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EXECUTIVE SUMMARY

Fast global & technological developments have made todays business

environment highly uncertain & even chaotic. Organizations are seeking newer

ways to promote their adaptability to the complexities of the changed scenario so

as to survive & prosper. Globally organizations are striving to realize competitive

success through strategic management of human resources. Thus, people

management has never been more important than it is today. Therefore new themes

have emerged in the process, replacing some of the old ones. The new thinking in

this regard is referred to as Human Resource Management (HRM), which carries a

more proactive & strategic connotation.

The development of employee commitment through employee involvement &

empowerment is one of the key objectives of any HRM discourse. The complex

business objectives in todays business environment are diff icult to realize without

developing highly committed & motivated employees who would strive to

contribute to organizational goals. That is why, human resource issues are no more

the preserves of personnel specialists; rather line & general managers are being

increasingly involved in handling key HR issues & in evolving, shaping &

managing human resource strategies & policies. These developments have given a

far greater recognition to the HR function in organizational decision- making

processes.

Human resour ce is one of the natural resources of any countrys economy. It is the

wealth of the country. In the context of banking, human resource is of greater

importance. The deployment of human resource through proper & efficient

selection, training & development, is called Human Resource Management.

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The success of any bank largely depends on efficient human resource management,

apart from operations, marketing & sales, the HR department manages all the

efficient people working in operations & marketing divisions in an organization.

HYPOTHESIS

GROWTH OF BANKING SECTOR DEPENDS ON APPROPRIATE HRM

POLICIES.

To analyze this hypothesis I have included a case study on STATE BANK OF

INDIA in which I have put forth the range of practices executed by the HR

department. I have even interviewed Mr. Rajiv Deka, Branch Manager of SBI &Ms. Rohini Rai, Branch Manager of HDFC Bank, thereby representing the two

major sectors of BANKS , i.e., PUBLIC SECTOR & PRIVATE SECTOR.

INTRODUCTION

The concept of human resource management is increasingly becoming a most vital

function of a modern manager. Human resource management is the management of

employees knowledge, abilities, talents, aptitudes, creative abilities, etc.

Human resources take active role in the modern economic scenario of any country.

The abundant physical resources alone cannot benefit the growth of the country

without human resource component, which transforms physical resources into

productive resources. In fact, the differences in the level of economic development

of the countries are largely a reflection of the differences in quality of their human

resources. The key element in this proposition is that the values, attitudes, general

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orientation and quality of people of a country that determines its economic

development.

People are our most valuable asset is a clich which is no member of any

management team would disagree with.

The concept of HRM assumes immense importance as HRM plays vital role in

meeting the challenging requirements of highly skilled & component human

resources due to globalization.

DEFINITION

Human resource management is planning, organizing, directing & controlling of

the procurement, development, compensation, integration, maintenance &

separation of human resources to the end that individual, organizational and social

objectives are accomplished.

MEANING

Human resources management involves all management decisions & practices that

directly affect or influence people or human resources, who work for the

organization. In recent years, increased attention has been devoted to how

organizations manage human resources. This increased attention comes from the

realization that an organizations employees enable an organization to achieve its

goals, & the management of these human resources is critical to the success of the

organization.

HRM is management function that helps managers to recruit, select, train &

develop members for an organization. Obviously HRM is concerned with the

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peoples dimensions in organ izations. HRM refers to set of programs, functions &

activities designed & carried out.

Human resource management means employing people, developing their

resources, utilizing, maintaining & compensating their services in consonance with

the job & organizational requirements.

CORE ELEMENTS OF HRM

People: Organizations mean people. It is the people who staff & manage

organizations.

Management: HRM involves application of management functions &

principles for acquisitioning, developing, maintaining & remunerating

employees in organizations.

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Integration & Consistency: Decisions regarding people must be integrated &

consistent.

Influence: Decisions must influence the effectiveness of organization

resulting into betterment of services to customers in the form of high quality

products supplied at reasonable costs.

Applicability: HRM principles are applicable to business as well as non-

business organizations too, such as education, health recreation & the like.

SCOPE

From entry to the exit of an employee in the organization;

Scope of HRM can be described based on the following activities of HRM. Based

on these activities we can summarize the scope of HRM into 7 different categories

as mentioned below after the activiti es. Lets have a look at both of them

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HRM Activities:-

HR Planning

Job Analysis

Job Design

Recruitment & Selection

Orientation & Placement

Training & Development

Performance Appraisals

Job Evaluation

Employee & Executive Remuneration

Motivation

Communication

Welfare

Safety & Health

Industrial Relations

7 Categories of Scope of HRM:

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Introduction to HRM

Employee Hiring

Employee & Executive remuneration

Employee Motivation

Employee Maintenance

Industrial Relations

Prospects of HRM

SCOPE OF HRM

FUNCTIONS OF HUMAN RESOURCE MANAGEMENT

There are 2 broad functions of HRM. They are:

Managerial Functions

Operational Functions

Managerial Functions:

Managerial functions of Personnel management include planning, organizing,

directing, co-ordinating & controlling.

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Planning:

It is the charting out of programmes & changes in advance in the

achievement of organizational goals. Hence, it involves planning of human

resources requirements, recruitment, selection, training etc. It also involves

forecasting of personnel needs, changing values, attitudes & behavior of

their employees & their impact on the organization.

Organizing:

In the words of J. C. Massie, an organization is a structure & process by

which co-operative groups of human beings allocated its tasks among its

members, identifies relationships & integrates its activities towards a

common objective. Given the complex relationships that exist betwe en

specialized departments & the general departments, many top managers seek

the advice of personnel manager. In this manner, the organization establishes

relationships among the employees so that they can together contribute tothe achievement of organizational goals.

Directing:

After planning & organizing comes the execution of plan. The willing &

effective cooperation of employees towards the achievement oforganizations goals has to be brought about by proper direction. Identifying

& utilizing maximum potentials of people is possible through motivation &

command. Direction, therefore, is an important managerial function in

ensuring optimum employee contribution.

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Co-ordinating:

It is the task of matrixing various employees efforts to ensure successful

goal achievement. The Personnel manager co-ordinates various managers at

different levels as far as the personnel functions are concerned.

Controlling:

After planning, organizing, directing & co-ordinating, the various activities,

the performance is to be verified in order to know, at various points of time,

whether the activities are performed as per plans & directions. It involves

checking, verifying & comparing actual with the plans, identification of

deviations if any & correcting the deviations. Auditing training programmes,

analyzing labour turnover, overseeing morale surveys, conducting exit

interviews are some of the controlling functions of personnel management.

Operative Functions:

The operative functions of HRM relate to employment, development,

compensation & relations. All these are interacted by managerial functions. Also,

they are to be performed in conjunction with management functions.

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ORGANISATIONAL DESIGN----JOB DESIGN----JOB ANALYSIS

Employment:

Employment function is securing & employing the people having required

level of human resources essential for achieving the organizational

objectives. It involves job analysis, human resources planning, recruitment,

selection, placement, induction & handling internal mobility.

Job Analysis:

It is the study & collection of data relating to the operations &

responsibilities of a specific job. It includes:

Collection of data & information & facts relating to the various

aspects of jobs including men, machines & materials.

Drawing up of job description, job specification, job requirements

& employee specification with which nature, level & quantum

human resources can be finalized.

Providing the guidelines, plans & the basis for job design & for all

operative functions of HRM.

Human Resource Planning:

This is the process which assures the organization that it will have adequate

number of qualified persons, at requisite times, performing in a way to

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satisfy the needs of the organization & also provide satisfaction to the

individual employee, so employed.

The process involves:

Estimating the present & future requirements of human resources

based on objectives & long range plans of the organization.

Calculation of net human resource requirements based on the

present availability of human resources.

Taking suitable steps to identify, mould, change & develop the

strength of existing employees so as to meet the future

requirements.

Preparation of action plans to acquire the balance human resources

from outside the organization & to develop the existing employees.

Recruitment:

It is the process of searching for future employees (requirement) & ensuring

they apply for jobs in the organization.

It involves:

Identification of existing sources of candidates & developing them.

Seeking out & identifying new sources of applicants.

Motivating the right type of candidates to apply for jobs in the

organization.

Ensuring a healthy balance between internal & external sources.

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Selection:

It is the process of ascertaining the qualifications, experience, skill,

knowledge, etc. of an applicant to ascertain his/her suitability for the job

applied.

This includes:

Developing application blanks.

Creating & developing valid & reliable testing techniques.

Formulating interviewing techniques.

Checking of references.

Setting up for medical examination policy & procedure.

Line Managers to be involved in the decision making.

Sending letters of appointment.

Employing the selected candidates, when he reports for duty.

Placement:

It is a process of allotting to the selected candidate the most suitable job, as

per the job requirements & employee specifications.

This function includes:

Counselling the concerned managers regarding the placements.

Overseeing the follow-up studies, employee performance appraisal

to monitor employee adjustment to the job, in the coming days.

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Correcting wrong/misjudged placements, if any.

Induction & Orientation:

These are procedures by which a new employee is rehabilitated in the newsurroundings & introduced to the practices, procedures, policies, people, etc.

of the organization.

It includes:

Familiarizing the employee with company philosophy, objectives,

policies, career planning & development, company product, market

share, history, culture, etc.

Introduce new employee to the people his colleagues, supervisors

& subordinates.

Mould the employees by orientation methods to the new working

conditions.

Human Resource Development:

This process involves improving, moulding, & developing the skills,

knowledge, creativity, attitude, aptitude, values, commitment, etc. based on

the present & future job & company requirements.

Performance Appraisal:

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It is the continuous & systematic evaluation of individual employees with

respect to their performance & their potential for future development.

It includes:

Enunciating policies, procedures & techniques.

Assisting functional managers.

Reviewing & summarizing reports.

Evaluating the effectiveness of various programmes.

Training:

It is the process of transmitting the employees the technical & operating

skills & knowledge.

It includes:

Identification of training needs of the individuals & for the

organisation.

Developing appropriate training programmes.

Assissting & advising the management in the conduct oftraining

programmes.

Transmitting requisite job skills & job knowledge to the

employees.

Asses the effectiveness of the training programmes.

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Management Development:

It is the process of designing & conducting appropriate executive

development programmes so as to develop the managerial & human

relations skills of the employees.

It includes:

Identification of the areas in which management development is

needed.

Conducting development programmes.

Motivating executives/managers.

Designing special development programmes/ assessment

procedures for promotions.

Utilising the services of specialists both internal & external for

development &/or Institutional (external) development

programmes.

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Evaluating the effectiveness of executive development

programmes.

Career Planning & Development:

It is the planning of ones career & implementation of career palns by means

of education, training, job search & acquiring of work experience.

It includes:

Internal mobility vertical & horizontal transfers, promotions &

demotion.

Transfer process of placing employees in the same level jobs

where they can be utilised more effectively as per the needs of the

organisation. This also means developing transfer policies,

offering assistance & guidance to employees under transfer orders

& evaluating transfer policy periodically.

Promotion it deals with the upward assignment of employees tooccupy higher positions (with better status & pay) in consonance

with resoueces of employees & job requirement. The department

must ensure that:

Equitable, fair & consistent promotions are formulated &

administered.

Managers & employees are given assistance & guidance

on the subject of promotion.

Execution of promotional policies are as per policies &

procedures.

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Demotion is the downward assignment of an employee in an

organisation. The department must ensure that:

Equitable, fair & consistent demotion policies are drawn

up.

Assisting & advising employees regarding demotions.

Ensure fair implementation of demotion policies &

procedures.

Organisational Development:

The planned process drawn up to improve organisational effectiveness

through changes in individual & group behaviour, culture & systems of the

organisation drawing models from applied behavioural science.

Human Relations:

Administering various human resources policies like employment

development & compensation & interactions among the employees on one

hand & employees & the management on the other, create a sense of

working relationships between workers & management & trade unions.

Basically they are all interactions between human beings.

Human relations, is therefore, is an important area in management which

integrates people into worksituations in a way that motivates people to worktogether with economic, psychological & social satisfaction thereby

increasingtheir productivity. Hence Human Resources Management

functions will centre around:

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Understanding perception, personality, learning, intra & inter personal

relations, inter & intra group relations.

Motivating all employees.

Promoting employee morale.

Developing communication skills.

Developing leadership skills.

Redressing satisfactorily through a well defined grievance procedure.

Handling disciplinary cases by established disciplinary procedures & inall fairness.

Prov iding adequate counselling to solve employees personal, work &

family problems, thereby releasing their stress & strain.

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FUNCTIONS OF HRM ALONG WITH OBJECTIVES

HRM Objectives Supporting HRM Functions Social Objectives Legal Compliance Benefits

Union Management Relations Organisational Objectives Human Resource Planning

Employee RelationsRecruitment & SelectionTraining & DevelopmentPerformance AppraisalsPlacement & OrientationEmployee Assessment

Functional Objectives Performance AppraisalsPlacement & OrientationEmployee Assessment

Personal Objectives Training & DevelopmentPerformance AppraisalsPlacement & OrientationCompensationEmployee Assessment

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OBJECTIVES

Societal Objectives : to be ethically & socially responsible to the needs &

challenges of the society while minimising the negative impact ofsuch

demands upon the organisation.

Organisational Objectives : To recognise the role of HRM in bringing about

organisational effectiveness. HRM is only means to achieve & assist the

organisation with its primary objectives.

Functional Objectives : To maintain departments contribution & level of

services at a level appropriate to the organisations needs.

Personal Objectives : To assist employees in achieving their personal goals,

at least in so far as these goals enhance the individuals contribution to theorganisation. This is necessary to maintain employee performance &

satisfaction for the purpose of maintaining, retaining & motivating the

employees in the organisation.

Objectives of Personnel Management are determined by organisational objectives

& individual & social goals. The main objectives of Human Resource Management

are drawn from the organisational objectives. The other objectives of HRM are totake care of the needs, aspirations, dignity of the individual employees & at the

same time keeping in mind the socio-economic problems of the community & the

country.

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The objectives of HRM are as follows:

To create & utilise capable & motivated workforce to achieve the basic

organisational goals.

To establish & maintain proper & sound organisational structure & healthy

working relationships among all its employees.

To ensure the integration of individual groups goals with those of theorganisation.

To create facilities for individuals & groups to develop so as to be in tune

with the growth of the organisation.

Proper & optimum utilisation of human resources.

To ensure adequate & equitable wages, incentives & other benefits so that

satisfied individuals & groups are motivated to take on challenges.

To maintain high employee morale.

To continuously upgrade the skills & knowledge of the employees, by

training & development programmes.

To ensure opportunity for participation in management to the extent possible.

To provide acceptable & effective leadership.

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HUMAN RESOURCE MANAGEMENT IN BANKS

The classification of the Indian banks into broad groups such as public sector, old

private sector, new private sector, foreign, regional rural banks & cooperatives are

largely on the basis of ownership pattern. It is also well known that the business

mix, delivery channels & IT strategies of these organisations vary substantially.

What is little known but of greater importance is thateach of these banks follow

very distinct HR practices which have contributed, substantially, to the business

processes.

HRM in Cooperative Banks

It is sad that the HR policies of cooperative banks are totally dominated by the

Registrar of Cooperatives. This is, perhaps, one reason why the cooperatives are

unable to improve themselves.

HRM in Regional Rural Banks (RRBs)

As regards RRBs, most of them adopt the HR policies of sponsor banks, which are

not appropriate for their special nature.

HRM in Public Sector Banks

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In the recent times, the contours of HR function in public sector banks are slowly

but definitely changing. One could say that these banks are discovering the HR

function & it is hoped that these banks will fast catch up with others. It may be

recalled that, in a controlled environment & to meet with the rapid branchexpansion- since 70s- Public Sector Banks(PSBs) have adopted HRM practices

similar to that of Government departments. Herein HRM did not have a direct role

in business development but was more concerned with centralized recruitment to

staff & providing them across the country.

HRM in Private Banks & Foreign Banks

The HR function as practiced by private & foreign banks is effectively involved in

the identification of specific skills that each job warrants & recruiting suitable staff

by every way possible. In these banks, recruitment is a continuous process with a

strong focus on getting the right person for the right job by offering appropriate

compensation, incentives & designations. There is a great energy spent in keeping

the turnover low & offering appropriate training inputs. Possibly there are as many

pay structures as there are employees. More importantly, HRM has a role in

monitoring & mentoring the employee. There are no routine transfers. Rather

people are recruited in different geographical locations & different levels.

Technology has helped in centralizing the back office & other functions such that

service can be provided from a distance. These institutions adopt a proactive

performance appraisal system but still short of 360 Degree appraisals. Their

training process is concerned with both skill building & motivating. It should,however be said that the demand for professionals on account of growth of Indian

Business is such that the efforts of HRM have not helped it from completely

staving off staff turnover in the ranks.

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HRM in Public Sector Unit Banks (PSU Banks)

In the case4 of PSU Banks the recruitment process is annual & large scale. People

are recruited at the lowest grade & promoted I due course.this makes the career

path of each employee the responsibility of the organisation. This also underlies a

belief that anyone can occupy any desk. In such a system specialisation is the loser.

Recruitment at higher levels is a recent phenomenon & more an exception than

rule. Pay packets are uniform for a grade/level with annual increments & uniform

perquisites. Increments are earned automatically.

Transfers are not driven by business requirements but a matter of routine.

Vacancies get created as & when people move up. It is not uncommon to se new

departments spring up just to allow promotions. In a way such a move is justified

as salary is linked to grades & not performance. The concept of job rotation is

practiced with great conviction. As regard leave it is seen that modern business

organisations, driven by work life balance issues & operational risk ensure that

certain annual leave is mandatory. In the case of PSU Banks, the compulsory

leave system has not yet taken root. In the circumstances an important task at

hand is training the staff member, who, on accont of age profile is not comfortable

working in an IT environment. HRM should also take immediate steps to improve

productivity. There is a simultaneous need to balance the demand of IT savvy

youngsters joining the organisation who ask for high salaries. PSU Banks are not

able to offer market driven salary. Given that banking business & the business of

Government are distinct, there is, in the case of PSU Banks, an urgent need thatsalaries are not limited by what is paid in the ministry but unshackled. Till that

happens, HRM should, innovatively tackle the issue.

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Responsibilities Of The Human Resource Management Department In

Banks:

Role:

The role of the Human Resource Department is to create the climate & conditions

in which management throughout the Bank will be enabled to optimise the

individual & collective contribution of all employees to the short & long-term

success of the Bank.

Responsibilities:

To be the principal sponsor & guardian of HR polici es in the Bank.

To propose & obtain agreement on changes to these policies from time to

time & to ensure that policies which have been agreed are being

implemented throughout the Bank.

To contribute fully to the task of meeting the business challenges whichthe

bank has to face by supporting Branch/Unit Managers in continuously

developingthe potential of employees & in creating conditions in which all

the employees are motivated to meet the objectives of the Bank.

To continuously monitor the Banks strategie s to ensure that HR policies are

approriate & that employee numbers & skills are fully supportive of such

strategies.

To deliver a full range of personnel services in support of line management.

These services include manpower planning, recruitment/transfer,

remuneration, training & employee welfare.

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To support line management in their day-to-day management of the

workforce by providing advice & consultancy on personnel & performance

management issues.

EMPLOYEE RELATIONS IN BANKS

The banking sector has been characterized by apparently harmonious industrial

relations & has not suffered from the British Diseases of industrial action &

demarcation issues associated with parts of manufacturing industry (e.g. Batstone,

1984). Banks have promoted unitarism (Fox, 1966) encouraging an ethos of

teamwork, shared interest & loyalty, wanting commitment beyond the cash nexus.While banks are generally seen as having a passive approach to employee

relations, paternalism did underpin the system & particularly important was the

system of internal promotion supported by an unwritten agreement between the

major UK Banks on no poaching. The internal labour market created two

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categories of employees: career & non-career which equated to a male/female

divide.

Retail banking is a highly labour intensive industry with labour costs forming 70%

of total operating expenditure & involvem ent in fund transmissions meant that a

majority of clerical staff have not been used as a means of marketing the banks

products nor directly for increasing business but to process existing accounts. They

have been regarded as an overhead rather than a res ource. Until the 1980s,

competition between the Banks has been limited, banks operating as an oligopoly&

Governments concern with maintaining economic stability with limits to lending,

& control over interest rates facilitated this. The oligopoly fed through to themanagement of staff as national wage bargaining minimized competition for

labour. However deregulation led to the collapse of the national system & a

questioning of the old employment practices.

CURRENT CHALLENGES FACED BY BANKS IN HRM

Effective work force:

A time-consuming & hectic job is to hunt the right talent. Higher the

professional value of the vacancy, tougher is the search. Identifying the right

stuff followed by negotiation is the element which makes the job tough for

the employer. Banks are keenly interested to fill up two types of breeds of

professionals.

Ones who are outstanding professionals with high job hopping attitude

these are those who come in-work for some tome & then leave for better

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prospects. Others are those who are keenly picked-up, trained & are

somehow retained to be developed as future management within the bank.

Management trainees are a growing popular phenomenon where freshly

qualified business graduates are engaged by banks & a certain percentage of

these well equipped professionals stay back within the organization to grow

into the footsteps of senior managers.

Banking jobs being apparently lucrative for many, attract a large number of

candidates against advertised vacancies in media creating a large database

management problem. This has been facilitated by specialized hiring

agencies who may take up the job of hiring in case of large number of

vacancies.

Right People:

The most difficult agenda of HRM across the banking sector is to retain the

right people. Sudden growth of retail banking & other services has put

pressure on HR Managers in banks to engage more professionals withinshorter span of time thereby attracting manpower in other banks on attractive

packages has made the job market very competing.

A bank in a normal course invests time & money to hire & train the

appropriate workforce for its own operations. This readymade force is often

identified & subsequently picked-up on better terms by others.

Compensation:

How much to pay the right employee & how much to the outstanding

performer. Banks have traditionally followed pay scales with predetermined

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What the HR manager cannot afford is the dissatisfied employee who not

only disrupts the smooth working himself, but also spreads the negativity to

others by his de-motivated attitude.

Morale Boosting:

What has long been overlooked is the morale boosting of the employees by

the organizations. Human beings even if satisfied of material wellbeing need

to be appraised & encouraged constantly.

Smart banks have realized this need & have taken steps to keep their work

force motivated through proper encouragement like man of the mouthawards, repeat get-togethers, conferences, sports events, dinners, company

sponsored travel, reunions, etc. This is the way employees create a feeling of

belongingness.

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TRAINING & DEVELOPMENT

Meaning & Definition:

Training:

Organization & individual should develop & progress simultaneously for their

survival & attainment of mutual goals. So every modern management has to

develop the organization through human resource development. Employee training

is the important sub-system of human resource management. Employee training is

a specialized function & is one of the fundamental operative functions for human

resources management.

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After an employee is selected, placed & introduced he or she must be provided

with training facilities. Training is the act of increasing the knowledge & skill of an

employee for ding a particular job. Dale S. Beach defines the training as the

organized procedure by which people learn knowledge & skill for a definite purpo se.

The training system in the banking industry has a strong structural base. However,

in the past the training activities have been more ritualistic due to absence of a

strategic link between training & human resources development. Today, it is

important that the training function is made an effective organizational intervention

by establishing a clear policy of training & development within the framework oftotal human resource development. The training establishments need to be actively

involved in the total training process starting from the identification of the training

needs, evaluation of training effectiveness & the benefits of training to the end-

users viz. the internal & external customers.

The need for training & development is determined by the employees

performance deficiency, computed as follows:

Training & Development Need = Standard Performance Actual

Performance.

We can make a distinction among training, education & development. Training, as

was started earlier, refers to the process of imparting specific skills. Education, on

the other hand, is confined to theoretical learning in the classrooms.

Training & Education Differentiated:

TRAINING EDUCATION

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Application oriented Theoretical oriented

Job experience Classroom learning

Specific tasks General concepts

Narrow perspective Broad perspective

Development:

Give a man a fish, & you give him meal. Teach man to fish, & you give him a

livelihood.

This ancient Chinese proverb seems to describe the underlying rational of all

raining & development programs. No banking organization can long ignore the

training & development needs of its employees without seriously inhabiting the

performance. Even the most careful selection does not eliminate the needs for

training, since people are not molded to specifications & rarely meet the demands

of their jobs adequately.

This HRM function deals with the overall development of the employees. This

includes their professional & well as their personal development. It is a part of

HRM function to identify opportunities for enhancing the skills of the resources.

Promotion is regarded as one of the ways of recognizing development undertaken

by an employee. Development is also largely dependant on training.

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Generally people think that training & development are one & the same, but there

are many differences between them. They are as follows:

TRAINING DEVELOPMENT Duration:Training courses are designedmostly for short term.

It involves a broader long termeducation for a long term.

Managerial/Operative Personnel:Training is normally directed atoperative employees & related totechnical aspects.

It is directed at managerialpersonnel to acquire conceptual &theoretical knowledge.

Specific/General:Training is more specific jobrelated information.

It is more general in nature,especially top management level.

Method:More emphasis on the on the jobmethod.

More emphasis on the off the jobmethod.

Cost Involved:Imparting training is lessexpensive.

Development is more expensive.

Who Imparts:Mostly the supervisors imparttraining.

It is undertaken by supervisors,outside experts & self.

Frequency:Less frequent. Mostly at induction& at every change in job.

More frequent & continuous innature.

Theoretical/Practical Aspects:Emphasis is placed on practical ortechnical aspects of work.

Emphasis is placed on theoretical& conceptual aspects.

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THE TRAINING PROCESS

Organizational Objectives & Strategies

Evaluation of Results

Implementation of Training Programme

Devising Training Programme

Establishment of Training Goals

Assessment of Training Needs

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VESTIBULE TRAINING

ROLE PLAYING

LECTURE METHOD

CONFERENCE OR DISCUSSION

PROGRAMMED

JOB ROTATION

COACHING

JOB INSRTUCTIONS

COMMITTEE

ON-THE-JOB METHOD

OFF-THE-JOB METHOD

METHODS & TECHNIQUES OF TRAINING

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On-the-Job Training Method (OJT):

Majority of industrial training is on the job training type. OJT method is mainly

adopted while orienting new employees, introducing innovations in products and

services and in special skills training. OJT is conducted at the work site and in the

context of the job. Often, it is informal, as when an experienced worker shows a

trainee how to perform the job tasks.

It includes job rotation, job coaching, job instruction or training through step-by-

step and committee assignments.

Off-the-Job Training Method:

Under this method of training, trainee is separated from the job situation and his

attention is focused upon learning the material related to his future job

performance. Since the trainee is not distracted by the job requirements, he can

place his entire concentration on learning the job rather than spending his time in

performing it. There is an opportunity for freedom of expression for trainees.

DEVELOPMENT IN BANKS

The banks must emphasis on human resource development as one of the critical

areas of its operations. It should redraw its training & development schedules to

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suit the requirements of the current emerging scenario. Requisite training should be

imparted to various branch level functionaries as also administrative staff. Besides

in-house training the reputed external agencies should be utilized for human

resource development with a view to updating their knowledge & to keep themabreast of the current banking scenario for meeting the challenges ahead. The

concept of segment specialization may be resorted to in respect of the personnel

selected therefore. It is now thought expedient to plan & strengthen the squad of

skilled officers in various segments as IT, marketing management, risk

management, risk based supervisors, law, security, etc.

The lead bank must play an effective role in improving the work environment & pursuing staff welfare measures in the form of whole range of financial assistance

with reference to various loans of sorts.

Human resource skills are other areas of challenge. Because of modernization &

technological advancement rigorous training & man power planning are required.

In the market scenario characterized by heightened competition, growing customer

needs & technological up gradation, the bank fine tunes its HT policy to meet its

corporate objectives. New training systems have been developed to impart

competencies & a broad range of skills among the employees to deliver faster &

superior service that can delight the customers. The Industrial Relations in the

banks have been harmonious & cordial.

RECRUITMENT

Meaning and definition:

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The human resources are the most important assets of an organization. The success

or failure of an organization is largely dependent on the caliber of the people

working therein. Without positive and creative contributions from people,

organizations cannot progress and prosper. In order to achieve the goals or theactivities of an organization, therefore, they need to recruit people with requisite

skills, qualifications and experience. While doing so, they have to keep the present

as well as future requirements of the organization in mind.

Once the required number and kind of human resources are determined, the

management has to find places where the required human resources are/will be

available and also find means of attracting them towards the organization beforeselecting suitable candidates for jobs.

Recruitment is defined as, A process to discover the sources of man power to

meet the requirements of the staffing schedule and to employ effective measures

for attracting that man power in adequate numbers to facilitate effective selection

of an efficient work force.

Objectives of recruitment

Some of the objectives of recruitment are:

To attract people with multi-dimensional skills and experiences that suits the

present and future organizational strategies

To induct outsiders with a new perspective to lead the company

To infuse fresh blood at all levels of the organization

To devise methodologies for assessing psychological traits

Factors affecting recruitment:

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RECRUITMENT PROCESS

Employee Requisition

Personnel Planning

Job Analysis

To Selection

Screening

Searching Activation Selling Message Media

Recruitment Planning Number Type

Job Vacancies

Strategy Development Where How When

Potential Hirers

Application Pool

Application Population

Evaluation & Control

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Process of Recruitment:

Recruitment refers the process of identifying and attracting job seekers so as to

build a pool of qualifies applicants. This process comprises of five interrelated

stages, viz,

Planning

Strategy development

Searching

Evaluation and control

The ideal recruitment process is the one which attracts relatively larger number of

qualified applicants who will survive the screening process and accept positions

with the organization, when offered to approach the ideal people, individuals

responsible for recruitment process must know how many types of employees are

needed, where and how to look for individuals with appropriate qualifications and

interests, what inducements to use for various types of applicants group, how to

distinguish applicants who are unqualified from those who have a reasonable

chance of success, and how to evaluate their work.

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SELECTION

Definition

Selection is defined as the process of differentiating applicants in order to identify

and hire those with a greater likelihood of success in a job.

The objective of selection decision is basically picking an applicant from a pool of

applicants who has the appropriate qualifications and competency to do the job.

The selection procedure cannot be effective until and unless-

Requirements of the job to be filled have been clearly specified.

Employee specifications (physical, mental, social, behavioral etc) have been

clearly specified.

Candidates for screening have been attracted.

Selection process is preferable because:

It is easier for applicant as they can send their applications to a single

centralized department/agency.

It facilitates contacts with applicants because issues pertaining to

employment can be cleared through one central location.

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It helps operating managers to concentrate on their operating

responsibilities. This is helpful during peak operating period.

It can provide for better selection because hiring is done by specialist trained

in staffing techniques.

The applicant is better assured of consideration for a greater variety of jobs.

Hiring cost may be cut because duplication of efforts is minimized.

Selection Process:

The selection process consists of the following steps:

Application form: Many companies formulate their own style of

application form depending upon the size and nature of business

carried on, type and level of the job etc. Information is generally

required on the following items in the form: personal background,

educational attainments, work experience references etc.

Written test: Written test is conducted for the qualified candidates

after they are screened on the basis of application form to measure the

candidates ability towards the job, his aptitude reasoning, knowledge

in various disciplines, English language etc.

Preliminary Interview: The next step that tag along the selection

procedure is a preliminary interview wherein the applications are

scrutinized so as to eliminate unqualified applications. Preliminary

Interviews are short. This interview thus provides information about

the candidate related to the job or personal specifications.

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Selection Test: After passing through the interview the next stage that

applicant has to prove himself on are the selection tests. There are

different types of selection tests for different levels of the organization

and that too is further differentiated within different types oforganizations. Some of the most common and well-known tests that

an applicant has to go through are;

Ability test

Aptitude test

Personality tests: Which is common mostly for the higher levelof management are given to measure a prospective employees

motivation to function in a particular working environment.

Internal test: to measure an individuals activity pre ferences.

Graphology Test: is an art wherein the individuals handwriting

is seen and accordingly his personality traits are derived by the

way he writes.

Polygraph Test: Are designed to ensure accuracy of the

information given in the applications.

Medical Tests: Reveal physical fitness of the candidate.

Drug test: Help to ensure the presence of illegal or

performance-affecting drugs.

References and background checks: Many employer request names,

address, and telephone numbers or references for the purpose of

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verifying information and, perhaps, gaining additional background

information on an applicant.

Selection Decision: After collecting data from all the preceding steps,

this is the most crucial step in the entire selection process. The main

difference between the preceding stages and this is that former is used

to short list the number of candidates and later one is to make a final

decision from the pool of individuals who pass the tests, interviews

and reference checks. The view of line manager will be generally

considered in the final selection because it is he/she who is

responsible for the performance of the new employee. The HRmanager plays a crucial role in the final decision.

Physical Examination: After the selection decision and before the job

offer is made, the candidate is required to undergo a physical fitness

test. The result of the medical fitness test is recorded in a statement

and is preserved in the personal records. The main objectives of this

test are as follows:

To detect if the individual carries any infectious diseases.

To determine whether an applicant is physically fit to perform

the work.

It helps to determine if there are any physical capabilities

which differentiate successful and less successful employees.

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Medical check up protects applicants with health defects from

undertaking work that could be detrimental to them or might

otherwise endanger the employers property.

Last, but not the least such examination will protect the

employer from workers compensation claims that are not valid

because the injuries or illness was present when the employee

was hired.

Job offer: The next step is selection process is Job offer for those

applicants who had passed the previous stage. Job offer is made

through a letter of appointment. Such a letter usually contains the date

by which the appointee must report on duty. Appointee must be given

a reasonable time for reporting because it may be quite possible that

the appointee is employed in some other company or must be residing

in some other city and for such other reasons. Company may also

want the appointee to delay in joining the job because the job may

require undergoing some training program.

Decency demands that rejected applicants must be informed about

their non-select ion. These applicants data must be used for future

references.

Contract of employment: After the job offer is made and the

candidates accept the offer, certain documents need to be executed by

the employer and the candidate. One such document is Attestation

form. This form contains vital details about the candidate, which are

authenticated and attested by him/her, which could be used for future

reference.

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Another document is contract of employment. This document contains

the terms and conditions of employment like designation, perks, term

of job and so on. The information written in the contract may vary

according to the level of the job.

The main drawback of the contract is that it is difficult to enforce

them.

Concluding the selection process: The selection process will not end

with executing the employment contract. The step is reassuring the

candidates who have not been selected. Such candidates must be told

that they were not selected, not because of any serious deficiencies in

their personalities, but because their profiles did not match the

requirements of the organization.

Evaluation of selection process: The broad test if the effectiveness of

the selection process is the quality of the personnel is hired. An

organization must have competent and committed personnel. The

selection process, if properly done, will ensure availability of such

employees. Audit must be conducted by the people who work

independent of the HR department.

New methods of selection:

360 degree selection or participative selection: Normally supervisors

administer the selection test and interview. They judge the fit between the job and the candidate. But the employee skills, knowledge and performance

affect not only superiors but also subordinates and the employees of the

same level. Hence the organization started involving the subordinates and

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the employees of the same level in administrating the employment tests and

interviews. This type of selection program is called 360 degree program.

Employee leasing: The client company leases employees from a third party,

not on temporary basis but on a full time basis and for long help. An

interesting feature is that the client company need not perform personnel

activities such as hiring compensation or record keeping. Employees

working elsewhere are leased. They are not directly employed by the

company where they are working. Employees not recruited by one client are

sent to another.

Selection by invitation: Management observes the performance of the key

executives of competitors. If the performance of the key executives is

excellent or the key executives are the change agents, the management

invites them to join the organization by offering attractive salary and

benefits. Thus, the significant performance of the executives forms basis for

selecting them by invitation.

FUTURE OF HRM

If HRM is not to remain more in the realm of rhetoric with wide disparities

between theory and practice, several things need to take place. First, HRM needs to

be diffused across industries and the economy. For this to occur the following

conditions need to be satisfied:

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HRM should be an essential part of management education and training.

From this, two important consequences are likely to follow. HRM is likely

to be integrated into corporate strategies and line managers functions and

decisions. This would reduce the need for HRM specialists, except at the policy level where they will have a greater voice. Business strategies are

then likely to be built less around low cost and low wages, but around the

real sources of competitive advantage such as flexibility, quality and

customer service.

Employment policies which support employment security, without which

HRM policies, including training, would have little motivational effect. Thisdoes not mean guaranteed employment, but a policy which treats termination

as a last, rather than a first, resort. Learning from international experiences

and diffusing the information can have a transforming effect, as was the case

when American manufacturing was transformed through in-depth studies of

Japanese manufacturing in the automobile industry.

Substantial investment in people and the willingness of employers to viewthe benefits from a long-term perspective - a difficult task in a system which

is driven by short-term investor pressure.

CASE STUDY

STATE BANK OF INDIA

In February 2001, India's largest public sector bank (PSB), the State Bank of India

(SBI) faced severe opposition from its employees over a VOLUNTARY

RETIREMENT SCHEME (VRS) . The VRS, which was approved by SBI board

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in December 2000, was in response to FEDERATION OF INDIAN

CHAMBERS OF COMMERCE AND INDUSTRY'S (FICCI) report on the

banking industry. The report stated that the Indian banking industry was

overstaffed by 35%. In order to trim the workforce and reduce staff cost, theGovernment announced that it would be reducing its manpower.

Following this, the Indian Banks Association (IBA) formulated a VRS package for

the PSBs, which was approved by the Finance Ministry.

Though SBI promoted the VRS as a Golden Handshake,' its employee unions

perceived it to be a retrenchment scheme. They said that the VRS was completely

unnecessary, and that the real problem, which plagued the bank were NPAs. Theunions argued that the VRS might force the closure of rural branches due to acute

manpower shortage. This was expected to affect SBI's aim to improve economic

conditions by providing necessary financial assistance to rural areas. The union

also alleged that the VRS decision was taken without proper manpower planning.

In February 2001, the SBI issued a directive altering the eligibility criteria for VRS

for the officers by staffing that only those officers who had crossed the age of 55would be granted VRS.

The Protests

The SBI was shocked to see the unprecedented outcry against the VRS from its

employees. The unions claimed that the move would lead to acute shortage of

manpower in the bank and that the bank's decision was taken in haste with no

proper manpower planning undertaken. They added that the VRS would not be

feasible as there was an acute shortage of officers (estimated at about 10000) in the

rural and semi-urban areas where the branches were not yet computerized.

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Moreover, the unions alleged that the management was compelling employees to

opt for the VRS. They said that the threat of bringing down the retirement age from

60 years to 58 years was putting a lot of pressure on senior bank officials to opt for

the scheme.

The Post VRS Days

According to reports, SBI's total staff strength was expected to come down to

around 2,00,000 by March 2001 from the pre-VRS level of 2,33,000 (Refer Table

II). With an average of 5000 employees retiring each year, analysts regarded VRS

as an unwise move. By June 2001, SBI had relieved over 21,000 employees

through the VRS. It was reported that another 8,000 employees were to be relieved

after they attained the retirement age by the end of 2001.

Analysts felt that this would lead to a tremendous increase in the workload on the

existing workforce.

Analysts felt that SBI would have to take serious steps to reorient its HRD policy

to restore employee confidence and retain its talented personnel. SBI had many

strong organizational strengths and an excellent training system, but due to weakHR policies, it had lost its experts to its competitors.

THE INTERVIEW

I have interviewed Mr. Rajiv Deka, Branch Manager of SBI & Ms. Rohini Rai,

Branch Manager of HDFC Bank, thereby representing the 2 major sectors of

banking, i.e., Public Sector & Private Sector. The theme of the interview was on

how HRM has reacted to the various drivers of modern banking & how to enhance

performance in the fast changing banking sector. The results of the interview threw

up some interesting facets to the HR issues confronting the banks today & how the

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HR departments are coping with it. Hereby showing the main highlights of the

interview.

HRM CHALLENGES

When interviewed the two personnel, both of them were of the opinion that the list

of HRM challenges in banks are as shown in the graph.

The biggest HRM challenge is sustaining & increasing the profits of the

bank.

Following that is improvement in the operational effectiveness of the HRdepartment.

The least priority on the challenge list is given to new distribution channels

& on introducing new products & services.

THE ROLE OF HRM IN BANKS TODAY

When asked about the role of HRM in banking, Mr. Rajiv Deka was of the

opinion that HRM drives business transformation initiatives. It is therefore not

completely incorrect to conclude that HRM participates in the decision &

allocation process after the major issues are decided.

Ms. Rohini Rai however emphasized saying that In the post business decisions,

HRM participation in the business implementation & resource allocation is

solicited. It is necessary that the banks take up human resources accounting &involve HRM departments fully in the business process changes so that the full

potential of change in business processes may be realized.

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Interestingly the response about the changes within the HR Departments with

reference to a change in the business strategy revealed similar dichotomy.

EFFECTIVENESS OF HRD

Posting right person for the right job, retaining talents, planning for the long term

needs of the bank, dovetailing employee preferences in the deployment process, &

capacity to make staff changes that drive business changes are the corner stones of

HR strategy. How effective are the banks in performing these tasks?

The two personnel were of the opinion that:

They are effective when it is a question of ability to post staff with

appropriate skills & capabilities for the job/s.

Also these departments have enough room/flexibility with regard to their

ability to make changes in staffing pattern/position based on changes in

business conditions.

As regards PSU banks, the response to the effectiveness should, be read in

conjunction with the issues on transfer & promotion policy. The posting of

staff with appropriate skills & capabilities could be well suffixed with

subject to availability of suitable skills & talents in the given location.

HRM effectiveness could also be suited with reference to be its role in staffing of

each department/unit. In an effective organization, the department will have a say

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in the matter & work hand in glove with the line departments. This seems to be in

vogue in private sector & foreign banks. Invariably, in these organizations, the line

departments & HRD jointly select candidates, while HRD is involved in the head

hunting, finalizing pay & related aspects. In the case of PSBs, in the past theselection process was through advertisements for a large number of posts.

On selection, the candidates were given an induction training & job-specific

training. Undoubtedly this has been a successful model as it has thrown up a large

number of very efficient leaders in the sector. In the recent years, however, there

are apparent changes in the way the staff are selected in PSBs. There are campusrecruitments & sporadic instances of specialists being inducted at higher levels.

Some of the banks have also started offering market related pay. Yet, as of now, it

appears that in the case of PSBs the line departments have no right in the selection

of candidates. The responses clearly show that there is a need for greater

coordination between the HR & line the participant HR functionaries have

indicated that job rotation is an important aspect of employee development. Theyhave also indicated that most jobs are becoming specialist in nature. Indeed the

concept of job rotation is contrary to the development of specialist skills.

COPING WITH THE EMPLOYEE TURNOVER

If a bank does not have the staff with the required skills at the required place it

would resort to recruiting. This coupled with

The need for specialization & new skill sets for CBS &

Marketing of bank products bring us to the two issues that have gained

the attention of HR departments in the recent years, namely staff

deployment techniques & managing employee turnover.

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Across the banking sector everyone is facing a high level of employee turnover in

the recent years. If till recently it was the BPO sector, which was the biggest

recruiter, it is now the turn of retail business. It is seen that bank employees are

able to take up jobs in these relatively new areas. In the view of this, it is seen thatthe turn over level during the current year is higher than the previous years.

It can be said that the current period is the most challenging times for HRD, as

staff-mostly talented & experienced officers-move from public sector to private

sector & within the private sector to the greener pastures. Certain specialist areas

such as treasury management, risk management & customer relationship face acute

shortage of experienced & talented staff. As PSBs cannot offer-barring a fractionof their business-market related salaries the turn over has been high. Another

reason for loss of staff is the requirement of domain staff in the IT companies.

Transfers have also been cited as one of the reasons for turnover in the public

sector. The available avenues to manage this issue are outsourcing, re-skilling,

hiring temporary staff; reuse of retired staff, etc. it is seen from the news reports

that, in making financial inclusion happen, banks have resorted to the use of the

expertise of retired staff. Some of the retired staff has also come forward to handle

training assignments. The following figure shows the importance of HR in each

strategy adopted by banks in the matter of staff deployment:

Performance Appraisal:

A related issue is the performance appraisal system that currently focused more on promotions & not on linking performance to deployment of specialization.

Performance appraisal is also more on traits than on any qualitative or quantitative

appraisal of work. In the absence of clearly defined individual & organizational

goals the appraisal has become a routine. Participants indicated the need for a

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change & more business oriented appraisal & felt that appraisal systems such as

360 Degree appraisals will be useful in future. The overwhelming feeling is that

PA system should change & react to new needs.

RECRUITMENT IN BANKS

Evidently the banks are waking up to many new issues. One such issue is the

changing recruitment market. What according to the HR executives attracted

candidates to the banks?

What attracts candidates to your banks?

Sr. No.

Particulars

1. Work & Life Balance

2. Career Growth Opportunities

3. Banks Track Record

4. Compensation Being Better Than Market

5. Good Company Values

6. Challenging Work Environment

7. Positive Corporate Reputation

8. Others

The personnels felt that the recruitment policies, in future, will be woven around

the above aspects (Table). It is an indication of changing times that the list includes

items such as performance linked incentives, fast track promotion, foreign posting

education, choice of departments, sabbatical & stock option. If turnover is high &

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recruitment poses challenges on account of high salary & work life balance

expectations the HR function needs to adopt many different methods to

educate/train the staff.

Employee Development Techniques

It was earlier seen that the major task before the HRD is to instill new skills with

the staff. In this connection it can be pointed out that all the banks own a large

training network. They also have access to other training establishments &

seminars. Banks also send employees to B schools for short duration courses &

MDPs. The major emphasis of banks is to use their training systems &

establishments to the fullest extent. Banks were also keen on encouraging theirstaff to take up new courses & correspondence courses. The schemes of

reimbursements of expenses were rather liberal.

As staff turnover & new positions are filled, knowledge management becomes

important. The rules, procedures & customers, data that have been gathered need to

be made available to the new staff such that continuity & service excellence is

maintained. There is a need to curtail expenses in reinventing wheels. The HR

executives felt that the HR department can also function as knowledge

management centre. Banks have already begun knowledge management efforts.

SOURCES OF RECRUITMENT

The various sources of recruitment may be broadly classified into two categories,

i.e., internal & external sources. Some organizations draw their human resources

internally, i.e., from within the organization while others draw externally, i.e., from

outside the organization.

CONSULTANTS

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PROMOTION

EXTERNAL

INTERNAL

ADVERTISEMENTS

TRANSFER

Sources of Managerial Recruitment

INSTITUTES

RETIREMENT

RECOMMENDATION

RECALLS

INTERNAL ADS

DEPUTATION

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CONCLUSION

The banking sector has grown from a few institutions primarily involved in deposit

acceptance and trade finance into a complex multi player where large number of

commercial banks, financial institutions and specialized banks are operating with

various products and activities. The banking has become a complex activity within

the financial market linked directly and indirectly with an over-all national growth

and its impact as an integral part of regional segment of a global banking

environment.

Thus, event the high automation would require proper man behind the machine to

make things happen. This idea has been realized by top managements in

progressive banks.

Like many other organized sectors, banking requires multi layer manpower for its

various requirements of professionals and support staff. The range may require

reasonably educated security guards on the one end and a highly educated and

trained professional as head of corporate finance at the other.

HRM is of great importance in banks. The training and development of employees

is very much important. Recruitment and selection must also be done very

efficiently. The major challenge for this industry is, attracting the right talent and

retaining them.

To conclude the growth of banking sector in the future depends upon appropriate

HRM policies which will assist the employees in achieving their personal goalsand in turn will enhance the individuals contribution to the organization.

Objectives of the employees should be met if employees are to be maintained,

retained and motivated.

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ACKNOWLEGEMENT

I sincerely thank the University for introducing a degree course in B. Com for

Banking & Insurance. This has given us an opportunity to gain knowledge on the

insights of the Banking & Insurance industry. A special thanks to our esteemed

coordinator Prof. A.R.Suri for guiding and motivating me during this project. I

would also like to thank the librarian of Jai Hind College who helped me in finding

out various books on the topics.

This project was highly educational and a great learning experience.

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BIBLIOGRAPHY

BOOKS

Human Resource Management and Industrial Relations P. Subba Rao

Human Resource Management K. Ashwathapa

Human Resource Management P. V. Rao

The future of Human Resource Management - K. Ashwathapa

Human Resource and Personnel Management William Wrether

BANKING STRUCTURE

PROJECT REPORT BY

NACHIKET SHILOTRI

T.Y.B.B.I (SEMESTER V)

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PROJECT GUIDE

PROF. KRISHNAN SIR

THE DEPARTMENT OF BANKING & INSURANCE

MUMBAI-400020

2014-2015

DECLARATION

I, Nachiket Shilotri studying in T.Y.B.B.I hereby declare that I have

done a project on Banking structure. As required by the university rules, I state

that the work presented in this project is original in nature and to the best my

knowledge.

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Place: Mumbai Nachiket Shilotri

Date:

PREFACE

The project has been prepared not only because it involves marks and is the

requirement of the university but I understand the underlying intention of the board

which definitely imparts priceless knowledge and I believe that practical exposure

is equally important for every student.

I firmly decided to prepare my project on banking structure as I eager to know

the meaning both theoretical as well as practical. I have chosen this topic because

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to be honest I love doing projects related to the technology. There is nothing more

that excites me than good execution done through an electronic medium and hence

I choose this topic.

I have put my sincere efforts in the project and hope I have done a decent job to

portray that technology has proven to be a boon to banking

Place: Mumbai Nachiket Shilotri Date:

ACKNOWLEDGEMENT

The present research work cannot see the light of the day unless it is blessed

by the begin assistance of eminent person. The help and co-ordination that I

have received from various quarters of in bringing this work to completion

makes me feel deeply indebted. This is not a work of individual but a numberof persons who helped me directly or indirectly in this journey. So, I wish to

express great fullness to all those who have helped & assisted me in bringing

the final shape of this report.

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First of all, I wish to express my deep sense of gratitude to our Supervisor

Prof Mr. Krishnan Sir for his guidance and moral support all along the

period of my study in the institute.

I am deeply indebted to my project guide Prof Mr. Krishnan Sir for his kind

advice, encouragement, support & proper guidance. During the course of

preparation of this project, I got tremendous support in mastering fact &

figures from her. Really she had been a great source of information during theperiod of study.

Last but not the least I wish to express my deep sense of gratitude to all those

who were knowingly or unknowingly with me during the project tenure.

Signature of the student

AKHILESH VIJAYAN

Place: Mumbai Nachiket Shilotri

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INTRODUCTION

India has a well developed Banking system. The banking industry originated in India in the 18 th

century and since then it has undergone significant number of changes. The commercial banking

industry in India over the past few decades has been revolutionized by a number of factors such

as independence, nationalization, deregulation, rise of the Internet, etc. The commercial banking

structure in India consists of Scheduled Banks and Unscheduled Banks.

In the past the banks did not find any attraction in the Indian economy because of the low level

of economic activities and little business prospects. Today we find positive changes in the

National business development policy. Earlier, the money lenders had a strong hold over the

rural population which resulted in exploitation of small and marginal savers. The private sector

banks failed in serving the society. This resulted in the nationalization of 14 commercial banks in

1969. Nationalization of commercial banks paved ways for the development of Indian economy

and channelized financial resources for the upliftment of weaker sections of the society. The

passage of financial modernization legislation by Congress in 1999 removed barriers, allowing

banks to expand product offerings, while the potential of the Internet as a sales, marketing and

delivery tool, widened the avenues to sell and deliver these products. The main products of the

commercial banking industry-insurance, securities, mortgages, mutual funds and consumer

credit-have all benefited from these changes. This report will examine the extent to which

increased product sales have influenced overall bank assets and how commercial banks'

increased market share in each of these products areas over the next five years will raise overall

bank income and assets.

Currently, banking industry in India is generally fairly mature in terms of supply, product range

and reach-even though reaches in rural India still remains a challenge for the private sector and

foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to

have clean, strong and transparent balance sheets relative to other banks in comparable

economies in its region. The Reserve Bank of India is an autonomous body, with minimal

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pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage

volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in

its services sector-the demand for banking services, especially retail banking, mortgages and

investment services are expected to be strong. One may also expect mergers and acquisitions,

takeovers, and asset sales.

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REVIEW OF LITERATURE

Indian banking system, over the years has gone through various phases after establishment of

Reserve Bank of India in 1935 during the British rule, to function as Central Bank of the country.

Earlier to creation of RBI, the central bank functions were being looked after by the Imperial

Bank of India. With the 5-year plan having acquired an important place after the independence,

the Govt. felt that the private banks may not extend the kind of cooperation in providing credit

support, the economy may need. In 1954 the All India Rural Credit Survey Committee submitted

its report recommending creation of a strong, integrated, State-sponsored, State-partnered

commercial banking institution with an effective machinery of branches spread all over the

country. The recommendations of this committee led to establishment of first Public Sector Bank

in the name of State Bank of India on July 01, 1955 by acquiring the substantial part of share

capital by RBI, of the then Imperial Bank of India. Similarly during 1956-59 the associate banks

came into the fold of public sector banking.

Another evaluation of the banking in India was undertaken during 1966 as the private banks

were still not extending the required support in the form of credit disbursal, more particularly to

the unorganised sector. Each leading industrial house in the country at that time was closely

associated with the promotion and control of one or more banking companies. The bulk of the

deposits collected, were being deployed in organised sectors of industry and trade, while the

farmers, small entrepreneurs, transporters , professionals and self-employed had to depend onmoney lenders who used to exploit them by charging higher interest rates. In February 1966, a

Scheme of Social Control was set-up whose main function was to periodically assess the demand

for bank credit from various sectors of the economy to determine the priorities for grant of loans

and advances so as to ensure optimum and efficient utilisation of resources. The scheme

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however, did not provide any remedy. Though a no. of branches were opened in rural area but

the lending activities of the private banks were not oriented towards meeting the credit

requirements of the priority/weaker sectors.

On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings)

Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of Rs.28.50cr, deposits of

Rs.2629cr, loans of Rs.1813cr and with 4134 branches accounting for 80% of advances. Subsequently in

1980, 6 more banks were nationalised which brought 91% of the deposits and 84% of the advances in

Public Sector Banking. During December 1969, RBI introduced the Lead Bank Scheme on the

recommendations of FK Narasimhan Committee. Meanwhile, during 1962 Deposit Insurance

Corporation was established to provide insurance cover to the depositors.

In the post-nationalization period, there was substantial increase in the no. of branches opened in

rural/semi-urban centres bringing down the population per bank branch to 12000 approx. During

1976, RRBs were established. The Service Area Approach was introduced during 1989.While

the 1970s and 1980s saw the high growth rate of branch banking net-work, the consolidation

phase started in late 80s and more particularly during early 90s, with the submission of report by

the Narasimhan Committee on Reforms in Financial Services Sector during 1991.

In these five decades since independence, banking in India has evolved through four distinct

phases:

FOUNDATION PHASE

Foundation phase can be considered to cover 1950s and 1960s till the nationalisation of banks in

1969. The focus during this period was to lay the foundation for a sound banking system in the

country. As a result the phase witnessed the development of necessary legislative framework for

facilitating re-organization and consolidation of the banking system, for meeting the requirement

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of Indian economy. A major development was transformation of Imperial Bank of India into

State Bank of India in 1955 and nationalisation of 14 major private banks during 1969.

EXPANSION PHASE

Expansion phase had begun in mid-60s but gained momentum after nationalisation of banks andcontinued till 1984. A determined effort was made to make banking facilities available to the

masses. Branch network of the banks was widened at a very fast pace covering the rural and

semi-urban population, which had no access to banking hitherto. Most importantly, credit flows

were guided towards the priority sectors. However this weakened the lines of supervision and

affected the quality of assets of banks and pressurized their profitability and brought competitive

efficiency of the system at low ebb.

CONSOLIDATION PHASE

The phase started in 1985 when a series of policy initiatives were taken by RBI which saw

marked slowdown in the branch expansion. Attention was paid to improving house-keeping,

customer service, credit management, staff productivity and profitability of banks. Measures

were also taken to reduce the structural constraints that obstructed the growth of money market.

REFORMS PHASE

The macro-economic crisis faced by the country in 1991 paved the way for extensive financial

sector reforms which brought deregulation of interest rates, more competition, technological

changes, prudential guidelines on asset classification and income recognition, capital adequacy,

autonomy packages etc.

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OBJECTIVES OF THE STUDY

The objectives of project are as follows:

To find out the earlier banking structure that prevailed in India.

To assess the various factors that lead to the change in the Indian banking structure

To assess the impact of all these factors on the banking structure. To assess the change in the performance and efficiency of the banks in India.

To draw a contrast between the old and the new Indian banking structure.

To determine the various services offered by banks earlier and currently

To determine the future of Indian Banking Markets

To assess the impact of information technology on the banking sector.

To study how new distribution channels such as Internet Banking, ATM facility, Phone

Banking have changed the face of the Banking industry.

To draw conclusions of the impact of the changes in banking sector.

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RESEARCH METHODOLOGY

Secondary data is the data which is collected for some other purpose.

The data used for preparing the project report was secondary data. It was collected from various

websites, newspapers and books.