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CHAPTER 6
SUMMARY OF FINDINGS,
CONCLUSIONS AND RECOMMENDATIONS
6.1 CBS implementation and performance of banks
6.1.1 Introduction
In today’s competitive business environment, with immense opportunities and
challenges, it is absolutely essential that banks utilize resources efficiently. Taking
into account these dynamics, it is important to evaluate a bank’s growth, credit
quality, strength and soundness and profitability, based on efficiency with which it
has used its human, technological and financial resources.
Present research is aimed at assessing impact of CBS implementation on business
performance and profitability. Summary of observations on field research, in
accordance with the objectives set for the research work are presented in following
text. Names of the sample banks and nomenclature used are The Vishweshwar
Sahakari Bank Ltd., Pune (VSBL), Mahesh Sahakari Bank Ltd., Pune (MSBL),
The Seva Vikas Coooperative Bank Ltd., Pimpri (SVCBL), Janata Sahakari Bank
Ltd., Pune (JSBL), Cosmos Cooperative Bank Ltd., Pune (CCBL).
6.1.2 Status of CBS implementation in the sample banks
Findings
i. Year of implementation - CCBL (2003-04) has been the first bank
amongst the sample banks to get into CBS environment, followed by
JSBL (2005-06), SVCBL (2006-07), VSBL (2007-08), MSBL (2008-
09). Entire banking operations of all the sample banks have been
centralized and they have completed three or more than three
operating cycles under CBS environment.
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ii. Implementation period - Time required for implementation of CBS
by the sample banks varied between one and half year to two and half
years for the sample banks.
iii. Cost - Cost of CBS implementation of sample banks varied between
less than one crore to twenty six crores due to cost of application
software, hardware, networking equipments, Data centre
infrastructure, Disaster recovery site infrastructure. Hardware and
networking equipments purchased by all the sample banks for their
Data centre and Disaster recovery site have been of reputed
international brands with three years warranty.
iv. Procedure followed - Interviews with the officials and non-officials
of the sample banks has revealed that procedure followed by banks
were by and large in line with the standard practices followed by the
industry, except in case of SVCBL.
v. IT resources - All the sample banks have independent IT Department
to take care of CBS operations. In terms of availability of expert
manpower such as Database Administrator, Network Administrator,
Information Security Officer, Software developers, Help Desk etc. to
manage specialized IT related operations, CCBL, JSBL and VSBL
have got adequate resources.
vi. Consultants - Support of consultants was availed by all the selected
banks in the initial stage of CBS implementation.
vii. Data centre - All the sample banks have their own Data centre. JSBL
is the only bank amongst the sample banks which shares its Data
centre with other cooperative bank.
viii. Disaster recovery site - VSBL, JSBL and CCBL have their own
Disaster Recovery Sites (DRS), MSBL has shared DR site of JSBL.
SVCBL does not have its DR site yet and planning to have it shortly.
ix. Information security certification - JSBL has been the first bank
amongst the sample banks to acquire ISO 27001 and ISO 9001
certification for its Data Centre operation. VSBL has recently
acquired ISO 20000 certification for its IT Department. CCBL, MSBL
and SVCBL have their own information security policy but yet to
apply for such certification.
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x. Complementary software - Among all the selected banks, except
CCBL and JSBL, the remaining banks have not yet introduced
complementary software such as Risk management, Assets and
Liability Management, Anti Money Laundering, Customer
Relationship Management, Business Intelligence, Trade Finance,
Treasury, Workflow management, Intranet etc. CCBL and JSBL have
implemented few of such software.
Conclusions
i. Implementation period - Implementation period of one and half
years to two years is justifiable. Time period more than this adds cost
to the project.
ii. Cost - Large variation has been observed in total cost of CBS
implementation by sample banks. It is due to size of the banks in
terms of number of branches, users accessing the application, cost of
application software, make and brand of hardware, networking
equipments and Data centre / Disaster recovery site infrastructure.
Three years warranty option selected by the sample banks while
purchase of hardware and networking equipments helped the banks to
save recurring cost on maintenance of those equipments after the
standard post warranty period of one year.
iii. Procedure followed - While matching with the standard procedure
expected to be followed by the banks during course of implementation
of CBS, it has been observed that CBS has been introduced most
systematically by JSBL followed by CCBL, VSBL, MSBL and then
SVCBL.
iv. IT resources – Human resources available with MSBL and SVCBL,
in terms of number, is not adequate considering the future changes
bound to happen in services being offered by the banks.
v. Consultants – Involvement of consultant from beginning of the
project has helped the sample banks for systematic introduction of
CBS in their banks. However, except JSBL other banks are not
availing support of consultants on regular basis.
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vi. Data centre - Data centre of all the sample banks, except SVCBL
have been designed keeping in view the best practices followed by the
industry while setting-up Data centre. Sharing of Data centre provides
additional revenue to JSBL and helps to put in practice principle of
“cooperation amongst cooperatives”.
vii. Disaster recovery site - Banks running under core banking
environment need to have Business continuity plan and Disaster
recovery policy in place. All the sample banks fulfill this requirement
except SVCBL.
viii. Information security certification - Having received certification
such as ISO 9001, ISO 27001 by JSBL and ISO 20000 by VSBL can
be considered as good proactive initiative. These certifications help
banks in standardizing their procedures relating to various activities
pertaining to Data centre, information security, IT service
management etc.
ix. Complementary software - CBS implementation helps banks to
automate their day-to-day banking operations and enables quick
decision making due to availability of centralized data. However, to
improve overall performance of banks and mitigating the business
risks, implementation of complementary software is necessary.
Recommendations
i. Implementation period - Business Process Re-engineering exercise
prior to implementation of CBS needs to be undertaken by the banks
planning to introduce CBS. Such effort shall no doubt help banks to
complete project in time as well as to streamline the existing business
processes.
ii. Cost - Banks should not compromise with quality of software,
hardware, networking and Data centre / Disaster recovery site
infrastructure. Emphasis needs to be on safe, secure and reliable
computing environment rather than only on cost aspect. Purchase of
local made / assembled hardware should be avoided. It should be
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policy of the bank to purchase only branded (Indian or International)
hardware and networking equipments with 3 years warranty.
iii. Procedure followed – After due extensive field study, standard
procedure has been suggested as a part of present research work.
Implementing this procedure shall greatly help banks to introduce
CBS in most systematic way keeping in view time-frame set by the
management and allotted budget.
iv. IT resources - MSBL and SVCBL need to strengthen their IT
Department by recruiting additional specialized manpower to take
care of important operations of IT Department.
v. Consultants - Involvement of consultant is necessary not only during
the implementation but also during post implementation period.
Consultants will be able to provide necessary input to the management
of the bank with regard to changes happening in the industry and
formulate future business strategies.
vi. Data centre - CCBL, VSBL and MSBL also may offer services of
sharing their Data centre to other banks on chargeable basis. SVCBL
needs to improve physical infrastructure of its Data Centre to ensure
that security measures are duly taken care. Data centre being heart of
core banking environment, ensuring secured data centre is absolutely
must.
vii. Disaster recovery site - SVCBL needs to urgently initiate setting-up
its Disaster recovery site. Bank can either have its own DR site or
share infrastructure of other bank on the lines of MSBL. Sample
banks need to undertake periodic mock drills to ensure smooth change
over from Data centre to Disaster recovery site and doesn’t disturb the
functioning of bank.
viii. Information security certification - CCBL, MSBL and SVCBL must
also initiate process to have ISO 27001 or ISO 20000 kind of
certifications.
ix. Complementary software - VSBL, MSBL and SVCBL should plan
for introducing complementary software such as Risk management,
Assets and Liability Management, Anti Money Laundering, Customer
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Relationship Management, Business Intelligence, Trade Finance,
Treasury, Workflow management, Intranet etc.
x. Operating in CBS environment for over three years, banks must focus
on cost optimization, customer centricity, product differentiation, as
well as high level of customer service to enable build their retail
business comprising of retail liabilities and retail assets. Such efforts
would certainly lead to enhanced profitability of the bank. Details of
actions which could be initiated by the sample banks are provided
through the present study.
6.1.3 Business growth, efficiency and profitability
Strength and soundness
Trust of the depositors on a bank and trust of the bank on its borrowers
form the foundation of the banking business. The measure of this trust is
the strength and soundness of a bank. It is then imperative that the bank
should have a minimum threshold in terms of size and adequacy of capital
to reflect its soundness.
Growth and profitability of bank depends upon soundness of the bank.
Reserve Bank of India, being a regulator of banking system in India, has
realized the importance of this aspect and issued Circular no. RBI/2012-
13/56 UBD.LS (PCB) MC. No. 14/07.01.00/ 2012-13 dt. July 2, 2012
specifying the criteria in order to get considered as Financially Sound and
Well-Managed (FSWM) bank. Criteria for FSWM bank is as follows
a) Maintenance of a minimum CRAR of 10 per cent;
b) Net NPAs being less than 5 per cent;
c) No default in the maintenance of CRR/SLR during the preceding
financial year;
d) Continuous net profit for the last 3 years;
e) Sound internal control system with at least two professional
directors on the Board;
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f) Regulatory comfort based on track record of compliance with the
provisions of BR Act, 1949 (AACS), RBI Act, 1934 and
instructions/directions issued by the Reserve Bank from time to
time.
Findings
Sincere attempt has therefore been made through this study to assess
soundness of the sample banks before analyzing business performance
parameters of the sample banks. Data available through annual reports
(secondary source) of the sample banks revealed that prior to
implementation of CBS, only SVCBL was complying with criteria
specified by RBI to consider the bank as FSWM bank. Position of other
sample banks was as follows
i. VSBL had CRAR of 9.31%, Net NPA of 9.73% during 2003-04,
while Net NPA 5.88% during 2004-05. After implementation of CBS
in 2007-08, all these parameters show considerable improvement in
case of VSBL. Net NPA of VSBL from 2007-08 onwards was
continuously at 0%.
ii. MSBL had Net NPA of 8.43% during 2004-05 and reduced during
the subsequent years. During 2010-11 (Post-CBS) it was also 0%.
iii. JSBL due to heavy loss during year 2002-03 had CRAR of less than
10% up to 2008-09. Net NPA was above 5% up to year 2006-07. The
bank succeeded in achieving complete turn around and posted net
profit in year 2010-11.
iv. CCBL had Net NPA of 7.13% only in 2001-02. For all the remaining
years, the bank has done exceptionally well.
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It is observed from the data of the Post-CBS period that all the sample
banks during the Post-CBS implementation period have improved their
position and fulfilled the criteria of FSWM bank.
Conclusion
CBS implementation has certainly helped selected banks to improve their
performance with respect to soundness, profitability, risk management and
regulatory compliance indicators specified for FSWM bank.
Business growth
Year of implementation of CBS is different for each of the sample bank.
Therefore, to bring uniformity and make comparison meaningful, period of
five years prior to year 2011 has been used to analyze growth of the bank
in terms of membership, net owned funds, business comprising of deposits
& advances, net profit and branch expansion.
Findings
Analysis of data available through annual reports of the sample banks
(secondary source) has revealed following
i. Branch expansion - CCBL has taken over 16 urban cooperative
banks after implementation of CBS, increasing number of branches
from 41 during 2003-04, year in which CBS got implemented to
106 branches as on March 31, 2011. VSBL has taken over one bank
during the post-CBS period. Growth rate of branches is the highest
in the case of CCBL (13.01 percent), followed by SVCBL (4.26
percent), VSBL (3.39 percent). JSBL and MSBL have not added
any new branches.
ii. Business - As regards the business of the sample banks, it has
shown considerable growth. CCBL (23.31 per cent) has recorded
highest growth, followed by SVCBL (22.87 per cent), JSBL (16.17
per cent) and VSBL (15.95 per cent). The growth rate in case of
MSBL (5.05 per cent) is the lowest among all the sample banks.
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iii. Net profit – In case of the growth rate of net profit, it is highest in
case of SVCBL (44.20 per cent), followed by VSBL (37.39 per
cent), MSBL (26.66 per cent), CCBL (16.50 per cent). JSBL
recorded net profit of 27.85 crores in 2010-11 after wiping out
accumulated losses of around 124 crores sustained by the bank
during year 2002-03.
iv. Net owned funds - Net owned funds, an indicator of soundness of
the bank shows considerable improvement in case of CCBL (19.92
per cent), followed by SVCBL (19.48 per cent), VSBL (18.20 per
cent). Growth rate in case of MSBL (4.88 per cent) is far less
compared to other sample banks. JSBL due to accumulated losses
up to year 2009-10, has recorded negative growth rate of 1.80 per
cent.
v. Membership - Membership of all the sample banks has shown
steady growth except SVCBL. Growth of membership is highest in
case of CCBL (7.73 per cent), followed by VSBL (5.24 per cent),
JSBL (4.61 per cent), MSBL (0.59 per cent). However, there is a
decline in membership of SVCBL by 5.20 per cent.
Conclusion
CCBL has been found leading in expansion of business size in
terms of addition of branches, followed by SVCBL and VSBL.
JSBL and MSBL have not added any new branches during last 5
years. Growth with respect to business, net profit, net owned funds
and membership is satisfactory in case of all sample banks except
MSBL. Growth of Net owned funds of MSBL is approximately four
times less compared to other sample banks.
Recommendations
MSBL needs to improve its position in comparison with other
sample banks to become financially stronger by increasing volume
of business and improving its profit margin. Except CCBL, all other
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banks need to have strategy to expand their branch network in
un-banked areas or expand their banking operations. The RBI, vide
its Circular No. RBI/2010-11/308 UBD.BPD. (PCB). Cir. No
28/09.18.300/2010-11 dt. December 10, 2010 has allowed UCBs to
appoint Business correspondents (BC) / Business facilitators (BF).
All the sample banks should consider this as an opportunity for
them to expand their operations. All the selected banks now being
stable in CBS environment must concentrate on:
i. Increasing the customer base
ii. Expanding their branch network in un-banked areas to
extend services to underprivileged and unbanked population
iii. Introducing innovative banking products and services and
take-up its effective marketing
iv. Providing technology based services (ATM, Internet
banking, Mobile banking etc.)
v. Controlling cost of funds
vi. Improving credit management system
vii. Providing para-banking services to generate higher non-
interest income
Such initiatives would certainly help banks to achieve higher rate of
business growth in terms of number of branches, business, net
profit, net owned funds and membership. It will also contribute to
furthering objective of financial inclusion of Government of India.
Business performance
Performance of a bank refers to productivity, efficiency and profitability.
All these factors are considered as key performance indicators of the bank.
Productivity is seen as ability and willingness of an economic unit to
produce maximum possible output with given inputs and technology.
Higher the output per unit of input, higher is the productivity. Efficiency
measures performance of the bank in normative sense by comparing it with
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the industry leader within or across the border. Profitability is a profit
earning capacity of a product, plant, process or an undertaking.
The productivity of employees and branches is crucial for the overall
efficiency of the banks. A number of measures have been taken by the
banks to right size the employees for improving their productivity through
Business process re-engineering, technology implementation and various
human resource development activities. Expansion of business through
introduction of new branches and technology based service channels also
have been considered as options, by banks to enhance productivity,
efficiency and profitability.
For analyzing the performance of individual banks, the present study has
used employee productivity parameters and branch productivity parameters
such as per employee and per branch, deposits, credit, total expenses, total
earnings, establishment expenses, spread, burden, net profit etc.
Profitability performance has been assessed with the help of ratios such as
spread to working funds, burden to working funds, net profit to total
income, net profit to total deposits, net profit to working funds and return
on assets. Period of four years prior to implementation of CBS (Pre-CBS
period) and four years after implementation of CBS (Post-CBS period)
from year in which CBS got introduced have been considered for the
purpose of comparison.
Productivity
Employee productivity
Employee productivity is an important part of total productivity. It is a
collective outcome of deposits, credits, business, total earning comprising
interest and non-interest income, total expenditure comprising interest
expenditure and non-interest expenditure.
Post-CBS period has shown considerable improvement in most of these
parameters as presented in Table 6.1
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Table 6.1 – Employee productivity parameters
Sr. No.
Bank / Parameter
Average Amount in Rs. lakhs
% Growth EGR in percent
Pre-CBS Post-CBS Pre-CBS Post-CBS 1 D/E VSBL 145.22 238.88 64.50 9.91 9.77 MSBL 135.67 195.73 44.27 14.26 11.59 SVCBL 105.81 158.11 49.42 10.13 19.43 JSBL 147.84 214.08 44.81 1.03 15.28 CCBL 152.85 240.57 57.39 14.86 10.21 2 CR/E VSBL 93.17 146.31 57.04 12.50 6.26 MSBL 85.38 117.89 38.08 13.59 10.13 SVCBL 63.51 109.23 72.00 10.88 18.12 JSBL 95.02 132.30 38.35 -3.93 16.37 CCBL 84.34 137.19 62.66 12.96 10.75 3 B/E VSBL 238.38 385.19 61.58 10.92 8.41 MSBL 221.05 313.62 41.88 14.00 11.03 SVCBL 169.32 267.34 57.89 10.41 18.90 JSBL 242.86 346.38 42.63 -0.90 15.70 CCBL 237.20 377.76 59.26 14.19 10.40 4 TEX/E VSBL 14.10 23.52 66.79 0.90 10.56 MSBL 13.50 21.64 60.30 16.99 11.41 SVCBL 11.86 15.64 31.87 1.82 12.94 JSBL 15.96 21.56 35.13 -3.53 21.31 CCBL 19.19 24.39 27.08 17.04 10.20 5 TER/E VSBL 14.91 25.80 73.07 2.61 12.87 MSBL 14.07 22.76 61.85 17.56 11.53 SVCBL 14.63 20.22 38.14 0.97 18.24 JSBL 16.66 23.55 42.22 -5.88 17.89 CCBL 21.34 28.54 33.76 16.27 6.72 6 ESTB/E VSBL 1.58 2.40 51.25 7.75 16.76 MSBL 2.25 3.71 65.02 8.55 22.39 SVCBL 1.83 2.60 41.74 4.93 8.10 JSBL 2.21 2.39 7.96 -3.56 8.93 CCBL 1.82 2.33 28.25 11.67 2.50 7 SPR/E VSBL 3.75 8.16 117.54 51.27 13.30 MSBL 4.96 8.13 64.06 15.28 21.29 SVCBL 4.82 10.16 110.90 3.74 16.56 JSBL 1.54 4.92 220.10 10.23 24.69 CCBL 6.94 7.52 8.38 25.23 9.49
317
8 BRD/E VSBL 2.28 5.05 121.12 29.54 8.08 MSBL 2.82 6.71 137.80 13.29 32.14 SVCBL 1.87 3.32 77.89 20.63 -11.98 JSBL 0.73 2.07 182.99 35.74 33.18 CCBL 2.45 0.73 -70.12 11.70 - 8 NP/E VSBL 0.81 2.29 182.40 35.51 33.77 MSBL 0.56 1.12 98.76 33.74 12.93 SVCBL 2.77 4.57 65.02 -2.57 41.74 JSBL -1.66 1.99 219.80 N.A. N.A. CCBL 2.15 4.16 93.35 9.31 -13.12
Source: Field study research
As seen from Table 6.1, employee productivity parameters such as average
per employee Deposits, Credits, Business, Total Earning, Spread and Net
profit have shown considerable improvement during the Post-CBS period.
While comparing rate of growth for Pre-CBS and Post-CBS period it has
been observed that except SVCBL and JSBL there is a decline in rate of
growth of remaining banks. Marginal improvement is however seen while
growth rates are calculated for all these parameters for longer period (up to
March 31, 2011) in case of CCBL (8 years) which is under CBS
environment for longer period amongst the sample banks.
Average per employee Expenses, Establishment expenses and Burden are
expected to be reduced during the Post-CBS period. However, considerable
increase is observed during Post-CBS period in all these parameters, except
in case of CCBL where there is a decline. Growth rates calculated over
longer period show further increasing trend.
Branch Productivity
Due to limited business size and restrictions by RBI to introduce
technology enabled and para-banking services, branch banking still forms
important component of cooperative banking. Clientele of UCBs still
prefers to visit branch to carry out routine banking transactions. It is
therefore very important to study branch productivity which is upshot of
deposits, credits, business, total earning comprising interest and non
318
interest income, total expenditure comprising interest and non interest
expenditure and most importantly net profit.
Post-CBS period has shown considerable improvement in most of these
parameters as presented in Table 6.2
Table 6.2 - Branch productivity parameters
Sr. No.
Bank / Parameter
Average Amount in Rs. lakhs
% Growth EGR in percent
Pre-CBS Post-CBS Pre-CBS Post-CBS 1 D/BR VSBL 2216.07 4088.91 84.51 12.66 7.37 MSBL 2839.54 3793.38 33.59 11.65 5.86 SVCBL 1523.53 2114.97 38.82 6.77 14.78 JSBL 4061.99 5252.71 29.31 -0.14 11.65 CCBL 4459.47 5644.12 26.56 8.95 -0.41 2 CR/BR VSBL 1423.10 2508.95 76.30 15.25 3.86 MSBL 1787.21 2285.55 27.88 10.98 4.89 SVCBL 914.12 1462.59 60.00 7.52 13.48 JSBL 2612.81 3246.14 24.24 -5.10 12.74 CCBL 2463.62 3213.02 30.42 7.05 0.13 3 BUS/BR VSBL 3639.16 6597.86 81.30 13.67 6.01 MSBL 4626.75 6078.93 31.39 11.39 5.48 SVCBL 2437.65 3577.56 46.76 7.06 14.26 JSBL 6674.80 8498.85 27.33 -2.07 12.06 CCBL 6923.09 8857.14 27.94 8.28 -0.21 4 TEX/BR VSBL 210.27 402.36 91.35 3.60 8.16 MSBL 282.23 419.45 48.62 14.38 5.74 SVCBL 171.35 210.00 22.56 -1.54 8.29 JSBL 438.62 527.18 20.19 -4.70 17.68 CCBL 558.94 569.97 1.97 11.13 -0.41 5 TER/BR VSBL 227.38 441.35 94.10 5.36 10.47 MSBL 293.99 441.21 50.07 14.95 5.82 SVCBL 211.49 270.67 27.98 -2.39 13.60 JSBL 455.42 576.73 26.64 -7.05 14.25 CCBL 621.88 669.94 7.73 10.35 -3.89 6 ESTB/BR VSBL 24.19 41.00 69.49 10.50 14.36 MSBL 47.13 71.80 52.33 5.94 13.06 SVCBL 26.45 35.02 32.41 1.57 3.46 JSBL 60.74 58.70 -3.35 -4.73 5.29 CCBL 53.17 55.24 3.90 5.75 -8.11
319
8 NP/BR VSBL 12.46 38.98 212.85 38.26 31.38 MSBL 11.76 21.75 84.96 31.13 6.75 SVCBL 40.14 60.67 51.16 -5.93 37.10 JSBL -46.14 49.55 207.40 - - CCBL 62.94 99.98 58.84 3.40 -23.74
Source: Field study research
Data presented in Table 6.2 reveals that branch productivity parameters
such as average per branch Deposits, Credits, Business, Total Earning and
Net profit have shown considerable improvement during the Post-CBS
period. While comparing growth rates for Pre-CBS and Post-CBS period it
has been observed that trends are similar to that of parameters pertaining to
employee productivity.
Conclusions
Post-CBS period has shown considerable improvement in employee and
branch productivity parameters. However, rate of growth has declined
during the same period. Decline observed in rate of growth in case of
VSBL, MSBL and CCBL may be due to following reasons:
The lower rate of growth observed in case of VSBL during Post-CBS
period is due to addition of 2 branches and recruitment of new employees
made by the bank during the Post-CBS period and lack of proportionate
growth in business of the bank commensurate with increase in number of
employees.
Data available through annual reports revealed that lower rate of growth
has been observed in case of MSBL, despite no addition of branch and
decrease in number of employees, is due to decline in credit business of the
bank during Post-CBS period particularly in year 2008-09 and 2010-11.
Similarly, during Post-CBS period, lower rate of growth has been observed
in case of CCBL mainly due to expansion initiatives of the bank through
mergers of 7 small banks in Post-CBS period, up to 2006-07. Further, there
has been addition of around 34 branches and 300 employees during this
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period. Rate of growth calculated for a longer period (8 years) up to year
2010-11 show very marginal improvement, which clearly indicates that
time factor has very little role to play in improvement of rate of growth.
Both SVCBL and JSBL have registered higher rate of growth during Post-
CBS period due to substantial increase in their business, effective credit
management by maintaining appropriate C/D ratio with lesser number of
employees than those available during Pre-CBS period. Data available
through annual reports of these banks further revealed that higher growth in
net profit per employee is observed mainly due introduction of technology,
leading to substantial increase in other income consisting of Service &
other charges and sale of securities, transfer from IFR, miscellaneous
income.
All the sample banks need to aim at improving rate of growth in parameters
such as per employee and per branch deposit, credit, business, total earning,
spread and net profit. On the other hand it is equally important to control
rate of growth in parameters such as total expenses, establishment
expenditure and burden. Increase in expenditure, which is inevitable, can be
compensated by increasing non-interest income.
Banks which are opting for the path of mergers and amalgamation of weak
banks for the purpose of achieving growth should not lose sight of
productivity and profitability performance of the bank.
Implementation of specialized complementary software such as Assets and
Liability management software shall also help banks to a great extent in
balancing assets and liability position of the bank very effectively.
Profitability
Profitability is the most important and reliable indicator to assess the
performance of a bank, as it gives a broad indication of capability of a bank
to increase its earnings. The present study has employed various important
ratios such as Interest Earned, Interest Paid, Spread, Non-Interest
321
Expenditure, Non-Interest income, Burden as percentage of Working
Funds and Net Profit as percentage of Total Income, Net Profit as
percentage of Total Deposits and Net Profit as percentage of Working
Funds to evaluate the performance of sample banks in terms of their
profitability. These ratios are good indicators of efficiency with which a
bank deploys its total resources to maximize its profits.
Progress made by the sample banks with respect to these important ratios is
presented in Table 6.3
Table 6.3 – Profitability parameters Sr.No.
Bank / Parameter
Average %
Growth %
Pre-CBS Post-CBS 1 IE/WF VSBL 8.51 8.97 0.47 MSBL 8.05 9.04 0.99 SVCBL 10.09 8.96 -1.13 JSBL 7.73 7.14 -0.59 CCBL 11.74 7.89 -3.85 2 IP/WF VSBL 6.28 5.91 -0.36 MSBL 4.97 5.46 0.49 SVCBL 6.44 4.02 -2.42 JSBL 6.87 5.17 -1.70 CCBL 7.88 5.25 -2.62 3 SPR/WF VSBL 2.23 3.06 0.83 MSBL 3.08 3.58 0.50 SVCBL 3.65 4.94 1.29 JSBL 0.86 1.96 1.10 CCBL 3.86 2.64 -1.23 4 NIE/WF VSBL 2.17 2.53 0.35 MSBL 2.42 3.82 1.40 SVCBL 2.37 2.52 0.14 JSBL 2.03 3.08 1.04 CCBL 1.79 2.42 0.63 5 NII/WF VSBL 0.85 0.63 -0.22 MSBL 0.66 0.92 0.26 SVCBL 1.02 0.81 -0.21 JSBL 1.63 2.30 0.68 CCBL 0.39 2.21 1.82
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6 BRD/WF VSBL 1.33 1.90 0.57 MSBL 1.75 2.90 1.15 SVCBL 1.36 1.71 0.35 JSBL 0.40 0.77 0.37 CCBL 1.40 0.21 -1.19 8 NP/TI VSBL 5.38 8.69 3.32 MSBL 3.91 5.09 1.18 SVCBL 18.80 21.58 2.78 JSBL -9.01 9.38 18.39 CCBL 10.22 14.73 4.50 9 NP/TD VSBL 0.54 0.94 0.40 MSBL 0.40 0.62 0.21 SVCBL 2.68 2.79 0.11 JSBL -1.14 0.99 2.13 CCBL 1.42 1.79 0.36 10 NP/WF VSBL 0.49 0.84 0.35 MSBL 0.34 0.52 0.18 SVCBL 2.13 2.13 0.00 JSBL -0.96 0.85 1.81 CCBL 1.24 1.50 0.27 11 ROA VSBL 0.48 0.83 0.35 MSBL 0.33 0.57 0.24 SVCBL 2.09 2.08 0.01 JSBL 0.29 0.74 0.45 CCBL 1.18 1.42 0.24 Source: Field study research
From Table 6.3 it is revealed that during Post-CBS period there is an
improvement in various profitability ratios such as Spread as percentage of
Working Funds, Net Profit as percentage of Total Income, Net Profit as
percentage of Total Deposit, Net Profit as percentage of Working Funds
and Returns on Assets. Burden as percentage of Working Funds has
however increased due to increase in Non-Interest Expenditure as
percentage of Working Funds.
Further analysis of standard parameters prescribed by RBI such as Net
Profit as percentage of Working Funds (NP/WF) and Returns on Assets
(ROA), revealed that NP/WF, on an average, of all the sample banks has
increased during the Post-CBS period compared to Pre-CBS period except
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SVCBL, where it has remained same. Progress made by JSBL during the
Post-CBS period is noteworthy as the bank could show remarkable
progress from -0.96 per cent to 0.85 per cent.
Data presented in Table 6.3 further reveals that Return on assets (ROA) of
SVCBL and CCBL are greater than 1 percent as suggested by Basel II /
RBI during both Pre-CBS and Post-CBS period. Even though ROA of all
the sample banks have improved during Post-CBS period, it is still less
than one percent in case of VSBL, MSBL and JSBL.
Conclusions
From the analysis with regard to various parameters pertaining to
profitability of the bank for the period of four years prior to CBS and 4
years during the Post-CBS period, it can very well be concluded that only
JSBL has been able to improve its performance to considerable extent in
terms of net profit to working fund, net profit to total income and net profit
to total deposits. Though other banks show improvement in all these
parameters it is very marginal and selected banks need to further improve
these ratios with the help of technology.
VSBL, MSBL and JSBL must try to improve their ROA. Performance of
CCBL has got affected due to expansion initiatives taken by the bank
during the Post-CBS period.
Efficiency More output per unit of input reflects relatively greater efficiency. Since the
banking industry uses multiple inputs to produce multiple outputs, it is
difficult to pinpoint that how much improvement in performance is due to
particular input. However, with the help of benchmarking technique,
output-to-input ratios of several service units can be compared to determine
that which unit is more or less efficient than another. Efficiency is the
measure of performance of the bank in a normative sense which can be
done by comparing it with the industry leader within or across the borders.
324
In this study a sincere effort has been made to compare the performance of
the sample banks with the performance of other urban cooperative banks in
Pune District using annual data published by Pune District Urban Banks
Association for period of ten years from year 2001-02 to 2010-11. This
period covers the study period for analysis of all the sample banks
individually.
It was found that all the banks were in computerized environment in 2001-
02. However, the differentiating factor was adoption of CBS. Out of 60
UCBs in operation in year 2001-02, four groups were formed for the
purpose of analysis. Groups comprised those banks which were under CBS
(G-I), in process of implementation of CBS (G-II), non-CBS (G-III) and
banks having single branch (G-IV).
Standard parameters prescribed by RBI such as business per employee, net
profit per employee have been used along with other parameters such as
business per branch, net profit per branch, net profit and profitability to
compare performance of various groups as presented in Table 6.4.
Table 6.4: Group wise performance of UCBs in Pune
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Business per Employee G-I 183.40 171.12 280.70 230.40 271.40 293.00 341.57 385.40 445.80 514.80
G-II 138.80 109.95 165.75 195.40 211.40 224.00 262.42 284.80 344.60 394.60
G-III 126.80 128.69 137.38 150.20 165.20 193.20 226.10 243.20 276.40 308.20
G-IV 99.00 80.30 97.79 119.80 123.60 130.60 169.66 189.80 239.80 300.60
District 131.16 127.01 153.23 160.73 178.51 196.98 229.88 238.41 293.02 338.55 Net Profit per Employee
G-I 1.16 1.36 2.26 1.40 2.29 2.01 2.23 3.47 2.63 4.55
G-II 0.89 0.93 1.19 1.00 1.68 1.32 1.65 2.06 2.20 2.63
G-III 0.99 0.83 0.85 0.86 0.94 0.95 1.91 2.17 1.37 1.92
G-IV 0.49 0.84 1.16 -0.47 -0.48 1.07 1.26 1.69 1.36 2.05
District 0.64 0.95 0.70 0.14 0.40 0.81 1.31 1.64 1.78 2.42 Business per Branch
G-I 4629.80 4516.82 4797.08 5163.49 6314.87 6109.55 7067.05 7888.17 8800.42 9805.10
G-II 1579.22 1687.94 1873.89 2187.13 2236.86 2398.64 2842.67 3046.00 4054.09 4309.02
G-III 1736.68 1854.92 1972.19 2075.74 2274.90 2637.39 3194.73 3161.88 3755.31 4078.69
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G-IV 1754.34 1827.37 2228.77 2835.60 3057.20 3121.60 3614.20 4022.00 4792.80 5444.00
District 2147.34 2179.51 2398.55 2788.26 2945.55 3166.46 3679.41 3561.10 4306.27 4758.76 Net Profit per Branch G-I 28.65 29.07 51.30 31.82 53.87 41.77 43.03 66.13 45.34 76.54
G-II 9.96 9.04 10.65 7.29 14.29 13.17 17.41 23.38 26.39 28.48
G-III 13.35 11.02 10.26 11.67 12.86 12.74 26.56 26.67 18.27 24.61
G-IV 12.68 19.17 21.04 -3.20 -8.00 26.40 26.60 34.20 28.00 40.00
District 10.80 13.20 11.40 3.97 9.31 12.92 16.30 26.42 25.29 33.22 Net Profit G-I 890.37 838.40 1794.83 1201.80 1767.20 1707.40 1836.00 2642.20 1780.00 3319.60
G-II 78.07 73.40 68.02 18.60 95.80 84.60 114.60 153.00 163.60 214.20
G-III 123.72 110.00 108.30 118.60 128.60 127.20 240.40 264.00 175.40 268.20
G-IV 19.19 22.40 27.26 -3.20 -8.00 26.40 26.60 34.20 28.00 40.00
District 114.99 128.19 165.35 86.70 155.63 188.02 216.17 346.21 266.49 504.09
Profitability G-I 0.95 0.99 1.29 0.69 1.11 0.92 0.92 1.30 0.84 1.23
G-II 1.02 0.77 1.02 0.68 0.97 0.76 0.80 0.94 0.77 0.87
G-III 1.08 0.80 0.68 0.80 0.78 0.67 1.14 1.18 0.64 0.82
G-IV 0.96 0.98 1.28 -0.62 -9.49 0.97 1.00 1.27 0.73 1.02
District 0.69 0.77 0.48 -0.10 -0.74 0.26 0.68 0.61 0.74 0.93 Source: Field work
Analysis of the data presented in Table 6.4 revealed following important
aspects. It has been evident that banks belonging to group G-I have clearly
outperformed other groups in terms of average Business per Employee, Net
Profit per Employee, Business per Branch, Net Profit per Branch and way
ahead of district average for all the UCBs from Pune.
Average Business per Employee of G-II and G-III is either marginally
ahead of district average or even less during few years of study while that
of G-IV has always been below district average. Average Business per
Branch of G-II and G-III banks is found to be less than the average for
district. Interestingly, G-IV has recorded better performance compared to
district average.
Average Net profit per Employee of G-II and G-III is better than district
average throughout the study period. Performance of G-IV has shown
improvement especially after year 2006-07. Net profit per branch of G-II
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and G-III has shown fluctuations whereas G-IV has performed better than
district average except in year 2004-05 and 2005-06.
Net profit of banks belonging to G-II, G-III and G-IV is less than district
average in most of the years.
Conclusions
From analysis of employee productivity, branch productivity and
profitability performance of sample banks as compared to urban
cooperative banks (other than sample banks) from Pune District, it is
revealed that group G-I comprising the sample banks have outperformed
the remaining urban cooperative banks in employee productivity, branch
productivity and profitability parameters.
Recommendations
Though profit making is not the motto of cooperatives, earning sufficient
profit is essential for the survival, growth and development of these
cooperative banks. Profit is a matter of necessity and all the sample banks
must strive to earn more of it to remain competitive and to achieve further
growth.
Sample banks must aim at achieving higher level of business by focusing
upon providing technology based services such as ATM, ATM network,
Internet Banking, Mobile Banking, IMPS, Electronic payment system
(ECS/NEFT/RTGS etc). Introduction of such services would certainly help
banks in enhancing the business and income through service charges.
Introduction of technology enabled services shall relieve employees from
handling routine and monotonous work and in providing services more
efficiently to the customers who are visiting branches. Such initiatives shall
certainly improve efficiency, productivity and profitability. Moreover, it
would also enable the banks to retain their existing customers.
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Operational efficiency – perception of employees
In an attempt to further strengthen the findings, an opinion survey of
employees working at branches was carried out during the course of field
study. Results of the same are presented in Table 6.5 and Table 6.6.
Table 6.5 - Response from Employees - I
Source: Field work
Table 6.6 - Response from Employees - II Improvement in service
Sr.No. Name of the Service Yes No NR Total (100%)
1 Appraisal of Loan 20 (66.66%) 2 (06.66%) 8 (26.66%) 30 2 Improved recovery 26 (86.66%) 2 (06.66%) 2 (06.66%) 30 3 Increase in Accounts 28 (93.33%) 0 (00.00%) 2 (06.66%) 30 4 Increase in business
volume 28 (93.33%) 1 (03.33%) 1 (03.33%) 30 5 Marketing of products
18 (60.00%) 9 (30.00%) 3 (10.00%) 30 6 Reduction in operating
expenses 23 (76.66%) 5 (16.66%) 2 (06.66%) 30 7 Increase in non-interest
income 21 (70.00%) 4 (13.33%) 5 (16.66%) 30 8 Improved cash
management 23 (76.66%) 1 (03.33) 6 (20.00%) 30 9 Quick decision making
21 (70.00%) 8 (26.66%) 1 (03.33%) 30 10 HO reporting 24 (80.00%) 5 (16.66%) 1 (03.33%) 30
Source: Field work
Improvement in service
Sr.No. Name of the Service Yes No NR Total (100%)
1 Payment of Cash 29 (96.66%) 0 (00.00%) 1 (03.00%) 30 2 Receipt of Cash 29 (96.66%) 0 (00.00%) 1 (03.00%) 30 3 Issuing DD 28 (93.33%) 1 (03.00%) 1 (03.00%) 30 4 Money Transfer 24 (80.00%) 4 (13.33%) 2 (06.66%) 30 5 Passbook Updt 28 (93.33%) 1 (03.00%) 1 (03.00%) 30 6 Issuing Stmnt of A/c 27 (90.00%) 2 (06.66%) 1 (03.00%) 30 7 Issuing Chq Bk 25 (83.33%) 3 (10.00%) 2 (06.66%) 30 8 Intimation of maturity of
Deposit 27 (90.00%) 2 (06.66%) 1 (03.00%) 30 9 Issue / Renewal of
Deposit 27 (90.00%) 0 (00.00%) 3 (10.00%) 30 10 Sanctioning of Loan 24 (80.00%) 1 (03.00%) 5 (16.66%) 30 11 Ability to provide info to
customer 27 (90.00%) 2 (06.66%) 1 (03.00%) 30
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Findings
i. Based on results of opinion survey of employees working at
branches as depicted in Table 6.5 and 6.6 it is evident that between
90 to 96 percent employees were of the view that there has been an
improvement in deposit related services such as payment of cash,
receipt of cash, issuing DD, passbook updation, issuing statement of
account, intimation of maturity of deposits, issue / renewal of
deposits on account of implementation of CBS. Further, it has been
revealed by 80 percent employees that there has been an
improvement in the services such as money transfer. Similarly, 83
percent employees have stated an improvement in issuing of
chequebook after CBS implementation.
ii. About 90 percent employees are of the view that there has been an
improvement in issuing statement of account, ability to provide
information to the customer after implementation of CBS.
Similarly, 80.00 percent employees have felt that sanctioning of
loan has improved while only 66.66 percent employees are of the
opinion that CBS has been helpful in appraising the loan proposals.
iii. Further, CBS implementation has resulted into increasing number of
accounts and increase in volume of business, as perceived by 93.33
percent employees. Considerably less number of employees,
between 60 to 76 percent have perceived that there has been an
improvement in marketing of products, improvement in cash
management, reduction in operating expenses, increase in non-
interest income because of the CBS implementation.
iv. Further, 90.00 percent employees are of the opinion that ability to
provide information to customer has improved while only 70.00
percent employees have perceived that CBS has been helping them
for quick decision making. 80.00 percent employees have felt that
HO reporting has improved as a result of CBS implementation.
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Conclusions
i. Majority of the services pertaining to accepting and repayment of
deposit have shown improvement. However, there is a scope for
further improvement in services such as funds transfer, passbook
updation, issuing of cheque-book etc.
ii. Sample banks have been able to bring improvements in effective
credit disbursement. However, time required for sanctioning of loan
has not been reduced. Moreover, employees are not in a position to
use existing system for appraisal of loan proposals.
iii. Implementation of CBS has helped sample banks to handle
increased number of accounts and business. However, banks have
not been in a position to derive expected benefits after
implementation of CBS such as effective marketing of products,
cash management, reduction in operating expenses, increase in non-
interest income etc.
iv. CBS implementation has helped front office employees to provide
information required by customers. However, always there is
further scope for improvement in Head office reporting mechanism
and generating information required by front office employees to
take routine decisions.
Recommendations
i. VSBL, MSBL and SVCBL have tie-up with other banks to provide
NEFT, RTGS facilities through sub-membership. Sample banks can
become member of NEFT, RTGS systems to facilitate quick
services to their customers. A separate counter for passbook
updation may help sample banks to reduce load on the Teller /
Cashier for updating of passbook and shall also enable speedy
service to the customer. Sample banks may introduce system of
providing personalized chequebook from central location. Use of
courier services can be made to send chequebook directly to address
of the customer.
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ii. In order to make the process of sanctioning loan proposal more
efficient, selected banks may implement Loan documentation and
Loan appraisal software. Such software no doubt shall help in
removing duplication of work and bring in accountability at various
levels of management involved in sanctioning of loans.
iii. CBS is expected to reduce work load of employees. Time saved due
to automation is expected to increase business of the bank. Banks
also need to utilize such time for effective marketing of services and
products offered by the bank. Banks also need to introduce
additional para-banking activities to enhance their non-interest
income.
iv. Sample banks need to take-up exercise to understand information
required by front office employees in order to take quick decisions
for improving customer service. Banks need to introduce business
application such as Customer relationship management software to
take care of such requirements.
Testing of Hypothesis
Hypothesis 1
H0: CBS implementation has no effect on enhancing performance of banks through efficient banking operations
H1: CBS implementation enhances performance of banks through efficient banking operations
Present study has used Data Envelopment Analysis (DEA) method to
analyze efficiency score of urban cooperative banks for year 2002-03 when
none of the UCB in Pune was under CBS environment and for year 2010-
11 when all the sample banks were under CBS environment. Input
variables used are Working capital, Branches, Employees and output
variables used are Investments, Advances and Net profit. For analysis of
2010-11, the additional input variable used is number of ATMs.
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Efficiency scores found are as follows
Table 6.7 – Efficiency score of sample banks in year 2002-03
Name of the bank Score The Cosmos Cooperative Bank Ltd., Pune 100.00% Janata Sahakari Bank Ltd., Pune 94.57% Seva Vikas Cooperative Bank Ltd., Pune 65.42% Mahesh Sahakari Bank Ltd., Pune 72.38% The Vishweshwar Sahakari Bank Ltd., Pune 73.12%
Source: Field study research
Table 6.8 – Most efficient banks in year 2002-03
Name of the bank Score The Cosmos Cooperative Bank Ltd., Pune 100.00% Shree Ganesh Sahakari Bank Ltd., Pune 100.00% Citizens Cooperative Bank Ltd., Pune 100.00% Shree Suvarna Sahakari Bank Ltd., Pune 100.00% Shree Jaihind Urban Cooperative Bank Ltd., Pune 100.00%
Source: Field study research
Efficiency scores of all the sample banks are presented in Table 6.7 Table
6.8 depicts list of urban cooperative banks in year 2002-03 which were
most efficient banks. It is clearly evident from the list of most efficient
banks presented in Table 6.8 that only CCBL, amongst all the of sample
banks, appears in the list of most efficient banks.
Efficiency score of sample banks in year 2010-11(With ATM as additional
Input variable) is presented in Table 6.9
Table 6.9 - Efficiency score of sample banks in year 2010-11 Name of the bank Score The Cosmos Cooperative Bank Ltd., Pune 100.00% Janata Sahakari Bank Ltd., Pune 100.00% Seva Vikas Cooperative Bank Ltd., Pune 100.00% Mahesh Sahakari Bank Ltd., Pune 98.68% The Vishweshwar Sahakari Bank Ltd., Pune 99.41% Source: Field study research
From the data presented in Table 6.9, it is clearly evident that all the sample
banks have significantly improved their efficiency score. Along with
332
CCBL, other sample banks JSBL and SVCBL also have become most
efficient banks. MSBL and VSBL have scored 98.68 percent and 99.41
percent respectively. It can therefore be concluded that implementation of
CBS has helped sample banks to improve their operational efficiency.
Results of t-Test Two sample for means of selected productivity parameters
are presented in Table 6.10
Table 6.10 - t-Test: Paired Two Sample for Means of Employee and Branch productivity parameters
BUS/E NP/E BUS/BR NP/BR
Pre-CBS Post-CBS Pre-CBS Post-CBS Pre-CBS Post-CBS Pre-CBS Post-CBS
Mean 221.7620 338.0580 0.9260 2.8260 4860.2900 6722.0680 16.2320 54.1860
Variance 927.5714 2366.2953 2.9333 2.1794 3740618.5896 4508117.8493 1669.4307 860.9854
Observations 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000
Pearson Correlation
0.8940 0.7611 0.9466 0.5809
Hypothesized Mean
Difference
0.0000 0.0000 0.0000 0.0000
df 4.0000 4.0000 4.0000 4.0000
t Stat -10.2393 -3.7787 -6.0424 -2.5162
P(T<=t) one-tail
0.0003 0.0097 0.0019 0.0328
t Critical one-tail
2.1318 2.1318 2.1318 2.1318
P(T<=t) two-tail
0.0005 0.0195 0.0038 0.0656
t Critical two-tail
2.7765 2.7765 2.7765 2.7765
Source: Field work
As H0 is one-sided, a one-tailed test (in the left tail because H1 is greater
than type) has been applied. For determining the rejection at 5 per cent
level of significance which come to as under using table of t-distribution
for 4 degrees of freedom
R:t<-2.13
The observed value of t falls in rejection region in case of BUS/E
(-10.2393), NP/E (-3.7787), BUS/BR (-6.0424), NP/BR (-2.5162) and thus
H0 at 5 per cent level is rejected and alternative hypothesis H1 is accepted.
Based on the results of DEA and t-Test Paired two sample for means at 5
per cent level of significance, null hypothesis is rejected and alternative
333
hypothesis “CBS implementation enhances performance of banks
through efficient banking operations” is accepted.
Hypothesis 2
H0: CBS implementation has no effect on enhancing financial growth and profitability H1: CBS implementation enables banks in enhancing financial growth and Profitability
Results of t-Test Two sample for means of selected profitability parameters are presented in Table 6.11
Table 6.11 - t-Test: Paired Two Sample for Means of Profitability parameters
NP/WF ROA NP/TI NP/TD Pre-CBS Post-CBS Pre-CBS Post-CBS Pre-CBS Post-CBS Pre-CBS Post-CBS
Mean 0.6480 1.1680 0.8740 1.1140 5.8600 11.8940 0.7800 1.4260
Variance 1.3131 0.4161 0.5911 0.4061 102.9008 41.1854 1.9770 0.7672 Observations 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000 5.0000 Pearson Correlation 0.8067 0.9861 0.7292 0.8291
Hypothesized Mean Difference 0.0000 0.0000 0.0000 0.0000
Df 4.0000 4.0000 4.0000 4.0000 t Stat -1.5872 -3.0529 -1.9247 -1.7241
P(T<=t) one-tail 0.0938 0.0190 0.0633 0.0799 t Critical one-tail 2.1318 2.1318 2.1318 2.1318 P(T<=t) two-tail 0.1876 0.0379 0.1266 0.1598
t Critical two-tail 2.7765 2.7765 2.7765 2.7765 Source: Field work
As H0 is one-sided, a one-tailed test (in the left tail because H1 is greater
than type) has been applied. For determining the rejection at 5 per cent
level of significance which come to as under using table of t-distribution
for 4 degrees of freedom
R:t<-2.13
The observed value of t does not fall in rejection region in case of
NP/WF (-1.5872), NP/TI (-1.9247) and NP/TD (-1.7241). Only in case of
ROA (-3.0529) the observed value of t just falls in rejection region and
thus H0 at 5 per cent level is accepted to conclude that “CBS
implementation has no effect on enhancing financial growth and
profitability”.
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6.2 Issues faced by the sample banks while implementing CBS
During the field research it has been revealed by the officials and non-officials of
the banks that no major problem has been faced by their banks while implementing
the CBS. In fact it is a matter of surprise that none of the selected banks have come
across any major problems while implementing CBS. Such response could be due
to any of the following reasons
i. Issue which they had come across at the time of implementation got
resolved in due course of time
ii. Reluctance of respondents to disclose the issues faced by their bank
to protect image and reputation
iii. Out of fear of losing the employment in case of disclosing the
confidential information
Listed are few issues disclosed by the respondents which were not major and well
within control by the banks
i. Data conversion from existing software to new software
ii. Customization in reports and few other operations
iii. Few operations such as account opening, clearing which could be
centralized are yet handled at branch
iv. Speed of accessing software from branches
v. Connectivity issues
vi. User lock, password reset
6.3 Use of CBS in introducing technology based customer friendly services and innovative products
Effective use of technology is a key driver of efficiency and productivity in
the banking industry today. Banking through ATMs, Shared ATM
Network, Tele Banking, Mobile Banking and Internet Banking have
emerged as a strategic resource for achieving higher efficiency, control of
operations and reduction of cost by replacing paper based and labour
intensive methods with automated processes and thus leading to higher
335
productivity and profitability. A list of technology based services
introduced by the sample banks is presented in Table 6.12
Table 6.12 - Technology based services introduced by the banks Technology based services introduced by the sample banks
VSBL MSBL SVCBL JSBL CCBL Sr.No. Name of the product /
service
1 Any Where Banking (AWB) √ √ √ √ √
2 ATM √ √ √ √ 3 ATM Network NFS √ √ BANCs √ √ 4 Internet Banking √ 5 Mobile Banking (SMS
alerts) √ √ √ √ √
6 Tele Banking √ 7 POS √ 8 ECS/EFT/NEFT √ √ √ √ √ 9 RTGS √ √ √ √ √ 10 NDS/PDO √ √ 11 Utility Bill Payment √ √ 12 Payment gateway
(RuPay/VISA/Master/…) √
13 Demat services √ √ 14 Credit Card Payments 15 Any other, please specify
Source: Field study research
Findings
From the data depicted in Table 6.12 it can be seen that sample banks have
introduced various technology based services as follows
i. All the sample banks have started providing Any Where Banking
(AWB) facility.
ii. Except MSBL, all the sample banks have introduced ATM services. As
on March 2011 position of number of branches and availability of
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ATMs with respect to sample banks is VSBL 16 branches (8 ATMs),
MSBL 10 branches (ATMs Nil), SVCBL 13 branches (5 ATMs), JSBL
39 branches (16 ATMs) and CCBL 106 branches (112 ATMs).
iii. Except CCBL, proportion of ATMs to branches of all the sample banks
is far less as compared to that of foreign (3:1) and private sector banks
(1.8:1)
iv. Membership of ATM network has been obtained by VSBL, JSBL and
CCBL. VSBL is a member of BANCS, JSBL is a member of National
Financial Switch (NFS) whereas CCBL is member of both NFS and
BANCS enabling their customers’ access of superior network and
access to large number of ATMs of member banks across the country.
v. JSBL is the only bank, which has started providing “browse only” kind
of Internet Banking and also Tele banking services.
vi. All the sample banks have started providing SMS alerts facility. None
of these banks have started providing transactional mobile banking
facility as on March 2011.
vii. CCBL has tied-up with Master and Visa and provides its customers
facility of Debit card.
viii. Credit card facility is yet to be introduced by any of the sample banks.
ix. Point of sales (POS) devices has been introduced only by CCBL.
x. In response to various initiatives of Reserve Bank of India with respect
to electronic payment system, all the sample banks have started
providing NEFT and RTGS facilities to their customers either through
direct membership or through sub-membership of other banks. JSBL
and CCBL are the only banks having membership of NDS/PDO.
xi. Service of Utility Bill Payment has been introduced by CCBL and
JSBL only.
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Conclusions
From the data presented in preceding paragraph and details collected
through questionnaire revealed that majority of this technology based
services have been introduced by the banks in Post-CBS period.
CCBL and JSBL have been found leading amongst the sample banks in
introducing technology based services, followed by VSBL, SVCBL and
MSBL.
Recommendations
i. Sample banks need to introduce more ATMs which will enable them to
enhance their volume of business as well as facilitate their customers
for any time transaction.
ii. VSBL, MSBL and SVCBL are still not the member of National
Financial Switch (NFS) ATM network and should immediately avail
membership of this network as it provides flexibility to customer of the
bank for transacting at ATM of any of the member bank. Such
membership shall enable access of over 1,00,000 ATMs to the
customers of the Bank. It can generate sizable revenues for the Bank
through transaction charges, as customers of other bank will be in
position to use ATMs of the Bank.
iii. Growth in percentage of people accessing internet has been phenomenal
in last few years. With the introduction of smart phones, 3G Mobile
communication the percentage is improving further. Digital
broadcasting and the cable television networks (regulation) amendment
bill 2011 is going to bring sea changes in availability of internet to
common man. Sample banks must have their strategy in place to grab
this opportunity by introducing fully transactional Internet Banking
facility.
iv. In order to leverage technology, mobile banking facility needs to be
introduced subject to complying with RBI guidelines. Sample banks
need to transcend from SMS banking to fully transactional Mobile
banking.
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v. Banks may introduce tele-banking facility with interactive voice
response system (IVR). Option of choosing Marathi, Hindi or English
needs to be provided for use of telebanking and for services offered
through delivery channels.
vi. Banks may also consider issuing Debit cards in collaboration with Visa,
Master, Maestro etc. India’s own payment gateway service RuPay has
been recently unveiled in March 2012. Being an indigenous solution, it
would be a more cost effective proposition for banks to have tie-up with
RuPay in comparison with other service providers. Moreover,
customers having RuPay Debit card will be able to use their debit cards
on Point of Sales (POS) device for retail purchases. Service charges
generated by banks through debit card business must form a major part
of non-interest income for the bank.
vii. Banks providing NEFT and RTGS facility through sub-membership
arrangement must try to get direct membership of Indian Financial
Network (INFINET) and also that of various other electronic payment
systems introduced by RBI such as ECS (Debit), ECS (Credit), NEFT,
RTGS.
viii. Sample banks need to maintain comprehensive record relating to
volume of transactions generated through electronic delivery channels
and business generated through such channels in order to closely
monitor business generated through these channels and to bring in
further improvements in services offered. Format for maintaining
such record is suggested through this research work.
6.4 Para-banking services introduced by the sample banks
Findings
i. All the sample banks have tie-up with Insurance companies to
provide General and Life insurance facilities. MSBL, JSBL and
CCBL have tied-up with Mutual fund companies to offer services
pertaining to investment in mutual fund to their customers.
ii. Franking services are provided by all the sample banks except
MSBL.
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iii. VSBL, JSBL and CCBL have tied-up with UTI Technologies Ltd.,
to offer service of opening Permanent Account Number (PAN) to
their customers.
iv. Facility of online tax payment has been introduced by VSBL,
SVCBL and CCBL.
v. Demat services are provided by CCBL and JSBL to their customers.
Both the banks provide depository services through CDSL and
NSDL.
vi. Foreign exchange services are provided by CCBL and JSBL. CCBL
has acquired Full Fledged Money Changing license and recently got
the status of Authorized Dealer. JSBL provides foreign exchange
services through tie-up with Cox and Kings (India) Pvt. Ltd.
vii. CCBL has tied-up with Wiseman Forex Ltd. to provide money
transfer services through Western Union.
Recommendations
i. Sample banks may provide facility for investments in stocks &
shares, IPOs etc. through e-banking facility
ii. VSBL, MSBL and SVCBL may consider offering foreign exchange
services in collaboration with Authorized Dealers.
iii. Sample banks may have tie-up with payment gateway service
providers. Having such arrangement shall enable customer of the
bank to transact and make payment online through internet banking
service of the bank.
iv. Providing of other services such as mobile recharge, donation to
trusts, relief funds also can be thought of by the sample banks.
v. Sample banks may start services of financial advisory. Such service
may help customers for their financial planning.
vi. Due to shrinking margins, banks must strive to improve their non-
interest income by providing various transactional and para-banking
services with the help of CBS and other technological
developments.
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Testing of Hypotheses
Hypothesis 3 - CBS implementation enables banks to introduce technology based direct banking channels
From the data presented in Table 6.9 and details collected through
questionnaire it is revealed that majority of the technology based services
have been introduced by the sample banks after introduction of CBS, in
Post-CBS period and hence hypothesis “CBS implementation enables
banks to introduce technology based direct banking channels” is
accepted.
6.5 Recommendations for UCBs planning to introduce CBS
In the light of overall economic developments, technological developments and
enormous increase in tele-density during last few years, it is inevitable for UCBs to
adopt CBS to survive in competitive business environment and meet regulatory
requirements. Due to huge cost involved and considering complexity of the project,
CBS implementation needs to be handled in most diligent way. UCBs not only
need to ensure successful implementation of CBS but also that investment made by
them for CBS implementation results into improved performance of the bank.
Following suggestions are therefore offered based on the research work undertaken
i. UCBs which are yet to implement CBS, need to urgently initiate project of
CBS implementation
ii. Services of consultants having expertise in banking domain and
Information technology may be hired from initial stage of the project and
continued even after successful introduction of CBS. This will certainly
enable banks to keep abreast with developments happening in the industry
and continue remain competitive.
iii. A comprehensive vision document / business plan needs to be prepared by
the management of each bank with the support from external experts /
consultants which would direct progress of the bank for next five to ten
years.
iv. Various options such as outright purchase, Application Service Provider
(ASP), leasing etc. available as a part of CBS implementation, need to be
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carefully evaluated while taking final decision. No compromise should be
made with quality of application software, hardware, networking
equipments, information security equipments etc. for the purpose of saving
cost of the project.
v. UCBs may adopt systematic procedure for implementation of CBS, as
suggested through present research work.
vi. Banks must undertake important exercise of Business Process Re-
engineering (BPR) prior to implementation of CBS. BPR will help banks to
overcome age-old inefficient business procedures, if any and also to take
advantage of well established and universally accepted business
procedures.
vii. UCBs in the same vicinity must come together and set-up common data
centre. This will enable banks to share hardware, software, networking,
manpower resources in true cooperative spirit. Banks will also be in
position to save cost of investment.
viii. In absence of such arrangements, banks can at least come together and
negotiate with respective vendors to get benefit of volumes.
ix. Smaller banks which cannot afford setting-up own DC and DR must share
Data centre and Disaster Recovery Site from other UCBs having spare
resources.
x. Findings, conclusions and recommendations made as a part of the present
study are very much relevant to all other UCBs and need to be taken into
consideration.
6.6 Recommendations for the regulatory agency
i. RBI had set deadline for introduction of CBS for Scheduled Commercial
Banks and even for Regional Rural Banks. On the similar lines RBI should
set a deadline for adoption of CBS by UCBs.
ii. National Bank for Agriculture and Rural Development (NABARD) has been
asked by Ministry of Finance, GOI to provide financial assistance to about
400 small urban cooperative banks (UCBs) under Financial Inclusion
Technology Fund (FITF) to create infrastructure for core banking solutions
(CBS). Banks, which could not introduce CBS due to scarcity of funds, must
grab this opportunity to introduce CBS as quickly as possible.
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iii. As most of the small UCBs do not have technical know-how and also do not
have specialized manpower to look after technology, RBI should provide a
set of comprehensive guidelines prescribing procedure to adopt CBS.
iv. Institutions of national repute such as IDRBT, VAMNICOM, CAB,
NABCONS, NIBM, BIRD, IIBF etc. can be appointed as agencies to provide
technical support. RBI may decide charges for providing such support and
direct all the cooperative banks to avail benefit of such arrangement.
6.7 Contribution to the subject and body of knowledge
UCBs have traditionally played an important role in mobilizing resources from
lower and middle-income groups and in providing direct finance to small
entrepreneurs and traders. UCBs are playing a vital role in development of urban
economy, by financing the downtrodden class of urban area, small scale industries,
small business, retail trade, self employment, transport business, housing,
consumption, etc. By being local in nature and intricately interwoven with the local
community, the UCBs have a clear advantage over commercial banks. Though
they form a tiny part of the banking system, they have been regarded as one of the
main instruments for growth and development of urban and semi-urban poor.
Adoption of Information and Communication Technology (ICT) based solutions
on large scale has been one of the major factors for performance improvement of
banking sector in India and abroad. This fact has been revealed through the number
of research studies undertaken by several researchers in India as well as other
developing and developed countries. No comprehensive research work has taken
place in last 5 to 7 years relating to impact of ICT in general and particularly CBS,
on business performance and profitability of Urban Cooperative Banks which are
important part of Indian economy.
Generic details such as how CBS helped banks in improving their business,
customer services, customer retention and management information system are
available in form of article, case studies. However, there is dearth of literature
enlisting and highlighting performance improvements achieved by banks based on
Scientific methods / Research work.
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Present research has sincerely attempted to address these gaps and contributed to
existing knowledge base.
Based on the empirical analysis, the study provides important details such as
investments made by the sample banks, procedure followed by them for CBS
implementation, issues faced by them and benefits as perceived by their employees
at branch level. Study has also enlisted technology based services introduced by
the respective banks, especially after introduction of CBS.
Based on these details, sample banks shall be able to introspect themselves with
respect to their performance as compared to peers with respect to various banking
products and service offerings. Details presented through present research work are
expected to help them to formulate strategies to further improve their performance
by offering innovative banking products and services.
Attempt has been made through the present study to compare performance of each
of the sample bank prior to and post CBS implementation period. Further, it has
attempted to cross compare performance of sample banks with respect to
productivity, efficiency and profitability in pre and post CBS implementation
period with performance of all the UCBs in Pune city for a period of ten years
from 2001-02 to 2010-11.
The analysis done in this research work is expected to provide insights to
management of sample banks with regard to fruitfulness of their decision to
introduce CBS in their respective organization and whether their banks were in
position to outperform competitors due to CBS implementation.
Findings and recommendations of present study would no doubt be immensely
useful for UCBs planning to introduce CBS to formulate their policies and future
strategies.
Based on suggestions made through this research work, regulatory agency can very
well issue directives to UCBs which are yet to introduce CBS, about future course
of action required by them and need to introduce technology based delivery
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channels. Procedure suggested through this research work, should help UCBs to
implement CBS more systematically.
Present study concludes that there is an improvement in performance of banks in
terms of efficiency, employee productivity and branch productivity during post-
CBS period. However, due to unavailability of necessary data it was not possible to
address “how much” improvement has taken place due to CBS. If banks maintain
data as per the format suggested through this research then it would be easier to
derive such information. It will also help management to decide which of the
delivery channel is more preferred by customers of the bank and accordingly
further future investments can be made.
6.8 Areas of future study and research
i. Subject to availability of data, future research can be undertaken on
similar lines, for different types of banks such as commercial banks
comprising foreign banks, private sector, public sector banks along with
state cooperative, district cooperative banks. Such work can help in
documenting experiences of different types of banks and decide which
amongst them has introduced it more professionally and has been able to
derive maximum benefits.
ii. In the present study, only the quantitative aspects of productivity and
profitability have been examined. A study can be taken up to consider
qualitative aspects such as professional management, motivation level of
employees, quality physical infrastructure, modern communication
facilities, customer satisfaction, brand image of the bank etc which would
definitely play important role in performance improvement of bank to
find out the extent of improvement is due to each of these important
factors.
iii. If data pertaining to time required per transaction, number of transactions
per employee, time saved due to process re-engineering / centralization of
routine procedures, time saved in generating MIS, opportunity cost due to
effective and proactive decisions to mitigate business risks etc in pre and
post implementation period of CBS is made available by the banks then
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study could be undertaken to measure progress in operational efficiency
in post-CBS environment.
6.9 Conclusion
The broad objectives of the study have been achieved by the researcher.
The hypotheses formulated for the research have been tested and statistically
validated. The broad conclusions drawn based on the study undertaken are as
follows
i. Sample banks have done reasonably well in systematic implementation of
CBS.
ii. Banks did not come across any major issue while implementing CBS.
iii. Sample banks preferred to customize various software features to suit to their
existing procedures rather than accepting standard procedures available in
application software. The banks should have taken-up business process re-
engineering exercise to accept some of the efficient procedures available in
the application software.
iv. All the sample banks are fully CBS compliant and have completed over three
operating cycles successfully under CBS environment.
v. Performance of the sample banks in terms of productivity, operational
efficiency shows significant improvement in post-CBS period as compared to
pre-CBS period.
vi. Expenditure by the sample banks has shown increasing trend, mainly due to
compulsory factors such as inflation, price rise, hike in salary and allowances
of employees, other expenses etc.
vii. Profitability of the sample banks has improved but it is not statistically
significant to prove that implementation of CBS has enabled them to improve
profitability.
viii. From accumulated loss of ` 124 crores in year 2002-03 to net profit of ` 27
crores in year 2010-11 is phenomenal achievement by JSBL. Similarly,
growth of CCBL from 41 branches in year 2000-01 to 106 branches in
2010-11 is also unique achievement. Such achievements would not have been
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possible in absence of CBS implementation and other technology based
services introduced by these banks.
ix. Option of inorganic growth by merger and amalgamation of weak UCBs,
chosen by CCBL has certainly helped the bank to increase its business size.
However, it has affected the profitability aspects of the bank.
x. There is further scope for improvement in performance of all the sample
banks.
xi. Use of complementary software such as Document management system,
Work flow management system, Loan monitoring system, Treasury
management, Trade finance, CRM and risk management software such as
ALM, AML is negligible except in case of JSBL and CCBL where few of
such software have been implemented.
xii. With respect to multi channel servicing, sample banks need to aggressively
move forward to remain competitive.
xiii. Banks are still relying upon in-house developed information security
procedures. In order to provide confidence to customers, banks must adapt
internationally accepted information security standard such as ISO 27001 and
have their BCP/DR policy in place.
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