data presentation, analysis and...

CHAPTER 5

DATA PRESENTATION, ANALYSIS

AND INTERPRETATION

102

SECTION 5.1

The Vishweshwar Sahakari Bank Ltd., Pune

Type of Bank Non-Scheduled Multi-state Urban

Cooperative Bank Year of establishment 1972 Present area of operation Maharashtra, Chikodi Taluka of Karnataka Number of branches HO+16 (as on March, 31, 2011) Audit class “A” Website http://www.vishweshwarbank.com/

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Sect. Title Page No. No.

5.1.1 About the Bank

Introduction 105

Financial position 106

5.1.2 Core Banking System implementation

Journey towards CBS 109

Foundation 110

Selection of Core Banking Software 110

Data Centre and Disaster Recovery Site 111

Rollout 112

Training 113

Information Technology Department 113

Business Continuity and Disaster Recovery 113

E-Delivery channels and other IT initiatives 113

5.1.3 Status of CBS implementation 115

Tables

Table 5.1.1 - Progress at a glance 106

Table 5.1.2 – Deposit schemes of the bank 107

Table 5.1.3 – Types of Loans 108

Table 5.1.4 - List of technology based services introduced by the bank 114

Table 5.1.5 - List of Para-banking services introduced by the sample banks 114

Table 5.1.6 - Status of CBS implementation 116

Table 5.1.7 - Procedure followed while implementing CBS 116

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Introduction

Parampujya Dyansinhasanadhishwar Shri Shri Shri 1008 Jagadguru Vishweshwar

Shivacharya Mahaswamiji of Kashi has been a source of inspiration for

establishing this Bank. He generously allowed the bank to incorporate his identity

in Bank’s name i.e. Vishweshwar Bank. The Vishweshwar Sahakari Bank Ltd.,

Pune (VSBL) was established in 1972 and head quartered in Market Yard area of

Pune city. The area of operation of this bank includes Maharashtra State & Chikodi

Taluka in Karnataka State. It is one of the leading Non-Scheduled Multi State

Urban Cooperative banks in Pune District. Following are some of the unique

achievements of the Bank:

Top most in having maximum paid-up capital under Non-Scheduled

category

Bagged the “Best NPA management” prize constituted by Banking

Frontiers 2006-07

Provides seven hours banking services with uniform timings 1000 to 1400

and 1430 to 1730 Hrs

Started “Customer Communication Centre” and complaints received there

are resolved within 48 hours

Bagged the “Late Padmabhushan Vasantdada Patil award for best UCB”

2009-10

Won four awards constituted by Banking Frontier for the “Best Data

Centre”, “Best NPA management”, “Best Net Interest Margin” and the

“Best Income Ratio”

Got converted to Multi-state UCB in 2010-11

Took over “Nipani Urban Souhard Sahakari Bank” having 2 branches

The bank has been conscious about the need to contribute socially. It has

discharged the following corporate social responsibilities:

• Donation to Sakal Relief Fund amounting ` 1 lakh in 2005-06

• Adopted 5 students of Vidyarthi Sahayak Samiti and taken responsibility to

bear cost of their education

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• Ten people were provided Jaipur Foot 2006-07

• Donation to Lingayat seva mandal amounting ` 1 lakh

• 500 customers were gifted plants in 2008-09

• Provided 10 computers to Sumati Bal Bhavan

Financial position

As on 31.03.2011 the bank had deposits of ` 717.53 crores and advances of `

427.76 crores with total business of ` 1145.29 crores. The paid up capital as on

31.03.2011 was ` 23.33 crores and it was the highest amongst all non scheduled

Urban Cooperative Banks in Pune District. The bank has obtained Audit class ‘A’

from Statutory Auditor and satisfactory rating in RBI inspections. Financial

position of the bank therefore, has been quite strong. Progress of the bank for the

study period is shown in Table 5.1.1 Table 5.1.1 - Progress at a glance

(Amount ` in Lakhs) Sr. No. Description 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

1 No. of members N.A. 13,582 14,486 14,520 15,192 16,778 17,537 17,809

2 Paid-up capital 647.00 789.66 1,013.37 1,270.12 1,614.30 1,932.00 2,191.01 2,332.73 3 Reserves and

other funds 1,157.00 1,360.60 1,703.28 2,037.06 2,702.21 3,458.00 3,745.75 4,122.39

4 Owned funds 1,804.00 2,150.26 2,716.65 3,307.18 4,316.51 5,390.00 5,936.76 6,455.12

5 CRAR 9.31% 10.06% 11.94% 11.87% 12.72% 14.45% 13.02% 14.09%

6 Deposits

CASA N.A. 7,130.32 8,793.83 12,386.41 16,532.71 14,575.00 17,800.25 23,215.41

Term N.A. 20,577.72 23,624.85 25,602.78 33,802.28 44,227.00 51,889.53 48,537.64

Total 25,984.00 27,708.04 32,418.68 37,989.19 50,334.99 58,802.00 69,689.78 71,753.05

CASA% 25.73 27.13 32.61 32.85 24.79 25.54 32.35 7 Advances 16,057.00 16,955.11 21,309.91 25,371.85 33,340.34 38,571.00 38,550.24 42,776.42

8 Business 42,041.00 44,663.15 53,728.59 63,361.04 83,675.33 97,373.00 108,240.02 114,529.47 9 Overdues 10.57% 8.14% 5.78% 4.12% 4.97% 3.54% 4.08% 2.80%

10 Gross NPA 15.43% 9.44% 7.15% 4.14% 3.67% 1.22% 2.84% 2.31%

11 Net NPA 9.73% 5.88% 3.60% 0.86% 0% 0% 0% 0% 12 CD Ratio 61.80 61.19 65.73 66.79 66.24 65.59 55.32 59.62 13 Investments 11,101.00 11,853.86 12,973.38 14,567.52 19,347.64 22,541.00 34,845.41 33,170.99 14 Working capital 29,047.00 30,415.48 36,016.47 42,703.97 55,947.25 65,978.00 78,411.82 81,046.44

15 Net profit 92.00 142.85 173.18 289.79 352.47 590.00 430.19 1,032.53 16 Dividend % 10% 10% 12% 12% 15% 10% 17 No. of branches 13 14 14 14 14 15 16 16

18 No. of Employees 206 209 207 227 252 259 267 268

19 Audit classification A A A A A A A

Source: Annual Reports of the bank

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From Table 5.1.1 it is seen that the bank has consistently performed well and has

generated profit throughout the study period i.e. for last 8 years. CRAR of the bank

is above 10% except only in year 2003-04. Net NPA of the bank for last 4 years

has been 0%. There has been no default in maintenance of CRR and SLR.

Bank belonging to the service industry, necessitates it to have adequate strength of

human resources with network of branches available with the bank. Total

employee strength of the bank as on March 31, 2011 was 268 with 16 branches.

All the branches as well as Head Office of the bank follow uniform timings of 7

hours banking per day.

By adopting innovative recovery techniques during last few years, the bank has

achieved commendable success in recovery of overdues and the bank aims at

becoming a “Non NPA Bank”.

Various deposit schemes offered by the bank are listed at Table 5.1.2

Table 5.1.2 – Deposit schemes of the bank Sr.No. Type of Deposit 1 Saving Deposit 2 Current Deposit 3 Recurring Deposit 4 Fixed Deposit (with interest payment Monthly, Quarterly, Half yearly,

Annually or at the time of maturity) 5 Snehvardhini Deposit Scheme (2008-09) 6 Kishor Savings Bank Deposit Scheme (2009-10) Source: Website of the bank and Annual reports

As seen from Table 5.1.2, the bank has always been offering traditional types of

deposits to its customers. The bank was able to introduce two new deposit schemes

during the study period viz. “Snehawardhini Deposit Scheme” in year 2008-09 and

“Kishor Savings Bank Deposit Scheme” in year 2009-10.

The bank has framed its own comprehensive Loan policy. As per the policy, the

Bank offers loans to all trustworthy clients on easy terms and conditions.

Repayment period is finalized based on income or projected income of the

borrower. Various types of special loan schemes devised by the bank to meet the

requirements of different borrowers are shown in Table 5.1.3

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Table 5.1.3 – Loans and advances schemes of the bank Sr.No. Type of Loan

1 Loans to Shopkeepers/Traders/Manufactures/Distributors etc 2 Personal loans to self-employed/salaried persons.

3 Loans to self-employed and professionals for business / profession

4 Loans to SSI Units for acquiring Gala in Industrial Coop Society, for purchasing machinery, for working capital.

5 Loans to Industrialists for manufacturing/business 6 Loans against bank’s deposit. 7 Loans against NSC certificates / LIC Policies 8 Loans against Gold 9 Gold Purchase Loan Scheme

10 Vishweshwar Mortgage Loan Scheme Source: Website of the bank and Annual reports

Besides the Loan schemes listed in Table 5.1.3, some of the specially designed

loan schemes by the bank during the study period are “Vishweshwar Vehicle

Loan”, “Vishweshwar Housing Loan”, “Vishweshwar Educational Loan” in year

2004-05. “Professional Cash Credit”, “Kamdhenu”, Students’ Two Wheeler Loan

scheme” in year 2005-06. Out of these newly introduced loan schemes two

schemes “Professional Cash Credit” and “Students two wheeler loan schemes”

were stopped in the following year due to inadequate response.

Except in year 2009-10 and 2010-11, the bank has consistently managed its CD

ratio well because of its credit policy wherein the Bank has internally set the limit

of total credit to a particular sector.

Besides interest income, banks also earn income through investments and para-

banking services. From Table 5.1.1 it is revealed that investments of bank have

continuously increased. During the Post-CBS period bank has started various para-

banking services such as PAN Card Services, Tax payment Services and Life

Insurance coverage services in collaboration with Max New York Life

Insurance Co. Ltd. etc.

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In line with the efforts of private sector and foreign banks, the bank realized the

importance of providing proper customer service and started its “Grahak Samvad

Kaksha” ( Customer Care Centre) for its customers and public at large.


In year 2007, the bank migrated from its Total Branch Automation (TBA)

environment to Core Banking System (CBS). Period of four years from 2003-04 to

2006-07 is therefore considered as Pre-CBS period and that from 2007-08 to

2010-11 as Post-CBS period for this study. By introducing CBS, VSBL became

the first non-scheduled Urban Cooperative Bank in Pune District, having its own

state of art data centre. A fully equipped Disaster Recovery site has been set-up at

a different earthquake zone at Barshi in Solpaur district.

Journey towards CBS

VSBL had only 9 branches with a business mix of around ` 170 crores as on March

31, 2000. Due to professional and forward looking approach of the management,

the bank could grow in size to 14 branches with business mix of ` 530 crores in

a span of only 5 years i.e. by March 31, 2006. This was the period when the entire

Banking Industry of India was going through transformation. Private Banks such

as ICICI, HDFC etc had started their operations very aggressively and in most

sophisticated way using latest technology. The thrust of these banks was on

adoption of information and communication technology, as paucity of funds was

never a problem with these banks. Few public sector banks and even couple of

Cooperative Banks followed them and initiated project of Core Banking System

implementation. Management of VSBL was also very quick to respond to these

developments happening in the banking industry. Group of members consisting

few Board members and representatives of IT section of the bank visited Cosmos

bank, Janata Sahakari bank, Thane Janata sahakari bank etc. to discuss and

understand issues faced by these banks. Based on the inputs received during these

visits and taking into consideration changes happening in the Banking Industry, the

management realized that VSBL needed to adopt to new technology. Management

also realized that bank needed to set higher business targets for times ahead and to

increase business size and area of operation. All these facts led the bank to take

appropriate decision in year 2005-06 to introduce CBS. The estimated investment

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for this project was to the tune of ` 4 crores and the management firmly decided to

invest this huge amount from its own funds. This led to setting up ambitious targets

by the bank in terms of completing the CBS implementation by 2007, and also

achieving business of ` 1000 crores by 2010. CBS project of the bank was named

as Vishweshwar InfraIT Project (VIP).

Foundation

A small committee was constituted consisting of Vice Chairman as Project

Director, Managing Director, and Project Manager. Head of IT Section was

designated as the Project Manager.

Realizing the need for employee involvement to ensure success of the VIP, bank

employees working at all levels were gathered for an informal discussion on

implementation of VIP. The Chairman himself addressed the gathering and

communicated the views of management regarding introduction of CBS.

Employees were explained in a very informal way that in order to survive in a

competitive business environment and grow further, there was no other alternative

but to adopt modern technology. Since VSBL had achieved branch automation

almost 6 years ago, the employees were not new to computerized environment.

Therefore, there was hardly any resistance from employees or staff unions for

introduction of CBS.

Looking at the complexity of the project, huge investment involved, and lack of

staff well versed with CBS implementation, the management took a decision to

appoint external consultants to avail their expert advice in this regard.

Selection of Core Banking Software

Bank had implemented software from Jalgaon Janata Infotech Ltd., (JJIT) which

was windows based on VB/Oracle platform for Total Branch Automation. VSBL

selected OMNI 7.2 Core Banking Software from M/s. InfrasoftTech Ltd., Mumbai.

A detailed product walk-through was arranged by the bank and it was attended by

Implementation Committee comprising 20 to 25 members. This exercise, also

known as Gap Analysis, helped the bank in matching the features available in the

new software vis-a-vis those available in the JJIT software. List for customization

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of software was therefore drawn up based on Gap analysis and communicated to

the software vendor selected.

Data Centre and Disaster Recovery Site

Having taken the decision to systematically implement CBS, the management

decided in the initial stage itself to setup its own Data Centre and Disaster

Recovery Site. Accordingly, Data Centre was operationalized at Head Office

premises and Disaster Recovery site at premises of Barshi Branch in Solapur

district. The Disaster Recovery site was set-up in a different earthquake zone to

reduce risk and ensure business continuity.

M/s Space Effect Architects from Mumbai carried out work related to setting up of

Data Centre as well as Disaster Recovery site. The consultants advised on matters

pertaining to security aspects of Data Centre as well as Disaster Recovery site and

also on specifications of Proximity card system for physical access, False ceiling,

Raised flooring, Air conditioning, Fire detection, Fire extinguishing, Rodent

repellent system etc. VSBL faced no problems in connection with getting isolated

electricity supply from MSEB or leased / ISDN connectivity from BSNL.

VSBL’s management had decided to make no compromise on the quality of

hardware to be purchased. Therefore, VSBL considered two well known brands

viz. HP and IBM. HP was finally selected to supply Servers. While finalizing the

configuration, care was taken to ensure that the servers being procured would be

capable of providing services for five years down the line or capable of handling a

load up to 50 branches. The servers supplied were inclusive of operating system.

Oracle 10g from Oracle Corporation was selected as the database platform. As a

part of the purchase, Oracle Corporation provided three days training at Bengaluru

to the selected employees of the bank.

Taking into consideration the fact that Networking is a back-bone of CBS and

based on the recommendation of the consultants, VSBL decided to procure

Networking equipments of Cisco, a world wide leader in Networking technology.

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Bank need not have to bear costs on account of System integrator (SI) as

responsibility of installation, commissioning of servers and networking equipments

was that of respective vendor. The servers and networking equipments were

purchased with 3 years warranty. Thus, the bank further saved money as there was

no recurring expenditure on account of AMC charges in second and third year of

warranty period.

Rollout

IT section had a good team size of around 20 members at the time of CBS

implementation. All these 20 members were divided into 3 to 4 groups and were

given responsibility of data conversion and software installation at branch level.

Two members of Infrasoft were also involved in this exercise.

Data conversion from old system of JJIT to OMNI was taken care of jointly by

Infrasoft and VSBL. As one of the team members of IT section had already worked

with JJIT, information of data structure essential for data conversion were known.

As a result, VSBL did not face any difficulty in data conversion.

On completion of data conversion at each branch, it was necessary to ensure

correctness of the data in the new system. For this, reports were generated from the

new system and cross tallied with reports generated from JJIT software. Both the

software were therefore parallely run for about three months. On completing such

exercise at all the 13 branches, those were connected to the Central server housed

in the Data Centre.

On successfully migrating all 13 branches to core, a detailed User Acceptance Test

(UAT) was carried out and was attended by representatives from branches,

concerned departments at H.O. and by the IT team. Deficiencies observed during

the UAT were again communicated to the vendor for rectification purpose.

In order to ensure that implementation is being made as planned, a fortnightly

meeting used to be convened for VIP committee. Issues which needed attention of

top management were discussed in such meeting and necessary approvals were

obtained so as to avoid delay in implementation as per plan.

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Training

Introduction of CBS requires complete support from all the sections of employees.

Training in operational aspects is absolutely a must for adopting new software.

Training was therefore, arranged for staff and middle level management by

Infrasoft team. This training helped VSBL to manage change effectively.

Information Technology Department

Information Technology (IT) Department has three sections viz. Hardware,

Software and MIS, looked after by twelve staff members comprising of the IT

team. It is headed by Chief Manager (IT). IT team consists of experts who have

undertaken professional training in various aspects such as Database

Administration, Networking etc. Some staff members of IT team also have

professional qualifications such as CCNP, Microsoft certifications etc.

Business Continuity and Disaster Recovery

Core Banking is a centralized system which controls all the branches and activities

of the bank. Any problem taking place at Data Centre can adversely affect

functioning of the branches which in turn can seriously affect customer services

and image of the bank. Bank needs to have Disaster Recovery and Business

Continuity plan. VSBL has acquired ISO 20000 certification. As a part of ISO

20000 certification, bank has also developed Information Security policy which

will be useful for the bank to deal with various issues pertaining to Access control

and Information Security and avoid any fraudulent activities.

E-Delivery channels and other IT initiatives

On migrating to Core Banking System environment from Total Branch

Automation, the bank started providing various technology and para-banking

services based services as listed in Table 5.1.4 and Table 5.1.5 respectively.

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Table 5.1.4 - List of technology based services introduced by the bank

Sr. No.

Name of the product / service 03-07 07-08 08-09 09-10 10-11

1 Any Where Banking (AWB) √ 2 ATM 5 3 3 ATM Network NFS BANCS √ 4 Internet Banking 5 Mobile Banking (SMS alerts) √ 6 Tele Banking 7 POS 8 ECS/EFT/NEFT (sub membership of

HDFC) √

9 RTGS (sub membership of HDFC) √ 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 Customized cheque books √ No frill Accounts √ Website of bank √

Source: Field work

Table 5.1.5 - List of Para-banking services introduced by the bank 03-07 07-08 08-09 09-10 10-11

Sr.No. Name of the service

1 Life Insurance business (Max New York)

√

2 General Insurance (Max New York) √

3 Mutual fund

3 Franking √

4 PAN Card (UTI Technologies) √

5 Online Tax Payment facility √

Source: Field work

As seen from the Table 5.1.4, all the technology based services listed therein were

introduced by the bank after migrating to CBS environment. The bank has

embarked on Any Branch Banking from 2007-08, immediately upon introduction

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of CBS. Bank has its own website and plans to introduce Internet Banking shortly.

Due to some restrictions imposed by RBI to provide Mobile Banking facilities,

presently the bank has started providing SMS Alerts facility only. Such alerts are

sent to customers for transactions above prescribed limit. Bank also provides

facilities such as ECS, NEFT, RTGS through sub-membership of HDFC Bank.

VSBL has 8 ATMS at present and has become member of BANCS network which

enables VSBL customers to transact at almost 7000 ATMs of member banks. The

bank has recently started online tax payment facility also.

Along with technology based banking services, VSBL has also started providing

various para-banking services such as Insurance, Franking, PAN card, Online Tax

Payment etc. as depicted in Table 5.1.5. Such services enable customers to avail

various financial services required by them under single roof.

Considering the present scenario of severe competition and rising expectation of

customers for newer products and alternative delivery channels, there is no way for

any bank to remain luke-warm to hi-tech and yet hope to grow. Endeavour of

VSBL to provide various technology based services, especially after introduction

of CBS is definitely a step in right direction and leading to redefining contour of

banking services provided by the bank so far. With the help of technology, the

bank is expected to improve efficiency, productivity in order to add value to

customer service by introducing innovative banking products, strengthen risk

management, asset liability management and most importantly improve its

profitability. Sincere effort has been made in this research to deal with the impact

of CBS on efficiency, productivity and profitability using various ratios relating to

Employee Productivity, Branch Productivity and Profitability.

5.1.3 Status of CBS implementation Details pertaining to CBS implementation by VSBL are presented in Table 5.1.6

and Table 5.1.7.

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Table 5.1.6 - Status of CBS implementation

Year in which CBS implemented

2007-08

Time required for CBS implementation

20 Months

Data Centre Yes(Own) Disaster Recovery Site Yes(Own) CBS vendor Infrasoft Technologies (I) Ltd., Mumbai Software name Omni 7.3 Hardware HP RDBMS Oracle 10g IT Department Yes ISO 27001 / ISO 20000 ISO 20000 (IT Service Management) Total investment in CBS project

` 350 Lakhs approximately

Source: Field work

Table 5.1.7 - Procedure followed while implementing CBS

Action - √ Followed, Ө partially followed, X Not followed Sr.No. Description Action

1 Awareness training to BOD, Senior Executives, Middle Mgmt and staff √

2 Committee formation (Core Committee and Implementation Committee) √

Designating Senior Manager from banking domain as Project Manager √

3 Appointment of consultants (Technical and Functional) √ 4 System requirement specifications √ 5 Request for Information X 6 Vendor briefing X 7 Request for Proposal (RFP) / Tenders X 8 Vendor presentations √

9 Vendor selection based on ranking done (RFI, RFP details, Presentation) X

10 Place Purchase Order to the selected vendor √ 11 Arrange detailed product walk through √ 12 Gap analysis (what is available vs. required) Ө 13 Business Process Reengineering X Implementation plan √

14 Approval for BPR and implementation plan from Board N.A.

15 Finalize vendor for setting up physical infrastructure of Data Centre and Disaster Recovery Site and start the work OR √

16 Agreement for sharing of Data Centre and DRS N.A.

17 Data conversion for pilot branch, data cleansing, purification and validity check √

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18

Ensure successful installation by cross checking financial statements, important reports and then replicate the same process at other branches √

19 Migration audit X

20 System integration, connect all branches to Centralized server √

21 User acceptance test (UAT) √

22 Request vendor to rectify issues raised in UAT and decide cut off date √

23 Switch over to Core Banking Software √ Source: Field work

Findings

Year of implementation - Entire banking operations of the bank have been

centralized since Dec 2007 and the bank has completed over three operating cycles

under CBS environment.

Implementation period - The decision to introduce CBS was taken by

management in Jan 2005. However, the actual work relating to CBS

implementation commenced in Apr 2006. It has taken approximately 20 months'

time for the bank to complete implementation of CBS.

Cost - Total investment of the bank in CBS implementation was approximately `

3.5 crores including cost of setting-up of Data Centre, Disaster recovery site, fees

paid to consultant, hardware, software, networking and other infrastructure.

Hardware and networking equipment purchased by the bank for its Data Centre

and Disaster Recovery Site have been of reputed international brands with three

years warranty.

Procedure followed - Interviews with the officials and non-officials of the sample

banks has revealed that procedure followed (refer Table 5.1.7) by the bank was by

and large in line with the standard practices followed by the industry.

IT resources - The bank has independent IT Department to take care of CBS

operations. IT department consists of 11 members headed by Chief Manager. 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 under CBS environment the bank has

adequate human resources available at present.

Consultants - Support of consultants was availed by the bank during the

implementation period.

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Data centre - The bank has its own Data centre situated at Head office of the bank.

Disaster recovery site - Disaster Recovery Site (DRS) of the bank is situated at

Barshi located in different seismic zone and owned by the bank.

Information security certification - Bank has recently acquired ISO 20000

certification for its IT Department. ISO 20000 is an international standard for IT

service management and one of the key domains of ISO 20000 is information

security.

Complementary software - The bank has implemented Treasury management

software.

Conclusions

Implementation period - Implementation period of one and half years to two

years is justifiable. Time period more than this adds cost to the project. Hence,

time period of 20 months taken by the bank seems to be reasonable.

Cost - Cost of the CBS implementation depends upon size of the bank in terms of

number of branches, users accessing the application, cost of application software,

make and brand of hardware, networking equipment and Data Centre / Disaster

Recovery Site infrastructure. The cost of investment made by the bank appears to

be reasonable, considering the fact that Data Centre and Disaster recovery site is

owned by the bank. The bank has selected an option of three years warranty while

purchasing hardware and networking equipment and helped the bank to save

recurring cost on maintenance of those equipment after the standard post warranty

period of one year.

Procedure followed - While matching with the standard procedure expected to be

followed by the banks during the course of implementation of CBS, it has been

observed that CBS has been introduced by the bank by and large satisfactorily.

IT resources – Human resources available with the IT Department of the bank are

adequate to take care of present requirements.

Consultants – Involvement of consultants during the implementation phase has

helped the bank for systematic introduction of CBS. However, the bank is not

availing support of consultants on regular basis.

Data Centre - Data Centre of the bank has been designed keeping in view the best

practices followed by the industry while setting-up Data Centre and keeping in

view growth of the bank for next few years.

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Disaster Recovery Site - Banks running under core banking environment need to

have Business continuity plan and Disaster recovery policy in place and the bank

complies with this requirement.

Information security certification - ISO 20000 certification obtained by the bank

is a good proactive initiative and ensures quality IT service management and

information security aspects.

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 bank

while mitigating the business risks, implementation of complementary software is

necessary. It has been observed that the bank has introduced only Treasury

management software.

Recommendations

Procedure followed – Business Process Re-engineering exercise prior to

implementation of CBS help banks to adopt best practices available in the industry

as well as those available in the software selected by the bank. The bank may even

now take-up a fresh look at existing business processes and possibility of bringing

in drastic improvements in quality of services.

IT resources - The bank may further strengthen its IT Department by recruiting

additional specialized manpower especially in the field of Information Security. It

is also necessary to have stand-by arrangement when particular expert employee is

attending business critical operation.

Consultants - Involvement of consultant is necessary not only during the

implementation but also during post implementation period. Consultants help in

providing necessary input to the management of the bank with regard to changes

happening in the industry and formulate future business strategies. The bank may

therefore avail consultancy services on regular basis.

Data Centre - The bank may offer services of sharing of its Data Centre to other

banks on chargeable basis. Such initiative would help generating revenues for the

bank and at the same time will help other banks having small business size to adopt

technology.

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Disaster recovery site - Bank needs to undertake periodic mock drills to ensure

change over from Data Centre to Disaster recovery site is smooth and doesn’t

disturb the functioning of bank.

Information security certification - The bank may also apply for ISO 27001

certification. Being achieved ISO 20000 certification, it would be easy for the bank

to obtain ISO 27001 certification which is widely known for best information

security practices.

Complementary software - The bank should immediately plan for introducing

complementary software such as Risk management, Assets and Liability

Management, Anti Money Laundering, Customer Relationship Management,

Business Intelligence, Trade Finance, Workflow management, Intranet etc. The

bank will be in a position to reap the true benefits of CBS to bring in improvement

in its performance only after introduction of such software which can help the bank

to mitigate various types of risks, concentrate upon customer centricity, product

differentiation as well as high level of customer services.

Detailed analysis of business performance of the bank with respect to employee

productivity, branch productivity and profitability based on various standard

parameters is presented in Section 5.7.

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SECTION 5.2

Mahesh Sahakari Bank Ltd., Pune

Name of the Bank Mahesh Sahakari Bank Ltd., Pune Type of Bank Non-Scheduled Urban Cooperative Bank Year of establishment 1972 Present area of operation Pune and Greater Mumbai. Bank has got

permission to open its branches at Satara, Thane, Raigad, Ahmednagar and Solapur.

Number of branches HO+10 Audit class “A” Website http://www.maheshbankpune.in/

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5.2.1 About the Bank 123

Introduction 123


5.2.2 Core Banking System implementation 126


Foundation 127



Rollout 129

Training 130





Tables








122


Introduction

Mahesh Sahakari Bank Ltd, Pune (MSBL) was established in 1972 by visionary

Shri Hiralalji Malu with his colleagues and active support of Maheshwari Yuwak

Mandal. Over a period of time, MSBL has emerged as one of the well-known non-

scheduled cooperative banks in Pune. Initially, area of operation of the bank was

Pune and Greater Mumbai. Subsequently, bank has got permission to open its

branches at Satara, Thane, Raigad, Ahmednagar and Solapur. At present, Bank has

in all ten branches, eight of which are located in Pune, one in Pimpri Chinchwad

Municipal Area and one at Kalabadevi, Mumbai. Head office of the bank is located

at Market Yard, Pune.

In year 2006-07, MSBL was one of the urban Cooperative Bank in Maharashtra to

declare the highest dividend and received Best Performance Bank Award from

Pune District Nagari Sahakari Banks Association, Pune. The Bank was selected for

this award on 28th July, 2007 based on its overall performance, for the year 2006-

07, amongst 62 Urban Cooperative Banks in Pune District.

The bank has strived to work efficiently in order to maintain high standards of

customer service. MSBL has always aimed at developing a range of quality

services, creating value for customers, shareholders and the society by motivating

its employees to achieve excellence in performance, leading to sustained profitable

growth and in that process build a learning organization.

MSBL has actively participated in various Social activities too and contributed for

city development programmes and also supported financially, at the times of

national calamities.

Following are some of the key achievements of the Bank during last few years

Business Mix of ` 700 crores

Crossed Accounts base of 1 Lakh Numbers

Membership of the bank is nearing 15,000

Working in Core Banking Solution (CBS) since August, 2008.

123

Financial position



31.03.2011 was ` 12.54 crores. The bank has obtained Audit class ‘A’ from

Statutory Auditor and satisfactory rating in RBI inspections in year 2010-11.

Financial position of the bank is therefore quite good. Progress of the bank for the

study period is presented in Table 5.2.1

Table 5.2.1 - Progress at a glance

(Amount ` in Lakhs)

Sr.No. Description 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

1 No. of members 13,769 14,278 14,833 15,327 15,776 15,865 15,187

2 Paid-up capital 557.00 631.70 762.57 887.36 1,008.55 1,176.00 1,254.00

3 Reserves and other funds 2,971.40 3,471.01 4,184.91 4,442.71 4,434.62 4,955.00 4,733.00

4 Owned funds 3,528.40 4,102.71 4,947.48 5,330.07 5,443.17 6,131.00 5,987.00

5 CRAR 12.56% 14.75% 12.79% 13.96% 15.10% 11.83% 13.68%

6 Deposits

CASA 6,452.70 7,369.31 8,797.55 10,595.56 9,923.69 13,939.00 14,179.00

Term 17,469.00 20,949.38 23,830.63 23,731.18 24,250.48 30,814.00 25,258.00

Other 1,274.01 1,485.36 1,580.87 1,404.46 999.69 3,323.00 2,495.00

Total 25,195.71 29,804.05 34,209.05 35,731.20 35,173.86 48,076.00 41,932.00

CASA % 25.61 24.73 25.72 29.65 28.21 28.99 33.81 7 Advances 16,153.18 18,477.69 21,550.59 22,455.61 22,436.77 27,008.00 25,978.00

8 Business 41,348.89 48,281.74 55,759.64 58,186.81 57,610.63 75,084.00 67,910.00 9 Overdues 16.29% 11.67% 9.57% 8.80% 8.16% 7.09% 5.67%

10 Gross NPA 18.31% 14.48% 10.65% 8.80% 8.16% 7.09% 5.67%

11 Net NPA 8.43% 4.48% 2.07% 1.93% 1.92% 3.11% 0.00% 12 CD Ratio 64.11 62.00 63.00 62.85 63.79 56.18 61.95 13 Investments 11,820.43 15,408.54 16,604.48 16,948.53 17,743.22 26,324.00 22,142.00 14 Working capital 29,761.93 35,209.84 40,497.90 41,659.94 43,313.00 56,782.00 49,345.00

15 Net profit 68.77 122.22 151.55 174.95 318.68 9.00 390.00

16 Dividend % 10% 11% 11% 11% 11% 0% 12% 17 No. of branches 11 11 11 11 11 11 11

18 No. of Employees 239 235 230 221 220 213 208 19 Audit classification A A A B B B A

Source: Annual Reports of the bank From Table 5.2.1 it is seen that except in year 2009-10, the bank has consistently

performed well and has generated profit throughout the study period i.e. for last 7

years. CRAR of the bank is above 10%. The bank had recorded Net NPA of 0%

for the year 2010-11 and has been able to maintain it consistently below 5%,

124

except in year 2004-05. There has been no default in maintenance of CRR and

SLR.


human resources with network of branches available with the bank. As seen from

the Table 5.2.1, the bank has not recruited any new manpower or added any branch

during the entire study period. Total employee strength of the bank stands 208. As

on March 31, 2011 the bank had 10 branches and Head office. The bank follows

uniform timings of 7 hours but banking hours are only from 10am to 2pm.

Various deposit schemes offered by the bank are listed at Table 5.2.2 Table 5.2.2 – Deposit schemes of the bank

Sr.No. Type of Deposit 1 Saving Deposit 2 Current Deposit 3 Recurring Deposit 4 Fixed Deposit (with interest payment Monthly, Quarterly, Half yearly,

Annually or at the time of maturity) 5 Mahesh Vardhini Deposit Scheme (2010-11)

Source: Website of the bank and Annual reports


deposits to its customers. The bank was able to introduce a new deposit scheme

“Mahesh Vardhini” during the study period in year 2010-11.




borrower. Various types of loan schemes devised by the bank to meet the


125


1 Gold mortgage loan 2 Two / Four wheeler mortgage loan 3 Housing mortgage loan 4 Retail loans 5 Small scale industry loans 6 Loans to professionals 7 Higher education loan 8 Tourism loans 9 Traders property loan


Schemes such as loans to professionals, higher education loan, tourism loan,

traders’ property loan etc have been launched by the bank recently in year 2010-

11. Except in year 2009-10, the bank has consistently managed its CD ratio well

because of its effective credit management policy.



grown over the study period. During the Post-CBS period bank has started various

para-banking services such as Life Insurance, General Insurance in collaboration

with Bajaj Allianz and Mutual fund services with SBI Mutual Fund / Kotak

Mahindra.


In year 2008, the bank migrated from its Total Branch Automation (TBA)



2010-11 as Post-CBS period for this study. The bank has its own Data Centre

housed at Head office premises. For Disaster Recovery site, the bank has tied-up

with Janata Sahakari Bank Ltd., Pune for sharing disaster recovery site of that bank

on rental basis.

Journey towards CBS

Opening up of an economy and financial sector reforms in year 1991 led to entry

of Private sector and Foreign sector banks in the Banking Industry of India. Entry

126

of these banks brought radical changes in management philosophy of existing

Public Sector, Private sector as well as Cooperative Banks. Management of these

banks realized that not adopting technology, similar to that of Private and Foreign

sector banks may pose serious challenge for their survival in the industry.

Therefore, despite various constraints in terms of resources, mindset of employees,

strong resistance from employee unions, lack of technical expertise etc. the bank

took decision to adopt technology similar to new private sector and foreign banks.

Cooperative Banking sector was going through a difficult phase at that point of

time. There were few serious scams in Gujarat and Maharashtra which spoiled the

image of Cooperative banks across the country. This had a serious impact on

business of Cooperative banks at that time.

Management of MSBL therefore took an apt decision to adopt Core Banking

Solution in place of Total Branch Automation (TBA) existing at that time, which

had several limitations in terms of exercising centralized control, timely regulatory

compliance, check on revenue leakages etc. and most importantly to serve existing

customers in best possible way. The process therefore began in Aug 2006. MSBL

was financially strong enough to take care of the anticipated project cost

amounting ` 2 crores approximately. Management also set the target to complete

the project in a year’s time.

Foundation

Information Technology Committee, a sub committee, looking after matters

relating to IT was therefore entrusted this responsibility of implementation of CBS.

Constitution of the IT committee was made with four members from the Board of

Directors and the Managing Director.

MSBL had introduced branch automation way back in 1993 and the software was

COBOL based from local company having product name BankAid. Bank had

anticipated resistance from employees in adopting new system. Therefore, with the

active involvement of the then Managing Director and few outside experts, MSBL

arranged organization wide awareness training programmes in its own training

centre at Head Office for the employees working at various levels, to convey the

127

importance and need of CBS. This initiative of MSBL helped it in handling the

change effectively.

Senior Officer from IT Section was entrusted with the responsibility of

implementation aspects of CBS. A requirement specification document was

prepared in consultation with representatives of various Departments at Head

Office, Branches and IT section.

In order to get first hand feedback and feel of CBS, IT committee members with

team members of IT section visited few cooperative banks which had implemented

CBS in and around Pune. On completing this initial exercise MSBL called for

Tenders to supply Core Banking Software.


Companies which had participated in the tendering process were requested to

provide a detailed demonstration of their CBS product. Based on the suitability to

business needs and matching to requirements prepared by the bank, M/S

InfrasofTech Ltd., Mumbai was finally selected to provide Core Banking Software.

In order to get sufficient insights into software, InfrasoftTech was requested to

provide detailed user manual and comprehensive training to members of IT

section.


Data Centre (DC) is heart of the CBS project. This is the place where all the

servers and Networking equipments are placed. As these servers hold the entire

database of the Bank as well as access to application software, it is important to

ensure high level of security in terms of physical access to this place and natural

calamities like fire, flood, earthquake etc. It is equally important that banking

application software must be secured enough to restrict access to unauthorized

person to avoid any fraudulent activities. Therefore, bank team which visited few

other banks who had already implemented Core Banking System, also had a look

at infrastructure available at Data Centre of respective banks.

128

Management had options either to share Data Centre of some other bank to

minimize the investment cost or to have its own Data Centre. On thoroughly

deliberating this issue in IT committee meeting, Management decided to have

Bank’s own Data Centre. Accordingly, S.K. International, Pune was awarded work

relating to setting-up of a Data Centre. Bank faced no issues in terms of obtaining

necessary permissions from local authorities for having Isolated Transformer for

proper power supply and Leased line connectivity. As there was substantial

amount of investment involved in setting of DR, on similar lines as that of DC,

Bank decided to have DR site in due course of time.

Rollout

Migration from old system to new system was taken-up one-by-one by the

designated team of IT Department and experts from Saraswat Infotech Ltd. (SIL).

Support from SIL was for initial one or two branches and subsequent work was

handled by IT team independently. Proper data conversion was ensured through

internal measures of cross tallying GL/SL heads and generating Trial Balance.

Challenge for the bank was to network its branches with a Wide Area Network that

allowed it to extend its reach. To address this, the bank decided to have a network

infrastructure that could leverage the technological advancements, support its

existing distributed banking applications and reduce its operating costs. Therefore,

such important work was assigned to Netsol, an IBM company. Netsol brought

with it, its expertise in setting up a network infrastructure and more so converged

network Wide Area Networking solutions. Netsol collaborated with the bank’s

internal IT team to kickstart the project and for setting-up intelligent networking

infrastructure to support existing applications and flexibility to accommodate new

services.

In order to ensure best of the class hardware and networking devices, management

took decision to procure servers from IBM and networking equipments of CISCO.

IBM servers were Xeon based servers running on Windows operating system and

DB2 RDBMS from IBM. Desktops at branches and Head office were old and

therefore compatibility with the new software was an issue. Bank, therefore,

129

decided to procure 150 desktops from HCL, with 3 years warranty support. Servers

and network equipments purchased by the bank were also carrying 3 years support.

All the 10 branches of MSBL were connected to Data Centre at HO through

Leased line as a primary connectivity and ISDN connectivity as a back-up line.

Such arrangement was to ensure business continuity in case of failure of a primary

connectivity. Bharat Sanchar Nigam Ltd., (BSNL) was chosen as service provider

for this connectivity.

Training

Prior to CBS implementation MSBL was using locally developed and COBOL

based banking software. As the users of this system had already developed comfort

in operational aspects of this software, there was a bit of resistance from few

sections of employees. Bank arranged training programmes for employees at its

own training centre to convince them about the benefits of new system and need of

the same in competitive business scenario. This training was provided by the then

Managing Director of the Bank, SIL and members of IT Department. This

initiative of bank helped staff to adopt new system effectively.

Netsol provided training to IT staff of the bank relating to remote network

configuration, link management, equipment management and fault management

etc. This initiative of the bank helped IT staff to take care of routine operational

issues relating to networking.


Bank has a separate IT Department headed by Chief Officer with one IT Manager,

two Asst. Managers and three Officers (1 for Hardware and 2 for help desk). IT

infrastructure items which are not under warranty are covered under Annual

Maintenance Contract (AMC) from the supplier. One person from IT section is

exclusively looking after hardware and network related issues. The same person

also liaises with agency which is responsible to look after Leased/ISDN

connectivity.

130

The IT team with able support from management is successfully handling CBS

infrastructure for last 3 years.


Core Banking is a centralized system which controls all the branches and other

activities of the bank. Any problem arising at Data Centre can adversely affect

functioning of the branches, which in turn can seriously affect customer services

and image of the bank. Bank therefore needs to have Disaster Recovery and

Business Continuity plan. MSBL has also developed Information Security policy

internally which is useful for the bank to deal with various issues pertaining to

Access control and Information Security and avoid any fraudulent activities.


Various technology based services and para-banking services introduced by the

bank are listed in Table 5.2.4 and 5.2.5 respectively.

Table 5.2.4 - List of technology based services introduced by the bank

Sr. No.

Name of the product / service 04-07 07-08 08-09 09-10 10-11

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 (sub membership of

Saraswat Coop Bank / HDFC) √

9 RTGS (sub membership of Saraswat Coop Bank / HDFC)

√

10 NDS/PDO 11 Utility Bill Payment 12 Payment gateway


13 Demat services 14 Credit Card Payments 15 Any other, please specify

131

Cheque Deposit Machine √ Customized cheque books No frill Accounts Website of bank √

Source: Field work



1 Life Insurance business (Bajaj Allainz) √

2 General Insurance (Bajaj Allianz) √

3 Mutual fund (SBI MF, Kotak Mahindra MF)

√

3 Franking √

4 PAN Card (UTI Technologies)

5 Online Tax Payment facility

Source: Field work

From the Table 5.2.4 it is seen that the bank had introduced services such as

NEFT, RTGS in collaboration with Saraswat Cooperative Bank in year 2007-08.

Services such as Any Branch Banking and SMS alerts were introduced by the bank

after migrating to CBS environment. Bank has its own website to disseminate

information about the bank, various services offered and other information related

to the bank. As there are some restrictions imposed by RBI to provide Mobile

Banking facilities, the bank has started providing as of now SMS Alerts facility

only. Such alerts are sent to customers for transactions above prescribed limit.

Bank also provides facilities such as ECS, NEFT, RTGS through sub-membership

of Saraswat Cooperative Bank and HDFC Bank.

Along with technology based banking services, MSBL has also started providing

various para-banking services such as Insurance, Franking, PAN card etc. as

depicted under Table 5.2.5. Such services enable customers to avail various

financial services required by them under single roof.

Considering the present scenario of fierce competition and rising expectation of

customers for newer products and alternative delivery channels, there is no way

that any bank can remain luke-warm to hi-tech and yet hope to grow. Endeavour of

132

MSBL to provide various technology based services is definitely a step in right

direction. With the help of technology, the bank is expected to improve efficiency,

productivity in order to add value to customer service by introducing innovative

banking products, strengthen risk management, asset liability management and

most importantly improve its profitability. Sincere effort has been made in this

thesis to deal with the impact of CBS on efficiency, productivity and profitability

by using various ratios relating to Employee Productivity, Branch Productivity and

Profitability.

5.2.3 Status of CBS implementation Details pertaining to CBS implementation by MSBL are presented in Table 5.2.6

and Table 5.2.7.



2008-09


24 Months

Data Centre Yes(Own) Disaster Recovery Site Shared (Janata Sahakari Bank Ltd., Pune)

from year 2010-11 CBS vendor Infrasoft Technologies (I) Ltd., Mumbai Software name Omni V. 7.2 Hardware IBM (Windows)/HCL RDBMS DB2 IT Department Yes ISO 27001 / 20000 / 9001

No

Total investment in CBS project


Source: Field work

133


Action - √ Followed, Ө Partially followed, X Not followed Sr.No. Description Action 1 Awareness training to BOD, Senior Executives, Middle

Mgmt and staff √

2 Committee formation (Core Committee and Implementation Committee)

√

Designating Senior Manager from banking domain as Project Manager

X

3 Appointment of consultants (Technical and Functional) Ө

4 System requirement specifications √

5 Request for Information X

6 Vendor briefing X

7 Request for Proposal (RFP) / Tenders √ 8 Vendor presentations √

9 Vendor selection based on ranking done (RFI, RFP details, Presentation)

√

10 Place Purchase Order to the selected vendor √

11 Arrange detailed product walk through X

12 Gap analysis (what is available vs. required) Ө

13 Business Process Reengineering X

Implementation plan √


15 Finalize vendor for setting up physical infrastructure of Data Centre and Disaster Recovery Site and start the work OR

√


17 Data conversion for pilot branch, data cleansing, purification and validity check

√

18 Ensure successful installation by cross checking financial statements, important reports and then replicate the same process at other branches

√




22 Request vendor to rectify issues raised in UAT and decide cut off date

√

23 Switch over to Core Banking Software √

Source: Field work

Findings


centralized since 2008 and the bank has completed three operating cycles under

CBS environment.

134


management in 2005-06. It has taken approximately 24 months' time for the bank

to complete implementation of CBS.

Cost - Total investment of the bank in CBS implementation as on March 2011 is `

2.9 crores including cost of setting-up of Data Centre, Disaster recovery site

(sharing charges), fees paid to consultant, hardware, software, networking and

other infrastructure. Hardware and networking equipment purchased by the bank

for its Data Centre and Disaster Recovery Site have been of reputed international

brands with three years warranty.

Procedure followed - Interview with the officials and non-officials of the bank has

revealed that procedure followed by bank as presented in Table 5.2.7 was

satisfactory.

IT resources - The Bank has a separate IT Department headed by Chief Officer

with one IT Manager, two Asst. Managers and three Officers (1 for Hardware and

2 for help desk).

Consultants - Support from SIL was availed by the bank as a consultant during the



It has been observed that Normal Air Conditioning (AC) and Fire extinguishing

system have been used in Data Centre of the bank.

Disaster recovery site – The bank shares Disaster Recovery Site (DRS) of Janata

Sahakari Bank Ltd., Pune, located at Indapur (Pune District), a different seismic

zone.

Information security certification - Bank is yet to apply for any information

security certification.

Complementary software - The bank has not yet implemented any

complementary software.

Conclusions


years is justifiable. Time period more than this, adds cost to the project. Hence,

time period of over 24 months taken by the bank is slightly on higher side

considering that the bank has only 10 branches. This could be attributed to the fact

that the bank did not take-up exercise of detailed product walk through and

135

exercise of gap analysis. Such exercise could have helped the bank to complete

CBS implementation in anticipated time.




Recovery Site infrastructure. The cost of investment made by the bank appears to

be quite lower, considering the fact that Data Centre is owned by the bank. The

bank has selected an option of three years warranty while purchasing hardware and

networking equipment and helped the bank to save recurring cost on maintenance

of those equipment after the standard post warranty period of one year.


followed by the banks during the course of implementation of CBS, it has been

observed that the procedure followed would have been more scientific.

Designating head of IT department as project manager has given impression to

users of the system that CBS is more of a IT department's project rather than a

project of the bank and was the cause of facing resistance from employees in

adopting the new system. Appointing functional expert as a consultant would have

provided benefit to bank to bring improvement and streamlining existing business

processes.

IT resources – Availability of technical expertise and human resources with IT

department are adequate to take care of present requirements of the bank.

Consultants – Involvement of consultant during the implementation phase has

helped the bank for systematic introduction of CBS. However, the bank is not

availing support of consultants on regular basis.

Data Centre - Data Centre of the bank is small in size and it appears that in order

to minimize the cost of setting-up DC, the bank has installed normal Air

Conditioning equipment in place of precision ACs, normal fire extinguishing

equipment in place of FM 200 system etc.



complies with this requirement as it has recently tied-up with Janata Sahakari Bank

Ltd., Pune for sharing disaster recovery site facilities of that bank on rental basis.

Information security certification - The bank is still relying upon information

security policy developed internally. Having standard security certification such as

136

ISO 27001 will no doubt help in building confidence of users of the system,

minimize frauds and help building confidence of the customers.





necessary. It has been observed that the bank has not introduced any

complementary software such as AML, ALM, CRM etc.

Recommendations


implementation of CBS helps banks to adopt best practices available in the

industry as well as those available in the software selected by the bank. The bank

may even now take-up a fresh look at existing business processes and possibility of

bringing in drastic improvements in quality of services.






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. The

bank may avail consultancy services on regular basis.

Data Centre - In future, whenever the bank decides to upgrade its Data Centre

facilities, it needs to ensure that the facilities at DC must match to industry

standards. Rather than having cost saving as primary consideration, it is essential

to provide top priority to security aspects of the DC and install systems such as

Very Early Smoke Detectors (VESDA), fire extinguishing system FM200 and

precision air conditioning equipment in place of normal ACs. The bank may offer

services of sharing of its Data Centre only after having proper information security

policy in place.

Disaster recovery site - Bank needs to have well designed Disaster recovery and

Business continuity plan clearly defining roles and responsibility of individuals

137

concerned and approved by the management. Based on such plan the bank needs to

undertake periodic mock drills to ensure smooth change over from Data Centre to

Disaster recovery site without disturbing functioning of the bank.

Information security certification - The bank may apply for ISO 27001

certification in order to ensure confidence of customers and public.





bank will be in a position to reap the true benefits of CBS and bring in

improvement in its performance only after introduction of such software which can

help the bank to mitigate various types of risks, concentrate upon customer

centricity, product differentiation as well as high level of customer services.




138

SECTION 5.3

Seva Vikas Cooperative Bank Ltd., Pimpri, Pune

Type of Bank Non-Scheduled Year of establishment 1971 Present area of operation Maharashtra Number of branches HO+13 (As on March 2011) Audit class “A” Website http://www.sevavikasbank.com/

139



Introduction 141




Foundation 145



Rollout 146

Training 147





Tables








140


Introduction

The Seva Vikas Cooperative Bank Ltd., Pune (SVSBL) was established in 1971

and head quartered in Pimpri, Pune. The area of operation of this bank is Pune

District. It is one of the leading Non-Scheduled Urban Cooperative bank in Pune

District.

The bank has been doing exceedingly well with respect to recovery of loans and

has been awarded by Pune District Urban Banks Association for maintaining zero

per cent NPA, consecutively for last six years. The bank has bagged award from

Maharashtra Cooperative Urban Banks’ Federation, Mumbai for a well run bank in

year 2007-08 and also bagged award by Banking Frontiers in year 2008 for

innovation in recovery.

Financial position



31.03.2011 was ` 2.82 crores. The bank has obtained Audit class ‘A’ from

Statutory Auditor and satisfactory rating in RBI inspections. Financial position of

the bank is therefore quite good. Progress of the bank for the study period is shown

in Table 5.3.1

141

Table 5.3.1 - Progress at a glance (Amount ` in Lakhs)

Description 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 No. of members 12187 14230 15,893 14,590 15,386 16,067 11,029 11,746 12,425 Paid-up capital 94.76 111.97 122.46 123.03 124.99 125.94 147.61 153.60 282.46

Reserves and other funds 1416.19 1898.38 2,031.77 2,211.27 2,602.94 2,877.69 3,443.75 4,328.08 5,276.03

Owned funds 1,510.95 2,010.35 2,154.23 2,334.30 2,727.93 3,003.63 3,591.36 4,481.68 5,558.49

CRAR 11.58% 13.50% 17.67% 17.60% 15.14% 15.49% 18.57% 16.24% 17.01%

Deposits

CASA 3316.43 4286.38 5,366.93 7,786.69 9,462.84 11,185.28 10,067.39 13,513.82 16,241.40

Term 11710.43 12019.01 11,925.55 10,623.92 9,190.15 10,479.87 13,607.75 18,194.32 25,706.91

Total 15,026.86 16,305.39 17,292.48 18,410.61 18,652.99 21,665.15 23,675.14 31,708.14 41,948.31

CASA% 22.07 26.29 31.04 42.29 50.73 51.63 42.52 42.62 38.72

Advances 9,142.15 9,873.84 9,748.61 11,456.61 12,941.50 15,150.43 16,872.07 21,152.84 30,058.61

Business 24,169.01 26,179.23 27,041.09 29,867.22 31,594.49 36,815.58 40,547.21 52,860.98 72,006.92

Overdues 6.19% 5.63% 7.42% 6.35% 4.76% 3.11% 2.31% 1.62% 0.96%

Gross NPA 6.78% 7.27% 12.54% 7.86% 5.90% 3.62% 2.50% 1.75% 1.04%

Net NPA 0.56% 1.88% 3.63% 0.00% 0.00% 0% 0% 0% 0%

CD Ratio 60.84 60.56 56.37 62.23 69.38 69.93 71.26 66.71 71.66

Investments 7496.68 9236.22 10,760.69 12,200.85 10,977.52 11,780.80 11,341.76 15,321.20 16,998.32 Working capital 18658.76 20494.12 21,929.22 24,740.94 24,867.78 28,898.68 30,884.30 42,055.96 52,450.17

Net profit 489.68 600.24 266.36 409.86 292.30 584.50 903.37 970.36 1,263.91 No. of branches 11 11 11 11 11 11 11 12 13 No. of Employees 167 160 158 151 157 155 147 149 151 Audit classification A A A A A A A A


From Table 5.3.1 it is seen that the bank has consistently performed well and has

generated profit throughout the study period i.e. for last more than 8 years. CRAR

of the bank is above 10%. Net NPA of the bank for last 6 years is 0%. There has

been no default in maintenance of CRR and SLR.



employee strength of the bank stands 151. As on March 31, 2011 the bank has 13

branches and follows uniform timings of 5 hours banking per day in two shifts

from 0930 Hrs to 1300 Hrs and 1530 Hrs to 1700 Hrs at all the branches as well as

Head Office.

142

By adopting innovative recovery techniques during last few years, the bank has

achieved commendable success in recovery of overdues and recorded 0 per cent

Net NPA, consecutively for last 6 years.


Table 5.3.2 – Deposit schemes of the bank Sr.No. Type of Deposit 1 Saving Deposit 2 Current Deposit 3 Recurring Deposit 4 Fixed Deposit (with interest payment Monthly, Quarterly, Half yearly,

Annually or at the time of maturity) Source: Website of the bank and Annual reports


deposits to its customers.




borrower. Various types of loan schemes devised by the bank to meet the



1 Home Loan 2 Vehicle Loan 3 Personal Loan 4 Education Loan 5 Mortgage Loan 6 Gold Loan Source: Website of the bank and Annual reports

From Table 5.3.3 it is revealed that loan schemes offered by the bank are similar to

those offered by other banks. Despite that, as seen from Table 5.3.1, except in year

2004-05, the bank has consistently managed its CD ratio well, because of its credit

policy wherein the Bank has internally set a limit of total credit to a particular

sector.

143



considerably grown. During the Post-CBS period bank has started various para-

banking services such as Stamp franking, Tax payment Services and General

Insurance coverage services in collaboration with Oriental General Insurance

Co. Ltd. etc.


From year 2006-07, the bank migrated from its Total Branch Automation (TBA)



2009-10 as Post-CBS period for this study.

Journey towards CBS

SVCBL had only 10 branches with a business mix of around ` 182 crores as on

March 31, 2001. Prior to CBS implementation, in a span of five years, the bank has

made progress steadily to achieve business mix of ` 299 crores i.e. by March 31,

2006. This was the period when the entire Banking Industry of India was going

through transformation. Private Banks such as ICICI, HDFC etc had started their

operations very aggressively and in most sophisticated way using latest

technology. The thrust of these banks was on adoption of information and

communication technology, as paucity of funds was never a problem with these

banks. Few public sector banks and even couple of Cooperative Banks followed

them and initiated project of Core Banking System implementation. Management

of SVCBL was also very quick to respond to these developments happening

around in the banking industry and realized that the bank needed to set higher

business targets for times ahead and to increase business size and area of operation.

All these facts led the bank to take appropriate decision in year 2004-05 to

introduce CBS. The estimated investment by the bank for this project was to the

tune of ` 1 crore and the management firmly decided to invest this huge amount

from its own funds.

144

Foundation

Computer sub-committee consisting of Chairman, two Directors and GM was

entrusted with responsibility of CBS implementation. Head of IT Section was

designated as a Project Manager.

Since SVCBL had achieved branch automation in year 2001 itself, the employees

were not new to computerized environment. Therefore, there was hardly any

resistance from employees.

Looking at the complexity of the project, huge investment involved, and lack of

staff well versed with CBS implementation, the management took a decision to

appoint external consultants to avail their expert advice in this regard.


Bank had implemented software from NextStep Infotech, Pune which was DOS

based on Novell Netware platform for Total Branch Automation. Visit was

undertaken by the members of computer sub-committee to collect feedback from

various banks which were using CBS. Matter was thoroughly discussed by the

committee and it was decided to get necessary software developed by Data Vision

Infotech (formerly NextStep Infotech), the existing vendor itself. Document

enlisting features of existing software and those expected in new software was

prepared. This requirement specification document was sent to branches for having

their feedback and suggestions. A team of 6 to 7 staff members was deputed for the

purpose of software development in premises of software vendor for a period of

two months.


Having taken the decision to implement CBS, management decided in the initial

stage itself to setup its own Data Centre. Accordingly, Data Centre was

operationalized at Waghere branch premises.

145

SVCBL faced no problems in obtaining necessary permissions from local

authorities for use of isolated electricity supply from MSEB or leased line

connectivity from BSNL and RF link from Tulip.

SVCBL's management had decided to make no compromise on the quality of

hardware to be purchased. Therefore, SVCBL considered well-known brand IBM

for supply of Servers. While finalizing the configuration, care was taken to ensure

that the servers being procured would be capable of providing services for five

years down the line or capable of handling a load of up to 50 branches. The servers

supplied were inclusive of operating system.

Oracle 10g from Oracle Corporation was selected as the database platform.

Taking into consideration the fact that Networking is a back-bone of CBS and

based on the recommendation of the consultants, SVCBL decided to procure

Networking equipments of Cisco, a worldwide leader in Networking technology.

Bank did not have to bear costs on account of System integrator (SI) as

responsibility of installation, commissioning of servers and networking equipments

was that of respective vendor. The servers and networking equipments were

purchased with 3 years warranty. Thus, the bank further saved money as there was

no recurring expenditure on account of AMC chrages in second and third year of

warranty period.

Rollout

IT Department had a team of 5 to 6 persons. Data from old DOS based system to

new system was converted by team of IT Department and representatives of

software vendor. Being supplier of the existing software, data conversion tool was

available with the vendor and the same was used while migrating each branch to

new CBS environment. As a result SVCBL did not face any difficulty in data

conversion.

146


correctness of the data in the new system. For this, reports were generated from the

new system and cross tallied with reports generated from old DOS based software.

On successfully migrating all 11 branches to CBS, a detailed User Acceptance Test

(UAT) was carried out and was attended by representatives from branches,

concerned departments at H.O. and by the IT team. Deficiencies observed during

the UAT were again communicated to the vendor for rectification purpose.

In order to ensure that implementation is happening as planned, a weekly meeting

used to be convened by GM, DGM and Project Manager. Issues which needed

attention of top management were discussed in such meeting. Necessary approvals

were obtained from computer sub-committee, where ever required, so as to avoid

delay in implementation as per plan.

Training

As the new software was from the same company, the bank did not arrange any

formal training in use of software for employees of the bank.


Information Technology (IT) Department of the bank has four members, headed by

IT Manager. Role of Database Administration is looked after by IT manager

himself along with one more team member. Support to branches is handled by one

more dedicated person.


The bank has not yet set-up its Disaster Recovery site. Information security policy

designed by the bank itself is in force.



Automation, bank started various technology based services as listed in Table 5.3.4

147

Table 5.3.4 - List of technology based services introduced by the bank Sr. No.

Name of the product / service 03-06

06-07

07-08

08-09

09-10

10-11

1 Any Where Banking (AWB) √

2 ATM 1 3 1 3 ATM Network NFS BANCS 4 Internet Banking 5 Mobile Banking (SMS alerts) √ 6 Tele Banking 7 POS 8 ECS/EFT/NEFT (sub membership of

Saraswat) √

9 RTGS (sub membership of Saraswat) √ 10 NDS/PDO 11 Utility Bill Payment 12 Payment gateway


13 Demat services 14 Credit Card Payments 15 Any other, please specify Customized cheque books √ Online Tax Payment √ No frill Accounts Website of bank √

Source: Field work

Table 5.3.5 - List of Para-banking services introduced by the bank 03-

06 06-07

07-08

08-09

09-10

10-11


1 Life Insurance business

2 General Insurance (Oriental Insurance)

√

3 Mutual fund

3 Franking √

4 PAN Card

5 Online Tax Payment facility √

Source: Field work

Majority of the services listed under Table 5.3.4 were introduced by the bank after

migrating to CBS environment. The bank has embarked on "Any Branch Banking"

148

from 2005-06 itself, a year prior to CBS implementation with the help of branch to

branch connectivity. First ATM of the bank also got introduced prior to CBS

implementation. Bank has its own website and plans to introduce Internet Banking

shortly. As there are some restrictions imposed by RBI to provide Mobile Banking

facilities, presently the bank has started providing as of now SMS Alerts facility

only. Such alerts are sent to customers for transactions above prescribed limit.

Bank also provides facilities such as ECS, NEFT, RTGS through sub-membership

of Saraswat Cooperative Bank. SVCBL has 5 ATMS at present. The bank has

recently started online tax payment facility.

Along with technology based banking services, SVCBL has also started providing

various para-banking services such as General Insurance, Life Insurance, Franking,

Online Tax Payment etc. as depicted under Table 5.3.5. Such services enable

customers to avail various financial services required by them under single roof.


customers for new products and alternative delivery channels, there is no way any

bank can remain luke-warm to hi-tech and yet hope to grow. Endeavour of SVCBL

to provide services as mentioned in previous paragraphs, especially after

introduction of CBS is definitely a step in right direction and leading to redefining

contours of banking services provided by the bank so far. With the help of

technology, the bank is expected to improve efficiency, productivity in order to

add value to customer service by introducing innovative banking products,

strengthen risk management, asset liability management and most importantly

improve its profitability.

5.3.3 Status of CBS implementation Details pertaining to CBS implementation by VSBL are presented in Table 5.3.6 and

Table 5.3.7.

149

Table 5.3.6 - Status of CBS implementation Year in which CBS implemented

2006-07


18 Months

Data Centre Yes(Own) Disaster Recovery Site No CBS vendor Data Vision Infotech Software name Data Mate Hardware IBM RDBMS Oracle 10g IT Department Yes ISO 27001 / 20000 / 9001

No


` 67 Lakhs

Source: Field work


Action - √ Followed, Ө Partially followed, X Not followed Sr.No. Description Action

1 Awareness training to BOD, Senior Executives, Middle Mgmt and staff Ө

2 Committee formation (Core Committee and Implementation Committee) Ө

Designating Senior Manager from banking domain as Project Manager X

3 Appointment of consultants (Technical and Functional) √



6 Vendor briefing X 7 Request for Proposal (RFP) / Tenders X

8 Vendor presentations X

9 Vendor selection based on ranking done (RFI, RFP details, Presentation) X


11 Arrange detailed product walk through Ө

12 Gap analysis (what is available vs. required) Ө 13 Business Process Reengineering X



150

15 Finalize vendor for setting up physical infrastructure of Data Centre and Disaster Recovery Site and start the work OR X



18







Findings


centralized since 2006-07 and the bank has completed over four operating cycles



management in 2004-05. It has taken approximately 18 months' time for the bank

to complete implementation of CBS.


67 Lakhs including cost of setting-up of Data Centre, fees paid to consultant,

hardware, software, networking and other infrastructure. Hardware and networking

equipment purchased by the bank for its Data Centre Site have been of reputed

international brands with three years warranty.

Procedure followed - Interview with the officials and non-officials of the sample

banks has revealed that procedure followed by bank as presented under Table 5.3.7

was far off from standard practices followed by the industry.


operations. IT department consists of 4 members headed by IT Manager. 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 under CBS environment, the bank has

only a handful of human resources available at present.

151



Data centre - The bank has its own Data centre situated at Waghere branch of the

bank close to its Head office.

Disaster recovery site - The bank does not have its Disaster Recovery Site (DRS).

Information security certification - Bank has not yet gone for any information

security related certification such as ISO 27001 or 20000.

Complementary software - The bank has not yet implemented any

complementary software such as ALM, Treasury management, Risk Management

etc.

Conclusions



time period of around 18 months taken by the bank is reasonable.




Recovery Site infrastructure. The cost investment made by the bank appears on

very lower side for setting-up its Data Centre. The bank has selected an option of

three years warranty while purchase of hardware and networking equipment and

helped the bank to save recurring cost on maintenance of those equipment after the

standard post warranty period of one year.


followed by the banks during course of implementation of CBS, it has been

observed that it is far off from the standard practice followed by the industry.


inadequate.

Consultants – The bank is not availing support of consultants on regular basis.

Data Centre - Design of the Data Centre is not according to standard practices

followed by the industry.

Disaster Recovery Site - It is absolutely must to have Disaster Recovery Site for

the banks under CBS environment. The bank is carrying a big risk of loss of

business continuity by not having its proper Disaster recovery site.

152

Information security certification - Having certification such as ISO 27001 or

ISO 20000 would have been beneficial for the bank to address information security

issues.





necessary. It has been observed that the bank has not introduced any

complementary software.

Recommendations


implementation of CBS can help banks to adopt best practices available in the

industry, as well as those available in the software selected by the bank. The bank

may even now take-up a fresh look at existing business processes and possibility of

bringing in drastic improvements in quality of services.









bank may avail consulting services on regular basis.

Data Centre - The bank may immediately revamp its Data Centre to ensure

minimum security standards with respect to physical and logical access to it.

Disaster recovery site - The bank should immediately work out a strategy to have

Disaster Recovery site in place to ensure business continuity in case of disaster

situation. Bank then needs to undertake periodic mock drills to ensure change over

from Data Centre to Disaster recovery site is smooth and doesn’t disturb the

functioning of bank.

Information security certification - The bank may also apply for ISO 27001

certification in order to implement best information security practices.

153





bank will be in position to reap the true benefits of CBS to bring in improvement in

its performance only after introduction of such software which can help bank to

mitigate various types of risks, concentrate upon customer centricity, product


Detailed analysis of business performance of the bank with respect to Employee

Productivity, Branch Productivity and Profitability based on various standard


154

SECTION 5.4

Janata Sahakari Bank Ltd., Pune

Type of Bank Scheduled Urban Cooperative Bank Year of establishment 1949 Present area of operation Maharashtra Number of branches HO+37 + 2 Extension counters Audit class “A” Website http://www.janatabankpune.com/

155



Introduction 157 Financial position 157

5.4.2 Core Banking System implementation 160 Journey towards CBS 161 Foundation 161 Selection of Core Banking Software 162 Data Centre and Disaster Recovery Site 163 Rollout 164 Training 165 Information Technology Department 165 Business Continuity and Disaster Recovery 166 E-Delivery channels and other IT initiatives 167

5.4.3 Status of CBS implementation 169 Tables








156


Introduction

Janata Sahakari Bank Ltd., Pune (JSBL) is the second largest Urban Cooperative

Bank from Pune. Established on 18th October 1949, it has 37 branches and 2

Extension counters with business turnover of ` 5563.00 crores as on 31st March

2011. Bank had reached milestone of ` 100 crores deposit in year 1987 and was

awarded scheduled status by RBI in subsequent year. Due to its financially strong

position, the bank could take over Ratnagiri Urban Cooeprative Bank in year 1978

and Poona Cooperative Bank Ltd., Mumbai in year 1994. Financial performance of

the bank was excellent till this time.

Certain irregularities were observed by newly elected Board of Directors, such as

cycle of fake transactions in Letter of credit and Bills discounting business at Fort

branch in year 1996 and the same were immediately stopped by them. This led

bank to make huge provisions towards NPA amounting ` 76.14 crores in year 1998

and this was the major set back for the bank in its 60 years journey. Despite its

best efforts, accumulated losses of the bank increased to ` 124.31 crores in year

2003. Bank submitted Realistic Action Plan (RAP) in year 2003 to RBI and

Cooperative Department of Government of Maharashtra.

Sincere efforts of the management, supported equally well by the employees of the

bank and implementation of technology helped the bank to recover from severe

financial crisis and rise like a Phoenix bird. It was only in 2010-11 that JSBL could

come out of accumulated losses after a long struggle of 14 years.

Bank has many firsts to its name, a cooperative bank to achieve scheduled status, a

cooperative bank to become authorized banker for Pune Stock Exchange, a

cooperative bank to be awarded with ISO 27001 certification for its Data Centre

operations, are some of those.

Financial position

Financial position of the bank was quite strong and the bank showed constant and

steady growth upto 1992-93. Due to requirement of huge provisions for NPA

157

accounts, the bank had sustained loss from year 1998 onwards upto 2009-10. It

was only in year 2010-11 that the bank could achieve net profit amounting ` 27.85

crores. As on 31.03.2011 the bank had deposits of ` 3316.90 crores and advances

of ` 2246.09 crores with total business of ` 5563.00 crores. The paid up capital as

on 31.03.2011 was ` 68.65 crores. The bank has obtained Audit class ‘A’ from

Statutory Auditor and satisfactory rating in RBI inspections for years 2009-10 and

2010-11. Progress of the bank for the study period is shown in Table 5.4.1 Table 5.4.1 - Progress at a glance

(Amount ` in Lakhs)

Description 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 No. of members 85929 89837 114,858 114,858 123,144 121,141 131,943 138,055 147,489 Paid-up capital 1497.88 1645.82 1,853.84 2,549.43 3,060.22 3,731.43 5,018.99 6,086.41 6,865.55 Reserves and other funds 25826.37 26100.79 26,872.82 23,968.44 27,096.93 19,813.40 18,655.84 19,952.19 21,181.54 Owned funds 27,324.25 27,746.61 28,726.66 26,517.87 30,157.15 23,544.83 23,674.83 26,038.60 28,047.09

CRAR -10.85% -10.56% -10.16% -2.72% -0.14% -0.69% 9.22% 10.51% 10.70%

Deposits

CASA 35686.69 42413.03 45,621.02 52,307.57 53,792.86 67,190.81 66,883.75 80,369.71 92,395.10

Term 118080.62 116942.89 114,916.55 114,596.60 127,354.53 144,312.10 170,885.16 194,834.33 231,332.80

Other 3043.75 3758.15 3,837.80 5,543.80 4,049.28 5,715.62 6,790.57 7,317.85 7,962.64

Total 156,811.06 163,114.07 164,375.37 172,447.97 185,196.67 217,218.53 244,559.48 282,521.89 331,690.54

CASA% 26.00 27.75 30.33 29.05 30.93 27.35 28.45 27.86 Advances 108806 98147.53 95,058.58 105,267.86 120,279.53 126,576.67 154,274.47 178,967.05 224,609.87

Business 265,617.06 261,261.60 259,433.95 277,715.83 305,476.20 343,795.20 398,833.95 461,488.94 556,300.41 Overdues 0.40% 0.47% 0.38% 0.31% 0.18% 0.10% 0.07% 0.06%

Gross NPA 45.41% 49.10% 42.91% 31.90% 23.70% 12.62% 9.60% 7.33% 5.55% Net NPA 28.18% 30.70% 21.20% 13.41% 9.67% 4.22% 2.46% 0.94% 0%

CD Ratio 69.39 60.17 57.83 61.04 64.95 58.27 63.08 63.35 67.72 Investments 64116.59 81413.86 79,432.65 83,377.15 81,774.73 101,650.56 110,448.91 128,090.05 155,780.07 Working capital 189611.77 184552.46 236,043.00 194,425.49 211,060.58 244,633.68 276,480.28 315,085.28 388,926.37

Net profit -12431.11 -11661.77 -11,627.01 -8,571.77 -6,911.42 -6,135.50 -3,896.96 -1,959.85 2,785.57 No. of branches 41 39 39 39 39 39 39 39 39 No. of Employees 1132 1109 1044 1017 980 946 912 908 876 Audit classification - - - - - - - A A


From Table 5.4.1 it is seen that the bank has been able to reduce its Net NPAs

considerably during last four years and it is below the prescribed level of 5% by

RBI. It has achieved 0% Net NPA during year 2010-11. CRAR of the bank has

also improved for last two years and it is above 10 per cent.

158



employee strength of the bank stands 876. As on March 31, 2011 the bank has 37

branches and 2 extension counters. Five branches of the bank operate all seven

days and operating hours of remaining branches are extended by one hour since

2003-04.


Table 5.4.2 – Deposit schemes of the bank Sr.No. Type of Deposit 1 Chiranjeev Saving Account for students 2003-04 2 Dhanvriddhi Thev Yojana 2003-04 3 Samruddhi Thev Yojana 2003-04 4 Swapnapurti Yojana 2005-06 5 Jan Nagri Thev Yojana (Zero balance - No frills account) 2005-06 6 Dhan varsha 2006-07 7 Dhana sampada 2006-07 8 Janalaxmi 2006-07 9 Swadhan 2006-07 10 Special schemes for credit societies 2006-07 11 Janahit 2007-08


As seen from Table 5.4.2, the bank has always tried to offer innovative deposit

schemes to its customers. The bank was able to introduce eleven deposit schemes

during the study period, of which 8 schemes were introduced by the bank after

introduction of CBS.

The bank has framed its own comprehensive Loan policy taking into consideration

profitable and risk free business done by the bank in past and remarks of auditors

received from time-to-time. As per the policy, the Bank offers loans to all

trustworthy clients on easy terms and conditions. Bank has started system of

undertaking quarterly credit audit. Various types of special loan schemes devised

by the bank to meet the requirements of various borrowers are shown in Table

5.4.3

159


1 Khavati Loan Scheme 2003-4 2 Long term housing loan 2003-04 3 Suvarna Ratna Karja Yojana 2003-04 4 Agriculture loan 2005-06 5 Livestock mortgage loan 2005-06 6 Loan schemes for salaried and employeed people 2005-06 7 Loans to SHGs 2005-06 8 Varad hasta loan 2008-09 9 Furniture loan 2008-09


It can be seen from the Loan schemes listed in Table 5.4.3 that besides standard

loan schemes offered by other banks, some of the specially designed loan schemes

by the bank during the study period are Agriculture loan, Livestock mortgage loan,

Loans to SHGs etc. The bank could introduce nine new loan schemes during the

study period.

The bank has consistently managed its CD ratio well because of its well-designed

credit policy and recovery procedures.



continuously grown except in year 2004-05 and 2006-07 where it has declined in

comparison with investment in previous year. During the Post-CBS period bank

has started various para-banking services such as Franking, PAN Card Services,

Tax payment Services, Mutual fund investment and Life Insurance coverage

services in collaboration with Max New York Life Insurance Co. Ltd. etc.

In line with the efforts of private sector and foreign banks, the bank realized the

importance of providing proper customer service and started its “Customer Care

Centre" during the same year in which CBS got implemented i.e. 2005-06.


In year 2005-06, the bank migrated from its Total Branch Automation (TBA)


160


2008-09 as Post-CBS period in this study. JSBL has its own state of art data

centre and fully equipped Disaster Recovery site set-up in a different earthquake

zone at Indapur in Pune district.

Journey towards CBS

In earlier part of 20th century, while all other banks belonging to PSUs, Old

Private Sector, Cooperative sector were facing challenge of new tech-savvy private

sector banks, JSBL, in addition to that, was facing severe financial crisis. Image of

cooperative banks was falling down and public had started losing faith in

cooperative banking sector. In such a scenario, JSBL in year 2002-03 decided to

adopt latest technology. All 37 branches of JSBL were under computerized

environment but it had different software running in different branches. Those

software were from Kale, Supertech, Veermati and JJIT. JSBL was therefore

facing lot of difficulties in terms of consolidation, compilation, reconciliation and

having timely decision making information. Hence, JSBL as a part of its survival

strategy decided to bring uniformity and revamp the existing ICT infrastructure.

Decision was therefore taken in consultation with external consultant of bank, Shri

Prashant Pol, Disha Consultants to adopt Core Banking System.

Management of JSBL had anticipated cost of around ` 8 crores for CBS project and

decided to complete the project in a year’s time. Despite several restrictions on

various operational aspects of JSBL by RBI due to financial crisis, management

realized that without technology the bank can not survive. It was therefore decided

to make necessary investments for CBS project out of own funds.

Foundation

CBS being a cost intensive technology, there were few apprehensions in the mind

of management, employees and employee union about the aspect of returns on

investments, as bank was already passing through severe financial crisis. In order

to address such apprehensions JSBL arranged 2 days training for Board of

Directors as well as employees of the bank. This training was primarily to explain

the need of introducing CBS and to explain perceived benefits. This training

helped bank to manage the change effectively.

161

Technology committee was therefore constituted in year 2003-04. This was headed

by the Vice Chairman and other members included in it were 3 more Directors,

Consultant and Project Manager.

JSBL also appointed Mrs. Varsha Bhide, CA & CISA as a consultant for the CBS

project. Shri Sunil Kamat, Sr. Officer who was basically from Banking domain

having exposure to IT and work experience of over 15 years, was designated as

Project Manager.


In accordance with the decision taken by Management, a detailed document was

prepared specifying requirements of the bank.

Thus, proposals were called from major software vendors such as Infosys, Nelito,

3i Infotech, i-Flex, Infrasoft etc. Based on the details received from these

companies and other important factors such as suitability, quality, support,

installation in similar organizations and most importantly cost of the software, it

was decided to finalize InfraSoftech, Mumbai to supply CBS. Project was named

as “Omnisetu”, rightly so because new software had to bridge software

environment of existing four softwares. Management also decided to take-up work

of CBS implementation in a phased manner. To begin with, it was decided to

migrate 15 big size branches in terms of volume of transactions from existing

systems to new system.

A detailed product walk through was arranged and attended by Hardware,

Software and Networking team of around 20 employees and 20 more employees

from Banking domain. This exercise was conducted almost for one to one and half

month to ensure all the requirements of the bank are taken care and to

communicate those requirements which were found missing. This exercise helped

bank to ensure suitability of the Core Banking Software to the existing business

requirements.

162


It was decided by the management to have Bank’s own Data Centre and also

Disaster Recovery Site. By having it’s own DC and DRS, JSBL also had a broader

view to provide those facilities to other small sized banks, who can not afford huge

investment involved in having their own DC and DRS, at reasonable cost. It was

also thought that this would provide some revenues to JSBL.

Technical requirements relating to facilities to be made available at DC such as

Proximity card, Fire detection, Fire extinguishing, Air conditioning, Rodent

repellent systems, Video surveillance, False ceiling, Raised flooring etc were

collected from the technical consultant and finalized by the Technology committee.

M/s Abhijat Architects, based on its experience in handling similar projects in few

other cooperative banks, was assigned work relating to setting up Data Centre and

Disaster Recovery Site.

As per the international standards, DRS is supposed to be set-up in different

seismic zone than that of DC. Accordingly JSBL planned it to set-up at Indapur in

Pune District.

Networking is a backbone of the CBS project. JSBL faced no issues in getting

leased line connectivity from all its branches to the DC and also for getting

necessary permission from local authorities for isolated transformer to provide

dedicated power supply to DC.

In order to get best of the class hardware, tenders were invited from HP, Dell and

IBM for servers. On analysis of the proposals and in order to minimize the cost of

licensing of system software, it was decided to select servers from IBM with Linux

operating system and DB2 as Relational Database Management System (RDBMS).

JSBL is considered as the first bank to implement DB2 technology in banking

sector of our country.

JSBL was unique in one more aspect i.e. use of Thin Client technology. This

option was selected as there was cost benefit of around 60 per cent as against Thick

Client (Desktop PCs). Moreover, this technology was also expected to save

163

recurring cost on maintenance, power etc. Thin Clients were therefore procured

from HCL and HP. Servers and Thin clients were selected in such a way that they

will provide service at least for next 5 years. Cost of AMC was also taken care of

for initial 3 years as all the hardware was carrying 3 years warranty.

Quality of Networking equipment is also equally important on the lines of

Hardware. Therefore, proposals were invited from Cisco and Nortel who are

considered as leaders in Networking technology. JSBL selected Networking

equipments of Nortel which is one amongst the top Networking equipment

provider across the globe. Ramco Systems Ltd., supplied the necessary Networking

equipments.

All the respective companies were made responsible for installation,

commissioning and support. Due to this there was no need for any other agencies

as a system integrator.

Rollout

As JSBL was having 4 different software at different branches, data conversion,

cleansing, purification and migrating data from those software to DB2 was a

challenge. Conversion tool was developed by Infrasoft and initially data of one

branch was converted to new system. Reports were cross tallied and General

Ledger balances were matched to ensure successful migration. On ensuring the

results, further 7 branches were taken-up. This process was continued for

remaining branches to migrate all branches in TBA mode in new software

environment.

Success of any application software depends upon quality of data. Standard

procedure is followed in the industry to undertake data migration audit by

professional agency. JSBL got its data migration audit done by Mrs. Varsha Bhide,

CISA, CA for selected branches.

On completion of migration audit, all the branches were connected to central

server. A detailed User Acceptance Test (UAT) was conducted to ensure that all

164

the requirements specified by the bank are taken care. Details of rectifications

required were passed on to the Infrasoft for necessary modifications.

JSBL had setup Technology committee to regularly monitor progress of the

project. Review committee used to meet weekly to assess the progress and to

discuss issues being faced. Project Manager was authorized to deal with routine

issues. Those which required attention and approval of Technology Committee

used to get referred to that committee to address and sort out the issues.

Training

Since all the branches of JSBL were under computerized environment, staff

members were acquainted with computer usage and related technology. Hence,

they were required to only explain about operational aspects of new software.

JSBL has its own training centre which is approved by Registrar of Cooperative

Societies, Maharashtra State. Training programmes are regularly conducted for

employees of JSBL as well as for employees of other banks at this training centre.

Training Centre also has facility of computers. Necessary training was provided to

majority of the employees in different batches. These training programmes were

primarily conducted by the representative of software vendor and IT team. Help of

consultant was also availed whenever necessary in organization of training

programmes.


Since JSBL has acquired both ISO 9001 and ISO 27001 for its Data Centre, most

of the procedures are standardized. Systems and procedures are in place and all the

procedures are scrupulously followed.

IT Department of JSBL is very strong and consists of 31 employees. Headed by

AGM(IT), it has 2 Asst. HODs and 10 process owners. Bank has dedicated help

desk which provides round the clock services in 3 shifts. Complaints of the users

are received through Call Management System (CMS). Help Desk team tries to

sort out the issues reported immediately or maximum in an hour’s time.

165

Performance review meeting is held every month for the IT team to discuss about

the current projects, action plan, issues being faced and possible solutions etc.

As a part of Quality Management System, Management System review is also

conducted quarterly. Head of Department, 2 Asst. HODs, ISO officer are part of

this review committee. Proceedings of such review meetings are forwarded to

Management Review committee where CEO, GM, Jt.GM, Management

Representative and QMS team are members.

Majority of the components of CBS were carrying warranty for period of 3 years.

Presently all the components which are out of warranty are covered under AMC

with the respective vendors. As branches of JSBL are spread across various cities

of Maharashtra, AMC of hardware is provided to local agencies. In case of any

problems, those are reported directly to local agency, under information to Help

Desk.

Renewal of AMCs is handled from Central location i.e. IT Department at Head

Office.


Technology risk is emerging these days as a very major risk and needs to be

handled with equal amount of care, as that of other business risks such as Market

risk, Liquidity risk, Interest rate risk, Operational risks etc. Banks, especially those

which are in CBS environment need to have proper and duly approved policies and

procedures in place for Disaster Recovery and Business Continuity. It is absolutely

must to have well designed Disaster Recovery site of a bank. In case of any crisis,

bank needs to shift its operations from DC to DRS.

JSBL is the first bank from cooperative banking sector to obtain ISO 27001

certification for its Data Centre operations. It has also obtained ISO 9001

certification for DC operations. These certifications has helped bank to put systems

and procedures in place to take care of IT Assets Management, Information

Security Policy, HR, DR and BCP etc. JSBL has set up its DR site at Indapur and

has a system of manual switch over to DR in case of critical situation at DC.

166



Automation, bank started various technology based services as listed in Table 5.4.4


Name of the product / service

01-05 05-06 06-07 07-08 08-09 09-10 10-11

1 Any Where Banking (AWB)

√

2 ATM 6 10 3 ATM Network NFS √ BANCS 4 Internet Banking √ 5 Mobile Banking (SMS

alerts) √

6 Tele Banking √ 7 POS 8 ECS/EFT/NEFT √ √ 9 RTGS √ 11 Utility Bill Payment √ 12 Payment gateway


13 Credit Card Payments 14 Demat services √ 15 Membership of CCIL √ 16 Membership of NDS √ 17 Collateral lending and

borrowing service √

18 SEBI's permission for Application backed by blocked amount (ASBA)

√

19 Membership of Repo order matching

√

20 Other services Lobby banking √ Fax on demand √ At par cheques √ Customized cheque books √ No frill Accounts √ Website of bank

Source: Field work

167



1 Life Insurance business (Max New York)

√

2 General Insurance (Max New York) √

3 Mutual fund √

3 Franking √



Source: Field work

All the services listed under Table 5.4.4 were introduced by the bank after

migrating to CBS environment. The bank has embarked on Any Branch Banking

from 2005-06, immediately upon introduction of CBS. Bank has its own website

and introduced “Browse Only” type of Internet Banking facility since 2009-10. As

there are some restrictions imposed by RBI to provide Mobile Banking facilities,

bank has started providing Tele banking facility and SMS Alerts facility from year

2005-06. SMS alerts are sent to customers for transactions above prescribed limit.

Bank got membership of ECS (Debit) and started providing this facility to its

customers since 2007-08. Customers of JSBL can pay their utility bills through bill

payment facility introduced by the bank since 2008-09. During year 2010-11,

JSBL also got membership of NEFT, RTGS. These facilities enable customers to

quickly transfer funds within their own accounts or to accounts of others. JSBL has

16 ATMS at present and has become member of NFS network which enables JSBL

customers to transact at over one lakh ATMs of member banks.

Along with technology based banking services, JSBL has also been one of the

leading UCB in providing para-banking services as depicted in Table 5.4.5, such as

Demat, Foreign exchange, Life Insurance, General Insurance, Mutual fund

investment, Utility Bill Payment, Franking, PAN card etc. Such services provided

by the bank enable customers to avail various financial services required by them

under single roof.

168

Given the present scenario of severe competition and rising expectation of

customers for newer products and alternative delivery channels, there is no way

that any bank can remain luke-warm to hi-tech and yet hope to grow. Endeavour of

JSBL to provide services as mentioned in previous paragraphs, especially after








and Table 5.4.7.



2005-06


30 Months

Data Centre Yes (Own) Disaster Recovery Site Yes (Own) CBS vendor Infrasoft Technologies (I) Ltd., Mumbai Software name Omni V. 7.3 Hardware IBM (Linux)/HCL/HP RDBMS DB2 V. 9.5 IT Department Yes ISO 27001 / 20000 / 9001

Yes



Source: Field work

169

Table 5.4.7 - Procedure followed while implementing CBS Action - √ Followed, Ө Partially followed, X Not followed

Sr.No. Description Action



Designating Senior Manager from banking domain as Project Manager √

3 Appointment of consultants (Technical and Functional) √



6 Vendor briefing X 7 Request for Proposal (RFP) / Tenders √

8 Vendor presentations √

9 Vendor selection based on ranking done (RFI, RFP details, Presentation) √


11 Arrange detailed product walk through √

12 Gap analysis (what is available vs. required) √

13 Business Process Reengineering √


14 Approval for BPR and implementation plan from Board √




18


19 Migration audit Ө 20 System integration, connect all branches to Centralized server √




Findings


centralized from year 2005-06 and the bank has completed over six operating

cycles under CBS environment.

170


management in year 2002-03. It has taken approximately 30 months' time for the

bank to complete implementation of CBS.


6.6 crores including cost of setting-up of Data Centre, Disaster recovery site, fees

paid to consultant, hardware, software, networking and other infrastructure.



years warranty.

Procedure followed - Interview with the officials and non-officials of the sample

banks revealed that procedure followed by bank as presented under Table 5.4.7

was in line with the standard practices followed by the industry.


operations. IT department consists of around 30 members headed by Asst. General

Manager. 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 under CBS

environment, the bank has adequate human resources available at present.





Indapur located in different seismic zone and owned by the bank.

Information security certification - Bank has acquired ISO 27001 certification

for its Data Centre operations.

Complementary software - The bank has implemented ALM, Treasury

management and Intranet software.

Conclusions



time period of 30 months is on a higher side.



171


Recovery Site infrastructure. The cost of investment made by the bank appears

reasonable, considering the fact that Data Centre and Disaster recovery site is

owned by the bank. The bank has selected an option of three years warranty while

purchasing of hardware and networking equipment and helped the bank to save

recurring cost on maintenance of those equipment after the standard post warranty

period of one year.



observed that CBS has been introduced by the bank satisfactorily. Business

Process Re-engineering exercise prior to implementation of CBS helps banks to

adopt best practices available in the industry as well as those available in the

software selected by the bank. However, JSBL preferred to customize CBS

application to meet its requirements. Systems and procedures were reviewed by the

bank subsequently in year 2007-08.



Consultants – Involvement of consultant during the implementation phase has

helped the bank for systematic introduction of CBS. JSBL has continued availing

consultancy support from Shri Prashant Pol, IT consultant on regular basis.







Information security certification - ISO 27001 certification obtained by the bank

is a good proactive initiative.





necessary. It has been observed that the bank has introduced only ALM, Treasury

management and Intranet software.

172

Recommendations

IT resources - It is also necessary to have stand-by arrangement when particular

expert employee is attending business critical operation at Data Centre or DR site.

JSBL may ensure such arrangement for trouble free operations.

Data Centre - The bank has started offering services of sharing of its Data Centre

to other banks on chargeable basis. Bank may encourage more such sharing

arrangement which can generate additional revenue for the bank as well as help

other small banks having small business size to adopt technology.

Disaster recovery site - Bank needs to undertake periodic mock drills to ensure

change over from Data Centre to Disaster recovery site is smooth and doesn’t

disturb the functioning of bank.


complementary software such as Risk management, Anti Money Laundering,

Customer Relationship Management, Business Intelligence, Trade Finance,

Workflow management etc. The bank will be in position to reap the true benefits of

CBS to bring in improvement in its performance only after introduction of such

software which can help bank to mitigate various types of risks, concentrate upon

customer centricity, product differentiation as well as high level of customer

services.




173

SECTION 5.5

Cosmos Cooperative Bank Ltd., Pune

Type of Bank Scheduled, Multi state Year of establishment 1906 Present area of operation Maharashtra Number of branches HO+106, 9 Extension counters Audit class “A” Website https://www.cosmosbank.com/

174



Introduction 176




Foundation 182



Rollout 184

Training 185





Tables








175


Introduction

Established on 18th Jan 1906, the Cosmos Credit Society is one amongst the first

few credit cooperative societies in the country. Due to its commendable work, on

May 22, 1928 it got status of Urban Cooperative Bank. The bank got status of

“Scheduled Bank” in year 1990-91 and attained multi state scheduled status in

1997. In year 2005-06, the Bank completed its glorious 100 years of service

successfully. The Bank is one of the well known, professionally managed

'Financial Institution' and a benchmark of credibility and innovation.

Bank has nurtured its traditional values in business practices and in serving the

small customers. At the same time it has adopted new technologies and advanced

banking tools to add value to its services. Cosmos Bank has carved a niche in the

banking sector due to its rich heritage, integrity, adherence to prudent banking

practices, technology advancement, customized products and services and most of

all due to its experienced, qualified and professional Board of Directors.

Achievements

Some of the prestigious awards won by the bank due to its outstanding

performance in the field of cooperative banking are listed below:

2005-06 – “IBA Technology award 2005 – Best Coop. Bank” award in

recognition of professional management, customer-oriented service and

exemplary performance

2006-07 – “Inorganic Expansion – Mergers and Acquisitions” award

presented by Banking Frontiers

2008-09 – “Innovations in Payment System” award under large cooperative

banks category given by Banking Frontiers, Mumbai

2008-09 – “Award for excellence Coop Con 2007” by NAFCUB, New

Delhi

2009-10 – The bank got felicitated by Income Tax Department for paying

the highest Income Tax in Non-corporate Tax Payer Sector of Pune Region.

2010-11 – Data Centre of the bank got adjudged “Best Data Centre” by

Banking Frontiers, Mumbai and secured First Prize

176

2010-11 - “Late Padmabhushan Vasantrao Patil Excellent Urban Co-

operative Bank Award” for best Urban Cooperative Bank from Western

Zone constituted by Maharashtra State Cooperative Banks Association.

Highlights

Cosmos cooperative bank has always been leader in adoption of technology,

introducing technology based innovative banking products and para-banking

services. Year wise list of such services introduced by the bank is presented below:

2001-02

The bank started providing ancillary services like Demat of Shares, Money

Changing Services and Investment Services to other Co-operative Banks

from 1997-98.

Being member of National Security Depository Limited (NSDL) and

Central Depository Services Limited (CDSL) started providing services for

enabling members-depositors to invest in Government Securities. CCBL

became the first depository participant of CDSL from Pune.

Adoption of latest technology enabled the bank to enroll as a member of

Clearing Corporation of India Ltd (CCIL) and Negotiated Dealing System.

Bank shifted its investments in Government securities totally to NDS of

RBI with effect from 1st July 2002.

Bank got membership of Indian Financial Network (INFINET)

2002-03

Cosmos bank became the only bank in Pune to receive permission from

RBI to accept deposits from other non-scheduled urban cooperative banks

Bank entered into an agreement with MasterCard for providing ATM /

Debit cards to its customers

Bank became the first UCB from Pune to register as member of RTGS

system

Bank became the first bank in cooperative sector to implement ‘Centralized

Banking Services’

Bank got license for sale of stamps through franking arrangements, by

Government of Maharashtra, the first one to receive such license.

177

2005-06

Bank achieved paid up capital of more than ` 73 crores, the highest in India

compared to any other Urban Cooperative Bank and many small

Commercial Banks as well.

Bank had a Full Fledged Money Changing (FFMC) license from the RBI.

In Jan 2007, bank obtained Authorized Dealers (Category-1) license from

Reserve Bank of India. Such license was issued to multi state cooperative

bank after a span of nearly three decades.

A separate IT subsidiary company viz Cosmos e-Solutions & Services

Private limited was formed for extending software solutions services to

small and medium sized cooperative banks.

Bank started inter-bank proprietary deals and also received inter-bank

limits from 10 new banks for transactions in foreign currency.

Financial position

As on 31.03.2011 the bank has deposits of ` 9,136.68 crores and advances of `

6,384.27 crores with total business of ` 15,520.95 crores. The paid up capital as on

31.03.2011 was ` 121.11 crores and it is the highest amongst all Urban Cooperative

Banks in Pune District. The bank has obtained Audit class ‘A’ from Statutory

Audit and satisfactory rating in RBI inspections. It is clearly evident therefore that

financial position of the bank is quite strong. Progress of the bank for the study

period is presented in Table 5.5.1

178

Table 5.5.1 - Progress at a glance

(Amount ` in Lakhs)

Description 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 No. of members 42010 45939 47796 51285 54050 59196 63334 66667 72800 Paid-up capital 3,437.21 3,705.00 3,975.00 7,209.00 7,664.00 8,197.00 8,691.00 9,192.00 12,111.00 Reserves and other funds 25,351.58 31,465.00 38,814.00 42,028.00 43,210.00 50,368.00 61,335.00 78,685.00 93,109.00 Owned funds 28,788.79 35,170.00 42,789.00 49,237.00 50,874.00 58,565.00 70,026.00 87,877.00 105,220.00

CRAR 13.01% 16.40% 17.23% 17.22% 12.36% 12.13% 12.40% 12.32% 12.03%

Deposits

CASA 46,475.11 58,130.00 64,383.00 85,145.00 101,834.00 133,462.00 120,601.00 166,904.00 193,922.00

Term 179,807.69 190,146.00 220,745.00 251,557.00 324,722.00 400,804.00 544,962.00 554,392.00 719,746.00

Total 226,282.80 248,276.00 285,128.00 336,702.00 426,556.00 534,266.00 665,563.00 721,296.00 913,668.00 % of CASA 20.54 23.41 22.58 25.29 23.87 24.98 18.12 23.14 21.22 Advances 119,336.52 140,218.00 158,127.00 196,597.00 244,838.00 320,071.00 389,654.00 462,166.00 638,427.00

Business 345,619.32 388,494.00 443,255.00 533,299.00 671,394.00 854,337.00 1,055,217.00 1,183,462.00 1,552,095.00 Overdues 12.56% 12.58% 11.98% 10.53% 7.59% 5.21% 5.42% 4.65% 4.43%

Gross NPA 14.91% 14.31% 13.27% 12.48% 9.40% 6.96% 6.49% 5.91% 4.77%

Net NPA 3.60% 2.14% 2.05% 2.71% 3.29% 2.29% 2.08% 1.78% 1.54% CD Ratio 52.74 56.48 55.46 58.39 57.40 59.91 58.55 64.07 69.88 Investments 123,525.53 127,888.00 150,718.00 170,759.00 191,655.00 206,610.00 286,922.00 294,398.00 300,379.00 Working capital 266,411.02 296,539.00 339,723.00 403,969.00 492,816.00 608,812.00 756,306.00 843,348.00 1,059,954.00

Net profit 3,006.24 7,069.00 3,979.00 5,012.00 6,032.00 7,293.00 9,048.00 5,537.00 11,113.00 No. of branches 41 41 41 44 65 77 85 96 106 No. of Employees 1237 1242 1269 1265 1571 1670 1832 1994 2212 Audit classification A A A A A A A A A


From Table 5.5.1 it is evident that the bank has consistently performed well and

has generated profit throughout the study period. CRAR of the bank has been

above 10% and Net NPA below 5 per cent consistently as recommended by RBI.

There has been no default in maintenance of CRR and SLR.



employee strength of the bank stands 2,212. As on March 31, 2011 the bank has

106 branches.

179


Table 5.5.2 – Deposit schemes of the bank Sr.No. Type of Deposit 1 Saving Deposit Schemes (Janasanchay, Cosmo Premium, Regular) Fixed Deposit Schemes (Monthly, Quarterly interest) Cash Certificate (Cumulative interest on Quarterly rests) Current Account (Premium, Regular) 2 ‘Fortune-15’ 2002-03 3 ‘Cosmo Umbrella Deposit’ for senior citizens 2004-05 4 ‘Cosmo Kishor Deposit’ for children 2004-05 5 ‘Flexi Deposit’ for general depositors 2004-05 6 ‘Cosmo Shield Deposit’ for depositors opting for insurance coverage

benefit 2004-05 7 ‘Cosmo Century’ 2004-05 8 ‘Fortune15-II’ 2004-05 9 ‘Cosmo Vrudhi 101’ 2006-07 10 ‘Cosmo 10/10’ 2006-07 11 ‘Cosmo 102’ 2007-08 12 ‘Cosmo 103’ 2008-09 13 ‘Janasanchaya Saving Account (no frill accounts)’ 2008-09 14 ‘Cosmo 104’ 2009-10


As seen from Table 5.5.2, in addition to traditional types of deposit schemes, the

bank has introduced thirteen new deposit schemes during the study period.




borrower. Various types of special loan schemes devised by the bank to meet the


180

Table 5.5.3 – Loans and advances schemes of the bank

Sr.No. Type of Loan 1 Car Loan, Home Loan, Cosmo Credit Loan, Cosmo Mortgage

Loan, Cosmo SME Loan, Industrial and Business Loan (Term loan, Vehicle loan, Working capital), Vendor Finance, LC discounting, Gold loan scheme Loan, Educational Loan, Share Overdrafts etc.

2 ‘Tobacco Traders Loan Scheme’ 2008-09 3 ‘Traders’ overdraft loan scheme’ 2008-09 4 ‘Group Housing Scheme’ 2008-09 5 ‘Packing Credit in Foreign Currency (PCFC)’ 2009-10 6 ‘Foreign Currency Term Loan (FCTL)’ 2009-10 7 ‘Vendor finance’ 2009-10 8 ‘Advance for minority’ 2009-10


Besides the traditional type of Loan schemes as listed above in Table 5.5.3 at

Sr.No. 1, the bank has introduced seven new loan schemes during the study period.

As seen from Table 5.5.1, the bank has consistently managed its CD ratio well

because of its credit policy wherein the Bank has internally set a limit of total

credit to a particular sector.


banking services. From Table 5.5.1 it is revealed that investments of the bank have

continuously increased. During the Post-CBS period bank has started various para-

banking services such as Franking, PAN Card Services, Tax payment Services

and Life Insurance, General Insurance coverage services in collaboration with

Bajaj Allainz etc.

In line with efforts of Private sector banks, the bank has introduced ‘Customer

Relationship Officer’ at branches in phased manner to give efficient customer

service for higher customer satisfaction.


In year 2001-02, the bank started its migration from its Total Branch Automation

(TBA) environment to Core Banking System (CBS) and planned to convert all its

38 branches to Finacle by year 2003-04. Accordingly, conversion of all branches

181

got completed in year 2002-03 and all branches got connected to centralised

system. Period of four years from 2003-04 to 2006-07 is therefore considered as

Post-CBS period and that from 1999-2000 to 2002-03 as Pre-CBS period in this

study. By introducing CBS, CCBL became the first Co-op Bank in the country to

have Core Banking System with own state of art data centre. A fully equipped

Disaster Recovery site has been set-up in a different earthquake zone at

Hyderabad, Andhra Pradesh.

Journey towards CBS

Beginning of 20th century was quite challenging for the entire Urban Cooperative

Banking Sector. First, due to Y2K issue which affected the entire industry

especially those who had embraced technology in nineties and then due to

surfacing of some serious financial frauds in few cooperative banks in Gujarat.

Panic at a leading Urban Cooperative Bank in Gujarat was immediately followed

by similar grave instances in few more UCBs in Andhra Pradesh and thereafter in

Maharashtra. Irregularities in the investment of Government Securities by certain

defaulting UCBs brought hundred percent inspections of the RBI and cooperative

department to all UCBs in the country. Action taken by commissioner of

cooperation, Government of Maharashtra in superceding the Board of Directors of

one large UCB in Pune City in Feb 2002 posed a still bigger challenge to the bank.

National economy, in spite of the efforts by Finance Ministry, Government of

India and Reserve Bank of India in adopting various policy measures to boost up

the economy, showed no remarkable change upwards. In effect, the prolonged

recession continued to dampen credit demand. Against the backdrop of these

challenges and economic slow-down, CCBL management took decision to adopt

Core Banking System and implementation of related technology as a survival

strategy and to enable bank to remain competitive in the financial market

especially in face of private and multi-national giants.

Foundation

Project of CBS implementation was considered as important milestone in the

history of the bank and was termed as “Project century”. Board of the bank

constituted “Steering committee for Implementation of Finacle” as a first major

182

step. A team of senior bank officers and staff from IT Department, attended a 45

days residential training programme conducted by Infosys at Bangalore.

As a part of Technology upgradation, CCBL planned to have (1) state-of-the-art

data centre at head office, (2) leased lines with ISDN secondary back-up and (3)

exhaustive database of all constituents of the bank namely, share holders,

depositors and account holders by the end of financial year 2002-03.

Work relating to Data Centre Creation and erection was entrusted to world leader

IBM and connectivity was entrusted to another world leader Wipro Ltd. Overall

investment of the bank for implementation of CBS was ` 13.53 crores.


Bank had implemented software developed by in-house team in COBOL

environment. While selecting the software for its CBS project, importance was

given to application software matching the functionality of existing software.

Therefore, IT team consisting of mostly bankers evaluated software of around 7 to

8 vendors and reports from individual members were sought by the management to

find out most suitable software. Based on the reports received, “Finacle” from

Infosys was finally selected as a Core Banking Software. As it was the first

installation of “Finacle” in cooperative bank, a team of Infosys studied the

functionality of existing software thoroughly for the purpose of customization.


Having taken the decision to systematically implement CBS, the management

decided in the initial stage itself to setup its own Data Centre and Disaster

Recovery Site.

IBM, a leading company in international market, carried out work related to setting

up of Data Centre as well as Disaster Recovery site. Matters pertaining to security

aspects of Data Centre as well as Disaster Recovery site and also on

specifications of Proximity card system for physical access, False ceiling, Raised

flooring, Air conditioning, Fire detection, Fire extinguishing, Rodent repellent

system etc. were taken care by IBM itself. CCBL faced no problems in connection

183

with getting isolated electricity supply from MSEB or leased / ISDN connectivity

from BSNL.

Accordingly, a state-of-the-art Data Centre was operationalized at Head Office

premises from Sunday, 29th December, 2002. The Disaster Recovery site was set-

up at Hyderabad, in a different earthquake zone to reduce risk and ensure business

continuity and the same was operationalized in year 2005-06.

CCBL’s management had decided to make no compromise on the quality of

hardware to be purchased and IBM itself was selected to supply Servers. While

finalizing the configuration, scalability of servers was kept in mind to ensure that

the servers being procured can take care of expansion plans of the bank. The

servers supplied were inclusive of operating system.

Oracle 10g from Oracle Corporation was selected as the database platform.

Taking into consideration the fact that Networking is a back-bone of CBS, CCBL

decided to procure Networking equipments of Cisco, a worldwide leader in

networking technology.

IBM, being a company chosen for setting-up of the Data Centre and as a supplier

of Hardware, Networking equipments carried out the work relating to System

integration (SI). Installation, commissioning of servers and networking equipments

was therefore taken care by IBM. As the servers and networking equipments were

purchased with 3 years warranty, the bank further saved money on account of

AMC charges in second and third year of warranty period.

Rollout

Telesys was appointed as implementation partner cum consultant for

implementation of 'Finacle'. Migration of first two branches was carried out by

Telesys along with team of CCBL. IT section had a good team size of around 60 to

70 members at the time of CBS implementation. Migration at remaining 29

branches and 2 extension counters was also taken-up by IT team of the bank.

184


correctness of the data in the new system. Migration audit was therefore taken-up

by Ascent Strategic Management Company. On completion of migration audit all

the 29 branches and 2 extension counters were connected to Data Centre and the

banking operations of these branches were switched to centralized banking system.

Training

Introduction of CBS required complete support from all the sections of employees.

Training in operational aspects was therefore absolutely a must for adopting new

software. Realizing the need for employee involvement to ensure success of the

“Project Century”, 1200 bank employees working at all levels were trained to

acquaint them with newly installed “Finacle”. This training helped CCBL to

manage the change effectively.


CCBL has a strong team of 60 to 70 members in its IT Department. It consists of

well qualified and experienced team members having certifications such as CISA,

ITIL, Network Administrator, Database Administrator etc. During the year 2006-

07, CCBL formed a separate IT subsidiary company 'Cosmos e-Solutions &

Services Private limited' to extend software solutions services to CCBL and to

other small and medium sized cooperative banks.


Core Banking is a centralized system controlling all the branches and activities of

the bank. Any problem taking place at Data Centre can adversely affect

functioning of the branches which in turn can seriously affect customer services

and image of the bank. Bank needs to have Disaster Recovery and Business

Continuity plan. CCBL has therefore got the IT security policy developed from the

external agency and the same has been implemented to take care of Disaster

situation and to ensure Business continuity.



Automation, bank started various technology based services listed in Table 5.5.4

185


Name of the product / service 01-05 05-06 06-07 07-08 08-09 09-10 10-11

1 Any Where Banking (AWB) √ 2 ATM 40 10 6 18 22 16 3 ATM Network NFS √ BANCS √ 4 Internet Banking 5 Mobile Banking (SMS alerts) √ √ 6 Tele Banking 7 POS √ 8 ECS/EFT/NEFT √ √ 9 RTGS √ 11 Utility Bill Payment √ 12 Payment gateway

(RuPay/VISA/Master/…) √

(M) √

(V)

13 Credit Card Payments 14 Demat services √ 15 Membership of CCIL √ 16 Membership of NDS √ Depository participant of NSDL √ Membership of CDSL √ Full fledged money changing

license (FFMC) from RBI √

Authorised Dealer (Category I) √ 17 Collateral lending and borrowing

service



Merger of other banks 1 7 7 4 1 2 20 Other services Membership of BCSBI √ Agreement with LIC and IDFC,

Asset Management Companies

√

A separate IT subsidiary company viz Cosmos e-Solutions & Services Private limited is formed

√

Website of bank √ Source: Field work

186

Table 5.5.5 - List of Para-banking services introduced by the bank 01-05 05-06 06-07 07-08 08-09 09-10 10-11


1 Life Insurance business ( Bajaj Allainz Insurance Co.Ltd.)

√

2 General Insurance (Bajaj Allainz General Insurance Co.Ltd.)

√

3 Mutual fund √

3 Franking √


5 Online Tax Payment facility √ 6 Currency chest √ 7 Tie-up agreement with Wiseman

Forex Ltd., for providing the facility of Western Union Money Transfer

√

Source: Field work

All the services listed under Table 5.5.4 were introduced by the bank after

migrating to CBS environment. The bank has embarked on Any Branch Banking

from 2003-04, immediately upon introduction of CBS. Bank has its own website

and plans to introduce Internet Banking shortly. As there were some restrictions

imposed by RBI to provide Mobile Banking facilities, presently the bank has

started providing SMS Alerts facility only. Such alerts are sent to customers for

transactions above prescribed limit. Bank also provides facilities such as ECS,

NEFT, RTGS. CCBL has 106 on-site ATMs and 6 off-site ATMS at present and

has become member of BANCS and NFS network which enables CCBL customers

to transact over 1,00,000 ATMs of member banks. The bank has recently started

online tax payment facility.

Along with technology based banking services, CCBL has also been pioneer in

providing para-banking services as depicted in Table 5.5.5, such as Demat, Foreign

exchange, Life Insurance, General Insurance, Mutual fund investment, Currency

chest, Utility Bill Payment, Franking, PAN card etc. Such services provided by the

bank enable customers to avail various financial services required by them under

single roof.

187


customers for new products and alternative delivery channels, there is no way that

any bank can remain luke-warm to hi-tech and yet hope to grow. Endeavour of

CCBL to provide services as mentioned in previous paragraphs, especially after








and Table 5.5.7.



2003-04


18 Months

Data Centre Yes(Own) Disaster Recovery Site Yes(Own) CBS vendor Infosys Software name Finacle V. 7.0.25 Hardware IBM RDBMS Oracle 10g IT Department Yes ISO 27001 / 20000 / 9001

No

Source: Field work

188

Table 5.5.7 - Procedure followed while implementing CBS Action - √ Followed, Ө Partially followed, X Not followed

Sr.No. Description



Designating Senior Manager from banking domain as Project Manager X

3 Appointment of consultants (Technical and Functional)



6 Vendor briefing X

7 Request for Proposal (RFP) / Tenders X

8 Vendor presentations √

9 Vendor selection based on ranking done (RFI, RFP details, Presentation) √


11 Arrange detailed product walk through √

12 Gap analysis (what is available vs. required) √

13 Business Process Reengineering √


14 Approval for BPR and implementation plan from Board √




18 Ensure successful installation by cross checking financial statements, important reports and then replicate the same

process at other branches √

19 Migration audit √





Findings


centralized since 2003-04 and the bank has completed over eight operating cycles


189


management in 2001-02. Actual work relating to CBS implementation commenced

in the same year. It took approximately one and half years' time for the bank to

complete implementation of CBS.


13.53 crores including cost of setting-up of Data Centre, Disaster recovery site,

fees paid to consultant, hardware, software, networking and other infrastructure.



years warranty.

Procedure followed - Interviews with the officials and non-officials of the bank

has revealed that procedure followed by bank as presented under Table 5.5.7 was

in line with the standard practices followed by the industry.

IT resources - CCBL has formed a separate IT subsidiary company 'Cosmos e-

Solutions & Services Private limited' during year 2006-07 to extend software

solutions services to CCBL and to other small and medium sized cooperative

banks. 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 under CBS

environment, the bank has adequate human resources available at present.





Hyderabad located in different seismic zone and owned by the bank.

Information security certification - Bank is yet to apply for any certification such

as ISO 27001 or ISO 20000.

Complementary software - The bank has implemented software such as

automated data back-up, loan processing, recovery, HRD etc.

Conclusions


years is justifiable. Time period more than this, adds cost to the project. Hence,

time period of one and half year taken by the bank is reasonable.

190




Recovery Site infrastructure. The cost of investment made by the bank is

substantially high as the bank chose to partner with world’s most well known

companies Infosys to supply core banking software, IBM to supply hardware and

setting-up Data Centre and Wipro for networking. Option of three years warranty

selected by the bank for purchase of hardware and networking equipment, helped

the bank to save recurring cost on maintenance of those equipment after the

standard post warranty period of one year.



observed that CBS has been introduced by the bank satisfactorily.



Consultants – Involvement of internationally reputed companies for

implementation of CBS has helped the bank for systematic introduction of CBS.

However, the bank is not availing support of consultants on regular basis.











necessary. It has been observed that the bank has introduced loan processing,

recovery, HRD, intranet etc.

Recommendations


implementation of CBS help banks to adopt best practices available in the industry

191

as well as those available in the software selected by the bank. The bank may even

now take-up a fresh look at existing business processes and possibility of bringing

in drastic improvements in quality of services.

IT resources – IT resources in terms of infrastructure, expertise and experienced

manpower available with CCBL are far better than many Urban Cooperative Banks

in Pune as well as in India. The bank may therefore offer services to other UCBs

for introduction of CBS and technology implementation. Such services can be

provided on consultancy basis or through Application Service Provider (ASP)

model. This may be of great help to other cooperative banks and can generate

additional revenues for the bank.





bank may avail consulting services on regular basis.

Information security certification - The bank may apply for ISO 27001 and ISO

20000 certification. Such certification may help the bank to standardize various

procedures pertaining to IT Department. It will also indicate external entities

interacting with the bank that the bank is adhering to international standards

relating to information security while offering technology based services.




Business Intelligence, Trade Finance, Workflow management etc. The bank will be

in position to reap the true benefits of CBS to bring in improvement in its

performance only after introduction of such software which can help bank to

mitigate various types of risks, concentrate upon customer centricity, product





192

SECTION 5.6

CROSS COMPARISON OF PERFORMANCE OF THE

SAMPLE BANKS

5.6.1 Introduction

Bank wise detailed analysis of the sample banks comprising of their general

profile, financial position, status of CBS implementation, procedure followed,

technology based and para-banking services introduced by them etc. is presented in

preceding sections. It has been observed that while on one hand few commonalities

are observed with respect to infrastructural facilities available with the sample

banks, on other hand significant variation is found with respect to investments

made by them for setting-up CBS infrastructure in place, their area of operation,

number of branches, business size etc. There is wide variation in providing

technology based services and para-banking services also. Given this scenario, it

would be interesting to see that how these banks differ from each other with

respect to various aspects mentioned above before analyzing impact of CBS

implementation on performance of these banks in terms of Employee productivity,

Branch productivity, Efficiency and Profitability. Considering the same, a sincere

attempt has been made in this section to cross compare position of sample banks

with respect to their general profile, financial strength & soundness, business

growth, status of CBS implementation, cost investment, procedure followed while

implementing CBS, technology based services introduced, para-banking services

being offered, complementary software implemented etc.

5.6.2 General profile of the sample banks Sample selected for the purpose of present research represents various types of

Urban Cooperative Banks from Pune city. Comparative position of general profile

of sample banks is presented in Table 5.6.1

193

Table 5.6.1 – General profile of the sample banks*

Source: Annual reports of banks * As on March 31, 2011

i. As seen from Table 5.6.1, two banks viz. MSBL and SVCBL are non-

scheduled UCBs. VSBL has recently acquired status of Multi-state UCB

under Non-scheduled category. All these three banks have been established

almost during the same period. CCBL is Multi-state, Scheduled and one of

the oldest UCB in Pune. JSBL is a scheduled UCB and it is more than 60

years old bank.

ii. Area of operation for CCBL is six states. VSBL operates in Maharashtra and

Karnataka. JSBL operates in seven districts of Maharashtra. Area of

operation for MSBL is Pune, adjacent districts and Brihan Mumbai. SVCBL

operates only in Pune District.

iii. Three banks viz. VSBL, MSBL and SVCBL are mid sized banks having

branches less than 20. JSBL has 37 branches where as CCBL is the largest

amongst the sample banks and the second largest UCB in the country having

106 branches.

iv. All the banks have been graded with audit class “A” in year 2010-11.

v. During year 2010-11, amongst the sample banks MSBL has the smallest

turnover amounting ` 679 crores, followed by SVCBL ` 720 crores, VSBL

` 1145 crores, JSBL ` 5563 crores and the highest amongst all is CCBL `

15520 crores.

Sr. No.

Name of the Bank

VSBL MSBL SVCBL JSBL CCBL

1 Type of Bank Non-Scheduled Multi state

Non-Scheduled

Non-Scheduled

Scheduled Scheduled, Multi state

2 Year of establishment

1972 1972 1971 1949 1906

3 Present area of operation

Maharashtra, Chikodi

Taluka of Karnataka

Pune, adjacent districts, Greater Mumbai

Pune district 7 districts from

Maharashtra

Maharashtra, AP, MP, TN, KAR, GUJ

4 Number of branches*

HO+15 HO+10 HO+13 HO+37 + 2 Extension counters

HO+106, 9 Extension counters

5 Number of employees*

262 214 152 940 2212

5 Audit class* “A” “A” “A” “A” “A” 6 Business 1145 crores 679 crores 720 crores 5563 crores 15520 crores

194

vi. CCBL is having the highest number of branches (115) as well as the highest

number of employees (2212). The second largest amongst the sample banks

is JSBL with 39 branches and 940 employees. VSBL, SVCBL and MSBL are

approximately of the same size in terms of various parameters being

analyzed. VSBL has 15 branches and 262 employees. SVCBL has 12

branches and 152 employees where as MSBL has 11 branches and 214

employees. JSBL has the highest number of employees per branch i.e. 24,

followed by MSBL with 20, CCBL with 19, VSBL with 17 and SVCBL with

13.

5.6.3 Strength and soundness 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 Financially Sound and Well

Managed (FSWM) bank. Position of other sample banks has been as follows

i. VSBL had CRAR 9.31%, Net NPA 9.73% during 2003-04, Net NPA

5.88% during 2004-05. After implementation of CBS in 2007-08, all these

parameters show considerable improvement. Net NPA of VSBL from

2007-08 onwards has been continuously at 0%. (Ref Table 5.1.1)

ii. MSBL had Net NPA of 8.43% during 2004-05 and reduced during the

subsequent years. During 2010-11 (Post-CBS) the bank has achieved Net

NPA of 0%. (Ref Table 5.2.1)

iii. JSBL due to heavy accumulated 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 complete turnaround to achieve CRAR of more than

10 per cent in year 2009-10 and 2010-11 and could post net profit of ` 27

crores in year 2010-11. (Ref Table 5.4.1)

iv. CCBL had Net NPA 7.13 only in 2001-02. For all the remaining years, the

bank has done exceptionally well. (Ref Table 5.5.1)

195

It is observed from the data for the Post-CBS period that all the sample banks

during this period have improved their position and fulfilled the criteria of FSWM

bank except JSBL due to accumulated losses of the bank till year 2009-10.

5.6.4 Business growth

Period of five years prior to year 2011 have been used to analyze growth of the

sample banks in terms of branch expansion, business comprising of deposits &

advances, net profit, net owned funds and membership.

Branch expansion Despite several restrictions on introducing technology based delivery channels,

many urban cooperative banks have started offering services such as ATM,

Internet Banking, Mobile Banking etc. However, Branch Banking forms the core

of banking business for the UCBs in India. A comparative picture of branch

expansion programme of selected banks has been presented in Fig. 5.6.1 and 5.6.2

Branch expansion

0

10

20

Year

Num

ber VSBL

MSBLSVCBL

VSBL 14 14 15 16 16MSBL 11 11 11 11 11SVCBL 11 11 11 12 13

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.1: Branch expansion - I

196

Branch expansion

0

50

100

150

Year

Num

ber

JSBLCCBL

JSBL 39 39 39 39 39CCBL 65 77 85 96 106

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.2: Branch expansion - II

Branch expansion of sample banks is depicted in Fig 5.6.1 and Fig 5.6.2. VSBL

and SVCBL could add two more branches during period of five years where as

there has been no addition of branch by MSBL and JSBL. CCBL has undoubtedly

emerged as leader in terms of branch expansion by adding 41 branches.

Business Business of the bank constitutes sum of deposits available with the bank and

advances provided. It is an important indicator of efficiency of the bank. Higher

business will lead to earn better profits and help bank to grow further. A

comparative picture of the business of selected banks has been shown in Fig. 5.6.3

and 5.6.4

197

Business

0

50000

100000

150000

Year

Am

ount

in R

s. L

akhs

VSBLMSBLSVCBL

VSBL 63361 83675 97373 108240 114529MSBL 55760 58187 57611 75084 67910SVCBL 31594 36816 40547 52861 72007

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.3: Business-I

Business

0500000

100000015000002000000

Year

Am

ount

in R

s. L

akhs

JSBLCCBL

JSBL 305476 343795 398834 461489 556300CCBL 671394 854337 1055217 1183462 1552095

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.4: Business-II

Fig 5.6.3 and Fig 5.6.4, depicts business achieved by the sample banks during last

five years. All the sample banks, except MSBL, have shown considerable

improvement in business. Improvement seen in case of CCBL is remarkable.

Net profit Net profit, also referred to as the bottom line, net income, or net earnings is a

measure of the profitability of a venture after accounting for all costs. Profit is a

matter of necessity and every enterprise must earn enough of it to maintain itself

and facilitate future growth. A comparative position of net profit of the selected

banks is shown in Fig. 5.6.5 and 5.6.6

198

Net profit

0

1000

2000

Year

Am

ount

in R

s. L

akhs

VSBLMSBLSVCBL

VSBL 290 352 590 430 1033MSBL 152 175 319 9 390SVCBL 292 585 903 970 1264

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.5: Net Profit-I

Net profit

-10000

0

10000

20000

Year

Am

ount

in R

s. L

akhs

JSBLCCBL

JSBL -6911 -6136 -3897 -1960 2786CCBL 6032 7293 9048 5537 11113

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.6: Net Profit-II

As depicted in Fig 5.6.5 and Fig 5.6.6, there is improvement in net profit generated

by sample banks except in year 2009-10, where there is a fall in net profit of all the

banks excluding JSBL. JSBL has consistently improved from net loss of 69.11

crores in year 2006-07 to achieve net profit of 27.85 crores in year 2010-11.

Net owned funds Adequate net owned funds are required for the purpose of maintaining minimum

level of capital adequacy ratio. As per the present RBI norms it is essential for the

bank to maintain 10 per cent capital adequacy ratio along with few other

parameters, continuously for last three years to be considered as Financially Sound

199

and Well Managed (FSWM) Bank. The position of net owned funds of selected

banks has been presented in Fig. 5.6.7 and 5.6.8

Net owned funds

0

2000

4000

6000

8000

Year

Rs.

in L

akhs VSBL

MSBLSVCBL

VSBL 3307 4317 5390 5937 6455MSBL 4947 5330 5443 6131 5987SVCBL 2728 3004 3591 4482 5558

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.7: Net owned funds-I

Net owned funds

0

20000

40000

60000

80000

100000

120000

Year

Am

ount

in R

s. L

akhs

JSBLCCBL

JSBL 30157 23545 23675 26039 28047CCBL 50874 58565 70026 87877 105220

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.8: Net owned funds-II

It can be seen from Fig 5.6.7 and Fig 5.6.8 that net owned funds position of all the

sample banks has improved. Net owned fund of JSBL after slight decline in year

2007-08 and 2008-09 has shown improvement in subsequent years and that of

MSBL has declined in year 2010-11. Growth observed in case of CCBL is

phenomenal.

200

Membership

Cooperatives are member owned business organizations, managed and controlled

with accepted democratic principles. They are not organized primarily for profit

but with main objective of serving the needs of their own members. Therefore,

growth in membership is an indication of faith and trust that members have on

their organization. A comparative position of membership of selected banks is

presented in Fig. 5.6.9 and 5.6.10

Membership

0

5000

10000

15000

20000

Year

Num

ber VSBL

MSBLSVCBL

VSBL 14520 15192 16778 17537 17809MSBL 14833 15327 15776 15865 15187SVCBL 15386 16067 11029 11746 12425

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.9: Membership-I

Membership

0

50000

100000

150000

200000

Year

Num

ber

JSBLCCBL

JSBL 123144 121141 131943 138055 147489CCBL 54050 59196 63334 66667 72800

2006-07 2007-08 2008-09 2009-10 2010-11

Fig 5.6.10: Membership-II

201

As depicted in Fig 5.6.9 and Fig 5.6.10, membership of VSBL has consistently

improved. Membership of MSBL has also shown marginal improvement, where as

that of SVCBL shows decline. Membership of JSBL is highest amongst all the

sample banks and also shows good improvement. Membership of CCBL has also

improved during last five years.

5.6.5 Status of CBS implementation

Out of 60 UCBs present in Pune as on March, 31 2008, there were 5 UCBs which

had ventured into CBS implementation. All these five banks were selected as

sample for this study making cent percent sampling. Status of CBS implementation

is presented in Table 5.6.2 based on the primary data collected through interviews

with employees and questionnaire issued to the sample banks.


Name of the bank

Sr. No.

Description VSBL MSBL SVCBL JSBL CCBL

1 Year in which CBS implemented

2007-08 2008-09 2006-07 2005-06 2003-04

2 Time required for CBS implementation

20 Months 24 Months 18 Months 30 Months 18 Months

3 Data Centre Yes(Own) Yes(Own) Yes(Own) Yes (Own) Yes(Own) 4 Disaster

Recovery Site Yes(Own) Shared (Janata

Sahakari Bank Ltd., Pune)

No Yes (Own) Yes(Own)

5 CBS vendor Infrasoft Technologies (I) Ltd., Mumbai

Infrasoft Technologies (I) Ltd., Mumbai

Data Vision Infotech

Infrasoft Technologies (I) Ltd., Mumbai

Infosys

6 Software name Omni 7.3 Omni V. 7.2 Data Mate Omni V. 7.3 Finacle V. 7.0.25

7 Hardware HP IBM (Windows)/HCL

HP IBM (Linux)/HCL/HP

IBM

8 RDBMS Oracle 10g DB2 Oracle 10g DB2 V. 9.5 Oracle 10g 9 IT Department Yes Yes Yes Yes Yes 10 ISO 27001 /

20000 / 9001 Yes No No Yes No

Source: Field work

i. It is observed that among the sample banks CCBL is the first bank to

implement CBS (2003-04), followed by JSBL (2005-06), SVCBL (2006-07),

202

VSBL (2007-08) and MSBL (2008-09). All the sample banks are fully CBS

compliant.

ii. Time required for implementation of CBS is between one and half year to

two and half years

iii. All these banks have their own Data Centre.

iv. VSBL, JSBL and CCBL have their own Disaster Recovery Site (DRS),

MSBL has shared DR site of JSBL. SVCBL does not have its DR site yet and

planning to have it shortly.

v. VSBL, MSBL and JSBL are using Omni 7.3 software of Infrasoft, CCBL is

using Finacle of Infosys whereas SVCBL is using Data Mate of Data vision

vi. Hardware and RDBMS used by all the sample banks is from internationally

reputed vendors.

vii. All the sample banks have their own IT Department to handle CBS

operations. All these banks are in CBS environment at least for period of

three years. CCBL being the first cooperative bank not only in Pune but in

the entire country, is in CBS environment for maximum period of 8 years.

viii. JSBL has acquired ISO 27001 and ISO 9001 certification for its Data Centre

operation. VSBL has recently acquired ISO 20000 certification for its IT

Department. Other banks are yet to go for such certification.

Cost investment in CBS project

Cost investment in CBS project depends upon various factors such as Application

software chosen by the bank, number of users, type of hardware, networking

infrastructure, ownership of Data Centre and Disaster Recovery Site, cost of

specialized human resources etc. Details of cost of investment made by the sample

banks are presented in Table 5.6.3

203

Table 5.6.3 - Cost investment in CBS Project Amount in ` Lakhs

VSBL MSBL SVCBL JSBL CCBL Number of branches when CBS

implemented 14 11 11 39 46

Number of branches as on 31st Mar 2011

16 11 13 39 115

Number of ATMs as on 31st Mar 2011 8 0 5 16 115

A Data Centre 70 7 560 1100 Disaster Recovery Site – Own

Disaster Recovery Site – Shared 3 97

System Integrator / Implementation Partner

Fees paid to Technical / Financial Consultant

3 3

Total – A 110 76 7 660 1100 B Hardware 100 133 30 238 300 System Software 35 200

Application Software 88 55 18 162 450 Networking 21 8 8 150

Interconnectivity 3 4 100 Information Security Equipments 2 12

Manpower 13 500 Total – B 244 214 60 562 1550 Total (A+B) 354 290 67 1222 2650

Per Branch Cost 22 26 5 31 23

Source: Field work Table 5.6.3 shows investment made by the sample banks while introducing

CBS and during the subsequent years up to March 31, 2011. The data is

collected through questionnaire and interviews with officials / non-officials of

sample banks. Amounts indicated in Table 5.6.3 are approximate figures, as the

exact data was either not available or banks were not willing to share the same

204

in prescribed format provided to the bank in form of questionnaire, on account

of confidentiality. Observations with respect to cost investment for CBS

implementation are as under:

i. Large variation is observed in cost of CBS implementation by sample banks.

It is in the range of ` 3 crores to ` 26 crores and apparently due to size of the

bank in terms of number of branches.

ii. Cost of CBS implementation per branch is in the range of twenty to thirty

lakhs.

iii. Cost indicated in Part-A is mainly one time cost and as can be seen in case of

CCBL that even though the overall investment in CBS project is high, as the

number of branches have gone up, the per branch cost of CBS

implementation has decreased.

iv. Cost on IT manpower in case of CCBL is the highest due to large number of

employees belonging to IT Department. Recently the bank has formed a

separate company called Cosmos eSolutions.

Procedure followed while implementation of CBS

Success of CBS project implementation depends upon how effectively UCBs are in

position to take care of various limitations such as capacity to bear the cost

involved, limited area of operation resulting into less scope for increasing volume

of transactions, lack of skilled technical manpower, political interference etc. Other

factors such as improving existing business processes, vision of the top

management, systematic process followed for CBS implementation, involvement

of officials working at different levels of management etc. are also equally

important.

Sincere attempt was therefore made to evaluate the procedure followed by the

sample banks for implementation of CBS. Table 5.6.4 shows the procedure which

banks are expected to adhere to in order to ensure success of the project.

Importance of each of the step has been explained in detail at Chapter 2 (2.2) and

through diagrammatic form at Annexure IV. Based on experience of the

researcher in handling consultancy work relating CBS project and importance of

each of the activity involved, maximum score has been assigned to each step.

205

During the interview with officials / non-officials the details were collected in

connection with the steps followed. Based on the same appropriate marks were

assigned out of maximum marks indicated under column "Score". Total score has

been calculated to find out which of the sample bank was close to following the

expected process.

Table 5.6.4 – Procedure followed while implementation of CBS

Name of the Bank*

Score V M S J C

Sr.No. Description 1 Awareness

training to BOD, Senior Executives, Middle Mgmt and staff

20 √ 15 √ 10 Ө 5 √ 20 √ 15

2 Committee formation (Core Committee and Implementation Committee)

20 √ 15 √ 10 Ө 10 √ 20 √ 15

Designating Senior Manager from banking domain as Project Manager

√ X X √ X

3 Appointment of consultants (Technical and Functional)

20 √ 15 Ө 10 X 5 √ 15 15

4 System requirement specifications

30 √ 30 √ 25 √ 15 √ 25 √ 25

5 Request for Information

20 X 10 X 10 X 5 X 15 X 15

6 Vendor briefing

X X X X X

7 Request for Proposal (RFP) / Tenders

X √ X √ X

8 Vendor presentations

√ √ X √ √

9 Vendor selection based on ranking done (RFI, RFP details, Presentation)

X √ X √ √

10 Place Purchase Order to the selected vendor

√ √ √ √ √

206

11 Arrange detailed product walk through

10 √ 10 X 10 Ө 10 √ 10 √ 10

12 Gap analysis (what is available vs. required)

20 Ө 20 Ө 15 Ө 10 √ 20 √ 10

13 Business Process Reengineering

30 X 0 X 0 X 0 √ 20 √ 20

Implementation plan

√ √ √ √ √

14 Approval for BPR and implementation plan from Board

N.A. N.A. N.A. √ √

15 Finalize vendor for setting up physical infrastructure of Data Centre and Disaster Recovery Site and start the work OR

20 √ 20 √ 15 X 5 √ 20 √ 20

16 Agreement for sharing of Data Centre and DRS

N.A. N.A. N.A. N.A. N.A.

17 Data conversion for pilot branch, data cleansing, purification and validity check

20 √ 15 √ 10 √ 10 √ 20 √ 20

18 Ensure successful installation by cross checking financial statements, important reports and then replicate the same process at other branches

10 √ 10 √ 10 √ 10 √ 10 √ 10

19 Migration audit 10 X 0 X 0 X 0 Ө 5 √ 5 20 System

integration, connect all branches to Centralized server

√ √ √ √ √

21 User 10 √ 10 √ 10 √ 10 √ 10 √ 10

207

acceptance test (UAT)

22 Request vendor to rectify issues raised in UAT and decide cut off date

10 √ 10 √ 10 √ 10 √ 10 √ 10

23 Switch over to Core Banking Software

√ √ √ √ √

250 180 145 105 220 200 Symbols used Yes √ Partially Yes Ө No X

Source: Field work * V: VSBL, M:MSBL, S:SVCBL, J:JSBL, C:CCBL It is evident from the marks scored as depicted in Table 5.6.4 that JSBL has

followed the procedure more systematically, followed by CCBL, VSBL, MSBL

and then SVCBL.

Introduction of Technology based services Core Banking System implementation forms the base for introduction of

Technology based services by banks such as ATMs, sharing of ATMs through

ATM network, Internet Banking, Mobile banking, IMPS, electronic payment

systems such as NEFT/RTGS. The sample banks, being in CBS environment for

more than three to four years, have introduced various such services complying

with guidelines issued by RBI from time-to-time. List of services introduced by the

sample banks is presented in Table 5.6.5

Table 5.6.5 - Technology based services introduced

VSBL MSBL SVCBL JSBL CCBL Sr.No. Name of the product /

service

1 Any Where Banking (AWB)

√ √ √ √ √

2 ATM √ √ √ √

3 ATM Network

NFS √ √

BANCS √ √

208

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 work

As seen from Table 5.6.5 that technology based services such as ABB, SMS

alerts, ECS, NEFT/RTGS are provided by the sample banks. ATM service has

been introduced by all banks except MSBL. VSBL, JSBL and CCBL are members

of ATM network (BANCS/NFS). SVCBL is yet to apply for membership of any

ATM network. JSBL is the only bank providing Tele banking and “Browse only”

type of Internet banking. CCBL has been providing VISA/MASTER debit cards

providing flexibility to customers to use ATM cum Debit card for shopping

purpose. CCBL has also introduced POS on experimental basis. Treasury

operations of JSBL and CCBL are based on NDS/PDO. Both these banks have also

started providing facility of utility bill payment to their customers.

Para-banking services

Due to cut throat competition in banking sector, it has become essential for banks

to provide various financial services required by their customers under single roof.

At the same time commission and service charges generated through such services

help banks to a great extent to improve their non-interest income and reduce

burden. Various para-banking services introduced by the sample banks are listed in

Table 5.6.6

209

Table 5.6.6 - Para-banking services introduced by the sample banks VSBL MSBL SVCBL JSBL CCBL Sr.No. Name of the product

/ service

Para-banking services

1 Life Insurance business

√ √ √ √ √

2 General Insurance √ √ √ √ √

3 Mutual fund √ √ √

3 Franking √ √ √ √

4 PAN Card √ √ √


√ √ √

6 Collateral lending and borrowing service

√


√


√

9 Membership of CCIL √ √

10 Depository participant of NSDL

√ √

11 Membership of CDSL √ √

12 Foreign Exchange Services

√ √

13 Full Fledged Money Changing (FFMC) license from the RBI

√

14 Authorized Dealer (Category 1)

√

15 Currency chest √

16 Agreement to LIC and IDFC, Asset Management Companies

√

17 Tie-up agreement with Wiseman Forex Ltd., for providing the facility of Western Union Money Transfer

√

Source: Field work

210

As can be seen from Table 5.6.6, that all the sample banks have started providing

various para-banking services. All the sample banks are providing Life Insurance

and General Insurance products with referral arrangements with different insurance

companies. MSBL, JSBL and CCBL are providing Mutual Fund investment

facilities. Franking services are provided by all the banks except MSBL. PAN card

service is being provided by VSBL, JSBL and CCBL. Online tax payment service

is provided by VSBL, SVCBL and CCBL.

Complementary software introduced by the sample banks 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 upon overall performance of bank while mitigating the

business risks, implementation of complementary software is necessary. Details of

complementary software introduced by the sample banks is presented in Table

5.6.7

Table 5.6.7 - Complementary software introduced by the sample banks

VSBL MSBL SVCBL JSBL CCBL Sr.No.

1 ALM ALM 2 Treasury Treasury Treasury 3 Intranet Intranet 4 CRM 5 Trade

finance Source: Field work

It can be observed from Table 5.6.7 that CCBL has introduced maximum number

of complementary software amongst the sample banks, followed by JSBL and

VSBL. MSBL and SVCBL have not yet implemented any complementary

software.

211

SECTION 5.7

Consolidated analysis of

Business performance of the sample banks

212

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)

Tables at Annexure V Employee Productivity Performance

VSBL - Table 5.1.9 (a), Table 5.1.9 (b), Table 5.1.9 (c), Table 5.1.10

MSBL - Table 5.2.9 (a), Table 5.2.9 (b), Table 5.2.9 (c), Table 5.2.10

SVCBL - Table 5.3.9 (a), Table 5.3.9 (b), Table 5.3.9 (c), Table 5.3.10

JSBL - Table 5.4.9 (a), Table 5.4.9 (b), Table 5.4.9 (c), Table 5.4.10

CCBL - Table 5.5.9 (a), Table 5.5.9 (b), Table 5.5.9 (c), Table 5.5.10

Branch Productivity Performance

VSBL - Table 5.1.11 (a), Table 5.1.11 (b), Table 5.1.11 (c), Table 5.1.12

MSBL - Table 5.2.11 (a), Table 5.2.11 (b), Table 5.2.11 (c), Table 5.2.12

SVCBL - Table 5.3.11 (a), Table 5.3.11 (b), Table 5.3.11 (c), Table 5.3.12

JSBL - Table 5.4.11 (a), Table 5.4.11 (b), Table 5.4.11 (c), Table 5.4.12

CCBL - Table 5.5.11 (a), Table 5.5.11 (b), Table 5.5.11 (c), Table 5.5.12

Profitability Performance

VSBL - Table 5.1.13 (a), Table 5.1.13 (b)

MSBL - Table 5.2.13 (a), Table 5.2.13 (b)

SVCBL - Table 5.3.13 (a), Table 5.3.13 (b)

JSBL - Table 5.4.13 (a), Table 5.4.13 (b)

CCBL - Table 5.5.13 (a), Table 5.5.13 (b)

213

5.7.1 Business growth, efficiency and profitability

Growth and profitability depends upon soundness of the bank. Sincere attempt has

been made through this study to assess soundness of the bank, before analyzing

business performance parameters.

5.7.2 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.

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 be 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;

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.

Position of the selected banks with respect to various parameters prescribed by

RBI for FSWM bank is as follows.

214

VSBL

Data available through annual reports of the bank (refer Table 5.1.1) revealed that

prior to implementation of CBS, during 2003-04 the bank had CRAR 9.31%, Net

NPA 9.73% and Net NPA 5.88% during 2004-05. After implementation of CBS,

all these parameters have shown considerable improvement. Net NPA of the bank

from 2007-08 onwards have been continuously at 0%. The bank has also secured

audit class “A” consistently.

MSBL

It is observed from the data available through annual reports of the bank (refer

Table 5.2.1) that prior to implementation of CBS, during 2004-05 the bank had Net

NPA 8.43%. From year 2005-06 onwards, position of Net NPA has improved and

the same is consistently less than 5%. In year 2010-11 the bank has recorded 0%

Net NPA. The bank has also recorded Net profit throughout the study period. The

bank has been able to secure audit class “A” during the study period except in year

07-08, 08-09 and 09-10 in which it received audit class "B".

SVCBL

As seen from the data available through annual reports (refer Table 5.3.1), CRAR

of the bank is consistently above 10 per cent. Net NPA of the bank for last 6 years

is zero. There is no default in CRR/SLR and the bank has got regulatory comfort.

The bank has also secured audit class “A” consistently.

JSBL

As observed from the data available through annual reports (refer Table 5.4.1) it is

evident that prior to implementation of CBS, due to heavy accumulated losses of

the bank since 1998, CRAR of the bank was having negative value till 2007-08.

From year 2008-09 onwards it has shown considerable improvement and recorded

above 10% in year 2009-10 and 2010-11 as prescribed by RBI. In the year 2002-03

Gross NPA of the bank was 45.41% and Net NPA 28.18%. This position

improved considerably after implementation of CBS to record Gross NPA 5.55%

and Net NPA 0% in year 2010-11. The bank has not defaulted any time since its

215

inception in maintaining SLR and CRR. The bank which was having accumulated

losses to the extent of ` 124.31 crores in year 2003 has posted net profit of ` 27.85

crores in year 2010-11 after long struggle of 14 years.

CCBL

It is observed from the data available through annual reports (refer Table 5.5.1)

that during the entire study period the bank has consistently maintained its CRAR

above 10 per cent and Net NPA below 5 per cent. The bank has also earned profit

throughout the study period and secured audit class “A”. There has been no default

in maintaining CRR and SLR by the bank.

Conclusion

From the data presented as on March 31, 2011, it is clearly evident that except

JSBL, all the selected banks comply with the criteria specified by the RBI to

consider them as FSWM bank. In case of JSBL there is significant improvement in

all the parameters to be considered as FSWM bank. CBS implementation has

certainly helped the sample banks to improve their performance with respect to

soundness, profitability, risk management and regulatory compliance indicators

specified for FSWM bank.

5.7.3 Business growth

Period of five years prior to year 2011 have been used to analyze growth of the

sample banks in terms of membership, net owned funds, business comprising of

deposits & advances, net profit and branch expansion. The growth rate of these

parameters has been shown in Table 5.7.1 Table 5.7.1 – Business growth of sample banks

Growth % Sr. No.

Description VSBL MSBL SVCBL JSBL CCBL

1 Membership 5.24 1.65 -5.20 4.61 4.25 2 Owned funds 18.20 9.21 19.48 -1.80 21.85 3 Business 15.95 8.62 22.87 16.17 19.89 4 Net profit 37.39 33.54 44.20 - 16.23 5 No. of branches 3.39 0.00 4.26 0 12.16

Source: Field work

216

Findings

Analysis of data available through annual reports of the bank (secondary source)

has revealed following

VSBL

Membership - Membership of the bank has shown steady growth. Rate of growth

in membership of the bank has been 5.24 per cent.

Net owned funds - Net owned funds, an indicator of soundness of the bank shows

considerable improvement. Growth rate observed in case of the bank is 18.20 per

cent. The paid up capital of the bank as on 31.03.2011 was ` 23.33 crores and it

was the highest amongst all non-scheduled Urban Cooperative Banks in Pune

District during that year.

Business - Business of the bank has shown considerable growth of 15.95 per cent

per year.

Net profit – Growth observed in Net profit of the bank is substantial. It has

recorded growth of 37.39 per cent per year.

Branch expansion – The bank took over “Nipani Urban Souhard Sahakari Bank”

having 2 branches during the post-CBS period. Growth rate of branches observed

is 3.39 per cent.

Conclusion

Growth with respect to membership, net owned funds, business and net profit is

satisfactory. Growth rate observed in case of branch expansion is low. It could be

due to restrictions imposed by RBI upon Urban cooperative banks for expansion of

branches till 2007. Banks were allowed to expand their branches only through

mergers and acquisitions.

MSBL

Membership - Membership of the bank has shown very nominal growth. It is only

1.65 per cent.


improvement mainly due to considerably good provisions made by the bank for

217

reserves and other funds. Growth rate observed in case of the bank is 9.21 per cent.

The paid up capital of the bank as on 31.03.2011 is ` 12.54 crores and net owned

funds are ` 59.87 crores.

Business - Business of the bank has improved with growth rate of 8.62 per cent. It

has increased from ` 413.49 crores during year 2004-05 to ` 679.10 crores in year

2010-11.

Net profit – The bank has recorded substantial growth of 33.54 per cent in Net

profit from ` 68.77 Lakhs during 2004-05 to ` 3.90 crores in year 2010-11.

Branch expansion – The bank has not added any new branch during the study

period and hence does not show any growth in terms of branch expansion.

Conclusion

Growth with respect to membership, net owned funds is not very significant.

Growth observed in net owned funds is mainly due to good provisions made by the

bank towards reserves and other funds. The bank needs to strengthen its paid-up

capital. Introduction of technology is expected to show significant improvement in

business of the bank. However, it is observed that the bank has recorded growth of

only 8.62 per cent. Growth observed in net profit satisfactory as it has been

achieved with existing number of branches and with traditional service channels.

SVCBL

Membership - Membership of the bank has shown decline by 5.20 per cent during

the last five years.



cent. The paid up capital of the bank as on 31.03.2011 was ` 2.82 crores.

Business - Business of the bank has shown considerable growth of 22.87 per cent.

Net profit – Growth observed in Net profit of the bank is substantial. It has

recorded growth of 44.20 per cent.

Branch expansion – Growth rate of branches observed is 4.26 per cent.

218

Conclusion

Growth with respect to net owned funds, business and net profit is satisfactory.

Growth rate observed in case of branch expansion is low. It could be due to policy

of the bank or due to restrictions imposed by RBI upon Urban cooperative banks

for expansion of branches till 2007. Banks were allowed to expand their branches

only through mergers and acquisitions.

JSBL



Net owned funds - Net owned funds, an indicator of soundness of the bank has

shown decline by 1.80 per cent. This is again on account of provisions for NPA

made by the bank in year 1998 amounting ` 76.14 crores leading to huge

accumulated losses affecting the position of net owned funds.

Business - Business of the bank has shown reasonably good growth of 16.17 per

cent.

Net profit – The bank was able to recover completely from the accumulated loss

and post Net profit only in year 2010-11 amounting ` 27.85 crores.

Branch expansion – The bank has not added any new branch during the study

period.

Conclusion

Growth with respect to membership and business is satisfactory. Net owned funds

and Net profit is expected to improve in years to come as the bank has posted net

profit only during 2010-11. Growth rate observed in case of branch expansion is

nil due to financial crisis faced by the bank and restrictions imposed by RBI upon

Urban cooperative banks for expansion of branches till 2007.

CCBL



219



cent. The paid up capital of the bank as on 31.03.2011 is ` 121.11 crores and it is

the highest amongst all Urban Cooperative Banks in Pune District.

Business - Business of the bank has shown considerable growth of 19.89 per cent.

Net profit – Growth observed in Net profit of the bank is reasonably good

considering the expansion of braches carried out by the bank during the Post-CBS

period. Net profit has shown growth of 16.23 per cent.

Branch expansion – The bank took over 8 small and weak urban cooperative

banks during the study period increasing number of branches from 36 in

1999-2000 to 80 in year 2006-07. Growth rate of branches observed is 12.16 per

cent.

Conclusion

Growth with respect to membership, net owned funds and business is satisfactory.

Growth rate observed in case of branch expansion is also good and was possible

due to inorganic expansion route adopted by the management of the bank.

However, growth rate observed in Net profit is on lower side probably due to

mergers undertaken by the bank.

Recommendations

All the sample banks, being stable under CBS environment for over three years,

need to have strategy to expand their branch network in un-banked areas or expand

banking operations in the light of the changes in policies of RBI in recent past. RBI

through its circular dt. June 30, 2008 has liberalized its policy for branch licensing,

area of operation and permission to introduce ATMs for UCBs. Further, vide its

Circular No. RBI/2010-11/308 UBD.BPD. (PCB). Cir. No 28/09.18.300/2010-11

dt. December 10, 2010, the RBI has allowed UCBs to appoint Business

correspondents (BC) / Business facilitators (BF). These directives from RBI should

be considered as an opportunity to expand their operations. The sample banks may

therefore concentrate upon:

i. Increasing the customer base

220

ii. Expanding their branch network in un-banked areas to extend services to

underprivileged and un-banked 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 the sample banks to achieve higher rate of

business growth and also contribute to furthering objective of financial inclusion of

Government of India.

5.7.4 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 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 has been considered as an

option by banks to enhance productivity, efficiency and profitability.

For analyzing the performance of individual banks, present study has used

employee productivity parameters and branch productivity parameters such as per

221

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. In this part of the study a very sincere attempt has been

made to present consolidated position of business performance of the selected

banks to evaluate the impact of CBS on the sample banks.

Employee Productivity

Automation of all the manual processes of banking operations such as posting of

transactions, maintaining ledgers, consolidation, compilation, transmission and

generating decision making information in CBS environment have helped

employees to a great extent to save time and relieve them from monotonous work.

This obviously is expected to reflect on productivity, efficiency and profitability of

the bank. Here an attempt has been made to assess productivity of the employees in

Pre and Post-CBS scenario.

Tables representing various Employee Productivity ratios for Pre-CBS and

Post-CBS period of all the sample banks are presented in Annexure V.

Employees Technological Intervention (TI) requires additional Human Resources to manage

the technology as well as to meet the improved business potential arising out of the

TI.

VSBL

As seen from Table 5.1.9 (a) and 5.1.9 (b), the average number of employees has

increased from 213 during Pre-CBS period to 262 in Post-CBS period, showing

increase of 22.77 per cent.

222

MSBL

Data presented in Table 5.2.9 (a) and 5.2.9 (b) reveals that the average number of

employees has decreased from 231 during Pre-CBS period to 213 in Post-CBS

period, recording decrease by 7.60 per cent.

SVCBL

It is observed from the Table 5.3.9 (a) and 5.3.9 (b) that the average number of

employees has decreased from 159 during Pre-CBS period to 152 during Post-CBS

period, recording decline by 4.40 per cent.

JSBL

It can be seen from Table 5.4.9 (a) and 5.4.9 (b) that the average number of

employees has decreased from 1093 during Pre-CBS period to 964 during Post-

CBS period, showing decline by 11.26.

CCBL

From Table 5.5.9 (a) and 5.5.9 (b) it is revealed that the average number of

employees has increased from 1208 during Pre-CBS period to 1337 during Post-

CBS period, showing increase of 10.64 per cent.

While comparing position of average number of employees available with the

sample banks for Pre-CBS and Post-CBS period, it is seen that VSBL (22.77 per

cent) has recorded the highest growth, followed by CCBL (10.64 per cent). There

is a decline in case of other banks JSBL (11.26 per cent), MSBL (7.60 per cent)

and SVCBL (4.40 per cent).

Deposits per Employee

Types of Deposits primarily include saving, current, range of fixed deposits and

other deposits. Growth in deposits depends upon reputation / market standing of

the bank, effective and efficient services provided by staff and interest rate offered

by the bank. During the course of research a comparative study of deposits per

employee and impact of CBS implementation on it has been done systematically.

223

VSBL

It is observed from Table 5.1.9 (a) and 5.1.9 (b) that there is a consistent growth in

deposits per employee over the study period. While comparing average deposits

per employee during Pre-CBS period (` 145.22 Lakhs) and Post-CBS period (`

238.88 Lakhs) it is found that there is a growth of 64.50 per cent. Variation

observed in Deposit per employee both during Pre-CBS (C.V. 13.23 per cent) and

Post-CBS (C.V. 13.87 per cent) period is almost same.

MSBL

Table 5.2.9 (a) and 5.2.9 (b) indicates that there is a continuous growth in deposits

per employee during Pre-CBS period but there is fluctuation in Post-CBS period.

While comparing average deposits per employee during Pre-CBS period (` 135.67

Lakhs) and Post-CBS period (` 195.73 Lakhs) it is found that there is a growth of

44.27 per cent. Variation observed in Deposit per employee during Post-CBS

period (C.V. 17.02 per cent) is slightly less as compared to during Pre-CBS (C.V.

18.26 per cent).

SVCBL

Data presented in Table 5.3.9 (a) and 5.3.9 (b) reveals that there is a consistent

growth in deposits per employee over the study period. While comparing average

deposits per employee during Pre-CBS period (`105.81 Lakhs) and Post-CBS

period (` 158.11 Lakhs) it is found that there is a growth of 49.42 per cent.

Variation observed in Deposit per employee both during Post-CBS period (C.V.

25.51 per cent) is more as compared to Pre-CBS period (C.V. 12.66 per cent).

JSBL

As depicted in Table 5.4.9 (a) and 5.4.9 (b) that there is a continuous growth in

deposits per employee during the Post-CBS period. While comparing average

deposits per employee during Pre-CBS period (` 147.84 Lakhs) and Post-CBS

period (` 214.08 Lakhs) it is found that there is a growth of 44.81 per cent.

Variation observed in Deposit per employee during Post-CBS period (C.V. 20.50

per cent) is higher than Pre-CBS period (C.V. 3.47 per cent).

224

CCBL

It can be seen from Table 5.5.9 (a) and 5.5.9 (b) that there is a consistent growth in

deposits per employee over the study period. While comparing average deposits


240.57 Lakhs) it is found that there is a growth of 57.39 per cent. Variation

observed in Deposit per employee both during Pre-CBS (C.V. 18.92 per cent) is

more compared to Post-CBS (C.V. 14.24 per cent).

While comparing average Deposits per Employee of sample banks for Pre-CBS

and Post-CBS period, it is seen that VSBL (64.50 per cent) has achieved the largest

growth, followed by CCBL (57.39 per cent), SVCBL (49.42 per cent), JSBL

(44.81 per cent) and MSBL (44.27 per cent).

CBS is capable of improving speed and accuracy of various tasks involved in

providing deposit related services. Majority employees of the bank (90 to 96 per

cent) through opinion survey of employees as a part of present research work, gave

their view that there is an improvement in issue / renewal of deposits, payment of

cash, receipt of cash, issuing DD, passbook updation, issuing statement of account,

intimation of maturity of deposits, after implementation of CBS. A slightly lesser

percentage of employees perceive that there is improvement in services such as

Money transfer (80 per cent), Issuing cheque book (83.33 per cent) after CBS

implementation.

It can therefore be inferred that growth observed in average deposits per employee

between Pre-CBS period and Post-CBS period of all the sample banks is due to

effective and efficient services provided by the staff of the bank with the help of

CBS and related technology to the customers.

Credits per Employee Bank deploys its resources including funds collected by way of deposits for

productive purposes to generate income with a view to augment bank’s revenue

earning capacity to strengthen financial health and maximize the services to its

members. This is normally done by way of providing loans and advances and

225

through investments in Government and other securities. Margins earned through

credits should be adequate to meet the cost of funds and minimize financial risk. A

comparative study of this critical aspect has been given in the following

paragraphs.

VSBL

It is observed from Table 5.1.9 (a) and 5.1.9 (b) that there is consistent

improvement in credits per employee over the entire study period. There is a

growth of 57.04 per cent while comparing average credits per employee during

Pre-CBS period (` 93.17 Lakhs) and Post-CBS period (` 146.31 Lakhs). Credits

per employee is steadier in Post-CBS period (C.V. 7.73 per cent) as compared to

Pre-CBS period (C.V. 18.11 per cent).

MSBL

Data presented in Table 5.2.9 (a) and 5.2.9 (b) reveals that there is an improvement

in credits per employee during the Pre-CBS period but Post-CBS period shows

fluctuations. There is a growth of 38.08 per cent while comparing average credits


117.89 Lakhs). Credits per employee is steadier in Post-CBS period (C.V. 11.71

per cent) as compared to Pre-CBS period (C.V. 17.82 per cent).

SVCBL

It can be seen from Table 5.3.9 (a) and 5.3.9 (b) that there is a consistency in the

improvement in credits per employee over the study period. There is a growth of

72.00 per cent while comparing average credits per employee during Pre-CBS

period (` 63.51 Lakhs) and Post-CBS period (` 109.23 Lakhs). Credits per

employee is steadier in Pre-CBS period (C.V. 13.97 per cent) as compared to Post-

CBS period (C.V. 23.36 per cent).

JSBL

From Table 5.4.9 (a) and 5.4.9 (b) it is observed that there is an improvement in

credits per employee during Post-CBS period. There is a growth of 39.23 per cent

while comparing average credits per employee during Pre-CBS period (` 95.02

226

Lakhs) and Post-CBS period (` 132.30 Lakhs). Growth in Credits per employee is

steadier in Pre-CBS period (C.V. 6.73 per cent) compared to Post-CBS period

(C.V. 20.84 per cent).

CCBL

As seen from Table 5.5.9 (a) and 5.5.9 (b), there is consistent improvement in

credits per employee over the study period. There is a growth of 62.66 per cent

while comparing average credits per employee during Pre-CBS period (` 84.34

Lakhs) and Post-CBS period (` 137.19 Lakhs). Variation observed in Credits per

employee during Pre-CBS period (C.V. 15.97 per cent) and Post-CBS period (C.V.

15.91 per cent) is almost similar.

While comparing average credits per employee of the selected banks for Pre-CBS

and Post-CBS period, it is seen that SVCBL (72.00 per cent) has achieved the

highest growth, followed by CCBL (62.66 per cent), VSBL (57.04 per cent), JSBL

(39.23 per cent) and MSBL (38.08 per cent), the lowest one.

CBS enables quick processing of loan applications and post disbursal work such as

generating recovery statements, demand notices, monitoring other accounts of the

same customer etc. to minimize loan accounts becoming non-performing assets

and thus contribute to growth of loans and advances. Opinion survey of employees

reveals that as high as 66.66 per cent of employees feel that CBS is helpful in

appraisal of loan proposals while 80.00 per cent employees are of the view that

process of sanctioning of loan has improved. Maximum employees (90 per cent)

perceive that statement of account can be issued quickly, and staff has the ability to

provide information instantly to customers after implementation of CBS.

While many Indian banks are opting for investments in government securities (also

termed as lazy banking) due to serious recovery problems resulting in to lower

credit deposit ratio (C/D ratio), all the sample banks have been in position to

maintain their CD ratio well. It is therefore clearly evident that CBS

implementation has helped the sample banks in improvement of Credits per

Employee.

227

Business per Employee Business of a bank is the sum total of deposits accepted and credits provided by the

bank. Increase in business therefore, depends upon increase in deposits,

proportionate increase in credits making optimal use of resources available with

the bank. Business per Employee is one of the important indicators prescribed by

RBI to gauge employee productivity in Banks. Through present study, a sincere

effort has been made to find out the impact of CBS implementation on business per

employee of the selected banks.

VSBL

It can be seen from Table 5.1.9 (a) and 5.1.9 (b) that average business per

employee of the bank has increased from ` 238.38 Lakhs during Pre-CBS period to

` 385.19 Lakhs during Post-CBS period posting a growth of 61.58 per cent.

Business per Employee is steadier in Post-CBS period (C.V. 10.70 per cent)

compared to Pre-CBS period (C.V. 15.52 per cent).

CBS has enabled the bank to provide technology based services such as Any

Branch Banking (ABB), SMS Banking, ATMs, Membership of ATM network,

Electronic Funds Transfer services (RTGS/NEFT) and other services such as

Customized cheque book, No frill accounts after introduction of CBS.

MSBL

Data presented in Table 5.2.9 (a) and 5.2.9 (b) reveals that the average business per



Business per Employee is steadier in Post-CBS period (C.V. 14.88 per cent)


After implementation of CBS the bank has started providing technology based

services such as Any Branch Banking (ABB), SMS Banking, Electronic Funds

Transfer services (RTGS/NEFT).

228

SVCBL

As depicted in Table 5.3.9 (a) and 5.3.9 (b), average business per employee of the

bank has increased from ` 169.32 Lakhs during Pre-CBS period to ` 267.34 Lakhs

during Post-CBS period posting a growth of 57.89 per cent. Business per

Employee is steadier in Pre-CBS period (C.V. 12.99 per cent) compared to Post-


Implementation of CBS has enabled the bank to provide technology based services

such as Any Branch Banking (ABB), SMS Banking, ATMs, Electronic Funds

Transfer services (RTGS/NEFT) and other services such as Customized cheque

book after introduction of CBS.

JSBL

It is observed from Table 5.4.9 (a) and 5.4.9 (b) that average business per



Business per Employee is steadier in Pre-CBS period (C.V. 2.84 per cent)

compared to Post-CBS period (C.V. 20.51 per cent).

CBS implementation has enabled the bank to provide technology based services

such as Any Branch Banking (ABB), SMS Banking, ATMs, Membership of ATM

network, Electronic Funds Transfer services (RTGS/NEFT) and other services

such as Customized cheque book, No frill accounts after introduction of CBS.

CCBL

As seen from Table 5.5.9 (a) and 5.5.9 (b) that average business per employee of

the bank has increased from ` 237.20 Lakhs during Pre-CBS period to ` 377.76

Lakhs during Post-CBS period posting a growth of 59.26 per cent. Business per

Employee is steadier in Post-CBS period (C.V. 14.83 per cent) compared to Pre-


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CBS has enabled the bank to provide technology based services such as Any

Branch Banking (ABB), SMS Banking, ATMs, Membership of ATM network,

Electronic Funds Transfer services (RTGS/NEFT) and other services such as

Customized cheque book, No frill accounts after introduction of CBS.

While comparing average business per employee of the sample banks for Pre-CBS

and Post-CBS period, it is seen that VSBL (61.58 per cent) has achieved the

highest growth followed by CCBL (59.26 per cent), SVCBL (57.89 per cent),

JSBL (42.63 per cent) and MSBL (41.88 per cent), which is the lowest amongst all

the selected banks.

Through opinion survey, 93.33 per cent employees have revealed that under CBS

environment they could provide quick services and hence there is an improvement

in increasing number of accounts and increase in volume of business.

Growth in terms of average business per employee achieved by the sample banks

between Pre-CBS and Post-CBS period is a healthy sign and must be as a result of

efficient business operations and technology based services introduced by the

sample banks.

Expenditure per Employee Expenditure per employee is an important parameter to measure the profitability of

the bank. Expenditure includes interest paid on deposits, interest paid on

borrowings, staff expenses, other expenses, provisions etc. The largest components

amongst them are interest on deposits, followed by other expenses and staff

expenses. Lower the value of this ratio, is indicative of higher profitability, and

hence a higher productivity. A comparative study of this crucial aspect has been

made among the sample banks.

VSBL

Data presented in Table 5.1.9 (a) and 5.1.9 (b) shows fluctuating trend in

expenditure per employee during the study period. Average expenditure per

employee shows an increase of 66.79 per cent while comparing Pre-CBS period (`

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14.10 Lakhs) and Post-CBS period (` 23.52 Lakhs). Expenditure per employee

shows more variation (C.V. 15.61 per cent) during Post-CBS period as compared

to Pre-CBS period (C.V. 7.96 per cent).

The increase in expenses can also be attributed to various provisions made by the

bank consecutively for four years starting from 2006-07 under accounting heads

such as “Other provisions”, “Provisions for B.D.D.R.”, “Provisions for Income

Tax” and expenditure under head “Salary, allowances and staff expenses”,

“Income Tax” etc. which got reflected in the P&L account.

MSBL

From the data presented in Table 5.2.9 (a) and 5.2.9 (b), it is observed that there is

an increasing trend in expenditure per employee throughout the study period,

except in the year 2010-11 where it has decreased. Average expenditure per

employee shows an increase of 60.30 per cent while comparing Pre-CBS period (`

13.50 Lakhs) and Post-CBS period (` 21.24 Lakhs). Expenditure per employee

shows more variation (C.V. 22.18 per cent) during Pre-CBS period as compared to

Post-CBS period (C.V. 15.06 per cent).

The increase in expenses can also be attributed to provisions made by the bank

during the Post-CBS period under accounting heads "Income tax", "Provisions for

B.D.D.R.", "Loss on sale of Investments", "Investment depreciation reserves",

"Salary, Allowances and Staff expenses" etc. which got reflected in the P&L

account.

SVCBL

It can be seen from data presented in Table 5.3.9 (a) and 5.3.9 (b) that there is a

fluctuating trend in expenditure per employee during the study period. Average

expenditure per employee shows an increase of 31.87 per cent while comparing

Pre-CBS period (`11.86 Lakhs) and Post-CBS period (` 15.64 Lakhs). Expenditure

per employee shows more variation (C.V. 17.92 per cent) during Post-CBS period

as compared to Pre-CBS period (C.V. 3.52 per cent).

231

The increase in expenses can also be attributed to various provisions made in

addition to expenditure on "Salaries and Allowances", "Income tax", "Other

expenses", "Depreciation on Investments" etc. which get reflected in the P&L

account.

JSBL

As depicted in Table 5.4.9 (a) and 5.4.9 (b) there is a fluctuating trend in

expenditure per employee during the Pre-CBS period and increasing trend in Post-

CBS period. Average expenditure per employee shows an increase of 35.13 per

cent while comparing Pre-CBS period (` 15.96 Lakhs) and Post-CBS period (`

21.56 Lakhs). Expenditure per employee shows more variation (C.V. 32.44 per

cent) during Post-CBS period as compared to Pre-CBS period (C.V. 8.79 per cent).

The increase in expenses can also be attributed to interest paid, writing off of

NPAs, provisions made on NPA and Investment Depreciation etc.

CCBL

Data presented in Table 5.5.9 (a) and 5.5.9 (b) shows that there is an increasing

trend in expenditure per employee during Pre-CBS period and fluctuating trend

during Post-CBS period in expenditure per employee. Average expenditure per

employee shows an increase of 27.08 per cent while comparing Pre-CBS period

(` 19.19 Lakhs) and Post-CBS period (` 24.39 Lakhs). Expenditure per employee

shows slightly more variation during Pre-CBS period (C.V. 22.20 per cent) as


The increase in expenses during Post-CBS period has been mainly on account of

NPAs written-off, investment depreciation reserve, Income Tax, Provisions for

B.D.D.R. etc. which got reflected in the P&L account.

While comparing growth in average expenditure per employee during Pre-CBS

period and Post-CBS period, it is observed that the highest growth is in the case of

VSBL (66.79 per cent), followed by MSBL (60.30 per cent), JSBL (34.25 per

cent), SVCBL (31.87 per cent) and CCBL (27.08 per cent), the lowest one.

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Increase in average expenditure per employee between Pre-CBS and Post-CBS

period is against the expected result of achieving reduction in expenses. However,

from the details presented, it is clear that the same is due to heavy provisioning,

Income Tax, hike in salaries and allowances etc. and not only due to investment

made by the sample banks for CBS implementation.

Earning per Employee Total earnings of the bank comprises of interest on loans, interest on investments,

commission, profit on sale of securities, other income etc. Earning per employee

indicate the bank’s efficiency to make profits through the employees. Sincere

effort has been by the researcher to assess the impact of CBS implementation on

earnings per employee in Pre and Post CBS period.

VSBL

It is observed from Table 5.1.9 (a) and 5.1.9 (b) that there is a fluctuation in

earnings per employee during Pre-CBS period but in Post-CBS period it has shown

increasing trend. Average earning per employee shows growth of 73.07 per cent

between Pre-CBS (` 14.91 Lakhs) and Post-CBS period (` 25.80 Lakhs). Earning

per employee shows more variation in Post-CBS period (C.V. 16.45 per cent) as


It is observed that interest received on loans and advances has improved during the

Post-CBS period. Bank has generated very good income through interest on

investments and sale of securities with the help of prudent decisions using

Treasury Management software for which data was made available through CBS.

Other income which comprises of the Non-interest income derived from activities

such as trade finance, service and commission charges received for providing

para-banking activities show marginal improvement in the Post-CBS period in

comparison to the pre-CBS period.

MSBL

As seen from Table 5.2.9 (a) and 5.2.9 (b), there has been consistent improvement

in earnings per employee during the entire study period. Average earning per

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employee shows growth of 61.85 per cent between Pre-CBS (` 14.07 Lakhs) and

Post-CBS period (` 22.76 Lakhs). Earning per employee is steadier in Post-CBS

period (12.60 per cent) as compared to Pre-CBS period (22.74 per cent).



investments with the help of prudent decisions with the help of CBS. Other income

which comprises of the Non-interest income derived from activities such as trade

finance, service and commission charges received for providing para-banking

activities show improvement in the Post-CBS period in comparison to the pre-CBS

period.

SVCBL

Data presented in Table 5.3.9 (a) and 5.3.9 (b) reveals that earning per employee

shows fluctuations during Pre-CBS period but shows improvement during

Post-CBS period. Average earning per employee shows growth of 38.14 per cent

between Pre-CBS (`14.63 Lakhs) and Post-CBS period (` 20.22 Lakhs). Earning




Post-CBS period remarkably. Bank has generated very good income through

interest on investments with the help of prudent decisions for which data was made

available through CBS. Other income which comprises of the Non-interest income

derived from activities such as service and commission charges received for

providing para-banking activities show considerable improvement in the Post-CBS

as compared to the pre-CBS period.

JSBL

As depicted in Table 5.4.9 (a) and 5.4.9 (b), there has been a fluctuation in

earnings per employee during Pre-CBS period but in Post-CBS period it has shown

increasing trend. Average earning per employee shows growth of 42.22 per cent


234








such as demat services, trade finance, service and commission charges received for

providing para-banking activities has also improved significantly during the Post-

CBS period in comparison to the pre-CBS period.

CCBL

Table 5.5.9 (a) and 5.5.9 (b) show that there has been an improvement in the

earnings per employee during Pre-CBS period but Post-CBS period shows

fluctuations. Average earning per employee shows growth of 33.76 per cent


per employee shows more variation in Pre-CBS period (C.V. 21.15 per cent) as


It is observed that interest received on loans and advances has improved

consistently except in year 2007-08. The bank has generated very good income

through interest on investments and sale of securities with the help of prudent

decisions by using Treasury Management software for which data was made

available through CBS. Other income which comprises of the Non-interest income

derived from activities such as demat services, foreign exchange services, trade

finance, service and commission charges received for providing para-banking

activities show improvement in the Post-CBS period in comparison to the pre-CBS

period.

CBS helps the bank employees in generating recovery statements, closely monitor

loan account and other accounts maintained by borrowers, generate demand

notices automatically etc. It helps in improving recovery and results in better

235

interest income on loans and advances. All the sample banks have thus improved

their income through interest on loans and advances, investments.

While comparing growth in average earnings per employee between Pre-CBS

period and Post-CBS period, it is observed that highest growth is recorded by

VSBL (73.07 per cent), followed by MSBL (61.85 per cent), JSBL (42.22 per

cent), SVCBL (38.14 per cent) and CCBL (33.76 per cent), which is lowest among

selected banks.

Growth in terms of average earnings per employee achieved by the sample banks

between Pre-CBS and Post-CBS period is a healthy sign and must be as a result of

technology implementation enabling the selected banks to increase non-interest

income.

Establishment Expenditure per Employee

Establishment Expenditure represents the bank’s expenditure on human resources

viz. salary, pension, gratuity etc. Through present study, attempt has been made to

study impact of CBS on establishment expenditure per employee while making

pre-post comparison.

VSBL

As has been seen from Table 5.1.9 (a) and 5.1.9 (b), establishment expenditure per

employee shows increase from average ` 1.58 Lakhs during Pre-CBS period to `

2.40 Lakhs during Post-CBS period, showing increase by 51.25 per cent.

Establishment expenditure per employee shows more variation during Post-CBS

period (C.V. 20.92 per cent) as compared to Pre-CBS period (C.V. 12.35 per cent).

Establishment expenditure per employee shows fluctuations during the study

period. There is an addition of employees almost every year from year 2006-07.

Increase in establishment expenditure is on account of revision of wages,

continuous increase in rate of Dearness Allowance, increase in salary, pension and

gratuity bills etc.

236

MSBL

As per Table 5.2.9 (a) and 5.2.9 (b) the establishment expenditure per employee

has increased from average ` 2.25 Lakhs during Pre-CBS period to ` 3.71 Lakhs

during Post-CBS period, showing increase by 65.02 per cent. Establishment

expenditure per employee shows more variation during Post-CBS period (C.V.

21.85 per cent) as compared to Pre-CBS period (C.V. 13.93 per cent).

Establishment expenditure per employee shows increasing trend throughout the

study period, more specifically during the Post-CBS period due to wage revision,

continuous increase in rate of Dearness Allowance, increase in salary, pension and

gratuity bills etc.

SVCBL

Information depicted in Table 5.3.9 (a) and 5.3.9 (b) shows that establishment

expenditure per employee has increased from average ` 1.83 Lakhs during Pre-

CBS period to ` 2.60 Lakhs during Post-CBS period, showing increase by 41.74

per cent. Establishment expenditure per employee shows slightly more variation

during Post-CBS period (C.V. 9.95 per cent) as compared to Pre-CBS period (C.V.

6.39 per cent).


study period. It must be due to wage revision, continuous increase in rate of

Dearness Allowance, increase in salary, pension and gratuity bills etc.

JSBL

It is revealed from Table 5.4.9 (a) and 5.4.9 (b) that the establishment expenditure

per employee shows increase from average ` 2.21 Lakhs during Pre-CBS period to

` 2.39 Lakhs during Post-CBS period, showing increase by 7.96 per cent.

Establishment expenditure per employee shows more variation during Post-CBS

period (C.V. 13.31 per cent) as compared to Pre-CBS period (C.V. 7.03 per cent).

Establishment expenditure per employee shows fluctuations during Pre-CBS

period. However, it has consistently increased during Post-CBS period due to

237

increase in rate of Dearness Allowance, increase in salary, pension and gratuity

bills etc.

CCBL

Data presented in Table 5.5.9 (a) and 5.5.9 (b) reveals that establishment

expenditure per employee has increased from average ` 1.82 Lakhs during Pre-

CBS period to ` 2.33 Lakhs during Post-CBS period, showing increase by 28.25

per cent. Establishment expenditure per employee shows more variation during

Pre-CBS period (C.V. 17.74 per cent) as compared to Post-CBS period (C.V. 6.82

per cent).


study period due to increase in number of employees mainly due to merger of

banks, wage revision, continuous increase in rate of Dearness Allowance, increase

in salary, pension and gratuity bills etc.

While comparing growth in average establishment expenditure per employee

between Pre-CBS period and Post-CBS period, it is observed that the highest

growth is recorded by MSBL (65.02 per cent), followed by VSBL (51.25 per cent),

SVCBL (41.74 per cent), CCBL (28.25 per cent) and JSBL (7.27 per cent), which

is the lowest one.

Growth in terms of average establishment expenditure per employee of the sample

banks between Pre-CBS and Post-CBS period needs to be addressed seriously by

the sample banks. Though inevitable, banks need to have strategies in place to

minimize establishment expenditure per employee and keep it within control.

Net Profit per Employee One of the important parameter to check viability of banking institution by the

regulatory agency namely RBI, is Net Profit per Employee. Net profit of the bank

depends upon spread (Interest income – Interest expenditure) and Burden (Non-

interest expenditure – Non-interest income). Considering the importance of this

238

aspect, during the course of research sincere attempt has been made to analyse the

impact of CBS implementation on Net profit per employee.

VSBL

From Table 5.1.9 (a) and 5.1.9 (b) it can be seen that average spread per employee

has increased from ` 3.75 Lakhs during Pre-CBS period to ` 8.16 Lakhs in Post-

CBS period, showing growth of 117.54 per cent. This is mainly due to

improvement in interest earned on investments and improvement in percentage of

low cost deposits, resulting into saving of interest paid on deposits.

Average Burden per employee has also increased from ` 2.28 Lakhs to ` 5.05 Lakhs

during Post-CBS period showing increase of 121.12 per cent. This increase can be

attributed to increase in non-interest expenditure on account of various provisions

made by the bank as per the RBI guidelines and increase in cost of business

operations, increase in establishment expenditure due to wages agreement etc. On

the other hand, Non-interest income has not proportionately increased, resulting

into increased burden.

Despite increase in burden, average of Net profit per employee has increased from

` 0.81 Lakhs during Pre-CBS period to ` 2.29 Lakhs in Post-CBS period showing

phenomenal growth of 182.40 per cent. However, it is observed that net profit per

employee does not show much variation during Pre-CBS period (43.48 per cent)

and Post-CBS period (48.58 per cent). It clearly indicates that the bank has

potential to tap the advantages of CBS by designing new products, introducing

para-banking services to earn non-interest income, estimating the cost of funds and

the interest rates on loan in a more systematic manner.

MSBL

Information mentioned in Table 5.2.9 (a) and 5.2.9 (b) shows that average spread

per employee has increased from ` 4.96 Lakhs during Pre-CBS period to ` 8.13

Lakhs in Post-CBS period, showing growth of 64.06 per cent. This is mainly due to

239

improvement in interest earned on investments and increase in proportion of low

cost deposits resulting into saving of interest paid in year 2010-11.

Average Burden per employee has also increased from ` 2.82 Lakhs to ` 6.71 Lakhs

during Post-CBS period showing increase of 137.80 per cent. This is due to

increase in non-interest expenditure on account of various provisions made by the

bank as per the RBI guidelines and increase in cost of business operations, increase

in establishment expenditure due to wages agreement etc. On the other hand,

Non-interest income has not increased proportionately, resulting in increased

burden.

Despite increase in burden, average Net profit per employee has increased from

` 0.56 Lakhs during Pre-CBS period to ` 1.12 Lakhs in Post-CBS period showing

growth of 98.76 per cent. However, it is observed that net profit per employee has

shown huge variation during Post-CBS period (C.V. 85.53 per cent) as compared

to Pre-CBS period (C.V. 38.14 per cent). This huge variation observed during

Post-CBS period is due to provisions made by the bank in year 2009-10 towards

"Investment depreciation reserves" amounting ` 6.24 crores which has seriously

affected the net profit of bank. It clearly indicates that the bank has potential to tap

the advantages of CBS by designing new products, introducing technology based

services, introducing para-banking services to earn non-interest income, estimating

the cost of funds and the interest rates on loan in a more systematic manner.

SVCBL

It is observed from Table 5.3.9 (a) and 5.3.9 (b) that average spread per employee

has increased from ` 4.82 Lakhs during Pre-CBS period to ` 10.16 Lakhs in Post-

CBS period, showing growth of 110.90 per cent. This is mainly due to

improvement in interest earned on loans and advances and interest on investments.

At the same time the bank could save interest paid on deposits due to improvement

in proportion of low cost deposits.

Average of Burden per employee has also increased from ` 1.87 Lakhs to ` 3.32

Lakhs during Post-CBS period, showing increase of 77.89 per cent. This increase

240

can be attributed to increase in Non-interest expenditure on account of various

provisions made by the bank such as “Investment depreciation” in 2006-07, “Bad

debts” in 2007-08, income tax and also due to increase in cost of business

operations, increase in establishment expenditure and other expenses etc.

Despite increase in burden, average of Net profit per employee has increased from

` 2.77 Lakhs during Pre-CBS period to ` 4.57 Lakhs in Post-CBS period, showing

growth of 65.02 per cent. It is observed that net profit per employee shows much

variation during Post-CBS period (C.V. 47.63 per cent) as compared to Pre-CBS

period (C.V. 30.68 per cent). The bank has further potential to tap the advantages

of CBS by designing new products, introducing para-banking services to earn

non-interest income, estimating the cost of funds and the interest rates on loan in a

more systematic manner.

JSBL

As has been presented in Table 5.4.9 (a) and 5.4.9 (b), there is an increase in

average spread per employee from ` 1.54 Lakhs during Pre-CBS period to ` 4.92

Lakhs in Post-CBS period, showing growth of 220.10 per cent. This is mainly due

to remarkable improvement in interest earned on loans and advances as well as

investments. At the same time the bank could save interest paid on deposits due to

good proportion of low cost deposits.

Average of Burden per employee has also increased from ` 0.73 Lakhs to ` 2.07

Lakhs during Post-CBS period, showing increase of 182.99 per cent. This increase

can be attributed to increase in Non-interest expenditure on account of various

provisions made by the bank as per the RBI guidelines on account of "Depreciation

on Investment", "B.D.D.R." and increase in cost of business operations.

The bank which recorded Net loss of ` (1.66) Lakhs during Pre-CBS period could

achieve Net Profit per employee of ` 1.99 Lakhs during Post-CBS period, despite

increase in burden, showing phenomenal growth of 219.82 per cent. It clearly

indicates that the bank was able to recover from the financial crisis that it faced and

has further potential to tap the advantages of CBS by designing new products and

241

services, concentrating more on para-banking services to earn non-interest income,

monitoring the cost of funds more carefully.

CCBL

Similarly, data presented in Table 5.5.9 (a) and 5.5.9 (b) reveals that average

spread per employee has increased marginally from ` 6.94 Lakhs during Pre-CBS

period to ` 7.52 Lakhs in Post-CBS period, showing growth of only 8.38 per cent.

This is mainly due to decline in interest earned during Post-CBS period while level

of interest paid has gone up except in year 2004-05 as the level of low-cost

deposits has remained almost the same.

Average of Burden per employee has decreased from ` 2.45 Lakhs to ` 0.73 Lakhs

during Post-CBS period showing decrease of 70.12 per cent. This decrease can be

attributed to improvement in Non-Interest Income through commission charges,

profit on sale of securities and reversal of provisions made during earlier years.

Average Net profit per employee has increased from ` 2.15 Lakhs during Pre-CBS

period to ` 4.16 Lakhs in Post-CBS period, showing considerable growth of 93.35

per cent. Net profit per employee shows more variation during Post-CBS period

(C.V. 26.12 per cent) as compared to Pre-CBS period (C.V. 11.94 per cent).

Despite nominal increase in spread, the bank could achieve reasonably good

improvement in net profit per employee during Post-CBS period, mainly due to

achieving reduction in burden. It clearly indicates that the bank has potential to tap

the advantages of CBS by improving interest income, reducing interest

expenditure, designing new products, concentrating more upon providing para-

banking services to earn better commission charges.

While comparing growth in net profit per employee between Pre-CBS period and

Post-CBS period, it is observed that the highest growth is recorded by JSBL

(219.82 per cent), followed by VSBL (182.40 per cent), MSBL (98.76 per cent),

CCBL (93.25 per cent) and SVCBL (65.02 per cent), lowest one.

242

Growth in terms of average net profit per employee of the sample banks between

Pre-CBS and Post-CBS period is certainly a healthy sign and due to introduction

of CBS and technology based services introduced by the sample banks.

Ranking of sample banks based upon their performance with respect to various employee productivity parameters

From the analysis presented in preceding paragraphs, considerable improvement

has been clearly evident in various employee productivity parameters of the sample

banks during the Post-CBS period. Attempt has been therefore made to rank them

based upon their performance. Performance with respect to each parameter

pertaining to employee productivity has been assigned maximum of 50 points.

Bank recording maximum growth in the case of ratios such as deposits per

employee (D/E), credits per employee (CR/E), business per employee (BUS/E),

total earning per employee (TER/E), spread per employee (SPR/E) and net profit

per employee (NP/E) has been assigned maximum points of 50. Bank recording the

minimum growth in case of ratios such as total expenditure per employee (TEX/E),

establishment expenditure per employee (EST/E), burden per employee (BRD/E)

have been assigned maximum points of 50. Ranking of the sample banks is

presented in Table 5.7.2 Table 5.7.2 - Ranking based on employee productivity parameters

Parameter Max

Points 50 50 50 50 50 50 50 50 50 450

Name of the bank

D/E CR/E B/E TEX/E TER/E EST/E SPR/E BRD/E NP/E Total Score

VSBL 50 30 50 10 50 20 40 30 40 320 MSBL 20 10 20 20 40 10 20 20 30 190 SVCBL 30 50 30 40 20 30 30 40 10 280 JSBL 10 20 10 30 30 50 50 10 50 260 CCBL 40 40 40 50 10 40 10 50 20 300

Source: Field work E: Employees, D: Deposits, CR: Credit, BUS: Business, TEX: Total Expenditure, TER: Total Earning, ESTB: Establishment Expenses, SPR: Spread, BRD: Burden, NP: Net Profit

243

Based upon the total points scored by the sample banks as presented in Table 5.7.2

ranking of sample banks based upon their performance with respect to employee

productivity parameters has emerged as follows

1. VSBL 2. CCBL 3. SVCBL 4. JSBL 5. MSBL

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Branch Productivity

Till the introduction of Core Banking Solutions, banking services were available to

customers only through bank branches. Introduction of CBS has enabled banks in

providing services to customers through electronic delivery channels such as ATM,

Shared ATM, Internet Banking, Mobile Banking, Tele Banking etc. Customers

have flexibility of availing such services at any time and at any location convenient

to them without visiting branches personally where they maintain their account.

Most of the commercial banks in India have already introduced technology based

delivery channels. Urban Cooperative Banks are laggard due to restrictions put on

them by regulatory agency, RBI. The restrictions were put on opening of new

branches as well. Despite this, few UCBs adopted CBS in order to remain

competitive and provide select services through electronic delivery channels.

However, Branch Banking forms the core of banking business for the UCBs in

India. Thus, as a part of performance analysis it is imperative to study various

parameters relating to Branch productivity in Post-CBS environment. Alike other

factors, this very important factor ‘Branch productivity’ has also been considered

during this research work. A comparative analysis of branch productivity of the

selected banks has been presented in following paragraphs.

Tables representing various Branch Productivity ratios for Pre-CBS and

Post-CBS period of all the sample banks are presented in Annexure V.

Branches

Branch expansion is an important strategy adopted by Banks to expand business

operations. However, due to restrictions by the RBI since year 2003, Urban

Cooperative Banks were unable to get licenses to open new branches. In March

2007, RBI, decided to consider application for grant of license to eligible licensed

banks, provided the state in which it is operating has signed a MOU with RBI.

VSBL

Data presented in Table 5.1.11 (a) and 5.1.11 (b) reveals that there is no expansion

of branches during Pre-CBS period. However, the bank added two branches during

245

the Post-CBS period through acquisition of Nipani Urban Souhard Sahakari Bank

increasing its number of branches from 14 to 16.

MSBL

It is observed from the data presented in Table 5.2.11 (a) and 5.2.11 (b) that the

bank has not added any new branch during the entire study period and the number

remained at 10.

SVCBL

As depicted under Table 5.3.11 (a) and 5.3.11 (b), the bank could add only one

branch during Post-CBS period, increasing number of branches from 11 to 12.

JSBL

From the data presented in Table 5.4.11 (a) and 5.4.11 (b) it can be seen that the

bank has not added any new branch during the study period and the number

remained at 39.

CCBL

As seen from Table 5.5.11 (a) and 5.5.11 (b) the bank added maximum number of

branches amongst the sample banks through mergers of 8 weak banks, by

increasing its branches from 36 in year 1999-2000 to 80 in year 2006-07.

Deposits per Branch

Deposits show the strength of a bank. Effective and efficient customer service,

reputation / market standing of the bank, location of the branch, interest rate better

than or at least matching competitors, innovative products, marketing strategy etc.

are some of the important factors responsible for growth in deposits. Comparative

analysis of deposits per branch of all the selected banks has been presented in

following manner.

VSBL

It is observed from Table 5.1.11 (a) and 5.1.11 (b) that average deposits per branch

has increased from ` 2216.07 Lakhs in Pre-CBS period to ` 4088.91 Lakhs in Post-

246

CBS period showing remarkable growth of 84.51 per cent between the two

periods. Variation observed in deposits per branch is more during Pre-CBS period

(C.V. 17.34 per cent) as compared to Post-CBS period (C.V. 9.98 per cent).

MSBL

Data presented in Table 5.2.11 (a) and 5.2.11 (b) shows that average deposits per

branch has increased from ` 2839.54 Lakhs in Pre-CBS period to ` 3793.38 Lakhs

in Post-CBS period showing growth of 33.59 per cent between the two periods.

Variation observed in deposits per branch during Pre-CBS period (C.V. 15.20 per

cent) and Post-CBS period (C.V. 15.47 per cent) is almost similar.

SVCBL

It can be seen from Table 5.3.11 (a) and 5.3.11 (b) that average deposits per branch


CBS period showing growth of 38.82 per cent between the two periods. Variation

observed in deposits per branch is more during Post-CBS period (C.V. 18.84 per

cent) as compared to Pre-CBS period (C.V. 8.59 per cent).

JSBL

As depicted in Table 5.4.11 (a) and 5.4.11 (b), average deposits per branch has

increased from ` 4061.99 Lakhs in Pre-CBS period to ` 5252.71 in Post-CBS

period, showing growth of 29.31 per cent between the two periods. Variation

observed in deposits per branch is more during Post-CBS period (C.V. 15.86 per

cent) as compared to Pre-CBS period (C.V. 2.40 per cent).

CCBL

It is revealed from Table 5.5.11 (a) and 5.5.11 (b) that average deposits per branch


CBS period, showing growth of 26.56 per cent between the two periods. Variation

observed in deposits per branch is more during Pre-CBS period (C.V. 13.27 per

cent) as compared to Post-CBS period (C.V. 5.74 per cent).

247

While comparing average Deposits per Branch for Pre-CBS and Post-CBS period

of all the sample banks, it is seen that VSBL (84.51 per cent) has achieved the

highest growth, followed by SVCBL (38.82 per cent), MSBL (33.59 per cent),

JSBL (29.31 per cent) and CCBL (26.56 per cent), lowest one.

It is revealed from data relating to financial position of the sample banks that their

position has been quite strong throughout the study period, except in case of JSBL

which had huge accumulated losses of ` 124.31 crores since year 2002-03.

Implementation of CBS has certainly helped the sample banks in strengthening

financial position and to introduce new deposit schemes VSBL (2), MSBL (2),

JSBL (11) and CCBL (13) along with technology based services. Interview with the

employees has revealed that CBS implementation has helped them to provide

deposit related services such as payment of cash, receipt of cash, issue/renewal of

deposits, intimation about maturity of deposits, passbook updation etc. more

effectively.

It is therefore clearly evident that CBS implementation has helped branches of the

sample banks in mobilizing more deposits and in achieving considerable growth in

average deposits per branch between the two periods by the bank.

Credits per Branch Effective credit management in accordance with the regulatory guidelines and

policy formulated by the bank is key aspect of the bank management. Innovative

loan products, location of branches, quick processing of loan application, lower

interest rates and customer friendly services from employees are some of the key

factors for achieving growth in loans and advances. A comparison of credit per

branch of the selected banks has been presented in the following paragraphs.

VSBL

As depicted in Table 5.1.11 (a) and 5.1.11 (b), there is an increase in average

credits per branch from ` 1423.10 Lakhs during Pre-CBS period to ` 2508.95 Lakhs

in Post-CBS period, recording a growth of 76.30 per cent. Credits per branch is

248

steadier during the Post-CBS period (C.V. 5.50 per cent) as compared to Pre-CBS

period (C.V. 21.56 per cent).

MSBL

Data presented in Table 5.2.11 (a) and 5.2.11 (b) shows that there is an increase in

average credits per branch from ` 1787.21 Lakhs during Pre-CBS period to `

2285.55 Lakhs in Post-CBS period, recording a growth of 27.88 per cent. Credits

per branch is steadier during the Post-CBS period (C.V. 9.54 per cent) as compared

to Pre-CBS period (C.V. 14.71 per cent).

SVCBL

As regards SVCBL, it is observed from Table 5.3.11 (a) and 5.3.11 (b) that there is

an increase in average credits per branch from ` 914.12 Lakhs during Pre-CBS

period to ` 1462.59 Lakhs in Post-CBS period recording a growth of 60.00 per

cent. Credits per branch is steadier during the Pre-CBS period (C.V. 9.82 per cent)

as compared to Post-CBS period (C.V. 16.95 per cent).

JSBL

On the other hand, it can be seen from data presented in Table 5.4.11 (a) and 5.4.11

(b) that there is an increase in average credits per branch from ` 2612.81 Lakhs

during Pre-CBS period to ` 3246.14 Lakhs in Post-CBS period, recording a growth

of 24.24 per cent between two periods. Credits per branch is steadier during the

Pre-CBS period (C.V. 7.63 per cent) as compared to Post-CBS period (C.V. 16.19

per cent).

CCBL

Similarly, data presented in Table 5.5.11 (a) and 5.5.11 (b) reveals that there is an

increase in average credits per branch from ` 2463.62 Lakhs during Pre-CBS

period to ` 3213.02 Lakhs in Post-CBS period, recording a growth of 30.42 per

cent. Credits per branch is steadier during the Post-CBS period (C.V. 6.03 per cent)

as compared to Pre-CBS period (C.V. 10.38 per cent).

249

While comparing growth of average Credits per Branch of all the sample banks

during Pre-CBS and Post-CBS period, it is observed that growth achieved by

VSBL (76.30 per cent) is the highest followed by SVCBL (60.00 per cent), CCBL

(30.42 per cent), MSBL (27.88 per cent) and JSBL (24.24 per cent), lowest one.

Introduction of CBS has enabled VSBL (6), MSBL (4), SVCBL (6), JSBL (6) and

CCBL (7) to introduce new loans and advances schemes. Further, CBS enables

access of data pertaining to creditworthiness of customer applying for loan to the

concerned officer and Branch Manager while preparing appraisal of the loan

proposal and obtaining quick approvals from the management. CBS generates

recovery statements periodically, enables close monitoring of transactions in

linked accounts of the borrower in any of the branches of the bank, and generates

demand notes automatically. During the interview, employees of the bank have

disclosed that CBS has assisted them in issuing statement of accounts, provide

information to customers with regard to loan accounts as and when required. All

these aspects have resulted in effective credit management both in lending as well

as recovery resulting in higher credit per branch.

Thus, it can be inferred that CBS implementation through its inbuilt advantages for

effective credit management has helped the sample banks to achieve considerable

growth in credits per branch.

Business per branch

The most important ingredients of banking business are deposits and advances,

which put together, constitute Business turnover of the bank. Implementation of

technology with suitably trained Human Resources is expected to bring

improvement in volume of business and in turn better earnings. During the course

of research a sincere effort has been made to make comparative analysis of

business per branch of the selected banks in following paragraphs.

VSBL

As seen from Table 5.1.11 (a) and 11 5.1.11 (b), average business per branch of the

bank has increased from ` 3639.16 Lakhs during Pre-CBS period to ` 6597.86

250

Lakhs during Post-CBS period, showing an increase of 81.30 per cent. Business

per branch during Post-CBS period is steadier (C.V. 7.52 per cent) as compared to


During the Post-CBS period the bank could introduce new deposit and loan

schemes along with technology based services such as Any Branch Banking

(ABB), SMS Banking, ATMs, Membership of ATM network, Electronic Funds

Transfer services (RTGS/NEFT) and other services such as Customized cheque

book, No frill accounts after introduction of CBS.

MSBL

It is observed from Table 5.2.11 (a) and 5.2.11 (b) that average business per branch

of MSBL has increased from ` 4626.75 Lakhs during Pre-CBS period to ` 6078.93

Lakhs during Post-CBS period, showing an increase of 31.39 per cent. Business

per branch during Post-CBS period is steadier (C.V. 13.14 per cent) compared to


During the Post-CBS period the bank could introduce new deposit and loan


(ABB), SMS Banking, Electronic Funds Transfer services (RTGS/NEFT).

SVCBL

On the other hand, the data presented in Table 5.3.11 (a) and 5.3.11 (b) of SVCBL

shows that average business per branch of the bank has increased from ` 2437.65

Lakhs during Pre-CBS period to ` 3577.56 Lakhs during Post-CBS period,

showing an increase of 46.76 per cent. Business per branch during Pre-CBS period

is steadier (C.V. 8.82 per cent) compared to Post-CBS period (C.V. 18.02 per

cent).

During the Post-CBS period the bank could introduce technology based services

such as Any Branch Banking (ABB), ATM, SMS Banking, Electronic Funds

Transfer services (RTGS/NEFT).

251

JSBL

As regards JSBL, from Table 5.4.11 (a) and 5.4.11 (b) it is revealed that average

business per branch of the bank has increased from ` 6674.80 Lakhs during Pre-

CBS period to ` 8498.85 Lakhs during Post-CBS period, showing an increase of

27.33 per cent. Business per branch during Pre-CBS period is steadier (C.V. 3.07

per cent) compared to Post-CBS period (C.V. 15.83 per cent).

During the Post-CBS period this bank could introduce new deposit and loan


(ABB), ATM, Sharing of ATMs, SMS Banking, Internet banking, Electronic

Funds Transfer services (RTGS/NEFT), customized cheque book, no frill

accounts.

CCBL

Similarly, the data presented in Table 5.5.11 (a) and 5.5.11 (b) reveals that there is

an increase in average business per branch of the bank from ` 6923.09 Lakhs

during Pre-CBS period to ` 8392.42 Lakh during Post-CBS period, showing an

increase of 27.94 per cent. Business per branch during Post-CBS period is steadier

(C.V. 5.74 per cent) as compared to Pre-CBS period (C.V. 12.06 per cent).

While comparing growth in average Business per Branch during Pre-CBS period

and Post-CBS period, it is observed that it is highest in the case of VSBL (81.30

per cent), followed by SVCBL (46.76 per cent), MSBL (31.39 per cent), CCBL

(27.94 per cent) and JSBL (27.33 per cent), the lowest one.

Thus, new deposit and loan schemes introduced by the sample banks especially

after implementation of CBS, along with technology based banking services have

certainly contributed to increase in business. Services through ATM, sending a

statement of account by email etc. has reduced the work load of employees at

branch enabling them to provide services to customers more efficiently. Besides,

business generated through such technology based services has helped augment

business of the bank. As high as 93.33 per cent employees have expressed that

252

there is an improvement in increasing number of accounts and increase in volume

of business as a result of CBS implementation.

It is inferred therefore that CBS has helped the sample banks in improving

business per branch.

Expenditure per Branch Expenditure of the bank comprises of Interest expenditure and Non-interest

expenditure. Interest expenditure includes payment of interest on deposits and

borrowings whereas Non-interest expenditure is incurred by the bank on account of

establishment cost, operational cost, provisions as per regulatory guidelines etc.

Even though expenditure is inevitable while running a business, bank needs to

minimize the same in order to remain profitable. Technology intervention such as

CBS is expected to help banks in minimizing the expenditure. A comparative study

of expenditure per branch of the selected banks has been presented in the following

paragraphs.

VSBL

It is observed from Table 5.1.11 (a) and 5.1.11 (b) that average expenditure per

branch has increased from ` 210.27 Lakhs in Pre-CBS period to ` 402.36 Lakhs

during Post-CBS period, showing an increase of 91.35 per cent. Variation observed

in expenditure per branch during both Pre-CBS (C.V. 11.96 per cent) and Post-

CBS (C.V. 12.76 per cent) period is almost similar.

The increase in expenditure can also be attributed to more provisions made by the

bank consecutively for four years starting from 2006-07 under accounting heads

such as “Other provisions”, “Provisions for B.D.D.R.”, “Provisions for Income

Tax” and expenditure under head “Salary, allowances and staff expenses”,

“Income Tax” etc. which got reflected in the P&L account.

MSBL

In the similar manner, data presented in Table 5.2.11 (a) and 5.2.11 (b) shows that

average expenditure per branch has increased from ` 282.23 Lakhs in Pre-CBS

253

period to ` 419.45 Lakhs during Post-CBS period, showing increase of 48.62 per

cent. Variation observed in expenditure per branch during Post-CBS period (13.28

per cent) is less as compared to Pre-CBS period (18.62 per cent).

The increase in expenditure can also be attributed to provisions made by the bank

in Post-CBS period under accounting heads "Income tax", "Provisions for

B.D.D.R.", "Loss on sale of Investments", "Investment depreciation reserves" and

expenditure under accounting head "Salaries and allowances, Providend fund, Ex-

gratia” etc. which got reflected in the P&L account.

SVCBL

On the other hand, it can be seen from Table 5.3.11 (a) and 5.3.11 (b) that average

expenditure per branch has increased from ` 171.35 Lakhs in Pre-CBS period to `

210.00 Lakhs during Post-CBS period, showing an increase of 22.56 per cent.

Variation observed in expenditure per branch during both Post-CBS period (C.V.

11.56 per cent) is more compared to Pre-CBS period (C.V. 2.97 per cent).

Alike other banks, the increase in expenditure can also be attributed to various

provisions made in addition to expenditure on "Salaries and Allowances", "Income

tax", "Other expenses", "Depreciation on Investments" etc. which get reflected in

the P&L account.

JSBL

As regards the JSBL, data presented in Table 5.4.11 (a) and 5.4.11 (b) show that

average expenditure per branch has increased from ` 438.62 Lakhs in Pre-CBS

period to ` 527.18 Lakhs during Post-CBS period, showing increase of 20.19 per

cent. Variation in expenditure per branch during Pre-CBS period (C.V. 9.29 per

cent) is less as compared to Post-CBS period (C.V. 28.64 per cent).

Similarly in case of this bank, the increase in expenditure can also be attributed to

interest paid, writing off of NPAs, establishment expenditure and provisions made

on NPA and Investment Depreciation etc.

254

CCBL

From Table 5.5.11 (a) and 5.5.11 (b), it is also revealed that average expenditure

per branch has increased from ` 558.94 Lakhs in Pre-CBS period to ` 569.97 Lakhs

during Post-CBS period, showing an increase of 1.97 per cent. Variation in

expenditure per branch during Pre-CBS period (C.V. 15.89 per cent) is more as

compared to Pre-CBS period (10.54 per cent).

The increase in expenses during Post-CBS period has been mainly on account of

NPAs written-off, investment depreciation reserve, Income Tax, Provisions for

B.D.D.R. etc. which got reflected in the P&L account.

While comparing growth in average expenditure per branch of the sample banks it

is observed that growth is the lowest in case of CCBL (1.97 per cent), then by

JSBL (20.19 per cent), SVCBL (22.56 per cent), MSBL (48.62 per cent) and

highest in case of VSBL (91.35 per cent).

Opinion survey of employees conducted during the research work has revealed that

at branch level 76.66 per cent employees are of the opinion that the bank could

reduce operating expenses due to CBS implementation.

Increase in average expenditure per branch is due to increase in provisions,

salaries, income tax etc. and can not therefore be attributed to CBS alone. From

the analysis, it is evident that even though there is an increase in average

expenditure per branch, the sample banks have increased their business also.

Earnings per Branch

Interest on loans, interest on investments, income through treasury operations and

para-banking services form the basis for earnings of the bank. Total earnings

contribute to profitability and thus taken as an efficiency factor. Banks can

improve their earning capacity by having effective credit management practices

and prudent investments with the help of technology and earnings through service

charges, commission etc under para-banking activities. During the period of

255

research work a comparative study of earnings per branch of selected banks has

been carefully done and presented in following paragraphs.

VSBL

Data presented in Table 5.1.11 (a) and 5.1.11 (b) shows that there is an increase in

earnings per branch from ` 227.38 Lakhs during Pre-CBS period to ` 441.35 Lakhs

in Post-CBS period, showing growth of 94.10 per cent. Variation observed in

earnings per branch during Pre-CBS period (C.V. 12.75 per cent) is slightly less as


MSBL

As regards the MSBL, Table 5.2.11 (a) and 5.2.11 (b) reveal that there is an

increase in earnings per branch from ` 293.99 Lakhs during Pre-CBS period to `

441.21 Lakhs in Post-CBS period, showing growth of 50.07 per cent. Variation

observed in earnings per branch during Post-CBS period (10.28 per cent) is less

compared to Pre-CBS period (19.21 per cent).

SVCBL

On the other hand, it is observed from Table 5.3.11 (a) and 5.3.11 (b) that there is

an increase in earnings per branch from ` 211.49 Lakhs during Pre-CBS period to `

270.67 Lakhs in Post-CBS period showing growth of 27.98 per cent. Variation

observed in earnings per branch during Post-CBS period (C.V. 18.42 per cent) is

more as compared to Pre-CBS period (C.V. 5.16 per cent).

JSBL

It can be seen from Table 5.4.11 (a) and 5.4.11 (b) that there is an increase in



earnings per branch during Post-CBS period (C.V. 23.78 per cent) is more


CCBL

256

Data presented in Table 5.5.11 (a) and 5.5.11 (b) reveals that there is an increase in



earnings per branch during Pre-CBS period (C.V. 14.87 per cent) is slightly more


While comparing growth in average earning per branch it is found that it in case of

VSBL (94.10 per cent) it is the highest, followed by MSBL (50.07 per cent),

SVCBL (27.98 per cent), JSBL (26.64 per cent) and CCBL (7.73 per cent), lowest

one.

With the help of proactive loan recovery practices using CBS, interest received on

loans and advances has improved noticeably in case of all the sample banks. In

case of CCBL also it has improved. However, addition of branches due to mergers

of weak banks has reflected on minimum growth recorded by the bank amongst the

sample banks. Prudent investment decisions using data available in CBS along

with Treasury management software helped VSBL, JSBL and CCBL to improve

income through interest earned on investments and sale of securities.

Through opinion survey of employees, majority of the employees (86.66 per cent)

emphasized that the recovery has improved while 70.00 per cent employees opined

that there is improvement in non-interest income. 76.66 per cent employees felt

that CBS has helped the bank in effective cash management. These results confirm

that CBS has helped the sample banks in effective credit management, better

income through treasury operations and non-interest income.

Technology based customer friendly services have helped the branches to retain

existing customers and provide para-banking facilities for increasing other income

generated by the branch. It can therefore be inferred that implementation of CBS

has helped the sample banks to improve earnings per branch.

Establishment expenditure per Branch

257

Establishment expenditure includes salary, pension, gratuity etc. Technology

including CBS is not a substitute to Human Resources available with the bank.

Technology is rather a business enabler. Implementation of technology may not

reduce establishment expenditure as there are some external factors such as rate of

inflation due to which rise in establishment expenditure is inevitable. However, it

is certainly expected to reflect in terms of increase in business of the bank. Besides

regular increment of employees, a rising cost of other expenses also form a part of

establishment expenditure. During the course of study impact on this factor of

selected banks has been analysed in the following paragraphs.

VSBL

As depicted in Table 5.1.11 (a) and 5.1.11 (b), average establishment expenditure

per branch has increased from ` 24.19 Lakhs during Pre-CBS period to ` 41 Lakhs

during Post-CBS period, recording an increase of 69.49 per cent. Variation

observed in establishment expenditure per branch during Post-CBS (C.V. 18.75 per

cent) period is slightly more as compared to Pre-CBS period (C.V. 16.71 per cent).

The increase in establishment expenditure is due to the implementation of wages

agreement and increased fringe benefits extended to the employees of the bank.

MSBL

As regards the MSBL, it is observed from Table 5.2.11 (a) and 5.2.11 (b) that

average establishment expenditure per branch has increased from ` 47.13 Lakhs

during Pre-CBS period to ` 71.80 Lakhs during Post-CBS period, recording an

increase of 52.33 per cent. Variation observed in establishment expenditure per

branch during Pre-CBS period (C.V. 10.98 per cent) is steadier as compared to

Post-CBS (C.V. 19.25 per cent). The increase in establishment expenditure is due

to the implementation of wage agreement and increased fringe benefits extended to

the employees of the bank.

SVCBL

In case of SVCBL, Table 5.3.11 (a) and 5.3.11 (b) reveal that average

establishment expenditure per branch has increased from ` 26.45 Lakhs during Pre-

CBS period to ` 35.02 Lakhs during Post-CBS period, recording an increase of

258

32.41 per cent. Variation observed in establishment expenditure per branch during

Post-CBS (C.V. 4.84 per cent) period is slightly more compared to Pre-CBS period

(C.V. 2.97 per cent). The increase in establishment expenditure is due to the

implementation of wage agreement and increased fringe benefits extended to the

employees of the bank.

JSBL

As regards the JSBL, Table 5.4.11 (a) and 5.4.11 (b) reveal that average

establishment expenditure per branch has reduced from ` 60.74 Lakhs during Pre-

CBS period to ` 58.70 Lakhs during Post-CBS period, recording decline of 3.35 per

cent. Variation observed in establishment expenditure per branch during Post-CBS

(C.V. 9.14 per cent) period is slightly more compared to Pre-CBS period (C.V.

7.70 per cent). Reduction of two branches, number of employees and support from

employees by way of not demanding salary hike due to financial crisis faced by the

bank could reduce its establishment expenditure. CBS has certainly helped

branches to handle business of the branch without any addition of human

resources.

CCBL

On the other hand Table 5.5.11 (a) and 5.5.11 (b) reveal that average establishment

expenditure per branch has increased from ` 53.17 Lakhs during Pre-CBS period to

` 55.24 Lakhs during Post-CBS period, recording an increase of 3.90 per cent.

Variation observed in establishment expenditure per branch during Post-CBS (C.V.

10.94 per cent) period is slightly less compared to Pre-CBS period (C.V. 13.79 per

cent). The increase in establishment expenditure is due to increase in number of

branches of banks which got merged into CCBL and salary of employees working

with those branches.

While comparing growth in average establishment expenses per branch it is found

that JSBL (-3.35 per cent) has recorded the lowest, then by CCBL (3.90 per cent),

SVCBL (32.41 per cent), MSBL (52.33 per cent) and highest by VSBL (69.49 per

cent).

259

Net profit per branch An important performance criterion of the branch is its ability to generate more

profit from its operations. It is a sign of vitality and success in a competitive

scenario. It ensures survival and growth. The profit earning capacity of the branch

depends upon the location of branch, loan products and other services provided by

the branch. This crucial aspect has been given due importance during the research

work and the comparative study of selected banks is presented in following

paragraphs.

VSBL

It is observed from Table 5.1.11 (a) and 5.1.11 (b) that net profit per branch has

consistently increased both during Pre-CBS and Post-CBS period except year

2009-10. Average Net Profit per Branch has increased from ` 12.46 Lakhs in Pre-

CBS period to ` 38.98 Lakhs during Post-CBS period, showing a growth of 212.85

per cent between two periods. Variation in net profit per branch during Pre-CBS

period (C.V. 48.08 per cent) is slightly more compared to Post-CBS period (C.V.

46.60 per cent).

MSBL

Similarly in case of MSBL, Table 5.2.11 (a) and 5.2.11 (b) depicts that the net

profit per branch has consistently increased both during Pre-CBS and Post-CBS

period except year 2009-10. Average Net Profit per Branch has increased from `

11.76 Lakhs in Pre-CBS period to ` 21.75 Lakhs during Post-CBS period, showing

a growth of 84.96 per cent between two periods. Variation in net profit per branch

during Post-CBS period (C.V. 84.96 per cent) is substantially high compared to


SVCBL

As regards the SVCBL, the data presented in Table 5.3.11 (a) and 5.3.11 (b) show

that net profit per branch has consistently increased during the Post-CBS period.

Average net profit per branch has increased from ` 40.14 Lakhs in Pre-CBS period

to ` 60.67 Lakhs during Post-CBS period, showing a growth of 51.16 per cent

260

between two periods. Variation in net profit per branch during Post-CBS period

(C.V. 43.48 per cent) is more compared to Pre-CBS period (C.V. 31.81 per cent).

JSBL

Similar way, Table 5.4.11 (a) and 5.4.11 (b) show that the bank was in position to

reduce net loss per branch during Pre-CBS and could improve net profit per branch

during Post-CBS period except year 2007-08. The bank could improve its position

from average loss per branch of ` 46.14 during Pre-CBS period to average net

profit per branch of ` 49.55 Lakhs during Post-CBS period, showing a growth of

207.40 per cent between two periods.

CCBL

Data related to CCBL presented in Table 5.5.11 (a) and 5.5.11 (b) depict that net

profit per branch has shown fluctuation during both Pre-CBS and Post-CBS period.

Average Net Profit per Branch has increased from ` 62.94 Lakhs in Pre-CBS

period to ` 99.98 Lakhs during Post-CBS period, showing a growth of 58.84 per

cent between two periods. Variation in net profit per branch during Pre-CBS period

(C.V. 6.29 per cent) is far less compared to Post-CBS period (C.V. 36.18 per cent).

While comparing growth in average net profit per branch of the sample banks, in

case of VSBL (212.85 per cent) it is the highest, followed by JSBL (207.40 per

cent), MSBL (84.96 per cent), CCBL (58.84 per cent) and SVCBL (51.16 per

cent), lowest one.

Improvement in Net profit must be result of improvement in important aspects of

branch management such as resource mobilization, credit and NPA management,

up-gradation of information technology, customer satisfaction, managing off-

balance sheet items etc., where the CBS has played a crucial role.

261

Ranking of sample banks based upon their performance with respect to various branch productivity parameters


has been clearly evident in various branch productivity parameters of the sample

banks during the Post-CBS period. Attempt has been therefore made to rank them

based upon their performance. Performance with respect to each parameter

pertaining to branch productivity has been assigned maximum of 50 points. Bank

recording maximum growth in the case of ratios such as deposits per branch

(D/BR), credits per branch (CR/BR), business per branch (BUS/BR), total earning

per branch (TER/BR) and net profit per branch (NP/BR) has been assigned

maximum points of 50. Bank recording the minimum growth in case of ratios such

as total expenditure per branch (TEX/BR), establishment expenditure per

employee (EST/BR) have been assigned maximum points of 50. Ranking of the

sample banks is presented in Table 5.7.3

Table 5.7.3 - Ranking based on branch productivity parameters

Parameter Max points 50 50 50 50 50 50 50 350 Name of the bank D/BR CR/BR BUS/BR TEX/BR TER/BR ESTB/BR NP/BR Total VSBL 50 50 50 10 50 10 50 270 MSBL 30 20 30 20 40 20 30 190 SVCBL 40 40 40 30 30 30 10 220 JSBL 20 10 10 40 20 50 40 190 CCBL 10 30 20 50 10 40 20 180

Source: Field work

BR: Branches, D: Deposits, CR: Credit, BUS: Business, TEX: Total Expenditure, TER: Total Earning, ESTB: Establishment Expenses, NP: Net Profit


ranking of sample banks based upon their performance with respect to branch

productivity parameters has emerged as follows

1. VSBL 2. SVCBL 3. MSBL and JSBL 4. CCBL

262

Profitability

Profit is the excess of returns over expenditure. Profitability is an ability of given

investment to earn a return from its use. Without profit and ability to earn

sufficient profit, it is difficult to survive on the part of any business. Profitability of

a concern indicates the financial stability. Profit and profitability are therefore the

backbone of a business firm. Profit maximization is the aim of every business and

commercial enterprise. Cooperative organizations slightly differ from commercial

enterprises, as profit making is not the sole motto in their case but to provide

services to its members and community. However, while operating in a free

economy and to survive in competitive business environment, it is essential for

them even to earn sufficient amount of profit and maintain profitability for their

future growth.

During the course of research, to evaluate the profitability performance of the

bank, three sets of ratios have been employed viz. Spread ratio, Burden ratio and

Profitability ratios. Sincere efforts have been made to see impact of CBS

implementation on profitability of selected banks by comparing their performance

during the Pre and Post-CBS period.

Tables representing various Profitability ratios for Pre-CBS and Post-CBS period

of all the sample banks are presented in Annexure V.

Spread ratios

Spread is the difference between interest earned and interest paid by the bank. It

plays a major role in determining the profitability of bank. Spread is the net

amount available to the bank for meeting its operating, administrative and

management expenses. Since money is the raw material in banking scenario, bank

must relate all its performance and profitability to the net earnings from funds.

Hence, it is the amount of this spread and its components i.e. interest earned and

interest paid in relation to the total working funds that is significant for the bank to

analyze its profitability. Therefore, the following three spread ratios are employed:

a) Interest earned as percentage of working funds

b) Interest paid as percentage of working funds

263

c) Spread as percentage of working fund

a) Interest earned as percentage of working funds

Interest earnings relate to funds based income and represents the return on pure

banking business. The major components of interest earnings consist of interest

earned on advances and income from investments. The ratio of interest earned as

percentage of working funds is an indicator of the rate at which a bank earns

income by lending funds. Comparative picture of the interest earned by selected

banks as percentage of working funds is presented in following paragraphs.

VSBL

It is observed from Table 5.1.13 (a) and 5.1.13 (b) that average interest earned as

percentage of working funds has inched slowly from 8.51 per cent in Pre-CBS

period to 8.97 in Post-CBS period. This marginal growth of 0.46 per cent is due to

interest earned not improving proportionately with increase in working funds.

Gross NPA has also slightly increased affecting interest earned.

MSBL

As regards MSBL, data presented in Table 5.2.13 (a) and 5.2.13 (b) show that

average interest earned as percentage of working funds has improved from 8.05 per

cent in Pre-CBS period to 9.04 per cent in Post-CBS period. CBS has helped the

bank to improve its position on interest earned on advances by way of ensuring

quality of credit offered by it. Bank could achieve 0% Net NPA for year 2010-11

and was able to maintain it less than 5 per cent from year 2005-06 onwards. A 0.99

per cent increase in average interest earned as percentage of working funds was

recorded rightly being attributed to effective use of technology and policies of the

bank.

SVCBL

It can be seen from Table 5.3.13 (a) and 5.3.13 (b) that average interest earned as

percentage of working funds has declined from 10.09 per cent in Pre-CBS period

to 8.96 per cent in Post-CBS period. This decline of 1.13 per cent is due to interest

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earned not improving in Post-CBS period proportionately with increase in working

funds.

JSBL

Similarly, as depicted in Table 5.4.13 (a) and 5.4.13 (b), the average interest earned

as percentage of working funds in case of JSBL shows slight decline from 7.73 per

cent in Pre-CBS period to 7.14 per cent in Post-CBS period in case of JSBL. This

decline by 0.59 per cent is due to interest earned not improving in Post-CBS period

proportionately with increase in working funds.

CCBL

In case of CCBL, data presented in Table 5.5.13 (a) and 5.5.13 (b) reveals that

average interest earned as percentage of working funds has reduced from 11.74 per

cent in Pre-CBS period to 7.89 per cent in Post-CBS period. Interest earned has

improved throughout the Pre-CBS period. However, sudden decline has been

observed in the year 2003-04, year in which CBS was implemented and subsequent

year. It has again improved in next two years to considerable extent. A 3.85 per

cent decrease observed in average interest earned as percentage of working funds

is mainly due to interest earned not increasing commensurate with increase in

working funds and higher level of gross NPAs.

While comparing growth in average interest earned as percentage of working

funds, it is found that there is a decline in case of three banks viz. CCBL (3.85 per

cent), SVCBL (1.13 per cent) and JSBL (0.59 per cent) during the Post-CBS

period. On the other hand, highest increase among the selected banks is observed

in case of MSBL (0.99 per cent), followed by VSBL (0.47 per cent).

CBS has helped the sample banks for timely recovery of loans by generating

automatic demand notices and in other follow-up actions. As the data pertaining to

availability of funds is accessible centrally under CBS environment, it has helped

banks to make use of the same for effective management of investments and earn

better yield on investments. CBS has therefore certainly helped the sample banks to

improve their position on interest earned on advances by way of ensuring quality

of credit offered and recovery. Sample banks could achieve Net NPA of 0%, VSBL

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for last three years, SVCBL for last six years, JSBL and MSBL for last one year.

Interest earned in absolute terms has improved in most of the cases. However,

increase in interest earned is not commensurate with increase in working funds in

case of CCBL, SVCBL and JSBL leading to decline in interest earned to working

fund.

b) Interest paid as percentage of working funds

Interest expenditure relates to funds based expenditure and represents the cost of

funds for the banks. The major components of interest expenditure are interest paid

on deposits and interest paid on borrowings. The ratio of interest paid as

percentage of total working funds is an indicator of the rate at which a bank incurs

expenditure by borrowing funds. An effort has been made to analyse the

comparative position of interest paid as percentage of working funds during the

Pre-CBS and Post-CBS period of sample banks and presented in following

paragraphs.

VSBL

As seen from Table 5.1.13 (a) and 5.1.13 (b), there is a reduction in average

interest paid as percentage of working funds after CBS implementation from 6.28

per cent to 5.91 per cent in Post-CBS period. The IT enabled services introduced

by the bank such as Any Branch Banking, Any Time Banking through ATM

facility, Membership of ATM Network, Funds Transfer facility etc. during Post-

CBS period helped the bank to mobilize more low cost deposits coupled with low

borrowings, resulting in higher proportion of low cost funds. As a result, the

average interest paid as percentage of working funds has reduced by 0.37 per cent

between Pre and Post CBS period.

MSBL

Data presented in Table 5.2.13 (a) and 5.2.13 (b) depicts that there is an increase in

average interest paid as percentage of working funds after CBS implementation

from 4.97 per cent to 5.46 per cent in Post-CBS period. This increase of 0.49 per

cent is due to substantial increase in term deposits in year 2009-10 and 2010-11.

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SVCBL

In case of SVCBL, it is observed from Table 5.3.13 (a) and 5.3.13 (b) that there is

a reduction in average interest paid as percentage of working funds after CBS

implementation from 6.44 per cent to 4.02 per cent in Post-CBS period. The

average interest paid as percentage of working funds has reduced by 2.42 per cent

between Pre and Post CBS period. It is observed that percentage of low cost

deposits to total deposits has declined rather than showing increasing trend.

Interest paid as percentage of working funds has reduced not due to low cost

deposits but due to substantial increase in net owned funds of the bank during the

Post-CBS period.

JSBL

As depicted in Table 5.4.13 (a) and 5.4.13 (b) there is a reduction in average

interest paid as percentage of working funds after CBS implementation from 6.87

per cent to 5.17 per cent in Post-CBS period, showing reduction of 1.70 per cent

between Pre and Post CBS period. It has been observed that interest paid on

deposits and that on borrowing has increased substantially. Proportion of low cost

deposits to total deposit is also steady. The decline observed in average interest

paid as percentage of working fund is due to substantial rise in net owned funds of

the bank during the Post-CBS period.

CCBL

Data of CCBL presented in Table 5.5.13 (a) and 5.5.13 (b) shows that there is a

reduction in average interest paid as percentage of working funds after CBS

implementation from 7.88 per cent to 5.25 per cent in Post-CBS period. In

absolute terms Interest paid has increased during the Pre-CBS period and shown

decline in year 2003-04, year in which CBS was implemented and in subsequent

year. It has again increased in following two years. However, reduction by 2.62 per

cent between Pre and Post CBS period in average interest paid as percentage of

working funds is due to substantial increase in owned funds of the bank during the

Post-CBS period.

While comparing average Interest paid as percentage of Working fund it is

observed that it has declined maximum in case of CCBL (2.62 per cent), followed

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by SVCBL (2.42 per cent), JSBL (1.70 per cent), VSBL (0.37 per cent). In case of

MSBL there is increase in Interest paid to Working fund by 0.49 per cent.

c) Spread as percentage of working funds

The ratio of spread as percentage of working funds is one of the important

indicator to determine the profitability of banks. The ratio can also be calculated by

taking the difference between previously computed two ratios namely interest

earned as percentage of working funds and interest paid as percentage of working

funds. This ratio acts as a cushion for meeting expenses towards cost of

management. A sincere attempt has been made through this study to present

comparative position of this crucial aspect of profitability and presented in

following paragraph.

VSBL

As depicted in Table 5.1.13 (a) and 5.1.13 (b), average spread as percentage of

working funds has increased from 2.23 per cent in the Pre-CBS period to 3.06 per

cent in Post-CBS period. Thus, there has been a rise of 0.83 per cent, indicating

that the bank generated better interest income and at the same time managed to

reduce the interest expended with the help of CBS infrastructure.

MSBL

Data of MSBL as presented in Table 5.2.13 (a) and 5.2.13 (b) show that average

spread as percentage of working funds has increased from 3.08 per cent in the Pre-

CBS period to 3.58 per cent in Post-CBS period. Despite increase in interest paid

as percentage of working funds, the bank could improve its average spread as

percentage of working fund by 0.50 per cent due to improvement in average

interest earned as percentage of working funds.

SVCBL

As regards SVCBL, it is observed from Table 5.3.13 (a) and 5.3.13 (b) that average


CBS period to 4.94 per cent in Post-CBS period. Despite decline in average

interest earned as percentage of working funds, there has been a rise of 1.29 per

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cent in average spread as percentage of working funds mainly due to decline in

average interest paid as percentage of working funds.

JSBL

In case of JSBL, it can be seen from Table 5.4.13 (a) and 5.4.13 (b) that average


CBS period to 1.96 per cent in Post-CBS period. Even though there is decline in

average interest earned as percentage of working funds, there has been rise of 1.10

per cent in average spread as percentage working funds due to reduction in average

interest paid as percentage of working funds.

CCBL

On the other hand, data presented in Table 5.5.13 (a) and 5.5.13 (b) of CCBL

reveal that average spread as percentage of working funds has decreased from 3.86

per cent in the Pre-CBS period to 2.64 per cent in Post-CBS period recording

decline by 1.23 per cent. It was mainly due to higher decline in average interest

earned as percentage of working fund during the Post-CBS period compared to

decline in average interest paid as percentage of working funds.

While comparing the growth in average spread as percentage of working Funds

amongst the sample banks it is found highest in case of SVCBL (1.29 per cent),

followed by JSBL (1.10 per cent), VSBL (0.83 per cent), MSBL (0.50 per cent).

Spread has declined in case of CCBL (1.23 per cent).

Burden ratios

Burden represents non-interest expenditure not covered by non-interest income and

hence non-interest income along with spread constitutes the pool out of which

manpower and other expenses of banks are met. Hence, the burden represents to

the extent that non-interest expenses can not be reduced and non-interest income

can not be increased. The profitability of banks therefore primarily depends on

increasing the spread or reducing the burden. Hence, any effort to improve the

banks profitability will involve the management of burden, i.e. specifying the key

factors determining burden with the intention to reduce the burden, either by

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increasing the non-interest income or by reducing the non-interest expenditure or

by both. Therefore, following burden ratios are employed:

a) Non-interest Expenditure as percentage of total working fund

b) Non-interest Income as percentage of total working funds

c) Burden as percentage of total working funds

a) Non-Interest expenditure as percentage of working funds

Non-interest expenditure of bank represents provisions, other expenses,

establishment and contingency expenses and forms major component of the total

expenditure of the bank. A comparative position of non-interest expenditure as a

percentage of working funds is presented in following paragraphs.

VSBL

As seen from Table 5.1.13 (a) and 5.1.13 (b), average non-interest expenditure as

percentage of working funds has increased from 2.17 per cent to 2.53 per cent.

This increase of 0.36 per cent between Pre and Post CBS period is on account of

various provisions made by the bank, wages agreement, income tax, increase in

cost of business operations such as electricity, rentals, outsourcing charges etc.

MSBL

It is observed from Table 5.2.13 (a) and 5.2.13 (b) that average non-interest

expenditure as percentage of working funds has increased from 2.42 per cent to

3.82 per cent. This increase of 1.40 per cent between Pre and Post CBS period is

on account of various provisions made by the bank mainly “Investment

depreciation reserve” in year 2009-10, wages agreement, income tax, increase in

cost of business operations such as electricity, rentals, outsourcing charges etc.

SVCBL

From the data presented in Table 5.3.13 (a) and 5.3.13 (b) of SVCBL it is observed

that average non-interest expenditure as percentage of working funds has increased

from 2.37 per cent to 2.52 per cent. The percentage growth by 0.14 per cent

between Pre and Post CBS period is on account of various provisions made by the

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bank, increase in salaries and allowances, increase in cost of business operations

such as electricity, rentals, outsourcing charges, Income tax etc.

JSBL

As depicted in Table 5.4.13 (a) and 5.4.13 (b), in case of JSBL the average non-

interest expenditure as percentage of working funds has increased from 2.03 per

cent to 3.08 per cent. This increase by 1.04 per cent between Pre and Post CBS

period is on account of various provisions made by the bank, increase in cost of

business operations such as electricity, rentals, taxes etc.

CCBL

In the case of CCBL, data presented in Table 5.5.13 (a) and 5.5.13 (b) reveal that

the average non-interest expenditure as percentage of working funds has increased

from 1.79 per cent to 2.42 per cent. The percentage growth by 0.63 per cent

between Pre and Post CBS period is on account of various provisions made by the

bank, increase in establishment expenditure, income tax, increase in cost of

business operations such as electricity, rentals, outsourcing charges etc.

While comparing growth in average non-Interest expenditure as percentage of

working funds it is found lowest in case of SVCBL (0.14 per cent), then by VSBL

(0.35 per cent), CCBL (0.63 per cent), JSBL (1.04 per cent) and highest in case of

MSBL (1.40 per cent).

b) Non-interest income as percentage of total working funds

Non-interest income (NII) of banks represents income earned by way of

commission, exchange, brokerage, service charges and other miscellaneous

receipts and important component of the total earnings of the bank. NII earned by

the bank is very crucial to meet the Non-interest expenditure (NIE). Higher the

NII, better for the bank and lower NII results into higher burden. Thus, the banks

should strive to earn increased NII so as to reduce burden and improve

profitability. During the research work a comparative position of non-interest

income as percentage of working funds has been studied and presented in

following paragraphs.

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VSBL

As seen from Table 5.1.13 (a) and 5.1.13 (b) that average non-interest income as

percentage of working funds of the bank has decreased from 0.85 per cent in Pre-

CBS period to 0.63 per cent in Post-CBS period, showing reduction of 0.22 per

cent. In Post-CBS period, this ratio is expected to increase as the CBS provides

scope for providing non-banking financial services. It is observed that NII has

increased in absolute terms (64.64 per cent). However, it has not increased

commensurate to higher increase (104.07 per cent) in working fund.

MSBL

Data of MSBL as presented in Table 5.2.13 (a) and 5.2.13 (b) show that average

non-interest income as percentage of working funds of the bank has increased from

0.66 per cent in Pre-CBS period to 0.92 per cent in Post-CBS period, showing

increase of 0.26 per cent. In Post-CBS period, this ratio is expected to increase as

the CBS provides scope for providing non-banking financial services. Increase in

NII by 0.26 per cent therefore shows that CBS has helped the bank to improve its

NII.

SVCBL

As regards the SVCBL, it is observed from Table 5.3.13 (a) and 5.3.13 (b) that

average non-interest income as percentage of working funds of the bank has

decreased from 1.02 per cent in Pre-CBS period to 0.81 per cent in Post-CBS

period, showing decline of 0.21 per cent. This ratio is expected to increase, as the

CBS provides scope for providing non-banking financial services. In Post-CBS

period, non-interest income has increased. However, growth in non-interest income

is not commensurate with growth in working funds resulting into decline of 0.21

per cent.

JSBL

On the other hand, in case of JSBL it can be seen from Table 5.4.13 (a) and 5.4.13

(b) that average non-interest income as percentage of working funds of the bank

has increased from 1.63 per cent in Pre-CBS period to 2.30 per cent in Post-CBS

period, showing increase of 0.68 per cent. In Post-CBS period, this ratio is

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expected to increase as the CBS provides scope for providing non-banking

financial services. It is observed that NII has increased mainly due to

improvement in commission, profit on sale of securities and reversal of provisions

made for NPA.

CCBL

On the other hand, data presented in Table 5.5.13 (a) and 5.5.13 (b) of CCBL

reveals that average Non-interest income as percentage of working funds of the

bank has increased from 0.39 per cent in Pre-CBS period to 2.21 per cent in Post-

CBS period, showing increase of 1.82 per cent. This remarkable increase is due to

improvement in non-interest income through sale of securities, commission,

depository income etc. during Post-CBS period.

While comparing growth in Non-Interest Income as percentage of Working Funds

it is found highest in case of CCBL (1.82 per cent), JSBL (0.68 per cent), MSBL

(0.26 per cent). In case of SVCBL and VSBL it has declined by 0.21 per cent and

0.22 per cent respectively.

c) Burden as percentage of total working funds

The ratio of burden as percentage of total working funds can also be calculated by

taking the difference between the previously computed two ratios namely non-

interest expenditure as percentage of total working funds and non-interest income

as percentage of total working funds. In Post-CBS period, this ratio is expected to

decrease and should be ideally nearer to zero or less than zero. As a part of the

research work a comparative study of burden as percentage of working funds and

impact of CBS implementation on the same has been done and presented in the

following paragraphs.

VSBL

Data presented in Table 5.1.13 (a) and 5.1.13 (b) reveals that average burden as

percentage of working funds ratio has increased by 0.57 per cent between Pre and

Post CBS period. In Pre-CBS period it is 1.33 per cent and increased to 1.90 per

cent in Post-CBS period. Average Non-interest expenditure as percentage of

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working funds has gone up during Post-CBS period as compared to Pre-CBS

period. At the same time average Non-interest income as percentage of working

funds has reduced leading to increase in average burden as percentage of working

fund by 0.57 per cent.

MSBL

It is observed from Table 5.2.13 (a) and 5.2.13 (b) that average burden as

percentage of working funds has increased by 1.15 per cent between Pre and Post

CBS period. In Pre-CBS period it is 1.75 per cent and increased to 2.90 per cent in

Post-CBS period. Average Non-interest income of the bank has improved during

the Post-CBS period. However, increase in average Non-interest expenditure is

higher, leading to increase in average burden to working fund by 1.15 per cent.

SVCBL

As regards the SVCBL, as depicted in Table 5.3.13 (a) and 5.3.13 (b), average

burden as percentage of working funds has increased by 0.35 per cent between Pre

and Post CBS period. In Pre-CBS period it is 1.36 per cent and increased to 1.71

per cent in Post-CBS period. Average Non-interest expenditure of the bank has

gone up during the Post-CBS period as compared to Pre-CBS period. At the same

time average Non-interest income has reduced, leading to increase in average

burden by 0.35 per cent.

JSBL

Similarly the, data presented in Table 5.4.13 (a) and 5.4.13 (b) show that average

burden as percentage of working funds has increased by 0.37 per cent between Pre

and Post CBS period. In Pre-CBS period it is 0.40 per cent and increased to 0.77

per cent in Post-CBS period. Average Non-Interest Income to working funds has

improved during the Post-CBS period. However, increase in average Non-Interest

Expenditure during the same time period is higher, leading to increase in average

burden to working funds by 0.37 per cent.

CCBL

It can be seen from Table 5.5.13 (a) and 5.5.13 (b) that average burden as

percentage of working funds has decreased by 1.19 per cent between Pre and Post

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CBS period. In Pre-CBS period it is 1.40 per cent and decreased to 0.21 per cent in

Post-CBS period. Even though there is increase in average Non-interest

expenditure as percentage of working funds, there is decrease in average burden as

percentage of working funds, mainly due to substantial increase seen in average

non-interest income as percentage of working funds during the Post-CBS period.

While comparing increase in average burden as percentage of working funds it is

found highest in case of MSBL (1.15 per cent), followed by VSBL (0.57 per cent),

JSBL (0.37 per cent), SVCBL (0.35 per cent). Burden as percentage of working

funds has reduced only in case of CCBL (1.19 per cent).

Profitability performance To measure the financial performance of a bank profitability ratios are the most

important and reliable indicators, because the banks may improve their absolute

profits by employing additional resources but without improving their profitability.

Profitability ratios serve as an important indicator of the efficiency with which the

operations of the banks are carried on. The analysis of profitability ratios is

extremely important to management, which is responsible for the ultimate success

of the banks; to shareholders, who are interested in regular and adequate returns

and the growth of the banks; and to the long term creditors, who are interested in

the repayment of their debt and current and future solvency of the concern.

Following three profitability ratios have been employed to study impact of CBS

implementation on profitability of selected banks:

a) Net Profit as percentage of Total Income

b) Net Profit as percentage of Total Deposits

c) Net Profit as percentage of Working Funds

a) Net profit as percentage of total income

Profitability of banks may be computed by calculating net profit as percentage of

total income earned by the banks. Net profits here implies the balance of profit as

per profit and loss account of the bank and total income consists of interest earned,

commission & brokerage and other miscellaneous receipts of the banks. The ratio

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of net profit as percentage of total income reflects the income generating capacity

of the bank.

VSBL

It is observed from Table 5.1.13 (a) and 5.1.13 (b) that average net profit as

percentage of total income has increased from 5.38 per cent in Pre-CBS period to

8.69 per cent in Post-CBS period, with growth of 3.31 per cent. This growth is

mainly due to significant improvement in interest income on loans and advances

plus interest on investments. Non-interest income of the bank has also improved

marginally contributing to increase in total income. Net profit of the bank has also

proportionately increased resulting into growth of 3.31 per cent in average net

profit to total income.

MSBL

As regards the data of MSBL presented in Table 5.2.13 (a) and 5.2.13 (b) it is

found that net profit as percentage of total income has increased from 3.91 per cent

in Pre-CBS period to 5.09 per cent in Post-CBS period, with growth of 1.18 per

cent. Interest income of the bank on loans and advances has improved during the


investments with the help of prudent decisions with the help of CBS. Non-interest

income of the bank has also improved during the Post-CBS period. All this has

resulted into growth of 1.18 per cent in average net profit to total income of the

bank.

SVCBL

Similarly, it can be seen from Table 5.3.13 (a) and 5.3.13 (b) that average net profit

as percentage of total income has increased from 18.80 per cent in Pre-CBS period

to 21.58 per cent in Post-CBS period, with growth of 2.78 per cent. This growth is

due to improvement in interest income on loans and advances as well as interest on

investments. Non-interest income of the bank has also shown significant

improvement as compared to Pre-CBS period.

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JSBL

Data presented in Table 5.4.13 (a) and 5.4.13 (b) of JSBL depicts that net profit as

percentage of total income has increased from (9.01 per cent) in Pre-CBS period to

9.38 per cent in Post-CBS period, with growth of 18.39 per cent. This phenomenal

growth of 18.39 per cent is seen due to improvement in interest income on loans

and advances. The bank has also earned well through interest on investments.

Substantial income has been generated by the bank through sale of securities

through effective investment decisions with the help of treasury management

software and data available through CBS.

CCBL

In case of CCBL, as depicted in Table 5.5.13 (a) and 5.5.13 (b), average net profit

as percentage of total income increased from 10.22 per cent in Pre-CBS period to

14.73 per cent in Post-CBS period, with growth of 4.50 per cent. It is observed that

interest received on loans and advances has improved consistently except in year

2007-08. The bank has generated very good income through interest on




such as trade finance, service and commission charges received for providing para-

banking activities show improvement in the Post-CBS period in comparison to the

pre-CBS period.

While comparing the growth in average net profit as percentage of total income, it

is found highest in case of JSBL (18.39 per cent), followed by CCBL (4.50 per

cent), VSBL (3.32 per cent), SVCBL (2.78 per cent) and lowest in case of MSBL

(1.18 per cent).

b) Net profit as percentage of total deposits Another important measure of profitability of banks is profit per hundred rupees of

total deposits. Total deposits of the bank consist of fixed deposits, saving deposits

and current deposits both from members, public as well as from other banks. Net

profit is the balance of profit as per profit and loss account of the banks. A

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comparative study this significant factor of all the selected banks has been

presented in following paragraphs.

VSBL

Data presented in Table 5.1.13 (a) and 5.1.13 (b) reveals that there is an increase in

average net profit as percentage of total deposits from 0.54 per cent during Pre-

CBS period to 0.94 per cent during Post-CBS period showing growth of 0.40 per

cent. This growth is due to consistent improvement in deposits mobilized by the

bank during the study period. Increase also indicates that bank could generate

better profits per hundred rupees collected by bank during Post-CBS period. CBS

has enabled bank to offer various services relating to deposits such as Any where

banking, Any time banking, SMS alerts, Electronic funds transfer etc.

MSBL

It is observed from the data of MSBL in Table 5.2.13 (a) and 5.2.13 (b) that there

is increase in average net profit as percentage of total deposits from 0.40 per cent

during Pre-CBS period to 0.62 per cent during Post-CBS period showing marginal

growth of 0.21 per cent. Net profit generated by the bank has consistently

improved, except in year 2009-10 where there is a sharp decline. CBS has enabled

bank to offer various services relating to deposits such as Any-where banking,

SMS alerts, Electronic funds transfer etc. Despite that, it is observed that total

deposits of the bank have reduced during the Post-CBS period. The marginal

increase seen in average net profit to deposits indicates that bank could have

generated better profits per hundred rupees collected by bank during Post-CBS

period.

SVCBL

In case of SVCBL, as depicted in Table 5.3.13 (a) and 5.3.13 (b) it is observed that

there is an increase in average net profit as percentage of total deposits from 2.68

per cent during Pre-CBS period to 2.79 per cent during Post-CBS period showing

growth of 0.11 per cent. Net profit of the bank shows fluctuations in Pre-CBS

period but it has improved during the Post-CBS period. Total deposits of the bank

however show consistent improvement as CBS has enabled bank to offer various

services relating to deposits such as Any-where banking, ATMs, SMS alerts,

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Electronic funds transfer etc. The marginal increase seen in average net profit as

percentage of total deposits indicates that the bank could have done better by

concentrating on proportionate increase in net profit with growth in deposits during

Post-CBS period.

JSBL

Similarly in case of CCBL, it can be seen from Table 5.4.13 (a) and 5.4.13 (b) that

there is an increase in net profit to total deposits from (1.14 per cent) during Pre-

CBS period to 0.99 per cent during Post-CBS period showing growth of 2.12 per

cent. CBS has enabled the bank to offer various services relating to deposits such

as Anywhere banking, Any time banking, SMS alerts, Electronic funds transfer etc.

Increase indicates that bank could generate better profits per hundred rupees

collected by bank during Post-CBS period, as the deposit position has improved

significantly with proportionate increase in net profits of the bank.

CCBL

As regards the CCBL, data presented in Table 5.5.13 (a) and 5.5.13 (b) show that

there is an increase in average net profit as percentage of total deposits from 1.42

per cent during Pre-CBS period to 1.79 per cent during Post-CBS period showing

growth of 0.36 per cent. CBS has enabled the bank to offer various services

relating to deposits such as Anywhere banking, Any time banking, SMS alerts,

Electronic funds transfer etc. Deposits of the bank have consistently improved.

However, net profit shows fluctuations during the Post-CBS period. The increase

of 0.36 per cent seen in average net profit as percentage of total deposits is result of

sharp increase in net profit of the bank in year 2003-04 due to sale of securities. It

is inferred therefore that the bank could have improved its position by

concentrating on increasing net profit proportionately with increase in deposits

mobilized by the bank during Post-CBS period.

While comparing growth in average net profit as percentage of total deposit, it is

highest in case of JSBL (2.13 per cent), followed by VSBL (0.40 per cent), CCBL

(0.36 per cent), MSBL (0.21 per cent) and lowest in case of SVCBL (0.11 per

cent).

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c) Net profit as percentage of total working funds One of the popular analytical tools to determine the banks’ profitability is the ratio

of net profit as percentage of total working funds. This ratio indicates the

efficiency with which bank deploys its total resources / working funds so as to

maximize its profits. Thus, the ratio serves as an index to the degree of asset

utilization by banks. A comparative study of this important factor has also been

done carefully during the course of research and presented in the following

paragraphs.

VSBL

As can be seen from Table 5.1.13 (a) and 5.1.13 (b), average net profit as

percentage of working funds has increased from 0.49 per cent during Pre-CBS

period to 0.84 during the Post-CBS period showing growth of 0.35 per cent.

MSBL

Similarly the data presented in Table 5.2.13 (a) and 5.2.13 (b) of MSBL show that

average net profit as percentage of working funds has increased from 0.34 per cent

during Pre-CBS period to 0.52 per cent during the Post-CBS period showing

growth of 0.18 per cent. Increase indicates that bank with the help of CBS

infrastructure could improve its profitability marginally during Post-CBS period.

SVCBL

As regards the SVCBL, from the data in Table 5.3.13 (a) and 5.3.13 (b) it is found

that the average net profit as percentage of working funds has remained the same at

2.13 per cent during Pre-CBS period to 2.13 per cent during the Post-CBS period

showing no growth. No increase in net profit to total working funds indicates that

bank with the help of CBS infrastructure could not improve its profitability to the

desired level during Post-CBS period.

JSBL

On the other hand the data presented in Table 5.4.13 (a) and 5.4.13 (b) reveals that

average net profit as percentage of working funds has increased from (0.96 per

280

cent) during Pre-CBS period to 0.85 per cent during the Post-CBS period showing

growth of 1.81 per cent. Increase indicates that bank with the help of CBS

infrastructure could improve its profitability during Post-CBS period.

CCBL

Further, it can be seen from Table 5.5.13 (a) and 5.5.13 (b) that average net profit

to total working funds has increased from 1.24 per cent during Pre-CBS period to

1.50 per cent during the Post-CBS period showing growth of 0.27 per cent.

Increase indicates that bank with the help of CBS infrastructure could improve its

profitability during Post-CBS period.

While comparing the growth in net profit as percentage of working funds, which is

considered as most important indicator of Profitability of a bank, it is found highest

in case of JSBL (1.81 per cent), followed by VSBL (0.35 per cent), CCBL (0.27

per cent), MSBL (0.18 per cent) and there is no growth in case of SVCBL.

From the data analysis, it can be inferred that significant growth has been achieved

by JSBL with the help of CBS infrastructure and proactive policies of the bank. All

other banks also could improve their profitability but not significantly as compared

to JSBL. However, all the sample banks have better scope for improving their

profitability by utilizing their assets, CBS infrastructure and technology based

services in much better way.

281

Ranking of sample banks based upon their performance with respect to various parameters pertaining to profitability


has been clearly evident in various parameters pertaining to profitability of the

sample banks during the Post-CBS period. Attempt has been therefore made to

rank them based upon their performance. Performance with respect to each

parameter pertaining to profitability has been assigned maximum of 50 points.

Bank recording maximum growth in interest earned as percentage of working

funds (IE/WF), spread as percentage of working funds (SPR/WF), non-interest

income as percentage of working funds (NII/WF), net profit as percentage of total

income (NP/TI), net profit as percentage of total deposit (NP/TD), net profit as

percentage of working funds (NP/WF) has been assigned maximum points of 50.

Bank recording the minimum growth in interest paid as percentage of working

funds (IP/WF), non-interest expenditure as percentage of working funds (NIE/WF)

and burden as percentage of working funds (BRD/WF) has been assigned

maximum points of 50. Ranking of the sample banks is presented in Table 5.7.4 Table 5.7.4 - Ranking based on profitability parameters

IE/WF IP/WF SPR/WF NIE/WF NII/WF BRD/WF NP/TI NP/TD NP/WF VSBL 40 20 30 40 10 20 30 40 40 270 MSBL 50 10 20 10 30 10 10 20 20 180 SVCBL 20 40 50 50 20 40 20 10 10 260 JSBL 30 30 40 20 40 30 50 50 50 340 CCBL 10 50 10 30 50 50 40 30 30 300

Source: Field work WF: Working fund, IE: Interest Earned, IP: Interest Paid, SPR: Spread, NIE: Non Interest Expenditure, NII: Non Interest Income, BRD: Burden, NP: Net Profit, TI: Total Income, TD: Total Deposit


ranking of sample banks based upon their performance with respect to profitability

parameters has emerged as follows

1. JSBL 2. CCBL 3. VSBL 4. SVCBL 5. MSBL

282

5.7.5 Recommendations

Based on the individual analysis of data pertaining to each of the sample banks

presented in the preceding paragraphs, following recommendations are offered.

Recommendations are offered in two parts.

Part-1- Recommendations specific to a bank

Part-II - Recommendations common to all the sample banks

Part-1 - Recommendations specific to each of the selected bank

VSBL

Addition of 41 employees, 2 branches by the bank during the Post-CBS

period and implementation of Core Banking System implementation was

expected to improve position of the bank with respect to productivity and

profitability ratios. While comparing productivity and profitability ratios of

the bank for Pre-CBS and Post-CBS period it has been observed that there

is improvement in terms of absolute values as well as average values.

However, while comparing growth rates as presented in Table 5.1.9 (c), it

has been observed that there is a decline during the Post-CBS period with

respect to various Employee productivity parameters such as per employee

Deposits, Credit, Business, Spread, Net Profit as against the expected result

of increase in growth rates. Only per employee Total Earning has shown

increase in growth rate which is due to sale of securities in year 2008-09.

Growth rate in case of per employee total expenditure, establishment

expenditure and burden is expected to show decline during the Post-CBS

period. However, it has been observed that there is an increase in growth

rates of these ratios. Similar trends are observed with respect to parameters

pertaining to Branch productivity.

It can therefore be inferred that though the bank has been in position to

achieve growth during the Post-CBS period, in order to achieve higher rate

of growth as compared to growth rates during the Pre-CBS period, the bank

needs to make use of CBS to introduce various technology based services

and improve upon various productivity and profitability parameters of the

283

bank. This would be possible by either increasing the business (Deposits,

Credits, Non-interest income) or minimizing the expenditure (cost of

deposits, printing, stationary, Advertisement, Postage, Telephone, Courier

etc.). Another way of increasing business of the bank is by introducing

technology based delivery channels which are capable of generating better

business at considerably lesser transaction cost.

Following paragraphs provide recommendations specific to the bank on

further improving various productivity and profitability parameters of the

bank by bringing in improvement in business (Deposits and Credit),

minimizing expenditure and improving earnings.

Deposits

• The bank could introduce only two new deposit schemes, one each

in year 2008-09 and 2009-10 (refer Table 5.1.2). With the help of

CBS infrastructure, the bank may try to introduce more number of

innovative deposit schemes, which may help the bank increasing its

total deposits.

• Percentage of low cost deposits of the bank to total deposits in year

08-09 was 24.79 and in year 09-10 it is 25.54. In comparison to low

cost deposits to the tune of 40 per cent and above recorded by

private sector, foreign sector banks, percentage of low cost deposits

mobilized by the bank is substantially low. With the help of CBS

infrastructure, now the bank needs to encourage opening of more

number of No-frill accounts which can enable bank accessing larger

chunk of low cost deposits.

Loans and advances

• Credit Deposit Ratio (CD Ratio) of the bank is expected to be in the

range of 60 per cent to 65 per cent. The bank has been able to

maintain its CD ratio in prescribed range except in year 2009-10

and 2010-11 where it has declined. The bank must therefore aim at

improving its credit business.

284

• As observed from the information presented in Table 5.1.3 the bank

could not introduce any new "loans and advances" scheme during

the Post-CBS period. Out of five new schemes launched in year

2004-05 and 2005-06, two schemes were withdrawn by the bank

immediately in subsequent year, due to inadequate response. Bank

may try to introduce more number of innovative "loans and

advances" schemes according to requirements of customers with the

help of product design feature available in CBS.

Business

• Business of a bank is sum of deposits accepted and credits provided

by the bank. Increase in business therefore, depends upon increase

in deposits and proportionate increase in credits, making optimal

use of resources available with the bank. Growth in business

observed during the Post-CBS period is not commensurate with

growth in number of employees and branches, which indicates that

the bank has large scope to improve its business. Recommendations

offered above for improving deposits and loans & advances may

help the bank in improving its business and in turn productivity and

profitability ratios of the bank.

Expenditure

• Expenditure per employee as well as Expenditure per branch has

shown substantial increase during Post-CBS period. It is mainly due

to increase in interest paid on deposits by the bank and various

provisioning requirements as per the guidelines of RBI. Substantial

increase is seen in Term Deposits of the bank from year 06-07 up to

09-10 resulting into higher payment of interest. The bank must aim

at keeping the cost of deposits to minimum possible level while

designing and introducing new deposit schemes. The bank needs to

make use of ALM software to take care of pricing of product in the

best interest of the bank.

285

• Other expenses have also increased in 06-07, 07-08, 08-09. Increase

in “other expenses” is found on account of “Salary, Allowances &

Staff expenses” and provisioning (Technology development fund,

Investment depreciation fund, Investment fluctuation fund, Income

tax etc). Increase in “Salary, Allowances & Staff expenses” is

inevitable due to rising inflation. Bank must therefore aim at

increasing business volume rather than aiming at reduction on

account of “Salary, Allowances and Staff expenses”.

Earnings

Earnings of the bank comprises Interest on loans & advances, interest on

investments, commission, profit on sale of securities and other income.

Earning of the bank through interest on loans & advances and investment is

satisfactory. As has already been recommended, with the help of effective

credit management, the bank can further improve its earnings. At the same

time the bank needs to aim at increasing non-interest income through

service charges and commission through various technology based services.

Such initiatives shall also help in generating higher amount of low cost

deposits. Some of the services that the bank can introduce are:

• ATMs – The bank has presently got eight ATMs and must increase

number of ATMs, at least equal to number of branches. This will

improve customer retention as well as save transaction cost of the

bank.

• Membership of ATM network – Bank is presently member of

BANCS network. It must get membership of NFS which is a larger

network compared to BANCS and facilitate access of more than one

lakh ATMs of member banks. This will enable customers of the

bank to transact on ATMs of any of the member bank. Moreover,

the bank can generate service charges for transactions of customers

of other banks.

• Para-banking services – Further, the bank has started providing

various para-banking services during the Post-CBS period such as

life insurance, general insurance, PAN card, franking, online tax

286

payment services. These services can be concentrated upon more to

generate higher level of income through commission. The bank may

introduce services such as financial advisory, mutual funds etc to

augment commission income. Introducing such services shall

enable customers to avail various types of financial services

required by them under the single roof.

MSBL

While comparing productivity and profitability ratios of the bank for Pre-

CBS and Post-CBS period it has been observed that there is improvement

in terms of absolute values as well as average values. However, while

comparing growth rates as presented in Table 5.2.9, it has been observed

that there is a decline during the Post-CBS period with respect to various

Employee productivity parameters such as per employee deposits, credits,

total earning, business, spread, net profit against the expected result of

increase in growth rates. Growth rate in case of per employee Total

Expenditure, Establishment Expenditure and Burden is expected to show

decline during the Post-CBS period. Accordingly, growth rate of per

employee Total Expenditure shows decline during Post-CBS period.

However, it has been observed that there is an increase in growth rates of

per employee establishment expenditure and burden. Similar trends are

observed with respect to parameters pertaining to Branch productivity.

It can therefore be inferred that though the bank has been in position to

achieve growth during the Post-CBS period, in order to achieve higher rate

of growth as compared to growth rates during the Pre-CBS period, the bank

needs to make use of CBS to introduce various technology based services

and improve upon various productivity and profitability parameters of the

bank. This would be possible by either increasing the business (Deposits,

Credits, Non-interest income) or minimizing the expenditure (cost of

deposits, printing, stationary, Advertisement, Postage, Telephone, Courier

etc.). Another way of increasing business of the bank is by introducing



287





Branches

• The bank has not added any new branch during the entire study

period. Being stable under CBS environment for over three years,

the bank needs to have strategy to expand its branch network in

un-banked areas or expand banking operations in light of the

changes in policies of RBI in recent past. Such initiative would help

the bank to improve present levels of business and earn better profit.

Employees

• Bank belonging to the service industry, necessitates it to have

adequate strength of human resources with network of branches

available with the bank. The bank needs to further strengthen its IT

Department by recruiting additional specialized manpower in the

field of Hardware, Networking, Database administration and

especially in the field of Information Security. This would be

essential in case the bank is seriously considering for its expansion

plans in un-banked areas.

Deposits

• The bank has been providing traditional type of deposit schemes

and introduced only one new deposit scheme in year 2010-11 (refer

Table 5.2.2). With the help of CBS infrastructure, the bank must try

to introduce more number of innovative deposit schemes, which

may help the bank increasing its total deposits.

• Percentage of low cost deposits of the bank to total deposits for the

study period has been in the range of 24 per cent to 34 per cent. In

comparison to low cost deposits to the tune of 40 per cent and above

288

recorded by private sector, foreign sector banks, percentage of low

cost deposits mobilized by the bank is substantially low. With the

help of CBS infrastructure, now the bank needs to encourage

opening of more number of No-frill accounts which can enable the

bank accessing larger chunk of low cost deposits.

Loans and advances




when it has declined. The bank must therefore continue to maintain

CD ratio the same way and aim at further improving its credit

business.

• As observed from the information presented in Table 5.2.3, the bank

could introduce four different types of "loans and advances" scheme

during 2009-10 (Post-CBS period). Bank may try introducing more

number of innovative "loans and advances" schemes with the help

of product design feature available in CBS.

Business

• Increase in business depends upon increase in deposits and

proportionate increase in credits, making optimal use of resources

available with the bank. Growth in business observed during the

Post-CBS period is not very significant and indicates that the bank

has large scope to improve its business. Recommendations offered

above for improving deposits and loans & advances may help the

bank in improving its business and in turn productivity and


Expenditure


shown substantial increase during Post-CBS period. It is mainly due

to increase in various provisioning requirements as per the

289

guidelines of RBI and increase in establishment expenditure.

Sudden rise in term deposits of the bank is seen in year 2009-10 and

decline immediately in year 2010-11. Investments in turn made by

the bank in year 2009-10 were required huge provisioning under

accounting head "Investment depreciation reserve" as per the

guidelines from RBI during the same year, resulting into huge

expenditure and affecting profit of the bank to great extent. In

future, the bank must make use of technology while taking

decisions relating to investments, as it seriously affects profits of the

bank.

• Other expenses have also increased in 09-10 and 10-11 due to

various provisions made by the bank towards "B.D.D.R. reserves",

"Amortisation of premium on investments", "Income tax" “Salary,

Allowances & Staff expenses”. Increase in “Salary, Allowances &

Staff expenses” is inevitable due to rising inflation. Bank must

therefore aim at increasing business volume rather than aiming at

reduction on account of “Salary, Allowances and Staff expenses”.

Earnings




satisfactory. As has already been recommended, with the help of effective

credit management, the bank can further improve its earnings. At the same

time the bank needs to aim at increasing non-interest income through

service charges and commission through various technology based services.

Such initiatives shall also help in generating higher amount of low cost

deposits. Some of the services the bank can introduce are:

• ATMs – The bank does not have any ATM at present and must

introduce ATMs, at least equal to number of branches. This will


bank.

290

• Membership of ATM network – Bank must get membership of

ATM networks such as BANCS, NFS and facilitate access of more

than one lakh ATMs of member banks to its customers. This will

enable customers of the bank to transact on ATMs of any of the

member bank. Moreover, the bank can generate service charges for

transactions of customers of other banks.

• Para-banking services – Further, the bank has started providing

various para-banking services during the Post-CBS period such as

life insurance, general insurance, mutual fund, franking etc. Bank

may also introduce services such as issuing PAN card, online tax

payment services. Moreover, these services can be concentrated

upon to generate higher level of income through commission. The

bank may introduce services such as financial advisory to augment

commission income. Introducing such services shall enable

customers to avail various types of financial services required by

them under the single roof.

SVCBL

Number of employees has reduced from 167 in year 2002-03 to 149 in year

2010-11 despite increase in one more branch as on March 31, 2010. As

expected, implementation of Core Banking System has helped the bank to

improve its position with respect to productivity and profitability ratios to

considerable extent in terms of averages for Pre-CBS and Post-CBS period.

While comparing growth rates as presented in Table 5.3.9 (c), it has been

observed that there is an improvement in per Employee Deposits, Credits,

Business, Total Earning, Spread and Net Profit. Growth rate in case of per

Employee Total Expenditure, Establishment expenditure and Burden is

expected to show decline during the Post-CBS period. Accordingly, per

Employee Burden shows decline but per Employee Total Expenditure and

Establishment Expenditure have shown increase in growth rates. Similar

trends are observed with respect to parameters pertaining to branch

productivity. It can therefore be inferred that the bank has been in position

291

to achieve reasonable growth during the Post-CBS period with respect to

employee and branch productivity ratios.

While analysing various profitability ratios, it has been observed that there

is a decline in growth rate of Interest Earned as percentage of Working

Funds, Non-Interest Income as a percentage of Working Funds as against

expected improvement in growth and very negligible increase in Spread as

percentage of Working Funds, Net Profit as percentage of Total Deposits

and Net Profit as percentage of Total Deposits. There has been no increase

in Net profit as percentage of Working Funds. Interest Paid as percentage

of Working Funds has shown decline which is a good development. Burden

as percentage of Working Funds has shown slight increase.

From above analysis it is evident that there is further scope for the bank to

improve productivity and profitability performance in Post-CBS period

using CBS platform to introduce various technology based services. This

would be possible by either increasing the business (Deposits, Credits,

Non-interest income) or minimizing the expenditure (cost of deposits,

printing, stationary, Advertisement, Postage, Telephone, Courier etc.).

Another way of increasing business of the bank is by introducing





bank.

Branches

• The bank has added only one branch by end of 31st March 2010.

Being stable under CBS environment for over four years, the bank

needs to have strategy to expand its branch network in un-banked

areas or expand banking operations in light of the changes in

292

policies of RBI in recent past. Such initiative would help the bank to

improve present levels of business and earn better profit.

Employees

• Bank belonging to the service industry, necessitates it to have

adequate strength of human resources with network of branches

available with the bank. The bank needs to further strengthen its IT

Department by recruiting additional specialized manpower in the

field of Hardware, Networking, Database administration and

especially in the field of Information Security. This would be

essential in case the bank is seriously considering for its expansion

plans in un-banked areas.

Deposits

• The bank may try to introduce more number of innovative deposit

schemes with the help of CBS infrastructure, which may help the

bank increasing its total deposits.

• With the help of CBS infrastructure, now the bank needs to

encourage opening of more number of No-frill accounts which can

enable bank accessing larger chunk of low cost deposits.

• Proportion of Low-cost deposits to total deposits at present is very

good. Bank needs to maintain the same level or further improve the

same by way of introducing technology based delivery channels.

Loans and advances




where it has declined. Bank may try introducing more number of

innovative "loans and advances" schemes with the help of product

design feature available in CBS.

293

Business

• Increase in business depends upon increase in deposits and

proportionate increase in credits, making optimal use of resources

available with the bank. Growth in business observed during the

Post-CBS period is around 50 per cent, which indicates that the

bank has good scope to improve its business. Recommendations




Expenditure


shown considerable increase during Post-CBS period. It is mainly

due to increase operational expenses, establishment expenditure,

Income Tax and various provisioning requirements as per the

guidelines of RBI. The bank must aim at keeping the cost of

deposits to minimum possible level while designing and introducing

new deposit schemes. The bank needs to make use of ALM

software to take care of pricing of product in the best interest of the

bank.

• Other expenses have also increased during the Post-CBS period.

Increase in “Salary, Allowances & Staff expenses” is inevitable due

to rising inflation. Bank must therefore aim at increasing business

volume rather than aiming at reduction on account of “Salary,

Allowances and Staff expenses”.

Earnings




satisfactory. As recommended in preceding paragraph, with the help of

effective credit management, the bank can further improve its earnings. At

the same time the bank needs to aim at increasing non-interest income

294

through service charges and commission through various technology based

services. Such initiatives shall also help in generating higher amount of low

cost deposits. Some of the services the bank can introduce are:

• ATMs – The bank has presently got 5 ATMs and must increase

number of ATMs, at least equal to number of branches. This will


bank.

• Membership of ATM network – The bank is not a member of any of

the ATM networks and try to get membership of NFS to facilitate

access of more than one lakh ATMs of member banks. This will

enable customers of the bank to transact on ATMs of any of the

member bank. Moreover, the bank can generate service charges for

transactions of customers of other banks.

• Para-banking services – The bank has started providing various

para-banking services during the Post-CBS period such as general

insurance, franking, online tax payment services. It may start

providing services such as Life insurance, PAN card etc. Para-

banking services can be concentrated upon more to generate higher

level of income through commission. The bank may introduce

services such as financial advisory, mutual funds etc to augment




JSBL

Number of employees has reduced from 1109 in year 2001-02 to 912 in

year 2009-10. As expected, implementation of Core Banking System has

helped the bank to improve its position with respect to productivity and

profitability ratios in terms of average for Pre-CBS and Post-CBS period.

While comparing growth rates in productivity and profitability ratios of the

bank for Pre-CBS and Post-CBS period, it has been observed from Table

5.4.9 (c) that there is an improvement in per employee Deposits, Credit,

Business, Total Earning, Spread and Net Profit. Growth rate in case of per

295

employee Total Expenditure, Establishment Expenditure and Burden is

expected to show decline during the Post-CBS period. Accordingly, per

employee Burden shows decline but per employee Total Expenditure and

Establishment Expenditure have shown increase in growth rates. Similar

trends are observed with respect to parameters pertaining to Branch

productivity. It can therefore be inferred that the bank has been in position

to achieve growth during the Post-CBS period with respect to employee

and branch productivity ratios.

While analysing various profitability ratios, it has been observed that there

is improvement in Spread as percentage of Working Funds despite decline

in Interest Earned as percentage of Working Funds as Interest Paid as

percentage of Working Funds has also reduced. Burden as percentage of

Working Funds has shown slight increase despite improvement in Non-

Interest Income as percentage of Working Fund as Non-interest

Expenditure has increased. Considerable improvement is seen in Net Profit

as percentage of Total Income and Net Profit as percentage of Working

Fund. There is marginal improvement in Net Profit as percentage of Total

Deposit.

From above analysis it is evident that there is further scope for the bank to

improve productivity and profitability performance in Post-CBS period

using CBS platform. This would be possible by either increasing the

business (Deposits, Credits, Non-interest income) or minimizing the

expenditure (cost of deposits, printing, stationary, Advertisement, Postage,

Telephone, Courier etc.). Another way of increasing business of the bank is

by introducing technology based delivery channels which are capable of

generating better business at considerably lesser transaction cost.





296

Deposits

• The bank could introduce eleven deposit schemes as presented in

Table 5.4.2. With the help of CBS infrastructure, the bank was able

to introduce eight new schemes during the Post-CBS period. Bank

needs to continue such efforts to introduce more number of


total deposits.

• Percentage of low cost deposits of the bank to total deposits has

been below 30 per cent throughout the study period. In comparison

to low cost deposits to the tune of 40 per cent and above recorded

by private sector, foreign sector banks, percentage of low cost

deposits recorded by the bank is substantially low. With the help of

CBS infrastructure, now the bank needs to encourage opening of

more No-frill accounts which can enable bank accessing larger

chunk of low cost deposits.

• Bank has already introduced ATMs and “browse only” kind of

Internet Banking. Popularizing these services may help the bank

improving its low cost deposits and to attract new customers.

• Customers need to be encouraged for use of electronic payment

systems introduced by the bank such as ECS(Debit & Credit),

NEFT, RTGS. Such efforts may also help in increasing low cost

deposits.

Loans and advances


range of 60 per cent to 65 per cent. The bank was able to maintain

its CD ratio in prescribed range. The bank must continue its present

practice of credit deployment and also aim at bringing more

innovative loans and advances schemes with the help of product

design feature available in CBS.

297

Business





observed during the Post-CBS period is satisfactory. However, the

bank has good scope to improve its business. Recommendations




Expenditure


shown considerable increase during Post-CBS period. It is mainly

due to various provisioning requirements as per the guidelines of

RBI. The bank must aim at keeping the cost of deposits to minimum

possible level while designing and introducing new deposit

schemes. The bank needs to make use of ALM software to take care

of pricing of product in the best interest of the bank.

• Other expenses have also increased. Increase in “other expenses” is

found on account of “Salary, Allowances & Staff expenses” and

provisioning (Technology development fund, Investment

depreciation fund, Investment fluctuation fund, Income tax etc).

Increase in “Salary, Allowances & Staff expenses” is inevitable due

to rising inflation. Bank must therefore aim at increasing business

volume rather than aiming at reduction on account of “Salary,

Allowances and Staff expenses”.

Earnings





298

innovative loans and advances schemes and effective credit management,

the bank can further improve its earnings. At the same time the bank needs

to aim at increasing non-interest income through service charges and

commission through various technology based services. Such initiatives

shall also help in generating higher amount of low cost deposits. Some of

the services the bank can introduce are:

• ATMs – The bank has presently got sixteen ATMs and must

increase number of ATMs, at least equal to number of branches.

This will improve customer retention as well as save transaction

cost of the bank.

• Membership of ATM network – Bank is presently member of NFS

ATM network. This aspect needs to be marketed more effectively to

encourage customers of own bank and that of other banks to use

ATMs facility provided by the bank. The bank can generate sizable

amount of service charges through transactions of customers of

other banks.

• Internet banking – Bank has started providing “Browse only” kind

of Internet banking service since 2009-10. Providing full fledged

transactional Internet banking services shall enable customers to

transact from anywhere with the help of internet connectivity. It will

provide tremendous amount of flexibility to customers to carry out

transactions and continue their relationship with the bank. Benefit

for the bank would be that it can save substantial amount of

transaction cost.


para-banking services during the Post-CBS period such as life

insurance, general insurance, PAN card, franking, online tax

payment services. These services can be concentrated upon more, to


introduce services such as financial advisory to augment




299

CCBL

Addition of approximately 180 employees, 40 branches by the bank during

the Post-CBS period and implementation of Core Banking System

implementation was expected to improve position of the bank with respect

to productivity and profitability ratios. While comparing productivity and

profitability ratios of the bank for Pre-CBS and Post-CBS period, it has

been observed that there is improvement in terms of absolute values as well

as average values. However, while comparing growth rates as presented in

Table 5.5.9 (c), it has been observed that there is a decline during the Post-

CBS period with respect to various Employee productivity parameters such

as per employee Deposits, Credits, Business, Total Earnings, Spread, Net

Profit as against the expected result of increase in growth rates. Growth rate

in case of per employee Total Expenditure, Establishment Expenditure and

Burden is expected to show decline during the Post-CBS period.

Accordingly, there is decline in growth rates of these ratios, indicating that

implementation of CBS has helped the bank to minimize its expenditure.

Similar trends are observed with respect to parameters pertaining to Branch

productivity.

It can therefore be inferred that even though the bank has been in position

to achieve growth during the Post-CBS period, in order to achieve higher

rate of growth as compared to growth rates during the Pre-CBS period, the

bank needs to make use of CBS to introduce various technology based

services and improve upon various productivity and profitability

parameters of the bank. This would be possible by either increasing the

business (Deposits, Credits, Non-interest income) or further minimizing the

expenditure (cost of deposits, printing, stationary, Advertisement, Postage,

Telephone, Courier etc.). Another way of increasing business of the bank is

by introducing technology based delivery channels which are capable of

generating better business at considerably lesser transaction cost.



300



Deposits

• As seen in Table 5.5.2, the bank introduced thirteen new deposit

schemes, six during year 2004-05 and one or two new schemes

every year during following years. With the help of CBS

infrastructure, the bank may try to introduce more number of


total deposits.

• Percentage of low cost deposits of the bank to total deposits

throughout the study period is from 18 per cent to 25 per cent. In

comparison to low cost deposits to the tune of 40 per cent and above

recorded by private sector, foreign sector banks, percentage of low

cost deposits recorded by the bank is substantially low. With the

help of CBS infrastructure, now the bank needs to encourage

opening of more No-frill accounts which can enable bank accessing

larger chunk of low cost deposits.

• Customers of the bank need to be encouraged using modern

electronic payment systems, ECS (Debit & Credit), NEFT, RTGS

etc. introduced by the bank. Providing NEFT/RTGS services

through Internet Banking facility by the bank on the lines of other

banks, shall definitely help bank in popularizing these services.

Strengthening of electronic payment systems such as may also help

in increasing low cost deposits.

Loans and advances


range of 60 per cent to 65 per cent. CD ratio of the bank as observed

from Table 5.5.1 is below 60 per cent, except in year 2009-10 and

2010-11. The bank must continue maintaining CD ratio well above

60 per cent consistently.

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• During the study period 7 new loans and advances schemes were

launched by the bank as seen from Table 5.5.3. Bank may try

introducing more number of innovative "loans and advances"

schemes with the help of product design feature available in CBS.

Business





observed during the Post-CBS period is not commensurate with

growth in number of employees and branches, which indicates that

the bank has large scope to improve its business. Recommendations




Expenditure


shown increase by 20 to 30 per cent during Post-CBS period. This

must be due to merger of 8 weak banks and various provisioning

requirements as per the guidelines of RBI etc. As observed from

Table 5.5.1, CASA deposits of the bank have been below 25 per

cent. Having higher percentage of low cost deposits shall enable the

bank to keep cost of deposits at lower level. The bank must aim at

keeping the cost of deposits to minimum possible level while

designing and introducing new deposit schemes. The bank needs to

make use of ALM software to take care of pricing of product in the

best interest of the bank.

Earnings

Earnings of the bank comprises of Interest on loans & advances, interest on


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effective credit management, the bank can further improve its earnings. At

the same time the bank needs to aim at increasing non-interest income

through service charges and commission through various technology based

services. Such initiatives shall also help in generating higher amount of low

cost deposits. Some of the services the bank can introduce are:


para-banking services during the Post-CBS period such as life

insurance, general insurance, PAN card, franking, online tax

payment services. These services can be concentrated upon more to


introduce services such as financial advisory to augment




5.7.6 Recommendations common to all the sample banks Deposits

• Introduction of technology based delivery channels such as ATMs, Internet

Banking, Mobile Banking, IMPS may help in increasing low cost deposits

from existing customers as well as to attract new customers.

• As revealed through interviews with the employees, the sample banks do

not have a separate Marketing Department. Having such department can

help banks to take care of effective marketing of deposits, loans &

advances schemes and other new services introduced by them. Modern

concepts of marketing such as target marketing, cross selling, up-selling of

products and services may be implemented using Customer Relationship

Management software to reach to most appropriate customer from whom

bank can generate more business.

• CRM software can also help banks in gathering data from the customers

relating to their exact requirements as well as it will help in generating

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trends of response received to similar schemes introduced by the bank in

past.

• Intimation of renewal and maturity of deposits may be sent to customers

through SMS in order to keep customer well informed. Use of SMS alerts

can also be made for sending greeting messages to customer on birthday,

festivals etc. to strengthen the relationship with customer. As a part of

marketing of services, SMS alerts can also be sent to customers in order to

inform about new products/services introduced by the bank.

Loans and advances

• While designing loans and advances schemes, the sample banks may use

ALM software using which the liquidity risk can be minimized.

• Interview with the staff and branch managers revealed that use of CBS in

appraisal of loans and for carrying out process of sanctioning of loan is not

much and the rating received for the same is average. Sanctioning of loan

by the sample banks is still done in traditional way. In order to make

process of sanctioning loan proposal faster and more efficient, the sample

banks may implement Loan documentation and Loan appraisal software.

Such software can help in removing duplication of work.

• Implementation of Work flow management software can help the sample

banks for quick disposal of loan proposals and bring in more accountability

at various levels of management.

• Credit management system can be further improved by using facilities such

as generating report of probable NPA accounts and taking proactive action

to avoid such accounts becoming NPA.

• Intimation of due instalment may be sent to customers through SMS.

Expenditure

Though, provisions such as Investment depreciation fund, Investment fluctuation

fund, Income tax etc. are mandatory as per the regulatory guidelines, the sample

banks must strive to minimize expenditure incurred on “Postage, Telephone &

Courier”, “Printing, Stationary & Advertisement” with the help of technology

based solutions.

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• For issuing internal circulars, notices and routinely required information by

employees, the sample banks may implement Intranet. This may reduce the

cost on printing, photo copying and efforts of manpower involved in

circulation of the same.

• In order to reduce expenditure on telephone communication, IP telephony

may be implemented by the sample banks. This system will be based on the

existing leased line network for which banks are already paying yearly

charges and cost of in-house communication can be reduced using the

same.

• Use of paper in the office can be reduced to great extent by implementing

Document Management System. Implementation of Work Flow

Management System along with Document Management System may

speed of approval process.

• Use of email with appropriate security measures in place such as Digital

signature for communication between branches to HO and vice-a-versa on

larger scale may help the sample banks in reducing expenditure on courier

and printing. Customers also need to be encouraged to communicate with

the bank through email, as much as possible. The sample banks must make

email address of all the authorities available to public through its website.

• Having a thoughtfully designed and interactive website of the bank shall

help in taking care of publicity and saving cost incurred on printing

brochures/leaflets/pamphlets.

Earnings

• Internet banking – Providing Internet banking services shall enable

customers to transact from anywhere with the help of internet connectivity.

It will provide tremendous amount of flexibility to customers to carry out

transactions and continue their relationship with the bank. Benefit for the

bank would be that it can save substantial amount of transaction cost.

• NEFT/RTGS - Services provided by VSBL, MSBL and SVCBL such as

ECS (Debit & Credit), NEFT, RTGS should be provided through direct

membership of these systems with RBI, to bring in further improvement in

offering of these services. JSBL and CCBL may plan for providing these

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services through Internet Banking services provided by them. Non-interest

income can be improved through service charges collected by way of

providing these services.

• IMPS – In addition, Inter-bank Mobile Payment System can be introduced

by the sample banks. This system is based on SMS technology for

transferring funds from one entity to another. Banks can generate service

charges by way of providing IMPS service as well.

• Mobile banking – Similarly, introduction of mobile banking service by the

bank shall enable its customers to transact with the bank through mobile

handset. Such service shall provide great amount of convenience and

flexibility to customers. Banks will be able to retain its customers by

providing such facility to its customers.

General

• Interview with the employees revealed that activities such as account

opening, cheque book issue etc. are still carried out at branch and consumes

considerable time. Bank may setup Central Processing Department (CPD)

to take care of operations such as account opening, issuing of cheque book,

ATM/Debit cards, Personal Identification Number (PIN) etc.

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