ASIA PACIFIC JOURNAL OF RESEARCH IN BUSINESS MANAGEMENT CONTENTS SR.NO.
PAGE NO.
PARTICULAR
1
PERFORMANCE EVALUATION OF PUBLIC SECTOR BANKS IN INDIA DR. VIKAS CHOUDHARY & SUMAN TANDON
1-17
2
A STUDY ON THE ENTREPRENEURSHIP COERCE AMONG STUDENTS IN NORTHERN INDIA DR. BABLI DHIMAN, MS. POOJA SHARMA & DR. ASHOK KHURANA
18-32
3.
GROWTH PERFORMANCE AND RISK ANALYSIS OF DIVERSIFIED EQUITY MUTAL FUNDS: A STUDY DR. S.C. BHATNAGAR & KAVITA PANJWANI
33-54
4
CHILDREN INSURANCE PLANS: A COLLATIVE AND ANALYTICAL STUDY OF SELECTED LIFE INSURERS DR ASHOK KHURANA & PROF (DR) ROSHAN LAL
55-72
5
RETAIL IN INDIA: GETTING ORGANIZED TO DRIVE GROWTH DR. MANDEEP SINGH, DR. HARVINDER KAUR
73-88
6.
AN EXPLORATORY AND DESCRIPTIVE STUDY OF PERFORMANCE OF SELECTED REAL ESTATE COMPANIES IN INDIA AMIT JOSHI
89-98
7
INDIAN RETAILING: PERCEPTIONS OF FOREIGN RETAILERS UJJAL BIR SINGH & RAVNEET KAUR BINDRA
99-113
8
EMPIRICAL STUDY OF NON-PERFORMING ASSETS MANAGEMENT OF INDIAN PUBLIC SECTOR BANKS MS. KANIKA GOYAL
114-131
9
PERFORMANCE APPRAISAL: A KEY TO HR ASSESSMENT AND DEVELOPMENT DR VIVEK CHAWLA & MS ANJU CHAWLA
132-142
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
PATRON Prof (Dr) Shashi Anand, Chairman, Department of Commerce, Kurukshetra University.
•
EDITOR –IN-CHIEF •
Ashok Khurana, Associate Professor, G N K College, Yamunanagar
MANAGING EDITOR •
Dr Mandeep Singh, Associate Professor, G N K College, Yamunanagar.
PUBLISHING & JOURNAL EDITOR •
Dr Iqbal Singh, Associate Professor, G N K College, Yamunanagar.
EDITORIAL ADVISORY BOARD •
Prof (Dr) K L Gupta, Ex-Dean, Faculty of Commerce, B.R. Ambedkar University, Agra
•
Prof ( Dr) Azim Ansari, Head, Department of Commerce & Business Administration, Jamia Millia Islamia, Central University, New Delhi,
•
Dr S C Bhatnagar, Associate Professor/Reader, Department of Commerce & Business Administration, J V Jain College, Saharanpur
•
Prof ( Dr) Roshan Lal, Mullana-Ambala
•
Prof ( Dr) Santosh Gupta, University, Jammu
•
Prof ( Dr) K.M. Sharma, Former Prof. & Director, M L N Institute of Research & Business Administration, University of Allahabad, Allahabad,
•
Prof (Dr ) Atul Dhingra, Prof. and Head, Management, Hisar Agricultural University, Hisar.
•
Prof (Dr ) Mohammad Ali, Department of Commerce, Aligarh,
M.M.Institute of Management, MM University,
P.G. Department of Commerce, Jammu
Department of Business
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Prof (Dr ) A R Tripathi, Faculty of Commerce, Banaras Hindu University, Varanasi
•
ASSOCIATE EDITORS •
Dr Vivek Chawla, Associate Professor, University College, Kurukshetra University, Kurukshetra .
•
Dr Mohinder Chand, Associate Professor, Department of Tourism & Hotel Management, Kurukshetra University, Kurukshetra
•
Dr Subhash K.B., Associate Professor, Goa University, Goa,
•
Dr Vikas Choudhary, Assistant Professor, Deptt. of Humanities & Social Sciences, NIT, Kurukshetra,
•
Dr S.L.Kaushal, Associate Professor, Institute of Management Studies, H.P. University, Shimla,
•
Dr Kapil Choudhary, Associate Professor, Chaudhary Devi Lal University, Sirsa
•
Dr Vinay Chauhan, Associate Professor, University Business School, University of Jammu, Jammu
•
Simmi Arora, Assistant Professor, University School of Business Management, Kurukshetra University, Kurukshetra
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
PERFORMANCE EVALUATION OF PUBLIC SECTOR BANKS IN INDIA Dr. Vikas Choudhary Dept of Humanities and Social Sciences National Institute of Technology, Kurukshetra
[email protected]
Suman Tandon Research Scholar, National Institute of Technology, Kurukshetra . Lecturer, MLUDAV College, Phagwara
[email protected]
Abstract This paper attempts to analyze the
financial performance of public sector banks in India.
Public sector banks form major part of total banking system in India so there is a need to evaluate the performance of these banks. The study is based upon secondary data covering the period from 1997-2007. For analyzing the performance Compound Annual Growth rate and Coefficient of Variation of advances, deposits, total assets, return on assets, and return on equity and spread ratio are calculated. Decline in growth of non performing assets ratio is also considered for this evaluation. It is concluded the CAGR of various variables have shown variation s from bank to bank. State Bank of Indore has shown maximum CAGR in case of total advances, total deposits and total assets. Punjab & Sind Bank has shown least growth of deposits and advances and State Bank of India has least growth of deposits. CAGR of return on equity and return on assets was at peak of United Bank of India whereas Dena Bank, Punjab& Sind Bank and Indian Bank have shown negative trend in these ratios. Decline of NPA’s ratio was highest in case of State Bank of Hyderabad and least in case of Dena Bank.
Key words: Public sector banks, Compound Annual Growth rate, Coefficient of Variation 1.
INTRODUCTION
Banking is major sector of the economy that has achieved renewed focus after financial sector reforms and the entry of private sector banks. This sector is the foundation of modern economic development and linchpin of development strategy .It forms the core of the financial sector of an economy. Through mobilization of resources and their better allocation, commercial banks play an important role in the development process of underdeveloped !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
countries (J. Paul, 2007). Commercial banks improve the allocation of resources by lending money to priority sector of the economy. These banks provide a meeting ground for the savers and investors (Niti Bhasin 2007). In present times, banking in India is fairly mature in terms of supply, product range and reach. But reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in Asia. The Reserve Bank of India also mainly concerned with providing finance to weaker section of society, development of priority sectors and providing credit under differential rate of interest scheme. Before liberalization there was a monopoly of Public Sector Banks (PSB’s) after reforms in 1991, the entry of many foreign and private players have been permitted. Post liberalization demand PSB’s to compete with well diversified and resource rich foreign banks and to provide fine funded services and unique products to suit customers need. PSB’s have already sacrificed a lot of their profits for achievement of social objectives. Due to cut throat competition and technology, the PSB’s are thinking to improve productivity and profitability which is essential to survive in a globalised economy. The future of PSB’s would be based on their capability to continuously build good quality assets in an increasingly competitive environment and maintaining capital adequacy and stringent prudential norms. Consolidation and competition may be key factors impacting the nationalized banks in the future. Due to reforms, it has been felt that there is a need not only to increase in profits but also reduction in non performing assets (NPA’s) of banks. The paper is organized into five sections: The next section deals with literature review which focuses on the related work done in the same field. The third section covers the objectives, the scope of study, various sources of data and research methodology adopted for analysis of data. The fourth section reports the analysis and findings of the study. The fifth section presents conclusions of the study. 2.
LITERATURE REVIEW There are numerous empirical studies conducted on the issue of profitability of
commercial banks in India as well as abroad. Present review deals with the empirical studies conducted in Indian context on profitability of banking sector. Present section deals with some of the notable studies in this field.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Luther (1976) chaired the committee appointed by Reserve Bank of India to study the productivity, efficiency and profitability of commercial banks. The committee analyzed the various issues related to the planning, budgeting and marketing in commercial banks. Amandeep (1991) attempted to estimate profit and profitability of Indian Nationalized banks and to study the impact of priority sector lending, credit policies, geographical expansion, industrial sickness, competition, deposit composition, establishment expenses, ancillary income, spread and burden on bank profitability. For this purpose, trend analysis, ratio analysis and regression analysis were used. Swamy (2001) studied the comparative performance of different bank groups since 1995-96 to 1999-2000. An attempt was made by researcher to identify factors which could have led to changes in the position of individual banks in terms of their share in the overall banking industry. He analyzed the share of rural branches , average branch size, trends in bank’s profitability, share of public sector assets, share of wages in expenditure, provision and contingencies, net non performance assets in net advances, spread, has been calculated. He concluded that in many respects nationalized public sectors banks much better than private banks, even they are better than foreign banks. Milind Sathya (2005) examined the effect of privatization of banks on performance and efficiency. The data taken was for five years (1998-2002) and it was analyzed by using difference of means test. The banking sector in India includes domestic banks (privately owned, partially privatized banks, fully PSB’s) as well as foreign banks, and objective of this study is to study the impact of privatization on the banking firms. It was concluded that partially privatized banks have performed better as compared to fully PSB’s in respect of financial performance and efficiency. Partially privatized banks have continued to show improved performance and efficiency in the year after privatization Ved Pal and Malik (2007) in their empirical paper examined the difference in financial characteristics of public, private and foreign sector banks based on factors such as profitability, liquidity, risk and efficiency. Sample of 74 Indian commercial banks consisting of 24 public sector, 24 private sector and 23 foreign banks was taken for the period of 20002005. Multinomial regression analysis was used and results revealed that foreign banks proved to be high performer in generating business with a given level of resources and they are better equipped with managerial practices and in terms of skills and technology. Foreign banks were more consistent with market system as reflected in terms of net interest margin. The public banks emerged as the next best performer after foreign banks. There were giving a !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
higher return on equity in comparison to foreign and private banks. It was high performer in economizing their expenses which was reflected from expense rate and efficiency ratio. The private sector banks emerged with a better utilizer of resources as compared to PSB’s. Most of the studies were concerned of commercial banks as a whole and were covering very limited number of years. PSB’s maintained its dominance in the banking system. Keeping into consideration the research gaps an endeavor is made in the present study to examine the performance of PSB’s by calculating various ratios and their Compound Annual Growth Rates (CAGRs) and Coefficient of Variation (CV). 3. OBJECTIVES OF STUDY: The present study is based upon the macro approach to analyze performance of all public sectors banks individually and group as a whole. Specifically the objectives of the study are: 1.
To analyze the financial performance of PSB’s in India.
2.
To determine average compound growth of various performance indicators of PSB’s in India.
4.
DATA BASE AND RESEARCH METHODOLOGY The study is based upon secondary data covering the period from 1997-2007.The
study is related to PSB’s and it includes 19 nationalized banks and State Bank of India (SBI) and its associates. The proposed study will aim at examining the performance of PSB’s in India. The data on the variables selected like total deposits, total advances ,total assets, return on equity, return on assets, interest earned to total assets, interest expended to total assets spread to total assets and non performing assets to net advances for analysis from RBI website www.rbi.org.in and website of Indian Banker Association www.iba.org.in. This study is designed for performance appraisal of PSB’s in terms of variables like total deposits, total advances and total assets and financial ratios. Ratio analysis is a technique used for evaluating the financial performance of an organization. There are number of ratios for measuring the performance of banks but in the present study the most popular ratios have been used. We have computed Return on Equity, Return on Assets, Interest Expended to Total Assets, Interest Earned to Total Assets, Spread Ratio and NPA Ratio. These computed ratios were further analyzed by computing compound annual growth rates (CAGRs) and coefficient of Variation (CV). 5. ANALYSIS AND RESULTS !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
In order to evaluate the performance of PSB’s the various variables like advances, deposits, total assets, return on assets, return on equity, interest expended to total assets, interest earned to total assets and non performing assets ratios are analyzed. The results are explained in the following subheads. 5.1)
Advances: The most important item on the assets side of balance sheet is advances
The advances represent the credit extended by the bank to its customers. They are also the main source of income for the banks. Loans are given in the form of overdrafts, term loans and demand loans (Niti Bhasin,2007 ) .Advances of various PSB’s from 1997-2007 are shown in table 1. Table 1: Advances of Public Sector Banks in India (Rs. In Crores) Sr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Name of the Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra
Minimum 572392 329627 1980349 2202072 359261 1682468 1067794 430279 514724 726043 866718 631846 318642 1604264 695998 561054 1027619 337145 322510 7423733 366048 463019 190165 263199 410542 239875
Maximum 4129004 2788907 8362087 8493590 2291939 9850569 5179547 2994965 1830339 2905812 4706028 4413847 1173751 9659652 5167044 4698891 6238643 2215632 2422355 3.4E+07 2052622 2810925 1535138 1646553 2876976 1108114
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
C.V 70.66 65.85 51.57 46.29 60.02 60.77 51.02 60.19 42.84 51.9 60.24 65.82 40.38 59.81 66.85 74.02 62.83 67.03 69.57 53.57 65.84 65.04 72.19 66.32 67.24 53.27
CAGR 22.91 25.8 15.65 15.79 22.04 21.59 16.44 21.9 13.11 16.74 19.37 23.34 12.37 21.67 22.12 27.81 22.79 21.66 24.65 17.39 21.51 21.52 26.44 21.35 23.83 17.54
$ /
Sr. Name of the Bank Minimum Maximum C.V CAGR 27 State Bank of Travancore 400082 2478628 65.3 22.9 Source; Statistical tables relating to banks in India 2007 5.2) Deposits: Deposits from the public are the main source of funds for commercial banks. Therefore, the deposits constitute the main liability of a bank. These deposits are of various types like current, savings and fixed deposits .Deposits of PSB’s are shown in table 2. S.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Table 2: Deposits of Public Sector Banks in India (Rs.in crores) Name of the Minimum Maximum C.V. Bank/Year Allahabad Bank 1354076 5954366 52.19265 Andhra Bank 792073 4145402 47.8898 Bank of Baroda 3912583 12491598 37.37487 Bank of India 3933862 11988173 37.23227 Bank of Maharashtra 913430 3391934 39.6975 Canara Bank 3804502 14238144 44.48293 Central Bank of India 2637349 8277628 34.80052 Corporation Bank 935156 4235689 45.85579 Dena Bank 1011528 2768991 31.91801 Indian Bank 1542273 4709091 37.80914 Indian Overseas Bank 1932864 6874042 41.4966 Oriental Bank of 1305802 6399597 48.70089 Commerce Punjab & Sind Bank 760956 1931875 26.52196 Punjab National Bank 3517356 13985968 45.62733 Syndicate Bank 1681615 7863357 51.99544 UCO Bank 1446246 6486001 52.3066 Union Bank of India 2305563 8518023 43.45643 United Bank of India 1203756 3716666 34.17666 Vijaya Bank 821582 3760449 50.39961 State Bank of India 5878560 38004605 42.82223 State Bank of Bikaner & Jaipur 652536 2848049 48.45709
State Bank of 864862 4150267 Hyderabad 23 State Bank of Indore 336878 1997649 24 State Bank of Mysore 476857 2202235 25 State Bank of Patiala 773742 3918363 State Bank of 26 399470 1580488 Saurashtra State Bank of 27 746806 3098401 Travancore Source; Statistical tables relating to banks in India 2007 22
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
CAGR 17.75 17.9 12.15 12.07 15.25 15.52 12.42 16.14 10.82 13.05 14.02 17.76 9.1 16.61 16.95 19.14 15.1 11.4 17.55 1.51 16.75
50.52074
18.56
57.11345 51.45311 57.11313
21.71 17.12 20.67
44.38991
16.58
47.94648
17.49
"
$ 0
Perusal of table 2 depicts the deposits of PSB’s in India. All the PSB’s have shown increase in deposits over a period from 1997-2007. But growth rate of deposits were fluctuating from bank to bank. CAGR was highest in case of State Bank of Indore (21.71 percent), while it was least in case of State Bank of India (1.51percent). Overall growth rate of deposits of nationalized Banks was 14.71 percent, while it was 9.09 percent of SBI group. This Study showed the positive trend in performance of PSB’s in terms of Deposits. When comparing CV of deposits of PSB’s CV was best in case of State Bank of Indore and State Bank of Patiala where as minimum of Punjab & Sind Bank which was showing maximum consistency in term of deposits. CV of Nationalized Banks excluding SBI group was 14.71 percent, SBI group 9.09 percent and all PSB’s was 13.34 percent. 5.3) Total Assets: The funds mobilized by various sources are deployed into the various assets. Total assets depict the strength of a bank and assets portfolio of a bank is important as it strikes a balance between liquidity and profitability of a bank. Total assets are analyzed in table 3.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
Table 3: Total Assets of Public Sector Banks in India (Rs. In crores) S.No Name of the Bank/Year Minimum Maximum C.V 1 Allahabad Bank 2E+06 7E+06 53.44 2 Andhra Bank 923086 5E+06 49.23 3 Bank of Baroda 5E+06 1E+07 37.36 4 Bank of India 5E+06 1E+07 37.47 5 Bank of Maharashtra 1E+06 4E+06 40.69 6 Canara Bank 4E+06 2E+07 45.40 7 Central Bank of India 3E+06 9E+06 33.99 8 Corporation Bank 1E+06 5E+06 47.38 9 Dena Bank 1E+06 3E+06 27.89 10 Indian Bank 2E+06 6E+06 35.63 11 Indian Overseas Bank 2E+06 8E+06 44.50 12 Oriental Bank of Commerce 1E+06 7E+06 50.13 13 Punjab & Sind Bank 903111 2E+06 26.39 14 Punjab National Bank 4E+06 2E+07 47.61 15 Syndicate Bank 2E+06 9E+06 52.39 16 UCO Bank 2E+06 7E+06 48.69 17 Union Bank of India 3E+06 1E+07 46.87 18 United Bank of India 1E+06 4E+06 32.81 19 Vijaya Bank 944014 4E+06 50.62 20 State Bank of India 2E+07 6E+07 33.88 State Bank of Bikaner & 21 852292 3E+06 44.27 Jaipur 22 State Bank of Hyderabad 1E+06 5E+06 48.28 23 State Bank of Indore 409321 2E+06 56.93 24 State Bank of Mysore 586296 3E+06 50.39 25 State Bank of Patiala 964057 5E+06 56.69 26 State Bank of Saurashtra 520368 2E+06 41.02 27 State Bank of Travancore 913310 4E+06 47.58 Source; Statistical tables relating to banks in India 2007 Table 3 depicts that total assets of all PSB’s have shown acceleration over
CAGR 17.91 18.64 12.23 12.19 15.54 15.74 12.03 16.85 9.53 12.58 14.85 18.31 8.77 17.42 16.9 17 16.2 10.81 17.57 12.6 15.62 18.08 21.83 16.8 20.29 15.01 17.21 a period
from 1997-98 to 2007-08. But growth rate of assets varies from bank to bank. CAGR was found maximum of State Bank of Indore while it was least of Punjab & Sind Bank (8.77 percent). Overall growth rate of total assets of nationalized Banks was 14.85 percent, while it was decelerating in case of SBI group. This study shows the positive trend in performance of PSB’s in terms of total assets except SBI group i.e.-2.53 percent. When comparing CV of total assets of PSB’s CV reached maximum of 56.69 percent in case of State Bank of Indore, where as minimum of Punjab & Sind Bank i.e. 26.39 percent which was showing maximum consistency in term of total assets. CV of Nationalized Banks was 42.76 percent, SBI group 43.33 percent and all PSB’s was 34.85 percent. In this Study !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
empirically it was found that all the PSB’s individually as well as a group showed growth in terms of assets where SBI group has shown drop off in growth rate of assets. 5.4)
Return on Equity Ratio: The return on equity ratio shows the percentage of net
income to total capital of bank. The higher the ratio the more efficiently a bank is using its capital and free reserves. This ratio is shown in table 4. Table 4: Return on Equity ratio Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Name of the Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India
Minimum
Maximum
C.V
CAGR
4.42 11.32 8.33 7.03 3.26 8.82 1.56 13.81 -33.1 -27.3 7.97 10.78 -15.7 15.55 5.47 -3.91 8.65 0.61
34.04 40.31 20.32 26.71 26.46 28.47 22.9 21.94 22.45 24 32.1 28.67 16.63 28.86 24.92 29.14 25.19 16.07
53.01 39.31 23.91 47.47 56.97 43.38 69.74 16.61 ##### ##### 37.56 28.82 ##### 19.18 30.81 ##### 36.43 83.61
12.27 10.99 -1.11 5.6 0.65 15.45 18.43 -4.89 ###### ###### 14.29 0.39 ###### -2.45 12.05 ###### 9.81 59.24
Vijaya Bank 3.23 State Bank of India 10.27 State Bank of Bikaner & 10.73 Jaipur State Bank of Hyderabad 15.03 State Bank of Indore 14.48
38.32 19.67
67.35 19.04
23.17 3.35
29.39
24.91
-6.61
26.99 40.21
15.21 39.47
-2.5 1.06
State Bank of Mysore
8.97
34.83
33.84
8.88
State Bank of Patiala State Bank of Saurashtra State Bank of Travancore
14.17 25.47 11.81
27.39 60.67 29.68
24.25 -4.13 23.65
-2.38 7.2
Source; Statistical tables relating to banks in India 2007
Perusal of table 4 shows the return on equity ratio which measures efficiency or how well an institution is using its Capital plus free reserves to generate income .CAGR of ROE of some banks like Dena Bank, Indian Bank, Punjab & Sind Bank and UCO bank could not be calculated as ROE ratio of these banks was negative. United Bank of India was showing !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
maximum growth (83.61 percent) and State Bank of Hyderabad was the worst performers in such case with growth rate (15.21 percent) Overall CAGR of Nationalized banks was 41.86percent and SBI group was 19.31percent.While Comparing CV of ROA of PSB’s, it was maximum in case of State Bank of Indore. 5.5) Return on Assets Ratio: The return on assets shows the proportion of net income to total assets of a bank. This ratio also acts as productivity indicator. The higher the ratio, the better is utilization of assets. Return on Assets (ROA) ratio is analyzed in table 5. Table 5: Return on Assets Ratio Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Name of the Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank
Minimum
Maximum
C.V
CAGR
4.42 11.32 8.33 7.03 3.26 8.82 1.56 13.81 -33.11 -27.31 7.97
34.04 40.31 20.32 26.71 26.46 28.47 22.9 21.94 22.45 24 32.1
53.01 39.31 23.91 47.47 56.97 43.38 69.74 16.61 14.43 37.4 37.56
12.27 10.99 -1.11 5.6 0.65 15.45 18.43 -4.89 ######! ##### 14.29
10.78
28.67
28.82
0.39
-15.67 15.55 5.47
16.63 28.86 24.92
155.47 19.18 30.81
#####! -2.45 12.05
-3.91 8.65 0.61 3.23 10.27
29.14 25.19 16.07 38.32 19.67
125.19 36.43 83.61 67.35 19.04
##### 9.81 59.24 23.17 3.35
10.73
29.39
24.91
-6.61
22 23
UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore
15.03 14.48
26.99 40.21
15.21 39.47
-2.5 1.06
24
State Bank of Mysore
8.97
34.83
33.84
8.88
25 State Bank of Patiala 14.17 27.39 26 State Bank of Saurashtra 2.7 25.47 27 State Bank of Travancore 11.81 29.68 Source; Statistical tables relating to banks in India 2007
24.25 60.67 23.65
-2.38 -4.13 7.2
21
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Glance of table 5 depicts the return on assets ratio, which measures how well an institution is using its assets to generate income. CAGR of ROA of some banks like Dena Bank, Indian Bank, Punjab & Sind Bank could not be computed as ROA of these banks was negative. United Bank of India was showing maximum growth of 23.17 percent and State Bank of Bikaner & Jaipur was the nastiest performers in such case with growth rate i.e. -6.61 percent. Overall CAGR of Nationalized banks was13.56 percent and SBI group was 1.94 percent. CV of ROA of PSB’s was at its upper limit in case of Dena Bank (14.44 percent). 5.6)
Interest Expended to Total Assets: This ratio is calculated by dividing interest
expended to total assets. Since banks will have to mobilize funds to meet the credit requirements so interest expanded on deposits and borrowings is the major expense of a bank (J.Paul, 2007). This ratio is depicted in table 6. Table 6: Interest Expended to Total Assets Sr. Name of the Bank Minimum Maximum 1 Allahabad Bank 3.96 6.5 2 Andhra Bank 3.7 6.95 3 Bank of Baroda 3.42 6.22 4 Bank of India 3.92 6.19 5 Bank of Maharashtra 4.17 6.57 6 Canara Bank 3.86 6.51 7 Central Bank of India 4.02 6.32 8 Corporation Bank 3.3 6.84 9 Dena Bank 3.91 7.09 10 Indian Bank 3.57 6.95 11 Indian Overseas Bank 3.94 7.09 12 Oriental Bank of Commerce 3.79 7.27 13 Punjab & Sind Bank 3.51 7.15 14 Punjab National Bank 3.39 6.78 15 Syndicate Bank 3.51 6.51 16 UCO Bank 3.92 6.05 17 Union Bank of India 3.92 6.73 18 United Bank of India 3.96 6.6 19 Vijaya Bank 3.78 6.52 20 State Bank of India 4.02 5.95 21 State Bank of Bikaner & Jaipur 3.54 6.3 22 State Bank of Hyderabad 3.9 6.21 23 State Bank of Indore 3.6 6.09 24 State Bank of Mysore 3.76 6.56 25 State Bank of Patiala 3.55 6.01 26 State Bank of Saurashtra 4.15 6.05 Source; Statistical tables relating to banks in India 2007
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
C.V 19.26 23.82 22.83 18.42 16.46 19.94 18.27 25.51 22.55 24.38 23.02 22.62 22.97 25.91 22.14 15.06 20.26 20.35 19.61 15.83 20.96 17.31 18.85 22.61 18.74 15.57
"
$
CAGR -5.68 -7.03 -7.16 -5.5 -4.43 -5.94 -5.75 -7.47 -6.93 -7.31 -7.35 -6.36 -7.02 -8.07 -6.26 -4.1 -6.22 -6.37 -5.53 -4.72 -6.49 -5.19 -5.43 -6.91 -5.55 -4.5
Table 6 shows interest expended on total assets of all PSB’s. Interest expended to total assets has shown sharp decline in all PSB’s. This income had shown maximum decline in case of Punjab National Bank which was 8.07 percent and decline in case of UCO Bank 4.1percent which was least .Overall decline of nationalized banks was 6.38 percent SBI group was 5.04 percent and decline of all PSB’s were 35.78 comparing CV maximum CV of Punjab National Bank which was 25.9percent and minimum of State Bank of Saurashtra 15.57 percent. Overall CV of interest expended to total assets of Nationalised banks were 20.78 percent, SBI group was 16.63 percent and all PSB’s were 18.94 5.7)
Interest Earned to Total Assets Ratio: Interest earned is the main component of
total income of a bank. Interest includes interest on deposits, discount on advances and interest from balance with RBI. The higher ratio of a bank shows a good position of bank in the market. The trend of this ratio for PSB’s from 1997-2007 is clarified in table 7. Table 7 : Interest Earned to Total Assets Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Name of the Bank/Year Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra
Minimum 6.81 6.58 6.22 6.26 6.83 6.56 6.7 6.48 6.63 6.54 7.09 6.61 6.82 6.6 6.53 6.5 6.58 6.74 6.66 6.97 7.14 6.66 6.39 6.73 5.97 7.1
Maximum 9.39 9.92 9.23 8.93 9.64 9.68 9.31 9.57 10.05 8.07 9.4 10.19 9.5 10.03 9.89 8.39 9.72 9.19 9.53 8.84 9.98 9.74 9.98 10.45 9.66 9.66
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
C.V CAGR 12.91 -3.78 14.35 -4.29 14.79 -4.69 13.58 -4.08 12.86 -3.62 13.65 -4.13 11.25 -3.56 14.9 -4.65 15.45 -4.95 6.55 -1.18 9.98 -3.18 16.57 -4.93 10.05 -2.93 15.38 -4.8 15.46 -4.24 8.64 -2.18 14.29 -4.37 10.62 -3.12 12.44 -3.37 8.88 -2.73 11.8 -3.74 14.79 -4.55 15.64 -4.8 16.4 -5.24 17.04 -5.33 11.92 -3.79 "
$
Sr. No. Name of the Bank/Year Minimum Maximum C.V CAGR 27 State Bank of Travancore 6.96 10.75 14.59 -4.36 Source; Statistical tables relating to banks in India 2007 Table 7 highlights interest earned to total assets. Interest income to total assets has shown sharp decline in all PSB’s. This income had shown maximum decline in case of State Bank of Mysore which was 5.24 percent and least, decline in case of Indian Bank. Overall decline of nationalized banks was 3.94percent, SBI group was 3.18 percent and decline of all Public Sector bank was 3.57 percent. Empirical Analysis on the basis depicted that; in case of State Bank of Patiala CV was 17.04 percent (highest in comparison with other banks) and smallest in case of Indian Bank (6.55 percent). Overall CV of interest earned to total assets of nationalized banks was 12.71 percent, SBI group was 10.12 percent and all PSB’s were 14.46 percent. 5.8) Spread to Total Assets Ratio: Spread is the difference between interest earned and interest paid. The higher the difference the better it will be for the bank. Thus spread ratio measures the proportion of spread to total assets of a bank. The spread ratio of PSB’s from 1997-2007 has been shown in table 8. Table 8 : Spread to Total Assets Ratio S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Name of the Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India
Minimum 2.69 2.45 2.65 2.33 2.71 2.49 2.34 2.38 2.35 0.57 2.31 2.67 2.3 2.99 2.29 1.89 2.66 2 2.26 2.61
Maximum 3.24 3.37 3.06 3.13 3.5 3.17 3.32 3.46 3.48 3.46 3.33 3.54 3.33 3.65 3.87 3.64 3.54 3.25 3.37 3.15
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
C.V 5.42 8.82 5.17 8.38 8.92 8.76 12.42 11.25 12.21 46.28 13.43 9.65 13.09 6.95 15.49 22.88 8.84 16.09 11.85 7.30
CAGR -0.5 -0.73 -0.36 1.02 -1.01 0.49 -3.22 -0.58 -1.61 18.81 3.06 -1.83 3.6 0.43 -1.89 7.37 1.86 3 -2.31 0.85
$ .
S.No
Name of the Bank
Minimum
Maximum
C.V
CAGR
21
State Bank of Bikaner & Jaipur
2.53
3.68
9.73
-1.8
22
State Bank of Hyderabad
2.79
3.61
9.49
-2.55
23
State Bank of Indore
2.74
3.92
13.11
-2.55
7.87 16.78 12.95 14.13
-0.8 -4.31 -3.4 2.57
24 State Bank of Mysore 3.04 3.94 25 State Bank of Patiala 2.69 4.22 26 State Bank of Saurashtra 2.38 3.63 27 State Bank of Travancore 2.2 3.33 Source; Statistical tables relating to banks in India 2007 Table 8 shows the total assets. Spread is the difference between
interest earned and
interest paid. There was significant augment in CAGR by the tune of 18.81 percent, in case of Indian Bank. There was decline in growth of spread ratio in many banks which was maximum in case of State Bank of Patiala .CV of spread ratio was maximum in case of Indian Bank (46.28 percent) and least in case of Bank of Baroda .Overall CV of Nationalized Banks was 4.31 percent, SBI group had decline in spread ratio with 1.75 percent where as overall increase in all PSB’s was 0.1percent. 5.9)
Non Performing Assets to Total Advances Ratio: This ratio is calculated by
dividing net NPA by net advances. Table 9: Non Performing Assets to Net Advances Ratio Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Name of the Bank/Year Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National
Minimum
Maximum
C.V. CAGR 70.27 -20.1 68.36 -21.3 57.66 -15.6 45.68 -12.7
0.84 0.17 0.6 0.74
10.55 2.45 5.68 6.01
1.21 0.94
5.81 3.89
46.47 39.92
-6.86 -10.5
1.7 0.47 1.99 0.35
7.98 2.31 16.31 9.71
44.9 49.24 66.94 72.18
-7.18 -5.13 -4.79 -28.5
0.55
6.32
64.36
-17.3
0.49
3.21
54.29
-13.5
0.66 0.2
11.68 5.27
63.58 71.41
-9.48 -26.3
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
15 16 17 18 19 20 21 22 23 24 25 26 27
Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore
0.76 2.1
4.53 5.65
59.98 33.04
-7.98 -4.89
0.96
6.26
47.4
-10.1
1.5 0.59 0.86
7.94 6.02 8.34
53.25 75.47 69.43
-7.16 -17.2 -14.3
1.09
5.77
54.69
-13.3
0.22
4.96
75.16
-28.4
1
5.09
49.99
-15.4
0.45
7.36
65.28
-23.9
0.83
3.65
47.97
-15.1
0.7
4.95
50.07
-15
1.08
5.72
54.06
-15.5
Source; Statistical tables relating to banks in India 2007 Table 9 depicts the ratio of Non Performing Assets as a percentage of advances. NPA of PSB’s was showing steep decline which was indication of improvement in performance. Decline in CAGR of NPA ratio was highest in case of State bank of Hyderabad which was 28.44 percent and least decline in case of Dena Bank which was 4.79 percent. Overall decline in growth rate of NPA of nationalized Banks was 13.28 percent it was 7.17 percent of SBI group. This Study showed the positive trend in performance of PSB’s in terms of NPA. When comparing CV of net NPA’s to total advances of PSB’s CV was the utmost of Vijaya Bank (75.47 percent). 6)
CONCLUSION From the above analysis, it is concluded that in terms of growth of advances, deposits
and total assets, State Bank of Indore is showing maximum growth whereas from the point of view of return and return on assets, United Bank of India is the best. Punjab and Sind Bank has shown least growth of advances and total assets whereas State Bank of India has shown least CAGR in case of deposits performer so SBI should concentrate for increase in deposits by accelerating rate of interest and catering more and more customers with attractive saving !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ /
schemes. State Bank of Hyderabad and State Bank of Bikaner has shown least CAGR of return on equity and return on assets respectively and compound growth of return on equity and return on assets could not be calculated in case of Dena Bank, Punjab& Sind Bank and Indian Bank due to negative return on equity and return on assets. Spread ratio was highest in case of Indian Bank and lowest in case of State Bank of Patiala. Decline in the ratio of Non performing Assets was utmost in case of State of Hyderabad and least in case of Dena Bank. It has been observed that the banking sector in India has responded very positively in the field of enhancing the role of market forces regarding measures of prudential regulations of accounting, income recognition, provisioning and exposure, introduction of CAMELS supervisory rating system and reduction of NPA’s and up gradation of technology. But at the same time reforms failed to bring banking system at a par with international level and still the Indian banking section is mainly controlled by government as PSB’s being leaders in this sphere. It is suggested that government should formulate bank specific policies and should implement these policies through Reserve Bank of India for upliftment of Public Sector Banks .Public sector banks should try to upgrade technology and should formulate customer friendly policies to face competition at national and international level. REFERENCES • Luther, J.C.1976. Report of JC Luther, Committee on Productivity, Efficiency & Profitability in Commercial banks, Bombay 1976 • Shah, S.G.1978, Bank Profitability a Real Issue. The Journal of the Indian Institute of Banker, July-Sept 1978, pp. 130-144 • Amandeep. 1991, Profit and Profitability of Indian Nationalized Banks, Ph.D. Thesis, Punjab University, Chandigarh. • Swamy, B.N.A.2001, New Competition, Deregulation and Emerging Changes in Indian Banking. Bank Quest The Journal of Indian Institute of Bankers, 729(3): 322. • Milind Sathya .2005. Privatization, Performance, and Efficiency: A study of Indian Banks. Vikalpa,( 1):23-28. • Pal Ved & Malik N.S .2007.A Multivariate Analysis of the financial characteristics of Commercial Banks in India. The Icfai Journal of Bank Management .VI (3). • Mukherjee, A, Nath, P & Pal, MN .2002. Performance Benchmarking and Strategic Homogeneity of Indian Banks. International Journal of Bank Marketing, 20( 3) :122-139. • Janki, B. 2002.Unleashing employ productivity; A need for a paradigm shift.Indian Banking association bulletin, XXIV (3): 7-9. • Ramanathan Ramakrishnan.2007.Performance of Banks in Countries of the Gulf Cooperation Council. International Journal of Productivity and Performance Management, 56(2): 137-154. • Justin.Paul & Padmalatha Suresh.2006. Management of Banking and Financial Services, New Delhi, Pearson Education. !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 0
• • • •
Aggarwal, B.P.2005. Commercial Banking in India ,New Delhi, Classical Publishing Company. Bhasin, Niti (2008) Banking Developments in India 1947 to 2007 ,New Delhi, Century Publications. Desai,V (2007)Indian Banking-Nature and Problems, Himalaya Publishing House, Bombay. Chopra,K (2005) Managing Profitability and Productivity in Public Sector Banking, ABS publications, Jalandhar.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
A STUDY ON THE ENTREPRENEURSHIP COERCE AMONG STUDENTS IN NORTHERN INDIA _________________________________________________________ *Dr. Babli Dhiman, Assistant Professor, Lovely Honors School of Business, Lovely Professional University, Phagwara **Ms. Pooja Sharma, MPhil Student, Lovely Honors School of Business, Lovely Professional University, Phagwara ***Dr. Ashok Khurana, Associate Professor, G. N. Khalsa P.G. College, Yamuna Nagar
ABSTRACT Entrepreneurship is the ability to start a new business in order to capitalize the new found opportunities. It largely depends upon the personal qualities like accepting challenges, bearing risk, creativity, organizing and co-coordinating the process of entrepreneurs. And the word coerce here means the factors which persuade an individual to proactively pursue opportunities and creatively respond to challenges, task, needs, and obstacles in innovative ways. Therefore, Entrepreneurial coerce is mainly associated with five main factors such as personal elements/traits factor (need for achievement, internal control, taking risk), personal environmental factor (family status, gender and having business-owning family), personal objective factor (being the owner of business, financial guarantee and vision), business environment factor (competition, societal attitudes towards new businesses and the accessibility of loan) and business idea factor (Naffziger, Hornby & Kuratko, 1994). The attitude of an entrepreneur is restrained by these factors. Looking at the present insight, the main purpose of the study is designed to identify the basic elements lashing entrepreneurship among (male and female) students. This paper is divided into three parts. Part one represents introduction, review of literature, research methodology and objectives of the study. Part two reviews various factors for entrepreneurship coerce with a view to identifying the entrepreneurial attitude among male and female students. The analysis in this paper is qualitative as well as quantitative. This study is based on information obtained from primary as well as secondary sources. This study has also focused the aspect of that whether the current available arrangements are providing sufficient motivation for boosting entrepreneurship among the students or not. Finally third part includes conclusion of the study which suggests that the want for professionalism and system-wide perception should be accorded high priority by India’s entrepreneurship Development organizations.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
Key words: Coerce, Entrepreneurship, Motivation, Students INTRODUCTION Entrepreneurship lies more in the ability to minimize the use of the factors of production and to explore them to maximum advantage. It is allied with uncertainty coz it involves creating something new for which there is no existing market. Therefore, it is a process which involves being resourceful and finding ways to attain the resources required to achieve the position objectives. Capital is the most important resource among all. Entrepreneurship is, thus, a cycle of actions of entrepreneur undertakes to start a new business. So, an entrepreneur should have to carry out the number of activities to lope the business. Entrepreneurs need to imagine differently improving their chances of obtaining what they need to succeed. A successful entrepreneur should possess the qualities of innovativeness, self- confidence, effective controlling power, and risk taking behavior. These qualities can be inherent in an individual’s nature. Therefore, it is important to study the behavior of an individual in order to find out the number of factors affecting his desire to be an entrepreneur. Entrepreneurial skills are an individual’s perception of the desirability and feasibility to proactively pursue opportunities and creatively respond to challenges, tasks, needs, and obstacles in innovative ways. Individuals with high levels of entrepreneurial drive are generally high achievers, possess high self efficacy, and have a preference for innovative solutions. The entrepreneurial drive is the combination of qualities, skills and attitudes (Florin et al., 2009). A major facet in entrepreneurship is that entrepreneurs clinch opportunities irrespective of the resources they have access to. Entrepreneurial actions differ based on the type of business they are occupied in. One important fact is that entrepreneurial ventures create a number of new job opportunities for society. So, they need to be more skilled with differed qualities. A large number of entrepreneurial projects look for venture capital or angel funding for their startup firms in order to finance their capital requirements. Government agencies and some NGOs also finance entrepreneurial ventures. LITRATURE REVIEW The existing studies mainly focused on the student’s perceptions, attitudes and behavior towards entrepreneurial concept. Some of the pertinent studies on the topic are tinted as under:
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Schwer et al (1984) conducted a study to investigate the risk-taking propensities of a sample of 71 small business entrepreneurs and managers in Vermont. A questionnaire was used to obtain information regarding personal characteristics and motivation as they relate to risk taking. The results showed that risk-taking propensities as measured by responses to the Kogan-Wallach questionnaire varied more for business risk situations than for personal risk, career risk, or trivial risk situations. Significant differences were found in risk-taking propensities according to differences in respondents' age, education, years of business experience, years in business, and the size and type of business. Risk-taking propensities varied significantly according to respondents' motivation as to how they feel about themselves, the probability of improving themselves, and the probability of accomplishing something useful. Kazmi (1999) comprehend more about the entrepreneurial qualities and manifestations of different types of individuals form the bulk of research in the area of entrepreneurship. It presents a demographic and psychographic and the type of business strategies formulated and implemented by the young second-generation entrepreneurs in India. It goes a step further by comparing these with their first generation counterparts to draw more generalisable conclusions. The findings reinforce the point that entrepreneurs in general possess certain special characteristics that sustain their need for high achievement. Mazzarol et al (1999) conducted a research analysis on the sampling of 93 respondents among entrepreneurs in Western Australia, found out that environmental factors (such as social factor, economics, politics and infrastructure development) and personality factors (such as individual character and the background of the respondents) influenced the drive to establish self-owned businesses Entrepreneurial character and nature owned by some individuals together with demographic factors have also been proven to have close relationships towards the attitude to become an entrepreneur by establishing new business. Panda (2002) conducted an empirical research on industrial units which are often categorized under the small-scale sector. The study makes an attempt to explain the relationship that exists among various socio-economic variables with different success levels among the enterprises. The findings reveal that there are associations between the success levels of an enterprise with factors like technical education of the entrepreneur, occupational background of parents, previous background of the entrepreneur and capability to arrange working capital. The study also brings out the entrepreneur’s perception of risk namely, the functional risk and business risk. It makes an attempt to learn about the hindrances !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
encountered by the entrepreneur. This research conducted in four Indian states thereby establishes the necessary interventions one could do to strengthen the small-scale sector which according to the author has both an economic as well as a social advantage over other sectors. Quince et al (2003) conducted a study which offers a preliminary examination of various relationships between opinions of market justice, religious orientation, and attitudes toward self-employment. Using a limited sample of undergraduate business students, the results of this Weberian grounded study suggest that perceptions of market justice, religious orientation and attitudes towards self-employment are, indeed, related. Religiosity and attitudes toward market justice appear to be related to both the perception of self-employment and actual self-employment. Internal religious orientation, which is often associated with individual self-determination and esteem, appears to encourage both anticipated and actual entrepreneurial activity, while the more conforming nature of external religious orientation appears to discourage entrepreneurial activity. Prakash et al (2007) explores that the economy in the subcontinent has witnessed greater market economy like never before. Having realized the importance of small and medium sized initiatives in developing the economy, regional planners have initiated several interventions. Entrepreneurial drive amongst youth is considered an important factor for the socio-economic development of community and country. This study leads to design corresponding intervention strategies. Based on the primary data collected, they also attempts to discuss what has motivated the youth to take up self-employment and whether such motivation is positive of negative. In either case, support programs such as educational, rearing and counseling, financial support and social security are needed to be introduced by the state and other agencies. This study is based on a sample from Northern India. The research and findings can be expanded to other regions in subsequent efforts to understand the community milieu and develop an intervention strategy accordingly. Michael et al (2008) conducted exploratory study to determine whether evidence existed, supporting the value of entrepreneurship education programs such as the SBI. The findings indicate that the experiences gained from entrepreneurial exposure can be critically important to the development of positive attitudes towards entrepreneurship. It is believed that a primary focus of entrepreneurship teaching and learning is the development of positive attitudes. The SBI program can not only help students strengthen their entrepreneurial
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
attitudes, but also equip them with the necessary skill sets to create and maintain a successful new business venture. Shariff et al (2009) explored that the attitude approach to the study of entrepreneurship among the undergraduates minored in entrepreneurship and the non-minor entrepreneurship undergraduates showed a significant difference between them for the four subscales; and when submitted to discriminant analysis, two of the four subscales contributed significantly to the discriminant function. However, this approach especially entrepreneurship attitude among students in the institutions of higher learning has not been conducted extensively in Malaysia and is ripe for research. This study reports the findings on the entrepreneurship attitude perspective of the final year business management undergraduate students in one of the Institutions of Higher Learning in Malaysia. Faculty of Business Management was tested and validated using the Entrepreneurial Attitude Orientation (EAO) scale instrument. Discriminant validity was used to test the known groups. There was a significance difference between known groups for two of the four EAO subscales (selfesteem and personal control); all subscales were entered into a stepwise discriminant function. NEED AND SIGNIFICANCE OF THE STUDY The numbers of behavioral studies were conducted which is based on several perspectives, using the personality/character, demographics and attitudinal approaches. These behavioral studies frequently lose its effectiveness in measuring entrepreneurial coerce. There is urgent need to explore about the factors for entrepreneurship coerce which affects the entrepreneurial attitude among male and female students in India. It is also felt to study that available current arrangements in this modern era are providing sufficient motivation for boosting entrepreneurship among the male and female students. OBJECTIVES AND HYPOTHESES The specific objectives of the study are: 1.
To identify the basic factors lashing entrepreneurship coerce among students.
2.
To compare the entrepreneurial coerce among male students and female students.
3.
To study the current schemes available for entrepreneurial development.
The hypothesis (H0) is as follows:
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
1.
There is no significant difference between the entrepreneurial coerce of male students and female students.
2.
There is no significant effect of current schemes available for entrepreneurial development on the entrepreneurial coerce.
RESEARCH DESIGN This study is exploratory as well as descriptive in nature. It attempts to know about the entrepreneurial coerce among the students. The study is based on primary as well as secondary data in connection with outline objectives. The sample size consists of 500 respondents which have been selected randomly from various educational institutions in Northern India. The Primary data was collected through questionnaire method and the Secondary data was collected from published sources such as concerned websites, magazines and journals. A questionnaire was prepared for use in the survey. Some of the items in the questionnaire is used from the Entrepreneurial Opportunity scale (EOR) & Entrepreneurial Risk willingness scale (ERW), developed by Mc Cline et al. (2000) and some of the items related with attitude is used from Entrepreneurial Attitude Orientation (EAO) scale ,developed by Robinson et al. (1991) with little bit adaptations. All scale items used a Likertscale format (1 = Strongly Agree; 5 = Strongly Disagree). The collected data is being evaluated through SPSS 17 Evaluation version for Factor analysis, Discriminant analysis and Regression analysis. The study has also used diverse secondary data sources to achieve objectives of the study. RESULTS AND DISCUSSION The study conducted an exploratory factor analysis with varimax rotation on 23 items to extract the factors lashing entrepreneurship coerce. Based upon these preliminary analyses, items were dropped from the exploratory set if they loaded below an absolute value of 0.4. The result of KMO value which is greater than 0.5, and the Bartlett's Test of Sphericity value of 0.00 justify adequacy of sample. Extraction communalities are estimates of the variance in each variable accounted for by the components. The communalities in our analysis are all high, which indicates that the extracted components represent the variables well. With the help of factor analysis the seven factors were extracted. These are Financial Factor, Altruism, Personal Control, Autonomy, Opportunity, Skills, and Material Advancement (The table of factor loading statistics are shown in Annexure-II). The Eigen values of these factors are greater than 1 which shows
amount of variance in the original variables accounted for by
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
each component. The 7 component extracted explain nearly 60% of the variability in the original 23 variables, so the complexity of the data set reduced by using these components. Analysis of Attitudinal Difference between Male and Female Student’s towards Entrepreneurial Coerce The result of discriminant analysis inferred that there is significant discrimination between male students and female students about entrepreneurial coerce. Because the significance value (p-value=0.000, as shown in Table 1) is less than the 5% level of significance. So our null hypothesis is rejected that there is no significant difference between entrepreneurial coerce of male students and female students. Table 1: Discriminant Analysis Results Eigen value
Wilks' Lambda
Chi-square
Df
Sig.
0.219
.821
93.996
45
.000*
*Significant at p 1). It proves the elasticity of these stocks is high and liquidity of stocks is less. B)
Performance Evaluation of Risk and Return of stocks of selected Real Estate
Sector Companies: Following is the summary of results which have been calculated on the basis of last five years monthly data of stocks of selected Five Real Estate Companies listed in BSE Sensex. Results are calculated from the tables given in annexures numbered from 8 to17. Table : 7 Summary of Results DLF
Parsvanath
Omaxe
Ansal
Unitech
-0.68
-0.77
-0.28
2.37
2.05
Alpha
2.21
1.25
-0.07
-2.18
3.4
S.D.
4.21
3.93
4.5
3.94
4.99
Sharpe's Index
0.12
-0.17
-0.22
0.59
1.45
Treynor’s Ratio
-0.72
0.86
3.49
0.98
3.53
Beta
Source: Compiled by the Author
The above table reveals the positions of Beta, Alpha, Standard deviation, Sharpe’s index and Treynor’s ratio of five selected stocks of Real Estate Sector. Table 7 explore that on the basis of Beta, stock of Parsvnath Developers Ltd. stood at number one as it is having the negative beta which is lowest one out of the stocks of selected real estate sector companies (-0.68), followed by DLF Ltd. (-0.68) and Omaxe Ltd. (-0.28). Ansal API is found the riskiest security among the selected securities as it is having the highest Beta
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 0
(2.37). It indicates the risk level of this security is higher than that of others securities that are taken for study. It may be further stated by investigating the values of alpha that Unitech Ltd. outperformed the market index which is having the positive alpha (3.40) and that is the highest amongst the selected five real estate stocks. The performance of Unitech Ltd. is followed by DLF Ltd.’s stock (2.21) and Parsvnath’s stock (1.25). The underperformer from this view point is Ansal API’s stock which is having the negative alpha (-2.18). Standard Deviation is a tool to find the variations prevailing in any security. The rule states that more the standard deviation more volatile the security will be. Table 7 explores that Unitech Ltd. is having the highest standard deviation of 4.99, followed by Omaxe Ltd. (4.5) and DLF Ltd. (4.21). Although the stocks of Parsvnath Developers Ltd. and Ansal API are also find volatile in practice, but still they found least volatile among the selected group of five securities. It can be easily recognized by the table that the stock of Unitech Ltd. is more volatile. The larger the S (Sharpe’s performance index), better the fund has performed. Out of the selected stocks, Unitech Ltd. outperformed as it is having the highest S (1.45), followed by Ansal API (0.59) and DLF Ltd. (0.12). Here again, Omaxe Ltd. underperformed by reaching at lowest S (-0.22). So, returns per unit of risk are maximum in the stock of Unitech Ltd. In case of Treynor’s ratio the stock’s performance is measured in relation to the market performance. The ideal stock’s return rises at faster rate than the general market performance when the market is moving upwards and its rate of return declines slowly than the market return, in decline. That’s why the risk premium is compared with the beta over here. Again, Unitech Ltd. proves itself better by achieving the Treynor’s ratio of 3.53, followed by stock of Omaxe Ltd. (3.49) and Ansal API (0.98). DLF Ltd. underperformed out of the selected stocks as it is having the minimum Treynor’s ratio of (-) 0.72. CONCLUSION In terms of liquidity, the stocks of Ansal API and Unitech, reveals the less Elasticity of stock. It shows its high liquidity and this is supported by the high turnovers and volumes of both the stocks. In the remaining three stocks i.e. DLF Ltd., Parsvnath Developers Ltd. and Omaxe Ltd. the elasticity stocks is high and liquidity of stocks is less. In terms of findings of Performance evaluation of risk and return, all the five selected companies gave the mixed results. Unitech Ltd. Stood at number one on the basis of Alpha, Sharpe’s Index, Treynor’s Ratio. On the basis of Beta and Standard Deviation, Parsvnath !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
Developers Ltd. stood at number one as it is having the minimum beta and standard deviation and found to be least risky among the securities of selected five companies. RECOMMENDATIONS The results on the parameters of sharpe’s index and other financial tools are in the favour of one company and disfavour another, but as a whole, the entire industry faced the negative returns during the period of study. The following recommendations may be made to the investors: 1)
The investor should adopt a portfolio, comprised of a diversified group of sectors. They should not rely only on the one sector for investment.
2)
One sector may give the negative returns over a long period, which may prove false the statement that the investment should be made for long term to get stable and definite returns.
REFERENCES Ahuwalia M.S(2005)Southern Economist-Portfolio performance of equity shares in stock market pp35-38 Arora S.M. Charter Financial Analyst (Jan.2008)-Information about various analytical tools is given.pp56-62. Assel K.R.Icfai Reader July 2006-Information about the volatility trend in stock market Banz,R.W; Relationship between Return and Market Value of Common Stocks, Journal of Finance, Vol.9 pp3-18 Berla R.K.(2006), Indian journal of commerce30-growth of stock market in indiapp42-45 Finance India, Indian institute of finance, Real Estate opening doors to other sectors growthVol.XXI, pp 949-963. Gogal K.R.(2005), Journal of finance,Feb.2006-Various methods to analyse the Fund Performance pp23-25. Gombia S.K.Sebi Bulletin July 2005-regulations in capital market and returns pp 6974 Jaffe.J.Keim & D.B Westerfield(2006)-Market values and stock returns, Journal Of Finance, Vol.44 No7,pp 135-148 Mohantu P(jan.2007) Vikalpa-stock returns in India pp25-28 ! "# $$ % & 82. Quiros G.P & A. Timmermann: - Firm Size and cyclical variation in stock returns Vol 54 pp1229-1262.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
INDIAN RETAILING: PERCEPTIONS OF FOREIGN RETAILERS *UJJAL BIR SINGH, ASSOSCIATE PROFESSOR, DEPARTMENT. OF COMMERCE, S.D. GOVT. COLLEGE, LUDHIANA * RAVNEET KAUR BINDRA, LECTURER IN MANAGEMENT, HARYANA ENGINEERING COLLEGE, YAMUNANAGAR ABSTRACT Retailing is the largest private industry in India and second largest employer after agriculture. The sector contributes to around 10 per cent of GDP and 6-7 percent of employment. With over 15 million retail outlets, India has the highest retail outlet density in the world. This sector witnessed significant development in the past 10 years from small unorganized familyowned retail formats to organized retailing. Liberalization of the economy, rise in per capita income and growing consumerism have encouraged large business houses and manufacturers to set up retail formats; real estate companies and venture capitalist are investing in retail infrastructure. Many foreign retailers have also entered the market through different routes such as wholesale cash-and-carry, local manufacturing, franchising, test marketing, etc. With the growth in organized retailing, unorganized retailers are fast changing their business models and implementing new technologies and modern accounting practices to face competition.The present paper analyses the perceptions of foreign Retailers regarding Indian Retail market and emerging sceniario in retail sector. 1.1.
INTRODUCTION
Retailing is the largest private industry in India and second largest employer after agriculture. The sector contributes to around 10 per cent of GDP and 6-7 percent of employment. With over 15 million retail outlets, India has the highest retail outlet density in the world. This sector witnessed significant development in the past 10 years from small unorganized familyowned retail formats to organized retailing. Liberalization of the economy, rise in per capita income and growing consumerism have encouraged large business houses and manufacturers to set up retail formats; real estate companies and venture capitalist are investing in retail infrastructure. Many foreign retailers have also entered the market through different routes such as wholesale cash-and-carry, local manufacturing, franchising, test marketing, etc. With the growth in organized retailing, unorganized retailers are fast changing their business models and implementing new technologies and modern accounting practices to face competition. !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
In spite of the recent developments in retailing and its immense contribution to the economy, retailing continues to be one of the least evolved industries and the growth of organized retailing in India has been much slower as compared to the rest of the world. Over a period of 10 years, the share of organized retailing in total retailing has grown from 10 percent to 40 percent in Brazil and 20 percent in China, while in India it is only 4 percent. One important reason for this is that retailing is one of the few sectors where foreign direct, investment is not allowed within the country, there have been protests by trading associations and other stakeholders against allowing FDI in retailing. On the other hand, the growing market has attracted foreign investors and India has been portrayed as an important investment destination for the global retail chains. This is evident from the fact that India has received requests from many important trading partners (such as US, Japan, China, EU, Singapore, Brazil and Korea) in the Doha round of WTO negotiations to allow FDI in retailing. It is now widely debated whether allowing FDI in retailing would bring in more foreign investment in India. Existing research has shown that the actual inflow of foreign investment would depend on several factors such as size of the market, per capita income growth, macroeconomic stability, conductive legislation, access to real estate and availability of retail infrastructure. In the present paper an attempt has been made to analyze the perceptions of foreign retailers about Indian retail market particularly with regard to; Nature & behavior of Indian consumer; Potentiality of Market Trends of prices , Government regulations; Tax and labour laws and Logistic facilities etc. 1.2
NATURE AND BEHAVIOR OF CONSUMER9
The historical pattern in India and in most developing economies shows that, as incomes rise, consumers tend to spend proportionally less on basic necessities and more on discretionary items. Foreign Retailers foresee a similar change in India. As millions of deprived households
9
“The ‘Bird of Gold’: The Rise of India’s Consumer Market” McKinsey Global Institute,p32
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
move into the aspirer segment10, they will begin to be able to afford products and services beyond their immediate needs for food and clothing. For example, they may start seeing a local doctor instead of relying on home remedies for health care, or invest in jewelry (a common form of savings in India) or buy a secondhand motor bike. For families transitioning from aspirer to seeker, aspirations might include a cell phone, a television, or private schooling for their children.Discretionary spending has already risen from 35 percent of average household consumption in 1985 to 52 percent in 2009. Foreign retailer sees this trend continuing, with discretionary spending reaching 70 percent of average household consumption over the next 20 years. Of the various changes in household spending across the nine consumption categories, the most significant will be the drop in relative share of food, beverages and tobacco. According to McKinsey report11 The average Indian household currently spends 42 percent of its consumption budget on this category, but this is set to decline to 25 percent by 2025(Fig: 1.1). While the angle of decline may appear steep, it is largely driven by a dramatic growth in overall consumption rather than a slowdown in food demand. FIG:1.1 CHANGING SPENDING PATTERNS
Source: The ‘Bird of Gold’: The Rise of India’s Consumer Market” McKinsey Global Institute,p32 10
11
Five categories of Household Income brackets namely Global,Strivers,Seekers Aspirers and Deprived ( Mckinsey Report “The ‘Bird of Gold’: The Rise of India’s Consumer Market” ) discussed in Chapter II “The ‘Bird of Gold’: The Rise of India’s Consumer Market” McKinsey Global Institute,p32
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
In fact, Foreign Retailer expect per-capita consumption of food to grow almost three times as fast as it has in the past (Fig: 1.2). Furthermore, the fall in the share-of-wallet for food is closely linked to the upward mobility of households. Already households in upper-income brackets such as the urban striver class spend only about 20 percent on food (Fig: 1.3). As more Indian households move up the income scale, the reduction in the share-of-wallet for food is natural. FIG:1.2 EXPECTED DECLINING SHARE OF FOOD IN TOTAL SPENDING
Significant shifts in consumer spending will be seen in other consumption categories too, as the values and preferences of India’s consumers change. Most interesting are the categories upon which Indian consumers have historically shown a greater propensity to spend as income rises, and substantial increases in share-of-wallet. Unsurprisingly, high priorities are the “economically enabling” categories that either boost current productivity or facilitate future participation in economic activity—namely health, education, transportation, and communication. Not only will these the categories see the most substantial increases in share-of wallet, but they will also be the ones where Indian consumers will spend a greater share compared with their counterparts elsewhere. For example, Mckinsey report forecast the share of spending on health care will nearly double from 7 percent in 2005 to 13 percent in 2025.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Source:The ‘Bird of Gold’: The Rise of India’s Consumer Market” McKinsey Global Institute,p35
1.3.1
POTENTIALITY OF MARKET12
PricewaterhouseCoopers estimates that the Indian retail sector is worth USD 350 billion and is growing at 15 to 20 percent per annum. Organised retail penetration accounts for between 5 to 8 percent. The unorganised market comprises 12 million mom-and-pop stores, also called ‘kiranas’. The retail and wholesale sector in India accounts for approximately 14 percent of GDP and over a quarter of the value added in all services sectors. In terms of employment, the sector is the second largest employer (after agriculture) providing over 10 percent of all formal jobs in India. Strong demand and supply features are responsible for growing the retail sector. These include – Selected Demand Drivers
Selected Supply Drivers
Demanding consumers who want
Growth of modern trade formats are
access to the latest and best
making it easier for consumers to access
products
established and new products/brands
Increased access to credit
New entrants are launching a range of
12
Strategic Issues for Retail CEOs “ Perspectives on Operating in India’s Retail Sector”Pricewater house Coopers Report 2010
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
products and services for consumers New customer segments e.g.,
Modern trade participants have long-term
children, men, working women,
expansion plans for the Indian market
etc.) clamoring for products catering to their needs Increasing incomes are driving the
Growth of niche areas such as health and
purchase of both essential and
wellness, organic products, skincare, etc.
non-essential products Fig:1.4 India’s retail penetration—growth opportunities in most categories
1.3.2
INDIA—AN
IMPORTANT
MARKET
FOR
BOTH
GLOBAL
AND
DOMESTIC RETAILERS The PricewaterhouseCoopers thought leadership study13 indicates that growth prospects remain favourable in Asia, buoyed by the strong showing of China and India in recent years. India, as compared to other countries, has been relatively insulated from the global economic slowdown. This is apparent when looking at India’s consumer confidence levels, its GDP projections for the new fiscal year, investor confidence in response to election results, etc.
13
“Building to Win:How multinationals are structuring to compete in emerging markets” Pricewater house Coopers Report 2010.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
India’s retail sector is perhaps one of the most challenging, dynamic and exciting markets to operate in, as indicated below: Serving a heterogeneous market (CUSTOMERS)— India’s 28 states have unique languages, cuisine, geography, etc. and many retailers believe that consumers’ tastes and preferences vary by state, city, catchment area and even street! Brand loyalty is an important aspect in serving customers. Some retailers indicated that Indian consumers are brand loyal; that said, if retailers do not listen to consumers and use their feedback, buyers are quick to frequent other retail establishments. Consumers are increasingly demanding value for money, are not willing to compromise on product choice or quality and are willing to visit other retailers if their needs are not met Developing a long-term investment horizon (INVESTMENT)— Both domestic and global retailers view India as a long-term investment proposition, and suggest that patience, deep pockets and customisation of products and services are required for success. Focusing on innovation, customisation and new product development (PRODUCTS)— Global retailers who have long-term plans for India are, through the launch of India-inspired/customised products, positioning themselves as international retailers who understand the nuances of serving Indian customers in terms of offering the right product, at the right price and through the right distribution channel. Operating
within
the
current
regulatory
framework
(BUSINESS
ENVIRONMENT)— Currently, the Indian retail sector is not fully liberalised. Global retailers looking to enter India can do so through the cash and carry route, single brand retail (i.e., a joint venture agreement with an Indian party where the foreign retailer holds a maximum of 51 percent equity), franchising, distribution and strategic licensing agreements. Global retailers wanting to enter India need
to find a structuring solution that meets their
overall needs and strategic goals. Selecting “the right” Indian partners for single-brand entry, licensing, franchising and distribution is a critical success factor. The global economic downturn has depressed worldwide consumer spending, sentiments and investor confidence and the retail industry, as with other industries, has been adversely impacted. That said, the PricewaterhouseCoopers thought leadership study14 entitled ‘Glimmers amid the gloom” The outlook for the retail and consumer products sector in emerging markets
14
especially India suggests that there some sub-sectors within the Retail
“Glimmers amid the gloom” PricewaterhouseCoopers thought leadership study,2010
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ /
Consumer industry that are performing robustly, globally, despite market conditions and India will continue to attract more & more global retailers. 1.4: TRENDS OF PRICES Maximum Retail Price or MRP governs the Indian retail market. Any product prepacked if sold in the Indian market needs to be marked up with a maximum price that retailers can charge from the consumers. Manufacturers are required to mention the MRP on packaging of their goods. MRP was made mandatory to protect consumers against overcharging by retailers. While determining the MRP, manufacturers keep a sufficient margin above the cost of production. Over the years, the market determined price has taken aback seat and MRP is ruling the Indian market. This is because the retailers do not compete with each other but make a local cartel in each pocket across the country. They sell their products at the MRP irrespective of the price that they buy the product for. In addition, the smaller trader/shopkeepers unions across market places in the country maintain intangible relationships and understandings among themselves to keep the price at MRP level and thereby, avoid any competition that would lead to a market determined pricing structure. Customers are forced to pay the maximum price for the products, which is higher then cost of production. Hence, to sum up, the mechanism to safe guard the customers against black marketers and uneven pricing is actually forcing the consumers to pay the highest price and not the market determined price. The foreign retailers are against this concept of MRP and prefer market determined price which in their view is beneficial to both consumers as well as buyers. 1.5:TAXATION HURDLES15 The tax structure in India is still complex and evolving, creating challenges for
retailers.
Even though there is a drive to standardize tax structures, currently there is inconsistency among states. So while most states have abolished octroi and entry tax, few states like Karnataka, Maharashtra and Gujarat still have them. These create delays in transportation due to long queues at check posts, which is especially harmful in case of perishable goods. There are other taxation issues as well. Sales tax issues drive warehousing location choice - many
15
Bajpai, N. and N. Dasgupta (2004), "Multinational Companies and Foreign Direct Investment in China and India, " CGSD Working Paper No. 2.,January 2009. The Earth Institute at Columbia University, Website : www.earth.columbia.edu
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 0
companies have one company-owned distribution centre in every state to avoid paying central sales tax. Similarly, there are issues linked to multiple points of taxation in India. For example, sales tax is levied at both central and state level. These prevent optimal supply chain models being developed and act as deterrents for organized retailing in India. Similarly non-uniform VAT regimes across states lead to differential pricing of goods and multiple taxation formats for the same goods in different states. 1.6: LOGISTIC FACILITIES16 India is a large and highly fragmented country, with 29 states and 18 official languages.A bulk of its population, 66.1 %, lives in rural areas. The lack of adequate infrastructure makes it virtually impossible to reach this virtually untapped market. Distribution, or the lack of it, is a major hindrance for retailers in India. The lack of quality infrastructure across the country and a non-existent distribution sector results in inefficient logistics systems. Infrastructure is the weakest link in India’s path to progress and there is an urgent need to address issues plaguing this area. Foreign retailers foresee following drawbacks in Indian supply chain System: a)
Presence of multiple intermediaries: Supply chains in India involve multiple
intermediaries. The agri-produce supply chain in India typically has five players compared to three in mature markets; this leads to higher lead times, costs and wastage. Intermediaries hoard margins and reduce both the price paid to producers and the margins for retailers. Indian farmers typically receive approximately 30 percent of the retail price compared to average 50 percent globally. Some of the major foreign players in the Indian retail sector are addressing this issue through disintermediation and approaching wholesale markets directly. b)
Lack of Suitable infrastructure :Despite increased investments in infrastructure
development, the availability of infrastructure in terms of good roads, cold chains, etc. remains limited
16
Atkearney, “Emerging Market priorities for Global Retailers,” 2009 Global Retail Development Index,p.39
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
Infrastructure is a point of concern since the quality of roads requires major improvement. Logistics costs, as a component of total costs, are very high. Quality transportation partners are rare, given the fragmented truckers market. The third-party logistics industry is at a nascent stage with limited capabilities leading to only 30percent of retailers outsourcing logistics completely compared to more than 50 percent globally. The absence of a suitable cold chain infrastructure leads to wastage levels of around 20 to 40 percent of agricultural produce and perishables. Foreign retailers believe that lack of adequate infrastructure and elements will leads to: High logistics costs, High lead times and High wastage. c)
Lack of Integration with suppliers: Operations of retailers and their suppliers are
not adequately integrated in India. Best practices like vendor-managed inventory and cross docking are in the early stages of being adopted. Innovative methods to aggregate the fragmented supplier base need to evolve to enable better integration of suppliers into supply chains. Foreign retailers believe that lack of integration among supply chain leads to: high lead times, high costs and limited supplier flexibility. d)
Increased demand from Consumers: In addition to growing briskly, the Indian
retail sector is experiencing increasing demand from customers for product variety, shorter lead times, etc. which, when coupled with intense competition, is leading to increased supply chain complexities and mandating a new focus on developing world-class supply chains. Key aspects contributing to supply chain complexity include: Geographically spread market Fragmented market (especially rural markets) Regional variances in demand patterns, and hence a need for information visibility and need to understand nuances of the local markets Value driven consumer, hence need for cost efficiency To create strong customer value propositions, retail chains need to: be more cost effective, provide fresher products (reduce lead times), provide better product assortment (high product variety) and have better reach.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
Urbanization is driving an increasing need to upgrade or create infrastructure facilities. Transport is a major concern, with a deteriorating railway system and a limited highway network. In contrast to the global standards, the average load carried by trucks in India around 7 tons -is very low. However, the Indian Government is presently investing heavily in the state highway system. This will help in an overall decline in logistics costs which is currently 10-12% of the total GDP. 10,000 MW of power needs to be added every year for the next decade. Growth in air passenger traffic, estimated at 20% p.a. for the next two years, necessitates quadrupling of airport capacities. Ports will witness 38% increase in tonnage in the next 2-3 years and hence, port infrastructure cannot be ignored. The lack of a distribution sector and specialized distribution companies is a major obstacle for retailers to fully utilize India’s retail potential. Foreign retailers
feel that private logistics companies offering
specialized services, refrigerated transport and warehouse facilities across the country, along with timely distribution of supplies to retail outlets will create some of the much needed back-end support for retailers to enhance operational performance. If addressed urgently and seriously, it can translate into India’s biggest opportunity. 1.7:
SOURCING OF PRODUCTS17
One of the arguments against FDI in retailing is that foreign players would not source their products from India. Contrary to this argument, India has significant competitive advantage in terms of low cost of labour, availability of raw materials, etc. and many foreign retailers such as Arrow, Levi's, JC Penny, Wal-Mart, Gap are already sourcing their products from India. With rising labour cost in the developed countries, many companies are shifting their labour cost in the developed countries; many companies are shifting their operations to developing countries such as India and China. The Indian government has also shown keen interest in developing the country as an international sourcing hub for certain products like shoes, textiles, etc. In recent months, Wal Mart has decided to set up a wholly-owned subsidiary in India for product sourcing. In the past few years, Wal–Mart has been sourcing a wide range of products including textiles, diamonds, shrimps, shoes, apparel and kitchen utensils from India trough a liaison office in Bangalore which was set up in 2001.Wal-Mart wants to develop India as an alternative-sourcing hub to China to minimize its risk.
17
“FDI in Retail Sector”Department of Consumer Affairs, Ministry of Consumer Affairs, Government of India,p.80
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Aalthough foreign retailers have the option of importing products from anywhere in the world, in developing countries like India and China they source most of the products domestically. For instance, in China, Wal-Mart sources 85 percent of its merchandise from products manufactured in China by global manufacturers such as Procter & Gamble and local manufacturers. The respondents also mentioned that with the removal of restrictions on entry of foreign retailers in China, sourcing from the country has increased. In India, Metro Cash & Carry GmbH sources 95 percent of its product domestically. In 2004, the company has entered into an agreement with Punjab Agro Industries Corporation for sourcing food products for its international operations. The Government of Punjab is keen on introducing modern supply chain management technology in the state and particularly in the area of food sourcing. Metro Cash & Carry GmbH is expected to work closely with farmers to bring in best farming practices and internationally accepted storage, grading and packaging techniques. The company is also expected to improve the hygiene techniques and make farmers better aware of the needs of specific customer groups. Metro operates over 476 “business-to-business” self service wholesale distribution centres across 26 countries and this provides an opportunity for Indian Manufactures and suppliers to distribute their products in international markets through Metro. Amul and Khadi are using the Wal-Mart network to source their products abroad. Indian manufacturers, especially textile manufacturers and processed food industries, have pointed out that if FDI is allowed in retailing it would enable them to source their products in international market s through these retail chains. In fact, they predict that sourcing from India would increase. In case of China, after Wal-Mart was allowed to set up base, it’s sourcing from China grew by almost five times. Organised retailers are also of the view that to remain competitive and establish their market share, foreign players would source most of their products domestically. They argued that although there are no majors impediments to imports, most Indian orgainised retailers source 85 to 90 percent of their products domestically. Indian consumers are price conscious and do not have the purchasing power which is required to sustain imports. Players such as Marks and Spencer and Mango who are sourcing the products from international markets are finding it difficult to increase their market share. Manufacturers have pointed out that owing to the slow growth of organized formats, many Indian products (such as gold and diamond jewellery) are presently being bought and sold in distribution centres located outside India (for instance, the Middle East). If FDI is allowed, they would be able to showcase their products to foreign retailers. As the vendor’s processes !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
and sourcing standards of the larger retail chains become standardized throughout the world, Indian suppliers would gain an automatic share of global trade through their established presence and their closer links with global chains.
4.8:
GOVERNMENT REGULATIONS
Foreign retailers and prospective entrants have pointed out that lack of clarity of government regulation, uncertainties created by political pressure from trading associations, high and multiple taxes, requirement for multiple clearances, bureaucratic red tapism and high real estate prices is making it difficult for them to enter Indian market and Expand operation. The problems faced by existing foreign players, are acting as a disincentive for them to enter the Indian market. The rigidity in labor laws, scarcity of allied infrastructure facilities such as power, high electricity tariff, logistic problems, high bank lending rates, bureaucratic red tapism.etc. is preventing foreign retailers from setting up Manufacturing facilities. 1.9:
INDIAN MARKET BARRIERS: PRECEPTION OF FOREIGN RETAILERS18
Although Indian market is portrayed as an attractive Investment destination, foreign retailers point out that there are several barriers. Some of the barriers are listed as under: Foreign retailers point out that although per capita income in India has increased the purchasing power and brand awareness in still very low in India. In fact Carrefour multi format retailers decided against enlarging Indian market because of this reason. Heterogeneity in terms of differences in culture and living habits makes it difficult to have a uniform marketing strategy across the country. In India each state is a mini country and demography of a region varies quite distinctly from the others. To be successful, retailers have to identify with different lifestyles; hence, there are more regional players in retailing rather than national players. The complexity of creating a supply chain, differences in taxes across states and poor infrastructure also makes it difficult to have a nation wide chain store. Food and grocery and apparel and accessories are the two main areas where foreign players have shown an interest in entering the Indian market because these two segments
18
FDI in Retail sector”, Department of Consumer Affairs, Government of India,p.116.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
constitute bulk of the consumer spending. Most foreign retailers have done a feasibility study before entering the market. Majority of the studies showed that margins in food and grocery retailing are very low and consumers are satisfied with their neighbourhood kirana stores. These kirana stores offer various facilities like home delivery and purchase on credit which are difficult for international players to offer.
Moreover, shopping habits in India are
different from that of the developed countries where consumers are willing to stock food items and travel long distances for shopping. Some international players have pointed out that even if FDI is allowed in retailing, small sized supermarkets in selected neighbourhood of particular regions or discount chains would be more successful than large formats like hypermarket. Others stated that Indian still does not have so much product variety to have a hypermarket as in countries such as the US. In apparel, players such as Mark and Spencer and Mango are aware that their products have a premium price and they would find it difficult to penetrate the market. They have entered the Indian market only for brand presence. Foreign retailer and prospective entrants have pointed out that lack of clarity of government regulation, uncertainties created by political pressure from trading associations, high and multiple taxes, requirement for multiple clearances, bureaucratic red-tapism and high real estate prices is making it difficult for them to enter the Indian market and expand operations. The rigidity in labour laws, scarcity of allied infrastructure facilities such as power, high electricity tariff, logistic problems, high bank lending rates, bureaucratic red tapism, etc. is preventing foreign retailers from setting up manufacturing facilities. 1.10: CONCLUSION India is currently facing the world's most dynamic combination, of highly informed and demanding consumers on one hand, and of rapidly increasing consumption levels across various retail product categories and geographies on the other. Growing consumer demands and the consequent response of leading businesses have created a more complex and competitive marketplace - one that requires each firm to be more adaptive to customer needs and more aggressive at exploiting their unique capabilities to meet those needs. In the context of Indian consumer products and retail companies, this spells multiple challenges and opportunities for them.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Having emerged as the world's most attractive market for global retailers, India still faces alarming issues that pose a serious hurdle to the growth opportunity that the retail industry promises for the country's economic progress. The overall positive outlook of the present business conditions is tempered by the fact that the country is grappling with severe infrastructure and policy issues. Cold chain, warehousing and logistics infrastructure will fast become unmanageable challenges for India, if pro-active action is not taken soon.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
EMPIRICAL STUDY OF NON-PERFORMING ASSETS MANAGEMENT OF INDIAN PUBLIC SECTOR BANKS ________________________________________________________________ Ms. Kanika Goyal, Lecturer, Department of Commerce & Management, Hindu Girls College, Jagadhri (Haryana) ABSTRACT The Indian banking system has undergone significant transformation following financial sector reforms. It is adopting international best practices with a vision to strengthen the banking sector. The public sector banks dominate the Indian banking system with almost 82 percent market share in the total deposits and advances of the industry. Several prudential and provisioning norms have been introduced, and these are pressurizing banks to improve efficiency and trim down NPAs to improve the financial health in the banking system. In the background of these developments, this study strives to examine the state of affair of the NPAs of the public sector banks in India. The study is analytical in nature, and it is based on the secondary retrieved from Report on Trend and Progress of Banking in India, Report on Currency and Finance etc. The scope of the study is limited to the analysis of NPAs of the public sector banks for the period 2002-03 to 2008-09. It examines trend of NPAs; quality of assets; health of several loan assets; sector wise NPAs etc. The data has been analyzed by statistical tools such as descriptive statistics, correlation, regression analysis, one-way ANOVA, and post-hoc Tukey HSD procedure. The study observed increase in gross as well as net NPAs in absolute terms and improved asset quality of banks. The public sector banks have managed its assets proficiently; however, the study observes that increased NPA’s in the agriculture sector is a matter of great concern. Keywords: Transformation, Prudential norms, Provisioning norms, financial health, proficiently. 1.
INTRODUCTION
Banking in India has a long history and it has evolved over the years passing through various phases. The Indian banking system has undergone noteworthy transformation following financial sector reforms, and at present it is passing through a decisive phase. It is adopting international best practices in the area of regulation and supervision with a view to strengthening the banking sector. According to Report on Currency and Finance (2006-08), with a view to create a strong, competitive and vibrant banking system, several measures were initiated in the beginning of early 1990s. The banking system witnessed reforms such as !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
introducing prudential norms; allowing entry of new private sector banks and enhanced presence of foreign banks; permission to access the capital market, operational flexibility and functional autonomy to public sector banks; strengthening of corporate governance practices and disclosure standards. Banks have increasingly diversified into non-traditional activities, and as a result several conglomerates have emerged. Thus deregulation has opened up new avenues for banks to augment income; it has also exposed the sector to greater risk of nonperforming assets. It is obvious as a result of banking sector reforms the opportunities and challenges in the banking sector has augmented. 2.
LITERATURE REVIEW
Rituparna Das (2002) performed a research on Managing the Risk of Non Performing Assets in the Small Scale Industries in India. In this article the researcher tries to seek a solution to the problem of NPA in the small scale industries under the present circumstances of banking and insurance working together under the same roof. What is stressed in this article is the pressing need of the small-scale entrepreneur for becoming aware and educated in modern business management holding a professional attitude toward rational decisionmaking and banks have to facilitate that process as a part of the credit policy sold by them. Prashanth K. Reddy (2002) in his research paper on the topic, “A comparative study of Non Performing Assets in India in the Global context” examined the similarities and dissimilarities, remedial measures. Financial sector reform in India has progressed rapidly on aspects like interest rate deregulation, reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision. The study reveals that the sheltering of weak institutions while liberalizing operational rules of the game is making implementation of operational changes difficult and ineffective. Changes required to tackle the NPA problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly effective. This paper deals with the experiences of other Asian countries in handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and suggests mechanisms to handle the problem by drawing on experiences from other countries. Tamal Datta Chaudhuri (2005) examined the “Resolution Strategies for Maximizing Value of Non-Performing Assets (NPAs)”. The article indicates that declining capital adequacy adversely affects shareholder value and restricts the ability of the bank/institution to access the capital market for additional equity to enhance capital adequacy. So, if a resolution strategy for recovery of dues from NPAs is not put in place quickly and efficiently, these assets would deteriorate in value over time and little value would be realized at the end, !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ /
except may be its scrap value. The purpose of this paper is to indicate the various considerations that one has to bear in mind before zeroing on a resolution strategy and provides a State - Resolution - Mapping (SRM) framework. However, the paper has not specifically discussed about the various resolution strategies that could be put in place for recovery from NPAs, and in particular, in which situation which type of strategy should be adopted. Isaac K. Otchere (2005) conducted a study on the performance of privatized banks in middle- and low-income countries shows mixed results by “Competitive and Value Effects of Bank Privatization in Developed Countries”. The paper observed that private banks in developed countries have experienced significant improvements in operating performance. The improvement in performance remains significant after controlling for persistence in bank performance. A comparison of the performance of privatized banks in developed and developing countries suggests that privatization has encouraged excessive risk taking among privatized banks in developing countries, with the consequence that those banks carry large non-performing assets than their counterparts in the developed countries. They also observe that consistent with the competitive effects hypothesis, investors view privatization announcements as foreshadowing bad news for rival banks. Dr. Amitabh Joshi (2003) conducted a survey on “Analysis of Non-Performing Assets of IFCI Ltd”. The study found that Profitability and Viability of Development Financial Institutions are directly affected by quality and performance of advances. The basic element of Sound NPA Management System is quick identification of Non-performing advances, their containment at minimum levels and ensuring that their impingement on the financials is at low level. Excessive reliance on Collaterals has led Institutions to long drawn litigations and hence it should not be sole criteria for sanction. Banks should manage their exposure limit to few borrower(s) and linkage should be placed with net owned funds for developing control over high leverages of borrower level. Study also revealed that exchange of credit information among banks would be immense help to them to avoid possible NPAs. Management Information system and Market intelligence should be utilized to their full potential Thomas P. Ferguson (2007) conducted a research on “Observations on the Securitization of Non-Performing Loans in Russia”. Asset securitization is a burgeoning trend in Russia as companies burdened by poor credit ratings seek access to capital at lower costs than they would be allowed in traditional equity or debt markets. Study indicates that securitization of !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 0
these bad loans has not occurred in Russia at the levels one might expect. This has been due to both a relatively small amount of loans that under-perform as well as legal and regulatory impediments that have discouraged investors and lenders alike. The study has been conducted to examine the expansion of consumer credit in Russia and the circumstances under which it is occurring indicate that the level of non-performing loans is due to rapidly increase and as the rationale for maintaining the impediments that stand in the way of securitizing these loans is being re-examined, those impediments are being scaled back to make way for market participants to engage in such securitizations. Thus, this article anticipates a significant rise in the level of non-performing loans, which will be logically paired with an increased interest of Russian lenders in securitizing these assets. Usha Arora, Bhavna Vashisht & Monica Bansal (2009) in the research on “An Analytical Study of Growth of Credit Schemes of Selected Banks” analyzed and compared the performance (in terms of loan disbursement and non- performing assets) of credit schemes of selected banks for the last five years. This paper is divided into two parts. In the first part, bank-wise as well as year-wise comparisons are done with the help of Compound Annual Growth Rate (CAGR), mean and standard deviation; and in the second part, a positive relationship is found between total loan disbursement and total NPA O/S of selected banks with the help of a correlation technique. The study found a positive relationship between total loan disbursement and total Non-Performing Assets Outstanding (NPA O/S) of selected banks. 3.
NEED AND OBJECTIVE OF THE STUDY
The present Indian banking structure consists of commercial banks, urban co-operative banks, regional rural banks and rural co-operative banks. With the presence of new private sector banks and foreign banks, the Indian banking sector has become more competitive. The public sector banks still dominate the Indian banking system with almost 82 percent market share in the total deposits and advances of the industry. These banks not only play a crucial role in the economy by mobilizing the savings and channelizing the same into investments, but also by directly contributing to GDP of the economy. The public sector banks are successfully meeting the challenge of providing service to its customers, but the biggest challenge before them it management of NPAs. The soaring NPAs have adverse impact upon the progress of any economy, and hence a matter of great concern for the Indian financial system. In this background, the present research paper strives to examine the state of affair of the NPAs in the public sector banks of India. !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
4.
HYPOTHESES
1.
Gross NPAs and Gross Advances of Public sector banks are not significantly associated.
2.
Net NPAs and Net Advances of Public Sector Banks are not significantly associated.
3.
Sub-standard assets, doubtful assets, and loss assets on an average not differ significantly.
4.
The average assets of various sectors not differ significantly.
5.
The distribution on number of banks by Net NPA to Net Advances not differs significantly.
5.
METHODOLOGY
The study is analytical in nature, and it is based on the secondary data. The information has been retrieved from Report on Trend and Progress of Banking in India, Report on Currency and Finance, Economic Surveys of India, various books and journals. The scope of the study is limited to the analysis of NPAs of all the public sector banks over the period of 2002-03 to 2008-09. It examines trend of Gross NPAs, Net NPAs; asset quality of assets; health of diverse categories of loan assets; sector wise NPAs etc. The data has been analyzed using percentage method, and selected statistical tools such as descriptive statistics, correlation and regression analysis, adjusted co-efficient of determination, one-way ANOVA, and post-hoc Tukey HSD procedure. 6.
ANALYSIS AND INTERPRETATION: This analytical part of the study has been
divided into following two sections. Section I deals with Analysis of trend and asset quality of gross advances and gross NPAs, trend and asset quality of net advances and net NPAs, analysis of classification of loan assets, sector wise analysis of NPAs , and evaluation of distribution of public sector banks by ratio of net NPAs to net advances. Section II deals with statistical analysis of data and tests the various hypotheses. 6.1.1
SECTION I:ANALYSIS OF TREND OF ADVANCES, NPAs AND ASSET QUALITY
6.1.1. ANALYSIS OF TREND AND ASSET QUALITY OF GROSS ADVANCES AND GROSS NON PERFORMING ASSETS: The study first of all examined the trend of gross advances, gross NPAs, ratio of gross NPAs to Gross Advances, and ratio of gross NPAs to total assets. It is apparent from table 1 that gross advances of the banks have shown a rising trend since 2003-04. Gross advances of the public sector banks in absolute term have increased from Rs 577813 crore in 2002-03 to Rs 2283473 crore in 2008-09. There is sharp !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
increase of 295.19 percent in gross advances of the public sector banks during the study period. The gross NPAs of the banks in absolute terms amounted to Rs 54090 crore in 200203, and Rs 51538 crore, Rs 48399 crore, Rs 41358 crore, Rs 38968 crore, Rs 40597 crore and Rs 45156 crore for the years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 respectively. The gross NPAs in absolute terms have decreased by 16.5 percent in the year 2008-09 over 2002-03. An in-depth analysis into gross NPAs shows that the gross NPAs of the public sector banks have declined up to the year 2006-07, and increased in the last two years of study i.e. 2007-08, and 2008-09. The study observed that the gross NPAs of public sector banks have depicted a mixed trend over the period of study. It is found on the basis of analysis of data that the asset quality of public sector banks improved consistently in the past few years as reflected in the decline in the two ratios i.e. gross NPAs as percentage of gross advances, and gross NPAs as percentage of total assets. TABLE 1 GROSS NPAS OF PUBLIC SECTOR BANKS
YEARS
GROSS NPAS
Gross
Per cent to
Per cent to
Gross Advances
Total Assets
54090
9.4
4.2
66975
51538
7.8
3.5
2004-05
877825
48399
5.5
2.7
2005-06
1134724
41358
3.6
2.1
2006-07
1464493
38968
2.7
1.6
2007-08
1819074
40597
2.2
1.3
2008-09
2283473
45156
2
1.2
Advances( Cr.)
Amount ( Cr.)
2002-03
577813
2003-04
Source: Trends & progress of banking in India, RBI Publication
6.1.2. ANALYSIS OF TREND AND ASSET QUALITY OF NET ADVANCES AND NET NON PERFORMING ASSETS: The study then investigated net advances, net NPAs, ratio of net NPAs to net Advances, and ratio of net NPAs to total assets (Table 2). The study found that the net advances of the public sector banks have increased in absolute term have increased by 311.42 percent in 2008-09 over 2002-03. Over the period of study, Net NPAs in absolute term have registered a decline of 15.45 percent. The study observed a mix trend in net NPAs of public sector banks over the period of study. It found that Net NPAs have !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
decreased during the period of 2002-02 to 2005-06, thereafter, it has shown an increasing trend. It is observed that despite increase in gross nonperforming assets (NPAs) in absolute terms during the year, asset quality of public sector banks improved in the past few years as reflected in the decline in these two ratios i.e. net NPAs as percentage of net advances, and net NPAs as percentage of total assets. Hence, it can be stated that as a whole there is improvement in the asset quality of public sector banks. TABLE 2 NET ADVANCES AND NET NPAS OF PUBLIC SECTOR BANKS Net NPAS
Net Years
Advances
Amount
Per cent to
Per cent to
(Cr)
(Cr)
Net Advances
Total Assets
2002-03
549351
24877
4.5
1.9
2003-04
631383
19335
3.1
1.3
2004-05
848912
16904
2.0
1.0
2005-06
1106288
14566
1.3
0.7
2006-07
1440146
15146
1.1
0.6
2007-08
1797504
17839
1.0
0.6
2008-09
2260156
21033
0.9
0.6
Source: Trends & progress of banking in India, RBI Publication
6.1.3. ANALYSIS OF NPAs ON THE BASIS OF CLASSIFICATION OF LOAN ASSETS: Loan assets of banks can be classified into three categories i.e. sub-standard assets, doubtful assets, and loss assets (Table 3). TABLE 3 CLASSIFICATION OF LOAN ASSETS OF NPAS OF PUBLIC SECTOR BANKS Classification of Loan Assets (Amount in Rs. Crore) YEARS
Sub-standard Assets
Doubtful Assets
Loss Assets
Amount
%age*
Amount
%age*
Amount
%age*
2002-03
14909
2.6
32340
5.6
6840
1.2
2003-04
16909
2.5
28756
4.4
5876
0.9
2004-05
11068
1.3
30779
3.5
5929
0.7
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
Classification of Loan Assets (Amount in Rs. Crore) YEARS
Sub-standard Assets
Doubtful Assets
Loss Assets
Amount
%age*
Amount
%age*
Amount
%age*
2005-06
11453
1.0
25028
2.2
5636
0.5
2006-07
14275
1.0
19873
1.4
4826
0.3
2007-08
17298
1.0
19291
1.1
4018
0.2
2008-09
20603
0.9
21019
0.9
4296
0.2
* Loan asset as a percentage of total gross non- performing assets
Analysis of loan assets depicted that the substandard assets has shown a decline to 0.9 percent in 2008-09 from 2.6 percent in 2002-03. The doubtful assets have declined to 0.9 percent from 5.6 percent during the same period. The Loss assets have declined to 0.2 percent in 2008-09 from 1.2 percent in 2002-03. The decline in various categories of loan assets indicates recovering health of public sector banks. All the three categories of NPAs as a percentage of gross non- performing assets have registered a decline over the period of study. 6.1.4. ANALYSIS OF NPAs ON THE BASIS OF SECTOR WISE ANALYSIS: Sector wise the NPAs have been classified into three sectors i.e. priority sector, public sector and non priority sector as depicted in table 4. TABLE 4: SECTOR-WISE CLASSIFICATION OF NPAS OF PUBLIC SECTOR BANKS (AMOUNT IN CRORES) PRIORITY SECTOR YEARS
Agriculture Amount %age
Public Sector Amount
%age
Total
Non Priority Sector
Amount %age Amount %age
2002-03
24937
47.23
1085
2.05
26783
50.72
52806
100
2003-04
23840
47.54
610
1.22
25698
51.24
50148
100
2004-05
23397
49.05
450
0.95
23849
50
47696
100
2005-06
22374
54.07
340
0.82
18664
45.11
41378
100
2006-07
22954
59.46
490
1.27
15158
39.27
38602
100
2007-08
25287
65.26
299
0.77
13163
33.97
38749
100
2008-09
24318
55.21
474
1.08
19250
43.71
44042
100
Source: Trends & progress of banking in India, RBI Publication
Sector wise analysis indicates that non priority sector has highest NPAs for the period 200203 to 2004-05, whereas for remaining period of the study agriculture sector has highest !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
percentage of NPAs. The NPAs of the agriculture sector has increased to 55.21 percent in 2008-09 from 47.23 percent in 2002-03. The public sector banks have managed to reduce NPAs in the non priority sector. In this sector, the NPAs have reduced to 43.41 percent in 2008-09 from 50.52 percent in 2002-03. In the priority sector also, the NPAs have reduced to 1.08 percent in 2008-09 from 2.05 percent in 2002-03. 6.1.5. ANALYSIS OF DISTRIBUTION OF PUBLIC SECTOR BANKS BY RATIO OF NET NPAS TO NET ADVANCES: Table 5 depicts the number of public sector banks by ratio of net non performing assets to net advances. It is found on the basis of analysis that in 2002-03 there were 2 banks with net NPAs to net advances ratio of more than 10 percent. However, none of the banks have net NPAs to net advances ratio of more than 10 percent since 2003-04 up to the year 2008-09. The number of banks having net NPAs to net advances ratio of 5-10 percent was 7, 3 and 2 for the years 2002-03, 2003-04 and 2004-05 respectively, and none of the banks fall in this category during the years 2003-04 to 2008-09. TABLE 5 DISTRIBUTION OF PUBLIC SECTOR BANKS BY RATIO OF NET NPA TO NET ADVANCES (NO. OF BANKS) Ratio of Net Non Performing Assets to Net Advances YEARS
Above 2
Above 5
Upto 2 per cent and upto 5 and upto 10
More
Total No.
than 10
of Banks
per cent
per cent
per cent
2002-03
4
14
7
2
27
2003-04
11
13
3
0
27
2004-05
19
7
2
0
28
2005-06
23
5
0
0
28
2006-07
27
1
0
0
28
2007-08
28
0
0
0
28
2008-09
27
0
0
0
27
Source: Trends & progress of banking in India, RBI Publication
Similarly, the number of banks with net NPAs to net advances ratio of 2-5 percent were 14, 13, 7, 5 and 1 for the years 2002-03, 2003-04, 2004-05, 2005-06, and 2006-07 respectively. For the years 2007-08 and 2008-09 none of the banks falls in this category of net NPAs to Net Advances ratio. Analysis reveals that most of the banks have shown an improvement so !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
far as net NPAs to net advances ratio are concerned. It has been observed that the number of banks falling in the category of net NPAs to net advances ratio up to 2 per cent has increased from 4 to 27 over the period of study. It can be stated that almost all the banks have been able to reduce the ratio of net NPAs to net advances to the level of 2 percent. Hence, it can be stated that public sector banks had efficiently managed Net NPAs to Net Advances over the period of study. 6.2 SECTION II: STATISTICAL ANALYSIS OF DATA 6.2.1. ASSOCIATION BETWEEN GROSS NPAs AND GROSS ADVANCES: The study tested the null hypothesis that there is no significant association between GNPAs & gross Advances of Public sector banks. The statistical values are depicted in table 6. TABLE 6 SUMMARY OF STATISTICAL RESULTS OF RELATION BETWEEN GROSS NPAs AND GROSS ADVANCES Results
Values
R .684 ( p-value=0.055)
R Square
.468
Adjusted
ANOVA F-value
R Square
4.399
.362
(p-value=0.090)
The Statistical test of Pearson Correlation shows that there is moderate degree of positive correlation between Gross Advances and Gross NPAs with R=0.684, P=0.055, and since P>0.05 the null hypothesis of insignificant association between Gross Advances and Gross NPAs is acceptable. In the test, R square is 0.468 and adjusted R square is 0.362. On the basis of Adjusted R square, it can be stated that only 36.2 percent of variation in Gross NPAs is explained by variation in Gross advances. Further, the one way ANOVA showed F to be insignificant with F = 4.399, at p = 0.09. Hence the null hypothesis of insignificant association between GNPAs & Gross Advances of Public Sector Banks is acceptable. 6.2.2. TESTING ASSOCIATION BETWEEN NET NPAS AND NET ADVANCES OF NEW PRIVATE BANKS: The study further statistically examined the association between Net NPAs and Net Advances, and tested the hypothesis that there is no significant association between Net NPAs and Net Advances of Public Sector Banks
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
Results
Values
TABLE 6.1 SUMMARY OF STATISTICAL RESULTS OF RELATION BETWEEN NET NPAs AND NET ADVANCES Adjusted R R Square ANOVA F-value R Square -0.162 ( p-value=0.364)
0.026
0.135
0.168
(p-value=0.728)
The Statistical test of Pearson Correlation shows that there is low degree of positive correlation between Net Advances and Net NPAs with R=0.162, P=0.364; since P>0.05 the null hypothesis is accepted. In the test, R square is 0.026 and adjusted R square is 0.168. On the basis of Adjusted R square, it can be stated that 16.8 percent of variation in Net NPAs is explained by variation in Gross advances. Further, the values of one way ANOVA reveal that F = 0.135 with p=0.728. Since the p-value is more than 0.05, the null hypothesis of no significant association between Net NPAs and Net Advances of Public sector banks is acceptable. So, it has been observed that there is no significant association between Net NPAs and Net Advances of Public Sector Banks. 6.2.3. TESTING SIGNIFICANCE OF DIFFERENCE OF NPAS ON THE BASIS OF CLASSIFICATION OF LOAN ASSETS: The paper examined the significance of difference between various classes of loan assets i.e. sub standard assets, doubtful assets, and loss assets. To evaluate the significance of difference between various classes of loan assets the study have formulated and tested the hypothesis that there is insignificance difference between average sub-standard assets, doubtful assets, and loss assets. Analysis reveals that the mean values for sub-standard assets, doubtful assets, loss assets are Rs 15216.43 crore, Rs 25298 crore, and Rs 5345.86 crore respectively (Table 7). It is evident that mean loan assets are highest for doubtful assets, it is followed by sub standard assets and then loss assets. The results of one way ANOVA revealed that: F=50.136, P=0.000. Since the p-value is less than 0.01, hence, it is observed that there is highly significant difference in mean sub standard assets, doubtful assets and loss assets (Table 8). Further, Tukey HSD Post Hoc procedure (Table 9) is being applied to know which of these loan assets differ significantly from each other. Analysis of table 9 shows that all the p-values for comparison between various loss assets are 0.00, which indicates that all the loss assets highly
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
significantly differ from each other. Table 10 depicts the homogeneous subsets for classification of the three categories of loan assets. TABLE 7 DESCRIPTIVE STATISTICS FOR CLASSIFICATION OF LOAN ASSETS N
Mean
Std. Deviation
sub standard assets
7
15216.43
3380.497
doubtful assets
7
25298.00
5408.116
loss assets
7
5345.86
1006.099
21
15286.76
9065.005
Total
TABLE 8 ONE WAY ANOVA RESULTS FOR CLASSIFICATION OF LOAN ASSETS Sum of Squares
Df
Mean Square
F
Sig.
Between Groups
1.39E+09
2
6.97E+08
50.136
0
Within Groups
2.50E+08
18
1.39E+07
Total
1.64E+09
20 TABLE 9
POST HOC TUKEY HSD RESULTS OF MULTIPLE COMPARISONS FOR CLASSIFICATION OF LOAN ASSETS
(I) groups
(J) groups
sub standard assets
doubtful assets
Mean
Std.
Difference (I-J)
Error
Sig.
-10081.571*
1992.551
.000
9870.571*
1992.551
.000
loss assets
*. The mean difference is significant at the 0.05 level.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ /
TABLE 10 HOMOGENEOUS SUBSETS OF CLASSIFICATION OF LOAN ASSETS Subset for alpha = 0.05 Groups N
1
loss assets
7
sub standard assets
7
doubtful assets
7
Sig.
2
3
5345.86 15216.43 25298.00 1.000
1.000
1.000
Means for groups in homogeneous subsets are displayed. a. Uses Harmonic Mean Sample Size = 7.000. 6.2.4. STATISTICAL ANALYSIS OF NPAs ON THE BASIS OF SECTOR WISE ANALYSIS: This section deals with sector wise analysis of non-performing assets. The hypothesis formulated and tested the null hypothesis that there is no significant difference in the mean non -performing assets of various sectors. Analysis of table 11 of descriptive statistics shows that mean values for NPAs in Public Sector, Non Priority Sector, and Priority are Rs 535.43 crore, Rs 20509.43 crore, Rs 23872.43 crore respectively. It is clear that average NPAs in the Priority Sector is maximum, and it is lowest in the public sector. Sector wise analysis of mean values on the basis of ANOVA (table 12) shows that F=126.595, P=0.00. It is found that the p-value is less than 0.01 which indicates that there is highly significant difference between the mean values of sector wise distribution of nonperforming assets of the public sector banks. Tukey HSD procedure (Table 13) performed on various sectors of NPAs shows that average NPAs in the Priority Sector differ highly significantly from Public Sector (p-value 0.00) as well as Non Priority Sector (p-value 0.00). Tukey HSD Homogeneous Subsets (Table 14) shows that there is no significant difference in the average NPAs in Non- Priority Sector and Priority Sector, whereas these two differ significantly from average NPAs in the Public Sector.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 0
TABLE 11 DESCRIPTIVE STATISTICS FOR SECTOR WISE DISTRIBUTION OF NPAs Sectors
N
Mean
Std. Deviation
Priority Sector
7
23872.43
1052.675
Public Sector
7
535.43
262.937
Non Priority Sector
7
20509.43
5022.216
21
14972.43
10923.522
Total
TABLE 12 ANOVA RESULTS OF SECTOR WISE DISTRIBUTION OF NPAs Sum of Squares
Df
Mean Square
F
Sig.
Between Groups
2.228E9
2
1.114E9
126.595
.000
Within Groups
1.584E8
18
8799969.952
Total
2.386E9
20
TABLE 13 POST HOC TUKEY HSD MULTIPLE COMPARISONS OF SECTOR WISE DISTRIBUTION OF NPAS (I) groups of
(J) groups of
sector wise NPAs
sector wise NPAs
Priority Sector
Public Sector Non Priority
Mean Difference (I-J)
Std. Error
Sig.
23337.000*
1585.647
.000
3363.000
1585.647
.114
Sector *. The mean difference is significant at the 0.05 level.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 1
TABLE 14 TUKEY HSD HOMOGENEOUS SUBSETS OF SECTOR WISE DISTRIBUTION OF NPAs Subset for alpha = 0.05
groups of sector wise NPAs
N
1
Public Sector
7
535.43
Non Priority Sector
7
20509.43
Priority Sector
7
23872.43
Sig.
2
1
0.114
Means for groups in homogeneous subsets are displayed. a. Uses Harmonic Mean Sample Size = 7.000. 6.2.5. TESTING SIGNIFICANCE OF DIFFERENCE OF DISTRIBUTION OF RATIOS OF NET NPAS TO NET ADVANCES OF PUBLIC SECTOR BANKS On the basis of ratio of net NPAs to Net Advances, the number of banks has been classified into four categories i.e. up to 2 percent, above 2 percent and less than 5 percent, above 5 percent and less than 10 percent, more than 10 percent. The study examined the significance of difference in the average number of banks in these four categories. Analysis of statistical values in table 15 reveals that the highest number of banks (approximately 20) on the average falls in the category of Net NPAs to Net Advances Ratios of up to 2 percent. It is followed by the average number of banks (approximately 6) in the category of above 2 percent and up to 5 percent. It is found on the basis of analysis of data (table 16) there is significance difference in the average number of banks falling in the four categories of Net NPAs to Net Advances Ratios. The results have been drawn on the basis of values of one way ANOVA with F=17.560, P=0.000. Since the p-value is less than 0.01, the conclusion drawn is that there is highly significant difference in the average number of banks falling in the selected categories of Net NPAs to Net Advances Ratios.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ 2
TABLE 15 DESCRIPTIVES FOR DISTRIBUTION OF NO. OF BANKS BY NET NPAs TO NET ADVANCES N Mean Std. Deviation upto 2 percent
7
19.86
9.209
Above 2 and upto 5 per cent
7
5.71
5.936
Above 5 and upto 10 per cent
7
1.71
2.628
More than 10 per cent
7
.29
.756
Total
28
6.89
9.515
TABLE 16 ANOVA RESULTS FOR DISTRIBUTION OF NO. OF BANKS BY NET NPAs TO NET ADVANCES Sum of Df Mean Square F Squares Between Groups 1679.536 3 559.845 17.560 Within Groups
765.143
24
Total
2444.679
27
Sig. .000
31.881
TABLE 17 POST HOC TUKEY HSD MULTIPLE COMPARISONS FOR DISTRIBUTION OF NUMBER OF BANKS BY NET NPAS TO NET ADVANCES (I)
Mean
Std.
Difference (I-J)
Error
Sig.
ratio_percent
(J) ratio_percent
upto 2 percent
Above 2 and upto 5 per cent
14.143*
3.018
.001
Above 5 and upto 10 per cent
18.143*
3.018
.000
More than 10 per cent
19.571*
3.018
.000
*. The mean difference is significant at the 0.05 level.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
TABLE 18 TUKEY HSD HOMOGENEOUS SUBSETS FOR DISTRIBUTION OF NO. OF BANKS BY NET NPAs TO NET ADVANCES Subset for alpha = 0.05 ratio_percent
N 1
More than 10 per cent
7
.29
Above 5 and upto 10 per cent
7
1.71
Above 2 and upto 5 per cent
7
5.71
upto 2 percent
7
Sig.
2
19.86 .298
1.000
Means for groups in homogeneous subsets are displayed. a. Uses Harmonic Mean Sample Size = 7.000. The statistical results of Tukey HSD procedure shows the classification of banks which are insignificant in the Net NPAs to Net Advances Ratios within own sub-set, and significant in terms of comparison with other sub-set. Analysis of table 17 reveals that there is significant difference between average number of banks falling in the Net NPA to Net Advances ratio of up to 2 percent with banks falling in the category of above 2 percent and up to 5 percent (pvalue 0.001), above 5 and up to 10 percent (p-value 0.000), more than 10 percent (0.000). Table 18 reveals the results of Tukey HSD Homogeneous subsets for distribution of number of banks by Net NPAs to Net Advances. It is found on the basis of analysis that the banks with Net NPAs to Net Advances ratio of more than 10 percent, above 5 percent and up to 10 percent, above 2 percent and up to 5 percent comprise subset 1, these are homogeneous and not differ significantly from each other. However, banks falling in this subset 1 of Net NPAs to Net Advances ratio differ significantly from the banks falling in the subset 2 with Net NPAs to Net Advances ratio of up to 2 percent. 7.
CONCLUSION
The study observed that there is increase in gross as well as net advances over the period of the study. However, the decline in ratio of gross NPAs to gross advances, gross NPAs to total assets, net NPAs to net advances and net NPAs to total assets indicate improvement in the asset quality of Indian public sector banks. All the three categories of loan assets i.e. substandard assets, doubtful assets and loss assets as a percentage of gross non- performing !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
assets have registered a decline over the period of study. The decline in various categories of loan assets indicates recovering health of public sector banks. The public sector banks have managed to reduce NPAs in the public sector lending as non-priority sector, however, NPAs in the agriculture sector have increased over the period of study. Further, majority of banks have been able to reduce the ratio of net NPAs to net advances to the level of 2 percent. Hence, it can be stated that public sector banks had efficiently managed Net NPAs to Net Advances over the period of study. The statistical tests found insignificant association between gross NPAs and gross Advances, and net NPAs and Net Advances. Statistical results observed highly significant difference in mean sub standard assets, doubtful assets and loss assets. It is further observed highly significant difference between the sector wise NPAs on an average, with highest NPAs in the priority sector. It is found on the basis of analysis that there is significant improvement in the management of nonperforming assets of the public sector banks in India. The public sector banks have managed its assets proficiently; however, the study observes that increased NPA’s in the agriculture sector is a matter of great concern. The study finally observes that the prudential and provisioning norms and other initiatives taken by the regulatory bodies has pressurized banks to improve their performance, and consequently resulted into trim down of NPA as well as improvement in the financial health of the Indian banking system. REFERENCES 1. Arora, Usha , Vashisht, Bhavna and Bansal, Monica, An Analytical Study of Growth of Credit Schemes of Selected Banks (March 26, 2009). The Icfai University Journal of Services Marketing, Vol. VII, No. 1, pp. 51-65, March 2009. Available at SSRN: http://ssrn.com/abstract=1368624 2. Das, Rituparna, Managing the Risk of Non Performing Assets in the Small Scale Industries in India (June 15, 2002). Available at SSRN: http://ssrn.com/abstract=1330798 3. Datta Chaudhuri, Tamal, Resolution Strategies for Maximising Value of NonPerforming Assets (NPAs) (December 19, 2005). Available at SSRN: http://ssrn.com/abstract=871038 4. Ferguson, Thomas P., Observations on the Securitization of Non-Performing Loans in Russia (September 1, 2007). Bucerius Law Journal, Bucerius Law School, Hamburg, Germany, March 2008. Available at SSRN: http://ssrn.com/abstract=1017288 5. Joshi, Dr. Amitabh, Analysis of Non-Performing Assets of IFCI Ltd (2003). Available at SSRN: http://ssrn.com/abstract=921860 6. Reddy, Prashanth K., A comparative study of Non Performing Assets in India in the Global context - similarities and dissimilarities, remedial measures (October 2002). Available at SSRN: http://ssrn.com/abstract=361322 or doi:10.2139/ssrn.361322 7. Report on Currency and Finance 2003-2008. 8. Report on Trend and Progress on Banking in India 2003-2009.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
PERFORMANCE APPRAISAL: A KEY TO HR ASSESSMENT AND DEVELOPMENT *Dr Vivek Chawla, Associate Professor, Department of Commerce, University College, Kurukshetra University, Kurukshetra **Ms Anju Chawla, Associate Professor, D N Girls College, Kurukshetra ABSTRACT Performance Appraisal (PA) has been one of the most researched issues in the fields of Industrial Organizational Psychology and Human Resource Management. A review of literature have depicted that a positive and significant correlation exist between high performance and the firm’s financial performance. This paper explores the performance appraisal practices of selected Indian companies. It provides an insight into the concept of performance appraisal, the methods and approaches of performance appraisal and the appraisal process etc. The study observes that at L& T performance of human resources is appraised at three levels i.e. self appraisal by employee reviewing his past performance, critical attributes appraisal by immediate supervisor. Finally, the superior along with the employee carries out performance and development planning for the future period. At Voltas limited, PA strives to identify competency gaps and aims at employees’ development. At CMC Limited, performance appraisal is known as Performance Department Review (PDR), self appraisal and appraisal by immediate manager is part of appraisal process. It is evident that in the selected companies appraisal is mostly based on self appraisal and appraisal by the immediate superior. The study observes that Performance appraisal is indispensable to be aware of each employee’s abilities, competencies and relative merit and worth for the organization. Finally, PA is a pre requisite for the success of any organization as it aims at identification of competency gaps and taking steps to bridge such gaps through appropriate HR development measures to face the challenges of competitive world. Keywords: performance appraisal practices, critical attributes appraisal, competency gaps. INTRODUCTION Performance appraisal system in India is quite varied. It varies from almost no appraisal system to a sophisticated appraisal system. In small and medium organizations, it is observed that there is no formal and sophisticated performance appraisal system. In these organizations, informal performance appraisal system is used and senior submit the appraisal report to the top management. However, in case of large organizations, there is a formal !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
appraisal system and performance report is used. These reports are generally linked to rewards, promotions, job-rotations, transfers and employees developments. A formal and appropriately structured performance appraisal system helps the employees to visibly recognize their roles and responsibilities and give direction to the individual’s performance. It helps to align the individual performances with the organizational goals and also review their performance. A PA system in organization generally is the assignment and good reason of rewards and penalties. Performance appraisals may be based upon the behaviors, traits and management by objectives. The actual evaluation is broadly classified into four categories i.e. competitive employee appraisal, category employee appraisal, narrative employee appraisal and special employee appraisal. Competitive employee appraisal takes into account the level of performance in relation to the performance by other employee’s. It ranks the employees in the order of the highest performer to the lowest performer. A category employee appraisal evaluates performance based on the rating scale of 1 to 5, or it could involve selecting different categories, such as "always," "sometimes performs," "rarely performs" or "never performs." Something as easy as "satisfactory" or "unsatisfactory" can also be used. Narrative employee appraisal is usually done by the employee's immediate supervisor and written in words. The supervisor gives the appraisal of an employee's performance, strengths and areas needing improvement in paragraph form. In Special employee appraisal the motive is to reach a certain level of improvement. It pinpoints areas of weaknesses, what needs to be improved and how it can be accomplished. It also commends the employee for his strengths. A special appraisal often comprises setting goals on how the employee can meet company objectives. It also determines what behaviors and performance levels are expected from the employee. The most common methods include straight ranking, paired comparison, grading, and free response. The straight ranking method requires the supervisor to rank all employees with the same job responsibilities from best to worst. The paired comparison method of performance appraisals is similar to the straight ranking method. Employees are ranked from best to worst, but through a systematic process of comparing every employee to every other employee, determining who is superior, and developing a ranking system. The grading method evaluates performance based on certain predetermined categories with each category receiving a separate grade. A free response, or essay method, is the most subjective method because it allows managers to write anything on the performance appraisal. The purpose of PA is to update the worker on his progress, gauge his behavior and performance, praise good work, and note opportunities for improvement. !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ ..
LITERATURE REVIEW Arvind Sudarsan (2009) evaluated the “Performance Appraisal Systems” of 33 diverse organizations. Data was collected from a respondent from each organization by means of an open-ended questionnaire. Respondents' views were sought on major concerns, desired changes, and number of forms used in evaluating performance in the organization. The study observed that subjectivity and appraiser bias were most common apprehensions in evaluating performance appraisal system in the organization. Strong needs were felt for identifying measurable parameters for performance evaluation, and providing multiple feedbacks to trim down appraiser bias. Further, objectivity and measurable performance were found to be most desirable areas to help improve performance appraisal system. Florian P. Ederer (2008) conducted a study on “Feedback and Motivation in Dynamic Tournaments” to examine the option of organizations to conduct interim performance evaluations in a dynamic tournament model. The research observed that when workers do not differ in ability or ability does not influence the marginal benefit of effort, the choice between a full feedback and a no feedback policy depends on the shape of the cost of effort function. However, when effort and ability are complementary, feedback policies have two competing effects: they inform workers about their relative position in the tournament (evaluation effect) as well as their relative productivity (motivation effect). In addition, performance appraisals create signal-jamming incentives for workers to exert effort prior to performance evaluation in order to influence the inference process of their competitors in the tournament. The choice of the optimal feedback policy therefore depends on the relative strength of the evaluation, motivation and signal-jamming effects. Samita Gupta & Manisha Agarwal (2007) evaluated “Participation Climate, Managerial Perceptions and Performance Appraisal Leading to the Development of the Human Capital in a Private Sector Organization.” This empirical based study examined the relationship between managerial perceptions of the climate of participation and the perceived effectiveness of performance appraisal system in a private sector organization in North India. It was expected that the patterns of relationship between the variables under study would be positive in the organization. The results focused on the importance of climate of participation for increasing organizational commitment with the help of a better performance appraisal system among managerial personnel in Indian organizations. The empirical findings, therefore, have an implication in development of skills, performance and commitment of the
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
human capital in organizations. The sample for the present case study belonged to a single private sector organization in Northern India. Dirk Sliwka & Christian Grund (2006) conduct a study on “Performance Pay and Risk Aversion”. The study indicates that risk aversion has a highly significant and substantial negative impact on the probability that an employee's pay is performance contingent. Hiromichi Shibata (2004) conducted a study on “Wage and Performance Appraisal Systems in Flux: A Japan-United States Comparison. Industrial Relations” in Unionized Japanese and American firms made changes in their wage and Performance appraisal systems during the 1990s that were inspired by features of each others' traditional employment systems. Although Japanese firms made greater changes in the wage-setting process compared to American firms, outcomes in Japan changed little. Even with these changes, the wage and Performance appraisal systems in the two countries retain distinctive characteristics. In the American firms' "segregation" between white- and blue-collar employees and high- and lowperformers remains a feature of wage and Performance appraisal systems; the Japanese system maintained its characteristic "integrated" form, but underwent moderate modifications. Geddes, Deanna and Konrad (2002) conducted a study on “Demographic Differences and Perceptions of Performance Appraisal”. They examined the differences between employees and their managers regarding perceptions of performance appraisals, in general, and negative feedback. The study attempts a sample of non-supervisory employees (n = 197) from an organization whose members represent over 120 nationalities. They hypothesized from status characteristics theory (Ridgeway, 1991; Ridgeway & Balkwell, 1997; Webster & Hysom, 1998) that employees would react more favorably to performance evaluations from "high status" management groups, including males, Whites, and native English-speakers. Study indicates accurate results regarding males and White managers. NEED OF STUDY The literature review revealed that there is a great degree of awakening in the managerial world about the performance and potential appraisal of human resources. In western and developing countries, performance appraisal systems are recognized as a potential tool for human resource assessment and development. In the coming decades, there is likely to be more experimentation with PAS that contributes to improvement in quality of work life as well as to development of HRs. In the background of these developments, it has been decided to conduct a study of performance appraisal system in selected Indian companies. !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ ./
OBJECTIVES OF STUDY The study is basically exploratory as well as descriptive in nature. It explores the performance appraisal system of three Indian organizations from diverse industries. The companies selected to study the performance appraisal system are L &T, Voltas Limited, and CMC Ltd. PERFORMANCE APPRAISAL SYSTEM OF SELECTED COMPANIES: AN ANALYSIS This section deals with the analysis of performance appraisal system of the selected companies. The study briefly examined the PA system of the companies as follows: 1. LARSEN AND TOUBRO (L&T) LTD: HR Philosophy of L &T: Larsen & Toubro (L&T) is a technology-driven USD 8.5 billion company that infuses engineering with imagination. L&T’s success lies in its people. Its challenging work environment brings out the best in our people. L&T is a team of more than 29000 L&T-ites spread across multiple locations across the globe, having proven track record and professional skills, woven together with a common culture of trust & caring. It offers a professional value system, and extensive opportunities for growth and personal development. L&T offers its people freedom at work, unmatched leadership and opportunity to grow at a rapid pace. It provides them challenging, interesting & motivating assignments which brings a sense of professional fulfillment. The company encourages entrepreneurial skills thus, enabling and empowering employees to take appropriate risks. Employee participation is encouraged by inviting suggestions & opinions. This is coupled with competitive compensation & rewards and training through Core Development & Behavior Development Programmes, to enable them to unleash their full potential. Today L&T is growing at a rapid pace. This growth necessitates greater investment in talent. Analysis of Performance Appraisal System of L &T At L &T, performance appraisal is done at various levels in the organization. It consists of self-appraisal, appraisal by immediate supervisor, and appraisal by superiors. The appraisal processes initiate with each employee reviewing his past performance with respect to the objectives and targets and giving his overall assessment of the results delivered by him. He also carries out a self review with regard to significant contributions made by him and important factors that facilitated or hindered his performance. The immediate supervisor, then, evaluates the achievement of his Subordinate by ranking his performance against objectives. The supervisor also assesses the critical attributes of his !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .0
subordinates with respect to five important criteria-innovativeness, initiative, interpersonal and team relationship, resourcefulness, and communication skills. Supervisor also notes down the areas of strengths and weaknesses and marks the areas of growth in which the employee has potential to make significant contribution. Supervisor assigns grades such as outstanding, very good, good, adequate, and inadequate to employees on the basis of the objectives achieved by the employees. After that, the superior along with the employee carries out performance planning and development planning for the next year. The Superior also analyzes the subordinate's past performance and pass on feedback on his performance. Finally the boss can suggest the areas in which training can be imparted to the employee. At the end of the exercise, the next higher supervisor makes an overall observation and gives his own specific development plans. The entire exercise of performance appraisal i.e. from selfreview of an employee to final review by his superiors takes about three months. The overall performance report is handed over to HRD department, and then it decides various training needs and compiles various reports which are submitted to GMs and corporate management. At L &T, each employee is given opportunity to appraise his own performance. This ensures that the employee's perspective of his performance is also considered. Moreover, the employee feels a sense of accountability and knows that his performance is being judged on the basis of goals set for him in the previous year. The success of performance appraisal system depends on the sincerity shown by the management and the existence of transparent link between performance and reward. The strengths and weaknesses of the performance appraisal system in practice in L&T Ltd is discussed in the following paragraphs. Strengths (a) At L &T, each employee is given opportunity to appraise his own performance. This ensures that the employee's perspective of his performance is also considered. Moreover, the employee feels a sense of accountability and knows that his performance is being judged on the basis of goals set for him in the previous year. (b) In this organization, objectives for employees are set on the basis of discussion between the superior and the employee. So, the organization gives an opportunity to employees in selecting and setting targets for themselves. This process ensures that unrealistic goals are not set for the employee and his superior also becomes responsible for the success of his employees. (c)The performance of employees is evaluated by immediate supervisor with respect to the predetermined critical attributes and areas of strengths and weaknesses are deliberated. The !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .1
supervisor is supposed to objectively assess the personality traits of an individual. Besides this, he is supposed to dearly point out the strengths and weaknesses of the employee so that appropriate training and development programme can be decided for the growth and development of human resources in the organization. (d) The performance assessed by immediate superior is then cross checked by the next superior. Hence, the bias of superior is checked by giving a role to next superior in evaluating the employee's performance. The next superior is supposed to examine very high or very low grades, thereby restricting the superior from indulging in favoritism or penalizing. . Weaknesses (a) The performance appraisal process at L&T is very much time consuming and tedious. As a result of evaluation of large number of employees in the organization, there is possibility that superior may not able to provide a report reflecting the actual performance of employees. Furthermore, a lot of employees experience that this is a mere paper work which does not have much implication. (b) The performance appraisal process not helps in identifying Key Performance Areas (KPAs) for the employees. The performance appraisal process should help identify KPAs and then communicate it to the employees to make the employee more focused and effective to achieve the desired targets. (c)The general feedback of the employees is that performance appraisal process is a formality. Further, one view of employees is that there is no transparent link between the performance and the reward. On the whole, there is no doubt that the performance appraisal system at L&T is scientific and aimed at doing justice to the employees. 2. COMPUTER MAINTENANCE CORP (CMC) LTD HR Philosophy of CMC Ltd: CMC Limited is a leading IT solutions company and a subsidiary of Tata Consultancy Services Limited (TCS Ltd). It is a part of the Tata group, India's best-known business conglomerate. The company believes in the philosophy that its people are central to its objective of creating a world-leading organization that delivers outstanding solutions on all kinds of metrics - be it in developing the latest technology, providing cutting-edge services or attaining process milestones across the globe. The CMC culture emphasizes learning and drives each employee to surpass his or her capabilities to 'build, innovate and excel' in any given field. It sees growth as an unending voyage that challenges fresh frontiers and sets new standards of excellence. Its employees take pride in !"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .2
the fact they are a part of the Tata group and are continuously endeavoring to keep its heritage and traditions alive. CMC's personnel policies are aimed at furthering the development of the employee as a whole, and it do this by providing a stimulating work environment, a variety of challenges, and a host of material rewards. The company believes that better human beings make better staff members. Analysis of Performance Appraisal System of CMC Ltd CMC Ltd has a very logical and absolutely systematic performance management system in the organization. At CMC Ltd, the practice of performance appraisal is identified as Performance Department Review (PDR). The salient features of its performance appraisal system are as follows: (a) At CMC, the first step of performance appraisal is known as self-appraisal. At the inception, a self appraisal report is prepared by appraise himself for the period under consideration. (b) The next step is appraisal of the employee by its immediate superior. The immediate superior evaluates performance of employees during a period is on each area of responsibility. Each area of responsibility (function) has a priority (l = High, 2 = Medium, and 3 = Low) attached to it. Supervisor assigns rating ranging from outstanding to poor for each area of responsibility. The diverse ratings are elaborated as under: (i) Outstanding: Excellent performance far exceeds the high standards and strengths go beyond what is expected (ii) Very Good: Exceeds requirements significantly and consistently (ill) Good: Efficiently and effectively meets requirements, exceeds requirements at times (iv) Fair: Meets only basic requirements, with much scope for improvement (v) Poor: Does not meet basic requirements, performance must improve (c) The superior and the employee talk about the reasons for evaluated grade, and also about the areas of employee’s growth and development. At this stage, the training and development needs are also discussed and identified. (g) The overall rating of employee is assigned on the basis of priority and rating of each function. However, in case of disagreement on rating, reassessment is done jointly by immediate manager and his superior. (h) At CMC Ltd, increment as well promotion is based on rating and the educational background of the employee. Generally, promotion for an engineer is at fourth PDR onwards.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$ .
Strengths (a) The PDR system of the CMC Ltd a totally an open system. (b) Each function has a priority of low to high attached to it. (c) Appraise has excellent say in the appraisal done by the superior. In case of any disagreement, reappraisal is done by immediate manager and his superior. (d) The PDR system’s aim seems to assist the employees in the detection of areas of improvement and identification of training needs. Weaknesses (a) The major weakness in the PDR system of CMC Ltd is that its goals are not quantified; hence there is possibility of disagreement during the appraisal. (b) Further, the increment attached to better performance is very low, as there is not much of difference in increments for ratings 1, 2 or 3; hence there is no financial motivation for better performance. (c) At CMC Ltd, promotion is usually done after fourth PDR; there is not much difference in time period between high performer and low performer. (d) Performance appraisal is only a part of MBO and not the whole aim. But this is not realized in actual practice. 3. VOLTAS LIMITED HR Philosophy of Voltas Ltd: Voltas is one of the world's Human Resources Management philosophies is the conviction that the well-being of the company and of its people are interdependent; and that the company's most valuable assets are its people. The company’s commitment is premier engineering solutions providers and project specialists. The cornerstone of the Voltas is to employ the most competent, on the basis of merit; to ensure that every employee is treated with dignity and respect, and in a fair, consistent and equitable manner; to create a stimulating, enabling and supportive work atmosphere, To aid and encourage employees in realizing their full potential, ensure consistent and fair application of all HR policies; communicate constructive ideas and opinions to managers and team members either pro-actively, or on request; accept and support decisions made contrary to their expressed positions; Apply the highest standards of ethics, integrity and honesty. It recognizes that the success of this philosophy of the company depends in a large measure on the manner in which managers and their team members - at every level - carry out their duties and obligations to each other and to the company. Without mutual confidence and loyalty
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
among employees, as well as respect for each other as human beings, its philosophy will not work. Performance Appraisal System of Voltas Ltd: At Voltas Ltd, The employee’s performance evaluation starts from supervisor and goes up to operations manager. There is no appraisal above operations manager. A person at the post of operations manager normally has a work experience of 10-12 years. The strong point of Voltas form lies in asking a bundle of self provoking questions starting from strategic to subordinate development. The performance appraisal in Voltas is done in the month of June. Promotions in Voltas are highly driven by the experience and while talking to the project engineers, a feeling of discontent could be observed. The employee’s of the organization revealed that Performance appraisal in the organization is more of a formality with majority of the employees who are cynic about its benefits or validity. Many of the employees even wanted to abolish it as they felt it was more of a burden and a useless paper work with no results. CONCLUSION The concept of performance appraisal used by Walter Dill Scott for the very first time during and after World War I to systematic evaluates the performance of military officers. It was applied in corporate sector during 1920’s and 1940’s to evaluate the output of hourly paid workers. Since then a large number of world renowned companies in India such as L&T, CMC Ltd, Voltas Ltd etc have implemented this concept to evaluate the performance of their employees to identify competency gaps and explore the potentiality of employees for facing the competitive world. Performance appraisal system is generally considered as a key to HR assessment and development. The study observed that in case of the selected companies under consideration performance appraisal is based on the self appraisal and appraisal by immediate superior level. The performance appraisal system of all the three companies has some strong as well as pathetic points. It is found that performance evaluation in the organizations is very much associated with identifying the training and development needs, which is in the interest of the organization as well as to benefit the employees. Even though, the concept of performance appraisal is now quite old, still a lot is to be done so as to make it effective and worthy.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$
REFERENCES 1. Ederer, Florian P., Feedback and Motivation in Dynamic Tournaments (April 2004, rev. March 2008). Available at SSRN: http://ssrn.com/abstract=691384 2. Geddes, Deanna and Konrad, Alison M., Demographic Differences and Perceptions of Performance Appraisal Practices. IACM 15th Annual Conference. Available at SSRN: http://ssrn.com/abstract=304970 or doi:10.2139/ssrn.304970 3. Gupta, Smita and Agarwal, Manisha , Participation Climate, Managerial Perceptions and Performance Appraisal Leading to the Development of the Human Capital in a Private Sector Organization. Available at SSRN: http://ssrn.com/abstract=1021151 4. http://www.larsentoubro.com/lntcorporate/common/ui_templates/homepage_news.asp x?res=P_CORP 5. http://www.cmcltd.com/careers/working_with_cmc.htm 6. Pattanayak, B. (2002), Human Resource Management, PHI Pvt Ltd, N.Delhi. 7. Shibata, Hiromichi, Wage and Performance Appraisal Systems in Flux: A JapanUnited States Comparison. Industrial Relations, Vol. 41, pp. 629-652, 2002. Available at SSRN: http://ssrn.com/abstract=333894 8. Sliwka, Dirk and Grund, Christian, Performance Pay and Risk Aversion (March 2006). IZA Discussion Paper No. 2012. Available at SSRN: http://ssrn.com/abstract=890296 9. Sudarshan Arvind (2009), Performance Appraisal Systems-A Survey of Organizational Views, the ICFACI University Journal of Organisational Behaviour, Vol.8, No.1.
!"# "$ "#$ "# # %! & '( %#$ "# !$$)*++,,, - % %
"
$