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An Analysis Of Operational And Productivity Efficiency Of Public Sector Bank

SYNOPSIS
ON
AN ANALYSIS OF OPERATIONAL AND PRODUCTIVITY
EFFICIENCY OF PUBLIC SECTOR BANK
Submitted in the partial fulfillment of requirement for the
Degree of
Post Graduate Diploma of Management (FINANCE)
(2008-10)

PREFACE
Post Graduate diploma of Management (PGDM) Programmed is one of the most reputed
professional courses in the field of management. This course includes both theory & its
applications as its content of Curriculum. The Research Project is an integral part of the
curriculum and its purpose is to provide the practical exposure of business world in the
changing scenario. In this way it helps the student in development of practical skills and

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analytical thinking process. It makes more aware about the perceptions and tastes of the
people of the corporate world. Thus it helps in molding the students according to the
requirements of the market.
Each student is required to complete a project in his or her field of interest after the
completion of his or her third semester examination. The purpose of this project is to
expose the students on practical and research front of his or her area of interest. The
project gives a unique experience to aspirants who can visualize things what they have
been taught in classroom.
I am fortunate enough to have the opportunity to do a research project on Operational
and productivity efficiency of public sector banks in India. As a complementary to
Project, every student has to prepare and submit a report. It is an attempt to present
practical knowledge & observation gathered during the project.
Chandan Kr. Jha

ACKNOWLEDGEMENT
Gratitude is the hardest of emotions and often one does not find an adequate word to
convey what one feels.
Planning and motivation are two key factors in making any activity a success. Goal
achievement is a result of a group effort rather than individual effort. It has been same in
the case of this report. The cooperation and support of many individuals has made this
project a success.
I wish to express my sincere thanks to MR.ILYAS KHAN for his valuable
guidance and pain taking supervision during course of my present research project work.
His keen interest, timely, constant encouragement and generous cooperation gave me
confidence and strength to progress. His valuable advice, constructive criticism and
suggestion during course of my study really helped me a lot. I also thank Dr. K.K.GARG
HOD OF PGDM DEPT. for providing me the opportunity to work for this project, which
was an excellent learning experience for me.
I am also thankful to all the employees working in the college for their
continuous help and advice at different times.
Specially, I am thankful to my parents and God for their blessings and showing
me the right way at all moments.
(CHANDAN KR.JHA)

LIST OFABBREVIATIONS

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S.B.I. (State Bank of India)
C.B. (Corporation Bank)
B.O.I. (Bank of India)
P.N.B. (Punjab National Bank)
O.B.C. (Oriental Bank of Commerce)
N.P.A. (Non Performing Assets)
C.A.R. (Capital Adequacy Ratio)
T.I. (Total Income)
I.E. (Interest Earned)
R.O.A. (Return on Assets)
R.O.E. (Return on Equity)
F.Y. (Financial Year)
Y-O-Y (Year on Year)
CAGR (Compounding Annual Growth Rate)

INTODUCTION OF STUDY
The study is divided into five chaptersChapter 1:- In this chapter the analysis of the history of banking sector in India and the
reason why banking come in to existence and contribution of banking sector in the
economy is done.
Chapter 2:- In this chapter the scope of the study and what are the objective of the study
and Limitation of the study and why this research s done has been defined.
Chapter 3:- In this chapter the operational analysis of the five major public sector banks
with parameters like interest earned, total income, return on assets, return on equity and
capital adequacy ratio is done.
Chapter 4:- In this chapter productivity analysis of the five major public sector banks
with the parameters like business per employee and profit per employee is done.
Chapter 5:- In this chapter I defined the result of my study and the findings which are
found from the study.

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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 be able to meet
new challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of India's growth
process. The government's regular policy for Indian bank since 1969 has paid rich
dividend. Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days
when the most efficient bank transferred money from one branch to other in two days.
Now it is simple as instant messaging
The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and
Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders.

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In 1865 Allah bad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in India as the
central banking Authority. During those days public has lesser confidence in the banks.
As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility
provided by the Postal department was comparatively safer. Moreover, funds were largely
given to traders.

Phase II
Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a
large scale especially in rural and semi-urban areas. It formed State Bank of India to act
as the principal agent of RBI and to handle banking transactions of the Union and State
Governments all over the country. Seven banks forming subsidiary of State Bank of India
was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried
out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major
commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% of the banking segment in India under
government ownership
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 core.
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.

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Phase III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was
set up by his name which worked for liberalization of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and net banking is introduced.
The entire system became more convenient and swift. Time is given more importance
than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,
the capital account is not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.
Nationalization of Banks in India
The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then
prime minister. It nationalized 14 banks then. These banks were mostly owned by
businessmen and even managed by them.
Central Bank of India
Bank of Maharashtra
Dena Bank
Punjab National Bank
Syndicate Bank
Canara Bank
Indian Bank
Indian Overseas Bank
Bank of Baroda
Union Bank
Allah bad Bank
United Bank of India
UCO Bank
Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was
nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of
Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.
The State Bank of India is India's largest commercial bank and is ranked one of the top
five banks
worldwide. It serves 90 million customers through a network of 9,000 branches and it
offers either directly or through subsidiaries -- a wide range of banking services.
The second phase of nationalization of Indian banks took place in the year 1980. Seven
more banks were nationalized with deposits over 200 crore. Till this year, approximately
80% of the banking and segment in India was under Government ownership.

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After the nationalization of banks in India, the branches of the public sector banks rose to
the tune of
approximately 800% in deposits and advances took a huge jump by
11,000%.
?
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1969: Nationalization of 14 major banks.
1980: Nationalization of seven banks with deposits over 200 crore.
Commercial Banks in India
The commercial banking structure in India consists of:
Scheduled Commercial Banks in India
Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the
act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of
64,918 branches. The scheduled commercial banks in India comprise of State bank of
India and its associates nationalized banks (19), foreign banks (45), and private sector
banks (32)
"Scheduled banks in India" means the State Bank of India constituted under the State
Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of
India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted
under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank
included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but
does not include a co-operative bank.
"Non-scheduled bank in India" means a banking company as defined in clause (c) of
section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled
bank".

The following are the Scheduled Banks in India (Public Sector):


State Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
Andhra Bank

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Allahabad Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Overseas Bank
Indian Bank
Oriental Bank of Commerce
Punjab National Bank
Punjab and Sind Bank
Syndicate Bank
Union Bank of India
United Bank of India
UCO Bank
Vijaya Bank
The following are the Scheduled Banks in India (Private Sector):
Vysya Bank Ltd
Axis Bank Ltd
FINDINGS & CONCLUSION
The major findings of the study are as follows:Profitability: There is some debate about whether profitability measures are appropriate
indicators of performance of public sector enterprises who are required to produce socioeconomic outputs that cannot be reflected in the Balance sheet. This is relevant especially
for the public sector banks in India whose objectives have been more social than
economic. However, the policy makers laid emphasis on profitability as an important
benchmark through which the performance of public sector banks is to be judged in the
post reform era. In the market oriented economy some public sector banks have gone in
for partial privatization and are already listed in the stock market and more banks are
likely to approach the capital market to mobilize additional funds. The improved
profitability is the only key parameter for evaluating performance from the shareholders
point of view. Now it is up to the bank management to decide how to strike a trade-off
between social and commercial banking in order to improve market holdings and services
and play the role of governments agent at the same time. In our study, we found that the
public sector banks are not so much profitable improving over the last 5 years.

Performance of the S.B.I. in terms of return on assets and return on equity is high
in comparison with other banks but with this rate of growth N.P.A. is also growing at
5.83% which should be controlled.

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Performance of the O.B.C. in terms of earning total income and interest earned is
high in comparison with other banks and N.P.A. is also growing at 3.33%. It means
overall performance is better of the O.B.C.

Capital adequacy ratio of the O.B.C. is highest amongst the all public sector banks
showing the capacity of the bank in terms of meeting the time liabilities and other risk
such as credit risk, operational risk is better.

Performance of the Punjab National bank is moderate in terms of all parameters


but N.P.A. is increasing at a higher rate of 7.24% which could be harmful and create
hindrance in the growth of the banks.

S.B.I. performance in terms of business per employee is growing at a higher rate


of 18.00% which shows the overall performance of the bank is better.

O.B.C performance in terms of profit per employee is 5.48% which is very low
showing surplus earned by the employee is very low.
Further more the RBI administers the interest rates of Public sector Banks and they have
little control over the lending and borrowing rates. The private and foreign banks have
traditionally been viewed as high cost operators. The reason for high operating expenses
ratio is that these banks have been spending heavily on technology up gradation which
may affect their profitability in short term but which will improve their long-term returns
as they leverage the technology to provide better customer support. Another reason for
heavy operating expenses ratio is these banks are spending heavily on their advertising
campaign for brand promotion. The nationalized banks do not require spending on
promotions, as Government Bank is still a popular brand for Indian customer as far as
money matters are concerned. However, the situation has changed very fast in these five
years. Public sector banks, in order to compete with the other banks have realized that in
order to remain competitive Technology is the key and are now expending heavily on the
technology up gradation. This fact is reflected in the other operating expenses ratio which
reveals that among Indian banks- public sector banks have higher ratios than their private
counterparts.

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LIMITATIONS OF STUDY:?
Shortage of time was a very big constraint due to which less number of banks has
been included in the study.
?
Availability of data was a constraint due to only those banks data is considered,
which is available, and also there are some banks whose data was not available so their
duration was shortened.
?
In measuring the efficiency it is desirable to use quarterly returns because it gives
us more reliable returns and therefore improve the accuracy of our research. In this case
we have taken Yearly return, which may not give as accurate as with quarterly returns.
?

Generally longer period gives us more accurate estimates of efficiency.

Though every - "precaution has taken due to large data and complex calculations there
may be chances of error

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