766754 3.893085 4.11298
Table VI.Mean of VACE, VAHCand VAIC
2000 2001 2002 2003 2004
CE and VASlope 0.67 0.71 0.63 0.71 0.72Intercept 23,744.69 24,826.21 21,681.89 24,584.29 25,271.72R 2 0.94 0.95 0.86 0.92 0.93
HC and VASlope 1.85 1.64 2.12 2.37 2.53Intercept 2,536.05 4,960.07 5,437.66 8,472.65 12,722.00R 2 0.98 0.98 0.98 0.96 0.97
Table VII.Regression results –overall banking sector
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The coefficient of determination (R 2) is seen to be very strong in all cases except in thecase of nationalized banks and private sector domestic banks. In the case ofnationalized banks there seems to be a weak link between capital employed and valueadded. The same is true of capital employed and human capital in the case of privatedomestic sector banks. The fit is seen to be good for all the years of analysis.
Survey analysisThe ranking of the banks on the basis of VAICe for the year 2004 is given in Table XII.
2000 2001 2002 2003 2004
CE and VASlope 0.39 0.52 0.46 0.49 0.60Intercept 33,320.08 21,854.77 42,236.67 56,829.66 43,171.39R 2 0.42 0.54 0.49 0.53 0.65
HC and VASlope 1.60 1.63 1.98 2.34 2.71Intercept 4,819.08 21,209.17 4,723.19 5,392.47 5,243.84R 2 0.86 0.90 0.83 0.84 0.86
Table IX.Regression results –
nationalized banks
2000 2001 2002 2003 2004
CE and VASlope 0.71 0.73 0.73 0.78 0.78Intercept 10091.63 10149.69 10984.07 8327.02 11778.48R 2 1.00 1.00 1.00 1.00 1.00
HC and VASlope 1.93 1.65 2.15 2.34 2.44Intercept 4,130.388017 8,477.7576 11,778.646 16,298.68599 29,591.793R 2 1.00 1.00 1.00 1.00 1.00
Table VIII.Regression results – SBI
and Associates
2000 2001 2002 2003 2004
CE and VASlope 0.58 0.59 0.58 0.43 0.53Intercept 22,067.06461 22,326.2026 23,586.7859 22,416.29155 23,824.0818R 2 0.98 0.97 0.97 0.95 0.96
HC and VASlope 4.29 4.01 4.23 4.75 5.53Intercept 2136.78 315.44 2288.52 2400.93 21,019.65R 2 0.91 0.86 0.81 0.83 0.92
Table X.Regression results –
foreign banks
The Indianbanking sector
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Each bank’s results are sorted on the basis of VAICe performance, classified asfollows:
. top performers – VAICe score of above 5;
. good performers – VAICe score of between 4 and 5;
. common performers – VAICe score of between 2.5 and 4; and
. bad performers – VAICe score of below 2.5.
It can be seen that there are very few BANKS from THE Indian private sector amongthe top performers.
Foreign banks claim the top slots, the main reason being their low penetration in themarket and meagre investments and high-technology intensity. This can also be seenfrom the nation’s perspective that foreign banks are low employment generators.
Best performers in the surveyThe best performers in the survey are as follows:
(1) State Bank of Mauritius;
(2) Arab Bangladesh Bank;
(3) Indusind Bank;
(4) State Bank of Ceylon;
(5) SBI Commercial and International Bank;
(6) Deutsche Bank;
(7) Cho Hung Bank;
(8) Standard Chartered Bank;
(9) Barclay’s Bank; and
(10) UEJ Bank.
Best domestic performersThe best performers in the survey are as follows:
(1) UTI Bank;
(2) Bank of Punjab;
2000 2001 2002 2003 2004
CE and VASlope 0.30 0.35 0.11 0.40 0.36Intercept 4,352.65 3,527.77 14,844.88 6,149.85 9,402.90R 2 0.70 0.78 0.48 0.98 0.95
HC and VASlope 1.83 2.83 3.76 6.43 5.22Intercept 5,259.61 2,090.85 581.22 214,263.54 28,690.36R 2 0.37 0.55 0.72 0.87 0.93
Table XI.Regression results –private domestic banks
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CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
1S
tate
Ban
kof
Mau
riti
us
0.16
60.
164
0.17
20.
157
0.20
112
.464
18.5
3112
.063
11.4
5614
.896
12.6
2918
.695
12.2
3511
.613
15.0
972
Ara
bB
ang
lad
esh
Ban
k0.
126
0.14
80.
150
0.12
70.
131
8.91
210
.217
10.8
458.
823
10.5
459.
038
10.3
6510
.995
8.95
010
.677
3In
du
sIn
dB
ank
0.38
00.
342
0.48
50.
585
0.61
916
.945
13.8
9113
.444
12.4
729.
829
17.3
2514
.233
13.9
2913
.057
10.4
474
Ban
kof
Cey
lon
0.21
70.
158
0.19
50.
103
0.12
718
.690
13.2
4614
.257
7.60
09.
940
18.9
0713
.404
14.4
527.
703
10.0
685
SB
IC
omm
erci
al&
Inte
rnat
ion
alB
ank
0.19
70.
134
0.18
00.
243
0.29
59.
665
3.79
15.
533
6.18
09.
578
9.86
23.
925
5.71
36.
423
9.87
36
Deu
tsch
eB
ank
0.55
00.
601
0.43
30.
487
0.62
05.
198
5.81
64.
817
6.63
58.
943
5.74
96.
418
5.25
07.
122
9.56
37
Ch
oH
un
gB
ank
0.30
90.
285
0.26
80.
205
0.15
011
.189
13.3
5611
.776
10.8
879.
305
11.4
9813
.640
12.0
4311
.092
9.45
48
Sta
nd
ard
Ch
arte
red
Ban
k0.
572
0.63
50.
606
0.45
70.
584
5.52
54.
906
6.45
97.
755
7.24
86.
097
5.54
27.
064
8.21
27.
833
9B
arcl
ays
Ban
k0.
070
0.10
80.
144
0.28
70.
333
0.62
80.
933
5.38
29.
176
7.16
50.
698
1.04
15.
526
9.46
37.
498
10U
FJ
Ban
k0.
000
0.00
00.
171
0.05
00.
064
0.00
00.
000
8.73
86.
125
7.39
50.
000
0.00
08.
909
6.17
57.
458
11U
TI
Ban
k0.
549
0.53
40.
747
0.53
90.
710
8.52
95.
646
9.27
05.
811
6.65
99.
078
6.18
010
.017
6.35
07.
369
12B
ank
ofP
un
jab
0.36
90.
410
0.45
90.
584
0.50
87.
941
8.34
36.
594
7.54
95.
947
8.31
08.
753
7.05
28.
132
6.45
513
Cit
iban
k0.
642
0.63
30.
585
0.49
70.
551
6.00
95.
976
6.24
65.
597
5.89
26.
651
6.61
06.
832
6.09
46.
443
14C
ity
Un
ion
Ban
k0.
663
0.59
10.
620
0.63
00.
704
3.48
63.
412
3.81
34.
415
5.71
94.
149
4.00
44.
433
5.04
66.
423
15B
ank
ofN
ova
Sco
tia
0.33
10.
326
0.39
40.
333
0.27
08.
077
8.09
310
.421
8.41
66.
146
8.40
88.
420
10.8
158.
749
6.41
616
HD
FC
Ban
k0.
337
0.50
30.
337
0.38
40.
450
6.34
85.
893
5.98
55.
688
5.93
96.
685
6.39
66.
322
6.07
16.
389
17M
ash
req
Ban
k0.
186
0.21
40.
190
0.14
90.
139
1.38
31.
542
2.24
82.
107
5.92
21.
569
1.75
62.
438
2.25
66.
061
18O
rien
tal
Ban
kof
Com
mer
ce0.
516
0.54
80.
744
0.71
60.
710
3.18
72.
695
4.17
94.
346
5.18
43.
703
3.24
34.
924
5.06
25.
894
19ID
BI
Ban
k0.
376
0.34
00.
541
0.61
10.
570
6.94
04.
032
4.09
93.
906
5.19
97.
317
4.37
34.
640
4.51
75.
770
20IC
ICI
Ban
k0.
229
0.26
00.
105
0.40
80.
349
7.23
26.
611
4.70
47.
380
5.34
57.
461
6.87
24.
808
7.78
85.
694
(continued
)
Table XII.Rank of all banks (sortedbased on 2004 BPI/VAIC)
The Indianbanking sector
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CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
21C
hin
atru
stC
omm
erci
alB
ank
0.10
30.
121
0.17
40.
164
0.16
52.
028
3.39
24.
903
4.75
75.
462
2.13
03.
513
5.07
74.
921
5.62
622
An
twer
pD
iam
ond
Ban
k0.
000
0.00
00.
000
0.04
30.
116
0.00
00.
000
0.00
02.
179
5.38
50.
000
0.00
00.
000
2.22
25.
502
23S
tate
Ban
kof
Pat
iala
0.71
90.
738
0.71
10.
709
0.74
22.
661
2.38
63.
278
3.81
94.
570
3.38
03.
124
3.98
94.
529
5.31
224
Su
mit
omo
Mit
sui
Ban
k0.
196
0.09
60.
196
0.19
00.
171
3.69
31.
682
4.01
96.
901
5.12
63.
889
1.77
84.
216
7.09
15.
298
25Ja
mm
u&
Kas
hm
irB
ank
0.61
00.
527
0.64
60.
573
0.50
03.
583
3.84
74.
198
4.49
44.
732
4.19
34.
374
4.84
45.
068
5.23
226
Ban
kof
Tok
yo
Mit
sub
ish
i2
0.08
10.
533
0.27
40.
206
0.29
52
0.69
55.
532
3.04
42.
083
4.89
12
0.77
66.
065
3.31
92.
289
5.18
727
Kar
nat
aka
Ban
k0.
500
0.59
40.
769
0.58
70.
607
2.07
32.
896
3.82
03.
840
4.50
72.
574
3.49
04.
589
4.42
75.
114
28S
tate
Ban
kof
Ind
ore
1.12
41.
054
1.20
01.
006
0.89
81.
969
2.11
03.
237
3.53
34.
001
3.09
33.
164
4.43
74.
539
4.89
929
Sta
teB
ank
ofH
yd
erab
ad1.
071
1.01
10.
885
0.85
10.
861
2.64
02.
395
3.11
93.
471
3.97
13.
712
3.40
64.
003
4.32
24.
832
30B
ank
ofA
mer
ica
0.55
10.
362
0.35
70.
250
0.21
94.
030
6.47
85.
643
6.05
14.
576
4.58
06.
840
6.00
06.
302
4.79
531
Hon
gK
ong
&S
han
gh
aiB
ank
0.48
50.
551
0.51
40.
306
0.40
94.
017
4.04
94.
094
3.00
54.
336
4.50
14.
600
4.60
83.
312
4.74
632
Cor
por
atio
nB
ank
0.52
60.
543
0.40
90.
468
0.43
03.
398
3.66
03.
912
4.33
14.
189
3.92
54.
203
4.32
14.
799
4.61
933
Sta
teB
ank
ofS
aura
shtr
a0.
609
0.55
70.
650
0.70
50.
802
2.13
61.
685
2.50
02.
854
3.78
52.
745
2.24
13.
150
3.55
94.
587
34V
ijay
aB
ank
0.89
00.
849
0.84
21.
062
0.89
61.
460
1.54
01.
825
2.00
83.
611
2.35
02.
389
2.66
83.
070
4.50
7
(continued
)
Table XII.
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CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
35A
bu
-Dh
abi
Com
mer
cial
Ban
k0.
597
0.57
20.
342
0.28
10.
249
6.86
88.
357
5.36
24.
002
4.24
37.
464
8.93
05.
705
4.28
44.
492
36D
BS
Ban
k0.
000
0.00
00.
286
0.22
30.
073
0.00
00.
000
6.72
65.
054
4.37
70.
000
0.00
07.
012
5.27
84.
450
37F
eder
alB
ank
0.70
10.
717
0.95
00.
927
0.94
82.
147
2.68
73.
525
3.52
13.
450
2.84
83.
404
4.47
54.
448
4.39
838
Sta
teB
ank
ofT
rav
anco
re0.
931
0.98
60.
928
1.00
21.
100
1.82
31.
831
2.31
12.
689
3.21
22.
753
2.81
73.
239
3.69
14.
312
39A
nd
hra
Ban
k0.
945
0.77
70.
834
1.03
20.
922
2.10
91.
734
2.36
42.
902
3.27
23.
054
2.51
13.
198
3.93
54.
194
40A
BN
Am
roB
ank
0.45
80.
568
0.47
60.
412
0.42
47.
657
5.90
14.
003
4.16
93.
759
8.11
56.
469
4.47
94.
582
4.18
341
Soc
iete
Gen
eral
e0.
151
0.13
90.
090
0.08
10.
168
1.65
31.
520
0.89
51.
409
3.96
61.
804
1.65
90.
985
1.49
04.
134
42K
aru
rV
ysy
aB
ank
0.62
50.
487
0.50
00.
461
0.41
23.
023
3.23
64.
046
4.28
53.
720
3.64
93.
723
4.54
64.
746
4.13
343
Tam
iln
adM
erca
nti
leB
ank
0.49
90.
523
0.51
60.
482
0.49
22.
792
3.39
53.
374
3.44
83.
631
3.29
23.
918
3.89
03.
930
4.12
344
Den
aB
ank
0.61
90.
644
0.67
40.
861
0.99
41.
746
1.15
72.
040
2.34
93.
097
2.36
51.
800
2.71
43.
210
4.09
245
Can
ara
Ban
k0.
722
0.84
70.
800
0.76
20.
787
1.97
11.
903
2.47
52.
719
3.24
52.
693
2.75
03.
276
3.48
04.
032
46P
un
jab
Nat
ion
alB
ank
0.88
20.
901
0.82
50.
941
0.95
31.
693
1.64
82.
120
2.57
02.
887
2.57
52.
549
2.94
53.
510
3.84
047
Lor
dK
rish
na
Ban
k0.
503
0.49
60.
617
0.58
20.
503
2.36
52.
099
4.08
23.
839
3.32
52.
868
2.59
64.
699
4.42
13.
828
48S
tate
Ban
kof
Bik
aner
0.96
20.
979
0.90
40.
842
0.90
71.
896
1.81
82.
351
2.37
92.
890
2.85
82.
797
3.25
53.
221
3.79
749
Sou
thIn
dia
nB
ank
0.89
20.
880
0.93
70.
968
0.94
41.
930
2.25
43.
049
3.29
42.
851
2.82
13.
134
3.98
64.
262
3.79
550
Sta
teB
ank
ofM
yso
re1.
370
1.43
51.
355
1.39
51.
186
1.72
91.
491
1.97
22.
421
2.60
33.
099
2.92
73.
327
3.81
63.
788
(continued
)
Table XII.
The Indianbanking sector
113
Dow
nloa
ded
by P
UN
JAB
TE
CH
NIC
AL
UN
IVE
RSI
TY
At 2
0:44
04
Febr
uary
201
5 (P
T)
CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
51U
nio
nB
ank
ofIn
dia
0.23
90.
297
0.73
80.
777
0.71
41.
218
1.30
62.
266
2.89
23.
057
1.45
71.
603
3.00
43.
668
3.77
152
Ban
kof
Ind
ia0.
670
0.78
60.
878
0.89
10.
852
1.68
41.
577
2.29
92.
803
2.91
22.
353
2.36
23.
178
3.69
53.
764
53In
dia
nO
ver
seas
Ban
k1.
338
1.04
61.
127
1.03
70.
999
1.64
01.
458
1.93
42.
104
2.75
92.
978
2.50
43.
061
3.14
13.
758
54B
ank
ofB
arod
a0.
602
0.65
00.
618
0.64
90.
728
2.17
31.
905
2.24
02.
521
2.98
42.
775
2.55
52.
858
3.17
03.
713
55M
izu
ho
Cor
por
ate
Ban
k0.
000
0.00
00.
280
0.21
00.
077
0.00
00.
000
5.91
88.
961
3.56
50.
000
0.00
06.
198
9.17
23.
642
56L
aksh
mi
Vil
asB
ank
0.77
20.
688
0.71
40.
641
0.60
62.
439
2.57
32.
935
2.86
12.
967
3.21
13.
261
3.64
93.
502
3.57
257
Ban
kof
Mah
aras
htr
a1.
022
1.14
81.
076
0.89
30.
730
1.71
31.
566
2.23
62.
469
2.82
22.
735
2.71
53.
312
3.36
13.
552
58B
har
ath
Ov
erse
asB
ank
0.44
20.
548
0.59
90.
505
0.49
12.
191
2.95
53.
624
3.29
53.
055
2.63
33.
503
4.22
33.
800
3.54
659
Dh
anal
aksh
mi
Ban
k0.
712
0.57
20.
753
0.85
50.
786
2.34
11.
617
2.48
72.
614
2.74
53.
053
2.18
93.
240
3.46
83.
530
60C
ath
olic
Sy
rian
Ban
k1.
454
1.60
51.
502
1.35
41.
073
1.43
31.
804
2.34
82.
437
2.45
12.
887
3.41
03.
851
3.79
13.
524
61B
ank
ofR
ajas
than
0.42
50.
809
0.75
10.
885
0.91
51.
203
1.66
61.
866
2.43
12.
594
1.62
82.
475
2.61
63.
316
3.50
962
All
ahab
adB
ank
0.73
40.
814
0.91
80.
880
0.92
51.
778
1.55
31.
828
2.00
52.
567
2.51
22.
367
2.74
72.
884
3.49
263
Un
ited
Wes
tern
Ban
k0.
885
0.53
50.
868
0.80
30.
686
3.15
31.
987
3.29
92.
608
2.75
44.
038
2.52
24.
167
3.41
13.
440
64S
onal
iB
ank
0.93
50.
745
0.61
40.
481
0.71
13.
485
3.01
62.
120
1.65
02.
654
4.42
03.
761
2.73
42.
131
3.36
565
UC
OB
ank
0.80
90.
686
0.42
11.
090
0.90
61.
425
1.67
61.
693
1.90
52.
421
2.23
42.
362
2.11
42.
994
3.32
766
SB
I0.
715
0.74
10.
736
0.78
30.
791
1.93
91.
660
2.17
32.
367
2.48
22.
653
2.40
12.
909
3.14
93.
273
(continued
)
Table XII.
JIC8,1
114
Dow
nloa
ded
by P
UN
JAB
TE
CH
NIC
AL
UN
IVE
RSI
TY
At 2
0:44
04
Febr
uary
201
5 (P
T)
CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
67J.
P.
Mor
gan
Ch
ase
Ban
k0.
000
0.00
00.
235
0.20
40.
174
0.00
00.
000
3.66
84.
331
3.07
60.
000
0.00
03.
903
4.53
53.
250
68S
yn
dic
ate
Ban
k0.
906
0.96
80.
830
0.93
01.
011
1.41
91.
338
1.43
51.
728
2.21
02.
325
2.30
62.
266
2.65
83.
220
69C
entr
alB
ank
ofIn
dia
0.54
90.
639
0.91
30.
871
0.91
21.
425
1.40
81.
630
1.77
92.
292
1.97
52.
047
2.54
32.
649
3.20
470
ING
Vy
sya
Ban
k0.
000
0.00
00.
501
0.58
70.
575
0.00
00.
000
2.46
42.
397
2.56
30.
000
0.00
02.
965
2.98
43.
137
71A
mer
ican
Ex
pre
ssB
ank
0.56
90.
547
0.78
40.
717
0.79
52.
039
2.04
93.
032
2.43
42.
072
2.60
82.
596
3.81
63.
151
2.86
772
Kru
gT
hai
Ban
k0.
056
0.07
40.
062
0.05
20.
038
4.95
26.
927
5.31
14.
060
2.75
95.
008
7.00
15.
373
4.11
22.
797
73U
nit
edB
ank
ofIn
dia
0.25
70.
316
0.45
30.
529
0.57
61.
349
1.34
61.
364
2.15
52.
191
1.60
71.
662
1.81
62.
684
2.76
674
Ban
kof
Bah
rain
&K
uw
ait
0.26
90.
240
0.26
40.
224
0.15
03.
759
3.37
05.
352
4.07
22.
600
4.02
83.
610
5.61
64.
296
2.75
075
Pu
nja
b&
Sin
dB
ank
0.80
80.
950
1.00
01.
300
1.35
01.
406
1.33
71.
583
1.89
51.
311
2.21
32.
287
2.58
33.
195
2.66
176
Nai
nit
alB
ank
0.87
90.
791
0.80
10.
482
0.59
81.
847
1.91
01.
969
1.71
72.
055
2.72
52.
701
2.77
02.
199
2.65
377
ING
Ban
k0.
408
0.00
50.
132
0.03
90.
015
3.48
20.
046
1.03
60.
204
2.60
53.
890
0.05
21.
169
0.24
32.
620
78C
red
itL
yon
nai
s0.
609
0.42
70.
316
0.15
70.
156
5.38
24.
990
3.34
82.
273
2.35
35.
992
5.41
73.
665
2.43
02.
508
79S
ang
liB
ank
0.86
00.
902
0.91
50.
737
0.79
81.
531
1.46
51.
676
1.51
71.
687
2.39
12.
367
2.59
12.
254
2.48
580
Dev
elop
men
tC
red
itB
ank
0.35
70.
307
0.42
40.
414
0.37
73.
403
3.31
44.
025
2.41
01.
974
3.75
93.
621
4.45
02.
824
2.35
181
Ind
ian
Ban
k0.
179
0.22
70.
208
0.22
70.
301
1.04
81.
104
1.54
62.
025
1.93
01.
227
1.33
01.
753
2.25
22.
231
82N
edu
ng
adi
Ban
k0.
903
0.54
01.
070
0.00
00.
000
1.89
81.
020
2.15
30.
000
2.13
32.
801
1.56
03.
223
0.00
02.
133
83G
anes
hB
ank
ofK
uru
nd
wad
0.47
90.
384
0.53
60.
569
0.46
01.
617
1.34
11.
936
2.31
51.
652
2.09
61.
725
2.47
22.
884
2.11
284
BN
PP
arib
as0.
385
0.34
90.
168
0.19
20.
215
3.13
72.
040
0.60
71.
040
1.85
03.
522
2.38
80.
775
1.23
22.
065
(continued
)
Table XII.
The Indianbanking sector
115
Dow
nloa
ded
by P
UN
JAB
TE
CH
NIC
AL
UN
IVE
RSI
TY
At 2
0:44
04
Febr
uary
201
5 (P
T)
CE
EH
CE
VA
ICB
ank
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
2000
2001
2002
2003
2004
85C
entu
rion
Ban
k0.
361
0.33
70.
195
0.26
50.
225
6.96
44.
771
1.72
71.
874
1.38
87.
326
5.10
81.
921
2.13
81.
613
86B
ank
Inte
rnat
ion
alIn
don
esia
20.
162
20.
077
0.01
12
0.02
60.
009
28.
504
29.
317
1.29
52
3.71
71.
123
28.
666
29.
394
1.30
62
3.74
31.
131
87O
man
Inte
rnat
ion
alB
ank
0.00
80.
014
20.
071
20.
029
0.00
40.
405
0.76
52
4.09
82
1.34
50.
429
0.41
30.
780
24.
169
21.
373
0.43
388
Tor
onto
Dom
inio
nB
ank
0.13
20.
141
0.08
20.
062
0.00
08.
452
8.44
64.
648
3.45
20.
000
8.58
48.
587
4.73
13.
513
0.00
089
Sta
nd
ard
Ch
arte
red
Gri
nd
ley
sB
ank
0.55
30.
486
0.62
30.
000
0.00
03.
748
2.66
62.
245
0.00
00.
000
4.30
23.
153
2.86
80.
000
0.00
090
Cre
dit
Ag
rico
leIn
dos
uez
0.12
80.
143
0.15
70.
178
0.00
00.
911
1.01
21.
678
2.47
50.
000
1.03
91.
155
1.83
52.
653
0.00
091
Ban
kM
usc
atIn
tern
atio
nal
0.06
00.
104
0.15
00.
147
0.00
01.
699
2.15
32.
456
2.11
80.
000
1.75
92.
257
2.60
62.
265
0.00
092
Sia
mC
omm
erci
alB
ank
0.21
62
0.00
10.
128
0.00
00.
000
14.6
272
0.05
02
3.64
20.
000
0.00
014
.843
20.
051
23.
514
0.00
00.
000
93O
ver
seas
Ch
ines
eB
ank
0.09
40.
083
20.
057
0.01
60.
000
3.08
62.
981
22.
500
0.76
60.
000
3.18
03.
065
22.
557
0.78
20.
000
94K
BC
Ban
k0.
146
0.15
22
0.17
60.
000
0.00
01.
919
1.58
22
1.88
40.
000
0.00
02.
065
1.73
42
2.06
10.
000
0.00
095
Dre
sdn
erB
ank
0.15
22
0.03
32
0.11
10.
000
0.00
02.
178
20.
286
29.
711
0.00
00.
000
2.32
92
0.31
92
9.82
20.
000
0.00
096
Com
mer
zB
ank
0.14
80.
169
0.00
50.
000
0.00
01.
404
1.82
50.
037
0.00
00.
000
1.55
21.
994
0.04
20.
000
0.00
097
Rat
nak
arB
ank
0.74
20.
721
1.16
50.
768
0.00
01.
740
2.07
42.
821
2.81
30.
000
2.48
22.
795
3.98
53.
581
0.00
098
Glo
bal
Tru
stB
ank
0.50
40.
393
0.46
60.
293
20.
156
14.6
817.
593
5.15
21.
867
21.
117
15.1
857.
986
5.61
82.
160
21.
272
Table XII.
JIC8,1
116
Dow
nloa
ded
by P
UN
JAB
TE
CH
NIC
AL
UN
IVE
RSI
TY
At 2
0:44
04
Febr
uary
201
5 (P
T)
(3) HDFC Bank;
(4) Oriental Bank of Commerce;
(5) IDBI Bank;
(6) ICICI Bank;
(7) State Bank of Patiala;
(8) Jammu and Kashmir Bank;
(9) Karnataka Bank; and
(10) State Bank of Indore
Poor performers among all groupsThe poorest performers among all groups are:
(1) Standard Chartered Grindleys Bank;
(2) Credit Agricole Indosuez;
(3) Bank Muscat International;
(4) Siam Commercial Bank;
(5) Overseas Chinese Bank;
(6) KBC Bank;
(7) Dresdner Bank;
(8) Commerz Bank;
(9) Ratnakar Bank; and
(10) Global Trust Bank.
Poor domestic performersThe poorest domestic performers are:
(1) Central Bank of India;
(2) United Bank of India;
(3) Punjab and Sind Bank;
(4) Nainital Bank;
(5) ING Bank;
(6) Sangli Bank;
(7) Development Credit Bank;
(8) Indian Bank;
(9) Nedungadi Bank; and
(10) Ganesh Bank.
Some observations and analysisMost big foreign banks are in the list of top performers. The main reason is that they donot employ much HC is that most of them have only corporate clients, have very fewbranches, are highly technology intensive, perform only specialized activities and offerspecific high-value customized products.
The Indianbanking sector
117
Dow
nloa
ded
by P
UN
JAB
TE
CH
NIC
AL
UN
IVE
RSI
TY
At 2
0:44
04
Febr
uary
201
5 (P
T)
Only one public sector bank is in the top domestic performers list. Some importantreasons for the poor performance of the public sector are high infrastructure costs, highsocial obligations, a huge work force, poor image, low efficiency, and poor usage oftechnology.
Among the poor performers, most are foreign banks, indicating that long-termsustainability for them is difficult. There are clear indications of poor performanceduring the period of study, and most of them are no longer functional now, havingmerged or been liquidated or closed down.
Most of the poor domestic performers are public sector and weak private sectorbanks. The reasons for this are a poor customer base, huge non-performing assets,incorrect allocation of resources, huge employee costs, unplanned growth and badinvestment decisions.
It can be clearly observed that most public sector banks are average performers onthe intellectual scale, mainly because of their heavy investment in HC over a period.
Justifications/limitationsThe findings of the present study are subject to some limitations that provideinitiatives for future research. The present study, for example, focuses on scheduledcommercial banks only from one single domestic setting of India. Banking in anyeconomy is underpinned by cultural concerns and the legal system and practices.Therefore, the findings may not be generalizable. Further research in this area could beextended to alternative domestic settings and also to alternate industries in bothmanufacturing and service-oriented settings. Also, the parameters for evaluatingintellectual capital performance are not exhaustive. Future research should fullyexplore the impact of other characteristics of IC and their association with performanceand market behaviour to gather a complete picture of the impact of this dimension.This study is cross-sectional and also time series in nature, but in a limited way as itdeals with only data from only six years. Future research may wish to focus onexamining the association of independent variables covered in this study andperformance for a detailed analysis across a longer time period, dividing it into variousphases and also analyzing trends across industries. Finally, the findings areconstrained by the validity and reliability of the method and data used. Future studiesshould seek to re-test the instrument across alternative socio-political and economicsettings both to test its validity and/or make refinements. In addition, the methodologyused in this study may also be refined in future research to provide further insights.
Need/importance of this paperDespite its limitations, the present study makes several unique contributions. This isthe first attempt of its kind to analyze the performance of Indian banks from thealtogether different perspective of intellectual capital. Second, empirical analysisprovides one of the initial frameworks for analyzing the factors of IC that mayinfluence the business performance of banks in a competitive environment. This isagain a fresh contribution to the existing literature on IC. Finally, the present studyextends the IC practices of the developed world to an emerging economy context andvalidates their importance in the current globalized, scenario thus exploring a newemerging area of interest.
Overall, the findings from the present study have implications for numerous partiessuch as policy makers, regulators, shareholders and management of those specific
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banks that in general find their performance of IC below par. This may result in abetter allocation of resources in those organizations. Such features are importantconcerns that need to be factored into in decision-making processes and setting policiesat both national and international levels.
Concluding remarksThe Reserve Bank of India, which is the apex bank, heads the Indian commercialbanks. The largest group of banks is the State Bank group: it dominates in the marketon several parameters discussed in the paper. Other banks, such as foreign banks,domestic private sector banks and regional rural banks, form the broad structure ofIndian banking.
The paper uses VAICe as a tool to measure the IC performance of Indian banks fora five-year period. This is taken as the basic methodology adopted in the paper.Besides this, a simple regression is run to find the adequacy of the variables for theirpredictive powers. The results indicated a perfect fit of both the independent variableswith the dependent variable over the period of study.
The survey results showed that the overall top performers in HCE are clearly theforeign banks. However, the top performers in CEE were the public sector banks. Theoverall top performers in the value creation efficiency analysis were the foreign banks.The public sector banks in India seem to have created the huge baggage of a large andinefficient work force, which is not contributing anything to overall value creation.
Thus, it can be concluded that there are vast differences in the intellectual and valuecreation performance of the Indian banking sector. This paper can be used as abenchmark for evaluating the true performance of banks in India in the emergingcompetitive environment. The paper looks at the performance of Indian banks from aninnovative perspective. This can be taken as a base for further such research in thesame or other service sectors.
References
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Indian Banks’ Association (1987/8), Data Base on Indian Banking, Mumbai.
Kaplan, R.S. and Norton, D.P. (1996), “Using the Balanced Scorecard as a strategic managementsystem”, Harvard Business Review, January/February, pp. 75-85.
Kubo, I. and Saka, A. (2002), “An inquiry into the motivations of knowledge workers in theJapanese financial industry”, Journal of Knowledge Management, Vol. 6 No. 3, pp. 262-71.
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Pulic, A. (2002), “Are we creating or destroying value?”, available at: www.vaic-on.net
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Reserve Bank of India (2003), Report on Trend and Progress of Banking in India 2002-03,Reserve Bank of India, Mumbai.
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Further reading
Bontis, N. (1998), “Intellectual capital: an exploratory study that develops measures and models”,Management Decision, Vol. 36 No. 2, pp. 63-76.
Bontis, N. (2001), “Assessing knowledge assets: a review of the models used to measureintellectual capital”, International Journal of Management Reviews, Vol. 3 No. 1, pp. 41-60.
Bontis, N., Dragonetti, N.C., Jacobsen, K. and Roos, G. (1999), “The knowledge toolbox: a reviewof the tools available to measure and manage intangible resources”, EuropeanManagement Journal, Vol. 17 No. 4, pp. 391-401.
Celemi Monitor (1999), “Celemi’s Annual Report”, available at: www.celemi.com
Cooper, R. and Kaplan, R.S. (1988), “Measure cost right: make the right decisions”, HarvardBusiness Review, September/October, pp. 96-102.
Harrison, S. and Sullivan, P. (2000), “Profiting from intellectual capital: learning from leadingcompanies”, Journal of Intellectual Capital, Vol. 1 No. 1, pp. 33-46.
Huseman, R. and Goodman, J. (1999), Leading with Knowledge, Sage Publications, London.
Indian Banks’ Association (2005), IBA Monthly Bulletin, June, available at: www.iba.org
Intellectual Capital Research Centre (2005), available at: www.measuring-ip.at (accessed May2005).
International Federation of Accountants (1998), Measurement and Management of IntellectualCapital, International Federation of Accountants, New York, NY.
Lev, B. (2001), Intangibles: Management, Measurement and Reporting, Brookings InstitutionPress, San Francisco, CA.
Lev, B. and Schwartz, A. (1971), “On the use of the economic concept of human capital infinancial statements”, The Accounting Review, Vol. 44, pp. 103-10.
Luthy, D.H. (1998), “Intellectual capital and its measurement”, available at: www3.bus.osaka-cu.ac.jp/apira98/archives/htmls/25.htm (accessed May 2005).
Skandia (1994), Intellectual Capital Report, Skandia, Stockholm.
Williams, S.M. (2000), “Is intellectual capital performance and disclosure practice related?”,Journal of Intellectual Capital, Vol. 2 No. 3, pp. 192-203.
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Appendix
No. Bank Group
1 State Bank of India 12 State Bank of Bikaner 13 State Bank of Hyderabad 14 State Bank of Indore 15 State Bank of Mysore 16 State Bank of Patiala 17 State Bank of Saurashtra 18 State Bank of Travancore 19 Allahabad Bank 2
10 Andhra Bank 211 Bank of Baroda 212 Bank of India 213 Bank of Maharashtra 214 Canara Bank 215 Central Bank of India 216 Corporation Bank 217 Dena Bank 218 Indian Bank 219 Indian Overseas Bank 220 Oriental Bank of Commerce 221 Punjab & Sind Bank 222 Punjab National Bank 223 Syndicate Bank 224 UCO Bank 225 Union Bank of India 226 United Bank of India 227 Vijaya Bank 228 ABN Amro Bank 329 Abu-Dhabi Commercial Bank 330 American Express Bank 331 Antwerp Diamond Bank 332 Arab Bangladesh Bank 333 Bank International Indonesia 334 Bank Muscat International 335 Bank of America 336 Bank of Bahrain & Kuwait 337 Bank of Ceylon 338 Bank of Nova Scotia 339 Bank of Tokyo Mitsubishi 340 Barclays Bank 341 BNP Paribas 342 Chinatrust Commercial Bank 343 Cho Hung Bank 344 Citibank 345 Commerz Bank 346 Credit Agricole Indosuez 347 Credit Lyonnais 348 DBS Bank 3
(continued )
Table AI.List of banks and their
group number
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No. Bank Group
49 Deutsche Bank 350 Dresdner Bank 351 Hong Kong & Shanghai Bank 352 ING Bank 353 J.P. Morgan Chase Bank 354 KBC Bank 355 Krug Thai Bank 356 Mizuho Corporate Bank 357 Mashreq Bank 358 Oman International Bank 359 Overseas Chinese Bank 360 Siam Commercial Bank 361 Societe Generale 362 Sonali Bank 363 Standard Chartered Bank 364 Standard Chartered Grindleys Bank 365 State Bank of Mauritius 366 Sumitomo Mitsui Bank 367 Toronto Dominion Bank 368 UFJ Bank 369 Bank of Punjab 470 Bank of Rajasthan 471 Bharath Overseas Bank 472 Catholic Syrian Bank 473 Centurion Bank 474 City Union Bank 475 Development Credit Bank 476 Dhanalakshmi Bank 477 Federal Bank 478 Ganesh Bank of Kurundwad 479 Global Trust Bank 480 HDFC Bank 481 ICICI Bank 482 IDBI Bank 483 IndusInd Bank 484 ING Vysya Bank 485 Jammu & Kashmir Bank 486 Karnataka Bank 487 Karur Vysya Bank 488 Lakshmi Vilas Bank 489 Lord Krishna Bank 490 Nainital Bank 491 Nedungadi Bank 492 Ratnakar Bank 493 Sangli Bank 494 SBI Commercial & International Bank 495 South Indian Bank 496 Tamilnad Mercantile Bank 497 United Western Bank 498 UTI Bank 4Table AI.
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About the authorG. Barathi Kamath (PhD, Osmania University, Hyderabad) is currently an Assistant Professor ofEconomics at the ICFAI Business School, Mumbai, India. She has a decade’s experience inteaching, and her research interests are in the area of foreign trade and international business,specializing at present in the area of intellectual capital and intellectual property rights with afocus on industry-specific issues. G. Barathi Kamath can be contacted at: [email protected]
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