Operational Efficiency In Banking Sector Finance Essay

Operational efficiency is a critical index of economic public presentation and resiliency of an economic system. It is a good known fact that the rate of economic growing of any state has a direct nexus with the efficiency of fiscal sector of the state and an efficient fiscal sector achieves faster rate of economic growing. Measuring the operational efficiency of Bankss assumes greater significance in the overall evaluation of Bankss. Banks usually use factorial productiveness steps such as concern per employee and concern per subdivision for mensurating operational efficiency. With the extremist alterations taking topographic point in the economic scenario in general, and in the banking sector in peculiar, it is clip that Bankss move beyond the construct of per employee concern to a more realistic method in mensurating their productiveness. The focal point of this paper is to steps operational efficiency on the footing of profitableness and productiveness of selected populace sector Bankss in India, utilizing a non-parametric theoretical account. It denotes operational ; efficiency with which inputs are transformed into utile end product within the production procedure every bit good as end product is produced by the resources utilized.

Keywords

operational efficiency, profitableness, fiscal sector, factorial productiveness.

Meaning of Operational Efficiency

Operational efficiency is the ability for an organisation to put to death its tactical programs keeping a healthy balance between cost and productiveness. Operational efficiency is concerned with placing uneconomical procedures and resources that drain the organisation ‘s net incomes. Operational efficiency trades with minimisation of waste and maximization of resource in order to supply best services to clients.

Operational Efficiency in Banking Sector

In a fabrication industry, efficiency can be measured easy in quantitative footings but in instance of service industry like banking, the banking the end products are non homogeneous. The banking industry belongs to service industry, delivers fiscal services to their clients. In instance of banking sector, it is really hard to specify the input and end product of a bank as many of the fiscal services provided by the Bankss are jointly produced and they are priced for full package of fiscal services.

Operational Efficiency and Productivity

Productivity is reflected in the relationship between end product of goods manufactured or services rendered and input of production resources used in providing such end product. The most common expression for showing productiveness is-

Productivity=output/ input

The productiveness of a house is hence measured by sing the ratio of end product and input of production factors.

Operational Efficiency and Profitability

Net income is the difference between sum grosss and sum costs, while the ability to do or gain net incomes is known profitableness. Efficiency, in simple words, is defined as ability to accomplish concern aims ( in the best manner ) , whatever these aims are: Maximization of net incomes is the chief aim of a private concern. Therefore in such instances net income provide the most of import standard of judging operational efficiency. But net income maximization is non, and ne’er be, the ground of being in public sector Bankss. Therefore, profitableness entirely can non be used as the trial of operational efficiency in the instance of public public-service corporations.

Need of the survey

The survey may be used as an of import tool for the farther mentions related to the Indian Banking Sector. Measuring the operational efficiency of Banks assumes greater significance in the overall evaluation of Bankss. Therefore the survey on the subject “ A survey on operational efficiency of the selected Public sector Bankss in India- Issues and Challenges ” has the relevancy and it is the demand of present twenty-four hours, as the growing in the Indian economic system is expected to be stronger for rather some clip particularly in its service sector.

Reappraisal of literature

Subramanyam and Swamy ( 1994b ) adopted systematic method through simple arrested development for the period ( 1974-76 and 1984-86 ) . It was found that production efficiency differences between the houses arise non merely from technological Improvements but besides from competency. Noulas and Katkar ( 1996 ) analyzed graduated table and proficient efficiency of public sector Bankss in India by utilizing DEA and used cross-sectional informations of 19 public sector Bankss for the twelvemonth 1993. It has been observed that overall proficient inefficiency was about 3.75 % of which 1.5 % was due to pure proficient inefficiency and 2.25 % due to scale inefficiency. Besides, a bulk of the populace sector Bankss were found to be runing under increasing returns to scale. Battacharya ( 1997 ) examined the impact of partial liberalisation during eightiess on the productive efficiency of different classs of Bankss in India utilizing DEA. The survey reviewed 70 commercial Bankss for the period 1986-1991 and found that public sector Bankss had the highest efficiency followed by foreign Bankss ; private Bankss were found to be least efficient. They besides found a temporal betterment in the public presentation of foreign Bankss, virtually no tendency in the public presentation of a private bank and temporal diminution in the public presentation of public sector Bankss. Mukherjee ( 2002 ) used DEA to research proficient efficiency and benchmark of the public presentation of 68 commercial Bankss for the period 1996-99. They found that in India, Public sector Bankss are more efficient than both private and foreign Bankss. Besides, the public presentation of public sector Bankss improved during the survey period. Besides these, publically owned Bankss were rated uniformly in footings of self-appraisal every bit good as peer-group assessment. Mohan and Ray ( 2004 ) measured the comparative public presentation among commercial Bankss utilizing physical measures of inputs and end products to compare gross maximization efficiency of Bankss during 1992-2000 by employed DEA. They showed that public sector Bankss performed significantly better than the private Bankss but non otherwise from foreign Bankss. Sinha ( 2006 ) estimated efficiency of Indian commercial Bankss ( under changeless returns to graduated table ) utilizing the information enclosure analysis. He considered loan as the end product index. Number of bank subdivisions and borrowed capital were taken as two inputs. The consequences were for 1996-97, 1998-99, 2000-01, and 2002-03 severally. The consequences suggest superior public presentation by the ascertained private sector commercial Bankss as compared to the ascertained public sector commercial Bankss.

Aims of the survey

The specific aims of the survey are

To mensurate the operational efficiency of the Selected Public Sector Banks in India.

To analyze the fluctuations in the operational efficiency of the Public Sector Banks and to indentify the influencing factors.

To rank the bank based on operational efficiency.

Research Methodology

Scope of the survey

The past 2nd reform period of five old ages ( 2005-2010 ) has been taken into consideration for the analysis of operational efficiency of selected populace sector Bankss in India on the footing of different profitableness and productiveness parametric quantities.

Sample size

The present survey is based on five selected populace sector Bankss in India. The choice of public sector Bankss for the intent of survey has been taken on the footing of concern per Bankss as on 2010. Business per bank means entire concern of a bank ( amount of sedimentations and Progresss divided by no. of employees ) . This has been steering consideration in the choice of the bank as the concern is one of the determiners of public presentation of a bank.

Data aggregation

The survey is chiefly based on secondary informations. A major portion of the database has been drawn from the published secondary beginnings, chiefly the studies of Indian Bankers Association ( IBA ) and the Reserve Bank of India ( RBI ) . The information relating to fiscal public presentation of the selected populace sector Bankss have been obtained from assorted beginnings like “ Fiscal Analysis of Banks ” brought by Indian Banker ‘s Association, “ Statistical Tables Relating to Banks of India ” . “ Reserve Bank of India Monthly Bulletin ” , “ Report on currency and Finance ” and other publications of Reserve Bank of India.

Choice of input and end product factors

Assorted inputs and end products have been undertaken for mensurating operational efficiency on the footing of productiveness.

Input factors

1. Network of subdivisions 2. Number of staff 3. Deposits

End product factors

1. Progresss 2. Interest spread 3. Net net income

In order to ease the comparing of one bank to the other, the market portion of each factor in per centum footings is taken into history alternatively of the absolute degrees.

Datas analysis

Due attention has been taken while choosing input and end product factors. There is bound to be some sum of correlativity among inputs factors like figure of subdivisions and staff, subdivisions and Entire Deposits. Similarly among the end product factors like progress and spread, spread and net incomes etc. There is bound to be built-in correlativity. Simple arithmetic norms of the input and end product factor steps in footings of several per centum in market portion. Diagrammatic and in writing presentation of informations.

Average index of input portion of selected populace sector Bankss

Table 1: Branchs of Banks ( in Numberss )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

862

( 10.35 )

923

( 10.71 )

964

( 11.10 )

1035

( 11.54 )

1108

( 11.45 )

55.15

11.03

Oriental bank of commercialism

1191

( 14.30 )

1334

( 15.48 )

1344

( 15.48 )

1422

( 15.85 )

1530

( 15.81 )

76.92

15.38

Bank of Baroda

2786

( 33.45 )

2812

( 32.64 )

2845

( 32.77 )

2915

( 32.49 )

3088

( 31.92 )

163.27

32.65

Punjab and Sind Bank

839

( 10.07 )

860

( 9.98 )

839

( 9.66 )

859

( 9.58 )

899

( 9.30 )

48.59

9.718

Canara Bank

2650

( 31.82 )

2686

( 31.18 )

2690

( 30.98 )

2740

( 30.54 )

3050

( 31.52 )

156.04

31.20

Entire Market Share

8328

( 100 )

8615

( 100 )

8682

( 100 )

8971

( 100 )

9675

( 100 )

( 500 )

( 100 )

Beginnings: ( RBI ) Report on Trends and Progress of Banking in India, Various Issues.

Table 1 presents the inside informations of mean subdivisions market portion ( in per centum ) of five public sector Bankss on the footing of 2005-2010 old ages. The sum shown in bracket shows the portion of peculiar bank in market portion. The tabular array reveals that per centum of norm market portion of Bank of Baroda contributed higher i.e. 32.65 % followed by Canara Bank i.e. 31.20 % .

Graphic Presentation of the above findings

fig. 1

Table 2: No. of Employees of Banks ( in Numberss )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

11325

( 9.3 )

11880

( 9.8 )

12010

( 10.15 )

12465

( 10.68 )

13143

( 11.11 )

51.04

10.21

Oriental bank of commercialism

14962

( 12.31 )

14730

( 12.18 )

14804

( 12.51 )

14656

( 12.55 )

15358

( 12.98 )

62.53

12.51

Bank of Baroda

38774

( 31.91 )

38604

( 31.93 )

37260

( 31.48 )

35838

( 31.55 )

38152

( 32.25 )

159.12

31.82

Punjab and Sind Bank

9542

( 7.85 )

9342

( 7.73 )

9013

( 7.62 )

8700

( 7.45 )

8259

( 6.98 )

37.63

7.53

Canara Bank

46893

( 38.60 )

46359

( 38.34 )

45260

( 38.42 )

44090

( 37.76 )

43380

( 36.67 )

189.61

38

Entire Market Share

121496

( 100 )

120915

( 100 )

118347

( 100 )

116749

( 100 )

118292

( 100 )

` ( 500 )

( 100 ) Beginnings: ( RBI ) Report on Trends and Progress of Banking IN India, Various Issues.

Table 2. Presents the inside informations of mean no. of employee ‘s market portion ( in per centum ) of five public sector Bankss on the footing of five old ages. The tabular array reveals that per centum of norm market portion of Canara Bank contributed higher i.e. 38.0 % followed by Bank of Baroda i.e. 31.82 % .

Graphic Presentation of the above findings

fig. 2

Table 3: Deposits of Banks ( in crore )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

3287653

( 10.59 )

4235689

( 10.78 )

5542442

( 11.94 )

7398391

( 12.62 )

9273367

( 100 )

58.49

11.70

Oriental bank of commercialism

5019746

( 16.17 )

6399597

( 16.29 )

7785670

( 16.77 )

9836885

( 16.78 )

12025759

( 16.29 )

82.30

16.46

Bank of Baroda

9366199

( 30.17 )

12491598

( 31.79 )

15203413

( 32.75 )

19239695

( 32.81 )

24126193

( 32.69 )

160.21

32.04

Punjab and Sind Bank

1692459

( 5.45 )

1931875

( 4.92 )

2483142

( 5.35 )

3467565

( 5.9 )

4915509

( 6.67 )

28.29

5.66

Canara Bank

11680324

( 37.62 )

14238144

( 36.23 )

15407242

( 33.19 )

18689251

( 31.88 )

23465144

( 31.80 )

170.72

34.14

Entire Market Share

31046381

( 100 )

39296903

( 100 )

46421909

( 100 )

58631787

( 100 )

73805972

( 100 )

( 500 )

( 100 )

Beginnings: ( RBI ) Report on Trends and Progress of Banking IN India, Various Issues.

Table3. Reveals that per centum of mean sedimentations market portion of Canara Bank contributed higher i.e. 34.14 % followed by Bank of Baroda i.e. 32.04 % on the other manus Punjab & A ; Sind Bank contributed less per centum on norm sedimentations in market portion i.e.5.66 % .

Graphic Presentation of the above findings

fig. 3

Table 4: Market Share of Inputs ( in per centum )

Banks

Branchs

No. of Employees

Entire Deposits

Average Input signal

Corporation bank

55.15

51.04

58.49

54.89

Oriental bank of commercialism

76.92

62.53

82.30

73.92

Bank of Baroda

163.27

159.12

160.21

160.87

Punjab and Sind Bank

48.59

37.63

28.29

38.17

Canara Bank

156.04

189.61

170.72

172.12

Table 4 Shows Average Percentage of all inputs on market portion.

Average per centum of input factors viz. subdivisions, no. of employees and entire sedimentations etc. on market portion stood at the upper limit of 172.12 % for Canara Bank. The following higher index was registered by 160.87 % of Bank of Baroda. Punjab & A ; Sind Bank presented the lowest norm market portion per centum of index of all input factors at 38.17 % .

Average index of end product portion of selected populace sector Bankss

Table 5: Progresss of Banks ( in crore )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

2396243

( 11.63 )

2994965

( 11.18 )

3918557

( 12.0 )

4851216

( 11.47 )

6320256

( 12.07 )

58.35

11.67

Oriental bank of commercialism

3357725

( 16.30 )

4413847

( 16.47 )

5456583

( 16.74 )

6850037

( 16.19 )

8348930

( 15.94 )

81.64

16.33

Bank of Baroda

5991178

( 29.1 )

8362087

( 31.21 )

10670132

( 32.73 )

14325141

( 33.86 )

17503529

( 33.42 )

160.32

32.1

Punjab and Sind Bank

910747

( 4.42 )

1173751

( 4.38 )

1834329

( 5.63 )

2461535

( 5.82 )

3263911

( 6.2 )

26.45

5.29

Canara Bank

7942569

( 38.56 )

9850569

( 36.76 )

10723804

( 32.89 )

3821940

( 32.67 )

16933463

( 32.33 )

173.21

34.64

Entire Market Share

20598462

( 100 )

26795219

( 100 )

32603405

( 100 )

42309869

( 100 )

52370089

( 100 )

( 500 )

( 100 )

Beginnings: ( RBI ) Report on Trends and Progress of Banking in India, Various Issues.

Table 5 presents the inside informations of mean progress market portion ( in per centum ) of five public sector Bankss on the footing of five old ages. The sum shown in bracket shows the portion of peculiar bank in market portion. The tabular array reveals that per centum of norm market portion of Canara Bank contributed higher i.e.34.64 per centum followed by Bank of Borada i.e. 32.1 % .

Graphic Presentation of the above findings

fig. 4

Table 6: Net net incomes of Banks ( in crores )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

44446

( 13.55 )

53614

( 14.17 )

73499

( 16.44 )

89278

( 13.66 )

117025

( 13.16 )

70.98

14.20

Oriental bank of commercialism

55719

( 16.99 )

58078

( 15.35 )

35323

( 7.9 )

90543

( 13.86 )

113468

( 12.76 )

66.86

13.4

Bank of Baroda

826978

( 25.21 )

102650

( 27.14 )

143552

( 32.11 )

222723

( 34.08 )

305833

( 34.39 )

152.93

30.59

Punjab and Sind Bank

10831

( 3.30 )

21852

( 5.78 )

38232

( 8.55 )

43718

( 6.69 )

50880

( 5.72 )

30.04

6.008

Canara Bank

134323

( 40.95 )

142081

( 37.56 )

156499

( 35.0 )

207240

( 31.71 )

302143

( 33.97 )

179.19

35.84

Entire Market Share

328016

( 100 )

378275

( 100 )

447105

( 100 )

653502

( 100 )

889349

( 100 )

( 500 )

( 100 )

Beginnings: ( RBI ) Report on Trends and Progress of Banking in India, Various Issues.

Table 6 presents the inside informations of mean net net incomes market portion ( in per centum ) of five public sector Bankss on the footing of five old ages. The tabular array reveals that per centum of norm market portion of Canara Bank contributed higher i.e.35.84 per centum followed by Bank of Borada i.e. 30.59 % .

Graphic Presentation of the above findings

fig. 5

Table 7: Spread of Banks ( in crores )

Banks

2005-06

2006-07

2007-08

2008-09

2009-10

% of entire market portion

% of mean market portion

Corporation bank

122681

( 12.0 )

137780

( 11.83 )

144333

( 12.67 )

169098

( 11.63 )

221025

( 12.33 )

60.46

12.09

Oriental bank of commercialism

160507

( 15.71 )

169133

( 14.52 )

168202

( 14.77 )

1996501

( 13.73 )

290744

( 16.22 )

74.95

14.99

Bank of Baroda

317486

( 31.1 )

378609

( 32.50 )

391180

( 34.34 )

512342

( 35.24 )

593948

( 33.14 )

166.32

33.26

Punjab and Sind Bank

63056

( 6.17 )

76701

( 6.58 )

81590

( 7.16 )

101187

( 6.96 )

118395

( 6.60 )

33.47

6.70

Canara Bank

358150

( 35.05 )

402683

( 34.57 )

353779

( 31.06 )

471780

( 32.45 )

568053

( 31.70 )

164.83

33.0

Entire Market Share

1021880

( 100 )

1164906

( 100 )

1139084

( 100 )

1454057

( 100 )

1792165

( 100 )

( 500 )

( 100 )

The difference between involvement income and involvement disbursals is known as spread or net involvement income.Table7. Reveals that per centum of mean spread market portion of Bank of Baroda contributed higher i.e.33.26 % followed by Canara Bank i.e. 33.0 % .

Graphic Presentation of the above findings

fig. 6

Table 8: Market Share of Outputs ( in per centum )

Banks

Progresss

Net Net incomes

Spread

Average End product

Corporation bank

58.35

70.98

60.46

63.26

Oriental bank of commercialism

81.64

66.86

74.95

74.48

Bank of Baroda

160.32

152.93

166.32

159.86

Punjab and Sind Bank

26.45

30.04

33.47

29.99

Canara Bank

173.21

179.19

164.83

172.41

Table 8 Shows Average Percentage of all Output on market portion.

The tabular array shows mean per centum of end product factors viz. Advances, net net income and distribute on market portion stood at the highest of 172.41 % for Canara Bank. The following higher index was register by Bank of Baroda i.e. 159.86 per centum. Punjab & A ; Sind Bank presented the lowest mean index of all end product factors that is 29.99 per centum.

Table 9: Productiveness of Selected Public sector Banks on the Basis of Output / Input

Banks

End product

Input signal

Productiveness

Output/Input*100

Rank

Corporation Bank

63.26

54.89

115

I

Oriental Bank of Commerce

74.48

73.92

101

Two

Bank of Baroda

159.86

160.87

99

Four

Punjab & A ; Sind Bank

29.99

38.17

79

Volt

Canara Bank

172.41

172.12

100

Three

Operational efficiency of the selected populace sector bank has been determined by calculating the efficiency ratio by utilizing the undermentioned expression.

Efficiency ratio =Average % index of all end product / Average % index of all inputs

The tabular array shows that operational efficiency of Corporation Bank stood at the top with the highest productiveness ratio 115 % followed by Oriental Bank of Commerce with 101 % and Canara Bank with 100 % efficiency.

Restrictions

Like any other survey, this research is besides non without restrictions. The following are the chief restrictions of the survey.

1. In the present survey the operational efficiency of selected populace sector Bankss have been examined, all populace sector Bankss have non been considered for this intent. Therefore, the survey does non reflect the overall image of the public presentation of banking sector.

2. The survey is based on secondary informations as published in assorted publications of RBI and IBA. This information is based on historical accounting construct, which ignores the impact of rising prices consequences which would hold been different.

3.In the present survey, merely the quantitative facets of public presentation have been examined, qualitative facets such as motive of employees, client satisfaction, image of the bank have non been considered which play definite function in the operation efficiency of a bank.

Decision

Due to fiscal sector reforms initiated during early 1890ss, the Bankss are concentrating on productiveness, profitableness, efficiency, transparence etc. in order to do them work on high criterions. Operational efficiency of Bank assumes greater significance in the prevalent fiscal and economic scenario. Public sector Bankss are competitory plenty, so far as the productiveness & A ; profitableness parametric quantities ( taken in the present survey ) are concerned. Of the five selected populace sector Bankss in India one bank had achieved high degree of efficiency. Corporation Bank stood at the top in operational efficiency among all five selected Public sector Bankss. The banking sector of India portrays a image of a developing economic system, traveling towards being a developed economic system through uninterrupted efficiency betterment.