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Chapter 1
Chapter 1
INTRODUCTION
The purpose of the project seeks to estimate and analyze the value added
intellectual coefficient (VAIC).For measuring the value based performance of
the Indian private banking sector for a period of 2005-2010
design/methodology/approach – Annual reports, especially the profit and loss
accounts and balance sheets of the banks concerned for the relevant
years,were used to obtain the data.A review that reviews measurement
techniques and tools, and the VAIC method is applied in order to analyse the
data of indian private banks for a period of five years.The intellectual or
human capital and physical capital of indian banking sector and their impact
on the banks value based performance is analysed.
The term “intellectual capital” has been widely used in recent times by the
research community in the developed world; however, there have been very
few studies that have used emerging economies as a case for evaluating the
implications of IC for specific industries. The implications of IC are more
prominent in these economies as they have abundant human capital at their
disposal. Therefore, it becomes necessary to understand whether this
resource is being efficiently utilized by specific sectors to their
advantage in creating value over a period of time.
On the one hand, service sectors are playing a dominant, important role in the
growth of economies, and on the other, these economies are moving towards
more liberalization and globalization. In the changing context of an
environment where competitiveness becomes key to survival, are domestic
industries geared up to meet the competition? Answers to these questions
raise an important issue: in the emerging knowledge economy the role of
traditional accounting and measurement systems to evaluate performance
appears to be diluted and there is a need to look at the whole scenario from a
different dimension of evaluating the business performance of firms that use
IC as an important resource for growth. Using novel methods of measurement
and reporting tools becomes imperative.
Banks happen to be one service sector that uses a huge amount of human
capital and customer capital for its survival. Thus, this paper evaluates the
business performance of the Indian banking system over a period of five
years using the Value Added Intellectual Coefficient
Intellectual capital (IC) is defined as any creation of the human intellect or
mind. However, several researchers across globe have defined and
delineated 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. Intellectual capital has been defined and classified in several ways by
several researchers since the concept gained importance. Edvinsson and
Malone (1997) defined it as “Knowledge that can be converted to value”.
Today’s discerning investors take a critical look at not only the financial
parameters but also the non-financial parameters that determine the long-
term success of a company. These new non-financial parameters challenge
the usefulness of evaluating companies solely on traditional measures as they
appear in the financial reports of a company. Thus, the intangible assets of
the company have been receiving considerable attention from all corners of
the industry. Besides simply reporting the IC statements it also becomes
essential to show the relation between the IC investments made by the firm
with its performance in the long run. Therefore, the absolute increase in value
may be as insufficient as reporting the financial ratios.
The VAICe is a new management and control tool that is designed to enable
the organization to monitor and measure the intellectual capital performance
and potential of the firm. This measurement is necessary as these are
considered to be an important resource in firms in which knowledge or human
capital is dominant. Generally,traditional measures of accounting are used to
evaluate the business performance of these firms. This results in partial or
biased communication to stakeholders, who are more interested in finding the
true value and performance of the firm. The wrong conclusions may also
result in wrong decisions. Thus, if the intellectual capital being created in the
process of business functions is ignored, it may be disastrous for the firm in
the long run. The VAICe is considered appropriate for an organization that is
intellectually inclined. It can be used within the organization to measure the
intellectual performance 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 for
performance 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
most secure way to ensure sustainable business success;
. VAIC has proved its suitability as a tool for the measurement of IC; and
. the fact that companies have higher expenditures for intellectual potential
than for physical capital, and that with VAIC we have found a reliable indicator
for IP, are very good reasons to pay higher attention to intellectual potential.
Value creation is considered key to every business activity. However, in
recent times the efficiency of value creation is more important for success
than the absolute value addition. Intellectual capital is an important resource
in this value creation process. Thus, measuring it enables the firm to increase
its market performance.
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
its performance on financial parameters as it entered into a new phase of
liberalization.However, there have been no studies looking at the intellectual
performance of Indian banks. This paper is therefore a contribution to the
existing literature on Indian banks and intellectual capital as its objective is
two-fold:
(1) to add a new dimension to measure and evaluate value-based
performance efficiency of firms in service sector, especially banks in India;
and
(2) to evaluate the significance of IC in the different economic environment of
an emerging economy.
The efficiency of the banks is measured using the performance of the capital
employed and the intellectual capital using VAIC as a tool of measurement.
The efficiency of each bank is measured and then compared with the average
performance of all of the banks. The analysis provides a strong case for
reporting of the value creation through intellectual capital in the annual reports.
The reporting would be a useful tool for benchmarking the performance of the
banks across various countries, besides serving as an absolute measure of
performance for each bank within the economy.
An evaluation of the efficiency of the physical capital and intellectual potential
of the major European banks for the year 1996 was another work that can be
noted in this context (Pulic, 1998). The results of the study indicate that
intellectual potential is of crucial importance for corporate success, and
therefore the obvious conclusion arises that increasing the efficiency of
intellectual potential is the simplest, cheapest and most secure way to ensure
sustainable business success. A similar study was conducted focusing on
how New Zealand banks incur a cost in acquiring IC (human capital) and their
need to recognise the important cost drivers. The study produced a model in
accounting for IC in New Zealand banks (Sahrawat, 2001).
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle free
but it should beable to meet new challenges posed by the technology and any
other external and internal factors.
For the past three decades India’s banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no
longer confined to only metropolitans or cosmopolitans in India. In fact, Indian
bankingsystem has reached even to the remote corners of the country. This is
one of the mainreasons for India’s growth. The government’s regular policy for
Indian bank since 1969 has paid rich dividends with the nationalization of 14
major private banks of India.
CURRENT SCENARIO
Currently (2007), overall, banking in India is considered as fairly mature in
termsof supply, product range and reach-even though reach in rural India still
remains achallenge for the private sector and foreign banks. Even in terms of
quality of assetsand capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets-as compared to other banks in
comparable economies in its region. TheReserve Bank of India is an
autonomous body, with minimal pressure from thegovernment. The stated
policy of the Bank on the Indian Rupee is to manage volatility-without any
stated 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. M&As,takeovers, asset sales and much more action (as it is
unraveling in China) will happenon this front in India.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stakein Kotak Mahindra Bank (a private sector bank) to 10%. This
is the first time aninvestor has been allowed to hold more than 5% in a private
sector bank since the RBIannounced norms in 2005 that any stake exceeding
5% in the private sector bankswould need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public
sector banks (that is with the Government of India holding a stake), 29 private
banks (these do not have government stake; they may be publicly listed and
traded on stock exchanges)and 31 foreign banks. They have a combined
network of over 53,000 branches and17,000 ATMs. Acording to a report by
ICRA Limited, a rating agency, the publicsector banks hold over 75 percent of
total assets of the banking industry, with the private and foreign banks holding
18.2% and 6.5% respectively.
Banking in India
1 Central bank Reserve bank of India
2 Private banks Bank of Rajasthan, Bharath overseas
bank,Catholic syrian bank,Centurian bank of
punjab,City union bank, Dhanalakshmi bank,
Federal bank,Hdfc bank, Idbi bank, Icici bank,
Indusland bank,ING Vysya bank,Karur vysya
bank,Kotak mahindra bank,Lakshmi vilas bank,
South indian bank, Tamilnadu mercentile
bank,UTI bank ,yes bank.
Structure of Indian Banking
Reserve Bank of India is the regulating body for the Indian Banking Industry. It
is amixture of Public sector, Private sector, Co-operative banks and foreign
banks. The private sector banks are further spilt into old banks and new banks.
Nationalised banks Sbi & Associatesbanks
Old private sectorbanks
New private sector banks
Reserve Bank of India
Scheduled banks
Scheduled commercialbanks
Schduled cooperativebanks
Public sectorbanks
Private sectorbanks
Foreign banks Regional ruralbanks
Schduled urbanbanks
Schduledcooperative banks
Regulatory aspects
Indian banks were completely under the regulation of the BRA 1949, which
was quite restrictive in several aspects of growth and performance is
concerned. One aspect was that there were social obligations such as the
generation of employment and setting up branch networks in financially
unviable and rural areas, which the public sector banks took up over a period
for the faster growth of banking over the period after independence. This led
to unsustainable development of banks in the long run,especially in today’s
competitive economy. Another aspect is the domination of public sector banks
over private sector banks in the pre-liberalization phase. The controlled
and protected economic environment had its costs for the Indian banking
structure over a period.
However, prudent regulation and supervision have formed a critical
component of the financial sector reform programme since its inception, and
India has endeavoured towards international prudent norms and practices.
These norms have been progressively tightened over the years, particularly
against the backdrop of the Asian crisis. Banks’ exposure to sensitive sectors
such as equity and real estate have been curtailed.
The system of Annual Financial Inspection was introduced in 1992, in place of
the earlier system of Annual Financial Review/Financial Inspections. The
inspection objectives and procedures have been redefined to evaluate the
bank’s safety and soundness, to appraise the quality of the board and
management, to ensure compliance with banking laws and regulations, to
provide an appraisal of soundness of the bank’s assets, to analyze the
financial factors that determine a bank’s solvency and to identify areas where
corrective action is needed to strengthen the institution and improve its
performance.
India has had the distinction of experimenting with Self Regulatory
Organizations (SROs) in the financial system since pre-independence days.
At present, there are four SROs 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 scenario
Indian banks have seen a huge growth over the years, especially after the
opening 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 of this decade.
Since the liberalization phase of the Indian economy began in the mid-1980s,
the banking sector has also seen growth along with the economy. There have
been several changes in the banking policies and regulatory environment,
which has led banks to perform better than before. There was marked stability
and a positive rate of growth even during the East Asian financial crisis. In the
present scenario, banks are gearing up well to adapt to the norms of BASEL-II
set up by the Basel Committee on Banking Supervision. 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, the importance of utilizing limited financial and physical resources
becomes even more pressing than in a developed economy. Although there is
a surplus of human capital in terms of absolute numbers, skilled and
professional human capital are limited in relative terms. Therefore, efficiency
analysis becomes important to evaluate the performance of the key resources
of the economy. An efficient economy is a collection of efficient sectors,
industry and firms. This boils the argument down to the fact that if each
sector/industry/firm performs efficiently then economic resources would be
used economically. Such efficiency analysis would also enable efficient
allocation and utilization of resources over long run; this implies that it would
have policy implications for the policy-makers. Being resource rich gets a new
meaning when knowledge of people turns into value for the organization
(Sveiby, 2002).
Chapter 2
BANKS PROFILE
INDUSLAND BANK
Indusland Bank is the seventh largest private sector bank in terms of business.
Incorporated in 1994 by Mr Srichand Hinduja of the Hinduja group, it is one of the fast
growing new generation private sector banks with a distribution network of 326 branches
and 633 ATMs. The bank witnessed a turnaround from its waning performance after Mr.
Romesh Sobti took charge as the Managing Director and CEO of the bank in February
2008.
Incorporated in 1994 by Mr Srichand Hinduja of the Hinduja group, it is one of
the fast growing new generation private sector banks.
The bank recorded a business of Rs. 636 bn in Q1FY12, making it the
seventh largest private sector bank in terms of business.
Ashok Leyland Finance was merged with the bank in June 2004,
following which Indusind Bank has emerged as one of the leading
players in new commercial vehicle financing business.
The bank recently acquired Deutsche Bank’s credit card business in
April and marked its presence in the high yielding segment, the bank
also plans to foray in used commercial vehicle financing and loans
against property business.
The bank has a distribution network of 326 branches and 633 ATMs as
on Q1FY12.
The bank has a modest liability franchise and aspires to strengthen it
by capitalizing on substantial branch expansion plans
KARUR VYSYA BANK
Karur Vysya Bank is a privately held Indian bank, headquartered in Karur in
Tamil Nadu. The company operates in four business segments: treasury
operations, corporate/ wholesale banking operations, retail banking operations
and other banking operations. The company's investments are categorized
into three categories, held to maturity, held for trading and available for sale.
Karur Vysya Bank was incorporated on June 22, 1916. The Bank commenced
their operations on July 1, 1916 in the aftermath of the First World War, with a
view to revive agriculture, trade and industry in and around Karur. In January
17, 1927, they opened their first branch at Dindigul. In the year 1952, the Bank
became a scheduled bank. In the year 1963, Selvavridhi Bank Ltd was
amalgamated with the Bank. Also, in the year 1964, Salem Shri Kannika
Parameswari Bank Ltd and Pathinengrama Arya Vysya Bank Ltd, Kombai
were amalgamated with the Bank. In the year 1965, Coimbatore
Bhagyalakshmi Bank Ltd merged with the Bank. In the year 1980, the Bank
got the license to deal in foreign currencies and to transact foreign exchange
business. They established International Division for forex operations. In the
year 1995, the Bank issued 20,00,000 bonus shares in the ratio of 1:1 which
was followed by rights issue in the ratio of 1:2 at a premium of Rs. 25 per
share during the year 1996. In the year 2003, the company obtained license to
act as a Corporate agent for the purpose of procuring or soliciting life
insurance business and general insurance business. They made a tie up for
bancassurance with Bajaj Allianz General Insurance to hawk their non-life
insurance products through their branches. In the year 2004, they completed
100% computerization of branches and offices.
In the year 2005, they implemented CBS in all branches. During 2004-05 the
Bank introduced 6 new loan products, namely KVB Special Home Loan, IPO
Funding Scheme, KVB Kisan Mithra Scheme, Easy Trade Fin Scheme, KVB
Happy Kisan Scheme and Gold Card Scheme for Export Constituents of the
Bank. Also, they launched a new product, 'Cash Passport' which is similar to
ATM/ Debit card and this product is offered in pursuance of the agreement
entered into with 'Travelex' which is engaged in travel related services all over
the world. During the year, the Bank entered into an agreement with MITR
consortium in which the customer can use the ATMs of Punjab National Bank,
Oriental Bank of Commerce, Indian Bank and UTI Bank. Also, the Bank
implemented RTGS facility for instant funds transfer across the country in 26
centres. During the year 2005-06, the Bank launched Mobile Top-up facility to
re-charge the cell phone of all service providers through the ATM. They
opened new branches at Ludhiana, Chandigarh, Trichy-Srirangam, Nerul-
Mumbai, Krishnagiri, Noida and Amritsar. In the year 2008, the Bank won the
prestigious CFBP Jamnalal Bajaj Award for Fair Business Practices. In the
year 2009, the Bank received Banking Technology Excellence Award 2008 for
the best use of IT for customer service in Semi Urban and Rural Areas given
by the IDRBT. During the year 2008-09, the company opened 23 new
branches and upgraded one extension counter into a full fledged branch. They
entered into a tie-up with Religare Securities Ltd for providing trading facility to
the Demat customers. Also, they entered into tie-up arrangement with LIC
Mutual Fund for distributing their products.
During the year 2009-10, the company expanded their network in order to
increase the market share. They opened 23 new branches and 54 new ATMs.
The Bank received the Gold CIO award in more than Rs. 1000 crore category
of the Enterprise Connect Awards '09 instituted by CIOL (Cyber Media India
Online Ltd). They Received Banking Technology Excellence Award instituted
by IDRBT for under the category 'Best IT Infrastructure Management' for the
year 2009. As of December 31, 2010, the Bank has set up 360 branches, 437
ATMs, 7 satellite offices, 13 service centres and 24 administrative offices. They
have implemented core banking solutions across all its branches. The Bank
has set up a Disaster Recovery Site (DRS) at Cyber Pearl, Hi-Tech City,
Hyderabad. The Bank is ensuring less than 30 minutes old data backup of the
Primary Data Centre Databases at this DRS using a Disaster Recovery
Automation Solution.
CITY UNION BANK
1904 - The Bank was incorporated at Chennai. The Bank transacts all
kinds of banking business.
1966 - 669 Shares were forfeited of dissenting shareholders of the
Kumbakonam Bank Ltd.
1982 - 6,486 right shares issued at par.
1986 - Equity shares subdivided prior to 1986. 1,00,000 No. of equity
shares of Rs 10 each issued at par as rights in prop. 1:1 during the year.
1987 - With effect from 9th December, the name of the bank was Changed
from The Kumbakonam City Union Bank, Ltd. to City Union Bank, Ltd.
- 3,00,000 rights equity shares issued at par in prop. 3:2.
1990 - A full fledged international banking division of the bank was
inaugurated at 706, Mount Road, Chennai. This division was to deal in all
types of foreign exchange business undertaken by the bank.
- 5,00,000 rights equity shares issued at par in prop. 1:1.
1993 - 30,00,000 rights equity shares issued at par.
1995 - The Bank came out with a simultaneous unlinked issue of 90,000
No. of equity shares of Rs 10 each at a premium of Rs 10 per share
and 45,000 unsecured zero interest FCD's of Rs 1000 each for cash at par.
1997 - 60,000,000 bonus shares issued in prop. 1:2. 66,000,000 No of
equity shares issued on conversion of FCDs.
2000 - The Bank opened its branches at Purasawalkam, Chennai on
December 13 and at Anna Nagar, Chennai on December 14.
2001 - The Bank has opened its branch at Srirangam, Tiruchi district
on January 29.
2002 -Introduces various loan schemes like CUB Sulabh CUB Consumer
loan,
CUB Swayam Griha and CUB Vidhya Vaani.
-Opens a branch at Rajahmundry on March 27, at fort-Mumbai and
Thrissur (Kerala).
-Shri S Rajarathnam and Mr Venktatasubban, co-opted as the Director
of the company.
-Apoints Mr Jayaraman as the Director on the Board of the company.
2003 -Ties-up with National Insurance for bancassurance.
-Opens two branches at Kakinada,Bhimavaram and Tenali in
AndhraPradesh.
-Starts a branch at Kovilpatti, TamilNadu.
-Joins hands with LIC for offering Insurance linked banking products
which will add value to depositors and borrowers.
-Shri P Vaidhyanathan is co-opted as the Director on the Board of the
company.
-Opens branch at Ashok Nagar, Chennai (Tamilnadu State)
2004 -City Union Bank Ltd has opened a Branch at Kozhikode (Kerala State)
on May 21, 2004
-City Union Bank Ltd has informed that they have opened the Branch at
Eluru (Andhra Pradesh) on July 5, 2004
-Launches new 'Any Branch Banking' services on 28 october, 2004
2005 -City Union Bank opens Branch at Udumalpet(Tamil Nadu) on April 22,
2005
-City Union Bank Ltd has tied up with Export Credit & Guarantee
Corporation Ltd (ECGC) for marketing export credit insurance products
through its branch network
-City Union Bank unveils debit cards
2007 - City Union Bank has inked an `e-remittance' service agreement with
Qatar-headquartered Doha Bank QSC. The agreement envisages electronic
remittance of funds by NRI clients of CUB (in West Asian countries) to
designated beneficiaries accounts in any of the 165 branches of the bank
stating that this is first agreement for CUB with a foreign bank.
- City Union Bank Ltd has informed that the Bank has opened the Branch at
Nandyal (Andhra Pradesh) on August 03, 2007.
2008 - City Union Bank Ltd has appointe Shri. R G Chandramogan as a
Director by the Board at its meeting held on July 30, 2008.
- City Union Bank has rolled out a 1,000-days deposit scheme called
'CUB 1000'.
- The Company has splits its face value from Rs10/- to Rs1/-.
2010 - City Union Bank Ltd has informed that Shri C. R. Muralidharan and
Justice. S. R. Singharavelu has been co-opted as directors by the
Board at its meeting held on February 25, 2010.
IDBI BANK
IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40
years, IDBI Bank has essayed a key nation-building role, first as the apex
Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004)
in the realm of industry and thereafter as a full-service commercial Bank
(October 1, 2004 onwards). As a DFI, the erstwhile IDBI stretched its canvas
beyond mere project financing to cover an array of services that contributed
towards balanced geographical spread of industries, development of identified
backward areas, emergence of a new spirit of enterprise and evolution of a
deep and vibrant capital market. On October 1, 2004, the erstwhile IDBI
converted into a Banking company (as Industrial Development Bank of India
Limited) to undertake the entire gamut of Banking activities while continuing to
play its secular DFI role. Post the mergers of the erstwhile IDBI Bank with its
parent company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004)
and the subsequent merger of the erstwhile United Western Bank Ltd. with
IDBI Bank on October 3, 2006, the tech-savvy, new generation Bank with
majority Government shareholding today touches the lives of millions of
Indians through an array of corporate, retail, SME and Agri products and
services.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust
business strategy, a highly competent and dedicated workforce and a state-of-
the-art information technology platform, to structure and deliver personalised
and innovative Banking services and customised financial solutions
to its clients across various delivery channels.
As on March 31, 2012, IDBI Bank has a balance sheet of Rs.2.91 lakh crore
and business size (deposits plus advances) of Rs.3.92 lakh crore. As an
Universal Bank, IDBI Bank, besides its core banking and project finance
domain, has an established presence in associated financial sector businesses
like Capital Market, Investment Banking and Mutual Fund Business. Going
forward, IDBI Bank is strongly committed to work towards emerging as the
'Bank of choice' and 'the most valued financial conglomerate', besides
generating wealth and value to all its stakeholders.
ICICI BANK
Date of Establishment 1994Revenue0 (USD in Millions) Market Cap
1078118.802404 ( Rs. in Millions )Corporate Address Landmark,Race
Course Circle,AlkapuriVadodara-390007, Gujarat
Management Details
Chairperson-K V Kamath
MD - Chanda Kochhar
Directors - Anup K Pujari, Anupam Puri, Arvind Kumar, Chanda D Kochhar,
Chanda Kochhar, Homi Khusrokhan, K Ramkumar, K V Kamath, L N Mittal, M
K Sharma, M S Ramachandran, M S Ramchandran, Madhabi Puri Buch, Marti
G Subrahmanyam, N S Kannan, N Vaghul, Narendra Murkumbi, P M Sinha,
Rajiv Sabharwal, Sandeep Bakhshi, Sandeep Batra, Sonjoy Chatterjee, Sridar
Iyengar, Swati Piramal, T S Vijayan, Tushaar Shah, V Prem Watsa, V Sridar, V
Vaidyanathan
Business Operation Bank – Private Background
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian
financial institution, and was its wholly-owned subsidiary. ICICI's shareholding
in ICICI Bank was reduced to 46% through a public offering of shares in India
in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in
fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock
amalgama
FinancialsTotal Income - Rs. 410454.12 Million ( year ending Mar 2012)
Net Profit - Rs. Million ( year ending Mar 2012) Company SecretarySandeep
BatraBankersAuditorsBSR & Co
HDFC BANK
HDFC Bank was incorporated in August 1994, and, currently has an nationwide
network of 2,544 Branches and 9,333 ATM's in 1,399 Indian towns and cities.
Our single-minded focus on product quality and service excellence has helped
us garner the appreciation of both national and international organizations.
All the facts and figures highlighting the rapid growth of HDFC Bank over the
last nine years.
Join the workforce of India's leading private sector bank that has won
accolades from top national and international magazines, and explore a world
of opportunities.
Our Citizen's Charter offers relevant information about the products, facilities
and services we provide.
HDFC Bank's Corporate Governance Policy has been adopted keeping in mind
the importance of attaining fairness for all stakeholders, as well as achieving
organizational efficiency
LAKSHMI VILAS BANK
The Lakshmi Vilas Bank Limited (LVB) was founded eight decades ago ( in
1926) by seven people of Karur under the leadership of Shri V.S.N. Ramalinga
Chettiar, mainly to cater to the financial needs of varied customer segments.
The bank was incorporated on November 03, 1926 under the Indian
Companies Act, 1913 and obtained the certificate to commence business on
November 10, 1926, The Bank obtained its license from RBI in June
1958 and in August 1958 it became a Scheduled Commercial Bank.
During 1961-65 LVB took over nine Banks and raised its branch network
considerably. To meet the emerging challenges in the competitive business
world, the bank started expanding its boundaries beyond Tamil Nadu from
1974 by opening branches in the neighboring states of Andhra Pradesh,
Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal,
Uttar Pradesh, Delhi and Pondicherry. Mechanization was introduced in the
Head office of the Bank as early as 1977. At present, with a network of 249
branches,3 satellite branches and 6 extension counters, spread over 14 states
and the union territory of Pondicherry, the Bank's focus is on customer delight,
by maintaining high standards of customer service and amidst all these new
challenges, the bank is progressing admirably. LVB has a strong and wide
base in the state of Tamil Nadu, one of the progressive states in the country,
which is politically stable and has a vibrant industrial environment. LVB has
been focusing on retail banking, corporate banking and banc assurance.
The Bank's business crossed Rs. 12,606 Crores as on March 31, 2009. The
Bank earned a Net profit of Rs. 50.30 Crores. The Net owned Funds of the
Bank reaches Rs. 453.70 Crores. With a fairly good quality of loan assets the
Net NPA of the bank was pegged at 1.24 % as on March 31, 2009.
ING VYSYA
Date of Establishment 1930Revenue0 (USD in Millions )Market Cap
55945.9136786 ( Rs. in Millions )Corporate AddressIng Vysya House,
No - 22,M G Road Bengaluru-560001, Karnataka
Management Details
Chairperson-ArunThaigarajan
MD-ShailendraBhandari
Directors - Aditya Krishna, Arun Thaigarajan, Arun Thiagarajan, K R
Ramamoorthy, Lars Kramer, M Damodaran, M V S Appa Rao, Mark Edwin
Newman, Meleveetil Damodaran, Peter Henri Maria Staal, Peter Staal,
Philippe Damas, Ramakrishnan Subramanian, Richard Cox, Ryan Andrew
Padgett, Santosh Ramesh Desai, Shailendra Bhandari, Vaughn Nigel Richtor,
Vikram Talwar, Wilfred Nagel
Business Operation Bank – Private Background
Vysya Bank, incorporated in 1930, is one the leading bank in India. Much later
in the year 1985, it became the largest private sector bank. In 1987 the
company set up Vysya Bank Leasing.
Later 1990 it promoted Vysya Bank Housing Finance. In 2001 the company
forayed into insurance business by setting up ING Vysya Life Insu
Financials Total Income - Rs. 45265.64 Million ( year ending Mar 2012)
Net Profit - Rs. Million ( year ending Mar 2012) Company SecretaryM V S
Appa Rao Bankers Auditors BSR & Co. Vysya Bank, incorporated in 1930, is
one the leading bank in India. Much later in the year 1985, it became the
largest private sector bank. In 1987 the company set up Vysya Bank Leasing.
Later 1990 it promoted Vysya Bank Housing Finance. In 2001 the company
forayed into insurance business by setting up ING Vysya Life Insurance
Company.
In 2002, Dutch banking giant ING took over the management of the bank and
the name was changed to ING Vysya Bank. Today it has presence in over 5
countries, employing over 120000 people and serving 75 million customers
across the globe.
Further, the presence of the group in over 50 countries, employing over
120000, serving over 75 million customers across the globe, only multiplies the
credibility, not only across the country but also across the globe.
Products and Services
In Personal Banking to offer wide range of products and services in deposits,
loans, investments, insurance, forex services, demat services, online services
and wealth management services.
In NRI banking it offers money transfer, Investment products such as
International deposit, Mutual fund, online share trading, etc; also offer property
solution, insurance loan.
In Business banking it caters to SME, Retails, NRI and other corporates
offering spectrum of products and services.
The bank also provides wealth management services through ING Wealth
Management Services.
KARNATAKA BANK
Karnataka Bank was incorporated on 18 February 1924 in Mangalore in
Karnataka State.
With 83 years of experience it has presence of 435 branches across 19 states
and 2 union territories. It has employee strength of 4,500. It has customer base
of over 2.6 million.
Managed by a dedicated and professional management team, the bank has
been serving over 68,942 shareholders.
It has grown itself with merger of Sringeri Sharada Bank., Chitradurga Bank
and Bank of Karnataka.
Businesses
Personal Banking- Under this Karnataka Bank offers wide range of products
and services such as saving accounts, deposit scheme, home loans, education
loans, debit card, mobile banking, internet banking and many more.
Corporate Banking- It offers spectrum of services to its corporates client such
as working capital finance, term loans, Infrastructure finance and other
services.
For its insurance services it has a tie up with Metlife India Insurance Company
and Bajaj Allianz General Insurance Company.
It also provides RTGS and Money Transfer Facility to its NRI clients through
Western Union Money Transfer.
DHANALAKSHMI BANK
Date of Establishment 14-11 1927 Revenue203.278 ( USD in Millions
)Market Cap 5129.46321975 ( Rs. in Millions )
Corporate AddressP B No 9,DhanalakshmiBuildings,NaickanalThrissur-
680001, Kerala
Management Details
Chairperson-GNBajpai
MD-PGJayakumar
Directors - Amitabh Chaturvedi, G N Bajpai, Ghanshyam Dass, Gyanendra
Nath Bajpai, K Srikanth Reddy, P G Jayakumar, PG Jayakumar, Ravindran K
Warrier, S Santhanakrishnan, Sateesh Kumar Andra, Shailesh V Haribhakti, V
R Chalasani
Business OperationBank - PrivateBackground
Dhanalakshmi Bank was incorporated in 1927 by group of entrepreneurs at
Thrissur located in Kerala. The bank started with a seed capital of Rs.11,000
and with workforce of 7 employee.Much later in 1977, the bank was converted
into Scheduled Commercial Bank.
Presently it has a pan-India network of 181 branches and 26 extension
counters spread across in states like Keral
FinancialsTotal Income - Rs. 10531.874 Million ( year ending Mar 2011)
Net Profit - Rs. 260.622 Million ( year ending Mar 2011)
Company Secretary Ravindran K Warrier BankersAuditorsPB
Vijayaraghavan & CoDhanalakshmi Bank was incorporated in 1927 by group
of entrepreneurs at Thrissur located in Kerala.
The bank started with a seed capital of Rs.11,000 and with workforce of 7
employee.Much later in 1977, the bank was converted into Scheduled
Commercial Bank.
Presently it has a pan-India network of 181 branches and 26 extension
counters spread across in states like Kerala, Tamil Nadu, Karnataka, Andhra
Pradesh, Maharashtra, Gujarat, Delhi and West Bengal. The Bank’s Corporate
Office located at Thrissur and Industrial Finance Branch at Kochi has received
ISO 9001-2000 certification.
The Bank is managed by a Board of Directors comprising professionals drawn
from various walks of life with Shri.G.N.Bajpai as Chairman and Shri Amitabh
Chaturvedi as the Managing Director and CEO.
In August 2010, the bank has conveyed the approval of Registrar of
Companies, Kerala and Lakshadweep (RoC) for change of name of the Bank
from the present 'The Dhanalakshmi Bank' to 'Dhanlaxmi Bank”
Facilities
The bank has launched Centralised Banking Solution (CBS) on the Flexcube
Platform facilitating anywhere/anytime banking to its clients. CBS has been
installed in all branches. The bank also has established a data centre in
Bangalore, to keep the networked system operational 24x7.
Dhanalakshmi Bank has installed Real Time Gross Settlement (RTGS) and
National Electronic Fund Transfer (NEFT) Systems in order to avail facilities for
large value payments and settlements in real time on-line mode on a
transaction-by-transaction basis.
The bank has a tie up with Visa International for International Debit Card. As
part of this overall effort, the Bank has joined CASHNET, the first independent
nation-wide shared ATM network in India, the National Financial Switch (ATM
network) of the IDRBT, promoted by Reserve Bank of India and Cash Tree
promoted by a group of public sector banks. Due to this the bank has access to
25,000 ATMs in the country.
It is among those banks that offer free cash withdrawal facilities for its ATM
debit card holders at other Bank ATMs.
Dhanalakshmi Bank has also forayed into both life and non-life insurance
segment. For this it has tie up with MetLife India for life insurance and for non-
life it has tie up with Oriental Insurance Company.
The bank also markets mutual fund products and for this it has tie up with SBI
Mutual Fund, Birla Sunlife Mutual Fund and Principal PNB Asset Management
Company.
In February 2010, the bank entered into a MoU with Destimoney Financial
Services, for extending online trading and investment services to its customers
and latter on invested Rs 13 crore in Destimoney Securities forming 15% of the
equity capital of the company.
In March 2010, the bank marked its foray into the retail assets business with
the launch of two credit cards -- platinum and gold.
The bank entered into an agreement in June 2010 with HDFC Mutual Fund for
distributing the latter's financial products through its branches across the
country.
In December 2010, Dhanlaxmi Bank has entered into a pact with Qatar's
largest bank -- Doha Bank -- for online transfer of funds.
In January 2011, it ventured into the gift card space, which can be used at over
4.5 lakh merchant outlets. The gift card is a rupee-denominated, pre-paid, non-
reloadable card.
Products and services
Personal Banking-Under this bank offers wide range of personal banking
products and services such as deposit, saving, loans, internet banking, mobile
banking, demat services, credit card, debit card, etc.
NRI banking- Dhanalakshmi Bank also caters its banking products and
services to NRI customers such as deposit, car loans, remittances, investment
schemes, insurance are amongst others.
Corporate banking- It provides a range of products and services to corporates.
Priority and SME- It also caters its products and services to priority and SME
segment such as providing various kinds of products to meet their various
business requirements. This involvement is part of the Bank’s objective to act
as catalysts for the economic prosperity of the country. The Bank has
recognized micro finance intervention as an effective tool for poverty alleviation
and has streamlined the linkage between the Bank and Self Help Groups
through 100 branches.
Chapter 3
RESEARCH METHODOLOGY
RESEARCH TYPE
This study is purely a descriptive study
OBJECTIVES OF THE STUDY
To understand the implications of the business performance of the
Indian private banking sector from an intellectual resource perspective.
To estimate and evaluate VAIC for Indian private sectors for a period of
five years(2006-2010)
To analyse the human capital efficiency of private sector banks in India
for five years.
TOOLS OF THE STUDY
1. value added method has been used to measured the human capital
efficiency of the banks
2. Exponential trend method has been used to measure the ACGR
(Annual compounded Growth Rate) in the human capital efficiency of
the private sectors banks.
3. Gap Analysis has been used to measure the variation in the human
capital efficiency of the private and public sector banks.
TECHNOLOGICAL DEVELOPMENT IN THE BANKING SECTOR
The technological development in the banking sector began with the use of
Advanced Ledger Posting Machines (ALPM) in the 1980s and nowadays
banks are using core banking solution (CBS) for providing better services to
their customers. Over the years several studies have been conducted both at
the industry and academic level to examine the impact of IT on banking
productivity and profitability.
Dos et al. [1993][1] studied statistical correlation between IT spending and
performance measures such as profitability or stock’s value. It is found that
there is an insignificant correlation between IT spending and profitability
measures, implying thereby that IT spending is unproductive.
Brynjolfsson and Hitt [1996][3], however, cautioned that these findings do not
account for the economic theory of equilibrium which implies that increased IT
spending does not imply increased profitability. More recent firm level studies,
however, point a more positive picture of IT contributions towards productivity.
These findings raise several questions about mis-measurement of output by
not accounting for improved variety and quality and about whether IT benefits
are seen at the firm level or at the industry level. Such issues have been
discussed in detail by Brynjolfsson [1993][2] and to a lesser extent by
Brynjolfsson and Hitt [1996].
The study conducted by Gotlieb, and Denny [1993][4], is one of the studies that
deals with the impact of IT on banking productivity per se. Computerisation is
one of the factors which improves the efficiency of the banking transactions.
They concluded that higher performance levels have been achieved without
corresponding increase in the number of employees. Also, it has been possible
for Public Sector Banks and Old Private Banks to improve their productivity
and efficiency by using IT.
WAVES IN BANKING TECHNOLOGY
As per the Reports of RBI, the first wave in banking technology began with the
use of Advanced Ledger Posting Machines (ALPM) in the 1980s. The RBI
advised all the banks to go in for huge computerisation at the branch level.
There were two options:automate the front office or the back office. Many
banks opted for automating the front office in the first phase. Whereas banks
like State Bank of India also concentrated on the back office automation at the
branch level.
The Second wave of development was in Total Branch Automation (TBA)
which came in late 1980s. This automated both the front-end and back-end
operations within the same branch. TBA comprised of total automation of a
particular branch with its own database.
In the third wave, the new private sector banks entered into the field of
automation. These banks opted for different models of having a single
centralized database instead of having multiple databases for all their
branches. This was possible due to the availability of good network
infrastructure. Earlier, banks were not confident of running the whole operation
through a single data center. However, when a couple of private sector banks
showed that it can be done efficiently, other banks began to show interest and
they also began consolidating their databases into a single database. The
banks followed up on this move by choosing suitable application software that
would support centralised operations.
The fourth wave started with the evolution of the ATM delivery channel. This
was the first stage of empowerment of the customer for his own transactions.
The second stage was the Suvidha experiment in Bangalore. This showed the
power of technology and how the reach can be increased amazingly at a great
pace. Seeing these, all the banks started revamping their retail delivery
channels. Their core focus became increasing the number of customers they
can service at a lower cost. The main channels for these were internet banking
and mobile banking. After this, came the alliances for payment through various
other gateways. The third important development happening now is the real-
time gross settlement system of the RBI. Once this was in place, transactions
between banks could be done through the settlement system, online,
electronically thereby, ensuring faster collection. The process of
computerisation had started from Back Office Application,after that Total
Branch Automation and nowadays it is the period of implementation of Core
Banking Solutions (CBS).
A key trend in the last couple of years has been the focus on core banking
systems. With the implementation of core banking systems across the banks,
the usage level of IT for customer management has increased. Core banking
systems have enabled banks to launch new products and services targeting
specific customer segments after understanding their banking and investment
requirements.
ATM, internet banking and mobile banking have improved customer
convenience by providing anywhere any time banking services. The utility bill
presenting and payment has helped customers to pay their bills online at the
click of a button. Electronic clearing system and electronic funds transfer have
facilitated faster funds movement and settlement for the customers of different
banks and different centers.
The electronic data interchange and cash management service facilities have
enabled better funds management for the customer.Very few banks offered
customers the ability to access their accounts and perform at least simple
money transactions using internet banking. Advancements in information
technology have made it possible for the banks to use the internet as a delivery
channel for banking services. Technological developments have introduced
tremendous changes in the ability of financial and non financial firms to
efficiently collect, store, use and sell information about their customers.
Balasubramanya S.(2002) [10] in his study analysed that the automation in the
banking sector has come a long way starting with the Rangarajan Committee
report on the banking sector reforms during the eighties, followed by reports of
the Narasimhan Committee in the nineties. With over 65,000 branches of the
banks (public, private and the cooperative sector) in the country, the author
found that the percentage of branches covered by automation was very low.
Though many banks had claimed that more than 70% business has been
automated due to the enforcement of RBI guidelines, in reality it was much
lower, as many functions in each branch were still done manually or with partial
automation. Hence, there was a significant amount of automation work to be
achieved in the banking sector.
APPLICATION OF IT IN THE BANKING SECTOR
Rajshekhara K. S. (2004) described the adoption of IT in banking has
undergone several changes with the passage of time. Today IT has become an
inseparable segment of banking organization. The application of information
technology in the banking sector resulted in the development of different
concepts of banking such as – E-banking, Internet Banking, Online Banking,
Telephone Banking, Automated teller machine, universal banking and
investment banking etc. Information technology has a lot of influence on
banking transactions. It ensures quick service with low transaction cost to the
customers. The real success of IT in the banking sector depends upon the
customer’s satisfaction.
Therefore banks should organize and conduct customer awareness program in
their service area. Security is an important issue in the context of E-banking.
The development of technology for the identification of customers with different
means of communication devices is a must for successful business and also to
reduce frauds in banking. In this paper the author has studied customer related
aspects only. This paper do not present any study related to the bank
employees and their problems regarding bank computerisation.
The study conducted by Vij Madhu (2003) presents the changing profile of
Indian banks with the help of a comparative study of three private sector banks
in India namely ICICI bank, HDFC bank and IDBI bank. The comparative
analysis of the three private sector banks shows that HDFC stands out as a
clear winner with ICICI at number two. In the study the researcher concludes
that the challenge for the future will be the synergetic use of internet, proper
understanding, measuring of risk management as also nurturing and retaining
the intellectual capital. The author suggested the following strategies that need
to be focused on:
• Develop and innovate new products so as to widen customer base
• Strategic alliances
• Setting up of an effective software system for ALPM the way banks in most of
the developed countries are using
This study is limited only to 3 private sector banks. This paper do not present
any information related to the problems of bank computerisation and future of
the computerised banks.
Gulati V. P. listed the following possible applications that can be easily
complimented by the Indian financial sector.
• Quick disposal of loan/investment proposal
• Forex information from branches to the office dealing with forex
• Fund information from clearing centers to the fund management office for
optimal allocation of funds
• Inter-branch inter bank reconciliation
• Fund transfer/payment messages (EFT/EDI) (intra-bank and inter-bank)
• Organisational bulletin boards may contain the following: circulars,
undesirable
parties, hot list, bulletins, missing security items, confidential circulars on
attempted frauds
• Organisational/customers database may include statutory returns, control
returns,standardised returns, adhoc reports
• Banks-corporate customers connectivity
• Management information systems: Borrower’s profile; Branch profile;
employee’s analysis; products/services profile; business profile of branches
• Banks owned ATM/credit-debit card and other applications on the financial
Network
Customer Services
Ananthakrishnan G. (2005) described customer’s services in the banks. The
discriminating customer’s expectations have begun to change in terms of
quality and service. With the advent of computers and ATMs, the gap between
the customers and the banking personnel is widening. Unless a change of
heart occurs, even the largest banks will find it hard to survive on their
assumed false glory. Banks which take care to see the reality and react early
will survive and prosper, while those who continue the traditional path will find
their market share eaten away.
Now a days customers are no longer willing to wait in long queues or tolerate
arrogant behaviour of the employees. As applicable to banking, “customer
service” may be defined as the ability to satisfy the customer’s requirements
and needs to the fullest extent and be able to replicate this on an on-going
basis. The four factors for ensuring customer service are:
• What satisfies the customer?
• Devising quantifiable determinants.
• Continually monitoring and improving these parameters.
• Seeking customer feedback to ensure alignment with customer needs.
These four approaches can go a long way in helping the banks to achieve its
quality goals. Customers, who are central to the banking service, are not a
homogeneous class. They come from varying socio-economic and cultural
backgrounds. Their perception about the banking services is so dynamic that it
may differ from customer to customer and even for the same customer at
different points of time, depending on their mood and mind-set.
Successful banking relationships are formed at a human level. Factors which
help in retaining the existing customers are:-
• Past experiences with the bank.
• Familiarity with the services offered by the bank and simplified procedures.
• Knowledge of or experience with competitor’s products and services.
• Brand image-banking with a particular bank is regarded as a status symbol.
• Overall ambience at the bank premises.
• Extra services or value addition provided by the bank.
In this article the author also studied the factors which irk (trouble) the
customers and they are:
• Poor service attitude
• Long queues
• Inability of the bank to meet customer needs
• Lack of proper ambience
• Lack of humility that prevents banks from meeting customer needs
Author also mentioned that by adhering to the following factors customer’s
complaints could be avoided:
• Prompt collection of cheques
• Faster payment/receipts in cash counter
• Positive attitude of the counter staff
• Proper adherence to the standing instructions to the customers
• Correct crediting of interest on deposit accounts and avoiding fraudulent
withdrawals
• Timely honouring of invoked LCs, guarantees, etc.
• Seeking only required documents for processing loan applications
• Timely sanctioning of loans at reasonable market related interest rates.
A study conducted by Mishra A. K. examined the reasons for the satisfaction
of the customers with the services rendered by the Urban Cooperative Banks.
The author described that, urban cooperative banks are operating in a more
competitive environment and therefore, the need to take care of customer
requirements has become more important. The branches of UCBs must cater
to the betterment of the customers. They should also improvise on their own
image, customer satisfaction and their profits. The time norms for specific
business transactions should be displayed prominently in the banking hall so
that it attracts the customers’ attention. In the ultimate analysis, what is
necessary for improving customer services is the active participation of
employees at all levels in the bank functions. The author also raised some
points which can be a plus point for UCBs to impress & attract their customers.
These points are: effective board of management, efficient employees/staff,
cordial personalised services, proper guidance,provision of loan facilities, good
systems, computer systems, prompt services, good work culture, convenient
timings, proper clearing services for outstation cheques and demand drafts,
split hour facilities, Sunday working day, discounting facilities for outstation
cheques, and good location of the bank.
Uppal R. K. described that in the post-LPG (Liberalization, Privatization and
Globalization) era and Information Technology (IT) era, transformation in Indian
banks is taking place with different parameters and the curves of banking
services are dynamically altering the face of banking, as banks are stepping
towards e-banking from traditional banking. The paper empirically analyzes the
quality of e-banking services in the changing environment. With different
statistical tools such as weighted average method and ranking, the paper
concludes that most of the customers of e-banks are satisfied with the different
e-channels and their services, but the lack of awareness is a major obstacle in
the spread of e-banking services. The paper also suggests some measures to
make e-banking services more effective in the future.
Kamakodi et al.discussed that, it is almost 15 years since the Indian banking
sector was liberalized and paradigm shift happened in the Indian banking
services. All banks have either totally implemented ‘core banking systems’ or
halfway through. The results of a survey, obtained from 292 respondents about
their views on electronic banking channels, indicate that the banks are
exceeding the expectations in technology based services; and their perceived
service level on branch network is below the expected levels of the
respondents.
This result is in tune with the respondents’ opinion on the perceived
‘gap’ with the bank because of the introduction of technology, and on the
necessity of human contact with the clients by the banks. This throws up a
challenge to banks.Technology alone cannot give a sustainable competitive
advantage for the banks. When all banks introduce IT, it will lose its position as
a differentiator. Beyond a point, IT along with ‘personal touch’ will be necessary
for the banks to retain existing clients and to attract new ones. Banks have to
incorporate this in their operational strategy.
Sakalya Venkata et.al. analyzed the factors that affect the choice of customers
in choosing the retail banks by the customers. In the study, the authors have
tried to identify various factors and also analyzed as to which of these factors
exert the greatest, moderate and relatively lower influence as choice criteria. It
is an attempt to study the consumer behavior with respect to the people’s
choice of retail banks. Efforts are made to dwell deep in the psychology by
talking to the customers surveyed, wherever possible. The 15 different factors
that could be identified, approximately in the order of their importance, are (1)
Safety of Deposits, (2) Size and Strength, (3) Accuracy, (4) General Service
Quality, (5) Speed of Delivery, (6) Proximity, (7) Security of Environment, (8)
Cordiality of Staff, (9) Price and Service Charges, (10) Product Packaging, (11)
General Public Impression, (12) Peer Group Impression, (13) Face Lift
(Structural), (14) Friendship with Staff and (15) Advertisement and Publicity.
According to the findings, based on the empirical study, the first six factors
exert the greatest influence, next four have moderate importance, and the rest
five have relatively lower influence. Thus, retail banks must reorganize their
activities to achieve their corporate mission through customer orientation. In
the competitive and capitalistic markets consumer is sovereign and therefore
the bankers must reengineer their view and recognize the predilection and
tang of the retail customers.
IT FRAMEWORK FOR BANKING SECTOR
IT planning is an ongoing effort intended to match the bank’s technology
capabilities with its changing strategic objectives. It is necessary for a bank to
identify technology gaps and develop a plan that supports the bank’s
long/medium term-strategic goals in order to bridge the gaps. It is imperative
for banks to have a clearly defined technology planning process that is based
on a well founded technology action plan for the following reasons:
- Increasing competition, new products and changing distribution channels.
- Banks currently spend a huge amount of their budget annually on technology.
Such investments will only continue to escalate.
- Effective technology management requires an underlying technology plan.
Without it, scarce resources are likely to be wasted and opportunities missed.
Gulati et al. (2002) [23] suggested IT policy framework for Indian banks as
follows. IT strategies need to be formulated by banks taking into consideration
the critical aspects of long/short-term planning to align technology systems
with business objectives. Conscious efforts must be made to place the entire
organization’s proper perspective and to have a holistic approach to planning.
The following strategic evaluation needs to be made:
• Current state (Where are we?): There should be a self-assessment process
which analyses the present/current technology in use. It also involves
evaluation of staffing, training, organizational processes and controls,
communication and management reporting. To successfully integrate new
technologies, banks must objectively confront internal operating issues and be
willing to make changes wherever necessary. Business process re-engineering
should be accorded top priority to successfully absorb new technology.
• Desired state (Where do we want to go?): Identification and prioritisation of
the reasons behind technology adoption is vital. Technology goals should
always be firmly grounded in an understanding of the marketplace. Sizing up
the ompetition and measuring up to its pace, based on a SWOT analysis, must
be the foundation of the decision on where to go.
• Destination (How do we get there?): This phase of the technology planning
process, involves making decisions about, how to implement the technology
action plan and the technology initiatives required to be pursued in the
short/mid/long term.As part of the planning of technology initiatives, a list of
projects to be undertaken needs to be made. For this, the element of time span
should be considered relative to the bank’s position and future needs (what
initiatives are planned in short/mid/long term). A technology plan is a document
that lays down the steps necessary for each action item. It serves as a road
map for investment.
Internet Banking in India
Jadhav Anil (2004) described various channels of e-banking services such as
ATM,Telephone banking (Tele-banking), Mobile banking, Internet banking and
its features.
The focus is also given on e-banking opportunities, challenges and security
aspects while performing the banking transactions on the internet. Comparison
of public, private,foreign and co-operative banks and barriers to the growth of
e-banking in India are also discussed. Finally the paper discusses an overview
of the major private sector banks such as ICICI, HDFC, IDBI, UTI & GTB banks
which provides e-banking services.
The author’s observations are: Many Indian banks are yet to make a desirable
progress in implementing the technology and gearing up to confront the
challenges posed by the rapid changes that are sweeping the banking sector
globally. Private and Foreign banks have been fast in adopting and adapting to
the Internet technology. Very few public sector banks offer Internet banking
services whereas; none of the co-operative banks offer Internet banking
services. ATM is becoming a most preferred delivery channel from the common
banking services. In order to enhance the reach to the rural population in the
remote areas, the banks will need to automate the delivery channels in the
local language which could eventually lead to shrinking of the number of
branches. The banking industry’s security is at a higher risk, due to the advent
of e-banking.
The banking organizations which provide e-banking services should take the
following precautions/responsibility:
a) The Banks should hire the services of anti Cyber crime professional to avoid
cyber crime
b) To take the responsibility of customer’s transactions
c) Create awareness of e-banking services amongst the customers and
motivate/encourage them to use it.
Mishra A. K. described that the Internet banking is a cost-effective delivery
channel for financial institutions. The author also describes the advantages of
internet banking,current status of internet banking in India, and the mechanism
to protect the customer’s data. The advantages of internet banking are:
• To improve customer access
• To facilitate more services
• To increase customer loyalty
• To attract new customers
• To provide services offered by competitors
• To reduce customer attrition
Current status of internet banking is:
• Throughout the country, the Internet Banking is in the emerging stage of
development
• In general, these Internet sites offer only the most basic services. 55% are so
called 'entry level' sites, offering little more than company information and
basic marketing materials. Only 8% offer 'advanced transactions' such as
online funds transfer, transactions & cash management services.
• Foreign & Private banks are much advanced in terms of the number of sites &
their level of development.
Geetika et.al. discussed the concept of Internet Banking, perception of Internet
bank customers, non-customers and issues of major concern in Internet
banking. The state of Internet banking in India has been explored using various
concepts like E-banking scale, and gap analysis related to the various services
and the security features offered. In order to have a clear and focused insight
about the perceptions of users (and non-users) about Internet banking a
survey was conducted. The findings of the survey provide valuable insights
into concern for security, reasons for lower penetration, and likeliness of
adoption, which have been used to make useful recommendations.
Radhakrishna Geeta and Pointon Leo examined the legal issues specific to
internet banking, focusing on the incidence of fraud and its prosecution. The
objective of research was to investigate three questions in relation to Malaysia.
Firstly, the incidence of fraud in internet banking; secondly, the adequacy of the
relevant regulations and statutes; and thirdly, whether the setting up of a cyber
court would better facilitate the prosecution of such financial crimes in Malaysia.
Technology and the borderless nature of the internet present fraudsters with
manifold opportunities. ‘Phishing’ leads to identity theft and ‘money laundering’
has been found to be the main threat to internet banking.
The newness of the subject and traditional banking secrecy have contributed
to a dearth of legal literature pertaining to issues in internet banking, specific to
Malaysia. It was found that the applicability of various existing laws and
banking practices to internet banking has not been fully tested in Malaysia and
is still evolving.
The study conducted by the authors Jain Abhay and Hundal B. S. presented
the rapid changes in the financial services environment—increased
competition by new players,product innovations, globalization and
technological advancement—have led to a market situation where battle for
customers has become intense. In order to rise up to the challenges, service
providers are even more interested to enhance their understanding of
consumer behavior patterns. This paper Examines the forces that can act as
barriers in mobile banking service adoption.
Security aspects of banking transactions
Hebbar Raveendranath (2004) described that the advancements in computing
and telecom have revolutionised the financial industry. Banks are developing
alternative channels of delivery like ATM, telebanking, remote access, internet
banking etc., Some questions that need to be answered are , how can one
trust these channels, our personal data and transactions which are driven by
technology. Are they reliable and accurate? Is there a way out to independently
validate the integrity of information?
If we analyse, why the lack of trust exists, we realize that the primary issues
center on the following aspects of information security:
• Authentication and identity of user: The act of verifying the identity of a user.
How to recognize the person dealing on the net? Can one be sure of his or her
identity?
• Confidentiality: How can one be sure that the information transmitted has not
been intercepted or viewed by any other party in transit?
• Integrity: How can one ensure that the information sent, received or stored
has not been tampered with the modified at any time?
• Non-Repudiation: What is the guarantee that a particular transaction or
action
took place? Would this hold the tests of court of law?
V. Radha discussed about the technology based opportunities that the
thieves take advantage of and how to limit the frauds by building the future
technology accordingly.In her study, the author described the kind of fraud that
can happen in the emerging banking scenario as follows:
Mail Spoofing: Sending wrong information to bank customers as if it is from
authentic bank sources
Web Spoofing: Diverting the customers of a bank to an exactly duplicated
forged web site and impersonating those customers on real bank site
Attacking the User Computer: To take control of that machine
Attacking a Bank’s Server: To take control of that machine
Media tapping: Recording the whole transactions of a bank, or customer etc
.and replaying the same for their advantage
Denying Service: Though the server is available, making it not able to render
service, by poisoning the Network Infrastructure
The author also described the prevention mechanism to minimize the frauds,
by using public key infrastructure (PKI). The PKI assures confidentiality,
authenticity, and integrity of information which two or more members’
exchange.
In a survey conducted by the Online Banking Association, member institutions
rated security as the most important issue of online banking. There is a dual
requirement to protect customer’s privacy and protect it against fraud. A multi-
layered security architecture comprising firewalls, filtering routers, encryption
and digital certification ensures that your account information is protected from
unauthorized access.
Firewalls and filtering routers ensure that only the legitimate Internet users are
allowed to access the system. Encryption techniques used by the bank
(including the sophisticated public key encryption) would ensure that privacy of
data flowing between the browser and the Infinity system is protected. Digital
certification procedures provide the assurance that the data you receive is from
the Infinity system.
BANKS TAKEN FOR STUDY
PRIVATE SECTOR BANKS
1. Indusland bank
2. Karur vysya bank
3. City Union Bank
4. IDBI bank
5. ICICI bank
6. HDFC bank
7. Lakshmi vilas bank
8. ING vysya bank
9. Karnataka bank
10.Dhanalakshmi bank
PUBLIC SECTOR BANKS
1. State bank of India
2. State bank of Travancore
3. Bank of India
4. Bank of Baroda
5. Punjab national bank
PERIOD OF THE STUDY
The reference period of this study is from 2006-2010
Chapter 4
ANALYSIS AND INTERPRETATION
Data sources
The data for the paper is mainly collected from secondary sources. The data is
available in the balance sheets and profit/loss accounts of the banks
concerned; this data is compiled and published by the Reserve Bank of India
(RBI) in a consolidated manner in its annual statistics on Indian banking.
Methodology
The data collected from the secondary sources is treated to derive the VAIC for
all banks’ average, the group average, and each bank separately. Besides this
a regression is run to find the coefficients and also to find the linear best fit.
Phase I: deriving VAIC – steps involved.
Output (OUT) – The total of all income/revenue generated during the fiscal
year
by an organization by selling its goods or services.
Input (IN) – All the costs that is incurred by the organization towards purchase
of inputs for operating and continuing the business. Here, the employees’
compensation and other costs incurred on them for training and development
would be deducted from total expenses for the simple reason that they would
be
treated as investment and not expenditure.
Value Added (VA) – The difference between the Output and Input is the value
created by the organization during the particular financial year:
VA = OUT- IN:
Human Capital (HC) – All the expenses on compensation and development
of employees.
Capital Employed (CE) – All the physical and material assets of the
organization.
Capital Employed Efficiency (CEE) – Ratio of VA to CE. This ratio gives the
contribution made by every unit of capital employed to the value added in the
organization:
CEE = VA/CE:
Human Capital Efficiency (HCE) – Ratio of VA to HC. This ratio gives the
contribution made by every unit of money invested in human capital to the
value added in the organization:
HCE= VA/HC:
Value Added Intellectual Coefficient (VAIC) – Indicates the intellectual
ability of the organization. It is the sum of the HCE and the CEE, and this also
measures the intellectual capability of the organization. It can also be denoted
as BPI or the Business Performance Indicator.
VAIC (BPI)=HCE +CEE:
GAP Index Analysis: The Gap Index has been defined as the percentage of
difference in the value of variables between Private Sector Banks (PVB) and
Public Sector Banks (PUB) as a ratio of their aggregate value. Gap Index of
Human Capital Efficiency (HCE) can be worked out as:
HCE (PVB) – HCE (PUB)
__________________________ X 100
HCE (PVB) + HCE (PUB)
Table1:Human Capital ,Value Added and capital employed of Private and PublicBanks
Amount in Rupees Crore
Interference
Table 1 clearly indicates that the amount of human capital in both the private
and public sector banks is increasing during the period 2006 to 2010. Public
sector banks have an increase of 49.83 per cent in the human capital while the
private sector banks have an increase of 131.22 per cent in their human capital.
The amount of value added has also increased with the increase in the human
capital of the banks. Public sector banks have shown an increase of 80.54 per
cent in the value added during the studied period while private sector banks
have shown an increase of 178.78 per cent in their value added. In both the
public and private banks the value added has shown increase more than
human capital.
HUMAN CAPITAL VALUE ADDED CAPITAL EMPLOYED
Year Public Private Public Private Public Private
2006 27378 4077 65345 13846 94345 33846
2007 27803 5276 70071 19328 100071 39328
2008 28660 7114 78967 26348 108967 46378
2009 34564 8526 101168 32721 121178 52712
2010 41032 9427 117977 38600 137877 58600
Human capital is all the Expenses incurred on Compensation and development
of employees. Value added is the difference between the Output and Input. It is
the value created by the organization during the particular financial year.
Output is the total of all income/revenue generated during the fiscal by an
organization by selling its goods or services. Input is the sum of all the costs
that is incurred by the organization towards purchase of inputs for operating
and continuing the business. Here, the employees compensation and other
costs incurred on them for training and development would be deducted from
total expenses, as they are treated as investment, not the expenditure.
Human Capital includes all the aspects related to the employees in the
organization, their training,development, their contribution to the organizational
development and also value creation, generation and sustenance. Thus, just
by having a large work force with good qualification and experience does not
amount to being efficient, Value creation Efficiency mainly depends on the
contribution of these employees towards value creation of the organization
(Edvinsson, 1997).
Efficiency in using resources plays an important role in determining the
strength of the organization.Increase in the value is the major objective of most
commercial firms; banks are no exception to this.Measuring the increase in
value also becomes challenging when the value itself is being created by
intangibles. Human Capital is the skill and creativity of employees which can
be further encourage by investing more in their training programs. Human
Capital is experience and expertise of employees which increases the
efficiency of organizations. More efficient employees will boost Value Added
(VA) efficiency of the organization.
Table2:Human Capital Efficiency (HCE) of Private Sector Banks
Bank 2006 2007 2008 2009 2010 Mean Rank ACGR(%)
Percent
ICICI 4.5928 4.6335 4.8293 5.5267 6.0536 5.1272 1 1.07 100%
CUB 4.0041 3.9633 4.7610 4.4896 4.1926 4.2821 2 1.02 85.70%
IDBI 4.2343 4.9084 4.8294 3.4206 3.6024 4.1990 3 0.94 83.90%
HDFC 5.0646 4.6107 3.8935 3.3139 3.8087 4.1383 4 0.91 80.90%
KVB 3.6172 3.9535 4.0237 4.4024 3.8371 3.9668 5 1.02 76.10%
KB 3.8265 3.7623 3.1582 3.5220 2.2613 3.3060 6 0.90 61.90%
INB 3.2089 2.7821 2.6094 2.9678 3.4225 2.9981 7 1.02 52.30%
LVB 1.6687 2.3091 2.4304 2.3874 2.7974 2.3186 8 1.11 23.80%
ING 2.2286 1.9616 2.0167 2.0831 2.4969 2.1574 9 1.03 19.00%
DB 1.5524 1.8840 1.9388 2.4051 1.3546 1.8270 10 1.00 14.20%
mean 3.3981 3.4768 3.4490 3.4518 3.3827 3.4320 0.99
Interference
Human capital efficiency (HCE) of the private sector banks has been
measured in the Table 2 for the period 2006 to 2010. The highest mean value
of HCE is 5.1272 of ICICI; while the lowest mean value of HCE is 1.8270 of
DB. The annual compound growth rate is highest for the LVB i.e. 1.11 per cent
which shows that although the LVB is having a Rank 8 out of 10 for HCE but it
has achieved the highest growth in HCE during 2006 to 2010. The lowest
annual compounded growth rate is of KB i.e. 0.9 per cent with Rank 6. The
overall annual compounded growth rate of all the private sector banks during
the period of 2006 to 2010 is 0.99 per cent.
Table 3:Human Capital Efficiency (HCE) of Public Sector Banks
Interference
Table 3 depicts the Human capital efficiency (HCE) of the public sector banks
for the period 2006 to 2010. SBI is having highest mean value of HCE i.e.
3.1334 while the lowest mean value of HCE is 2.6678 of BOB. The annual
compound growth rate is highest for the BOI i.e. 1.11 per cent which shows that
although the BOI is having a Rank 3 out of 5 for HCE but it has achieved
the highest growth in HCE during 2006 to 2010. The lowest annual compound
growth rate has been found for the SBT i.e. 1.04 per cent which is having a
Rank 2. The growth rate for all the public sector banks for the period 2006 to
2010 is 1.07 per cent which is more than the growth rate of private sector
banks for the same period.
Bank 2006 2007 2008 2009 2010 Mean Rank ACGR(%)
Percent
SBI 2.8168 2.7382 3.0598 3.4514 3.6005 3.1334 1 1.07 100%
SBT 2.6644 2.7328 2.7061 3.1652 2.9864 2.8510 2 1.04 84.2%
BOI 2.2809 2.4839 3.2337 3.8165 3.0491 2.9728 3 1.11 69.20%
PNB 2.3793 2.5377 2.6275 2.9458 3.3473 2.7675 4 1.09 53.80%
BOB 2.2584 2.4689 2.6790 2.8834 3.0993 2.6678 5 1.08 42.30%
Mean 2.4799 2.5923 2.8612 3.2524 3.2165 2.8785 1.07
Classification of banks on the basis of Percentile of Human Capital
Efficiency (HCE)
Both the public sector and private sector banks have been classified into four
categories on the basis of percentile, calculated by using mean value of HCE
of the banks.
Table 4: Private Sector Banks
Table 5: Public Sector Banks
(100-76) (75-51) (50-26) (25-0)
Excellent Good Average Poor
ICICI KB LVB
CUB INB ING
IDBI DB
HDFC
KVB
(100-76) (75-51) (50-26) (25-0)
Excellent Good Average Poor
SBI BOI BOB
SBT PNB
GAP INDEX ANALYSIS:
Table 6 GAP Index of Mean HCE of Private and Public Banks
Interference
The Gap index has been calculated in the table 6 using the mean values of the
HCE of the private and public banks for the period 2006 to 2010. In the year
2006 the gap was highest but the gap is getting reduced year by year. A
reduction of 1249 per cent has been found in the gap index during the studied
period, which shows that the public sector has made efforts to improve their
human capital efficiency.
Year Private Public Gap Index
2006 3.40 2.48 15.64
2007 3.47 2.60 14.33
2008 3.45 2.86 9.35
2009 3.38 3.25 2.97
2010 3.43 3.22 3.15
Percentage Reduction in Gap Index of HCE between Private and Public Banks is 1249 per cent during2006 to 2010.
Value Added Intellectual Coefficient (VAIC)Table7 VAIC Index of Private and Public Banks
Interference
Each bank’s results are sorted on the basis of VAIC performance, classified as
follows:
Top performers – VAIC score of above 5;
Good performers – VAIC score of between 4 and 5;
Common performers – VAIC score of between 2.5 and 4; and
Bad performers – VAIC score of below 2.5.
It can be seen that there are very few BANKS from THE Indian private sector
among the good performers.
Based on the table 7 private banks are good performers and public banks arecomes under common performers.
Year HCE CEE VAIC
Private Public Private Public Private Public
2006 3.40 2.480.69261 0.40908 4.09261 2.88908
2007 3.47 2.600.70021 0.49145 4.17021 3.09145
2008 3.45 2.860.72468 0.56811 4.17468 3.42811
2009 3.38 3.250.83487 0.62075 4.21487 3.87075
2010 3.43 3.220.85566 0.65870 4.28566 3.8787
Chapter 5
Findings & Recommendation:
Public sector banks have employed a number of measures to face the
competition from private and foreign banks. Public banks have offered the VRS
(Voluntary Retirement Scheme), competitive compensation to retain the
talented employees, training and retraining of employees.
The public sector banks have focused on the BPR (Business Process Re-
engineering) to enhance their human capital efficiency. In the banking industry,
the Business Process Re-engineering (BPR) means transforming the select
processes and procedures with a view to empower the bank with
contemporary technologies, business solutions and innovations that enhances
the competitive advantage.
Employees of the public sector banks got benefited through empowerment
leading to higher job satisfaction, effective job rotation as an additional
incentive and effective interface with customers as work load is evenly
distributed.
The public sector banks should be able to attract entry level talent by
making the recruitment policy less rigid. The public banks should be able to
reward and accelerate the track of high performers.
Public banks must have freedom to affect changes related to personnel
without any interference from the unions. More accountability to government
restricts the decision making of the employees in public banks, which should
be reduced.
Conclusion
It can be concluded from the above gap analysis that the private sector
banks have outperformed than the public sector banks with regard to human
capital efficiency.
The gap between the human capital efficiency of both the public and
private banks are reducing year by year. Public sector banks have made great
efforts to be competent with private banks; by focusing on BPR, VRS options
to employees, competent compensation, and development expenditures on
employees to improve their skills and knowledge etc.
The main reason behind the lower performance of public banks in HCE is
the interference from the government, rigid organisational structure and
bureaucratic practices.
The 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 market on several parameters discussed in the paper. Other
banks, such as foreign banks, domestic private sector banks and regional rural
banks, form the broad structure of Indian banking.
The survey results showed that the overall top performers in HCE are
clearly the Private sector banks. However, the top performers in CEE were the
private sector banks only.
The overall top performers in the value creation efficiency analysis were
the private sector banks.The public sector banks in India seem to have created
the huge baggage of a large and inefficient 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 value creation performance of the Indian banking sector. This paper can
be used as a benchmark for evaluating the true performance of banks in India
in the emerging competitive environment. The paper looks at the performance
of Indian banks from an innovative perspective.
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