Efficiency of Banks

SINCE the process of liberalisation and reform of the financial sector were set in motion in 1991, banking has undergone significant changes. The underlying objective has been to make the system more
Competitive Efficient profitable.

Efficiency of Banks
With greater globalisation and expansion of financial services, risk management has become critical and indispensable. Since 1991, there have been two major stock market scams those engineered by Harshad Mehta and Ketan Parekh. These were systemic crises that cast doubts about the efficacy of the banking system. Low labour productivity was cited as one of the important factor for this state of affair.

Efficiency of Banks
Against this backdrop, we try to understand the concept of productivity and profitability Easy to calculate in case of manufacturing and other industry but very difficult to find out in the services industry In manufacturing, value added or net output is taken for output measurement. In the services sector, output is not tangible; therefore, it is difficult to quantify.

Efficiency of Banks
Two Type of Indicators Proxy proxy indicators
Profit and volume of business per employee are used to measure labour productivity

Direct
number of accounts per employee, is the other indicator of labour productivity

But these may give contradictory results

Efficiency of Banks
it is found that the total number of accounts per employee, at 885, is highest for regional rural banks (RRBs). For foreign banks it is 291, the lowest amongst the bank groups. But a further break-up into credit and deposit accounts shows that the large number of accounts per employee in RRBs is because of higher deposit rather than credit accounts. This is true in the case of other bank groups as well.

Efficiency of Banks
it is found that the total number of accounts per employee, at 885, is highest for regional rural banks (RRBs). For foreign banks it is 291, the lowest amongst the bank groups. But a further break-up into credit and deposit accounts shows that the large number of accounts per employee in RRBs is because of higher deposit rather than credit accounts. This is true in the case of other bank groups as well.

Efficiency of Banks
Poor Credit/Deposit Ratio
This poor credit-deposit ratio of Indian banks, termed as lazy banking, affects interest spreads and, in turn, profitability. Investment in government securities has become the core activity of most banks, including RRBs

Efficiency of Banks
Workforce Composition
The workforce composition shows that foreign banks have the highest percentage (61) of officers. Surprisingly, RRBs have the highest percentage (41) of officers amongst Indian banks. Around 50 per cent of the staff in Indian banks is clerical and 20-35 per cent subordinate.

Efficiency of Banks
Workforce Composition
The workforce composition shows that foreign banks have the highest percentage (61) of officers. Surprisingly, RRBs have the highest percentage (41) of officers amongst Indian banks. Around 50 per cent of the staff in Indian banks is clerical and 20-35 per cent subordinate. The RBI has a low percentage (28) of officers. Its clerical and subordinate staff (including sweepers) constitute 44 per cent and 31 per cent of the total workforce respectively, which is higher than that of commercial banks. This is noteworthy as central banking is supposed to be more specialised than commercial banking.

Efficiency of Banks
Other Parameters
Asset Quality
NPAs NPAs/Net advances NPAs/Gross advances

Return on assets No of branches per 1000 population Extent of automation Financial inclusion