Chapter 1

INTRODUCTION The purpose of the project seeks to estimate and analyze the value added intellectual coefficient (VAIC).For measuring the value based performance of the Indian private banking sector for a period of 2005-2010

design/methodology/approach Annual reports, especially the profit and loss accounts and balance sheets of the banks concerned for the relevant years,were used to obtain the data.A review that reviews measurement techniques and tools, and the VAIC method is applied in order to analyse the data of indian private banks for a period of five years.The intellectual or human capital and physical capital of indian banking sector and their impact on the banks value based performance is analysed.

The term intellectual capital has been widely used in recent times by the research community in the developed world; however, there have been very few studies that have used emerging economies as a case for evaluating the implications of IC for specific industries. The implications of IC are more prominent in these economies as they have abundant human capital at their disposal. Therefore, it becomes necessary to understand whether this resource is being efficiently utilized by specific sectors to their advantage in creating value over a period of time.

On the one hand, service sectors are playing a dominant, important role in the growth of economies, and on the other, these economies are moving towards more liberalization and globalization. In the changing context of an environment where competitiveness becomes key to survival, are domestic industries geared up to meet the competition? Answers to these questions raise an important issue: in the emerging knowledge economy the role of traditional accounting and measurement systems to evaluate performance appears to be diluted and there is a need to look at the whole scenario from a different dimension of evaluating the business performance of firms that use IC as an important resource for growth. Using novel methods of measurement and reporting tools becomes imperative.

Banks happen to be one service sector that uses a huge amount of human capital and customer capital for its survival. Thus, this paper evaluates the business performance of the Indian banking system over a period of five years using the Value Added Intellectual Coefficient

Intellectual capital (IC) is defined as any creation of the human intellect or mind. However, several researchers across globe have defined and delineated specific concepts of IC in their own way (Roos et al., 1997; Stewart, 1997).However, there has been no consensus as to the specific constituents of IC. Intellectual capital has been defined and classified in several ways by several researchers since the concept gained importance. Edvinsson and Malone (1997) defined it as Knowledge that can be converted to value.

Todays discerning investors take a critical look at not only the financial parameters but also the non-financial parameters that determine the longterm success of a company. These new non-financial parameters challenge the usefulness of evaluating companies solely on traditional measures as they appear in the financial reports of a company. Thus, the intangible assets of the company have been receiving considerable attention from all corners of the industry. Besides simply reporting the IC statements it also becomes essential to show the relation between the IC investments made by the firm with its performance in the long run. Therefore, the absolute increase in value may be as insufficient as reporting the financial ratios.

The VAICe is a new management and control tool that is designed to enable the organization to monitor and measure the intellectual capital performance and potential of the firm. This measurement is necessary as these are considered to be an important resource in firms in which knowledge or human capital is dominant. Generally,traditional measures of accounting are used to evaluate the business performance of these firms. This results in partial or biased communication to stakeholders, who are more interested in finding the true value and performance of the firm. The wrong conclusions may also result in wrong decisions. Thus, if the intellectual capital being created in the process of business functions is ignored, it may be disastrous for the firm in the long run. The VAICe is considered appropriate for an organization that is intellectually inclined. It can be used within the organization to measure the intellectual performance over a period of time without much change in the existing business setup.

The VAIC method enables the firm to measure its value creation efficiency (Pulic, 2001,2002).

Thus, summarizing the above, the main logic for using VAICe as a tool for performance measurement is as follows: . intellectual potential is the most important resource of corporate success, especially in a knowledge economy;

. raising the efficiency of intellectual potential is the simplest, cheapest and most secure way to ensure sustainable business success;

. VAIC has proved its suitability as a tool for the measurement of IC; and

. the fact that companies have higher expenditures for intellectual potential than for physical capital, and that with VAIC we have found a reliable indicator for IP, are very good reasons to pay higher attention to intellectual potential.

Value creation is considered key to every business activity. However, in recent times the efficiency of value creation is more important for success than the absolute value addition. Intellectual capital is an important resource in this value creation process. Thus, measuring it enables the firm to increase its market performance.

The banking sector in general is an ideal area for IC research because: There are reliable data available in the form of published accounts (balance sheets, P/L); The business nature of the banking sector is intellectually intensive; and The whole staff is (intellectually) more homogeneous than in other economy sectors (Kubo and Saka, 2002).

There have been much research on the Indian banking system to evaluate its performance on financial parameters as it entered into a new phase of liberalization.However, there have been no studies looking at the intellectual performance of Indian banks. This paper is therefore a contribution to the existing literature on Indian banks and intellectual capital as its objective is two-fold: (1) to add a new dimension to measure and evaluate value-based performance efficiency of firms in service sector, especially banks in India; and (2) to evaluate the significance of IC in the different economic environment of an emerging economy. The efficiency of the banks is measured using the performance of the capital employed and the intellectual capital using VAIC as a tool of measurement. The efficiency of each bank is measured and then compared with the average performance of all of the banks. The analysis provides a strong case for reporting of the value creation through intellectual capital in the annual reports.

The reporting would be a useful tool for benchmarking the performance of the banks across various countries, besides serving as an absolute measure of performance for each bank within the economy.

An evaluation of the efficiency of the physical capital and intellectual potential of the major European banks for the year 1996 was another work that can be noted in this context (Pulic, 1998). The results of the study indicate that intellectual potential is of crucial importance for corporate success, and therefore the obvious conclusion arises that increasing the efficiency of intellectual potential is the simplest, cheapest and most secure way to ensure sustainable business success. A similar study was conducted focusing on how New Zealand banks incur a cost in acquiring IC (human capital) and their need to recognise the important cost drivers. The study produced a model in accounting for IC in New Zealand banks (Sahrawat, 2001).

HISTORY OF BANKING IN INDIA Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should beable to meet new challenges posed by the technology and any other external and internal factors. For the past three decades Indias banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian bankingsystem has reached even to the remote corners of the country. This is one of the mainreasons for Indias growth. The governments regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.

CURRENT SCENARIO Currently (2007), overall, banking in India is considered as fairly mature in termsof supply, product range and reach-even though reach in rural India still remains achallenge for the private sector and foreign banks. Even in terms of quality of assetsand capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region. TheReserve Bank of India is an autonomous body, with minimal pressure from thegovernment. The stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector, the demand for banking servicesespecially retail banking, mortgages and investment services are expected to be strong. M&As,takeovers, asset sales and much more action (as it is unraveling in China) will happenon this front in India.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stakein Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time aninvestor has been allowed to hold more than 5% in a private sector bank since the RBIannounced norms in 2005 that any stake exceeding 5% in the private sector bankswould need to be vetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges)and 31 foreign banks. They have a combined network of over 53,000 branches and17,000 ATMs. Acording to a report by

ICRA Limited, a rating agency, the publicsector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Banking in India 1 2 Central bank Private banks Reserve bank of India Bank of Rajasthan, Bharath overseas

bank,Catholic syrian bank,Centurian bank of punjab,City union bank, Dhanalakshmi bank, Federal bank,Hdfc bank, Idbi bank, Icici bank, Indusland bank,ING Vysya bank,Karur vysya bank,Kotak mahindra bank,Lakshmi vilas bank, South indian bank, Tamilnadu mercentile

bank,UTI bank ,yes bank.

Structure of Indian Banking Reserve Bank of India is the regulating body for the Indian Banking Industry. It is amixture of Public sector, Private sector, Co-operative banks and foreign banks. The private sector banks are further spilt into old banks and new banks.

Reserve Bank of India

Scheduled banks

Scheduled banks

commercial

Schduled banks

cooperative

Public banks

sector

Private banks

sector

Foreign banks

Regional banks

rural

Nationalised banks

Sbi & Associates banks

Schduled banks

urban

Schduled cooperative banks

Old private sector banks

New private sector banks

Regulatory aspects Indian banks were completely under the regulation of the BRA 1949, which was quite restrictive in several aspects of growth and performance is concerned. One aspect was that there were social obligations such as the generation of employment and setting up branch networks in financially unviable and rural areas, which the public sector banks took up over a period for the faster growth of banking over the period after independence. This led to unsustainable development of banks in the long run,especially in todays competitive economy. Another aspect is the domination of public sector banks over private sector banks in the pre-liberalization phase. The controlled and protected economic environment had its costs for the Indian banking structure over a period.

However, prudent regulation and supervision have formed a critical component of the financial sector reform programme since its inception, and India has endeavoured towards international prudent norms and practices. These norms have been progressively tightened over the years, particularly against the backdrop of the Asian crisis. Banks exposure to sensitive sectors such as equity and real estate have been curtailed.

The system of Annual Financial Inspection was introduced in 1992, in place of the earlier system of Annual Financial Review/Financial Inspections. The inspection objectives and procedures have been redefined to evaluate the banks safety and soundness, to appraise the quality of the board and management, to ensure compliance with banking laws and regulations, to provide an appraisal of soundness of the banks assets, to analyze the financial factors that determine a banks solvency and to identify areas where corrective action is needed to strengthen the institution and improve its performance.

India has had the distinction of experimenting with Self Regulatory Organizations (SROs) in the financial system since pre-independence days. At present, there are four SROs in the financial system: (1) the Indian Banks Association (IBA); (2) the Foreign Exchange Dealers Association of India (FEDAI); (3) the Primary Dealers Association of India (PDAI); and (4) the Fixed Income Money Market Dealers Association of India (FIMMDAI ).

Present and future scenario Indian banks have seen a huge growth over the years, especially after the opening up of the sector to external participation. The Indian Banks Association (IBA) has set up a proposal about how they visualize the Indian banking sector at the end of this decade.

Since the liberalization phase of the Indian economy began in the mid-1980s, the banking sector has also seen growth along with the economy. There have been several changes in the banking policies and regulatory environment, which has led banks to perform better than before. There was marked stability and a positive rate of growth even during the East Asian financial crisis. In the present scenario, banks are gearing up well to adapt to the norms of BASEL-II set up by the Basel Committee on Banking Supervision. Banks in India are more prone to the market now than ever before. Thus,looking at performance efficiency becomes even more compelling.

Looking at all the above aspects, and the fact that India is an emerging economy, the importance of utilizing limited financial and physical resources becomes even more pressing than in a developed economy. Although there is a surplus of human capital in terms of absolute numbers, skilled and professional human capital are limited in relative terms. Therefore, efficiency analysis becomes important to evaluate the performance of the key resources of the economy. An efficient economy is a collection of efficient sectors, industry and firms. This boils the argument down to the fact that if each sector/industry/firm performs efficiently then economic resources would be used economically. Such efficiency analysis would also enable efficient allocation and utilization of resources over long run; this implies that it would have policy implications for the policy-makers. Being resource rich gets a new meaning when knowledge of people turns into value for the organization (Sveiby, 2002).

Chapter 2

BANKS PROFILE INDUSLAND BANK

Indusland Bank is the seventh largest private sector bank in terms of business. Incorporated in 1994 by Mr Srichand Hinduja of the Hinduja group, it is one of the fast growing new generation private sector banks with a distribution network of 326 branches and 633 ATMs. The bank witnessed a turnaround from its waning performance after Mr. Romesh Sobti took charge as the Managing Director and CEO of the bank in February 2008.

Incorporated in 1994 by Mr Srichand Hinduja of the Hinduja group, it is one of the fast growing new generation private sector banks.

The bank recorded a business of Rs. 636 bn in Q1FY12, making it the seventh largest private sector bank in terms of business.

Ashok Leyland Finance was merged with the bank in June 2004, following which Indusind Bank has emerged as one of the leading players in new commercial vehicle financing business.

The bank recently acquired Deutsche Banks credit card business in April and marked its presence in the high yielding segment, the bank also plans to foray in used commercial vehicle financing and loans against property business.

The bank has a distribution network of 326 branches and 633 ATMs as on Q1FY12.

The bank has a modest liability franchise and aspires to strengthen it by capitalizing on substantial branch expansion plans

KARUR VYSYA BANK Karur Vysya Bank is a privately held Indian bank, headquartered in Karur in Tamil Nadu. The company operates in four business segments: treasury operations, corporate/ wholesale banking operations, retail banking operations and other banking operations. The company's investments are categorized into three categories, held to maturity, held for trading and available for sale. Karur Vysya Bank was incorporated on June 22, 1916. The Bank commenced their operations on July 1, 1916 in the aftermath of the First World War, with a view to revive agriculture, trade and industry in and around Karur. In January 17, 1927, they opened their first branch at Dindigul. In the year 1952, the Bank became a scheduled bank. In the year 1963, Selvavridhi Bank Ltd was amalgamated with the Bank. Also, in the year 1964, Salem Shri Kannika Parameswari Bank Ltd and Pathinengrama Arya Vysya Bank Ltd, Kombai were amalgamated with the Bank. In the year 1965, Coimbatore

Bhagyalakshmi Bank Ltd merged with the Bank. In the year 1980, the Bank got the license to deal in foreign currencies and to transact foreign exchange business. They established International Division for forex operations. In the year 1995, the Bank issued 20,00,000 bonus shares in the ratio of 1:1 which was followed by rights issue in the ratio of 1:2 at a premium of Rs. 25 per share during the year 1996. In the year 2003, the company obtained license to act as a Corporate agent for the purpose of procuring or soliciting life insurance business and general insurance business. They made a tie up for bancassurance with Bajaj Allianz General Insurance to hawk their non-life insurance products through their branches. In the year 2004, they completed 100% computerization of branches and offices.

In the year 2005, they implemented CBS in all branches. During 2004-05 the

Bank introduced 6 new loan products, namely KVB Special Home Loan, IPO Funding Scheme, KVB Kisan Mithra Scheme, Easy Trade Fin Scheme, KVB Happy Kisan Scheme and Gold Card Scheme for Export Constituents of the Bank. Also, they launched a new product, 'Cash Passport' which is similar to ATM/ Debit card and this product is offered in pursuance of the agreement entered into with 'Travelex' which is engaged in travel related services all over the world. During the year, the Bank entered into an agreement with MITR consortium in which the customer can use the ATMs of Punjab National Bank, Oriental Bank of Commerce, Indian Bank and UTI Bank. Also, the Bank implemented RTGS facility for instant funds transfer across the country in 26 centres. During the year 2005-06, the Bank launched Mobile Top-up facility to re-charge the cell phone of all service providers through the ATM. They opened new branches at Ludhiana, Chandigarh, Trichy-Srirangam, NerulMumbai, Krishnagiri, Noida and Amritsar. In the year 2008, the Bank won the prestigious CFBP Jamnalal Bajaj Award for Fair Business Practices. In the year 2009, the Bank received Banking Technology Excellence Award 2008 for the best use of IT for customer service in Semi Urban and Rural Areas given by the IDRBT. During the year 2008-09, the company opened 23 new branches and upgraded one extension counter into a full fledged branch. They entered into a tie-up with Religare Securities Ltd for providing trading facility to the Demat customers. Also, they entered into tie-up arrangement with LIC Mutual Fund for distributing their products.

During the year 2009-10, the company expanded their network in order to increase the market share. They opened 23 new branches and 54 new ATMs. The Bank received the Gold CIO award in more than Rs. 1000 crore category of the Enterprise Connect Awards '09 instituted by CIOL (Cyber Media India Online Ltd). They Received Banking Technology Excellence Award instituted by IDRBT for under the category 'Best IT Infrastructure Management' for the year 2009. As of December 31, 2010, the Bank has set up 360 branches, 437 ATMs, 7 satellite offices, 13 service centres and 24 administrative offices. They have implemented core banking solutions across all its branches. The Bank has set up a Disaster Recovery Site (DRS) at Cyber Pearl, Hi-Tech City, Hyderabad. The Bank is ensuring less than 30 minutes old data backup of the Primary Data Centre Databases at this DRS using a Disaster Recovery Automation Solution.

CITY UNION BANK 1904 - The Bank was incorporated at Chennai. The Bank transacts all kinds of banking business.

1966 - 669 Shares were forfeited of dissenting shareholders of the Kumbakonam Bank Ltd.

1982 - 6,486 right shares issued at par.

1986 - Equity shares subdivided prior to 1986.

1,00,000 No. of

equity

shares of Rs 10 each issued at par as rights in prop. 1:1 during

the year.

1987 - With effect from 9th December, the name of the bank was

Changed

from The Kumbakonam City Union Bank, Ltd. to City Union Bank, Ltd.

- 3,00,000 rights equity shares issued at par in prop. 3:2.

1990 - A full fledged international banking division of the bank was inaugurated at 706, Mount Road, Chennai. This division was types of foreign exchange business undertaken by the bank. to deal in all

- 5,00,000 rights equity shares issued at par in prop. 1:1.

1993 - 30,00,000 rights equity shares issued at par.

1995 - The Bank came out with a simultaneous unlinked issue of 90,000 No. of equity shares of Rs 10 each at a premium of Rs 10 per share and 45,000 unsecured zero interest FCD's of Rs 1000 each for cash at par.

1997 - 60,000,000 bonus shares issued in prop. 1:2.

66,000,000 No

of

equity shares issued on conversion of FCDs.

2000 - The Bank opened its branches at Purasawalkam, Chennai on December 13 and at Anna Nagar, Chennai on December 14.

2001 - The Bank has opened its branch at Srirangam, Tiruchi district on January 29.

2002 loan,

-Introduces various loan schemes like CUB Sulabh CUB Consumer

CUB Swayam Griha and CUB Vidhya Vaani.

-Opens a branch at Rajahmundry on March 27, at fort-Mumbai and Thrissur (Kerala).

-Shri S Rajarathnam and Mr Venktatasubban, co-opted as the Director of the company.

-Apoints Mr Jayaraman as the Director on the Board of the company.

2003 -Ties-up with National Insurance for bancassurance.

-Opens two branches at Kakinada,Bhimavaram and Tenali in AndhraPradesh.

-Starts a branch at Kovilpatti, TamilNadu.

-Joins hands with LIC for offering Insurance linked banking products which will add value to depositors and borrowers.

-Shri P Vaidhyanathan is co-opted as the Director on the Board of the company.

-Opens branch at Ashok Nagar, Chennai (Tamilnadu State)

2004 -City Union Bank Ltd has opened a Branch at Kozhikode (Kerala State) on May 21, 2004

-City Union Bank Ltd has informed that they have opened the Branch at Eluru (Andhra Pradesh) on July 5, 2004

-Launches new 'Any Branch Banking' services on 28 october, 2004

2005 -City Union Bank opens Branch at Udumalpet(Tamil Nadu) on April 22, 2005

-City Union Bank Ltd has tied up with Export Credit & Guarantee Corporation Ltd (ECGC) for marketing export credit insurance products through its branch network

-City Union Bank unveils debit cards

2007 - City Union Bank has inked an `e-remittance' service agreement with Qatar-headquartered Doha Bank QSC. The agreement envisages electronic remittance of funds by NRI clients of CUB (in West Asian countries) to designated beneficiaries accounts in any of the 165 branches of the stating that this is first agreement for CUB with a foreign bank. bank

- City Union Bank Ltd has informed that the Bank has opened the Nandyal (Andhra Pradesh) on August 03, 2007.

Branch at

2008 - City Union Bank Ltd has appointe Shri. R G Chandramogan as a Director by the Board at its meeting held on July 30, 2008.

- City Union Bank has rolled out a 1,000-days deposit scheme called 'CUB 1000'.

- The Company has splits its face value from Rs10/- to Rs1/-.

2010 - City Union Bank Ltd has informed that Shri C. R. Muralidharan and Justice. S. R. Singharavelu has been co-opted as directors by the Board at its meeting held on February 25, 2010.

IDBI BANK IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years, IDBI Bank has essayed a key nation-building role, first as the apex Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a DFI, the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array of services that contributed towards balanced geographical spread of industries, development of identified backward areas, emergence of a new spirit of enterprise and evolution of a deep and vibrant capital market. On October 1, 2004, the erstwhile IDBI converted into a Banking company (as Industrial Development Bank of India Limited) to undertake the entire gamut of Banking activities while continuing to play its secular DFI role. Post the mergers of the erstwhile IDBI Bank with its parent company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the subsequent merger of the erstwhile United Western Bank Ltd. with IDBI Bank on October 3, 2006, the tech-savvy, new generation Bank with majority Government shareholding today touches the lives of millions of Indians through an array of corporate, retail, services. SME and Agri products and

Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy, a highly competent and dedicated workforce and a state-ofthe-art information technology platform, to structure and deliver personalised and innovative Banking services and customised financial solutions

to its clients across various delivery channels.

As on March 31, 2012, IDBI Bank has a balance sheet of Rs.2.91 lakh crore and business size (deposits plus advances) of Rs.3.92 lakh crore. As an Universal Bank, IDBI Bank, besides its core banking and project finance domain, has an established presence in associated financial sector businesses like Capital Market, Investment Banking and Mutual Fund Business. Going forward, IDBI Bank is strongly committed to work towards emerging as the 'Bank of choice' and 'the most valued financial conglomerate', besides generating wealth and value to all its stakeholders.

ICICI BANK Date of Establishment 1994Revenue0 (USD in Millions) Market Cap 1078118.802404 ( Rs. in Millions )Corporate Address Landmark,Race Course Circle,AlkapuriVadodara-390007, Gujarat

Management Details Chairperson-K V Kamath MD - Chanda Kochhar Directors - Anup K Pujari, Anupam Puri, Arvind Kumar, Chanda D Kochhar, Chanda Kochhar, Homi Khusrokhan, K Ramkumar, K V Kamath, L N Mittal, M K Sharma, M S Ramachandran, M S Ramchandran, Madhabi Puri Buch, Marti G Subrahmanyam, N S Kannan, N Vaghul, Narendra Murkumbi, P M Sinha, Rajiv Sabharwal, Sandeep Bakhshi, Sandeep Batra, Sonjoy Chatterjee, Sridar Iyengar, Swati Piramal, T S Vijayan, Tushaar Shah, V Prem Watsa, V Sridar, V Vaidyanathan Business Operation Bank Private Background ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgama FinancialsTotal Income - Rs. 410454.12 Million ( year ending Mar 2012) Net Profit - Rs. Million ( year ending Mar 2012) Company SecretarySandeep BatraBankersAuditorsBSR & Co

HDFC BANK

HDFC Bank was incorporated in August 1994, and, currently has an nationwide network of 2,544 Branches and 9,333 ATM's in 1,399 Indian towns and cities. Our single-minded focus on product quality and service excellence has helped us garner the appreciation of both national and international organizations.

All the facts and figures highlighting the rapid growth of HDFC Bank over the last nine years.

Join the workforce of India's leading private sector bank that has won accolades from top national and international magazines, and explore a world of opportunities.

Our Citizen's Charter offers relevant information about the products, facilities and services we provide.

HDFC Bank's Corporate Governance Policy has been adopted keeping in mind the importance of attaining fairness for all stakeholders, as well as achieving organizational efficiency

LAKSHMI VILAS BANK

The Lakshmi Vilas Bank Limited (LVB) was founded eight decades ago ( in 1926) by seven people of Karur under the leadership of Shri V.S.N. Ramalinga Chettiar, mainly to cater to the financial needs of varied customer segments. The bank was incorporated on November 03, 1926 under the Indian Companies Act, 1913 and obtained the certificate to commence business on November 10, 1926, The Bank obtained its license from RBI in June

1958 and in August 1958 it became a Scheduled Commercial Bank.

During 1961-65 LVB took over nine Banks and raised its branch network considerably. To meet the emerging challenges in the competitive business world, the bank started expanding its boundaries beyond Tamil Nadu from 1974 by opening branches in the neighboring states of Andhra Pradesh, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Gujarat, West Bengal, Uttar Pradesh, Delhi and Pondicherry. Mechanization was introduced in the Head office of the Bank as early as 1977. At present, with a network of 249 branches,3 satellite branches and 6 extension counters, spread over 14 states and the union territory of Pondicherry, the Bank's focus is on customer delight, by maintaining high standards of customer service and amidst all these new challenges, the bank is progressing admirably. LVB has a strong and wide base in the state of Tamil Nadu, one of the progressive states in the country, which is politically stable and has a vibrant industrial environment. LVB has been focusing on retail banking, corporate banking and banc assurance.

The Bank's business crossed Rs. 12,606 Crores as on March 31, 2009. The Bank earned a Net profit of Rs. 50.30 Crores. The Net owned Funds of the Bank reaches Rs. 453.70 Crores. With a fairly good quality of loan assets the Net NPA of the bank was pegged at 1.24 % as on March 31, 2009.

ING VYSYA

Date of Establishment 1930Revenue0 (USD in Millions )Market Cap 55945.9136786 ( Rs. in Millions )Corporate AddressIng Vysya House, No - 22,M G Road Bengaluru-560001, Karnataka

Management Details Chairperson-ArunThaigarajan MD-ShailendraBhandari Directors - Aditya Krishna, Arun Thaigarajan, Arun Thiagarajan, K R Ramamoorthy, Lars Kramer, M Damodaran, M V S Appa Rao, Mark Edwin Newman, Meleveetil Damodaran, Peter Henri Maria Staal, Peter Staal, Philippe Damas, Ramakrishnan Subramanian, Richard Cox, Ryan Andrew Padgett, Santosh Ramesh Desai, Shailendra Bhandari, Vaughn Nigel Richtor, Vikram Talwar, Wilfred Nagel Business Operation Bank Private Background Vysya Bank, incorporated in 1930, is one the leading bank in India. Much later in the year 1985, it became the largest private sector bank. In 1987 the company set up Vysya Bank Leasing. Later 1990 it promoted Vysya Bank Housing Finance. In 2001 the company forayed into insurance business by setting up ING Vysya Life Insu

Financials Total Income - Rs. 45265.64 Million ( year ending Mar 2012) Net Profit - Rs. Million ( year ending Mar 2012) Company SecretaryM V S Appa Rao Bankers Auditors BSR & Co. Vysya Bank, incorporated in 1930, is one the leading bank in India. Much later in the year 1985, it became the largest private sector bank. In 1987 the company set up Vysya Bank Leasing. Later 1990 it promoted Vysya Bank Housing Finance. In 2001 the company forayed into insurance business by setting up ING Vysya Life Insurance Company. In 2002, Dutch banking giant ING took over the management of the bank and the name was changed to ING Vysya Bank. Today it has presence in over 5 countries, employing over 120000 people and serving 75 million customers across the globe. Further, the presence of the group in over 50 countries, employing over 120000, serving over 75 million customers across the globe, only multiplies the credibility, not only across the country but also across the globe. Products and Services In Personal Banking to offer wide range of products and services in deposits, loans, investments, insurance, forex services, demat services, online services and wealth management services. In NRI banking it offers money transfer, Investment products such as International deposit, Mutual fund, online share trading, etc; also offer property solution, insurance loan.

In Business banking it caters to SME, Retails, NRI and other corporates offering spectrum of products and services. The bank also provides wealth management services through ING Wealth Management Services.

KARNATAKA BANK Karnataka Bank was incorporated on 18 February 1924 in Mangalore in Karnataka State. With 83 years of experience it has presence of 435 branches across 19 states and 2 union territories. It has employee strength of 4,500. It has customer base of over 2.6 million. Managed by a dedicated and professional management team, the bank has been serving over 68,942 shareholders. It has grown itself with merger of Sringeri Sharada Bank., Chitradurga Bank and Bank of Karnataka. Businesses Personal Banking- Under this Karnataka Bank offers wide range of products and services such as saving accounts, deposit scheme, home loans, education loans, debit card, mobile banking, internet banking and many more. Corporate Banking- It offers spectrum of services to its corporates client such as working capital finance, term loans, Infrastructure finance and other services. For its insurance services it has a tie up with Metlife India Insurance Company and Bajaj Allianz General Insurance Company. It also provides RTGS and Money Transfer Facility to its NRI clients through Western Union Money Transfer.

DHANALAKSHMI BANK

Date of Establishment 14-11 1927 Revenue203.278 ( USD in Millions )Market Cap 5129.46321975 ( Rs. in Millions )

Corporate AddressP B No 9,DhanalakshmiBuildings,NaickanalThrissur680001, Kerala

Management Details Chairperson-GNBajpai MD-PGJayakumar Directors - Amitabh Chaturvedi, G N Bajpai, Ghanshyam Dass, Gyanendra Nath Bajpai, K Srikanth Reddy, P G Jayakumar, PG Jayakumar, Ravindran K Warrier, S Santhanakrishnan, Sateesh Kumar Andra, Shailesh V Haribhakti, V R Chalasani Business OperationBank - PrivateBackground Dhanalakshmi Bank was incorporated in 1927 by group of entrepreneurs at Thrissur located in Kerala. The bank started with a seed capital of Rs.11,000 and with workforce of 7 employee.Much later in 1977, the bank was converted into Scheduled Commercial Bank. Presently it has a pan-India network of 181 branches and 26 extension counters spread across in states like Keral FinancialsTotal Income - Rs. 10531.874 Million ( year ending Mar 2011) Net Profit - Rs. 260.622 Million ( year ending Mar 2011)

Company

Secretary

Ravindran K

Warrier

BankersAuditorsPB

Vijayaraghavan & CoDhanalakshmi Bank was incorporated in 1927 by group of entrepreneurs at Thrissur located in Kerala. The bank started with a seed capital of Rs.11,000 and with workforce of 7 employee.Much later in 1977, the bank was converted into Scheduled Commercial Bank. Presently it has a pan-India network of 181 branches and 26 extension counters spread across in states like Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Delhi and West Bengal. The Banks Corporate Office located at Thrissur and Industrial Finance Branch at Kochi has received ISO 9001-2000 certification. The Bank is managed by a Board of Directors comprising professionals drawn from various walks of life with Shri.G.N.Bajpai as Chairman and Shri Amitabh Chaturvedi as the Managing Director and CEO. In August 2010, the bank has conveyed the approval of Registrar of Companies, Kerala and Lakshadweep (RoC) for change of name of the Bank from the present 'The Dhanalakshmi Bank' to 'Dhanlaxmi Bank Facilities The bank has launched Centralised Banking Solution (CBS) on the Flexcube Platform facilitating anywhere/anytime banking to its clients. CBS has been installed in all branches. The bank also has established a data centre in Bangalore, to keep the networked system operational 24x7.

Dhanalakshmi Bank has installed Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) Systems in order to avail facilities for large value payments and settlements in real time on-line mode on a transaction-by-transaction basis. The bank has a tie up with Visa International for International Debit Card. As part of this overall effort, the Bank has joined CASHNET, the first independent nation-wide shared ATM network in India, the National Financial Switch (ATM network) of the IDRBT, promoted by Reserve Bank of India and Cash Tree promoted by a group of public sector banks. Due to this the bank has access to 25,000 ATMs in the country. It is among those banks that offer free cash withdrawal facilities for its ATM debit card holders at other Bank ATMs. Dhanalakshmi Bank has also forayed into both life and non-life insurance segment. For this it has tie up with MetLife India for life insurance and for nonlife it has tie up with Oriental Insurance Company. The bank also markets mutual fund products and for this it has tie up with SBI Mutual Fund, Birla Sunlife Mutual Fund and Principal PNB Asset Management Company. In February 2010, the bank entered into a MoU with Destimoney Financial Services, for extending online trading and investment services to its customers and latter on invested Rs 13 crore in Destimoney Securities forming 15% of the equity capital of the company.

In March 2010, the bank marked its foray into the retail assets business with the launch of two credit cards -- platinum and gold. The bank entered into an agreement in June 2010 with HDFC Mutual Fund for distributing the latter's financial products through its branches across the country. In December 2010, Dhanlaxmi Bank has entered into a pact with Qatar's largest bank -- Doha Bank -- for online transfer of funds. In January 2011, it ventured into the gift card space, which can be used at over 4.5 lakh merchant outlets. The gift card is a rupee-denominated, pre-paid, nonreloadable card. Products and services Personal Banking-Under this bank offers wide range of personal banking products and services such as deposit, saving, loans, internet banking, mobile banking, demat services, credit card, debit card, etc. NRI banking- Dhanalakshmi Bank also caters its banking products and services to NRI customers such as deposit, car loans, remittances, investment schemes, insurance are amongst others. Corporate banking- It provides a range of products and services to corporates.

Priority and SME- It also caters its products and services to priority and SME segment such as providing various kinds of products to meet their various business requirements. This involvement is part of the Banks objective to act as catalysts for the economic prosperity of the country. The Bank has recognized micro finance intervention as an effective tool for poverty alleviation and has streamlined the linkage between the Bank and Self Help Groups through 100 branches.

Chapter 3

RESEARCH METHODOLOGY

RESEARCH TYPE

This study is purely a descriptive study

OBJECTIVES OF THE STUDY

To understand the implications of the business performance of the Indian private banking sector from an intellectual resource perspective.

To estimate and evaluate VAIC for Indian private sectors for a period of five years(2006-2010)

To analyse the human capital efficiency of private sector banks in India for five years.

TOOLS OF THE STUDY

1. value added method has been used to measured the human capital efficiency of the banks 2. Exponential trend method has been used to measure the ACGR (Annual compounded Growth Rate) in the human capital efficiency of the private sectors banks. 3. Gap Analysis has been used to measure the variation in the human capital efficiency of the private and public sector banks.

TECHNOLOGICAL DEVELOPMENT IN THE BANKING SECTOR

The technological development in the banking sector began with the use of Advanced Ledger Posting Machines (ALPM) in the 1980s and nowadays banks are using core banking solution (CBS) for providing better services to their customers. Over the years several studies have been conducted both at the industry and academic level to examine the impact of IT on banking productivity and profitability.

Dos et al. [1993][1] studied statistical correlation between IT spending and performance measures such as profitability or stocks value. It is found that there is an insignificant correlation between IT spending and profitability measures, implying thereby that IT spending is unproductive.

Brynjolfsson and Hitt [1996][3], however, cautioned that these findings do not account for the economic theory of equilibrium which implies that increased IT spending does not imply increased profitability. More recent firm level studies, however, point a more positive picture of IT contributions towards productivity. These findings raise several questions about mis-measurement of output by not accounting for improved variety and quality and about whether IT benefits are seen at the firm level or at the industry level. Such issues have been discussed in detail by Brynjolfsson [1993][2] and to a lesser extent by Brynjolfsson and Hitt [1996].

The study conducted by Gotlieb, and Denny [1993][4], is one of the studies that deals with the impact of IT on banking productivity per se. Computerisation is one of the factors which improves the efficiency of the banking transactions. They concluded that higher performance levels have been achieved without corresponding increase in the number of employees. Also, it has been possible for Public Sector Banks and Old Private Banks to improve their productivity and efficiency by using IT.

WAVES IN BANKING TECHNOLOGY

As per the Reports of RBI, the first wave in banking technology began with the use of Advanced Ledger Posting Machines (ALPM) in the 1980s. The RBI advised all the banks to go in for huge computerisation at the branch level. There were two options:automate the front office or the back office. Many banks opted for automating the front office in the first phase. Whereas banks like State Bank of India also concentrated on the back office automation at the branch level.

The Second wave of development was in Total Branch Automation (TBA) which came in late 1980s. This automated both the front-end and back-end operations within the same branch. TBA comprised of total automation of a particular branch with its own database.

In the third wave, the new private sector banks entered into the field of automation. These banks opted for different models of having a single centralized database instead of having multiple databases for all their branches. This was possible due to the availability of good network infrastructure. Earlier, banks were not confident of running the whole operation through a single data center. However, when a couple of private sector banks showed that it can be done efficiently, other banks began to show interest and they also began consolidating their databases into a single database. The banks followed up on this move by choosing suitable application software that would support centralised operations.

The fourth wave started with the evolution of the ATM delivery channel. This was the first stage of empowerment of the customer for his own transactions. The second stage was the Suvidha experiment in Bangalore. This showed the power of technology and how the reach can be increased amazingly at a great pace. Seeing these, all the banks started revamping their retail delivery channels. Their core focus became increasing the number of customers they can service at a lower cost. The main channels for these were internet banking and mobile banking. After this, came the alliances for payment through various other gateways. The third important development happening now is the realtime gross settlement system of the RBI. Once this was in place, transactions between banks could be done through the settlement system, online, electronically thereby, ensuring faster collection. The process of

computerisation had started from Back Office Application,after that Total Branch Automation and nowadays it is the period of implementation of Core Banking Solutions (CBS).

A key trend in the last couple of years has been the focus on core banking systems. With the implementation of core banking systems across the banks, the usage level of IT for customer management has increased. Core banking systems have enabled banks to launch new products and services targeting specific customer segments after understanding their banking and investment requirements.

ATM, internet banking and mobile banking have improved customer convenience by providing anywhere any time banking services. The utility bill presenting and payment has helped customers to pay their bills online at the click of a button. Electronic clearing system and electronic funds transfer have facilitated faster funds movement and settlement for the customers of different banks and different centers.

The electronic data interchange and cash management service facilities have enabled better funds management for the customer.Very few banks offered customers the ability to access their accounts and perform at least simple money transactions using internet banking. Advancements in information technology have made it possible for the banks to use the internet as a delivery channel for banking services. Technological developments have introduced tremendous changes in the ability of financial and non financial firms to efficiently collect, store, use and sell information about their customers.

Balasubramanya S.(2002) [10] in his study analysed that the automation in the banking sector has come a long way starting with the Rangarajan Committee report on the banking sector reforms during the eighties, followed by reports of the Narasimhan Committee in the nineties. With over 65,000 branches of the banks (public, private and the cooperative sector) in the country, the author found that the percentage of branches covered by automation was very low. Though many banks had claimed that more than 70% business has been automated due to the enforcement of RBI guidelines, in reality it was much lower, as many functions in each branch were still done manually or with partial automation. Hence, there was a significant amount of automation work to be achieved in the banking sector.

APPLICATION OF IT IN THE BANKING SECTOR Rajshekhara K. S. (2004) described the adoption of IT in banking has

undergone several changes with the passage of time. Today IT has become an inseparable segment of banking organization. The application of information technology in the banking sector resulted in the development of different concepts of banking such as E-banking, Internet Banking, Online Banking, Telephone Banking, Automated teller machine, universal banking and investment banking etc. Information technology has a lot of influence on banking transactions. It ensures quick service with low transaction cost to the customers. The real success of IT in the banking sector depends upon the customers satisfaction.

Therefore banks should organize and conduct customer awareness program in their service area. Security is an important issue in the context of E-banking. The development of technology for the identification of customers with different means of communication devices is a must for successful business and also to reduce frauds in banking. In this paper the author has studied customer related aspects only. This paper do not present any study related to the bank employees and their problems regarding bank computerisation.

The study conducted by Vij Madhu (2003) presents the changing profile of Indian banks with the help of a comparative study of three private sector banks in India namely ICICI bank, HDFC bank and IDBI bank. The comparative analysis of the three private sector banks shows that HDFC stands out as a clear winner with ICICI at number two. In the study the researcher concludes that the challenge for the future will be the synergetic use of internet, proper understanding, measuring of risk management as also nurturing and retaining the intellectual capital. The author suggested the following strategies that need to be focused on: Develop and innovate new products so as to widen customer base Strategic alliances Setting up of an effective software system for ALPM the way banks in most of the developed countries are using

This study is limited only to 3 private sector banks. This paper do not present any information related to the problems of bank computerisation and future of the computerised banks.

Gulati V. P.

listed the following possible applications that can be easily

complimented by the Indian financial sector. Quick disposal of loan/investment proposal Forex information from branches to the office dealing with forex Fund information from clearing centers to the fund management office for optimal allocation of funds Inter-branch inter bank reconciliation Fund transfer/payment messages (EFT/EDI) (intra-bank and inter-bank) E-mail Organisational bulletin boards may contain the following: circulars, undesirable parties, hot list, bulletins, missing security items, confidential circulars on attempted frauds Organisational/customers database may include statutory returns, control returns,standardised returns, adhoc reports Banks-corporate customers connectivity Management information systems: Borrowers profile; Branch profile; employees analysis; products/services profile; business profile of branches Banks owned ATM/credit-debit card and other applications on the financial Network

Customer Services Ananthakrishnan G. (2005) described customers services in the banks. The discriminating customers expectations have begun to change in terms of quality and service. With the advent of computers and ATMs, the gap between the customers and the banking personnel is widening. Unless a change of heart occurs, even the largest banks will find it hard to survive on their assumed false glory. Banks which take care to see the reality and react early will survive and prosper, while those who continue the traditional path will find their market share eaten away.

Now a days customers are no longer willing to wait in long queues or tolerate arrogant behaviour of the employees. As applicable to banking, customer service may be defined as the ability to satisfy the customers requirements and needs to the fullest extent and be able to replicate this on an on-going basis. The four factors for ensuring customer service are: What satisfies the customer? Devising quantifiable determinants. Continually monitoring and improving these parameters. Seeking customer feedback to ensure alignment with customer needs.

These four approaches can go a long way in helping the banks to achieve its quality goals. Customers, who are central to the banking service, are not a homogeneous class. They come from varying socio-economic and cultural backgrounds. Their perception about the banking services is so dynamic that it may differ from customer to customer and even for the same customer at different points of time, depending on their mood and mind-set.

Successful banking relationships are formed at a human level. Factors which help in retaining the existing customers are: Past experiences with the bank. Familiarity with the services offered by the bank and simplified procedures. Knowledge of or experience with competitors products and services. Brand image-banking with a particular bank is regarded as a status symbol. Overall ambience at the bank premises. Extra services or value addition provided by the bank.

In this article the author also studied the factors which irk (trouble) the customers and they are: Poor service attitude Long queues Inability of the bank to meet customer needs Lack of proper ambience Lack of humility that prevents banks from meeting customer needs Author also mentioned that by adhering to the following factors customers complaints could be avoided: Prompt collection of cheques Faster payment/receipts in cash counter Positive attitude of the counter staff Proper adherence to the standing instructions to the customers Correct crediting of interest on deposit accounts and avoiding fraudulent withdrawals Timely honouring of invoked LCs, guarantees, etc. Seeking only required documents for processing loan applications Timely sanctioning of loans at reasonable market related interest rates.

A study conducted by Mishra A. K.

examined the reasons for the satisfaction

of the customers with the services rendered by the Urban Cooperative Banks. The author described that, urban cooperative banks are operating in a more competitive environment and therefore, the need to take care of customer requirements has become more important. The branches of UCBs must cater to the betterment of the customers. They should also improvise on their own image, customer satisfaction and their profits. The time norms for specific business transactions should be displayed prominently in the banking hall so that it attracts the customers attention. In the ultimate analysis, what is necessary for improving customer services is the active participation of employees at all levels in the bank functions. The author also raised some points which can be a plus point for UCBs to impress & attract their customers. These points are: effective board of management, efficient employees/staff, cordial personalised services, proper guidance,provision of loan facilities, good systems, computer systems, prompt services, good work culture, convenient timings, proper clearing services for outstation cheques and demand drafts, split hour facilities, Sunday working day, discounting facilities for outstation cheques, and good location of the bank.

Uppal R. K. described that in the post-LPG (Liberalization, Privatization and Globalization) era and Information Technology (IT) era, transformation in Indian banks is taking place with different parameters and the curves of banking services are dynamically altering the face of banking, as banks are stepping towards e-banking from traditional banking. The paper empirically analyzes the quality of e-banking services in the changing environment. With different statistical tools such as weighted average method and ranking, the paper concludes that most of the customers of e-banks are satisfied with the different e-channels and their services, but the lack of awareness is a major obstacle in the spread of e-banking services. The paper also suggests some measures to

make e-banking services more effective in the future. Kamakodi et al.discussed that, it is almost 15 years since the Indian banking sector was liberalized and paradigm shift happened in the Indian banking services. All banks have either totally implemented core banking systems or halfway through. The results of a survey, obtained from 292 respondents about their views on electronic banking channels, indicate that the banks are exceeding the expectations in technology based services; and their perceived service level on branch network is below the expected levels of the respondents.

This result is in tune with the respondents opinion on the perceived gap with the bank because of the introduction of technology, and on the necessity of human contact with the clients by the banks. This throws up a challenge to banks.Technology alone cannot give a sustainable competitive advantage for the banks. When all banks introduce IT, it will lose its position as a differentiator. Beyond a point, IT along with personal touch will be necessary for the banks to retain existing clients and incorporate this in their operational strategy. to attract new ones. Banks have to

Sakalya Venkata et.al. analyzed the factors that affect the choice of customers in choosing the retail banks by the customers. In the study, the authors have tried to identify various factors and also analyzed as to which of these factors exert the greatest, moderate and relatively lower influence as choice criteria. It is an attempt to study the consumer behavior with respect to the peoples choice of retail banks. Efforts are made to dwell deep in the psychology by talking to the customers surveyed, wherever possible. The 15 different factors that could be identified, approximately in the order of their importance, are (1) Safety of Deposits, (2) Size and Strength, (3) Accuracy, (4) General Service Quality, (5) Speed of Delivery, (6) Proximity, (7) Security of Environment, (8) Cordiality of Staff, (9) Price and Service Charges, (10) Product Packaging, (11) General Public Impression, (12) Peer Group Impression, (13) Face Lift (Structural), (14) Friendship with Staff and (15) Advertisement and Publicity.

According to the findings, based on the empirical study, the first six factors exert the greatest influence, next four have moderate importance, and the rest five have relatively lower influence. Thus, retail banks must reorganize their activities to achieve their corporate mission through customer orientation. In the competitive and capitalistic markets consumer is sovereign and therefore the bankers must reengineer their view and recognize the predilection and tang of the retail customers.

IT FRAMEWORK FOR BANKING SECTOR

IT planning is an ongoing effort intended to match the banks technology capabilities with its changing strategic objectives. It is necessary for a bank to identify technology gaps and develop a plan that supports the banks long/medium term-strategic goals in order to bridge the gaps. It is imperative for banks to have a clearly defined technology planning process that is based on a well founded technology action plan for the following reasons: - Increasing competition, new products and changing distribution channels. - Banks currently spend a huge amount of their budget annually on technology. Such investments will only continue to escalate. - Effective technology management requires an underlying technology plan. Without it, scarce resources are likely to be wasted and opportunities missed.

Gulati et al. (2002) [23] suggested IT policy framework for Indian banks as follows. IT strategies need to be formulated by banks taking into consideration the critical aspects of long/short-term planning to align technology systems with business objectives. Conscious efforts must be made to place the entire organizations proper perspective and to have a holistic approach to planning.

The following strategic evaluation needs to be made: Current state (Where are we?): There should be a self-assessment process which analyses the present/current technology in use. It also involves evaluation of staffing, training, organizational processes and controls, communication and management reporting. To successfully integrate new technologies, banks must objectively confront internal operating issues and be willing to make changes wherever necessary. Business process re-engineering should be accorded top priority to successfully absorb new technology.

Desired state (Where do we want to go?): Identification and prioritisation of the reasons behind technology adoption is vital. Technology goals should always be firmly grounded in an understanding of the marketplace. Sizing up the ompetition and measuring up to its pace, based on a SWOT analysis, must be the foundation of the decision on where to go.

Destination (How do we get there?): This phase of the technology planning process, involves making decisions about, how to implement the technology action plan and the technology initiatives required to be pursued in the short/mid/long term.As part of the planning of technology initiatives, a list of projects to be undertaken needs to be made. For this, the element of time span should be considered relative to the banks position and future needs (what initiatives are planned in short/mid/long term). A technology plan is a document that lays down the steps necessary for each action item. It serves as a road map for investment.

Internet Banking in India Jadhav Anil (2004) described various channels of e-banking services such as

ATM,Telephone banking (Tele-banking), Mobile banking, Internet banking and its features.

The focus is also given on e-banking opportunities, challenges and security aspects while performing the banking transactions on the internet. Comparison of public, private,foreign and co-operative banks and barriers to the growth of e-banking in India are also discussed. Finally the paper discusses an overview of the major private sector banks such as ICICI, HDFC, IDBI, UTI & GTB banks which provides e-banking services.

The authors observations are: Many Indian banks are yet to make a desirable progress in implementing the technology and gearing up to confront the challenges posed by the rapid changes that are sweeping the banking sector globally. Private and Foreign banks have been fast in adopting and adapting to the Internet technology. Very few public sector banks offer Internet banking services whereas; none of the co-operative banks offer Internet banking services. ATM is becoming a most preferred delivery channel from the common banking services. In order to enhance the reach to the rural population in the remote areas, the banks will need to automate the delivery channels in the local language which could eventually lead to shrinking of the number of branches. The banking industrys security is at a higher risk, due to the advent of e-banking.

The banking organizations which provide e-banking services should take the following precautions/responsibility: a) The Banks should hire the services of anti Cyber crime professional to avoid cyber crime b) To take the responsibility of customers transactions c) Create awareness of e-banking services amongst the customers and motivate/encourage them to use it.

Mishra A. K. described that the Internet banking is a cost-effective delivery channel for financial institutions. The author also describes the advantages of internet banking,current status of internet banking in India, and the mechanism to protect the customers data. The advantages of internet banking are: To improve customer access To facilitate more services To increase customer loyalty To attract new customers To provide services offered by competitors To reduce customer attrition

Current status of internet banking is: Throughout the country, the Internet Banking is in the emerging stage of development

In general, these Internet sites offer only the most basic services. 55% are so called 'entry level' sites, offering little more than company information and basic marketing materials. Only 8% offer 'advanced transactions' such as online funds transfer, transactions & cash management services.

 Foreign & Private banks are much advanced in terms of the number of sites & their level of development.

Geetika et.al. discussed the concept of Internet Banking, perception of Internet bank customers, non-customers and issues of major concern in Internet banking. The state of Internet banking in India has been explored using various concepts like E-banking scale, and gap analysis related to the various services and the security features offered. In order to have a clear and focused insight about the perceptions of users (and non-users) about Internet banking a survey was conducted. The findings of the survey provide valuable insights into concern for security, reasons for lower penetration, and likeliness of adoption, which have been used to make useful recommendations.

Radhakrishna Geeta and Pointon Leo

examined the legal issues specific to

internet banking, focusing on the incidence of fraud and its prosecution. The objective of research was to investigate three questions in relation to Malaysia. Firstly, the incidence of fraud in internet banking; secondly, the adequacy of the relevant regulations and statutes; and thirdly, whether the setting up of a cyber court would better facilitate the prosecution of such financial crimes in Malaysia. Technology and the borderless nature of the internet present fraudsters with manifold opportunities. Phishing leads to identity theft and money laundering has been found to be the main threat to internet banking.

The newness of the subject and traditional banking secrecy have contributed to a dearth of legal literature pertaining to issues in internet banking, specific to Malaysia. It was found that the applicability of various existing laws and banking practices to internet banking has not been fully tested in Malaysia and is still evolving.

The study conducted by the authors Jain Abhay and Hundal B. S. the rapid changes in the by new

presented

financial services environmentincreased innovations, globalization and

competition

players,product

technological advancementhave led to a market situation where battle for customers has become intense. In order to rise up to the challenges, service providers are even more interested to enhance their understanding of consumer behavior patterns. This paper Examines the forces that can act as

barriers in mobile banking service adoption.

Security aspects of banking transactions Hebbar Raveendranath (2004) described that the advancements in computing and telecom have revolutionised the financial industry. Banks are developing alternative channels of delivery like ATM, telebanking, remote access, internet banking etc., Some questions that need to be answered are , how can one trust these channels, our personal data and transactions which are driven by technology. Are they reliable and accurate? Is there a way out to independently validate the integrity of information?

If we analyse, why the lack of trust exists, we realize that the primary issues center on the following aspects of information security: Authentication and identity of user: The act of verifying the identity of a user. How to recognize the person dealing on the net? Can one be sure of his or her identity? Confidentiality: How can one be sure that the information transmitted has not been intercepted or viewed by any other party in transit? Integrity: How can one ensure that the information sent, received or stored has not been tampered with the modified at any time? Non-Repudiation: What is the guarantee that a particular transaction or action took place? Would this hold the tests of court of law?

V. Radha

discussed about the technology based opportunities that the

thieves take advantage of and how to limit the frauds by building the future technology accordingly.In her study, the author described the kind of fraud that can happen in the emerging banking scenario as follows:

Mail Spoofing: Sending wrong information to bank customers as if it is from authentic bank sources Web Spoofing: Diverting the customers of a bank to an exactly duplicated forged web site and impersonating those customers on real bank site Attacking the User Computer: To take control of that machine Attacking a Banks Server: To take control of that machine Media tapping: Recording the whole transactions of a bank, or customer etc .and replaying the same for their advantage

Denying Service: Though the server is available, making it not able to render service, by poisoning the Network Infrastructure

The author also described the prevention mechanism to minimize the frauds, by using public key infrastructure (PKI). The PKI assures confidentiality, authenticity, and integrity of information which two or more members exchange.

In a survey conducted by the Online Banking Association, member institutions rated security as the most important issue of online banking. There is a dual requirement to protect customers privacy and protect it against fraud. A multilayered security architecture comprising firewalls, filtering routers, encryption and digital certification ensures that your account information is protected from unauthorized access.

Firewalls and filtering routers ensure that only the legitimate Internet users are allowed to access the system. Encryption techniques used by the bank (including the sophisticated public key encryption) would ensure that privacy of data flowing between the browser and the Infinity system is protected. Digital certification procedures provide the assurance that the data you receive is from the Infinity system.

BANKS TAKEN FOR STUDY PRIVATE SECTOR BANKS 1. Indusland bank 2. Karur vysya bank 3. City Union Bank 4. IDBI bank 5. ICICI bank 6. HDFC bank 7. Lakshmi vilas bank 8. ING vysya bank 9. Karnataka bank 10. Dhanalakshmi bank

PUBLIC SECTOR BANKS 1. State bank of India 2. State bank of Travancore 3. Bank of India 4. Bank of Baroda 5. Punjab national bank

PERIOD OF THE STUDY The reference period of this study is from 2006-2010

Chapter 4

ANALYSIS AND INTERPRETATION Data sources The data for the paper is mainly collected from secondary sources. The data is available in the balance sheets and profit/loss accounts of the banks concerned; this data is compiled and published by the Reserve Bank of India (RBI) in a consolidated manner in its annual statistics on Indian banking.

Methodology The data collected from the secondary sources is treated to derive the VAIC for all banks average, the group average, and each bank separately. Besides this a regression is run to find the coefficients and also to find the linear best fit. Phase I: deriving VAIC steps involved.

Output (OUT) The total of all income/revenue generated during the fiscal year by an organization by selling its goods or services.

Input (IN) All the costs that is incurred by the organization towards purchase of inputs for operating and continuing the business. Here, the employees compensation and other costs incurred on them for training and development would be deducted from total expenses for the simple reason that they would be treated as investment and not expenditure.

Value Added (VA) The difference between the Output and Input is the value created by the organization during the particular financial year: VA = OUT- IN:

Human Capital (HC) All the expenses on compensation and development of employees.

Capital Employed (CE) All the physical and material assets of the organization.

Capital Employed Efficiency (CEE) Ratio of VA to CE. This ratio gives the contribution made by every unit of capital employed to the value added in the organization: CEE = VA/CE:

Human Capital Efficiency (HCE) Ratio of VA to HC. This ratio gives the contribution made by every unit of money invested in human capital to the value added in the organization: HCE= VA/HC:

Value Added Intellectual Coefficient (VAIC) Indicates the intellectual ability of the organization. It is the sum of the HCE and the CEE, and this also measures the intellectual capability of the organization. It can also be denoted as BPI or the Business Performance Indicator. VAIC (BPI)=HCE +CEE:

GAP Index Analysis: The Gap Index has been defined as the percentage of difference in the value of variables between Private Sector Banks (PVB) and Public Sector Banks (PUB) as a ratio of their aggregate value. Gap Index of Human Capital Efficiency (HCE) can be worked out as:

HCE (PVB) HCE (PUB) __________________________ X 100 HCE (PVB) + HCE (PUB)

Table1: Human Capital ,Value Added and capital employed of Private and Public Banks Amount in Rupees Crore HUMAN CAPITAL Year 2006 2007 2008 2009 2010 Public
27378 27803 28660 34564 41032

VALUE ADDED Public 65345 70071 78967 101168 117977 Private 13846 19328 26348 32721 38600

CAPITAL EMPLOYED Public 94345 100071 108967 121178 137877 Private 33846 39328 46378 52712 58600

Private 4077 5276 7114 8526 9427

Interference Table 1 clearly indicates that the amount of human capital in both the private and public sector banks is increasing during the period 2006 to 2010. Public sector banks have an increase of 49.83 per cent in the human capital while the private sector banks have an increase of 131.22 per cent in their human capital. The amount of value added has also increased with the increase in the human capital of the banks. Public sector banks have shown an increase of 80.54 per cent in the value added during the studied period while private sector banks have shown an increase of 178.78 per cent in their value added. In both the public and private banks the value added has shown increase more than human capital.

Human capital is all the Expenses incurred on Compensation and development of employees. Value added is the difference between the Output and Input. It is the value created by the organization during the particular financial year. Output is the total of all income/revenue generated during the fiscal by an organization by selling its goods or services. Input is the sum of all the costs that is incurred by the organization towards purchase of inputs for operating and continuing the business. Here, the employees compensation and other costs incurred on them for training and development would be deducted from total expenses, as they are treated as investment, not the expenditure.

Human Capital includes all the aspects related to the employees in the organization, their training,development, their contribution to the organizational development and also value creation, generation and sustenance. Thus, just by having a large work force with good qualification and experience does not amount to being efficient, Value creation Efficiency mainly depends on the contribution of these employees towards value creation of the organization (Edvinsson, 1997).

Efficiency in using resources plays an important role in determining the strength of the organization.Increase in the value is the major objective of most commercial firms; banks are no exception to this.Measuring the increase in value also becomes challenging when the value itself is being created by intangibles. Human Capital is the skill and creativity of employees which can be further encourage by investing more in their training programs. Human Capital is experience and expertise of employees which increases the efficiency of organizations. More efficient employees will boost Value Added (VA) efficiency of the organization.

Table2: Human Capital Efficiency (HCE) of Private Sector Banks Bank ICICI CUB IDBI HDFC KVB KB INB LVB ING DB mean 2006 4.5928
4.0041 4.2343 5.0646 3.6172 3.8265 3.2089 1.6687 2.2286 1.5524

2007 4.6335 3.9633 4.9084 4.6107 3.9535 3.7623 2.7821 2.3091 1.9616 1.8840 3.4768

2008 4.8293 4.7610 4.8294 3.8935 4.0237 3.1582 2.6094 2.4304 2.0167 1.9388 3.4490

2009

2010

Mean

Rank 1 2 3 4 5 6 7 8 9 10

ACGR (%) 1.07 1.02 0.94 0.91 1.02 0.90 1.02 1.11 1.03 1.00 0.99

Percent 100% 85.70% 83.90% 80.90% 76.10% 61.90% 52.30% 23.80% 19.00% 14.20%

5.5267 6.0536 5.1272 4.4896 4.1926 4.2821 3.4206 3.6024 4.1990 3.3139 3.8087 4.1383 4.4024 3.8371 3.9668 3.5220 2.2613 3.3060 2.9678 3.4225 2.9981 2.3874 2.7974 2.3186 2.0831 2.4969 2.1574 2.4051 1.3546 1.8270 3.4518 3.3827 3.4320

3.3981

Interference Human capital efficiency (HCE) of the private sector banks has been measured in the Table 2 for the period 2006 to 2010. The highest mean value of HCE is 5.1272 of ICICI; while the lowest mean value of HCE is 1.8270 of DB. The annual compound growth rate is highest for the LVB i.e. 1.11 per cent which shows that although the LVB is having a Rank 8 out of 10 for HCE but it has achieved the highest growth in HCE during 2006 to 2010. The lowest annual compounded growth rate is of KB i.e. 0.9 per cent with Rank 6. The overall annual compounded growth rate of all the private sector banks during the period of 2006 to 2010 is 0.99 per cent.

Table 3: Human Capital Efficiency (HCE) of Public Sector Banks Bank SBI SBT BOI PNB BOB Mean 2006
2.8168 2.6644 2.2809 2.3793 2.2584

2007 2.7382 2.7328 2.4839 2.5377 2.4689 2.5923

2008 3.0598 2.7061 3.2337 2.6275 2.6790 2.8612

2009

2010

Mean

Rank 1 2 3 4 5

ACGR (%) 1.07 1.04 1.11 1.09 1.08 1.07

Percent 100% 84.2% 69.20% 53.80% 42.30%

3.4514 3.6005 3.1334 3.1652 2.9864 2.8510 3.8165 3.0491 2.9728 2.9458 3.3473 2.7675 2.8834 3.0993 2.6678 3.2524 3.2165 2.8785

2.4799

Interference Table 3 depicts the Human capital efficiency (HCE) of the public sector banks for the period 2006 to 2010. SBI is having highest mean value of HCE i.e. 3.1334 while the lowest mean value of HCE is 2.6678 of BOB. The annual compound growth rate is highest for the BOI i.e. 1.11 per cent which shows that although the BOI is having a Rank 3 out of 5 for HCE but it has achieved

the highest growth in HCE during 2006 to 2010. The lowest annual compound growth rate has been found for the SBT i.e. 1.04 per cent which is having a

Rank 2. The growth rate for all the public sector banks for the period 2006 to 2010 is 1.07 per cent which is more than the growth rate of private sector banks for the same period.

Classification of banks on the basis of Percentile of Human Capital Efficiency (HCE)

Both the public sector and private sector banks have been classified into four categories on the basis of percentile, calculated by using mean value of HCE of the banks. Table 4: Private Sector Banks
(100-76) Excellent (75-51) Good (50-26) Average (25-0) Poor

ICICI CUB IDBI HDFC KVB

KB INB

LVB ING DB

Table 5: Public Sector Banks (100-76) Excellent (75-51) Good (50-26) Average (25-0) Poor

SBI SBT

BOI PNB

BOB

GAP INDEX ANALYSIS:

Table 6 GAP Index of Mean HCE of Private and Public Banks Year 2006 2007 2008 2009 2010 Private 3.40 3.47 3.45 3.38 3.43 Public 2.48 2.60 2.86 3.25 3.22 Gap Index 15.64 14.33 9.35 2.97 3.15

Percentage Reduction in Gap Index of HCE between Private and Public Banks is 1249 per cent during 2006 to 2010.

Interference

The Gap index has been calculated in the table 6 using the mean values of the HCE of the private and public banks for the period 2006 to 2010. In the year 2006 the gap was highest but the gap is getting reduced year by year. A reduction of 1249 per cent has been found in the gap index during the studied period, which shows that the public sector has made efforts to improve their human capital efficiency.

Value Added Intellectual Coefficient (VAIC)

Table7 VAIC Index of Private and Public Banks

Year Private 2006 2007 2008 2009 2010 3.40 3.47 3.45 3.38 3.43 HCE Public 2.48 2.60 2.86 3.25 3.22 Private 0.69261 0.70021 0.72468 0.83487 0.85566 CEE Public 0.40908 0.49145 0.56811 0.62075 0.65870 VAIC Private 4.09261 4.17021 4.17468 4.21487 4.28566 Public 2.88908 3.09145 3.42811 3.87075 3.8787

Interference

Each banks results are sorted on the basis of VAIC performance, classified as follows:

Top performers VAIC score of above 5; Good performers VAIC score of between 4 and 5; Common performers VAIC score of between 2.5 and 4; and Bad performers VAIC score of below 2.5.

It can be seen that there are very few BANKS from THE Indian private sector among the good performers.

Based on the table 7 private banks are good performers and public banks are comes under common performers.

Chapter 5

Findings & Recommendation: Public sector banks have employed a number of measures to face the competition from private and foreign banks. Public banks have offered the VRS (Voluntary Retirement Scheme), competitive compensation to retain the talented employees, training and retraining of employees.

The public sector banks have focused on the BPR (Business Process Reengineering) to enhance their human capital efficiency. In the banking industry, the Business Process Re-engineering (BPR) means transforming the select processes and procedures with a view to empower the bank with contemporary technologies, business solutions and innovations that enhances the competitive advantage.

Employees of the public sector banks got benefited through empowerment leading to higher job satisfaction, effective job rotation as an additional incentive and effective interface with customers as work load is evenly distributed.

The public sector banks should be able to attract entry level talent by making the recruitment policy less rigid. The public banks should be able to reward and accelerate the track of high performers.

Public banks must have freedom to affect changes related to personnel without any interference from the unions. More accountability to government restricts the decision making of the employees in public banks, which should be reduced.

Conclusion It can be concluded from the above gap analysis that the private sector banks have outperformed than the public sector banks with regard to human capital efficiency.

The gap between the human capital efficiency of both the public and private banks are reducing year by year. Public sector banks have made great efforts to be competent with private banks; by focusing on BPR, VRS options to employees, competent compensation, and development expenditures on employees to improve their skills and knowledge etc.

The main reason behind the lower performance of public banks in HCE is the interference from the government, rigid organisational structure and bureaucratic practices.

The Reserve Bank of India, which is the apex bank, heads the Indian

commercialbanks. The largest group of banks is the State Bank group: it dominates in the market on several parameters discussed in the paper. Other banks, such as foreign banks, domestic private sector banks and regional rural banks, form the broad structure of Indian banking.

The survey results showed that the overall top performers in HCE are clearly the Private sector banks. However, the top performers in CEE were the private sector banks only.

The overall top performers in the value creation efficiency analysis were

the private sector banks.The public sector banks in India seem to have created the huge baggage of a large and inefficient work force, which is not contributing anything to overall value creation.

Thus, it can be concluded that there are vast differences in the intellectual and value creation performance of the Indian banking sector. This paper can be used as a benchmark for evaluating the true performance of banks in India in the emerging competitive environment. The paper looks at the performance of Indian banks from an innovative perspective.

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