Chapter-1Banking industry: An overview

1. Banking History

2. Development of Banking in India

3. Indian Financial System

4. Types of Banks

5. Functions of Commercial Banks

6. Recent Developments in Banking Sector in India

7. Problems faced by banking industry

1

BANKING HISTORY

It may be said that banking in its most simple form is as old as

authentic history. As early as 2000 B.C. Babylonians had developed a

system of banks. In ancient Greece and Rome the practice of granting

credits was widely prevalent. Traces of credit by compensation and by

transfer order are found in Assyria, Phoenicia and Egypt before the system

attained the full development in Greece and Rome. The books of the old

Sanskrit laws giver, Manu, are full of regulation governing credit. He

speaks of judicial proceeding in which credit instrument were called for

interest on loans to banker, usurer and even of the renewal of commercial

papers.

In Rome, the bankers were called Argentarii, Mensaril or Callybistoe.

The banks were called Tabornoe Argentarii. Some of the banks carried

business on their own account and others were appointed by the

governments to receive the taxes. They used to transact their business on

similar lines as those of modern banks. People used to settle their

accounts with their creditors by giving a cheque or draft on the bank. If

the creditors had also an account at the same bank the account was

settled by an order to make the transfer of such money from one name to

another. To pay money by a draft was known as Prescribere and

Rescribere and the draft was known as Attributio. These bankers also

received deposits and lent money. Loan banks were also common in

Rome. From the loan banks the poor citizens received loans without

paying interest. They lent money for a period of three to four years on the

security of land.

Although during the early periods, private individual did banking

business, many countries established public banks either for the purpose

2

of facilitating commerce or to serve the government. The Bank of Venice,

established in 1157, is supposed to be the most ancient bank. Originally, it

was not a bank in the modern sense, being simply an office for the

transfer of the public debt.

As early as 1349 the Drapers of Barcelona carried on the business of

banking. Though it was subject to official regulation, the drapers were not

allowed to commence this business until they had given sufficient

securities. During 1401 a public bank was established in Barcelona. It

used to exchange money, receive deposits and discount bills of exchange

both for the citizens and the foreigners. The Bank of Amsterdam was

established in 1609 to meet the needs of the merchants of the city. It

accepted all kinds of specie on deposits could be withdrawing his deposits

within six months. These written orders were used in the same manner as

modern cheque. In course of time, it is interesting to note that most of the

European banks in existence were formed on the model of the Bank of

Amsterdam.

The beginning of English banking may correctly be attributed to the

London Goldsmiths. They used to receive their customers’ valuables and

funds for safe custody and issue receipts acknowledging the same. These

notes, in course of time, became payable to bearer on demand and hence

enjoyed considerable circulation. In fact, the goldsmith note may be

considered as the precursor of the bank note. The business of the

goldsmith got a rude shock by the ill treatment of the government of

Charles II under the Cable ministry. However, the ruin of goldsmiths

marks turning point in the history of English banking, which resulted in the

growth of private banking and the establishment of the Bank of England in

1694.

Globally, the story of banking has much in common, as it evolved

with the moneylenders accepting deposits and issuing receipts in their

place. According to the Central Banking Enquiry Committee (1931),

3

money lending activity in India could be traced back to the Vedic period,

i.e., 2000 to 1400 BC. The existence of professional banking in India could

be traced to the 500 BC. Kautilya’s Arthashastra, dating back to 400 BC

contained references to creditors, lenders and lending rates. Banking was

fairly varied and catered to the credit needs of the trade, commerce,

agriculture as well as individuals in the economy. Mr. W. E. Preston,

member, Royal Commission on Indian Currency and Finance set up in

1926, observed “… it may be accepted that a system of banking that was

eminently suited to India’s then Requirements was in force in that country

many centuries before the science of banking became an accomplished

fact in England.”

Although the business of banking is as old as authentic history,

banking institution has since then changed in character and content very

much. They have developed from a few simple operations involving the

satisfaction of a few individual’s needs to the complicated mechanism of

modern banking, involving the satisfaction of the capital seeking

employment and providing the very lifeblood of commerce.

DEVELOPMENT OF BANKING IN INDIA

Financial system of any country consists of specialized and non-

specialized financial institutions, of organized and unorganized financial

4

markets, of financial instruments and services that facilitate transfer of

funds. The word “system” in the financial system implies a set of complex

and closely connected and interlinked institutions, agents, practices,

markets, transactions, claims and liabilities in the economy.

Banking in India has its origin as early as the Vedic period. It is

believed that the transition from money lending to banking must have

occurred even before Manu, the great Hindu jurist, who has devoted a

section of his work to deposits and advances and laid down rules relating

to rates of interest. During the Mogul period, the indigenous bankers

played a pivotal role in lending money and financing foreign trade and

commerce. During the days of East India Company, it was the turn of the

agency houses of carry on the banking business.

The “General Bank of India” was the first Joint Stock bank to be

established in the year 1786. The others, which followed, were the “Bank

of Hindustan” and the “Bengal Bank”. The Bank of Hindustan is reported

to have continued till 1906 while the other two failed in the meantime. In

the first half of the 19th century the East India Company established three

banks; “Bank of Bengal” in 1809, the “Bank of Bombay” in 1840 and the

“Bank of Madras” in 1843. These three banks are also known as

“Presidency Banks”. These three banks amalgamated in 1920 and new

bank, the “Imperial Bank of India” was established on 27th January, 1921.

With the passing of the “State Bank of India” Act in 1955 the undertaking

of the “Imperial Bank of India” was taken over by the newly constituted

“State Bank of India”.

The “Reserve Bank of India” as the Central Bank of country was

created in 1935 by passing “Reserve Bank of India” Act 1934. In the wake

of the Swadeshi Movement, a number of banks with Indian management

were established in the country namely, “Punjab National Bank Ltd.” the

“Central Bank of India Ltd” on July 19, 1969, 14 major banks of the

5

country were nationalized and on 15th April, 1980, six more commercial

banks were also taken over by the government.

The Indian banking broadly categorized into Nationalized

government owned banks, Private banks and Specialized Banking

Institution. The “Reserve Bank of India” acts as a centralized body

monitoring any discrepancies and shortcoming in the system. Since the

nationalization of banks in 1969, the public sector banks or the

nationalized banks have acquired a place of prominence and has since

then seen tremendous progress. The need to become highly customer

focused has forced the slow-moving public sector banks to adopt a fast

track approach. The unleashing of product and services through the net

has galvanized players at all levels of the banking and financial

institutions.

Conservative banking practices allowed Indian banks to be insulted

partially from the Asian currency crisis. Indian banks are now quoting a

higher valuation when compared to banks in other Asian countries (viz.

Hong Kong, Singapore, Philippines, etc.) that have major problem linked

to huge Non-Performing Assets (NPA) and payment defaults. Co-operative

banks are nimble footed in approach and armed with efficient branch

networks focus primarily on the ‘high revenue’ niche retail segments. The

Indian banks have finally worked up to the competitive dynamics of the

“new” Indian market and are addressing the relevant issues to take on the

multifarious challenges of globalization. It has come a long way from

being a sleepy business institution to a highly proactive and dynamic

entity. Banks that employ IT solutions are perceived to be futuristic and

proactive players capable of meeting the multifarious requirement of the

large customer base. Private Banks have been fast on the uptake and are

reorienting their strategies using the Internet as medium. The Internet has

emerged as the new and challenging frontier of marketing with the

conventional physical world tenets being just as applicable like in any

other marketing medium.

6

The transformation has been largely brought by the large dose of

liberalization and economic reforms that allowed banks to explore new

business opportunities rather than generating revenues from conventional

streams (borrowing and lending).

The banking in India is highly fragmented with 30 banking units

contributing to almost 50% of deposits and 60% of revenues. Indian

nationalized banks (banks owned by the government) continue to be the

major lenders in the economy due to their sheer size and penetrative

networks which assure them high deposits mobilization. The Indian

banking can be broadly categorized into nationalized, private banks and

specialized banking institutions.

RBI is the foremost monitoring body in the Indian financial sector.

The nationalized banks continue to dominate the Indian banking arena.

Industry estimate indicate that out of 274 commercial banks operating in

India, 223 banks are in the public sectors and 51 are in private sector. The

private sector banks grid also include 30 foreign banks that have started

their operation here.

7

State

Bank o

f India

& its Asso

ciates

Nationali

zed Ban

ks

Forei

gn Ban

ks

Regional

Rural Ban

k

Other Sch

eduale

d Commercial

Bank

Non Sched

uled Commerc

ial Ban

k0

5000

10000

15000

20000

25000

30000

35000

40000

13896

35075

245

14762

6321

25

Under the ambit of the nationalized banks comes the specialized

banking institution. These co-operative, rural banks also focus on area of

agriculture, rural development etc., unlike commercial banks these co-

operative banks do not lend on the basis of a Prime Lending Rate (PLR).

They also have various tax sops because of their holding pattern and

lending structure and have lower overheads. This enables them to give a

marginally higher percentage on saving deposits.

8

Many of these co-operative banks diversified into specialized areas

(catering to the vast retail audience) like car finance, housing loans, truck

finance etc. in order to keep pace with their public sector and private

counterparts, the co-operative banks too have invested heavily in

Information Technology to offer high-end computerized banking services

to its clients. Completing the roles of the nationalized and private banks

are the specialized financial institutions (NBFCs). With their focused

portfolio of products and services, these Non Banking Financial Institution

acts as an important catalyst in contributing to the overall growth of the

financial services sector. NBFCs offer loans for working capital

requirement; facilitate mergers and acquisitions, IPO finance, etc. apart

from financial consultancy services. Trends are now changing as banks

(both public and private) have now started focusing on NBFC domains like

long and medium term finance, working capital requirement, IPO financing

etc. to meet the multifarious needs of the business community.

India Financial System

9

Economic growth and development of any country depends upon a well-

knit financial system. Financial system comprises a set of sub-systems of

financial institutions, financial markets, financial instruments and services

10

Indian Financial System

Financial Market Financial Instruments

Financial Institutes Financial Services

Banking InstitutesNon-Banking Institutes

Scheduled Co-op. BanksScheduled Comm. Banks

Private Sector Banks

Public Sector Banks

Foreign Banks

Regional Rural Banks

which help in the formation of capital. Financial system comprises of four

major components. These components are:

1. Financial Institutions:

These are institutions which mobilize and transfer the savings or funds

from surplus unit to deficit units. These institutions can be classified into,

banking and non-banking institutions. Banking institutions include

commercial banks, co-operative banks and other banks. Non-banking

institutions include organized and unorganized financial institutions.

2. Financial Markets:

This is a place or mechanism where funds or savings are transferred from

surplus units to deficit units. These markets can be broadly classified into

money markets and capital markets. Money market deals with short-term

claims or financial assets less than a year whereas capital markets deal

with those financial assets which have maturity period of more than a

year.

3. Financial Instruments:

The commodities that are traded or dealt in a financial market are

financial assets or securities or financial instruments. There is a variety of

securities in the financial markets as the requirements of lenders and

borrowers are varied. Some of the examples of these financial instruments

are equity shares, preference shares, debentures, bonds, etc.

4. Financial Services:

Financial services include fund based services and fee based services.

Fund based services include Leasing, Hire purchase and Factoring. Fee

based services include Merchant Banking, Credit rating and Merger.

Types of Banks

Central Bank:-

11

Central Bank is apex banking authority in any country. It

usually controls monitory policy and is the lender of last resort in the

event of crisis. They are often charged with controlling the money

supplies, including printing paper money. Example of the central bank is

the European Central Bank and Reserve Bank of India.

Commercial Bank:-

Commercial banks are banking institutions that accept

deposits and grant short-term loans and advances to their customers. It

also provides mid-term and long term loans to business enterprises.

Types of Commercial Banks: Commercial banks are of three types

i.e., Public sector banks, Private sector banks and Foreign banks.

1. Public Sector Banks: These are banks where majority stake is

held by the Government of India or Reserve Bank of India.

2. Private Sector Banks: In case of private sector banks majority of

share capital of the bank is held by private individuals.

3. Foreign Banks: These banks are registered and have their

headquarters in a foreign country but operate their branches in our

country. The number of foreign banks operating in our country has

increased since the financial sector reforms of 1991.

Development Banks:-

Business often requires medium and long-term capital for purchase

of machinery and equipment, for using latest technology, or for expansion

and modernization. Such financial assistance is provided by development

banks.

12

Co-operative Banks:-

People who come together to jointly serve their common interest often

form a co-operative society under the Co-operative Societies Act. When a

co-operative society engages itself in banking business it is called a co-

operative bank state.

Types of Co-operative Banks:

1. Primary Credit Societies: These are formed at the village or town

level with borrowers and non-borrower members residing in one

locality.

2. Central Co-operative Banks: These banks operate at the district

level having some of the primary credit societies belonging to the

same district as their members.

3. State Co-operative Banks: These are the apex (highest level) co-

operative banks in all the states of the country. They mobilize funds

and help in its proper channelization among various sectors.

Specialized Banks:-

There are some banks, which cater to the requirements and provide

overall support for setting up business in specific areas of activities, EXIM

bank, SIDBI and NABARD are examples of such banks. They engage

themselves in some specific area or activity and thus, are called

specialized banks.

13

1. Export Import Bank of India (EXIM Bank): If you want to set up

a business for exporting products abroad or importing products from

foreign countries for sale in our country, EXIM bank can provide you

the required support and assistance.

2. Small Industries Development Bank of India (SIDBI): If you

want to establish a small-scale business unit or industry, loan on

easy terms can be available through SIDBI.

3. National Bank for Agricultural and Rural Development

(NABARD): It is a central or apex institution for financing

agricultural and rural sectors. If a person is engaged in agriculture

or other activities like handloom weaving, fishing, etc. NABARD can

provide credit, both short-term and long-term, through regional rural

banks.

Functions of commercial banks

However the commercial role of banks is wider than banking and includes:

Issue of banknotes (promissory notes issued by a banker and

payable to bearer on demand).

14

Processing of payments by way of telegraphic transfer, EFTPOS,

internet banking or other means.

Issuing bank drafts and bank cheques.

Accepting money on term deposit.

Lending money by way of overdraft, installment loan or otherwise.

Providing documentary and standby letters of credit (trade finance),

guarantees, performance bonds, securities underwriting

commitments and other forms of all balance sheet exposures.

Safekeeping of documents and other items in safe deposit boxes.

Currency exchange.

Sale, distribution or brokerage with or without advice of insurance,

unit trusts and similar financial products as a ‘financial

supermarket’.

Recent Developments in Banking Sector in India

The Reserve Bank and government has initiated a host of measures

for the creation of a competitive environment and to improve efficiency of

banking sector. The first phase of reform includes nationalization of the

bank to achieve social objectives. Second phase of reforms started with

liberalization of the sector in early nineties. After India embarked upon the

process of liberalization and regulation, reforms have been undertaken in

the following areas:

15

The control, regulation and supervision of the banking system has

also been liberalized with full freedom to the banks in conducting the

banking business subject to prudential norms and other regulatory

requirements of the Reserve Bank of India. Controls on credit have also

been relaxed except certain requirements of lending to priority sector.

Interest rates are deregulated.

The Bank’s rights have been strengthened by enactment of

following laws:

1. The Recovery of Debts due to Banks and Financial Institutions Act,

1993 (DRT Act) – Under DRT Act Debt Recovery Tribunal was set up

for Recovery of loans of banks and financial institutions. These

tribunals are functioning efficiently which can be seen from the fact

that average recovery period is one year as against 5 to 7 year of

civil court.

2. The best indicator of the health of the banking industry in a country

is its level of NPAs. Indian banks seem to be batter placed then their

Asian neighbors in this regard. The net NPA ratio of Indian scheduled

commercial bank stands at 2.9% as per 2004 figures. A few banks

have even managed to reduce their net NPAs to less than one

percent (before the merger of Global Trust Bank into Oriental Bank

of Commerce, OBC was a zero NPA bank.) This has largely been

possible due to SARFAESI (Securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest) Act, 2002.

This act has empowered banks with regard to recovery of defaulted

loan.

3. To enhance risk management skills, to correct mismatch between

assets and liabilities RBI has issued ALM (Assets-Liability

16

Management) and risk management guidelines. The guidelines

require that banks should give importance to credit risk.

Major Reform Initiatives

Some of the major reform initiatives in the last decade that have

changed the face of the Indian banking and financial sector are:

Interest rate deregulation. Interest rates on deposits and lending

have been deregulated with banks enjoying greater freedom to

determine their rates.

Adoption of prudential norms in terms of capital adequacy, asset

classification, income recognition, provisioning and exposure limits,

investment fluctuation reserve, etc.

Reduction in pre-emption – lowering of reserve requirements (SLR

and CRR), thus releasing more lendable resources which banks can

deploy profitably.

Banks now enjoy greater operational freedom in terms of opening

and swapping of branches and banks with a good track record of

profitability have greater flexibility in recruitment.

New private sector banks have been set up and foreign banks

permitted to expand their operations in India including through

subsidiaries. Banks have also been allowed to set up Offshore

Banking Units in Special Economic Zones.

New areas have been opened up for bank financing, insurance,

credit cards, infrastructure financing, leasing, gold banking, besides

of course investment banking, asset management, factoring, etc.

New instruments have been introduced for greater flexibility and

better risk management. E.g. interest rate swaps, forward rate

agreements, cross currency forward contracts, forward cover to

17

hedge inflows under foreign direct investment, liquidity adjustment

facility for meeting day-to-day liquidity mismatch.

Several new institutions have been set up including the National

Securities Deposits Ltd., Central Depositories Services Ltd., Clearing

Corporation of India Ltd., Credit Information Bureau India Ltd.

Limits for investment in overseas markets by banks, mutual funds

and corporation have been liberalized. The overseas investment

limit for corporate has been raised to 100% of net worth and the

ceiling of $100 million on prepayment of external commercial

borrowings has been removed.

Universal Banking has been introduced. With banks permitted to

diversify into long-term finance and DFIs into working capital,

guidelines have been put in place for the evolution of universal

banks in an orderly fashion.

Technology infrastructure for the payments and settlement system

in the country has been strengthened with electronic funds transfer,

Centralized Funds Management System, Structured Financial

Messaging Solution and Negotiated Dealing System and move

towards Real Time Gross Settlement.

Adoption of global standards, prudential norms for capital adequacy,

asset classification, income recognition and provisioning are now

close to global standard. RBI has introduced Risk Based Supervision

of banks (against the traditional transaction based approach). Best

international practices in Accounting systems, corporate

governance, payment and settlement system, etc. are being

adopted.

Credit delivery mechanism has been reinforced to increase the flow

of credit to priority sectors through focus on micro credit and Self

Help Groups.

RBI guidelines have been issued for putting in place risk

management systems in banks. Risk Management Committees in

18

banks address credit risk, market risk and operational risk. Banks

have specialized committees to measure and monitor various risks

and have been upgrading their risk management skills and systems.

The limit for foreign direct investment in private banks has been

increased from 49% to 74% and the 10% cap on voting rights has

been removed. In addition, the limit for foreign institutional

investment in private banks is 49%.

Wide ranging reforms have been carried out in the area of capital

markets. Fresh investment in CPs, CDs are allowed only in

dematerialized form. SEBI has reduced the settlement cycle from

T+3 to T+2 from April 1, 2003 i.e. settlement of stock deals will be

completed in two trading days after the trade is executed, taking

the Indian stock trading system ahead of some of the developed

equity markets. Stock exchanges will set up trade guarantee funds.

Retail trading in Government securities has been introduced on NSE

and BSE from January 16, 2003. A Serious Frauds Office is proposed

to be set up. Fungibility of ADRs and GDRs allowed.

Problems faced by banking industry

Efficiency:

This in turn has made it necessary to look for efficiencies in the

business. Banks need to access low cost funds and simultaneously

improve the efficiency. The banks are facing pricing pressure, squeeze on

spread and have to give thrust on retail assets.

Diffused customer loyalty:

This will definitely impact customer preferences, as they are bound

to react to the value added offerings. Customers have become demanding

and the loyalties are diffused. There are multiple choices; the wallet share

19

is reduced per bank with demand on flexibility and customization. Given

the relatively low switching costs; customer retention calls for customized

service and hassle free, flawless service delivery.

Misaligned mindset:

These changes are creating challenges, as employees are made to

adapt to changing conditions. There is resistance to change from

employees and the seller market mindset is yet to be changed coupled

with. Fear of uncertainly and control orientation. Acceptance of

technology is slowly creeping in but the utilization is not maximized.

Competency gap:

Placing the right skill at the right place will determine success. The

competency gap needs to be addressed simultaneously otherwise there

will be missed opportunities. The focus of people will be on doing work but

not providing solutions, on escalating problems rather than solving them

and on disposing customers instead of using the opportunity to cross sell.

Chapter-2BOB Overview

1. History of BOB

2. Management team, bankers & auditors

3. General Meeting

4. Reserve Fund

5. Leave Rule

20

History of BOB

Prior to independence from the British Rule, the ancient India was

ruled by princely states, scattered over the width and breadth of the large

Indian nation.  The Maharajas of the inner States of colonial India

contributed to the welfare of their respective regions as well as the Indian

nation as a whole

The Maharaja of Baroda, a princely state of British India, by name Sir

Sayyajirao Gaekwad III, had the same vision in establishing a bank for

servicing the public at large and the citizens of Baroda State, a Gujarati

population in particular. On 20th July 1908, Bank of Baroda was

established under the rules of Companies Act 1897, in a small building at

Baroda, by the Maharaja with a paid up capital of Rs.10 lakhs. The

guidelines set by the Maharaja for the bank was to serve the people of the

21

State of Baroda as well as the neighboring regions with money lending,

saving, transmission and encouraging the development of arts, science,

commerce and trade for the people.

The success story of the Bank of Baroda is studded with many a

leaps and strides it made in the International presence, apart from

establishing branches all over the Indian nation, by acquisition of already

popular banking entities, as also commencing new commercial banking

establishments, in the unique Gujarati style. During the years of 1908 to

2007 (and the century year being round the corner) Bank of Baroda’s

growth owes to the excellence in rendering financial products and services

to the national and international population. Countries beginning from

America to Zambia, in the alphabetical order have been enjoying the

services of Bank of Baroda as of today.

Bank of Baroda is Nationalized scheduled Commercial Bank in public

sector. The head office of BOB is in Baroda and corporate office in

Mumbai, India. The Bank now (as on Oct 2009) has a wide network of over

3028 branches in India and 76 foreign branches, and thousand networked

ATM’s.

Mr. M.D. Mallya is the Chairman \ Managing Director of BOB in Year

2008-2009. As on 20th July, 2008 the Bank completed its centenary year,

for BOB it is a long and eventful journey over 100 years and across 25

countries.

22

MANAGEMENT TEAM, BANKERS & AUDITORS

Board of Directors

M. D. Mallya : Chairman and Managing director

Vinay A. Shah : Co. Secretary & Coml. Officer

Masarrat Shahid : Director

Alok Nigam : Director

Deepak B. Phatak : Director

Ajay Mathur : Non Official Part Time Director

Satya Dev Tripathi : Non Official Part Time Director

Dharmendra Bhandari : Director

R. K. Bakshi : Executive Director

N. S. Srinath : Director

Maulin A. Vaishnav : Director

R. Gandhi : Director

23

Auditor

N. C. Banerjee & Co.

Brahmayya & Co.

Khimji Kunverji & Co.

S. K. Kapoor & Co.

Ashwani & Associates

Haribhakti & Co.

GENERAL MEETING

1) The powers which have to be given to the annual general meetings, the

same will be to the shareholder as well as first general meeting also.

2) The meetings, annual general meeting and special general meeting of

the organization will be of two types. Annual general meeting will be in

the three months from the government year 31st march which is called by

the administration committee and special general meeting will be called

under sub section-20.

3) The work of annual general meeting is as under:

1. To read and to permit the works of the next general meeting.

2. To take a report from the administration committee about the

accounting statements and works of the previous year of the organization.

3. To appoint the local audit for checking the accounts during the

year and time to time.

24

4. To appoint about the appointment given by govt. officer account

checking list come from audit and to think about the other important

communication letters which is come from the govt. officer.

5. To concentrate the report of works of organization during the

present year and to think about the next year considering the present

year’s report.

6. Any activity doing continue or stop which is according to the

objective of organization, the decisions taken about this matter.

7. To think about the other works which is presented in the

meetings and also for the benefit of the organization the permission of

the head is necessary.

25

RESERVE FUND

1) Over and above of admission fee, forfeited share, penalty and reward,

a fund amount which is taken form annual Net profit, will be transferred to

reserve fund account. Personal right of any share- holder will not be

claimed on such reserve fund.

2) A loss which is occurred due to working activities during the year can

be balanced from reserve fund after taking the permission of officer, but

such amount will have to be credited to reserve fund from the next year’s

profit.

26

LEAVE RULE

Leave rules for employee of union will be as under.

(a) Casual leave:-

12 casual leaves will be granted during the year.

(b) Earned leave:-

Earned leaves will be granted for 30 days and these leaves can be

accumulated for 240 days maximum. If an employee does not want to

avail these leaves, union can pay cash for these leaves to concern

employee as per full pay.

But at the encashment for such leaves, permission should be given

after the consideration of financial condition of society, circumstances and

financial capability. An employee can convert their leaves to cash, ones

time during the every two Years.

(c) Sick leave:-

15 days sick leaves will be allowed during every year, with pay.

Except such type leaves, special sick leaves will be permitted as a special

case by the management committee as per need on the basis of doctor

certificated without pay.

27

Chapter-3Research Methodology

1. Introduction

2. Title of the Research Study

3. Objectives of the study

4. Period of the study

5. Research design

6. Universe of the study

7. Sources of sample units

8. Scope of the study

9. Accounting Techniques

10. Limitations of the study

28

1. Introduction:

The growth of any country depends upon the strength of its Banking

sector. The economic enrichment and upliftment of social life depends

upon the Banking sector of that country. The banking sector which reflects

financial function of the country plays a crucial role in transforming the

small savings into the large capital. Thus the banking sector boosts the

economic growth of the country.

In 1969 and 1980, the government nationalized the major banks in

the private sector. Since that time no new bank could have been setup in

India, though there was no legal bar to that effect. After the

recommendation of the Narsimham Committee on financial sector

reforms, the Reserve Bank of India issued guidelines for the setup of new

banks in the private sector in January, 1993. The guidelines ensure that

the new banks are financially viable and technologically modern from the

very beginning. It means these banks will function in a professional

manner, so that the banking system in India can improve image and win

the confidence of the public.

The project report attempts to analyze the productivity of Bank of

Baroda. Thus the present project work makes an in depth study of the

productivity of BOB in India during the 4 years.

2. Title of the Research Study:

29

In the present research work title of research study is “A Ratio

Analysis of Bank of Baroda”.

3. Objectives of the Study:

No work is started without any objective. The present project work

has also some objectives. The present project report works has been

under taken keeping in view the following objectives:

1. To understand and identify the major trends in the banking operations of

Bank of Baroda.

2. To understand the various trends in productivity of capital of BOB.

3. To understand the various trends in productivity of employee of BOB.

4. To understand the various trends in productivity of branch of BOB.

4. Period of the study:

The present study has been made covering the period of last 4

years i.e. year 2006-07 to 2009-10. There is no special reason to choose

this time period for the purpose of study.

30

5. Research Design:

According to Claire Selltiz, “Research Design is the arrangement of

conditions for collection and analysis of data in a manner that aims to

combine relevance to the research purpose with economy in procedure.”

Research Design includes conceptual structure within which the

research has been conducted, it is the blue print for the collection

measurement and analysis of the data.

In short, research design suggests the decision regarding what,

where, when, how much, by what means an inquiry on a research study is

conducted.

6. Universe of the study:

Universe of the study consists of all the banks working in India. Banking

industry of India consist of the following segments.

1. Scheduled to commercial banks in public sector:

(a) First 14 Nationalized Banks.

(b) Second 6 Nationalized Banks.

(c) SBI and its subsidiaries.

(Total 20 Nationalized Banks but now only 19 Banks are there.)

2. Scheduled commercial bank in private sector:

(a) 21 old private banks. (Before 1994)

(b) 9 new private banks. (1994 and afterward)

3. Foreign banks: 36 Foreign Banks are working as on 31-3-2003.

31

7. Sources of Sample Units:

The present study is mainly based on secondary data obtained from

the issues of IBA bulletin and Annual Report of BOB.

To supplement the data, different publication, bank quest, various

books, periodicals, journals and different websites related with banking

industry etc. have been used for better reliability.

8. Scope of the study:

In the present research study researcher has selected only Bank of

Baroda from the whole banking industry. To analyse the productivity of

capital, employee and branch and its ratio analysis , researcher has used

various ratios like Business per unit of capital, Net Profit per Unit of

Capital, Interest Income per Unit Of Capital, Non-Interest income per unit

of Capital, Interest Expenditure per unit of capital, Business per Employee,

Net Profit per Employee, Net total income per employee, Working fund per

Employee, Business per Branch, Net Profit per Branch.

9. Accounting Techniques:

I have picked up the technique to suit the requirement and also on the

basis of data availability. Ratio analysis has been used as accounting

technique which is used for the analysis financial statement of the

selected units.

Ratio analysis means the process of computing, determining and

presenting relationship of items and group of items in the financial

appraisal. Ratio expresses the numerical relationship between two figures.

Accounting ratios are used to describe significant relationship, which exist

between figures shown on a balance sheet, in a profit and loss account, in

32

a budgetary control system or in any other part of the accounting

organization.

10. Limitations of the Study:

The present project work is having certain limitations which are as follows:

The data which is used for this study is based on annual reports of

the bank and secondary data collected from RBI & IBA Bulletins

published from time to time. Therefore the quality of this project

work depends on quality and reliability of data published in annual

reports.

There are different methods to measure the productivity of the

banks. In this connection, view of experts differed from one another.

The present project work is largely based on ratio analysis, such

analysis has its own limitations, which also applies to the study.

This study is related with only one bank viz. BOB. Any generalization

for universal application cannot be applied here.

Chapter-4Financial Highlights

33

1. Statistical Analysis

2. Financial Highlights

3. Profit & Loss A/c of Bank of Baroda

4. Balance sheet of Bank of Baroda

Statistical Analysis

34

The heart of any research process lies in analysis and interpretation

of data. One must collect the data, analyses and interpret according to the

research plan. “The term analysis refers to the computation of certain

measures along with searching for patterns of relationship that exist

among data group”.

As per the Oxford Advanced Learner’s Dictionary, Interpretation

means the particular way in which something is understood or explained.

“Interpretation refers to the task of drawing inferences from the collected

facts after an analytical and, or experimental study. In fact, it is a search

for broader meaning of research findings”. Interpretation is must for the

usefulness and utility of research finding. I can come to know through

interpretation why findings are, what they are and can make others

understand the real significance of research findings.

In the present project work, I have includes the ratio analysis of

productivity of the BOB Bank.

Financial Highlights

35

Sr. No. Particulars   2006-07 2007-08 2008-09 2009-10

1 CapitalIn

Crores 365.53 365.53 365.53 365.532 Reserve and Surpluses " 8284.41 10678.40 12470.01 14740.863 Owned Funds " 8649.94 11043.93 12835.54 15106.39

4 Deposits "124915.9

8152034.1

2192396.9

5241044.2

65 Borrowings " 1171.15 3927.05 5636.09 13350.096 Other liabilities & Provisions " 8683.69 12594.41 16538.15 8815.97

7 Total Assets/ Liabilities "143146.1

7179599.5

1227406.7

2278316.7

18 Contingent Liabilities " 61375.31 82362.32 73386.09  9 Cash and Balances with RBI " 6413.52 9369.72 10596.34 13539.97

10

Balances with Banks and Money at Call and Short Notice " 11866.85 12929.56 13490.77 21927.09

11 Investments " 34943.63 43870.07 52445.88 61182.38

12 Advances " 83620.87106701.3

2143985.9

0175035.2

913 Fixed Assets " 1088.81 2427.00 2309.72 2284.7614 Other Assets " 5212.50 4301.83 4578.12 4347.2215 Interest Income " 9212.64 11813.48 15091.58 16698.3416 Other Income " 1173.24 2051.04 2757.66 2806.3617 Total Income " 10385.88 13864.51 17849.24 19504.7018 Interest Expenditure " 5426.56 7901.67 9968.17 10758.8619 Other Operating Expenses " 2544.31 2934.29 3576.06  20 Total Expenses " 9359.41 12428.99 15622.03 16446.4021 Provisions and Contingencies " 1388.54 1593.03 2077.80  22 Net Profit/ Net Loss " 1026.46 1435.52 2227.20 3058.3323 Spread " 3786.08 3911.81 5123.41  24 Staff In Nu 38086 36774 36838  3896025 Branches " 2772 2899 2974  314826 Interest Income as % to Assets In % 7.22 7.63 7.78  

27Non Interest Income as % to Assets In % 1.11 1.32 1.42  

28Operating Profit as % to Assets In % 1.94 1.89 2.22  

29 Return on Assets In % 0.72 0.80 0.98  

30 Business Per EmployeeIn

Crores 5.48 7.04 9.13  

31 Net Profit Per EmployeeIn

Lakhs 2.70 3.90 6.05  32 Capital Adequacy Ratio " 11.80 12.91 12.88  

36

Profit & Loss A/c of Bank of Baroda

ParticularsRs in Cr. As on

2009-10 2008-09 2007-082006-

07

Income        

Interest Earned16698.3

415091.5

811813.4

89212.6

4

Other Income 2806.36 2757.66 2051.041381.7

9

Total Income 19504.7 17849.2 13864.510594.

4Expenditure        

Interest expended10758.8

6 9968.17 7901.675426.5

6

Employee Cost 2350.88 2348.13 1803.761644.0

6Selling and Admin Expenses 1627.56 885.24 927.2 646.25Depreciation 230.86 230.5 232 194.28

Miscellaneous Expenses 1478.21 2189.99 1564.361656.8

1Preoperative Exp Capitalised 0 0 0 0

Operating Expenses 4711.23 3844.66 3370.272771.4

5

Provisions & Contingencies 976.28 1809.2 1157.051369.9

5

Total Expenses 16446.4 15622 124299567.9

6

Net Profit for the Year 3058.33 2227.2 1435.521026.4

6Extraordinary Items 0 0 0 0Profit brought forward 0 0 0 0

Total 3058.33 2227.2 1435.521026.4

6Preference Dividend 0 0 0 0Equity Dividend 639.26 383.56 340.94 252.46Corporate Dividend Tax 0 0 0 0Per share data (annualised)        Earning per Share (Rs) 83.96 61.14 39.41 28.18Equity Dividend (%) 150 90 80 60

37

Book Value (Rs) 414.71 352.37 303.18 237.46Appropriations        Transfer to Statutory Reserves 1162.07 1136.23 444.23 271.5Transfer to Other Reserves 1257 707.41 650.35 502.5Proposed Dividend/ Transfer to Govt 639.26 383.56 340.94 252.46Balance c/f to Balance Sheet 0 0 0 0

Total 3058.33 2227.2 1435.521026.4

6

Balance Sheet of Bank of Baroda

ParticularsRs. In Cr. As On

2009-10 2008-09 2007-08 2006-07

Capital and Liabilities:        Total Share Capital 365.53 365.53 365.53 365.53Equity Share Capital 365.53 365.53 365.53 365.53Share Application Money 0 0 0 0Preference Share Capital 0 0 0 0Reserves 14740.86 12470.01 10678.4 8284.41Revaluation Reserves 0 0 0 0Net Worth 15106.39 12835.54 11043.93 8649.94Deposits 241044.26 192396.95 152034.13 124915.98Borrowings 13350.09 5636.09 3927.05 1142.56Total Debt 254394.35 198033.04 155961.18 126058.54Other Liabilities & Provisions 8815.97 16538.15 12594.41 8437.7Total Liabilities 278316.71 227406.73 179599.52 143146.18         Assets        Cash & Balances with RBI 13539.97 10596.34 9369.72 6413.52Balance with Banks, Money at Call 21927.09 13490.77 12929.56 11866.85Advances 175035.29 143985.9 106701.32 83620.87Investments 61182.38 52445.88 43870.07 34943.63Gross Block 4266.6 3954.13 3787.14 2244.62Accumulated Depreciation 1981.84 1644.41 1360.14 1155.81Net Block 2284.76 2309.72 2427 1088.81

38

Capital Work In Progress 0 0 0 0Other Assets 4347.22 4578.12 4301.83 5212.5Total Assets 278316.71 227406.73 179599.50 143146.18Contingent Liabilities 77997.01 64745.82 75364.33 54999.86Bills for colleciton 27949.6 22584.64 15105.51 12976.53Book Value (Rs) 414.71 352.37 303.18 237.46

Chapter-5CONCEPTUAL FRAME WORK OF PRODUCTIVITY IN

BANKING SECTOR

1. Introduction

2. Meaning of Productivity

3. Productivity in Banks

4. Measuring of Productivity in Banks

A.Productivity of Capital

B. Productivity of Employee

C. Productivity of Branch

39

INTRODUCTION:

The concept of productivity has a lot of importance because it is an

index of economic welfare. That’s why the I have selected it as the main

topic of this research. The link between productivity and economic growth

is almost self-evident. Productivity plays a significant role in increasing the

production per unit of input and thereby increasing national income. It is

very closely linked with the survival of nation. So it is a fact that the

productivity is a basic requirement for obtaining the economic, social,

political and institutional goals and for raising the standard of living of the

people and to enable the country to join the group of the developed

countries.

From the organizational point of view, the ‘productivity’ is a crucial

or vital parameter to measure long term industrial growth and

competitiveness. It is the true source of competitive advantage as well as

social stability.

‘Productivity’ is the major goal of all organizations. It is vital for the

survival of an organization. The growth of an organization depends on the

productivity and this makes this concept central and crucial. It is the key

to the economic health of every organization. That’s why this concept has

gained importance in recent years and it has become the pre-requisite for

the organizational success.

40

The productivity of any manufacturing unit can be measured easily

but it is very difficult to measure the productivity of a service unit like

bank as the service cannot be quantified easily. Hence, the I have

developed some comprehensive formulae to measure the productivity of

the bank.

MEANING OF PRODUCTIVITY

The term ‘productivity’ is controversial. Therefore it has got

different meaning for different people. It means the relationship between

output and input, for the economists. To behaviouralists, it means an

attitude of mind. It is a mere cost reduction concept for the cost

accountant. To engineers it is machine utilization. And it means

profitability for the managers. So, ‘productivity’ is a multi-dimensional

concept and each person can draw its meaning to fit his situation.

The dictionary meaning of productivity is ‘output per unit of input’, it

means the yield obtained from any process or product by employing one

more factors of production. In short, it is the ratio of output to input. It is

not merely the measure of production but the ratio of efforts to result.

It may be defined as a practical measurement relating to the total

output of any one of the measurable factors of production, in a ratio,

preferring the scarce or predominant nature of the input. As a ratio

between output and input, it denotes a quantitative relationship between

what is produced and what is introduced into the process. Thus, it is a

measure of how well resources are utilized to achieve organizational

objectives.

Productivity refers to a comparison between the quantity of goods

or services produced and the quantity of resources employed in turning

41

out these goods or services. Thus, it measures the ability to produce. The

productivity measures how well resources are expended in the context of

accomplishing a mission or a set of objectives.

Productivity signifies continual striving toward the economically

most efficient mode of production of goods, commodities and services

needed by a society.

The concept of productivity must be broad enough to denote the

purpose for which it is measured. The productivity index, as a ratio,

measures how well resources are expended in the context of

accomplishing a mission or a set of objectives. It is the measure of how

specified resources are managed to accomplish timely objectives stated in

terms of quantity and quality.

In a general sense, productivity represents a close integration of

effectiveness and efficiency. It is a combination of effectiveness and

efficiency of a system. It implies effective and efficient use of available

and potential resources. Peter Drucker has distinguished between

efficiency and effectiveness, stating that while the former is “doing things

right”, the letter means “doing right things”. Efficiency indicates optimum

utilization of resources and effectiveness being the achievement of

performance results. It is achieving the highest result possible while

consuming the least volume of resources. How will resources are brought

together and utilized is indicated by the ratio of the volume of results

called output to the volume of the resources called input.

Thus, productivity denotes the relationship between the use of

inputs and outputs obtained from them. It can be expressed as under.

Productivity =

=

42

OutputInput

Performance achievementResources consumed

=

PRODUCTIVITY IN BANKS

Banking belongs to service sector. It provides variety of services to

its customers. The basic service of a bank is to accept the deposits, repay

them on demand and lend credit for productive investment. So, its

operations are known as financial transactions. These financial

transactions are aimed at satisfying certain needs of the society. The

service of banking unit is deposit oriented and credit oriented.

The banking services have the following characteristics:

The services of a bank are highly intangible in nature.

Banking services are produced, delivered and consumed instantly.

Banking services are spread over a wide range.

Environments affect the type and number of services provided by

the bank.

Growth in bank services must be perfectly guided by the tradeoff

between risk and return.

They are multiplicative.

As we know the services are not easily quantifiable, it is very difficult to

measure the productivity of a service unit like bank. The concept of

productivity is new to the banking. The banking industry has started

playing its role in the Indian society very recently. It is very difficult to

measure productivity in banking industry but it is the only solution to

many problems of banking system. The challenges of growth and

development can only be met with through improved productivity. It is

true that the productivity cannot be measured easily but it can be

experienced by some comprehensive ways such as the achievement of

the given targets, exploration of new markets and identification of

43

EffectivenessEfficiency

potential locations for branch expansion etc. such measures can give the

idea of productivity of a bank.

In the productivity analysis, we need to find the answers of the

following questions first.

Which resources are utilized?

How are the resources measured?

How is the value determined?

Is the timescale of measurement important?

What is achieved within how much time?

To what extent the resources are used effectively and efficiently to

achieve specified target within the specified time limit?

To what extent a particular bank has achieved the socio-economic

objectives?

Answering the above questions will give the idea of the productivity of

a particular bank.

Here, though the social objectives are necessary, they should not lead

to inefficiency. Therefore, the productivity measurement must be based

on both fulfillment of social objectives and financial viability.

44

The concept of productivity is easily applicable to the industrial sector

but it becomes obscure in service organizations like bank. Since the

banking sector provides variety of services, they are difficult to be

measured. It is difficult to set parameters for bank productivity since their

operations are directive and various other social compulsions also exist.

Despite these complexities, there are many such areas where norms of

productivity are applicable. If we think the bank productivity in broader

sense, it can be said that the productivity can be judged by the extent to

which the bank is responsive to the needs of the economy.

Even if these indicators will not describe the complete story of the bank

productivity, one can get signals so that the need of changes can be

found out. It is quite clear from the discussion that mere input and output

ratios cannot give us the perfect idea of the bank productivity but more

comprehensive and multidimensional approaches are required. The

present project work describes such approaches that are useful to

measure productivity of a bank.

MEASURING PRODUCTIVITY IN BANK

45

Introduction:

In the service sector the productivity of the unit depends on the

human skills. The human skills are very important for achieving high

productivity levels. The banking industry is the service industry. So its

productivity also depends on the human skills or we can say the

employees of the bank. The productivity of the service unit like bank

depends also on the other factors like the trade and inters relationship in

the key economic, commercial, political and social issues. The productivity

can be improved if the performance of these factors can be improved.

Productivity means the ratio of output to input for a specific

production system. The productivity can be said to be improved if the

output is increased by the same amount of input or less amount of input is

used to produce the same amount of output.

The productivity of any manufacturing unit can be measured easily

because its output can be quantified easily. But the service unit like bank

provides the variety of services which are very difficult to measure or they

cannot be quantified. So it is very much necessary to develop a

comprehensive and multidimensional approach. The traditional norms of

measurement have to be replaced by more relevant and comprehensive

norms.

The above discussion clarifies that it is not easy to measure the

productivity of a service unit like bank. So the comprehensive and

multidimensional approaches are required to measure the productivity of

a bank. The I have selected the three major areas in which the

productivity of bank can be measured. They are:

A. Productivity of Capital

46

Banking sector is a combination of man power as well as the capital.

Here capital means total resources (Total liabilities or total assets) of a

bank as on a particular date. In the modern age the use of mechanization

and automation has taken the place of use of manpower to the effective

use of capital. The effective use of capital can help a bank to achieve

decided goals. I have used the following ratios to measure productivity of

capital of the bank.

1. Business Per Unit of Capital

2. Net Profit per Unit of Capital

3. Interest Income per Unit Of Capital

4. Interest Expenditure per unit of capital

B. Productivity of Employee

The banking sector is a service sector where human skills are very

important to achieve high productivity level. Here, the manpower forms a

large portion of the operation. The measurement of productivity of

employee becomes very necessary in this case. The productivity of

employee in a particular industry or plant is the ratio of the output of that

industry or plant to employee input in the industry or plant. But the

meaning of ‘input of employee’ varies. Here employee productivity means

the volume of output achieved in a particular period in relation to the sum

of direct and indirect efforts involved in the production of a given output.

The following ratios are used to measure the employee productivity of the

bank.

5. Business per Employee

6. Net Profit per Employee

7. Net total income per employee

8. Working fund per Employee

C. Productivity of Branch

47

This is the age of decentralization. We can see that the

organizations are spreading their ranges of task. The same is the cases

with banking sector. The banks have opened several branches to provide

their services to the society. In this manner, the banks are providing place

utility to the people. In this situation it is necessary to measure the

productivity of the branches of a bank. The branches can prove to be

profitable only if their productivity is met with the decided objectives. The

following ratios are used by me to measure the branch productivity of the

bank.

9. Business per Branch

10. Net Profit per Branch

I have used various ratios to measure the productivity of all these

three areas.

A. Productivity of Capital:

1) Business per Unit of Capital

48

To know the capital productivity of a bank, the best ratio that

can be used is business per unit of capital. Here total capital employed

means working fund i.e. Total assets or total liabilities. If this ration is high

the productivity of capital is high. And if this ratio is low the productivity

is low.

Formula:-

Business Per unit of Capital = Business

Working fund

Where,

Business = Deposits +Advances of the bank.

Working fund = W.F. are total resources of a bank as on a particular

date. Capital + Reserve & surplus + Deposit + Borrowings & provisions.

Table

Chart

49

BUSINESS PER UNIT OF CAPITAL

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Deposits 124915.98 152034.13 192396.95 241044.26Advances 83620.87 106701.32 143985.90 175035.29=Business 208536.85 258735.45 336382.85 416079.55Working Fund 143146.18 179599.52 227406.73 278316.71 Ratio 1.457 1.44 1.479 1.495

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-101.41

1.42

1.43

1.44

1.45

1.46

1.47

1.48

1.49

1.5

Analysis:-

With the help of above given formula the Business per unit of

Capital is calculated for the year 2006-07 to 2009-10. In the year 2007-08,

the ratio was 1.44. In the year Business was 258735.45 and working fund

were 179599.52. We see and say that in the year 2006-07 the ratio was

1.457 so we can say that the ratio is decrease then the last year. In the

year 2007-08 the ratio is1.44 and in the year 2008-09 the ratio is 1.479 so

we can say that the Business per unit of capital is increase year by year. In

the year 2009-10 the ratio is 1.495 thus the ratio is increase then the last

year.

In this way, we can see that the Business per unit of capital this

assembly is fluctuating during the period of 2006-07 to 2009-10.

2) Net Profit per Unit of Capital

Productivity of capital can be measured by the net profit per

unit of capital ratio. If this is high the productivity of capital is high. If this

ratio is low, the productivity of the capital is low.

50

Formula:-

Net profit per unit of capital = Net Profit x 100

Working fund

Net Profit: Net profit will be achieved by deducting provisions and

contingencies and provision for taxation from the operating ratio.

Working Fund: Working is total resources of a bank as on a

particular date.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Net Profit 1026.46 1435.52 2227.20 3058.33Working fund 143146.18 179599.52 227406.73 278316.71 Ratio 0.717 0.799 0.979 1.099

Chart

51

NET PROFIT PER UNIT OF CAPITAL

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Net profit per unit of

capital is calculated for the year 2006-07 to 2009-10. In the year 2006-07,

the Net profit per unit of capital was 0.717. In the year Net profit was

1026.46 and working fund was 143146.18. We see and say that in the

year 2007-08 the ratio is 0.799 so we can say that the ratio is increase

then the last year. In the year 2008-09 the ratio is 0.979 and in the year

2009-10 the ratio is 1.099 so we can say that the net profit per unit of

capital is increase year by year.

In this way, we can see that the Net profit per unit of capital is

increase during the period of 2006-07 to 2009-10.

3) Interest Income per Unit of Capital

52

The productivity of capital can be measured by the interest

income per unit of capital. If this ratio is high, the productivity of the

capital is high. If this ratio is low, the productivity of the capital is low.

Formula:-

Interest income per unit of capital= Interest Income x 100

Working fund

Interest income: The total discount, interest income from loans

and advances, interest income from investment.

Working Fund: Working is total resources of a bank as on a

particular date.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Interest Income 9212.64 11813.48 15091.58 16698.34Working fund 143146.18 179599.52 227406.73 278316.71 Ratio 6.436 6.578 6.636 5.999

53

Chart

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-105.6

5.8

6

6.2

6.4

6.6

6.8

Analysis:-

With the help of above given formula the Interest income per

unit of capital is calculated for the year 2006-07 to 2009-10. In the year

2006-07, the Interest income per unit of capital was 6.436. In the year

Interest income was 9212.64 and working fund was 143146.18. We see

and say that in the year 2007-08 the ratio is 6.578 so we can say that the

ratio is increase then the last year. In the year 2008-09 the ratio is 6.636

and in the year 2009-10 the ratio is 5.999 so we can say that the ratio is

decrease then the last year.

In this way, we can see that the Interest income per unit of

capital increase during the period of 2006-07 to 2009-10 except 2009-10.

54

INTEREST INCOME PER UNIT OF CAPITAL

4) Interest Expenditure per unit of capital

This ratio can also be used to measure the capital productivity

of the bank. Here interest expenditure means amount paid by the bank to

depositors on their short term and long term deposits. If this ratio is low,

the productivity of capital is high. And if this ratio is high, the productivity

of capital is low.

Formula:

Interest Expenditure per unit of capital = Interest Expenses x 100

Working fund

Interest Expenses: Interest expenditure means amount paid by

the bank to depositors on their short term and long term deposit.

Working Fund: Working is total resources of a bank as on a

particular date.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Interest Expenses

5,426.56 7,901.67 9,968.17 10,758.86

Working fund 143146.18 179599.52 227406.73 278316.71 Ratio 3.791 4.399 4.383 3.866

Chart

55

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-103.4

3.6

3.8

4

4.2

4.4

4.6

Analysis:-

With the help of above given formula the interest expenditure

per unit of capital is calculated for the year 2006-07 to 2009-10. In the

year 2006-07, Interest Expenditure per unit of capital was 3.791. In the

year interest expenditure was as 5,426.56 and WF was 143146.18. We see

and say that in the year 2007-08 the ratio is 4.399 so we can say that the

ratio is increase then the last year. In the year 2008-09 the ratio is 4.383

and in the year 2009-10 the ratio is 3.866 so we can say that the ratio is

decrease then the last year.

In this way, we can see that the int. Expenditure per unit of

capital decrease during the period of 2006-07 to 2009-10 except 2007-08.

B. Productivity of Employee:

56

INTEREST EXPENDITURE PER UNIT OF CAPITAL

5) Business per Employee

To know the employee’s productivity, the best ratio that can

be used is business per employee ratio. If this ratio is high, the

productivity of employees in the bank is better. And if this ratio is law, the

productivity of the employee in the bank is lower. This ratio is an indicator

of degree of employee’s productivity of banks.

Formula:

Business Per employee = Business

No. of employees

Business = Deposits +Advances of the bank.

Employee = employees in India include officers, clerks and

subordinates.

Table

Chart

57

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Deposits 124,915.98 152,034.13 192,396.95 241,044.26Advances 83,620.87 106,701.32 143,985.90 175,035.29=Business 208536.85 258735.45 336382.85 416079.55 No. of employees

38086 36774 36838 38960

Ratio 5.475 7.036 9.131 10.680

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Business per

employee is calculated for the year 2006-07 to 2009-10. In the year 2006-

07, Business per employee was 5.475. We see and say that in the year

2007-08 the ratio is 7.036 so we can say that the ratio is increase then the

last year. In the year 2008-09 the ratio is 9.131 and in the year 2009-10

the ratio is 10.680 so we can say that the ratio is increase then the last

year.

In this way, we can see that the Business per Employee

increase during the period of 2006-07 to 2009-10.

6) Net Profit per Employee

58

BUSINESS PER EMPLOYEE

To measure per employee profit, profit per employee ratio is

used. This is the best indicator of the productivity. This ratio shows how

efficiently the employee work in the bank. If this ratio is high, it indicates

better employee productivity. If this ratio is low, it indicates lower

employee productivity.

Formula:

Net profit per employee = Net Profit x 100

No. of employees

Net profit = Net profit will be achieved by deducting provisions

and contingencies and provision for taxation form the operating profit.

Employee = employees in India include officers, clerks and

subordinates.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Net profit 1026.46 1435.52 2227.20 3058.33No. of employees 38086 36774 36838 38960 Ratio 2.695 3.904 6.046 7.850

Chart

59

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Net profit per

employee is calculated for the year 2006-07 to 2009-10. In the year 2006-

07, Net profit per employee was 2.695. We see and say that in the year

2007-08 the ratio is 3.904 so we can say that the ratio is increase then the

last year. In the year 2008-09 the ratio is 6.046 and in the year 2009-10

the ratio is 7.850 so we can say that the ratio is increase then the last

year.

In this way, we can see that the Net profit per Employee

increase during the period of 2006-07 to 2009-10.

7) Net total income per employee

60

NET PROFIT PER EMPLOYEE

To measure the relationship between Net total income and

employees, Net total income per employee ratio is used. Net total income

is a key indicator of the productivity of a bank. Net total income includes

interest plus other income of the bank. If this ratio is high, the productivity

of the bank is high. If this ratio is low the productivity is low.

Formula:-

Net total income per employee = Net total income

No. of employees

Net total income = It includes interest income plus other income

of the bank.

Employee = employees in India include officers, clerks and

subordinates.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Net Total income 10,594.43 13,864.52 17,849.24 19,504.70No. of employees 38086 36774 36838 38960 Ratio 0.278 0.377 0.485 0.501

61

Chart

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Net total income per

employee is calculated for the year 2006-07 to 2009-10. In the year 2006-

07, net total income per employee was 0.278. In the year Net total income

was 10,594.43 and No. emp. was 38086. We see and say that in the year

2007-08 the ratio is 0.377 so we can say that the ratio is increase then the

last year. In the year 2008-09 the ratio is 0.485 and in the year 2009-10

the ratio is 0.501 so we can say that the ratio is increase then the last

year.

In this way, we can see that the Net total income per

Employee increase during the period of 2006-07 to 2009-10.

62

NET TOTAL INCOME PER EMPLOYEE

8) Working fund per Employee

This ratio is used to measure the relationship between working

fund and employee of the bank. The working fund and contingent liability

are considered in this ratio. This is one of the best indicators of the

productivity of the bank. If this ratio is low, the productivity is low. If this

ratio is high, the productivity is high.

Formula:

Working fund per employee = Working fund + Contingent liability

No. of employees

Working Fund: Working is total resources of a bank as on a

particular date.

Employee : Employees in India include officers, clerks and

subordinates.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Working fund 143146.18 179599.52 227406.73 278316.71Contingent liability

54,999.86 75,364.33 64,745.82 77,997.01

Total 198146.04 254963.85 292152.55 356313.72 No. of employee 38086 36774 36838 38960 Ratio 5.203 6.933 7.931 9.146

Chart

63

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Working fund per

employee is calculated for the year 2006-07 to 2009-10. In the year 2006-

07, working fund per employee was 5.203 and No. emp. was 38086. We

see and say that in the year 2007-08 the ratio is 6.933 so we can say that

the ratio is increase then the last year. In the year 2008-09 the ratio is

7.931 and in the year 2009-10 the ratio is 9.146 so we can say that the

ratio is increase then the last year.

In this way, we can see that the Working fund per Employee

increase during the period of 2006-07 to 2009-10.

C. Productivity of Branch:

64

WORKING FUND PER EMPLOYEE

9) Business per Branch

Business per branch ratio is an indicator of the relationship

between business and number of branches of the bank. This is one of the

best indicators of the bank’s productivity. If this ratio is high, the

productivity of the bank is high. If this ratio is low, the productivity of the

bank is low.

Formula:

Business per Branch = Business

No. of Branch

Business = Deposits +Advances of the bank.

Branch = a branch may be defined as a section of an enterprise,

geographically separated from rest of the business, controlled by head

office, and generally carrying on same activities as of the enterprise.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Deposits 124,915.98 152,034.13 192,396.95 241,044.26Advances 83,620.87 106,701.32 143,985.90 175,035.29=Business 208536.85 258735.45 336382.85 416079.55No. of Branch 2772 2899 2974  3148 Ratio 75.230 89.250 113.108 132.173

Chart

65

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

20

40

60

80

100

120

140

Analysis:-

With the help of above given formula the Business per Branch

is calculated for the year 2006-07 to 2009-10. In the year 2006-07,

Business per branch was 75.230 and No. Branch was 2772. We see and

say that in the year 2007-08 the ratio is 89.250 so we can say that the

ratio is increase then the last year. In the year 2008-09 the ratio is

113.108 and in the year 2009-10 the ratio is 132.173 so we can say that

the ratio is increase then the last year.

In this way, we can see that the Business per Branch increase

during the period of 2006-07 to 2009-10.

10) Net Profit per Branch

66

BUSINESS PER BRANCH

This ratio is used to measure the profit earned per branch of

the bank. This ratio measures the efficiency of the branches of the bank.

If this ratio is high, the productivity of the bank is high. If this ratio is low,

the productivity is low.

Formula:

Net profit per Branch = Net Profit

No. of Branches

Net profit = Net profit will be achieved by deducting provisions

and contingencies and provision for taxation form the operating profit.

Branch = A branch may be defined as a section of an

enterprise, geographically separated from rest of the business, controlled

by head office, and generally carrying on same activities as of the

enterprise.

Table

Particulars F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-10Net profit 1026.46 1435.52 2227.20 3058.33No. of Branches 2772 2899 2974  3148 Ratio 0.37 0.495 0.749 0.972

Chart

67

NET PROFIT PER BRANCH

F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 F.Y.2009-100

0.2

0.4

0.6

0.8

1

1.2

Analysis:-

With the help of above given formula the Net profit per branch

is calculated for the year 2006-07 to 2009-10. In the year 2006-07, Net

profit per Branch was 0.37. In the year Net profit was 1026.46 and No.

branch was 2772. We see and say that in the year 2007-08 the ratio is

0.495 so we can say that the ratio is increase then the last year. In the

year 2008-09 the ratio is 0.749 and in the year 2009-10 the ratio is 0.972

so we can say that the ratio is increase then the last year.

In this way, we can see that the Net profit per Branch increase

during the period of 2006-07 to 2009-10.

Findings & Suggestions

1.1 Banking in its most simple form is as old as authentic history. As early

as 2000 B.C. Babylonian had developed a system of banks.

68

1.2 In Rome, the bankers were called Argentarii, Mensaril or Callybistoe.

The banks were called Tabornoe Argentarii. To pay money by a draft was

known as Prescribere and Rescribere and the draft was known as

Attributio.

1.3 The Bank of Venice, established in 1157, is supposed to be the most

ancient bank. Originally, it was not a bank in the modern sense, being

simply an office for the transfer of the public debt.

1.4 As early as 1349 the Drapers of Barcelona carried on the business of

banking. During 1401 a public bank was established in Barcelona. The

Bank of Amsterdam was established in 1609 to meet the needs of the

merchants of the city.

1.5 The beginning of English banking may correctly be attributed to the

London Goldsmiths. They used to receive their consumers’ valuables and

funds for safe custody and issue receipts acknowledging the same. These

notes became payable to bearer on demand and hence enjoyed

considerable circulation. The business of the Goldsmith got a rude shock

by the ill treatment of the government of Charles II under the cable

ministry.

1.6 The ruin of goldsmith marks turning point in the history of English

banking, which resulted in the growth of private banking and the

establishment of the Bank of England in 1694.

1.7 Banking in India has its origin as early as the Vedic period. The great

Hindu Jurist Manu, who has devoted a section of his work to deposits and

advances and laid down rules relating to rate of interest.

1.8 The “General Bank of India” was the first joint stock bank to be

established in the year 1786. The East India Company established three

banks; viz, “Bank of Bengal” in 1809, the “Bank of Bombay” in 1840 and

69

the “Bank of Madras” in 1843. These three banks were amalgamated in

1920 and new bank, the “Imperial Bank of India” was established on 27th

January, 1921.

1.9 The “Reserve Bank of India” as the Central Bank of country was

created in 1935 by passing “Reserve Bank of India” Act 1934. In the wake

of the Swadeshi Movement, a number of were established in the country.

1.10 The major types of banks are central bank, commercial bank, co-

operative bank, development bank, private sector and public sector

banks.

2.1 The concept of productivity has considerable importance, as it is an

index of economic welfare. From the point of view of an organization, it is

a strategic parameter crucial to long term industrial growth and

competitiveness.

2.2 The term “Productivity” is controversial. Therefore, it has different

meanings for different people.

2.3 The simpler meaning of productivity is the ratio of output to input.

2.4 The productivity can be easily measured for the manufacturing

industry, but it is very difficult for the service industry like bank. Since the

service cannot be qualified easily, there are many complexities in

measuring the productivity of a service unit.

2.5 Even if there are many complexities in measuring productivity of

bank, it can be said that the productivity can be judge by the extent to

which the bank is responsive to the needs of economy.

70

2.6 To measure the productivity of bank, the three areas viz., productivity

of capital, productivity of employees and productivity of branch, have

been developed by the researcher.

3.1 In 1969 and 1980, the government nationalized the major banks in

India. Since that time no new bank could have been setup in India. After

the recommendation of the Narsimham Committee, the Reserve Bank of

India issued guidelines and eight private sector banks have been

established.

3.2 Assumptions and value are included in Research Methodology. Which

are useful for data interpretation and reaching to the conclusion?

According to Clair Sellitz, “Research design is the arrangement of

condition and analysis of data in a manner that aims to combine

relevance to the researcher purpose with economy in procedure”.

3.3 Accounting techniques and Statistical techniques have been used.

Ratio analysis has been used as accounting techniques and arithmetic

mean has been used as statistical techniques.

3.4 The present research work has some limitations like reliability of the

data, views of experts, limitations of tools and techniques and the

research work cannot be applied to the universe as it is related to a

nationalized bank.

4.1 Business per unit of capital ratio shows up and down fluctuation trend

in BOB during the study period. In this calculation, we can see that there

is continuous increase except 2007-08. To improve this ratio the bank

should make effective utilization of unit of capital.

4.2 Net profit per unit of capital ratio shows fluctuation trend in BOB

during the study period. In this calculation, we can see that there is

continuous increase trend. To improve this ratio more, the bank should

71

increase its profit earning capacity. If this capacity is improved more profit

will be earned per unit of capital.

4.3 Interest income per unit of capital ratio shows fluctuating trend in

BOB. In this calculation, we can see that there is less increasing trend and

very low ratio in last year. In this ratio is to be improved, the bank should

give more deposits so that the interest income can be increased and

interest income per unit of capital ratio can be increased.

4.4 Interest expenditure per unit ratio shows ups and downs trend in BOB.

In this calculation, we can see that there is very low ratio and it shows

good sign for bank. If this ratio is low, the productivity capital is high. And

if this ratio is high, the productivity of capital is low. So to improve this

ratio the bank should try to decrease more its interest expenditure.

4.5 Business per employee ratio shows upward trend in BOB. In this

calculation, we can see that there is continuous increasing ratio. So it can

be concluded that BOB is getting good business from its employees. To

improve more this ratio, the bank should make effective utilization of its

labour force.

4.6 Net profit per employee ratio shows continuous increasing trend in

BOB. It means that the bank is earning good profit per its employees. To

improve more this ratio, the bank should make effective utilization of its

labour force, so that net profit per employee can be increased.

4.7 Net total income per employee ratio shows continuous upward trend

in BOB. Net total income is the productivity of the bank. Net total income

includes interest income plus other income of the bank. If the ratio is low,

the productivity is low and if this ratio is high, the productivity is high. To

improve more this ratio, the bank should increase in the net total income.

72

4.8 Working fund per employee ratio shows upward trend in BOB. It can

be known that the bank has improved this ratio. To improve more this

ratio, the bank should make effective utilization of its working fund.

4.9 Business per branch ratio shows upward trends in BOB. To improve

more this ratio, the bank should increase the efficiency of its branches.

4.10 Net profit per branch ratio shows increasing trend in BOB. To

improve more this ratio, the bank should increase the profit earning

capacity of its branches.

So in all most all ratios, the productivity is continuously increase

year by year. So we can say that, Bank of Baroda utilize all resources

effectively.

Conclusion

Through the research work it can be concluded that the banking

industry has wide scopes in the Indian economy. The banking industry has

its roots nearly before 2000 B.C. Since then the banking sector has been

playing its role of growth and development in the Indian economy. The

banking industry has helped the country to grow very fast. It is proved

that the finance sector should be very strong, if any country wants to

grow very fast. To achieve this kind of growth Indian government has

adopted the policy of liberalization. As a result 51 private sector banks are

73

working in the country. Out of them 30 foreign banks have also been

playing their role in the Indian economy.

The Researcher has selected nationalized bank, Bank of Baroda.

After the in-depth analysis of productivity of the bank it can be concluded

that the productivity of the bank is different in the different areas viz.,

Productivity of Capital, Productivity of Employees and Productivity of

Branches.

Bibliography

1. Reference Books

Financial Management M. Y. Khan & P. K. Jain

Cost & Management Accounting Ravi M. Kishore

2. Other Materials

Material Provided by BOB

74

Annual Report 2006-2007

Annual Report 2007-2008

Annual Report 2008-2009

Annual Report 2009-2010

3. Web Site

www.bankofbaroda.com

www.moneycontrol.com

www.financialexpress.com

75