efficiency of banks

7/28/2019 Efficiency of Banks

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Efficiency of Banks

SINCE the process of liberalisation and reformof the financial sector were set in motion in1991, banking has undergone significant

changes. The underlying objective has been to make

the system more

Competitive Efficient

profitable.


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Efficiency of Banks

With greater globalisation and expansion offinancial services, risk management has becomecritical and indispensable.

Since 1991, there have been two major stockmarket scams those engineered by HarshadMehta and Ketan Parekh.

These were systemic crises that cast doubts

about the efficacy of the banking system.

Low labour productivitywas cited as one of theimportant factor for this state of affair.


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Efficiency of Banks

Against this backdrop, we try to understandthe concept ofproductivityandprofitability

Easy to calculate in case of manufacturing and

other industry but very difficult to find out inthe services industry

In manufacturing, value added or net output

is taken for output measurement. In theservices sector, output is not tangible;therefore, it is difficult to quantify.


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Efficiency of Banks

Two Type of Indicators

Proxy proxy indicators

Profit and volume of business per employee are

used to measure labour productivity

Direct

number of accounts per employee, is the other

indicator of labour productivity

But these may give contradictory results


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Efficiency of Banks

it is found that the total number of accountsper employee, at 885, is highest for regionalrural banks (RRBs). For foreign banks it is 291,

the lowest amongst the bank groups. But afurther break-up into credit and depositaccounts shows that the large number ofaccounts per employee in RRBs is because of

higher deposit rather than credit accounts.This is true in the case of other bank groups aswell.


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Efficiency of Banks

it is found that the total number of accountsper employee, at 885, is highest for regionalrural banks (RRBs). For foreign banks it is 291,

the lowest amongst the bank groups. But afurther break-up into credit and depositaccounts shows that the large number ofaccounts per employee in RRBs is because of

higher deposit rather than credit accounts.This is true in the case of other bank groups aswell.


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Efficiency of Banks

Poor Credit/Deposit Ratio

This poor credit-deposit ratio of Indian banks,

termed as lazy banking, affects interest spreads

and, in turn, profitability. Investment ingovernment securities has become the core

activity of most banks, including RRBs


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Efficiency of Banks

Workforce Composition

The workforce composition shows that foreign

banks have the highest percentage (61) of officers.

Surprisingly, RRBs have the highest percentage(41) of officers amongst Indian banks. Around 50

per cent of the staff in Indian banks is clerical and

20-35 per cent subordinate.


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Efficiency of Banks

Workforce Composition

The workforce composition shows that foreign banks havethe highest percentage (61) of officers. Surprisingly, RRBshave the highest percentage (41) of officers amongst

Indian banks. Around 50 per cent of the staff in Indianbanks is clerical and 20-35 per cent subordinate.

The RBI has a low percentage (28) of officers. Its clericaland subordinate staff (including sweepers) constitute 44per cent and 31 per cent of the total workforcerespectively, which is higher than that of commercialbanks. This is noteworthy as central banking is supposed tobe more specialised than commercial banking.


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Efficiency of Banks

Other Parameters

Asset Quality NPAs

NPAs/Net advances NPAs/Gross advances

Return on assets

No of branches per 1000 population

Extent of automation

Financial inclusion

efficiency of banks

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