Kindler Volume XV January - June 2015

Indian Insurance Industry: Journey after
Privatization: A Critical Appraisal

Dr. Roshan Ara*
ABSTRACT
The protection of life, liberty and security is the ultimate goal of human society. Insurance is
one of the method to achieve these goals which can provide a safety net to the society in
contingencies. In view of making more beneficial to insurance safety net one important step
had been taken by the government that was the introduction of privatization. The government
was expecting from this move that it will encourage competition, improve service standards,
provide customer suited products, increase resource allocation efficiency, change to consumer
outlook etc., definitely it did the same but on the other hand creates some other contingencies
like insurance become a tax saving tool only, intermediaries play their inadequate role,
alternative channels prove inefficient, distribution cost increases, regulation becomes
inappropriate, jealous comes among the public and private players, increase dramatic
movement towards joint ventures, overestimation of expert advice etc. So, now again there is
need on the part of government to take some bold steps to improve the situation as improve
the product strategy and service level, promote the professionalism among intermediaries,
remove the structural inefficiency, create the environment of co-operation between public and
private sector etc. and by doing this the society can achieve their desired goals.
Key Words : Insurance, Privatization, Private Players, Consumers and Competition.
INTRODUCTION
The insurance industry affect the whole economy of a nation, so as to ensure
complete progress of a country, necessary to make insurance as a facility.
Insurance industry has strategic importance for any country because it contributes
to the financial sector as well as confers social benefit to the society. At micro
level, insurance protects the buyer against financial losses arising from a specified
set of risks at some cost. It thus reduces anxiety and promotes financial stability
by providing much needed social security net, especially in times of crumbling
family ties and nuclear households in developing countries. Despite the obvious
advantages of insurance, India was one of the least insured countries in the last
few decades of the 20th century. In 1999 per capita insurance premium in
developed countries was very high, whereas in India it was very low.
It was evident that something fruitful is to be done to tap the untapped potential
for further growth in India. With privatization, traditional public sector businesses
like banking, power, telecom and airlines starts gaining momentum in 1991,
government also realized that opening up of the insurance sector could lead to
Assistant Professor, Faculty of Law, Qila Road, Aligarh Muslim University, Aligarh - UP, India,
Pin-202002, E-mail : roshniroshni11@gmail.com
Kindler Vol. XV l No. 1 l January-June 2015
enhancement of insurance penetration within the country by leveraging on rising

per capital income. The life insurance sector was thus opened for private players
in the year 2000 with passing of IRDA Act, 2000. Opening of the sector to private
firms was aimed at fostering competition and innovation through greater variety
of products. It was also looked at as an avenue for generating greater awareness
on the need for buying insurance as a service. About fourteen and half year has
already been passed since privatization of insurance sector, so it is right time to
analyze emerging scenario with the consequential expectation from insurance
industry. (Dhar, 2007)
INSURANCE : GOALS OF PRIVATIZATION; FORESEEN BY THE GOVERNMENT
Privatization Encourage Competition and Penetration
Insurance is a fast changing field and its full potential can better be exploited in a
free market where dynamism and innovations are enrooted. This is possible when
there is a judicious mix of regulation and healthy interplay of market forces. The
under-developed insurance market in India offers enormous opportunities for
growth, if conditions are made favourable for them. (William, 1998) Even with the
entry of limited number of players, the pressure from the market to improve
performance and service is felt. Encouraging and building up meaningful
competition is expected to encourage insurers to seek new market potential more
energetically. It will also widen the financial base in the economy and will provide
an additional stimulus to capital formation and a more efficient use of capital.
Due to this reason, the government of India, open the entry barrier with limited
share capital for private players and stipulate to the minimum number of life to be
cover by private players in the rural and the social sector. The result is that all
companies start operating with equity substantially higher than the requirement.
Now the insurers have consistently achieving higher figures than given target.
(Plande, 2003)
Privatization provide customer suited products
India is under insured but there are more than enough rooms for everyone,
because government has already privatize the insurance industry, if new players
reach the previously neglected sectors and areas, they may introduce a new
product range and offer more cost effective and efficient customer services.
The result is that new players start improving their products range, on this line
some new products such as Term Insurance Plan, Whole Life Plan, Endowment
plan, Single Premium Plan, Annuities and Pension plans are introduced by the
private players. The terms and conditions of these policies are as per the needs
of customers which provide benefit in terms of their return. (Dhar, 2007)
Privatization improve service standards
The government cannot perform all functions regarding regulation, promotion,
planning and entrepreneurship with equal efficiency, so government opens the
door for private players under water tight criteria of a minimum capital requirement
of 100 crores, 49% stake of which can be held by a foreign partner as equity.
8
The government appointed IRDA, a whole sole regulatory body to regulate the
whole insurance business. (Mishra, 2006)
The result is that there seems improvement in business standard of insurance
because most of the private players as per the guidelines of IRDA are taking two
steps; one is appointment of Actuary Enquiry Officer. The Actuary is responsible
for any kind of business transaction, fraud, stability and solvency of insurance
business. The other is appointment of agents who complete 100 hours training
class from any Insurance Training Institute and possess certificate of this training.
After that they must clear the exams conducted by Insurance Institute of India.
(Dhar, 2007)
Privatization increases resource allocation efficiency
In India there is multiplicity of authorities, each one of which with its different rules
and norms, sometimes complicates the decision in relation to investment, instead
of this there is emphasis on strict prudential supervision of investment by
government insurance entities. Naturally, it is obvious that fund managers should
have the freedom within certain parameter to select both the asset allocation
policy and choice of investment. (Plande, 2003)
So IRDA has been established as a parent authority for regulating insurance
companies and to remove the governmental monopolistic barriers among the
insurance players. The insurance players today are expected to invest funds
judiciously with the combined objectives of liquidity, maximization of yield and safety
by confirming the prescribed guidelines on investment for efficient resources
allocation. At last, insurance shifts from monopolistic attitude towards privatization
to improve the operating profitability, investment yield, marketing and actuarial
efficiency ratios of insurers over the past years.
Privatization Bring Changes in Consumer Outlook
The various aspects of economic policy affect growth of insurance market such
as taxation policy of government deeply affect to the insurance sector, particularly
to life insurance and inculcate among the policy-holders the habit of saving. But
high tax on investment returns will discourage the desire to save. In India, there
were complaints that rates of return on life policies are not what they could be.
Therefore, tax incentives played a vital role in determining attractiveness of such
policies. Best consumer favour risk products over purely saving oriented policies.
(Plande, 2003)
Due to this reason the government privatizes the insurance companies and charge
tax only on life insurance policies rather than general insurance policies. The
result is the role of insurance is undergoing a phenomenal change today as is
evident from product bouquet and product advertisements. The emphasis lies on
insuring oneself and ones close family member for more self reliance. To meet
varying needs of various individuals, insurance players have a vast foray of
products in their bouquet. Besides this, almost all companies offer flexibility to
customers to choose most suitable product for themselves by combining features
of a number of products together, thus the product can be customized to suit
customer as per their needs. (Plande, 2003)
INSURANCE : PITFALLS OF PRIVATIZATION; UNSEEN BY THE GOVERNMENT

Privatization Sell out Insurance to Multi-Nationals, Foreign Joint Venture
The moves of the government like increment in foreign equity from 26% to 49%
clearly indicate that government selling insurance sector to big multinational,
foreign joint venture. The LIC with Rs. 6, 50,000 crore investible financial assets
has attraction of investment modes provides much benefits. But our national building
mission does not allowed to fall prey to purely mercenary capital But this
happened by recent moves of government.
Equally noteworthy is indisputable fact that foreign institutional investors have
withdrawn more than Rs. 1, 00,000 crore from equity market in few years. This is
as per provisional data provided by Bombay Stock Exchange (BSE) and National
Stock Exchange (NSE). What is the guarantee that foreign players will uphold our
interests above their own, when it comes to a financial crunch?
Another equally disastrous move is amendment to the General Insurance Business
Nationalization Act, aimed at allowing four public sector general insurance
companies to disinvest their shares and raise resources from the market. This
steep to meet capital requirements shows that government is not in a position to
provide them the same. Hence initial public offering route is touted as best option.
In effect, it will pave the way for privatization of a fundamentally strong public
sector. Any move to sound privatization horn of such a sector would be deleterious
to both our economy and national interest.
Privatization Link Insurance to a Speculative Bubble of Casino Capitalism
Another retrograde amendment sought in the Insurance Act is to relax stipulation
of insurance funds be invested only in government securities and approved
investments. Movement of these funds to outside countries is expressly prohibited.
Bowing to private demands, these funds may even been allowed to be parked
offshore. In prevailing volatile global share and stock market scenario it would be
a sure recipe for disaster, since India would be voluntarily linking us to speculative
bubble of casino capitalism. (The Hindu, 2008)
Privatization Promote Jealous among Public and Private Sector Corporation
The goal behind privatization was to ensure much better conditions for consumers,
meaning thereby more product would be available and the premium rate would
fall, even nationalized public sector companies would be force to deal with such
reality of competition. But result is negative, companies not only private players
but public players increases rate of premium and reducing number of policies
offer. Privatizations promoting a jealous attitude among private and public players,
both are anxious to show profit on all lines of activities.
What this means most starkly is that the cross-subsidization which was characteristic
of insurance sector earlier, and which indeed is typical of most public sector service
provision , is disappearing. Now however, general as well as life insurance
companies showing profit rate or margins which are comparable to those of private
sector, they are likely to turn more cautious and stingier about providing insurance
10
cover to a range of consumers, simply in order to maintain competitive profitability.

(Surendra, 2002)
Privatization pave ways to Stratagem in Insurance Litmus Test
The insurance is an intensively people-oriented business and human resources
will undoubted be differentiator like in any other retail industry. The quality of
manpower attracted and retained by insurers and how their abilities and ambitions
are harnessed would be litmus test for industry.
But there are stratagem to insurance litmus test because insurers have became
selective in recruiting agents; they do not judge to agent on the point of technicality
of business as well as behavioural skill which is important for progress of business
of particular company. The people are taking training forge certificates in money
without actually undergoing actual training process. Other distribution channel also
has specific minimum eligibility requirements. This thing possibly lead to failure of
private players and would adversely affect those who had sunk their life savings
in such companies. The high incidence of such cases was indeed why companies
in India had been nationalized in first place. There was the potential misuse of
the huge pool of savings raised by this sector, which could be utilized for productive
investment, including by state. (Ghosh, 2002)
Privatization make Insurance a Privilege for Richest
Access to the social security is a fundamental right. While country is expecting its
gross domestic product to grow faster, a balanced growth is a major concern as
gap between rich and poor would be widened further in a country like India.
Insurance sector definitely will have an impact on reducing this gap, though it
may take many years to build a bridge between haves and have-notes.
Today era is driven by non-governmental organization and micro financial
institutions. Whether these organizations alone would be able to make financial
inclusion a success story? There is still a layer called below poverty line not
covered by these agencies.
In the last several years, insurance or getting insured is privilege of rich. Even in
last years of existence, state-owned life insurance corporation or other general
insurance companies preferred to insure household which have strong assets or
a good income level, even in rural areas they compete with Private Sector
Corporations to make profit not for welfare of people. (The Hindu, 2008)
INSURANCE : CHALLENGE POSE BY THE PRIVATIZATION
Insurance Still a Tax saving Tool
The distribution of insurance products till now has been through individual agents
mostly. They sell these products more as a tax saving tool rather emphasizing on
their other benefits like the feature of insurance cover and its ability to retain
financial status of family in case of death of bread earner. The sales of term
policies offer a risk cover by taking a small percentage of sales of every insurance
product by a company. Agents do not push these products as amount of
commission is lower in these products in comparison to other products. There
11
are also some typical customer requirements of getting something back on survival,
they believes that if they bought an investment plan then they do not have any
need to review their insurance needs frequently. This thing leads the agents to
sell the insurance as saving plan. But the reality is that insurance needs change
as per changes in income, life stages and life style of each individual and these
needs have to be addressed frequently. However, customer treats insurance as
an investment plan which is not revisited leading to phenomenon of underinsurance.
Inadequate Role of Intermediaries
The practice of selling insurance as an investment has perpetuated over a long
period of time and is fed by an agents obvious need to maximize his income.
Under such situation agents educational position having a long-term relationship
with clients which resulting in much more income than maximizing income in the
first sale. With this recognition, agents may recommend right investment and
insurance products which suit individual specific needs at different stages in their
lives. Agents will first have to imbibe this behaviour and then convince their clients
that whatever is being recommended is in their best interest. Building a long term
relationship is a lengthily and cumbersome process but with significant long term
benefit. But under Indian insurance industry instead of proper guidelines regarding
the educational qualification and training programmes, agents are appointed
through fraudulent process. (Jhanaveri, 2005)
Inefficiency of Banc-assurance Alternative Channel
Insurance is not a business of banks. Banks start this business due to the reasons
of shrinking in banking business and by insurance business revenue of bank may
increase. Banks generally have a service oriented culture as against insurance
companies that have an aggressive need based selling attitude. The rubbing-off
of this selling culture on bank definitely helps in its core business but increase
the problems in the actual regulation of insurance. How do banks and insurance
companies have the same business objectives? (Krishnamurthy, 2005)
Inappropriate regulations
The IRDA has done a very good Job of ensuring a smooth transition from a
single player to a competitive one. It plays a major role in ensuring that each and
every Indian citizen is approach with right advise to cover risk to his/her life and
protect their family from adverse financial circumstances. But certain basic principles
such as regulations regarding governing the training, licensing of agent, selling
process, product and price etc. are not yet properly defined through which real
goal of insurance can be achieved.
Expansion of Distribution Costs
Increase in distribution of insurance and its reach to less populated areas increases
costs of insurance. Such costs will have to be estimated and priced into products
and issues relating to cross subsidization may arise. Alternatively, insurers could
introduce new products for these specific market segments and price then to
12
recover incremental costs of their distribution with instructions to their agents.

Historically, this has been difficult to achieve and may not be in best interests of
customer. (Jhanaveri, 2005)
INSURANCE: FUTURE DIRECTION TOWARDS THE PRIVATIZATION
Improvement in Product Strategy
The customized high-end complicated products aimed at high-end, financialawareness of customers with risk appetite. So some improvement must be done
in product strategy so that even the small wage earner can be benefitted by the
fruits of Insurance, annual premium of ULIPs should be low enough to suit the
criteria even of minimum income earners, ULIPs must be protected from surrender
charges imposed by the insurers in the early years of policy to cover up the front
distribution commission, wrong selling of ULIPs should be curbed to improve
persistency. (Bhat, 2005)
Improvement in Service Level
What makes life insurance industry different from other financial services is the
long-term nature of relationship of company with its customers by providing the
information as per their changing needs through technology track. The technology
track must be adapted with system of channel partners without compromising
information flow because by this industry can reduce turnaround in time and
provide facility to the customers through emails, facsimile, websites, ATMs etc.
(krisnamurthy, 2005)
Effective Campaign for Consumer Awareness
Increasing awareness of insurance among the consumer is a condition precedent
for penetration of insurance. Anecdotal evidence and empirical observations indicate
that awareness of insurance among consumer has improved substantially. This is
attributing of effective campaign launched by IRDA and combined impact of
sustained wide ranging publicity by all insurers. But insurance has been in spotlight
at all times and in all fields. Our insurance industry is weak in respect of
awareness campaign because infrastructures of insurance companies are week
and they are not providing appropriate statistical data towards the pricing to
customer. To improve this, companies start launching campaign on market
education level. But these campaigns are not appropriate. So there must be an
independent regulator to manage campaign about insurance awareness in cooperation with insurance companies. (Sony, 20005)
Co-operation among Public and Private Players
Insurance is a complex business both in terms of its fundamentals and operating
practices. A key feature of general insurance market is its skewed structure in
terms of rates and terms. More than 60 percent of the business is controlled by
a centrally administered rate structure known as the tariff. The innovations in
these segments are difficult since policy terms as well as price are externally
determined. Competition is to be focused mainly on promise of good service and
performance thereof. The IRDA has recognized this but an action plan to move
13
towards a free market rating regime with adequate safeguard is yet to be put in
place. This, when it happens, will determine the future structure of general
insurance market in India, and this will happen when public sector does business
in the cooperation with private sector. But in public sector companies, fear of
competition, their remunerability in terms of observing price discipline and conduct
of their field force and support staff are anxieties that cannot be wished away
and public sector is not cooperating with private sector, so there is need of well
directed measures that must be taken.
Removal of Structural Inefficiencies of Public Sector Corporation
Since privatization, new players have set a completely new paradigm of service in
both life and general insurance sectors. All companies have come up with
benchmarks on each aspect of service and also internal measurement of quality.
The best practices aimed at informing customer in a transparent manner have
indeed been brought in. This practice is more evident in life insurance possibly
because of long term nature of business. But Indian insurers in public sector
respond slowly due to their structural inefficiencies with pervasive attitude. So to
compete with private sectors, the need on the part of public sectors first improve
their attitude and to maintain the transparency in claim handling by set up a
separate claim handling office of few managers which provide the required service
to the customers with check and balance on their internal quality measurement.
Promote Professionalism among Intermediaries
Some of the significant requirements introduced by IRDA are to promote
professionalism among intermediaries related to minimum qualifications, mandatory
training and passing an examination before a license to be issued to an agent or
a broker. But there is no evidence to show that agents in the new paradigm show
higher level of professionalism. The uglier aspects of competition can be seen in
the training, examination, and consequently in performance of agents. Drop-out
rates are still very high and productivity is quite low. Intermediaries such as agents
and brokers from all parts of the country will help to play a significant role if
insurance is to be spread to all segments and regions of India. The present
trend does not seem to show significant improvement in the quality of the
distribution force to achieve higher penetration. Insurance agency is not yet seen
as a viable career in terms of income security and social acceptance. Structure
of remuneration, limits imposed by law, flexibility of ownership and transferability
of agency are some of the legal rigidities that stifle development of professionalism
among intermediaries.
Insurance industry has licensed brokers in market and expands their role; increase
importance of banc- assurance, introduce corporate agency as a distribution arm
which are significant development in insurance industry. So many corrective
measures are being introduced as reaction to lack of compliance. But further it is
needed that insurance industry should observe rules and regulations and avoid
a situation where regulator is obliged to introduce on the spot or ad-hoc directions
instead of looking for systemic solutions that have a better chance of success in
strengthening market.
14
Implementation of Self-Regulatory Measures

The IRDA has made known its intention of self-regulating measures with the help
of Life and General Insurance Councils, Actuarial Society, Surveyors Association,
Brokers Association, etc. This is a trusting and mature move. But under Indian
insurance industry each player has a major responsibility in making a success of
this approach but they are failing in doing this. So there is duty on the part of
every player to maintain self discipline and remove the complications from rigorous
regulatory measures. (Sony, 2005)
Adoption of Multi-Product, Multi-Channel and Multi-Segment Route
The key to market growth is though integrated approach which includes creating
awareness about insurance, enhancing reach through cost-effective distribution,
and meeting customer needs through product innovation.
A two-fold approach is required while adopting these drivers of growth: increase
depth of penetration in existing product market segments and drive the width of
penetration leading to market expansion by targeting new segments. Given
complexity to industry, insurers will have to adopt a multi-product, multi-channel,
and multi-segment route to market to achieve these objectives.
Awareness must be in line with creation of distribution reach to ensure that last
mile fulfilment loop is closed. The conventional distribution network comprises of
physical networks of branches (direct channel) and agents tied to insurance
companies. In future, there will be a plethora of channels allowing customer to
choose which channel he is most comfortable with. The options include agents,
brokers, direct field force, telesales, banc-assurance, alliances, and internet etc.
(Bakshi, 2005)
CONCLUDING REMARK
After this broad discussion on privatization of insurance, conclusion is that,
insurance sector definitely will progress as results are showing year by year. But
there must be cautious concern about lacunas of privatization process otherwise
the aim behind it that is social security will be collapse. For removing lacunas
which are ignored by government, there is need of some future directions by
which government can fill unwanted gaps. Under such situation responsibility comes
on government that it will always remain conscious about social security in the
name of insurance and tries its best to solve the problems relating to the social
security by which the society can achieve their desired goal and lead towards the
progress.
REFERENCES
1.
Bhat Ramesh (2005), Insurance Industry in India: Structure, Performance, and Future
Challenges, Vikalpa (Journal of IIM Ahmadabad), 30 (3)
2.
Bakshi Sandeep (2005), Integrated Approach: Key to Growth and Development, Vikalpa
(Journal of IIM Ahmadabad), 30 (3)
3.
Dhar Runa,
Rastogi Shilpa
(2007), Enhancing Competitiveness: The Case Study of
15
Indian Life Insurance Industry, Paper Presented in Conference organized by IIT Kanpur,
on Global Competition and Competitiveness of Indian Corporate
4.
Ghosh Jayanti (2002), The Stranger Behaviour of the Insurance Business in India, Policy
Watch, Macro-scan, Economic Research Foundation, New Delhi
5.
Jhanaveri Nani (2005), Are Indian Families Adequately Insured, Vikalpa (Journal of IIM
Ahmadabad), 30 (3)
6.
Krishnamurthy, S. (2005), Insurance Sector: Challenges of Competition and Future

Scenario, Vikalpa (Journal of IIM Ahmadabad), 30 (3)
7.
Mishra, M.N. (2006), Insurance Principles and Practice, S. Chand and Comp., New Delhi
8.
Plande, P, S, Shah R. S. (2003), Insurance in India: Changing Policies & Emerging

Opportunities, Sage India Pvt. Ltd. New Delhi
9.
Sinha Tapen (2002), Privatization of Insurance Market in India: From British Raj to
Monopoly to Swaraj, Centre for Risk and Studies, Paper Discussion Series, University of
Nottingham
10. Sony, M. V. (2005), New Initiatives in the Insurance Sector: Opportunities and Challenges.
Vikalpa (Journal of IIM Ahmadabad), 30(3)
11. Surendra, Lesson from Insurance Sector (2002), Frontline, Colum Section, 19 (1)
12. The Hindu, 22th December2008
13. The Hindu, 26th December2008
14. William, L., Megginson (1998), Impact of Privatization Economic Reform Today, 11(1), Centre
for International Private Enterprises, Washington DC
Websites
1.
http://www.vikapla.com/ last accessed on 26/03/2015
2.
http://dspaie.iimk.ac.in/bitstream/2259/5121/1 /559-568+/ last accessed on 27/04/2015
3.
http://www. Macroscan.org/pol./J402/prnt2707021 insurance/ last accessed on 26/03/2015
4.
http://unpanl.un.org/intradoc/ group/public/documents/ last accessed on 15/05/2015
5.
http://www.hinduonnet.com/fine/f 1916420/ last accessed on 15/05/2015
6.
http:// www.cipe.org/publicactin/ert/e27/e27-04/ pdf last accessed on 16/05/2015
16
Effect of Personality on the Performance of

Life Insurance Advisors
A Study in the Kolkata region
Ipsita Chakraborty* & Sharmistha Banerjee**
ABSTRACT
In the open economy structure, the life insurance industry has witnessed a radical change
with the influx of private life insurance players. The challenges in selling services are in the
marketers ability to convince customers about a product that cannot be touched, felt or seen.
Hence, success in selling insurance is driven more by establishing trust and empathy in the
relationship rather than on the product features. Past research suggest that personality traits
of the sellers of insurance are aligned with the job characteristics to ensure person-job-fit and
thus influence higher levels of performance (Osipow, 1990). Through an empirical study of
200 life insurance advisors from the public and private sector, in Kolkata, the researchers
seek to identify the impact of personality on their performance. This study may have far-reaching
implications on the managerial decision in recruiting and selecting life advisors. The front-line
salespeople are one of the most significant pillars of an organization because they bring in
direct revenue to the organization. The research work may provide guidelines in future for the
HR professionals in the recruitment and selection and performance management of the sales
personnel.
Key Words : Personality, Performance, Life Insurance, Service sector
INTRODUCTION
Previously, researchers considered cognitive ability as the only predictor of job
performance. People high on intelligence quotient were considered to be smarter
and more likely to succeed in the job. But then, with research, it was understood
that intelligence is one aspect of job performance. The other aspect is creativity,
leadership, integrity, cooperation at the workplace which plays major roles in
person-job fit and person-organization fit. Thus it impacts productivity as well.
This led the researchers to identify the trends in business organizations wherein
it was found that presently, in every job, a lot of attention is given today to
individual personality traits to predict job performance (Dosajh & Gandhi, 2008).
The present structure of Indian economy shows a significant contribution of the
service industry. The uniqueness of the service sector is in the focus it lays on
the human element of an organization. Thus it has set a new trend in the way
researchers look at performance or productivity of an organization. Psychologists
*
Research Scholar, Department of Business Management, University of Calcutta, Alipore,

Kolkata-700027. Email : ipsitapatranabis@gmail.com
**
Professor, Department of Business Management, University of Calcutta, Alipore, Kolkata-700027.

Email : sharmistha.cu@gmail.com
17
are trying to look at the various human factors that may drive and or sustain an
organization, specifically in the service sector. Performance being a dependent
variable, researchers have explored and identified many independent variables
which have an impact on performance. Of this, personality has been found to be
the key determining factors governing employee performance. In this given
background, this study explores the relationship between personality and
performance of the life insurance advisors of the Kolkata region especially because
insurance is one of the oldest and still growing parts of Indian service sector. The
front-line salespeople face the competition on the field and those few who have
the ability to withstand this pressure and rebound are the ones who can retain
their position in the business and eventually learn and grow.
REVIEW OF LITERATURE
The process by which organizations align their resources, systems and employees
to strategic objectives and priorities is known as performance management. It
also helps to overcome the barriers to performing the job tasks. It also helps to
clearly identify the kind of assistance the incumbent expects from the supervisor
to contribute to overcome the difficulties of goal achievement and contribute to
the organization. Consequently, performance management at the individual level
is essential and every business is keen to build a robust performance management
system to develop performance to meet the organizational goals and add value
to the system. Hence, competency-based performance management is becoming
the choice of the industry rather than the traditional performance appraisal process.
Competency-based performance management evaluates the capabilities and
knowledge of an individual employee which can significantly improve organizational
productivity than just evaluating the existing skill-sets. The present research
focuses on frontline sales people, so the study further proceeds to understand
the individual factors which may play a determining role in enhancing the
performance of frontline sales executives. Since decades, researchers have been
intrigued to determine the variables that affect sales performance (Churchill et al.
1985). An in-depth study in this field led the researchers to identify personality as
one of the significant behavioural competencies required to succeed in various
jobs for this study. Kerr and Jermier (1978) identified personality as an important
source for predicting success in jobs. Plotkin (1987) stated that the best
salespeople are not talkative but they enjoy and want to be with people. Personality
is found to be a determining factor governing employee performance. Personality
plays a significant role especially for executives in the service sector where the
job demands that they have to be sensitive to understand the needs of the
customer as they have to deal with the intangible products. According to Schneider
(1987), the people make the place. Personality holds utility as a predictor of job
performance, specifically the conscientiousness dimension (Behling, 1998).
Motowidlo and Van Scotter (1994) and Van Scotter and Motowidlo (1996) explained
that personality specifically, extraversion and agreeableness were strongly related
to interpersonal skills. Hurtz and Donovan (2000) found that emotional stability
and agreeableness were also significant predictors of interpersonal abilities. Barrick
and Mount (2005) conclude, Research, based on a construct-oriented approach
18
primarily using the Big Five traits, has consistently shown that personality predicts
job performance across a wide variety of outcomes (Judge & Erez, 2007).
Personality is defined as the way a person thinks, feels and behaves and that
makes a person unique. Personality strongly influences the behaviors and actions
of individuals i.e. the way a person responds to situations. Past research suggests
that, earlier to the liberalisation period, personality was not viewed as a predictor
of job performance (Ghiselli, 1973; Guion & Gottier, 1965; Locke & Huh, 1962;
Reilly & Chao, 1982; Schmitt, Gooding, Noe, & Kirsch, 1984). Earlier classification
of personality traits was not available. Consequently, researchers had difficulty to
determine the relationships between the personality constructs and performance
criteria in different occupations. Then the researchers came up with the five robust
factors of personality (Digman, 1990). The initiation of the 5-Factor Model of
personality McDougall (1932) wrote that, Personality may to advantage be broadly
analyzed into five distinguishable but separate factors, namely intellect, character,
temperament, disposition, and temper... Then Cattell (1943, 1946, 1947, and
1948) developed a personality model consisting of 16 factors. A significant study
by Norman (1963) suggested the following labels of personality viz. Extraversion,
Emotional Stability, Agreeableness, Conscientiousness and Culture. These have
been referred in the past research work as Normans Big Five or as the Big
Five. Following this, literature provides a powerful evidence for the 5-factor model
(Goldberg, 1981). This study utilizes Barrick and Mounts (1991) Big Five factors
of personality as the theoretical bases for the constructs of personality. Barrick
and Mounts (1991) Big Five factors represent a widely accepted approach to
conceptualizing personality. The Big Five factors consist of an individuals openness
to experience (proactive seeking, toleration for and exploration of the unfamiliar),
conscientiousness (thorough approach, hard-working, organized), extraversion or
sociability (the need for stimulation, desire for activity levels with interpersonal
interaction), agreeableness (cooperative nature, likeability),and emotional stability
or adjustment (calm and secure, low in anxiety). Thus a large body of literature in
the domain of performance management is available. Empirical studies on the
influence of personality on performance in different sectors have contributed to
the rich body of work.
But a gap in the available literature is noted, which is the study of personality in
the performance of life insurance advisors in India. This area attracted the attention
of the researchers because with liberalization, privatization and globalization,
amongst all the industries in the service sector, the insurance industry has
undergone a sea-change. This substantial change in the life insurance industry
was initiated by the people of the industry and it continued favourably. In this new
era of open market, innovative skill sets are required to bear the pressure of
competition, to understand customers better and solve problems rather than just
to sell products (Cron & DeCarlo,2009; Hodge & Schachter, 2006). Given this
background, the present study explores the relationship between personality and
performance of life insurance advisors, one of the oldest and continuously growing
service sectors in India. Since, 1972-73 till 2009-10 services has shown a steady
increase in its share employment from 14.8 per cent to 26.7 per cent (Economic
Survey, 2010-11, published by GOI).
19
OBJECTIVES
The behaviours and actions of an individual are strongly influenced by individual
traits and characteristics which actually regulate how a person responds to a
situation. This channelized the researchers attempt to explore and establish the
relevance of studying the relationship of personality and employee performance.
Hence, this research work has been able to bridge this gap in the literature and
act as a guiding factor for identifying and analyzing the critical personality factors
of performance in a life insurance advisor.
In the given Indian insurance sector and its opening up, the study would also
deals with a comparative discussion between the public and private sectors
insurance advisors.
METHODOLOGY & SCOPE
In order to operationalise the research issue, which is to study the impact of
personality on the performance of life insurance advisors, primary data was gathered
through a questionnaire-based survey method.
Research Design
This study has been systematically designed to address the research issue. A
questionnaire based survey has been undertaken to collect data from the
respondents. Around 350 life insurance advisors, of the public and private sector,
were approached, of which the analysis for the present study has been carried
out based on 200 complete responses. Of these 109 responses are from the
employees of Life Insurance Corporation of India and 91 are from selected private
life insurance companies. The Big Five Model questionnaires have been
administered to collect data. The data collected have been analyzed using
standardized statistical techniques with the help of statistical software.
The Big Five Model of personality questionnaire has been adapted from Managing
Self Assessing the Big Five: The Big Five Locator Questionnaire (Hellriegel,
Slocum and Woodman, South-Western, 2001). The Big Five personality traits are
the best accepted and most commonly used model of personality in academic
psychology. The questionnaire deals with five variables of personality e.g.
Adjustment, Sociability, Openness, Agreeableness and Conscientiousness. Each
variable is measured by five pairs of terms ranging on a numerical scale from 1
5. The summation of the score of each of the five pairs of terms is converted to
a Big Five Locator Score Conversion Sheet to get the Norm score of each of the
variables of personality followed by an interpretation of the scores through the
Big Five Locator Interpretation Sheet.
Sample Selection
The sample of 200 advisors has been studied, spread across 17 branches in
and around Kolkata. Out of them, 109 were from LICI and 91 respondents were
from the private insurers. There are total 43 females (21 LICI & 22 private) and
157 males (88 LICI & 69 private) in the sample. The detailed sample design is as
follows (Table 1):
20
Table 1 : Sample design of the life insurance advisors

Selected Life
Insurance Companies
(based on the
market-share)
Approximate
number
of life insurance
advisors (West
Bengal)
Proportion of
advisors from
each company to
total number of
advisors
Sample
A. Public Sector (LICI)
1,18,062
109.39*
109
ICICI Prudential
16326
15.19**
15
HDFC Life
14200
13.21
13
SBI Life
3312
3.08
Reliance Life
10827
10.07
10
Bajaj Allianz Life
12538
11.66
12
Birla Sun Life
13237
12.31
12
Max Life
2073
1.92
Kotak Life
1177
1.09
Aviva Life
1777
1.65
Tata AIA Life
22317
20.76
21
Total B (Private advisors)
97,784
91
Total (A+B) (Public and

Private sector advisors)
2,15,846
200
B. Private Sector
Source : Self compiled data from IRDA Annual Report 2009-2010

Note : *1. (118062 / 215846) 200 = 109.39
** 2. (16326 / 97784) 91 = 15.19
Sample Profile
The life insurance sector has a different way of judging an advisors performance.
The varying parameters of performance are, total business target to be achieved
for a particular financial year in terms of total sum assured of the new policies,
total first-premium income, total number of lives insured, total number of lives inforce and the total amount of commission earned in a given period of time. In
order to set standardized levels of the performance achieved by the insurance
advisors, this research has presented five levels of performance specifically
designed to cater to both public and private sector with the total business target
to be achieved in terms of the total sum assured as a reference point. The 5
different levels of performance identified are namely, Level 1 (Needs Improvement),
Level 2 (Fair), Level 3 (Good), Level 4 (Very Good) and Level 5 (Excellent),
21
wherein Level 1 is at the bottom of the performance order and Level 5 indicates
the best performers. These levels have been designed based on the given business
targets, for a particular financial year. According to the primary survey conducted,
the present sample has been segregated as per the following performance levels
(Table 2).
Table 2 : Distribution of respondents as per the performance levels
Performance Levels
Sample Size
Public
Private
Sector
Sector
Business Target 1
(INR in lakhs)
(in a year)
Needs Improvement (Level 1)
43
< 1
Fair (Level 2)
29
37
>= 1 < 3
Good (Level 3)
17
34
>= 3 < 7
Very Good (Level 4)
15
13
>= 7 < 12
Excellent (Level 5)
>= 12
Total No. of advisors
109
91
Demographic Variables
The demographic variables chosen for the study, which have been captured
through the survey, are age, gender, qualification, tenure of service and tenure
in the current position.
FINDINGS & ANALYSIS
Relationship between the demographic variables and performance
A Chi-square test is applied on the sample to quantitatively measure and determine
whether any significant association exists between two categorical variables.
Following the chi square test on the overall sample of 200 life insurance advisors,
it was inferred that amongst the five demographic variables, as captured through
the survey, only two, that is, gender and tenure of service have been found to be
associated with performance (Table3).
Table 3 : Relationship between Gender and Tenure of Service and Performance
Sample Demographic
Variables
Gender
Tenure of Service
Pearson
Chi-Square
11.348
36.258
Significance
0.023
0.000
However, as discussed earlier, performance of an individual in the selling profession

in the service industry is highly influenced by personality. So the study expands
1
In terms of the total sum assured of the new policies
22
further to test the association of the personality variables with that of performance.
Relationship between Personality variables and Performance
As stated earlier, The Big Five Model of personality questionnaire has been
adapted from Managing Self Assessing the Big Five: The Big Five Locator
Questionnaire (Hellriegel, Slocum and Woodman, South-Western, 2001). The
questionnaire deals with five variables of personality e.g. Adjustment, Sociability,
Openness, Agreeableness and Conscientiousness. The instrument shows a
reliability measure with a Cronbach alpha value of 0.734. A sampling adequacy
test was also done which gave a KMO value of 0.719. The study revealed that
only Agreeableness has an association with performance (Table 4). Agreeableness
refers to an individuals behavior towards others while interacting with them. The
behavior may range from warm, cooperative and close (high agreeableness) to
cold, distant and antagonistic (low agreeableness).
Table 4 : Relationship between Personality variables and Performance
Sample Personality
Construct
Pearson Chi-Square
Significance
Adjustment
14.664
0.549
Sociability
22.457
0.129
Openness
15.264
0.505
Conscientiousness
25.239
0.066
Agreeableness
34.123
0.005
High levels of agreeableness for insurance advisors might act as a hindrance to

performance. It is found in the sample that 3 advisors have very high levels of
agreeableness and they are restricted to the Needs Improvement level. Around
83.3 per cent of the excellent performers are either challengers or negotiators.
The findings actually corroborate the fact that, in this cut-throat competition, to
survive and grow in an insurance selling profession, one needs to constantly
challenge the environment. The advisors also need to negotiate with the customers
and reach a mutually beneficial deal. Thus agreeableness has an association
with performance which is also statistically proven, as per Table 4.
A summary of the findings reveals that some of the select independent variables
significantly influence the performance of the life insurance advisors. The variables
are namely, gender, tenure of service and agreeableness. Hence, the study of
the total sample of 200 insurance advisors has identified 3 predictor variables
which are associated with job performance.
CONCLUSION & RECOMMENDATIONS
The life insurance industry has witnessed a fundamental change over the last
few years. The public sector unit (LICI) is still dominating with a market-share of
71 per cent despite the existence of 23 private insurance companies. The task of
23
selling life insurance products demands a skill of understanding others and

empathy towards people. The job of selling intangible products requires a human
touch which differentiates this industry to that of others. Hence, the study of
behavioral attributes becomes an important area as a significant predictor of
success. Some of the key findings of this research work are cited below. Amongst
the demographic variables, tenure of service and gender are found to be
significantly associated with the performance of the advisors. In simple terms, from
the dataset it may be inferred that advisors with higher tenure of service are
found to have achieved better performance: 75 per cent of the advisors with 16
and above years experience lie in the Good, Very Good and Excellent categories,
while most of the respondents with lesser years of work experience lie in the
lower performance zones. However, the impact of gender on performance shows
an interesting trend. The sample clearly indicates that the percentage of female
advisors is more than the male advisors in the bottom three levels. At the same
time the percentage of male advisors is higher at the Very Good and Excellent
levels. This probably substantiates the proverbial glass ceiling, in which the top
levels of the hierarchy in most organizations remain male dominated. But in this
case, it needs to be mentioned that the climb Good to Very Good directly
depends on the business garnered by the advisor. So it may be inferred that less
women among the sample respondents have been able to bring in high volume
of business. Agreeableness is one of the significant personality attributes which
reveals the fact that high levels of agreeableness may restrict an advisors
movement across the performance levels and he/she may be confined to the
Needs Improvement level of performance. High levels of agreeableness indicate
that an advisor has high desire to make others happy. In an attempt to do so he
may find it difficult to assert himself which the customer may perceive as lack of
confidence in the advisor. Thus an advisor may lose in making a sale effective.
It is recommended that the life insurance organizations should have long-term
policies to encourage and support female advisors to rise in their career. A welldefined strategy to help working women to balance their work and family
commitments may increase women involvement in the profession and the industry
may witness more and more female advisors in the higher levels of performance.
Advisors may be made to go through counseling, personality development training
and especially for female advisors companies may arrange parenting seminars
on a regular basis. Such an initiative from the organization will help the advisors
to balance their work and professional life better and also overcome the work or
family related problems.
LIMITATIONS
The research has been conducted on a heterogeneous sample of public and
private sector organizations. Public sector advisors are not the employees of the
organization. They have no fixed pay and they earn only based on commission.
Private sector advisors earn a base pay but they always have a fear of job loss
due to pressure of heavy targets and deadlines. Thus their perspective towards
work and life may differ which has been reflected in the responses captured
through the study.
24
REFERENCES
1.
Barrick MR, Mount MK. (2005). Yes, personality matters: Moving on to more important
matters. Human Performance, 18, 359372
2.
Barrick, M.R. and Mount, M.K. (1991) The big five personality dimensions and job
performance: A meta-analysis. Personnel Psychology, 44, 1-26
3.
Behling, O. (1998).Employee Selection: Will Intelligence and Conscientiousness Do the

Job? Academy of Management Executive12:77-86
4.
Cattell RB. (1943). The description of personality: basic traits resolved into clusters.
Journal of Abnormal Social Psychology, 38,476-506
5.
Cattell RB. (1948). The primary personality factors in women compared with those in
men. British Journal of Psychology, I, 114130
6.
Cattell RB. (1946). The description and measurement of personality. Yonkers, NY: World
Book
7.
Cattell RB. (1947). Confirmation and clarification of primary personality factors.

Psychomemka, 12,197-220
8.
Churchill, Gilbert A., Jr., Neil M. Ford, Steven W. Hartley, and Or-ville C. Walker, Jr. (1985),
The Determinants of Salesperson Performance: A Meta-Analysis, Journal of Marketing
Research, 22 (May), 103118
9.
Cron, William L., and Thomas E. DeCarlo (2009), Dalrymples Sales Management, 10th
ed., Hoboken, NJ; John Wiley & Sons
10. Digman JM. (1990). Personality structure: Emergence of the five-factor model. Annual
Review of Psychology, 41,417440. Journal of Personality and Social Psychology 37: 395
412
11. Dosajh, B., & Gandhi, B. (2008). An Assessment of the Impact of Personality Traits on
Job Performance in Banking Industry. The Icfai University Journal of Bank Management,
Vol. VII, No. 3
12. Ghiselli EE. (1973). The validity of aptitude tests in personnel selection. Personnel
Psychology, 26, 461477
13. Goldberg LR. (1981). Language and individual differences: The search for universals in
personality lexicons. In Wheeler L. (Ed.), Review of Personality and Social Psychology
(Vol. 2, pp. 141-166). Beverly Hills, CA Sage Publications
14. Government of India (2010-11, 2011-12 & 2012-13), Economic Survey of India
15. Guion RM, Gottier RE (1965). Validity of personality measures in personnel selection.
Personnel Psychology, 18,135-164
16. Hodge, R. and Schachter, L. (2006), The Mind of the customer, McGraw Hill, New York
17. Hurtz, G. and J .Donovan (2000). Personality and Job Performance: The Big Five
Revisited. Journal of Applied Psychology 85(6):869-879
18. Judge, T. A., & Erez, A. (2007, 60). Interaction and Intersection : The Constellation of
Emotional Stability and Extraversion in predicting performance. Personnel Psychology,
573596
19. Kerr, S. and Jermier (1978) Substitutes for Leadership: Their Meaning and measurement,
Organizational Behavior and Human Performance, 22, 375-403
20. Locke EA, Huh CL. (1962). A review and evaluation of the validity studies of activity Vector
analysis. Personnel Psychology, 15, 2542
21. McDougall W. (1932). Of the words character and personality. Character Personality, I, 316
25
22. Motowidlo, S. J. and J. R. Van Scotter (1994) Evidence that Task Performance Should
Be Distinguished from Contextual Performance. Journal of Applied Psychology 79:475480
23. Norman W. (1963). Toward an adequate taxonomy of personality attributes: Replicated
factor structure in peer nomination personality ratings. Journal of Abnormal & Social
Psychology, 66,576583
24. Osipow, S. H. (1990). Convergence in Theories of Career Choice and Development:
Review and Prospect. Journal of Vocational Behaviour, Vol. 36 , 122-131
25. Plotkin, H. M. (September 1987). What makes a successful salesperson? Training and
development Journal
26. Reilly RR, Chao GT. (1982). Validity and fairness of some alternative employee selection
procedures. Personnel Psychology, 35,142
27. Schmitt N, Gooding RZ, Noe RA, Kirsch M. (1984). Meta-analyses of validity studies
published between 1964 and 1982 and the investigation of study characteristics.
Personnel Psychology, 37,407-422
28. Schneider, B.1987.The People Make the Place. Personnel Psychology 40:437-454
29. Van Scotter, J. R. and S. J. Motowidlo (1996) Interpersonal Facilitation and Job Dedication
as Separate Facets of Contextual Performance. Journal of Applied Psychology 81:525531
26
Impact of Contract Labour in Manufacturing

Industries in West Bengal
Sanjay Anand* and Parveen Ahmed Alam**
ABSTRACT
The employment structure of organized manufacturing industries in India has undergone
substantial changes with the steep rise in the use of contract workers in place of permanent
workers since the early 1990s. There has also been a sharp increase in contract workers in
West Bengals factories too an indication that they now come cheap compared with two
decades ago. The management of any manufacturing utility employs contract workers because
of the low wage cost and the as and when required employability status. There is no denying
the fact that all manufacturing organizations are beset with a lot of problems due to the
employment of contract workers. This paper aims at an analysis of the problems faced by the
contract labour, in the light of the Contract Labour (Regulation & Abolition) Act, 1970 and that
of the Principal Employer such that the problems can be addressed, resulting in a win-win
situation for all the stakeholders. The study is based on both primary and secondary sources
of data.
Key Words : Contract labor, Contractor, Principal Employer, Contract Labour (Regulation &
Abolition) Act, 1970
INTRODUCTION
The Government of India, in a bid to popularize the Make in India initiative to the
global level, is showcasing India as a business friendly destination to attract foreign
businesses to invest and manufacture in the country. One of the major reasons
highlighted is availability of cheap labour. In most of the manufacturing units in
India, labour can be categorized broadly into permanent and contractual irrespective of their being skilled, semi-skilled or unskilled. By definition, a workman
is deemed to be employed as contract labour in or in connection with the work
of an establishment when he is hired in or in connection with such work by or
through a contractor, with or without the knowledge of the principal employer.
(Contract Labour (Regulation & Abolition) Act, 1970). Principal Employer means:
(a)
In a factory the owner or occupier of the factory and includes the managing
agent of such owner or occupier, the legal representative of a deceased
owner or occupier and where a person been named as the Manager of the
Factory under the Factories Act 1948 (63 of 1948), the person so named;
(b) In any establishment under the control of any department of any Government
in India, the authority appointed by such Government in this behalf or where
no authority is appointed, the Head of the Department;
*
**
Research Scholar, Sainath University, Ranchi; E-mail : sanjay66anand@yahoo.com

Assistant Professor-HR, Army Institute of Management Kolkata; Email : ahmedparveen2003@yahoo.co.in
27
(c)
In any other establishment, any person responsible for the supervision and
control of the establishment. [Source: Contract Labour (Regulation &
Abolition) Act, 1970]
Contract workmen are indirect employees. They differ from direct labour in terms
of employment relationship with the establishment and method of wage payment.
Contract labour, by and large, is not borne on pay roll nor is paid directly. Contract
workmen are hired, supervised and remunerated by the contractor, who, in turn,
is remunerated by the establishment hiring the services of the contractor.
This employment of contract workers has led to increased wage inequality and
job insecurity in the labour market. The number of contract labourers engaged
by licensed contractors was 14 lakh in central departments and PSUs and 46
lakh at the state level as on March 2009. (VV Giri National Labour Institute).
West Bengal also employs a lot of contract workers in its manufacturing units.
Contract workers, who receive worse pay than those in permanent roles, comprised
30% of the work force in West Bengals factories in 2011-12, compared with only
5% in 1995.
The Government of India promulgated the Contract Labour (Regulation & Abolition)
Act, 1970 with the objective of preventing the exploitation of the Contract workers
and to introduce better conditions of work.
The Contract Labour (Regulation & Abolition) Act, 1970 applies to every
establishment in which twenty or more workmen are employed or were employed
on any day of the preceding twelve months as contract labour and to every
contractor who employs or who employed on any day of the preceding twelve
months twenty or more workmen. The appropriate Government is further
empowered to extend the provisions of the Act to every establishment or contractor
employing such number of workmen being less than twenty to be specified in the
notification.
The Act does not apply to establishments where the work performed is of
intermitten or casual nature. The Act applies to establishments of the Government
and local authorities as well.
The Central Government and the State Government are required to set up Central
Advisory Board and State Advisory Boards which are authorised to constitute
committees as deemed proper. The functions of the Boards would be advisory on
matters arising out of the administration of the Act as may be referred to them.
The Boards are also to carry out the functions assigned to them under the Act.
Every establishment covered under the Act will have to be registered by the
principal employer. In case of non-registration of an establishment, which should
have been registered, the employment of contract labour is prohibited and in
case of breach have to face penal consequences. Likewise, every contractor to
whom the Act applies shall obtain a licence and shall not undertake or execute
any work through contract labour except under and in accordance with the licence
issued.
28
The Act authorises the appropriate Government to make rules for the establishment
of canteens. For the welfare and health of contract labour, provision is to be
made for rest-rooms, first-aid, wholesome drinking water, latrines and urinals. In
case of failure on the part of the contractor to provide the said facilities, the
principal employer is made liable to provide the amenities.
The contractor is required to pay wages and a duty is cast on him to ensure the
disbursement of wages in the presence of the authorised representative of the
principal employer. In case of failure on the part of the contractor to pay wages
either in part or in full, the principal employer is liable to pay the same. The
principal employer is authorised to recover the amount either by deductions from
the amount due to the contractor or as debt payable by the contractor.
The Act makes provision for the appointment of an inspecting staff, for maintenance
of registers and records, for penalties for the contravention of provisions of the
Act and rules thereunder, and for making rules for carrying out the purpose of
the Act.
Apart from the regulatory measures provided under the Act for the benefit of the
contract labour, the appropriate government is authorised, after consultation with
the Central Board or State Board, as the case may be, to prohibit, by notification
in the Official Gazette, employment of contract labour in any establishment.
In order to carry out the purposes of the Act, rules have to be framed both by
the Central and the State Governments. If any government fails to frame rules,
the provisions of the Act would be ineffective.
OBJECTIVES
To identify and analyse if the manufacturing industry in West Bengal is facing
any problems in utilising the skills of Contract Labour, from the point of view of:
(a)
The extent of reliance on Contract Labour.
(b)
The problems faced by Principal Employer and the Contract Labours
(c)
Shortcomings in the Contract Labour (Regulation & Abolition) Act, 1970
SCOPE OF STUDY
The study covers a limited industrial zone in the state of West Bengal. Industrial
areas, viz. in & around Kolkata, were selected for this study. Some Government
establishments have been included in this study because there is a good proportion
of contract labour in such Government establishments. Thus this survey is restricted
to workers appointed as contract workers and on whom the said Act is applicable.
The scope includes:
(a)
Analysis of Contract Labour (Regulation & Abolition) Act 1970, and
(b)
Committees like
(i) Cement Manufacturing Industry, Cement Related Mines & NTPC 2000
- 2001 ordered by Labour Bureau, Ministry of Labour & Employment,
Govt of India.
29
(ii) Working Conditions of Contract Labour in Petroleum Refineries & Oil

fields 2009 2011, Ministry of Labour & Employment, Govt. of India.
(c) The companies included under the survey are
(i) GRSE
(ii) Hindustan Lever Ltd, Ramnagar Mode Kolkata - 24
(iii) Haldia Petrochemicals Ltd
(iv) Burn & Standard
(v) Titagarh Wagons
(vi) Shalimar Construction
(vii) Geeta Engineering Works
The respondents included Principal Employers, Permanent Employees & Contract
Labourers.
METHODOLOGY
Two separate questionnaires were prepared for interviewing the respondents
Principal Employer and Contract Labour. These questionnaires were tested prior
to actual start of the survey. The questionnaire was finalised on the basis of the
findings of the pre-testing.
The method of direct interviews was adopted for collecting necessary information
for this survey. The questionnaires were used as a framework for conducting the
interviews in a structured way. The questions for the Principal Employer covered
around 32 questions, like, whether the contractor follows all legal requirements
like:
l Using relevant Form V for obtaining license
l Renewal of license
l Display of license as per the Contract Labour (R&A) Act
l Intimating the Inspector within 15 days of the commencement or
completion of work, etc.
Regarding work modalities, questions were asked about who supervises the work
of the contract labour, who instructs them, whether the supervisor employed by
the contractor is present in the premises while work is carried out, etc.
Regarding labour management, questions raised included whether the Principal
Employer has any say in the selection and performance appraisal of contract
labours by a contractor, who sanctions leave to the contract labour, who approves
their overtime, how are wages paid, how are contract and permanent workers
differentiated in terms of wage, benefits, working, and employment conditions,
etc.
The questionnaire for the contract labour was short but pinpointed, enquiring about
their satisfaction with working conditions, problems faced and detailed elaboration
of those problems, if any.
The workers from large, medium and small scale private industries as well as
those from Government or Semi-Government establishments were selected for
30
this study. The other constituents were also interviewed like Contractors supplying
labour, Industrialists or owners of the businesses, Officer in charge of
administration and welfare in business, Labour advisors/consultants, Trade Union
officials and Association of employers. In addition, the officials of the Labour
Commissioner who are entrusted with the task of implementation of the Act were
also contacted. Discussions were held with the Assistant Commissioners,
Government Labour Officers and the Inspectors working under them. It was also
necessary to obtain authentic information in this context from the Government
authorities. Offices of the Assistant Labour Commissioners were visited a number
of times and efforts were made to obtain the necessary information. Unfortunately,
no response could be collected from them.
The contract workers were contacted at the following places:
(a) Their actual places of work.
(b) In or out of the premises of work, but at the time of their lunch break
or after their work hours were over.
(c) Offices of the Trade Unions.
(d) Offices of the Assistant Labour Commissioners.
(e) Their residences.
The major limitation of the study was contacting these labourers and eliciting
information from them was the most difficult task of this study. These labourers
were afraid that if they provide the information asked for, they may lose their
jobs. They were afraid of the intimidation by the contractors. Hence, they were
required to be contacted in a number of ways.
In this entire study, secondary sources of data through library research were also
equally important. The literature available in respect of the Act was carefully gone
through. Similarly, the reports of the discussions in the Lok Sabha in this regard,
were also studied. This study being related to the state of West Bengal, Labour
Policy of the state was also studied. Efforts were also made to collect information
about the case studies related to this subject. For this purpose, the offices of the
Trade Unions as well as the Assistant Labour Commissioners and other such
authorities were contacted. No case information could be collected for the detailed
study. Information about the movements organised by various Trade Unions in
this context of laws concerning contract labour, the resolutions passed, efforts
made for the regulations and various cases raised by them has also been collected
for this study. This is because the role of the Trade Unions was very important
for the successful implementation of the Act and as such it was obligatory to take
a note of the same for this study. It was also absolutely essential to obtain the
details of the decisions of the various courts in this regard. Effort was made for
carrying out comparative study of the main judicial decisions in this matter during
this survey.
FINDINGS
The broad findings of the study are as follows:(a) Contract Labour can be employed as Unskilled, Semi skilled and Highly skilled labourer.
31
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(j)
The contract labour overhead cost is cheaper as compared to the wages

paid to the permanent employee.
It has to be ensured that three main obligations are ensure by Principal
Employer as regards Contract Labour like Min wages/ESI contribution/PF
Contribution, but the permanent employees enjoys the benefit of medical
leave, casual leave, earned leave, subsidised canteen, medical benefits,
housing and pension.
Exploitation of Contract Labour is a great cause of concern, which is a major
cause of resentment.
The working condition of Contract Labour must be regulated and abolished
wherever possible.
The quality of work at times suffer due to inadequate training of Contract Labour.
Demographic surveys reveal that increasing members of women and older
workers are entering the workplace as Contract Labourers
The payment of wages to Contract Labour must be done by NEFT/ECS and
be free from any deductions, except those permitted by law.
Principal Employer to ensure that the contract is not a camouflage lest it
becomes a sham contract.
ANALYSIS
The extent of reliance on Contract Labour
In manufacturing industries in West Bengal, on an average the ratio of Permanent
Employees to Contract Labour is 38 : 62. The cost of maintaining Contract Labour
is much cheaper than what is being paid to the Permanent Employees. In case of
permanent employees, the Cost to Company is about Rs 35,000/-, that is four
times more than what is being paid to Contract Labour.
The table below gives an idea about the difference in wage structure between
permanent and contract employees.
The table makes it very clear as to why companies have a tendency to rely more
on contract workers than permanent workers.
Table1 : Wage & Allowances of Permanent and Contract Labour
Allowances Applicable
to Permanent Employees
Basic Pay
32
: 9400.00
Allowances Applicable to
Contract Labour
Daily Wages
(i) Unskilled @ 353/-pd x 26 days :
Rs. 9178.00
(ii) Semiskilled @ 390/-pd x 26 days :
Rs. 10140.00
(iii) Skilled @ 430/-pd x 26 days :
Rs. 11180.00
(iv) Highly Skilled @ 467/-pd x 26 days:
Rs 12142.00
Allowances Applicable
to Permanent Employees
DA
: 3158.00
HRA
: 2700.00
Fringe Benefit
: 1076.00
Medical Allces
: 980.00
OT
Leave Encashment
Gratuity
PF
Pension
Free Canteen Food
Shift Allowances
Double Pay on working on a holiday
No hire & fire but proper disciplinary
procedure
Allowances Applicable to
Contract Labour
Leave with Wages - One day leave after
20 days of week.
OT On very rare occasions
PROBLEMS OF THE PRINCIPAL EMPLOYER

A detailed analysis has yielded the following problems being faced by the Principal
Employer and the Contract Labour. There is no denying the fact that the Principal
Employer uses the contract system because it can employ the non-standard
work practices with this peripheral workforce of general labour and retain a core
workforce of skilled, permanent employees. But there are many problems which
are being faced by the Principal Employer which are appended below:(a) The amount of legal obligation involved on the part of principal employer for
engaging contract labour.
(b) The contract labour demands for the same wages for the same type of work
done by the permanent employee.
(c) They want all welfare activities to be extended to them also as there are for
permanent employees.
(d) They demand permanent jobs after a certain time which is defeating the
purpose of hiring them.
(e) They form unions and resort to Dharnas and Ghearaos which affect the
principal employer.
(f) The contractors at times do not honour the contract obligation and the
welfare/payment given by the Principal Employer does not reach the contract
labour, neither fully nor partially and sometimes none at all.
(g) Nexus between the Statutory Governing bodies and the contractors/contract
labour unions.
33
(h)
In case if the contractor goes absconding/deserts, the full liability is to be

paid by principal employer, in spite of the contractor being paid by the
Principal employer already.
Problem faced by the Contract Labour

The history of exploitation of labour is as old as that of civilization itself. There
has been an ongoing struggle between labourers and their organizations against
such exploitation, but it continues in one form or the other. But there are many
problems which are being faced by the contract labour which are appended below:
(a)
They are deprived of protections under national legislation and internationally

accepted labour standards.
(b) They are denied of contractual rights such as overtime, sick and holiday
pay.
(c) They are being prevented from acquiring continuity of employment and
building experience.
(d) They have limited workers access to national insurances and social security
benefits where available.
(e) They are denied access to redundancy payments and unemployment benefits.
(f) They are restricted to ability to build up any form of work related pension.
(g) They are left with no recourse in the event of work related disease, accident
or death.
(h) They are thought of being lowering industry standards of skill and quality.
(i)
Threatens workplace health and safety standards causing accident, absence
and even death.
Certain specific grievances of the contract labour are as under:
(a) Wages delayed
(b) No pay slip
(c) Contribution to ESI & PF and balance not known
(d)
(e)
(f)
(g)
Always at the mercy of Contractor

Medical facilities - Permanent Employees have good hospitals empanelled
by the Company, contract employees have to go to ESI Hospital
No wages on the day of absenteeism
No scope of training vis a vis the Permanent Employees who have both
industry training and apprenticeships.
(h)
No holidays as compared to Permanent Employees who have 30 days EL,

10 days CL and 10 days medical with leave encashment
(i)
Rules for Gratuity is not clear
(l)
Have to pay about Rs 25 Rs 50 per day to the Contract Labour Union
(m) No uniform, helmet, safety shoe, gloves & goggles
The problems faced by both the parties turn the focus on the Act to find out if
34
there are any shortcomings in it that is resulting in such problems which in turn is
deteriorating the work environment.
Shortcomings in the Contract Labour Regulation & Abolition Act
The Act was enacted in the year 1970 with a view to regulate the contract labour
and to provide for its abolition in certain circumstances. Generally, it is considered
that the practice of engaging contract labour is pernicious, beset with exploiting
tendencies and resulted in unwholesome labour practices coming in the way of
proper working conditions. However, it is not possible to eliminate engaging of
contract labour altogether, in that there are several fields of employment where it
is not possible to have a continuous employment. The process, operation or other
work incidental to or necessary for the industry, trade or occupation may be of
such a nature that a permanent work force would not be practicable and necessary.
In such a situation, it is inevitable for the employer to engage contract labour for
a short period or during the intermittent periods of work. The Act provides for the
continuation of contract, labour wherever it becomes necessary and where it is
not possible to have permanent labour force. If engaging contract labour is
inevitable, as a necessary consequence thereof, their working conditions will have
to be properly regulated. These are provided for in the Act. Thus, the Act has
two main aspects:
(a) To prohibit the employment of contract labour; and
(b) To regulate the working conditions of the contract labour wherever such
employment is not prohibited.
CONCLUSION
The increased use of contract labour has adverse consequences both for the
workers and for the industries that they work in. It is also important to note that
the effects and problems associated with contract labour affect all countries. This
is not simply a problem for either developing or developed countries, nor is it
linked to any particular political or economic philosophy, neither to any one industry
or trade. Contract labour is a global issue.
Contract labour often arises in situations where an enterprise hires workers for
the normal work of its business through another person or intermediary. This
does not include situations where a worker is hired through a recruitment agency.
The enterprise will have the supervision and control of the workers but the
intermediary will pay the workers or retain some degree of control over them.
This form of labour sub-contracting is very common in the building and construction
industries. In many countries these labour suppliers or intermediaries have a
special name and a recognised place in the labour market. Labour sub-contracting
can be very informal, such as the case where a bus or van picks up people
looking for work and delivers them to a site for a days work; or it can be more
formal such as where a builder has a team of labourers for whom he/she regularly
finds general work on local sites.
Traditional or normal employment relationships are based on a contract of
employment under which the worker agrees to perform certain work for the
35
employer. The employer undertakes to provide the material and resources, with
which the worker performs the work, and to pay for the work. Typically, the worker
provides nothing more than the skills or qualifications with which the task is
performed. This relationship is characterised by economic and organisational
dependency and is commonly seen as a master-servant or employer-employee
relationship.
REFERENCES
1.
http://labourbureau.nic.in/ILJ_FEB_2013.pdf/ last accessed on 19.08.2015
2.
http://pblabour.gov.in/pdf/acts_rules/contract_labour_regulation_and_abolition_act_1970.pdf/
last accessed on 19.08.2015
3.
http://www.livemint.com/Industry/PmEwcYGGH1SadedoKgZ9cK/Study-looks-into-why-WestBengals-trade-unions-are-now-weak.html/ last accessed on 19.08.2015
4.
Kharbanda, V. K (2013), Commentaries on Contract Labour Regulation and Abolition Act

1970, Law Publishing House, Allahabad
5.
Padhi, P. K. (2011), Labour and Industrial Laws, II Edition, PHI Learning
36
Assessing the Risk Profile of MSME Units

A Study on MSME Units in and around Patna
Pankaj Kumar*, Rajib Bhattacharya** & Protik Basu***
ABSTRACT
MSME units contribute significantly to the Indian economy not only in terms of share in National
Income but also in terms of foreign exchange earnings, employment generation and
contribution towards mitigating regional imbalance in economic development. However, the
MSME units are prone to certain inherent risks arising out of low capital base, narrow-based
management, lack of information etc. Development of MSME units thus ranks high in the
national agenda. This obviated accurate assessment of the risk profile of MSME units so that
proactive measures may be taken at appropriate levels to ensure sustainable development
of such units. This paper envisages to assess the risk profile of MSME units in and around
Patna. As almost all the MSME units in the region avail of bank credit, the credit ratings of the
MSME units by the banks has been taken to be the tool for assessing the risk profile of the
units. A sample of MSME units was taken for the study. The findings of the study revealed that
no generic risk profile could be identified for the units. However Management Risk was found
to be a significant component of the risk profile of majority of the units considered in the
sample.
Key Words : MSME, Risk Profile, Patna
INTRODUCTION
The Micro, Small & Medium Enterprise [MSME] sector is a very important driving
force of the Indian economy. This sector, besides acting as a catalyst in bringing
about balanced industrialization of the nation, possesses some immensely
beneficial aspects like high employment generation capacity, significant contribution
to the GDP and foreign exchange earnings. Moreover MSME units cater to those
markets which remains inaccessible to or ignored by large industries. However,
these units suffer from certain inherent weaknesses which render them vulnerable
to external adversities. Studies have been done by researchers and scholars who
have identified certain generic weaknesses which render the MSME units prone
to business failure. However the risk profile of the MSME units are likely to be
dynamic in nature as the business environment and the attributes of the
entrepreneurs change over time. This study is to probe into the risk profile of
MSME units in and around the city of Patna and to see whether there has been
any shift in the risk profile from what had been found out by the earlier studies in
this context.
*
Student, Army Institute of Management, Kolkata;

Email:pankaj.abhimanyu@gmail.com
**
Assistant Professor, Army Institute of Management, Kolkata; Email : rajib.conference@gmail.com
*** Associate Professor, Army Institute of Management, Kolkata; Email : protik.basu@aim.ac.in
37
LITERATURE SURVEY
Constituents of MSME sector in India
The coverage of the MSME (Micro, Small & Medium Enterprises) Sector in India
has been defined by The Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006 which became operational from October2, 2006. The Act identifies Micro,
Small & Medium Enterprises on the basis of level of investments in plant &
machinery for manufacturing enterprises and of investments in equipments for
service enterprises.
The nomenclature and classification of MSME units on such basis are as follows:
Types of Enterprises
Classification of
enterprises
Manufacturing Enterprises
[Ceiling of investment in
Plant & Machinery]
Service Enterprises
[Ceiling of investment
in Equipments]
Micro
Rs.25 lakh
Rs.10 lakh
Small
Rs. 5 crore
Rs. 2 crore
Rs. 10 crore
Rs. 5 crore
Medium
(Source : http://www.and.nic.in/C_charter/indust/MSMED_classification.pdf)
Role of MSME sector in Indian Economy

The MSME sector plays a prominent role in the Indian economy. The time series
data in respect of the sector on various economic parameters i.e. production at
current prices, production at constant prices (1993-1994), employment generation
and export amounts, are as noted in the Table 1.
Table 1 : MSMEs Performance : Production, Employment & Exports
Year
1992-93
1993-94
1994-95
1995-96
1996-97
38
Production at
Current Prices
[Rs. Crore]
Exports
Production
Employment
[Lakh Persons] [Rs. Crore]
at Constant
Prices (1993-94)
[Rs. Crore]
84413
92246
174.84
17784
(4.71)
(5.60)
(5.33)
(28.10)
98796
98796
182.64
25307
(17.04)
(7.10)
(4.46)
(42.30)
122154
108774
191.40
29068
(23.64)
(10.10)
(4.79)
(14.86)
147712
121175
197.93
36470
(20.92)
(11.40)
(3.42)
(25.46)
167805
134892
205.86
39248
(13.60)
(11.32)
(4.00)
(7.62)
Year
1997-98
1998-99
1999-00
2000-01
2001-02
Production at
Current Prices
[Rs. Crore]
Exports
Employment
Production
at Constant
[Lakh Persons] [Rs. Crore]
Prices (1993-94)
[Rs. Crore]
187217
146262.90
213.16
444.42
(11.57)
(8.43)
(3.55)
(13.23)
210454
157525.10
220.55
48979
(12.41)
(7.70)
(3.46)
(10.21)
233760
170379.20
229.10
54200
(11.07)
(8.16)
(3.88)
(10.66)
261297
184401.40
238.73
69797
(11.78)
(8.23)
(4.21)
(28.78)
282270
195613
249.33
71244
(8.03)
(6.06)
(4.44)
(2.07)
At 2001 02 prices
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
314850
306771
260.21
86013
(11.54)
(8.68)
(4.36)
(20.73)
364547
336344
271.42
97644
(15.78)
(9.64)
(4.31)
(13.52)
429796
372938
282.57
124417
(17.90)
(10.88)
(4.11)
(27.42)
497842
418884
294.91
150242
(5.27)
(15.83)
(12.32)
(4.37)
709398
NA
594.61
182538
(166.20)
NA
(42.49)
(101.62)
790759
NA
626.34
202017
(11.47)
NA
(5.34)
(10.67)
880805
NA
659.35
NA
(11.39)
NA
(5.35)
NA
The figures in brackets show the % growth over the previous year. The data for the period up
to 2005-06 is only for small-scale industries (SSI).
(Source : MSME Annual Report 2009-10 Ministry of Micro, Small & Medium Enterprises,
Government of India. pp 13-14)
It may be mentioned that data with respect to MSMEs have been collected/compiled
for the first time in 2006-07 and hence include both the industry and service sectors.
39
As per the 4th Census with reference year 2006-07, there were about 261 lakh
enterprises providing employment to about 595 lakh persons. The projected
corresponding figure for the year 2008-09 was 285 lakh enterprises generating
employment for about 659 lakh persons. The data clearly indicates an improvement
in employment elasticity in the MSME sector. This fact has been corroborated by
a study on the Indian MSME sector by Shambhu Ghatak.
The MSME sector has maintained a higher rate of growth than the overall industrial
sector as would be clear from the comparative data on growth rates of production
for both the sectors during the period of six years from 2002-03 to 2007-08. The
details are given in Table 2.
Table 2 : Comparative Data on Growth Rates of MSME Sector
Year
Growth Rate of
MSME Sector
Growth rate of
Overall Industrial Sector
2002-03
8.68%
5.70%
2003-04
9.64%
6.90%
2004-05
10.88%
8.40%
2005-06
12.32%
8.10%
2006-07
12.60%
11.50%
2007-08
13.00%
8.00%
Government of India. pp 15)
The contribution of MSMEs in the GDP has increased from 5.86% in 1999-2000
to 8% in 2007-2008 at 1999-2000 prices. Its contribution to total industrial
production has also increased from 39.74% in 1999-2000 to 45% in 2007-2008
at 1999-2000 prices as is evident from Table 3.
Table 3 : Contribution of MSMEs in GDP and Total Industrial Production
Year
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007**
2007-2008**
Contribution of MSMEs (%) at 1999-2000 prices

Total Industrial
Production
39.74
39.71
39.12
38.89
38.74
38.62
38.56
44.12
45.00
Gross Domestic
Production
5.86
6.04
5.77
5.91
5.79
5.84
5.83
7.44
8.00
Government of India. pp 16)
40
MSME units play a vital role in reducing income inequality in a nation and India is
no exception. Over 90% of the MSME units in India being proprietorship concerns
(2009-10), it is imperative that such units are vital vehicles for self employment
and there is distinct and strong correlation between self-employment and equality
of income. In states, where self-employment is high, inequality is low. So selfemployment and entrepreneurship should be highly promoted in a country like
India (Debroy & Bhandari, 2007). MSMEs provide a natural habitat for
entrepreneurs. Through this platform, the latent/ raw talent available locally can
hone their skills and talents, to experiments, to innovate and transform their ideas
into goods and services needed by the society.
Dispersion of MSMEs in all parts of the country can help in removing regional
imbalances by promoting decentralized development of industries.
Challenges facing the MSME sector in India causing sickness / business failures
The MSME sector, in spite of its prominence in the Indian economy, suffers from
a number of weaknesses. Considering three yardsticks to measure sickness in
the MSME sector in India, i.e. [a] delay in repayment of loan over one year, [b]
decline in networth by 50% and [c] decline in output in last three years, about
14.47% of the registered MSME units were identified to be either sick on insipient
sick15. The reasons for such sickness are contained in Table 4.
Table 4 : Reasons for sickness / incipient sickness in registered MSME
units in India
Reasons for sickness
/ incipient sickness
Lack of demand
Shortage of Working Capital
Non-availability of raw materials
Power shortage
Labour problems
Marketing problems
Equipment problems
Management problems
:
:
:
:
:
:
:
:
Proportion of sick /
incipient sick units@
71.60%
48.00%
15.10%
21.40%
7.40%
44.50%
10.60%
5.50%
@ The total exceeds 100% as some units have reported more than one reasons.
(Source : Quick Results, Fourth All India Census of Micro, Small & Medium Enterprises 200607, Government of India, Development Commissioner (MSME), Ministry of Micro, Small &
Medium Enterprises. pp 37)
Almost the same reasons were found to be the causes for sickness in a sample
of units coming under PMRY scheme in some districts of Orissa in a study by Dr.
Rabi N Misra and Dr. Sudhansu Sekhar Nayak (2008).
In another study, factors like improper project planning and formulation, entry of
unmotivated and inefficient entrepreneurs, lack of demand for products, procedural
wrangling and infrastructural bottlenecks were found to be the main causes of
sickness in small scale industries at Jagatpur New Industrial Estate in Cuttack
41
District of Orissa (Panda & Meher, 1992).

Other studies also identified almost the same reasons for sickness in small scale
units with inclusion of certain other factors like incohesive partnership / board,
doubtful integrity, low equity base, faulty product selection, bureaucratic delays
from the government and financial agencies etc. (Mathur, 1999).
A new factor i.e. expected role failures of role players, was also found to be
causing sickness in small scale industries in the state of Jammu & Kashmir, in
addition to the reasons stated above, in a study conducted by Dr. Khursheed
Ahmad Bhat (2000).
Of late, another problem has been identified with the MSME sector in India. As
per a study on Mapping of ESR practices in five Indian MSME clusters carried
out by UNIDO-CDP, the responsible citizenship issues concerning this sector are :
l Poor management system;
l Environment degradation;
l Polluting nature;
l Child labour;
l Low wages to labour community;
l Long working hours;
l Lack of minimum standard of labour welfare;
l Working environment;
l Non-compliance of regulatory norms;
l Poor health and safety at work place;
l Lack of skilled manpower;
l Poverty
A SWOT analysis of small & medium enterprises done by Ghalla Bhansali Stock
Brokers Pvt Ltd in 2009 reveals the following weaknesses of such enterprises in
India:
l Lack of funds;
l Lack of marketing skills;
l Lack of information;
l Poor adaptability to changing trade trends;
l Non-availability of technically trained human resources;
l Lack of management skills; and
l Lack of access to technical information and consultancy services
The above studies corroborate the fact that the MSME sector, in spite of its
prominence in the Indian economy, suffers from a number of weaknesses causing
business failures.
Studies carried out by the above mentioned scholars identified the following
generic factors to be the hindering the development of the MSME sector in India
and in some other countries as well. The factors have been arranged in order of
42
importance which have been based on the number of studies identifying them.
Nature of the
factors identified
External to the organization
Name of the factor

l Inadequate and delayed financial support by
banks
l Absence of smooth and timely supply of raw
materials
l Power shortage
l Inappropriate infrastructural support
l Uncongenial government policies
Internal to the organization
l Entrepreneurial and managerial incompetence

l Improper financial management including fund
l
l
l
l
l
l
l
l
l
diversification
Obsolete technology, faulty production methods
and improper capacity utilization
Human resources related problems including
faulty recruitments and high labor turnover
Improper marketing management
Faulty planning
Improper product mix
Faulty demand analysis and forecasting
Doubtful integrity of entrepreneurs
Incompatible constitution of business
Improper knowledge management
It is observed from the above studies that the MSME units are vulnerable to
almost a similar set of risk factors not only in India but also in other countries, as
found by Owens & Beynon-Davis (2001), Asian Development Bank (2002), Temtime
& Pansiri (2004), Wong (2005), Wong & Aspinwall (2005), Narayanasamy & Shetty
(2008), Philip (2010), Valmohammedi (2010), The World Bank (2011), Chittithaworn
(2011) and Medrano (2011). Moreover, in India, the problems identified to plague
medium and small scale units in various parts of the country, displays a striking
similarity. It is also noticed that the nature of the said risk factors for the MSME
units remained static during the period from 1992 to 2011. However with the
passage of time and concurrent development of information technology,
implementation of Electronic Commerce and Enterprise Resource Planning (ERP)
emerged as new key success factors for the development of this sector.
It transpires from the above studies that the internal problem factors to MSME
units outnumber that of external problem factors. The reasons basically stem from
the ownership structure and low capital base of such units.
43
The ownership pattern of the MSME sector units in India as per the fourth all
India census of micro, small & medium enterprises in India (reference year 200607) reveals that 91.57% of the registered MSME units, 94.67% of the unregistered
MSME units and 94.49% of the total MSME units are proprietary concerns. Private
and public companies together account for only 0.80% of the total MSME units in
India. The other forms of such units include partnerships (0.68% of the total MSME
units), co-operatives (0.51% of the total MSME units) and others (3.51% of the
total MSME units). This obviates four inferences :
l
Firstly a vast majority of the MSME units, being mostly proprietorship

concerns, suffer from a low equity base;
Secondly, due to the same reason, the management of such units, being
mostly a one-man show, is essentially narrow-based. This is corroborated
by the findings of scholars cited above who have identified inefficient
management, low equity base, strained financial resources and very
limited power to withstand the adversities of changing business
environment due to small size and market of operation as significant
factors causing business failures in the Indian MSME sector units;
Thirdly, the MSME units run on a thin margin. This fact coupled with low
equity base, magnifies the adverse effect of disruption in cash flow
position on the business operations of such units; and
Fourthly, the life span of a person being limited, the MSME units, run
mostly as proprietorship concerns, come to an abrupt end with the
demise of the proprietor.
These four factors severely deprive the MSME sector to withstand any unfavorable
situation for long, making them vulnerable to such situations. This makes
sustainable development of this sector difficult. Thus it is imperative that the issue
of curbing the factors contributing to the weakness of MSME units in India is of
paramount importance.
OBJECTIVE OF THIS STUDY
This study has been done with the twin objectives of:
1.
Probing into the risk profile of MSME units in and around Patna city;
and
2.
Identifying shift (if any) of the risk profile from the profile identified earlier
SCOPE OF THE STUDY

The objective of the study has determined the scope as under:
44
1.
The study has been done on MSME units only;
2.
The area of study has been the city of Patna and adjacent area;
3.
The data has been collected in the months of June and July 2015;
4.
As risk profiles vary from sector to sector, the study has been done on
manufacturing units only
LIMITATIONS OF THE STUDY

This study has been subject to the following limitations:
1. Particulars for only four units could be accessed;
2. Units of only Manufacturing Sector were studied;
3. The study has been done only on secondary data and that too for the
latest years data and no primary data was collected;
METHODOLOGY OF THE STUDY
To avoid the error of subjectivity, the risk profile of the MSME units as perceived
by the banking sector has been taken to be the basis of this study.
The biggest branch of a reputed Public Sector Bank in Patna city having
considerable exposure to MSME credit, was approached and the risk profile of
the units to which they have extended credit, as assessed by them while arriving
at their credit rating scores, was collected from the bank on condition of anonymity
of the branch as well as of the concerned MSME units. The branch had extended
credit to 29 MSME units in the manufacturing sector. The bank agreed to share
the risk profile of any four units.
Accordingly four units were selected randomly by using the randomization facility
in MS-Excel and particulars of their risk profile were collected.
The bank, as per their policy, assesses the risk profile of MSME units on four
parameters with various sub-parameters as detailed under:
Broad Parameters
Finance Risk :
Industry Risk :
Management Risk :
Business Risk :
Sub-Parameters
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
Cash Interest Coverage Ratio

Return on Capital Employed
Effective Total Outside Liabilities / Effective
Tangible Networth
Net Profit Margin (%)
Current Ratio Sales Growth (%)
Impact of Government Directives
Product
Diversification Position in the market
Leadership competency
Projection vis--vis Achievement
Management Succession Plan
Financial Strength of Promoters
Transparency in Accounting Statements
Compliance Record Account Operation
Constitution of the Borrower
Satisfactory running of the account
Business History
Marketing & Selling Arrangement
Demand for Product(s)
Relationship with Suppliers
Geographical Diversity of Customers
45
The four parameters of Finance Risk, Industry Risk, Management Risk and
Business Risk have 29, 10, 34 and 24 points allotted which total up to 97 points.
The performance of the units are assessed against these parameters are points
are assigned accordingly. Better performance carries higher points. Higher the
total score of an unit, less risky it is from the viewpoint of the bank.
The scoring of the selected four units were collected and the difference from the
maximum points were taken to be the measure of risk. Lower the score on any
parameter, higher would be the difference and hence higher would be the riskiness.
Accordingly the units were assessed for total risk and the components thereof for
a comparative analysis.
FINDINGS OF THE STUDY AND ANALYSIS THEREOF
The assessment of riskiness of the four selected units with the break-up of the
same is appended below.
RISK
FINANCIAL RISK
INDUSTRY RISK
MANAGEMENT RISK
BUSINESS RISK
Unit 1
9.80
1.00
1.60
1.00
Unit 2
23.00
0.00
9.70
1.80
Unit 3
8.00
10.00
12.40
0.00
Unit 4
9.40
10.00
17.00
11.00
TOTAL
13.40
34.50
30.40
47.40
The findings reveal that there is a high degree of difference between the total
riskiness of the units though they all are manufacturing units, belong to the same
area and cater to almost the same market.
The comparative analysis of the four components of total risk for the selected
units on a common scale of 100 leads us to the following situation:
RISK
FINANCIAL RISK
INDUSTRY RISK
MANAGEMENT RISK
BUSINESS RISK
Unit 1
73.13
7.46
11.94
7.46
Unit 2
66.67
0.00
28.12
5.22
Unit 3
26.32
32.89
40.79
0.00
Unit 4
19.83
21.10
35.86
23.21
TOTAL
100.00
100.00
100.00
100.00
The above situation reveals that even among the four components of total risk,
there is wide degree of variability. However, Management Risk was found to be a
prominent risk factor for all the four units.
CONCLUSION
From the findings of this study it can be inferred that that no generic risk profile
can be developed for the MSME units even if they belong to the same sector.
The only risk factor which is found to be present in all the Units is the Management
Risk.
46
Thus it has been observed in this study that Management Risk, which was found
to be lower in weightage compared to Business & Industry Risks in the earlier
studies, has currently assumed almost equal importance.
The appropriate authorities constituted for the development of MSME units should
formulate policies to address the issue of Management Risk which an inherent
risk of MSME units.
FURTHER SCOPE OF RESEARCH
The findings of this study encourages further studies to probe into the causes of
variability among the constituents of total risk among units. These studies may be
done sector-wise and even industry-wise. Such studies would facilitate formulation
of policies for sustainable development of MSME Units.
REFERENCES
1.
Asian Development Bank (2002): Technical Assistance for the Development of a framework
for SME Support
2.
Bannerjee, Parthasarathi : Micro, Small & Medium Enterprises of India : Innovation status
& States of Affairs.
3.
Bell, Emma & Brynian, Alan (2008): Business Research Methods, 2nd Edition; Oxford
University Press
4.
Bhadra, Biswajit (1993): Factoring A Mechanism to Check the Growth of Sickness in

Small Scale Industries in India; Pointer Publishers, pp 68
5.
Bhat, Dr. Khursheed Ahmed (2000): Modern Small Scale Industries & Industrial Sickness;
Anmol Publications Pvt Ltd.
6.
Casualty Actuarial Society (2003): Overview of Enterprise Risk Management. http://

www.casact.org/research/erm/overview.pdfChattejee, Sayan (2005): Failsafe Strategies
Profit and Grow From Risks That Others Avoid; Wharton School Publishing
7.
Chittithaworn, Chuthamas; Islam, Md. Aminul; Keawchana, Thiyada & Yusuf, Dr. Dayang
Hasliza Muhd (2011): Factors Affecting Business Success of Small & Medium Enterprises
(SMEs) in Thailand; Asian Social Sciences Vol 7 No. 5 2011
8.
Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2004):

Enterprise Risk Management Integrated Framework Executive Summary. http://
www.coso.org/documents/COSO_ERM_ExecutiveSummary.pdfDass Rajanish & John,
Prashant (2008): A Study on the Current Role of SMEs in the Indian IT Industry &
Hypotheses on an Ecosystem for their Sustenance & Evolution; W.P. No. 2008-03-05, IIM
Ahmedabad
9.
Debroy, Prof. Bibek & Bhandari, Dr. Laveesh (2007): Exclusive Growth Inclusive
Inequality. Federaton of Indian Micro & Small and Medium Enterprises Policy Paper
Occasional Paper Series
10. Doherty, Neil A (2000): Integrated Risk management Techniques and Strategies For
Reducing Risk; McGraw-Hill Inc.
11. Dooley, David (2007): Social Research Methods, 4th Edition; Prentice-Hall of India Pvt
Ltd
12. Eresi, K & Shivadurappa, D : An Empirical Investigation Into Rehabilitation of Sick Small
Scale Industries in Bangalore City; Identification & Rehabilitation of Industrial Sickness
Edited by Dr. Ramakant & Jain, Dr. Sugan C; Pointer Publishers
13. Flick, Uwe (2009): An Introduction to Qualitative Research, 4th Edition; Sage Publications
47
14. Ghalla Bhansali Stock Brokers Pvt Ltd. : SME Sector http://www.ghallabhansali.com/admin/
file/SME%20Sector.pdf
15. Ghatak Shambhu: Micro, Small & Medium Enterprises (MSMEs) in India: An Appraisal.
http://www.esocialsciences.com/data/eSSResearchPapers/
eSSWPArticle20091126151144.pdfGirdhari, D C & Joshi, J V (1993): Industrial Sickness
in Small Scale Industries in Maharashtra; Management of Industrial Sickness- Edited by
Dr. Ramakant, Dr. Jain, Sugan C & Mathur, N D; Pointer publishers, pp 34-35
16. Guthrie, Gerard (2010): Basic Research Methods An Entry To Social Science Research;
Sage Publications
17. ISO 31000 (2009) / ISO Guide 73 :
http://en.wikipedia.org/wiki/RiskKameyama, Prof.
Sabura: Model for SME Sector Development
18. Kempen, Piet & Keizer, Jimme (2007): Business Research Projects A Solution Oriented
Approach
19. Kothari, C R (2009): Research Methodology Methods & Techniques, 2nd Revised Edition;
New Age International Publishers
20. KPMG (2001): Enterprise Risk Management An emerging model for building shareholder
value.
21. Masurel, Enno; Montfort, Kees van & Lentink, Ramon: SME Innovation & the Crucial
Role of the Entrepreneur
22. Mathur, Dr. Satish B : Sickness in Small Scale Sector Causes & Cures. Concept
Publishing Co., New Delhi, 1999. pp 72-84
23. Medrano, Mario Gil (2011) : Key Success Factors to Set Up Business in India
24. Meher, Raj Kishore & Panda, Dr. R. K. (1992): Industrial Sickness A study of Small
Scale Industries. Ashish Publishing House, New Delhi, pp 115
25. Micro, Small & Medium Enterprises Development Act, 2006: Section 3
26. Micro, Small and Medium Enterprises Annual Report 2009-10: Government of India,
Ministry of Micro, Small & Medium Enterprises. pp 13-14
27. Micro, Small and Medium Enterprises Annual Report 2009-10: Government of India,
Ministry of Micro, Small & Medium Enterprises. pp 175
28. Misra, Dr. Rabi N. & Nayak, Dr. Sudhansu Sekhar Industrial Sickness in the Small Scale
Sector. Discovery Publishing House Pvt Ltd, New Delhi, 2008. pp 222
29. Narayanasamy, Ms. Kogilah & Shetty, Dr. M V (2008): The Role of Centralized Knowledge
Development Centre for Success of SME Sector; Communications of the IBIMA, Vol 2
2008
30. Owens, Ian & Beynan-Davies, Paul (2001): A Survey of Electonic Commerce Utilization in
Small & Medium Sized Enterprises in South Wales; Global Co-operation in the New
Millennium, The 9th European Conference on Information Systems, Bled, Slovania, June
27-29, 2001
31. Panneerselvam, R (2007): Research Methodology; Prentice-Hall of India Pvt Ltd
32. Panigrahy, Dr. D & Sahu, Dr. P K (1993): cash Flow as Detector & Predictor of Corporate
Sickness; Kanishka Publishers & Distributors
33. Perrone, Guiseppe& Cagliano, Raffaella : Critical Success Factors for Managerial
Education to SMEs Results for ASFOR Research Project; Association for Management
Education in Italy
34. Philip, Dr. Mathew (2010): Factors Affecting Business Success of Small & Medium
Enterprises (SMEs); AJRBM, Vol 1, Issue 2
48
35. Quick Results, Fourth All India Census of Micro, Small & Medium Enterprises 2006-07:
Government of India, Development Commissioner (MSME). Ministry of Micro, Small &
Medium Enterprises. pp 37
36. Raghavan, R. S. (2005): Risk Management in SMEs, The Chartered Accountant, October
2005
37. Rajeswari, R : Sickness in Small Scale Industries An Analysis; Pointer Publishers
38. Rao, K Hanumantha & Vishnu, Y : Industrial Sickness in India Small Scale Industries;
Pointer Publishers
39. Sarkar, Kalyan Kumar (2005): Alternative Modes of Financefor the SME Sector in India
Some Issues & Suggestions; The Chartered Accountant, September 2005
40. Saunders, Mark; Lewis, Philip & Thornhill, Adrian (2008): Research Methods for Business
Students, 3rd Edition; Pearson Education
41. Sayulu, K : Industrial Sickness in Small Scale Industries; Pointer Publishers
42. Schindler, Pamela S & Cooper, Donald R : Business Research Methods, 9th Edition;
Tata McGraw Hill Publishing Co Ltd
43. Sekaran, Uma : Research Methods for Business A Skill Building Approach, 4th Edition;
Wiley- India
44. Shajahan, Dr. S (2007): Research Methods for management (Texts & Cases) (2007): Jaico
Publishing House
45. Smith, Preston G & Merritt, Guy M (2002): Proactive Risk Management Controlling
uncertainty in Product Development; Productivity Press
46. Somwanshi, S A (1993): Sickness of Small Scale Industries in Marathawada (An Empirical
Study of a backward Region); Pointer Publishers
47. Taylor, Bill; Sinha, Gautam & Ghoshal, Taposh (2009): Research Methodology A Guide
for Researchers in Management & Social Sciences; PHI Learning Pvt Ltd
48. Temtime, Zelealem T & Pansiri J (2004): Small Business Critical Success/ Failure Factors
in Developing Economies: Some Evidences from Botswana; American Journal of Applied
Sciences 1 (1): 18-25, 2004
49. The World Bank, Nairobi, Kenya (2011): Transforming the Esat African ICT Sector
Creating an ICT SME Business Engine; Public launch of Key Report Findings &
Recommendations, February 2011
50. Thomas, Alan Berkeley (2006): Research Concepts for Management Studies; Routledge
51. UNIDO Confidential Paper - Concept Note: Role of Financial Institution in shaping ESR
in MSME Sector in India.
52. Upadhyay, Parijat (2009): ERP in Indian SMEs : A Post-Implementation Study of the
Underlying Critical Success factors; International Journal of Management Innovation
Systems, Vol 1, No. 2, 2009, E1
53. Valmohammadi, Changiz (2010): Identification & Prioritization of Critical Success factors
of Knowledge Management in Iranian SMEs : An Experts Views; African Journal of
Business Management, Vol 4 (6), June 2010
54. Velde, Mary van der; Jansen Paul & Anderson, Neil (2004): Guide to Management
Research Methods; Blackwell Publishing
55. Wong, Kuan Yew & Aspinwall, Elaine (2005): An Empirical Study of the Important Factors
for Knowledge Management Adoption in the SME Sector; Journal of Knowledge
Management, Vol 9, No. 3, 2005
56. Wong, Kuan Yew (2005): Critical Success factors for Implementing Knowledge
49
Management in Small & Medium Enterprises; Industrial Management & Data Systems;
Vol 105, No. 3, pp 261-279, 2005
57. Xiaoping, Wang: A Survey of Electronic Commerce Utilization in Small & Medium Sized
Enterprises of Shanxi Province
50
The Impact of Euro Zone Crisis on

the Indian Economy
Satarupa Roychowdhury* and Sujeeta Kumari**
ABSTRACT
The Financial crisis and the following Euro Zone crisis led to financial, banking and even
political instability in Europe, US and rest of the world. The bursting of asset bubble created
by the US Financial Crisis on the fall of Lehman Brothers ultimately led to the decreasing
number of banks in the Europe and created a crisis. All economies are interdependent, so
there will be positive and negative repercussions, when countries are involved in trade. This
fact is very much apparent when there was a global recession in the year 1933. History has
again proved that economic crisis has affected all world economies, the American recession
in 2008 and now the Euro crisis. But what concerns is the stability of the world economies.
This applies to the Indian Economy as well. The Euro was the outcome of the Maastricht treaty
and is a powerful traded currency amongst developed and emerging economies. The Euro as
the single currency of the European Union and equally powerful as US dollar is now facing a
weakening due to debt in its member countries and this crisis has affected Indian capital
markets with a decline due to large sales by FIIs resulting in a bearish outcome of the stock
market.
The Euro crisis has already moved on to Spain, whose Banks are at risk because of bad
loans resulting from the collapse of Spains property bubble. In another version of the debt
Catch -22, the Spanish Governments move to re-capitalise the banks put so much pressure
on the budget deficit that interest rates began to rise, just had they had in Greece. This required
another agreement among the Euro Zone countries with support for Spains banking sector
from a central lending facility viz. Germany.
The present paper is an attempt to study the causes for downtrend of Euro and its impact on
India. The reasons of the Euro Zone crisis, the shortcoming of the EMU and the sovereign
debt Crisis are also dealt in detail. Finally, the paper concludes by presenting facts, figures
and statistics as to how India encapsulated itself from the contagion effect of the crisis by
analyzing the components of its growth. India has not shown significant plummets in any of
the components and has maintained a healthy GDP throughout. Hence, it wont be wrong in
saying that it has mitigated the crisis pretty well and serves as a model for other Asian countries
experiencing the contagion effects.
Key Words : Euro Zone, Euro, debt-crisis
INTRODUCTION
Today it is a world of uncertainty in the economic environment of business. The
current Euro crisis has affected the financial health of the economy of India. As
we all know the Euro is the second largest currency in the world and presently
has 27 member states. The Euro area consists of 17 member states that accounts
*
**
Assistant Professor-Finance, Army Institute of Management, Kolkata; E-Mail : satarupa.roy@gmail.com

Student, Army Institute of Management, Kolkata; E-Mail : sujeetasingh1992@gmail.com
51
for over 75% of the European Unions GDP. It all started in 2009 when Greece
one of the prominent members revealed fiscal debts that shook the entire economy.
Gradually, Ireland, Portugal, Spain and Italy also witnessed a severe debt that led
to rise in borrowing costs.
The current global financial crisis is due to trade cycles which affects levels of
employment, prices, output and overall economic growth as J M Keynes rightly
says, a trade cycle is composed of periods of good trade characterized by rising
prices and low unemployment percentages, shifting with periods of bad trade
characterized by falling prices and high unemployment percentages. It has been
said that the European sovereign debt crisis is due to factors such as globalization
of finance, trade imbalances, fiscal debts, high spending, trying to bail out sick
industries resulting in slow pace of economic progress affecting employment and
trade adversely. To understand the scenario better, study of the history of formation
of the Euro currency becomes vital.
FORMATION OF EURO CURRENCY
The Euro is the currency used by the Institutions of the European Union and is
the official currency of the Euro Zone which consists of 17 members of the
European Union namely Austria, Belgium, Cyprus, Estonia, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,
Slovakia, Slovenia and Spain. But Denmark, Sweden and the United Kingdom
chose not to join the Euro zone.
The name Euro was officially adopted on 16th December 1995. It was introduced
to the world financial markets on 1st January 1999. Euro coins and bank notes
were circulated in the year 2002 on 1st January. It has been equally powerful
traded currency but off late, it has weakened due to crisis in Greece, Italy, Spain
and Germany.
The Euro is administered by the European Central Bank (ECB) and consists of
Euro system which comprises of the central banks of the Euro Zone members.
The Euro was the outcome of the 1992 Maastricht treaty. The Maastricht Treaty
formally known as the Treaty on European Union was signed on 7th February
1992 by the members of the European Community in Maastricht, Netherlands.
The European Council drafted the treaty which came into force on 1st November,
1993 that created the European Union and the outcome was the introduction of
the currency Euro. This treaty has been amended by the treaties of Amsterdam,
Nice and Lisbon. This Maastricht established the three pillars of the European
Union known as the European Community (EC), Common Foreign and Security
Policy (CFSP) and the Justice and Home Affairs (JHA). This treaty enabled the
European Union to function as a single market that would ensure the free
movement of capital, goods and services. The name Euro was officially adopted
in Madrid on 16th December 1995.
ROOTS OF EURO ZONE CRISIS
The inter-links among the world economies lead to adversity as well as prosperity
to all investors involved or immensely active in global financial markets. With no
52
hints of doubt, one with even very little financial knowledge can claim that the
markets across the globe have not yet recovered from the shocks that 2008-09
economic crisis had. It left the banking, corporate financial and government sectors
in a great state of tumult and disorder.
The crisis saw its roots as the export oriented growth and enormous capital outflows
and transactions coming from the OPEC and the East Asian nations. However,
rather than causes, they were handmaidens of the crisis (Allington, McCombie
and Pike, 2012). The blame is partly pointed at China, which with its low valued
currency as compared to that of the US, invested heavily keeping interest rates
low and fuelling housing and asset bubble. But any East Asian or OPEC country
cannot be out rightly blamed for it. Most of the countries were in desperate need
to increase the boost their growth and sustain an export-led path of growth.
This reflected heavy capital inflows into the US, keeping interest rates low and
leading to high credit capacity that financed household consumption and budget
ventures in the US, these low rates of interest caused high levels of leverage in
financial institutions (obligations and securities). These financed subprime housing
loans precipitated the financial crisis of inadequate regulation of financial
institutions (Kaminsky and Reinhart, 2008).
Consequently, the US was seeing a hike in real estate prices. This was precipitated
by developing East Asian and oil-exporting countries running substantial current
account surpluses. The cheap credit fuelled the asset price boom. And every
boom is volatile and short lived. The greater the boom before the crisis, the
greater is the impact of the crisis on the economy, negative impact that is. In
case of the 2007 by the collapse of Lehman Brothers, the US investment bank.
This was followed by massive deleveraging by banks, unprecedented decline in
prices and accumulation of nonperforming assets.
Figure 1 : World Map showing the real GDP growth rates for 2009, where
green represents growth and brown represents recession
Source : Wikipedia
53
In deleveraging, banks may liquidate and strengthen lending standards (increase

collateral requirements). Rapid deterioration of loan quality and asset prices
reduced the banks earning potential, prompting to decline collateral values.
Importantly, this effect is greater for economies in which firms are more dependent
on banks for their funding needs. All this called for an impending bust of the
bubble of real estate and extreme growth just before the crisis.
Asian countries were not the only catalysts in creating this boom and bust scenario
for real estate assets and availability of cheap loans in the US. Private-label
securities and other holdings of U.S. toxic assets concentrated in highly leveraged
financial institutions in advanced economies such as Germany, France, Switzerland,
and the United Kingdom assets) the Gross Domestic Product (GDP) of individual
nations. Almost half of all foreign holdings of U.S. securities immediately before
the crisis were held in Europe. This may be due to the reasons that the monetary
policy in US allowed lower funding costs, European banks were in a position of
high risk of lending (from Basel-II policy) and regulatory structure offered higher
leverage. By mid-2008, just before the collapse of Lehman Brothers, over 40
percent of the assets of U.S. prime money market funds were short-term obligations
of foreign banks, with obligations of global European banks representing the
largest share (Baba, et.al. 2009). Noeth and Sengupta (2012) argue that these
European banks, from net recipients of capital till 2000 became net suppliers of
capital to the US after 2000. These motivations to expand balance sheets and
increase leverage are suboptimal in the long run and can cause risks for both
the bank and the financial system.
EURO ZONE CRISIS
The Lehman Brothers failed in 2008, which led to a fast spreading contagion to
the US economies and those of foreign countries. The economic woes were
especially severe in the Euro Zone, where countries battled not only an economic
recession, but also an asset price deflation and a burgeoning debt crisis. The
growing fear of bad debt and quality of loans further exacerbated the financial
woes of Europe. This tarnished the credibility of central banks and government
banks of Europe and it was not tough for the people to see the poor quality of
capital, although concrete statistical evidence was absent. However the crisis has
made one thing concrete: the Euro Zone is not an Optimal Currency Area (OCA).
The durability, stability and abundance of Europe are being jeopardized by the
crisis.
European banks have invested heavily in the US, and since European banks play
a pivotal role in the overall stability of the union, the transatlantic bank crisis has
affected Europe adversely. The consolidation in Euro Zone, US and UK has created
more problems as the overall number of banks has decreased in the OECD
countries. It both contributes to future instability and undermining of competitiveness
in the financial sector. As per Welfens, 2011, The Transatlantic Banking Crisis
has strongly raised debt-GDP ratios in many OECD countries and this is
undermining the economic recovery in both Europe and US.
Tracing the origins of the current crisis, one can easily notice that a lot of highly
54
complex factors, developments and fiscal indiscipline among the member nations
have contributed to aggravating the current debt crisis.
REASONS FOR THE EURO ZONE CRISIS
The European sovereign debt crisis can be attributed to factors such as
globalization of finance, trade imbalances, fiscal debts, slow economic growth, high
spending and trying to bail out sick industries. Germanys trade balance improved
later but its counterparts Portugal, Ireland, Italy, France and Spain had trade deficits.
The economy of Greece was one of the fastest growing in the Euro zone
community in which the Government took advantage that resulted in deficit that
has been observed mainly due to high spending and not so good relations with
Turkey. The prime industries of Greece namely shipping and tourism were adversely
affected due to fluctuations in trade cycles. The Euro debt crisis began in 2009,
when the new Greek Government announced that its predecessors had wrongly
reported the data on Government budget which eventually had deficit at high
levels and its extravagance spending during 2004 Olympic Games.
As a result, the countrys debt began to increase rapidly. Consequently, this
created a panic amongst the Euro countries. On 23 April 2010, the Greek
Government requested an initial loan of 45 billion from the EU and International
Monetary Fund (IMF) and in May 2010, Greece received a financial assistance
package (loans) from other Euro zone Governments and the IMF, though the
Government expenditure increased by 87%, its revenue grew by only 31%.
Euro being second foreign exchange reserve currency, there were hedge funds
against Greece that the crisis spread to countries like Portugal, Ireland, Italy and
Spain. Starting from Greece, Ireland, Italy, Portugal and Spain (GIIPS), these Euro
zone economies have witnessed a severe downgrade in the rating of their
sovereign debt, fears of default, and a sudden rise in borrowing costs. Greece,
Ireland and Portugal have lost access to international capital markets and are
now getting bail-outs by the IMF, European Financial Stability Facility. The major
reasons may be listed:
1. Fiscal Policy :
The European Monetary Union conducts its economics very uniquely. It binds all
the member countries to a single monetary policy. Thus, these countries alone
have no power to decide the rate of exchange or change money supply. However,
the fiscal policy, although governed by the Stability Growth Pact (SGP), is executed
independently. Therefore at country level, the fiscal policy becomes important.
Spillovers are also caused for other economies because of the independence
given to the countries in exercising the fiscal policy. The proper fiscal policy
implementation by the respective national government thus becomes convoluted
and can be considered a game of non-cooperative behaviour (Costa, 2010).
This means that if the implementation of a particular policy stimulates a short-run
growth for a particular member economy, it might even cause a negative result
(spillover) for another one. The Stability Growth Pact, to a certain extent, tries to
put limits and restrictions on the members deficits (up to 3%) and debt-GDP ratio
55
(up to 60%). However, the indiscipline in its implementation and its lack of
enforcement have owed to its violation by several members.
2. Easy availability of credit and high risk borrowing and lending:
European banks other than just the US monetary structure also played a significant
role in financing credit and asset price booms. Their increasing need to leverage,
expand balance sheets and generate more leverage from less capital caused
them to gravitate toward assets that carried low risk and attractive returns. Thus,
they invested heavily in US securities and in some countries of the Euro Zone,
subsequently giving rise to the real estate price bubble in many countries of Euro
Zone like Spain and Ireland as well as the US. There were two main reasons for
high risk taking. The first was asset price and exchange rate appreciation, which
improves balance sheets of households and firms, thereby improving not just their
creditworthiness but also the loan quality of the bank portfolio. The other was the
introduction of the euro, which reduced risk premium not just on sovereign debt
but also on private debt in countries with weaker growth and weaker banking
systems. In turn, the reduced risk premium can promote more risk taking and
lending by banks because of perceived improvements in loan portfolios (Borio
Claudio and Zhu, 2008; Bruno and Shin, 2012b). Empirical studies now validate
the fact that these high risk lending practices led to housing prices boom and
careless monetary policies due to easy availability of cheap credit at low interest
rates.
3. Poor Economic Performance:
Moreover, since the onset of the crisis, the growth in European economies has
not been very high. Developed European powers like Germany and France are
growing at sluggish pace whereas less prosperous nations are under tremendous
debt and deficit. Poor economic performance leads to nonperforming loans and
lower tax revenues. Nonperforming loans shrink bank balance sheets, which in
turn has real effects on economic growth through the balance sheet channel
(Bernanke and Gertler, 1995). In extreme cases, nonperforming loans can end in
bank failures, leading to bailouts by the respective sovereigns (in the form of
recapitalization of existing banks, redemptions on publicly funded deposit insurance,
or both, Reinhart and Rogoff, 2009).
4. Large Bailouts:
After being exposed to speculative attack, Greece was given many aids, of which
was a notorious 750 billion euro aid given by International Monetary Fund,
European Commission and member states. Also, German and French banks have
offered numerous bailouts and have bought Greek securities, indicating their
interest in keeping the EMU and single currency system intact. Large bailouts
coupled with lower tax revenues put extreme stress on public finances. In turn, a
higher debt burden reduced economic growth because of weaker incentives (higher
impending tax rates) or reduced public investment (Reinhart and Rogoff, 2010
and 2012). Moreover, if sovereigns default on their debt, it can affect the health
of financial institutions with sizable sovereign debt holdings. As per research,
bailouts created more pressure on sovereign debt service. Also, the countries
56
offering bailouts to distressed countries place themselves at risk too and the central
banks of those countries face pressure as they use their public money to pull the
distressed countries out of the crisis.
5. Other reasons:
Some causes for Euro debt crisis also include large pension obligations and poor
demographics/ageing population, high safety net and social services, cyclically
weak tax receipts resulting from higher unemployment, lower property values and
lower business activity, high business tax rates and uncompetitive minimum wage
levels.
The Euro zone banks have failed to adjust their balance sheets to the new postglobal financial crisis environment. These banks continue to have weak capital
ratios. Therefore, the fragility of European banks has been magnified in the current
environment. Due to this crisis, unemployment rates have increased since 2009
in Spain and Ireland. In Spain, unemployment increased, from 8% to 18%, and in
Ireland, from 5% to 12%. In Germany also unemployment increased to 9.5% and
similar increases in Portugal, Greece and France.
SOVEREIGN DEBT CRISIS IN GREECE
The Transatlantic Banking Crisis (2007- 2009) brought in tremors in OECD
countries. Originating as Subprime crisis due to poorly managed financial markets
in US, it has spread as a financial and banking crisis in West Europe. The twin
crises have increased Greeces debt-GDP ratio and have created a plot for an
impending banking crisis. The net consequence- interest rates have to increase,
tax cuts have to be lowered-stimulating inflation in Europe.
It was in 1981 that Greece joined the EU in order to kick start some complementary
reforms. It had to do this because of its prior reluctance to practice supply side
economics and extravagant public expenditure, leading to high debts.
Since Greece had been following an upward trend in debt and deficit, it had to
increase its interest rates and withdraw tax cuts and subsidies to increase the
Euros in its coffers (Cobb-Douglas Production function). Consequently Greece
had a high risk premium attached to it, making it difficult for the government to
obtain high funding. Hence, a reduction in fiscal revenues was seen due to the
depreciation in value of real estate markets newly burst asset bubbles.
Although rapid growth of household debt over a long period ensured gains for
domestic demand, it led to massive losses when it was interrupted. Greece spent
extravagantly on government workforce and Olympics, 2004 increasing its
expenditure and thereby pressurizing itself with more debt burden. Lowering in
revenues of the government and increment in its expenditures between 2008 and
2010 led to further problem. Credit expansion was nullified by the financial and
sovereign debt crisis, leading to rapid growth of household debt. This development
caused a shift of the net injection contributed by household debt to domestic
demand from the highly positive levels experienced up to then to levels considerably
below zero (Athanassiou,2012). The rate of credit expansion in Greece was 31%
in 2005, which dropped to 12.8% in 2008, after which it was brought to halt by
57
prevailing crises and high debt levels of Greece. The decline of domestic demand
of Greece resulted in the attenuation of private consumption and gross fixed capital
formation. Eventually, this main growth driver till 2008 became Greeces weakening
factor after the crisis. Because of the negative net injection from the household
debt, domestic demand and economic growth have to face severe challenges in
Greece. The problems arising from the crisis are not just concentrated in the
economics or finances of the nation. Unemployment and fall in production have
acted as catalysts in creating social unrest among people, with many strikes and
rallies becoming the order of the day. And due to the inter-connectedness of the
economies, negative effect in a countrys capital market, if any, is likely to reach
other countries as well. Hence any negative policy change or announcement in
Greece, at this moment, can be disastrous not only on Greece but also for the
other countries that have been exposed to Greek markets.
Figure 2 : Real GDP growth in Greece and contributions to growth (%)
Source : National Accounts of Greece
Private capital flight away from Greece and into the more developed, stable and
powerful country in Europe has been a chief cause of concern for Greece. This
is because it causes imbalances (Target2) and leads to shifting of capital from
one nation to another, pushing Greece (which is already heavily indebted) in a
situation of liability. And that too is happening at the time of ongoing crisis in
Greece. Coupled with high debt and deficit of public sector, Greece is now in a
position to face more outflows from its economy, at a time when it needs them
the most, due to such imbalances.
With the implementation of proper policies, enough austerity measures and bailouts
from the IMF and Euro Zone, it is expected that the Greek economy might
resurface from the crisis of sovereign debt. Till then, it has to drastically cut down
on its expenditures and deal with the deficit at national level.
The Greek crisis, in the long run, can trigger a domino effect like the Lehmann
Brother collapse and can be the root of an imminent banking crisis. This is also
possible as Euro Zone is not an Optimum Currency Area and the EU policy makers
58
consider it an illiquidity phenomenon rather than an insolvency phenomenon,

prohibiting capital transfers. However the entire crisis and broader Euro Zone
crisis could have been mitigated if the crisis management of the Euro countries
and EU were better and more responsive.
IMPACT ON INDIAN GROWTH
The inter-connectedness has no doubt caused large scale contagion phenomenon,
whereby a small shock is able to disrupt the economies of the other countries.
The debt in Greece led to the contagion effects in Europe and also in countries
like India and China. Their stock markets, core components of their capital markets,
remained to a large extent unaffected by the global crises and were encapsulated
from their contagion effects. India, among BRICS, yielded second highest mean
share price returns (0.66%) showing that it kept itself at a safe distance from the
crises. None of the BRICS countries yielded negative returns. As far as volatility
is concerned, India recorded the second lowest standard deviation in the research,
showing the stability of its share price returns. India is also a great destination for
FDI due to such robust economic stability and conditions.
This result can hence be extended to other domains, other than the stock market
and it can be confidently claimed that India has encapsulated its growth, stability,
social and political groups and financial institutions from the contagion effects of
the sovereign debt crisis, also engulfing banking sector. Given that economically,
India is one of Greeces largest debt creditors with Greece owing Indian banks
over 60 billion (Wikipedia, India-Greece Relations); India has done pretty well in
order to keep away from contagion, debt or bad money exposure. It is also
estimated that India will dominate the supply of manufactured goods along with
China by 2027. The economy of India is the ninth-largest in the world by nominal
GDP and the third-largest by purchasing power parity (PPP). Indias GDP grew by
9.3% in 201011; however, the growth rate has nearly halved in just three years.
Wikipedia. The Indian economy seems very promising and is capable of having
one of the healthiest GDP in the near future. The net sum of consumption,
investment, government spending and exports constitute the GDP. The more these
components are, the more is the GDP of the nation. Therefore, it becomes very
essential to study these components of the economy individually in order to truly
comprehend the impact of Euro Zone crisis on the Indian economy which are as
follows:
1. Exposure to Greece:
Indias direct exposure to Greece is very limited and unless there is a contagion
impact to other European countries, there shouldnt be much of a worry. Possibility
of outflows could be there if bond yields rise in Europe. But overall macroeconomic
parameters are decent for India.
2. Forex reserves & Foreign Debt:
Foreign exchange reserves reached a record high of $355.46 billion as of June
19, 2015. RBI governor Raghuram Rajan said Indias economy would be able to
withstand any impact from the crisis in Greece because of stronger foreign
59
exchange reserves. Foreign debt as a percentage of GDP is under control in

India.
Figure 3 : Foreign Exchange Reserves, February 2013 to Jnauary 2015 (US $ Billion)
(Source: India Economic Survey 2014-15)
As evident from figure 3 above, India is more resilient today than in 2014 or
2013 not only because of greater reserves, but more importantly, due to a healthier
macroeconomic position. While complacency is never warranted, over-anxiety should
also be kept at bay.
3. Indian economy:
Ever since the Greek crisis first unfolded India has made the most progress in
keeping the domestic economy steady. India has taken the biggest strides on
fundamental macroeconomic indicators, particularly by way of tabilizing external
imbalances and accumulation of foreign exchange reserves, so the RBIs capability
to defend the rupee against big capital outflows is much better now.
A simple way to compare the relative economic situation is to supplement the
macro-economic vulnerability index with a Rational Investor Ratings Index (RIRI).
The RIRI is computed by averaging a countrys GDP growth rate and its macroeconomic indicators; the latter measured as the average of the fiscal deficit, current
account deficit, and inflation (all with negative signs). Thus, equal weight is given
to growth and macroeconomic stability. The greater the number, the better should
be its investor rating In assessing the risks and rewards of competing destinations,
rational investors take into account not just macroeconomic stability (which proxies
for risks) but also growth which crucially determines rewards and returns. In figure
4 below, this index is depicted for India and a number of comparator countries,
including the BRICS, other major emerging markets (Turkey) as well as countries
in Indias investor rating category (BBB) and category (A) that is above Indias.
Regardless of whether Indian growth is measured according to the old methodology
or the new methodology, India exhibits a dramatic improvement in the index.
60
Figure 4 : Foreign Exchange Reserves, February 2013 to Jnauary 2015

(US $ Billion)
(Source: India Economic Survey 2014-15)
5. Consumption:
Indias Per Capita Income has tripled from Rs. 19,040 in 200203 to Rs. 53,331
in 201011, averaging 13.7% growth over these eight years peaking 15.6% in
201011; however growth in the inflation adjusted Per capita income of the nation
slowed to 5.6% in 201011, down from 6.4% in the previous year and as of
2010, according to World Bank statistics, about 400 million people in India, as
compared to 1.29 billion people worldwide, live on less than $1.25 (PPP) per day.
These are individual or household consumption levels. Compared to 2001
household consumption patterns of India, consumption trends as per the Census
of 2011 represent moderate to significant improvements. As per the 12th Indian
five year plan, the GDP is set to grow at a healthy rate, accompanied by a rise in
per capita income. Middle classs composition in the population will increase manifold
till 2025, making it the predominant catalyst in increasing the money the consumers
spend (it will account for up to 59 % of the nations consumption).
The real household disposable income has more than doubled since 1985. With
the rise in income, consumption patterns have changed and a new middle class
has emerged, which is growing at a fast pace. The economic growth, changes in
tastes and preferences and urbanization has resulted in changing consumption
pattern away from traditional commodities to processed and high value commodities
(Murty, 2000; Meenakshi, 1996; Rao, 2000). The high growth performance of Indian
economy is expected to result in higher household expenditures. This is possible
only if different classes of Indian society shared the growth of wealth and if a
significant part of it is allocated towards consumption expenditure.
61
Seeing this, it is highly unexpected that a Euro Zone crisis may impact Indian
consumption patterns, which have been on a constant rise. Any shocks or crises
in the Euro Zone are not that critical or harmful for the consumption in Indian
economy in the long run. However in the short run, it can alter commodity prices
for the negative and can afflict a little damage on the consumption.
Table 1 shows estimates of all-India average Monthly Per Capita Consumption
Expenditure, uniform reference period (MPCEURP) from four full-scale surveys of
consumer expenditure including the 68th round survey. The table clearly shows
that Indian household consumption in urban and rural areas has been increasing
since 1987-88. It can be seen that over the 7 year period, since 2004-05 the
growth in real rural MPCE has been about 26% and the growth in real urban
MPCE about 29%.
Table 1 : Growth in MPCEURP at current and
constant prices since 1887-88, all India
Year
Characteristic
1887-88
1993-94
2004-05
2009-10
2011-12
MPCE: Rural (Rs.):

current prices
Price deflator for
rural sector*
MPCE: Rural (Rs.)
at 1987-88 prices
MPCE: Urban (Rs.):
current prices
Price deflator for
urban sector#
MPCE: Urban (Rs.)
at 1987-88 prices
158.10
281.40
558.78
927.70
100
176
319
494
580
158.10
159.89
175.17
187.79
220.51
249.92
458.04
1052.36
1785.81
2399.24
100
173
338
503
599
249.92
264.76
311.35
355.03
400.54
1278.94
*derived from CPI for agricultural labourers with base 1886-87 = 100
#derived from CPI for urban non-manual employees with base 1884-85=100
(Source: NSS 68th round survey)
6. Investment:
In economic theory or in macroeconomics, non-residential fixed investment is the
amount purchased per unit time of goods which are not consumed but are to be
used for future production (i.e. capital). Examples include railroad or factory
construction. Investment in human capital includes costs of additional schooling
or on-the-job training. Inventory investment is the accumulation of goods
inventories; it can be positive or negative, and it can be intended or unintended.
In measures of national income and output, gross investment (represented by
the variable I) is a component of gross domestic product (GDP). Indian Investment
(gross fixed): 30% of GDP (2012 est.)
62
Figure 5 : India Investment (gross fixed) (%)
Source : CIA World Fact Book
According to figure 6, Indias gross investment stood at 29.9% of the GDP in

2012 and about 39% in 2008. Hence, it is easy to say that India has invested
heavily (top 30 countries). Indias investment levels have seen some yet not great
falls during the Euro Zone crisis period. However, it is incorrect to say that the
drop in investment levels is due to the Euro Zone crisis, it might have played a
small role in it.
Figure 6 : India Investment Ranking (gross fixed) (%)
(Source: CIA World Fact Book)
63
7. Government Spending:
Indias total expected government spending for the financial year 2013 and past
expenditures as per the India Economic Survey and Union Budget, Indian spending
hovers constantly around $302 million. India thus has a 27.2% expenditure-GDP
ratio. India has a balanced public expenditure, for high government spending
usually equates to large debt and high taxes and low government spending leads
to compromises in infrastructure, human resource development and development.
India has a healthy spending rate, which hasnt been severely affected due to
the Euro Zone crisis as per the data.
8. Exports:
Indias merchandise exports reached a level of US $ 312.61 billion during 2013-14
registering a growth of 4.06 percent as compared to a negative growth of 1.82
percent during the previous year. Despite the recent setback faced by Indias export
sector due to global slowdown, merchandise exports still recorded a Compound
Annual Growth Rate (CAGR) of 15.79 per cent from 2004-05 to 2013-14.
Exports recorded a growth of 4.06 per cent during Apr-Mar 2013-14. The
Government had set an export target of US $ 325 billion for 2013-14. The
merchandise exports have reached US $ 312.61 billion in 2013- 14. Export target
and achievement from 2004-05 to 2013-14 is given in figure 7 below.
Figure 7 : Export Targets and Achievements
(Source : commerce.nic.in)
Although, the Indian balance of payments stands at a deficit, Indian exports have
been constantly increasing, even after the crisis period. This shows that the crisis
had a minimal impact on the Indian exports too. However since India is a big
importer, it stood at a risk of exposure to the crisis. But this also did not pose a
problem for India as it has meagre trade relationships with Greece and EU.
CONCLUSION
The Euro Zone crisis has indeed been a cause of concern for the analysts and
conomists all over the world. It has impacted growth in Europe, US and other
countries. However for India, it did not bring a period of extremely dampened
growth. All the above-explained characteristics of a GDP, whose robustness is
64
essential for a good growth rate, are very healthy for the Indian economy. The
consumption pattern, investment levels, government spending and exports did not
see a major downside during the crisis period and remained on a balanced, if not
growth, trajectory. The Indian growth has successfully encapsulated itself from
the Euro Zone crisis and it is not wrong to conclude given the above information
that the Euro Zone crisis has had no significant negative impact on either the
GDP or the fast growth rate experienced by India; though, Euro zone debt problem
is likely to remain a concern in the near future in India.
The world still holds the US-$ as the majority of their foreign exchange reserves,
the Euro is a close second (about 25% of holdings) Since the world reserve
currency also acts as the international pricing currency for oil, gold, and other
products traded on world markets, the decline of the value and the confidence in
the Euro could have a devastating impact on all aspects of global trading. The
impact of aggravating international business uncertainty and volatility in the stock
market will at length affect the businesses and economy of India. The Government
can emphasize more on exports, as exports act as an important means to measure
the competitiveness of a countrys industries. India needs to safeguard itself from
the Greece crisis by guarding its financial institutions and limiting exposure to
countries where the impact of the crisis could be felt more. India needs to expedite
the approvals on the big-time investments and projects so that the money may
continue to flow in the country.
There have been substantial foreign inflows well over $60 billion into the
Indian debt and equities market over the last 18 months. Indian policy has been
very prudent on foreign inflows.
REFERENCES
1.
Allington, N. F. B., McCombie, J. S. L. and M. Pike (2012), A Lack of Balance, Coordination

and Sustainability in Economic Development: Chinas Growth and the 2007 Financial
Crisis, Journal of Post Keynesian Economics.
2.
Athanassiou, A. (2012), A Skeleton of Mammuthus Trogontherii (Proboscidea,

Elephantidae) from NW Peloponnese, Greece, Quarternary International, 255, pp.9-28.
3.
Baba, Naohiko; McCauley, Robert, N. and Ramaswamy, Srichander (2009), U.S. Dollar
Money Market Funds and Non-U.S. Banks, BIS Quarterly Review, March, pp. 65-81.
4.
Bernanke, Ben, S. and Gertler, M. M(1995), Inside the Black Box: The Credit Channel of
Monetary Policy Transmission, Journal of Economic Perspectives, 9(4), pp. 27-48.
5.
Bruno, V. & Shin, H. S., (2014), Cross-Border Banking & Global Liquidity, http://
www.princeton.edu/~hsshin/www/capital_flows_global_liquidity.pdf.
6.
Borio, Claudio and Zhu, Haibin (2008), Capital Regulation, Risk-Taking and Monetary
Policy: A Missing Link in the Transmission Mechanism?, BIS Working Paper No. 268,
Bank for International Settlements, 2008.
7.
Kaminsky, G.L., and Reinhart, C.M. (2008), The Twin Crises: The Causes of Banking
and Balance of Payments Problems, American Economic Review, 89 (3), pp. 473500.
8.
Lewis, M., (2011) Boomerang Travels in the New Third World. Norton ISBN 978-0-39308181-7.
9.
Meenakshi, J.V. (1996). How important are Changes in Taste? A State-Level Analysis of
Demand.
65
10. Economic and Political Weekly, December 14, 1996.

11. Murty, K.N. (2000). Changes in Taste and Demand Patten for Cereals: Implication for Food
Security in Semi-Arid Tropical India, Agricultural Economic Research Review, Vol 13(1):2551.
12. Noeth, B. And Sengupta, R. (2012), Golbal European Banks and the Financial Crisis,
Review, Federal Reserve Bank of St. Louis, Nov, pp. 457-480.
13. Rao, C.H.H. (2000), Declining Demand for Foodgrains in Rural India: Causes and
Implications, Economic and Political Weekly, January 22, Pages-201-206.
14. Reinhart, Carmen, M. and Rogoff, Kenneth, S. (2009) This Time Is Different: Eight
Centuries of Financial Folly, Princeton, NJ: Princeton University Press.
15. Reinhart, Carmen, M. and Rogoff, Kenneth, S. (2010), Growth in a Time of Debt,
American Economic Review,100(2), pp. 573-78.
16. Reinhart, Carmen, M.; Reinhart, Vincent, R. and Rogoff, Kenneth, S. (2012), Debt
Overhangs: Past and Present. NBER Working Paper No. 18015, National Bureau of
Economic Research.
17. Welfens, P.J.J. (2011), From the Transatlantic Banking Crisis to the Eurocrisis?
International Economics and Economic Policy, 8(1), pp. 15-29.
18. http://data.gov.in/dataset/household-consumer-expenditure-66th-round-0 last accessed on
05.11.2015
19. http://finmin.nic.in/the_ministry/dept_eco_affairs/capital_market_div/India_Factbook.pdf last
accessed on 05.11.2015
20. http://indiabudget.nic.in/budget.asp last accessed on 05.11.2015
21. http://commerce.nic.in last accessed on 05.11.2015
66
Understanding ULIPS In India:

A Review with a Case Study
Aysha Siddika* & Protik Basu**
ABSTRACT
The present study has been undertaken to understand Unit Linked Insurance Plans (ULIPs)
in India. ULIP is a combination of financial products likes Insurance and Mutual Fund.In this
paper the performance evaluation of ULIP is carried out through some traditional method viz.
Risk return analysis, Treynor ratio, Sharpes ratio and Jensen ratio and also with a modern
method viz.Sortinoratio. The data used in the study is daily closing NAVfor the period from 01
July, 2012 to 31 March, 2015. The funds selected for the study are balanced fund, equity fund,
equity optimiser fund, growth fund and money market fund. The main objective of the study is
not only to evaluate the performance of the fund considered under study but also to identify
whether the measures guide the investor in the same direction or provide significantly different
options. Through this study it has been observed that all the ratios provide similar guidance
towards investment.
Key Words : Unit linked insurance plan, Investment, Risk, Return, Mutual Fund, Financial
product.
INTRODUCTION
Life is uncertain, with full twists and turns and ups and down. An individual can
protect himself against such uncertainty through life insurance.This work is a
descriptive study of a particularULIP in India. ULIPs is one of the most significant
innovation of life insurance.ULIP is an abbreviation for Unit Linked Insurance Policy.
A ULIP is a life insurance policy which provides a combination of risk cover and
investment.ULIP is also considered as a combination of financial products likes
Insurance and Mutual Fund.Prior tothe introduction of ULIPs, different wants of
an individual were addressed with different products.ULIPs is a one stop solution
for an individuals financial goals that are designed to enable consumer plan and
fulfill all his/her long term financial goals itmay be child educationor marriage.The
study is primarily based on the return of individual funds and proportion or
weightage of that fund in the portfolio. The key element in the fund is both risk
and return since exploring the relationship between return and risk is always in
the interest of the investor.This work evaluates the performance of the selected
funds with respect to the index (NIFTY) by selecting relevant variables, viz. beta,
market return, stock return, systematic risk, unsystematic risk and downside risk.The
amount invested in ULIPsis indicated by no. of units and the value is determined
by the Net Asset Value (NAV) of the relevant fund.
*
**
Student, Army Institute of Management; E-mail : aysha7893@yahoo.in

Associate Professor, Army Institute of Management; E-mail : protik.basu@aim.ac.in
67
LITERATURE REVIEW
To understand the ULIPs, a review of existing literature has beencarried out.
Mr.Anant Gupta (2012)found that, the new IRDA guidelines are aimed at reducing
mis-selling of ULIPsand making the policies customer-friendly. ULIPs business had
fallen by 15% in the financial year 2010-11 after new stricter guidelines rendered
such products less attractive for sales agents. In the first quarter of financial year
2010-11 the ULIPs new business premiums (nbps) have fallen by 61.5% when
compared with financial year 2009-10 nbps. The main issue is the lower
commissions to the agents in first year which was the agents selling incentive for
the ULIPs for past so many years since the ULIPs were introduced in India.With
ULIPs first year commission falling from as high as 35% of nbp to 5%, the agents
are not willing to sell the ULIPs. This has led to a sharp fall in ULIPs business.
Dr. Anshuja Tiwari and Ms. Babita Yadav(2013)in their paper analysed that ULIPs
are widely preferred by the investors as they serve multiple purposes-give high
returns, tax benefits, life insurance, critical illness cover and have admirable
flexibility for paying premium amount.
Prof. K. Raji Reddy(2012) in his paper compared the traditional funds andULIP
funds. The unit linked fund has started to grow rapidly since its inception, as a
result, 2004-05 and 2005-06 showed tremendous
growth for the unit linked
insurance funds. In the same period, the growth in the traditional funds
has been steady. Apart from that the fund options, liquidity and transparency
have made the ULIP cake in the market. After opening up of the insurance sector,
ULIPs have become increasingly popular.
Mr. Manvendra P.S. (2011) in his paper gave an effort on finding whether ULIPs
are investment products or insurance schemes. Since More than 80% business
comes from only ULIPs in the current scenario of insurance business environment.
ULIPs are now governed by a new set of guidelines that may change the whole
ULIPs story. According to the regulator, ULIPs launched after 01 September, 2010,
would have lower charges, guaranteed returns and larger insurance cover. But
future will acknowledge the fate of ULIPs.
Navneet Seth (2012) in his report explained the factors behind continuous fall in
demand of ULIPs. not fraudulent in nature but it is a case of BUYERs BEWARE.
It offers huge front-loaded commission to the sales persons and agents.The
advantage of the ULIP s is that if the unit holder dies,the nominee gets a certain
sum assured as in any term plan.
Dr. Deepti Maheshwari (2014) gave emphasis on how to buy smart ULIPs.Instead
of buying any ULIP in order to save tax, it would be better to align it to a future
requirement and then select a suitable plan. It is also equally important to monitor
the performance of ones investments, especially in case of ULIPs.
Miss. Kantesha Sanningammanavara (2013) in her study finds that the sale
of ULIPs in the SBI Life Smart has improved over 2-years period from its inception
as the market conditions and economy have improved over these years globally.
The rate of return on the investment (3.71%) is much lower than the fixed deposit
which is considered as the safest investment option.
68
Mr. Himanshu Puri (2010) in his study gave one important outcome that the
balanced-growth schemes have given better results as compared to balanceddividend schemes.The Sharpe measure of balanced-growth plans and the
corresponding balanced-dividend plans stands testimony to the relatively better
performance of balanced-growth plans as 13 growth plans out of 15 (approximately
87%) had better risk adjusted excess returns highlighting the fact that the balancedgrowth plans are more likely to reward the investors for the extra risk they are
assuming. The analysis points to the fact that the investment style does matter
as performances are driven by investment styles.
Chokri Mamoghli and Sami Daboussi (2009) found that the comparison of Sharpes
ratio to Sortino ratio, to upside potential, and to omega measure, they noticed
that the ranking of hedge funds strategies according to these alternative
performance measures is different from that of Sharpes ratio. Indeed, this change
in the ranking of hedge funds strategies between Sharpes ratio and these
alternative performance measures is due to the asymmetric returns of hedge funds
strategies and to the risk perception of investors not captured by the measure of
variance used in Sharpes ratio. They also noticed that the performance of hedge
funds strategies decreases when the target rate of return increases for each of
these alternative performance measures.
OBJECTIVES OF THE STUDY
The objectives of the study are:
1. To understand the features and policies of ULIPs.
2. To evaluate the performance of selected funds of a particular ULIP, using
Return-Risk Analysis, Sharpe Measure, Treynor Measure, Jensen alpha,
Sortino measure and omega.
3. To analyse the excess return per unit of risk evidenced by the various
fund schemes of the ULIP under study and to identify whether the
measures guide the investor in the same direction or provide significantly
different options.
PERIOD OF THE STUDY
The study comprises of comparison of traditional methods, viz. Sharpe Measure,
Treynor Measure, Jensen alpha vis-a-vis modern method viz. Sortino ratio. For
the purpose of analysis the period of study is from 01 April, 2012 to 31 March,
2015 (3 financial years).
METHODOLOGY
This work is a descriptive study of ULIP. The study is based on secondary sources
of data collected from published sources such as company annual report, books,
journals and web. Five funds from the Smart Wealth Builder Plan of ULIPs have been
taken for study of the performance of the fund.After collecting the data of NAV of
the fund selected and the corresponding NIFTY values, various measures of return
/ risk and portfolio performance were applied, including computation of the six ratios
namely Beta, Jensens Alpha, Treynor ratio, Sharpes ratio and Sortino ratio.
69
RESULTS AND FINDINGS

Total Return
Table 1 depicts the mean return of fund selected and the market for the period
of study, i.e.,01 April, 2012 to 31 March, 2015
Period
NIFTY
Balanced
Fund
Equity
Optimiser
Fund
Equity
Fund
Money
Market
Fund
Growth
Fund
Apr12Jun12
Apr12Sep 12
Apr12Dec 12
Apr12Mar 13
Apr12June13
Apr12Sep 13
Apr12Dec 13
Apr12Mar 13
Apr12Jun 14
Apr 12Sep 14
Apr12Dec 14
Apr12Mar 15
-0.73%
7.25%
11.04%
6.86%
9.86%
7.85%
18.54%
26.69%
43.13%
49.77%
55.75%
55.75%
1.44%
7.13%
10.22%
9.59%
12.65%
10.52%
17.25%
22.06%
32.47%
37.09%
43.04%
43.04%
-0.68%
5.99%
10.12%
6.82%
10.20%
9.40%
20.05%
26.19%
41.53%
48.43%
53.27%
53.27%
-0.40%
8.85%
14.20%
10.50%
15.10%
15.12%
27.81%
35.21%
55.80%
64.59%
72.95%
72.95%
2.01%
3.90%
5.98%
7.89%
9.87%
12.38%
14.76%
17.04%
19.40%
21.97%
24.91%
24.91%
-0.01%
6.09%
10.09%
7.95%
11.29%
9.46%
17.94%
24.03%
38.76%
45.22%
52.50%
52.50%
During first quarter of the study period w.e.f. 01April, 2012 -31 June, 2012, it is
observed that all the funds except money market and balanced funds have given
negative return, during that quarter the market hasalso shown negative return.
For the remaining all quarters, all the funds havegiven positive average quarterly
return. Further analysis shows that equity fund has outperformed the market by
providing better returns. The top performer as per average quarterly mean return
is equity fund. All other funds except equity fund havereturn lower than that of
the market, during all time horizon under study. The equity optimiser fund is giving
good return throughoutthe time period. The worst performer is moneymarket
fundhaving very less return compared to market return.
Beta
Table 2 depicts the beta of fund selected for the period of study, i.e.,01 April,
2012 to 31 March, 2015
Apr
Apr
12Mar
15
Apr1
2-Dec
13
Apr1
2Mar
13
Apr1
2Jun
14
Apr1
2Sep
14
0.438
6
0.46
45
0.463
7
0.46
32
0.46
74
0.47
23
0.473
1
0.4
725
0.78
95
0.789
2
0.77
75
0.775
0
0.77
61
0.78
01
0.78
56
0.788
6
0.7
915
0.89
96
0.90
97
0.912
3
0.93
01
0.933
3
0.93
39
0.94
04
0.94
66
0.948
9
0.9
469
0.0
039
0.00
16
0.00
09
0.000
3
0.00
01
0.000
3
0.00
02
0.00
05
0.00
09
0.000
8
0.0
007
0.6
685
0.66
65
0.66
70
0.668
2
0.67
73
0.676
8
0.67
72
0.68
33
0.68
71
0.688
6
0.6
905
12Sep
12
Apr1
2Dec
12
Apr1
2Mar
13
Balance
d Fund
0.4
336
0.4
218
0.42
97
0.43
77
Equity
Optimis
er Fund
0.7
805
0.7
765
0.77
93
Equity
Fund
0.9
088
0.8
914
Money
Market
Fund
0.0
026
Growth
Fund
0.6
684
70
Apr1
2Apr1
4
Apr1
2Sep
13
Apr
12Jun
12
Period
Apr1
2June
13
While analysing the beta it is observed that the beta of money market fund is
negative for the initial quarters. The fund is having the least beta value that
means the funds return are less volatile and thus less risky for all the time horizon
under study. The growth fund is having low to moderate risk factor, the fund is
showing an increase in risk with a continuous rise in return.The beta ratio for
balanced fund is also very low, hence it is less risky, and the return generated
from this fund is also not so exciting. Unlike the other fund equity fund is having
high risk factor but the risk is below the market risk of 1. Equity optimiser fund is
having relatively high risk with high return but the proportion is less than the
equity fund as it invest comparatively more in debt market which reduces its risk.
Sharpes ratio
Table 3 depicts the Sharpes ratio of fund selected for the period of study, i.e.,01
April, 2012 to 31 March, 2015
Apr1
2Jun1
2
Apr
12Sep
12
Apr1
2Dec
12
Apr1
2Mar1
3
Apr1
2June
13
Apr1
2-Sep
13
Apr1
2Dec
13
Apr1
2Mar
13
Balance
d Fund
0.12
2
1.1
40
2.33
7
0.66
3
1.12
2
0.407
0.56
6
4.96
6
Equity
Optimis
er Fund
0.32
3
0.4
09
1.98
7
0.18
8
0.07
6
0.783
0.79
6
Equity
Fund
0.69
6
0.5
00
1.81
5
0.76
7
0.37
3
1.180
Money
Market
Fund
0.29
3
0.5
20
2.40
6
0.03
5
0.37
9
Growth
Fund
0.22
4
0.7
19
2.53
5
0.43
2
0.94
4
Period
Apr1
2Sep
14
Apr1
2-Dec
14
Apr
12Mar
15
4.497
4.45
3
25.48
6
17.
342
3.64
5
4.771
5.28
0
37.99
2
64.
936
6.86
9
9.93
6
79.14
1
13.2
09
10.92
7
9.3
43
0.664
0.58
3
5.60
2
4.383
4.73
6
52.15
9
40.
503
0.927
1.74
2
6.18
9
5.751
6.34
0
453.8
61
862
.97
1
Apr1
2-Jun
14
Sharpe Measure is one of the most common tools of evaluating the portfolio
which has been used extensively in many of such papers. The Sharpes ratio is
the average return earned in excess of the risk-free rate per unit of volatility or
total risk. Generally, the greater the value of the Sharpes ratio, the more attractive
the risk-adjusted return.
The Sharpes ratio for the period under study shows different results in short
term and long term.In the short term i.e., first half tenure of the study, the higher
positive value is found in balance fund and equity fund. But after that tenure or
in the second half, the growth fund and equity fund is showing a highest Sharpes
ratio. The equity fund has positive Sharpes ratio during the full study period
which shows adequate return as against the level of risk involved. The ratio of
71
equity optimiser fund is observed to befluctuating indifferent time horizons.

According to Sharpes ratio, equity fund is the best fund to invest.
Treynor ratio
Table 4 depicts the Treynor ratio of fund selected for the period of study, i.e.,01
Period
Apr1
2Jun1
2
Apr1
2Sep
12
Apr
12Dec
12
Apr12
-Mar
13
Apr12
June1
3
Apr12
-Sep
13
Apr12
Dec1
3
Apr1
2Mar
13
Apr1
2Jun
14
Apr1
2Sep
14
Apr1
2Dec
14
Apr1
2Mar
15
Balanc
ed
Fund
0.01
2
0.07
83
0.10
25
0.040
8
0.064
2
0.030
5
0.068
5
0.12
56
0.30
10
0.34
77
0.424
0
0.45
55
Equity
Optimi
ser
Fund
0.03
4
0.02
79
0.05
52
0.012
5
0.004
6
0.032
6
0.077
1
0.12
86
0.29
64
0.35
34
0.384
2
0.43
64
Equity
Fund
0.02
6
0.05
63
0.09
31
0.029
6
0.057
7
0.034
3
0.147
2
0.20
34
0.39
76
0.46
40
0.526
7
0.60
42
Growt
h
Fund
0.02
9
0.03
39
0.06
41
0.002
2
0.021
8
0.036
6
0.057
1
0.11
51
0.29
78
0.35
73
0.428
7
0.48
52
Money
Market
Fund
0.21
5
0.18
77
0.99
52
0.947
9
1.095
4
63.89
5
23.42
5
36.4
29
20.1
97
14.0
08
22.94
7
32.6
30
The Treynor ratio relates excess return over the risk-free rate to the additional
risk taken, however, systematic risk is used instead of total risk. The higher the
Treynor ratio, the better the performance of the portfolio under analysis. Here
equity fund mirrors the similar findings as in Sharpe ratio with some minimum
differentiation. The top performer is the equity fund since money market fund
showed laggard performance in short run with negative value .the balanced fund
and growth fund also performed well with the measure. The equity optimiser fund
showed the minimum Treynor ratio and money market fund is the worst performer
with this ratio.
72
Jensens alpha
Table 5 depicts the Jensen alphaof fund selected for the period of study, i.e., 01
Apr1
2Jun1
2
Apr1
2Sep
12
Apr1
2Dec
12
Apr1
2Mar
13
Balance
d Fund
0.00
57
0.05
55
0.07
08
0.06
26
Equity
Optimis
er Fund
0.00
04
0.14
66
0.09
61
Equity
Fund
0.00
26
0.08
71
Money
Market
Fund
0.01
34
Growth
Fund
0.00
16
Period
Apr1
2June
13
Apr1
2-Sep
13
Apr1
2Dec
13
Apr1
2Mar
13
Apr1
2Jun
14
Apr1
2Sep1
4
Apr1
2-Dec
14
Apr
12Mar
15
0.084
0
0.087
3
0.13
96
0.17
60
0.24
41
0.265
5
0.292
4
0.3
128
0.07
03
0.098
2
0.092
2
0.17
08
0.22
31
0.32
76
0.353
9
0.390
7
0.4
170
0.10
49
0.07
30
0.103
2
0.094
7
0.18
67
0.24
69
0.37
04
0.399
4
0.440
6
0.4
678
0.02
69
0.03
95
0.05
29
0.066
3
0.079
9
0.09
30
0.10
64
0.11
94
0.132
4
0.145
4
0.1
587
0.07
21
0.08
80
0.06
76
0.093
3
0.090
6
0.16
10
0.20
82
0.30
17
0.326
1
0.359
5
0.3
840
Jensens alpha is used to determine the abnormal return of a security

or portfolio of securities over the theoretical expected return. If an assets return
is even higher than the risk adjusted return, that asset is said to have positive
alpha or abnormal returns. Higher value indicates better performance. Almost
all the funds have given the return over the expected measure. The equity fund
is the top performer showing only a single negative value in the first quarter of
the study period w.e.f.1st April 2012 -31st June 2012after that it is showing an
increasing trend. Equity optimiser fund is the second top performer with the
measure. Growth fund and balanced fund also performed well with the measure,
money market fund is having the positive alpha value during all the time periods
under study, but the value is less than all other funds under study.
73
Sortino ratio
Table 6 depicts the Sortino ratio of fund selected for the period of study, i.e.,01
Apr1
2Jun1
2
Apr1
2Sep
12
Apr
12Dec
12
Apr
12Mar
13
Apr
12Jun
e13
Apr1
2Sep
13
Apr1
2Dec
13
Apr1
2-Mar
13
Apr1
2Jun
14
Apr1
2Sep
14
Apr1
2Dec
14
Apr1
2Mar
15
Balanc
ed
Fund
1.58
19
10.1
581
16.
575
3
1.2
364
2.1
801
0.68
01
1.64
59
3.220
8
8.26
09
10.1
638
13.0
228
14.5
93
Equity
Optimis
er Fund
1.44
41
1.18
61
2.8
839
0.3
210
0.1
321
0.87
68
2.23
15
3.985
6
9.79
39
12.3
967
14.1
868
16.8
92
Equity
Fund
1.44
78
3.09
35
6.3
210
0.8
484
1.8
503
1.11
45
5.19
13
7.672
3
16.0
226
19.8
395
23.6
721
28.3
06
Growth
Fund
0.01
95
1.68
80
3.8
952
0.0
628
0.6
850
0.95
57
1.61
03
3.471
0
9.61
22
12.2
223
15.4
147
18.2
68
0.23
58
1.07
21
2.9
071
1.1
815
0.2
708
4.32
76
7.20
59
9.423
9
11.9
410
16.4
664
25.6
103
30.7
37
Period
Money
Market
Fund
Sortino ratio is a modification of the Sharpe ratio but penalizes only those returns
falling below a user-specified target or required rate of return, while the Sharpes
ratio penalizes both upside and downside volatility equally. Initially all the funds
showing negative value except, money market fund. The money market fund has
positive Sortino ratio during the full study period.Money market outperformed the
market as per this measure. Equity fund, initially in the first quarter w.e.f. 01April,
2012 to 31June, 2012,has a negative value but later a continuous growth is
observed with an increase in time horizon. It is the second top performer under
study. During the time horizon of eighteen months w.e.f. 01April, 2012 to 31 Sep,
2013, balanced fund, equity optimiser fund and growth fund showed negative
Sortino ratio. Equity optimiser fund and growth fund performed well with the
measure. Balanced fund is having less Sortino in all time horizons under study
except for the time period of six and nine months w.e.f.1st April 2012. Thereforethe
performance of the balanced fund is found to be inferior when compared with
other funds.
Friedmans two way ANOVA test
Friedman two way ANOVA test has been done to test whether all the ratios
considered in this paper are giving similar decisions or providing significantly
different options.
H0: No difference in the ranking of different measures by selected funds of the
ULIP under study.
74
H1: Difference in the ranking of different measures by selected funds of the ULIP
under study.
Table 7: Ranking of different measure by selected funds of ULIP.
Fund
Ratio
Equity
Fund
Equity Optimiser Growth

Fund
Fund
Balanced
Fund
Money Market
Fund
Sharpes Ratio
Treynor Ratio
Jenson Ratio
Sortino Ratio
Calculated value of chi square= 6.2

Critical value at 5% Level of Significance at Degree of freedom = k - 1 = 4 is
9.488.
The Null hypothesis is accepted since the calculated chi square value (6.2) is
less than the tabulated value (9.488). Therefore there is no difference in the
ranking of the different measures for the selected funds of the ULIP under study.
CONCLUSION
In India, today a common investor is generally confused regarding which ULIPs
fund is to be selected for investment and on what measure. This study is a small
attempt to resolve this problem along with analysingthe funds performance.
However, the use of a systematic performance evaluation technique helps the
investors to take wise decisions so that they are able to achieve their investment
objectives. But some time because of these measures an investor can get confused
by giving significant results.Market gives better returns over long term but the
return fluctuates widely in short term. Hence investors should not be influenced
by the short term fluctuations of NAV and should focus on long term return. The
NAV will go up when the market recovers. Investors should not expect good returns
in short term.
For analysis of this work, different measures namely Risk return analysis, Treynor
ratio, Sharpes ratio, Jensen ratio and Sortino ratio have been considered.
Sharpes,Treynor and Sortino ratio may portray different performances for the
same ULIP fund. These measures are similar in a way, since all of them divide
the risk premium by a numerical risk measure.However, the Sharpes portfolio
performance measure uses the standard deviation of returns as the measure of
risk. Treynors performance measure employs beta coefficient and Sortinos
performance measure uses the downside risk as a denominator.
While the total risk is appropriate for evaluating well-diversified portfolios, systematic
risk is the relevant measure for evaluating less than fully diversified portfolios
and downside risk is appropriate for evaluating the risk of negative returns. The
Friedman two way ANOVA test indicates that for all the funds under consideration
for the time period of three years w.e.f., 01 April, 2012 to 31 March, 2015, the
measures give identical decision.
75
REFERENCES
1.
Chandra, P. R. (March 2012), Decade after privatisation in life insurance sector:Challenges

of competition and future scenario. THAVAM IRJMM, pp. 22-35.
2.
Chokri M. and Sami Daboussi, (2009), Performance measurement,The Journal of Wealth

Management, pp. 101-112.
3.
Dr.Deepti Maheswari, Sanjay R. (April 2014), Acomparative study of tax savingwith refernce
to bhopal,Global Journal of Multidisciplinary Studies, pp. 288-314.
4.
Dr.G Nagarajan,Mr Asif ali M. A. (August 2013) (ISNN2278-6236), A study of unit linked
insurance plans (ULIPs) offered by indian private insurance companies,International
Journal of Advanced Reseacrh in Management and Social Science, pp. 114-128.
5.
Gupta, A. (2012), Unit Linked Insurance products(ULPIs)-Insurance or

Investment?,International Conference on Emerging Econimics- Prospect and Challenges
(ICEE-2012), pp. 67-85.
6.
Khan, M. m. (December 2012), Acomparative study of tradtional policies and ULIPs policies
with refercence to thelife insurence companies in india, SIT Journal of Management, pp.
1-15.
7.
Sanningammanawa, M. (june 2013), Acomparative study of unit linkes insurance plans

offered by selected insurance company,Asia Pacific Journal of Research, Vol no2 Issue
4, pp. 1-12.
8.
Seth, N. (november 2012), Factors behind rise and fall of unit linked insurance plans in
india,Journal of Business Management and Social Science Research, pp. 70-76.
9.
Yadav A., Tiwari B. (july-sept 2013), A Comparative analysis of investors risk perception
towards public & selected private life insurers in jabalpur district of Madhya pradesh,Gian
Jyoti E-Journal , Volume-3, pp. 10-22.
10. Arora, K. (2015), Risk adjustment performance Evaluation of indian mutual fund scheme.
http://par.sagepub.com, pp. 79-94, Retrieved from Sagepub.in/home_nav: http://par.
sagepub.com
76
Impact o Human Resource Valuation to

Shareholders Wealth : A Comparative Study
on BHEL, NTPC, ONGC and
Hindustan Copper Limited.
Sougata Majumder* & Pramit Sen Gupta**
ABSTRACT
Human Resource Accounting is relatively a new concept in the field of management. For
several years organizations have neglected a major factor of production, that is Human
Resource. But now they have understood the need of human resource in organization. Few of
them have started recognizing this as an asset and voluntarily disclosing it in the note of
various Financial Reports.
Human Resource Accounting has become a tool in the hand of management to measure
effectiveness of employees. In turn one may also measure the contribution of human resource
and its impact over maximization of shareholders wealth. As ultimate objective of any efficient
financial management system is to, increase the shareholders wealth.
This paper attempts for a comparative analysis of four major companies namely BHEL, NTPC,
ONGC and Hindustan Copper Limited across industries and to study the possible contribution
of human resource value per employee towards shareholders wealth
Key Words : Human Resource Accounting, Wealth Maximization, Human Resource Valuation,
Lev and Schwartz model, Bivariate Correlation Coefficient
INTRODUCTION
Human resources are one of the essential resources in an organization. To become
a successful company, only money will not do. Organization need trained and
experienced manpower. Today we are moving from traditional company to service
sector, where human resource plays an important role.
Taking lesson from the past, companies are now investing a good amount of
money on employee recruitment, training, compensation etc. and in return
companies are getting profit. It is the only assets which appreciate with time.
But in India still we dont show human resource as an asset and investment on
them is not taken into books of accounts in majority. There are a very few
companies who disclose human resource as assets in their balance sheet and
subsequent annual reports. All though various experts through out the world have
proposed different models on human resource accounting, but companies are
very reluctant to use them. Therefore a proper system should be followed to
disclose human resource as an asset in the companys balance sheet.
*
**
Assistant Professor (HR&OB), Army Institute of Management; Email : sougata_majumder@rediffmail.com

Assistant Professor (Finance); Army Institute of Management; Email : pramit.sg@gmail.com
77
78
Showing human resource as an asset will appraise the value of manpower and it
will act as a motivational factor for an employee. Psychologist, Economist and
Accountant through out the world have developed various models on accounting
of physical assets, but there is very little contribution on human resource
accounting model.
Our study made an attempt to evaluate the contribution of human resource
valuation towards wealth maximization through EPS. Research was done through
literature survey and based on secondary data. It explores effect of presenting
HRV in annual report of a randomly chosen IT company, Infosys Technologies
Limited.
This paper attempts to find possible impact of value per employee over
shareholders wealth. It is observed on review of many financial statements
across the industry vide respective annual reports, despite charging the employee
cost (eg:- T&D expenses) as a revenue charge off item in the profit and loss
account every year, there is no mandatory discloser system maintained by
most of the companies in the final statement of affairs on regular basis. We
all know that higher level of debt indicates higher level of fixed interest burden.
Under this favorable environment it helps to magnify EPS, however, the business
becomes more risky in this instance. Higher level of equity indicates lower level of
EPS and subsequently lower level of financial risk. Thereby it becomes a notable
contributing variable towards share holders wealth. Hence it is one of our selected
variables for the study along with some other notable parameters of share holders
wealth (namely ANPAT and ROTA). This paper thereby attempts to establish an
association of variables between shareholders wealth (namely EPS, ANPAT, ROTA)
and value per employee to test that if there is any link between employee valuation
variable and wealth maximization variables in the selected companies across the
industry. It is done to determine the necessity of mandatory discloser of VPE in
Final Statement of Affairs on regular basis.
Literatures found in this area are discussed hereby. Rahamen, Hoosain and Aktar
(2013) in their study on problem with human resource accounting and a possible
solution they compared different existing models on HRA by proposing a framework
in line with existing models to implement HRA practice. Further Kaur, Raman and
Singhania (2014) studied human resource accounting disclosure practice in Indian
companies and stated that a handful of company in India are practicing and making
voluntary disclosure related to human resource accounting. Again Bullen and Eyler
in their study of human resource accounting and international development:
implication for measurement of human capital stated that internationally many
organizations show the willingness towards human resource accounting and its
reporting. Earlier Mirvis and Macy (1976) made a study on accounting for the
cost and benefits of human resource development programs and highlighted on
cost- benefit analysis on human resource development. Further, Edmonds and
Rogow discussed about possible inclusion of value of human resource in balance
sheet as recognized assets of a business. They have also explored that true
79
value of a business can be determined by integration of all valuation system in

which we cannot exclude human valuation. Rajalakshmi and Gomathi (2015)
comments on HRA as a management decision making tool. On the other hand
Bikki Jaggi and Hon-Shiang Lau (1974) on their empirical study in search of a
comprehensive model for Human Resource Valuation have thrown light on
challenges faced by designing systems for reliable information about human
resources. The model in this paper also provides a framework for determining
the value of the resources. Rao, Basha and Rajasekhar (2013) on their study on
human resource accounting methods and practices in India and commented that
most of the Indian companies found out that the companies are yet to start the
process of human resource valuation. They also pointed that, the companies in
India who are practicing HRA are at the nascent stage of the process. Sirisetti
and Mallesu in their study human resource accounting model in Indian industries
discusses about advantages of HRA in regards to Indian industries. They
commented that proper valuations of human resource are required for managerial
decision making. Hoque Mahmudul studied different methods of human resource
accounting and stated that it is quite difficult to value human resource, though
there are different methods of valuation already proposed. The concept is gaining
momentum day by day as human resources are becoming crucial component for
day to day operations and production activity within an organization.
Kashive in her study towards importance of human resource accounting practices
and implications of measuring value of human capital: case study of successful
PSUs in India; discusses about the tradeoff between cost and benefits along with
Implications over Human Resource valuation for different PSU sector companies
as chosen for the study. Shukla and Sharma (2010) in their study of Application
of Human Resource Accounting in Heavy Industries, analyzed about the extended
application of HRA over heavy industries, to measure the value of production per
employee.
OBJECTIVE OF THE STUDY
To study the possible contribution of human resource value per employee towards
shareholders wealth following objectives were set.
1. To find out the contribution of human resource value to maximize share
holders wealth.
2. To Identifying suitable variables for the study.
3. To Recommendation for inclusion / non inclusion of HRV in Financial
Reports.
SCOPE OF STUDY
Value per employee as an organizational policy can boost up the morale of the
employees and it reduces employee turnover, rate of absenteeism and subsequently
increases productivity. It also encourage the employees as their contribution towards
organization is been recorded in terms of monetary value. It makes the employees
proud to be recognized as contributing assets towards maximization of share
holders wealth.
80
The present paper throws light on inclusion of Value per Human Resource as a
mandatorily declared asset in financial reports on regular basis. It does so by
evaluating impact of value per employee over shareholders wealth. This paper
thereby attempts to establish an association of variables between shareholders
wealth (namely EPS, ANPAT and ROTA) and value per employee to test that if
there is any link between employee valuation variable and wealth maximization
variables in the selected companies across the industry. On favorable outcome of
the said instance, objective of the study thereby becomes to determine the
necessity of mandatory discloser of VPE in Final Statement of Affairs on regular
basis.
METHODOLOGY
This paper is based on secondary data obtained from various sources. To name
a few annual reports of respective companies, capital line neo and some published
journals and periodicals as mentioned in bibliography for a time period of five
years throughout a company cluster of 4 (Four) Number of Companies. Further
to this, SPSS software was used for statistical analysis. Bivariate correlation
coefficient test was conducted for the said purpose. This paper primarily establishes
two basic research objectives.
First, it attempts to establish an association between shareholders wealth (namely
EPS, ANPAT and ROTA) and value per employee to test that if there is any
strong link between employee valuation variable and wealth maximization
variables in the selected companies across the industry for the study. It is done
on this convention that if any strong association is found then it portraits the
necessity for mandatory discloser of VPE in Final Statement of Affairs on regular
basis.
On the other hand, based on above financial analysis; this paper also attempts
to suggest an HR policy to be introduced towards valuation of human resource
as a motivational tool and performance indicator. It is essential for encouragement
of the employees to give their best performance.
ANALYSIS AND FINDINGS
Gap between our study and literature review which leads us to aforesaid research
objective are established as below
Table 1 - Disclosure of Selected Variables for HR related information for
given PSUs.
D= Disclosure & ND=Non Disclosure of variable
Status showing
Disclosure of variable
BHEL
ONGC
NTPC
Value add
ND
EVA
ND
ND
Value add per employee
Valuation model used
81
Status showing
Disclosure of variable
BHEL
ONGC
NTPC
Value of HR
ND
ND
Value of HR per employee
ND
ND
Number of employee
Age wise distribution
ND
ND
Group wise distribution
Turnover per employee
ND
Discount rate
(Generation
per employee)
Employee Remuneration & Benefit
(Expend on
employee)
(Source : Kashive, Neerja, 2011)
Table 2 Value and strength of Human Resources

(2001-02 to 2006-07)
The Hindustan Copper Limited
(Rs. in crore)
Year
Value of
production
(Rs.)
Manpower
(in Numbers)
Value
peremployee
(Rs.)
Value
added
(Rs.)
2001-2002
586.66
9502
0.062
1 53.09
2002-2003
501.53
7865
0.064
1 47.37
2003-2004
534.43
5995
0.089
2 12.3
2004-2005
631.24
5665
0.111
328.53
2005-2006
1053.34
5583
0.189
385.39
2006-2007
1909.18
5451
0.350
7 81.08
2007-2008
1991.24
5405
0.368
7 26.12
2008-2009
1344.28
5440
0.247
4 02.06
2009-2010
1506.04
5300
0.284
7 01.82
(Source : Sharma, S., Shukla, R. K., 2010)
For the purpose we had conducted the study through analysis of annual reports
on following aspects.
82
Table 3 Table showing declaration of variables for test of associationBHEL

Year
2005-06
2006-07
2007-08
2008-09
2009-10
Value per employee

(INR Lakhs)
13.34
17.35
19
21.67
27.7
EPS
Adj ANPAT
ROTA
6.66
9.49
55.82
12.24
16.83
1677.17
2413.99
2858.37
3133.73
4310.44
0.37
0.46
0.44
0.4
0.44
(Source : Kashive, Neerja.,2011 and Capitaline Neo The Corporate Database)
Table 4 Table showing declaration of variables for test of association-NTPC

Year
Value per employee

(INR Lakhs)
EPS
Adj ANPAT
ROTA
2005-06
2006-07
2007-08
2008-09
2009-10
4.44
4.7
5.39
5.95
7.3
6.67
7.85
8.4
9.34
9.95
6500.1
6871.83
7423.38
8221.43
8739.97
0.16
0.18
0.18
0.15
0.15
(Source: Kashive, Neerja.,2011 and Capitaline Neo The Corporate Database)
Table 5 Table showing declaration of variables for test of associationONGC

Year
Value per employee

(INR Lakhs)
EPS
Adj ANPAT
ROTA
2005-06
2006-07
2007-08
2008-09
2009-10
79
84
88
117
131
15.81
17.1
72.65
17.49
18.24
14003.11
15327.87
16701.65
16083.41
16767.56
0.36
0.33
0.32
0.27
0.25
(Source: Kashive, Neerja.2011 and Capitaline Neo The Corporate Database)
Table 6 Table showing declaration of variables for test of association

Hindustan Copper Limited
Year
Value per employee

(INR Lakhs)
EPS
Adj ANPAT
ROTA
2005-06
2006-07
2007-08
2008-09
2009-10
18.9
35
36.8
24.7
28.4
0.72
2.04
3.21
0
1.67
94.18
332.59
240.49
-7.46
154.15
0.25
0.44
0.32
0.03
0.21
(Source: Sharma, S., Shukla, R. K.,2010 and Capitaline Neo The Corporate Database)
83
On analysis of above tables, this paper attempts to find possible impact of value
per employee over shareholders wealth. As it is observed on review of financial
disclosers across the industry vide respective annual reports, despite charging
the employee cost as a revenue charge off item in the profit and loss account
every year, there is no mandatory discloser system maintained by most of
the companies in the final statement of affairs on regular basis.
As we know that higher level of debt indicates higher level of fixed interest burden.
Under this favorable environment it helps to magnify EPS, however, the business
becomes more risky in this instance. On the other hand, higher level of equity
indicates lower level of EPS and subsequently lower level of financial risk.
Thus it becomes a notable contributing variable towards share holders wealth.
Hence it is one of our selected variables for the study along with some other
notable parameters of share holders wealth (namely ANPAT and ROTA).
This paper thereby attempts to establish an association of variables between
shareholders wealth (namely EPS, ANPAT, ROTA) and value per employee to
test that if there is any link between employee valuation variable and wealth
maximization variables in the selected companies across the industry. It is done
to determine the necessity of mandatory discloser of VPE in Final Statement of
Affairs on regular basis.
For the above purpose, on pursuit of exploring possible impact of value per
employee on factors influencing shareholders wealth, bivariate correlation
coefficient test was conducted. The hypothesis for the purpose was taken as
detailed below:H0 : There is no significant association between VPE and EPS
Ha : There is significant association between VPE and EPS
H0 : There is no significant association between VPE and ANPAT
Hb : There is significant association between VPE and ANPAT
H0 : There is no significant association between VPE and ROTA
Hc : There is significant association between VPE and ROTA
The test results are shown as below and then analyzed subsequently.
Correlations - BHEL
VPE
EPS
84
VPE
EPS
ANPAT
ROTA
.101
.872
5
.997**
.000
5
.424
.477
5
.174
.780
5
.358
.555
5
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
.101
.872
5
VPE
ANPAT
ROTA
**
EPS
ANPAT
ROTA
.458
.438
5
Pearson Correlation
Sig. (2-tailed)
N
.997
.000
5
.174
.780
5
Pearson Correlation
Sig. (2-tailed)
N
.424
.477
5
.358
.555
5
.458
.438
5
1
5
**. Correlation is significant at the 0.05 level (2-tailed).

Observation from above table of BHEL: It is found that, on 2-tailed test at 5 %
level of significance, Null hypothesis is getting rejected between ANPAT & VPE.
The Hypothesis for other relation are accepted. Hence it can be inferred that,
ANPAT is significantly correlated with VPE. Thereby it may be inferred that inclusion
of VPE positively affects outcome of ANPAT in case of BHEL. Hence this
strengthens the case for inclusion of VPE as an asset in the financial discloser of
BHEL on mandatory basis.
Correlations - NTPC
VPE
VPE
EPS
ANPAT
ROTA
EPS
ANPAT
*
ROTA
.936
.019
5
**
.972
.006
5
-.604
.280
5
.980**
.003
5
-.472
.422
5
-.617
.268
5
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
.936*
.019
5
Pearson Correlation
Sig. (2-tailed)
N
.972**
.006
5
.980**
.003
5
Pearson Correlation
Sig. (2-tailed)
N
-.604
.280
5
-.472
.422
5
-.617
.268
5
1
5
*. Correlation is significant at the 0.05 level (2-tailed).

Observation from above table of NTPC: It is found that, on 2-tailed test at 5 %
level of significance Null hypothesis is getting rejected between EPS & VPE. The
Hypothesis for other relation is accepted. Hence it can be inferred that, EPS is
significantly correlated with VPE. Thereby it may be inferred that inclusion of VPE
positively effects outcome of EPS in case of NTPC. Hence this increases the
possibility for inclusion of VPE as an asset in the financial discloser of NTPC on
mandatory basis.
85
Correlations - ONGC
VPE
EPS
ANPAT
ROTA
VPE
EPS
ANPAT
ROTA
-.258
.675
5
.659
.226
5
-.979**
.004
5
.481
.412
5
.141
.821
5
-.773
.125
5
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
-.258
.675
5
Pearson Correlation
Sig. (2-tailed)
N
.659
.226
5
.481
.412
5
.141
.821
5
-.773
.125
5
Pearson Correlation
Sig. (2-tailed)
N
-.979
.004
5
**
1
5

Observation from above table of ONGC: It is found that, on 2-tailed test at 1 % level
of significance Null hypothesis is getting rejected between ROTA & VPE. The
Hypothesis for other relation is accepted. Hence it can be inferred that, ROTA is
significantly negatively correlated with VPE. Thereby it may be inferred that inclusion
of VPE negatively affects outcome of ROTA in case of ONGC. We know, VPE
=Operating profit+ salary+ payroll expenses+ training expense / average number of
employee. And ROTA = EBIT / Total Net Asset. Hence If we assume a situation like this
where, a firm is going for automation and subsequently reducing dispensable
manpower, then on Reduced no of employees VPE valuation goes up and on increased
profit due to less manpower hiring and staffing expenses the ratio with total asset
goes down. So it shows on inclusion of VPE thus it can be negatively associated
with ROTA and affect share holders wealth subsequently.
Correlations HCL
VPE
EPS
ANPAT
86
VPE
EPS
ANPAT
ROTA
.847
.070
5
.791
.111
5
.597
.288
5
.822
.088
5
.732
.159
5
.955 *
.011
5
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
.847
.070
5
Pearson Correlation
Sig. (2-tailed)
N
.791
.111
5
.822
.088
5
VPE
ROTA
Pearson Correlation
Sig. (2-tailed)
N
.597
.288
5
EPS
.732
.159
5
ANPAT
.955
.011
5
ROTA
1
5
*. Correlation is significant at the 0.05 level (2-tailed).

Observation from above table of HCL: It is found that, on 2-tailed test at 5 %
level of significance. Null hypothesis is getting rejected between ROTA & ANPAT.
The Hypothesis for other relation is accepted. Hence it can be inferred that, ROTA
is significantly correlated with ANPAT. Thereby it may be inferred that on inclusion
of VPE no significant effect on outcome of share holders wealth is found
in case of HCL, although the selected variables towards shareholders wealth
are found to be significantly associated between them as shown.
ANALYZING VARIABLES
We all know that greater the debt indicates higher the fixed interest burden. Under
this favorable milieu it helps to amplify EPS. However, the business becomes
increasingly risky in this instance. Higher and sound equity position indicates lower
level of EPS and consequently lower level of financial risk. Thereby it becomes a
distinguished causative variable towards share holders wealth. Hence it becomes
one of our selected variables for the study, along with some other noteworthy
parameters of share holders wealth (namely ANPAT and ROTA).
Adjusted Net Profit After Tax (ANPAT) is calculated by multiplying Income from
operations, as adjusted, by a figure equal to one minus the adjusted effective tax
rate of the Company. The adjusted effective tax rate is equal to the (Provision
for)/benefit from Income taxes divided by (Loss)/Income before income taxes as
adjusted for the respective quarter.
While the net income after taxes calculation is one of the most solid measures of
a companys performance and subsequent contribution to shareholders wealth
through bottom line evaluation. Numerous accounting scandals in recent years
have proven it to be less than 100% reliable. Investors evaluating a companys
bottom line need to evaluate for legitimate and future expenses that accounting
rules permit a company to exclude from their current ANPAT calculation.
ANPAT most often found in a companys annual report, is meant to show the
companys definitive bottom line for the accounting period. In other words, it
shows what the company earned after all its expenses, charge-offs, depreciation
and taxes have been subtracted. This calculation is usually shown as both in
currency terms and a per share calculation.
Return On Total Assets - ROTA is a ratio that measures a companys earnings
before interest and taxes (EBIT) against its total net assets. The ratio is
considered an indicator of how effectively a company is using its assets
to generate earnings before contractual obligations must be paid.
87
To calculate ROTA:
The greater a companys earnings in proportion to its assets (and the greater
the coefficient from this calculation), the more effectively that company is said to
be using its assets.
This paper thereby makes an attempt to establish an association of variables
between shareholders wealth (namely EPS, ANPAT, ROTA) and value per
employee to test that if there is any association between employee valuation
variable and wealth maximization variables in the selected companies across the
industry. It is done to settle on the prerequisite of mandatory discloser of VPE in
Final Statement of Affairs on regular basis.
As we know that till date most of the companies calculate their earning based on
tangible assets, but they neglect the major asset that is the talented employees,
their knowledge and their experience. Which the company creates by investing in
training, salary and other HR activities. So to calculate the value per employee
company can consider
VPE = Operating profit+salary+payroll expenses+training expense/ average
number of employee
VPE - Value per employee
Operating Profit Profit earned during the year before adjustment of interest,
depreciation, tax and amortization
Salary and Payroll expenses Staffing expenses
Training expenses Cost incurred on training of employees
Average number of employees employed during the year
FINDINGS AND CONCLUSION
As per the above financial analysis it is found that majority of the selected
companies are showing positive effect on establishment of association between
VPE and related variables of share holders wealth.
Thereby following policy matter is recommended in this context.
Financial and non financial reward leads to improved performance. Companies
used a variety of financial and non-financial performance measures. These
included cash flow, customer satisfaction, value added per employee, employee
satisfaction, employee turnover, gross profit percentage, market share, number
of new customers, productivity, profitability, quality, sales and shareholders total
return.
88
It was found that management accountants were working closely with their HR
colleagues to support the HRM function in improving organizational performance.
Areas of collaboration included strategic planning, budgeting, development of
performance related bonus schemes and decision making.
When employees are viewed as assets rather than simply costs, this has a positive
impact on an organizations performance. Overall, those employees who considered
themselves as assets were in no doubt that this view helped to improve their
organizations performance in the long-term.
Human resource accounting can be used to improve the management of human
resources from an organizational perspective by increasing the transparency of
human resource costs, investments and outcomes in the management accounting
rituals, such as profit and loss accounts, balance sheets and investment
calculations. It can also be used to improve the bases for investors. When trying
to implement HRA, efforts should focus on
1. Knowledge of human resource costs, values and outcomes and
how to calculate these
2. Top management demands, as well other ingredients in the reward
system
3. It is necessary to implement HRA from a strategic-management
perspective
Many companies do cost income evaluation of HR function. When new information
sets are available decision would be of good quality. In this paper it is seen that
incorporation of EPS, ANPAT and ROTA has an impact on shareholders wealth
maximization. So HRA becomes decisive factors for managerial decision making.
LIMITATIONS
1. Time series chosen for the period of study is only indicative
2. Data point selected across the industry calls for inclusion of further
industry by nature
3. Interview of HR manager could be conducted for direct feedback about
the policy matter
4. Other wealth maximization parameters such as EVA is left to be tested
for the purpose
REFERENCES
1.
Bikki, J. and Hon, S.L. (1974), Toward a Model for Human Resource Valuation, the
Accounting Review, PP. 321-329
2.
Edmonds and Rogow, Should Human Resources Be Reflected on the Balance Sheet,
Journal of Auburn University, PP. 42-45
3.
Enyi Patrick and Oladipupo Akindehinde (2014), Human Resource Accounting and
Decision Making in Post-Industrial Economy, American International Journal of
Contemporary Research, Vol. 4 No. 2, PP. 110-118
4.
Kashive Neerja, Importance of Human Resource Accounting Practices and Implication of

Measuring Value of Human Capital: Case Study of Successful PSU in India, XIMB Journal
89
of Case Research, Vol. IV, No 2, PP. 113-144

5.
Mirvis and Macy (1976), Accounting for the costs and benefits of Human resource
development programs: an interdisciplinary approach, Accounting, Organizations and
Society, Vol. 1, No. 2-3, PP. 179-193
6.
Rajalakshmi and Gomathi (2015), Cost Effective Metrics through HRA, Mediterranean
Journal of Social Sciences, Vol 6 No 3, PP. 251-256
7. Reza, K. Rishma, V., Takeo, Y. and John, I., Human resource policies, accounting and
organizational performance, Research executive summaries series, Vol 5 Issue No 4, PP.
1-12
8.
Sharma, S. and Shukla, K.R., S-JPSET, Application of Human Resource Accounting in

Heavy Industries, Vol 1, No 2, PP. 131-133
9.
Sengupta, P. and Majumder,S. (2015), Contribution of Human Resource Valuation towards

Wealth Maximization: A Case Study On Infosys Technologies Limited, VSRD International
Journal of Business and Management Research, Vol. V, Issue No VI, PP. 149-154
10. Ulf, J. Gunilla, E. Mikael, Holmgren and Maria, M, Human Resource Costing and Accounting
Versus the Balanced Scorecard: A Literature Survey of Experience with the Concepts, PP.
2-62, published in School of Business, University of Stockholm A Project report
90
A Study on the Association between

Movements of CNX NIFTY and Selected
Broad-Based Stock Market Indices of the World
Rajib Bhattacharya*
ABSTRACT
Accurate prediction of stock market indices is one of the most discussed topics in modern
financial literature. Such accurate prediction holds the key to successful pro-active investing.
Researchers and scholars have tested different techniques including artificial neural network,
autocorrelation based approaches, data mining techniques, heteroscedasticity-based methods,
fuzzy logic based methods and different hybrid models to predict stock market index
movements. However, no method could be identified as the best one applicable to all stock
market indices for all time horizon. This study probed into the association of movement of
CNX Nifty and sixteen other prominent broad-based stock market indices across the globe
and also explored whether movement of CNX Nifty can be modeled for prediction over a short
horizon from 1 day to 3 Days on the basis of movement of other stock-market indices. The
results of the study provided positive evidences on both the counts.
Key Words : Association, Stock Market Indices, Linear Multivariate Regression
INTRODUCTION
One of the most important problems in modern finance is finding an efficient way
to summarize and visualize the stock market data to give individuals or institutions
useful predictive information about the market behavior for investment decisions.
The enormous amount of data generated by the stock market has attracted
researchers to explore this problem using different methodologies. Stock markets
have been studied over and over again to extract useful patterns and predict
their movements. There are various available techniques for modeling these
financial time series data for forecasting. Novel techniques for such modeling are
emerging as a result of continuous research in the field by scholars all over the
world. Most investment decisions in capital market and money markets are
influenced heavily by the movements of these national stock market indices. Thus
the need for predictive modeling of these indices is of utmost importance for proactive investment decisions. In this era of financial linkages between national
economies, movements of stock markets are also interrelated. Moreover, such
transmission of effects nowadays is almost spontaneous due to electronic
movement of funds. Hence, the need for predictive modeling of these indices
considering movements of other prominent indices cannot be undermined. This
study envisages an attempt to study the interrelation between movements of CNX
*
Assistant Professor, Army Institute of Management, Kolkata; Email:rajib.conference@gmail.com
91
Nifty and sixteen prominent national broad-based indices and predictive modeling
of CNX Nifty based on the movements of the other indices on three short-term
prediction horizons i.e. next day, next 2nd day and next 3rd day by Linear Multivariate
Regression technique.
LITERATURE SURVEY
Babu (2011), Panahian (2011), Khan (2011), Pissarenco (2002), Krollner (2010),
Kumar (2009), Singh (2009), Kutsurelis (1998), Hajizadeh (2010) and Hajek (2012)
utilized the technique of neural network in modeling financial time series with
satisfactory results. Dablemont & Verleysen (2005), on the basis of their study,
opined that this method can be applied to all types of time series but is particularly
effective when the observations are sparse, irregularly spaced, occur at different
time points for each curve, or when only fragments of the curves are observed.
Kunst (1997), Claessen & Mittnick (2002) found ARCH model to be effective.
Zhuang (2004) found the combination of GARCH model and Hidden Markov Model
effective in modeling financial time series.
Among scholars who found ARMA model effective are Fuh (2003), Thalassinos
and Tolvi (2002) who did a study on OECD countries.
Among scholars who found fuzzy logic models effective in modeling financial time
series are Chu (2009), Souto-Maior (2011), Chen (2011) & Aznarte (2012).
The results revealed that all individual forecasting methods used in the study and
their combinations, performed poorly. The results indicated that although combining
forecasting method produced gains in accuracy for forecasting stock price or stock
market index value, it failed in providing accuracy for forecasting index movement
direction.
OBJECTIVES OF THE STUDY
The study has been done with the following two basic objectives:
l
l
Whether there is any association between movements of major broadbased stock market indices across the globe and CNX Nifty.
Whether Linear Multivariate Regression technique can be effectively used
to predict CNX Nifty over a short prediction period (from 1 day to 3
days) by using movements of prominent broad-based stock market
indices of other countries as predictor variables.
VARIABLES AND DATA

This study has been done on seventeen broad-based prominent stock market
indices of different nations as mentioned below which constituted the principal
variables considered in the study.
92
Regions
Indices
Abbreviations
used in the Dissertation
North America
S&P500
S&P
Europe
CAC40
DAX
FTSE
SMI
CAC
DAX
FTS
SMI
Latin America
Bovespa
Merval Buenos Aires
BOV
MER
Asia-Pacific
CNX NIFTY
HANG SENG
NIKKEI
KOSPI
S&PASX200
NIF
HSG
NIK
KOS
ASX
Russia
RTS
RTS
Middle East
TA-25
MSM30
TAI
MSM
Africa
MASI
MSCI SA EZA
MAS
EZA
Daily opening, high, low and closing values of the selected indices have been
taken for the period from 12 January 2011 to 22 September 2014 i.e. 929 data
points.
METHODOLOGY OF THE STUDY
In the study, Linear Multivariate Regression technique has been used to assess
the association between movements of selected broad-based indices across the
globe and to predict movement of CNX Nifty using the movements of other indices
as predictor variables.
For next-day predictions, the opening, highest, lowest and closing values of all
the indices of the previous day are used as the initial set of predictor variables.
For 2nd next-day predictions, the opening, highest, lowest and closing values of all
the indices of the day immediately preceding the previous day are used as the
initial set of predictor variables.
For 3rd next-day predictions, the opening, highest, lowest and closing values of all
the indices of the day immediately two days before the previous day are used as
the initial set of predictor variables.
93
The regression equation is formulated by considering the data for the period
January 12th 2011 to September 22nd 2014.
The constant term as well as the regression coefficients are tested for their
statistical significance using t test at 5% Level of Significance by framing the
following hypotheses:
H0: The coefficient is statistically insignificant
H1: The coefficient is statistically significant
Only those predictor variables have been considered for formulating the regression
equation, for the coefficients of which, the corresponding Null Hypotheses have
been rejected. The same principle has been used to test the statistical significance
of the constant term to decide whether such constant term should be considered
in the regression equation.
The overall association of the dependent and the predictor variables are assessed
by testing the following hypotheses using F test at 5% Level of Significance.
H0: The association between the dependent & predictor variables is statistically
insignificant
H1: The association between the dependent & predictor variables is statistically
significant
The model is accepted only if the Null Hypotheses is rejected.
Though the Autocorrelation in the model was tested by the Durbin-Watson D
statistic, the Autocorrelation measures have not been considered in forming the
inferences in this study due to the following reasons:
a. The DurbinWatson test is based on the following assumptions:
i. Regressor Variables should be non-stochastic in nature;
ii. Error terms should conform to a Normal Distribution;
iii. The model does not include lagged values of the Regress; and
iv. Only first order serial correlation is taken into account.
The conditions mentioned above have not all been met in the constructed models
in this study.
b. A significant D statistic does not necessarily indicate Autocorrelation (Gujrati et
al 2012). It might be due to omission of relevant variables from the model.
The constructed models in this study have not been tested for problems of
Multicollinearity due to the following reasons:
i. Multicollinearity does not violate any assumption for Regression (Achen);
ii. Even in case of high Multicollinearity, the OLS estimators retain the BLUE
property;
iii. If prediction is the sole purpose of forming Regression Equations, as in
the case of the present study, Multicollinearity is not a serious problem
as a high R2 value indicates a better prediction;
iv. Multicollinearity is basically a data-deficiency problem which becomes
unavoidable in case of secondary data available for empirical analysis,
as in this study.
94
The value of the dependent variable as predicted by the model is compared with
the actual values for the period from April 1st 2013 to June 30th 2013 to calculate
the Mean Absolute Percentage Error (MAPE).
The threshold value of an acceptable MAPE has been kept at 1%.
The robustness of the regression equations have been tested by verifying whether
the error terms in the equations as obtained by comparing the predicted values
with the actual ones, are distributed normally. The tests of normality have been
done by using Kolmogorov-Smirnov, Shapiro-Wilk tests using the following
hypotheses:
H0: The error terms are distributed normally
H1: The error terms are not distributed normally
Any regression equation for which the Null Hypotheses is rejected for two or more
out of three tests, is not considered to be a robust one.
FINDINGS AND ANALYSIS
Prediction Horizon - 1 Day Lag
For predicting the 1 Day Lag Daily Closing Value of the dependent variable i.e.
CNX NIFTY, the independent variables have been taken to be the high, low and
closing values of all the other sixteen indices of the previous day. Thus in total
there were forty eight predictor variables.
The statistical significance of the relation between the dependent variable and
the predictor variables has been assessed by testing the following hypotheses at
5% Level of Significance using F test:
H0: The relation between the dependent variable and the predictor variables is
statistically insignificant
statistically significant
The coefficients of the constant term as well as those of the predictor variables
are assessed for their statistical significance by testing the following hypotheses
at 5% Level of Significance using t test:
Any absolute value of the t statistic greater than 2 indicates that the coefficient is
statistically significant.
The portion of the change in the dependent variable as explained by the predictor
variables is measured by calculating the Adjusted R2.
Autocorrelation between the residuals is tested by calculating the Durbin-Watson
D statistic.
The summary of the model is appended hereinafter:
95
Model Summary b
Model
R Square
Adjusted R
R Square
Std. Error of
the Estimate
Durbin
-Watson
.921 a
.848
.847
289.3284
.132
a. Predictors: (Constant), MSMHG, HSGHG, S&PHG, FTSLW, NIKLW, ASXHG, ASXCL

b. Dependent Variable: NIFCL
ANOVAb
Model
Sum of
Square
df
Mean
Square
1 Regression
4.300E8
6.143E7
Residual
7.701E7
920
83710.923
Total
5.070E8
927
Sig.
.000 a
733.827
a. Predictors : (Constant), MSMHG, HSGHG, S&PHG, FTSLW, NIKLW, ASXHG, ASXCL

The constructed regression model showing the constant term, the coefficients along with
the values and corresponding t statistic as well as their p values are appended below:
Coefficients a
Unstandardized
Model
1 (Constant)
Coefficients
Standardized
Coefficients
Std. Error
Beta
Sig.
-1.623
.105
-389.387
239.956
S&PHG
3.642
.131
1.199
27.856
.000
FTSLW
-.428
.064
-.286
-6.712
.000
HSGHG
.170
.011
.401
14.977
.000
NIKLW
-.108
.013
-.393
-8.068
.000
ASXHG
2.013
.448
1.317
4.491
.000
ASXCL
-2.109
.448
-1.386
-4.704
.000
.185
.036
.147
5.150
.000
MSMHG
a. Dependent Variable: NIFCL

The model has identified seven predictor variables with statistically significant
coefficients. The constant term has been found to be statistically insignificant.
The Null Hypotheses regarding statistical significance in all the cases have been
rejected with corresponding p values less than the value of the Level of
Significance.
The Adjusted R 2 value indicates that 84.70% of the change in the dependent
variable is explained by the changes in the predictor variables.
96
The F statistic warrants rejection of the Null Hypotheses regarding the relation
between the dependent and the predictor variables as evidenced by the
corresponding p value being lower than the Level of Significance.
The Durbin-Watson d statistic indicates a positive autocorrelation among the
residuals, which has been ignored for reasons discussed in the chapter containing
the methodology of the study.
To test the validity of the model, it has been used to predict the values of the
dependent variable i.e. CNX NIFTY closing values at 1 Day Lag for the period
from September 23rd 2014 to November 3rd 2014 i.e over 30 data points.
The predicted values and the actual are plotted in Chart 1.
Chart 1: Actual vis--vis Predicted Values of NIF at 1 Day Lag
Mean Absolute Percentage Error (MAPE) is calculated from the predicted values
and the corresponding actual values. The MAPE comes to 1.85.
The validity of the model is tested by subjecting the error terms i.e. the differences
between the predicted and actual values, to the testing of the following Hypotheses
at 5% Level of Significance, using Kolmogorov-Smirnov and Shapiro-Wilk Tests:
H0: The Errors follow a Normal Distribution
H1: The Errors do not follow a Normal Distribution
The Null Hypotheses was accepted by both Kolmogorov-Smirnov and ShapiroWilk Tests.
Prediction Horizon - 2 Days Lag
For predicting the 2 Days Lag Daily Closing Value of the dependent variable i.e.
closing values of all the other sixteen indices of the day before the previous day.
Thus in total there are forty eight predictor variables.
97
D statistic.
Model Summary b
Model
R Square
Adjusted R
R Square
Std. Error of
the Estimate
Durbin
-Watson
.920 a
.846
.845
291.46681
.091
a. Predictors: (Constant), NIKLW, HSGHG, S&PHG, FTSLW

ANOVAb
Model
Sum of
Square
df
Mean
Square
1 Regression
4.287E8
1.072E8
Residual
7.833E7
922
84952.900
Total
5.070E8
926
Sig.
.000 a
1.262E3

The constructed regression model showing the constant term, the coefficients along with
the values and corresponding t statistic as well as their p values are appended below:
Coefficients a
Unstandardized
Model
Coefficients
Standardized
Coefficients
Std. Error
Beta
Sig.
.400
.689
1 (Constant)
90.273
225.709
S&PHG
3.619
.120
1.189
30.283
.000
FTSLW
-.430
.064
-.287
-6.707
.000
HSGHG
.174
.008
.411
21.693
.000
NIKLW
-.089
.012
-.324
-7.513
.000
98
The model has identified four predictor variables with statistically significant
Significance.
dependent variable i.e. CNX NIFTY closing values at 2 Days Lag for the period
Chart 2 : Actual vis--vis Predicted Values of NIF at 2 Days Lag
The Null Hypotheses was accepted by both Kolmogorov-Smirnov and
Wilk Tests. (Table 105).
Shapiro-
99
Prediction Horizon - 3 Days Lag

For predicting the 3 Days Lag Daily Closing Value of the dependent variable i.e.
closing values of all the other sixteen indices of the third previous day. Thus in
total there were forty eight predictor variables.
D statistic.
Model Summary b
Model
R Square
Adjusted R
R Square
Std. Error of
the Estimate
Durbin
-Watson
.922 a
.851
.850
286.53204
.092

ANOVAb
Model
Sum of
Square
df
Mean
Square
1 Regression
4.314E8
1.078E8
Residual
7.561E7
921
82100.611
Total
5.070E8
925
F
1.314E3
Sig.
.000 a

100
The constructed regression model showing the constant term, the coefficients along
with the values and corresponding t statistic as well as their p values are appended
below:
Coefficients a
Unstandardized
Model
1 (Constant)
Coefficients
Standardized
Coefficients
Std. Error
Beta
Sig.
.672
.502
149.239
221.961
S&PHG
3.689
.118
1.209
31.326
.000
FTSLW
-.469
.063
-.312
-7.418
.000
HSGHG
.177
.008
.418
22.452
.000
NIKLW
-.089
.012
-.324
-7.641
.000
a. Dependent Variable: NIFCL

The model has identified four predictor variables with statistically significant
Significance.
dependent variable i.e. CNX NIFTY closing values at 3 Days Lag for the period
Chart 3 : Actual vis--vis Predicted Values of NIF at 3 Days Lag
101
The Null Hypotheses was accepted by both Kolmogorov-Smirnov and ShapiroWilk Tests.
The CNX NIFTY index for the three predictions horizons of 1 day lag, 2 days lag
and 3 days lag, has been found to be associated with the movements of the S&P
500 index of USA, FTSE 100 index of Europe, Asia-Pacific indices of HSG, NIKKEI
225 and S&P ASX 200 and the Middle-East index of MSM 30. The MAPE showed
a cup shaped trend of 1.85, 1.71 & 2.00 from 1 day lag to 3 days lag indicating
a cap-shaped accuracy as the prediction horizon got increased.
CONCLUSION
However, from the above, it becomes evident that the study has been successful
in accomplishing the objectives of the study.
Firstly, the study has successfully proved the association between movements of
major broad-based stock market indices across the globe and CNX Nifty.
Secondly the study has conclusively proved that Linear Multivariate Regression
technique can be effectively used to predict CNX Nifty over a short prediction
period (from 1 day to 3 days) by using movements of broad-based stock market
indices of other countries as predictor variables.
FURTHER SCOPE OF RESEARCH
The success of Multivariate Linear Regression technique in predicting broad-based
stock market indices on a short prediction horizon opens up the possibility of
further research in the following areas:
I. Extension of the scope of the current study:
a. Extension to other national broad-based indices: This study has
envisaged only seventeen broad-based indices. Further research may
be undertaken to test the validity of this technique to other important
broad-based national stock market indices which have not been
considered in this study e.g. Dow Jones Industrial Average (DJIA) and
NASDAQ of the United States of America, other European Stock market
indices, SENSEX in India, Taiwan Exchange Index, Belgian Stock Market
Index etc.
b. Validity for different time periods: The present study has been based
on data for the period from January 12th 2011 to November 3rd 2014.
The validity of the findings of this study may be tested for periods both
before and after the period considered for the study. An exercise of
particular interest would be to test the validity of the findings of this
102
study in turbulent times e.g. before, during and after the global meltdown
and other crisis e.g. the Greek crisis.
II. Applicability to other financial time series data
a. Applicability to indices other than broad-based indices: The present study
has been carried exclusively on broad-based indices. However other types
of stock market indices i.e. sectoral indices and thematic indices are
gradually gaining importance. The applicability of linear multivariate
regression approach for predicting these indices may be explored.
b. Applicability to commodity prices with special emphasis on precious metals
(particularly gold) and crude oil: The applicability of linear multivariate
regression technique may be tested for prediction of commodity prices,
specially precious metals which are usually associated with high volatility.
The technique may also be tested for prediction of prices of another
commodity associated with high volatility i.e. crude oil.
c. Applicability to particular stock prices: The applicability of linear
multivariate regression technique may be tested for prediction of
individual stock prices also.
d. Applicability to Foreign Exchanges: The applicability of linear multivariate
regression technique may be also be explored for prediction of Foreign
Exchange Rates which are high-frequency time series data and which
usually require prediction over very short periods to periods upto six
months at the maximum.
III.
Possibility of using other Predictor variables for same dependent variables
as in this study as well as other dependent variables
The technique of linear multivariate regression may be tested by including
the following macro-economic variables as predictor variables i.e.
l Interest Rates,
l Inflation rates,
l Commodity Prices,
l Gross Domestic Product (GDP),
l Forex Rates etc.
IV. Applicability to higher and lower frequency data
The present study has been carried out only on data at daily intervals. The
technique used in this study may be tested on data taken at lower
frequencies i.e. to data at weekly, monthly and quarterly intervals. The
technique may also be tested on higher frequency data i.e. hourly data or
tick-by-tick data for relevant variables.
Applicability to longer and shorter prediction Horizons
V.
The present study has envisaged a Prediction Horizon of 1, 2 & 3 days.
Further research may be undertaken for assessing the predictive accuracy
of the technique for longer prediction horizons i.e. more than 3 days. The
technique may also be used for shorter prediction horizons e.g. hourly or
tick-by-tick periods.
103
VI.
Research on causal relationship between predictor and dependent variables

as identified in this study: This study has identified certain predictor indices
to be important for certain other indices. Studies may be done to find out
any causal relationship between the dependent and independent indices.
Such causal relationship would explain the phenomenon of financial contagion
among nations.
REFERENCES
1.
Aznarte, Jos Luis; Alcal-Fdez, Jess; Arauzo-Azofra, Antonio and Bentez; & Jos
Manuel. (2012). Financial time series forecasting with a bio-inspired fuzzy model. Expert
Systems with Applications 39 (2012) 1230212309
2.
Babu, M.Suresh; Geethanjali, Dr. N. and Satyanarayana, Prof B. (2011). Forecasting of

Indian Stock Market Index Using Data Mining & Artificial Neural Network. International
Journal of Advanced Engineering & Application, June 2011 Issue, pp 150-157
3.
Chen, Tai-Liang. (2011). Forecasting the Taiwan Stock Market with a Novel Momentumbased Fuzzy Time-series. Review of Economics & Finance, 1923-7529-2012-01-38-13,
2011
4.
Chu, Hsing-Hui; Chen, Tai-Liang; Cheng, Ching-Hsue and Huang, Chen-Chi. (2009). Fuzzy
dual-factor time-series for stock index forecasting. Expert Systems with Applications 36
(2009) 165171
5.
Claessen, Holger and Mittnik, Stefan. (2002). Forecasting Stock Market Volatility and the
Informational Efficiency of the DAX Index Options Market. Center for Financial Studies, an
der Johann Wolfgang Goethe Universitt, Taunusanlage 6, No. 2002/04,D-60329, Frankfurt
6.
Dablemont, S.; Van Bellegem, S. and Verleysen, M. (2005). Forecasting High and Low
of financial time series by Particle systems and Kalman filters. Universit catholique de
Louvain, Machine Learning Group, DICE
7.
Fuh, Cheng-Der. (2003). Financial Time Series - ARMA and Time Series Modeling. Institute
of Statistical Science, Academia Sinica, Spring 2003
8.
Hajek, Petr. (2012). Forecasting Stock Market Trend using Prototype Generation Classifiers.
WSEAS Transactions On Systems, E-ISSN: 2224-2678, Issue 12, Volume 11, December
2012
9.
Hajizadeh, Ehsan; Ardakani, Hamed Davari and Shahrabi, Jamal. (2010). Application of
data mining techniques in stock markets: A survey. Journal of Economics and International
Finance, Vol. 2(7), pp. 109-118, July 2010
10. Khan, Zabir Haider; Alin, Tasnim Sharmin and Hussain, Md. Akter. (2011). Price Prediction
of Share Market using Artificial Neural Network (ANN). International Journal of Computer
Applications (0975-8887), Volume 22 No.2, May 2011
11. Krollner, Bjoern; Vanstone, Bruce and Finnie, Gavin. (2010). Financial Time Series
Forecasting with Machine Learning Techniques: A Survey. ESANN 2010 proceedings,
European Symposium on Artificial Neural Networks - Computational Intelligence and
Machine Learning. Bruges (Belgium), 28-30 April 2010, ISBN 2-930307-10-2
12. Kumar, Manish. (2009). Nonlinear Prediction Of The Standard & Poors 500 And The Hang
Seng Index Under A Dynamic Increasing Sample. Asian Academy of Management Journal
of Accounting and Finance, Vol. 5, No. 2, 101118, 2009
13. Kunst, Robert M. (1997). Augmented ARCH Models for Financial Time Series: Stability
conditions and empirical evidence. Applied Financial Economics, 1997, 7, 575586
14. Kutsurelis, Jason E. (1998). Forecasting Financial Markets Using Neural Networks: An
104
Analysis Of Methods And Accuracy. Thesis submitted for the degree of Master of Science
in Management. Naval Postgraduate School, Monterey, California, September 1998
15. Panahian, Hossein. (2011). Stock Market Index Forecasting by Neural Networks Models
and Nonlinear Multiple Regression Modeling: Study of Irans Capital Market. American
Journal of Scientific Research ISSN 1450-223X, Issue 18(2011), pp.35-51
16. Pissarenko, Dimitri. (2002). Neural Networks For Financial Time Series Prediction:
Overview Over Recent Research.
17. Singh, Jang Bahadur. (2009). Current Approaches in Neural Network Modeling of Financial
Time Series. Working Paper NO.280, Indian Institute of Management Bangalore, March
2009
18. Souto-Maior, Cesar Duarte; Borba, Jos Alonso and da Costa Jr, Newton C. A. (2011).
S&P 500 Index Direction Forecasting from 1976 to 2010: A Fuzzy System Approach, The
International Journal of Digital Accounting Research, Vol. 11, 2011, pp. 111 - 134, ISSN:
1577-8517
19. Thalassinos, Eleftherios and Pociovliteanu, Diana-Mihaela. (2008). A Time Series Model
For The Romanian Stock Market. Annals of the University. Constantin Brncui of Tg-Jiu,
No. 1/2008, Volume. 1, ISSN: 1842-4856
20. Tolvi, Jussi. (2002). Outliers and Predictability in Monthly Stock Market Index Returns. LTA
4/0 2,pp 369380
21. Zhuang, Xiong-Fei and Chan, Lai-Wan. (2004). Volatility Forecasts in Financial Time Series
with HMM-GARCH Models. IDEAL 2004, LNCS 3177, pp. 807812, 2004
105
106
Empathy - the Core Element of Leadership:

A Study on Empathy Skills of Indian Army
Officers and their Leadership Dynamism
Sasmita Tripathy (Satpathy)*
ABSTRACT
Indian Army is the most cohesive organization of the country with its ever undaunted , versatile
role played in diverse situations -from counter insurgency operation to flood relief, from earth
quake devastation management to managing riot inflicted localities, from UN peace keeping
mission to managing common wealth games. They face bullets in the border and yet carry
out Sadbhavna Mission in border villages to support their less privileged country men where
civilian authority do not exist/could not function. No other Army in the world is engaged in
such a spectrum of missions/activities.
As Indian Army has been showing immaculate performance in its wide area of functioning,
an effort has been made by the researcher to evaluate their Empathy Skills by analyzing
various organizational functioning aspects that is already built in the system by doing a
qualitative study. This qualitative criteria includes code of conducts ( both written and
unwritten),regimentation, training and all the factors pertaining to the grooming like etiquette,
mannerism, dress code, behavior etc and value addition pertaining to other psychological
capital that may have
influenced the process of indoctrination of empathy of the Indian
Army Officers. The intent of this paper is to establish a strong relationship between leadership
dynamism and empathic acumen of Army Officers. To become a leader, empathic attributes
are mandatory. Even empathy can be taught amidst aggression and violence as human beings
are wired for it.
Key Words : Empathy, Indoctrination, Socialization, Perspective Taking
INTRODUCTION
Present world scenario forced social science researchers to focus on identifying
the basic psychological unit of Peace and Violence. The past decade has seen
growing movement towards a view of empathy as a multi-dimensional construct of
PEACE. If empathy is the basic unit peace then to control and eliminate violence
empathy teaching should be given priorities. Empathy teaching should become
cardinal aspect of the curriculum of any institution. Empathic attributes enhance
leadership acumen.
A leader is one, who leads the group because of his decision making skills, problem
solving ability, effective interpersonal relationship, perseverance and high social
skills. The most important aspect of a leader is, he/she always keeps the group
interest ahead his own interest and is sensitive towards others problems. It is
*
Research Scholar, Utkal University, Vani Vihar, Bhubaneswar 751004; Email : sasmit991@gmail.com
107
evident from the history that all charismatic leaders like Mahatma Gandhi, Martin
Luther King Jr, Mother Teresa, Nelson Mandela came in to prominence because
of their humanitarian approach. They are apostle of human cause and dignity.
They all displayed splendid leadership acumen where empathy for fellow human
being was profound. In fact all charismatic leaders exhibited empathic discourse
as their key functional skill.
Homosepeans are designed to be empathetic to fight and sustain survival
impediments of evolution process. Their compassion and solidarity, cohesion, unity,
fellow- feeling are all life -skills and Species Specific Behavior to fight back
extinction process. Without these qualities it would had been difficult for them to
evolve through the tyranny of eon. The presence of oxytocin, mirror neurons,
and research in evolutionary biology all suggest that our brain circuitry has evolved
with empathy as its core element.
The role of empathy in education, human development and leadership has
been the subject of in-depth study in a wide range of fields from sociology,
psychology and, to neuroscience to evolutionary biology, economics and civic
engagement. This research clearly shows that empathy matters, whether youre
talking about leadership, development and the ability to function within a team.
There are numerous evidences in our country where Indian Army showed exemplary
bravery to handle challenging situations. As a lay man we have a stereotyped
notion towards army that is, Army is synonymous of killing, violence, destruction
etc. Although army men and women are trained to be aggressive to handle severity
of wars and violent conflicts but they are the undaunted leaders who sacrifice
their lives and show altruism for the fellow citizens.
Leadership is an important aspect of personality and organizations all around the
globe are highly concerned to understand, develop and explore various parameters
of good leadership. Regardless of the size of the organization, leadership plays a
vital role in building high performance teams. Leaders influence followers to
understand and agree about individual or collective task-completion by investing
collective efforts to accomplish a shared objectives. So the researcher thought to
study their empathic acumen and leadership dynamism. Army training procedure
is strict, rigorous, meticulous, difficult, psychologically and physically pressing. But
army discipline, training, hardship and life-style teaches Officers to be disciplined,
alert, diligent, caring, compassionate, co-operative, tolerant, and accommodative
individuals who can even sacrifice his/her life for others. Their motivation levels
are high and their empathic acumen ought to be more because they go through
a process of indoctrination where empathic acumen get instilled.
The psychologist Edward Titchener (18671927) introduced the term empathy
in 1909 into the English language as the translation of the German term
Einfhlung (or feeling into), a term that by the end of the 19th century was in
German philosophical circles understood as an important category in philosophical
aesthetics.
Salovey and Mayer (1990, p. 194) reported that empathy may be a central
108
characteristic of emotionally intelligent behavior. They define empathy as the

ability to comprehend anothers feelings and to re-experience them within oneself.
Plutchik (1987, p. 43) opined that empathy is not a separate emotion by itself,
but a kind of induction process by which emotions, both positive and negative,
are shared. and which increase the chance of similar behavior in the participants.
In this way empathy serves to bond people together.
Rogers the pioneer of counseling psychology considered empathy to be a central
therapeutic construct and not just a prerequisite for other forms of intervention,
and not any specific technique or way of responding but part of a whole attitude
(Bozarth,1997). In contrast to the psychoanalytic emphasis on empathically grasping
the unconscious structure of experience, for Rogers empathy involved focusing
on the clients present available meaning and experiences.
Rogers offered two definitions of empathy. Earlier (1959), he had written that
empathy was a state and meant to perceive the internal frame of reference of
another with accuracy and with the emotional components and meanings which
pertain there to as if one were the person, but without ever losing the as if
condition. Thus, it means to sense the hurt or the pleasure of another as he
senses it and to perceive the causes thereof as he perceives them, but without
ever losing the recognition that it is as if I were hurt or pleased and so forth. (p.
210-211)Later (1975), he wrote that empathy was a process rather than a state
and that it means entering the private perceptual world of the other and becoming
thoroughly at home in it. It involves being sensitive, moment to moment, to the
changing felt meanings which flow in this other person, to the fear or rage or
tenderness or confusion or whatever, that he/she is experiencing. It means
temporarily living in his/her life, moving about in it delicately without making
judgments, sensing meanings of which he/she is scarcely aware...It includes
communicating your sensing of his/her world as you look with fresh and
unfrightened eyes at elements of which the individual is fearful. It means frequently
checking with him/her as to the accuracy of your sensings, and being guided by
the responses you receive...to be with another in this way means that for the
time being you lay aside the views and values you hold for yourself in order to
enter another world without prejudice... (p. 4).
Rogers (1975, p. 3) notes research evidence that points strongly to the conclusion
that a high degree of empathy in a relationship is possibly the most potent and
certainly one of the most potent factors in bringing about change and learning.
Martin Hoffman gave a very comprehensive view of empathy and its relation to
the moral development of a person, Hoffman views empathy as a biologically
based disposition for altruistic behavior (Hoffman 1981). He envisages empathy
as being due to various processes of arousal allowing us to respond empathically
in light of a variety of distress cues from another person. Hoffman mentions mimicry,
classical conditioning, and direct associationwhere one empathizes because the
others situation reminds one of ones own painful experienceas fast acting
and automatic mechanisms producing an empathic response.
Yukl (1998, p. 99) lists displaying empathy as an important leader behavior for
managing relations. Indeed, empathic abilities may underlie relations-oriented leader
109
behavior, such as showing consideration (Stogdill, 1965), which is a friendly,

supportive, and concerned approach to employees. Current theorizing regarding
emotions and transformational leadership (Bass & Avolio, 1990) suggests that the
ability to understand others emotions enables a leader to empathize and results
in effectiveness (Ashkanasy & Tse, 2000, p. 233).According to Goleman (1998a,
p. 100), empathy is particularly important today as a component of leadership
for at least three reasons: the increasing use of teams, the rapid pace of
globalization, and the growing need to retain talent. It means thoughtfully
considering employees feelingsalong with other factorsin the process of making
intelligent decisions.
Empathy is linked conceptually to effective leadership behavior in organizational
settings (Cooper & Sawaf, 1997; Goleman, 1998b; Yukl, 1998). In their review of
leadership effectiveness, House and Podsakoff (1994) observed that outstanding
leaders differ from less effective leaders in their higher consideration of and
sensitivity to the needs of their followers. In their discussions about leadership,
Cooper and Sawaf (1997, p. 51) emphasize that leadership is a relationship and
emotional relationships are the lifeblood of any business. They maintain that we
like and care about leaders because of the way they make us feel. They cite
studies that showed that the ability to extend empathy was the most prominent
difference between successful and unsuccessful leaders. Cooper and Sawaf (1997,
p. 48) stress the importance of leading with empathy:
Empathy and compassion connect us with others through the shared language of
feelings and experience, one heart to the next, beneath the words, behind the
posturing and gestures. Through feelings of empathy and compassion we help
ourselves learn and grow, and we also enable others to begin to feel safe enough
to talk about what is really going on in their livesto tell their storieswithout
fear of being judged, criticized, or abandoned. It is then that we begin to empathize
with them, and extend compassion and support to them, rather than remaining
distant or unaffected, or sympathizing about them. And, more often than not, such
empathy and compassion are, sooner or later, returned to us in kind.
Dansereau, Yammarino, Markham, and Alutto (1995), in their recent theory of
individualized leadership, argue that support for feelings of self-worth causes one
to be viewed as a leader. These authors suggest that leaders may provide support
for a persons sense of self-worth in exchange for satisfactory performance. Thus,
there is growing evidence that we will respond to others as leaders if they make
us feel understood and valued as individuals through displays of empathy.
Tiedens (2000) describes how emotions convey important information about, and
reinforce perception of, social status within a group. Specifically, her research
indicates that anger is associated with higher status, whereas sadness and guilt
are associated with lower status. Hence, emotions that are shared through empathy
may have an equalizing effect on perceptions of status differences and reduce
relationship barriers.
OBJECTIVE OF THE STUDY
The purpose of this paper is to study the empathy skills of Indian Army Officers
110
by analyzing various code of conduct and activities existing in their organization

and regimentation process for indoctrination of empathy skills.
RESEARCH METHODOLOGY
Sample Design
Indian Army consists of approximately forty thousand officers and ten lakh people
in other various ranks. Sample for the present study was taken from a Crop Head
Quarter where people from different Services and Arms are available.
Qualitative Method is implemented for which in-depth interview as well as field
survey was conducted on Commissioned and Non-commissioned Officers posted
in the Crop Head Quarter. They were detailed by their administrative officer
(Brigadier Administration). The sample is homogeneous as the socio-economicstatus, education, training exposure, age of the Non-commissioned officer are
almost of same level. They share bachelor accommodation and dining facility also.
Officers Socio Economic Standard and educational qualification differs from the
Non-commissioned officers but their field training is almost similar where certain
parameters are common. Officers go through more rigorous training where lots of
strategic, logistic plans are involved.
To realize the objective of the study qualitative research method was followed. By
using different qualitative techniques an insight to the structured organizational
functioning skills of Indian Army can be gained. The methods of qualitative analysis
techniques used were:
i)
Field Interview Technique: Field interview was done by interviewing
Army personnel from the non-commissioned ranks to obtain their opinion
about the organization and attitude of senior officers towards them.
ii) In-Depth Interview : In depth interview was done with senior Army
Officers, both retired and serving to collect authentic information about
the man management skills of Indian Army.
iii) OBSERVATION: Researcher attended a few functions in the army
regiment like regimental raising day, Diwali Mela, Janmastami, Christmas,
family welfare meet and closely observed the functioning of Army unit.
Data Collection
In order to accomplish the objectives of the research study both primary and
secondary data was collected.
Primary Data Collection
Primary data was collected targeting two respondent groups:
A set of field interview schedules was formulated for different categories of Army
personnel from the non-commissioned ranks.
A different Schedule for in- depth interview was also formulated to derive information
from senior officers those who have completed twenty five years of services in
various policy making positions.
The instrument used to capture the primary data contained 15 open-ended
questions (Annexure).
111
Secondary Data Collection

The secondary data was collected from different sources such as journals,
magazines periodicals, conference proceedings, news papers and Armed Forces
Services Journals.
ANALYSIS AND INTERPRETATION OF QUALITATIVE DATA
Qualitative Method was followed using different qualitative techniques to have an
insight to the functioning of the Army and to understand their leadership dynamism.
Field Interview
Researcher interviewed soldiers from various ranks and company (Company i.e a
small unit in a regiment). A soldier goes through a tough and well structured
training programme where he needs to acquire certain physical parameter which
is the essential requirement of the service. During the training period they go
through lots of hardship which are very challenging. Every day they face a new
challenge and they are bound to accomplish the task otherwise they are not
eligible for the next assignment. These are hefty tasks and most of the time very
exhaustive but the psychological support of fellow brothers play a very positive
role which increases the trainees level of intrinsic motivation. With least physical
capabilities they begin their training and complete it by increasing their skills in
many folds. Here the group solidarity plays a vital role. The whole group is
conscious towards each others requirement. They show empathic discourse and
a psychological bonding. In this scenario they put themselves in each others place
and go through a complete cognitive analysis. These feelings are not just simple
emotional contagion but a living through experience that provides one adequate
drive to understand others physical and mental state. They cooperate each other
and display tremendous psychological support which acts as a catalyst. Hatfield,
E. et al.(2009) opined, True empathy requires three distinct skills: the ability to
share the other persons feelings, the cognitive ability to intuit what another person
is feeling, and a socially beneficial intention to respond compassionately to that
persons distress.
Arnold, R. (2003) An ability to understand the thoughts and feelings of self and
others a sophisticated ability involving attunement, decentring and introspection:
an act of thoughtful, heartfelt imagination.
Goleman discoursed about three types of empathy. According to him the first,
type is cognitive empathy. This is about being able to understand how the other
person thinks. This phenomenon is known as Perspective Taking. Perspectivetaking is one of the most important ways for us to overcome our assumptions and
prejudices about others. A large number of psychological studies show how
perspective-taking can be developed to help challenge racial discrimination and
other social stereotypes, by encouraging people to imagine themselves in the
situation of another person, with that persons beliefs and experiences. People
good at it always able to express things in a way that impacts people and reaches
people effectively. According to Goleman the second kind of empathy is emotional
empathy. Goldman said Emotional empathy is about feeling wit. This is an
unconscious ability, it has to do with a brain system called mirror neurons which
112
tune into the person were with and activate in our brain what theyre feeling,
what theyre doing, what theyre intending. So we get a detailed sense of whats
going on with the other person. This is what creates chemistry and you need that
for any interaction. According to Goleman the third kind of empathy is empathic
concern. This refers to the kind of leader who actually cares about you, who
actually tunes into you, who will help you by creating a situation whereby you can
be at your best. So, all three of those are very important for leaders.
In-Depth Interview
In-Depths interviews were taken from senior Army Officers. They all got vast service
experiences with high altitude postings, postings in counter insurgency areas and
attended prestigious courses like Commando, Junior Command, Senior Command,
Defence Services Staff Course, Technical Staff Course etc. These courses are of
high value generation as they train officers on varied cutting edge technologies
pertaining to warfare, counterinsurgencies, man management, logistic supply, missile
operation, tele-communication and cyber war fare.
According to these high profile officials, army follows excellent man management
skills. When officers get in to the academy i.e Indian Military Academy, they are
all imparted various military skills along with empathy, altruism, co-operation,
solidarity all these inter -twined with military training skills.
Commemorating with the Chetwode Hall Inscription in IMA, the ethos of Indian
Army takes shape, where in the oak panelling at the Eastern entrance of the
Hall is the Academys credo, excerpted from the speech of Field Marshal Phillip
Chetwode at the inauguration of the Academy in 1932:
The safety, honour and welfare of your country come first, always and every
time.The honour, welfare and comfort of the men you command come next. Your
own ease, comfort and safety come last, always and every time.
This Credo teaches Altruism to the Gentlemen Cadets. They enter in to the Hall
of Fame with unparallel devotion and dedication. This credo installs respect, care,
commitment and empathy in the minds of officers towards their country men and
men they command.
Man management Skills followed during the Regimentation that intents socialization
skill development, group cohesion, empathy and bonding.
1. When an officer gets commissioned to regiment as per the provision he
is attached to the jawans barrack for a month so that he understands
the actual ground reality of his men he is going to command.
2. Proper documentation is done in company level where the details of Jawans
are given.
3. A junior commissioned officer every day takes grievances in detail and
takes immediate action.
4. An empathic behavior module got incorporated in the system to enrich
bonding and fellow feeling and comradeship.
5. BADA KHANA where all officers and jawans share a meal together.
6. Mandir Parade- Every one get assembled at Sarv Dharm Sthal
113
disregarding caste, creed and religion for spiritual pursuit. This is a

socialization process where human beings converted to social beings.
7. Games and sports are played together disregarding rank.
8. Officers help other personnel if they face any problem with the civil
authority.
Observation
Regimental raising days gives clear picture of the spirit of a regiment where
even retired people participate with full josh and vanity. They come from different
parts of the country, to be a part of the regimental raising days function because
they associate their identity with the regiment they belong to.
Other various functions celebrated in cantonments creates bonding, cohesion,
trust and atmosphere of empathy and understanding amongst army personnel.
OBSERVATIONS AND FINDINGS
From the above study it is observed that army is a very well structured organization.
Army is busy in man power development through training, various skill development
programmes, guidance, sports and plethora of other activities. These programmes
are related to growth and development. Indian army at large could develop its
humanitarian aspect also because of a very well structured core curriculum and
laid out code of conduct, stringent socialization principle.
LIMITATIONS
As Army needs to keep its confidentiality and a highly disciplined organization it is
not easy over there to carry any kind of survey and information collection. People
are not free to interact and give their views openly. So it is difficult to carry out
any research work as the scope is limited.
CONCLUSION
Army as an organization displays strong discipline and leadership. Value
indoctrination is a socialization process and that keeps on shaping human
personality all along the life span. Army as an organization shapes individuals
and refine their various skills and attributes. The ethics of Army reflects trust,
altruism, discipline, dynamism, enthusiasm and vigour. As Army is synonymous
with war, violent conflict, destruction and killing sometimes it seems out of context
to associate it with empathy, kindness and care. But Indian Armed Forces proved
time and again that they are empathetic and can show height of altruism during
disaster management. They are not super human beings but any situational
exigency they work day in and out without caring for their own comfort to bring
solace to their fellow human being. This is empathy. Indian Army has crafted a
culture of compassion, care and empathy for its country men. They are the
leaders who exhibit bravery ,courage and empathy.
SCOPE OF RESEARCH
The scope of this study is restricted a subjective assessment of empathetic skill
only and has not been extended to other related psychological traits. No
comparative study or association of other attributes to empathy has been carried
out.
114
REFERENCES
1. Ashkanasy, N. M., & Tse, B. (2000). Transformational leadership as management of emotion: a
conceptual review. In N. M. Ashkanasy, C. E. J. Hartel, & W. J. Zerbe (Eds.), Emotions in the workplace:
research, theory and practice ( pp. 221235). Westport, CT: Quorum Books.
2. Cooper, R. K., & Sawaf, A. (1997). Executive EQ: emotional intelligence in leadership and organizations.
NewYork: Grosset/Putman
3. Goleman, D. (1995). Emotional intelligence. New York: Bantam Books.
4. Goleman, D. (1998a, NovemberDecember). What makes a leader? Harvard Business Review, 93102.
5. Goleman, D. (1998b). Working with emotional intelligence. New York: Bantam Books.
6. House, R. J., & Aditya, R. N. (1997). The social scientific study of leadership: quo vadis? Journal of
Management,23(3), 409473.
7. House, R. J., & Podsakoff, P. M. (1994). Leadership effectiveness: past perspectives and future
directions for research. In J. Greenberg (Ed.), Organizational behavior: the state of the science (pp.
4582).
8. Plutchik, R. (1987). Evolutionary bases of empathy. In N. Eisenberg, & J. Strayer (Eds.), Empathy and
its development ( pp. 3846). New York: Cambridge Univ. Press.
9. Rogers, C. R. (1951). Client-centered therapy. Boston: Houghton Mifflin.
10. Rogers, C. R. (1975). Empathic: an unappreciated way of being. The Counseling Psychologist, 5(2),
210.
11. Ross, L. (1977). The intuitive psychologist and his shortcomings: distortions in the attribution process.
In L. Berkowitz (Ed.), Advances in experimental social psychology, vol. 10 (pp. 173220). San Diego:
Academic Press.
12. Salovey, P., & Mayer, J. D. (1990). Emotional intelligence. Imagination, Cognition and Personality, 9(3),
185211.
13. Stogdill, R. M. (1948). Personal factors associated with leadership: a survey of the literature. Journal
of Psychology,25, 3571.
14. Stogdill, R. M. (1965). Managers, employees, organizations: a study of 27 organizations. Columbus, OH:
Bureau of Business Research, Ohio State University.
15. Stogdill, R. M. (1974). Handbook of leadership (1st ed.). New York: Free Press.
16. Yukl, G. (1998). Leadership in organizations (4th ed.). Upper Saddle River, NJ: Prentice Hall.
17. Yukl, G. (2001). Leadership in organizations (5th ed.). Upper Saddle River, NJ: Prentice-Hall.
ANNEXURE
Research Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
What is best about Army ?

What do you do during any disagreement?
How do you feel during an emotional situation?
What did you learn from Army?
How Army has influenced your life?
How do you manage distress moment and crisis?
Do you care for others disagreement?
How regiment handle emergency situation?
If you lost some one during a mission how do you help his family?
Physical stress is quite a bit in the Army. How do you motivate your troops to stay fit?
Many suicide incidences are occurring in the Army . what are the steps taken by the army
to prevent it?
How do you handle emergency?
What is that factor that prompts you to help others even if you put yourself in danger?
What is your view about human rights?
Do you get upset when others are in distress?
115
116
STUDENT CONTRIBUTION
Technology as a Service Enhancer for Banks

Vineeta Verma*
ABSTRACT
In the present market scenario virtual banking is gaining ground and banks are offering
financial products and services through electronic delivery channels. This study helps in
understanding the factors that affect the usage of e-banking services. An effort has been put
also to understand the factors that affect the customers perception regarding the enhancement
of service quality of banks through e-banking services. The study uses structured questionnaire.
Chi Square test is being employed to study the significant association between the
demographic profiles and the frequency of usage of e-banking services and also the customers
perception regarding the efficiency of e-banking services.
Keywords : E-banking Services, Virtual Banking, Customer Perception, Chi-Square, Service
Quality
INTRODUCTION
The project deals with the Enhancement of Service Quality by Bank of India
through Technology. A study was conducted at Bank of India, Dobson lane branch,
Howrah to understand the customer perception about e-banking services and its
efficiency. For the project the technology studied was only the one used at
customer interface that is e-banking facilities. Thus, a description of Service
Quality and e-banking services as Service Quality enhancer is being provided
in this section in order to make it easier to understand the project.
Service Quality
Service quality is a business administration term used to describe achievement in
service. It reflects both objective and subjective aspects of service (Dr.Manasa
Nagabhushanam).
Quality is a concept which requires concern both in product as well as in services.
To market a product, quality plays a pivotal role to sell a product. In fact, quality
is considered as the most important factor that influence on the buying behaviour
of the customer.
One strategy that has been related to success of service industries is the delivery
of high service quality. Therefore that makes service quality an important aspect
of study for the service industries.
As customer becomes sophisticated it becomes essential to consider the use of
technology to respond to their continuous needs. Banking is an industry highly
involved with customers. Customers in developing economies seem to keep the
technological factorsof services as the yardstick in differentiating good and bad
services.
*
Student, Army Institute of Management Kolkata; Email : vineetabio@yahoo.com
119
Technology in the form of e banking plays a significant role in providing better

services at lower cost. Several innovative IT based services such as Automatic
teller Machine (ATM), Internet banking, Mobile banking, RTGS/NEFT have provided
convenient services to the customer
Importance of Service Quality in Banks
Increased competition, highly educated consumers, and increase in standard of
living are forcing many businesses to review their customer service strategy. Many
business firms are channeling more efforts to retain existing customers rather
than to acquire new ones since the cost of acquiring new customer is greater
than cost of retaining existing customers.
There is enough evidence that demonstrates the strategic benefits of quality in
contributing to market share and return on investment. Maximizing customer
satisfaction and service efficiency through quality customer service has been
described as the ultimate weapon by Davidow and Vital (1989).
According to them, in all industries, when competitors are roughly matched, those
with stress on customers service will win. In view of the above mentioned facts,
an analysis of service efficiency perceptions from customers point of view may
be sound and interesting at this juncture. Such an analysis would help banks to
understand that which factors help in usage of e-banking services by the customer
and hence affects their perception regarding the service efficiency. The positive
perception regarding the service efficiency in turn results in higher service quality.
Electronic Banking and Service Quality
As customers become more sophisticated, therefore, it becomes essential to
consider the use of technology to respond to their continuous needs. Banking is
an industry highly involved with the customers. Customers in developing economies
seems to keep the technological factors of services as the yardstick in
differentiating good & bad services and the human factor the employees seem
to play a lesser role in discriminating the quality of service for banks. The variations
in services offered by the banks develop excellence for service quality. Banking
is no longer regarded as business dealing with money transaction alone, but it
also seem as a business related to information on financial transaction. Customers
at the corporate level or at retail level have always been important for the banks.
As electronic banking is becoming more prevalent, level of customer satisfaction
is also changing the scenario of technological environment.
Informational technology in the form of e-banking plays a significant role in
providing better services at lower cost. Several innovative IT based services such
as Automated Teller Machine (ATM), Internet banking, Smart Cards, Credit Cards,
Mobile banking, Phone banking, Anywhere-Anytime banking have provided number
of convenient services to the customer.
So as the service quality improves, then service efficiency also increases the
probability of customer satisfaction increases. Increase satisfaction in turn increases
the mutual understanding, customer retention and a bond of trust between
customers and banks. The banks which are providing these services on a wider
120
scale to customers are more reputed in the eyes of customers. But at the same
time technology based product is different in public and private sector banks.
Bank automation and electronic banking is fast in private sector comparative to
public sector.
E-banking is an improvement over traditional banking system because it has
reduced the cost of transaction processing, improved the payment efficiency,
financial services and also has improved the banker-customer relationship. The
relationship between e-banking and service quality can be studied with the level
of satisfaction. E-banking plays a pivotal role in giving satisfaction to the customers
because e-banking fills the gap between the expected and perceived service
quality. So in order to fill this gap, banks should find ways of making electronic
services more accessible and by allowing the customer to verify the accuracy of
the e-banking transactions.
There are number of reasons due to which service efficiency on account of ebanking has improved. The reasons are as follows:
1. Customer can withdraw funds, transfer funds anytime, anywhere they
want.
2. Accessibility has been extended through technological development as
it allows customers to do business from their home and office.
3. It makes the banking activities and transaction very simpler to understand
4. There is no requirement of direct control with bank, as services can be
operated wherever customer want
E-Banking
A sound and effective banking system is the backbone of an economy. The
economy of a country can function smoothly and without many hassles if the
banking system backing it is not only flexible but also capable of meeting the new
challenges posed by the technology and other external as well as internal factors.
The importance and role of information technology for achieving this benign objective
cannot be undermined. There is an urgent need for not only technology up
gradation but also its integration with the general way of functioning of banks to
give them an edge in respect of services provided to the customers, better
housekeeping, optimizing the use of funds and building up of management
information system for decision making. The technology has the potential to change
methods of marketing, advertising, designing, pricing and distributing financial
products and services and cost savings in the form of an electronic, self-service
product-delivery channel. The technology holds the key to the future success of
Indian Banks. Thus, Electronic Banking is the need of the hour, which cannot
be lost sight of except at the cost of elimination from the competition. The existence
of Electronic banking also becomes inevitable due to the standards required to
be matched at the international level. Thus, the domestic as well as the
international standards mandates the adoption of Electronic banking at the earliest
possible moment.
In India, from the early I990s, electronic banking is gaining in popularity as an
121
important distribution channel to provide banking services. This direction is being

taken by the batiks to differentiate their services to the consumers to gain their
loyalty. The strategies adopted by the Indian banks to survive the increased
competition are the focus of this study.
Technology is enabling banks to provide the convenience of anytime-anywherebanking. Banks are now reengineering the way in which their services can be
reached to their customers by bringing in flexibility in their distribution channels.
The earlier brick-and-mortar branch is no longer sufficient; technology is now taking
banks to the homes or offices, 24 hours a day, 365 days a year through ATMs,
phone banking and PC banking. The financial supply chain is undergoing a
fundamental strategic change.
Technology used in e-banking
l
Automated Teller Machines: The Automated Teller Machines are installed,
now-a-days, at every nook and corner in most of the towns & cities. These
are meant for balance enquiries, cash withdrawals and many other facilities
depending upon the policies of the bank. This requires a valid Customer Id
and password to log in and is therefore safe to be used. Despite of using
ATM cards, Debit cards can also be used in the ATMs.
l
The Electronic Fund Transfer (EFT): This facility offers you to make
payments to account holders of other banks in an efficient and fast manner.
As against the physical clearing, where the cheques are cleared on
presentment of the physical instrument at the clearing house, in EFT the
transactions are settled electronically. EFT also provides you with an
opportunity to move your collections to an electronic platform, whereby you
can instruct your Dealers to pay through EFT, thus reducing the time for
realization of funds. At present the electronic fund transfer facility is available
in two modes and you can avail either of the following modes to transfer
your funds:
1. National Electronic Fund Transfer (NEFT): This is the faster mode of
fund transfer in which the funds are credited to the beneficiarys account
on the same day. It is offered by computerized branches of certain banks.
2. EFT: This is the normal electronic fund transfer facility offered by the
banks. It is similar to NEFT in all respects with the exception of the
transaction cycle time an EFT transaction takes a minimum of 3 working
days to be credited to the beneficiarys account whereas in NEFT, the
amount is credited on the same day of the transaction. The end to end
transaction can be done through our Corporate Electronic banking
wherein the request can be submitted online, either as a single
transaction or through a file uploads. The key features that are common
to both EFT and NEFT are:
EFT/NEFT clearing is conducted by Reserve Bank of India (RBI) and it takes
place thrice a day during Monday to Friday and twice on Saturdays.
The payment instruction can be given through the Corporate Electronic banking.
122
Alternatively the instructions can also be sent to the designated branches.

Presently offered at more than 125 locations, which covers all the major cities of
the country.
l
Real Time Gross Settlement (RTGS): Can be defined as the continuous
(real-time) settlement of funds transfers individually on an order by order
basis (without netting). Real Time means the processing of instructions at
the time they are received rather than at some later time; Gross Settlement
means the settlement of funds transfer instructions occurs individually (on
an instruction by instruction basis). Considering that the funds settlement
takes place in the books of the Reserve Bank of India, the payments are
final and irrevocable.
l
Internet banking: means any user with a personal computer and a browser
can get connected to his bank -s website to perform any of the virtual banking
functions. In internet banking system the bank has a centralized database
that is web-enabled. All the services that the bank has permitted on the
internet are displayed in menu. Any service can be selected and further
interaction is dictated by the nature of service.
l
Mobile banking: is a term used to refer to systems that allow customers of
a financial institution to conduct a number of financial transactions through a
mobile device such as a mobile phone or tablet.
l
E-Pay service: is being brought to you by Bank of India in association with
BillDesk, an electronic payment and collection service bureau. This service
is part of Bank of Indias various initiatives to leverage technology for offering
convenient services to its account holders. Using the BOI STAR ePay service,
you can view and pay your various bills from the comfort of your home or
home and you can experience complete freedom from queues and latepayments.
Easy accessibility all you need is a device (computer, kiosk) connected
to the Internet and you can receive all your bills, review them and make
your payments.
Easy to use a few clicks and you can make all your payments.
Complete control you can decide when to pay, how much to pay and
also set up when you would like to be reminded or informed of all your
payments.
Secure you perform all you operations in a secure environment.
LITERATURE REVIEW
In the study (Fozia, 2013) the customer perception has been determined towards
e-banking services. The study analysed the overall perception of customers
regarding the services of e-banking. Age and occupation are the important
demographic factors in the banks which have used to measure the perception of
the customers on e-banking services. The study also states that different age
group and different occupation have different usage level. Internet banking is
becoming popular because of convenience and flexibility. The e-banking is leading
123
to a paradigm shift in marketing practices resulting in high performance in the

banking industry. The study examines the relation between the demographic
variable and respondents perception about internet banking and the difference
in the perception of user and non-user of the facility. (Divya Singhal, 2008).
Informational technology in the form of e-banking plays a significant role in
providing better services at lower cost. Anytime-Anywhere banking have provided
number of convenient services to the customer. As the service quality improves,
the probability of customer satisfaction increases. This increases the mutual
understanding, customer retention and a bond of trust between customers and
bank. The study explores the perception of customers in respect to the services
provided by the banks. It encompasses customer service quality of all three types
of banks- private, public and foreign banks of four cities of India each located at
various regions in India. The study covers respondents both of customers of bank
and bankers. The study concludes that banking sector today has a compelling
demand for improvement, to survive the substantial competition in todays scenario
(Nagabhushanam).
In the service industry the service quality is very important. The growth and
development of the enterprise majorly depends on the service quality. The
behavioral outcome of the customers is also interrelated with service quality. The
study understands the various customer perceptions about the service quality
factors like Assurance, Empathy, Reliability, Responsiveness and Tangibility in the
banking industry and the satisfaction level towards the banks. It also analyses
the impact of these service quality factors on the satisfaction level based on the
demographic factors. The study concludes that there is close bond between the
service quality factors and the customer satisfaction level. It was also found that
varying demographic factors affect the customer satisfaction (Dr. S. Fatima, 2011)
.The e-banking services are more adapted by the younger generation. The study
understands the various demographic profiles that affect the usage of the e-banking
services. The study finds that the higher of education and income leads to more
adoption of internet banking.Technological innovations have transformed most
industrial sectors. In present day banking, total automation of banking operations
is an imperative need for all banks to attract more customers, provide efficient
and quality services and survive in the emerging new competition. The study
determines the IT services used by customers and assess the benefit of IT service
to the customers. The study has demonstrated that technology plays critical role
in banking service delivery. The primary intention of integrating technology is to
effectively and efficiently serve their customers better. For banks to remain
competitive in delivering quality services to customers, there is considerable need
to be innovative by adopting and diffusing various IT innovations (Kwabena ObiriYeboah, 2013).In this era of stiff competition, public, private and foreign sector
banks in India have realized the importance of achieving high levels of customer
satisfaction by providing service quality of world class. This study determines
perception of e-banking consumers of e-banking services of all the three types
of bank in India and also understands the difference in service quality on the
basis of nature of banks. The study finds that improvement in service quality
124
would induce higher customer loyalty. It also highlights that there is significant
difference in e-banking facilities of public, private and foreign banks (Navneet
Kaur, 2015).
OBJECTIVES
1.
To study the demographic profile of the respondents with respect to:

Occupation
l Educational qualification
l Gender
l Age
l
2.
To study the association of the attitude of the respondents regarding

enhancement of service efficiency through technology by banks from the
following behavioural aspects:
l Frequency of usage of ATM
l Frequency of engaging in internet banking
l Frequency of engaging in mobile banking
l Frequency of using RTGS/NEFT
l Frequency of using e pay
3.
To identify factors contributing to positive perception about enhancement of

service quality of banks through technology
4.
To suggest measures to bank for enhancing their service efficiency by use

of technology
SCOPE OF STUDY
The study encompasses the respondents only of Dobson Lane Branch, HowrahBank of India only. The study deals only with the perception of the customers
regarding the enhancement of service efficiency using e-banking services. The
questionnaire also covers the demographic profile of the respondents.
RESEARCH METHODOLOGY
To conduct the survey a questionnaire was prepared to get all the relevant
information from the customers of the bank. The questionnaire prepared is a
structured one and has only closed ended questions. The questionnaire was so
prepared to get information regarding
l the demographic profile of the sample
l the type of e banking services used by the customers
l the perception of the customers regarding the service efficiency of various
e banking services and also the overall experience of the e-banking
facilities provided by the bank
The survey is to be conducted from the customers of the Dobson lane branch
only. The survey conducted would be an undisguised survey.
125
The sample size to be covered for the study is 90. Sampling involves following steps:
l Firstly equal number (30) of respondents from each income group i.e.
high, middle and low were to be obtained
l For high income group customer database of bank is to be used.
l For middle and low income group customer combination of judgemental
and convenience sampling is to be used.
Research method was quasi descriptive research. The problem was well defined
and the study aimed at discovering the composition of the sample and
understanding the characteristics of the sample and reasons for such
characteristics.
Chi Square test to be performed using SPSS tool to find the association between:
l The demographic profile and the frequency of customers visiting the
bank.
l The frequency of usage of various e banking service and perception of
the customers regarding the service efficiency of that e banking service.
l The demographic profile and the overall experience about the service
efficiency of the e banking facilities provided by the bank
Before applying the test, hypothesis needs to be framed to check the validity of
the tests result. The hypotheses framed are as follows:
Null hypothesis H0: There is no association between the two attributes.
Alternate hypothesis H1: There is association between the two attributes
The level of significance taken is 5% for the tests. The p value is 0.05, which
means if the chi square test value comes below 0.05 then null hypothesis would
be rejected and alternate hypothesis would be accepted. If the chi square test
value comes more than p value then null hypothesis is accepted.
All the options of each question have been coded and the detail of the codes
has been listed down in the annexure.
Data Collection
During my internship I collected the data from both the primary as well as
secondary sources. It involved collection of primary data through structured
questionnaire and secondary data gathered through internet.
Primary Source primary source included data gathered through structured
questionnaire.
l For the high income group customers: the database from the bank
was provided, so to collect responses from them calling was done
according to convenience and the response was recorded.
l For the middle and low income group customers: the data was
collected by visiting the branch of the bank and there through personal
one to one communication the responses were noted. A combination of
judgemental and convenience sampling was adopted.
Secondary Source secondary source include various websites. The database
126
from the branch of the bank was also used for the collection of responses from
the high income group customers.
A sample questionnaire has been provided at the end of the report, in the annexure
for the sake of better comprehension.
Data Representation
INCOME PROFILE
The pie chart reflects the break-up of the income profile of the data. The sample
was chosen intentionally so as to have equal proportion of all the income groups.
l 33.33% of the customers are high income group.
l 33.33% of them belong to middle income group.
l 33.34% are from low income group.
OCCUPATION PROFILE
The pie chart reflects the break-up of occupation of the data. It can be observed that:
l 35% of the customers are servicemen / women.
l The business men/ womenform the 32% of the customers.
l The rest 33% are divided as follows: 13% of housewives, 11% belongs
to retired ones and the rest 9% are the students.
127
EDUCATIONAL PROFILE
The pie chart reflects the break-up of the educational qualification of the data. It
can be observed from the chart that:
l The maximum i.e. 37% of the customers are graduates.
l The next 20% are 12th pass, then it is followed by 18% of them who are
10th pass.
l The customers below 10th standard comprises of 15% of the total.
l Postgraduate forms just the 7% of the total customers.
l The rest 3% are the ones who never went to school.
GENDER PROFILE
The pie chart reflects the break-up of the gender of the data. It can be observed
from the chart that:
l 69% of the customers are male and
l The rest 31% are female.
128
AGE PROFILE
The pie chart shows the break-up of the age profile of the data. It can be observed
from the chart that:
l 54% belongs to the age group 25yrs-45yrs.
l The next 26% belong to the age group 45yrs to 60yrs.
l The age group above 60yrs forms 11% of the customers.
l The least are below 25yrs who form just 9% of the customers.
USAGE OF E BANKING SERVICES

The pie chart shows the break-up of the usage of e banking service by the
customers. It can be observed from the chart that:
l The most used e banking service is ATM; it is used by 36 % of the
customers.
l
Out of total customers 19% uses RTGS/NEFT service.
l Mobile banking and Internet banking are used by 8% and 9% of the
total customer.
l Very few that are 4% of them use E-Pay.
l 24% of them use None of these e banking services.
129
DATA ANALYSIS
Table 1 :
Q2: Income group of the respondent
Q8: Frequency of visiting the banks
Q8
A
Total
B
Q2
H
16
14
0
0
30
L
6
14
10
0
30
M
15
13
1
1
30
Total
37
41
11
1
90
From the above table it can be inferred that the frequency of low income group
visiting the bank is more than the middle and high income group. Approximately
54% of the high income group .
Customers visit the bank once or twice and none of them visit more than 5 times
in a month. Out of 11 customers, 10 are from the low income group that visit the
bank more than 5 times in a month.
Null hypothesis H0: There is no association between the income group of the
respondents and the frequency of respondents visiting the bank
Alternative hypothesis H1: There is association between the income group of
the respondents and the frequency of respondents visiting the bank
Chi-Square Tests
PearsonChi-Square
Value
Df
Asymp. Sig. (2-sided)
23.513
.001
The p value comes to 0.001 which is less than the set value of alpha at 0.05.
Hence, we reject the null hypothesis and infer that there is a statistically significant
association between income group and frequency of visiting the bank.
As it is statistically also proven that there is relation between the income group
and frequency of visiting the bank. So the low income group should be targeted
by the bank to make them aware of the e banking services and its utilities.
Table 2 :
Q3: Occupation of the respondents
Q8: Frequency of visiting the bank
Q8
Total
A
B
C
D
Q3
H
R
SR
ST
Total
130
B
6
5
15
6
37
5
6
4
14
1
41
16
0
1
2
0
11
8
0
0
0
1
1
0
12
10
31
8
90
29
From the above table it can be observed that out of 37 customers that visit the
bank just once or twice in a month majority that is 41% of them belong to service
class and the least 14% belong to retired class. 11 customers visit the bank 5 to
10 times out of that 72% belong to business class. Out of 8 student customers, 6
visit the bank just once or twice. Therefore this indicates that service class and
student do not visit the bank frequently. The business class visits the most
frequently. Majority of the retired and housewives visit 2 to 5 times.2Null
Hypothesis H0: no association between the occupation of the respondent and
the frequency of respondent visiting t There is he bankAlternate Hypothesis
H 1: There is association between the occupation of the respondent and the
frequency of respondent visiting the bank.Chi-Square Tests
Pearson ChiSquare
Value
Df
28.885
12
.004
Hence, we reject the null hypothesis and infer that there is a statistically
significant association between occupation of the respondent and their
frequency of visiting the bank.So, it can be inferred that the business class
need to be targeted and make them aware of the e -banking facilities.
Table 3 :
Q4: Educational qualification of the respondents
Q4
G
N
PG
TN
TW
Total
BT
16
3
6
4
5
37
Q8
A
Total
B
3
15
0
0
7
11
41
8
1
0
0
5
2
11
3
1
0
0
0
0
1
0
33
3
6
16
18
90
14
From the above table it can be observed that 100% of the post graduate qualified
customers visit the bank just once or twice in a month. Approximately 48% of
graduate qualified customers visit the bank once or twice,45% of graduated visit
the bank 3 to 5 times in a month and the rest 6% more than 5 times. Most of the
customers around 46% visit the bank 3 to 5 times in a month and few approximately
12% visit 5 to 10 times. Out of these 12 % that visit 5 to 10 times, 45 % are
class ten pass. This reflects that as the educational qualification increases the
customers visit the bank lesser times as they try to use e banking facilities.
Null Hypothesis H0: There is no association between the educational qualification
of the respondent and the frequency of the respondent visiting the bank
131
Alternative Hypothesis H 1: There is no association between the educational

qualification of the respondent and the frequency of the respondent visiting the
bank
Chi-Square Tests
Pearson Chi-Square
Value
Df
27.454
15
.025
significant association between educational qualification of the respondent
and their frequency of visiting the bank.So it is proved statistically also that
frequency of visiting the bank is related to educational qualification.
Table 4:
Q5: Gender of the respondents
Q5
M
Total
F
20
37
Q8
A
Total
B
17
30
41
11
11
11
0
1
1
0
62
90
28
From the above table it can be observed 61% of the female customers visit the
bank just once or twice in a month and the rest 39% visit 3 to 5 times. None of
them visit the bank more than 5 times in a month. But 32% of the male customers
visit just once or twice, 49% of them visit 3 to 5 times and approximately 12 %
visit more than 5 times in a month. This shows that male customers visit the bank
more often than the counterpart.
Null Hypothesis H 0 : There is no association between the gender of the
respondent and the frequency of the respondent visiting the bank
Alternate Hypothesis H 1: There is association between the gender of the
respondent and the frequency of the respondent visiting the bank
Chi-Square Tests
Pearson Chi-Square
Value
Df
9.569
.023
association between gender of the respondent and their frequency of visiting the
bank
132
So it is statistically also proven that there is a relation between the gender of the
customer and their frequency of visiting the bank. From the table we can say that
bank needs to target male customers to use e banking facilities more as they are
the ones who come to bank more often. But on the other hand the bank should
also try and convince the female customers by making them aware that e banking
facilities can be used from home.
Table 5 :
Q6: Age of the respondents
Q8: Frequency of visiting the bank.
Q6
B
C
D
Total
A
19
7
5
37
Q8
A
Total
B
6
23
13
4
41
1
7
3
1
11
0
0
0
0
1
1
49
23
10
90
From the above table it can be observed that 75% of customers belonging to
age group below 25yrs visit the bank just once or twice. Approximately 47% of
the customers belonging to age group 25yrs to 45yrs visit the bank 3 to 5 times
in a month, 15% visit the bank more than 5 times, and the rest 39% visit just
once or twice in a month.57% of the customers belonging to age group 45yrs to
60yrs visit the bank 3 to 5 times in a month, around 13% visit the bank more
than 5 to 10 times and the rest 30% visit just once or twice. Approximately 50%
of the customers belonging to age group above 60yrs visit the bank just once or
twice in a month, and the rest visit more than 5 times in a month. This shows that
the customers belonging to age group 25yrs to 45yrs are more frequent to banks
than others. The customers of age below 25yrs visit the bank least.
Null Hypothesis H0: There is no association between the age of the respondent
and the frequency of the respondent visiting the bank.
Alternate Hypothesis H1:There is association between the age of the respondent
and the frequency of the respondent visiting the bank.
Chi-Square Tests
Pearson Chi-Square
Value
Df
17.196
.046
significant association between age of the respondent and their frequency
of visiting the bank. So it is statistically also proven that there is an association
between the age group and frequency of visiting the bank.
133
Table 6 :
Q10a: Frequency of usage of ATM by the respondents
Q10c: Perception of the respondents regarding the service efficiency of ATM
Q10a
B
C
D
Total
A
4
17
4
24
Q10c
AG
DS
NO
SA
SD
Total
0
0
0
0
5
5
0
0
0
31
31
4
14
10
28
0
1
0
0
1
0
9
31
14
90
36
From the table it can be observed that the customers whose frequency of usage
of ATM is zero, out of them around 87% do not have any opinion regarding
ATMs service efficiency. The ones who use ATM just once or twice among them
around 45% agrees and also 45% strongly agrees that service efficiency of bank
increases due to ATM. 72% of the customers who visit the bank more than 10
times strongly agrees. Hence as the frequency of usage of ATM increases the
opinion also changes from no opinion to strongly agree.
Null Hypothesis H0: There is no association between the frequency of usage of
ATM by respondents and their perception regarding the service efficiency of ATM.
Alternate Hypothesis H 1: There is no association between the frequency of
usage of ATM by respondents and their perception regarding the service efficiency
of ATM.
Chi-Square Tests
Pearson Chi-Square
Value
df
111.991
15
.000
significant association between frequency of usage of ATM and their
perception regarding the service efficiency of ATM. As it is statistically also
proven therefore the bank should try and convince their customers that they use
the ATM facility more and hence that would ultimately add to the service efficiency
of bank.
Table 7:
Q11a: Frequency of usage of internet banking by the respondents
Q11b: Perception of the respondents regarding service efficiency of internet
banking.
134
Q11B
Q11A
B
C
Total
A
5
5
10
AG
0
1
0
78
Total
NO
77
0
2
2
SA
0
6
7
90
77
From the table it can be inferred that out of 90 customers 77 are not using this
service therefore they have no opinion about its service efficiency. But around 13
customers use it and out of them 77% agree and 15% strongly agrees that service
efficiency increases due to internet banking. Just 7% of them have no opinion.
This shows that higher the usage of this facility higher the positive perception
about its service efficiency.
internet banking by the respondents and their perception regarding the service
efficiency of the internet banking.
Alternate Hypothesis H 1: There is no association between the frequency of
usage of internet banking by the respondents and their perception regarding the
service efficiency of the internet banking.
Chi-Square Tests
Pearson Chi-Square
Value
Df
94.396
.000
significant association between frequency of usage of internet banking
and their perception regarding the service efficiency of internet
banking.So it is also statistically proved that there is a relation in frequency of
usage of internet banking and the perception of customers regarding its service
efficiency. The more the usage the more the perception that service efficiency
increases using internet banking.
Table 8 :
Q12a: Frequency of usage of mobile banking by the respondents
Q12b: Perception of the respondents regarding the service efficiency of mobile
banking.
Q12b
Q12a
Total
A
B
D
9
AG
0
9
0
78
Total
NO
76
2
0
3
SA
0
2
1
90
76
13
1
135
From the table it can be observed that approximately 84% of the customers do
not use mobile banking service. But the customers who are using it majority (86%)
of them agrees or strongly agrees that service efficiency increases by using mobile
banking. The rest 14% of them have no opinion. This shows that if the facility is
not used then they have no opinion regarding its service efficiency. Therefore it
can be said that if mobile banking is used it will increase the service efficiency of
the bank.
mobile banking by the respondents and their perception regarding the service
efficiency of mobile banking.
Alternate Hypothesis H1:There is association between the frequency of usage
of mobile banking by the respondents and their perception regarding the service
efficiency of mobile banking.
Chi-Square Tests
Pearson Chi-Square
Value
Df
99.586
.000
significant association between frequency of usage of mobile banking by
the respondent and their perception regarding the service efficiency of
mobile banking.It is statistically also proven from the above test that there is
association between the frequency of usage and perception of customers regarding
its service efficiency.
Table 9:
Q13a: Frequency of usage of RTGS/NEFT by the respondents
Q13b: Perception of the respondents regarding the service efficiency of RTGS/
NEFT.
Q13b
Q13a
Total
A
B
C
D
25
AG
0
22
3
0
63
Total
NO
62
1
0
0
2
SA
0
1
0
1
90
62
24
3
1
not use RTGS/NEFT facility so they have no opinion regarding its service
efficiency. But approximately 96% of the customers who are using the facility agree
that the service efficiency increases by using RTGS / NEFT service. As the
136
frequency of usage of this service increases the perception regarding its service
efficiency also increases. The customers who use it more than 5 times all of them
agree that service efficiency increases by using RTGS/NEFT.
Null Hypothesis:There is no association between the frequency of usage of RTGS/
NEFT by the respondents and their perception regarding the service efficiency of
RTGS/NEFT.
Alternate Hypothesis: There is no association between the frequency of usage
of RTGS/NEFT by the respondents and their perception regarding the service
efficiency of RTGS/NEFT.
Chi-Square Tests
Pearson Chi-Square
Value
Df
128.906
.000
association between frequency of usage of RTGS/NEFT and their perception
regarding the service efficiency of RTGS/NEFT.
Table 10 :
Q14a: Frequencies of usage of e-pay service by the respondents
Q14b: Perception of the respondents regarding the service efficiency of e-pay
service
Q14a
Total
A
B
5
Q14b
AG
0
5
85
Total
NO
84
1
90
84
6
not use e pay service facility. But 83% of the customer who uses it agrees that
the service efficiency increases by using this facility. Therefore it can be said that
if e-pay service is used then it would increase the service efficiency of banks.
Null Hypothesis H0:There is no association between the frequency of usage of
e pay service by the respondents and their perception regarding the service
efficiency of e pay service.
Alternate Hypothesis H1:There is association between the frequency of usage
of e pay service by the respondents and their perception regarding the service
efficiency of e pay service.
Chi-Square Tests
Pearson Chi-Square
Value
Df
74.118
.000
137
significant association between frequency of usage of e pay service by
the respondents and their perception regarding the service efficiency of
e pay service.As we can see from the above test it is proved that frequency of
usage of e pay service affects the perception of customer regarding the service
efficiency of e pay.
Table 11 :
Q2: Income group of the respondents
Q10c: Perception of the respondents regarding the service efficiency of ATM.
Q2
L
M
Total
H
0
12
24
Q10C
AG
Total
DS
NO
SA
SD
12
4
1
5
0
26
2
31
3
0
14
29
15
0
1
1
0
30
30
90
30
From the above table it can be observed that 90% of the customers belonging to
high income group strongly agree that service efficiency increases through ATM.
Approximately 87% of the middle income group customers also agree that service
efficiency increases through ATM.
But the 87% of the low income group customers have no opinion regarding the
service efficiency of ATM facility. This reflects that income group is associated
with the usage of ATM service. Higher the income greater the usage of ATM
service due to availability of resources and awareness among them. When the
usage is high that helps the customer to understand its service efficiency. Therefore
the customers who are not using it will have no say regarding its service efficiency.
Null Hypothesis H0: There is no association between the income group of the
respondents and their perception regarding the service efficiency of ATM.
Alternate Hypothesis H1: There is association between the income group of the
respondents and their perception regarding the service efficiency of ATM.
Chi-Square Tests
Pearson Chi-Square
Value
Df
69.429
.000
significant association between income group of the respondents and their
perception regarding the service efficiency of ATM.From the above test
138
performed it is proved that the income group affects the perception of the
customers.
Table 12 :
Q3: Occupation of the respondents
Q3
H
R
SR
ST
Total
B
3
2
8
1
24
Q10C
AG
Total
DS
NO
SA
SD
10
2
0
1
0
5
2
7
7
6
0
31
11
0
1
15
7
29
6
0
0
1
0
1
0
12
10
31
8
90
29
From the above table it can be observed that 38% of the business holding
customers has no opinion, but approximately 55% think that ATM increases the
service efficiency of the bank. The customers who are service occupied majority
of them that is 74% think that service efficiency increases due to ATM. Only 19%
of service class have no opinion and the rest 7% disagree with the fact that
service efficiency increases due to ATM. 100% of the student customer strongly
agrees that service efficiency increases by using ATM. 70% of the customers who
are retired have no opinion regarding the service efficiency and the rest 30%
agrees that service efficiency increases due to ATM. Approximately 58% of the
housewives have no opinion , 25% of them agrees that service efficiency increases
and the rest 16% disagrees with the fact that service efficiency increases due to
ATM.
Null Hypothesis H 0: There is no association between the occupation of the
respondents and their perception regarding the service efficiency of the ATM.
Alternate Hypothesis H1: There is association between the occupation of the
respondents and their perception regarding the service efficiency of the ATM.
Chi-Square Tests
Pearson Chi-Square
Value
Df
34.683
16
.004
significant association between occupation of the respondents and their
perception regarding the service efficiency of ATM.As it is statistically also
proven that occupation of customers affect their perception regarding service
efficiency.
139
Table 13:
Q4: Educational qualification of the respondents
Q10c: Perception of the respondents regarding the service efficiency of ATM
Q10C
Q4
G
N
PG
TN
TW
Total
BT
15
0
0
4
5
24
Total
AG
DS
NO
SA
SD
0
1
0
0
3
0
5
1
1
3
0
7
7
31
13
15
0
6
2
6
29
0
1
0
0
0
0
1
0
33
3
6
16
18
90
14
From the table it can be observed that customers having education below tenth,
93% of them have no opinion regarding the service efficiency of the ATM service
this indicates they are not aware of the facility and they dont use it also. The
customers having education till tenth, just 37% of them agrees that ATM increases
the service efficiency, this indicates that due to lack of proper knowledge of the
usage of ATM facility they are not able to properly use it. For the graduates and
postgraduates, 91% and 100% respectively agrees that service efficiency increases
with the ATM facility. This is because due to their proper knowledge about its
utility they use it efficiently.
of the respondent and their perception regarding the service efficiency of ATM.
Alternate Hypothesis H 1 : There is association between the educational
qualification of the respondent and their perception regarding the service efficiency
of ATM.
Chi-Square Tests
Pearson Chi-Square
Value
Df
66.611
20
.000
association educational qualification of the respondents and their perception
regarding the service efficiency of ATM.
Table 14 :
140
Q10C
Q5
M
Total
F
17
24
Total
AG
DS
NO
SA
SD
7
3
5
2
23
31
8
18
29
11
1
1
0
62
90
28
From the above table it can be observed that approximately 64% of female
customer and 55% of the male customer agrees that ATM increases the service
efficiency of the bank. 28% of female customer and approximately 32% of the
customer have no opinion regarding the service efficiency of ATM.
7% of female customer and 6% of female customer disagrees with the fact that
ATM usage increases the service efficiency of the bank.
Hence it can be said that gender does not have much effect on the perception
regarding the service efficiency of the bank.
Null Hypothesis H0:There is no association between the educational qualification
Alternate Hypothesis H1:There is association between the educational qualification
Chi Square Test
Pearson Chi-Square
Value
Df
1.715
.788
The p value comes to 0.788 which is more than the set value of alpha at 0.05.
Hence, we accept the null hypothesis and infer that there is a statistically
no significant association between gender of the respondents and their
perception regarding the service efficiency of ATM.It is statistically also
proven from the above test that there is no relation in between gender profile of
the customers and their perception regarding the service efficiency of ATM.
Therefore the bank should take generalise step towards promoting he ATM facility
in regard to gender.
Table 15 :
Q10C
Q6
B
C
D
Total
A
14
7
2
24
Total
AG
DS
NO
SA
SD
1
3
2
0
5
0
14
10
7
31
0
18
3
1
29
7
0
1
0
1
0
49
23
10
90
141
From the above table it can be observed that 100% of the customers who belong
to age group below 25yrs strongly agree that usage of ATM increases the service
efficiency of bank. Approximately 64% of the customers belonging to age group
25yrs to 45yrs agree that service efficiency increases due to ATM, 29% have no
opinion and the rest 7% disagree with the fact that service efficiency increases
by using ATM. 43% of the customers belonging to age group 45yrs to 60yrs
agrees that service efficiency increases, 8% disagrees and the rest 43% have no
opinion. For the customers above 60yrs only 30% agrees that service efficiency
increases the rest 70% have no opinion.
Therefore it is observed that the age increases the perception regarding the
service efficiency due to ATM also changes.
Null Hypothesis: There is no association between the age of the respondents
and their perception regarding the service efficiency of ATM.
Alternate Hypothesis: There is association between the age of the respondents
and their perception regarding the service efficiency of ATM.
Chi-Square Tests
Pearson Chi-Square
Value
Df
24.823
12
.016
association between age of the respondents and their perception regarding the
service efficiency of ATM.
Table 16 :
Q2: Income group of the respondent
Q15: Overall experience of the respondents about the service efficiency of the ebanking facilities.
Q15
Total
GD
NU
Q2
H
21
9
30
L
0
30
30
M
22
8
30
Total
43
47
90
From the above table it can be observed that 100% of the low income group
customers have neutral opinion regarding the overall experience of e banking
facilities because they dont use it an therefore cannot comment on its service
efficiency. Approximately 73% of the middle income group customers find the
overall experience to be good and the rest have neutral opinion. For the high
income group customers 70% of them find the overall experience good. Hence
for both the middle and high income group the perception regarding the e banking
facilities provided by the bank is same, but for the low income group it is far
different.
142
Null Hypothesis H0: There is no association between the income group

respondent and their overall experience about the service efficiency of
banking facilities provided by the bank.
Alternate Hypothesis H1: There is association between the income group
respondent and their overall experience about the service efficiency of
banking facilities provided by the bank.
Chi-Square Tests
Value
Df
of the
the eof the
the e-
Pearson Chi-Square
41.237
2
.000
Hence, we accept the null hypothesis and infer that there is statistically
significant association between the income of the respondents and their
overall experience about the service efficiency of e banking facilities.
Table 17 :
Q3: Occupation of the respondent
Q15: Overall experience of about the service efficiency of the e-banking facilities.
Q15
Total
GD
NU
Q3
B
12
17
29
H
2
10
12
R
1
9
10
SR
21
10
31
ST
7
1
8
Total
43
47
90
From the above table it can be observed that almost 59% of the business class
customers find the overall experience of e-banking facilities to be neutral and the
rest 41% find it good. But for the service class around 68% of them find it good.
88% of the customers who are student find the overall experience about the service
efficiency of the e-banking facilities to be good. Only 16% of the housewives and
10% of the retired customers find the overall experience to be good.
Null Hypothesis: There is no association between the occupation of the
respondent and their overall experience about the service efficiency of the ebanking facilities provided by the bank.
Alternate Hypothesis: There is association between the occupation of the
Chi-Square Tests
Pearson Chi-Square
Value
Df
20.862
.000
143
Hence, we reject the null hypothesis and infer that there is statistically
significant association between the occupation of the respondents and
their overall experience about the service efficiency of the e-banking
facilities.
Table 18 :
Q4: Educational qualification of the respondent
Q15:Overall experience of the respondents about the service efficiency of the ebanking facilities.
Q4
Total
BT
G
N
PG
TN
TW
Q15
GD
0
23
0
6
3
11
43
Total
NU
14
10
3
0
13
7
47
14
33
3
6
16
18
90
From the above table it can be observed that 100% of the customers who are
below class ten qualified and never went to school have neutral opinion about
the overall experience of the service efficiency of the e banking facilities.
Approximately 19% of the customers who are 10 th qualified find the overall
experience to be good and the rest 81% have neutral opinion. 61% of the
customers who are 12th qualified find the overall experience to be good and the
rest 39% have neutral opinion. The customers who are graduate, 70% out of
them find the overall experience about the service efficiency of the e banking
facilities to be good and the rest 30% find it neutral. 100% of the post graduate
customers find the overall experience to be good.
of the respondent and their overall experience about the service efficiency of ebanking facilities
Alternate Hypothesis H 1: There is association between the educational
qualification of the respondent and their overall experience about the service
efficiency of e-banking facilities.
Chi-Square Tests
Pearson Chi-Square
Value
Df
35.152
.000
The p value comes to 0.000 which is less than the value of alpha at 0.05.Hence,
we reject the null hypothesis and infer that there is statistically significant association
between the educational qualification of the respondents and their overall
experience about the service efficiency of the e-banking facilities.
144
Table 19 :
Q15
Total
GD
NU
Q5
F
15
13
28
M
28
34
62
Total
43
47
90
From the above table it can be observed that 53% of the female customer finds
the overall experience good and the rest 47% finds it neutral. Approximately 45%
of the male customer finds the overall experience good and the rest 55% find it
neutral.
So we see that there is not much difference in the perception of male and female
customers. Hence the gender profile does not affect the perception of the customer
regarding the overall experience about the service efficiency of e banking facilities.
Null Hypothesis H 0 : There is no association between the gender of the
Alternate Hypothesis H 1: There is association between the gender of the
respondent and their overall experience about the service efficiency of the ebanking facilities provided by the bank
Chi square test
Value
Df
Pearson Chi-Square
.547
1
.460
Hence, we accept the null hypothesis and infer that there is statistically no
significant association between the gender of the respondents and their overall
experience regarding the service efficiency of the e banking facilities.
Table 20 :
Q15
Total
GD
NU
Q6
A
7
1
8
B
28
21
49
C
7
16
23
D
1
9
10
Total
43
47
90
145
From the above table it can be observed that 88% of the customers who belong
to age below 25yrs find the overall experience to be good. Approximately 57% of
the customers who belong to age 25yrs to 45yrs find the overall experience of to
be good and the rest 43% have neutral opinion. 30% of the customer of age
group 45yrs to 60yrs thinks that the overall experience is good and the rest 70%
have neutral opinion. Only 10% of the age group above 60yrs find the overall
experience good and the rest 90% finds it neutral. So we see that as the age
increases perception regarding the overall experience about the service efficiency
of e banking facilities moves from good to neutral.
Null Hypothesis H0: There is no association between the age of the respondent
and their overall experience about the service efficiency of the e-banking facilities
provided by the bank.
Alternate Hypothesis H1: There is association between the age of the respondent
and their overall experience about the service efficiency of the e-banking facilities
provided by the bank.
Chi-Square Tests
Pearson Chi-Square
Value
Df
15.274
.002
Hence, we reject the null hypothesis and infer that there is statistically significant
association between the age of the respondents and their overall experience about
the service efficiency of the e banking facilities.
FINDINGS AND CONCLUSION
The major findings from the study are as follows:
The demographic profile of the customers of Dobson lane branch, Bank of India
comprises majority of them 69% as males, the occupation of majority of them is
business and service, the age group 25yrs to 45yrs forms 54% of the customer,
the educational qualification of majority of them is graduation and 3% have never
went to school.
The maximum used e-banking service is ATM, followed by RTGS/NEFT and the
least used is e-pay service. The mobile banking and internet banking is also
used by very low percentage of the customers. It was found out that around 24%
of the customers do not use any of thee-banking service.
It was found that both the frequency of usage of various e-banking services and
the demographic profile affects the perception of the customers regarding the
contribution of e banking facilities towards the enhancement of service quality of
bank.
The frequency of usage of the e banking service directly associates with the
perception of the customer. It was observed that as the frequency of usage of
ATM increases, the perception also changes accordingly. The customer who do
not use it they have no opinion, who uses 2-5 times they agree that service
efficiency increases and the one who uses more than 5 times strongly agrees
146
with the fact that service efficiency of bank increases with the usage of ATM.
Likewise similar pattern was found out with all the other facilities that is internet
banking, mobile banking, RTGS/NEFT and e pay. So it can be concluded that as
the frequency of usage of e-banking services increases, the attitude of customers
also becomes more positive towards the fact that usage of e-banking services
increases the service efficiency and the service quality of the bank.
After the analysis it was found that certain demographic profile like income group,
occupation, educational qualification and age has strong association with the
perception of customers regarding the enhancement of service efficiency through
e banking services.
High income group and middle income group customers have positive perception
about the e-banking services and they agree that it increases the service efficiency
and quality of the bank. Whereas the low income group customers have no opinion
as they do not use the facility.
The customers who are students and those who belong to service class,they
have the most positive attitude towards the perception that e-banking services
increases the service efficiency of the bank.
The educational qualification also has strong association with the perception of
the customers. It was observed that as the educational qualification increases the
perception of the customers that service efficiency of bank increases due to usage
of e banking facilities also becomes more positive. The entire post graduate
customer strongly agrees with the above fact.
The age profile also affects the perception of the customers regarding the usage
of e-banking services to increase the service efficiency of the bank. As the age
increases the opinion of the customer changes from positive to neutral. The
customers belonging to age group below 25yrs are the majority of them who
have positive perception.
The gender do not have much effect on the perception of customers regarding
the fact that service efficiency of bank is increased by using e banking service.
Hence it can be concluded from the data collected and analysis that the frequency
of usage of various e-banking services and the different demographic profile are
the factors that contribute to positive perception about enhancement of service
quality of banks through technology that is e banking facilities.
CONSTRAINTS & LIMITATIONS
l As whole of my project and my findings are based on the information
gathered through the questionnaire, hence there might be a possibility
that some informations are not fully correct.
l There is a chance of biasness in the survey as it is part of human
nature.
l The time period allotted for the study was only of 8 weeks, which may
provide a deceptive picture in comparison of the study based on long
run.
147
l
l
The sample size considered for the survey does not give a holistic
picture.
The respondents chosen were on the basis of judgemental and
convenience sampling, hence once again does not give us a complete
picture of the status of the bank.
The study was limited to just the branch which was allotted to me.
RECOMMENDATIONS
Based on the findings from the study conducted at Dobson Lane Branch, HowrahBank of India, I would like to give the following recommendations:
l First of all the bank should increase the awareness of their e-banking
facilities among the customers and potential customers. They should
conduct awareness programs and promote through different media
channels.
l The bank should train their staffs because that is very important to build
relationship with their customers and help them in using the e banking
facilities.
l The online portal that provides the e-banking services need up gradation
and needs to be more users friendly.
l Penetration of E-banking corners needs to be improved.
l There should be personal assistance available at e-banking corners.
REFERENCES
1.
Fatima, S., & Edwin, M. (2011, October). Impact of Service Quality in Commercial Banks
on the Customers Satisfaction: An Empirical Study.
2.
Fozia. (2013, September). A Comparative Study of CustomerPerception toward E-Banking

Services Provided by Selected Private and Public Sector Bank in India. International Jornal
of Scientific and Research Publications, 3(9).
3.
http://en.wikipedia.org/wiki/Bank_of_India. (n.d.). Retrieved july 27, 2015, from

www.wikipedia.org.
4.
http://essaytank.blogspot.in/p/e-banking-in-india.html. (n.d.). Retrieved july 26, 2015, from

www.google.com.
5.
http://www.bankofindia.co.in/english/history3.aspx. (n.d.). Retrieved july 14, 2015, from http:/

/www.bankofindia.co.in/english/home.aspx.
6.
http://www.ukessays.com/dissertation/examples/information-systems/the-convenience-of-ebanking.php. (n.d.).
7.
http://www.ukessays.com/essays/marketing/service-delivery-in-the-banking-sectormarketing-essay.php. (n.d.). Retrieved july 26, 2015
8.
Kaur, N., & Kiran, R. (2015). E-Banking Service Quality and Customer Quality: Changing
Dynamics of Public, Private and Foreign Bank Consumers in India. Global Business and
Management Research: An International Journal, VII(1).
9.
Lovelock, C., & Writz, J. (7th Edition). Services Marketing: People, Technology, Strategy.
Pearson Education.
10. Nagabhushanam, M. (n.d.). http://www.iibf.org.in/documents/reseach-report/Report-26.pdf.

Retrieved july 27, 2015, from www.iibf.org.in.
148
11. Nagabhushanam, M. (n.d.). A Study on Customer Service Quality of Banks in India.

12. Obiri-Yeboah, K., & Kyere-Djan, R. (2013, June). The Role of Information Technologyon
Banking Service Delivery: APerspective from Customers in Ghana. International Journal
of Innovative Research in Management, VI(2).
13. Padachi, Rojid, & Seetanah. (2007). Analyzing theFactors that influence the adoption of
internet banking in Mauritius.
14. Singhal, D., & Padhmanabhan, V. (2008, December). A Study on Customer Perception
towards Internet Banking:Identifying Major Contributing Factors. The Journal of Nepalese
Business Studies, V.
15. Zeithalm, V., Bitner, M. J., & Gremler, D. (6th Edition). Services Marketing: Integrating
Customer Focus Across the Firm. Mc Graw Hill.
149
ANNEXURE 1
QUESTIONNAIRE FOR SURVEY

Please tick the correct option
1)
NAME:-
2)
CATEGORY:HIGH INCOME GRP

MIDDLE INCOME GRP
OCCUPATION:STUDENT
SERVICEMAN
RETIRED
HOUSEWIFE
EDUCATIONAL QUALIFICATION:POST GRADUATE
GRADUATE
10TH PASS
BELOW 10TH
GENDER:MALE
FEMALE
AGE:BELOW 25YRS
25YRS TO 45YRS
3)
4)
5)
6)
LOW INCOME GRP.

BUSINESSMAN
OTHER
12TH PASS
NEVER WENSCHOOL
45YRS TO 60YRS
ABOVE 60YRS
7)
WHAT KIND OF ACCOUNT DO YOU MAINTAIN WITH THIS BANK?

CURRENT ACCOUNT
SAVINGS ACCOUNT
FIXED DEPOSIT
RECURRING DEPOSIT
8)
HOW MANY TIMES DO YOU VISIT THE BANK IN A MONTH?

1-2 TIMES
3-5 TIMES
5-10 TIMES
9)
MORE THAN 10 TIMES

WHICH OF THE FOLLOWING e-BANKING SERVICES ARE USED BY YOU?
ATM
INTERNET BANKING
MOBILE BANKING
10)
RTGS/NEFT
e-PAY
a) HOW OFTEN DO YOU USE ATM IN A MONTH?
NEVER
1-2 TIMES
NONE
3-5 TIMES
MORE THAN 5 TIMES

b)
WHICH SERVICES DO YOU AVAIL OF AT ATMs? (Please rank the facilities by putting
one number from 1 to 5 against each facility. 1 means the facility used most by you
and 5 means the facility least used by you)
CASH WITHDRAWAL
BALANCE ENQUIRY
CHEQUE BOOK REQUEST
c)
OTHERS
SERVICE EFFICIENCY OF THE BANK IS INCREASED THROUGH ATMs.
STRONGLY DISAGREE
DISAGREE
NO OPINION
AGREE
150
STRONGLY AGREE
11)
a)
HOW OFTEN DO YOU USE INTERNET BANKING IN A MONTH?

NEVER
1-2 TIMES
3-5 TIMES
MORE THAN 5 TIMES

b)
12)
a)
SERVICE EFFICIENCY OF THE BANK IS INCREASED THROUGH INTERNET

BANKING.
STRONGLY DISAGREE
DISAGREE
AGREE
STRONGLY AGREE
NO OPINION
HOW OFTEN DO YOU USE MOBILE BANKING IN A MONTH?

NEVER
1-2 TIMES
3-5 TIMES
MORE THAN 5 TIMES

b)
13)
a)
SERVICE EFFICIENCY OF THE BANK IS INCREASED THROUGH MOBILE BANKING.

STRONGLY DISAGREE
DISAGREE
AGREE
STRONGLY AGREE
NO OPINION
HOW OFTEN DO YOU USE RTGS/NEFT IN A MONTH?

NEVER
1-2 TIMES
3-5 TIMES
MORE THAN 5 TIMES

b)
14)
a)
SERVICE EFFICIENCY OF THE BANK IS INCREASED THROUGH RTGS/NEFT.

STRONGLY DISAGREE
DISAGREE
AGREE
STRONGLY AGREE
NO OPINION
HOW OFTEN DO YOU USE e-PAY SERVICE IN A MONTH?

NEVER
1-2 TIMES
3-5 TIMES
MORE THAN 5 TIMES

b)
15)
SERVICE EFFICIENCY OF THE BANK IS INCREASED THROUGH e-PAY SERVICE.

STRONGLY DISAGREE
DISAGREE
AGREE
STRONGLY AGREE
NO OPINION
HOW IS YOUR OVERALL EXPERIENCE ABOUT THE EFFICIENCY OF THE e-BANKING

FACILITIES PROVIDED BY BANK?
VERY BAD
BAD
GOOD
VERY GOOD
NEUTRAL
151
ANNEXURE 2
CODE SHEET
Q2
Q3
Q4
HIGH
MIDDLE
INT. BANKING
LOW
MOB. BANKING
Q6
Q7
Q8
152
ATM
Q12B STR. DISAGREE
DISAGREE
NO OPINION
RTGS/NEFT
AGREE
E-PAY
STR. AGREE
NONE
ST
1-2
1-2
BUSINESS
3-5
3-5
RETIRED
>5
>5
OTHERS
OT
POST GRAD
PG
GRADUATION
Q10B
CASH WTHD.
CW
Q13A NEVER
AG
SA
SR
HW
DS
NO
SERVICE
HOUSEWIFE
Q10A NEVER
SD
STUDENT
Q13B STR. DISAGREE
SD
BAL. ENQ.
BE
DISAGREE
DS
TW
CHQ BK. REQ.
CB
NO OPINION
NO
TENTH
TN
OTHERS
OT
AGREE
AG
BELOW TEN
BT
STR. AGREE
SA
TWELFTH
Q5
Q9
NEVER
MALE
FEMALE
Q10C
Q11A
STR. DISAGREE
SD
DISAGREE
DS
Q14A NEVER
1-2
NO OPINION
NO
3-5
AGREE
AG
>5
STR. AGREE
SA
BELOW 25
NEVER
25-45
1-2
DISAGREE
DS
45-60
3-5
NO OPINION
NO
ABOVE 60
>5
AGREE
AG
STR. AGREE
SA
CA
STR. DISAGREE
SD
VERY BAD
VB
SAVINGS
SA
DISAGREE
DS
BAD
BD
FIXED
FA
NO OPINION
NO
NEUTRAL
NU
RECURRING
RD
AGREE
AG
GOOD
GD
STR. AGREE
SA
VERY GOOD
VG
1-2
A
B
Q12A NEVER
1-2
Q15
SD
CURRENT
3-5
Q11B
Q14B STR. DISAGREE
A
B
5-10
3-5
>10
>5
BOOK REVIEW
Concepts in Strategic Management and Business Policy

- toward global sustainability
Thomas L Wheelen & J David Hunger
Published by: Pearson
13th edition (2013)
About the authors
THOMAS L. WHEELEN, DBA (George Washington University), MBA
(Babson College) and BS cum laude (Boston College), has taught as
Visiting Professor at Trinity College of the University of Dublin, University
of South Florida as Professor of Strategic Management, the McIntire
School of Commerce of the University of Virginia as the Ralph A. Beeton
Professor of Free Enterprise, and Visiting Professor at both the University
of Arizona and North-eastern university. He has authored more than
eight books and over 40 articles in reputed journals.
J. DAVID HUNGER, PhD (Ohio State University), is currently Strategic
Management Scholar in Residence at Saint Johns University in Minnesota.
He is also Professor Emeritus at Iowa State University where he taught
for 23 years. He has been active as a consultant and trainer to business
corporations as well as to state and federal government agencies. He has
written numerous articles and cases.
This comprehensive text provides an engaging look into new and traditional strategic
management topics. Hunger and Wheelens thorough coverage of topics helps
students develop an understanding of the wide range of theories and research
available in this field, from competitive strategy and industry analysis to environmental
trends and ethics. Integration of international issues throughout provides an essential
understanding of global economics and its impact on business activities in any
location. This edition includes a new theme, environmental sustainability dealing
with issues of climate change, global warming, energy crisis etc. Each chapter
contains a boxed insert dealing with an issue in environmental sustainability. Each
chapter ends with Eco Bits, interesting tit-bits of ecological information, such as the
number of plastic bags added to landfills each year.
This book contains a Strategic Management Model that runs through the first 11
chapters and is made operational through the Strategic Audit, a complete case
analysis methodology. The concepts are furtjer clarified through 35 Cases included
in this book, 22 of which are exclusive and do not appear in other books. Special
chapters deal with strategic issues in managing technology and innovation,
entrepreneurial ventures and small businesses, and not-for-profit organizations.
155
This edition is divided into seven parts, the first four focusing on Introduction to
Strategic Management and Business Policy, Scanning the Environment, Strategy
Formulation, Strategy Implementation and Control respectively. A separate part of
WEB CHAPTERS dedicated to Strategic Issues in Managing Technology & Innovation,
Entrepreneurial Ventures & Small Businesses and Not-For-Profit Organizations make
this text a unique one. An experiential exercise focusing on the material covered
in each chapter helps the reader to apply strategic concepts to an actual situation.
Reviewed by:
Dr Malini Majumdar
Associate Professor
Army Institute of Management
Alipore, Kolkata
Email: malini_majumdar@hotmail.com
156
MOVIE REVIEW
I DONT KNOW HOW SHE DOES IT!!

Initial release: September 15, 2011 (Belarus)
Director: Douglas McGrath
Screenplay: Aline Brosh McKenna
Story by: Allison Pearson
Producer: Donna Gigliotti
Cast :
Sarah Jessica Parker as Kate Reddy
Pierce Brosnan as Jack Abelhammer
Christina Hendricks as Allison Henderson
Greg Kinnear as Richard Reddy
Olivia Munn as Momo Hahn
Jane Sellman The phrase working mother is redundant.
Isnt this the truth?
Moms work be it a woman donning cotton dress at home or a power suit in the
corporate.
Getting straight to the point we all know it exists somewhere or the other. The
human resource team resents the candidate at the mere mention of the term
working mother. This type of discrimination has a name: maternal wall bias. It
takes the form of comments like Dont you feel bad leaving your kids at home?
Dont you miss them? For a long time employees have felt free to make remarks
like these without fear of consequences. These kind of remarks begin to create a
guilt in the minds of working mothers, who toss their dreams and aspirations of
climbing the success ladder in a professional setting for baking the perfect chocolate
chip cookies and attending soccer practices.
Based on the woes of a working woman, Douglas McGraths, I Dont Know How She
Does It is an adaptation of Allison Pearsons novel, A Story of Kate Reddy, played
by Sarah Jessica Parker who is a present day woman, handling work and home
simultaneously. A 2011 release, it strikes a chord with every harried working mother
who finds herself multi- tasking between the kids school, the nanny, the stressful
work life and the husband.
Kate Reddy is the protagonist, balancing her undying love and devotion for her
family with her dream of making it big in the financial sector. Her husband Richard,
played by Greg Kinnear, is a struggling architect who is left alone to bring the
children up as Kate climbs the stairs to success. Wound up in her to-do lists and
157
her to and fro flights between Boston and New York, Kate does not have the time
for her daughters bake sale or her husbands problems, leading to turn her life
into living hell. Her sons first words are Bye, Mom which highlights her lack of
maternal skills and makes her an easy target for her mother-in-law and her other
nemeses. Being exceptionally good and innovative at her job, Kate bears the
wrath of several of her competitors and tries to carve a niche for herself despite
all the treachery. Parallel to the household chores is her tasking job in a finance
firm under Jack Abelhammer (Pierce Brosnan) who keeps Kate on her toes.
Abelhammer is a suave, calm and chivalrous head of the finance company who
warms to Kates chaos and frenzy. Impressed by her persistence and dedication,
Abelhammer gradually develops a soft corner for Kate which makes matters worse.
Richard is exhausted with Kates affair with her Blackberry and the kids are tired
of seeing their mother off all the time.
In all this juggling, one would expect Kate to give up and be a stay-at-home mom
but much to the viewers surprise, Kate decides to take things in her stride and
continues to balance both her lives. Even though every triumph is offset by an
embarrassment: she is caught adjusting her skirt, develops lice right before a
business meeting or carries a bag full of pretzels, Kate does not cease her fight.
With the support of her husband and her best friend Allison (Christina Hendricks),
Kate manages to host her daughters birthday party as well as give a brilliant
presentation to clients in New York.
The movie subtly shows the dilemma that working women face, when starting a
family. Momo (Olivia Munn), Kates assistant is troubled with being pregnant as she
worries it will damage her career. Kate swoops in and convinces Momo against and
abortion as kids are the only true joy and not cash.
By the end of the movie, Kate emerges victorious as she is successful in keeping
her marriage steady, meets her promise of making a snowman in the first snowfall
with her kids and does not let the office figures take a plunge. It is the ending every
woman dreams of and touches the heart of many in the same boat. The big
revelation, trying to be a man is a waste of a woman is the hard truth but Kates
non defeatist attitude should be an inspiration for every girl out there trying to be
a career woman.
Reviewed by:
Mahima Chawla
Student, MBA, 2nd Year
Batch 18 (2014-16)
Email: mahima.chawla4@yahoo.co.in
158

Kindler Volume XV January - June 2015

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Kindler Volume XV January - June 2015

Загружено:

Авторское право:

Доступные форматы

Indian Insurance Industry: Journey after

Privatization: A Critical Appraisal

Kindler Vol. XV l No. 1 l January-June 2015

enhancement of insurance penetration within the country by leveraging on rising

Kindler Vol. XV l No. 1 l January-June 2015

INSURANCE : PITFALLS OF PRIVATIZATION; UNSEEN BY THE GOVERNMENT

Kindler Vol. XV l No. 1 l January-June 2015

cover to a range of consumers, simply in order to maintain competitive profitability.

Kindler Vol. XV l No. 1 l January-June 2015

recover incremental costs of their distribution with instructions to their agents.

Kindler Vol. XV l No. 1 l January-June 2015

Implementation of Self-Regulatory Measures

(2007), Enhancing Competitiveness: The Case Study of

Kindler Vol. XV l No. 1 l January-June 2015

Krishnamurthy, S. (2005), Insurance Sector: Challenges of Competition and Future

Plande, P, S, Shah R. S. (2003), Insurance in India: Changing Policies & Emerging

http://www.vikapla.com/ last accessed on 26/03/2015

http://dspaie.iimk.ac.in/bitstream/2259/5121/1 /559-568+/ last accessed on 27/04/2015

http://www. Macroscan.org/pol./J402/prnt2707021 insurance/ last accessed on 26/03/2015

http://unpanl.un.org/intradoc/ group/public/documents/ last accessed on 15/05/2015

http://www.hinduonnet.com/fine/f 1916420/ last accessed on 15/05/2015

http:// www.cipe.org/publicactin/ert/e27/e27-04/ pdf last accessed on 16/05/2015

Kindler Vol. XV l No. 1 l January-June 2015

Effect of Personality on the Performance of

Research Scholar, Department of Business Management, University of Calcutta, Alipore,

Professor, Department of Business Management, University of Calcutta, Alipore, Kolkata-700027.

Kindler Vol. XV l No. 1 l January-June 2015

Kindler Vol. XV l No. 1 l January-June 2015

Kindler Vol. XV l No. 1 l January-June 2015

Table 1 : Sample design of the life insurance advisors

A. Public Sector (LICI)

Bajaj Allianz Life

Birla Sun Life

Tata AIA Life

Total B (Private advisors)

Total (A+B) (Public and

Source : Self compiled data from IRDA Annual Report 2009-2010

Needs Improvement (Level 1)

Very Good (Level 4)

Total No. of advisors

However, as discussed earlier, performance of an individual in the selling profession

In terms of the total sum assured of the new policies

Kindler Vol. XV l No. 1 l January-June 2015

High levels of agreeableness for insurance advisors might act as a hindrance to

selling life insurance products demands a skill of understanding others and

Kindler Vol. XV l No. 1 l January-June 2015

Behling, O. (1998).Employee Selection: Will Intelligence and Conscientiousness Do the

Cattell RB. (1947). Confirmation and clarification of primary personality factors.

Kindler Vol. XV l No. 1 l January-June 2015

Impact of Contract Labour in Manufacturing

Research Scholar, Sainath University, Ranchi; E-mail : sanjay66anand@yahoo.com

Kindler Vol. XV l No. 1 l January-June 2015

Kindler Vol. XV l No. 1 l January-June 2015

The extent of reliance on Contract Labour.

The problems faced by Principal Employer and the Contract Labours

Shortcomings in the Contract Labour (Regulation & Abolition) Act, 1970

Analysis of Contract Labour (Regulation & Abolition) Act 1970, and

Kindler Vol. XV l No. 1 l January-June 2015

(ii) Working Conditions of Contract Labour in Petroleum Refineries & Oil

Kindler Vol. XV l No. 1 l January-June 2015

The contract labour overhead cost is cheaper as compared to the wages

PROBLEMS OF THE PRINCIPAL EMPLOYER

In case if the contractor goes absconding/deserts, the full liability is to be